Rhetoric Soars as Open Skies Deal Heads Toward Approval

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This Sunday is expected to be one of the most dramatic in the history of Israeli aviation. The cabinet will meet then to approve the Open Skies agreement that was concluded by Israel and the European Union in July 2012. The agreement is expected to open up the skies between Israel and the EU to competition by gradually increasing the number of flights and flight destinations over a five-year period.

Transportation Minister Yisrael Katz, one of the architects of the agreement, spoke on Thursday at the Fisher Institute for Air and Space Strategic Studies in Herzliya, saying ratification of the agreement was inevitable.

"With all the protections created for El Al and the Israeli airlines in the Open Skies agreement, it's important to remember that this is good for Israeli citizens. [It will lead to] more flight destinations and lower costs, more incoming tourism and the growth of aviation operations in Israel."

The head of the Israel Hotel Association, Shmuel Zuriel, and the head of the Israel Incoming Tour Operators Association, Ami Etgar, jointly published an announcement welcoming the agreement.

"There is a conflict of interest between the market and El Al and the Israeli airlines," said the announcement. "They [the government] tried to meet their [the Israeli airlines'] demands and did whatever was possible to help them, but incoming tourism cannot be held captive to the interests of the Israeli airlines. They must find ways to become more efficient."

To prevent the implementation of the Open Skies agreement, the Israeli airlines Arkia and Israir threated to declare a strike beginning on Sunday if the government ratifies the agreement. The Histadrut labor federation has already declared a labor dispute over the issue, so the airlines' employees can legally go on strike next week. On Friday morning, El Al, Arkia and Israir employees picketed the homes of Finance Minister Yair Lapid and Transportation Minister Katz to pressure them to keep open discussions on ratifying the agreement.

El Al chief executive Elyezer Shkedy spoke out against the agreement Thursday in a last minute attempt to prevent its approval.

"I think that the aviation agreement with the European Union in its current form is the equivalent of sending Israeli aviation into battle with its hands tied," said Shkedy. "To say it doesn't enable fair competition would be an understatement. In my assessment, the work done by all the parties involved on the issue was superficial and unprofessional. An economic study wasn't done or presented, despite our request and in complete contravention of the request of the Knesset Economic Affairs Committee. I hope that the Government of Israel doesn't lead the entire industry into chaos and an irresponsible process."

El Al's share price fell 5 percent on Thursday. Investors are worried that greater competition in the airline industry will erode the revenues of the company, which is already under strain.

Over the last five years, El Al's stock has lost 71 percent of its value. Part of the drop can be attributed to the global slowdown in the airline industry, but the company's low profitability is also widely blamed.

Shkedy rejected any assertion that El Al is opposed to increased competition in the Israeli airline industry, saying the real issue is fairness.

"We aren't against competition, but there is a lack of fairness here," he said. "For starters, let's talk about slots, that is, the landing rights [at airports]. Let's assume that today we fly from Heathrow Airport [in London] to Tel Aviv like British Airways. When the skies are opened, British [Airways] will request and will be able to increase the frequency of flights to Israel. Logic would dictate that I too would be able to increase the frequency of my landings at Heathrow. This is fair competition, but it doesn't appear in the agreement."

Shkedy also said European airlines collude in legal price-fixing arrangements.

"Another thing is the European companies operate as a group," he said. "They are allowed, by European law, to set prices between them. In contrast, I am restricted from this perspective: This is forbidden by Israeli law. It's impossible to throw us into the ring to compete with companies that operate under a completely different set of laws. They are allowed to play rugby, while I have to dance ballet."

National security issues, Shkedy said, are another issue.

"There are countries that I cannot fly to for security reasons, like Turkey, but these countries' companies can fly here. Is this fair competition?" he said. "And remember something else: At the moment of truth, when there is a problematic security situation here, everyone will disappear and only we [Israeli airlines] will remain."

Shkedy pledged that El Al's management and employees would fight the implementation of the new agreement tooth and nail.

"I will use all legal means to deal with this issue," he said. "I think that what is being done here is irresponsible."

Israel's other two airlines, Israir and Arkia echoed El Al's complaints about the unfairness of the Open Skies agreement.

"We will act to minimize the damage that will be done to our customers as a result of the strike," said Israir chief executive Uri Sirkis. "Israir announced in the past that it was preparing for the scenario of the skies opening to competition by changing its business model, implementing efficiency measures and sharply cutting expenses. We requested that before signing the agreement that the different government bodies in Israel act together in a manner that would enable Israeli airlines to compete fairly."

Arkia said in a statement, "Arkia has stated and still states that it isn't opposed to opening the skies. But before implementing this step the government must act to correct distortions that prevent fair competition between Israeli and European airlines."

But Transportation Minister Yisrael Katz rejected the airlines' concerns.

"All these things were raised in recent years. Long negotiations were conducted. The companies sat down as observers and the problems were addressed to the maximum extent possible," he said. "El Al is a monopoly that needs to enter into competition. The strike threats only hurt the airlines. It's not a product that has no substitute. I hope the government does the right thing and sees this as a great service to the country's citizens."

The Tourism Ministry also expressed its support for the Transportation Ministry's work.

"This is a crucial step that will advance tourism to Israel and will also lead to a drop in flight prices for Israelis," it said in a statement. "Israel's joining the European club opens up new opportunities for additional players in the aviation industry."

Tourism Minister Uzi Landau said, "This is a positive step, which constitutes a condition for growth of the entire tourism industry and preserving the workplaces of more than 200,000 employees."

El Al planes at Ben-Gurion International Airport.Credit: Tomer Appelbaum

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