El Al Cancelled Its Option to Buy 7-10 New Boeing 787 Jets

Dramatic move based on change in statsu from government company to public one, say sources

In a dramatic move, Knafaim (TASE: KNFM) has terminated its option to buy betweens seven to ten new Boeing 787s for subsidiary El Al (TASE: ELAL)  for about a billion dollars, TheMarker has learned.

The practical significance of the move is that El Al will get back seven tens of millions of dollars that it paid over the years on account for the future order. Nor can brothers Dedi and Izzy Boroviches, who own the controlling interests in Knafaim and El Al, change their mind: Boeing has already transferred the option to other airlines waiting their turn.

The privatized Israeli carrier was supposed to take possession of the jets between 2008 and 2010.

El Al had intended for the 787s to replace some of its long-distance fleet, but the next payment installment was scheduled for October 31 of this year. But in a far-reaching move, the Boroviches elected to cancel the option entirely.

One result is that without renewing its fleet, El Al's development will be hampered. Moreover, if it decides it wants the planes after all, it will have to wait until 2014 or 2015.

A source at El Al told TheMarker that the decision is not linked to examining the possibility of buying Airbus planes instead, but to the company's change in status from being a government company to a publicly traded one.

The El Al workers have not internalized how the change in the company's status affects their own, the sources said, also blaming the government for its conduct regarding opening the skies to competition, especially given the uncertainties in the sector.

El Al said it does not comment on the shareholders' plans.