El Al Cost-cutting Plan Creating Tension at the Top

El Al CEO Haim Romano and the company's controlling shareholders, Israel and David Borovich, are at odds over the company's cost-cutting program, TheMarker has learned.

Company sources said that due to El Al's dire financial state at the end of the first half of the year and pessimistic forecasts prompted by the high cost of fuel, the owners demanded a drastic cut in all spending. The CEO, however, prefers not to cause an upheaval in the company and harm the delicate relationship between management and its employees.

As reported in yesterday's TheMarker, El Al is developing a recovery plan aimed at cutting costs in various areas such as rent and overflight fees, and as such, Romano demanded that managers reevaluate their departments' expenses. There is no intention at this time to cut salaries or lay off employees, but unprofitable routes may be canceled or cut back. The economy drive will not affect passenger services, the sources said.

"There is no tension," Romano said. "The owners and I see things in the same light. Nobody wants to harm the employees. There are discussions. As far as I understand, a large plane like ours cannot be navigated with very sharp turns. You can't turn every opinion into a conflict."

A senior company source said: "El Al is not working any worse, operationally. There's a rise in passenger traffic, but external factors, such as the price of fuel are deadly. Additionally, the price of the dollar has fallen. We are working to become more efficient. El Al needs to examine its expenditures every day and to be flexible."

El Al lost $12 million in the first quarter of the year, and second-quarter results are expected to be even worse. The rise in the price of fuel added $18 million to its expenses in the first quarter.