El Al Waives Exclusivity on Foreign Lines

In exchange for the government agreeing to increase its share of financing the company's security costs, El Al Israel Airlines has agreed to forgo its exclusivity on lines from Tel Aviv to overseas destinations.

In exchange for the government agreeing to increase its share of financing the company's security costs, El Al Israel Airlines has agreed to forgo its exclusivity on lines from Tel Aviv to overseas destinations. The airline's acquiescence remains subject to formal approval by the relevant company bodies.

The government yesterday approved a proposal by Transportation Minister Shaul Mofaz to increase its coverage of Israeli airline companies' security costs from 50% to 80%.

The changes will enable the two Israeli airlines that compete with El Al, Arkia and Israir, to start supplying regular flights to destinations that had been El Al's exclusive province, which will improve their competitive status vis-a-vis foreign carriers.

El Al's security costs run at about $90 million a year. The security outlay by Arkia and Israir also come to tens of millions of dollars a year. At the least, the government faces extra costs of $27 million a year on El Al.

The government resolution passed despite initial opposition by the Finance Ministry. The treasury urged capping the government's involvement in security costs at 60%. Also, the treasury insisted on providing that financing only later on, once the "open skies" policy - creating genuine competition in and to the local aviation companies - was in place. However, that opposition was overcome.

Yesterday Gideon Siterman, director-general of the Tourism Ministry, said that the resolution was "critical" to progress in negotiations with the European Union over a new aviation agreement that would allow unfettered competition between Israeli and European airlines over routes to and from Tel Aviv. Siterman is also head of the Israeli delegation negotiating with the European Commission. The next talks are scheduled to take place on February 5 in Jerusalem.

During 2007, Israel signed a series of new aviation agreements with Britain, Belgium, France, Slovakia and Russia, allowing airlines from each of the countries to operate regular lines to Israel. However, while the foreign airlines were free to take advantage of the new agreements, the local ones were shackled by the government's agreement with El Al, which was signed on the eve of the company's privatization.

When the government sold El Al, its new owners - the Borovich family - demanded that the deal secure exclusive rights on certain regular routes. Now El Al, still under the Borovichs' leadership, is waiving that right in exchange for the government covering a hefty chunk of its security costs. Once the agreements are instituted, Arkia and Israir can receive the same rights as the foreign carriers.

Avi Nakash, one of Arkia's controlling shareholders, said he welcomed the government's move and added that Arkia will seek to add regular lines to various destinations in Europe, the U.S. and the Far East.

"There is no question that opening new routes to competition, together with the reduction in security costs, will lower ticket prices and tourism packages, and improve the quality of service to the passenger," Nakash said, adding that Arkia is already negotiating to expand its fleet of planes.

Israir chairman Guy Rosen also applauded the reform and said that Israir is preparing to inaugurate new lines.

El Al, for its part, said that it welcomes the government's resolution. "El Al has always supported fair competition, as long as the special conditions of Israeli aviation are considered," the airline stated.

"El Al believes that the government's decision will allow the Israeli carriers to cope with the expanding supply of seats and intensifying competition with the foreign carriers.

"In practice El Al has been contending in a competitive market since the day of its privatization, especially during the last two years, during which the government has been implementing its open skies policy, so that from April 2006 the supply of seats on foreign carriers rose by 45%."

El Al added that it expects a hand from government for the Israeli carriers in adding new destinations and obtaining landing permits there, and to support them when working with foreign authorities.