Hard Look / The Captains of Commerce Love Shaul Mofaz

Transportation Minister Shaul Mofaz is running for prime minister these days, as the internal struggle within the Kadima party heats up. Mofaz has armed himself with an asset of great importance to him in the race - his experience as chief of staff. But it's not likely that he will be emphasizing his experience as transportation minister, nor the enormous benefits that the captains of commerce have reaped from his tenure as minister. At the expense of the entire country, of course.

That's the sense one gets from the application filed by El Al this week, demanding that the government meet its promise to increase the proportion of airline security costs - principally those of El Al - from 50% to 80% (from NIS 200 million to NIS 335 million), to be borne by the state. This is the cost to be paid to three privately owned airlines in Israel - El Al, owned by Dedi Borovich, Israir, owned by Nochi Dankner and Avi Fischer, and Arkia, owned by the Nakash brothers.

And why exactly is the state called on to pay an additional NIS 135 million to cover the security expenses of three private firms? Basically, because this what El Al demanded in exchange for agreeing to opening the airline market to competition.

El Al has been sole carrier for years. It was the only Israeli carrier allowed to fly to most destinations worldwide on a regular basis, and only a single foreign carrier was operated from that destination to Israel. This arrangement has been very convenient for all concerned, but over the years the disadvantages have become glaring.

The situation has become unpopular enough to inspire pressure on the Transportation Ministry to revoke El Al's exclusivity. The only problem is that El Al has for years held an assured position as the appointed sole carrier on most routes from Israel, and its shares were offered for sale on this basis - and eventually bought by the Borovich family in 2003.

As a result, the creation of conditions for competition comes at a cost. Like the cost of airline security for instance, mainly that of El Al, to the tune of an additional NIS 135 million annually.

But there are two problems with the price that the Transportation Ministry, headed by Mofaz, hurried to pay to the captains of commerce who own the Israeli airlines. Firstly, since the decision was made, Israel's skies have not actually opened to competition. The ministry has added just seven destinations since then, and the actual competition involved is trivial - the number of carriers flying to and from these destinations has increased from two to four: two Israeli airlines and two foreign. It's hard to describe this as 'free competition,' where anyone who wishes to fly to Israel might do so.

The second problem is more fundamental. Under El Al's privatization contract, the airline was promised continued exclusivity as the sole appointed carrier, subject to various conditions, one of which was that once incoming traffic reaches 10.7 million passengers, the Transportation Ministry may chose to cancel El Al's exclusivity with no recompense.

Lo and behold, Israel saw 8.8 million incoming passengers in 2006. By 2007 that number had increased to 10.1 million, and in the course of the first five months of 2008, traffic has increased by another 15% compared with the same period last year. That means that by the end of 2008, the number of incoming passengers will reach 11.6 million - exceeding the threshold set in the agreement with El Al by 900,000 passengers.

Yes, the threshold of 10.7 million passengers, which should have enabled the government to cancel El Al's exclusivity as sole carrier without becoming liable for compensation, is about to be surpassed, six months after the government chose to approve the decision - at the request of Mofaz - and instead pay privately owned airlines NIS 135 million annually, at the expense of tax payers.

With such kid-glove handling, it's fair to assume that airline owners are enthusiastic supporters of Mofaz, but it is doubtful whether the Israeli voter has reason for any similar enthusiasm.

"The committee for open skies decided that one of the major hurdles to fair and equitable competition in the Israeli aviation industry lies in the cost of security, which is a millstone around the neck of Israeli companies," said Transportation Ministry Director General Gideon Siterman. "If we want the security to oversee airline security, the state must pay for the cost."

Security guards on US airlines are employees of Homeland Security, so the US government bears their cost, he said, adding that the committee had recommended that the state bear 100% of the security costs, and had compromised on 80%.