Izzy Won't Remain El Al Chairman, Vows Brother

The personal battle between the Borovich brothers is hurting El Al's reputation, and could adversely affect its operations.

"He's my brother, and I won't hurt him," David (Dedi) Borovich told colleagues just a short time after his unsuccessful bid to acquire his brother's controlling stake in the Knafaim Group, which controls the national airline, El Al. But TheMarker has learned that Dedi Borovich also told his colleagues that his brother Izzy would not continue to serve as the chairman of El Al.

Izzy Borovich owns a 16.8% share in Knafaim. His brother wanted to exercise his option to buy his stake by August 13, 2008, based on a company value of $145 million, leaving Dedi with a 35% holding in the firm. But the value of the company has plummeted to about NIS 95 million, and the deal was not completed. This week, Izzy sought to seize the $500,0000 bank guarantee his brother had given him in April, with the options agreement signed.

About a week has gone by since the transaction failed, and beneath the surface emotions, disquiet and rumors are seething. It is unclear how David Borovich intends to carry out his declaration, but one possibility is to depose his brother from his position as El Al chairman. David Borovich, with the help of his wife Tami Borovich-Mozes, wields a great deal of influence in El Al.

Following the confrontation between the brothers early this week, Tami Borovich-Mozes and her husband increased their shareholding in Knafaim. Borovich-Mozes bought 46,600 shares at market price - NIS 25 per share- for a total of NIS 1.2 million, increasing her stake to 7.4%. Dedi Borovich invested another NIS 716,000 for 28,650 shares, and now owns a 15.8% share in Knafaim.

Sources in the industry see the balance of power in Knafaim leaning in favor of Dedi Borovich and his wife Tami. "This is a couple that is certainly capable of instigating an ouster," sources say. According to estimates, the two will find it easy to enlist the support of attorney Yigal Arnon, whose wife and daughter own a combined 8.4% share in Knafaim. Nevertheless, executives in the industry say that such a move would have dire repercussions for El Al. "Ousting the acting chairman and shareholder would be an unprecedented step. Moreover," sources say, "ousting Izzy could drag El Al share prices down to the floor."

Izzy Borovich, sources say, is considered a professional in the market, and Dedi is seen as a financier, who buys and sells planes.

In spite of the difficulty of implementing such a move, rumors of possible replacements for Izzy Borovich abound. Amikam Cohen, former CEO of the cellular provider, Partner is the "hottest" of these rumors, but it's all conjecture at this point.

Other names have been mentioned as possible candidates to replace El Al's CEO Haim Romano. One of these is David Kaminitz, the outgoing CEO of HOT cable company. El Al denies that he is being considered. Romano wedged himself into a family dispute between the Borovich brothers when he took a stand in favor of one of the shareholders. When the options agreement failed, he made no bones about his intention to resign. By voicing his intentions, he made it clear he would find it difficult to continue on as the airline's CEO with Izzy Borovich as its chairman.

The possibility that Izzy Borovich will sell his shares to a third party has also been raised. But sources close to Dedi Borovich reject the possibility that such a move would be carried out without the cooperation of his brothers. Half of the shares that he owns were given to him as a gift from his brother, who also brought him into the aviation business.

One name raised as a possible buyer for Izzy Borovich's shares is the British billionaire, Poju Zabludowicz. But sources in the know have repeated in recent days that so long as the personal conflict between the Borovich brothers remains unresolved, Zabludowicz will not be making any practical moves to buy the shares.

The personal battle between the Borovich brothers is hurting El Al's reputation, and could adversely affect its operations. The chairman of El Al's pilots union, captain Itay Regev, says El Al is entering into a difficult period of managerial uncertainty. "The situation is worrisome, and we, the company's employees, have no collective labor agreement. The last thing we would want to see, as representatives of labor, is a managerial upset in the company."

Sources close to Izzy Borovich said he would not comment on any detail concerning his brother or the share sale deal.