Knesset Committee Approves Plan to Float El Al on Bourse

Prospectus still needs regulatory approval before May 21

The Knesset Finance Committee yesterday approved the government's plan to float El Al, Israel's national airline, on the Tel Aviv Stock Exchange.

The privatization plan was passed by a 9-to-7 margin in a second round of voting. The tally at the end of the first round was 8 MKs in favor and 8 against. The margin of victory for the plan was attained by switching one of the naysayers, MK Haim Katz, with Likud colleague Michael Golovsky, who was ready to vote along party lines.

The panel had earlier rejected a proposal by MK Avraham Shochat (Labor) to hold two separate votes. According to his proposal, the committee would have voted yesterday only to approve the privatization plan in principle, while addressing its specifics (including compensation, bank debts and workers' rights) during a meeting on Thursday. Six opposition MKs supported Shochat's proposal and Haim Oron (Meretz) abstained. Nine coalition votes were enough to bury this initiative.

Absent from the vote was Knesset member Nissan Slomiansky of the National Religious Party, who did not want to vote for the privatization because of the possibility that a privatized El Al might fly on the Sabbath and Jewish holidays.

The prospectus for the sale of El Al is scheduled to be issued by the bourse on May 21 and the company will be on the selling block at the end of the month. During the initial stage, the government does not intend to sell its entire (100 percent) stake in the airlines. The details of the share offer have yet to be finalized, but some of the stock will apparently be issued as options. That is, investors will receive a certain amount of stock and a high amount of options.

The options will be convertible to El Al shares over a four-year period. This will enable the state to retain control of the company during the initial privatization period.

Several obstacles remain, including opposition from the banks. El Al owes a substantial amount of debt to the banks, which figure that this debt will become harder to collect after the airline moves to private hands.

Another hurdle is winning approval of the prospectus by the Israel Securities Authority. The ISA is demanding changes in the way assets are registered and due diligence on some details. Talks are continuing on this issue between the ISA, Government Companies Authority and El Al management.

If the prospectus is approved, an institutional tender will be issued on May 21, with a public issue to follow on May 26. If the approval is delayed or other remaining problems are not resolved in time, the entire plan to float El Al on the bourse may be thrown into doubt. One of the reasons for this is that a postponement would require that significant changes be made to the prospectus, including the addition of the company's first-quarter results.

At the beginning of the three-hour Finance Committee session yesterday, Transportation Minister Avigdor Lieberman emphasized the importance of privatizing El Al, while also making note of the airline workers' demands.

"We pursued a fair and just proposal that is economically correct and will provide a response to the demands of the workers. We've conducted negotiations with the workers in recent days and the state will provide a $108 million guarantee for the workers' pension rights."

Lieberman continued, "We've negotiated in recent days to maintain the flight routes belonging to El Al, despite enormous pressure to transfer some of these routes to other companies."

In regard to Bank Hapoalim's demand to repay the company's debts before executing the privatization, the transportation minister said, "These are attempts to frighten the company, as if to say that the government stands behind it as long as it is a government company, but will withdraw its support now that it is becoming a private company."