State: If El Al Fails, New Airline Will Be Created

The state is not selling national airline El Al with a safety net, and will not rescue the company and its shareholders if it collapses, Government Companies Authority Director Eyal Gabbai said Sunday.

The state's interest in air routes in and out of Israel in the event that El Al collapses will be preserved by acquisition of the fleet of aircraft from creditor banks and their operation under a new airline, Gabbai said.

The tender for El Al's initial public offering on the Tel Aviv Stock Exchange will be held Tuesday. Gabbai said Sunday he expects the issue to succeed, adding that he expects strategic investors, and not just financial investors, to buy the shares and compete for the controlling stake.

Of the five alternative packages being offered to the public, each containing a different blend of shares and options, Gabbai expects one of the more expensive packages to be chosen. These alternatives reflect a higher-than-minimum market value and include a greater share component.

A group of investors led by domestic airline Arkia will decide today whether to buy El Al shares, Arkia CEO Israel Borovich said Sunday.

Borovich refused to detail the composition of the investor group, but said legal groundwork is being done to examine various angles of the deal. "There is a theoretical problem with the management of the company the day after the IPO. Do you become a partner sentenced to silence until December 2004? I want to be involved where I invest," he stated.

Also Sunday, El Al chair Michael Levy and CEO Amos Shapiro announced they plan to exercise their right to buy shares at the beneficial terms offered company employees. Levy is entitled to buy 16,950 shares and Shapiro is entitled to buy 15,272.

A senior government source said yesterday that a battle for control is already going on between potential El Al buyers. The source stated that the sides are disseminating disinformation, creating a rumor mill, and using mutual intimidation tactics. He explained that each group is spreading groundless stories that the state plans to use its remaining shares to assist one group or another. The source said the state has reached no agreement with any group to support or oppose the appointment of new directors after the IPO. Apparently the battle is slated to prevent participation in the issue and to reduce the price. "Everything we have to say is printed black on white in the prospectus," the source said.