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Last Updated: Tuesday, 10 June, 2003, 16:33 GMT 17:33 UK
El Al in stock market debut
El Al plane

Israel's national airline El Al has begun selling its shares on the Tel Aviv stock exchange, although the listing remains a controversial move.

The long awaited privatisation is expected to value the airline at about $113m, although the precise amount will depend on which of five possible share packages buyers choose.

Analysts say buyers are being quoted a low price for shares in a debt-laden company that may fare better out of government control, and flying seven days a week.

But it is still not clear how much of the company the Israeli government will hang on to, prompting some critics to suggest it will be forced to continue bailing out the airline.

Arkia Israel Airlines, the country's number two carrier, said on Tuesday afternoon it had bought a 5% stake for $5m but was not sure if it would be buying more shares.

Disincentive

The El Al privatisation is the first since Benjamin Netanyahu became finance minister in March and promised to sell all state holdings.

The main problem is that the government will retain control until the end of the year - that is a big disincentive
Israel Borovitch, Arkia Israel Airlines

Arkia's president and chief executive Israel Borovitch said he believed joining forces with El Al would benefit both sides.

"We invest in companies so that we can bring something to them.

"The co-operation between us can make one plus one come to more than two."

But Mr Borovitch added that the main drawback was the government's continued involvement in El Al.

"The main problem is that the government will retain control until the end of the year. That is a big disincentive since you invest in companies in order to control them."

A bargain?

The slump in world air travel has piled further pressure on the airline, already struggling with a drop in passenger numbers because of the middle east conflict.

El Al owes its banks about $900m, and ran up losses of $23.7m in 2002.

Optimistic analysts argue that the recent rise in Israel's stock market and the resumption of peace talks with Palestinians make for a brighter future.

"Buying El Al now, you are buying at the lowest point possible," said Eyal Gabbai, head of the Government Companies Authority, the state privatisation agency.

"For business investors, it's the wrong time to sell, but we are selling now because it will boost the local market and we will earn back revenue through taxes and jobs."

Letting go

One of the key reasons for privatising the airline is that doing so will allow it to fly on the Saturday, the Jewish Sabbath, boosting revenues.

We didn't support the company for the last 20 years in any way and we do not intend to do that in any way in the future
Eyal Gabbai, Government Companies Authority

Religious groups had previously opposed flying during the 25 hour period between sundown on Friday and sundown on Saturday.

However, more wary commentators fear the unusual privatisation structure means Israel's government will be obliged to continue supporting El Al financially.

The different packages on offer will leave the government and employees with a 50% stake.

Extra help?

According to the local Ha'aretz newspaper, the government has already forgone a $274m loan to El Al for new aircraft, in an effort to get the privatisation under way.

Another Ha'aretz report has suggested that if the airline collapses, the state would buy the aircraft back from El Al's creditors and set up a new company to operate on the same routes.

"In other words, a situation could arise in which the state will pay twice for its shares in El Al's planes," said the report.

Critics have also pointed out that the government will make no money from the privatisation, with all funds raised earmarked for compensation payments to the company's employees.

But Mr Gabbai defended the government's involvement.

"We didn't support the company for the last 20 years in any way and we do not intend to do that in any way in the future," he told the BBC's World Service.

"We think El Al survived a very bad market in the last two years. If it can survive this market it can do much better in the future."

But Mr Gabbai admitted taking on the company's debt would be "a challenge" for whoever buys the airline.


WATCH AND LISTEN
Eyal Gabbai, Government Companies Authority
"This should have happened 10 years ago"



SEE ALSO:
El Al float gets go ahead
01 Jun 03  |  Business


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