Israel 'okays El Al sale'

The initial plan is to float 49% of El Al on the Tel Aviv Stock Exchange at the beginning of next year.

El Al in 2000
Revenue: $1.3bn
3,500 staff
31 aircraft
3 million passengers carried

The fate of the other 51% is still undecided, the Israeli Transport Ministry said, but the government has not yet ruled out a sale to a strategic investor.

Before such a deal can go ahead, however, the government must decide what to do about El Al's two main handicaps - its ban on flights on the Sabbath, and its exceptionally heavy security costs.

Israel needs to accelerate privatisation because it faces a mounting budget deficit which has battered the currency and undermined investor confidence.

Money worries

El Al has lost money in recent years, but is starting to clean up its financial position.

Last year, the airline lost $85m, down from the previous year's $109m thanks to a cost-cutting programme.

More critical is the carrier's drooping revenue, which has been hit by the overall decline in traffic since the latest escalation in Middle East tension.

Paradoxically, El Al reported a rise in passenger numbers at the end of last year, as nervous fliers learned to appreciate its exceptionally heavy security.

At times of lower tension, however, El Al's rigorous safety procedures could act as a deterrent to some passengers and investors.

Political problems

The government now needs to win over political opposition to the sale, which could be fierce.

Privatisation has rarely been easy in Israel, which has a strong tradition of communal ownership.

Dominant telecoms firm Bezeq, for example, has only recently been given the go-ahead for full privatisation.

El Al employees have already threatened to oppose the privatisation, and the government may have to retain some form of control over the firm to placate trade unions.

The government is due to outline its 2003 budget plans this month, and is relying on external sources of funding to help meet its growing obligations.