Air Transport World

Chutzpah Airline: privatized and profitable, El Al broadens its market niche as a takeover by Arkia looms.(Profile)(Cover Story)

Managerial grit that sometimes borders on cockiness seems to keep El Al Israel Airlines aloft against all commercial odds as perhaps the ultimate ethnic niche carrier. Maybe it's a mindset composed of equal portions of self-reliance and chutzpah (a Yiddish expression loosely translated as utter nerve or supreme self-confidence) that somehow translates into viability for the small airline with the outsized reputation. It flies point-to-point to 40 cities worldwide from tiny Israel with just 32 aircraft--of which it owns 29--and to additional cities via codeshare partners American Airlines, Delta Air Lines, Swiss, Iberia, Thai and others.

Long hostage to the contentious internal politics of the Jewish State and strident unionism, El Al was set free at last in June 2003 when the government began a phased withdrawal from the carrier. Ironically, this independence looks to be short-lived. Whether by intention or miscalculation, the privatization process left the company exposed to a takeover as early as this month by Knafaim-Arkia Holdings Ltd., the cash-flush parent of much-smaller Arkia Israeli Airlines controlled by brothers Dedi and Israel (Izzy) Borovich and Koor Industries, although Koor reportedly is in negotiations to sell its 28% stake.

The airline that Dedi and Izzy are determined to control has undergone nothing less than a transformation under President and CEO Amos Shapira--whose fate will be uncertain after a takeover. "There were those who thought El Al would not survive the winter," outgoing Chairman Michael Levy reminded last March (he since has been succeeded by Yair Shamir).

Instead, after heavy losses in the first half of 2003, the carrier changed course and ended the year with a profit of $6.35 million, reversing a loss of $6.4 million in the prior year. Excluding the impact of currency fluctuations, net earnings climbed to $24.2 million compared with a $22 million loss in 2002. Full-year 2003 revenues increased 6% to $1.17 billion.

The momentum continued into 2004, with half-year earnings of $11.4 million representing a $75 million profit swing from last year, when it lost $64 million in the January-June period. In fact, since privatization began El Al has put together four consecutive quarters of profitability, a first for the 56-year-old carrier. That this has occurred in the face of seemingly endless Middle East violence and Palestinian suicide bombings--nor to mention the aftermath of 9/11 and SARS--is all the more remarkable. …

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