EL AL – a shares purchase will not be enough

The injection of cash into the accounts of Israeli airline EL AL is an important step, but it will have to be followed by others to have a long term effect.

The Israeli FIMI fund is in advanced negotiations to join the controlling core of EL AL, together with the Borovich family, and inject up to $60 million into the airline.

The deal will be implemented in several stages. FIMI will initially inject $5 million into El Al in exchange for 5.7% of the company. The fund will also buy $5 million worth of shares from El Al’s current controlling shareholder, Knafaim Holdings.

In the second and main stage of the deal, FIMI will inject $30 million into El Al by August, against an additional allotment of shares

After the completion of the first two stages of the deal FIMI will have a 30% stake, while Knafaim will be reduced to a minority stake of 24%.

El Al, managed by Eliezer Shkedi, former commander of the Israeli air force, is going through a challenging period. Its share price has dropped by 72% in the past two years.

However, this new cash injection will still not be enough if EL AL does not realise it has to make some profound changes.

For example, EL AL sees the upcoming Common Aviation Area agreement between Israel and Europe in apocalyptic terms. 

In recent years the Israeli airline has become a “series complainer”. First it was the fact that it was not accepted to any of the aviation alliances, and now it is the agreement with Europe. The airline succeeded in delaying the signing of the agreement indefinitely

Instead  of trying to change the bad situation of flying only five and a half days a week, EL AL chose to try and survive in this harsh environment, with no tools to do so. 

The money injection will help, but it will be like a painkiller for a chronic migraine.

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