Merger with Israir would help El Al in low-cost market but faces militant union objections
El Al Airlines, Israel’s flag carrier, has begun preliminary talks about merging with its small rival Israir to help it compete with the low-cost airlines flourishing on the Israel-Europe routes.
An initial proposal discussed by El Al and IDB Development Corporation, Israir’s parent company, puts Israir value at between $30 million and $40 million, as much as 60% more than its shareholders’ equity. The merger would not involve any cash changing hands, but rather El Al allocating stock to IDB or alternatively Israir issuing stock to El Al, the daily Haaretz reported.
Israir operates three airbus 320 jets to Western European destinations and two ATR 72s to Eilat, the southern Israeli resort town that El Al no longer services.
El Al launched its own low-cost division called UP a year ago but it has apparently not met expectations.
Analysts attribute this to high crew labor costs and high maintenance costs. A merger with Israir would give El Al access to staff with lower salaries, especially pilots, and enable UP to operate profitably, Haaretz reported.
The main obstacle to the merger plans could be the militant union representing El Al pilots, which won’t look kindly on any attempt to undercut salaries or other expenses to compete with the low-cost carrier.
Meanwhile, an Israir plan was impounded in Lisbon on Monday over an alleged debt of millions of euros to EuroAtlantic Airways, a Portuguese carrier.
Dozens of Israeli passengers of the airline were stranded in Lisbon after their return flight to Tel Aviv was canceled, according to a report on Ynet.