47% stake in El Al sold as Indonesia once again sits in the safety spotlight

First Israel Mezzanine Investors Fund (FIMI) and El Al Israel Airlines signed an agreement on Saturday, which will see FIMI invest up to $75m in return for a 47% stake in the Israeli flag carrier. FIMI will form a control group with Knafaim Holdings Ltd. FIMI will initially invest $50 million in El Al for a 38% stake. FIMI will also receive two options, each totaling $12.5m which will give it a 47% stake in the airline when exercised. He deal is due to close in July.
The deal is subject to approval by El Al’s shareholders and obtaining regulatory permits. However it is also subject to El Al employees signing new contracts on terms that “FIMI deems satisfactory”. This will involve a fight and we will see how in touch with staff the management are over the next few weeks. If all this comes off though El Al will be on the way to having a low-cost base from which it can build. El Al is on catch-up and with FIMI at the helm they might just be dragged into the 21st century. Expansion though will depend on security levels at gates lowering – that of course depends on matters outside of El Al control.
FIMI CEO Ishai Davidi stated: “Signing on the investment in El Al is a very important step on a long road to closing the deal. Closing the deal is a complicated task, which requires cooperation by all the parties at the airline and in the business environment – managers, employees, and financial institutions. Regardless of the acquisition of control by FIMI, the airline and its employees are in talks on a new collective agreement, which must allow the company to deal with the very competitive market in which it operates. The challenges facing the airline require many changes. Without change, it will be very hard for the airline to deal with the difficult environment it faces.”
The Lion Air 737-800 accident of this past weekend has once again shone the spotlight on Indonesia’s safety record. Moreover, the blackbox may yet fuel speculation that Lion Air, for one, needs to pull-in more experienced cockpit crews, which will of course damage the low-cost structure and bring into question the large amount of aircraft on order. That is before we mention the mixed fleets on order with Lion Air and the additional training required for the same. Let us wait and see what the reason for the crash is before we go to town on Lion Air’s plans, but problems there are. At this time the only serious losers are insurers and Lion Air.