Israel's national air carrier EL AL might have been refused government bailout loans to the tune of $400 million, but the Treasury has made an interesting proposal to nationalize the airline.
The Finance Ministry is proposing that the airline sell shares worth $150 million, and the government will commit to buying any shares that are not purchased by the public, potentially becoming a controlling shareholder.
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If the state winds up becoming the controlling shareholder in the airline, EL AL will effectively be nationalized. The airline would have to solicit banks for the rest of the money $400 million it is seeking in government loans, but if the Treasury plan goes ahead, the government would guarantee up to 75% of those loans.
Currently, the idea – however intriguing – remains just that. The airline directors have not approved the proposal, nor has its union.
If the plan is approved, the Treasury would also expect the airline to cut costs by $350 million per year. This would entail laying off some 2,000 employees, returning aircraft, and reducing the size of its fleet significantly. EL AL would also have to cut back on the number of its destinations, especially the less-profitable routes such as Manchester, Las Vegas, and Tokyo. Salaries and benefits for airline employees would also be affected.
In the event that the government is forced to purchase all the shares in EL AL, the airline would be managed by an independently appointed trustee who is not beholden to political interests. The government would not be able to instruct the trustee about how to manage the airline.
The government hopes that if EL AL survives the current crisis, its stock value will rise, generating more money.
The details of the proposal are expected to be arranged over the next few days.
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