Minister of Tourism Avraham Hirchson announced this afternoon that he would grant Israir second designated carrier status on the New York-Tel Aviv route for 24 months. The decision is backed by opinions from the Ministries of Transport, Justice, and Finance. Israir’s service will be reviewed during the franchise period.
Hirchson made his decision over fierce objections by El Al Israel Airlines Ltd. (TASE: ELAL). El Al claims that it received assurances from the government in its prospectus for its IPO on the Tel Aviv Stock Exchange (TASE) that the government would not add another designated carrier on the Tel Aviv-New York route until the number of passengers on this route exceeded 10.7 million.
In contrast to El Al’s interpretation, Attorney General Menachem (Meni) Mazuz says that El Al’s prospectus includes another article that authorizes the minister of transport to add another designated carrier. Even before Hirchson’s announcement today, El Al said it would appeal to the High Court of Justice against any decision to allow another designated carrier on the route.
El Al chairman Israel (Izzy) Borovich said the decision was a gross breach of a government promise made on the eve of El Al’s privatization, and it materially contravened the government’s aviation policy.
Borovich said the decision’s timing was especially strange, on the eve of elections. He said such a decision sent a very negative message that would make future privatizations by the government harder, since it affected potential investors’ trust.
Borovich added that El Al would use every legal means at its disposal to make the state stand fully by its commitments to the airline, its shareholders and employees. He added, however, that El Al supported competition, open skies, and the keeping of promises.
Israir thanked Hirchson for making the right decision for the Israeli economy. The company said that granting it designated carrier status on the Tel Aviv-New York route was a first small step in opening the economy to competition.
Arkia Airlines said it was surprised by Hirchson’s decision, because it was discriminatory, illogical, unacceptable, and made without any material reason, given Arkia’s considerable experience in the aviation industry. Arkia added that it was examining Hirchson’s decision and would consider how to respond.
In explaining his decision, Hirchson said Arkia had withdrawn its request to eb declared a designated carrier on the Tel Aviv-New York route. In response to a question by “Globes”, he said that if Arkia renews its application, he would naturally consider it.
Published by Globes [online], Israel business news - www.globes.co.il - on January 16, 2006