Yes and no to Dankner

Antitrust chief Ronit Kan has two tough calls for IDB: on El Al and concrete.

Director General of the Israel Antitrust Authority Ronit Kan has to decide about two important maters related to the IDB group, controlled by Nochi Dankner and the Livnat and Manor families. The first is the demand by El Al to allow it to operate scheduled flights on the domestic route between Ben Gurion Airport and Eilat. The second is the acquisition of ready-mixed concrete company Hanson (formerly Pioneer) by IDB through subsidiary Mashav.

The experience with El Al as a monopoly on international flights is bitter and destructive. After years as a monopoly, when Maof Airlines was founded in the 1980s by Icheh Gadish, El Al went to war. It used every unfair trick in a price war until it eventually succeeded in toppling Maof, causing Gadishs bankruptcy, and attempted to entangle him in criminal proceedings, from which he emerged with a resounding acquittal. Thus El Al preserved its monopoly on international flights.

Ten years after the Maof affair, El Al went to war against Morris Nachtomis Tower Air. El Al knows how to fight. There is an amusing tale that when Tower stepped up its flights on the Tel Aviv-New York route, prominent rabbis in New York discovered that they were entitled to substantial discounts from El Al on that route. El Al again cut prices, and Tower collapsed.

When El Al was privatized, it received a promise from the government of special status in international flights, and it holds the concession on carrying passengers to Eilat from overseas. Now the same El Al has declared war on Israir and Arkia over domestic flights to Eilat, of which Arkia has a 70% market share and Israir 30%. El Al gives the grounds for its application as the open skies principle, high standards of service and healthy competition, and thank you for flying El Al. Its intention is apparently to exploit time windows for jet aircraft at Ben Gurion, particularly from Friday to Sunday, the days of heaviest traffic to and from Eilat.

Israir, controlled by IDB, and Arkia are fiercely opposed to El Als move, claiming that, the decision is divorced from reality and from any professional criterion, and is apparently motivated by political considerations. This is a game against a giant on a small playing field, Israir and Arkia say. They have announced that they will ask the State Comptroller to examine the way in which Minister of Transport Yisrael Katzs decision to allow El Als application was made. Katz for his part has said that he will expand Israir and Arkias ability to compete in international flights.

What will Kan say to Dankner about El Al flights to Eilat? It seems that there are grounds for saying yes, but lets quickly reach a general arrangement covering civil aviation within Israel and internationally.

When it comes to concrete, the picture Ronit Kan will have to contend with is especially interesting. The IDB-Livnat group holds three monopolies in concrete in Israel: Nesher Israel Cement Enterprises Ltd (controlled through Mashav), which was declared a monopoly in cement production in 1989; Taavura, which was declared a monopoly in haulage of grey cement in 1992; and Explosive Industries Ltd., part of Taavura Holdings, and the exclusive supplier of explosives for civilian use. Without explosives, there is no supply of aggregates to concrete works.

The IDB group thus dominates the cement market from several directions and knows better than anyone what goes on in every corner of it. Because of their current weakness, international giants in mining, cement, and concrete are realizing assets. Heidelberg Cement of Germany, the worlds leading company in the sector, has put up for sale ready-mixed concrete company Hanson Israel. IDB has announced that it is buying control of Hanson Israel for NIS 450 million. This is a heavy deal. Is the IDB group buying cement works because it sees growth coming in Israel in real estate and infrastructure projects?

Questions have been asked in the past about a cartel in the Israeli ready-mixed concrete market, but there is a degree of competition. The market leader is Readymix Industries (Israel) - which belongs to the worlds second largest company in the sector, Cemex of Mexico. Then come Hanson, Shapir, Ashtrom, and Solel Boneh. In the absence of competition in cement and transport, all the concrete companies fight fiercely over every concession on aggregate quarries, a resource hard to obtain because of opposition from environmental groups. The Association of Contractors and Builders in Israel is up in arms: the moment Dankner buys Hanson, he will control all concrete consumption in Israel, is the cry. IDB managers claim there should be no objection to the acquisition of Hanson, and that it is normal around the world for cement companies to be involved in the entire production chain of ready-mixed concrete.

To that, the CEO of one of the ready-mixed concrete companies responded: I would accept the argument if there were five cement production companies, but there is only one, and it controls transport as well.

What will Kan tell Dankner about the concrete question? It seems that there are grounds for saying no, it doesnt look very good, because you are already a triple monopoly in the concrete supply chain.

Published by Globes [online], Israel business news - - on August 27, 2009

Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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