El Al Israel Airlines Ltd.

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El Al Israel Airlines Ltd.

Ben-Gurion Airport
P.O. Box 41
IL-70100 Lod
Israel
3 9716111
Fax: 3 9721442
Web site: http://www.elal.com

State-Owned Company
Incorporated: 1949 as El Al Israel Airlines Ltd.
Employees: 3,500
Sales: $1.20 billion (1996)
SICs: 4512 Air Transportation, Scheduled; 4522 Air Transportation, Nonscheduled

In its 50-year history El Al Israel Airlines Ltd. has often had to maneuver around terrorists and hostile airspace. El Al flies in the face of danger like no other airline, but with plans to privatize the company underway in 1998, the most serious threats to its survival were financial. As part of its unique character, El Al offers kosher in-flight meals and does not fly passengers on the Jewish Sabbath or certain religious holidays.

To the Skies in 1948

El Al was created as a symbol of national independence. Immediately after its founding on May 14, 1948, Israel found itself embroiled in a battle for survival with neighboring Arab states. The United States and most European countries subsequently imposed an embargo on all combatants. Although Israel’s provisional government had already made establishing a civil airline a priority, President Chaim Weizmann’s trip to Geneva gave the project impetus. The Israeli government wanted to fly him home in one of its own planes, but its military craft could not make the trip due to the embargo.

A four-engine C-54 military transport was repainted in civilian colors, and outfitted with extra fuel tanks to make the ten-hour flight nonstop—the meandering flight path was also necessitated by the embargo. With a cabin full of fine furnishings, the first plane marked “El Al Ltd./Israel National Aviation Company” departed Israel’s Ekron Air Base on September 28,1948. After returning from Switzerland the next day, the plane was stripped of its civilian luxuries and returned to military service.

Although the flight and its accompanying documentation were hastily arranged, the crew was adorned in tradition. Uniform insignia featured a flying camel, the mascot of early Jewish aviators, and the airline’s name itself harkened back even further. Taken from the book of Hosea (11:7), “el al” means “to the skies.” The Star of David was also incorporated into the airline’s livery. Despite these trappings the airline had existed on paper only a couple of days and would not be formally incorporated until November 15.

Aryeh Pincus, a lawyer originally from South Africa, was chosen to lead the company, which faced impressive challenges from the beginning. Airlifting imperiled Jewish refugees from Yemen and Iraq were among its earliest priorities. El Al borrowed military aircraft until February 1949, when it bought a couple of Douglas DC-4 aircraft (converted military C-54s) from American Airlines. After the necessary clearances were negotiated, the two planes flew to their home base, Lod Airport in Israel. Its first scheduled flights, between Tel Aviv and Paris (refueling in Rome), started in July 1949. By the end of the year, the airline had flown passengers to London and Johannesburg as well. In the fall of 1950, El Al acquired Universal Airways, founded by South African Zionists. A state-run domestic airline, Arkia, was also founded, with El Al half owner.

The Challenging 1950s

The company began shipping freight to Europe using military surplus C-46 transports in 1950. It also initiated its first charter service to the United States; scheduled service soon followed. Disaster struck in February 1950, however, when one of El Al’s DC-4s was destroyed attempting at take off in Tel Aviv. There were no casualties. Another DC-4 carrying cargo crashed into a Swiss hillside the next year, killing several crew members. In July 1955 an El Al Constellation returning to Tel Aviv from Vienna was downed in flight by Bulgarian MiG-15 interceptors.

The newly acquired Constellations were superior aircraft with pressurized cabins that could fly above bad weather. However, they were noisy and unreliable, and challenged El Al’s ambitious timetables. In 1955 the airline placed a controversial order for two Bristol Britannia turboprops—a bold leap in both technology and cost for the fledgling carrier. El Al became only the second airline to fly the Britannia after the British Overseas Airways Corporation.

In spite of the hopeful purchase, times were hard for the airline, as yet unprofitable, as well as the Israeli government. Both were pressed for qualified professionals, compounded by the challenges of taking on thousands of dispossessed immigrants amid hostile surroundings. During the Sinai War, Egypt blocked Israel’s shipping lanes. After Israeli forces invaded the Sinai Peninsula, no foreign airlines would fly into the country. Having an independent civil airline remained an important government priority, and El Al endured.

El Al ended the decade with a capable new leader, Efraim Ben-Arzi, and the capacity to compete in the London-New York route with its swift, and popular, new Britannias—the fastest scheduled Atlantic crossing at the time. The company’s bookings increased to impressive levels; the $18 million gamble on the new planes seemed to have paid off. Trans-Atlantic fares increased from 8,000 in 1957, before the turboprop service was introduced, to 32,000 in 1960. However, the de Havilland Comet 4, Boeing 707, and Douglas DC-8 jets, all introduced by 1959, soon eliminated the Britannia’s speed advantage. The jet age had arrived.

Reaching New Heights in the Jet Age

El Al posted its first profit in 1960. However, in order to remain competitive, El Al began flying the new Boeing 707 jet. The airline promptly set records in June 1961 for longest nonstop commercial flight (New York to Tel Aviv) and speed (in 9.5 hours). A jet similar to the 707, the Boeing 720B, provided the power and endurance needed to carry the Star of David to Johannesburg via Teheran. Due to airspace restrictions, El Al had previously been forced to lease jets from other airlines to complete the passage, which lasted 16 hours even with the 720B.

The speed and comfort offered by the Boeing 707 helped El Al land more than half of all passengers flying into Israel. (The company subsequently became the country’s chief promoter of tourism; only a fraction of its passengers were business travelers.) In spite of the high cost, jet service would boost company profits for years to come. News of these first profits precipitated a series of walk-outs among dissatisfied pilots and mechanics.

Egypt laid siege to Israel’s Red Sea port of Eliat in May 1967, prompting El Al to evacuate tourists there. Its planes flew military support missions, and many of its staff were conscripted. In a month, actual hostilities were underway. Though they lasted only a week, the airline lost four of its pilots in battle. Not surprisingly, the only carrier serving Israel was El Al, though it did modify its schedule to mostly night flights.

After the Six-Day War, Israel controlled several new territories, including all of Jerusalem. After an intense public relations effort, tourism returned to Israel in unrelenting waves. Control of the Sinai gave the airline a direct route to Johannesburg, cutting flying time from Tel Aviv by nearly one half.

In order to promote tourism, the Israeli government proposed lifting the five-year-old ban on incoming charter flights. Although El Al was for the most part successful in fighting the charters, chairman Ben-Arzi and president Col. Shlomo Lahat resigned in the wake of this vigorous political contest. Mordechai Ben-Ari, previously the airline’s commercial manager, was designated company president.

El Al began flying behind the Iron Curtain with scheduled visits to Bucharest commencing in 1968. Increased demand soon led to dedicated cargo flights to Europe and America. A catering subsidiary, Teshet Tourism and Aviation Services Ltd., was also formed in this year. El Al posted annual profits of approximately $2 million in 1968 and 1969.

New Challenges in the 1970s

During this time the airline was forced to reckon with an alarming new development which would remain a grave concern for commercial aviation: terrorism. An El Al flight from Rome to Tel Aviv was hijacked to Algeria in July 1968; during the next two years attacks by Arab terrorists increased in violence. El Al quickly began developing the tough (and expensive) security measures that would become its trademark, including manning every flight with undercover armed guards and sealing the cockpit area. They proved effective on September 6, 1970, when operatives of the Popular Front for the Liberation of Palestine attacked four airliners in one day. While Pan Am, TWA, and Swissair saw their planes destroyed, El Al’s survived: the pilot plunged the aircraft 14,000 feet to help the crew gain the upper hand on the terrorists.

Company Perspectives:

Established in 1949 as the national airline of Israel, El Al has grown into a prestigious international carrier, ranked by I ATA as one of the world’s three most efficient air carriers, boasting a consecutive ten-year profitability record. Productivity. Punctuality. Polished professionalism. In-flight services and indulgences, pampering the passenger with exciting Kosher culinary delights—from Indian tandoori to Japanese teriyaki—and a myriad of audio and video entertainment programs. Uncompromising security. Expanded global coverage. And, incomparable Israeli hospitality. The friendliness and personalized touch that make time fly make El Al more than just a convenient mode of travel. A unique combination of amenities and advantages… earning international appeal, and making El Al a preferred global gateway to every corner of the world.

The stakes increased even more when El Al began operating the colossal 400-seat Boeing 747 “jumbo jet.” New facilities were needed to house and service the aircraft, which was twice as large as any of its predecessors. Although the first two jets sold for more than $30 million each, the accompanying preparations required another three times the investment. El Al’s first 747, resplendent in a new paint scheme, was delivered in May 1971.

As with its previous investments in new aircraft such as the Constellation and the 707, this purchase did not escape controversy. Critics believed it was simply too risky, given the enormous cost and the already serious threat of terrorism. However, traffic soared with the two 747s, and El Al’s relatively small operation (totaling just 12 jets) became one to emulate world wide. A third 747 was delivered in 1973. The airline used it to introduce nonstop service from Tel Aviv to New York. At 13 hours against the prevailing winds, it was the longest scheduled flight in the world. The success of the 747 service inspired plans for expansion, but they were truncated by the surprise attacks of October 1973 that launched the Yom Kippur War. Again El Al aircraft and personnel were mobilized for the country’s defense, and again all foreign airlines canceled flights to Israel. Although hostilities lasted only three weeks, El Al was forced to contend with the effects for some time to come. All operations in Ethiopia were halted due to Arab political pressure there. The Arab oil embargo greatly increased the price of jet fuel.

Fighting between Cyprus and Turkey scared all other airlines out of the eastern Mediterranean again in July 1974, adding to El Al’s workload. In addition, El Al was plagued with labor unrest. Although a tentative settlement was reached in February 1975, workers walked out for almost three weeks in October. This was repeated in April 1978, further damaging the company’s reputation. The company averaged ten work stoppages a year.

In 1977 El Al created a subsidiary to offer nonscheduled flights, El Al Charter Services Ltd., later renamed Sun d’Or International Airlines Ltd. A global recession kept tourists home and in 1975, El Al failed to post a profit for the first time in a dozen years. Delays in replacing the Boeing 707 and 720 jetliners, relatively inefficient and too noisy for some European airports, did not help the bottom line.

Miserable financial results and continuing labor strife prompted the Israeli government to install new management. Mordechai Hod, an air force commander, became president in 1977 but resigned less than two years later. Avraham Shavit, a manufacturing executive, was appointed board chairman, and eventually El Al veteran Itzhak Shander was named president.

In Iran the situation progressively deteriorated in 1978 with the rise of the Ayatollan Khomeini. Despite unstable local fuel supplies and little control tower support, El Al dispatched additional 747s to fly thousands of emigrants out of the country. The company’s facilities in Teheran were eventually either burned or confiscated. El Al also scaled back certain operations elsewhere in the world. It canceled a money-losing route to Mexico City in 1979. Some progress was made, however. A historically significant and popular new route to Cairo, El Al’s only Arab destination, opened in 1980.

A New El Alfor a New Decade

New management succeeded in both negotiating pay cuts and deflating the bloated work force, which had reached 6,000 employees. Some poorly-performing sales offices were closed. The Israeli government privatized the domestic carrier Arkia, in which El Al had a 50 percent share. Morale was also turned around, and the airline’s on-time record and customer service again earned world class status. However, after an independent audit recommended further layoffs, labor troubles erupted again.

The government grounded El Al after a flight steward strike in September 1982, canceling all but a handful of flight operations. The government appointed Amram Blum receiver, with ultimate authority for running the company. Rafi Harlev was named president. Employee and management representatives were able to produce an agreement under the glare of bankruptcy court. An end to strikes was negotiated, although a thousand more workers were to be furloughed.

The Israeli government provided El Al with two new Boeing 737 mid-size airliners and also agreed to purchase four state-of-the-art Boeing 767 long-range jets worth $200 million. El Al could begin flying again in January 1983, but the damage seemed grave indeed. For the fiscal year ending in April, the airline lost $123.3 million. Fortunately, its customers proved loyal and eager to return to the skies. Within a couple of years the airline was again the model of productivity. Profitability returned in 1987, in spite of increased terrorism in Europe. The route system of the revived carrier expanded quickly. In May 1988 El Al surpassed its old record by flying 7,000 miles from Tel Aviv to Los Angeles nonstop. Due to glasnost, flights to Poland and Yugoslavia were able to commence in 1989.

At the end of the decade, the airline seemed likely to recover from receivership, although increased terrorism again dampened tourism. In 1988 the carrier eked out a small $19 million profit on total revenues of $665 million. The government planned to sell about half of the company to employees and investors. El Al operated 20 aircraft in 1990, including nine 747 jumbo jets, and had begun replacing its aging Boeing 707s with the state-of-the-art 757 model.

New Partnerships for a New Century

El Al continued to operate profitably throughout the Gulf War by concentrating on cargo flights. Cargo operations experienced one of the company’s worst disasters in October 1992 when a 747 freighter crashed into a Dutch apartment building.

In cooperation with Aeroflot, El Al conducted another airlift of Jewish refugees in January 1990. The airline transported more than 400,000 Soviet Jews from Moscow within three years. In May 1991 more than a thousand Ethiopian immigrants were airlifted on a single Boeing 747. In contrast, El Al usually seated only ten passengers in the first class section of these planes.

El Al’s wings stretched next to Asia, first with charter flights. Harlev boasted of the airline’s exclusive “wall to wall” service: i.e., from the Wailing Wall to the Great Wall of China. The company also increased efficiency, investing in a 24.9 percent share of North American Airlines to give it flexibility in carrying passengers within the United States. In November 1995 El Al entered its first code-sharing agreement, with American Airlines.

The Israeli government began adopting “open skies” policies in the mid-1990s, exposing the airline to severe competition at home. Approximately 40 scheduled airlines and 40 charter airlines served the market at the time. In 1996 Arkia and Royal Jordanian Airlines began connecting Tel Aviv with Amman. Nevertheless, after nearly ten consecutive years of profits, the airline emerged from receivership status in 1995. Unfortunately, the next year El Al posted the considerable loss of $83.1 million, due in part to a new wave of terrorism.

In order to keep all its planes in the sky, El Al introduced flights “to nowhere”: passengers would enjoy various in-flight entertainments while circling the Mediterranean. It also promoted day trips for shopping in London or visiting newly accessible sites of religious importance in eastern Europe. With routes connecting East and West and decades of experience flying the longest routes, El Al hoped to develop Ben-Gurion Airport into a hub for intercontinental travel. The North American market remained responsible for nearly one-third of the carrier’s revenues.

Harlev resigned in March 1996, frustrated by government privatization plans that had dragged on over a decade. Joel Feldschuh took over as president in October. El Al carried nearly three million passengers per year and more than 270,000 tons of cargo on 27 jets, including three state of the art Boeing 747-400s. The Israeli government planned to sell all shares of the company, not just 50 percent as previously planned, in a public offering in 1998.

Principal Subsidiaries

Teshet Tourism and Aviation Services Ltd.; Larrome Hotels (Int.) Company; Borenstein Caterers; Sun D’Or International Airlines Ltd.; Near East Tours (Holland); Tammam (77%); Air Consolidators (50%); Maman (26%); Israel Tours (Denmark; 76%); Fox Travel (Switzerland; 26%); T.C.D. Travel Bureau (Hungary; 50%); North American Airlines, Inc. (USA; 24.9%).