September 20, 2005 El Al Israel Airlines will decide within three months whether to stick with Boeing or switch to rival Airbus for the first time to buy two new long-haul planes for up to USD$270 million.
El Al will choose between Boeing 777-200 ER or Airbus A340-200 planes to upgrade its ageing long-haul fleet, Haim Romano, El Al's president, told a news conference at Tel Aviv's Ben-Gurion Airport unveiling El Al's strategy to 2010.
A decision by Israel's national carrier to buy aircraft from Europe's Airbus would be a break with tradition after sourcing its planes from Boeing in the United States since the airline was founded nearly six decades ago.
El Al in the past has shied away from buying Airbus under pressure from the United States -- Israel's main ally -- to buy from American companies. At the same time, Israel saw Europe as more sympathetic to the Palestinian cause.
El Al is currently in talks with both plane makers. El Al said it would pick the manufacturer offering the best deal. The airline expects a cost of between USD$115 million and USD$135 million per plane.
"At the end of the day we will decide on Airbus or Boeing," Romano said, noting El Al plans to use a combination of cash and loans to finance the aircraft purchase.
Airbus has long sought a contract with El Al but politics played a major part in El Al sticking to an all-Boeing fleet, of which it has 34 aircraft. Four of those are leased.
But times have changed and El Al is no longer owned by the Israeli government, putting the decision in the hands of the airline and not the government.
"We are now a private company so we are not obliged to purchase from Boeing," Romano said.
El Al said the new planes would enter service in 2007 to meet a growing demand for travel to Israel. The new planes will fly routes from Tel Aviv to the United States and Asia.
Until the new planes are delivered, El Al -- which sees average annual passenger growth of five percent until 2010 -- said it plans in 2006 to lease two or three planes, such as the Boeing 737, 767 and 747 and Airbus equivalents.
Some 2 million people are expected to visit Israel this year, an improvement over the past few years but below its peak of about 2.7 million in 2000. El Al has a more than 40 percent market share from Israel.
El Al said it planned to develop the newly upgraded Ben-Gurion Airport just outside Tel Aviv as a flight hub and gateway to and from Asia as part of its growth strategy. The carrier said it was looking to forge new alliances with other airlines.
El Al said that including the new aircraft, it plans to spend up to USD$345 million on improvements over the next five years. In 2005 it expects at least to meet its 2004 net profit of USD$33.1 million, even with much higher oil prices.
"It's reasonable to believe we will be as good as that," said El Al Chief Financial Officer Nissim Malki.
Malki said El Al was able to largely offset the high cost of fuel through hedging, higher ticket prices and efficiency measures taken in recent years. He noted that El Al was assuming oil would stay in a range of USD$55 to USD$62 in the medium term.
Although El Al has long argued that it was held back by government rules banning flying on the Jewish Sabbath -- a 25 hour period starting at sundown on Friday -- the airline said it still has no plans to fly on the Sabbath now that it is privately owned.
(Reuters)