Could gov’t use golden share to force El Al to cut fares?

The Stare of Israel holds “golden shares” in various companies, including: El Al Israel Airlines Co., Ltd. (Tase:Eral). Since the outbreak of the war, Israel’s national airline has been heavily criticized for high fares and for not operating emergency flights on Saturdays and holidays except at the start of the war.

Using Golden Shares to reduce fares is the most irregular and probably not possible at all. What is the Golden Share? When can I use it? ‘Globes’ investigates this issue.

What is Golden Share?

In business and finance, a golden share is a type of stock that gives its owner more votes than all other shareholders in certain circumstances. In the case of the state, this is a regulatory tool that allows the state to make decisions on privatized companies in extreme situations where the activities of the privatized company are of strategic importance. Thus, the state sells its shares to the public and relinquishes control of the company, but retains decision-making powers in certain aspects of its activities (material interests).

The Government Corporation Powers Act defines some such material interests (although they do not apply to all companies). It is to ensure the continued existence of activities essential to the security of the state or foreign relations, or to ensure the continuity of the provision of adequate services. An essential service to the public. Maintaining the company’s character as an Israeli company with a business center and management team located in Israel. Management of mineral or natural resources, supervision of their use and development. Promote competition or prevent centralization in the economy. To prevent the formation of positions of influence over society, hostile elements or elements that may undermine national security. Prohibit disclosure of classified information for reasons of national security or foreign relations.

In which companies does the State of Israel hold golden shares?

In Israel and El Al, the state has golden shares in other companies that have been privatized, including mineral production companies. ICL (Tase: ICL: New York Stock Exchange: ICL), ZIM Integrated Delivery Service Co., Ltd. (NYSE: ZIM), Haifa Refinery, Ashdod Refinery, Israel Postal Company; Bezeq Israel Telecommunications Company Ltd. (Tase:BZEQ and defense companies Ashot Ashkelon Industries Limited (Tase:Ansei).

What is the state allowed to do in the case of El Al?

When El Al was privatized in 2003, four clauses were written into El Al’s golden shares, detailed in the company’s articles of association. These articles give states four rights. To keep El Al as an Israeli company. Ensure operational and flight capacity for passengers and cargo (at the level of 4 cargo planes, 3 wide passenger planes, and several narrow-body planes). Prevent hostile elements from owning the company. Follow instructions and safety protocols. According to the first section, El Al’s current controllers, Kenny Rosenberg and his son Eli, who bought control during the coronavirus pandemic, must first get state approval for the acquisition. there were.

“What the Government Companies Authority had in mind when privatizing was the airlift during the Yom Kippur War,” a former senior official of the Government Companies Authority, who was also involved in the privatization process, explained to the Globes. Its purpose was to provide Israel with ammunition for its war effort. “The concern was safety, not economics. At the time, the state wasn’t interested in fares, but whether the state could operate El Al in an emergency.”

Does this provision allow the state to cap El Al’s fares?

At the beginning of the war, there was an attempt to petition the Supreme Court to force El Al to conduct Sabbath flights to bring reservists home. The petition was dismissed by the judge. Prime Minister El Al responded to the petition by saying, “A special state levy is not a magic wand that the state can wield to gain legal authority for any request or action.”

“Simply put, the state has no authority to interfere with El Al’s fares,” a senior Treasury Department official told the Globes. “We carried out such inspections at the beginning of the war. The vital interest goal is to ensure that companies remain Israeli companies and to have a minimum number of aircraft in case of an emergency. has no authority to intervene in business considerations.” Everyone says they invoke the golden share, such as forcing El Al to fly on the Sabbath or determining prices and where the company flies. That is not something a nation can do. ”

Another official said: “The purpose of the golden share is to ensure Israeli control in critical cases, or to seize the initiative in critical cases.The way freight is handled is not through the golden share, but through competition authorities.” ” he explains. However, it is unclear whether competition authorities will be able to help, as their powers are to retroactively force unchecked price increases, not to prevent them in advance.

Competition authorities said: “In exceptional cases of significant reductions in supply, the test is to understand whether there has been cynical exploitation of the situation. Forceful solutions are never short-lived. The review is complex. and will be subject to review.” -It is possible and natural to conduct a thorough economic judicial review and appeal. ”

A former senior official at the Government Companies Authority also sees no reason to interfere with El Al’s freight rates. “The state can still today require El Al to fly reservists back at a discounted rate or even at its own expense,” he said. Should we be required to bring them back? What kind of security do we have?” Is it necessary? ”

The Ministry of Defense has also stressed that there is currently no security need to bring reservists home from overseas. Another source familiar with the details told Globes: “Currently, there are only a few reservists a day, perhaps five, who are stranded abroad and need to return to Israel. are being taken off the plane for them. It’s also a situation.” It happened when there was a senior Israeli Defense Forces officer who had to go home. It added: “Some flew abroad on vacation and forged emergency summons to secure seats on the plane.”

Was it a mistake not to include a clause regarding fares at the time of privatization?

Both officials believe the country did the right thing by not including a fare intervention clause in its privatization. According to a senior Treasury Department official, “The purpose of privatization is to introduce business considerations and turn a state-owned enterprise into a business company for all intents and purposes.” So aggressive that Israel has experienced both a coronavirus pandemic and war for the first time in recent years, such a clause in the IPO would significantly reduce El Al’s value. Probably. ” A former senior official at the Government Companies Authority said, “Such clauses will deter investors. Investors don’t know when the state will suddenly go crazy and take over the company. They need certainty.” ” he added.

Who has the authority to activate Golden Shares?

Perhaps the real problem lies elsewhere? “Globes” tried to understand who has the authority to activate the golden shares, but did not get a clear answer. The Ministry of Transport believes that the authority rests with the Ministry of Defence, but the Ministry does not consider the current situation to be an emergency and has no intention of invoking the fare intervention clause. The Treasury Department considers this to be the purview of the Government Companies Authority, which maintains that “the holder of the special state interest is the State of Israel through the Cabinet.”

However, market participants say, “The instructions should be given by the Ministry of Defense or the Ministry of Transport.If there is a need to fly reservists for security reasons, the instructions should be given by the Ministry of Defense.It does not make business sense. In that case,” he says. Those operating aircraft during the coronavirus pandemic should have been instructed by the Department of Transport to maintain aircraft continuity in the event of an emergency, should war break out immediately after the coronavirus. , it takes a month and a half to re-prepare each plane, its crew, pilots and flight attendants. ”By the way, this probably did not happen because the Ministry of Transport did not understand that it was responsible in this matter.

What is happening now?

Over the past two months, El Al has been weary of public criticism and pressure from the government, effectively controlling and fixing El Al’s prices. The airline operates four hubs to Israel ($150 one-way economy class from Athens, $99 one-way from Larnaca, $349 one-way from Dubai and Vienna), and other airfares are competitive. Yes, and in some cases cheaper than our competitors.

But as a result, demand for El Al tickets has only skyrocketed even more in the past two months, with El Al planes now full and people now unable to book tickets even if they wanted to. If someone urgently needs to be flown to Israel for reasons such as a call-up to the military, medical needs, or a funeral, other passengers must be removed from the plane. On the eve of Rosh Hashanah, the company even made an official announcement that despite the fares, demand far outstripped supply and there were no seats available. El Al argues that price controls are not beneficial to the public if the economy is healthy. Price limits do not solve supply shortages, but they do turn tickets into a “first come, first served” product.

Perhaps the solution is for foreign airlines to increase the number of flights to Israel, such as by allowing government ministries to stop fighting interagency over who is responsible for price limits and instead lower prices or encourage outbound tourists to these countries. would provide an economic incentive to reopen.

Government company authorities said: “El Al’s articles of incorporation detail the purpose for which the special state shares were issued. In accordance with the government’s decision, the state’s essential interests in the company are specified therein (Israeli Companies , the right to use essential assets).” Apart from these purposes, special state contributions are not intended for any other purposes, such as in the case of emergencies or for security reasons, to prevent an adversary from having a vested interest.

Published by Globes, Israel Business News – en.globes.co.il – on October 8, 2024.

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