El Al’s experience with security could bolster its business

JERUSALEM -- The security grilling that passengers endure every time they travel out of Ben-Gurion International Airport goes beyond the familiar U.S. routine of yes, they packed their own bags; no, they haven't accepted any packages from strangers.

Now, Israel's stricter process may become customary in U.S. airports, following the Sept. 11 attacks on the World Trade Center and Pentagon. And it was practically patented by El Al, which has spent years perfecting its security procedures.

Experts say it is almost impossible to hijack an El Al flight. The planes' cockpits are sealed by two impenetrable doors that are never opened during flight. Moreover, armed sky marshals in plainclothes fly in passenger seats should the ground security systems fail. No El Al aircraft has been hijacked in more than two decades.

"The big plus with El Al is its security," said Gaby Arbib, head analyst at National Consultants Ltd. "In the future that could be a substantive advantage for El Al because of its years of experience."

Last month's attacks could prove something of a boon for El Al, which has been grappling with declining numbers of passengers and significant financial losses in the past year, due to the intifada.

Incoming tourist traffic has fallen significantly: drops of 65 percent from the United States and 48 percent from Western Europe over the past six months. El Al reported a $109 million loss for 2000 and an estimated $80 million operating loss.

El Al's profit margins have always been slim at best, with $10 million in annual turnover during a good year. Last year, part of the company's costs included a $35 million fund to finance an early retirement program as part of the ongoing privatization program.

As a result, El Al has been cutting back, restructuring and revising its long-term plans. But with travelers becoming more cautious about security, they may end up turning to El Al instead of other, cheaper deals, Arbib said.

"Israelis have been through this before, and they still continue to travel," said Richard Gussow, an analyst for Lehman Brothers. "They're also probably willing to pay for El Al security."

A slump in demand is expected as people avoid flying, exacerbating an already poor profits year for the aviation industry, said analysts. Price wars could follow as carriers slash fares to attract passengers.

U.S. airlines have cut more than 100,000 jobs since hijackers slammed commercial aircraft into the World Trade Center and the Pentagon. United Airlines, the No. the 2 U.S. carrier, has laid off 20,000 workers.

In Europe, the four biggest airlines -- British Airways, Lufthansa, Air France and KLM -- are expected to post full-year losses, given their reliance on profits from the U.S.-Europe route.

Nevertheless, El Al might benefit from the global slump because of its security experience, Arbib said.

U.S. flights were grounded for three days after the attacks; El Al was the first flight that left New York's John F. Kennedy International Airport the following Thursday.

That decision was based on the confidence of the Federal Aviation Administration and the airport authorities, as the level of security on El Al already meets the new standards being imposed on travelers in the United States, said Nachman Klieman, El Al's spokesman. El Al began adding flights on the basis of supply and demand, playing "a game of catch-up" after canceling so many flights.

"Israelis were canceling their flights and then changing their minds," Klieman said.

For El Al, though, the question is whether the current situation will have long-term implications. It has been attempting to sell off part or all of its shares in a privatization effort spearheaded by the government. Until recently, the plan for El Al's restructuring as a private company involved dividing the process into two stages: The company would first sell 49.9 percent of its shares on the Tel Aviv Stock Exchange and then the remaining 51.1 percent one year later.

But given the downsliding industry, there don't seem to be any potential buyers.

"We're seeing cutbacks on other airlines, and the entire industry is going through a difficult period where no one's looking for an acquisition," said Gussow. "There's a jittery financial market, and airline stocks are getting smashed. So whatever El Al might have gotten is now a lot less than it would have been [before Sept. 11]."

"They have a serious problem with regard to restructuring, and they owe lots of money to the government," Arbib said. "They've got the Shabbat travel restriction and now security issues."

El Al's restriction from flying on Shabbat -- seen by management as hindering its privatization prospects -- was temporarily lifted the weekend after Sept. 11, when two of the four flights that left New York for Israel left on Friday night, landing on Saturday morning.

That was the decision of the transportation minister, said Klieman. "We had Israelis stuck in the U.S.," he added. "The situation was becoming serious, since they were trying to get home before Rosh Hashanah."