Stare of Israel owns a “golden share” in a group of companies including El Al Israel Airlines Ltd (level:Ellal). Since the outbreak of the war, the Israeli national carrier has been heavily criticized for its high prices and for not operating emergency flights on Saturdays and holidays, except at the beginning of the war.
Using a gold share to lower prices would be irregular, and perhaps not possible at all. What is the golden share and when can it be used? The Globe is studying the matter.
What is the golden share?
In business and finance, a golden share is a type of stock that allows its owner to vote over all other shareholders under certain circumstances. In the case of the state, it is a regulatory instrument that allows the state to make decisions in privatized companies in extreme situations in which they show strategic importance in their activities. The state thus sells its shares to the public and relinquishes control over the company, but retains decision-making capabilities in certain aspects of its activity (vital interests).
The State Corporations Authority Law defines many of these vital interests (not all of which apply to all companies): ensuring the continued existence of activities deemed necessary for the security of the state or its external relations, or ensuring the continued provision of adequate resources for basic services to the public; Maintaining the Company’s character as an Israeli company whose business and management are based in Israel; Supervising the control, use and development of minerals or natural resources; Encourage competition or prevent centralization in the economy; Preventing the formation of sites of influence on society from hostile elements or elements that may harm the security of the state; Preventing the disclosure of confidential information for reasons related to state security or foreign relations.
In which companies does the State of Israel have a golden share?
In Israel, as well as El Al, the state owns a golden stake in other privatized companies, including the metal production company ICL (level: ICL:New York Stock Exchange: ICL), ZIM INTEGRATED SHIPPING SERVICES LIMITED (NYSE: ZIM), Haifa Oil Refinery, Ashdod Oil Refinery, Israel Postal Company, Bezeq Israel Communications Ltd (level:He spit And the defense company Ashot Ashkelon Industries Limited (level:He says).
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What will the state be allowed to do in the event of a crisis?
When El Al was privatized in 2003, four clauses were written into El Al’s golden share, which were detailed in the company’s articles of association. These provisions give the state four rights: to retain El Al as an Israeli company; Ensuring operational and flying capacity for passengers and cargo (at the level of four cargo aircraft, three wide-body passenger aircraft, and a number of narrow-body aircraft). Prevent hostile elements from owning the company; And adherence to security instructions and arrangements. According to the first section, the current controlling owner of El Al, Kenny Rosenberg and his son Eli (who bought control during the Covid pandemic) must first obtain state approval for the takeover.
“What the State Corporation Commission was thinking about during the privatization process was the airlift during the Yom Kippur War,” a former senior State Corporation official, who was also involved in the privatization process, explains to Globes. The goal was to provide Israel with the ammunition needed to wage war. “The concern was security, not economic. The state was not concerned with prices in those days, but the state was able to operate El Al in times of emergency.”
Do the provisions allow the state to set a ceiling on El Al’s prices?
At the beginning of the war, there was an attempt to petition the Supreme Court to force El Al to fly on Saturdays to bring reservists home. The petition was rejected by the judges. El Al responded to the petition, saying: “The state’s special quota is not a magic wand that the state can wave to obtain legal authority for any request or action.”
“The short answer is that the state does not have the authority to interfere in El Al’s prices,” a senior Finance Ministry official tells Globes. “We carried out such a check at the beginning of the war. The goal of vital interests is to ensure that the company remains Israeli and that there is a minimum fleet of aircraft in case of emergency. The state has no authority to interfere in commercial considerations such as forcing El Al to fly on the Sabbath, or determining Prices or to where the company decides to fly, even though everyone says to activate the golden quota, it is not something the state can do.”
Another senior official explains, “The goal of the golden share is to ensure Israel’s control in basic cases or even control in vital cases.” The method of dealing with prices is through the Competition Authority, not through the golden share.” But it is not certain that the Competition Authority will be able to help either, because its powers are to impose runaway price increases retrospectively, not to stop price increases in advance.
The Competition Authority says: “In the exceptional case of a significant decline in supply, the test is to understand whether there has been cynical exploitation of the situation. The enforcement solution is never short-lived. The examination is complex and subject to an in-depth economic judicial review, which can also be appealed. “Rightly so.”
The former senior official in the State Companies Authority also sees no reason to interfere in El Al’s prices. He says: “The state can even today force El Al to return reservists, at a reduced price or even at its own expense. But why should the state oblige El Al to return people who were on leave a few days ago? What security? Is there a need in that?”
The Ministry of Defense also maintains that there is currently no security need to repatriate reservists from abroad. Another source familiar with the details tells Globes: “The situation today is that there are only a few reservists a day, maybe five, who are stuck abroad and need to return to Israel, and other passengers are being taken off flights for them. This also happened when There are senior officers in the IDF who had to return.” “There were also those who traveled abroad for vacation and forged emergency call orders to get a place on planes,” he adds.
Was it a mistake not to set a special provision for prices during privatization?
The two senior officials believe that the state acted correctly when it did not include a price intervention clause in the privatization. According to a senior Finance Ministry official, “The purpose of privatization was to introduce commercial considerations and transform a government company into a commercial company for all intents and purposes. It is a provision that would have allowed the state to effectively nationalize the company when it wanted to.” “It is too aggressive and would have spooked investors. Only in recent years has Israel faced the Covid pandemic and war. Such a condition in an IPO would significantly reduce the value of El Al.” The former senior official at the State Enterprise Authority adds: “Such a condition would have deterred investors. They will not know when the state will suddenly go crazy and seize the company. They need certainty.”
Who has the authority to activate the golden share?
Maybe the real problem is something else? Globes tried to understand who has the authority to activate the golden share, but did not receive a very clear answer. The Ministry of Transport believes that the authority is in the hands of the Ministry of Defense, but they do not consider the current situation to be a time of emergency, and they certainly will not activate the price intervention clause. The Ministry of Finance believes that this is within the powers of the Government Companies Authority, which claims that “the owner of the state’s private share is the State of Israel through its ministers.”
But a market source says: “Instructions must come from the Ministry of Defense or Transport. If there is a security need to move reservists, the instructions must come from the Ministry of Defence. In cases where it does not make commercial sense to move reservists, they must come.” Instructions from the Ministry of Defence. To operate aircraft, such as the Covid pandemic, instructions should have come from the Ministry of Transport, to maintain business continuity and aircraft in case of emergency when a war breaks out immediately after Corona, because flying is not an easy thing after stopping operations and the process of re-equipping each aircraft, its crew, pilots and flight attendants takes a month and a half. month.” By the way, this did not happen, perhaps because the Ministry of Transport did not understand that it bears responsibility in this case.
What’s happening now?
In the past two months, El Al has grown tired of public criticism and pressure from the government, and prices at El Al are practically controlled and fixed. The company operates four hubs for flights to Israel (from Athens $150 round-trip in economy class, Larnaca for $99 round-trip, and Dubai and Vienna for $349 round-trip) and elsewhere and its prices are competitive and sometimes cheaper than competitors.
But the result is that demand for El Al flights has jumped even more over the past two months, which means that El Al planes are completely full, and now those who want to book tickets are unable to do so. When someone needs to fly to Israel urgently due to a military call-up, medical need, or funeral, other passengers must be removed from the flight. On the eve of the Islamic New Year, the company made an official announcement that there were no seats available – regardless of prices, demand had far exceeded supply. El Al insists that in a healthy economy, price controls are not beneficial to the public. Pricing does not solve the problem of short supply, but it turns tickets into a “first come, first served” product.
Perhaps the solution is for government ministries to stop fighting among themselves over who is responsible for capping prices, and instead provide economic incentives to foreign airlines to resume flying to Israel, such as lowering fees, or encouraging foreign tourism to those countries.
The State Companies Authority said: “El Al’s articles of association detail the purposes for which private state shares were issued. The state’s basic interests in the company are defined there in accordance with the government’s decision (an Israeli company, the right to use the basic assets during a state of emergency or for security purposes, and preventing hostile parties To have an interest, apart from these objectives, the state’s own share is not allocated for other purposes.
Published by Globes, Israel Business News – en.globes.co.il – on October 8, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
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