The results of the current round in the fight between management and the pilots at El Al Israel Airlines Ltd. (TASE: ELAL) will probably not only affect the future of the former national carrier, but also its character. And in this fight over the airline's future character, each side is determined to prove that it's in the right.
What makes the struggle hard and emotional is the human dimension. Many El Al pilots and captains know CEO Elyezer Shkedy from their common service in the Israel Air Force. They flew together on dangerous missions, entertained with their families together, and battled each other on simulators and in training flights.
Shkedy's appointment as El Al's CEO in early 2010 was welcomed by its pilots. After Haim Romano, who was perceived as a hired CEO who milked the airline, Shkedy, a former Air Force commander, won the pilots' trust. The fact that he lacked managerial experience in the business world, the fact that he came from the Air Force - where emphasis is placed on debriefings, learning from mistakes, and drawing lessons - gave him many credit points among El Al's pilots, some of whom were once his subordinates.
What unquestionably broke this trust and undermined Shkedy's relations with his pilots, was the astonishing salary he was granted in 2010. In his first year in his new job, when macroeconomic conditions affecting the airline were good (low prices for jet fuel and a high shekel-dollar exchange rate) El Al made a $57 million profit.
Shkedy, on the basis of his contract, earned NIS 16.8 million, mostly in cash, even before he could put his stamp on the airline. Although he took a rare step for a CEO and donated half of his NIS 5.5 million bonus granted him for that year to a fund for outstanding employees, in retrospect, his exorbitant salary was the first schism between him and the employees, a schism that only deepened over time, and the pilots realized that he was not one of them. The executive pay cut that Shkedy instituted in November 2011 did not change his image among the pilots.
Now, El Al's pilots say that their salaries have been eroded over the years, and they oppose the cut that Shkedy wants to make to their employment terms, while management is making no corresponding streamlining plan of its own. El Al currently operates 37 aircraft, and there is a reason for the joke among its employees that there is a VP or division head for each aircraft in the fleet.
Shkedy wants to end the pilots' regime at El Al. Shkedy, who emphasizes service and focus on the customer, was infuriated when a passenger recently complained that three pilots flew first class, in contravention of company procedures, at the discretion of the plane's captain.
The salaries of El Al air crews is the bone of contention, because it creates two classes of employee. On one side are the veterans, whose salaries are anchored in Histadrut (General Federation of Labor in Israel) agreements, who enjoy earn especially pampering conditions, especially compared with the conditions of the airlines non-tenured employees. This creates tension between the employees.
For example, a veteran flight purser can earn on a single trans-Atlantic flight the entire monthly salary of a flight attendant on the same flight. At the destination, the purser's food and lodging expense account is $8 per hour, compared with less than half this amount for a flight attendant. As for the pilots, dozens of senior pilots earn six-digit salaries during peak months.
It is too soon to know who will be shot down in the current air war at El Al, but the real losers are its shareholders, as the airline fights for its life in harsh economic conditions and amid rising competition. It may turn out that the sides in the fight will have nothing left to fight for.
Published by Globes [online], Israel business news - www.globes-online.com - on July 11, 2012
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