El Al looks for new CEO to confront challenges ahead

El Al CEO Photo: David Maimon

David Maimon has stepped down amid poor labor relations, rising fuel prices and the merger with Israir.

Yesterday, on the eve of the publication of El Al Israel Airlines Ltd.'s (TASE: ELAL) third quarter results, David Maimon, the company's CEO for the past two and a half years, announced his resignation. In a letter to the company board of directors, headed by chairperson Eli Defes and vice-chairperson Tamar Borovitz, Maimon wrote, "I want to notify you of my decision to leave my position as CEO of El Al after four years in this challenging job.

"I have served in various positions in the company for over 12 years, during which I was privileged to be part of a special and unusual organization with enormous importance for Israel and the entire world…I want to thank you for enabling me to realize the vision and business plan I presented when I became CEO, which included buying new planes, expanding the network of routes, launching the Fly Card credit card, and expanding foreign aviation activity (including ground services), with an emphasis on streamlining…I will continue to lead the company with full gravity and effort until a new CEO is chosen and a process of overlap is completed."

The cost of Maimon's salary during his term was over NIS 11 million.

Sirkis and Eshel candidates to replace Maimon

Maimon's announcement did not surprise people in the aviation industry. He already hinted in an emotional speech following the landing of the first Dreamliner in Israel that he had reached a peak. Many had bet that he would announce his resignation in 2017 at an important juncture for the airline: on the one hand, new routes were launched and 16 Dreamliners were purchased, while on the other hand, El Al's share price plummeted 52% during the past year. Fuel prices are soaring, and Maimon faced one of El Al's biggest crises - a labor dispute with the pilots' committee, which disrupted many of the company's flights and caused last-minute flight cancelations and delays, for which the airline had to compensate its passengers.

There are also many open questions about the acquisition of Israir Airlines and Tourism Ltd. The deal is waiting for approval from the Antitrust Authority director general, and it has meanwhile been learned that the Israel Airports Authority opposes it. The opposition is due, at least officially, to concern about damage to competition in internal flights in Israel operated by Arkia Airlines Ltd. and Israir, especially to Eilat. The Airports Authority fears that El Al may decide to discontinue Israir's internal flights and use the airline's planes for international flights, giving Arkia a monopoly in the internal flights market.

It is also possible that the Airports Authority is concerned about a possible loss of over $100 million in annual fees from El Al. Airlines with a market share of over 30% get a 20% discount on their fees, and a merger with Israir is likely to push El Al's market share above 30%. Will Israir be managed in a different manner than Sun d'Or and UP, which operate as two brands within El Al (the passenger traffic figures for the two companies are not listed separately even in the Airport Authority's reports)? The vision in the Israir deal is to continue operating it as a separate entity, including its air fleet and pilots, who will fly planes only for Israir, and whose salary terms will not change.

It can be assumed that the Airports Authority's opposition to the deal will end with restrictions on the relations between the two companies, including a commitment to the continuation of Israir's internal flights.

Meanwhile, Maimon's resignation is sparking speculation about potential replacements. The names mentioned include Israir CEO Uri Sirkis, who is regarded as a dominant personality with vast knowledge and talent, and who has led his company to impressive achievements. The "problem" with Sirkis is that he is committed to Israir, and some believe that El Al's board of directors will prefer to appoint a less dominant CEO. From within El Al, VP commercial and aviation relations Gonen Usishkin, appointed to his position a year ago, has been mentioned as a possible candidate. Gonen has worked in El Al management and as first officer for 13 years.

Another candidate mentioned is Yehudit Grisaro, who has been VP human resources and administration for the past six months. One aviation industry source also mentioned Defes as an interesting option. Two former Israel air force commanders have been mentioned as candidates: Major General (res.) Ido Nehoshtan, who was air force commander until 2012, and is currently an external advisor to economic enterprises, and Major General (res.) Amir Eshel, who is just now leaving the air force.

"El Al has to choose someone acceptable to the workers, and especially to the pilots' crews," a senior industry source said. "The golden path to solving El Al's problems is good relations with the workers, which is lacking at present. The new CEO will also have to cut expenses. El Al's main problem is personnel expenses, and the strong workers' committee against management. To this must be added rising fuel costs and the company's inefficiency in the number of its employees, compared with the size of its air fleet."

"El Al neglected marketing"

A veteran travel agent says that Maimon is leaving a great deal of work to his successor. "El Al's board of directors led Maimon to the nutty idea of buying the most advanced airliners in the world, but those planes have to be filled. Maimon neglected marketing. El Al one day discovered that on the route to Hong Kong, on which it was formerly the sole airline, it now has an excellent competitor taking away all of its passengers. Ministers Yisrael Katz (Transport) and Yariv Levin (Tourism) are competing to see who can bring another airline to Israel.

"In addition, airlines are also strengthening their direct sales through giant companies Expedia and Priceline, and El Al simply isn't there. The company needs a CEO who knows how to read the map and invest in the right marketing instruments."

A senior industry source makes a different criticism. "Although it has not officially declared, CEOs at El Al have recently been serving for 3-4 years. This is a terrible management mistake that is not common in the industry, where many CEOs serve for many years (examples include United Airlines, British Airways, and also Israir, M.R.-C.). The processes in the industry are long-term, and replacement after time intervals like these at a such an unstable time in the industry is likely to be reflected in business results, as we will probably see in the upcoming reports," the source said.

Published by Globes [online], Israel Business News - www.globes-online.com - on November 9, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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El Al CEO Photo: David Maimon
El Al CEO Photo: David Maimon
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