Israel's plane deal doesn't fly with US

Boeing wanted the next contract with El Al - as it always had in the history of Israel's national airline - and Airbus, the European consortium, wanted to break in. For 14 months the world's two competing airplane manufacturers have been wooing El Al with all kinds of goodies to sweeten the deal.

Airbus probably won points for creativity. It offered El Al the world's first flying synagogue by using the below-deck space on its planes - normally used as a lounge - as a house of worship. A rotating ark containing the Torah scroll could be swiveled around to face Jerusalem no matter where in the world passengers were flying, and would relieve what nonreligious passengers sometimes complain is a nuisance: a minyan, or group of at least 10 Jews, gathering in the aisles of the airplane to pray in mid-flight.

But El Al officials say it was ultimately the attractive prices offered by Airbus that prompted its surprise decision last month to buy three or four A330s for $300 million to $350 million, as well as three Boeing 777s for about $400 million. "We bought the best products for El Al, and we intend to enjoy the best of both worlds whenever possible," says El Al spokesman Nachman Kleiman.

That marketplace approach is fine for a public company, say American officials, but considering that El Al's only real shareholder is the Israeli government, that explanation didn't, well, seem to fly.

who asked not to be named.

"As long as they're a nationally owned airline, I don't think they can do whatever they please," says one US official. The concern was not so much for the size of Israel's market or the approximately $700 million up for grabs, but the precedent it could set.

"It's not about this market; it's about breaking into markets all over the region. What's to stop Egypt and Saudi Arabia from saying, 'If the Israelis do it, why can't we?' " says the official,

Indeed, US officials say that Airbus was willing to take a cut on this sale just to get its foot in the door. And officials at Airbus, headquartered in France, have accused the US of exerting undue political pressure on Israel to buy Boeing.

From beef to bananas, this is hardly the first time in recent memory that US and European economic interests have clashed. And some Israeli analysts say that for their own good, they have to shop around.

"El Al couldn't go only with Boeing," says Gil Feiler, director of Info Prod Research Middle East, Ltd. a consultancy firm near Tel Aviv. "There isn't even one Airbus in El Al's fleet. We also have relations with Europe. They also have a role in the Middle East."

The decision may have more to do with internal politics than anything else. El Al's board of directors is apparently full of loyalists to former right-wing Prime Minister Benjamin Netanyahu, who may have refused to follow Mr. Barak's request to buy Boeing out of some kind of political revenge. Supporting this theory, Transportation Minister Yitzhak Mordechai last week nominated eight people to El Al's board of directors in an attempt to tip the balance back in the new government's favor.

The flap is far from finished. US officials are again lobbying Israel to reopen the bids. The Boeing contract was to be authorized immediately for delivery in 2001, but the board is supposed to reconvene soon to approve the Airbus purchase for delivery in 2003. That means El Al awarded something like a futures contract - one on which Boeing didn't get a chance to bid.

El Al was to take two weeks to assess its cash flow before giving final approval to the Airbus deal. But last week, El Al postponed the meeting until the end of November.

"The administration does have a certain level of frustration over Boeing," the US official says. "We feel that there should be another tender offer, and Boeing should be given the chance to bid again."

(c) Copyright 1999. The Christian Science Publishing Society