Government-owned Israeli company stock tough to sell off

HAIFA, Israel — It is not common knowledge that the government of Israel is the owner of controlling shares in scores and scores of industries that in other countries are normally in private hands.

The list here includes the national electric company, several banks (Bank Leumi and Discount Bank), the national airline — El Al — a shipping line, the national telephone company and many more. Different circumstances brought this situation about; often the reason was the government acted to bail out concerns that were about to go under.

Whatever the causes, the government is now anxious to divest itself of these holdings, both to get the state out of business and to reap the income that will come from the sales.

Such divestiture is not so easy, for a variety of reasons. For one thing, Israel's powerful labor unions are opposed, realizing that private owners would implement a more efficient administration in place of the bureaucratic bosses appointed by government politicians.

Private owners would trim the bloated employment rolls. In the case of the electric company, the union is so powerful, with the ability to shut down the whole country, that privatization is practically out of the question.

The case of the banks is different. They are doing relatively well, and there are potential customers in the offing. One possibility is to offer shares of the bank on the stock market, available to everyone, and thereby assure a wide public holding. Competition for acquisition of the shares would simply add to the government's income.

But would that assure a responsible management? The feeling is the sale should be made to a reputable individual or group. One requirement suggested is that the purchaser must have a personal capitalization of $1.5 billion. If there is more than one prospective buyer, let them bid against each other. And if the price offered for the bank seems unsatisfactory, the government need not make the sale.

The proposed sale of El Al presents different problems. For one thing, the company is today operating at a loss, with the government covering the annual deficit. Of course this is an additional reason for the state to get out of the business, which constitutes a drain on the national treasury. But a company that operates at a loss is hardly attractive to would-be buyers. However, private investors might believe that they could operate at a profit without government control — a level of control that today prohibits the airline from flying on the Sabbath. This restriction does indeed mean millions of dollars in lost income.

Another reason for the operation at a loss is the extra expense caused by the company's strict security arrangements. On the other hand, that very fact should encourage more passengers to fly El Al in these days of fear of terrorism.

A labor problem also adds to the difficulty of selling the airline. The employees are opposed to the sale on the grounds that the government has for a long time not made the required periodic payments into the employees' retirement fund. The sum involved is millions of dollars, with dispute as to the exact amount due.

Furthermore, the employees demand that they be able to buy 10 percent of the stock at a favorable price. For that matter, the Association of Travel Agents is also interested in acquiring shares.

But there is another, overriding factor. During the Gulf War in 1991 all foreign airlines suspended their flights to Israel. Only El Al kept flying, thus preserving contact with the outside world. In the event of another emergency, a privately owned El Al would not be influenced by issues of national concern.

Consideration of the sale has been on the agenda for about 10 years. During Netanyahu's regime the government was advised to sell only 49 percent of El Al. Prime Minister Ehud Barak favored 100 percent. Today's minister of transportation, Ephraim Sneh, is also in favor of a full sale.

There are many assets that the government is anxious to convert into cash. In addition to those already mentioned, there are other banks, the Oil Refineries, Israel Aviation Industries, Israel Chemicals, the National Oil Company and even the government hospitals, though there do not seem to be any prospective buyers for the latter.

In summary, national security, economic factors and labor problems must all be taken into consideration in getting the government out of business.