El Al Israel Airlines (LY, Tel Aviv Ben Gurion) rejected a rescue proposal from the Israeli Finance Ministry on June 18 and offered an alternative that would stop it falling into government hands, the Globes financial newspaper reported.

The board of directors at Israel’s flag carrier criticised the treasury’s plan as delaying the financial injection it needs to survive and would likely lead to the nationalisation of the airline.

El Al has been negotiating a USD400 million loan with a state-backed guarantee, but the discussions have not been finalised. The ministry has offered a USD250 million loan with a 75% state guarantee and a USD150 million public offering with the state guaranteeing the purchase of the shares. If the company is nationalised as a result, a trustee would run the carrier.

El Al countered by sending a letter to the ministry claiming that an unnamed financial institution was willing to give it the USD400 million loan it needed, which would avoid such a public offering.

The company is reportedly still considering its own, smaller, share offering of USD40 million and the sale of USD110 million in convertible bonds to the state.

In its letter to the ministry, El Al listed its problems with the government plan, including a requirement to dilute the stake of the Moses-Borovitz family which controls the airline via the tourism and aviation services firm Knafaim Holdings.

The letter also cites the months it would take to arrange the offering, whereas El Al requires capital immediately. Also, managing a company through a trustee would bring too much uncertainty, it said.

El Al is seeking assistance, it added, similar to what the German government has offered Lufthansa (LH, Frankfurt Int'l), to buy a bond that can later be converted and sold as shares to the public.

After receiving the letter, the Ministry of Finance dismissed El Al’s proposal simply as a ploy to keep the carrier in private hands.