The cabinet on Sunday approved an Open Skies Agreement with the European Union, even as Israeli carriers grounded their fleets and hundreds of airline workers gathered outside the meeting in protest.

The Israeli airlines were concerned that the proposal, which promised to lower prices, broaden the base of flight destinations and boost tourism by liberalizing routes between Israel and the EU over five years, would result in layoffs.

“This is the first decision by the new government aimed at bringing down the cost of living in Israel,” said Transportation Minister Yisrael Katz, noting that the agreement would align Israel with European aviation standards on issues such as consumer and environmental protections. Open Skies Agreements within the EU lowered air prices 34% from 1998-2002, Katz said, while growth in passengers nearly doubled.

"The open skies reform is good for Israel," Finance Minister Yair Lapid added. "It will lead to lower prices and increased competition and won't harm the number of jobs in the economy, but quite the opposite." Lapid cited the Israel Manufacturer's association as saying the agreement could lead to tens of thousands of new jobs being created.

Prime Minister Binyamin Netanyahu lauded the agreement, "The goal of the reform that we approved today is to lower the prices of flights to and from Israel and to increase incoming tourism.

"I commend Finance Minister Lapid and Transportation Minister Katz for working to pass this reform, which has been discussed for many years.

"We will continue to advance reforms to lower the cost of living and increase the efficiency of services to Israeli citizens."

Meanwhile, El Al, Arkia and Israir kept their fleets grounded, canceling dozens of flights throughout the afternoon.

It is unclear how long the strike will continue, or whether the Histadrut Labor Federation will choose to expand it beyond the reaches of the Israeli airlines. Histadrut Chairman Ofer Eini met with Netanyahu late Saturday night to try to postpone the cabinet decision, which he said would be “difficult and destructive,” and warned that the strike could go on indefinitely.

Katz criticized the Histadrut's efforts to block the agreement, saying that El Al had made no efforts to reorganize and become more competitive. "At El Al there are 40 airplanes and 6,000 workers, whereas the company Air Berlin has 200 airplanes and 9,000 workers. By this comparison, Air Berlin should have had 30,000 workers," he said.

Transportation Ministry Director General Uzi Yitzhaki also blasted El Al for its finger-pointing, telling Army Radio in a Sunday morning interview that "the dire condition of the El Al company is a result of failed management."

"Since 2004, when El Al was privatized, we see only deterioration in its financial situation. The failed management of the El Al administration brought it to this condition even without any connection to Open Skies," he said.

The agreement will only go into effect starting in April 2014, which Lapid said would give the airlines plenty of time to conduct a dialogue with the government over their needs. Economic Minister Naftali Bennett praised Katz and Lapid for the agreement in a post on Facebook, saying the drawn-out time-frame for implementing the agreement will give El Al time to prepare for its consequences and that “the company must become efficient in order to thrive.” The agreement, he added, will help the economy as a whole by lowering air costs for Israeli companies exporting their goods abroad.

El Al complained that the agreement will not level the playing field as promised, but leave onerous burdens on Israel's airlines while opening up opportunities for European competition. According to the company, Israeli airlines have an unfair disadvantage in that they are required to provide customers full refunds on canceled tickets, whereas foreign airlines are not. The agreement also doesn't go as far in opening landing slots at European airports to Israeli carriers as it does in opening Israeli slots to European ones, El Al said.

Finally, Israeli airlines spend significantly more on defense than their foreign competitors, a financial burden it says can make the difference between profits and losses. "The proposed Open Skies Agreement ties the hands of Israeli airlines, without taking into account the restrictions imposed on them. The agreements is tailored to fit the giant companies and aviation unions from Europe, and will eventually lead to Star Alliance taking over the Israeli aviation market," the company said.   

Lapid and Katz agreed to respond to questions ministers raised during the cabinet's discussion within 45 days.

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