Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding

EL AL ISRAEL AIRLINES LTD.

FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2013 (unaudited(

CONTENTS

SECTION A - UPDATE OF CHAPTER A TO 2012 ANNUAL REPORT

SECTION B - DIRECTOR'S REPORT

SECTION C - FINANCIAL STATEMENTS Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding Update to Chapter A (Description of the Corporation’s Business)1 to the 2012 Periodic Report (the “Periodic Report”) of EL AL Israel Airlines Ltd. (the “Company”)

The following are updates to Chapter A - a Description of the Corporation’s Business:

General The Group’s Concise Consolidated Financial Statements (hereinafter: the “Interim Financial Statements”) have been prepared in accordance with IAS 34, “Interim Financial Reporting”. In the preparation of these Financial Statements the Group implemented accounting policy, rules of presentation and calculation methods identical to those implemented in the preparation of its Financial Statements for December 31 2012 and the year ending on that date. Regarding new accounting standards adopted, see Note 3 to the Financial Statements. This update includes material changes or innovations occurring in the Company’s business over the course of the third quarter of 2013 that must be described in the Periodic Report. The update refers to item numbers in as they appear in the Description of Corporate Business in the Group’s 2012 periodic report published March 21 2013 (ref. no. 2013-01-013387).

To Item 3.1 – Investments in the Corporation’s Capital – General Following the Company’s reports in its Financial Statements, regarding an investment agreement regarding funds from the FIMI Group (“FIMI”), FIMI informed the Company on October 10 2013 that it was canceling the investment agreement between the parties, as the preconditions set in the investment agreement were not met.

To Item 6.1 – Movement in the International Aviation Industry and to Item 7.1.3.(a) – Changes in the Extent of Activity in the Field and its Profitability – International Developments IATA data for January-September 2013 indicate a 5.0% increase in passenger traffic on both international and domestic flights, with international traffic alone listing a slightly greater increase, at 5.2% compared to the corresponding period last year. An increase was listed in all areas, with the most significant increase in passenger traffic listed in the Middle East, Africa and South America. The airlines’ seat offerings on international flights increased by 4.4% in this period, a lower rate than the growth in passenger traffic, and led to a slight improvement in load factors on international passenger flights, to 80.0% versus 79.3% in the corresponding period last year. Note also that in January-September 2013, airborne cargo shipping in international flights increased by 0.3% compared to the corresponding period last year.

1 This update is in accordance with Regulation 39a of the Securities Regulations (Periodic and Immediate Reports), 1970 and includes material changes or additions that have occurred in corporate business on any matter to be described in the periodic report. The update refers to item numbers in Chapter A (Description of Corporate Business) in the Group's 2012 periodic report published March 21 2013.

A-1 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding By regional cross-section: January-September 2013 vs. January-September 2012*:

*The above table describes international traffic data only.

ASK - Available Seat Kilometer – number of seats offered for sale multiplied by the distance flown. RPK - Revenue Ton Kilometer - the weight in tons of passengers and paid cargo multiplied by the distance flown. FTK- 1. Freight Ton Kilometer – the weight in tons of paid cargo (including mail) multiplied by the distance flown. PLF - Load Factor – the occupancy rate in passenger flights (percentage of seats used). FLF - 2. Freight Load Factor – the occupancy rate in cargo flights. AFTK - Available Freight Ton Kilometer – total available cargo capacity (weight in tons of cargo including mail) offered for sale multiplied by the distance flown.

To Item 6.2 – Movement in the Israeli Aviation Industry and to Item 7.1.3.(b) – Changes in the Extent of Activity in the Field and its Profitability – Developments in the Israeli Market According to data provided by the Central Bureau of Statistics, the third quarter of 2013 saw 1.7 million exits of Israelis via air, a 12% increase compared to the same quarter last year. Note in this regard that the significant increase in Israeli departures derives from the timing of the holidays, meaning that this year all of the Tishrei Holidays took place in September, while last year the Sukkot holiday took place in October, in the fourth quarter. In addition, the third quarter of 2013 saw 623,000 tourist and visitor entrances (not including day trips) via air (BGN and Eilat), a 3% decrease compared to the same quarter last year. According to IAA (Israeli Airports Authority) data, total international passenger traffic through BGN increased by 10% in this quarter compared to the same quarter last year. Airlines operating at BGN increased their seat capacities by 11%, a slightly higher rate than the growth rate in passenger traffic, and as a result, the average load factor on passenger flights dropped slightly from 87.3% in the third quarter of 2012 to 86.5%. Cargo traffic increased by 0.5% in the third quarter of 2013 compared to the same quarter last year.

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To Item 6.3 – Fluctuations in Jet Fuel Prices, and to Item 9.5.1 – Raw Materials and Suppliers – Fuel The third quarter of 2013 saw a 1.5% drop in the average market price of jet fuel compared to the same quarter last year. The effective average jet fuel price paid by the Company, after hedging activity, remained unchanged compared to the same quarter last year. In Q3 2013, fuel costs constituted 30.3% of the Company’s turnover (in the same quarter last year, fuel costs constituted 31.61% of its turnover). The following data refers to jet fuel prices (markets basket), as quoted by Platts.[1] As of September 30 2013 the Company held an inventory of jet fuel purchased from suppliers in Israel and abroad worth $9.3 million. For further details, see Section b.1.(3) of the September 30 2013 Board of Directors Report.

To Item 6.4 – Fluctuations in Foreign Currency Rates As of September 30 2013, the exchange rate of the NIS vs. the USD was revalued by 9.6% relative to September 30 2012, and by 5.3% relative to December 31 2012. As of September 30 2013, the exchange rate of the U.S. dollar vs. the euro was devalued by 4.1% relative to September 30 2012, and devalued by 2.3% relative to December 31 2012. For further details, see Section b.1.(5) of the September 30 2013 Board of Directors Report.

To Item 6.5 – Interest Rate Fluctuations The average 3-month Libor rate dropped from 0.43% to 0.26% in the third quarter of 2013 compared to the same quarter last year. For further details, see Section b.1.(4) of the September 30 2013 Board of Directors Report.

1. Passenger Aircraft Activity

To Item 7.1.3 – Changes in the Volume of Activity and Profitability of the Area In September 2013, IATA revised its projected profit forecast for global airlines for 2013 from $12.7 billion to $11.7 billion, constituting 1.7% of the airlines’ revenues, which are expected to amount to $708 billion. Airline performance continued to improve in Q2 2013, albeit at a slower rate than expected by IATA in its previous forecast. Expected airline profits for 2013 are significantly higher than profits of $7.4 billion listed in 2012. Airline performance remains good in 2013 and operating profits will reach a rate of 3.2%, as in 2006, despite a 54% increase in jet fuel prices. The airlines are expected to absorb this significant increase in costs as a result of the industry’s streamlining, meaning structural changes (such as consolidation and collaboration between airlines) and an increase in airline revenues from the sale of associated products. IATA forecasts predict that the improvement will continue in 2014 as well, with global airlines earning $16.4 billion in that year.

The data in the table below refers to the total activity of international airlines on both international flights and on domestic flights, by region:

[1] To the best of the Company's knowledge, Platts is a company from the McGraw-Hill Group that has provided information on the energy industry for over 75 years. Platts provides information and up-to- date analyses, among other things, on international prices and events pertaining to the petroleum, petrochemical, natural gas and electric and nuclear power markets.

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The key factors for the change in IATA’s 2013 projections:

GDP – the global growth rate for 2013 is expected to be 2.0%, less than the growth rate earlier predicted by IATA and less than the 2012 growth rate, which amounted to 2.2%. Passengers – the expected growth in passenger traffic remains high (5%), slightly less than the 5.3% growth rate listed in 2012 and the growth rate IATA predicted earlier. At the same time, according to the IATA forecast, the total number of passengers is expected to exceed three billion, for the first time in history. Yield per passenger is expected to remain unchanged compared to 2012 (compared to a 0.3% improvement in the previous forecast from June). At the same time, occupancy rates reach record levels (80.2%) and yields in the U.S. are higher than the levels listed before the economic crisis started. Fuel prices – the average price (Brendt price) for a barrel of crude oil is expected to be $109 in 2013, a $1 increase compared to the previous forecast from June 2013, which predicted an average price of $108 per barrel. On the other hand, jet fuel prices have dropped slightly and are expected to average $126.4 per barrel ($1 less than the previous projection), and, in total, no changes exist in fuel expenses (which are expected to reach $213 billion, constituting 31% of total airline costs).

To Item 7.1.5 – Technological Changes that May have a Material Impact on the Field of Activities  In Q3 2013 online sales on the Company’s website increased by 8% compared to the same period last year.  In the third quarter of 2013 the Company expanded the variety of services featured on its new mobile application and now, in addition to reserving flight tickets, passengers may select seats, perform pre-flight check-in, view takeoff and landing schedules, contact the Company’s call centers and offices, link to social networks, reserve preferred seats or Economy Plus, and interface with the frequent flyer site, which can provide information on the state of their account, latest actions, a conversion calculator as well as other information on all of the Company’s special deals.

A-4 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding To Item 7.1.10 – Structure of Competition in the Field of Activity and Changes Occurring Thereof, the Open Sky Policy – Implementation of Open Sky Policy Following the Open Skies policy and the liberalization in the air carrier segment, in August 2013 Israel and China signed a new aviation agreement, which significantly increased the frequency of flights permitted on routes between the two countries and allows Israeli and Chinese airlines to operate scheduled flights between the two countries. According to the new agreement, each of the countries can operate up to 14 scheduled passenger flights and seven cargo flights per week. So far, the Company operates just three scheduled flights on the route between Tel Aviv and Beijing, while the Chinese national airline does not operate flights between Israel and China in practice, but rather via code sharing with the Company. The agreement signed significantly expands the options of the Israeli and Chinese airlines in implementing joint code sharing agreements on routes between the two countries. Furthermore, code sharing agreements may be implemented for the first time between Israel and China on domestic routes between seven destinations throughout China. Israel and China have signed their first official aviation agreement that will allow a significant increase in the frequency of flights between the two countries and allow additional airlines to operate regular flights on the route. According to the new agreement, each side will be able to appoint additional scheduled airlines and operate up to 12 scheduled passenger or cargo flights per week. So far, aviation relations have existed between Canada and Israel with no aviation agreement, through protocols that specifically arranged the operation of direct flights between Israel and Canada and allowed the Company and Air Canada only to operate scheduled flights between the countries. A 12% increase was listed in passenger traffic on foreign scheduled airlines operating on routes to and from Israel in Q3 2013. An 11% increase was listed in charter company activity in Q3 2013. Overall, charter traffic through BGN constituted 22% of all traffic, similar to the same quarter last year. The Company’s passenger traffic (including on flights marketed by Sun D’Or) on international flights increased by 5% and the Company’s share of total passenger traffic in Q4 2013 was 30.2%, compared to 31.9% in the third quarter of 2012. In all, total international passenger traffic through BGN increased by 10% in Q3 2013. Over the course of the third quarter of 2013, a number of airlines significantly expanded their activity on routes to Israel. The prominent examples of this are: Air France, which operated 27 weekly flights on routes between Israel and France (21 weekly flights on the Paris route and three weekly flights each to Marseilles and Nice), compared to 22 weekly flights in the corresponding quarter last year, in total listing a 18% increase in passenger traffic; Ukraine International Airlines, which operated 37 weekly flights on routes between Tel Aviv and Ukraine (of which 25 were weekly flights to Kiev), compared to just 13 weekly frequencies in the third quarter of 2013, and its passenger traffic increased significantly (165%); Russian airline Aeroflot, which in May 2013 began re-operating a second daily flight on the route to Moscow and increased its passenger traffic by 110%; Turkish Airlines, which operated 39 weekly flights on the Tel Aviv-Istanbul route compared to 26 weekly flights in the corresponding quarter last year and listed a 61% increase in its passenger traffic; low cost airline EasyJet, which operated nine weekly frequencies in this quarter on the Tel Aviv-Luton route (compared to seven in the same quarter last year) and two weekly flights between Tel Aviv and Manchester (which were not active in Q3 2012). In total, EasyJet increased its passenger traffic by 60% on routes to the UK. In addition, in September 2013 EasyJet also began operating two weekly flights on the Rome-Tel Aviv route, in addition to the flights it also operates on routes between Tel Aviv and Geneva and Tel Aviv and Basel; Turkish airline Pegasus, which operates seven low-cost scheduled flights on the Tel Aviv-Istanbul route, and starting May 2013 has shifted to operating two daily flights and increased its passenger traffic on this route by 140, and Hungarian low cost airline Wizz Air,

A-5 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding which began operating weekly flights on the Tel Aviv-Budapest route in December 2012, and starting June 2013 expanded its activity and began operating three weekly flights on the Tel Aviv-Bucharest route as well. According to the Company’s estimates, competition is expected to intensify, in light of the expanded activity and in light of the expected increase in the flight frequencies of a number of airlines, after signing the Open Skies agreement with the EU. The prominent examples of this are: Hungarian low-cost airline Wizz Air announced that it would be continuing to expand its activity on routes to Israel, and that starting October and November 2013, it would also be operating flights on routes between Tel Aviv and Vilnius (Lithuania), Cluj- Napoca (Romania), Warsaw and Katowice (Poland); British airline EasyJet is continuing to expand its activity in Israel, and announced that starting September 2013 it will also begin to operate two weekly flights on the Tel Aviv-Rome route and starting October 2013 it will operate 11 weekly flights on the Luton-Tel Aviv route instead of nine weekly flights and increase the number of frequencies it operates on the Tel Aviv-Geneva route to five weekly frequencies instead of four frequencies to date; Low-cost airline Norwegian Air Shuttle announced that starting April 2013 it will operate three weekly flights on the Tel Aviv-London route, in addition to the two weekly flights it operates on the Tel Aviv- Stockholm route; and Turkish Airlines also continued the expansion of its activity in BGN with additional daily flights on the Istanbul-Tel Aviv route, to the city’s secondary airport (Sabiha Gokcen). Turkish Airlines already operates 39 weekly flights on the route to the main Istanbul airport (Atatürk), and with the new flight the number of flights will total 46. The new flight will start in Winter 2013/2014.

“Open Skies” Agreement with the European Union Following that which was stated in the Q2 2013 Financial Statements, the inter- ministerial committee for the examination of the demands of Israeli airlines submitted its recommendations to the Minister of Transportation, as follows: The committee recommends that the IAA (Israeli Airports Authority) examine and deal with the demands made by Israeli airlines to allow them to operate out of BGN’s Terminal 1, while adapting the airport taxes applicable to them to the reduced tax rate paid by low-cost foreign airlines using Terminal 1. Regarding the demands made by Israeli airlines to compare competition laws in Israel to competition laws in Europe and to revoke the requirements in this area regarding engagements between regional carriers, the committee supports the advancement of the legislative arrangement that is expected to apply the chapter on restrictive arrangements in the Israeli Restrictive Trade Practices Law, on arrangements between foreign airlines pertaining to flight routes to and from Israel. The committee rejected the request to cancel the fee for incoming passengers and include it in the departing passenger fee, and rejected the request that the state provide a safety net grant to Israeli airlines, as the state gives foreign airlines. In addition, the committee rejected the demand to give precedence to Israeli airlines in flying state representatives to destinations outside the country. Regarding amendments to the Consumer Protection Law, the committee recommended that the Ministry of Transportation act, in coordination with the Consumer Protection Authority, to update legislation in this field in order to reduce gaps between Israeli and European law, regarding transaction cancellation dates, as requested by Israeli airlines. Furthermore, the committee recommended that the Ministry of Justice act to formulate a position as soon as possible on the subject of adopting the Cape Town Treaty in Israel (dealing with international interests in mobile airborne equipment), as requested by the Israeli airlines.

A-6 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding Domestic Activity In the third quarter of 2013, the Company flew 56,000 passenger legs to Eilat and its share of domestic traffic to Eilat was 16%, compared to 15.6% in the corresponding quarter last year. Following the instruction by the Civil Aviation Authority (CAA) to change flight routes and takeoff and landing procedures at the Eilat Airport during daylight hours, the Company announced in early September 2013 that the Company’s professional elements, headed by the Chief Pilot and the 737 Fleet Manager, have reached the conclusion that the new flight format does not allow a suitable level of civil aviation safety as accepted by the Company and at airports around the world. The combination of the unusual aerial procedure and the fact that the Eilat Airport is a special airport with various constraints and a restrictive ground infrastructure increases the total safety risk to daytime flights to Eilat to a level unsuitable to civil aviation. The Company has discontinued its daytime flights to Eilat, starting from the date set by the CAA for the implementation of the new format. Nighttime flights carried out for the Company using both Israir planes and independently have continued as usual, with these flights taking the old route from BGN to Eilat. In Early November 2013 the CAA informed the Company that starting November 18 2013, all flights to Eilat (including night flights) will take place on the new route only, and as a result the Company decided not to carry out its night flights to Eilat with its own planes starting from this date.

To Item 7.2 – Services in the Field of Activity The following is data regarding developments in passenger traffic by central destination groups: International traffic through BGN increased by 10% in the third quarter of 2013 compared to the third quarter of 2012. Passenger traffic in the third quarter of 2013 was divided between the airlines as follows: El Al (including flights marketed by Sun D’Or) – 30.2%; other scheduled airlines – 50.2%; and charter airlines (without Sun D’Or) – 19.6%. European Routes In total, international traffic on routes to Europe increased by 6% in the third quarter of 2013 compared to the corresponding quarter last year. Scheduled foreign airlines operating on this route network listed a 5% increase in passenger traffic, while charter airlines operating on this route network listed a significant increase of 17% compared to the same quarter last year. A particularly high increase was listed in traffic to France (+14%), Italy (+11%), Scandinavian countries (+141%), Hungary (+35%) and Romania (+18%), in which Wizz Air began operating, as well as in traffic to vacation destinations in Bulgaria (+12%) and traffic to Russia (+11%), where the activity of Russian airline Aeroflot increased significantly. The Company’s passenger traffic (including flights marketed by Sun D’Or) increased by 3% compared to the same quarter last year. Transatlantic Routes Passenger traffic on routes to North America increased slightly by 2% in the third quarter of 2013 compared to the same quarter last year. Scheduled foreign airlines operating direct flights on these routes underwent no material changes in passenger traffic, while the Company listed a 4% increase in passenger traffic. East Asian Routes An increase of 8% occurred in all passenger traffic on East Asian routes (direct flights). Korean Air, which operates direct flights on the route to Seoul, listed no material change (-1%), while the Company listed a 9% increase in its passenger traffic on this route network.

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Regional Network The third quarter of 2013 saw a significant 32% increase in total passenger traffic on this route network compared to the same quarter last year. Most of the increase in traffic on this route network derives from a significant increase in passenger traffic to Turkey. In this regard, note that the Turkish airlines, Turkish Airlines and Pegasus, significantly increased their activity on the Istanbul-Tel Aviv route, with passenger traffic increasing by 77%. The increase in traffic to Turkey largely derives from an increase in Sixth Freedom traffic, meaning passengers flying through Istanbul and continuing from there to follow-up destinations. Q3 2013 also saw a significant increase (+40%) in traffic to vacation sites in Turkey, and in total, traffic to Turkey increased by 57%. To be clear, due to security restrictions imposed on Israeli airlines, no Israeli airlines operate flights on routes to Turkey. The Company operated flights to Greece and flights to Rhodes, Crete, Zakynthos and Kos on this route network in the third quarter of 2013.

To Item 7.4 – New Services  The Company is preparing to receive eight Boeing 737-900 aircraft, which are expected to join the Company’s aircraft fleet. The first plane joined the El Al fleet in October, the second plane is expected to arrive in early December 2013 and the other planes will arrive by February 2016. The planes will operate for short and medium range destinations. The 737-900ER planes will be operated in a configuration unique to the Company of 172 seats in two service classes: 16 seats in Business and 156 seats in Economy. The new planes feature variable in- flight lighting, large storage binds for carry-on luggage, power sockets for laptops, USB connections for all passengers, as well as a new design for the planes’ interiors. For the economy and business classes, the Company purchased thin and light seats manufactured using innovative technology, with ergonomic pillows for maximum comfort.  The Company is expected to launch an in-flight entertainment system, to be installed in some of its aircraft, which features a communications system (streaming) in order to improve the in-flight entertainment experience. The system will allow passengers to view a variety of contents through the passenger’s personal mobile device. Accordingly, in October 2013 the Company signed a memorandum of understanding with Lufthansa Systems to install the system in ten 737 aircraft and two 767 aircraft.  The Company is expanding its destination network and starting in November the Company is offering flights on new routes between Tel Aviv and Venice and Tel Aviv and Larnaca. At this stage, a single weekly flight will be operated on the Venice route and two weekly flights will be operated on the Larnaca route.

To Item 7.10 – Manufacturing Ability The Company’s seat capacity (in ASK terms) increased by 4.7% in the third quarter of 2013, and the Company’s RPK increased at a rate of 5.1% compared to the same quarter last year. As a result, a slight increase was listed in its weighted load factor, reaching 84.8%, compared to 84.5% in the same quarter last year.

To Item 7.11 – Aircraft Fleet Following that which is described in Note 15 to the Company’s June 30 2013 Financial Statements, on October 8 2013 the Company signed receipt papers for a new Boeing 737-900ER aircraft (the “Plane”), the first of this model purchased by the Company. The Plane joined the Company’s narrow-bodied aircraft fleet in October

A-8 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding 2013. For details regarding the aircraft’s financing and a loan framework for the purchase of aircraft see Note 14 to the September 30 2013 Financial Statements. In addition, following the Company’s immediate reports dated February 7 2011 (ref. no. 2011-01-042258) and June 7 2012 (ref. no. 2012-1-149916) and reports in its Financial Statements, on October 22 2013, the Company’s Board of Directors approved the exercise of the option to purchase two additional 737-900ER aircraft from Boeing (the “Option Planes”). Confirmation of the purchase of the Option Planes constitutes the completion of a comprehensive purchase agreement with aircraft manufacturer Boeing of eight 737- 900ER aircraft as signed in February 2011; this transaction is compatible with the Company’s commercial needs and allows the renewal and lowering of the age of the Company’s aircraft fleet, with the Option Planes expected to serve the Company in short and medium ranges (Europe and regional destinations). The value of the Option Planes agreement is similar to previous transactions for these planes, as described in the reports mentioned above, and reflects an average market value of aircraft of this model and similar production year, in accordance with generally accepted industry list prices and subject to adjustments and investments as agreed upon by the parties, including linkage of aircraft prices, using an agreed upon linkage formula. The Company expects to receive the Option Planes over the course of February and March 2016. The payment terms for the Option Planes provide the Company with sufficient time to prepare for financing their purchase under the current format. As part of the reduction of the age of the Company’s aircraft fleet and the reduction of the number of fleets, the Company’s Boeing 767-200ER (EAF) plane ended its commercial service over the course of October 2013. This aircraft was the last of its fleet of Company aircraft and upon its removal from commercial service this fleet’s activity at the Company has been discontinued.

2. Cargo Aircraft Activity

To Item 8.1.1 – Structure of the Field of Activity and Changes Occurring Therein According to the Company’s estimates, the Company’s share of cargo transport in the July-September 2013 period of all cargo shipped to and from Israel by air (including cargo carried in the holds of passenger aircraft, including mail activity but not including Sixth Freedom) amounted to 35.9%, this in comparison with 34.1% in the corresponding period last year.

To Item 8.1.3 (a) – Extent of Global Cargo Transport According to IATA reports, in January-September 2013, international transportation of cargo (including in passenger aircraft holds) increased by 0.3% compared to the same period last year, contrary to the expected yearly rate in accordance with IATA projections (+1.9%).

To Item 8.1.3.(b) – Extent of Cargo Transport on Aircraft to and from Israel According to Airport Authority data, in January-September 2013 cargo traffic through BGN decreased by 4.3% relative to the corresponding period last year.

A-9 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding 3. Information on Both Fields of Activity

To Item 9.4.2 – Employees Pursuant to Item 9.4.2 Chapter A of the Company’s 2012 Periodic Report, the following is an updated table of the Company’s employees as of September 30 2013:

September 30 December 31 September 30 2013 2012 2012 Regular 687,3 687,3 68,,3 employees Temporary 783,7 ,8,,3 7833, employees Total 38,,5 38,,3 38,,, employees

On October 7 2013 Company engineers initiated a work slowdown on all matters pertaining to engineering decisions on ongoing work subjects and various projects disrupting work orders, following a deceleration of a work dispute by the engineers’ representatives. The Company filed a party motion to the Labor Court against the decision of the engineers’ representatives, which in the Company’s opinion do not constitute a separate legal entity in the collective work agreement, since the workers’ representatives and the General Histadrut, through the Professional Union Branch, are those who signed the agreement, and not the engineers’ representatives. On November 7 2013 the Regional Labor Court ruled to freeze the sanctions imposed by the Engineers’ Histadrut and/or the Company’s engineers including the non-imposition of sanctions for a period of two weeks, so that talks may be held between the parties.

To Item 9.10.2 – Restrictions in the Operation of Aircraft at Airports and at BGN On June 2 2013, a discussion was held at the Civil Aviation Authority with the participation of representatives of Israeli and foreign airlines operating in Israel, in light of the announcement by the CAA that toward the completion of the BGN runway renovation project (which is expected to take place over the course of the first quarter of 2014), the CAA is formulating its recommendations to the Minister of Transportation on the matter of extending the activity “restriction hours” at BGN during nighttime hours. The Company informed the CAA that changing the “restriction hours” may have implications regarding the Company’s activity and in particular on the ability to maintain activity to various destinations, particularly to North America, and that additional restrictions may impact the Company’s operational capabilities, including holding two rounds of flights to Europe each day. The Company asked that before the CAA’s recommendations on the subject be sent to the Minister of Transportation, a professional opinion be prepared by the CAA, which will include a comprehensive and thorough examination of the influences of changes to takeoff and landing times at BGN on airlines, particularly Israeli airlines, and that this opinion would be studied by the Company, which shall be given the right to respond to it. In August 2013 the CAA published a draft recommendation for the Minister of Transportation, contrary to government policy and prior resolutions on the subject, according to which upon the completion of the upgrade to the BGN runways, the current “restriction hours” must be expanded, so that no takeoffs from BGN will be

A-10 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding allowed between 01:40 and 05:20 during summer months, and between 01:40 and 05:50 during winter months. In a paper the Company submitted to the CAA following the publication of the CAA’s recommendations, the Company detailed the implications of the expansion of the restriction hours at BGN on Israeli civil aviation, and on the Company in particular.

To Item 9.11.2.(g) – Regulatory Arrangements On July 31 2013 the Antitrust Authority published a draft of the Restrictive Trade Practices Rules (Block Exemption for Arrangements between Air Carriers), 2013 (the “Block Exemption Draft”), which renews and revises the Restrictive Trade Practices Rules (Block Exemption for Arrangements between Air Carriers), 2008, published in August 2008 (the “Current Block Exemption”). The Company has provided its notes on the subject to the Antitrust Commissioner and following remarks received from the Company and from other elements, the Authority formulated a revised version, which was brought before the Exemptions and Mergers Committee for approval on November 6 2013 (the “New Block Exemption”). The Current Block Exemption was extended to December 1 2013 and the Company estimates that the New Block Exemption will come into effect on that date. The New Block Exemption, as well as the Current Block Exemption, deals with the exception of types of arrangements between air carriers from the incidence of the restrictive arrangements chapter of the Restrictive Trade Practices Law, 1988. The New Block Exemption retains the legal arrangements set in the Current Block Exemption, except in all matters pertaining to leasing agreements between air carriers. Regarding these arrangements, the new Block Exemption establishes various requirements for its incidence, distinguishing between dry and wet leases, between leasing cargo aircraft and other leases, and between leases between Israel carriers and leases between Israeli carriers and foreign carriers.

On November 7 2013 the Antitrust Commissioner issued his decision regarding the exception from court approval for restrictive arrangements involving the IATA and the airlines, dealing with the Billing and Settlement Plan (BSP), in accordance with Section 14 of the Restrictive Trade Practices Law, 1988 (the “Exemption”). This arrangement deals with the installation and use of a central automated clearing system arranging accounting and payment processes between IATA-certified travel agents and airlines which have joined the arrangement through the BSP plan. A prior exemption for the BSP arrangement had been given by the Commissioner on November 14 2010, subject to conditions, and was set to expire on November 14 2013. The exemption will remain in effect until November 7 2018 and is stipulated on terms essentially similar to the terms set by the Commissioner in his November 14 2010 decision. The conditions deal with: the IATA’s obligations to connect all willing travel agents to the BSP system and to act in a nondiscriminatory fashion with the travel agents, restrictions on the transfer of information, restrictions on the ability to disconnect a travel agent from the plan, the travel agents’ ability not to pay disputed sums and so on. Furthermore, it was decided that in cases in which an airline is suspended from the BSP arrangement due to financial difficulties, travel agents must not be allowed to offset a disputed sum attributed to that airline, and, at the same time, agents may not be compelled to pay a sum owed that airline through the plan.

A-11 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding To Item 9.11.12 –Security Arrangements Following the decision by the Israeli government according to which all Israeli airlines must equip themselves with protective systems on their passenger flights, and following the decision of the Ministerial Committee on National Security from September 2011, according to which the state would finance all of the costs involved in operating, maintaining and installing the system and its various derivatives, the Company is honored to note that it is currently in the end stages of signing an agreement with the State of Israel arranging the Company’s participation in the financing expenses of the protection systems installed on Company aircraft. Furthermore, the Company is about to engage with Elbit Electro-Optic Systems El-Op Ltd. in an agreement according to which the Company will act as a subcontractor for installing the protection systems in the Company’s aircraft and on those of other Israeli airlines.

To Item 9.12 – Material Agreements On October 30 2013 an agreement was signed for maintenance work on Arkia’s Boeing 757 aircraft to be carried out by the Company in the period between November 1 2013 and October 31 2019.

To Item 9.15 – Goals and Business Strategies Following the Company’s reports in its Financial Statements and as part of the medium and long term strategy being formed by Company Management, the Company is acting to adapt its activity by increasing frequencies and capacities and adapting its commercial operating model to models practiced in Europe. Within this framework, the Company shall initially start with short haul activity, starting from the summer 2014 schedule, commencing March 30 2014, by operating low cost flights under a new aviation brand using Boeing 737-800 aircraft. Flights will initially be operated according to this format to five European destinations, instead of the current format of Company flights to the destinations in question. The flight tickets purchased by passengers will include a basic basket of services and the option of adding additional services for a fee, similar to service formats at many airlines around the world. The Company is expected to launch the new brand soon and within this framework will publish additional details regarding the flight format.

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El Al Israel Airlines Limited Report of the Board of Directors on the State of the Corporation's Affairs for the Period Ending September 30 2013

We hereby present the Report of the Board of Directors on the State of the Corporation's Affairs for the period ending September 30 2013.

General 1.1 Changes in International Financial Standards (IFRS)

For further details regarding the changes occurring in international standards and the impact of their application to the Group's Financial Statements, see Note 3 to the September 30 2013 Financial Statements. 1.2 The Company and its Business Environment

The Company serves as the designated air carrier of the State of Israel on most international routes that operate to and from Israel.

The key activities of the Company and its subsidiaries are the transport of passengers and freight on scheduled flights, and on the matter of the transport of passengers, also on charter flights, between Israel and foreign countries and starting August 2010, on domestic flights as well. The Company is also engaged in providing security services and maintenance services, including for other airlines at Ben Gurion Airport, in the sale of duty-free products, in the leasing of aircraft, and through investees – in ancillary activities, mainly the manufacture and supply of airline food and the management of several overseas travel agencies.

The business environment in which the Company operates is the international and domestic civil aviation industry, and inbound and outbound tourism, which is characterized by a seasonal nature and strong competition, which grows stronger in periods of overcapacity, as well as high levels of sensitivity to the economic, political and security situation in Israel and around the world.

The Group has two operating sectors reported as operating segments in the Company's consolidated Financial Statements: a) Passenger aircraft activity – in this segment, the Company transports passengers, as well as freight in the holds of passenger aircraft, and provides ancillary services, such as the sale of duty-free products and the leasing of planes. In the field of passenger transport, the Company competes in its flights to and from Israel with 2 Israeli airlines (Arkia and Israir), over 60 foreign airlines that operate scheduled flights and over 50 foreign charter airlines. Revenues of this segment constituted 91.0% of the Company's total revenues in the third quarter of 2013. b) Cargo aircraft activity – in this segment, the Company transports cargo in cargo aircraft (starting June 2011 the Company has operated a single leased 747-400 aircraft).

In the field of cargo transport, the Company competes with one Israeli airline (CAL) and with 7 foreign airlines operating cargo aircraft on a continuous basis, and with most of the scheduled airlines that operate passenger planes that carry cargo in their holds. Revenues of this segment constituted 2.4% of the Company's total revenues in the third quarter of 2013.

The Company has additional revenues that are not assigned to its major areas of activity, accounting for 6.6% of its total revenues.

For further details regarding the Company's areas of activity, see Section 5a of the Board of Directors Report.

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a. Explanations of the Board of Directors for the State of the Corporation's Affairs a.1 Financial Position (Consolidated Statements)

30.09.2013 31.12.2012 change in in in thousands thousands thousands US dollars US dollars US dollars Current assets Cash and cash equivalents 122,350 52,810 69,540 Designated cash 838 1,205 (367) Short-term deposits 9,117 8,570 547 Restricted deposits 5,650 11,456 (5,806) Trade receivables 138,280 129,898 8,382 Other receivables 35,434 23,333 12,101 Derivative financial instruments 13,044 16,672 (3,628) Prepaid expenses 26,350 29,442 (3,092) Inventories 19,151 22,145 (2,994) Total current assets 370,214 295,531 74,683 Non-current assets Long-term bank deposits 1,377 1,451 (74) Investment in affiliated companies 16,713 16,747 (34) Investments in other companies 1,238 1,244 (6) Fixed assets, net 1,124,660 1,128,959 (4,299) Intangible assets, net 9,222 9,392 (170) Prepaid expenses 11,243 9,950 1,293 Assets due to employee benefits 55,350 *45,319 10,031 Total non-current assets 1,219,803 1,213,062 6,741 Total Assets 1,590,017 1,508,593 81,424 Current liabilities Short-term borrowings and current maturities 190,138 160,316 29,822 Trade payables 161,145 144,832 16,313 Other payables 47,482 52,243 (4,761) Provisions 16,854 16,333 521 Derivative financial instruments 2,635 126 2,509 Employee benefit obligations 112,738 97,954 14,784 Unearned revenues 282,076 252,915 29,161 Total current liabilities 813,068 724,719 88,349 Non-current liabilities Loans from financial institutions 416,179 474,225 (58,046) Employee benefit obligations 85,867 *82,453 3,414 Loan from others 873 2,441 (1,568) Derivative financial instruments 762 1,399 (637) Other payables 8,670 8,787 (117) Deferred taxes 34,870 *20,489 14,381 Unearned revenues 60,313 58,274 2,039 Total non-current liabilities 607,534 648,068 (40,534) Shareholders’ equity 169,415 *135,806 33,609 Total liabilities and equity 1,590,017 1,508,593 81,424

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a to the Financial Statements.

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The Main Changes in Asset, Liability and Shareholders' Equity Items as of September 30 2013 Current assets: The Group’s current assets increased by $74.7 million relative to December 31 2012. Most of the increase derived from an increase in cash and cash equivalents, and increase in receivable and debit balances mainly due to the reimbursement of security costs and an increase in trade receivables as a result of seasonal increase; for details see a7 below. The following changes occurred to the Company's derivative financial instruments (presented in the Financial Statements under current assets and current and non-current liabilities):

The total net change in the fair value of jet fuel, interest and foreign currency hedging, amounted to in a $5.5 million decrease compared to the fair value at the end of 2012 (jet fuel hedging – a $3.7 million decrease, interest hedging – a $0.4 million increase, foreign currency hedging – a $2.2 million decrease), as a result of transactions reaching redemption, from transactions occurring in the reported period and from changes in the fair value of transactions still open as of the balance sheet date. For further details see b1(3), b1(4) and b1(5) below and Note 8 to the Financial Statements Non-current assets:

The Company’s non-current assets increased by $6.7 million relative to December 31 2012, mainly due to an increase in assets due to employee benefits largely deriving from profits. The fixed assets item decreased by $4.3 million, on the one hand, advance payments were made for 737-900 aircraft and the purchase of parts and accessories totaling $102.8 million, while on the other hand, depreciation and parts consumption costs were listed to the sum of $94.3 million and the depreciated costs of three aircraft sold was subtracted, to the sum of $12.8 million.

Current liabilities:

The Company’s current liabilities increased by $88.3 million relative to December 31 2012, mainly as a result of an increase in short-term credit and current maturities, primarily as a result of short-term bridge loans to finance advance payments on account of new aircraft until they enter Company service, from a seasonal increase in unearned revenues from the sale of flight tickets and from a seasonal increase in trade payables. In addition, an increase occurred in employee benefit obligations, mainly as a result of an increase in vacation obligations and the revaluation of the NIS vs. the USD.

Non-current liabilities: The Company’s non-current liabilities decreased by $40.5 million relative to December 31 2012, mainly as a result of the current repayment of loans offset by the increase in the deferred tax liability items as a result of profits in the reported period.

Equity Equity increased by $33.6 million in the reported period relative to December 31, 2012, mainly as a result of the earnings in the reported period.

As of September 30, 2013, the Company has a working capital deficit of $442.9 million, compared to a deficit of $429.2 million on December 31, 2012. The Company’s current ratio as of September 30 2013 amounted to 45.5% compared to 40.8% as of December 31 2012. The main reason for the increase in the working capital deficit was the increase in unearned revenues, short-term credit and supplier items that were offset from the benefit in cash and customers and receivables items. The working capital deficit consists of three material elements included under the Company’s current liabilities items and characterized by current business cycles: unearned revenues from the sale of flight tickets including port taxes, unearned revenues from frequent flyer clubs, and employee vacation obligations. Therefore, a material part of the capital deficit is not cash-flow based in the short term.

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a.2 Analysis of El Al’s Business Results

a.2.1 Market Data

Passenger and cargo July - September July - September change traffic at BGA 2013 2012 in thousands in thousands in thousands % Incoming tourists * 623 642 (19) (3%) Departing Israelis * 1,697 1,516 181 12% Cargo import - tons ** 34.2 32.8 1.4 4% Cargo export - tons ** 31.1 32.1 (1.1) (3%)

Passenger and cargo Jan - Sep Jan - Sep change traffic at BGA 2013 2012 in thousands in thousands in thousands % Incoming tourists * 1,853 1,872 (19) (1%) Departing Israelis * 3,432 3,104 328 11% Cargo import - tons ** 100.1 102.0 (1.9) (2%) Cargo export - tons ** 103.0 110.2 (7.2) (7%)

* Source: Central Bureau of Statistics. ** Does not include cargo in transit.

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Incoming Tourist & Departing Israeli Traffic, in the Third Quarters of (In Thousands):

1,697 2,000 1,516 1,750 1,391 1,462 1,298 1,500 1,250 1,000 750 500 612 642 623 528 577 250 0

Incoming tourists Departing Israelis

* Source: Central Bureau of Statistics.

Imports & Exports of Cargo by Air to and from Israel, in the Third Quarters of (In Thousands of Tons):

50

36.8 37.5 33.1 32.1 31.1

33.5 34.4 32.8 34.2 30.6 25

0

Export Import

* Source: Civil Aviation Authority.

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2.2 Company Operating Data*

July - September July - September change 2013 2012 Passenger leg (scheduled and chartered) - in thousands 1,409 1,353 4% RPK (scheduled) - in millions 5,353 5,094 5% ASK (scheduled) - in millions 6,309 6,028 5% Load factor (scheduled) 84.8% 84.5% 0% The Company's market share (scheduled and chartered) 30.2% 31.9% (5%) Flown cargo, in thousand tons 22.5 21.9 3% RTK - in millions 114.7 116.5 (2%) Weighted flying hours (including leased equipment) - in thousands )**( 45.0 44.5 1% Average man-years (El AL only): Permanent 3,786 3,815 (1%) Temporary 2,323 2,321 0% Total 6,109 6,136 (0%)

Jan - Sep Jan - Sep change 2013 2012 Passenger leg (scheduled and chartered) - in thousands 3,442 3,297 4% RPK (scheduled) - in millions 13,808 13,309 4% ASK (scheduled) - in millions 16,605 16,067 3% Load factor (scheduled) 83.2% 82.8% 0% The Company's market share (scheduled and chartered) 32.4% 33.6% (3%) Flown cargo, in thousand tons 68.9 70.3 (2%) RTK - in millions 353.9 368.7 (4%) Weighted flying hours (including leased equipment) - in thousands )**( 119.3 119.2 0% Average man-years (El AL only): Permanent 3,802 3,831 (1%) Temporary 2,104 2,113 (0%) Total 5,906 5,944 (1%)

Aircraft in operation - end of period - number of units 37 39 (2) Average age of owned fleet at the end of the period - in years 13.2 13.0 0.2

* Operating data refers both to international and domestic activity. Glossary: Passenger leg – Flight coupon in one direction. RPK – Revenue Passenger Kilometer – number of paying passengers multiplied by distance flown. ASK – Available Seat Kilometer – number of seats offered for sale multiplied by distance flown. RTK – Revenue Ton Kilometer – weight of paid flown cargo in tons multiplied by distance flown. Passenger Load Factor (occupancy) – flown passenger-km is expressed as a percentage of available seat- km. * Weighted flight hours in Boeing 767/757 terms. Weighted value of the planes: Boeing 767/757 = 1.0; Boeing 747 = 2.0; Boeing 777 = 1.6; Boeing 737 = 0.6. These weighted values were determined based on an estimate of the total expenses of each type of aircraft, and are used consistently to calculate weighted flight hours as an indicator of the volume of aviation activity.

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a.3 Statement of Operations Data for the Quarter Ending September 30 2013 (Consolidated Financial Statements):

The key factors that influenced the business results in the three month period ending September 30 2013 compared to the same period last year are:

July - September July - September change 2013 2012 in % of in % of in thousands operating thousands operating thousands US dollars revenues US dollars revenues US dollars % Operating revenues 643,292 100% 605,763 100% 37,529 6% Operating expenses (483,550) (75.2%) *(457,803) (75.6%) (25,747) 6% Gross profit 159,742 24.8% 147,960 24.4% 11,782 8% Selling expenses (56,416) (8.8%) *(57,479) (9.5%) 1,063 (2%) General and administrative expenses (27,863) (4.3%) *(22,724) (3.8%) (5,139) 23% Other operating revenues (expenses), net 126 0.0% (4,978) (0.8%) 5,104 Operating profit before financing 75,589 11.8% 62,779 10.4% 12,810 20% Financing expenses (4,939) (0.8%) (13,086) (2.2%) 8,147 (62%) Financing income 10,110 1.6% 396 0.1% 9,714 2453% The Company's share of the profits of subsidiaries, net of tax (20) (0.0%) 182 0.0% (202) Profit before income taxes 80,740 12.6% 50,271 8.3% 30,469 61% Tax expenses (22,880) (3.6%) *(12,729) (2.1%) (10,151) 80% Profit for the period 57,860 9.0% 37,542 6.2% 20,318 54%

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a to the Financial Statements.

Operating revenues – operating revenues increased by 6.2% in the reported period compared to the same quarter last year. Net revenues from scheduled passenger flights noted a 6.1% increase, mainly from an increase in the amount of passengers flown. Revenues from cargo transportation dropped by 0.8%, mainly due to the decrease in the yield per ton-kilometer flown.

Operating expenses – the third quarter of 2013 saw a 5.6% increase in the Company's operating expenses compared to the corresponding period last year, mainly as a result of an increase in activity, an increase in salary expenses and an increase in jet fuel expenses as explained below, with their share of turnover dropping from 75.6% in the third quarter of 2012 to 75.2% in the reported quarter.

• The Company's jet fuel expenses increased by $3.6 million relative to the corresponding quarter last year, a 1.9% change. Jet fuel market prices dropped 1.5% in the reported quarter on average compared to the corresponding quarter last year, and in addition, the Company listed revenues in the reported quarter to the sum of $2.4 million due to an increase in the fair value of hedging agreements not recognized as hedging agreements for accounting purposes relative to $4.6 million in revenues due to an increase in the fair value of these transactions in the corresponding quarter last year. The increase in activity increased jet fuel expenses in the quarter by $3.8 million, and jet fuel hedging reimbursements decreased by $0.8 million in the reported quarter relative to the corresponding quarter last year ($4.4 million compared to $5.2 million). Total fuel expenses constituted 40.3% of total operating expenses in the reported quarter compared to 41.8% in the third quarter of 2012. For further information on jet fuel price hedging see b.1.(3) below.

• Salary expenses in the third quarter of 2013 increased relative to the same period last year. Most of the increase derives from a revaluation of the average rate of exchange of the NIS vs. the USD compared to the corresponding quarter last year and an increase in activity. Regarding the impact of the changes in the NIS/USD rate of exchange on the Company’s employee benefit obligations, see a.4 below.

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The gross profit rate increased from 24.4% of turnover in the third quarter of 2012 to 24.8% in the reported quarter, giving an 8.0% increase in gross profit earned.

Selling expenses – selling expenses decreased by 1.8% compared to the same quarter last year, largely as a result of the decrease in distribution expenses, as well as an increase in direct sales.

General and administrative expenses – general and administrative expenses increased by $5.1 million and their share of turnover increased from 3.8% to 4.3% in the reported quarter, primarily due to the increase in salary as explained above, and from an increase in the average rate of the NIS relative to the USD.

Other net revenues (expenses) – in the reported quarter the Company listed other net revenues to the amount of $0.1 million, while in the corresponding quarter last year, $5.0 million in other net expenses were listed in this item, primarily due to the decrease in value of Boeing 757 aircraft removed from Company service.

Operational profit in the reported quarter amounted to $75.6 million, 11.8% of turnover, compared to an operational profit in the corresponding quarter last year of $62.8 million, 10.4% of turnover.

Financing – the Company listed net financing revenues to the amount of $5.2 million in the reported quarter, compared to net financing expenses of $12.7 million in the corresponding quarter last year. Most of the change is due to receipts due to exchange rate hedging transactions in the current quarter to the sum of $10 million, compared to payments for exchange rate hedging transactions to the sum of $5.5 million in the corresponding quarter last year.

Pre-tax profit in the reported quarter amounted to $80.7 million compared to a pre-tax profit of $50.3 million in the corresponding quarter last year.

Profit for the period amounted to $57.9 million, 9.0% of turnover, compared to a profit of $37.5 million, 6.2% of turnover in the corresponding quarter last year.

The key factors that influenced the business results in the nine month period ending September 30 2013 compared with the same period last year are:

Jan - Sep Jan - Sep change 2013 2012 in % of in % of in thousands operating thousands operating thousands US dollars revenues US dollars revenues US dollars % Operating revenues 1,604,012 100% 1,551,711 100% 52,301 3% Operating expenses (1,324,435) (82.6%) *(1,285,113) (82.8%) (39,322) 3% Gross profit 279,577 17.4% 266,598 17.2% 12,979 5% Selling expenses (153,002) (9.5%) *(158,941) (10.2%) 5,939 (4%) General and administrative expenses (80,273) (5.0%) *(70,271) (4.5%) (10,002) 14% Other operating revenues (expenses), net (51) (0.0%) 4,012 0.3% (4,063) Operating profit before financing 46,251 2.9% 41,398 2.7% 4,853 12% Financing expenses (22,845) (1.4%) (32,080) (2.1%) 9,235 (29%) Financing income 18,891 1.2% 883 0.1% 18,008 2039% Company's share in earnings of affiliates, net 241 0.0% 1,394 0.1% (1,153) (83%) Profit before income taxes 42,538 2.7% 11,595 0.7% 30,943 267% Tax expenses (13,431) (0.8%) *(3,403) (0.2%) (10,028) 295% Profit for the period 29,107 1.8% 8,192 0.5% 20,915 255%

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a to the Financial Statements. Operating revenues – operating revenues in the first nine months of 2013 increased by 3.4% compared to the corresponding period last year. Net revenues from scheduled passenger flights noted a 3.9% increase,

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mainly from an increase in the number of passengers flown offset by a drop in yield per passenger- kilometer. Revenues from cargo transportation dropped by 6.5%, due to the decrease in number of tons- kilometer flown and from the decrease in yield per ton-km.

Operating expenses – the first nine months of 2013 saw a 3.1% increase in the Company's operating expenses compared to the corresponding period last year, mainly as a result of an increase in salary expenses as detailed below and from an increase in activity, their share of turnover amounted to 82.6% in the reported period compared to 82.8% in the same period last year.

• The Company’s jet fuel expenses in the first nine months of 2013 increased by $3.2 million relative to the corresponding period last year, a 0.6% increase rate. The jet fuel market prices decreased by an average of 3.2% in the reported period compared to the same period last year. The Company listed expenses in the reported period to the sum of $2.4 million due to a drop in the fair value of hedging agreements not recognized for accounting purposes as hedging agreements relative to $0.6 million in revenues due to an increase in the fair value of these transactions in the corresponding period last year. Jet fuel hedging returns dropped by $13.2 million in the reported period compared to the corresponding period last year ($4.7 million compared to $17.9 million). Total fuel expenses constituted 39.8% of total operating expenses in the reported period compared to 40.8% in the corresponding period in 2012. For further information on jet fuel price hedging see b.1.(3) below.

• Salary expenses in the first nine months of 2013 increased relative to the same period last year. Most of the increase derives from a revaluation of the average rate of exchange of the NIS vs. the USD compared to the corresponding period last year and an increase as a result of salary creep. Regarding the impact of the changes in the NIS/USD rate of exchange on the Company’s employee benefit obligations, see a.4 below.

The gross profit rate in the reported period was 17.4%, compared to 17.2% in the corresponding period last year.

Selling expenses – selling expenses decreased by 3.7% compared to the corresponding period last year, largely as a result of the decrease in distribution expenses, as well as an increase in direct sales.

General and administrative expenses – general and administrative expenses increased by $10.0 million and their share of turnover increased from 4.5% to 5% in the reported period, primarily due to the increase in salary expenses as explained above, and from an increase in rental fees and professional consulting.

Other net revenues (expenses) – in the first nine months of 2013 the Company listed other net expenses to the amount of $51,000, while in the corresponding period last year this item listed $4.0 million in revenues, mainly as a result of listing net capital gains from the sale of fixed assets.

Operational profits for the first nine months of 2013 amounted to $46.3 million, 2.9% of turnover, compared to an operational profit in the corresponding period last year of $41.4 million, 2.7% of turnover.

Financing – the Company listed net financing expenses (less financing revenues) to the amount of $4.0 million in the first nine months of 2013, compared to net financing expenses of $31.2 million in the corresponding period last year. Most of the change derives from an improvement in receipts due to exchange rate hedging compared to exchange rate hedging payments in the corresponding period last year.

Pre-tax earnings in the first nine months of 2013 amounted to $42.5 million, 2.7% of turnover, compared to a pre-tax profit of $11.6 million, 0.7% of turnover in the corresponding period last year.

Profit for the period amounted to $29.1 million, 1.8% of turnover, compared to a profit of $8.2 million, 0.5% of turnover, in the corresponding period last year.

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a.4 Effect of Changes in the Exchange Rate on the Company's Severance Pay Liabilities In the three month period ending September 30 2013 the exchange rate of the shekel increased against the dollar by 2.2%, compared to an increase in the exchange rate of the shekel against the dollar of 0.3% in the same quarter last year.

In the nine month period ending September 30 2013 the exchange rate of the shekel increased against the dollar by 5.3%, compared to a decrease in the exchange rate of the shekel against the dollar of 2.4% in the same period last year.

US Dollar - NIS Exchange Rate:

4.2 3.923 3.912 3.821 3.9 3.712 3.715 3.733 3.648 3.618 3.537 3.6

3.3

3.0

The Company has a net obligation for severance pay, retirement plans, sick pay and vacation pay as of September 30 2013 to the amount of $89 million. Since most of these obligations are denominated in shekels, whereas the functional currency of the Company is the dollar, these obligations must be translated into dollars, which causes differences deriving from changes in the exchange rate of the shekel against the dollar. Exchange rate changes are not one-directional, and cause the listing of revenues or expenses in the Company's Financial Statements. These revenues or expenses do not impact cash flow or operating costs of the Company in the short run. In order to enable a comparison of the Company's business results for the long run, these revenues or expenses should be neutralized.

The quarter ending September 30 2013 saw an increase in expenses for this element to the amount of $1.4 million compared with the same period last year, in which the an increase was listed for this element to the amount of $0.3 million.

The first nine months of 2013 saw an increase in expenses for this element to the amount of $3.2 million, compared to the same period last year, in which a reduction in expenses was listed for this element to the amount of $2.0 million.

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Before After neutralizing the exchange-rate effect For Three-mounth period ended on the accrued severance pay 30 September: 2013 2012 2013 2012 )in thousands US dollars( Operating expenses 483,550 457,803 482,290 457,544 Gross profit 159,742 147,960 161,002 148,219 Gross profit rate 24.8% 24.4% 25.0% 24.5% Selling, general and administrative expenses 84,279 80,203 84,122 80,140 Other operating income (expenses) ,net 126 (4,978) 74 (4,970) Operating profits before financing 75,589 62,779 76,954 63,109 Operating profits rate before financing 11.8% 10.4% 12.0% 10.4% Profit for the period 57,860 37,542 59,225 37,872 Profit rate for the period 9.0% 6.2% 9.2% 6.3%

Before After neutralizing the exchange-rate effect For Nine-mounth period ended on the accrued severance pay 30 September: 2013 2012 2013 2012 )in thousands US dollars( Operating expenses 1,324,435 1,285,113 1,321,530 1,286,738 Gross profit 279,577 266,598 282,482 264,973 Gross profit rate 17.4% 17.2% 17.6% 17.1% Selling, general and administrative expenses 233,275 229,212 232,879 229,537 Other operating income (expenses) ,net (51) 4,012 (183) 3,926 Operating profit before financing 46,251 41,398 49,420 39,362 Operating profit rate before financing 2.9% 2.7% 3.1% 2.5% Profit for the period 29,107 8,192 32,276 6,156 Profit rate for the period 1.8% 0.5% 2.0% 0.4%

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a.5 Segment Reporting

Presented below are operational segment data on a consolidated basis: a. General:

The Group has applied IFRS 8, "Operating Segments" (hereinafter "IFRS 8") starting January 1 2009.

According to IFRS 8, operational segments are identified based on internal reports on the Group's components, which are reviewed on a regular basis by the Group's chief operating decision maker for the purpose of allocating resources and assessing the performance of the operational segments.

The report array conveyed to the Group's chief operating decision maker, for the purpose of allocating resources and assessing the performance of the operational segments, is based on the distinction between revenues from passenger aircraft, cargo aircraft, charter flights and other revenues. In light of the above, the following are the Company's reported operating segments in accordance with IFRS 8:

Segment A – passenger aircraft activity.

Segment B – cargo aircraft activity. *

In determining the results of the reported operating segments, a number of components not part of the direct costs involved in operating the flights, such as depreciation as a result of aviation equipment, fixed maintenance costs and fixed costs at overseas offices are also included.

b. Analysis of income and results by operating segments:

For Three-mounth period ended: passenger cargo others Adjustment Total 30.09.2013 aircraft aircraft consolidated in thousands US dollars operating revenues revenue from external customers 585,490 15,550 16,423 25,829 643,292 inter-segment revenues - - 21,829 (21,829) - Total segment revenues 585,490 15,550 38,252 4,000 643,292

segment results 116,160 )2,003( 15,005 129,162 Unassigned expenses (53,573) Operating profit before financing 75,589 Financing expenses (4,939) Financing income 10,110 The Company's share of the profits of subsidiaries, net of tax (20) Profit before income taxes 80,740 Tax expenses (22,880) Profit for the period 57,860

* Starting June 2011 the Company employs a single leased 747-400 cargo airplane.

B-12 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding

For Three-mounth period ended: passenger cargo others Adjustment Total 30.09.2012 aircraft aircraft consolidated in thousands US dollars operating revenues revenue from external customers 546,853 17,069 11,864 29,977 605,763 inter-segment revenues - - 25,542 (25,542) - Total segment revenues 546,853 17,069 37,406 4,435 605,763

segment results 98,399 (1,817) 7,843 104,425 Unassigned expenses *(41,646) Operating profit before financing 62,779 Financing expenses (13,086) Financing income 396 The Company's share of the profits of subsidiaries, net of tax 182 Profit before income taxes 50,271 Tax expenses *(12,729) Profit for the period 37,542

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a to the Financial Statements.

Revenues in the three-month period ending September 30 2013 increased by 7.1% in the passenger aircraft segment, primarily due to an increase in the number of passengers. On the other hand, revenues from the cargo plane segment dropped by 8.9%, mainly due to the decrease in yield per ton-kilometer. Other revenues noted an increase, mainly from the provision of maintenance services for outside elements. The share of the passenger aircraft segment out of total revenues was 91.0% in the third quarter of 2013 compared to 90.3% in the corresponding quarter last year, while the cargo plane segment decreased from 2.8% of revenues in the third quarter of 2012 to 2.4% in the reported quarter.

The passenger plane segment listed a $116.2 million contribution in the reported quarter (19.8% of turnover), compared to a contribution of $98.4 million (18.0% of turnover) in the corresponding quarter last year as a result of an increase in revenues from passenger transportation relative to a more moderate increase in operating expenses. The results of the cargo plane segment worsened, listing a $2.0 million loss (12.9% of turnover) compared to a loss of $1.8 million (10.6% of turnover) in the corresponding quarter last year, largely as a result of a drop in yield per ton-kilometer.

B-13 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding

For Nine-mounth period ended: passenger cargo others Adjustment Total 30.09.2013 aircraft aircraft consolidated in thousands US dollars operating revenues revenue from external customers 1,463,832 50,692 40,616 48,872 1,604,012 inter-segment revenues - - 37,650 (37,650) - Total segment revenues 1,463,832 50,692 78,266 11,222 1,604,012

segment results 182,650 )4,028( 34,824 213,446 Unassigned expenses (167,195) Operating profit before financing 46,251 Financing expenses (22,845) Financing income 18,891 The Company's share of the profits of subsidiaries, net of tax 241 Profit before income taxes 42,538 Tax expenses (13,431) Profit for the period 29,107

For Nine-mounth period ended: passenger cargo others Adjustment Total 30.09.2012 aircraft aircraft consolidated in thousands US dollars operating revenues revenue from external customers 1,406,853 61,607 32,687 50,564 1,551,711 inter-segment revenues - - 40,079 (40,079) - Total segment revenues 1,406,853 61,607 72,766 10,485 1,551,711

segment results 161,595 (2,704) 20,056 178,947 Unassigned expenses *(137,549) Operating profit before financing 41,398 Financing expenses (32,080) Financing income 883 The Company's share of the profits of subsidiaries, net of tax 1,394 Profit before income taxes 11,595 Tax expenses *(3,403) Profit for the period 8,192

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a to the Financial Statements.

Income in the nine-month period ending September 30 2013 increased by 4.1% in the passenger airplane segment, mainly as a result of the increase in the number of passengers flown, while revenues in the cargo airplane segment decreased by 17.7% both as a result of the decrease in the amount of cargo flown and the drop in ton-kilometers. Other revenues noted an increase, mainly from the provision of maintenance services for outside elements. The share of the passenger aircraft segment out of total revenues increased from 90.7% in the corresponding period of 2012 to 91.3% in the reported period, while the cargo aircraft segment decreased from 4.0% of revenues in the first nine months of 2012 to 3.2% in the reported period.

The passenger plane segment listed a $182.7 million contribution in the reported period (12.5% of turnover), compared to a contribution of $161.6 million (11.5% of turnover) in the corresponding period last year,

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largely as a result of an increase in revenues from passenger transportation. The results of the cargo plane segment worsened, listing a $4.0 million loss (7.9% of turnover) compared to a loss of $2.7 million (4.4% of turnover) in the corresponding period last year, both as a result of a drop in the amount of cargo flown and a drop in yield per ton-kilometer.

For year ended: passenger cargo others Adjustment Total 31.12.12 aircraft aircraft consolidated in thousands US dollars operating revenues revenue from external customers 1,827,943 80,431 44,603 62,665 2,015,642 inter-segment revenues - - 48,557 (48,557) - Total segment revenues 1,827,943 80,431 93,160 14,108 2,015,642

segment results 187,727 (3,827) 26,825 210,725 Unassigned expenses *(198,280) Operating profit before financing 12,445 Financing expenses (38,413) Financing income 1,447 The Company's share of the profits of subsidiaries, net of tax 1,273 Loss before income taxes (23,248) Tax benefit *5,142 Loss for the year (18,106)

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3 to the Financial Statements.

a.6 Seasonal Factors

The Group's activity is seasonal and focuses on peak periods. Heavy traffic of Israeli residents traveling abroad occurs primarily during the summer months and during holidays, while heavy incoming tourist traffic occurs during the summer months and during Jewish or Christian holidays or vacation time in their countries of origin. Note that in the current quarter, the significant increase in Israeli departures derives from the movement of the holidays, meaning that this year the Tishrei Holidays all fell in September, while last year the Sukkot holiday fell in October, in the fourth quarter.

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a.7 Liquidity and Financing Sources

Movement in cash flow for the three month period ending September 30 2013 compared to the same period last year is:

July - September July - September change 2013 2012 in thousands US in thousands US in thousands dollars dollars US dollars Cash flows from operating activities 56,061 13,314 42,747 Cash flows used for investing activities (24,103) (7,629) (16,474) Cash flows from (used for) financing activities (16,785) 7,684 (24,469) Net increase in cash and cash equivalents 15,173 13,369 1,804

Operating Activities

The Group received a cash flow from current activity to the amount of $56.1 million in the quarter ending September 30 2013 compared to a cash flow from current activity to the amount of $13.3 million created in the same quarter last year. The improvement in the current cash flow relative to the same quarter last year derives mainly from an increase in profit before tax in the reported period and changes in asset and liability items.

Investment Activities

The Company made an investment of $24.1 million in investment activity in the third quarter of 2013. Investment in fixed and intangible assets amounted to a total of $28.2 million (mainly payments for the 737- 900 aircrafts agreement). On the other hand, the Company realized pledged deposits for jet fuel hedging to the amount of $4.2 million.

In the third quarter of 2012, the Company invested a net sum of $7.6 million. Investment in fixed and intangible assets amounted to $15.5 million. On the other hand, pledged deposits were realized to the amount of $6.4 million.

Financing Activities

In the third quarter of 2013 the Company used $16.8 million for financing activity. The Company redeemed loans to the amount of $21.5 while receiving loans to the amount of $4.8 million.

The Company saw $7.7 million from financing activity in the third quarter of 2012, mainly from receive of loans to the amount of $30, while repaying loans to the amount of $21.1 million.

In total, the reported quarter saw a $15.2 million increase in the balance of cash and cash equivalents, which amounted to $122.4 million as of September 30 2013.

Movement in cash flow for the nine month period ending September 30 2013 compared to the same period last year is:

Jan - Sep Jan - Sep change 2013 2012 in thousands US in thousands US in thousands dollars dollars US dollars Cash flows from operating activities 184,590 92,484 92,106 Cash flows used for investing activities (83,604) (38,432) (45,172) Cash flows used for financing activities (31,446) (26,512) (4,934) Net increase in cash and cash equivalents 69,540 27,540 42,000

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Operating Activities

The Group received cash flows from operating activity to the amount of $184.6 million in the nine months ending September 30 2013 compared to cash flow from operating activity to the amount of $92.5 million in the same period last year. The improvement in the current cash flow relative to the same period last year derives mainly from an increase in profit before tax in the reported period and changes in asset and liability items.

Investment Activities

In the first nine months of 2013, the Company made investments at a net sum of $83.6 million. Investment in fixed and intangible assets amounted to a total of $104.4 million (mainly payments for the 737-900 aircraft agreement). On the other hand the Company received $15.4 million from the realization of fixed assets, and pledged deposits were realized to the sum of $5.8 million.

In the first nine months of 2012, the Company used $38.4 million for investment activity, mainly in the purchase of fixed and intangible assets to the amount of $57.0 million, while on the other hand the Company received $18.5 million from the realization of fixed assets.

Financing Activities

In the first nine months of 2013 the Company used a net of $31.5 million for financing activity, mainly for the redemption of long-term loans to the amount of $63.6 million and the repayment of short-term bank credit to the amount of $18.2 million. On the other hand, the Company received loans to the amount of $50.4 million in the reported period.

In the first nine months of 2012 the Company used a net of $26.5 million for financing activity, mainly for the redemption of long-term loans to the amount of $77.0 million and the repayment of short-term bank credit to the amount of $4.5 million. On the other hand, the Company received loans to the amount of $47.0 million in the reported period.

In total, the balance of cash and cash equivalents for September 30 2013 increased by $69.5 million and reached a total of $122.4 million, compared to $52.8 million as of December 31 2012.

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b. Market Risk Exposure and Management b.1 Qualitative Reporting on Exposure to and Management of Market Risks

b.1. (1) General – Description of Market risks to which the Company is Exposed

Presented below is a summary of the market risks to which the Company is exposed:

Exposure to changes in prices of jet fuel – changes in prices of jet fuel, which constitutes a significant element of the Company's operating expenses, have a material effect on the Company's profitability. In the Company's estimation, at its current level of activity, every change of $0.01 US in the price of a gallon of jet fuel during an entire year impacts the Company's fuel expenses by $2.3 million. The Company has taken hedging measures to reduce the exposure, as detailed in b.1.(3) below.

Exposure to changes in interest rates – most of the Company's long-term loans are at variable interest. Therefore, an increase in the Libor rate could impact the Company's profitability. At the present level of activity, every 1% increase in the Libor rate for a full year increases the Company's financing expenses by $6.1 million. The Company takes hedging measures to reduce the exposure, as detailed in b.1.(4) below.

Currency exposure – most of the Company's revenues and expenses are in foreign currency (mainly the U.S. dollar), except for several shekel expenses, mainly salary expenses and payments to local suppliers in Israel. Accordingly, a change in the shekel/dollar exchange rate influences the Company's shekel expenses in dollar terms. In the Company's estimation, at present levels of activity, each 1% in appreciation of the exchange rate of the shekel relative to the dollar for an entire year increases the Company's annual expenses by $4.6 million. Likewise, a surplus of payments over receipts exists in euros, but at insignificant rates.

The Company has adopted hedging measures to reduce the exposure, as provided in Section b.1.(5) below.

Exposure in long-term loan frameworks – according to the provisions of the loan agreements, the Company must maintain a minimal collateral ratio between the market value of the planes and the balance of the loans guaranteed by these aircraft. Likewise, the Company is required to comply with certain covenants, which, if not complied with, can be used to compel the Company to immediately repay the loans. The Company's exposure to market risks in this area derives from the changes that occur in the market value of planes around the world. For further details see Note 13f and Note 18f to the December 31 2012 Financial Statements.

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b.1.(2) El Al Market Risk Management Policies, Officials Responsible for their Management and Means of Controlling and Executing Policy

The Company’s Board of Directors is responsible for approving a market risk management policy and supervises the implementation of the policy through the Market Risk Management Committee headed by Mr. Nadav Palti.

The Committee is responsible for defining and updating the policy, supervising the policy’s implementation and issuing instructions/approvals for Company management to deviate from implementing the policy in accordance with various developments.

The Company CEO is responsible for making decisions regarding the implementation of hedging agreements in practice in accordance with the Committee’s policy and guidelines.

The Company moderates the influence of these risks through the use of derivative financial instruments in order to hedge its exposure to risk. Use of the derivative financial instruments is in accordance with Group policy approved by its Board of Directors, which sets written principles regarding: currency risk management, interest rate risk, jet fuel price risk, the use of derivative financial instruments and non- derivative financial instruments and the investment of surplus liquidity. Compliance with policy and with permitted exposure levels is supervised by the Risk Management Committee on a regular and continuous basis.

The Market Risk Management Committee allows Company Management from time to time to deviate from said policy for limited amounts of time, in accordance with market developments.

The jet fuel hedging policy is as follows: hedging jet fuel quantities for up to 24 months forward, so that for every period, a minimum and maximum hedging rate would be set out of total expected consumption, in a gradual and decreasing manner. Hedging agreements shall be carried out on a monthly basis. The maximum hedging rate at the beginning of the period is 75% and the minimum hedging rate for the 12th month is 5%. Instruments and hedging levels shall be selected so that the Company limits its maximum exposure to cash securities. Over the course of the reported period, the Company adapted the implementation of the jet fuel hedging policy to rapidly-fluctuating market conditions, so that from time to time a deviation is created from the policy’s base lines, all of which involves regular reports to the Market Risk Management Committee and to the Board of Directors. As of this report, the Company is hedged in the coming three months past the maximum lines defined in the policy, and in consecutive months a bit below the minimum lines, in accordance with the approval of the Board of Directors’ Market Risk Management Committee.

The Company's policy with respect to interest hedging is to hedge half of the credit portfolio for a period of up to 5 years. As of this report, the Company is hedged according to its policy.

The Company’s policy on the matter of NIS/USD exchange rate hedging is to hedge up to 75% of its cash flow exposure for a 1-year outlook as decided by management. As of this report, the Company is hedged according to its policy.

For details on the policy adopted, see Sections b.1.(3), b.1.(4) and b.1.(5) below. For details regarding the influence of the changes in the economic environment after the balance sheet date, see Section e. below.

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b.1.(3) Hedging Jet Fuel Prices

The Company executes financial transactions to hedge against changes in jet fuel prices, in accordance with its policy as described in Section b.1.(2) above.

As of September 30 2013, the Company had several agreements designed for hedging jet fuel prices, at a scope estimated at 32% of expected consumption for the next 12 months. Some of these transactions are recognized as hedging agreements for accounting purposes and some are not. The net fair value of all jet fuel hedging instruments as of September 2013 2013 is $2.0 million, presented in the Financial Statements as part of current assets and current liabilities, under “derivative financial instruments". The Company listed an income of $6.8 million from these hedging agreements in the reported quarter. For details regarding changes occurring to jet fuel prices subsequent to the balance sheet date, see Section e.b.1 of the Board of Directors Report.

b.1.(4) Hedging Interest on Loans

The Company executes hedges of the exposure in its long-term credit portfolio, due to changes in interest rates, in accordance with its policy as laid out in Section b.1.(2) above.

As of September 30 2013 these transactions are recognized as hedging agreements for accounting purposes. The fair value of all interest hedging instruments as of September 30 2013 is a negative sum of $1.1 million, which is presented in the Financial Statements in the framework of current liabilities and non-current liabilities under “derivative financial instruments”.

After carrying out the hedging in question, as of September 30 2013, 30.1% of the balance of variable- interest loans received by the Company are hedged for a 15-month horizon (to January 2015), 57.4% of the balance of the loans received by the Company are at variable and non-hedged interest rates and 12.5% of the balance of the loans are at fixed interest for a period of 8 years, so that as of this report 42.6% of the Company’s loans are at fixed interest.

In the reported quarter the Company listed an expenses of $0.2 million due to these hedging agreements.

For information on changes in interest rates occurring subsequent to the balance sheet date, see Section e.b.2 of the Board of Directors Report below.

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b.1.(5) Exchange Rate Hedges

The Company executes hedges to protect its currency exposure due to changes in the exchange rate of the NIS versus the USD, in accordance with its policy as laid out in Section b.1.(2) above. These transactions are recognized as hedging agreements for accounting purposes.

Over the course of the first nine months of 2013, the Company has entered into several financial transactions, intended to protect the Company from drops in NIS/USD exchange rates until August 2014.

The net fair value of these instruments as of September 30 2013 is a sum of $8.8 million, presented in the Financial Statements in the framework of current assets and current liabilities, under derivative financial instruments.

In the reported quarter the Company listed income for exchange rate hedging agreements to the amount of $10.0 million.

For information on changes occurring in the NIS-USD exchange rate, see e.b.3 below.

For details regarding the sale of financial instrument agreements as part of the exchange rate hedging portfolio, see Note 8e to the Financial Statements.

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b.1.(6) Sensitivity Analysis Reporting

The following is an analysis of the sensitivity of the fair value of the financial instruments sensitive to changes possible in the risk factors to which they are exposed. The analyses are given relative to the fair value of the financial instruments as of September 30 2013.

Presented below are sensitivity analysis tables for instruments sensitive to changes in market factors:

a) Sensitivity to changes in NIS/USD exchange rate – thousands of dollars:

Gain (loss) from changes Gain (loss) from changes Increase 10% Increase 5% Fair value Decrease 5% Decrease 10% 3.891 3.714 3.537 3.360 3.183 NIS/$ NIS/$ NIS/$ NIS/$ NIS/$ Cash and cash equivalents (697) (365) 7,672 404 852 Designated cash (76) (40) 838 44 93 Short-term deposits (829) (434) 9,117 480 1,013 Trade receivables (127) (66) 1,395 73 155 Other accounts receivables (1,266) (663) 13,930 733 1,548 Derivative financial instruments (921) (482) 10,128 533 1,125 Long-term bank deposits (125) (66) 1,377 72 153 Total financial Assets (4,041) (2,116) 44,457 2,339 4,939 Borrowings and current maturities 450 236 (4,955) (261) (551) Trade payables 2,957 1,549 (32,522) (1,712) (3,614) Other payables - Current 42 22 (464) (24) (52) Derivative financial instruments 118 62 (1,295) (68) (144) Loans from financial institutions 317 166 (3,490) (184) (388) Loan from others 74 39 (813) (43) (90) Other payables - Non Current 403 211 (4,437) (234) (493) Total financial liabilities 4,361 2,285 (47,976) (2,526) (5,332) Exposure in linkage balance sheet due to surplus of financial liabilities over financial assets 320 169 (3,519) (187) (393)

* Does not include exposure for the effect of the changes in the exchange rate on assets and liabilities due to employee benefits, see Section a4.

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b) Sensitivity to changes in euro/dollar exchange rate - thousands of dollars:

Gain (loss) from changes Gain (loss) from changes Increase 10% Increase 5% Fair value Decrease 5% Decrease 10% 0.815 0.778 0.741 0.704 0.667 Euro/$ Euro/$ Euro/$ Euro/$ Euro/$ Cash and cash equivalents (680) (356) 7,479 394 831 Trade receivables (2,162) (1,133) 23,785 1,252 2,643 Other accounts receivables (171) (90) 1,883 99 209 Total financial Assets (3,013) (1,579) 33,147 1,745 3,683 Trade payables 2,745 1,438 (30,191) (1,589) (3,355) Other payables 69 36 (757) (40) (84) Total financial liabilities 2,814 1,474 (30,948) (1,629) (3,439) Exposure in linkage balance sheet due to surplus of financial assets over financial liabilities (199) (105) 2,199 116 244

* Does not include exposure for the effect of the changes in the exchange rate on assets and liabilities due to employee benefits, see Section a4.

c) Sensitivity to changes in jet fuel prices on inventory (dollar/gallon) – in thousands of dollars:

Gain from changes Loss from changes Type of instrument Increase 10% Increase 5% Fair value Decrease 5% Decrease 10% 3.337 3.186 3.034* 2.882 2.731 $/gallon $/gallon $/gallon $/gallon $/gallon Jet fuel Inventorie 926 463 9,256 (463) (926)

* The price of jet fuel according to a moving weighted average for the period ending September 30

2013.

d) Sensitivity of jet fuel hedge to changes in jet fuel prices - in thousands of dollars:

According to the model's principles, jet fuel hedges that react in a similar manner to market factors were grouped together, since there was no loss of material information required to understand the Company's exposure to market risks as a result of the grouping. On January 5 2009 jet fuel prices changed by 14%, and therefore the following sensitivity analysis includes a 15% change in jet fuel prices.

Gain from changes Loss from changes Type of instrument Increase 15% Increase 10% Increase 5% Fair value* Decrease Decrease 10% Decrease 15% 5% 3.328 3.183 3.039 2.894 2.749 2.605 2.460 $/gallon $/gallon $/gallon $/gallon $/gallon $/gallon $/gallon SWAP transactions - designed for hedging 17,558 11,705 5,853 1,034 (5,853) (11,705) (17,558) Options - not designed for hedging 10,636 6,647 2,943 919 (1,923) (3,854) (6,218) Total transactions - jet fuel hedge 28,194 18,352 8,796 1,953 (7,776) (15,559) (23,776)

* The price of jet fuel in the Mediterranean Basin ($2.894/gallon) as of September 30 2013, according to which the fair value of the Company's hedge transactions is calculated.

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e) Sensitivity of an interest hedge to changes in market interest rates – in thousands of dollars:

According to the principles of the model, the Group executed interest hedges that respond in a similar way to market factors (IRS agreements intended for hedging), since no loss of significant information is sustained that is required to understand the Company's exposure to the market risk, as a result of the grouping. On December 16 2008 a 75% change occurred to the dollar monetary interest rate, and therefore the following sensitivity analysis led to a 75% change in interest rates.

Gain from changes Loss from changes Type of instrument Increase Decrease Decrease Increase 75% Increase 10% 5% Decrease 5% 10% 75% in interest in interest in interest Fair value * in interest in interest in interest rate rate rate rate rate rate IRS transactions - designed for hedging 365 49 24 (1,139) (24) (49) (367)

* Fair value was calculated according to the market Libor rate as of the report date, at the following rates: 3-month Libor: 0.25%, and 6-month Libor: 0.37% all as applicable and according to the relevant transaction.

f) Sensitivity of NIS/USD exchange rate hedge to changes in market interest rates – in thousands of dollars:

Loss from changes Gain from changes Type of instrument Increase 10% Increase 5% Decrease 5% Decrease 10% in exchange in exchange Fair value in exchange in exchange rate rate NIS/$ * rate rate 3.891 3.714 3.537 3.360 3.183 FORWARD transactions - designed for hedging (11,473) (6,011) 8,833 6,641 14,023

* The sensitivity analysis was carried out in shekel terms, and the profit or loss in the event of a 5% or 10% decrease or increase was translated according to an exchange rate of 3.537 NIS per USD on September 30 2013.

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b2. Linkage Basis Report The following is the consolidated linkage basis report for September 30 2013:

In, or linked to In Israeli In, or linked to In, or linked to Non-monetary Total the US dollar currency the euro the other items currencies (in thousands US dollars) Current assets Cash and cash equivalents 98,617 7,672 7,479 8,582 - 122,350 Designated cash - 838 - - - 838 Short-term deposits - 9,117 - - - 9,117 Restricted deposits 5,650 - - - - 5,650 Trade receivables 90,903 1,395 23,785 22,197 - 138,280 Other accounts receivables 12,767 13,930 1,883 6,854 - 35,434 Derivative financial instruments 2,916 10,128 - - - 13,044 Prepaid expenses - - - - 26,350 26,350 Inventories - - - - 19,151 19,151 Non-current assets Long-term bank deposits - 1,377 - - - 1,377 Investment in affiliated companies - - - - 16,713 16,713 Investments in other companies 1,238 - - - - 1,238 Fixed assets, net - - - - 1,124,660 1,124,660 Intangible assets, net - - - - 9,222 9,222 Prepaid expenses - - - - 11,243 11,243 Assets due to employee benefits - 55,350 - - - 55,350 212,091 99,807 33,147 37,633 1,207,339 1,590,017 Current liabilities Borrowings and current maturities (185,183) (4,955) - - - (190,138) Trade payables (88,845) (32,522) (30,191) (9,587) - (161,145) Other payables (43,127) (464) (757) (3,134) - (47,482) Provisions (2,900) (13,954) - - - (16,854) Derivative financial instruments (1,340) (1,295) - - - (2,635) Employee benefit obligations (7,988) (99,737) (3,573) (1,440) - (112,738) Unearned revenues - - - - (282,076) (282,076) Non-current liabilities Loans from financial institutions (412,689) (3,490) - - - (416,179) Employee benefit obligations (20,931) (56,341) (689) (7,906) - (85,867) Loans from others (60) (813) - - - (873) Derivative financial instruments (762) - - - - (762) Other payables (4,233) (4,437) - - - (8,670) Deferred tax - - - - (34,870) (34,870) Unearned revenues - - - - (60,313) (60,313) Shareholders’ equity - - - - (169,415) (169,415) (768,058) (218,008) (35,210) (22,067) (546,674) (1,590,017) Monetary assets, net of monetary liabilities (monetary liabilities, net of monetary assets) (555,967) (118,201) (2,063) 15,566 660,665 -

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The following is the consolidated linkage basis report for September 30 2012:

In, or linked to In Israeli In, or linked to In, or linked to Non-monetary Total the US dollar currency the euro the other items currencies (in thousands US dollars) Current assets Cash and cash equivalents 50,496 45,971 6,188 10,241 - 112,896 Designated cash - 1,324 - - - 1,324 Short-term deposits - 8,136 - - - 8,136 Trade receivables 117,403 764 19,899 10,254 - 148,320 Other accounts receivables 9,177 12,185 1,967 1,820 - 25,150 Derivative financial instruments 11,030 1,289 - - - 12,319 Prepaid expenses - - - - 31,346 31,346 Inventories - - - - 22,475 22,475 Non-current assets Long-term bank deposits - 1,400 - - - 1,400 Investment in affiliated companies - - - - 15,020 15,020 Investments in other company 1,265 - - - - 1,265 Fixed assets, net - - - - 1,132,252 1,132,252 Intangible assets, net - - - - 9,046 9,046 Prepaid expenses - - - - 8,196 8,196 Assets due to employee benefits - *39,905 - - - 39,905 189,371 110,974 28,054 22,315 1,218,335 1,569,050 Current liabilities Borrowings and current maturities (123,291) (4,441) - - - (127,732) Trade payables (95,659) (18,146) (29,870) (11,351) - (155,026) Other payables (48,910) (1,087) (3,758) (4,086) - (57,841) Provisions (1,722) (14,133) - - - (15,855) Derivative financial instruments (1,866) (6,779) - - - (8,645) Employee benefit obligations (7,377) (86,711) (702) (403) - (95,193) Unearned revenues - - - - (277,117) (277,117) Non-current liabilities Loans from financial institutions (504,924) (5,839) - - - (510,763) Employee benefit obligations *(20,147) *(49,580) (599) *(8,222) - (78,548) Loan from others (116) (160) - - - (276) Derivative financial instruments (1,506) - - - - (1,506) Other payables (4,311) (4,437) - - - (8,748) Deferred tax - - - - *(25,402) (25,402) Unearned revenues - - - - (55,469) (55,469) Shareholders’ equity - - - - *(150,929) (150,929) (789,682) (141,733) (34,929) (15,840) (508,917) (1,491,101) Monetary assets, net of monetary liabilities (monetary liabilities, net of monetary assets) (600,311) (30,759) (6,875) 6,475 709,418 -

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a to the Financial Statements.

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The following is the consolidated linkage basis report for December 31 2012:

In, or linked to In Israeli In, or linked to In, or linked to Non-monetary Total the US dollar currency the euro the other items currencies (in thousands US dollars) Current assets Cash and cash equivalents 5,771 34,392 1,668 10,979 - 52,810 Designated cash - 1,205 - - - 1,205 Short-term deposits - 8,570 - - - 8,570 Restricted deposits 11,456 - - - - 11,456 Trade receivables 97,740 1,530 16,276 14,352 - 129,898 Other accounts receivables 8,049 12,253 1,244 1,787 - 23,333 Derivative financial instruments 5,666 11,006 - - - 16,672 Prepaid expenses - - - - 29,442 29,442 Inventories - - - - 22,145 22,145 Non-current assets Long-term bank deposits - 1,451 - - - 1,451 Investment in affiliated companies - - - - 16,747 16,747 Investment in other company 1,244 - - - - 1,244 Fixed assets, net - - - - 1,128,959 1,128,959 Intangible assets, net - - - - 9,392 9,392 Prepaid expenses - - - - 9,950 9,950 Assets due to employee benefits - *45,319 - - - 45,319 129,926 115,726 19,188 27,118 1,216,635 1,508,593 Current liabilities Borrowings and current maturities (155,558) (4,426) (84) (248) - (160,316) Trade payables (88,819) (27,579) (19,361) (9,073) - (144,832) Other payables (45,487) (351) (3,099) (3,306) - (52,243) Provisions (1,478) (14,855) - - - (16,333) Derivative financial instruments (126) - - - - (126) Employee benefit obligations (3,535) (93,928) (487) (4) - (97,954) Unearned revenues - - - - (252,915) (252,915) Non-current liabilities Loans from financial institutions (468,935) (5,290) - - - (474,225) Employee benefit obligations *(26,849) *(46,963) (613) *(8,028) - (82,453) Loan from others (163) (2,278) - - - (2,441) Derivative financial instruments (1,399) - - - - (1,399) Other payables (4,350) (4,437) - - - (8,787) Deferred tax - - - - *(20,489) (20,489) Unearned revenues - - - - (58,274) (58,274) Shareholders’ equity - - - - *(135,806) (135,806) (796,699) (200,107) (23,644) (20,659) (467,484) (1,508,593) Monetary assets, net of monetary liabilities (monetary liabilities, net of monetary assets) (666,773) (84,381) (4,456) 6,459 749,151 -

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a to the Financial Statements.

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c. Aspects of Corporate Governance

Disclosure in the Report of the Board of Directors regarding the Financial Statements approval process: The body charged with ultimate control in the Company regarding the approval of the Financial Statements is its Board of Directors. Starting from the approval of the 2010 yearly Financial Statements the financial statement approval process is covered by directives set in the Companies Regulations (Directives and Conditions for the Financial Statement Approval Process), 2010 (hereinafter – “the Regulations”).

Within the framework of the Board of Directors, the Company operates several committees, including the Audit Committee, the Market Risks Management Committee, the Human Resources Committee, the Finance and Budget Committee, the Balance Sheet Committee, the Security Committee, the Corporate Governance Committee and the Government Affairs and Regulations Committee. In the Board meeting held on September 15 2011 it was decided to split the Finance, Budget and Balance Sheet Committee to two committees: the Finance and Budget Committee, which will discuss various financial issues, including the Company’s budget, as well as a Balance Sheet Committee that will serve as a Financial Statements examination committee. At the head of both committees is the external director Mr. Yair Rabinowitz.

As of the approval of these Financial Statements, the Balance Sheet Committee (Financial Statement Examination Committee) consists of four members (most of whom are independent), as follows: Mr. Yair Rabinowitz, Prof. Yehoshua (Shuki) Shemer, Mr. Pinchas Ginsburg and Mr. Avraham Bigger. For details regarding the experience and education of the directors in question see Regulation 26 of Part D (Additional Information Regarding the Corporation) of the Company’s periodic report for the year 2012.

The Balance Sheet Committee meets for extensive and thorough discussion of the draft Financial Statements, in the presence of the auditing accountant. The Chief Executive Officer and the Chief Financial Officer present the members of the committee with extensive details on the Financial Statements, including detailed financial analyses about the Company's performance during the reporting period.

The Balance Sheet Committee studies the material issues in financial reporting and formulates a recommendation for the Company’s Board of Directors pertaining to, among other things, the following issues: (a) estimates and evaluations made pursuant to the Financial Statements; (b) internal controls pertaining to financial reporting; (c) the wholeness and propriety of disclosure in the Financial Statements; (d) the accounting policy adopted and the accounting treatment applied to material Group issues; (e) value estimates, including underlying assumptions and estimates, on which the data in the Financial Statements was based. The Committee also reviews different aspects of control and risk management, both those reflected in the Financial Statements and those impacting the reliability of the Financial Statements.

When complex or material issues are on the agenda, special discussions are held by the Balance Sheet Committee on the issues on the agenda with the participation of the independent auditor.

The Company’s Board of Directors is the organ responsible for discussing and approving the Financial Statements, after the members of the Board receive the draft Financial Statements and the recommendations of the Financial Statements Examination Committee at least two business days prior to the meeting.

Over the course of the Board meeting in which the Financial Statements are discussed and ratified, the Company CFO provides a detailed review of the key points of the Financial Statements and the Company’s accounting policy. The CEO also reviews the Company's current activity and the influence of this activity on the Company’s Financial Statements and emphasizes material issues. In addition, the Chair of the Financial Statement Examination Committee reviews the key points of the Committee’s recommendations.

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Invited and present at the Board meeting in which the Financial Statements are discussed and ratified are representatives of the Company’s independent auditor, who provide remarks and clarifications to the Financial Statements and who are at the Board members’ disposal to answer questions and provide clarifications regarding the reports prior to their approval.

The Balance Sheet Committee convened on November 10 2013 to formulate recommendations for the Board of Directors. Taking part in the meeting in question were the Committee members: Mr. Yair Rabinowitz, Professor Yehoshua Shemer, Mr. Pinchas Ginsburg and Mr. Avraham Bigger. Also taking part in the meetings in question were the Company CEO, Mr. Elyezer Shkedi, the CFO, Mr. Nissim Malki, the Legal Counsel and Company Secretary, Mr. Omer Shalev and representatives of the independent auditor.

The Balance Sheet Committee held a discussion about the Financial Statements presented to it, including directing questions to the members of management present and to the independent auditor. Likewise, the independent auditor is asked to present his comments, if any, to the committee members, including accounting policy applied and special events that arose during the review of the Financial Statements.

The following are details of the processes taken prior to the approval of the September 30 2013 Financial Statements: a) The draft Financial Statements were provided to the members of the Board of Directors to study on November 6 2013. b) Committee members are welcome to contact the Company CFO at any time with any question or clarification they require, prior to the meeting. c) Over the course of the meeting, the Committee reviewed the Company’s financial results and viewed comparisons between the reported period and corresponding periods and the work plan, presented by the CFO. d) Pursuant to its meeting, the Committee studied the estimates and assessments carried out in relation to the Statements for the reported quarter, the wholeness and propriety of disclosure in the Financial Statements for the reported quarter, the accounting policy adopted and accounting treatment implemented regarding the Company's material issues. e) The Committee discussed the effectiveness of internal controls on the matter of financial reporting and disclosure in the Company. The Committee was also presented with the actions taken by the Company to ensure that its reports had been prepared in accordance with the law, including following the transition to the financial module of the SAP system. f) At the conclusion of the discussion, and after it has been clarified that the Financial Statements adequately reflect the state of Company affairs and its operating results, the Committee recommended that the Board of Directors approve the Financial Statements. g) The drafts for the Financial Statements were provided to the members of the Board of Directors on November 6 2013, meaning 6 days before the discussion by the Board of Directors. h) The Committee’s recommendations were provided to the members of the Board of Directors on November 10 2013 in writing, meaning 2 business days before the discussion by the Board of Directors. The Company’s Board of Directors is of the opinion that in light of the scope and complexity of the recommendations and the time deemed reasonable by the Board of Directors to transfer the draft

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Financial Statements and recommendations as noted above, they were passed on to the directors for study a reasonable amount of time prior to the Board of Directors discussion. i) On November 12 2013 a discussion was held by the Company’s Board of Directors regarding the recommendations of the Financial Statements Examination Committee. At the conclusion of the Board meeting, the September 30 2013 Financial Statements, prepared on the basis of IFRS rules, were approved unanimously. Present at the Board of Directors Meeting in which the Financial Statements were approved, were the following Board members: Yehuda Levi, Tamar Moses-Borowitz, Nadav Palti, Yair Rabinowitz, Shlomo Hannael, Pinchas Ginsburg, Sofia Kimmerling and Avraham Bigger. Due to the fact that the Chairman of the Board of Directors was abroad, Deputy Chairman Mr. Yehuda Levi was appointed meeting chair and signed the Financial Statements.

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d. Disclosure Provisions with Regard to Financial Reporting by the Corporation d.1. Events Subsequent to the Balance Sheet Date Regarding events subsequent to the balance sheet date, see Note 14 to the September 30 2013 Financial Statements. d.2 Disclosure on Critical Accounting Estimates

The implementation of accounting standards by Company management upon preparing financial statements occasionally involves various assumptions, assessments and estimates influencing levels of the assets and liabilities and the business results reported in the Financial Statements. Some of the assumptions, assessments and estimates are critical to the financial position or operating results reflected in the Group's Financial Statements, due to their materiality, the complexity of the calculations or the likelihood uncertain matters will be realized For details on the material estimates included in the Financial Statements see Note 4 to the December 31 2012 Financial Statements. d3. Explanation of the Matters to which the Company's Independent Auditors Draw Attention in their Report on the Financial Statements Without reserving our conclusion, we direct your attention to Note 1.e.(1) to the Financial Statements regarding the signing of the “open skies” agreement and to Company management's estimate that implementation of the agreement may have a negative impact on the Company’s financial status and operating results. At the same time, Company management estimates that by summer 2014, no material impact is expected on the Company’s activity, among other things in light of the government resolution regarding the increase in the state’s participation in the security costs of Israeli airlines and following the gradual implementation of the agreements to certain destinations. Furthermore, due to the expected increased implementation of the agreement in the summer 2014 season, the Company estimates that it will be able to better formulate the influences of the agreement on the Company’s activity, taking into account, among other things, the results of the activities of the inter-departmental committee headed by the General Manager of the Ministry of Transportation, as well as well as to that stated in Note 1.e.(2) to the Financial Statements regarding the actions the Company is carrying out in order to deal with the state of the Company’s business and management’s estimates regarding the Company’s ability to uphold its commitments in the foreseeable future, as well as to Note 11 to the Financial Statements regarding exposure the approval of class actions against the company and the Company’s exposure to these class actions.

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e. Additional Information

Disclosure regarding Changes in the Economic Environment, the Implications of the Capital Market Crisis, Market Risks and special events a. The international aviation industry is affected by the economic and security situation and by unusual events, such as the outbreak of epidemics and natural disasters in the world in general, and in specific areas in particular, as well as by the economic situation in Israel and around the world. Regarding the government’s resolution on the subject of the approval of the European-Mediterranean aviation agreement (“Open Skies”) between the State of Israel and the European Union, see Note 1.e.(1) to the Financial Statements. b. The following are changes occurring in jet fuel prices, interest rates and NIS exchange rates from the end of the third quarter until immediately prior to the publication of the September 30 2013 Financial Statements.

1. As of the reported date (September 30 2013), the market price of jet fuel (before fees and supplier margins) was 288.4 cents per gallon. While as of a date immediately prior to the publishing of this report this price was 284.1 cents per gallon, a 1.4% decrease. The average price of jet fuel on the market in the reported quarter (after fees and supplier margins) was 310.8 cents per gallon, and after hedging at 304.4 cents per gallon. On the other hand, the average price of jet fuel on the market (after fees and supplier margins) the Company is expected to pay in October is 311.1 cents per gallon, and after hedging, 308.5 cents per gallon. Note that jet fuel expenses constitute 30% of the Company’s turnover, and therefore the price changes may have a material impact on the Company’s financial results.

2. From the end of the third quarter of 2013, no material change has occurred in the three-month Libor interest rate; this rate remained 0.25% on a date near the approval of the report. The interest payments on Company loans for the third quarter of 2013 shall be made according to interest rates in previous quarters.

3. Subsequent to the balance sheet date, no material change occurred in the exchange rate of the NIS vs. the USD. The Company has hedging agreements on the NIS/USD exchange rate (see b.1.(5) above), the fair value of which may change according to changes in exchange rates. Note that the impact of exchange rates on next quarter's operating results shall be determined based on exchange rates in effect throughout the quarter and at its conclusion (December 31 2013).

Yehuda Levi Elyezer Shkedi Chairman of the Board of CEO Directors November 12 2013

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Appendix A to the Report of the Board of Directors on the State of the Corporation's Affairs for the Period Ending

September 30 2013

Minimal Disclosure Required for Value Estimates and in their Regard, and Rules Pertaining to their Addition to Reports as per Securities Authority Guidelines in Accordance with Section 8b of the Securities Regulations (Periodic and Immediate Reports), 1970. Assessment of the Total Value of the 777-200 747-400 Fleets a. Introduction

International Accounting Standard 36 establishes rules regarding the accounting treatment, presentation and disclosure required in the event of the impairment of assets.

The purpose of the standard is to establish procedures the corporation must implement in order to ensure that these assets are not presented in sums higher than their recoverable amount. An asset is presented in the Financial Statements at higher than its recoverable amount when its book value is higher than the sum received from the use or sale of the asset. In the event that the asset has an impairment, IAS 36 demands that the corporation recognize an impairment loss.

The following document presents the key points of the value estimate performed by El Al Israel Airlines Ltd. (hereinafter "El Al" or "The Company") in order to determine whether the depreciation of its 777-200 and 747-400 fleets (hereinafter "the Fleets") was to be recognized according to IAS 36, in accordance with Securities Authority directives.

This document was prepared in accordance with guidelines from the Securities Authority as per Section 8b of the Securities Regulations (Periodic and Immediate Reports), 1970, regarding minimal required disclosure for value assessments and in their regard and rules regarding their addition to reports.

b. Specification and Identification of Asset Group

The asset group for which the test was conducted includes the 747-400 fleet which consists of 6 aircraft owned by the Company and the 777-200 fleet which consists of 6 aircraft owned by the Company.

c. Opinion Validity Date

November 2013.

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d. Value Assessor

The value assessment was performed by El Al management.

e. Circumstances under which the IAS 36 Value Assessment was Conducted

The book value of the aircraft fleet is higher than its market value as appearing in price lists published by AVAC – the Aircraft Value Analysis Company and Airclaims - ASCEND World Wide.

Note that use of the market value of the aircraft on the basis of AVAC and Airclaims price lists is common practice among airlines around the world as well as among financing banks and has been used by El Al in its various commitments with banks.

IAS 36 states that a provision for depreciation must be made when the book value of an asset surpasses its recoverable amount. A recoverable sum is calculated as asset's the fair value less costs to sell, or its value in use, whichever is higher.

Fair value less costs to sell is the sum that may be received from the sale of the asset in a good faith agreement between a willing buyer and a willing seller. The value in use of an asset is the current value of estimated future cash flow expected to derive from continuous use of the asset and its sale at the end of the period of use. The Company considers the market value of the assets as published by AVAC and Airclaims as representing the fair value of these aircraft. As of this value assessment, the Company has examined the value in use of the aircraft in its possession and in its service, the depreciated value of which in the Company's September 30 2013 Financial Statements exceeds their fair value less costs to sell.

As of this value assessment, the fair value less costs to sell of the 777-200 fleet amounts to a total of $354 million, compared to the depreciated retained cost in the books of those aircraft as of September 30 2013, which amounts to a total of $448 million.

The fair value less costs to sell of the 747-400 fleet amounts to a total of $113 million, compared to the depreciated retained cost in the books of those aircraft as of September 30 2013, which amounts to a total of $185 million.

f. Assessment Method

The value assessment was conducted according to the discounted cash flow method. According to this approach, assessed cash flows expected for the Company from the use of the aircraft fleet were discounted. The following are key assumptions used in calculating value:

 The expected contribution from the aircraft fleet is based on results listed in practice in the first nine months of 2013 and on estimated results for fourth quarter of 2013 and is projected forward unchanged across the economic life span of the entire aircraft fleet, unless expressly noted otherwise. The Company uses this method consistently in assessing the value of its aircraft fleet.

The Company believes that based, among other things, on the examination of the estimates included in value assessments in the past, this is the best estimate for the expected contribution from the aircraft fleets, except if the Company knows any unusual events on the date the value assessment was prepared.

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 Useful life: for the 777-200 fleet - 10 years of activity (and sale of the aircraft at fair value less cost to sell at the end of the 10 year period), for the 747-400 fleet - 5 years of activity (and sale of the aircraft at fair value less cost to sell at the end of the 5 year period).

 Cash flow expected from activity: management calculated that the net cash flow from the operation of the 777-200 aircraft fleet is expected to amount to $85 million in 2013 ($63 million after imputed tax), and the cash flow from the operation of the 747-400 aircraft fleet is expected to amount to $111 million ($81 million after imputed tax). This cash flow was calculated based on revenues from the aircraft fleet less commissions and variable expenses that may be assigned to the fleet in question and less fixed cash flow expenses such as security, maintenance, operations and sales expenses that may be allocated relative to the cost of these aircrafts' operation.

 Scrap value at the end of useful life (meaning after 10 years for the 777-200 fleet and 5 years for the 747-400 fleet): calculated based on AVAC and Airclaims projections and totaling $146 million for the 777-200 fleet (after discount and after an imputed tax of $63 million) and $55 million for the 747-400 fleet (after discount and after an imputed tax of $31 million).

 Discounted rate: for the purpose of discounted cash flows expected from the operation of the aircraft fleet and discount their scrap values, use was made of a discount rate that reflects the operational risk of the aircraft fleet, based on the Company’s weighted average cost of capital.

As a rule, and based on past equipment, aircraft purchase largely takes place (some 85%) through bank loans, with the balance of the price after discounts (15%) from the Company's means (in the last financing transactions conducted by the Company, the portion of the component financed until then by equity, was also financed by foreign capital).

 This model makes use of a discount rate that reflects the time value of the money and the specific risks embodied in the activity. The discount rate is estimated according to the following formula:

D = discount rate that reflects the operational risk of the aircraft fleet.

D= Ke*(e%) + Kd*(d%)*(1-Tc)

Equity Price = Ke

Rate of equity out of total equity and debt = e%

Debt price = Kd

Rate of debt out of total equity and debt = d%

The Company’s long-term effective tax rate = Tc

The average cost of capital rate after tax according to this calculation amounted to 5.5%.

The discount rate after tax of 5.5% is equivalent to the discount rate before tax of 19% for the 747-400 fleet and 12% for the 777-200 fleet, which would have produced a similar result in the value in use calculation of the aircraft fleet.

The price of equity (Ke): is determined using the Capital Asset Pricing Model (CAPM) according to the following formula:

Ke=Rf +β * (Rm-Rf) + α with:

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Rf = rate of risk-free interest based on the average interest rate of dollar debentures over the course of the average period of expected cash flow, some 3%.

β = the relative risk coefficient reflecting the relative risk involved in a certain investment and based on the level of correlation between the activity’s yield and the yield of the capital market as a whole – 0.54.

(Rm-Rf) = the average risk premium on the market – 7.3%

α= added risk specific to the Company – 2%.

The price of equity according to the above formula amounts to 9%.

Debt price (Kd): use was made of a 6.6% debt price, constituting a worthwhile interest rate on long- term debt for the Company.

Tax rate (Tc): use was made of the corporate tax rate applicable starting 2014 – 26.5%.

 The Company assumes that the aircraft in question shall be used as passenger aircraft for the next 5-10 years.

 The Company did not assume the need to make any unexpected investments in these aircraft in order to permit their continued use.

g. Value set using the Discounted Cash Flow Method for the 777-200 fleet (in millions of dollars):

1 2 3 4 5 6 7 8 9 11 Total Total discounted 61 58 55 52 49 47 44 42 40 38 486 cash flow Total discounted Scrap Value 63 63 (After 10 Years)

Total value of the above assets based on the discounted cash flow method: $549 million.

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The following is a sensitivity analysis of the value of these aircraft for changes in discount rate, changes in jet fuel prices and for changes in the contribution of cash which according to the Company constitute key elements that may alter value in use projections:

Discount 4% 4.5% 5% 5.5% 6.0% 6.5% 7.0% Rate After Tax

Yearly Contribution After Tax

In Millions of Dollars

57 544 530 517 504 492 480 469

60 569 555 541 527 515 502 491

63 592 577 562 549 535 523 510

66 619 603 588 574 560 547 534

69 643 627 612 597 583 569 556

Fuel price sensitivity analysis, use of the asset across 10 years:

Fuel Price Yearly NPV Reduced Difference of Contribution Value NPV Vs. (Cent per Reduced Gallon) Value

In Millions of Dollars

273 67 579 448 131

288 65 563 448 115

303 63 549 448 101

318 61 534 448 68

333 59 519 448 71

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h. Value set using the Discounted Cash Flow Method for the 747-400 fleet (in millions of dollars):

סה"כ 5 4 3 2 1

Total discounted cash flow 79 75 71 68 64 357

Total discounted 31 31 scrap value (after 5 years)

Total value of the above assets based on the discounted cash flow method: $388 million.

The following is a sensitivity analysis of the value of these aircraft for changes in discount price, changes in jet fuel prices and for changes in the contribution of cash which according to the Company constitute key elements that may alter value in use projections:

Discount 4% 4.5% 5% 5.5% 6.0% 6.5% 7.0% Rate After Tax

Yearly Contribution After Tax

In Millions of Dollars

75 374 369 364 360 356 351 347

78 387 383 378 373 369 364 360

81 403 397 393 388 383 378 374

85 419 414 409 404 399 394 389

89 437 432 427 421 416 411 406

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Fuel price sensitivity analysis, use of the asset across 5 years:

Fuel Price Yearly NPV Reduced Difference of Contribution Value NPV Vs. (Cent per Reduced Gallon) Value

In Millions of Dollars

273 86 407 185 222

288 84 397 185 212

303 81 388 185 203

318 79 378 185 193

334 77 368 185 183

i. Summary

The following table presents the summarized value assessment as of September 30 2013 for the 777-200 fleet:

Recoverable Sum – Fair Value Value in Use Whichever is Work Carried Assessment Relevant Work Less Costs to (Value in use) Higher Out Date Regulation Method Sell for El Al for El Al

In Millions of Dollars

Examination September 30 Accounting Discounted 354 549 549 of aircraft fleet 2013 Standard 36, cash flow investment Impairment (DCF) depreciation (6 of Assets. planes)

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Should an Impairment be Listed in the Books?

The Aircrafts' Depreciated The Recoverable Sum of Should an Retained Cost as of the Same Aircraft to El Impairment be Listed September 30 2013 Al, as of September 30 in the Books? 2013

In Millions of Dollars

448 549 No

The following table presents the summarized value assessment for the 747-400 fleet as of September 30 2013:

Recoverable Sum – Fair Value Value in Use Whichever is Work Carried Assessment Relevant Work Less Costs to (Value in use) Higher Out Date Regulation Method Sell for El Al for El Al

In Millions of Dollars

Examination September 30 Accounting Discounted 113 388 388 of aircraft fleet 2013 Standard 36, cash flow investment Impairment (DCF) depreciation (6 of Assets. planes)

Should an Impairment be Listed in the Books?

The Aircrafts' Depreciated The Recoverable Sum of Should an Retained Cost the Same Aircraft to El Impairment be Listed As of September 30 2013 Al, in the Books? As of September 30 2013

In Millions of Dollars

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185 388 No

This value estimate is accurate as of the date of the financial statements.

The expected contribution from the aircraft fleet is based on results listed in practice in the first nine months of 2013 and on estimated results for fourth quarter of 2013, and is projected forward unchanged across the economic life span of the entire aircraft fleet, unless expressly noted otherwise.

Changes in the projected assessments detailed above may alter the value assessment and the Company may subsequently be required to perform depreciation due to impairment.

B-41 Appendix B to the Report of the Board of Directors on the State of the Corporation's Affairs for the Period Ending

September 30 2013

The Company’s Material Loans and Credit Frameworks - As of September 30 2013*

Covenants Clearance Board Financial

Scope of Scope of Unpaid Principal Principal Requirement Loan Loans Balloon Aircraft Balance and Repayme Final Loan to Attribute Ratio of Value of Charac- (Thous- Balance Loan Interest nt Loan Start Repayment Date Value of Collateral to Uncleared teristics ands of Securities: Interest (Thou- (Thou- Repay- Date Collateral to Balance as of September Dollars) sands of sands of ment Fre- (Thousan Uncleared 30 2013 Dollars) Dollars) quency ds of Balance

Dollars)

Local 737 ,777 004,444 028,244 3 777-200 Variable: Libor + Quarterly Between 77,244 January 13 April 16 2017 – banking aircraft, margin 2.31%- 6,700 and 2000 $29,800,000 institution 2.75%. 9,570 (***) 3 737-700 July 27 2017 – aircraft, $48,000,000 135% 081%(**) 1 737-700 aircraft Upholds financial

covenants

2 747-400 aircraft

Foreign 777 800,000 018,884 2 777-200 Variable: Libor + Quarterly Between 10,800 July 23 2007 July 23 2019 banking aircraft margin (-0.01%) 2,376 and institution to 0.8% 4,466 - - with EXIM guarantee

EXIM (***) 737-244 003,810 73,007 3 737-800 Fixed Quarterly 8,314 April 17 2009 April 15 2021 aircraft 3.62%-4.01% - May 20 2009 May 20 2021 - -

June 22 2009 June 22 2021

* The credit currency of all of the loans detailed above is the U.S. dollar. ** With the exception of one 747-400 aircraft, taken as collateral at a ratio of 50%. ***A cross-default mechanism exists between the various loans of the same banking institution.

B-42 Appendix B to the Report of the Board of Directors on the State of the Corporation's Affairs for the Period Ending

September 30 2013

The Company’s Material Loans and Credit Frameworks - as of November 12 2013* Covenants Clearance Board Financial

Ratio of Requireme Scope of Value of Unpaid Principal Scope of nt to Ratio of Value Loan Loans Balloon Final Loan Collateral Aircraft Balance and Principal Attribute of Collateral to Charac- (Thous- Balance Repayment to Loan Interest Repayment Loan Start Value of Uncleared teristics ands of Securities: Interest (Thou- Date Uncleared (Thou- Repay- Date Collateral Balance as of Dollars) sands of Balance as sands of ment Fre- (Thousands to December 31 Dollars) of Dollars) quency of Dollars) Uncleared 2012 November Balance 12 2013

Local 737 ,777 004,444 071,044 3 777-200 Variable: Quarterly Between 77,244 January 13 April 16 2017 banking aircraft, Libor + 6,700 and 2000 – $29,800,000 institution margin of 9,570 (***) 3 737-700 2.31%- July 27 2017 131% 130% aircraft, 2.75% – $48,000,000 081%(**) 1 737-700 Upholds Upholds aircraft financial financial covenants covenants

2 747-400 aircraft

Foreign 777 800,000 002,001 2 777-200 Variable: Quarterly Between 10,800 July 23 2007 July 23 2019 banking aircraft Libor + 2,376 and institution margin of 4,466 - - - with EXIM (-0.01%) to guarantee 0.8%

EXIM (***) 737-244 003,810 78,311 3 737-800 Fixed Quarterly 8,314 April 17 2009 April 15 2021 aircraft 3.62%- - May 20 2009 May 20 2021 - - - 4.01% June 22 2009 June 22 2021

* The credit currency of all of the loans detailed above is the U.S. dollar. ** With the exception of one 747-400 aircraft, taken as collateral at a ratio of 50%. ***A cross-default mechanism exists between the various loans of the same banking institution.

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El Al Israel Airlines Ltd.

Concise Consolidated Financial Statements As of September 30 2013

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El Al Israel Airlines Ltd.

Concise Interim Consolidated Financial Statements (Unaudited) As of September 30 2013

Table of Contents

Page

Auditing Accountants’ Review C-2

Concise Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheets C-3 - C-4

Concise Consolidated Statements of Operations C-5

Concise Consolidated Statement of Comprehensive Income C-6

Concise Consolidated Statement of Changes in Equity C-7 - C-11

Concise Consolidated Cash Flow Reports C-12 - C-13

Notes to the Concise Consolidated Financial Statements C-14 - C-32

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Independent Auditors' Report to Shareholders of El Al Israel Airlines Ltd.

Introduction We have reviewed the attached financial information on El Al Israel Airlines Ltd. and its subsidiaries ("the Group"), which includes its concise consolidated balance sheet as of September 30 2013 and its concise consolidated Statement of Operations and Reports on General Income, Changes in Equity and Cash Flows for the nine and three month periods ending that date. The Company’s Board of Directors and management are responsible for the preparation and presentation of financial information for this interim period in accordance with International Accounting Standard 34 "Interim Financial Reporting), as well as for the preparation of financial information for this interim period in accordance with Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970. Our responsibility is to express our conclusions with regard to the financial information for these interim periods, based on our review.

We have not reviewed the concise interim financial information of subsidiaries the assets of which included in the consolidation constitute 0.2% of all consolidated assets as of September 30 2013, and revenues of which included in the consolidation constitute 0.3% and 0.3%, respectively, of all consolidated revenues for the nine and three month periods ending that date. Furthermore, we were presented with the reports of other accountants of an affiliated company the investment in which was $14,641,000 as of September 30 2013, and the Company’s share of its results was $240,000 and ($20,000) for the nine and three month periods ending that date, respectively. The concise interim financial statements of said companies have been audited by other accountants, the reports of whom have been provided us and our conclusion, inasmuch as it refers to financial information for these companies, is based on the reviews conducted by these other accountants.

Scope of the Review We conducted our reviews in accordance with Review Standard 1 of the Israeli Institute of Certified Public Accountants, "Reviews of Financial Information for Interim Periods Prepared by the Entity's Auditor." A review of financial information for interim periods consists of inquiries, mainly from people responsible for finances and accounting, and of the application of analytical and other reviewing procedures. This review is significantly limited in scope compared to audits prepared in accordance with generally accepted Israeli auditing standards and therefore does not allow us to achieve assurance that we have become aware of all material issues that may be identified in an audit. Accordingly, we cannot express an audit-level opinion.

Conclusion Based on our reviews and the reports of other CPAs, nothing has come to our attention leading us to believe that the financial information in question has not been prepared, in all material aspects, in accordance with IAS 34.

In addition to the previous paragraph, based on our review and on those of other accountants, nothing has come to our attention to make us believe that the financial information in question does not comply, in all material aspects, with disclosure regulations as per Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970.

Without qualifying our conclusion, we direct your attention to the following:  To Note 1.e.(1) to the Financial Statements regarding the signing of the “open skies” agreement and to Company management's estimate that implementation of the agreement may have a negative impact on the Company’s financial status and operating results. At the same time, Company management estimates that by summer 2014, no material impact is expected on the Company’s activity, among other things in light of the government resolution regarding the increase in the state’s participation in the security costs of Israeli airlines and following the gradual implementation of the agreements to certain destinations. Furthermore, due to a forecast increased implementation of the agreement in the summer 2014 season, the Company estimates that it will be able to better formulate the influences of the agreement on the Company’s activity, taking into account, among other things, recommendations of the inter- ministerial committee headed by the General Manager of the Ministry of Transportation.  To Note 1.e.(2) to the Financial Statements regarding the actions the Company is carrying out in order to deal with the state of the Company’s business and the Company’s estimates regarding the Company’s ability to uphold its commitments in the foreseeable future.  To Note 11 to the Financial Statements regarding exposure to the approval of lawsuits as class actions and the Company’s exposure to these class actions.

Brightman Almagor Zohar & Co. Certified Public Accountants

Tel Aviv, November 12 2013

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El Al Israel Airlines Ltd. Concise Consolidated Balance Sheet

As of September 30 As of December 31 3102 3103 3103 Thousands of Thousands of Thousands of Dollars Dollars Dollars (Unaudited)

Assets

Current Assets

Cash and cash equivalents 033,221 003,211 23,201 Designated cash 222 0,231 0,312 Short-term deposits 1,009 2,021 2,291 Restricted deposits 2,121 - 00,121 Trade receivables 022,321 012,231 031,212 Other receivables 22,121 32,021 32,222 Derivative financial instruments 02,111 03,201 01,193 Prepaid expenses 31,221 20,211 31,113 Inventories 01,020 33,192 33,012 Total current assets 291,301 210,111 312,220

Non-Current Assets Long-term bank deposits 0,299 0,111 0,120 Investment in affiliated companies 01,902 02,131 01,919 Investment in another company 0,322 0,312 0,311 Fixed assets, net 0,031,111 0,023,323 0,032,121 Intangible assets, net 1,333 1,111 1,213 Prepaid expenses 00,312 2,011 1,121 Assets due to employee benefits 22,221 *21,112 *12,201 Total non-current assets 0,301,212 0,319,121 0,302,113

Total assets 0,211,109 0,211,121 0,212,212

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a.

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

C - 3 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding

El Al Israel Airlines Ltd. Concise Consolidated Balance Sheet

As of September 30 As of December 31 3102 3103 3103 Thousands of Thousands of Thousands of Dollars Dollars Dollars (Unaudited)

Liabilities and Equity

Current Liabilities Short-term borrowings and current maturities 011,022 039,923 011,201 Trade payables 010,012 022,131 011,223 Other payables 19,123 29,210 23,312 Provisions 01,221 02,222 01,222 Derivative financial instruments 3,122 2,112 031 Employee benefit obligations 003,922 12,012 19,121 Unearned revenues 323,191 399,009 323,102 Total current liabilities 202,112 929,111 931,901

Non-Current Liabilities Loans from banking institutions 101,091 201,912 191,332 Employee benefit obligations 22,219 *92,212 *23,122 Loans from others 292 391 3,110 Derivative financial instruments 913 0,211 0,211 Other payables 2,191 2,912 2,929 Deferred taxes 21,291 *32,113 *31,121 Unearned revenues 11,202 22,111 22,391 Total non-current liabilities 119,221 121,903 112,112

Total liabilities 0,131,113 0,102,030 0,293,929

Equity Share Capital 022,103 022,103 022,103 Share premium 32,119 32,119 32,119 Capital reserve from transactions with a former controlling shareholder 329,033 329,033 329,033 Capital reserve in respect of share-based payment 9,219 9,212 9,219 Capital reserve in respect of cash flow hedging 1,122 311 2,111 Capital reserve in respect of translation differences of foreign activity 0,221 )122( )19) Capital reserves in respect of re-measurements of a defined benefit )00,133( *)02,121( *)09,120( Accumulated loss )321,132( *)329,123( *)322,921( Total equity 011,102 021,131 022,211

Total liabilities and equity 0,211,109 0,211,121 0,212,212

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a.

Yehuda Levi Elyezer Shkedi Nissim Malki Deputy Chairman of the Board of CEO CFO Directors

Financial Statements Approval Date: Ben Gurion Airport, November 12 2013.

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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EL AL Israel Airlines Ltd. Concise Consolidated Statement of Operations

For the Nine For the Three For the Year Month Period Ending Month Period Ending Ending September 30 September 30 December 31 3102 3103 3102 3103 3103 Thousands of Thousands of Thousands of Thousands of Thousands of Dollars Dollars Dollars Dollars Dollars (Unaudited) (Unaudited)

Operating revenues 0,111,103 0,220,900 112,313 112,912 3,102,113 Operating expenses )0,231,122( *)0,322,002( )122,221( *)129,212( *)0,910,111(

Gross profit 391,299 311,212 021,913 019,111 202,192

Selling expenses )022,113( *)022,110( )21,101( *)29,191( *)311,113( General and administrative expenses )21,392( *)91,390( )39,212( *)33,931( *)12,321( Other revenues (expenses), net )20( 1,103 031 )1,192( 3,212

)322,231( )332,311( )21,022( )22,020( )210,232(

Profits from regular activities 11,320 10,212 92,221 13,991 03,112

Financing expenses )33,212( )23,121( )1,121( )02,121( )22,102( Financing income 02,210 222 01,001 211 0,119 Financing expenses, net )2,121( )20,019( 2,090 )03,111( )21,111(

The Company's share of the profits of subsidiaries, net of tax 310 0,211 )31( 023 0,392

Profit (loss) before taxes on income 13,222 00,212 21,911 21,390 )32,312(

Tax benefit (taxes on revenues) )02,120( *)2,112( )33,221( *)03,931( *2,013

Net profit (loss) for the period 31,019 2,013 29,211 29,213 )02,011(

Profit (loss) per 1 NIS NV ordinary share. (In USD) Basic profit (loss) per share 1011 1013 1003 1012 )1011(

Diluted profit (loss) per share 1011 1013 1003 1012 )1011(

Weighted average of number of shares (in thousands) used in the calculation of profit (loss) per share Basic 112,901 112,901 112,901 112,901 112,901 Diluted 112,901 112,901 112,901 112,901 112,901

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a.

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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EL AL Israel Airlines Ltd. Concise Consolidated Statement of Comprehensive Income

For the Nine For the Three For the Year Month Period Ending Month Period Ending Ending September 30 September 30 December 31 3102 3103 3102 3103 3103 Thousands of Thousands of Thousands of Thousands of Thousands of Dollars Dollars Dollars Dollars Dollars (Unaudited) (Unaudited)

Profit (loss) for the period 31,019 2,013 29,211 29,213 )02,011(

Other comprehensive income:

Sums not classified to gain/loss in the future, net of tax:

Profit from the re-measurements of a defined benefit, net of tax 2,131 *1,111 3,121 *1,102 *1,232

Sums classified to gain/loss in the future, net of tax:

Exchange rate differences due to the translation of foreign activity 0,121 211 211 011 119

Profit (loss) in respect of cash flow hedging )3,212( 211 220 01,119 1,222

Other comprehensive income for the period, net of tax 1,213 2,202 1,320 31,021 01,122

Total comprehensive income (loss) for the period 22,111 01,119 13,110 10,111 )0,002(

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a.

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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El Al Israel Airlines Ltd. Concise Consolidated Statement of Changes in Equity

For the Nine Month Period Ending September 30 2013

Capital Capital Reserve Reserve Capital from due to Reserves in Transactio Capital Trans- Respect of ns with a Reserve in Capital lation Re- Former Respect of Reserve in Differen- Measure- Control- Share- Respect of ces of ments of a Share Share ling Share- Based Cash Flow Foreign Defined Accumu- Capital Premium holder Payment Hedging Activity Benefit lated Loss Total Thousands of Dollars (Unaudited) Balance as of January 1 2013 022,103 32,119 329,033 9,219 2,111 )19( - )322,011( 020,139 Re-measurements of net liabilities in respect of defined benefit ------)09,120( *0,121 )02,130(

Balance as of January 1 2013 after adjustment 022,103 32,119 329,033 9,219 2,111 )19( )09,120( )322,921( 022,211

Profit for the period ------31,019 31,019 Other comprehensive income (loss) - - - - )3,212( 0,121 2,131 - 1,213 Total comprehensive income for the period - - - - )3,212( 0,121 2,131 31,019 22,111

Total equity as of September 30 2013 022,103 32,119 329,033 9,219 1,122 0,221 )00,133( )321,132( 011,102

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a.

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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El Al Israel Airlines Ltd. Concise Consolidated Statement of Changes in Equity

For the Nine Month Period Ending September 30 2012

Capital Capital Reserve Reserve Capital from due to Reserves in Transactio Capital Trans- Respect of ns with a Reserve in Capital lation Re- Former Respect of Reserve in Differen- Measure- Control- Share- Respect of ces of ments of a Share Share ling Share- Based Cash Flow Foreign Defined Accumu- Capital Premium holder Payment Hedging Activity Benefit lated Loss Total Thousands of Dollars (Unaudited) Balance as of January 1 2012 022,103 32,119 329,033 9,122 )229( )0,111( - )311,231( 021,921 Re-measurements of net liabilities in respect of defined benefit ------)32,291( 912 )33,291( Balance as of January 1 2012 after adjustment 022,103 32,119 329,033 9,122 )229( )0,111( )32,291( )312,131( 021,212

Profit for the period ------8,192 2,013 Other comprehensive income - - - - 211 211 4,640 - 2,202 Total comprehensive income for the period - - - - 211 211 1,111 2,013 01,119

Share-based payment - - - 29 - - - - 29 Total transactions with Company shareholders whether within the framework of their position as shareholders - - - 29 - - - - 29

Total equity as of September 30 2012 022,103 32,119 329,033 9,212 311 )122( )02,121( )329,123( 021,131

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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El Al Israel Airlines Ltd. Concise Consolidated Statement of Changes in Equity

For the Three Month Period Ending September 30 2013

Capital Capital Reserve Reserve Capital from due to Reserves in Transactio Capital Trans- Respect of ns with a Reserve in Capital lation Re- Former Respect of Reserve in Differen- Measure- Control- Share- Respect of ces of ments of a Share Share ling Share- Based Cash Flow Foreign Defined Accumu- Capital Premium holder Payment Hedging Activity Benefit lated Loss Total Thousands of Dollars (Unaudited)

Balance as of July 1 2013 022,103 32,119 329,033 9,219 2,923 112 )01,111( )203,122( 019,231

Profit for the period ------29,211 29,211

Other comprehensive income - - - - 220 211 3,121 - 1,320 Total comprehensive income for the period - - - - 220 211 3,121 29,211 13,110

Total equity as of September 30 2013 022,103 32,119 329,033 9,219 1,122 0,221 )00,133( )321,132( 011,102

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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El Al Israel Airlines Ltd. Concise Consolidated Statement of Changes in Equity

For the Three Month Period Ending September 30 2012

Capital Capital Reserve Reserve Capital from due to Reserves in Transactio Capital Trans- Respect of ns with a Reserve in Capital lation Re- Former Respect of Reserve in Differen- Measure- Control- Share- Respect of ces of ments of a Share Share ling Share- Based Cash Flow Foreign Defined Accumu- Capital Premium holder Payment Hedging Activity Benefit lated Loss Total Thousands of Dollars (Unaudited) Balance as of July 1 2012 022,103 32,119 329,033 9,222 )01,112( )231( - )311,121( 000,002 Re-measurements of net liabilities in respect of defined benefit ------)33,123( 0,113 )30,211(

Balance as of July 1 2012 022,103 32,119 329,033 9,222 )01,112( )231( )33,123( )311,191( 21,332

Profit for the period ------29,213 29,213 Other comprehensive income - - - - 01,119 011 1,102 - 31,021 Total comprehensive income for the period - - - - 01,119 011 1,102 29,213 10,111

Share-based payment - - - 01 - - - - 01 Total transactions with Company shareholders whether within the framework of their position as shareholders - - - 01 - - - - 01

Total equity as of September 30 2012 022,103 32,119 329,033 9,212 311 )122( )02,121( )329,123( 021,131

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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El Al Israel Airlines Ltd. Concise Consolidated Statement of Changes in Equity

For the Year Ending December 31 2012

Capital Reserve Capital from Reserve Transacti due to Capital ons with a Capital Capital Trans- Reserves in Former Reserve Reserve lation Respect of Control- in Respect in Respect Differen- Re-Measure- ling of Share- of Cash ces of ments of a Share Share Share- Based Flow Foreign Defined Accumu- Capital Premium holder Payment Hedging Activity Benefit lated Loss Total Thousands of Dollars Balance as of January 1 2012 022,103 32,119 329,033 9,122 )229( )0,111( - )311,231( 021,921 Re-measurements of net liabilities in respect of defined benefit ------)32,291( 912 )33,291( Balance as of January 1 2012 after adjustment 022,103 32,119 329,033 9,122 )229( )0,111( )32,291( )312,131( 021,212 Loss for the year ------)02,011( )02,011( Other comprehensive income - - - - 1,222 119 1,232 - 01,122 Total comprehensive loss for the Year - - - - 1,222 119 1,232 )02,011( )0,002(

Share-based payment - - - 21 - - - - 21 Total transactions with Company shareholders whether within the framework of their position as - - shareholders - - - 21 - - 21

Total equity as of December 31 2012 022,103 32,119 329,033 9,219 2,111 )19( )09,120( )322,921( 022,211

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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El Al Israel Airlines Ltd. Concise Consolidated Cash Flow Reports

For the Nine For the Three For the Year Month Period Ending Month Period Ending Ending September 30 September 30 December 31 3102 3103 3102 3103 3103 Thousands of Dollars (Unaudited) (Unaudited)

Cash Flow from Current Activities Income (loss) for the period 31,019 2,013 29,211 29,213 )02,011( Adjustments required for presentation of cash flow from (to) current activities – Appendix A 022,122 21,313 )0,911( )31,332( 11,291 Cash deriving from current activities, net 021,211 13,121 21,110 02,201 92,391

Cash Flows from (for) Investment Activity Acquisition of fixed assets (including general engine overhauls and payment on account of aircraft) )013,239( )21,991( )39,109( )01,092( )22,193( Proceeds from the realization of fixed assets 02,291 02,122 22 031 02,222 Investment in intangible assets )0,219( )3,011( )231( )0,312( )2,119( Realization (investment) in restricted deposits 2,211 - 1,311 1,212 )00,121( Decrease (increase) in short-term deposits, net )219( 19 )312( 0,213 )229( Investment in deposits for service providers and long- )322( term )12( )021( )01( )11( Repayment of deposits for service providers and long- term 331 099 031 11 212 Cash used for investment activity, net )22,111( )22,123( )31,012( )9,131( )20,122(

Cash Flows for Financing Activity Payment for loan raising costs - )0,119( - - )0,119( Receipt of long-term loans from financial institutions 21,102 11,121 1,219 21,111 21,299 Repayment of long-term loans from financial institutions )13,211( )92,201( )30,121( )31,111( )12,212( Receipt of other long-term loans - - - - 1,321 Repayment of other long-term loans )0,311( )0,112( )112( )200( )2,992( Increase (decrease) in short-term credit, net )02,311( 1,119 )11( )0,011( 01,131 Cash deriving from (used for) financing activities, net )20,111( )31,203( )01,922( 9,121 )32,292(

Increase (decrease) in cash and cash equivalents 11,211 39,211 02,092 02,211 )23,211(

Balance of cash and cash equivalents at the beginning of the period 23,201 22,221 019,099 11,239 22,221

Balance of cash and cash equivalents at the end of the period 033,221 003,211 033,221 003,211 23,201

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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El Al Israel Airlines Ltd. Concise Consolidated Cash Flow Reports

For the Nine For the Three For the Year Month Period Ending Month Period Ending Ending September 30 September 30 December 31 3102 3103 3102 3103 3103 Thousands of Dollars (Unaudited) (Unaudited) Appendix A – Income and expenses not involving cash flows: Depreciation and amortization (including disposal of accessories, disused components and consumption of perishable equipment) 19,911 011,219 20,929 22,292 022,122 Adjustment of value of deposits for trade payables and )2( long-term deposits )99( 21 )12( )2( The Company's share of the profits of subsidiaries, less dividends received, net of tax 031 )312( 31 )023( )031( Deferred taxes, net 03,111 2,193 33,191 03,291 )2,230( Increase (decrease) in liabilities in respect of employee )09,201( benefits and in provisions 01,399 )30,111( 2,229 )3,222( Net capital gains (loss) from the sale of fixed assets )3,212( )2,210( )31( 1,131 )1,099( Benefit value of employee stock option program - 29 - 01 21 Loss (gain) from adjustment of fair value of derivatives )02,111( via gain/loss 3,102 )09,023( )3,291( )1,111( Purchase of jet fuel hedging options - )3,991( - - )3,991( Profit from shares received for no return - )0,212( - )133( )3,113( Revaluation of options received for no return 0,303 0,339 331 902 )021( Change in designated cash 219 212 - 021 133

Changes in asset and liability items: Decrease (increase) in trade receivables )2,223( )2,139( 11,110 22,011 1,912 Decrease (increase) in other accounts receivable )00,119( 3,210 1,192 )0,222( 1,122 Decrease (increase) in prepaid expenses 0,911 )2,123( 02,292 1,012 )2,213( Decrease (increase) in inventories 3,111 1,111 )0,320( )1,221( 1,221 Increase (decrease) in trade payables 01,202 )2,991( )03,210( )2,112( )02,191( Decrease in other payables )1,292( )1,112( )01,301( )09,019( )01,122( Increase (decrease) in unearned revenues 20,311 11,113 )031,012( )23,221( 32,312

022,122 21,313 )0,911( )31,332( 11,291

Appendix B – Payment (Receipt) of Interest, Taxes and Dividends, Classified Under Cash Flow from Operating Activities

Interest payments 01,219 31,102 3,092 1,220 31,292

Interest receipts )390( )222( )13( )211( )0,222(

Tax payments – advances in respect of surplus expenses 392 031 021 22 293

Dividend receipts 229 )0,011( - - )0,011(

The accompanying Notes constitute an integral part of the Concise Consolidated Financial Statements.

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

Note 1 – General

a. EL AL Israel Airlines Ltd is engaged through its subsidiaries (hereinafter – "the Group") in the transport of passengers and cargo, on international flights between Israel and foreign countries as well as on domestic flights. For information on the Group’s operating segments, see Note 13.

b. Passenger traffic through Ben Gurion Airport (BGN) is characterized by a high level of seasonality. Most activity is during summer months, peaking July-September. Winter months (January-March) are characterized by low passenger activity levels.

c. These concise statements must be seen in context of the Company's yearly Financial Statements dated December 31 2012 and the year ending that date, and the attached Notes.

d. Failure to Include Separate Financial Information:

In accordance with Regulation 4 of the Periodic and Immediate Reports Regulations, the Company did not attached separate financial information as per Regulation 38d of the Securities Regulations (Periodic and Immediate Reports), 1970. The reason due to which no separate information was included was in light of the negligible impact the financial statements of the investee companies have on the Consolidated Financial Statements. The parameters used by the Company in order to establish the impact in question are: revenues, profits and cash flow from regular operations of up to 5% of all assets, revenues, profits and cash flow from regular operations in the consolidated statements – accordingly, ignoring the impact of uncommon exceptional occurrences. For information regarding transactions and commitments between the Company and its consolidated companies see Note 12 below

e. 1) Following Notes 1.c.1 and 27.b.2 to the December 31 2012 Financial Statements, on April 21 2013, a government resolution was reached on the subject of the approval of the European-Mediterranean aviation agreement between the State of Israel and the European Union and its member states (hereinafter: “the Agreement” and “the Resolution”, respectively). Following this resolution, on April 22 2013 an agreement was reached with the Ministry of Finance that arranged issues pertaining to the financing of security for Israeli aviation. In accordance with the key points of the summary in question, on May 1 2013, the state’s participation in the defense expenses of Israeli airlines will increase to 72.5% (instead of 70%) and a fixed participation surcharge, fully financed by the state, shall be given at an additional 12.5%. It was also agreed that starting from the implementation of the Open Skies Agreement, as defined in the government resolution dated December 25 2011, the fixed participation surcharge shall be increased by an additional 12.5%. The summary and the agreement regarding the arrangement of the civil aviation security array’s activity shall remain in effect until December 31 2019.

On April 24 2013, the Company Board of Directors ratified the agreement in question and on April 28 2013 the government passed a resolution approving the agreement in question. Following the government's resolution, the Minister of Finance and the Minister of Transportation, National Infrastructure and Road Safety appointed a work team (“Inter-Ministerial Committee”), headed by the General Manager of the Ministry of Transportation, to examine the issues that arose during the discussion held by the government to approve the agreement.

The Open Skies agreement between the State of Israel and the EU was signed in Luxembourg on June 10 2013. Pursuant to the agreements, all airlines in the EU will be able to operate direct flights to Israel from any location in the EU and Israeli airlines will be able to operate flights to airports throughout the EU. The agreement will come into effect gradually starting from this year over a period of five years, in which seven weekly flights will be added between Israel and various European destinations each year, with the yearly growth rate being more limited in a small number of central European airports – three or four added weekly flights per year. Upon coming into effect, the agreement will replace all of the bilateral agreements between

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

Israel and the EU states and gradually cancel restrictions on the number of carriers, frequencies, capacities and types of aircraft expected to travel between the State of Israel and the EU. The inter-ministerial committee for the examination of the demands of Israeli airlines submitted its recommendations to the Minister of Transportation, as follows:  The committee recommends that the IAA (Israeli Airports Authority) examine and deal with the demands made by Israeli airlines to allow them to operate out of BGN’s Terminal 1, while adapting the airport taxes applicable to them to the reduced tax rate paid by low-cost foreign airlines using Terminal 1.  Regarding the demands made by Israeli airlines to compare competition laws in Israel to competition laws in Europe and to revoke the requirements in this area regarding engagements between regional carriers, the committee supports the advancement of the legislative arrangement that is expected to apply the chapter on binding arrangements in the Israeli Antitrust Law on arrangements between foreign airlines pertaining to flight routes to and from Israel.  Regarding amendments to the Consumer Protection Law, the committee recommended that the Ministry of Transportation act, in coordination with the Consumer Protection Authority, to update legislation in this field in order to reduce gaps between Israeli and European law, regarding transaction cancellation dates, as requested by Israeli airlines. Furthermore, the committee recommended that the Ministry of Justice act to formulate a position as soon as possible on the subject of adopting the Cape Town Treaty in Israel (dealing with international interests in mobile airborne equipment), as requested by the airlines.  The committee reject the request to cancel the fee for incoming passengers and include it in the departing passengers’ fee. In addition, the committee rejected the demand to give precedence to Israeli airlines in flying state representatives to destinations outside the country.

As part of the medium and long term strategy being formed by Company Management, the Company is acting to adapt its activity by increasing frequencies and capacities and adapting its commercial operating model to models practiced in Europe. Within this framework, the Company shall initially start with short haul activity, starting from the summer 2014 schedule, starting March 30 2014 by operating low cost flights under a new aviation brand using Boeing 737-800 aircraft. Flights will initially be operated according to this format to five European destinations, instead of the current format of Company flights to the destinations in question. The flight tickets purchased by passengers will include a basic basket of services and the option of adding additional services for a fee, similar to service formats at many airlines around the world. The Company is expected to launch the new brand soon and within this framework will publish additional details regarding the flight format.

The Company estimates that the expected increase in the offerings of flights on behalf of existing airlines as well as the introduction of new airlines upon the implementation of the agreement, may have a negative impact on Israeli airlines, including on the Company’s financial status and operating results, following the additional intensification of competition. At the same time, by summer 2014, no material impact is expected on the Company’s activity, among other things in light of the above government resolution and the gradual implementation of the agreements to certain destinations. The Company estimates that increased implementation of the agreement may take place toward the summer 2014 season, and accordingly, the Company estimates that as of this date it will be able to better formulate the influences of the agreement on the Company’s activity, taking into account, among other things, the results of the activities of the inter-ministerial committee mentioned above.

2) Over the course of the first nine months of 2013, the Company listed a profit of $29.1 million and a positive cash flow from current activity of $184.6 million ($57.9 million in profits and a positive cash flow from ongoing activity of $56.1 million in the third quarter of 2013); in addition, as of September 30 2013 the Company has a $442.9 million working capital deficit and $169.4 million in equity. Over the course of the reported period, Company dealt with increased competition and adjusted the scope of its operational activity to the scopes of commercial demand.

Following that stated in Note 1.c.(2) to the to the December 31 2012 Financial Statements, regarding the start of short haul activity starting from the Summer 2014 schedule, starting March 30 2014, the Company shall operate flights according to a short haul format, as detailed in e1 above.

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

As of this date, in order to continue with the Company’s business activity, the Company is acting as follows:

Arranging sources of finance, as detailed in Note 9c and in Note 14a, among other things, by receiving bank financing in order to renew the Company’s aircraft fleet, and to finance the advance payments for the purchase of aircraft, as noted, without the Company being required to make extensive use of its independent resources from ongoing activity.

As noted in Note 18 to the 2012 Financial Statements, some of the credit agreements require compliance with a ratio of loan balances to securities (the balance of the debt to the bank compared to the market value of the pledged aircraft). In the event that the Company does not met the ratio in question, it may be required to provide additional collateral. Note that as of the balance sheet date and near the signing of the Financial Statements, the Company is upholding the required ratio.

Company management estimates that carrying out these actions as well as the Company’s cash flow from ongoing activity, assuming the Company’s commercial forecasts are correct, will allow the Company to meet its obligations in the foreseeable future.

Note 2 – Principal Accounting Policies

a. Basis for the preparation of the Financial Statements:

The Group's Concise Consolidated Financial Statements (hereinafter: "the Interim Financial Statements") have been prepared in accordance with IAS 34, "Interim Financial Reporting". In the preparation of these Interim Financial Statements, the Group implemented an accounting policy, rules of presentation and calculation methods identical to those applied in the preparation of its Financial Statements for December 31 2012 and for the year ending that date, with the exception of changes in accounting policy deriving from the implementation of IAS 19 Employee Benefits (Revised 2011) starting January 1 2013, as detailed in Note 3a.

b. The Consolidated Concise Financial Statements have been prepared in accordance with the provisions of Chapter D of the Securities Regulations (Immediate and Periodic Reports), 1970.

c. Exchange rates and linkage basis:

(1) Balances in foreign currency, or linked to foreign currency, are included in the Financial Statements according to representative rates of exchange rated published by the Bank of Israel and in effect as of the end of the reported period.

(2) Balances linked to the Consumer Price Index are presented using current CPI for September 2013.

(3) Below is data on dollar exchange rates and the CPI in Israel:

As of September As of September As of December 30 30 31 3102 3103 3103

Consumer Price Index – in 03101 03301 03302 points USD/NIS exchange rate 20229 20103 20922 USD/EUR exchange rate 10910 10993 10921 USD/pound sterling exchange 10131 10109 10102 rate

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

Change in %:

For the Nine- For the Nine- Month Period Month Period For the Year Ending Ending Ending September 30 September 30 December 31 3102 3103 3103

Consumer Price Index 9.1% 1.9% 9.1% USD vs. NIS )202(% 1.2% )302(% USD vs. EUR )301(% )102(% )001(% USD vs. pound sterling 3.0% )101(% )102(%

For the Three Month For the Three Period Ending Month Period September 30 Ending September 30 3102 3103

Consumer Price Index 3.0% 9.1% USD vs. NIS )303(% )102(% USD vs. EUR )201(% )301(% USD vs. pound sterling )202(% )201(%

Note 3 - New Financial Reporting Standards and Clarifications Published

a. New standards, revisions to standards and interpretations impacting the current period and/or previous reported periods:

. IAS 1 Revision (Revised) “Presentation of Financial Statements” (Regarding the Presentation of Other Comprehensive Earnings Items in the Report on Comprehensive Earnings)

The Company has implemented IAS 1 (Revised) starting 1 January 2013.

This revision states that items included in the Report on Other Comprehensive Earnings will be separated and presented in one of two groups:

. Items classified to gain/loss in the future, . Items not classified to gain/loss in the future,

In addition, the revision states that in the event that the Other Comprehensive Earnings items are presented before tax influence, the tax influence shall be presented separately for each of the groups. This Standard shall be applied retroactively to yearly reporting periods starting January 1 2013 or subsequently.

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

. IAS 19, Employee Benefits (2011)

The Company has been implementing IAS 19 Employee Benefits (revised 2011) starting January 1 2013. The following are the key revisions:

 Actuary gains or losses will be charged to other comprehensive income and will not be classified to gain/loss at a later date. Accordingly, the Group stopped implementing the strip method.

 Interest revenues from the assets of a defined benefit plan shall be recognized on the basis of the debited party, and not according to the expected yield from the assets. Accordingly, the Company reduced the capitalization rate used to calculate the projected yield on part of the plan’s assets.

 Short-term employee benefits will include benefits that are expected to be cleared in full within 12 months from the end of the year in which the crediting service was granted by the employee. Accordingly, vacation benefits measured as short-term benefits on a non- capitalized basis, were measured as long-term benefits on the basis of actuary assumptions, and as a result, as of January 1 2013 the sum of the commitment due to them increased by $1,028,000.

 Severance pay as a result of a voluntary retirement encouragement offer shall be recognized as a liability on the date on which the Group is unable to withdraw from the offer.

According to the standard’s transition orders, the standard is implemented retroactively.

The influence of the retroactive implementation on the balance sheet for previous periods:

As of September As of 30 December 31 3103 Thousands of Dollars

Increase (decrease) in assets due to net employee benefits )121( 3,121

Increase in liabilities due to net employee benefits )32,122( )31,322(

Decrease in deferred tax liability 1,202 2,121

Decrease in capital reserve in respect of re- measurements of a defined benefit 02,121 09,120

Increase in surpluses 0,311 0,121

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

The influence of the retroactive implementation on the Statement of Operations for previous periods:

For the For the Nine Three Month Month Period Period Ending Ending For the Year September September Ending December 30 30 31 2012

Drop in operating expenses 232 092 713 Drop in sales and marketing expenses 29 31 118 Drop in general and administrative expenses 010 21 137 Increase in tax expenses )092( )11( )313( Total influence on gain or loss 222 092 931

Increase in other comprehensive earnings due to re-measurements of a defined benefit 1,111 1,102 1,232 Total influence on other comprehensive income 1,111 1,102 1,232

Total influence on comprehensive income 2,092 1,010 9,321

b. New standards, revisions to standards and clarifications that have been published and are not in effect, and which have not been adopted by the Group:

. Revision to IAS 36 "Impairment of Assets” (on disclosure regarding recoverable sums)

The revision clarifies the incidence and scope of the required disclosure requirements for assets (including goodwill) or cash-generating units for which impairment was recognized (or canceled), and states that the required disclosure for these assets or cash-generating units the recoverable sum of which is set based on their fair value, shall be similar in nature to the disclosure require for the fair value measurements in accordance with IFRS 13 “Fair Value Measurement”.

This Standard shall be applied retroactively to yearly reporting periods starting January 1 2014. Early application is possible.

Note 4 - Critical Accounting Considerations and Key Sources for Estimates of Uncertainties

In applying Group accounting policy, as set forth in Note 2 above, Company management is sometimes required to exercise considerable judgment with regard to estimates and assumptions with regard the book value of assets and liabilities, which may not be available from other sources. These estimates and related assumptions are based on past experience and other factors deemed relevant. Actual results may differ from these estimates.

Estimates and underlying assumptions are regularly reviewed by management. Changes in accounting estimates are only recognized in the period in which a change was made to the estimate, if the change only affects that period, or are recognized in said period and in subsequent periods in cases where the change affects both the current period and the subsequent periods. For further details regarding critical accounting estimates employed by the Company, see Note 4 to the December 31 2012 Financial Statements.

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

Note 5 - Material Transactions and Events over the Course of the Reported Period

a. For information on the FIMI announcement dated October 10, 2013 on the cancellation of the investment agreement, see Note 14b.

b. On April 18 2013 notice prior to a work dispute was received at the Company’s offices from the New General Worker’s Histadrut – the Transportation Workers’ Union. The notice informed the Company of the activation of a work dispute starting April 21 2013, in light of the intent of the Israeli government to ratify the Open Skies agreement in a government meeting and in light of the fact that no solution had been found for the possible implications on workers as a result of the implementation of the Open Skies Agreement. The notice from the New general Workers’ Histadrut also noted that the implementation of the Open Skies Agreement in its current format will have severe implications and cause major and irreparable harm to the Israeli civil aviation industry. To the best of the Company's knowledge, work disputes on the same basis have also be declared at Arkia Airlines and Israir Airlines. Accordingly, on April 21 2013 a strike began, which was expressed in the cancellation of 75 of the Company’s flight turnovers. Over the course of the flight, the Company took several actions in order to minimize the monetary harm as a result of the strike, as well as in order to limit the harm to the Company's customers: Furthermore, the Company provided full refunds to passengers purchasing tickets to canceled flights. As noted, the strike ended on April 22 2013 during nighttime hours, in light of an agreement signed with the State of Israel regarding an increase in the State’s participation in security costs for Israeli airlines, as detailed in Note 1.e.(1) above.

c. The “Arrangements Law” was published in August 2013 (hereinafter – “the Law”). A prominent tax change set in the Law was an increase in corporate tax to 26.5% starting from the 2014 tax year (a 1.5% increase).

As a result of the legislation in question, an increase occurred in the Company's deferred tax liabilities as of September 30 2013 to the sum of $2 million charged against tax expenses in gain/loss for the nine and three months ending September 30 2013.

Note 6 – Fixed Assets

a. Impairment of Fixed Assets

If signs indicating deterioration are evident in an aircraft fleet, the Company conducts an estimate of the recoverable sum of than aircraft fleet. The recoverable sum is the fair value of the aircraft less sales costs or its value of use, whichever is higher. In estimating value in use, the Company estimates future cash flows and deducts them to their current value using a discount rate reflecting the operational risk of the aircraft fleet based on the Company’s weighted discount rate. The following are key assumptions used in calculating value in use: 1. The expected contribution from the aircraft fleet is based on results recorded in practice in the first nine months of 2013 and the estimated results for the fourth quarter of 2013 (less imputed tax), and is projected forward unchanged across the economic life span of the entire aircraft fleet, unless expressly noted otherwise. 2. Useful life – for the 777-200 fleet - 10 years of activity on average, for the 747-400 fleet - 5 years of activity on average. 3. The operational discount rate amounted to 5.5% (after tax). Material differences in these estimates, or in part of them, may impact the value of the recoverable sum of these aircraft. As of September 30 2013, the Company examined the recoverable value of aircraft fleets in which signs of deterioration were identified. It was found that the recoverable sum for each aircraft fleet surpasses its depreciated cost as of that date. Accordingly, no provision for the devaluation of aircraft was made in these Financial Statements. C - 20 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding

El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

b. Unrestricted Assets

The value of the Group's total fixed assets as of September 30 2013 is $1,125 million. The Group's key assets are aircraft, spare engines and advance payments on account of future aircraft purchases, the depreciated cost of which as of September 30 2013 is $936 million. The depreciated cost of the Group's main assets, as stated, that are not restricted by a third party amounts to a total of $20 million. In addition, as of the balance sheet date, the Group possesses parts and fixed assets to the sum of $189 million, free of any encumbrance.

c. In May 2013 an agreement was signed for the sale of a Boeing 767-200 aircraft (EAE) manufactured in 1990 to a foreign company. The proceeds set in the agreement papers for the aircraft were determined according to market prices accepted in the industry for aircraft of an identical model and age and according to their maintenance condition upon delivery. The aircraft's delivery was completed in May 2013. The Company listed capital gains of $2.3 million in its Q2 2013 Financial Statements for the transaction. This transaction was carried out as part of the Company’s policy to lower the age of the Company's aircraft fleet and gradually remove all Boeing 767-200ER aircrafts from service by the end of 2013.

d. Regarding the discontinuation of the activity of a Boeing 767-200 (EAF) over the course of October 2013, see Note 14c.

e. Regarding the approval of the Company’s Board of Directors regarding the option to purchase two additional new 737-900ER aircraft from Boeing (“the Option Aircrafts”) see Note 14d.

Note 7 - Operational Lease Arrangements

a. In January 2013 the Company signed an agreement with Wells Fargo Bank Northwest, National Association for the lease of a 737-800 aircraft (EKU) for a period of 72 months (with the option of departure with advance notice after 48 months). The aircraft was manufactured in 2006 and was received at the Company in March 2013. The lease was classified as an operational lease in the Financial Statements.

b. In March 2013 the Company signed an extension and revision to the agreement to lease a 767-300ER aircraft (EAP), from CIT Aerospace International for an additional period until November 19 2014, while waiving the exercise of the existing exit option in the agreement between the parties. The lease was classified as an operational lease in the Financial Statements.

c. In March 2013 the Company approved the extension of the lease agreement of a 747-400F (ELF) with Bank of America Leasing Ireland Co. for an additional period of 72 months, starting August 1 2013, with the Company given the option of ending the lease after 48 months. The extension agreement was signed in July 2013. The lease was classified as an operational lease in the Financial Statements.

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

Note 8 - Financial Instruments

a. Composition:

Derivative financial assets: Current Assets Non-Current Assets Total Assets As of September 30 3 1 02 3 1 03 3 1 02 3 1 03 3 1 02 3 1 03 Thousands of Dollars Derivative financial instruments, intended as hedging items: Jet fuel hedging agreements 0,122 9,213 - - 0,122 9,213 Forward agreements for the purchase of foreign currency 01,032 0,321 - - 01,032 0,321 03,121 2,120 - - 03,121 2,120 Derivative financial instruments measured at fair value via gain/loss: Jet fuel hedging agreements 122 2,122 - - 122 2,122

Total derivative financial assets: 02,111 03,201 - - 02,111 03,201

Non- Current Current Total Assets Assets Assets As of December 31 2012 Thousands of Dollars Derivative financial instruments, intended as hedging items: Jet fuel hedging agreements 3,191 - 3,191 Forward agreements for the purchase of foreign currency 00,111 - 00,111 02,191 - 02,191 Derivative financial instruments measured at fair value via gain/loss: Jet fuel hedging agreements 2,011 - 2,011

Total derivative financial assets: 01,193 - 01,193

Derivative financial liabilities:

Current Liabilities Non-Current Liabilities Total As of September 30 3102 3103 3102 3103 3102 3103 Thousands of Dollars

Derivative financial instruments designated as hedging items Jet fuel hedging agreements 132 - - - 132 - Interest rate swap agreements 299 - 913 0,211 0,021 0,211 Forward agreements for the purchase of foreign currency 0,312 1,991 - - 0,312 1,991 3,219 1,991 913 0,211 2,221 2,322 Derivative financial instruments measured at fair value via gain/loss: Interest rate swap agreements - 0,211 - - - 0,211 Jet fuel hedging agreements 22 - - - 22 - 22 0,211 - - 22 0,211 Total other financial liabilities 3,122 2,112 913 0,211 2,219 01,020

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

Current Non- Liabilities Current Total Liabilities As of December 31 3103 Thousands Thousands Thousands of Dollars of Dollars of Dollars

Derivative financial instruments designated as hedging items Interest rate swap agreements 031 0,221 0,123

Derivative financial instruments measured at fair value via gain/loss: Jet fuel hedging agreements - 12 12

Total other financial liabilities 031 0,211 0,232

b. Material changes to the fair value of financial instruments measured at fair value:

The following are the changes in the fair value of financial instruments measured at fair value, in which material changes have been made to their fair value in the first nine months of 2013:

Change in Fair Value Fair Value Fair Value as of in as of January 1 Reported September 2013 Period 30 2013 Thousands of Dollars Financial Instrument

Asset (liability) due to jet fuel hedging agreements (1) 2,132 )2,191( 0,122

Liability (asset) due to interest rate swap agreements (2) )0,123( 212 )0,021(

Liability due to forward agreements for the purchase of foreign currency (3) 00,111 )3,092( 2,222

(1) The drop in the fair value of jet fuel hedging agreements derives mainly from the drop in jet fuel prices and from additional hedging agreements in the reported period.

(2) There was no material change in the negative fair value of interest rate swap agreements.

(3) The drop in the fair value of forward contracts for the purchase of foreign currency derives mainly from the expiry of transactions with a positive fair value and from additional hedging agreements made in the reported period.

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

c. Financial Instruments Presented at Fair Value in the Balance Sheet

So as to measure the fair value of its financial instruments, the Group classifies the instruments, measured at fair value in the balance sheet, to one of the following three grades:

Level 1: Quoted prices (unadjusted) in active markets for identical financial assets and liabilities. Level 2: Data not quoted prices included in Level 1, observed, directly (meaning prices) or indirectly (data deriving from prices) as regards financial assets and liabilities. Level 3: Data regarding financial assets and liabilities not based on observed market data.

Classification of financial instruments measured at fair value is based on the lowest level significant use was made in measuring the fair value of the instrument as a whole. Below are details of the Group's financial instruments measured at fair value, by level:

Financial assets at fair value:

Level 2 September 30 December 31 3102 3103 Thousands of Dollars Derivative financial instruments, intended as hedging items: Jet fuel hedging agreements 0,122 3,191 Forward agreements for the purchase of 01,032 00,111 foreign currency 03,121 02,191 Derivative financial instruments measured at fair value via gain/loss: Jet fuel hedging agreements 122 2,011 Total derivative financial assets: 02,111 01,193

Financial liabilities at fair value: Level 2 September December 30 31 3102 3103 Thousands of Dollars Derivative financial instruments, intended as hedging items: Jet fuel hedging agreements 132 - Interest rate swap agreements 0,021 0,123 Forward agreements for the purchase of foreign currency 0,312 - 2,221 0,123 Jet fuel hedging agreements 22 12

Total derivative financial liabilities: 2,219 0,232

d. Financial Instruments not Presented at Fair Value in the Balance Sheet:

Other than as set forth in the table below, the Company believes that the book value of the financial assets and liabilities presented at depreciated cost in the Financial Statements are approximately equal to their fair value:

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

Book Value Fair Value Book Value Fair Value As of September As of September As of December As of December 31 30 2013 30 2013 31 2012 2012 Thousands of Thousands of Thousands of Thousands of Dollars Dollars Dollars Dollars

Long term fixed interest dollar loans 92,233 92,119 22,312 21,123

The fair value of these loans is based on calculating the current value of cash flows according to an interest rate of 2.36% as of September 30 2013 and 1.85% as of December 31 2012, as used for similar loans with similar characteristics. The drop in the book value and the fair value of the loans derives from redemptions carried out over the course of the nine months of 2013.

e. On May 1 2013 the Company conducted sales transactions of certain financial instruments within the framework of its exchange rate hedging portfolio (NIS/USD), for the period between May 2013 and November 2013, the key points of which are closing the existing hedging positions for the period in question while realizing the profits of the hedging transactions to the sum of $17.3 million. The receipts in cash and the listings as profits are carried out on the original dates on which these transactions are redeemed/expected to be redeemed and were presented in the financial statements for the second and third quarters and will be presented in the financial statements for the fourth quarter of 2013 accordingly (in accordance with the original redemption dates of the transactions sold).

As a result of the sale, the Company recognized earnings to the sum of $10.8 million and $8.8 million in the first nine months and the third quarter of 2013, respectively, classified from other comprehensive earnings to gain/loss.

Note 9 - Loans from Banking Corporations

a. Ratio of Loan Balance to Guarantees

As of the reported period, the Company meets the ratio of loans to collateral required in accordance with the agreements with the lending banks.

b. Following Note 18.b.1 to the December 31 2012 Financial Statements, regarding the receipt of a loan from a foreign bank for financing advance payments for the purchase of two 737-900ER aircraft from aircraft manufacturer Boeing, the first of which was delivered to the Company over the course of October and the second is planned to be delivered over the course of December 2013, on April 4 2013 the parties signed an agreement for increasing the loan from this foreign bank to finance the advance payments for the purchase of two additional aircraft of that model, to be delivered to the Company over the course of March and July 2014 (“the Additional Loan”). The sum of the Additional Loan for the aircraft is $30 million. The loan is for a period of one year until the arrival of the first plan and one year band four months until the arrival of the second aircraft and bears interest of LIBOR plus a margin. To guarantee the Additional Loan’s repayment, the Company assigned its rights to the airaircrafts to the foreign bank in accordance with the purchase agreement with Boeing. The Additional Loan Agreement includes the parties’ commitments to finance the aircraft’s purchase transaction, after the collateral of the U.S. Ex-Im Bank was received for the purchase transaction for the four aircraft. A total sum of $50.4 million was received over the course of the first nine months of 2013.

c. In August 2013 the Company signed a memorandum of understanding with a foreign bank for the receipt of up to $190 million US in financing for the purchase of four 737-900ER aircraft, purchased from Bowing in March 2011 (as detailed in Note 13.d.1 to the December 31 2012 Financial Statements), the planned delivery dates of which are between October 2013 and July 2014 (hereinafter: “the Aircraft”). The financing will be

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

guaranteed by the Export Import Bank of the United States ("Ex-Im“), the Federal bank intended for encouraging U.S. imports and exports, and by liens placed on the aircraft. The finding is stipulated on the signing of detailed and binding agreements between the parties. For information regarding the Company’s signature on the receipt papers of the first aircraft and on the financing agreements for the purchase of the first four 737-900ER aircraft, see Note 14a.

Note 10 - Means of Finance

As of September 30 2013, the Company has guaranteed credit frameworks from Israeli banking corporations for current activity to the sum of $26 million plus $2 million for the activity of its current loan account. Independent frameworks exist for deal room activity for hedging in the yields of jet fuel, foreign currency and interest to the scope of $52 million.

Note 11 - Legal Proceedings

a. As of September 30 2013, suits filed against the Company amounted to a total of $195 million, for which the Company listed an $8 million provision in its Financial Statements ($0.3 million of which is under non- current employee benefit liabilities), this based on the advice of the Company's legal counsel. In addition, a motion was filed to recognize a claim as a class action against the Company and other bodies to the sum of 100 billion NIS, which was rejected by the District Court and for which an appeal was filed before the Supreme Court, see Note 22.d.7 to the December 31 2012 Financial Statements. Legal claims not quantified in monetary sums have also been filed against the Company. The above provision in the financial statements also includes provisions for non-quantified claims, as estimated by Company management. In the opinion of Company management, based upon the opinions of its legal counsel, it is not anticipated that the Company will be exposed to an additional loss with respect to the above claims in excess of the sums of the provisions recorded in the Financial Statements.

The following is reference to material claims filed against the Company during the reported period:

1. On February 4 2013 the Company received a statement of claim filed against it at the Tel Aviv District Labor Court by 130 security workers who, as alleged in the statement of claim, were/are employed by the Company as assistant security officers sent to various destinations as needed, for flight security duties. The plaintiffs are demanding that the court issue a declaratory remedy according to which it will be decided that the collective work agreement arranging the rights of workers at the Company applies to the plaintiffs and to give monetary remedies for the various salary components. The Company has yet to submit a statement of defense. The Company made a provision for this claim in its Financial Statements, based on the opinion of its legal counsel.

2. On February 7 2013 the Company received at its offices a motion to approve a claim as a class action (hereinafter: “the Motion”) filed before the Central District Court against the Company and against British Airways, Lufthansa and Swiss Air. The motion was filed by “Hatzlacha the Consumer Movement for Promoting a Fair Economic Society” on behalf of customers shipping cargo to or from Israel (with the exception of to and from the U.S.), after no other plaintiff was found, as noted in the motion. The motion alleged a binding agreement to fix various elements of cargo shipping prices, published by various authorities around the world in February 2006 and the grounds of the claim are in accordance with the Restraint of Business Law. The total damages listed in the motion amount to 613 million NIS, of which 473 million NIS is attributed to the Company. A motion to dismiss has been filed by the Company.

3. On May 22 2013 the Company’s main offices received a motion to approve a claim as a class action, which was filed before the Tel Aviv-Jaffa District Court. The claimant claims in their motion that the Company has avoided upholding the Aviation Services Bill (Compensation and Assistance due to Flight Cancellation or Changes in Conditions), 2012 In the motion, the sum of the personal claim was set at a total of 3,000 NIS and the general damage for the Group as a whole, according to personal estimates not supported by documentation, amounts to 98.5 million NIS.

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Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding

El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

In the opinion of Company management, based upon the advice of its legal counsel, the Company is not expected to be found liable in this claim. No provision was made for this claim in the Financial Statements.

b. Following Note 22.d.8 to the December 31 2012 Financial Statements, regarding a monetary claim filed by bodies who announced their lack of inclusion in the settlement with the group of claimants within the framework of the U.S. civil suit, on the subject of air cargo transportation service prices, note that a settlement was signed with these entities. The sum of the settlement is in accordance with the provision made in the Financial Statements.

Note 12 - Transactions and Engagements with Subsidiaries

1) As stated in Note 1d, the Company did not include separate financial information in its report for the period ending September 30 2013 due to the negligibility of the added information. The Company fully owns several companies the activity of which complements the primary activity conducted within the framework of the Company. These companies do not act independently, but are in effect specific components of the Company's array of activities consolidated in the form of companies and this from regulation and other administrative reasons (salary agreements etc.). These companies are not material relative to the Company as the extant of assets, liabilities and revenues managed as part of the subsidiaries are negligible relative to the extent of the assets, liabilities and revenues managed within the framework of the Company. Therefore, publication of separate Financial Statements will not provide additional material information to the reasonable investor.

2) The Company has entered into agreements with its subsidiaries as detailed below:

a. Activity between the parent company and its subsidiaries:

For the Nine For the Three Month Period Month Period Investment Credit and Debit Company Type of Activity Ending Ending Account Account As of September As of September September 30 September 30 30 30 2013 3103 2012 2003 2012 2013 2012 2013

Thousands of Thousands of Thousands of Thousands of Dollars Dollars Dollars Dollars Aircraft leasing and associated 37,650 21,112 21,829 22,826 3 3 5,513 8,230 Sun D’Or services Commissions 36 21 12 12 - - - - Purchasing food for Company 18,966 09,392 7,530 6,592 1,416 1,055 4,117 3,962 Tamam flights from BGN Purchasing food for Company 5,166 2,122 1,875 1,793 5,101 5,079 1,032 1,495 Borenstein flights from New York Management fees 171 022 62 43 - - - - Loan to parent company (1) ------3,000 3,000 Interest from parent company (1) 52 23 18 18 - - - - Sale of flight tickets and ground 8,605 9,111 3,483 2,593 (138) (406) 552 258 Superstar arrangements Loans from parent company (2) - - - - 912 511 - - Purchasing food for employees and food services in the King David 2,635 3,221 934 791 - - 1,087 975 Katit Lounge in Terminal 3

(1) In December 2011 the Company received a $3,000 thousand loan from Borenstein for a period of three years, at a 2.3% annual interest rate paid December 15 every year.

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

(2) In September 2007 the Company provided Superstar with a £205 thousand loan. In October 2010 the Company provided an additional £110 thousand loan. In November 2012 the Company provided an additional £250 thousand loan. The three loans have no repayment date and bear no interest.

b. Mutual activity between subsidiaries:

For the Nine For the Three Month Period Month Period Credit and Debit Companies Type of Activity Ending Ending Account as of September 30 September 30 As of September 30 2013 2012 2012 2013 2012 2013 Thousands of Thousands of Thousands of Dollars Dollars Dollars TAMAM -Katit Food purchasing 228 162 149 62 120 95 Flight Ticket - 1,996 - 767 15 737 Superstar – Sun D'Or Purchasing

Note 13 – Segment-Based Reporting

a. General

The Group has applied IFRS 8, "Operating Segments" (hereinafter "IFRS 8") starting January 1 2009. According to IFRS 8, operational segments are identified based on internal reports on the Group's components, which are reviewed on a regular basis by the Group's chief operational decision maker for the purpose of allocating resources and assessing the performance of the operational segments.

In light of the above, the following are the Company's reported operating segments in accordance with IFRS 8:

Segment A – passenger aircraft activity. Segment B – cargo aircraft activity.

Passenger aircraft activity includes revenues (without deducting discounts) from the transport of passengers including baggage, transporting freight in the belly of passenger aircraft, mail transport and the contribution from the sale of duty free products.

Cargo aircraft activity includes revenues from airborne cargo shipping fees. In this area of activity, the Company offers cargo transport services in cargo aircraft from Israel to destinations to and from Israel; cargo transported from one foreign country to another foreign country (Fifth Freedom), for example from Liège to New York; or cargo transported in the context of Sixth Freedom (indirect flights via stopovers in the home country of the airlines), for example from Asia to Europe or the U.S. with a stopover in Israel. During the reported period, the services offered by the Company in this area of activity were cargo transport services to one destination in Europe on scheduled flights, three European destinations via charter flights and one destination in North America. Moreover, the Company offers cargo services to many additional destinations by means of the Company’s passenger aircraft or by means of cooperative arrangements with other airlines and also by means of land transport from the airport.

Starting June 2011 the Company has employed a single leased Boeing 747-400 cargo airaircraft.

The Company’s other activities include revenues from charter flights via subsidiary Sun D'Or (which are written off in the "Adjustments" column), revenues from maintenance service provided to outside elements as well as a broad variety of services and revenues such as equipment leasing, frequent flyer membership fees, loading and unloading services and more.

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

The Company's chief operational decision maker does not receive reports on segment asset measurement and therefore, in accordance with the revision to IFRS 8, this information is not included in the segment reporting.

b. Analysis of revenues and results according to operating segments:

For the Nine Month Period Ending September 30 2013 Passenger Cargo Adjust- Aircraft Aircraft Others ments Total Thousands Thousands Thousands Thousands Thousands of Dollars of Dollars of Dollars of Dollars of Dollars (Unaudited) Revenues Revenues from outside customers 0,112,223 21,113 11,101 12,293 0,111,103 Inter-segment revenues - - 29,121 )29,121( - Total segment revenues 0,112,223 21,113 92,311 00,333 0,111,103

Segment results 023,121 )1,132( 21,231 - 302,111

Unassigned expenses )019,012(

Operating profit 152360 Financing expenses )33,212( Financing income 02,210 The Company's share of the profits of subsidiaries, net of tax 310 Profit before taxes on income 132624 Taxes on income )02,120( Profit for the period 302012

For the Nine Month Period Ending September 30 2012 Passenger Cargo Adjustme Aircraft Aircraft Others nts Total Thousands Thousands Thousands Thousands Thousands of Dollars of Dollars of Dollars of Dollars of Dollars (Unaudited) Revenues Revenues from outside customers 0,111,222 10,119 23,129 21,211 0,220,900 Inter-segment revenues - - 11,191 )11,191( - Total segment revenues 0,111,222 10,119 93,911 01,122 0,220,900

Segment results 010,212 )3,911( 31,121 - 092,119

Unassigned expenses *)029,211(

Operating profit 102204 Financing expenses )23,121( Financing income 222 The Company's share of the profits of subsidiaries, net of tax 0,211 Profit before taxes on income 002606 Taxes on income *)2,112( Profit for the period 42003

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a. C - 29 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding

El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

For the Three Month Period Ending September 30 2013 Passenger Cargo Adjust- Aircraft Aircraft Others ments Total Thousands Thousands Thousands Thousands Thousands of Dollars of Dollars of Dollars of Dollars of Dollars (Unaudited) Revenues Revenues from outside customers 222,111 02,221 01,132 32,231 112,313 Inter-segment revenues - - 30,231 )30,231( - Total segment revenues 222,111 02,221 22,323 1,111 112,313

Segment results 001,011 )3,112( 02,112 - 031,013

Unassigned expenses )22,292(

Operating profit 262640 Financing expenses )1,121( Financing income 01,001 The Company's share of the profits of subsidiaries, net of tax )31( Profit before taxes on income 412211 Taxes on income )33,221( Profit for the period 622451

For the Three Month Period Ending September 30 2012 Passenger Cargo Adjust- Aircraft Aircraft Others ments Total Thousands Thousands Thousands Thousands Thousands of Dollars of Dollars of Dollars of Dollars of Dollars (Unaudited) Revenues Revenues from outside customers 211,222 09,111 00,211 31,199 112,912 Inter-segment revenues - - 32,213 )32,213( - Total segment revenues 211,222 09,111 29,111 1,122 112,912

Segment results 12,211 )0,209( 9,212 - 011,132

Unassigned expenses *)10,111(

Operating profit 532220 Financing expenses )02,121( Financing income 211 The Company's share of the profits of subsidiaries, net of tax 023 Profit before taxes on income 612320 Taxes on income *)03,931( Profit for the period 222613

* Retroactive implementation of IAS 19 (revised) “employee benefits” - see Note 3a.

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El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

For the Year Ending December 31 2012 Passenger Cargo Adjust- Aircraft Aircraft Others ments Total In Thousands of Dollars Revenues Revenues from outside customers 0,239,112 21,120 11,112 13,112 3,102,113 Inter-segment revenues - - 12,229 )12,229( - Total segment revenues 0,239,112 21,120 12,011 01,012 3,102,113

Segment results 029,939 )2,239( 31,232 - 301,932

Unassigned expenses *)012,321(

Operating profit 12,445

Financing expenses )22,102( Financing income 0,119 The Company's share of the profits of subsidiaries, net of tax 0,392 Loss before taxes on income )32,312( Tax benefit *5,142 Loss for the year )02,011(

* Retroactive implementation of IAS 19 (revised) “employee benefits” – see Note 3a.

Note 14 - Events Subsequent to the Balance Sheet Date

a. On October 8 2013 the Company signed receipt papers for a new Boeing 737-900 aircraft (“the Aircraft”), the first of this model purchased by the Company. The aircraft joined the Company’s narrow-bodied aircraft fleet in October 2013. The financing for the Aircraft’s purchase (and that of additional aircrafts of the same type) was planned to be carried out by a foreign bank, guaranteed by the Export Import Bank of the United States (hereinafter: “Ex- Im”), however, following the postponement of the U.S. federal budget approval and the shutdown of the federal government (including Ex-Im), the Company arranged financial bridging solutions to finance the Aircraft between the parties involved in the transaction in question, for a period of up to one month, which allowed the Company to receive the Aircraft on the original delivery date – October 8 2013. Upon the end of the federal government shutdown, the Company closed the finance agreement according to its original format on November 5 2013 (as described in Note 9c) and signed the finance agreement papers for the purchase of 4 Boeing 737-900ER aircraft (“the Aircrafts”) with a Canadian bank, guaranteed by Ex- Im. The total scope of the loan framework for the purchase of the aircrafts purchased in March 2011 is up to $190 million. The relative share of the loan for the first aircraft was received on November 5 2013 and was used to redeem the bridge loan outline the Company received, during the U.S. government shutdown, as described above. The balance of the loan framework was received, as requested by the Company, for each of the remaining three aircrafts, upon receipt and in accordance with the terms set in the transaction papers. The loan is for a period of 12 years from the receipt of each aircraft (“the Loan Period”) and its redemption shall be carried out in equal quarterly payments, at the start of each quarter. The uncleared balance of each loan shall bear variable interest based on LIBOR interest plus a margin of 0.2% starting from its provision until the end of the first year of the loan period. Pursuant to the loan agreement, the Aircrafts are pledged as collateral along with all of the rights owed the Company by virtue of the transaction papers as well as the Company’s rights in accordance with the insurance policies issued within its framework. Pursuant to the finance agreement documents, the option exists to make a private issue of debentures for the loan guaranteed by Ex-Im on the U.S. capital market, before each aircraft is received or during the first year C - 31 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding

El Al Israel Airlines Ltd. Notes to the Concise Consolidated Financial Statements

of the loan period, regarding each of the aircrafts (together or separately), at fixed or variable interest and for a period of up to the end of the loan period. Such an issue will replace the relevant loan. In as much as after 12 months from the receipt of each aircraft no private issue has taken place of debentures for the loan guaranteed by Ex-Im taken for the purchase of that aircraft, as noted above, then the interest for this loan will increase to a rate equal to LIBOR plus a margin of 0.50%-0.55%.

b. On October 10 2013 FIMI informed the Company that it was canceling the investment agreement, as the preconditions set in the investment agreement were not met.

c. As part of the reduction of the age of the Company's aircraft fleet and the reduction of the number of fleets – the Company’s Boeing 767-200ER (EAF) aircraft ended its commercial service over the course of October 2013. This aircraft was the last of its fleet of Company aircraft and upon its removal from commercial service this fleet’s activity at the Company has been discontinued.

d. Following Note 13.d.1 to the December 31 2013 Financial Statements regarding the purchase agreement with aircraft manufacturer Boeing, on October 22 2013 the Company Board of Directors approved the realization of the option to purchase two additional 737-900ER aircrafts from Boeing (“the Option Aircrafts”).

Confirmation of the purchase of the Option Aircrafts constitutes the completion of a comprehensive purchase agreement with aircraft manufacturer Boeing of eight 737-900ER aircrafts as signed in February 2011; this transaction is compatible with the Company’s commercial needs and allows the renewal and lowering of the age of the Company’s aircraft fleet, with the Option Aircrafts expected to serve the Company in short and medium ranges (Europe and regional destinations).

The value of the Option Aircraft agreement is similar to previous transactions for these aircrafts, and reflects an average market value of aircraft of this model and similar production year, in accordance generally accepted industry prices list and subject to adjustments and investments in accordance as agreed upon by the parties, including linkage of aircraft prices, using an agreed-upon linkage formula. The Company expects to receive the Option Aircrafts over the course of February and March 2016. The payment terms for the Option Aircrafts provide the Company with sufficient time to prepare for financing their purchase under the current format.

e. Following Note 18.b.2 to the Company's December 31 2012 Financial Statements regarding the Company’s signing of a loan agreement with a fully-owned subsidiary of aircraft manufacturer Boeing, in November 2013 the parties agreed to extend the signing date of an agreement for the lease of 2 787 aircrafts or alternately, an agreement to purchase one or more 787 aircraft, to May 30 2014 or some later date, as agreed by the parties.

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