Free Translation of the Hebrew Language 2011 Annual Report - Hebrew Wording Binding EL AL ISRAEL AIRLINES LTD. 2011 ANNUAL REPORT CHAPTER A - OVERVIEW OF THE ENTITY'S BUSINESS CHAPTER B - DIRECTORS' REPORT CHAPTER C - 2011 FINANCIAL STATEMENTS Free Translation of the Hebrew Language 2011 Annual Report - Hebrew Wording Binding ______________ 2011 ANNUAL REPORT CHAPTER A OVERVIEW OF THE ENTITY'S BUSINESS Free Translation of the Hebrew Language 2011 Annual Report - Hebrew Wording Binding El Al Israel Airlines Ltd 2011 Periodic Report Chapter A Description of the Corporation’s Business Free Translation of the Hebrew Language 2011 Annual Report - Hebrew Wording Binding Table of Contents Chapter 1: General 4 Chapter 2: Description Of The General Development Of The Corporation’s Business 7 1. THE CORPORATION’S ACTIVITY AND DESCRIPTION OF THE DEVELOPMENT OF ITS BUSINESS . 7 1.1 General ...................................................................................................................................... 7 1.2 Holdings Chart .......................................................................................................................... 8 1.3 Year and Form of Incorporation................................................................................................. 9 1.4 Changes in the Corporation’s Business ...................................................................................... 9 2. FIELDS OF ACTIVITY ............................................................................................................... 10 3. INVESTMENTS IN THE CORPORATION’S CAPITAL ..................................................................... 11 3.1 General ...................................................................................................................................... 11 3.2 Options ...................................................................................................................................... 11 3.3 Shares Held by Company Employees ......................................................................................... 12 3.4 Changes in Holdings of Interested Parties .................................................................................. 13 3.5 Table Summarizing Data on Interested Party Holdings and Capital ........................................... 16 4. DISTRIBUTIONS OF DIVIDENDS ................................................................................................ 18 5. FINANCIAL INFORMATION REGARDING THE CORPORATION’S AREAS OF ACTIVITY ................ 18 5.1 Nature of the Adjustments ......................................................................................................... 20 5.2 Explanation of Developments Occurring in the Areas of Activity .............................................. 20 6. GENERAL ENVIRONMENT AND IMPACT OF EXTERNAL FACTORS ON THE COMPANY ................ 20 6.1 Traffic in the International Aviation Industry ............................................................................ 20 6.2 Movement in the Israeli Aviation Industry ................................................................................. 21 6.3 Fluctuations in Jet Fuel Prices ................................................................................................... 21 6.4 Foreign Currency Rate Fluctuations ........................................................................................... 21 6.5 Interest Rate Fluctuations .......................................................................................................... 22 Chapter 3: Description Of The Corporation’s Business By Area Of Activity ........................................... 23 7. PASSENGER AIRCRAFT ACTIVITY ............................................................................................ 23 7.1 General Information on the Area of Activity ............................................................................. 23 7.2 Services in the Area of Activity ................................................................................................. 56 7.3 Analysis of Revenues and Profitability from Services ............................................................... 65 7.4 New Services ............................................................................................................................. 65 7.5 Customers .................................................................................................................................. 69 7.6 Marketing and Distribution ........................................................................................................ 70 7.7 Accumulated Orders .................................................................................................................. 74 7.8 Competition ............................................................................................................................... 74 7.9 Seasonal Factors ........................................................................................................................ 76 7.10 Manufacturing Capabilities ........................................................................................................ 77 a - 2 Free Translation of the Hebrew Language 2011 Annual Report - Hebrew Wording Binding 7.11 Aircraft Fleet ............................................................................................................................. 78 8. CARGO AIRCRAFT FIELD ......................................................................................................... 86 8.1 General Information on the Area of Activity ............................................................................. 86 8.2 Services in the Area of Activity ................................................................................................. 92 8.3 Analysis of Revenues and Profitability from Services ............................................................... 94 8.4 New Services ............................................................................................................................. 94 8.5 Customers, Marketing and Distribution ..................................................................................... 94 8.6 Accumulated Orders .................................................................................................................. 95 8.7 Competition ............................................................................................................................... 95 8.8 Seasonal Factors ........................................................................................................................ 97 8.9 Manufacturing Capabilities ........................................................................................................ 97 8.10 Aircraft Fleet ............................................................................................................................. 98 8.11 Raw Materials and Suppliers ..................................................................................................... 100 9. INFORMATION ON BOTH FIELDS OF ACTIVITY ......................................................................... 100 9.1 Fixed Assets and Installations .................................................................................................... 100 9.2 Insurance ................................................................................................................................... 104 9.3 Intangible Assets ....................................................................................................................... 105 9.4 Human Capital ........................................................................................................................... 106 9.5 Raw Materials and Suppliers ..................................................................................................... 133 9.6 Working Capital ........................................................................................................................ 136 9.7 Investments ................................................................................................................................ 139 9.8 Finance ...................................................................................................................................... 143 9.9 Taxation .................................................................................................................................... 148 9.10 Environmental Issues and Corporate Responsibility .................................................................. 152 9.11 Restrictions and Supervision of the Corporation’s Business ...................................................... 161 9.12 Material Agreements ................................................................................................................. 194 9.13 Cooperation Agreements ........................................................................................................... 195 9.14 Legal Proceedings ...................................................................................................................... 196 9.15 Goals and Business Strategy ...................................................................................................... 203 9.16 Projected Developments in the Coming Year ............................................................................. 206 9.17 Financial Data on Segment-Based Reporting ............................................................................