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Israel's El Al counts on new Boeing 787s to lure back customers

* Invests $1.25 billion on 16 Boeing 787 aircraft

To receive all 787 aircraft by 2020

* CEO sees winning back business class passengers

* El Al's market share: http://tmsnrt.rs/2gk2Bo5

By Steven Scheer and Miriam Berger

BEN GURION AIRPORT, Israel, Aug 23 (Reuters) - El Al Israel Airlines took delivery of its first Boeing 787 Dreamliner aircraft on Wednesday in a $1.25 billion investment aimed at renewing its long-range fleet, halting a drop in its market share and winning back business customers.

In all, Israel's flag carrier will receive 16 787-8 and 787-9 planes -- both bought and leased -- by 2020. It expects one more 787 by year-end, a total of seven by the end of 2018 and 14 by the end of 2019.

They will initially fly from Tel Aviv to Newark starting on Oct. 17 and then Hong Kong, London and New York's JFK airport.

At a ceremony on the tarmac at Ben Gurion International Airport following the airplane's flight from Seattle, CEO David Maimon said the fleet renewal was new era for El Al, helping it better compete in a fiercely competitive market.

El Al was once the go-to airline for most Israelis thanks to the kind of stringent security that equips planes with missile defence systems.

But it has frustrated customers -- particularly business travellers -- over the past decade with an ageing fleet that compares poorly with competitors offering newer jets fitted with the latest in hi-tech entertainment and comfort.

Last week, it reported a 53 percent drop in second-quarter net profit due to higher salary and jet fuel costs. Its market share at Ben Gurion Airport fell to 29.5 percent from 34.2 percent a year ago.

"I am sure (because of) this aircraft, most of our passengers will be back, especially the business segment," Maimon told Reuters on Wednesday.

The average age of El Al's 19-strong long-haul fleet of Boeing 767s, 747s and 777s is about 19 years, and 14 of them are more than 21 years old. El Al in recent years has renewed its short-haul fleet with 23 Boeing 737 aircraft.

"We have old aircraft. But in two years from now we will have a new fleet. The average age will be about five, six years," Maimon said, noting the 747s and 767s will be retired.

The new aircraft are expected to cut fuel costs by at least 20 percent.

El Al, which is expanding into North America with nonstop flights to Miami starting in November, retains an all Boeing fleet. In a tender, it opted for the 787s over the Airbus A350s. Towards the back of the new aircraft is inscribed "Proudly all Boeing".

"This relationship is almost 70 years old and we don't have a lot of all-Boeing customers anymore," said Ray Conner, Boeing's vice chairman. "The relationship between our company, Israel and El Al is one of the more precious ones we have."

Graphic on El Al's market share: http://tmsnrt.rs/2gk2Bo5

(Reporting by Steven Scheer; editing by Susan Thomas)