El Al accepts $400m bailout, with airline likely to be nationalized
Carrier battered by pandemic to receive $250 million government-backed loan and $150 million share offering, with state buying unsold shares
Struggling carrier El Al could be flying back into state hands, as the company’s board accepted a government bailout Monday that would likely give the state some 61 percent of the firm.
Under the deal, the airline will get a $250 million government-backed loan, with guarantees for 75% of the loan, in case the firm defaults.
It also includes a stock offering on the Tel Aviv Stock Exchange to raise $150 million to help prop up the equity of the firm, which has more than $2 billion of net debt.
The deal stipulates efficiency steps that may lead to the firing of 2,000 workers.
The offering will come with a caveat that the state must buy any unsold shares, meaning that the state could once again end up as the majority stakeholder in the airline.
The airline was privatized in 2004 and is currently controlled by Knafaim Holdings Ltd, which will see its shares diluted.
The deal was confirmed by the airline in a report Monday evening to the Tel Aviv Stock Exchange.
The company has entered deep financial trouble due to the pandemic, and last month shut down all air operations amid an ongoing labor dispute.
Tensions at the airline have been high after it slashed the vast majority of its workforce and dipped into pension funds to stay afloat, during the coronavirus crisis.
It put 80% of its 6,303 workers on unpaid leave, cut management salaries by 20%, halted investments, and signed accords for the sale and lease-back of three Boeing 737-800s.
On Wednesday, the airline stopped flights altogether after labor talks blew up between the pilots committee and management, with pilots refusing to man Wednesday’s flights.
On Thursday, the management furloughed 500 more staff, including 100 pilots, as well as maintenance workers, flight attendants and ground crews.
“Since the pilots refuse to staff the flights — which include cargo flights and a limited number of passenger flights — we are forced to make personnel adjustments,” El Al said in a statement.
Hundreds of food service workers at El Al subsidiary Tamam, which produces kosher airline meals for multiple carriers operating through Ben Gurion International Airport, have also been furloughed, sparking concerns regarding the possibility of mass layoffs.
The firm also owes some $350 million to passengers whose flights were canceled because of the pandemic.
A quarterly report for January-March issued last week showed $140 million in losses for the company in the first quarter of 2020, versus $55 million in losses for the same period last year. Revenue was down to $320 million for the quarter, a drop from $428 million last year.
The airline has prolonged the suspension of scheduled commercial flights until the end of July, but said it would continue to use its aircraft for cargo and occasional passenger flights.
The CEO of Israel’s main airport warned Friday that the country was “days away from reaching the point of no return” for its aviation industry, after long months of an almost complete lack of flights.
Shmuel Zakay said in a Facebook post that after so much time without activity, many professionals, from pilots to ground crews, had their operational competency eroded. “Bringing them back to efficient and safe flights will take months,” he said.
In Israel, where most travel in and out of the country is through the air, long-term damage to the aviation industry would cause “huge strategic harm,” he added.
While acknowledging that the coronavirus is “a dangerous and lethal pandemic,” Zakay said it was imperative to learn to live with its presence and manage its risks, as it did not seem to be going away anytime soon. He accused the government of “stagnation” in its response to the disease, calling its handling of the crisis “the opposite of leadership.”
“This week, civilian flights resumed in the world even in countries whose illness levels are high,” he stated. “We can operate safe civilian aviation even under the shadow of coronavirus.”
