El Al issues ‘going concern’ warning as losses pile up

El Al issues ‘going concern’ warning as losses pile up

National carrier says 90% of its staff laid off, and if government doesn’t step in, it will no longer be able to function

El Al planes at the Ben Gurion International Airport, April 12, 2020. (Flash90)
El Al planes at the Ben Gurion International Airport, April 12, 2020. (Flash90)

El Al on Thursday warned it was in danger of collapse if bailout negotiations with the government fail, at the same time reporting a loss in the fourth quarter of 2019.

Israel’s national carrier said it lost $31.5 million in the final part of 2019, compared to a loss of $31.6 million for the same period a year earlier.

“Given the uncertainty regarding the assistance, which is needed to allow the company to cope with the impact of the crisis at this stage, the company estimates that there are significant doubts about its continued existence as a going concern,” the airline said in a statement.

The announcement came as the Israel Airports Authority announced a pilot program for restarting passenger operations at Ben Gurion Airport, beginning Friday with two outgoing flights under social distancing regulations.

The empty arrivals hall at Ben Gurion International Airport, near Tel Aviv, April 12, 2020. (Flash90)

International air travel all but collapsed worldwide in the wake of the coronavirus pandemic. A late-April report from the International Air Transport Association announced an 80 percent reduction, and predicted over $300 billion in losses for the airline sector, due to the crisis.

Israel currently only allows citizens and residents to enter the country, and they must undergo a two-week period of quarantine upon their return to the country. Only a handful of flights enter or leave the country daily.

El Al has suspended all regular passenger flights and is negotiating with the government for a bailout package. According to the statement, 90 percent of its staff has been placed on unpaid leave.

The airline’s CEO on Wednesday asked Prime Minister Benjamin Netanyahu to intervene in its negotiations with the Finance Ministry to prevent thousands of layoffs and “the loss of Israel’s aviation independence.”

Prime Minister Benjamin Netanyahu (R) and Finance Minister Moshe Kahlon in Jerusalem on March 11, 2019 (Aharon Krohn/Flash90)

The plea came a day after Finance Minister Moshe Kahlon offered the battered airline a lifeline via a $400 million state-backed loan guarantee on condition it agrees to raft of extensive reforms. If the airline declines the offer and all its terms, it will likely be broken up and parts of it sold off.

In a letter to Netanyahu, El Al’s Gonen Usishkin claimed the Treasury was intentionally trying to break up the airline.

“We are asking you to instruct the Treasury to amend the outline it presented last night and to remove the unsuitable restrictions,” Usishkin wrote to Netanyahu. “Last night, we received a document in which the Treasury made additional unsolicited requirements, the sole purpose of which was to send El Al into liquidation.”

The loan is conditioned on El Al’s owners injecting NIS 100 million ($28.5 million) into the company and carrying out further restructuring to reduce annual costs by at least $50 million. The airline must also repay the government if its value rises after the crisis, Channel 12 reported Sunday, noting that the workers’ union, likely to bear the brunt of the restructuring, must also sign off on the terms.

El Al CEO Gonen Usishkin at a Tel Aviv press conference, March 28, 2018. (Flash90)

Likening the situation to the health crisis and the effects of the coronavirus, Usishkin said the airline was in critical condition and the Finance Ministry was “denying us a ventilator.” He said that claims that the company’s situation was partly due to pre-coronavirus mismanagement were “devoid of any foundation and have no basis in reality.”

“As prime minister, you have the highest responsibility to ensure that, after 72 years, El Al will not come to an end on your watch,” Usishkin wrote, saying that the breakup of the airline would damage Israel’s standing in the world and have a direct effect on national security.

“The decision to liquidate it means the loss of Israel’s aviation independence. Israel will become an island under siege and a state subject to extortion by foreign companies or foreign countries whose interests are inconsistent with that of the State of Israel… a real violation of national security,” Ushiskin warned.

The offer from the Finance Ministry came after a court gave El Al the go-ahead to pull NIS 105 million ($30 million) from its employee pension and compensation fund in order to help cover its costs and avoid collapse. The court ruled that the amount was not owed to employees, and could therefore be used in the company’s current emergency.

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