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Shutdown decision's impact on imports, exports still unclear

El Al reportedly set to request $700m government loan to survive virus crisis

Airline expects massive loss in revenue, near total halt to operations for 3 months, is already burdened by $1.6b upgrade to fleet

Luke Tress is a video journalist and tech reporter for the Times of Israel

People wearing face masks for fear of the coronavirus arrive at Ben Gurion International Airport near Tel Aviv, March 10, 2020. (Avshalom Sassoni/Flash90)
People wearing face masks for fear of the coronavirus arrive at Ben Gurion International Airport near Tel Aviv, March 10, 2020. (Avshalom Sassoni/Flash90)

El Al estimates that it will need some $700 million to stay afloat as the coronavirus crisis bludgeons the aviation industry, and will request that amount in assistance from the Finance Ministry, according to a Tuesday report.

A sweeping quarantine directive announced Monday requiring all incoming travelers to self-isolate is expected to essentially shut down tourism to Israel.

The estimation assumes that the airline is almost completely grounded for the next three months, the Calcalist business outlet reported.

The emergency funding will be granted as a loan, not as compensation, and El Al will need to provide collateral, which will be a challenge for the company given its current debts. The airline is in the midst of upgrading its fleet at a cost of $1.6 billion.

The government will also require El Al to present a plan to significantly streamline its operations, the report said, without specifying its sources.

El Al’s labor union and the Histadrut umbrella labor union are examining possible measures the airline could take to streamline its workforce while minimizing layoffs.

El Al employees said they are willing to forfeit 15 percent of their salary if there are no firings, which the firm’s management rejected.

El Al, Israel’s flag carrier, said it will continue to offer international flights, although with reduced services. Prime Minister Benjamin Netanyahu has vowed support for El Al, which started layoffs after massive losses in revenue due to the coronavirus outbreak.

The airline axed hundreds of employees, slashed salaries and froze hiring last week.

El Al Airlines’ Boeing 737s are pictured on the tarmac at Ben Gurion International Airport near Tel Aviv, March 10, 2020. (Jack Guez/AFP)

The company’s share price on the Tel Aviv Stock Exchange is down over 30% in the past month.

On Sunday, even before a sweeping quarantine order on all arrivals was issued, El Al reported to the Tel Aviv Stock Exchange that it expects revenue to decline by $140-160 million for the period from January to April 2020 as a result of the suspension of multiple lines and declining demand in others due to the worldwide outbreak.

El Al said revenue decline for the first quarter would amount to $80-90 million, while it expected losses for the same period of $70-90 million. Losses for the period from January to April are expected to total $80-90 million. El Al said losses would be offset to a certain extent by cuts in operating expenses.

Meanwhile, the effect of Monday’s quarantine decision on Israel’s imports and exports was still unclear, partly due to government offices being closed for the Purim holiday on Tuesday.

About an equal amount of imports and exports are trafficked via sea and by air, said Yifat Alon Perel, the Minister of Economic and Trade Affairs at Israel’s embassy in Washington, DC.

“If there is some kind of shutdown to imports and exports, that’s going to be a big deal,” Alon Perel said. “For many Israeli companies, a great percentage of their revenues are coming from exports.”

Some companies may shift trade to ships, but for firms with contracts requiring trade in a short period of time, the slower sea route may not be an option.

The limited two-week duration of the quarantine order may be related to concerns about imports and exports, Alon Perel said.

Large companies and banks likely have enough capital to weather the storm, but a halt to imports and exports could be a serious blow to smaller businesses, said Yaniv Pagot, an economist and head of strategy for the Ayalon Group, an Israeli institutional investor.

The bigger concern for Israeli industry right now is disruptions in supply chains and access to raw materials, Pagot said.

The tourism and aviation industries are still likely to suffer the most damage from the virus outbreak.

Passengers wear masks to help protect against coronavirus, at the Ben Gurion Airport near Tel Aviv, Israel, Sunday, March 8, 2020. (AP Photo/Ariel Schalit)

Ben Gurion Airport saw 60% reduction in travelers in the past 10 days — from 52,239 entries on March 1st, to 21,780 on Tuesday, the Israel Airports Authority said.

The authority is releasing daily figures for entries during the crisis, instead of its usual monthly tally. It said Ramon Airport in southern Israel will continue to operate at night, contrary to earlier reports.

Ben Gurion Airport will shutter half of its main international terminal and reduce its manpower by 70%.

Two out of five check-in areas in Terminal 3 will be closed immediately, the country’s main airport said Tuesday, as the workers’ union announced it was shifting into “Yom Kippur footing.”

Netanyahu announced Monday night that anyone arriving in the country must self-quarantine for 14 days. The decision was expected to essentially shut down tourism to Israel, as only non-citizens with a place to quarantine for 14 days will be allowed in the country.

Those already in Israel will need to leave “in an orderly fashion in the coming days,” the Health Ministry said in a statement. Many Israelis were also expected to cancel travel plans rather than face two weeks of quarantine when they return home.

The Finance Ministry assessed the new order would cost Israel some NIS 4.9 billion ($1.4 billion) a month.

A tourist wearing a face mask for protection from the coronavirus at the Western Wall in the Old City of Jerusalem on March 5, 2020. (Olivier Fitoussi/Flash90)

El Al on Friday canceled some flights to San Francisco and a number of European cities, with a senior company official calling the virus outbreak “an unprecedented crisis.”

The company was also expected to cancel services to Munich, Budapest, Amsterdam, Brussels, Bucharest, Vienna and Marseille.

The International Air Transport Association (IATA) warned Thursday the total revenue impact on the industry could be in the range of $63-$100 billion.

There have so far been 58 confirmed cases of COVID-19 in Israel, most of them contracted by travelers returning from abroad. The government has for weeks ordered measures to clamp down on foreign entries and force home quarantines.

Some have criticized the measures as draconian and diplomatically harmful, but officials have defended them as helping keep the virus at bay. Some 22,000 Israelis are already in quarantine, the Health Ministry said Monday morning.

Unlike other quarantine orders, which were open-ended, Netanyahu said the new, sweeping quarantine order will be in place for two weeks. He added that further decisions were being made by the government to protect the economy, though he did not elaborate.

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