El Al grounds all flights amid labor dispute, financial crisis
Israeli national carrier scraps passenger, cargo flights after talks with pilots committee blow up; CEO said to order all planes back, including those mid-trip
Israel’s national airline El Al has stopped flights altogether, canceling two passenger and four cargo flights that were scheduled for Wednesday, the Globes daily reported, after labor talks blew up between the pilots committee and management.
Tensions at the airline have been high after it slashed the vast majority of its workforce and dipped into pension funds to stay afloat amid the coronavirus crisis. The airline is seeking a government bailout to save it from insolvency and collapse.
According to the Ynet news site, Wednesday’s flights were canceled after negotiations between pilots committee representative Nir Reuveni and airline CEO Gonen Usishkin ended without resolution on Tuesday evening.
Reuveni reportedly said that El Al was not keeping to labor agreements made with the pilots during the coronavirus pandemic and that the airline’s management was “unable to reach agreements with the employees, refuses the [government’s] generous bailout offer of financing and is unable to lead the company at this time.”
The pilots then refused to staff Wednesday’s flights, with the airline’s management reportedly responding that if they would not fly, they would be transferred to other active positions in the company, with many of them needing to be furloughed as a result.
The Globes financial daily reported that Usishkin then ordered all planes to return to Israel, even those that were on the ground in the middle of a multi-stop route. The newspaper said the move was a step toward a total shutdown of operations.
“The company cannot continue to bleed and has come to the conclusion that it is better to stop flights than to lose money on flights it operates,” a Histadrut labor union official told Globes.
Globes reported that cargo activity for the airline has decreased because other airlines are now able to carry more goods on passenger flights, in addition to the fact that El Al, like all carriers globally, has been hit by the economic crisis created by the coronavirus pandemic, which has led to restrictive steps including halting flights and curbing arrivals of foreign tourists and visitors.
A quarterly report for January-March issued late Tuesday 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 had said it would continue to use its aircraft for cargo and occasional passenger flights.
In Israel, those who are allowed to enter must go through a two-week period of self-quarantine to ensure they are not carrying the virus and on Monday, the European Union left Israel off its list of countries for which travel restrictions have been lifted.
As the coronavirus hit, El Al halted flights to China and then canceled all of its commercial flights since April.
The firm has 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.
The firm also owes some $350 million to passengers whose flights were canceled because of the pandemic.
The Finance Ministry said last month in an email message to The Times of Israel that in light of Israel’s security and geopolitical needs, the political echelon believes that a sustainable Israeli aviation industry must be maintained.
The ministry’s proposal, which is now awaiting approval by El Al’s board, offers a rescue package of $400 million, which consists of government-backed loans for a total of $250 million with guarantees for 75% of the loan, in case the firm defaults; a share 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; and efficiency steps, including the firing of 2,000 workers.
The share sale, for a 61% stake in the firm, would dilute the 38.33% held by the airline’s current controlling shareholder, Knafaim Holdings Ltd. — should it decide not to purchase more shares — to some 15%. Knafaim is controlled by Tamar Mozes Borovitz, which holds a 23.58% stake in the holding firm.
The proposal also says that should investors or one strategic investor for the share sale fail to materialize, the government will step in and buy up any of the unsold shares. This move could make the government once again the controlling shareholder of the airline, which it privatized in 2004 after having taken control of it in 1982, when it was hobbled by strikes and labor disputes.
An original plan to provide the airline with government-backed loans for a total of $400 million was retracted after banks refused to cough up the money for the loans, even if the government guarantees were for as much as 85% of the amount — the airline faced challenges of high competition, costs, debt and strong labor unions even before the pandemic struck.
Shoshanna Solomon contributed to this report.
