El Al airlines said Monday that the Treasury has rejected the firm’s request for a state loan of $350 million to weather the coronavirus pandemic.
The company, Israel’s flagship carrier, is facing financial ruin as the disease outbreak, and government containment measures, have largely shuttered international travel and almost completely halted travel into Israel.
In a statement to the Tel Aviv Stock Exchange, the company said: “Representatives from the Finance Ministry informed the company that for now the Treasury’s team of professionals is not approving the requested aid package.”
“The team said that it was under the authority of the political echelon to make a different decision, and in response, the company turned to the Israeli government for assistance,” the statement said. “State support in the near term is essential to allow the company to cope with the consequences of the coronavirus crisis.”
The Calcalist business daily reported that in a Sunday meeting between El Al, the Finance Ministry and bank executives, Finance Ministry officials said they did not believe El Al would be able to repay the requested loans.
Officials believe the airline’s assumptions about its return to routine and future revenue were unrealistic. The Finance Ministry expects the aviation industry as a whole will have a much later recovery than El Al’s forecast.
Prime Minister Benjamin Netanyahu will now need to decide on how to buoy the beleaguered airline.
Late last month El Al suspended all commercial flights. The company said it would continue to operate flights to repatriate Israeli citizens stranded overseas in coordination with the Foreign Ministry and the Defense Ministry, as well as cargo flights.
El Al also said it would send further employees on unpaid leave in addition to the 5,500 workers it has already put on unpaid leave since the outbreak of the coronavirus.
Since the beginning of March, the government has instituted increasingly severe measures in an effort to contain a spread of the virus.
Those who can work from home are able to continue to do so, but many of those who cannot and are not employed in essential jobs have been placed on leave without pay.
As the economy has slowed down, unemployment figures for the first time ever spiked past 1,000,000 at the beginning of the month, bringing the unemployment rate to a staggering 25 percent.
The Bank of Israel on Monday announced it was cutting interest rates to 0.1% from 0.25% in an attempt to stimulate the economy.
The rate matches the lowest ever and brings the bank back to where it was from 2015 until 2018, when it sought to spur lending to ease a housing crisis.
The bank said GDP contracted by 5% in the first quarter of 2020, and 5% negative growth is predicted for the next quarter as well. Debt-to-GDP ratio was predicted to reach 75% in 2020.
The TA-35 stock index climbed 4.8% on Monday alongside global markets on hopes the virus outbreak coming under control in several hard-hit areas. In New York, the S&P 500 index jumped 7%.
The TA-35 index is down 22.6% since the start of 2020, and El Al’s shares are down 27.4% this year.