Econostrum | Economic News in the Mediterranean



Israeli airline El Al to receive a $250m state-guaranteed loan

El Al's planes are grounded (photo : F.Dubessy)
El Al's planes are grounded (photo : F.Dubessy)
ISRAEL. Threatened with bankruptcy, El Al and its majority shareholder Knafaim Holding (35.3% of the capital) accepted, on Monday 6 July 2020, the rescue plan proposed by the Israeli government. This agreement notably provides for the obtaining of a $250 million (€221 million) loan benefiting from a State guarantee on 75% of the amount, in the event of the company's default.

Shares in El Al will be offered for purchase on the Tel Aviv Stock Exchange for an amount of $150m (€133m) bringing the fresh cash injection to $400m. "The State undertakes to buy back the company's shares that have not been acquired by the public," says a company press release. This suggests a possibility of nationalisation of El Al, with the State being able to obtain up to 61% of its capital. Created in September 1948, the company was privatized in 2003.

Following the failure of negotiations between management and the company's employee unions, the planes have been grounded since Wednesday 1 July 2020 and are expected to remain grounded until the end of the month. Only cargo flights and some charters are taking off. 80% of its 6,303 employees are now on unpaid leave and the salaries of the managers have fallen by 20%.
The company was planning to lay off 1,000 employees as early as March 2020, highlighting the coronavirus crisis. The figure mentioned today by the unions is rather close to 2,000 job cuts and pay cuts for pilots.

El Al's losses in the first quarter of 2020 amounted to $140 million (€124 million) - compared with $55 million for the same period in 2019 - and for a quarterly turnover of $320 million (€283 million) - $428 million (€379 million) in the first quarter of 2019. The company has been losing money for the past two years and would accumulate a net debt of $2bn (€1.7bn). In particular, it owes $350m (€310m) to passengers whose flights have been cancelled because of the Covid-19.

Frédéric Dubessy

Tuesday, July 7th 2020

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