Finance Minister Moshe Kahlon decided Sunday to offer battered national carrier El Al a lifeline via a $400 million state-backed loan guarantee on condition the airline agrees to raft of reforms, Channel 12 news reported.
If the airline declines the offer and all its terms, it will likely be broken up and parts of it sold off. Like other airlines around the globe, El Al has suffered devastating losses from the coronavirus pandemic, which may run to hundreds of millions of dollars.
According to the report, the loan is conditioned on the 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 enable the state to get its money back if its value rises after the crisis, the report said, noting that the worker’s union, likely to bear the brunt of the restructuring, must also sign off on the terms.
Channel 12 said the offer was sent to El Al on Sunday evening and the treasury was now waiting for a response.
Channel 13 news reported Friday that banks view loans to the airline as too risky. The carrier has seen its market share on routes to Europe eaten away by low-cost carriers, putting it on shaky financial ground even before the outbreak.
Last week it was reported that the Finance Ministry will also offer the Israir and Arkia airlines NIS 100 million ($28.5 million) in state-backed loan guarantees to help those carriers avoid collapse.
The ministry has put aside a fund to back up the loans to Israir and Arkia, which primarily fly routes to Europe, but would not divulge the amount so as to not reveal the state’s assessment of the risk they would not pay back the loans, the report said.
Saving these two smaller airlines would ensure that when air travel reopens there would be at least 14 operational aircraft flying out of Israel, no matter what happens with El Al.
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.
In Israel, there are only a handful of flights weekly, including a daily route to Newark, New Jersey, flown by United Airlines.
In Israel, the virus hit just as El Al was preparing to expand into Japan and Australia, plans which have now been pushed off.
In response to the reports, the union of workers at El Al announced a series of demonstrations, including a protest to be held Tuesday outside the Prime Minister’s Residence in Jerusalem to demand he follows through with what they say was his promise to save the airline.
Most of the airlines employees have already been put on unpaid leave or laid off.
Last week, unnamed associates of Prime Minister Benjamin Netanyahu told the Ynet news site that he “will not allow El Al to collapse” due to the massive losses it has suffered during the coronavirus pandemic.
The Ynet report came after a court last week 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.
El Al had initially asked to have NIS 354 million ($100 million) of its NIS 413 million ($117 million) fund freed up for use. The final figure marked a compromise reached between El Al, the Finance Ministry and the Histadrut labor federation.
Last week the airline notified the Tel Aviv Stock Exchange that it was again delaying the expected restart date for commercial flights from May 16 to May 30.
In March, the airline reported to the Tel Aviv Stock Exchange that it expected revenue to decline by $140-160 million for the period from January to April 2020 as a result of the worldwide outbreak of coronavirus.
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 were expected to total $80-90 million and would be offset to a certain extent by cuts in operating expenses, the airline said.