A month and a half after raising money in a share offering, El Al Israel Airlines Ltd. (TASE: ELAL) has asked the to receive promised aid from the Ministry of Finance and for an increased state loan guarantee of $400 million. The airline has still not managed to raise a bank loan.
The Ministry of Finance rejected the request, at least for now, and sent El Al under its new board of directors to begin the streamlining process to which it committed and on which it has reached agreement with its employees. The Ministry of Finance expects El Al’s new controlling shareholder Eli Rozenberg to fulfil his promises to take El Al onto a new and stable path, at first without greater state aid.
The aid program that El Al agreed with the Ministry of Finance began with a $150 million share offering in which the controlling interest in the company changed hands and passed to Eli Rozenberg, through his company Kanfei Nesharim. The next stage is for El Al to obtain a loan of $250 million, with a 75% state guarantee.
Two things are already clear. The first is that this amount will not be enough for El Al and has to be considerably larger. The second is that the crisis in the aviation industry precipitated by the coronavirus pandemic is deepening, the difficulty in obtaining a loan is only growing, and the company’s cash is running out.
El Al is in talks with several local banks, which are reluctant to extend a loan to a company in an industry for which the recovery horizon is a long way off. Even before the change in control, El Al touted the possibility of raising debt through a bond offering, but for the time being the company is continuing in its attempts to obtain a loan from at least two banks.
The first task of the new board of directors, headed by former Bank Leumi chairman David Brodet, is raising capital, which, as mentioned, is not simple. At the same time, the board is looking for a new CEO, following the announcement by incumbent CEO Gonen Usishkin that he will step down in January.
Meanwhile, El Al is trying to resume activity, but it is encountering obstacles beyond its control. It announced the launch of flights to Belgrade, but shortly afterwards the Ministry of Health announced that Serbia had become a “red” country as far as coronavirus was concerned, and the airline had to change its plans. Moreover, from today, northern Greece is under total lockdown, which means no flights to and from Thessalonica, again forcing El Al to change plans.
Like other airlines, El Al is operating flights with more empty seats than passengers. Since March, tourists have not been allowed into Israel except with special permission. El Al by now understands that the return to activity will be more gradual and slower than it hoped, and it has already told its 5,000 employees on unpaid leave that their forced vacation will continue until November 30. The streamlining agreements with the airline’s four workers committees are dependent on the aid program being carried out. Under those agreements, El Al is due to part from a third of its workforce.
In order to return to activity, El Al, like every other company, needs customers: the people who are waiting for refunds for cancelled flights; the people disappointed by the absence of service in the period in which El Al was shut down; the people who have seen other airlines take over the arrivals and departures boards at Ben Gurion Airport not stop even when there were no passengers; the people whose trust in the Israeli airline has steadily evaporated. Winning them back is an extremely challenging task.
“Restoring customer confidence is the most important challenge confronting us, because without loyal and returning customers the company has no right to exist,” Brodet recently wrote to El Al’s employees. “To restore customer confidence is an obligation for all of us, in every role in the company, to create and provide improved value, in an era of growing competition, the day after the Covid-19 virus. We will form genuine new content for customer’s expectations and we will realize it in the best possible way. Our aim is that El Al planes will take off on time, arrive on time with security and safety, and today in health, all the while providing meticulous and quality service to passengers.”
Published by Globes, Israel business news – en.globes.co.il – on November 3, 2020
© Copyright of Globes Publisher Itonut (1983) Ltd. 2020