Airlines around the globe are struggling to stay in business with the current pandemic.
EL AL has been in an especially tough spot, as the airline hasn’t been able to secure government funding, and more or less had to temporarily cease operations… at least until this week. The airline reportedly lost $140 million in the first quarter of the year, and I would imagine the second quarter was even worse.
In this post:
EL AL will be nationalized once again
EL AL’s Board of Directors agreed to a suggestion by Israel’s Finance Ministry, which will see the government taking a majority stake in the airline once again.
The Jerusalem Post reports that altogether the government will provide the airline with up to $400 million in funding, including:
- A $250 million loan
- Purchasing $150 million in common stocks in the airline, which would give the government about a 61% stake in EL AL; this process is expected to take a while, and will likely be completed by October
The government doesn’t plan on keeping a stake in EL AL long-term. Rather the goal would be to find an outside investor that would purchase the shares once conditions improve.
EL AL used to be government owned until 2005, at which point the airline was privatized, as it was taken over by Knafaim Holdings.
Israel’s Transportation Minister, Miri Regev, described this support as being the “first step to place EL AL back on the runway,” and said that the government will help with this transition period “as long as needed to maintain Israel’s aviation independence.”
However, the deal does come with one major stipulation — 2,000 of the 6,300+ jobs at the company will need to be cut.
EL AL’s 787-9 business class
EL AL labor unions need to approve the deal
Not only has EL AL suffered from being shut down, but the company has also had major labor issues. The problems have been the worst with pilots, though there have been issues with all four labor unions.
Generally speaking the pilots have been heavily opposed to continued control of the company by Knafaim Holdings, over concerns that conditions would be worsened, pay would be cut, and jobs would be eliminated.
While the government is also looking for job cuts, I still think it’s safe to say that labor groups are much more likely to be happy with conditions provided by the government, rather than conditions provided by private investors, at least at this stage.
Israel’s Transportation Minister allegedly recently told pilots that “Israel will not allow EL AL to go bust,” which might not have been the best thing to say if trying to play hardball with labor unions. It’s kind of like when American Airlines CEO Doug Parker said that the airline will never lose money again.
EL AL’s 787-9 premium economy
Bottom line
EL AL has been in desperate need of new funding, and it looks like the airline is now getting that. EL AL will get a total of $400 million, including $250 million in loans and $150 million in investments.
It’s crazy to think that $150 million will get the government a 61% stake in the airline — that’s just over half of the list price of a single 787.
Unfortunately this deal is contingent upon cutting about 2,000 jobs. I wouldn’t be surprised to see that negotiated a bit, because realistically the unions are likely to get better terms with the government than with any private investors.
What do you make of the government once again taking control of EL AL?
@Brian
- and it will fail.
So now the big three US airlines will start complaining about "ME4"?? Can't wait! :-)
@Brian
It's definitely not fake news. Theoretically you're right, but there's no way anybody's gonna buy that piece of junk with the current position of the pilots union.
It'll definitely be up to the state.
Almost immediately UA is starting ORD TLV 3/w in September - yes Sep 2020
One way for El Al to stop hemorrhaging money would be to stop the practice of flying only six days a week.
It's happening everywhere I guess. TAP is also back to the Portuguese government hands. It seems that they bought David Neeleman's share and now control over 72% of the company.
Title is fake news. Government will only take a stake if the IPO fails to attract other buyers.
Such a shitty decision for the Israeli taxpayer (e.g. me).
There ain't no company bad enough as El Al around here, and that's a tough competition. Incompetent management, incompetent pilots, incompetent everything.
They all allow themselves to do that because they know the government is terribly afraid that without a flag carrier we'd all be doomed in case of a militaristic emergency, and believe that El Al would be the single airline that'll keep on...
Such a shitty decision for the Israeli taxpayer (e.g. me).
There ain't no company bad enough as El Al around here, and that's a tough competition. Incompetent management, incompetent pilots, incompetent everything.
They all allow themselves to do that because they know the government is terribly afraid that without a flag carrier we'd all be doomed in case of a militaristic emergency, and believe that El Al would be the single airline that'll keep on flying in such circumstances.
The thing is- El Al just proved that it won't! It stopped flying regularly the minute it became unprofitable (like 4 months ago), held all of the ticket refunds hostage, and all that's while other companies (United, and Israir- our own small but actually competent airline) kept flying!
El Al should have been torn apart, with its aircraft being sold to Israir and its pilots too, this time with a salary matching their skills and not 5 times that.
If only the US government was smart enough to demand equity stakes in the airlines it has bailed out
Why not buy 61% for 150M USD? Do you think airlines buy planes from money they have? They buy these with someone else´s money and they will have the value of the plane as well as the loan for it in their books. Or they do leasing where you have zero asset on your books.
I’m glad to hear that El Al will be ok.
NYC-Tel Aviv is a big market.