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.
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?
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