El Al switches to profit

The airline earned $3.7 million in the second quarter of 2013, compared with a loss of $6.1 million for the corresponding quarter.

El Al Israel Airlines Ltd. (TASE: ELAL) published its financial report for the second quarter of 2013 today before the market opened. The airline posted a net profit of $3.7 million for the second quarter, compared with a net loss of $6.1 million for the corresponding quarter of 2012.

Revenue rose to $529.7 million for the second quarter from $516.8 million for the corresponding quarter. Net income from scheduled passenger flights rose by 3.6%, but income from cargo flights fell by 12.9%.

Operating profit rose to $7 million (1.3% of turnover) for the second quarter from $2.4 million (0.5% of turnover) for the corresponding quarter.

Cash flow from operations rose to $47.8 million for the second quarter from $14.1 million for the corresponding quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) rose to $31.9 million for the second quarter from $29.7 million for the corresponding quarter.

The flight occupancy rate was 82.4% in the second quarter, unchanged from the corresponding quarter. El Al's market share at Ben Gurion Airport edged up to 33.8% in the second quarter from 33.7% in the corresponding quarter.

In view of the Open Skies agreement and the delay in the talks with First Israel Mezzanine Investors Fund (FIMI) on investment in El Al, because of the conflict between the workers representative and management, CEO Elyezer Shkedy asked the employees "to show responsibility and act immediately to formulate a new labor agreement that will allow FIMI to invest in El Al, to allow the airline to grow, and to deal with rising competition."

Hedges on the shekel-dollar exchange rate, which fell in the second quarter, contributed $11 million to El Al's results, even as the low exchange rate added $9 million to the airline's salary cost. However, only $5 million of this amount were cash flow expenses and $4 million were non-cash valuations that El Al made for the balance of payments to employees for compensation and sick days.

In May, the government signed a directive, which increases its share in El Al's security expenses to 97.5%, as part of the Open Skies policy. El Al reported an extra $2 million to its net profit for the second quarter for this increase, even though the money has not yet been transferred to the airline, because the state budget has not yet been approved.

On Wednesday, El Al announced a financing deal under which it borrowed $190 million in a short-term low-interest loan backed by guarantees from the Export Import Bank of the US. The bank has the same rating as the US federal government. El Al will use the loan to purchase six new Boeing 737-900ER passenger planes that it is due to receive. The first plane is due to arrive in two months.

During the second quarter, El Al continued to draw up its short-haul operations plan, which will be implemented in the summer of 2014. Under the plan, the airline will operate five Boeing 737s to several destinations in the Mediterranean Basin and Eastern Europe in a format similar to low-cost carriers. As for the possibility of merging with Israir Airlines and Tourism Ltd., with which it collaborates in several ways, and which has low-cost operations, Shkedy said, "The issue of a link-up in some format constantly comes up. At this point in time, we do not think that it is right. As for the future, I cannot say."

Published by Globes [online], Israel business news - www.globes-online.com - on August 15, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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