Arkia chairman: We could merge with Israir

Avi Homero

Avi Homero is prepared to see Arkia merge with Israir if its save the airline's 4,000 jobs.

"We are on the verge of the worst economic situation in Israel since 1973. I'm usually an optimist, but what is happening now makes me a pessimist. In the US, the state hurried to inject money into the economy, decisions are being made there, but in Israel, there's a transition government that can't make decisions. If a change doesn't happen soon, there will be hundreds of thousands of unemployed very quickly, and I'm not talking about people being put on unpaid leave; I'm talking about people who will lose their jobs," says Avi Homero, who is filling a variety of positions. He is CEO and chairman of the Nakash group, owned by brothers Joseph, Rafael, and Avi Nakash; chairman of Arkia Airlines; chairman of Setai Hotels, Orchid Hotels, and Herbert Samuel Hotels; chairman of Eilat Port; chairman of Prinir; and responsible for real estate activity at Ampa Real Estate.

"We have three shopping malls, all of which are closed down (Dizengoff Center, the Mutagim site in Kiryat Shmona, and BIG in Beit Shemesh, in cooperation with BIG), in addition to hundreds of employees on unpaid leave: both ours and those of our tenants. Most of Arkia's employees were sent on unpaid leave, and our fifteen hotels are closed. Businesspeople are looking at what was done in China, where they're beginning to overcome the problem. In the situation as it is today, without a complete closure, the crisis can last for five or six months, and the economy can't stand it. Companies will go bankrupt, and the economic situation will be like in Greece. A national unity government has to be formed, so that there will be someone who will make a decision. A government operating without a budget and in a state of uncertainty can't take drastic steps. Someone who says the country comes before anything else and doesn't act accordingly doesn't understand that soon there won't be a country.

"The state is talking about an NIS 8 billion plan for small businesses - this is a joke. They're offering business owners a loan with a state guarantee, but this is a personal guarantee of the owners. If there's a bankruptcy, the business owner will pay the price of the pension and his mortgage. That's not called a state guarantee. A NIS 6,000 grant for businesses is throwing sand in people's eyes. 80% of the economy is based on small and medium-sized businesses, and if they don't get immediate help on a large scale, the economy will collapse."

A week ago, Arkia announced the replacement of its CEO. Nir Dagan will be replaced by Amir Erez, who is planning to take up his new position in early April. According to Homero, this change was planned to take place despite the awful timing.

"Globes": You spoke about hundreds of thousands of unemployed, but you also chose to put the cost burden of your employees on the state when you sent almost all of the employees at Arkia on unpaid leave, for example. Unemployment compensation is also a form of state aid.

Homero: We have no pay to pay the employees' salaries. People going on unpaid leave get NIS 7,000, which isn't enough to live on. The public sector is incapable of saving the private sector. The state has to inject money into the private market. If it doesn't survive, the state won't have any revenue - not VAT, not income tax, and not national insurance. The public sector continues to exist with or without unpaid leave, but the private sector as of now is going to totally fall apart. For years, the state accumulated billions in its funds, and it has to start paying out now."

The Arkia workers' committee is calling on decision-makers to distinguish between El Al, Israir, and Arkia in the discussion about loans for airlines. What is the status of the discussions concerning Arkia?

"We're holding talks with the Ministry of Finance, under the assumption that the state, as was done in other countries, has to help. I'm not ruling out nationalization or a merger between companies. Arkia and Israir can merge."

Is a concrete proposal under consideration

"At such a time, you have to think outside the box. This is something that could save the airlines, and I don't rule out the option that in the end, all three airlines could merge into one company. I won't say that this is on the table, also because of the Israel Competition Authority, but we're talking about it between us."

Arkia has a unique model in which the employees hold 30% of the company's shares. Israel Air Pilots Association chairman Meidan Bar told "Globes" this week that this model was gathering momentum in the industry, and that he hoped that other airlines would adopt it. "This is an excellent model, and the employees are an integral part of the owners," Homero says. "Even if Arkia is nationalized, the state will enter as a partner. I'm not ruling out any format. What interests me is saving the company for the workers. Arkia's share in the Nakash group is 2% of the activity. I'm very worried about the 4,000 employees sitting at home in the whole group. It's not just Arkia."

Are you already making a plan for after the coronavirus?

"I think that the state should prepare such a plan, and recruit the best brains and former leading executives from the banking and retail system, so that it's free of politics."

"We have hotels in Germany, and the government is lending a hand there"

Another hard-hit sector that is not a focus of the talks with the Ministry of Finance is the hotel industry. According to the Israel Hotel Association, 96% of the hotels in Israel are closed to activity, and 40,000 employees have been put on unpaid leave. The Nakash group has 15 hotels and five more under construction.

"All of our hotels are closed, and we've halted all construction activity," Homero says. "Only the big companies will survive this crisis. Unfortunately, the small ones, such as the boutique hotels, won't survive. They talk about 40,000 employees in the sector, but it's a lot more than that. There are hundreds of employees in the circle of the hotels, food suppliers, laundry, and also the banking system. This sector's activity has come to a complete halt. Hotels that have been converted for recovery of coronavirus patients are a drop in the ocean. The state doesn't realize that the investors in this sector come to Israel out of ideological patriotism. This is also true of the Fattal, Dan, Isrotel, and Crowne Plaza hotel chains. All of the billions that the Nakash brothers invested here are out of patriotism. There's no doubt that there were excellent opportunities here, and that the activity was profitable and yielded a return, but the beginning was motivated by patriotism. With all of this, the hotel sector has been forgotten, and isn't being discussed at all by the Ministry of Finance. The chief appraiser will have to estimate the damage and compensate the industry. By the time it recovers, and it will take a long time, the state will have forego at least one year of interest payments on the loans taken for construction, and payments for municipal property taxes, water, and electricity. We have hotels in Germany, and there, the government is giving the hotel owners a helping hand by postponing income tax payments and VAT, and has given an exemption from property taxes. In Israel, they're not even talking about this industry, and there will be hotels that will pay the price."

Through Ampa Real Estate you lease properties for the Selina hostel chain, which was supposed to enter Israel. How does that stand?

"There, too, all activity has come to a halt. We wanted to do something huge, but everything's on hold."

With all the loans that the state is expected to grant, both in civil aviation and in hotels, it can be assumed that the prices will go up when the crisis passes. The prevailing opinion is that someone will have to pay for all of these loans, and that will be the consumers.

"I can't say any such thing. At the end of the day, I'm in favor of a free economy. Free economies bring achievements and make products available to all kinds of people. The loan that the state grants to Arkia will be repaid through streamlining processes that will be done within the company, without putting it on the consumers. This is a sector in which you have to be competitive. The civil aviation sector will be different on the day after the crisis, and if they don't take immediate action here, people won't have money to pay mortgages, let along for flying overseas."

Arkia entered this crisis in a sensitive position, after laying off 150 employees. The company encountered difficulties following the massive entry of low-cost airlines the closing down of Sde Dov Airport on July 1, 2019. Up until then, Arkia had a 70% share of the internal aviation market to Eilat, with 1. 4 million passengers annually. Up until the last minute, the company was in a state of complete denial concerning the airport's closure.

You behaved as though it would not happen, and you were caught unprepared for the day on which the airport was closed down

"The closing down of the airport hit us very hard. It's true that we didn't believe that it would happen, but we had a shelf plan for adapting Arkia to the day after the airport's closure. In the past six months, we carried out significant streamlining, and saw positive results. We suffered a hard blow in our internal flights, but there was recovery in our international business."

Now you have halted all civil aviation activity completely. You did not keep even one daily flight on the Ramon Airport-Ben Gurion Airport route for residents of Eilat, while Israir operates three daily flights on this route. Why?

"We fly to Eilat using Embraer aircraft, which are unsuitable for the small number of passengers that there are at this time. To operate flights to Eilat would cost NIS 100,000 a flight."

Even before that, you left internal aviation activity on the Haifa-Eilat route to Israir, which acted immediately after the closure of Sde Dov Airport by starting routes from there.

"Our airplanes are unsuitable for the airport in Haifa," Homero says, and notes that Arkia's air fleet has seven planes, "some of which are owned and some leased from an external company, and aren't ours (the Nakash group has a company that offers leasing for planes, M.R.-C.)."

One flight a day is activity with a negative contribution

Israir operates dozens of flights to bring back Israelis from overseas and to fly cargo. Isn't it better to create activity at this time than to ground the planes?

"We're doing what we can in both rescue and cargo flights. In the end, however, it's a tiny fraction of our activity. One flight a day is nothing; it's activity that makes a negative contribution."

In contrast to those who think that the government should support airlines that are in trouble, there are those who say that Arkia is also a private company, and like any other company, its owners should finance its business.

"This attitude is wrong. It's a force majeure situation. We didn't create it. We didn't bring the coronavirus, and the state has a responsibility. There has to be a mutual commitment here in all sectors."

What ability does Arkia to stand on its own two feet after the virus passes in terms of leverage and debts to the banks?

"No one knows what will happen after the virus passes, but what I know is that our group is sound. We can get through this crisis. Arkia's debt to the banking system is low. But I'm not looking at myself; I'm looking at the entire economy and the extremely grave situation, and this is something that's happening now. Travel agencies that are closed now, for example, owe us large sums. We have good tenants in the shopping malls that aren't paying. These are entire circles." Asked whether payments from the tenants are being waived now, he answers, "We're definitely being patient. You have to be sensitive at such a time."

How do you think real estate prices will be affected?

"What's happening now is also affecting real estate companies. You can see this in the prices of real estate companies on the stock exchange. It's hard to predict what will happen. If, God forbid, there are many unemployed, there will be a surplus of office real estate, and a surplus of work spaces. It all depends on how long the crisis lasts, and the depth of the economic crisis. I call myself a patriotic Jewish businessperson, and I'm calling for the formation of a unity government that will be able to moderate the economic crisis and prevent it from reaching depths from which it will be very difficult to get out of. This is the time."

Published by Globes Israel business news - en.globes.co.il - on March 29, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

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