El Al has money but nowhere to fly

El Al 737-900 / Photo: Yoav Yaari

Share offerings and bank loans will ensure El Al's short-term survival but Israel's skies are unlikely to reopen until well into March.

"We were pleasantly surprised and fully achieved our target," El Al Israel Airlines Ltd. (TASE: ELAL) chairman David Brodet told "Globes" on Tuesday night. He was speaking after the company completed an oversubscribed options offering on the Tel Aviv Stock Exchange (TASE), which saw it raise NIS 250 million, and which if fully exercised could yield the airline NIS 375 million.

El Al is one of the biggest casualties of the Covid-19 pandemic in the Israeli economy. The vitally needed capital that it raised will help it receive bank loans and complete the rescue package put together by the Ministry of Finance. This latest offering comes five months after the previous TASE offering, as per Ministry of Finance instructions, which led to a change in the company's controlling shareholder.

The latest offering was demanded by the banks before extending El Al loans totaling $300 million with a state guarantee of 82.5% of the amount. El Al is currently in talks with Bank Leumi (TASE: LUMI) and Israel Discount Bank (TASE: DSCT) to obtain the loans.

However, despite the successful offering and the imminent receipt of the loans, El Al's future is far from guaranteed. In the report published by El Al before the offering, the airline said that it had asked to increase the amount of the loan but been refused. From El Al's point of view, together with the debts that are piling up, and mainly due to the uncertainty about the reopening of Israel's skies and government policy on the issue, the capitals injected through offerings and loans might not suffice for it to repay debts and get back on track to recovery.

El Al's new controlling shareholder Eli Rozenberg, has committed to inject at least $50 million in the latest offering and according to the company he stood by his commitment. Even El Al CEO Avigal Sorek committed to take part in the offering by buying options worth the next six months of his salary. El Al defined the offering as a success and vote of confidence from the capital market.

Huge debt to customers, 70% of them repaid

El Al has been in continual dialogue with the Ministry of Finance since the outbreak of the crisis in the aviation sector nearly a year ago. While elsewhere in the world grants have been provided to save the sector, and in the US for example it has been reported this week that the administration will inject $14 billion into airlines in its third round of aid, with the aim of protecting employees, in Israel the aid is only being given in the form of loan guarantees. In addition to this, in Israel the state is also paying the airline's employees who are unpaid leave, amounting to more than NIS 300 million to date.

Rozenberg, who bought control of El Al from Knafaim in the first stock offering, invested $108 million for a 43% stake and one month ago added an owners loan of $10 million. Almost all of El Al's senior executives and board of directors have been changed including the CEO and chairman, who have both spoken positively about investor confidence, the successful implementation of streamlining, and the ability to repay debts to suppliers and customers.

Debt to passengers who bought tickets for flights that were cancelled totaled NIS 1.4 billion, of which 70% has been repaid. NIS 420 million must still be returned even though the deadline fixed by law for such repayments past several months ago.

Maybe the skies will reopen by Pesach

While the aviation sector continues to be challenged by the pandemic, El Al will continue to burn money with barely any revenue and growing debt to suppliers, and the institutions financing the planes it has leased. In its financial statement for the third quarter of 2020, El Al reported that its debts had reached $3.17 billion, of which $2 billion was in current liabilities.

Above and beyond repaying debts, the loans will allow El Al to implement the streamlining agreements it has signed with employees and which will include 2,000 layoffs - 33% of the workforce, and salary cuts for those who remain. Other steps taken by El Al including selling three aircraft for $76 million and leasing them back for eight years.

Meanwhile Israel's skies are closed until February 20 and in all probability the closure will be extended into the first week of March, except for special rescue flights. The likely exit point from the crisis will be Pesach (the end of March) when some countries including Greece, Cyprus, the Seychelles and Ukraine, have already expressed interest in hosting vaccinated Israelis. El Al is already eying these destinations but so are its rivals and competition will be intense as all airlines strive to take off again.

Published by Globes, Israel business news - en.globes.co.il - on February 18, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

El Al 737-900 / Photo: Yoav Yaari
El Al 737-900 / Photo: Yoav Yaari
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