El Al Israel Airlines Ltd. (TASE: ELAL) is continuing its Boeing Dreamliner passenger plane procurement program. The company yesterday reported that it had signed a memorandum of understanding with a foreign bank and a Japanese company serving as an underwriter for Japanese investors to obtain $145 million in financing for the purchase of an additional Dreamliner.
This will be El Al's second plane purchased from Boeing since October 2015 and the fifth that El Al will obtain as part of the deal to procure its fleet of new airliners. Completion of the financing deal is contingent on the parties signing a detailed agreement. El Al previously signed an agreement to buy seven Boeing planes, but now intends to buy only six of them, after signing another lease agreement.
El Al says that the financing package for buying the plane is based on a $95 million senior loan at LIBOR interest for three months, plus a spread for a 12-year period, and a $21 million junior loan at LIBOR interest for three months, plus a spread, with repayment over six years. A foreign bank will grant both loans. The package also includes $29 million to be received by the Japanese investors. The weighted interest rate spread for the financing deal is in the 1-2% range.
The financing will be secured with a lien on the airplane, an assignment of the rights linked to insurance to the airplane, and a warranty for the plane and its engine given by Boeing and Roll Royce, respectively. El Al added that as part of the financing deal, ownership of the plane would be transferred to a special purpose company (SPC) in Japan. After 10 years, ownership of the airplane will be formally given to El Al, subject to repayment of the balance of the debt at that time, at a fixed and predetermined price of $52 million.
Share price down almost 70% in the past year
El Al is currently in the midst of a long-range plan to buy 16 new 787-8 and 787-9 Dreamliners. As of March 2018, the airline was operating four 787-9s, of which three were leased and one owned. El Al bought its first plane with a $135 million loan from foreign banks.
El Al finished 2017 with $2.1 billion in revenue, 2.9% ($59 million) more than in 2017. An increase in the number of passengers flown by the company and higher proceeds per flight kilometer from passengers contributed to this growth.
On the other hand, El Al's expenses rose 6.7% ($110 million) to $1.75 billion, following higher salary expenses and jet fuel prices, as well as higher expenses caused by the strengthening of the shekel against the dollar and a one-time expense for a compromise settlement with the Israel Tax Authority.
In its bottom line, EL Al reported a $6 million net profit, compared with $81 million in 2016 and $107 million in 2015. El Al's market cap is NIS 480 million, after the share lost almost 70% of its value over the past year.
Published by Globes [online], Israel business news - www.globes-online.com - on May 9, 2018
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