El Al: Our strategy is clear

El Al, photo: Sivan Farag

The airline responds to Avishai Ovadia's portrayal of it as a company adrift.

The article published about El Al Israel Airlines Ltd. (TASE: ELAL) by CPA Avishai Ovadia in "Globes" on November 20, 2017 was replete with erroneous statements and incorrect working assumptions. El Al has enjoyed growth in recent years in a competitive and rapidly changing aviation and tourism market, among other things thanks to its clear and consistent strategy.

Ovadia says that El Al is "a company with no clear purpose or agenda." The opposite is the truth: El Al has been operating in recent years according to clearly delineated strategic objectives in core areas and in areas that are not part of its core business, which were initiated by David Maimon when he became CEO of El Al in March 2014. As part of this plan, El Al contracted the largest deal in its history for procuring aircraft, some of which are already in service; launched the Flycard credit card, regarded as one of the biggest successes in the market, with 250,000 cardholders and a turnover in excess of NIS 21 billion; and expanded collaborations for the creation of products and services offered to frequent flyer club members, such as insurance and hotel bookings.

"Since the airline held its IPO, it has not generated value for its shareholders - only for the workers." A simple check by Ovadia would have shown that in 2015-2017, for the first time in a long time, the company distributed a $68 million dividend to all of its shareholders. The distribution of a dividend was probably one of the reasons why the company's share surged during those years.

Ovadia goes on inventing unfounded working assumptions: "a divided and tribal company with no real master." El Al has management with vast experience and is supervised by an active board of directors, which has active committees in various areas and meets very frequently. The company's controlling core consists of major investors with a long-term commitment to the company. Ovadia says that the company's profit was "accidental." That might make sense if the company lost money, but how can he say that a company dealing with difficult market conditions following the opening of Israel's skies to competition, which is growing at an extraordinary rate in the aviation industry, is making an accidental profit? That is ridiculous. The company has consistently reported a profit from 2013 until the present, except for 2014, when Operation Protective Edge took place at a peak time in the company's activity.

"A company unable to take full advantage of the fall in oil prices" - declining oil prices had a dramatic effect on the fall in ticket prices in Israel and worldwide. It is therefore impossible to expect every drop in expenses to be reflected in profit, not to mention the fact that the company's policy of hedging on fuel offset part of the drop in oil prices.

Ovadia mentions "historic pitfalls and past commitments," an unspecific and unjustified phrase. What pitfalls? Why doesn't Ovadia list them, instead of using a vague phrase that does not inform his readers?

Airlines going bankrupt - the two airlines that recently went bankrupt were those that provided especially cheap flights: Monarch Airlines and Air Berlin. El Al is proud of its responsible business policy, when has enabled it to make a profit and stay in existence for many years, while maintaining competitive prices.

"The company has a $1.9 billion balance sheet total" - $300 million of El Al's balance sheet total is cash and deposits that are certainly at no risk. Ovadia describes the gap between book value and market value as a "time bomb." This claim is unfounded. Since it is a matter of assets that the company uses to create revenue, not inventory for sale, the market price is of little importance. The company does not plan to sell its assets, and as long as it is using the airplanes and not holding them for sale, the gap is irrelevant.

"Usage value is not biblical truth; it is a forecast that can be undermined" - the company operates according to the accounting rules. Valuations always involve assumptions and estimates, but the surplus of the usage value over the book value is significant. Later on, Ovadia writes that the company's management will "replace the air fleet, renew it, and other actions that will reduce the gap between the value and the cost in the books." The company takes decisions to replace its fleet on the basis of a range of considerations: operational, services, a holistic perspective on the fleet's composition, competition, and global trends. Accounting considerations are certainly not the leading reason for such a significant change in the life of an airline. To say that the company will embark on such a major adventure merely in order to post an expense in the books is unfounded and unprofessional.

More unfounded statements: "a 'streamlining plan' is mentioned from time to time, but in practice, management makes noises and the company carries on as usual" - the company has implemented several major streamlining plans in recent years, and has signed new work agreements that will save operational costs.

To sum up, the article was negligent, unprofessional, and shows no understanding of civil aviation. Had the author bothered to ask the company for a professional comment, the article he wrote would likely have been more accurate.

Published by Globes [online], Israel Business News - www.globes-online.com - on December 7, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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El Al, photo: Sivan Farag
El Al, photo: Sivan Farag
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