El Al still owes customers $240m

Avigal Soreq / Photo: PR

El Al CEO Avigal Soreq: We are on course to achieving cash-flow breakeven in 2021.

There are some positive signs in the financials released by El Al Israel Airlines Ltd. (TASE: ELAL) for the first quarter of 2021. Revenue rose by 5% in comparison with the fourth quarter of 2020, to $117 million, although it was well below the revenue figure for the first quarter of 2020 (which was mostly before Israel's skies were closed in March last year) of $321 million.

El Al made an operating loss in the first quarter of 2021 of $76 million, which compares with an operating loss of $93 million in the corresponding quarter of 2020.

The net loss for the first quarter of this year was $86 million, which compares with a net loss of $140 million in the corresponding quarter and in the fourth quarter last year. EBITDAR (earnings before interest, taxes, depreciation, amortization and restructuring costs) rose to $3 million, from negative EBITDAR of $28 million in the fourth quarter of 2020.

"The improvement was achieved mainly through a series of measures that the company's management instituted in order to adapt the cost structure to the scope of activity, including further downsizing of the active workforce and cuts in head-office costs," El Al said.

El Al's auditors appended the following qualification to their report on the financial statements: "At the time of certifying the financial statements there are substantial doubts about the company's continued existence as a going concern."

After more than a year of discussion with the Ministry of Finance on aid to the company, El Al was recently informed that it would receive $210 million in a deal covering the future purchase of flight tickets for security personnel. El Al undertook to raise a further $105 million capital, of which the controlling shareholders will inject $43 million. It was reported this week that Kenny Rozenberg, father of Eli Rozenberg who bought control of the airline, had taken over the reins after immigrating to Israel and receiving citizenship.

El Al CEO Avigal Soreq said on the release of the first quarter financials, "El Al has opened 2021 with a switch to positive EBITDAR and an increase in revenue, in a way that begins to reflect the actions we have taken, among them restraining spending as tightly as possible. Besides the improved results, we recently raised $300 million through a financing agreement with the State of Israel and a warrants issue, on the way to achieving the company's goal of reaching cash-flow breakeven in 2021. In addition, we are currently completing the complicated step of parting from some 1,900 employees. This measure, alongside others that we are carrying out on the financial and operational levels, will lead to attainment of the stated goal."

El Al was helped by a reduction in its consumption of jet-fuel, and also by a $75 million fall in its compensation expense, with thousands of its employees still on leave without pay. Under the Ministry of Finance plan, the leave without pay arrangement will end on June 30.

El Al states that is has repaid about 70% of the amount that it owed customers for flights cancelled in 2020. According to El Al's statements in Knesset committees, this amounted to over NIS 1 billion. The company says that the balance of its liability for advance sales of flight tickets together with its debt to customers is $242 million. Of this, $54 million is represented by vouchers for future flights that El Al issued to customers as a value proposition instead of a cash refund. According to the airline, each voucher is worth 25% more than the amount paid for the original canceled flight.

The company has committed to speeding up the refund process and to complete it within a few weeks to a few months. Soreq has repeatedly stressed El Al's change of policy to placing its customers at the center. The refund of fares for cancelled flights has to be part of this approach. Many customers have waited more than six months for a refund after their flights were canceled.

In the streamlining plan agreed with the Ministry of Finance El Al undertook to cut a third of its routes and its aircraft fleet. The airline has still not carried out the sale of aircraft or their return from leasing.

"El Al entered the coronavirus period as one company, but it will emerge from it as a different one. We have new owners with a vision and we have a different outlook that focuses on every dollar spent and with a broad vision for the future," Soreq said.

El Al CFO Yitzhak Eliav said that he believed that El Al's detailed business plan would enable the going concern qualification to be removed from its financial statements for the second quarter of the year.

Published by Globes, Israel business news - en.globes.co.il - on May 20, 2021

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

Avigal Soreq / Photo: PR
Avigal Soreq / Photo: PR
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