Katz tells Treasury officials to expedite El Al aid talks

Yisrael Katz  / Photo: Emil Salman - Haaaretz

Minister of Finance Yisrael Katz and Prime Minister Benjamin Netanyahu both want El Al's future secured as soon as possible.

Minister of Finance Yisrael Katz has told his ministry's officials to finalize the details with El Al Israel Airlines Ltd. (TASE: ELAL) as soon as possible and authorize a state guarantee for the airline. Katz thus joins his voice to that of Prime Minister Benjamin Netanyahu, who has directed that the state should aid El Al and prevent its collapse.

Last night, Rony Hizkiyahu, accountant general at the Ministry of Finance, Israel Tax Authority director Eran Yaacov, El Al chairman Eli Defes and the company's CEO Gonen Usishkin and CFO Dganit Palti and others met to try to find the formula that would enable the loan to be granted. The meeting lasted until the small hours of the morning, and discussions between the sides are still taking place. This could well be Shai Babad's last act as director-general of the Ministry of Finance before he leaves the post at midnight on Sunday.

For months, the sides have been discussing a $400 million loan for El Al. The state agreed to provide a guarantee for 82.5% of the loan in return for a series of efficiency measures, some of which El Al is finding it hard to implement.

The Ministry of Finance's demands include steps that El Al called unreasonable, such as a NIS 100 million capital injection by its owners alongside efficiency measures saving $350 million annually, which would be through the dismissal of about one third of El Al's 6,000 workers, among them 200 pilots. Further savings would come from the sale of 20% of El Al's fleet of 45 aircraft, closure of loss-making routes, and the postponement of new routes that El Al had planned, such as to Tokyo.

In order to receive the desired aid, El Al will have to present a collective agreement with its employees. This is a considerable challenge, because the workers committee is in dispute with the management, a dispute that reached a peak when representatives of the committee violently disrupted a discussion between the management, the Histadrut (General Federation of Labor in Israel), and the pilots' representatives, following which the Histadrut suspended the committee.

Besides a NIS 100 million injection from the owners, the Ministry of Finance is demanding that El Al should reach agreement with its overseas lenders on deferment of debt amounting to $150 million. Above the gap between the sides hovers the new minister of finance's instruction not to drag out the process and to enable El Al to obtain the cash injection as soon as possible.

Like all airlines around the world, El Al finds itself in financial difficulties. The fact that it is highly leveraged because of its procurement program for Boing Dreamliner planes, in a situation of near-zero revenue, makes it hard for El Al to see a future without immediate aid. El Al holds more than NIS 1 billion shekels belonging to people whose flights were cancelled, money that it will have to return, but it is making the refund conditional on receiving aid. While airlines like Air France and Lufthansa have secured aid from their governments, El Al cannot present a similar picture. Unlike the German government, which will receive 20% of Lufthansa as part of a $10 billion aid program, the Israeli Ministry of Finance wants El Al's shares to serve as collateral for a loan, with the state receiving a phantom share valid for a year.

Published by Globes, Israel business news - en.globes.co.il - on June 4, 2020

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

Yisrael Katz  / Photo: Emil Salman - Haaaretz
Yisrael Katz / Photo: Emil Salman - Haaaretz
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