Arkia Airlines Ltd. is in the midst of large-scale streamlining. The carrier, which was hit by the closure of Tel Aviv's Sde Dov Airport, is in advanced talks between management and workers' representatives. The employees, who hold 30% of the company's shares, will probably have to accept a reduction in pay and personnel cutbacks, sources inform "Globes." Arkia has 700 employees.
Simultaneously, one month after being appointed chairman in place of Avi Nakash, who Arkia said decided to retire at age 74, former CEO Gadi Tepper is himself being replaced by Nakash group chairman Avi Homero. Teper, who left Arkia in 2014 before being appointed the company's chairman, will remain a director.
A dispute between Arkia's workers and controlling shareholders, which began in the days following the closing down of Sde Dov, received extensive media coverage. The dispute began when Nakash announced that he planned to fire half of the company's employees. Following protests by the workers' committee and intervention by the Histadrut (General Federation of Labor in Israel), Nakash retracted his announcement.
The closure of Sde Dov was a severe blow for Arkia, which operates 70% of Israel's internal flights. The drop in passenger traffic is a result of moving internal flights to Ben Gurion Airport. Up until the last minute, Arkia's management did not believe that Sde Dov would be closed, and did not prepare for the probable damage of this measure, which upset the inland aviation sector. The routes from central Israel to Eilat are profitable for Arkia because of their frequency and the ticket prices. With the decline in demand, Arkia is unable to maintain the volume of its activity on this route.
Arkia has also had to change its plans for international flights. It recently terminated its route to Bangkok, which it inaugurated in July 2018. The company launched flights to Goa and Cochin in India. In contrast to the route to Bangkok, the routes to India use Airbus A321neo planes purchased by Arkia, not rented planes.
The situation now requires urgent streamlining. "It is necessary to draw up a major streamlining agreement and put the company on the road to recovery," Transportation Workers Union chairman Avi Edri told "Globes."
Edri added, "The workers are the company's business partners, and they realize that streamlining is essential and necessary. The closure of Sde Dov Airport is a tough blow that hurt Arkia, and the workers understand that they have to make adjustments, so that the company will be able to get through it. No measure will be taken unilaterally. There is complete coordination in the negotiations, which are based on the realization by both management and the workers that steps must be taken to help the company recover."
As part of the emerging measures, it cannot be ruled out that Arkia's workers will have to suffer a cut in wages, and in effect help the company out with a loan. "We lent the company money from the workers in the past, and as soon as the company started making a profit, it gave the money back to the workers. This could also be part of the plan this time," Edri commented.
Passenger traffic to Ramon Airport near Eilat was down 33% in October. Roundtrip passenger traffic between Ben Gurion Airport and Ramon Airport totaled 84,600 in October, compared with 126,800 in October 2018, while the Sukkot holiday fell in September last year. The cost of closing down Sde Dov Airport and moving its aviation activity to Ben Gurion Airport is much heavier for the civil aviation sector than for the tourist sector; occupancy figures at Eilat hotels are similar to those before Sde Dov was closed down. Arkia and Israir, on the other hand, which operate inland flights, are experiencing lower demand for flights. Many vacationers in Eilat now prefer to drive there by car instead of flying, because flights from central Israel to Eilat now take more time.
Homero said in response, "The change in the market conditions and the closure of Sde Dov are forcing Arkia to adopt a substantial streamlining plan, including personnel cuts and wage cuts. These measures are being taken in full cooperation with the workers, who own 30% of the company's shares. We emphasize that the Nakash family continues to support the company."
Published by Globes, Israel business news - en.globes.co.il - on November 6, 2019
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