Treasury sets tough terms for El Al loan guarantees

Dreamliner Photo: Boeing, Timothy Stake
Dreamliner Photo: Boeing, Timothy Stake

El Al must lay off 33% of employees, end free flights for staff, and the owners must inject NIS 100 million, or dilute their stake.

The state will grant El Al Israel Airlines Ltd. (TASE: ELAL) loan guarantees for 80% of a $400 million loan, subject to the carrier, its employees and the banks extending the loans fulfilling a range of demands, it was decided last night by participants in an internal meeting at the Ministry of Finance.

The Israeli government's terms require the airline to make additional streamlining beyond those already presented - firing 2,000 employees, about 33% of El Al's workforce. These will bring about operational savings of $50 million and will include the employees' benefit of free flights for themselves and their families, salary cuts for senior executives and the board of directors, the temporary halt in the distribution of dividends to shareholders, and party at interest deals. The government expects the airline's owners to inject NIS 100 million into the company, or to agree to dilute their stake in the company by the appropriate percentage (El Al's market cap is NIS 350 million).

El Al's employees had already agreed to relinquish their right to free flights for a period of five years. 

Over the past five years, NIS 200 million has been paid to shareholders in dividends. The streamlining plan presented by El Al during the discussions last night would achieve annual savings of NIS 300 million.

At this stage the Ministry of Finance does not want to receive extra shares in El Al in exchange for the assistance. Sources in the Ministry of Finance said, "As bad as the situation is that the airline is in, it would be even worse if the government managed it."

However, the Ministry of Finance will ask to receive phantom options linked to the company's share price, without giving it a stake in the ownership. 

The Ministry of Finance also expects the institutions already financing El Al to postpone 2020 debt repayments worth $150 million by several years. 

Published by Globes, Israel business news - www.globes-online.com - on May 11, 2020

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

Dreamliner Photo: Boeing, Timothy Stake
Dreamliner Photo: Boeing, Timothy Stake
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