Two months after Eli Rozenberg, the 26-year-old scion of a Jewish-American family in the nursing home business, acquired El Al Airlines, he is getting a true sense of the challenges he undertook in buying the troubled Israeli flag carrier.
El Al on Wednesday reported a loss of $147 million in the third quarter, the quarter that in normal years coincides with the peak travel period and generates the carrier’s biggest profits. In the third-quarter of 2019, El Al made a net profit of $27 million.
However, the loss wasn’t the most problematic part of the airline’s financial statement. Despite the fact that the International Air Transport Association is forecasting huge losses for the aviation industry worldwide in 2020 and 2021, El Al’s auditors, the accounting firm BDO Israel, has not seen any reason to take a charge against the declining value of its fleet. It’s listed on the airlines’ books at $2.2 billion.
Backed by his father, Kenny Rozenberg, Eli Rozenberg acquired close to 43% of El Al in September when the airline issued new shares, leaving its previous controlling shareholder, Tami Mozes Borovitz’s company Knafayim, with just 15%.
El Al has gradually begun restoring service. Last weekend it restored service to Newark, Brussels, Moscow and Berlin’s new airport – but the airline is still facing huge operational and financial problems.
About 20% of its staff has been recalled from unpaid leave, or about 1,300 employees, but air traffic is still far below pre-coronavirus levels. In October, operations were only at 20% their year-earlier levels and only about 30% of seats on flights were occupied. Expenses are growing at a faster pace than revenue, forcing the airline to burn cash.
On the financial front, El Al has the cash infusion from the share sale, but plans have stalled to borrow $250 million from commercial banks with the Israeli government guaranteeing 75% of the amount. Because the impact of COVID-19 on the travel sector continues, lenders are anxious about extending credit.
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The third-quarter report showed that El Al revenue plunged 94% from the same time in 2019 to just $39 million. Of that sum, just $8 million came from flying passengers, compared with $597 million a year earlier. The number of passengers per kilometer, a standard industry metric, was down 99.9%. Cargo revenue fell just 28% from 2019 to $23 million.
El Al posted a gross loss of $61 million in three months, after a $142 million profit a year earlier. The losses come despite the fact that the airline, which has been barely flying since the onset of the pandemic has put most of its staff on unpaid leave, was able to reduce its costs by $405 million. Its fuel costs, a major expense in normal times, was down 96% from a year ago and its personnel costs total just $114 million.
Sales and marketing costs dropped 88% and management overhead spending dropped 48%, so that El Al’s operating loss was just $109 million, reversing a $58 million profit of a year ago. Financial costs were down as well, by 78% to $40 million.
In addition, the airline ran up another $30 million in one-time costs associated with laying off employees as part of the collective-labor agreements aimed at making El Al more efficient and reducing labor costs in the long run.
The agreements reached with unions, which call for 2,000 job cuts and a 29% reduction in pilot pay during the life of the loan, don’t go into effect until El Al has gotten the loan.
El Al has just $150 million in cash or near cash on its books as of the end of September, the same amount it raised in the share sale that month. Among El Al’s debt is money owed to ticket holders whose flights were canceled at the start of the pandemic.
At the end of September, it owed $240 million to such ticket holders, close to $40 million in the form of coupons entitling them to future flights at a value equal to 125% of their original tickets.
Meanwhile, as El Al is running losses, its need for cash is growing. Management has asked the treasury to provide backing for a $400 million loan. But the Finance Ministry has said it would only agree if Rozenberg agrees to pump another $30 million into the airline.
El Al may be counting on political pressure to ensure it gets more help from the state. The Rozenberg family is close to Rabbi Pinchas Abuhatzeira, the grandson of Rabbi Yisrael Abuhatzeira, popularly known as the Baba Sali, as is its new chairman, Amikam Ben-Zeev. Recent appointments to management and board posts include figures close to the Shas Party and Abuhatzeira, suggesting that El Al hopes to leverage their political ties.