Almost two years after the coronavirus pandemic caused the most dire crisis in the history of international air travel, El Al Airlines is poised for a major restructuring that will transform the company entirely.
Jewish American entrepreneur Kenny Rozenberg, who controls the airline, plans to shrink the fleet, ending leasing contracts on 16 jets and bringing the total down from 45 to 29. As a result, the carrier will have to pare back a large number of the 40 destinations that it served prior to the pandemic, mainly in Europe. There are plans to lay off 1,500 staff members, 35 percent of its total employment, including 150 pilots.
If the layoffs do occur, they will be in addition to the 1,900 staff members that were axed in the second quarter of this year as part of the $210 million bailout El Al received from the Israeli government – which took the form of an advanced payment on aircraft security for the next 20 years. By the end of the year, Israel’s flagship airline may see its payroll shrink from the 6,300 at the end of 2019, down to 2,800.
As part of its cost-cutting program, management plans to reduce operations at its Sun d’Or subsidiary, a charter carrier that (unlike its parent) operates flights on Shabbat. Sun d’Or may even be shuttered entirely. El Al’s cargo operations will also be pared back and will stop flying on Shabbat.
Sources at the company say that the cutbacks at Sun d’Or are due to a lack of demand. El Al Chairman Amikam Ben-Zvi said the subsidiary was never profitable. However, the decision to end flights on Shabbat comes amid a rise in demand for Saturday flights, which began its recovery before Israel’s third coronavirus wave earlier this year.
It is clear that the decision is part of Rozenberg’s efforts to align the airline with his religious principles, even if there is no business logic in keeping $2.5 billion worth of aircraft grounded for 15 to 20 percent of the week.
All of these steps were discussed in a meeting between representatives of El Al and its workers last week. Ben-Zvi and CEO Avigal Soreq met with Sharon Ben-Yitzhak, chairman of the workers’ committee (but not the pilots’ committee) and Avi Edri, who heads the Histadrut labor federation’s transportation workers union.
The steps are in line with demands made by Finance Ministry Director General Ram Belnikov in a letter to El Al three weeks ago – in exchange for $50 million in aid to help the airline cope with the cash flow crunch prompted by the third COVID wave.
Among other things, Belnikov demanded that the airline pare back its operations in accordance with the dire state of the global aviation industry. He also demanded that Rozenberg inject $43 million into the company via a shareholder loan on generous terms in place of Rozenberg’s plan to buy El Al stock in the aborted IPO that had been slated for July 2021. Belnikov added that Rozenberg would have to match the treasury’s $50 million by putting up a similar amount of share capital.
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Belnikov required El Al to sell a large stake in its Matmid fliers club, which is regarded as one of the airline’s principal assets. However, the value of the Matmid Club is destined to decline along with the number of destinations and flights, as membership points become less valuable to customers.
El Al is expected to sell six of its Boeing 737-800 narrow-body jets and end leases on 10 others of the same model. The airline will be left with 29 wide-body 777-200ER aircraft, signaling its plan to focus on medium and long-term routes to North America, East Asia and key European destinations, such as Paris, London and Barcelona. El Al will be giving up on important European destinations that generated revenues of $1.04 billion in 2019.
El Al’s downsizing is good news for other carriers flying to Ben-Gurion International Airport – both foreign ones and Israel’s Israir and Arkia. With fewer seats on major routes – meaning a drop in supply – they should be able to raise airfares.
The sale of the jets strengthens the sense that the $210 million from the Finance Ministry was more of a grant rather than advanced payment. With the drastic reduction of the fleet size, El Al will need far fewer onboard security personnel moving forward.
The remaining routes are those used most heavily by ultra-Orthodox communities in North America, London and Paris, as well as by Israeli emigres.
The new focus on long-haul routes and de facto catering to Haredi travelers appears to reflect the views of top treasury officials who believe that there is not a large enough market to support three Israeli airlines in the long term, and that it would be best if they merged. Under this vision, El Al would fly long routes, while Israir and Arkia target tour-package travelers flying to Mediterranean destinations.
That said, sources in the industry say the prospects of a merger are slim. While there is opposition from the Competition Authority, the three carriers also operate different fleets of aircraft, reducing the chances of squeezing additional savings out of a merger.
The talks between El Al and the labor unions are taking place as Rozenberg continues to drag his feet on the $43 million loan demanded by the Finance Ministry – one of the conditions for the $210 million in state aid. Another condition, the share offering, was cancelled on the grounds that market conditions prevented it. El Al received the governmental funds despite not meeting the conditions.
Under the terms of the agreement signed between the state and El Al last March, the failure to complete the share sale amounts to a fundamental breach and entitles the state to revoke the aid it provided. But Rozenberg appears confident that the government won’t exercise that right. Government support is the main reason that the banks and aircraft-leasing companies are ready to delay repayment on El Al’s $2 billion in debt. If Israel were to end its assistance, El Al’s very survival would be in jeopardy.
Rozenberg, like the controlling shareholders of Israir and Arkia, believes that the government should provide direct aid to compensate for damaging policy decisions during the pandemic. In the airlines’ view, these include the decision by Dr. Elroi Preiss, head of health services at the Health Ministry, to impose a mandatory quarantine on returning Israeli travelers and the ban on unvaccinated foreign tourists. The airlines also opposed Prime Minister Naftali Bennett’s urging Israelis not to travel at all.
The airline owners note that Elroi Preiss eventually admitted to the coronavirus cabinet that she had been wrong about the role of returning travelers in fomenting the third COVID wave.
The three Israeli airlines point out that they have received considerably less aid than their American and European counterparts, and that the aid they did get took the form of loans, not grants, as was common in other sectors. It seems that Rozenberg and El Al’s management are counting on the threat of massive layoffs to convince the government to offer them a grant.
In response to this article, El Al said that it “does not hold talks with the workers’ committee through the media” and denied that it had decided to close Sun d’Or.