El Al’s board voted Monday to accept a government rescue plan that is likely to renationalize the carrier 16 years after it was privatized.
The company told the Tel Aviv Stock Exchange that its board had approved a plan under which the government would offer guarantees of up to 75 percent on a $250 million bank loan and raise $150 million in a share offering to help keep the airline afloat through the coronavirus crisis.
Critically, the government is committed under the plan to buy any El Al stock not purchased by the public. If the state ends up buying all the shares being sold, it will end up with 61 percent of the airline. The current controlling shareholder – Tami Mozes Borovitz, who holds her shares through the publicly traded company Knafaim – would see her stake diluted to 14 percent from 28 percent today.
Acceptance of the plan marks the latest – but by no means final – twist in months of negotiations between the airline, the government and unions over how to rescue Israel’s flag carrier. More recently, an unnamed Israeli family expressed an interest in buying control of El Al.
Already ailing before the coronavirus struck, El Al was forced to halt nearly all its flights and furlough more than 80 percent of its staff. It reported a $140 million first-quarter loss before the brunt of the pandemic hit.
The share sale, and the possible government takeover, won’t occur until November at the earliest because the offering will be based on El Al’s second-quarter results. Still, the board’s accepting of the plan caused El Al shares to reverse from gains of as much as 8 percent Monday to a loss of 4.2 percent at the close. The stock finished at 50 agorot (14 cents) as shareholders realized they would be diluted.
In the vote, Mozes Borovitz and others connected to Knafaim abstained due to their personal interest in the outcome of the rescue plan.
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The directors were supposed to choose between two aid plans offered by the government – the one it approved Monday and an earlier version under which the state would have backed 82.5 percent of a $400 million bank loan and required shareholders to inject just 150 million shekels of new equity into the airline.
But while Mozes Borovitz might have preferred the second option, Knafaim bondholders wouldn’t countenance the company’s injecting tens of millions of shekels of capital into El Al. Bondholders feared that this might jeopardize Knafaim’s ability to repay its $43 million in bond debt to them.
In addition, legal advisers to the board warned that El Al’s directors would be exposing themselves to lawsuits because the already indebted airline was taking on more debt. Directors could be accused of protecting the interests of controlling shareholders over the airline itself, the advisers said.
The government has made clear it does not want to hold on to the El Al shares for a long time. To keep politicians from interfering in management, the government will appoint a trustee to run the carrier and oversee its reprivatization in two or three years. Industry sources say that several investors with Israeli citizenship (a requirement for being approved to own the airline) are interested in buying control.
Even after the board approved the rescue plan, management still must meet the government’s terms for the loan guarantees. This includes squeezing $400 million of annual cost savings, in part by axing 2,000 of the company’s 6,500 employees and selling seven to 10 planes. El Al also has to reach collective labor agreements with the workers’ committees, not only over layoffs but over changes in work practices.
Last week it reached an agreement with flight attendants and now must negotiate contracts with three other workers’ committees representing maintenance workers, administrative staff and pilots. The latter, considered the most militant of the workers’ committees, lauded the board’s decision Monday.