El Al Warns It Faces Collapse as It Belatedly Releases 2019 Results

Auditors attached a 'going concern' warning to Israeli flag carrier brought down by coronavirus

Yoram Gabison
TheMarker
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An Israeli flag seen on El Al's Boeing 787-9 Dreamliner jet.
An Israeli flag seen on El Al's Boeing 787-9 Dreamliner jet.Credit: Amir Cohen/ REUTERS
Yoram Gabison
TheMarker

Issuing its financial report a month-and-a-half late, El Al Airlines reported a $31.5-million loss in the fourth-quarter of 2019 and warned that it faces collapse if it fails to secure a government-backed loan.

The loss, down slightly from $31.6 million a year earlier, predates the onset of the coronavirus crisis, which forced Israel’s flag carrier to suspend service in March.

El Al said it would publish first-quarter results by June 30 at the latest. Meanwhile, however, its auditors attached a “going concern” warning on the 2019 report, meaning they aren’t confident the airline can survive.

El Al has been seeking government loan guarantees since the onset of the crisis, but only this week did the treasury make an offer to guarantee 80% of a $400 million loan to be provided by commercial banks. The treasury has set tough conditions for the aid that the airline will have trouble meeting.

A day before the 2019 financial report was issued, CEO Gonen Usishkin appealed to Prime Minister Benjamin Netanyahu to intervene.

An El Al Boeing 787 Dreamliner jet landing at the Ben-Gurion International Airport near Tel Aviv.
An El Al Boeing 787 Dreamliner jet landing at the Ben-Gurion International Airport near Tel Aviv.Credit: Amir Cohen/ REUTERS

“Since uncertainty remains regarding receipt of [financial] assistance, which is essential for the company to cope with the impact of the crisis at this stage, the company believes there are significant doubts about its continued existence as a going concern,” El Al said.

For all of 2019, El Al boosted revenues by about $40 million to $2.18 billion, but its loss widened to $59.6 million from $52.2 million the year before.

Plunging energy prices ended up hurting the airline, which said that the sharp drop in jet fuel prices from $1.87 a gallon at the end of 2019 to 48 cents today had cost its $143 million from hedging deals it had made as of now. Due to the steep decline in the value of its hedging transactions, El Al had to put up $48 million of collateral.

The figures revealed that the company exceeded the ceiling on hedging transactions set by its board audit committee had set. It had hedged against 43% of its fuel needs for 2020 and 18% for 2021.

El Al’s suspension of service, which was introduced gradually over February and March and is not due to resume until the end of May, had dealt a double blow to the airline. Not only has it lost money on hedging contracts, but it has not been able to take advantage of the lower fuel costs because it’s not flying.

Since Israel barred foreigners from entering the country and ordered returning Israelis to go into quarantine, El Al has reduced operations to cargo service and occasional rescue flights. About 6,000 of its 6,500 workforce are on unpaid leave until June 30.

The report showed that El Al had obligations amounting to $321 million to passengers who had ordered and paid for tickets in advance but whose flights were cancelled.

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