Report Warns That New Eilat International Airport Risks Massive Deficit

Israel Airports Authority board of directors due to convene in an attempt to push building plan through.

An internal Israel Airports Authority report reveals that building the planned Timna international airport near Eilat could wrack up accumulated deficits of more than NIS 9 billion.

The authority's board of directors is due to convene Tuesday in an attempt to push the plan through, over the objections of opponents following the sudden resignation of Shaul Meridor, the Finance Ministry's deputy budget chief and representative on Sunday. In addition, the board's chairman, Ovadia Eli, and legal counsel are both out of the country.

The plan to build and operate the airport, as presented to the Knesset Finance Committee on Sunday, is forecast to create a deficit exceeding NIS 9 billion for the IAA if it takes on all the associated financing costs, estimated at NIS 1.95 billion.

The planned airport at Timna - 11 miles north of Eilat, to be formally called the Ilan and Assaf Ramon Airport - will replace the older and out-of-date facility located inside the southern resort's city limits. It will cost an estimated NIS 1.6 billion to NIS 2 billion to build.

Meridor had issued warnings about the IAA becoming insolvent due to the financial obligations it is taking on with construction of the new airfield. The IAA workers' committee chairman, Pinchas Edan, has also expressed concern about the decision.

An economic analysis prepared and signed by the IAA's chief financial officer, Tzachi Havusa, obtained by TheMarker, displays a cash-flow forecast for 2012 to 2030 prepared following the government decision of July 24, 2011 on financing, building and running an international and domestic airport at Timna.

According to the forecast, the IAA's cash-flow situation "will deteriorate to a point of seriously damaging its financial viability, including the ability to fulfill its role in repaying all its liabilities." It said obligations at risk included some NIS 5 billion for compensating residents around the Ben-Gurion International Airport for the decline in the value of their land after the airport underwent a major expansion more than a decade ago.

The report also warned that the deteriorating cash-flow situation would harm the IAA's ability to raise capital externally. "In light of the cash-flow forecast, the IAA can't bear the full financing of the project as recommended by the director general of the Transportation Ministry," the report concluded.

The report presents two options.

The first is based on a decision made by the IAA board last September that the authority cover NIS 656 million of Timna's construction costs.

The remainder of the financing would come from compensation due to the authority from the Israel Lands Administration for evacuating the existing Eilat airfield, and increasing fees as much as necessary. That would include imposing a fee on domestic flights and equalizing international fees at Timna to those in force at Ben-Gurion.

The second option is contained in a letter from the Transportation Ministry's director general from January 27, which recommended that the IAA bear the full cost of construction, less a net amount of NIS 600 million for evacuating the land in Eilat. To this, however, would be added another NIS 136 million for the excess of annual operating costs at Timna over the current costs of running the Eilat and Ovda airports.

Under the first option, the IAA's cumulative deficit would peak at NIS 3.5 billion in 2025, before falling to NIS 3 billion by 2030, according to the report. "The cash flow from ongoing operations and financing would be positive and growing, which would support [the IAA's ability] to raise external capital," the report says.

It said the accumulated deficit under the second option would rise threefold - to a cumulative NIS 9.4 billion by 2030.

Transportation Ministry