Israel’s national carrier El Al will be attaching a going-concern warning when it publishes its financial reports on Thursday, barring any dramatic developments late Wednesday night. In an unusual step, El Al CEO Gonen Ussishkin sent Prime Minister Benjamin Netanyahu a personal letter asking for help.
El Al rejected an aid package drafted by the Finance Ministry, after the latter conditioned it on the airline undergoing a $400 million efficiency plan, and the controlling shareholder, Tami Moses-Borowitz, injecting another $100 million via Knafaim, the company through which she holds 38% of El Al’s shares.
El Al is seeking government backing for a $400 million loan from Bank Discount and Bank Leumi.
In previous negotiation rounds, El Al had already committed to a $350 million efficiency plan over seven years, and the controlling shareholders had committed to injecting capital and to using their shares as collateral.
Following Usishkin’s letter, negotiations between El Al and the Finance Ministry resumed Wednesday night, after breaking down Wednesday morning. In the letter, Ussishkin revealed that El Al owes customers some 1.1 billion shekels ($350 million) for tickets canceled in the wake of the coronavirus crisis.
Under the government’s condition that El Al cut its debt load in half, this means half the bank loan El Al is seeking would go to return money to customers.
Instead of refunds, El Al intends to offer customers credit for flights up to a year from now, at least, but it’s not clear how many will be interested.
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El Al is slated to publish its 2019 financial reports Thursday, after a month and a half’s delay, including a going concern warning. A going concern warning indicates that a company is at risk of going bankrupt.
Usishkin stated in his letter that liquefying El Al would harm Israel’s national security, by destroying the country’s flight independence. The government has golden shares in El Al, which grant it special rights among shareholders.
Without a national airline, Israel would become a political island, and would be subject to extortion from other countries with different interests, said Usishkin. Shutting El Al would also involve laying off 10,000 people directly, and another 30,000 people indirectly.
He contended that the Finance Ministry’s latest demands Sunday, in exchange for government backing for a loan, would lead to El Al’s liquidation. The government had already agreed to offer El Al 75% backing for a $400 million loan. Sunday’s round of negotiations began after El Al asked the government to increase its backing to 82.5%.
“In keeping with the Finance Ministry’s [earlier] demands, a business plan was drafted ensuring El Al can handle the challenges after the coronavirus crisis. We’re working with the Histadrut labor federation and workers’ representatives to find a fair and proper solution to the situation facing the airline industry, but the Finance Ministry’s constantly changing demands don’t allow for this.
“We can’t increase the cuts for a fourth time, after a business plan prepared by the country’s best professionals and approved by the bank, ensuring that El Al would be on steady ground to return its loans,” Usishkin wrote.
The airline also fears losing its planes.
In Sunday’s round of negotiations, the Finance Ministry demanded El Al delay $150 million in payments to the companies leasing the airline its airplanes until 2026 at least. El Al fears the planes’ owners will take them back and Israel will be left without independent flight capacity, a blow to national security, said Usishkin.
Another concern is a loss of the public’s money. Under the business plan, El Al will be returning the value of customers’ ticket purchases in full, totaling more than 1 billion shekels.
Should the company be liquidated, customers will lose their money.
The treasury has also demanded that El Al executives agree to a 25% pay cut, up from the current 20% they’ve agreed on, and forego free and reduced-cost flights.
The Finance Ministry rejected El Al’s charges, saying the company’s new demands come because Leumi and Discount didn’t agree to give it a $400 million loan with 75% state backing under the company’s efficiency plan.