El Al Talks Snag as Pilots Demand 25% of Airline

Reaching an agreement with unions is a precondition for the government guarantee of a critical $400 million loan for the flag carrier

Yoram Gabison
Yoram Gabison
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An El Al dreamliner sits at Ben Gurion Airport, Lod, September 19, 2019
An El Al dreamliner sits at Ben Gurion Airport, Lod, September 19, 2019Credit: Meged Gozny
Yoram Gabison
Yoram Gabison

The odds of El Al receiving government aid have declined after talks between management and labor stalled over pilot demands for a 25% stake in the airline in exchange for concessions.

Israel’s flag carrier must reach a new collective bargaining agreement with employees that meet the terms it promised the Finance Ministry in exchange for government guarantees for up to 82.5% of a $400 million bank loan.

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El Al has suspended nearly all passenger flights in the wake of the coronavirus pandemic until at least June 20. Its auditors posted a “going concern” warning on its latest financial report.

The airline promised the treasury it would achieve $400 million of annual cost savings by cutting 2,000 of 6,500 employees, including 150 pilots. The remaining pilots will take a pay cuts, and the salaries of top executives and board members will decline by 25%. El Al will end service on money-losing routes and reduce flight frequency on others. It will also sell off and then lease back 17 of its Boeing jets.

The talks have been complicated by the pilots’ decision to split off from the El Al Workers Council and conduct their own negotiations. They contend that the council, led by Sharon Ben-Yitzhak, wasn’t effectively representing their interests and was negotiating a package under which 20% of the $550 million in wage savings over the life of the agreement would be borne by the airline’s 550 pilots.

The pilots say that if they have to bear the brunt of the cost-cutting, in contrast to the controlling shareholders, the pilots should be able to share in future profits by way of an option giving them 25% of the company. At the same time, they are refusing to give up benefits like free airfare for themselves and their immediate families.

Sources said El Al’s controlling shareholders – the Borovich family, which controls their stake through the publicly traded Knafayim Holdings – were unprepared to give the pilots such a big stake in the carrier. The treasury agreement calls for them to inject 100 million shekels ($29 million) into the airline to strengthen its capital base.

El Al shares closed down 4.3% to 62 agorot on the Tel Aviv Stock Exchange. Its shares have fallen close to 60% over the past five and a half months.

The pilots’ demands opened a rift between them and the rest of El AL employees, mainly maintenance workers who control the workers’ council. They point out that while the great majority of El Al staff remain on unpaid leave, 280 pilots who fly Boeing 787 Dreamliners have returned to work and flying cargo flights. Another 25 to 30 Boeing 737 pilots are expected to be called back in the next two weeks ahead of a resumption of passenger service.

In response, the pilots’ committee said that it had signaled at the start of the negotiations that it was prepared to make “painful concessions: to help rescue the airline.

“Management has been asked to present an outline of what it is prepared to give in exchange for the concessions being demanded of the pilots for the rescue plan. ... We understand that negotiators representing the other employees have asked for a similar outline,” it said.

As to the issue of free flights, the pilots’ committee said it was standard practice at airlines all over the world and that its cost to the airline was marginal.

Meanwhile, as part of El Al’s efforts to generate liquidity and enable it to better cope with the coronavirus crisis and pay debt to banks and suppliers, it sold a 25% stake in its Maman Cargo Terminals & Handling unit last Wednesday. The buyers – the Livnat family’s Taavura Holdings and Allied Logistics – paid 65.6 million shekels for the stake, or 5.62 shekels a share, a premium on Maman’s TASE-traded price before the deal was announced.

El Al has exercised options for a diluted 10% stake in Maman at 2.47 shekels each, or a total of 11.5 million shekels. El Al will record a pretax loss of 1.3 million shekels on the deal.

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