El Al Airlines’ board of directors on Thursday rejected the Finance Ministry’s rescue plan, citing shortcomings and offering an alternative of its own that would prevent Israel’s flag carrier from falling into government hands.
The board said that the treasury plan was problematic and would delay the time it takes for the airline to get the financial injection it needs to survive. For technical reasons, a key component of the plan – a $150 million rights offering – cannot be conducted until November and El Al needs the money now, it warned.
The response came 11 days after the treasury proposed a revised plan to rescue the airline, which is in deep financial trouble after the coronavirus forced it to suspend flights. On Wednesday, El Al extended suspension of scheduled commercial flights until July 31, though it will continue to use its aircraft for cargo and occasional passenger flights.
El Al shares ended down 0.7% at 67 agorot (19 cents) on the Tel Aviv Stock Exchange.
The treasury plan offered government backing for a $250 million loan El Al would take from banks. The airline would also be required to raise a $150 million rights offering, with a commitment from the government to buy any stock that existing shareholders refused to buy.
That may leave the government with a controlling stake and reduce its current controlling shareholder – the Borovitz family’s Knafaim Holdings with just a 9% stake. To keep the airline an arm’s distance from direct state control, the treasury said it would appoint a trustee to run the airline in the name of the government until El Al could be sold back to the private sector in two to three years’ time.
El Al’s board proposed instead that the airline take a $300 million state-backed loan and sell $40 million in shares to the public. The government would not buy any unsold shares, rather the underwriters would. The state would inject $60 million into the airline in exchange for tradable notes convertible into shares in another two years.
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In opposing it, the board said the treasury plan didn’t make clear who would be appointing the trustee and what his or her authority would be. The board also expressed concern about meddling by politicians in El Al’s management, despite the Chinese wall the trustee would constitute. In addition, turning El Al into a state-owned company would subject it to restrictions on its operations.
The Finance Ministry has promised that it would seek special legislation preventing the airline from becoming a state-owned company, but the board said, in that case, it is unclear who would then supervise the trustee.
The board also warned that the revised treasury plan would force the airline to reopen negotiations with labor unions.
Management had been seeking $100 million in wage concessions from workers on the assumption it would be rescued by the previous treasury rescue plan, which called for a much larger $400 million government-backed loan and no state aid. Now that the loan component is smaller, hence the financial costs of repaying it, and the state is poised to become a controlling shareholder, unions aren’t going to agree to such big wage concessions, the board said.
The pilots’ workers’ committee said on Thursday it supported the treasury plan, accusing the board of trying to protect El Al’s shareholders, not the airline.