After refusing to approve a $300 million bank loan for El Al Airlines, the Finance Ministry is now prepared to give the carrier a $230 million cash injection – in exchange for agreeing to drop charges for flying security guards and other government personnel for the next 10 years.
The airline, which is expected to give its approval to the offer in the coming week, generates about $25 million in annual revenues from the sale of those seats.
Under the agreement, the cost will be capitalized at a 5% annual rate, which compares with the effective interest rate of 28.6% that banks had demanded from El Al as a condition for making a loan with partial government guarantees. The high rate reflected their concern about the airline’s ability to repay it.
The government has struggled to find a way to keep Israel’s flagship carrier afloat after the coronavirus pandemic struck a year ago and brought world aviation to a standstill. The company last September changed ownership when the American immigrant Eli Rozenberg acquired a majority stake upon the airline’s raising of equity capital. The airline is undertaking a massive cost-cutting program, but the outlook for world travel remains poor.
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A loan agreement between El Al and a group of lenders that included Bank Leumi, Israel Discount Bank and Migdal Insurance was torpedoed at the last minute by the treasury, which concluded it didn’t make sense to give the banks the chance to earn such a big return when they were risking so little of their own capital.
Under the terms of the treasury offer, which has already been approved by Finance Minister Yisrael Katz, El Al will be required to raise another $50 million in capital on its own by July, instead of September, as had been demanded earlier. The earlier deadline is aimed at forestalling public criticism of money being injected into the airline.
Some 15 years after privatizing it, the government became a shareholder again in El Al last September and has since felt it needs to come to the airline’s rescue. The $230 million offset deal should enable El Al to get better terms for any future loan.