Airlines around the world are struggling to stay in business with the current pandemic.
EL AL has been in a particularly difficult situation as the airline has been unable to obtain government funds, and more or less had to temporarily suspend operations … at least until this week. The airline reportedly lost $ 140 million in the first quarter of the year, and I imagine the second quarter was even worse.
EL AL will be nationalized once again
The EL AL Board of Directors accepted a suggestion from the Israeli Ministry of Finance, which will make the government take a majority stake in the airline once again.
The Jerusalem Post reports that, collectively, the government will provide the airline with up to $ 400 million in funding, including:
- A $ 250 million loan
- Buying $ 150 million in common shares in the airline, which would give the government a 61% stake in EL AL; This process is expected to take some time, and will probably be completed in October.
The government does not plan to maintain a long-term interest in EL AL. Rather, the goal would be to find an outside investor who would buy the shares once conditions improve.
EL AL used to be owned by the government until 2005, when the airline was privatized as Knafaim Holdings took over.
Israel’s Transport Minister Miri Regev described this support as the “first step in getting EL AL back on track” and said the government will help with this transition period “as long as it is necessary to maintain the independence of the Israel aviation. “
However, the deal comes with one important stipulation: 2,000 of the more than 6,300 jobs at the company will need to be cut.
787-9 EL AL Business Class
EL AL unions must approve the deal
EL AL has not only suffered the closure, but the company has also had significant labor problems. The problems have been worst with the pilots, although there have been problems with all four unions.
Generally speaking, the pilots have largely opposed Knafaim Holdings’ continued control of the company, out of concern that conditions would worsen, wages would drop, and jobs would be cut.
While the government is also looking for job cuts, I still think it’s safe to say that labor groups are much more likely to be happy with the conditions provided by the government, rather than the conditions provided by private investors, at least in this stage.
Israel’s transport minister allegedly recently told the pilots that “Israel will not allow EL AL to go bankrupt,” which might not have been the best that could have been said if it tried to play hard with the unions. It’s like when American Airlines CEO Doug Parker said the airline will never lose money again.
787-9 EL AL Premium Economy
Bottom line
EL AL has been desperately in need of new funding, and it appears the airline is now getting it. EL AL will obtain a total of $ 400 million, including $ 250 million in loans and $ 150 million in investments.
It’s crazy to think that $ 150 million will give the government a 61% stake in the airline, which is just over half the list price of a single 787.
Unfortunately, this agreement depends on the reduction of some 2,000 jobs. I wouldn’t be surprised to see that it was negotiated a bit, because realistically unions are likely to get better terms with the government than with any private investor.
What do you think of the government once again taking control of EL AL?
