News has emerged overnight, confirming that Israel’s El Al has secured $400 million in funding from the Israeli Government. But it’s not money for nothing. The funds will be forthcoming only if El Al meets certain conditions. The Government wants changes at Israel’s national airline, arguing problems at El Al predate those caused by the pandemic.
Bailout loan approved, with conditions attached
According to a report in i24 News, Israel’s government has approved the bailout loan. But the deal is contingent on a significant re-organization at the airline, and the government is asking the majority owners to stump up some of their own cash.
The largest shareholder of the privately-owned airline is Knafaim Holdings, holding a 35.3% stake. The next biggest shareholder is Pinchas Ginsburg, with a 7.97% stake. Knafaim Holdings is a local tourism and aviation business under the control of a single family. According to a report in Reuters, the Israeli Government wants the shareholders to pump $28.5 million into the airline.
The onset of the pandemic created somewhat of a perfect storm for El Al. Israel has closed its borders to non-Israeli citizens, posing a problem for an airline that only operates international flights.
That caused El Al to suspend operations and furlough approximately 6,000 employees. Subsequently, the airline applied to the Israeli Government for financial assistance to keep ticking over. But the government says El Al’s problems began well before the pandemic. The pandemic merely brought those problems to the fore.
Reduncies appear to be an issue
The Israeli Government is citing a too-large workforce, overly generous salaries, and a weak balance sheet as needing to be addressed in exchange for the bailout.
That means labor unions are getting involved. The unions will have to agree to layoffs. Already there have been protests over this.
The deal has been months in the making. An agreement was almost reached in April but collapsed. A sticking point appeared to be the number of redundancies. At the time, some 1,600 of El Al’s 6,500 employees were set to go.
But as the weeks have ticked up, neither the broader aviation outlook nor the outlook for El Al has improved. Perhaps that focused attention at the airline’s Ben Gurion HQ.
No-one is arguing about the need for El Al to survive. Not only is the carrier iconic, maintaining an independent national carrier is viewed as a strategic necessity in Israel.
It is just that the Israeli Government prefers that their strategic necessity was lean and efficient. That’s especially so if they are investing taxpayer funds into a private business and may end up with an equity stake in the business should there be a default on future repayments.
Different approaches from different governments
The approach of the Israeli Government, tieing funds to reform, contrasts with the approach of the US Government. Under the CARES Act, direct grants are provided for payroll expenses. While the US Government may end up with stakes in its local carriers, it isn’t asking its carriers to enact reforms.
Different governments around the world are taking different approaches to prop up the local aviation industries and airlines. What’s happening in Israel right now is an example of that.