Israel’s El Al Receives A New Government Bailout Offer

Israeli flag carrier El Al, like most commercial airlines, has been suffering financially due to the drop in travel demand. Unlike some airlines, El Al has yet to receive government assistance. However, today we heard news that the Israeli Government is offering the airline a loan worth $250 million. This is far short of the $400 million it was asking for. But there’s more to the offer.

El Al has suspended all regular flying, resulting in scores of grounded aircraft. Photo: Getty Images.

A hybrid bailout?

According to Israeli media publication Globes, the Ministry of Finance is proposing that the Israeli Government issue a $250 million loan rather than the full $400 million it had been asking for. The interesting twist to this is that the remaining $150 million would be raised via the stock market.

Shares of the company would be issued on the Tel Aviv Stock Exchange, available for public purchase. It gets more interesting in that the State would commit to buying any shares not purchased by the public.

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El Al was hoping to secure a $400 million bailout loan from the Israeli Government. Photo: Getty Images.

Possible government control

For this publicly-traded course of action, the Borovitz family, which currently has a controlling stake in El Al, is not expected to participate in the offering. As such, their stake will be diluted, opening the door for government control of the airline. El Al has been a privately controlled enterprise for over 15 years.

El Al is reportedly considering the offer.

“Any of the aforementioned shares bought by the State would be deposited with a trustee whose role and powers would be set by the State until the date of the offering and a date would be set for the trustee to sell the shares and the way the sale will be executed.” – El Al via Globes

El Al getty images
El Al was privatized in 2003. Photo: Getty Images

Globes goes on to report that any such arrangement would remain subject to agreement by the main parties involved, including:

  • The airline
  • The Israeli cabinet
  • And the Knesset Finance Committee

Additionally, El Al and its employees would have to sign a collective labor agreement. This agreement would include required streamlining.

Will it happen?

As El Al affirms in a filing with the Tel Aviv Stock Exchange, the deal has yet to be approved as it requires some thought and discussion:

“There is no certainty that one plan or another will be agreed, or that the conditions attached will be possible to achieve,” -El Al via The Jerusalem Post

This plan appears to be a strategy by the government to limit its risk and financial exposure to the airline. Instead, it is passing that risk on to the public and anyone who may have some funds to become an investor – which may indeed end up being a good business opportunity.

What do you think of this plan? Do you think El Al will go for it? And do you think the airline would be able to raise $150 million through the sale of shares? Let us know your thoughts in the comments.