Israel's flag carrier El Al wants to repay a $45 million loan it took from the state before its deadline. The airline is witnessing impressive demand in travel and wishes to expand operations by increasing fleet size and hiring more employees. At the moment, El Al is bound by certain restrictions due to the terms and conditions of the loans, but repayment will give some control back to the airline to make key business decisions.

Loan repayment

El Al is planning to pay back the government a $45 million loan it took as part of the package it received to survive the pandemic. The airline is looking to repay the amount by the end of this year instead of the beginning of 2025, as was previously indicated. However, as part of the deal, its planned $62 million share offering would be postponed until April 2023, while the state will advance El Al security payments of $20 million by December 20th.

The airline had to lay off 1,900 employees during the pandemic's peak – nearly one-third of its workforce. This was one of the conditions by the government as part of the $210 million package for the carrier's restructuring. But as the industry recovers from the pandemic, El Al feels it's time to pay back the loan to get some control back in making post-COVID business decisions.

El Al CEO Dina Ben-Tal Ganancia commented,

“Out of a desire to consolidate the company’s growth and the improvement in its results, and in order to create management flexibility, among other things through investment in the company’s working capital, and also in the light of rising demand, El Al has agreed with the Ministry of Finance on acceleration of the process of repaying the bond held by the state amounting to $45 million, two years before the scheduled date.”

Conditions

The agreement for the loan included El Al getting approval from the Ministry of Finance to hire new employees and increase fleet size.

With travel demand back, the carrier is facing a capacity crunch and cannot keep up with the surge in passenger numbers. It wants to add more planes to its fleet, but the terms and conditions of the loans prevent it from doing so.

An early repayment would lift any such restrictions and allow the airline to make several business decisions, including raising the salaries of some employees.

However, El Al will still not be permitted to pay dividends or buy back its own shares until 2028.

Gradual recovery

While the last few years have been rough for El Al, there have been signs of recovery this year. The airline reported a profitable quarter for the first time since early 2020 after significantly scaling up operations this year, posting a profit of over $100 million in the most recent quarter.

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It has also been returning many of its widebody aircraft in the air as demand picks up and reviving plans of adding several destinations to its network, including Melbourne and Tokyo. Hopefully, the loan repayment at the end of this year will accelerate many of the carrier's future plans.

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Source: Reuters