Government Holds Upper Hand in Bailout Talks as El Al Grounds Fleet
Foreign airlines pick up slack, but quarantine seen as having bigger impact on tourism to Israel
El Al has grounded its entire fleet. It will no longer initiate cargo flights, a now-dwindling source of income, and passenger flights will be delayed at least until the end of the month.
The shutdown falls on the backdrop of the company’s failure to achieve consensus with its pilots regarding pay and working conditions, according to Ynet News.
In order to receive any amount of Israeli taxpayer funding, El Al must have the prior backing of its employees apportioned into four groups based on labor sector. So far, only flight attendants have given the green light.
Pilots are upset over the company’s failure to accept a $250 million government bailout. About 92% of El Al’s entire workforce is not getting paid, including 83% of the pilots.
Regarding the bailout, Prof. Nicole Adler of the School of Business Administration at the Hebrew University of Jerusalem maintains that El Al has refused to take the deal because it does not want to be nationalized.
“If a company goes bankrupt… the owners basically lose their money, and that’s the way the private sector works,” she told The Media Line.
“Right now, the owners are still trying to get the public money but keep their ownership…. If the owners believe in the company, they would be willing to share the burden with the public and invest in the company,” she continued. “El Al is trying to negotiate as much as they can to save themselves.”
Adler notes that the government has the upper hand in these talks.
“As time goes by, El Al is only getting weaker because they have fixed costs. They have planes that are sitting on the ground not making any money,” she said.
As time goes by, El Al is only getting weaker because they have fixed costs. They have planes that are sitting on the ground not making any money
The company recently announced its long-delayed 2020 first-quarter results, which indicate a $140 million shortfall. Yet Adler says the real issue is that the company has been hemorrhaging money since long before the coronavirus pandemic.
“If El Al continues as it did before the crisis and doesn’t become any more efficient, then the public money [will be wasted],” she said.
The Hebrew University professor says that when bailing out a company, a government has an investment decision to make.
“We have one pot [of taxpayer money] and we have to distribute it out to all the different areas. Education and the healthcare system [are] also going to need help. We can use taxpayer money on small and medium-sized businesses… [or] we can take the money and try to save the big businesses,” she said.
“The question is: Can we spend that money wisely in such a way that we are actually going to gain something from it when this crisis is over?” she continued.
“If we can create an El Al that is actually going to become profitable in four years’ time – when this crisis is really behind us and the demand for aviation has come back – then we definitely will be able to cash in the shares and use that money for other things,” she explained, “rather than just throwing it down the drain.”
The impact of the national carrier’s shutdown on the country’s tourism sector depends on how long the fleet is grounded. If El Al remains shuttered after July 31, fewer flights will be coming to Israel, as the company accounts for 25% of all plane traffic at Ben-Gurion Airport.
For the time being, foreign carriers such as Delta, Ryanair, Austrian and Air Moldova are picking up the slack.
Foreigners are prohibited from entering the country until August 1, with only Israeli citizens and people with residency permits allowed in – and they must self-quarantine for two weeks.
The country’s Incoming Tour Operators Association says the two-week quarantine will likely have the biggest effect on tourism when it comes back.
“Who would want to come here if they have to go into lockdown for two weeks?” a representative of the association told The Media Line.
El Al refused to comment for this report.