With Its Fate in Gov’t Hands, El Al Braces for Crash Landing
Coronavirus killed what was left of the national carrier’s struggling business. El Al needs both a bailout and management reforms; the future of Israel’s aviation industry hangs in the balance
El Al, Israel’s national carrier, is seeking life support in the form of a $400 million Israeli government bailout conditioned on company reforms. While the two sides are still in talks, what hangs in the balance is the fate of Israel’s only major airline.
There have been some signs of life from the airline. While El Al already completed the first of two trips to Turkey this week – a route it has not flown in a decade – on a mission to provide medical supplies to New York to fight the novel coronavirus.
Still, Professor Efraim Inbar, president of the Jerusalem Institute for Strategy and Security, says that this milestone is not especially meaningful in terms of progress on El Al and in terms of diplomacy.
“El Al stopped flying to Istanbul because it didn’t like the time slots or security measures Turkey was offering. And this [medical supply flight] is not a passenger flight so it’s less problematic,” he told The Media Line.
While the coronavirus has decimated the airline industry around the globe, El Al was already struggling prior to the pandemic.
The company declined to comment for the article.
Avner (Nery) Yarkoni, former director-general of the Civil Aviation Authority of Israel and a lawyer specializing in aviation law, argues that it is too late to save El Al.
“The question is whether the government will support it, not whether they collapse. I think they’ve already collapsed,” he told The Media Line.
He argues that El Al’s underlying problems were only exacerbated by the coronavirus.
“The salaries are very high, there is a large volume of employees [compared to customers served] and they operate only five days a week which I don’t think is a good idea,” Yarkoni said. “If it was, there would be at least one other airline in the world that does it.”
In this way, Yarkoni likens El Al to someone with underlying health conditions that catches COVID-19.
“It was a sick company and it still is sick. As with corona, the virus kills sick people. It works in the industry as well,” he said. “You have to be healthy to overcome it. If you get corona while you’re sick, you’re dead.”
Yarkoni believes that the government will bail the company out for political and strategic reasons.
“It’s an unavoidable decision and I don’t see any other option. Politically, the two relevant ministers, of transport and finance, are both in the Likud party, and most El Al employees are Likud supporters. They won’t let [the employees] go down,” he said.
“The State of Israel needs one major airline,” he added. “Other airlines do not operate here when there are warlike conditions, Also, El Al is needed for security. The Israeli Air Force does not have the type of airplanes El Al has in its fleet.”
However, Professor Nicole Adler, of the School of Business Administration at the Hebrew University of Jerusalem, argues that relying on foreign airlines is a possible solution.
“Part of the reason why foreign carriers won’t fly here under certain circumstances has to do with insurance, so if the Israeli government were to insure another [foreign] airline than it would probably serve this market when the government asked it to,” she told The Media Line.
She argues that the fate of the airline is up to the government and that the bailout needed is approximately four times more than the company is actually worth.
“It’s understandable that the government is helping companies. And then the question is which companies bring the most to this country,” Adler said. “The aviation industry supports lots of other industries, like tourism, but it is also incredibly important for the high-tech industry because their markets are not here. Without a good aviation system, we are really going to restrict our economy.”
“It is very unclear, if El Al goes away, whether a new Israeli airline will start up and be more successful or whether we will be dependent on foreign carriers. It isn’t that there won’t be aviation here,” she added. “I think we are better off having Israeli industry but it’s not clear that El Al is necessarily the company the government should be subsidizing.”
She also warns that El Al is in such poor financial shape that even with a bailout, the company might still not have enough money to be operational. Still, Adler contends that there might be a moral case to be made for the government bailing out the airline.
“I don’t want to waste taxpayers’ money on a company that was insolvent but, to be fair, this pandemic led to the government to say passengers can’t come here and shut El Al down,” she said.
Besides El Al, Israel does have three other smaller private airlines. They do not share how well they are doing financially but Adler says the two passenger airlines are probably hurting because everyone in the industry is suffering. Still, Adler says that El Al’s possible closure will not necessarily impact them because they have different business models and different types of airplanes.
El Al is responsible for a quarter of the traffic at Tel Aviv’s Ben-Gurion International Airport and if it is no longer in service, Adler argues that international airfares will increase as competition in the market shrinks.