May 14, 2020
El Al has issued stern words to its Prime Minister in response to the state-backed aid package approved on 10th May. On Wednesday, the airline penned its scathing comeback in which it insinuated that the government would be responsible for the collapse of El Al if conditions weren’t changed. The government is looking to revamp the airline with a strategy that includes cutting employees by nearly one third.
El Al calls for the Israeli government to save its airline
On Monday 11th May, we reported that El Al had finally managed to secure a bailout amounting to some US$400m from its government. While the news of a relief package came as a welcome announcement, the funding was not without strings.
The Israeli government attached conditions to its financial provision, which would see the dismissal of around 2,000 of El Al’s 6,000 strong workforce. In addition, the government sought to control the fiscal outlook of the airline to encourage a healthier balance sheet.
On Tuesday 12th May, El Al was handed these conditions, and it was not best pleased. The airline’s CEO, Gonen Usiskin, promptly wrote to the Israeli Prime Minister asking for leniency. In his letter to Benjamin Netanyahu, Mr. Usiskin implied that the Prime Minister would carry the guilt for El Al’s demise. In the letter, obtained by the Jerusalem Post, Mr. Usiskin said:
“Last night, we received a document in which the Finance Ministry raised additional demands that cannot be implemented, the sole purpose of which is to lead to the liquidation of El Al. As prime minister, you carry the ultimate responsibility for that. After 72 years, El Al will finish its journey on your watch.”
Is the government’s reason unfounded?
With the desire to implement such harsh changes, it’s clear that the government and airline are not seeing eye-to-eye. The government is thought to have criticized El Al for its lavish salaries and general spending habits. However, Gonen Usiskin says these claims are unfounded.
In the letter, he went on to say:
“The Finance Ministry’s claims that El Al’s difficulties and need for a loan are due to its pre-crisis management are without foundation and have no grip on reality.”
According to its financial reporting, El Al experienced steady growth in 2019. The latest available figures are for the nine months between January and September 2019. In this time frame, El Al’s market share increased by 3% from the same period the previous year. In addition, its Revenue Passenger Kilometer (RPK) was up by 2.6%.
Despite that, El Al’s growth is not what it could be. Low-cost carriers like Wizz Air are profiting from the pullulating Israeli market, leaving national carrier El Al with fewer passengers than it would like.
Will the government listen to El Al’s pleas?
Despite defending claims about its financial difficulty, CEO Gonen Usiskin also laid out some interesting points. He said that should El Al collapse, the national security of Israel would be damaged. In addition, he put the onus on the government for the loss of livelihood in over 30,000 households throughout Israel. Around 6,000 of El Al’s employees are currently on unpaid leave. With the new government bailout, many of them could lose their jobs permanently.
The collapse of the airline could also have immediate financial implications for those affected by schedule changes due to the coronavirus. El Al says that it’s committed to refunding its customer fares. The sum of these purchases amounts to $285m, but the airline warned that in the event of its bankruptcy, it would not be able to honor these repayments.
Despite criticism of the plan, it’s apparent that the government is only doing what it deems correct in terms of El Al’s financial woes. It surely won’t want to lose its national airline, but is there room for compromise?
We contacted El Al to find out more, but it was unavailable for comment at the time of publication.
Source: (Simple Flying)