Will the “EL AL” airline go bankrupt?

An attempt to obtain a government loan of $ 350 million was unsuccessful. Currently, the majority (95%) of the airline’s employees do not work.  About a thousand people of the 6.5 thousand employees were laid off, and the rest were sent on unpaid leave. As a result, the company management decided to directly contact the government with a request for help.

The refusal of the Ministry of Finance to approve the scheme, according to which the airline could receive a loan under state guarantees, is explainable. The company wanted to obtain $ 400 million loan in the “Discount” bank.

A guarantee of return from the carrier should have been a recovery program, including the mass layoffs of the employees due to staff reductions, as well as the changes in employment contracts.

The bank did not believe in an optimistic scenario and asked the Ministry of Finance for additional guarantees of a refund. The company’s trade union also did not approve such a plan, as a result the leadership of the ministry refused to provide guarantees, and the bank did not issue a loan.

A few days later, negotiations were resumed. El Al management has proposed a new program, corresponding to a more pessimistic scenario. If the initial scenario assumed the resumption of flights in early summer, the new one was based on the forecast to resume the flights only in September.

The program, according to El Al managers, will save about 250 million shekels annually. In this case, after receiving a loan of 350-400 million, the company will be able to regularly pay the debt bills to “Discount” Bank within 5-7 years.

Otherwise, El Al will file for bankruptcy in 3-4 weeks.

The opponent of both recovery programs is the trade union. On the one hand, the representatives of Histadrut (the national union of Israel) are turning to the head of government, urging him to save the airline. For the Jewish state, they note, the aviation activity is necessary, because otherwise there will be no chance to return home the citizens, who find themselves in a difficult situation. On the other hand, the air carrier’s working committee strongly opposed to the changes in labor contracts and massive layoffs.

The Ministry of Finance, as the experts say, is inclined to disband El Al. Such a step will create a new organization, combining the remains of the former company with other carriers (Arkia and Israire). But will there be anything left of El Al’s property in the event of bankruptcy?

The company itself believes that this will lead to significant costs. The owned planes will be sold because of the debts. The company will lose the right to fly. As a result, the foreign competitors will appear on in the market, and the state will lose its carrier along with the taxes, coming from it to the country's budget.