El Al Rescue Plan Finally Approved

Today, Israeli flag carrier El Al has announced that a bailout deal has been reached with the national Government. With border restrictions and lockdowns in Israel and many other parts of the world, the airline has faced a challenging financial situation. Now there’s a clearer path forward – one that may include the slight possibility of carrier-nationalization.

As with many other airlines around the world, El Al has had to suspend much of its operations – primarily through April and May. This led to furloughs and layoffs for the majority of its workforce. According to the Times of Israel, El Al had first put 80% of its 6,303 workers on unpaid leave and cut management salaries by 20%. Then, at the beginning of June, the airline furloughed 500 more employees, including 100 pilots.

Financially, El Al reported a $140 million loss during the first quarter, before it even experienced the worst of the global pandemic.

Deal finally reached with the Israeli Government

El Al has been in talks with the Israeli Government for about two months now. Finally, with financial resources dwindling, a bailout deal for a rescue package has been reached.

The Associated Press reports that the company will receive $400 million in funding to sustain its operations. This will include loans of $250 million. Most of these loans will be guaranteed by the state. More specifically, Haaretz reports that the guarantee is for 75%.

In addition to the loans, $150 million will come through the selling of shares to the public. Whatever isn’t purchased by the public will be bought by the state. It is possible that the state could find itself buying all the shares being sold, thus ending up with 61% of the airline, which would be a controlling stake.

However, Haaretz also reports that Industry sources have already revealed that several investors with Israeli citizenship (a requirement for airline investment) have shown interest in buying control.

Where do we go from here?

Now, the agreement awaits approval by a parliamentary committee. Transportation Minister Miri Regev stated the following via the Associated Press:

“This evening the first step was taken to return El Al to the runway…We will work to assist the company during the interim as is needed with the aim of protecting Israel’s aviation independence.”

How likely is nationalization?

For over 15 years now, El Al has been under private control. Before this, the company was a state-owned entity.

While it’s possible that El Al could technically see itself owned by the Israeli Government, sources say that this goes against the economic ideology of Israeli Prime Minister Benjamin Netanyahu. Netanyahu and his Likud party fall to the center-right or even right-wing when it comes to having a place on the ideological spectrum. Indeed, the values of economic liberalism go against the concept of a state-run airline.

Do you think El Al should be nationalized? Why or why not? Let us know your thoughts by leaving a comment.