Israeli airlines are set to receive a bailout from the government to weather the coronavirus crisis. The government is planning advance ticket purchase agreements with airlines to boost revenues. El Al is the first to receive this bailout and saw the government buy $210 million in advance tickets.
Long coming
According to Reuters, Israel has announced a new bailout package for the country’s struggling airlines. The package has been long-awaited since the country did not provide direct financial assistance during the crisis, offering only government-backed loans instead. This time around, the government is offering bailouts, but with a catch.
Airlines will be bailed out through advance ticket purchases for Israeli aviation security personnel who need to travel to different airports. This means the government will buy hundreds of thousands of tickets in advance, boosting airline cash reserves, and use the tickets over the next two decades for security personnel who need to travel.
El Al is the first recipient of this scheme, which replaces a proposed $300mn government-backed loan. The government bought $210 million worth of seats from El Al and subsidiary Sun Dor to be used by security officers over 20 years. Other airlines that carry security personnel will be offered similar deals in the coming weeks.
This is not a novel idea, with Hong Kong purchasing 500,000 tickets from the city’s airlines last Spring to boost airlines and later offer the tickets through a lucky draw. These tickets cost the government $260 million and came at a critical time for flag carrier Cathay Pacific and others.
Not direct
While many major aviation markets have provided direct stimulus through bailout plans, Israel has not done so. Instead, the government has taken a more fiscally conservative approach to ensure it recoups its funding. This meant flag carrier El Al and others got loans with a state guarantee, providing cash but adding to the debt pile.
However, ticket purchases are a palatable middle ground for airlines, providing benefits now. While carriers could lose future revenue from blocked seats for the government, the need for survival outweighs this. Considering Israel’s border has been largely closed for a year, the bailout will be critical for airlines.
Recovery
The bailout comes at a key time for airlines, at a cusp of a recovery. Israel has raced ahead to vaccinate its population, providing both doses to nearly 50% of the population. Once a critical mass of the population is reached, the country will reopen fully for tourism, domestic at first and international later.
Countries around the world will be looking towards Israel as the first example of a country reaching normalcy. If cases fall soon, the country could even reopen its border and allow vaccinated tourists to return. For now, airlines are hoping the bailout is enough to ensure they see through the aviation recovery.
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