United Airlines recently announced that in the fall they would start flying thrice weekly from Chicago to Tel Aviv. El Al chose to cancel her planned inauguration of the line to the Windy City along with several more cities. American Airlines postponed her planned flight from Dallas to Tel Aviv from this September to September of 2021. United announced they were adding three more weekly flights from Newark to Tel Aviv, resumed flying from San Francisco and come October will reinstate their flights to Washington, DC.
I am not sure what is in the water in the Chicago reservoirs where United Airlines is headquartered or how they are showing more optimism than any other airline flying to Israel, though they cautioned their enthusiasm with a quick update. Just a few days after touting its plans to add 25,000 more flights in August due to an uptick in travel demand, the airline said it would pare back those plans. Instead of operating 40% of the flights it did in August 2019, it will operate just 35%.
The reason: “Reduced demand to destinations experiencing increases in COVID-19 cases and/or new quarantine requirements or other restrictions on travel.”
In fact, our national carrier is forced to downsize in personnel as well as destinations. Remember their huge campaign promoting Tokyo as their newest destination to the Far East? The Tokyo Olympics were not the only casualty of COVID-19. El Al will not be flying to Japan for a few years.
The good news is that El Al has been saved; not by some venture capitalists looking to radically alter how El Al operates knowing they have a very young fleet. Not by some former airline executive who had had years of experience in turning around a troubled carrier. No, El Al has been saved by the government. Please do not be perplexed – El Al was not given an outright cash grant, rather a loan. The Israeli government will back a $250 million loan from Israel Discount Bank. News of this agreement resulted in El Al’s shares popping by more than 21%; conversely IDB’s shares should sink as even with the government guaranteeing 75% of the loan, the bank is on the hook for $62.5m. if/when El Al defaults.
In addition to guaranteeing 75% of the Bank Loan, El Al’s management will raise an additional $150m. on the Israeli Stock Market. You – or your pension fund come October – will have the option to own a piece of El Al. Think of what a lovely bar mitzvah present that would make. No reason to only purchase an Israel Bond, now you can a have a small part of an airline. Best of all, if the public is not hoodwinked into buying all the shares issued, the government will pick up the slack.
While leaks of the discussion are not yet forthcoming, it is abundantly clear that the government felt the need to keep El Al in the air. Even though this, most likely, will result in a government-owned airline; it is the best outcome possible. It fell into place after Transportation Minister Miri Regev met with the pilots’ union. El Al’s pilots have a visceral loathing for the present management.
Seems their constant request to reduce salaries, retract perks and knock them down a peg had them acting like spoiled kids the past few weeks. Calling in sick and refusing to fly only deepened the chasm between both sides. So how Miri Regev convinced them to accept the offer shows either great brilliance on the MK’s side or a complete abandonment of what management was trying to accomplish.
Having no idea what she promised them, but within 48 hours the other unions, infrastructure and management of El Al also fell in line and agreed. The flight crew had already agreed to reduce their staff by a sizable amount. One third of their staff will be let go; again, details of what amounts of compensation will be paid has yet to see the light.
It is going to be a long hot summer as the stock offering will only transpire in October and the question of management has yet to be raised. The State will appoint an official to manage the airline and, with two thirds of the present management still employed, will have to navigate through a minefield of discombobulated staff. In addition to the two thousand former staff workers being terminated, salary cuts will be implemented. The unions have categorically stated that those cuts are only in effect during the time of the loan. Other perks will also be applied: Flight crews will stay abroad in more moderate properties and be eligible for fewer free flights.
In the interim, I expect the present owners to run for the hills and get whatever they can for their shares. Officially, Tamar Mozes Borovitz is a vice chairperson of El Al, but those who know the airline from the inside say she plays a major role in managing the company – behind the scenes – and that hasn’t always been for the good of the company. Most analysts assert that Israel’s flagship carrier was ailing even before the novel coronavirus pandemic brought it to its knees and they assign her with much of the blame.
The labor unions are powerful – especially the pilots – and any one of them can shut down the entire operation by calling a strike or slowdown. It has been an unhealthy situation almost from the onset, fifteen years ago when El Al became a private airline.
The Borovitz family, and later Mozes Borovitz herself, were never able to resolve that, even when giving management their full support. They will move fast to sell their shares and completely leave the sector.
What about all the money that El Al owes to passengers for the canceled tickets? For now, there are still no refunds being paid. El Al has been very generous in trying to entice the public to freeze their tickets. Dangling promises they can fly until the end of 2021, most passengers have a simple request: Show me the Money!
The Knesset did propose a law that the airlines must give cash back within 90 days of a flight being canceled but it has not yet been passed into legislation. Until El Al gets the $250m.-loan from Israel Discount bank, very few cash refunds will be forthcoming.
El Al has not yet revealed to the flying public the paucity of flights that are scheduled for the next few months. You will not see El Al planes this summer in Europe, North America or the Far East and it’s still questionable if by October El Al will resume any semblance of normal passenger flights. In fact, insightful clients can see that while their August and September flights still exist on their tickets, when they check the same flight on El Al’s website it no longer exists. Leaving those clients in a Catch-22; they know the flight won’t take place but until El Al actually cancels it, they cannot even commence with the refund process.
El Al has been given a lifeline; both the government and workers are giving them a cash infusion. Is United’s management so far superior to those at El AL?
I’m skeptical and fervently want to believe that El Al will attract new blood and realize that being young, scrappy and hungry should be their new mission statement.The writer is the CEO of Ziontours, Jerusalem. For questions and comments email him at mark.feldman@ziontours.co.il