El Al said it could go out of business without emergency financial support from Israel’s government to help it weather a dramatic loss in passenger revenue caused by the coronavirus pandemic and related travel restrictions.
The warning is the latest reminder that the airline industry has a very difficult road to recovery and that smaller, less-well capitalized companies have higher chances of going under. South African Airways shut down operations this month and Latin America’s second largest airline, Avianca, last week sought court-supervised bankruptcy protection.
Like Avianca, El Al was in the midst of a large transformation effort aimed at increasing efficiency and becoming profitable. But Israel’s flagship carrier said the COVID-19 crisis has wiped out last year’s gains.
Full-year revenues increased 2% to $2.2 billion, while expenses dipped 1%, helping cash reserves top $264 million, according to El Al’s fourth quarter results released over the weekend. The company’s net loss increased to $60 million from $52 million the prior year, but officials said the figure was affected by the implementation of a new accounting standard.
Five months into 2020, El Al faces a liquidity crunch. All scheduled flights are canceled through May 30 due to strict guidelines from the Israeli government.
The airline said it is negotiating with lenders and the Ministry of Finance for a $400 million loan, backed by state guarantees.
“Given the uncertainty over the completion of said assistance, which is essential to allow the company to address the consequences of the crisis at this stage, the company estimates that there are significant doubts about its continued existence as a going concern,” El Al said.
The International Air Transport Association projects a $314 billion revenue decline this year and says the industry faces an existential crisis after airlines were forced to suspend operations or operate skeletal flight schedules due to the lack of demand. It is urging governments to step in with direct grants, loans and loan guarantees, and tax relief to help the industry, as the U.S. government did with a $50 billion package aimed at keeping employees on payrolls for six months.
El Al is following a similar industry playbook of aggressively reducing expenditures and trying to raise capital. It has put more than 90% of its workforce on leave without pay, stopped new projects, and deferred lease payments for some aircraft. It also cancelled lease agreements for two 737-800 aircraft expected to enter service this year and returned three wet-leased aircraft – flying and maintenance all provided – to the lessors, and entered into a sale-leaseback agreement for three 737-800s that generated about $76 million.
In January, Atlas Air began operating a dedicated 747-400 freighter for El Al. The freighter operates between Tel Aviv, Liege, Belgium and New York. But with the cargo red-hot now because of limited space availability for goods, it’s unlikely that agreement has been terminated.
Atlas Air and El Al had not responded to queries about the status of the contract by press time.
El Al has also put some of its 41 Boeing aircraft to use as auxiliary freighters to capture more cargo business. Earlier this month, a Boeing 787 Dreamliner delivered medical equipment to Santo Domingo, Dominican Republic, and returned with 40 tons of fresh pineapples, El Al tweeted.
The airline said the same fuel hedging contracts that helped it save money last year are now hurting cash flow because it must pay the agreed contract price, which is much higher than market prices today.
Other airlines that are already on thin financial ice include Virgin Australia and U.K. regional carrier Flybe. Those that have fallen through include U.S. regional carriers Compass Air and Trans States Airlines, and Ravn Air Group, which serviced small communities in Alaska.
(Correction: An earlier version of this story had El Al’s 2019 net loss in billions, not millions.)