El Al Israel Airlines Ltd. Announces the Summary of the Financial Results for the First Quarter of 2020 and the Continued Streamlining Measures Following the Coronavirus Crisis

El Al Israel Airlines Ltd. Announces the Summary of the Financial Results for the First Quarter of 2020 and the Continued Streamlining Measures Following the Coronavirus Crisis

PR Newswire

LOD, Israel, July 2, 2020

The results for the first quarter of 2020 were significantly affected by the coronavirus crisis, following which the Company ceased the scheduled passenger operations and sent the majority of its employees to unpaid leave.

The crisis has further resulted in a sharp drop in fuel prices which, following the decrease in consumption, has adversely affected the Company's results.

Since the outbreak of the coronavirus crisis, the Company's management has taken a series of steps to save costs and improve the Company's cash flow.

Currently, the Company is in the process of establishing a plan to obtain government assistance to cope with the crisis. Concurrently, the Company is negotiating with its employees to reach agreement on the streamlining measures required as a condition for extending the assistance.

LOD, Israel, July 2, 2020 /PRNewswire/ --

Key Results for the First Quarter of 2020

In the first quarter of 2020, the effects of the coronavirus crisis have taken hold. The pandemic has seriously disrupted all economic sectors worldwide, with the tourism and aviation industries being most adversely affected by the pandemic.

The crisis has led to a dramatic reduction in demand for passenger flights and an unprecedented numbers of flight cancellations, and therefore, the Company cancelled many flights already in February 2020, and finally announced a complete halt of passenger flights as of mid-March 2020, due to Government guidance addressing these circumstances and the fear of contraction of the virus.

Following the crisis and the slowdown in demand, a sharp decrease of approx. 23% in the fuel price was also recorded.

All of these factors have resulted in a sharp impact on the Company's operations and a significant decrease in its revenues. Notwithstanding that the Company completed 2019 with considerable cash balances of approx. USD 264 million, the crisis caused a severe liquidity stress requiring solution in the form of immediate assistance through government support.

Since the outbreak of the coronavirus crisis, the Company has taken a series of streamlining measures and steps designed to improve its cash flow:

The Company is in the process of establishing a plan with the Ministry of Finance to obtain government assistance. As of the date hereof, two plans have been proposed, aiming to provide the Company with financing to help it address the coronavirus crisis. The first plan being examined consists of obtaining a USD 400 million loan, mostly backed by state guarantee, and carrying out an offering of shares in the amount of USD 150 million . The second plan consists of obtaining a USD 250 million loan, mostly backed by state guarantee, and carrying out an offering of shares in the amount of USD 150 million, with the State undertaking to purchase all shares not purchased by the investors as part of the offering.

Since there is uncertainty as to the completion of obtaining the assistance, which is essential to allow the Company to address the effects of the crisis. At this stage, there are considerable doubts regarding the continued existence of the Company as an ongoing concern, and accordingly, the financial statements include an ongoing concern disclosure.

El Al's CEO, Gonen Usishkin:

"The world is currently facing the deepest economic crisis it has known in the last 100 years. The aviation industry was the first to be hit by this crisis and the last to come out of it. Due to the continued pandemic, there is still a great deal of uncertainty around the world as to the timing at which the industry in general, and El Al in particular, will return to regular and meaningful activity.

The coronavirus crisis is of a magnitude not seen before, and even the strongest airline would not survive this crisis without government assistance.

EL Al's management puts all of its energy in reaching the necessary agreements, including vis-à-vis its employees, to finalize the government assistance plan with the Ministry of Finance, the purpose of which is to stabilize the Company financially, and to allow its continued operation in future years. The assistance, along with the world gaining control of the pandemic, will allow the aviation industry and El Al to gradually return to regular and meaningful activity.

Even in such a challenging time, we take pride that El Al and its employees have made a significant contribution to fighting the coronavirus pandemic. The Company has operated complicated flights to remote destinations, including Australia, Columbia, Costa Rica, Peru and others, to extract Israeli civilians and bring them home safely. The Company takes further pride in operating flights carrying essential cargo for the fight against the coronavirus pandemic."

El Al's CFO, Dganit Palti:

"The coronavirus pandemic has abruptly halted the Company's plans to expand its operations, upon completion of the process of replacing its fleets and the innovative aircraft acquisition program. Notwithstanding that the Company entered the year with high cash balances of USD 264 million, the crisis has caused a serious liquidity problem as a result of halting all scheduled passenger flights as of March 2020. This liquidity problem was manifested primarily by a 25% decrease in the Company's revenues, at a time when the greater part of the debt for the new aircraft has already been established. The decrease in fuel prices, which in normal times is a blessing, has led to losses in hedging transactions which, at low consumption rates, are in part not recognized as effective, and for which the Company recorded an expense of USD 56 million for the quarter. In addition, there was a decrease of approx. USD 108 million in capital funds in respect of all jet fuel, interest and foreign exchange rate hedging transactions which, in accounting terms, are recognized as effective. An additional decrease in equity was attributable to a net loss of approx. USD 140 million for the quarter. To improve its liquidity, the Company obtained an agreed deferral of lease payments, signed a memorandum of understanding for the sale and leaseback of three aircraft totaling approx. USD 76 million, realized its holdings in Maman in return for approx. USD 15 million, released excess amounts from old compensation funds totaling approx. USD 105 million, and made other moves. The Company is in talks with banks to raise loans in connection with the assistance plans offered by the government."

Key Financial Results:


January-September


2020

2019

Change

Operating revenues

321

429

(25%)

Operating expenses

361

403

(10%)

Gross profit (loss)

(40)

26


EBITDAR[1]

(22)

16


Loss before taxes on income                       

(161)

(71)

126%

Loss for the period

(140)

(55)

152%

Profit and Loss for the First Quarter of 2020:

Operating Revenues

Operating revenues for the reported period decreased by approx. USD 108 million, reflecting a decrease of 25.2% compared to the first quarter of 2019. Revenues from carrying passengers decreased by approx. USD 107 million, indicating a decline of 28.2%. This decrease is attributable primarily to the decrease in passenger revenue per kilometer (RPK) flown by the Company and the decrease in yield per ton-kilometer, all due to the coronavirus crisis. In addition, there was a negative impact of exchange rates of currencies used for some of the Company's sales transactions, in relation to the dollar.

The decline of approx. USD 10 million (about 9%) in revenues from carrying passengers started already in February, and significantly increased in March by approx. USD 100 million (about 69%) compared to the first quarter of 2019, as a result of the coronavirus crisis. The Revenue Passenger-Kilometers Flown (RPK) decreased by approx. 4% in February and by approx. 65% in March compared to the same months in 2019.

Cargo revenues decreased by approx. USD 2 million due to a decrease in the amount of cargo flown and the decline in yield per ton-kilometer. A negative impact of exchange rates also contributed to the decrease in cargo revenues.

Operating Expenses

In the reported period, operating expenses decreased by approx. USD 40.9 million compared to the first quarter of 2019, for the following reasons:

Jet fuel Expenses

The Company's jet fuel expenses decreased in the reported quarter by approx. USD 14.2 million (reflecting a decrease of about 14%) compared to jet fuel expenses for the first quarter of 2019, as a result of a drop in jet fuel market prices and a 23% decrease in the amount of fuel consumed by the Company's aircraft, due primarily to the effects of the coronavirus crisis and the operation of the 787-9 Dreamliner aircraft, which are more efficient in fuel consumption. On the other hand, in the reported quarter the negative impact of hedging transactions was higher, as described below, and offset in part the reduction in jet fuel expenses:

The table below reflects the impact of jet fuel expenses on the Company's results, including the impact of hedging transactions:


2020

2019

Difference

Jet fuel expenses for the period (before hedging impact)

71.2

100.4

(29.2)

Impact of Jet fuel hedging transactions on profit and loss

15.6

0.6

15.0

Total jet fuel expenses (including hedging impact)

86.8

101.0

(14.2)





Amount of jet fuel consumed (in millions of gallons)

39.1

50.6

(11.5)

For further information about jet fuel hedging, see Section B below. For further information about the impact of derivative financial instruments on the financial statements, see Note 4 to the financial statements.

Selling Expenses

Selling expenses decreased by approx. USD 15.8 million compared to the first quarter of 2019, due mostly to a reduction in distribution costs that resulted from the decrease in operations, the decrease in payroll expenses, as explained above, and a decrease in orders for distribution systems.

General and Administrative Expenses

No significant change was recorded in general and administrative expenses compared to the first quarter of 2019.

Other Revenues (Expenses)

Net other revenues (expenses) amounted to approx. USD 11.6 million and consisted of capital gains from the sale of engines and inventory surplus, compared to the first quarter of 2019 in which an expense of approx. USD 0.3 million was recognized.

Financing Expenses

Net financing expenses amounted to approx. USD 65.1 million, compared to approx. USD 18.2 million in the first quarter of 2019. This increase is attributable mainly to an expenses of approx. USD 40.9 million for non-effective jet fuel hedging transactions in April-June 2020, when consumption was lower than the hedged quantity, and therefore, the negative fair value of these transactions as of the report date was credited to profit and loss. In addition, during the period there was an increase in loan interest expenses compared to the first quarter of 2019, mostly due to an increase in the amount of loans taken by the Company to finance the Dreamliner 787-9 and 787-8 aircraft that the Company acquired.

Loss Before Tax

Loss before tax amounted to approx. USD 161.1 million in the reported quarter compared to a loss before tax of approx. USD 71.0 million in the first quarter of 2019.

Tax Benefit

The tax benefit amounted to approx. USD 21.5 million in the reported quarter compared to USD 15.6 million in 2019, as a result of the increase in loss before tax.  The tax benefit was recognized in part up to the reset of the balance of net liabilities for deferred tax.

Loss for the Period

Loss after tax amounted to approx. USD 139.6 million in the reported quarter compared to a loss of approx. USD 55.0 million in the first quarter of 2019.

Balance Sheet as of March 31, 2020:


2020

2019

Change

Scheduled and Charter Passenger Segments (paying passengers) – in
thousands

806

1,123

(28.2%)

Total Market Share – in percentages

23.3%

25.0%

(6.5%)

Passenger Revenue per Kilometer (RPK) – in millions

3,680

4,726

(22.1%)

Available Seat per Kilometer (ASK) – in millions

4,877

5,861

(16.8%)

Passenger Load Factor (PLF) – in percentages

75.4%

80.9%

(6.7%)

Flight Hours – in thousands

29.5

35.7

(17.2%)

Total average income per RPK – in cents*

7.3

7.6

(3.9%)

Cargo (Ton) Flown – in thousands

17.5

18.6

(5.8%)

Revenue Ton Kilometers (RTK) Flown – in millions

102.5

108.1

(5.2%)

RASK**

6.1

6.9

(12.5%)

CASK**

8.3

7.8

6.5%

CASK without fuel**

6.6

6.2

7.6%

Aircraft Fleet *** / ****




Number of aircraft in operation at the end of the period

45

42

3

Average age of aircraft fleet at the end of the period - in years

9.1

11.5

(2.4)

*    Revenues from passengers and related revenues from scheduled and charter flights, excluding changes in exchange rates.
**  Passenger aircraft, excluding financing expenses.

It should be clarified that reading the content of this announcement is not a substitute for reading the financial statements of the Company as of March 31, 2020.

 

[1] Profit before financing, taxes, depreciation, amortization and rent expenses.

For further details:

Sharon Shani 
Head of CFO's office 
El Al Israel Airlines Ltd.
+972-3-9716770 
SharonS2@elal.co.il

Amir Eisenberg 
Co-CEO, Eisenberg-Eliash Ltd. 
Investor and Public Relations. 
+972-3-7538828 
amir@pr-ir.co.il 

 

 

 

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