El Al will pay off its aid from the government of Israel by the end of the year in a move that allows it to move on its growth ambitions.
The Israeli flag carrier has agreed to repay $45 million in state aid by year end, or two years early, El Al said in a disclosure on the Tel Aviv Stock Exchange on September 11. After that payment, the airline’s obligations to the state will be considered “adjusted or canceled,” including the constraints that the government put on its future growth.
El Al has big ambitions. CEO Dina Ben Tal Ganancia said in June that she wants to expand the number of passengers transiting over the airline’s Tel Aviv hub, which today is minimal due to both flight routing and security restrictions. One big step was taken towards realizing that goal when Saudi Arabia’s eased restrictions on flights to and from Israel overflying its territory in July. The opening of Saudi airspace makes nonstop flights between Tel Aviv and destinations in places like Australia and Southeast Asia much more feasible.
However, to expand El Al would need additional aircraft. This was hampered by the conditions of its state aid package. In El Al’s second quarter results presentation in August, executives said the airline would evaluate the possible of wet leasing additional widebody aircraft beginning in September, and consider ordering additional Boeing 787s in the first half of 2023.
El Al anticipates the delivery of its 16th 787 — and the last it has on order — in the first half of next year. The carrier also operated six Boeing 777-300ER widebodies at the end of June.
The airline flew roughly 74 percent of its 2019 capacity in the June quarter, according to Diio by Cirium schedules. It is scheduled to fly roughly 82 percent in the fourth quarter.
El Al’s second quarter results presentation did not say when it anticipates recovering to 2019 capacity levels except that it was “working to restore” its full pre-pandemic capacity.
The airline’s slow recovery has meant it has sat out of some significant growth opportunities, including to the U.S. American Airlines, Delta Air Lines, and United Airlines all either added or ramped up service to Israel during the pandemic that will continue this winter with, for one, Delta planning to launch new Atlanta-Tel Aviv flights. Seats between the U.S. and Israel will be up 9 percent year-over-three-years in the second half of 2022, Diio data show. However, El Al’s seats will be down nearly 8 percent, and its share of the market seven points smaller at 41 percent.
Getting El Al’s financial house in order is a big part of its expansion strategy. In addition to the deal with the Israeli government, the airline on Tuesday finalized the sale of a 19.9 percent stake in its loyalty program to the local insurance company Phoenix. The carrier will realize a $14 million cash gain from the transaction.
El Al also plans to issue $62 million in new shares by April 1, 2023. Proceeds, along with those from the stake sale in of the loyalty program stake, will be used for general corporate purposes and to repay the state loan.