Banks Condition El Al Loan on Fresh Cash Injection

In view of the deteriorating financial condition of El Al Airlines, the banks are now demanding that controlling shareholder Eli Rozenberg inject an additional $75 million in order to secure a loan to save the company, Globes reported on Tuesday.

As part of the Ministry of Finance’s rescue plan, Rozenberg is expected to take bank loans or offer bonds to institutional investors with government guarantees. The initial plan called for $250 million with 75% government guarantees, but the Ministry has since agreed to raise this to $300 million with 82.5% guarantees.

The prolonged shutdown has damaged El Al further, depleting its cash reserves and raising its debt burden (to passengers for canceled flights, suppliers and financing institutions), it now appears that a loan of $300 million will not be sufficient.

Hence, the demand for an additional $75 million to bolster the airline’s cash cushion. “From Rozenberg’s point of view, he would prefer to inject capital through an offering of $50 million in shares, which he has committed to buying, out of the required sum,” said Globes.

However, the Companies Law prohibits this without a special offer to purchase shares to the public by El Al. Another option for the cash injection without raising Rozenberg’s holding above 45% would be an owner’s loan. Rozenberg has already injected $10 million at zero interest into El Al in this way.

A Ministry official described the situation as “very bad in terms of the ratio of debt to revenue of the company,” and noted that the government guarantees of 82.5% of any debt is limited to $300 million.

Meanwhile, the airline’s pilots are appealing to the labor court against the agreement signed on their behalf by the Histadrut (General Federation of Labor in Israel), a process that could also thwart the company’s efforts to obtain the necessary loan.