Flying in the Red

El Al, Israel’s state-owned airline, expects to lose about $110 million in 2001.  It lost roughly that amount in 2000.  Some of the red ink is attributable to higher fuel prices, but the lion’s share is due to the sharp drop in tourist travel—a casualty of the failed peace process.

On April 24, 2001, El Al’s board of directors approved a plan to cut operations 20% this year to stem the red ink.  In the absence of cost-cutting measures, red ink would flow well above $110 million.  The plan calls for the elimination of 10 of El Al’s 50 routes to Vienna, Manchester, Copenhagen, Chicago, Miami, Toronto, and several Asian and African routes.  Vienna, in particular, is not surprising.  After the duly elected Freedom Party, led by Joerg Haider, joined the new Austrian government coalition, Israel recalled its ambassador from Vienna.  Austrian travel to Israel fell as a consequence.  Political grandstanding does not come free of charge.

El Al will sell its fleet of Boeing 747-200s and Boeing 757s.  The former are fuel-guzzling, 30-year old aircraft that require heavy maintenance.  These planes and unprofitable routes should have been shed several years ago, but El Al kept them going with the help of generous government subsidies.  But, as we have pointed out in numerous NBNs, there is a limit to the amount of subsidies the Israeli government can afford for its increasingly-bleeding, red-ink, state-owned enterprises.

General Manager David Hermesh says that El Al’s financial crisis will last into early 2003, and thus desperate measures were required.  In addition to selling airplanes, El Al will lay off up to 300 employees (which will require expensive severance packages, to be paid for by taxpayers since the airline is losing money).  In his words, “the process will be coordinated with the workers committee and the Histadrut.”  This is Israeli speak for strikes, sanctions, threats, bluster, and intimidation until the government capitulates to the workers’ demands.

Finally, the kicker in the news release, Mr. Hermesh wants and expects the government to supply an additional $50 million, above and beyond making up for the $110 million in annual operating loss, to cover special security and other unique costs.