Company
EL AL
+0.23%
Base:345.7
opening:345.7
High:355.6
low:344
change:3,332,718
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Reports an 8% increase in the volume of activity in the last quarter to 46% of its normal activity (as measured in 2019, pre-Corona), compared to 38% in the previous quarter. Revenue rose 5% to $ 265 million, compared to $ 253 million.
However, El Al continues to report a gross loss (meaning it loses on every ticket it sells) of $ 18.1 million. This is an improvement over the corresponding quarter since then the gross loss was $ 47.8 million. The company explained that ticket prices would rise to close this loss – but in the meantime it has not yet moved to gross profit and now says at a press conference “we do not set ticket prices, but the market”.
The company posted a net loss of $ 110 million in the fourth quarter of 2021, an improvement over a loss of $ 136 million in the previous quarter.
The company reports operating income (EBITDAR) of $ 11 million, compared to $ 3 million in the previous quarter. But as we have mentioned before – any company can invent a financial ratio at will to present better results, and yet – it is a small number.
The company also shows cash flow from a small positive operating activity of $ 10 million, also an improvement over a negative cash flow of $ 86.6 million in the previous quarter (a negative cash flow of 25 million in past debt trolls), but it is still very far from a positive cash flow of $ 150.6 million In the past.
El Al’s revenue for the full year was $ 857.2 million, but expenses were $ 960 million, so the company posted a gross loss of $ 103 million. For the full year, EL AL lost $ 413 million, an improvement over a loss of $ 531 million in 2020.
The company’s CEO Avigal Soreq tells the media today that “the sky is clearing up. We are moving from a mode of survival to a mode of growth and response to our customers. Everyone is now looking to fly, the only question is where “Sorek said. Really? Isn’t it a little too early to celebrate. Sorek added that:” When we return to full activity the improvement in cash flow operating profit (EBITDAR) will reach $ 150 million. ”
Oil prices are rising – and that too will make it harder for El Al
In the previous quarter, El Al said that the rise in oil prices to $ 85 per barrel of oil hurt the company. Meanwhile, fuel prices have continued to skyrocket and today they are already at an 8-year high with a price of $ 112-116 per barrel of oil, so this means that the next quarter will also be affected and do not have to continue to record rising spending on fuel, alongside the war in Ukraine. So at the moment El Al continues to fly to Russia, and the Knesset convened last night to approve a special state guarantee of $ 2 billion for a period of a week, but of course this is not another infusion into the company but insurance against injuries that may be caused to it.
In practice, in the fourth quarter, El Al’s jet fuel (DSL) expenses increased by $ 40 million (in the entire year, they increased by $ 55 million). El Al explains that any increase of 1 cent in the price of fuel increases the company’s fuel expenses. By hedging effectively, the company was able to reduce the increase in fuel expenses following the price increase (a reduction of $ 12.8 million, so that the expenses stood at $ 186.5 million instead of 199.3 million, and this is a DSL amount of 99.4 million gallons). .
The company is also talking about an average price of $ 71 per barrel of oil during 2021, if fuel prices do not fall below current prices – this is a very significant cost weight for El Al.
How significant is this? The company says today that “fuel is EL AL’s raw material. The jump in fuel prices has an effect on the volume of EL AL expenses. We are in an environment with a chaotic component. Both in terms of demand and supply – the level of uncertainty in fuel prices is very high. Demand will lose in the event of another corona wave, and even in supply it is impossible to know what the price of oil will be, probably now with the war between Russia and Ukraine, and one must also remember that there is a crystallizing agreement with Iran. “Understand the situation and take the necessary steps. In an oil environment, this is what happens. We see the sharp slope of oil and look at it on a daily basis,” says Soreq.
Going back to fly? That’s what the company said in the previous quarter – but it turns out it did not happen
In the previous quarter, EL AL’s management said confidently that the public is returning to flying and that they are already seeing a continuation of bookings (booking) – which will later lead to more revenue for the company, but now it publishes a new graph. Of the Corona), and only in February did orders exceed the volume in November and return to a level similar to pre-crisis orders in 2019. According to Sorek, this is “the most significant indicator that shows the strength of society and that Israelis are returning to flying.”
Whistling: “December was less good because on November 26 the sky closed (because of the omicron. N.a.). It can be seen that once there is a new wave and the sky closes it gives the results in booking significantly. But despite this – the trend is on, even if there are waves all the time. At the moment, there is no indication that the disappearance is going to close again. ”
The company continued to receive a lot of money from the state – is there a reason for that?
The state flowed $ 314 million, the controlling shareholder another $ 238 million. And the company will continue to raise debt against the frequent flyer club as well as a $ 62 million share issue in the second half of 2022. “This is an opportunity for investors to enter,” says Itzik Eliav, the company’s CFO.
The company will add a partner to the frequent flyer club
The company says today that it is continuing with the plan to add a partner to the frequent flyer club, in fact to raise more money for the company: “The club is a strategic asset that knows how to generate strong cash flow. We are exploring all options to raise capital or debt. “We will not delay with that. We will do it quickly, everything is on the table.”
When will a live business comment be deleted?
The company stated in the previous quarter that they ask the accountants to continue writing in the ‘live business note’ reports for reasons of conservatism. Of course this is not true, the accountants must write down the comment if they think the company is in a problematic situation, but despite the company’s statements that they expect the comment to be deleted ‘Otto’ – here comes another quarter and the comment continues to appear. And as we have already said – for now it’s more of a wish than a reality. That does not mean ask for can not succeed, but it does mean that it is still a high-risk company.
The company says today “We want to wait for the end of the corona, so that it does not happen a minute after downloading a live business note that there will suddenly be another wave of corona that will force it to return it. But we will lower the comment
And what about the company’s words about entering the hotel business?
10 months ago the company said it intends to enter the hotel business to expand its brand and actually find ways to spread its risk. But what has resurfaced since then? Not too much. The company mentions the memorandum of understanding for the acquisition of Arkia, but this is of course not hotels.
Whistle: “We have shown that we want to expand the value chain to the hotel industry and we are working on it. There are some experiments that have come up nicely. When there is something more significant we will report and give it the proper stage. Let it be clear – this is something that will happen.
“Regarding Arkia – the rationale behind the Arkia deal is to enter the field of tourism and also to make a low-cost arm, which we have not succeeded in the past. We started a due diligence. We signed a non-binding memorandum of understanding. If and when we complete the purchase .
Meanwhile, El Al’s share has risen by 63% in the last six months, but in the last 12 months it is still down 25%.
The improvement in EBITDAR:
Avigal Soreq, CEO of El Al, says against the background of the reports: “The company’s results in 2021, with an emphasis on the fourth quarter of the year, reflect the continuous improvement in the company’s operations and the continued implementation of the strategic plan. EL AL has recently focused on managing the crisis, and now, In increasing the production capacity and development of growth engines. ”
In selling expenses There was an increase of about $ 16 million and about $ 28 million in the fourth quarter, respectively, compared with the corresponding periods last year, which is mostly due to an increase in commission expenses and distribution costs due to the increase in sales, as well as an increase in advertising and salary expenses.
Administrative and general expenses In the fourth quarter of 2021 they are similar compared to last year, and in 2021 as a whole there was a decrease of $ 2.2 million despite the significant increase in activity and as a result of the company’s streamlining and reduction in its expense structure.
Other net expenses Amounted to approximately $ 2.0 million in the fourth quarter and approximately $ 37.5 million in 2021, mainly as a result of a provision for severance benefits in the amount of approximately $ 18 million in the fourth quarter, offsetting income as a result of the agreement with the state to pre-finance airline tickets for aviation security workers. In the amount of approximately $ 12 million as well as income due to price adjustments of rentals during the Corona crisis. On an annual basis, in the third quarter of 2021, there was a reduction of aircraft intended for disbursement of service according to the company’s business plan, in the amount of approximately $ 43 million.
Net financing expenses Amounted to approximately $ 33.5 million in the fourth quarter, compared to approximately $ 20.1 million in the corresponding quarter. In 2021, net financing expenses amounted to approximately $ 103 million, compared to approximately $ 196.5 million in 2020. Most of the decrease in the annual level is due to an expense of $ 91.5 million in 2020 compared to income of about $ 4 million in 2021, from DSL hedging transactions that were not recognized as effective due to the decrease in activity relative to the activity planned when hedging transactions. Financing expenses increased due to the recognition of expenses in the amount of approximately $ 14.8 million as a result of the agreement with the state for the pre-financing of flight tickets for employees of the aviation security system.
The loss before taxes In the fourth quarter of 2021, it amounted to approximately $ 110.5 million, compared with a loss before taxes of approximately $ 143 million in the corresponding quarter last year.
In 2021, the pre-tax loss amounted to about $ 423 million, compared to a pre-tax loss of about $ 561 million in 2020. The improvement in the loss is mainly due to the recovery of activity, despite the effects of the outbreak of the corona crisis in 3 waves throughout the year.
The tax benefit In the fourth quarter, it amounted to approximately $ 0.4 million, compared with a tax benefit of approximately $ 2.9 million in the corresponding quarter last year, due to the decrease in the loss before taxes. The tax benefit in 2021 amounted to about $ 10 million compared to a tax benefit of about $ 30 million in 2020. Due to the uncertainty prevailing in the industry in which the company operates, the company does not anticipate taxable income in the near future, the company does not recognize deferred tax assets (net ) In its financial statements. Therefore, the tax benefit is recognized in part until the balance of the liability (asset) is reset, net of deferred taxes.
Cash Flow After deducting past debts in the fourth quarter of 2021, there is a positive cash flow of approximately $ 10 million, an improvement of approximately $ 76 million compared to the previous quarter.
In 2021, the company generated a negligible negative cash flow from operating activities compared to a negative cash flow of approximately $ 139 million in 2020. The improvement in cash flow consists mainly of the decrease in pre-tax loss of approximately $ 138 million and receiving financing from the state by paying in advance for the flight. Personnel in the aviation security system, which was partially offset by deposits to the trustee for a separation plan for employees in the net amount of approximately $ 172 million. On the other hand, last year funds were released to the company due to the surplus of the compensation funds in the amount of about $ 97 million. It should be noted that in 2021, the cash flow was negatively affected due to refunds to customers and past payments to suppliers in the cumulative amount of approximately $ 161 million. By neutralizing such one-time events, cash flow from operating activities in 2021 improved by approximately $ 223 million.
Effects of Fuel Price (DSL)
The Company’s DSL expenses increased by approximately $ 54.5 million in 2021 compared to 2020, mainly as a result of an increase in DSL market prices and an increase in the amount of fuel consumed by the Company’s aircraft due to the increase in activity. On the other hand, in 2021 the hedging transactions reduced the DSL expenses while in 2020 the hedging transactions increased the DSL expenses which expired in the first quarter and were recognized as effective. The other hedging transactions in 2020 and the first quarter of 2021 were not recognized as effective and were therefore charged to financing expenses.
In the fourth quarter, the Company’s DSL expenses increased by approximately $ 13.6 million (an increase of approximately 85.0%) compared to expenses in the corresponding period last year, mainly due to an increase in the amount of fuel consumed by the Company’s aircraft and an increase in DSL prices. Positive effect of hedging transactions that expired in the reporting period.
Exchange rate effects
In 2021, the dollar weakened against the shekel by about 6.2% compared to 2020. The average exchange rates have an effect on the Company’s shekel expenses, mainly wages. As of December 31, 2021, the exchange rate of the shekel against the dollar was about 3.11, compared with a rate of about 3.22 as of December 31, 2020, which reflects the weakening of the dollar against the shekel by about 3%.
These exchange rates have an effect on the Company’s balance sheet balances denominated in shekels. In addition, the effect of the strengthening of the average exchange rate of the shekel against the dollar has a negative effect on the results of the Company’s operations as a result of material exposure to wage and other shekel expenses, while revenues are mainly in dollars.