Le Lézard
Classified in: Tourism and vacations, Transportation
Subject: ACC

El Al Israel Airlines Ltd. Reports Its Financial Results for 2018 and the Fourth Quarter of 2018


LOD, Israel, March 17, 2019 /PRNewswire/ --

Gonen Usishkin, El Al's CEO:

"Following the continued implementation of the Open Sky policy, in 2018 the competition at Ben Gurion Airport intensified, with an emphasis on European and Far East airlines. The number of passengers passing through Ben Gurion Airport grew from 20.2 million to 22.3 million. Particularly conspicuous is the Government's decision to allow Air India to fly over Saudi Arabia using a short route, whereas the Company is not allowed to fly this route, thereby eroding the Company's profitability from this route.

Notwithstanding the competition, the Company maintained a Load Factor of 84% and increased its revenues from passengers by USD 54 million. This year, a number of factors were joined together, in particular an approx. 30% increase in fuel prices (reflecting an expenditure increase of USD 97 million), which caused the said loss.

Upon completion of replacing the 767 and 747 aircrafts with the Dreamliners, the Company will be able to realize its operational efficiency potential (pilot expenses, saving fuel consumption and maintenance expenses) and significantly contribute to improve the product and upgrade the customer experience, alongside other steps taken by the Company.

Despite the results, the Company is in the process of implementing its business plan, and this is the place to thank all the Company's employees who make effort to return El Al to profitability, improve all operational parameters and provide excellent service to its customers."

In order to improve its business results, the Company established a strategic plan focusing on four core areas of operations:

The Company's activities to improve the product and customer experience

The Company is going through a strategic process of improving customer experience and, for this purpose, invests considerable resources in most areas of operations, by means of the following activities:

The Company's activities in the commercial area

The Company continues to develop a route network adapted to the Israeli passenger and offers new products to the market, as follows:

The Company's activities in the operational area

The Company is acting to strengthen its competitiveness through streamlining alongside improving operational excellence:

The Company's Activities relating to people and processes

Investing in the Company's personnel and the community contributes to the stability of the organization and forms a strategic basis for improving customer experience:

Focus in 2019 onwards

The Company has reported in the past a number of initiatives to enhance income and reduce expenses, along with actions intended to improve operational excellence:

Results for the year ended December 31, 2018 (in USD millions):


2018

2017

Change

Operating revenues

2,142

2,097

2%

Operating expenses

(1,860)

(1,749)

6%

Gross profit

282

348

(19%)

EBITDA

116

197

(41%)

Profit (loss) before taxes on income

(68)

9


Profit (loss) for the period

(52)

6


Operating revenues 
Operating revenues for 2018 increased by approx. 2.1%, indicating a growth of approx. USD 45.0 million compared to 2017. Revenues from passengers increased by approx. 2.9%, representing a growth  of approx. USD 53.6 million, following the decrease in revenue for 2018 by approx. USD 10.7 million, as a result of the initial implementation this year of International Financial Reporting Standard 15 (the "Standard" or "IFRS 15"), which provides that passenger compensation will be recognized as a decrease in income in lieu of recording an expense under operating expenses, as done in 2017. When excluding the said change, passenger revenue increased by approx. USD 64.3 million. This increase is attributable to the increase in passenger revenue per kilometer (RPK) flown by the Company, an increase in yield per passenger kilometer and the positive impact of exchange rates of currencies in which some of the Company's sale transactions are made, in relation to the dollar.

Cargo revenues decreased by approx. 5.0%, reflecting a decline of approx. USD 7.6 million, compared to 2017, following the increase in revenue by approx. USD 5.4 million in the reported year as a result of implementing the Standard, under which cargo revenue from flight segments flown by foreign airlines are reported as gross income; and on the other hand, the payment to foreign airlines is recorded as an expense whereas in the past, the Company's net share was recorded as income. When excluding the said change, cargo revenue decreased by approx. USD 13 million as a result of a decline in yield per ton kilometer and a decrease in the amount of  cargo flown, despite the positive impact of exchange rates.

Operating expenses 
Operating expenses for 2018 increased by approx. USD 111.1 million, indicating a growth of abuot 6.4% compared to 2017. When excluding the impact of IFRS 15, as explained in the Revenue Section above, the results increased by approx. USD 116.5 million, for the following reasons:

Jet fuel expenses
The Company's jet fuel expenses for 2018 increased by approx. USD 96.6 million (an increase of 23.0%) compared to 2017, mainly as a result of the escalation in jet fuel prices, offset in part by the change in the results of jet-fuel hedging transactions and a decrease in the amount of fuel consumed by the Company's aircraft, despite the increase in weighted flight hours, as a result of the increase in the number of 787-9 aircraft in the Company's fleet, with more effective fuel consumption.

The table below demonstrates the impact of jet fuel expenses on the Company's results, including the impact of hedging transactions (in USD millions):


2018

2017

Difference

Jet fuel expenses for the period (before hedging impact)

546.5

435.5

111.0

Impact of jet fuel hedging transactions on profit and loss

(23.1)

(8.7)

(14.4)

Total jet fuel expenses (including hedging impact)

523.4

426.8

96.6





Amount of jet fuel consumed
(in millions of gallons)

247.3

256.9

(9.6)

 

For further details regarding jet fuel price hedging, see Section B(3) below. For further details regarding the impact of derivative financial instruments on the financial statements, see Note 18 to the financial statements.

Selling Expenses 
Selling expenses increased by approx. USD 5.9 million (about 2.8%) compared to 2017, primarily due to the increase in distribution expenses as a result of the growth in the Company's revenues.

General and Administrative Expenses 
General and administrative expenses increased by approx. USD 5.0 million (about 4.4%) compared to 2017, primarily due to a provision for legal claims and an increase in professional consulting expenses.

Net Other Expenses
Net other expenses amounted to approx. USD 14.0 million and included capital gains from the sale of two aircraft, one 767-300 and one 747-400 aircraft, which were no longer in operation in the Company's fleet, and the sale of 6 engines, as well as insurance receipts in respect of a 767-300 aircraft, which was removed from service, as provided in Note 9E(4) to the financial statements.

Financing Expenses
Net financing expenses in 2018 amounted to approx. USD 28.8 million compared to USD 20.5 million in 2017. The increase in costs is attributable to the increase in loans taken by the Company over the year compared to 2017, as a result of financing 3 Boeing 787-9 aircraft acquired by the Company and an increase in the average Libor rate.

Loss Before Tax 
Loss before tax in 2018 was approx. USD 67.7 million compared to profit before tax of approx. USD 8.7 million in 2017.

Tax Benefit
The tax benefit in 2018 was USD 15.6 million compared to taxes on income of USD 3.0 million in 2017, as a result of the loss before taxes in the reported period compared to the profit before taxes in reported period of 2017.

Loss for the Period
Loss after tax in 2018 was USD 52.2 million, compared to a profit of USD 5.7 million in 2017.

Results for the Three-Month Period Ended December 31, 2018 (in USD millions)


9-12/2018

9-12/2017

Change

Operating revenues

493

512

(3.7%)

Operating expenses

(445)

(465)

(4.4%)

Gross profit

49

47

3.8%

Loss before taxes on income

(41)

(38)


Loss for the period

(32)

(30)


 

Operating Revenues
Operating revenues for the reported period declined by approx. USD 18.9 million, about 3.7% compared to the three-month period ended December 31, 2017. Passenger revenue decreased by 1.7%, reflecting a drop of approx. USD 7.6 million (after excluding the impact of the IFRS 15 implementation ? a decrease of USD 6.5 million). This decrease is attributable to a slight decline in passenger revenue per kilometer (RPK) flown by the Company and a decrease in yield per passenger-kilometer as a result of the aggravation of competition, as well as due to a negative impact of exchange rates of currencies in which some of the Company's sale transactions are made, in relation to the dollar. Cargo revenue decreased by approx. USD 9.4 million (a decrease of 21.9%) (when excluding the impact of the IFRS 15 implementation ? a decrease of USD 10.5 million) due to the decrease in the amount of cargo and a decline in yield per ton kilometer.

Operating Expenses
Operating expenses for the reported period decreased by approx. USD 20.6 million (a decline of 4.4%) compared to the three-month period ended December 31, 2017. This decrease is primarily due to an extraordinary expense of USD 16.3 million recorded in 2017 in respect of  the compromise agreement with the Assessment Officer in connection with aircrew subsistence and a decline in maintenance expenses and payroll expenses attributable to operation (mainly due to the weakening of the shekel in relation to the dollar, compared to the three-month period ended December 31, 2017). On the other hand, jet fuel expenses increased by approx. USD 14.6 million, as detailed below, and aircraft lease expenses increased by USD 9.8 million, primarily due to the operation of 4 new leased 787-9 aircraft, compared to 2 aircraft in the fourth quarter of 2017. Depreciation expenses fell by USD 4.2 million in view of the program for the removal from service of 747-400 aircraft.

The table below demonstrates the impact of jet fuel expenses on the Company's results, including the impact of hedging transactions (in USD millions):






2018

2017

Difference

Jet fuel expenses for the period (before hedging impact)

124.1

114.5

9.6

Impact of jet fuel hedging transactions on profit and loss

(1.3)

(6.3)

5.0

Total jet fuel expenses (including hedging impact)

122.8

108.2

14.6





Amount of jet fuel consumed
(in millions of gallons)

55.6

61.1

(5.5)

 

Selling and General and Administrative Expenses
In the reported period, no significant changes occurred in selling expenses and general and administrative expenses.

Financing Expenses
Net financing expenses in the reported period amounted to approx. USD 7.4 million, compared to USD 5.8 million in the three-month period ended December 31, 2017. The increase in costs is attributable to the increase in the amount of loans taken by the Company following receipt of three 787-9 Dreamliners acquired by the Company as well as receipt of loans for advance payments on aircraft purchased but not yet delivered to the Company, and an increase in the LIBOR rate.

Loss before tax 
Loss before tax in the reported period was approx. USD 41.5 million compared to loss before tax of approx. USD 38.2 million in the three-month period ended December 31, 2017.

Tax benefit 
The tax benefit in the reported period was USD 9.8 million, compared to a tax benefit of USD 8.4 million in the three-month period ended December 31, 2017.

Loss for the period
Loss after tax in the reported period amounted to USD 31.6 million, constituting 6.4% of the turnover, compared to a loss after tax of USD 29.7 million in the three-month period ended December 31, 2017, which constituted 5.8% of the turnover.

Additional Balance Sheet Data as of December 2018

Current Assets
The Company's current assets as of December 31, 2018, amounted to approx. USD 417 million, indicating a decline of USD 102 million compared to their balance as of December 31, 2017. This decline resulted mostly from a decrease in cash and cash equivalents balances, short-term deposits and accounts receivable, and a decline in the fair value of derivatives due to the drop in jet fuel prices.

Current Liabilities
The Company's current liabilities as of December 31, 2018, amounted to approx. USD 1,015 million, indicating an increase of approx. USD 58 million compared to their balance as of December 31, 2017. The change is attributable to an increase in short term credit and current maturities as a result of loans provided to the Company to finance advances on aircraft, which are due to be repaid upon receipt of aircraft by means of long-term loans, and an increase in current liabilities for derivative financial instruments as a result of the drop in jet fuel prices towards the end of the year. On the other hand, prepaid revenues from sales of airline tickets declined, primarily due to the impact of the IFRS 15 implementation, as explained in Note 2D to the financial statements.

Working Capital
As of December 31, 2018, the Company had a working capital deficit of approx. USD 598 million compared to a deficit of approx. USD 438 million as of December 31, 2017. It should be noted that a substantial part of the working capital deficit does not reflect short-term cash flows, as explained below. As of December 31, 2018, the Company's current ratio declined to 41.1%, compared to current ratio of 54.2% as of December 31, 2017. As of December 31, 2018, the working capital deficit consisted of substantial components included in the current liabilities item and characterized by current business cycle; however, the Company is not required to use cash-flow sources in the short term in order to repay these components: prepaid revenues from sale of airline tickets and the Frequent Flyer Club totaling approx. USD 311 million, to be settled by providing future flight services, and liabilities to employees for vacation pay in the amount of approx. USD 44 million, which are expected to be paid upon retirement but classified as a short-term liability in accordance with accounting principles. Current liabilities also include loans totaling USD 102 million, taken by the Company to finance advance payments on the 787 aircrafts, to be repaid through long-term financing obtained upon receipt of aircrafts.

Non-Current Assets
Non-current assets as of December 31, 2018, amounted to approx. USD 1,692 million, showing a growth of approx. USD 359 million compared to their balance as of December 31, 2017, mainly due to the receipt of three 787-9 Dreamliners owned by the Company during the reported period and advance payments for the acquisition of the 787 aircraft that have not yet been received, less current depreciation. See Note 9 to the financial statements.

Non-Current Liabilities
Non-current liabilities as of December 31, 2018 amounted to approx. USD 865 million, reflecting an increase of approx. USD 248 million compared to December 31, 2017. This increase was primarily attributable to three loans obtained by the Company to finance the acquisition of three 787-9 Dreamliners received during the reported period, offset by current maturities of loans. See Note 13(b) to the financial statements.

Equity
As of December 31, 2018, the total equity of the Company was approx. USD 229 million. The decrease of USD 49 million compared to equity as of December 31, 2017 was mainly attributable to the loss for the year and the negative movement in equity funds in respect of cash flow hedging on jet fuel prices, partially offset by the positive impact on equity of USD 37.5 million as a result from the implementation of International Financial Reporting Standard ? IFRS 15 (see Note 2D to the financial statements).

This announcement does not replace reading the Company's financial statements for 2018.

About EL AL
El Al Israel Airlines Ltd. is the National Air Carrier of Israel. In 2018, El Al recorded revenues of nearly USD 2.15 billion. El Al carries about 5.6 million passengers a year. The Company operates flights to 36 direct destinations around the world and many other destinations by means of codeshare agreements with other airlines, and currently operates 42 aircrafts.

Details of Conference Call 
A conference call took place on Wednesday, March 13, 2019, at 12:30. A recording of the conference call will be available to all interested parties from March 13, 2019, at 14:00, until March 20, 2019, via phone number +972-3-9255943, as well as on the Company's Investor Relations website at: https://ir.elal.com, commencing March 15, 2019.

For further details:

Dafna Cohen             

Head of Business Control and Investor Relations

El Al Israel Airlines Ltd.

+972-3-9717439

Investors@elal.co.il

Amir Eisenberg

Co-CEO

Eisenberg-Eliash Ltd.

+972-3-7538828

amir@pr-ir.co.il

 


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News published on 17 march 2019 at 07:13 and distributed by: