EL AL Israel Airlines Ltd. Concluded the Third Quarter With Growth in Its Business Operations, an Increase in Market Share, a Decrease in Fuel Costs and a Profit of Approximately USD 27 Million

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• USA - English

LOD, Israel, Nov. 27, 2019 /PRNewswire/ --

• For the third quarter of 2019, the Company (TASE: ELAL) reports a growth of 8% in seat availability, an increase of 6.5% in passenger traffic and an increase of 2% in market share.
• At the end of the third quarter, 12 new 787-9 Dreamliner aircraft operated in the Company's fleet. Four additional 787-8 aircraft will be added to the Company's aircraft fleet by the end of the first quarter of 2020, thereby the Company expects to complete the Acquisition Program.
• Despite the competition, the Company's revenues increased to approximately USD 647 million.
• Operating expenses for the quarter amounted to approximately USD 505 million, similarly to the third quarter of 2018, despite the 8% growth in Available Seat per Kilometer (ASK).
• Fuel expenses decreased by approximately USD 13.5 million, both as a result of the decrease in jet fuel market prices and as a result of using the new efficient 787-9 aircraft.
• Other income amounted to approximately USD 5.5 million for the quarter, due to the sale of one 767-300 aircraft which was removed from service, compared to an income of approximately USD 10 million for the third quarter of 2018, mainly from insurance receipts.
• Profit before tax was adversely affected by approximately USD 4.5 million due to the implementation of the accounting standard IFRS 16 that increased the financing expenses by approximately USD 12.5 million and reduced the operating expenses by approximately USD 8 million.
• Profit before tax for the quarter amounted to approximately USD 35 million, compared to a profit before tax of approximately USD 54 million for the third quarter of 2018. The profit was affected by an increase in financing expenses as well as an increase in payroll expenses, mainly due to a decrease in the discount interest rate on actuarial liabilities.
• Net profit for the quarter amounted to approximately USD 27 million, compared to net profit of USD 42 million for the third quarter of 2018.
• EBITDAR for the quarter amounted to approximately USD 140 million, similarly to the third quarter of 2018.
• In the first nine months of 2019, the Company's revenues amounted to approximately USD 1.66 billion, reflecting a slight growth compared to the Company's revenues for the first nine months of 2018; loss for the period amounted to approximately USD 28 million, compared to a loss of approximately USD 21 million for the first nine months of 2018.

EL AL's CEO, Gonen Usishkin:

"Notwithstanding the competition at Ben Gurion Airport, the Company succeeded to increase and improve its market share by 2%, with the number of passengers increasing by 6.5%.

"The Company's Acquisition Program progresses as planned. Thus far, the Company has received 12 new 787-9 aircraft, and by the end of the first quarter of 2020, 4 additional 787-8 aircraft are expected to arrive, thereby the Program will be completed.

"Alongside this, at the beginning of the year, all the 767-300 aircraft were removed from service and thereafter all the 747-400 aircraft were also removed from service, as the last one terminated its operation at the beginning of this month with a special and exciting farewell flight, after nearly 50 years of service in the Company's aircraft fleet.

"We completed the major part of the Aircraft Interior Improvement to 737-800NG narrow-body aircraft fleet.

"We entered into an agreement for the lease of 3 additional 737-800NG aircraft for a period of six years, of which the first aircraft is expected to be received in the next month, and the two others are expected to be received in April 2020.

"Out aircraft fleet has become younger and, for the first time, the aircraft average age falls below 10 years. Our product improves and we witness constant increase in our customers' satisfaction.

"As part of our growth strategy, we enhance existing activities and continue to expand our network of routes by launching routes to new destinations. Thus far in 2019, the Company has launched the routes to Niece, San Francisco, Manchester, and Las Vegas, and in 2020 the Company is expected to launch the routes to Chicago, Tokyo, Dublin and Dusseldorf.

"In July 2019, we launched the new booking engine for the Matmid Frequent Flyer Club members and improved the value offer to the club members.

"In September 2019, the Company entered into a triangle agreement with CAL, Diners and a new strategic partner, MasterCard, in connection with the branded credit card, Fly Card. The new card to be issued is a combined Diners and MasterCard credit card that has a global coverage and offers expanded options to redeem points in the aviation and non-aviation world. The Fly Card credit card and the Matmid Frequent Flyer Club constitute one of the most important growth engines of the Company.

"I would like to thank our customers for their trust in EL AL. I am convinced that EL AL will continue to provide its customers with quality service, maximum comfort, technological innovation and advanced airplanes. We are doing the utmost to allow the customer to choose EL AL over and over again.

"I wish to express special appreciation to EL AL people in Israel and worldwide, who work with determination and dedication and make an extra effort for the Company's success."

Dganit Palti, EL AL's CFO:

"The Company recorded a decrease in fuel expenses for the reported quarter, as a result of the decrease in jet fuel market prices and the amount of fuel consumed by the Company's aircraft, notwithstanding the 8% growth in operations, mainly due to the operation of the 787-9 aircraft, which are more efficient in fuel consumption.

"The initial implementation of the accounting standard IFRS 16 adversely affected the Company's results for the quarter by approximately USD 4.5 million, and for the first nine months of the year – by approximately USD 14.5 million.

"The company has signed an agreement with a JOLCO structure to finance the first 787-8 aircraft, expected to arrive this weekend. The USD 125 million financing includes a USD 106 million loan from a foreign bank for a 12-year period and an additional USD 19 million in Japanese Yen, to be provided by a Japanese company. The balance of the debt will be repaid after ten years at a pre-agreed amount of USD 45 million."

Financial Results:

Profit and Loss for the Third Quarter of 2019:

• The Company's revenues for the reported quarter increased by approximately USD 6 million, reflecting an increase of 0.9% compared to the third quarter of 2018. Revenues from passengers increased by approximately USD 8 million, reflecting an increase of 1.3%. This increase is attributable to the increase in passenger revenue per kilometer (RPK) flown by the Company which was offset in part by the decrease in yield per passenger-kilometer. In addition, there was a negative impact of exchange rates of currencies used by the Company in some of its sales transactions, in relation to the dollar.

Cargo revenues decreased by approximately USD 2 million due to a decrease in the amount of cargo flown and the decreased yield per ton-kilometer due to a weakness in the global cargo market and the strong competition. In addition, there was a negative impact of exchange rates.

• Operating expenses increased by approximately USD 1.2 million in the reported quarter compared to the third quarter of 2018, for the following reasons:

-  An increase of approximately USD 11 million in payroll expenses, of which USD 7 million are attributable to an increase in the actuarial liabilities due to a significant decrease in the yield to maturity of corporate bonds that were used by the Company to calculate this liability. The balance is attributable to new wage agreements, transition of pilots between fleets and negative impact of exchange rates.

-  An increase in expenses as a result of the growth in operations that was expressed by an increase of 8% in Available Seat per Kilometer (ASK);

-  A decrease of approximately USD 13.5 million in jet fuel expenses;

-  The impact of the initial implementation of IFRS 16 that moved approximately USD 8 million from the Company's operating expenses to financing expenses.

• Jet fuel expenses decreased by approximately USD 13.5 million (reflecting a decrease of 9.1%) in the reported quarter compared to the expenses recorded in the third quarter of 2018, as a result of a drop in jet fuel market prices and the 3% decrease in the amount of fuel consumed by the Company's aircraft, notwithstanding the 8.3% increase in its Available Seat per Kilometer (ASK) as a result of operating the 787-9 aircrafts, which are more efficient in fuel consumption. On the other hand, the positive impact of hedging transactions was smaller in the reported quarter, as described below:

• Selling expenses decreased by approximately USD 5.1 million compared to the third quarter of 2018, mostly due to a decrease in distribution costs that resulted mainly from a decrease in the average base fee. On the other hand, advertising expenses increased as a result of launching new destinations.
• General and administrative expenses increased by approximately USD 9.5 million compared to the third quarter of 2018, mainly due to an increase in expenses for legal actions, an increase in payroll expenses due to the increase in the actuarial liability, and the impact of exchange rates as set forth above, as well as an increase in information system maintenance expenses and a reduction in the rights to use leased assets in accordance with IFRS 16.
• Net other income (expenses) amounted to approximately USD 5.5 million and includes capital gains from the sale of one aircraft and engines as well as inventory surplus, compared to the third quarter of 2018 in which an income of approximately USD 10.0 million was recognized as a result of the sale of aircraft and engines as well as insurance receipts for a 767 aircraft that was removed from service.
• Net financing expenses amounted to approximately USD 22.4 million, compared to approximately USD 8.7 million in the third quarter of 2018. This increase is mainly attributable to the Implementation of IFRS 16 that resulted in interest expenses on liabilities for leased assets totaling approximately USD 11.8 million and an additional expense of approximately USD 0.7 million for exchange rate differences as a result of a balance sheet exposure to lease liabilities that are denominated in non-dollar currencies (mainly shekel). In addition, during the period there was an increase in loan interest expenses, mostly due to the increase in the amount of loans taken by the Company to finance the 787-9 aircrafts that the Company acquired.
• Profit before tax amounted to approximately USD 35 million compared to a profit before tax of approximately USD 54.0 million in the third quarter of 2018.
• Net profit. Profit after tax amounted to approximately USD 27 million compared to a profit of approximately USD 42 million in the third quarter of 2018.

Profit and Loss for the First nine months of 2019:

• Operating revenues increased by approximately USD 11 million in the reported period, reflecting an increase of about 0.7% compared to the first nine months of 2018. Revenues from passengers increased by approximately USD 22.9 million, indicating an increase of 1.5%. The increase is attributable to the growth in passenger revenue per kilometer (RPK) flown by the Company that was offset in part by the decrease in yield per passenger-kilometer, all for the reasons set forth above and the negative impact of exchange rates in currencies used by the Company in some of its sales transactions, in relation to the dollar. Cargo revenues decrease by approximately USD 11.2 million (about 10%) compared to cargo revenues in the first nine months of 2018, mainly due to the decrease in the amount flown, as explained above, as well as the decrease in yield per ton-kilometer and the negative impact of exchange rates.
• Operating expenses decreased by approximately USD 21.2 million in the reported period, reflecting a decline of about 1.5% compared to the first nine months of 2018. The change is attributable to the following reasons:

-  A decrease of approximately USD 34.2 million in jet fuel expenses;

-  A decrease as a result of the implementation of IFRS 16 that moved approximately USD 20 million to financing expenses (the majority remained in expenses for depreciation of rights to use leased assets that are included in operating expenses. See Note 2.C(4) to the condensed financial statements).

-  An increase in depreciation expenses (with respect to owned assets) and a reduction in the rights to use leased assets (in accordance with IFRS 16) as a result of a growth in the Company's flight equipment with the continued receipt of the 787-9 Dreamliners.

-  An increase of approximately USD 22 million in payroll expenses compared to the first nine months of 2018, mainly due to new wage agreements and transition of pilots between fleets, and as a result of an increase in the actuarial liability, as explained above.

-  A decrease in other operating expenses, mainly due to the streamlining of some of the Company's expense items, such as air passage fees and maintenance costs, which were positively affected by the shift to the 787-9 aircraft, and as a result of the improvement in the Company's work relations.

• The Company's jet fuel expenses decreased by approximately USD 34.2 million in the reported period (indicating a decrease of about 8.5%) compared to the Company's expenses in the first nine months of 2018, mainly as a result of the decrease in the amount of fuel consumed by the Company's aircraft, notwithstanding the 4.1% increase in its Available Seat per Kilometer (ASK), primarily due to the continued entry of the 787-9 aircraft, which are more efficient in fuel consumption. In addition, fuel expenses were positively affected by the drop in jet fuel market prices. On the other hand, hedging transactions had a smaller positive impact in the reported period, as set forth below.
• The table below reflects the impact of jet fuel expenses on the Company's results, including the impact of hedging transactions

• Net financing expenses amounted to approximately USD 60.3 million in the reported period compared to the first nine months of 2018. This increase is mainly attributable to the Implementation of IFRS 16 that resulted in recording interest expenses on liabilities for leased assets in the amount of USD 31.5 million and an additional expense of approximately USD 2.4 million for exchange rate differences due to a balance sheet exposure to lease liabilities that were denominated in non-dollar currencies (mainly shekel). In addition, during the period there was an increase in loan interest expenses, mostly due to the increase in the amount of loans taken by the Company to finance the 787-9 aircraft that the company acquired.
• Loss before tax amounted to approximately USD 35 million compared to a profit before tax of approximately USD 28 million in the first nine months of 2018.
• Loss for the period. Loss after tax amounted to approximately USD 28 million in the reported period compared to a loss of approximately USD 21 million in the first nine months of 2018.

Balance Sheet as of September 30, 2019:

• Current assets amounted to approximately USD 430 million, indicating a increase of approximately USD 14 million compared to their balance as of December 31, 2018. This growth resulted mostly from a seasonal growth in the customer items that was offset in part by a decrease in cash and short-term deposits and a reduction in the receivables item (mainly receivables due to renovation of leased engines).
• Current liabilities amounted to USD 1,084 million, indicating an increase of approximately USD 69 million compared to their balance as of December 31, 2018. A major part of the increase is attributable to the implementation of IFRS 16, for which current maturities of lease liabilities totaling approximately USD 91 million were included. In addition, there was a seasonal increase in prepaid revenues from the sale of airline tickets. On the other hand, there was a decrease in short-term credit and current maturities, a decrease in payables and a decrease in the balance of derivative financial instruments.
• Working capital. The Company has a working capital deficit of approximately USD 654 million compared to a deficit of approximately USD 598 million as of December 31, 2018. The increase in the working capital compared to December 31, 2018, is mainly attributable to the initial implementation of IFRS 16 in 2019,  following which current maturities of lease liabilities totaling approximately USD 91 million were included in current liabilities. As of September 30, 2019, the Company's current ratio dropped to 39.7% compared to current ratio of 41.1% as of December 31, 2018. As of September 30, 2019, the working capital deficit consisted of substantial components that were included in the current liabilities item and are 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, such as: prepaid revenues from sale of airline tickets and the Matmid Frequent Flyer Club in a total amount of approximately USD 340 million that will be discharged by providing future flight services, and liabilities to employees for vacation pay in the amount of approximately USD 57 million that are expected to be paid upon retirement but are classified as a short-term liability in accordance with accounting principles. Current liabilities also include loans totaling USD 127 million that were taken to finance advance payments on the 787-8 aircraft and will be repaid through long-term financing that will be obtained upon receipt of these aircraft.
• Non-current assets amounted to approximately USD 2,856 million, indicating a growth of approximately USD 1,164 million compared to their balance as of December 31, 2018, mainly due to the rights to use leased assets totaling USD 992 million and an increase of approximately USD 63 million in long-term deposits as a result of the initial implementation of IFRS 16 (see Note 2.C to the condensed financial statements) and an increase in assets for employee benefits.
• Non-current liabilities amounted to USD 2,020 million, reflecting an increase of approximately USD 1,155 million compared to their balance as of December 31, 2018, mainly as a result of lease liabilities of approximately USD 932 million following the initial implementation of IFRS 16 (see Note 2.C to the condensed financial statements), long-term financing obtained as a result aircraft acquisition and an increase in long-term prepaid revenues from grants received from credit card companies as part of agreements entered into with these companies (see Not 9 to the condensed financial statements).
• Equity amounted to approximately USD 182 million. The decrease of approximately USD 47 million compared to equity as of December 31, 2018 is mainly attributable to the loss for the period and the impact of the IFRS 16 implementation, totaling USD 19 million.

Details of Conference Call

A recording of the conference call will be available to all interested parties from November 27, 2019, at 2:00 p.m., until December 4, 2019, via phone number +972-3-9255943, as well as on the Company's Investor Relations website at: www.elal.com/investor-relations as of November 28, 2019.

For further details:

Related Links

http://www.elal.com