Union negotiations are crucial stage for EL AL

These are crucial days for Israeli airline EL AL. The management is negotiating a new agreement with the workers’ union. 

The new agreement has one major role – reducing the number of employees significantly, cutting $22.5 million from the annual payroll.

The agreement will open the way for a restructuring of the shareholders and that, and only that, may allow the airline to climb from the low place it reached. This place is characterised by repeated losses and by the inability to renew the fleet.

The situation has been bad for some time and the airline was making one major mistake after the other – for example, giving up the options to purchase the Boeing 787, opening a route to Sao Paulo and flying on the domestic route to Eilat.

The new union agreement will allow the First Israel Mezzanine Investors (FIMI) to invest up to $75 million for a 47% stake in the airline, and form a controlling group in it with Knafaim Holdings.

According to the proposed deal, FIMI will invest $50 million in EL AL for a 38% stake. FIMI will also receive two options, each totalling $12.5 million, which would give it a 47% stake in the airline when exercised.

The deadline is at the end of this month, but FIMI may extend the closing by two periods of 45 days each.

As I have said before, you do no have to be a specialist to understand that EL AL can shrink its workforce by almost 1,000 of its nearly 6,000 employees.

The list of benefits EL AL employees enjoys has no connection to reality. Even before the airline was privatised, the employees received benefits that now look detached from reality in the industry. No airline in the world can survive with such weird benefits, which, quarter after quarter, help to generate losses.

So, the negotiations continue and sources say they are very tough. Each side understands that the result will change the situation either way for many years, which does not help to reach the necessary agreement.

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