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1 Dec, 2014

Israel’s Gaza attack led to US$47m drop in El Al Q3 profits over last year

LOD, Israel–(BUSINESS WIRE)–November 26, 2014 – El Al’s CEO, David Maimon: “The results of the third quarter reflect the effect of the ‘Operation Protective Edge,’ which caused significant harm to revenues and as a result El Al requested government assistance. This is the first time since the Second Lebanon War in 2006 in which El Al presents a significant decline in third quarter profits which is traditionally considered as its strongest quarter. In addition, the quarter was characterized by an erosion in prices which resulted in a decline in revenues per passenger.”

Maimon added: “On the other hand, we have significant marketing achievements: the number of members of the Frequent Flyers Club in Israel and globally increased to 1.4 million members, inter alia thanks to the launching of the Flycard and Flycard Premium credit cards with 40 thousand customers ordering these cards within a few weeks. In addition, in the framework of the renewal and extension of the Company’s network of destinations, in the fourth quarter we announced the opening of a new El Al direct line to Boston and a new cooperative agreement (codeshare) signed with JetBlue American Airlines, which enables our customers to fly to a wide range of destinations in the US with high availability and convenient connections.”

Dganit Palti, El Al’s CFO: “The results of the third quarter were affected by the ‘Operation Protective Edge’ which was the central factor in the significant decline in the Company’s profitability. Nevertheless, the cash flows provided to the Company from operating activities during the first nine months of the year amounted to 148 million dollars enabling the Company to continue with its long term fleet planning program and to meet its financial obligations.

“In the third quarter we invested 66 million dollars, mainly for the acquisition of an additional 737-900 model and repaid financial liabilities of 48.3 million dollars. We received loans of 75.4 million dollars to finance the new aircraft and payment of an advance for additional aircraft of the same 737-900 model which should be received during 2015 and 2016.”

The results of the third quarter of 2014:

  • Revenues amounted to $ 601.2 million dollars, compared to $ 643.3 million during the equivalent quarter in the previous year, a decline of 6.5%. Revenues per passenger declined by 7.3%, mainly as a result of a drop in the yield per passenger-kms, as a result of the negative effects of the ‘Operation Protective Edge’. Revenues from cargo transport increased by 4.5%, mainly as a result of an increase in the number of ton-kms flown, after setting off a decline in the yield.
  • Operating expenses increased by 2% to 493 million dollars compared to 483.6 million dollars during the equivalent quarter in the previous year. The rate of operating expenses to turnover increased from 75.2% in the third quarter of 2013 to 82.0% in this quarter. The increase in operating expenses was a result mainly of the increase in expenses for jet fuel, an increase in levies and air transition fees, and after setting-off the decline in salary and security expenses.
  • Salary expenses declined during the quarter, mainly due to the effect of the devaluation in the rate of the shekel compared to the dollar on the Company’s liabilities for employee benefits. The number of the Company’s employees, permanent and temporary, stood at an average of 6,216 employees, compared to 6,109 during the equivalent quarter in the previous year.
  • The Company’s expenses for jet fuel increased by 5.2%. The increase was due to the effect of the increase in operations and the effect of the increase in the effective price of jet fuel (which includes the results of hedging operations that the Company took). It should be mentioned that the prices of jet fuel in the market declined in the third quarter compared to the equivalent quarter in the previous year, but the Company’s hedging operations resulted in an increase in the effective price for the Company. The rate of jet fuel expenses to turnover increased from 30.3% during the equivalent quarter in the previous year to 34.1% in the third quarter. Total hedging payments in the quarter under report aggregated 2.9 million dollars compared to 4.4 million dollars receipts from hedging for the equivalent quarter in the previous year. In addition, the Company recorded expenses of 5.8 million dollars as a result of changes in the fair value of the hedging transactions, which are not recognized as hedging (revenues of 2.4 million dollars during the equivalent quarter in the previous year).
  • Gross profits amounted to108.3 million dollars (18.0% of turnover), compared to 159.7 million dollars for the equivalent quarter in the previous year (24.8% of turnover).
  • Income from operations amounted to 29.1 million dollars, compared to 75.6 million dollars during the equivalent quarter in the previous year.
  • Net financing expenses during the quarter amounted to 15.4 million dollars compared to net financing income of 5.2 million dollars during the equivalent quarter in the previous year, mainly due to the results of hedging the rates of exchange.
  • Net profit for the third quarter of 2014 amounted to 10.1 million dollars, compared to 57.9 million dollars for the third quarter of 2013.
  • Cash flows used for operating activities in the third quarter of 2014 amounted to 12.0 million dollars compared to 56.1 million dollars cash flows provided by operating activities during the equivalent quarter in the previous year.
  • The EBITDA in the third quarter of 2014 amounted to 57.3 million dollars compared to 100.6 million dollars during the equivalent quarter.

Results for the first nine months of 2014:

  • Revenues for the first nine months of the year amounted to 1,588.2 million dollars, compared to 1,604.0 million dollars during the equivalent period in the previous year, a decline of 1.0% due mainly to the decline in yield as a result of the increasing competition and after setting off the increase in the number of passengers flown.
  • Operating expenses during the first nine months of 2014 amounted to 1,357.7 million dollars compared to 1,324.4 million dollars during equivalent period in the previous year, an increase of 2.5%.
  • Salary expenses increased during the first nine months of 2014 compared to the equivalent period in the previous year, mainly due to the effect of the revaluation which occurred during most of the period of report in the average rate of the shekel against the dollar on expenses, most of which are in shekels. The increase was set off by the effect of the devaluation of the rate of the shekel compared to the dollar at the end of the period on the Company’s liabilities for employee benefits.
  • The Company’s expenses for jet fuel increased by 1.0% compared to the equivalent period in the previous year. This due to the changes in the fair value of hedging transactions which are not recognized as hedging, payments for hedging compared to receipts during the equivalent period in the previous year, an increase in operations and setting off the decline in the prices of jet fuel in the market. The rate to turnover increased from 32.9% to 33.5%. Total hedging payments during the period of report amounted to 1 million dollars compared to 4.7 million dollars of hedging receipts during the equivalent period in the previous year. In addition, the Company recorded expenses of 5.5 million dollars as a result of changes in the fair value of hedging transaction which are not recognized as hedging (an expense of 2.4 million dollars during the equivalent period in the previous year).
  • Security expenses the Company recorded a significant decline of 14.3 million dollars as result of an increase in the rate of the State’s participation.
  • Gross profits during the first nine months of 2014 amounted to 230.5 million dollars, which is a rate of 14.5% of turnover, compared to gross profits of 279.6 million dollars (a rate of 17.4% of turnover) during the equivalent period in the previous year.
  • Operating income during the first nine months of 2014 amounted to 1.8 million dollars, compared to 46.3 million dollars during the first nine months of 2013.
  • Net financing expenses amounted to 20.9 million dollars compared to 4.0 million dollars during the equivalent period in the previous year; the increase was a result of the hedging transactions on the rates of exchange.
  • Net loss during the period of the first nine months of 2014 amounted to 13.2 million dollars compared to a profit of 29.1 million dollars during the equivalent period in the previous year.
  • El Al’s EBITDA for the first nine months of the year amounted to 84.8 million dollars compared to 121.3 million dollars during the equivalent period in the previous year.
  • Cash flows from operating activities for the first nine months of the year amounted to 147.9 million dollars, compared to 184.6 million dollars during the equivalent period in the previous year.

Additional data:

As of September 30, 2014, the balances of the Company’s cash, cash equivalents and short-term deposits amounted to 138.0 million dollars. It should be mentioned that during the third quarter of 2014, the Company invested 66.2 million dollars in fixed assets and other assets, mainly in the acquisition of an additional 737-900 aircraft, as well as repaying current loans of 48.3 million dollars and receiving loans of 75.4 million dollars to finance the acquisition of new aircraft. The Company’s capital as of December 31, 2014 amounted to 136.4.