Less than four weeks after Israel’s airlines appealed for more government funding, the Ministry of Finance said it had agreed in principle an assistance package to help El Al Israel Airlines, Arkia Israeli Airlines, and Israir.

The state will provide a two-year balloon loan, one that does not amortise during its term leaving the borrower to repay in full at the end of the term, to each carrier as long as the controlling shareholders pump more of their own capital into their companies, a source at the ministry told the Hebrew-language business daily Calcalist on August 24.

The exact size of the sums and the proportions between state-injected and owner-injected amounts have not yet been determined. Still, the official estimated that El Al would need USD150-200 million, and Arkia and Israir USD20 million each.

The funds would be provided through convertible bonds without interest, giving the airlines “peace of mind over the coming period. The companies won’t have to repay for two years, and after two years, they can convert the loans to shares in a public offering with a discount for the state.” The state, however, wants to avoid any nationalisation and would buy no more than 24% of each company if the public issue proves unsuccessful.

The official stressed that the aid was a loan and not a grant and was unrelated to previous agreements, agreeing with El Al that its previously planned USD105 million share offering would not be easy to undertake in the current environment.

“The airlines have taken a big hit in the third quarter, which is supposed to be the most profitable quarter for the companies. We sat with all the companies to understand their cash flow situation, and we’re forming a plan on the basis of this. The aim is to see, on the assumption that Covid will be staying with us in its current form, that the companies can survive in cash-flow terms in the near future, and streamlining will also be subject to this,” the source said.

The official did not elaborate on what “streamlining” could mean but added: “We will not tell the company to lay off X employees or Y employees. It is not our job.” El Al has already laid off a third of its pre-Covid workforce, about 1,900 people.

The ministry now expects to enter into separate negotiations with each carrier and provide it with a tailored package depending on its own financial needs. The new aid package should enable the companies to keep going for another six to twelve months.

Also, on August 24, Histadrut, Israel’s national trade union association, announced a labour dispute in the aviation industry due to what it called an anticipated wave of further layoffs at El Al, Arkia, Israir, and the Israel Airport Authority. It promised to initiate strikes and other organisational measures within two weeks, which could result in flight disruptions.