Israel’s El Al strikes deal to fire 1,300 employees, saving $88 million a year

El Al Airlines signed an efficiency agreement early Wednesday morning with its maintenance and management divisions, paving the way to lay off some 1300 workers and reduce costs by $88 million a year.

The company has not yet signed an agreement with its 600 pilots.

Already ailing before the coronavirus struck, the national carrier was forced to halt nearly all its flights and furlough more than 80 percent of its staff. It reported a $140 million first-quarter loss before the brunt of the pandemic hit.

The agreement was signed by Histadrut labor federation chairman Arnon Ben David, and Avi Edri, chairman of the transport workers union at the Histadrut.

The agreement states that 500 maintenance workers and 800 management workers will be laid off or retire. Some of the workers are being offered early retirement or expanded severance pay. The management department layoffs will save $56 million a year, and the maintenance department layoffs will save $36 million a year.

The deal will be in force for the duration of the $250 million loan that El Al is slated to receive from Discount Bank, and applies to some 3,000 workers in management and another 1,300 in maintenance.

El Al signed an efficiency agreement with its flight attendants last week that included 500 layoffs, including of 140 permanent employees. This is likely to save the company $30 million a year.

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These agreements are part of the business plan that El Al is required to present to Israel’s Finance Ministry in order to receive 75% state backing for a $250 million loan from Bank Discount, to be paid over seven years. The company is required to cut costs by $400 million a year.

El Al’s board voted on Monday to accept a government rescue plan that is likely to renationalize the carrier 16 years after it was privatized. The company told the Tel Aviv Stock Exchange that its board had approved the plan under which the government would  raise $150 million in a share offering to help keep the airline afloat through the coronavirus crisis.

The government is committed under the plan to buy any El Al stock not purchased by the public. If the state ends up buying all the shares being sold, it will end up with 61 percent of the airline. The current controlling shareholder – Tami Mozes Borovitz, who holds her shares through the publicly traded company Knafaim – would see her stake diluted to 14 percent from 28 percent today.

El Al has put almost all of its 6,500 workers on unpaid leave and suspended passenger service amid the coronavirus crisis, which has decimated global travel.

El Al will also give up some of its fleet of short-haul Boeing 737 aircraft and eliminate unprofitable routes, although it will likely keep all its Boeing 787s, the official said.

The airline, which owes some $350 million in customer refunds due to cancelled flights after Israel closed its borders, lost $140 million in the first quarter.

Even before the coronavirus outbreak, El Al faced increased competition, but the official said that it will eventually be profitable due to the drop in expenses.

With reporting by Reuters.