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El Al reports a net profit of $3.7 million in the second quarter

El Al Israel Airlines (Tel Aviv) reported a net profit of $3.7 million in the second quarter. This is a reversal from a loss of $6.1 million in the same quarter a year ago.

The company issued this financial statement:

Profits for this quarter totaled about $3.7 million, compared to a loss of $6.1 million in the second quarter of 2012

Company revenues for the second quarter of 2013 totaled $529.7 million, compared to $516.8 million in the second quarter last year

The ratio of gross profits to turnover increased from 15.1% to 15.5% and totaled $82.0 million compared to $78.1 million in the parallel quarter of last year

Elyezer Shkedy, El Al’s President & CEO:

“The Company continues to match its activities to the realities of the market place and thus continues to become more efficient. During the second quarter of 2013 the Company increased the number of available seats for sale by 7% compared to the parallel quarter of last year, while maintaining a similar level of expenditure and a reduced number of employees. Efficient use and operation of the Company’s aircraft brought about passenger load factors of about 82.4%.

The Company reports a profit as well as positive cash flows, while it continues with its investment plans, including payments for purchases of new Boeing 737-900 aircraft as part of a business transaction for the purchase of six aircraft with options for two more.

The first 737-900 of this contract will enter in service with El Al in October 2013.

As part of the Company’s overall business and operational assessment, El Al continues to reduce the number of aircraft types in operation. During the coming months we plan to remove the fleet of 767-200s, bringing the number of aircraft types we operate to four only (reduced from seven, that included our 747-200s, the 757s and the 767-200s).

During the second quarter, El Al continued to develop its strategic plans in response to world market trend in international civil aviation (including the open-skies policies). The Company is presently crystallizing new plans for short-haul flights using five 737-800s on routes still to be decided by the Company’s Management. The aim is to integrate the new plans and schedules no later than the summer of 2014.

Further to the agreement that was achieved with the Government and the Ministry of Finance when the open skies policy into effect, the Government’s portion for security expenditures for Israeli airlines was increased to 85%, starting 1.5.2013. The balance of the agreement will be implemented during 2013 and in early 2014, if the appropriate terms and conditions of the agreement are met.

The FIMI Investment Company announced that they are giving the Company an extension of 45 days to finalize the conditions for the agreement. This period ends on August 29, 2013. They noted that the negotiations on a new comprehensive labor agreement are advancing slowly.

I do hope that the Company employees grasp the importance of reaching a new agreement. I expect the members of the workers’ committee to act responsibly and to take immediate action to formulate a new collective labor agreement, which, amongst other things, will enable FIMI to become an active investor in El Al; will allow the Company to advance and grow; and will enable the Company to face the open skies policies and the ever-increasing competition successfully.

I’d like to thank the entire El Al family – on the ground, in the air, in Israel and abroad – who work so determinedly and devotedly to overcome the difficult challenges facing us. We are committed to providing our customers with the very finest services and products through our ongoing efforts to surmount and meet the challenging market conditions.”

El Al Israel Airlines published its financial reports summarizing the first half of 2013, as well as for the second quarter of the year. The main points follow:

Financial results for the second quarter 2013:

Revenues for the present quarter totaled $529.7 million, compared to $516.8 million in the parallel quarter of last year, an increase of about 2.5%. Revenues from passengers increased by about 4%, the result of the increased number of passengers carried, after offsetting the drop in revenue per passenger-kilometer. Revenues from charter services dropped by about 12.9% as a result of reduced activity of our Sun D’Or charter subsidiary. Cargo revenues dropped by about 6.4% as a result of the reduction ton-kilometer revenues and the general reduction in cargo activities.
Operating expenses in the second quarter under review increased by about 2% to about $447.8 million, compared to $438.7 million in the parallel quarter of last year, largely as a result of increased volume of activities, the ratio of which on turnover during the second quarter of 2013 dropped from about 84.9% to about 84.5% during this quarter. In addition to an increase in cost of salaries as explained further on, and changes in currency exchange rates, after offsetting the reduction in fuel expenses – as explained further on. During the 2^nd quarter of 2013 the number of permanent and temporary employees in the Company was on average 5,906, compared to 5,938 in the parallel quarter of last year.
Aviation fuel costs during this quarter dropped by about $7.5 million compared to in the parallel quarter of last year, a reduction of about 4.0%. Market prices of aviation fuel during the quarter dropped by about 6.9% on average, compared to in the parallel quarter of last year. During the reported quarter the Company recorded costs of $3.9 million as a result of a decrease in fair value of hedging transactions that are not recognized for accounting purposes, compared to costs of about $6.5 million for similar hedging costs in the parallel quarter of last year. On the other hand the increased activities increased fuel costs during the quarter by about $5.8 million, while aviation-fuel hedging expenses grew by about $2.0 million during this quarter, compared to in the parallel quarter of last year ($3.8 million compared to $1.8 million). Fuel costs during the reported quarter totaled about 40.0% of our total operating expenditures, compared to 42.5% in the parallel quarter of last year.
Cost of salaries during the 2^nd quarter of 2013 rose in comparison with the parallel quarter last year. Most of the increase is the result of the strengthening of the shekel exchange rate vis-à-vis the dollar, compared to in the parallel quarter of last year, plus the creeping increase in salaries.
Gross profits for the quarter totaled about $82.0 million (a ratio of about 15.5% on turnover), compared to $78.1 million in the parallel quarter last year (a ratio of 15.1% on turnover).
The operating profits were about $7.0 million compared to an operating profit of $2.4 million in the parallel quarter of last year.
Financing. In this quarter the Company had net financing costs (after offsetting financing revenues) about $2.1 million, compared to net financing costs of $10.4 million in the parallel quarter of last year. The change is largely the result of the benefits of receipts from foreign currency hedging but that was set off by the increases caused by changes in exchange rates.
Net profits for the second quarter of 2013 totaled $3.7 million, compared to a loss of about $6.1 million in the parallel quarter of last year.
Cash flow from regular activities during the 2^nd quarter 2013 totaled about $47.8 million, compared to $14.1 million in the parallel quarter of last year. Cash flow for the first 6 months of the year totaled about $128.3 million.
The EBITDA for El Al for the second quarter of 2013 totaled about $31.9 million. Compared to $29.7 million in the parallel quarter of last year.

Results for the first half of 2013:

Revenues for the first half of this year totaled about $960.7 million, compared to $945.9 million in the parallel quarter of last year, an increase of about 1.6%.
Operating expenditure for the first half of 2013 totaled about $840.9 million, compared to $827.3 million in the parallel quarter of last year, an increase of about 1.6%. The change is largely the result of increased costs of salaries as explained below, while the ratio on turnover remains almost unchanged – about 87.5% in the reported half-year.
Gross profits for the six months totaled about 12.5%, reaching about $119.8 million, compared to $118.6 million in the parallel quarter of last year.
Operating losses for the first half of 2013 totaled about $29.3 million, compared to an operating loss of about $21.4 million in the parallel quarter of last year.
Financing. In the first half of 2013 the Company reported net financing costs (after offsetting financing revenues) of about $9.1 million. This compares to net financing costs of about $18.5 million in the parallel quarter of last year. The change is largely the result of the benefits of receipts from foreign currency hedging but that was set-off by the increases caused by changes in exchange rates.
Net losses for the first half of 2013 totaled about $28.8 million, compared to a net loss of about $29.4 million in the parallel quarter of last year.
El Al’s EBITDA for the first half year totaled about $20.7 million, compared to EBITDA of $33.1 million in the parallel quarter of last year.

Additional data:

As of June 30, 2013 the Company’s cash on hand, cash equivalencies and short-term deposits totaled $121.9 million. It should be noted that during the first half of 2013 the Company invested around $75 million in fixed assets, in accordance with the Company’s multi-annual investment program, in addition to prior financing of the new 737-900s. The Company also repaid current loans totaling $42.1 million and obtained loans of $45.6 million, mainly for the purchase of fixed assets.
Company equity, as at June 30, 2013 totaled $107 million.

As reported above, El Al will soon retire its last Boeing 767-200, bringing down the number of aircraft types to four. The carrier had previously retired the last Boeing 757-200 last year.

When the 767-200s joined the El Al fleet, it was the first plane that allowed a direct, nonstop route to Chicago (O’Hare) and Hong Kong. Later on, two 767-200s were used for opening the nonstop route to Miami.

As part of the renewal process, El Al is adding new Boeing 737-900 ER planes.

El Al: