Israeli airlines are set to receive a government bailout to overcome the coronavirus crisis. The government is planning advance ticket purchase agreements with airlines to increase revenue. El Al is the first to receive this bailout and has seen the government buy upfront tickets for $ 210 million.
Long to come
According to Reuters, Israel has announced a new bailout for the country’s ailing airlines. The package was long overdue because the country did not provide direct financial assistance during the crisis, offering instead only government guaranteed loans. This time around, the government is offering bailouts, but with a trap.
Airlines will be bailed out by purchasing tickets in advance for Israeli air security personnel who are to go to various airports. This means that the government will buy hundreds of thousands of tickets in advance, thus increasing the airlines’ cash reserves, and will use the tickets over the next two decades for security personnel who must travel.
El Al is the first beneficiary of this program, which replaces a $ 300 million project government guaranteed loan. The government bought seats for $ 210 million from El Al and the Sun Dor branch for use by security guards for over 20 years. Other airlines that carry security personnel will be offered similar offers in the coming weeks.
It’s not a new idea, with Hong Kong purchase of 500,000 tickets of the city’s airlines last spring to boost the airlines and later offer the tickets through a raffle. These tickets cost the government $ 260 million and came at a critical time for Cathay Pacific airline and others.
While many major aviation markets have provided direct stimulus through bailouts, Israel has not. Instead, the government has taken a more fiscally prudent approach to ensure it recovers its funding. This meant that flag-bearer El Al and others obtained loans with a state guarantee, providing money but increasing debt.
However, purchasing tickets is an acceptable middle ground for airlines, offering benefits now. While carriers could lose future revenue from government stranded seats, the need for survival trumps that. Given that Israel’s border has been largely closed for a year, the bailout will be essential for airlines.
The bailout comes at a key moment for airlines, on the cusp of a recovery. Israel rushed to immunize its population, providing both doses to nearly 50% of the population. Once a critical mass of the population is reached, the country will reopen completely for tourism, national first and international later.
Countries around the world will look to Israel as the first example of a country achieving normalcy. If the cases fall soon, the country could even reopen its border and allow the return of vaccinated tourists. For now, airlines are hoping that the bailout will be enough to ensure the resumption of aviation.
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