El Al Israel Airlines Ltd. Announced Today Its Financial Results for the Third Quarter and First Nine Months of 2018

LOD, Israel, Nov. 21, 2018 /PRNewswire/ -- The Company's (TASE: ELAL) revenues for the third quarter of 2018 amounted to approx. USD 642 million compared to approx. USD 626 million for the third quarter of 2017, indicating a growth of about 2.5%.

Operating profit for the third quarter of 2018 amounted to approx. USD 62 million compared to approx. USD 69 million for the third quarter of 2017, indicating a decrease of about 11%.

Profit before tax for the third quarter of 2018 totaled approx. USD 54 million, compared to profit before tax of approx. USD 63.8 million for the third quarter of 2017.

Net profit for the third quarter of 2018 amounted to approx. USD 42 million compared to approx. USD 49 million for the third quarter of 2017.

EBITDA for the third quarter of 2018 amounted to USD 99 million compared to USD 109 million for the third quarter of 2017.

EBITDAR for the third quarter of 2018 amounted to USD 137.7 million compared to USD 147.3 million for the third quarter of 2017.

The Company's cash and deposit balances as of September 30, 2018 totaled approx. USD 246 million.

The number of flight segments in the third quarter of 2018 declined by approx. 0.7% compared to the third quarter of 2017; however, passenger revenue per kilometer flown (RPK) increased by approx. 1.3% and available seat per kilometer (ASK) increased by about 1.2%.

Average total income per RPK (Yield) for the third quarter of 2018 grew by about 2.1%.

Aircraft load factor for the third quarter of 2018 stood at 85.4%, similarly to the third quarter of 2017.

The Company's revenues for the first nine months of 2018 amounted to approx. USD 1,649 million compared to USD 1,585 million for the first nine months of 2017, reflecting a growth of about 4%.

Operating loss for the first nine months of 2018 amounted to approx. USD 4 million compared to an operating profit of approx. USD 62 million for the first nine months of 2017.

Loss before tax for the first nine months of 2018 amounted to approx. USD 26 million compared to a profit before tax of USD 47 million for the first nine months of 2017.

Net loss for the first nine months of 2018 amounted to approx. USD 21 million compared to USD 35.4 million for the first nine months of 2017.

Gonen Usishkin, El Al's CEO:

"During the third quarter of 2018, EL Al recorded a 2.5% growth in revenues compared to the third quarter of 2017, and at the same time coped with the challenges and changes presented by the aviation industry as well as the continued trend of increased competition posed by foreign airlines companies, and in particular, low cost airlines. Alongside these, the Company has dealt with the sharp increase in jet fuel prices, about 37%, which is the main reason for the increase in the Company's expenses and of the decline in profitability.

Recently, the Company entered into a new agreement with its pilots, which is expected to ensure proper labor relations and create a positive atmosphere of cooperation between the management and pilots. This agreement provides a response to the new regulations of the Aviation Law, and will assist the Company in implementing and realizing its commercial plans. We believe that an agreement regulating our relationship with the pilots will assist moving the Company forward.

Our Dreamliner aircrafts acquisition program is being implemented as planned, in line with the schedule agreed upon. So far, we received seven aircrafts, the last of which, was delivered at the end of October and, in 2019, we expect to receive seven more Dreamliners. The demand for seats on the Dreamliners is high and customer satisfaction meets the Company's expectations.

We continue accelerating the process of optimizing and upgrading all of our wide-body aircrafts. To improve customer service and increase efficiency, we have expedited the removal of the entire 767 aircraft fleet from service, so its operation will end by the end of January 2019.

In line with the Company's announcement, in October we launched flights to European destinations under the new sales model established by the Company. This model enables passengers to choose the flight package best suited to their needs, to all European destinations of the Company, and pay for the package they chose. This model improves El Al's ability to more efficiently compete with all players in the European market, and in particular, Low-Cost airlines.

The Company diversifies its flight schedule. Whilst it prepares to launch the new San Francisco route, which will start operating in May 2019, EL AL expands its flights destinations in Europe, so that flights to Lisbon and Nice, that were carried out by Sun d'Or ( EL AL's subsidiary) on a seasonal basis, will be operated regularly by the Company throughout the year. In addition, the company will launch a new route to Manchester, England, starting May 2019. We will continue to optimize and improve our network of routes and will constantly examine the opening of attractive destinations for our customers.

Dganit Palti, El Al's CFO, noted as follows:

"During the third quarter, competition in Ben-Gurion Airport continued to grow, alongside the increase recorded in the number of passengers. In light of these two trends, we succeeded in increasing the company's revenues by 2.5% in the quarter and maintaining a high occupancy rate (Load Factor), while YIELD increased, even though the occurrence of the Jewish high holidays in this quarter reduced the Company's operating days by more then 4%.

At the same time, the Company's expenses increased, mainly due to the 37% increase in the price of jet fuel, which increased net expenses after hedging by approx. USD 28 million.

We concluded the third quarter of 2018 with a cash balance of approx. USD 246 million, EBITDA of approx. USD 99 million and equity in the amount of approx. USD 314 million."

Highlights for the three and nine-month periods ended September 30, 2018 (in USD millions):

Profit and Loss Results for the Three and Nine-Month Periods Ended September 30, 2018

1. Operating revenues – operating revenues for the reported period increased by approx. 2.5%, indicating a growth of approx. USD 15.4 million compared to the third quarter of 2018. Revenues from passengers increased by approx. 3.2%, representing a growth of approx. USD 18.5 million.  This increase in passenger revenues is primarily attributable to the growth in passenger revenue per kilometer (RPK) flown by the Company, despite the USD 2.8 million decrease in revenues for the period as a result of the initial implementation this year of International Financial Reporting Standard 15 ("IFRS 15"), which provides that passenger compensation will be recognized as a decrease in income in lieu of recording an expense under operating expenses, as done so far. It should be noted that this year, the Holiday of Sukkot occurred in September (and ended at the beginning of October), whereas last year, the entire Holiday occurred in the fourth quarter. Cargo revenues decreased by approx. 12.4% (about USD 4.8 million) due to the decline in yield per ton-kilometer and the drop in cargo flown, notwithstanding the USD 1.3 million increase in revenue for the quarter as a result of implementing IFRS 15, whereby revenue from flight segments flown by foreign airlines are reported as gross income; and on the other hand, the payment to foreign airlines is considered an expense whereas in the past, the Company's net share was recorded as income.

2. Operating expenses – operating expenses for the reported period increased by approx. USD 34.8 million, indicating a growth of about 7.4% compared to the third quarter of 2017. The increase in operating expenses is mainly due to an increase of approx. USD 28.0 million in jet fuel expenses, as set forth below, and the increase in payroll expenses attributable to operating expenses, primarily as a result of a one-time expense totaling USD 4 million in accordance with the agreement entered into with the Company's pilots, as described in the Update to Section 9.4.5.2 of the Description of the Company's Business Report. In addition, an increase was reported in expenses for fees and services, mostly as a result of the IFRS 15 implementation, which increased these expenses by approx. USD 1.3 million. On the other hand, operating expenses were offset by the presentation of passenger compensation payments as a decrease in income due to this year's initial implementation of IFRS 15, totaling approx. USD 2.8 million, as mentioned above.

3. Jet fuel expenses - the Company's jet fuel expenses for the third quarter of 2018 increased by approx. USD 28.0 million (an increase of 23.0%) compared to the third quarter of 2017, mainly as a result of the escalation in jet fuel prices, offset in part by the change in the results of jet-fuel hedging transactions.

The table below demonstrates the impact of jet fuel expenses on the Company's results, including the impact of hedging transactions (in USD millions):

For further details regarding the impact of derivative financial instruments on the financial statements, see Note 4 to the condensed financial statements.

4. Selling expenses – no significant change occurred compared to the third quarter of 2017.

5. General and administrative expenses – general and administrative expenses for the third quarter of 2018 decreased by approx. USD 1.9 million compared to the third quarter of 2017. This decrease is primarily attributable to a decline in payroll expenses, mainly due to the strengthening of the dollar compared to the shekel and the drop in IT systems maintenance expenses.

6. Financing expenses – financing expenses for the third quarter of 2018 amounted to approx. USD 8.7 million compared to approx. USD 5.0 million for the third quarter of 2017. The increase in costs is attributable to the increase in the amount of loans taken by the Company over the quarter compared to the third quarter of 2017, due to the receipt of three 787-9 Boeing aircrafts acquired by the Company and the increase in the average LIBOR interest rate.

7. Profit before tax - profit before tax for the reported quarter totaled approx. USD 54 million compared to profit before tax of approx. USD 63.8 million for the third quarter of 2017.

8. Taxes on income – taxes on income amounted to approx. USD 12.4 million compared to taxes on income of USD 14.94 million in the third quarter of 2017.

9. Profit for the period – profit for the period amounted to approx. USD 41.6 million, constituting 6.5% of the turnover, compared to a profit of USD 48.9 million for the third quarter of 2017, which constituted 7.8% of the turnover.

Profit and Loss Results for the Nine-Month Period Ended September 30, 2018

1. Operating revenues – operating revenues for the reported period increased by approx. USD 63.9 million, indicating an increase of 4.0% compared to the nine-month period ended September 30, 2017, despite a decrease of approx. USD 9.5 million as a result of the implementation of IFRS 15, which provides that passenger compensation will be recognized as a decrease in income in lieu of recording an expense under operating expenses. Excluding the foregoing, a growth of approx. USD 70.8 million (5.0%) was recorded in passenger revenue, as a result of an increase in passenger revenue per kilometer (RPK) flown by the Company, increase in yield per passenger-kilometer and the positive impact of exchange rates of currencies in which some of the Company's sale transactions are made, in relation to the dollar. Cargo revenue increased by approx. USD 1.8 million (1.6%) as a result of an increase in cargo volumes and exchange rates impact as well as the IFRS 15 implementation. On the other hand, a fall in prices has offset the revenue growth.

2. Operating expenses – operating expenses for the reported period increased by approx. USD 131.8 million (a growth of 10.3%) compared to the nine-month period ended September 30, 2017. This increase is attributable to a number of factors, including, inter alia, an increase of USD 82 million in jet fuel expenses, as elaborated below. Also, aircraft lease expenses grew by approx. USD 18.5 million, mainly due to the operation of three leased 787-9 Dreamliners, compared to the operation of only one aircraft in the third quarter of 2017. Moreover, operating expenses for the reported period were affected by the growth in operations; an increase of USD 17 million in payroll expenses which, among others, was mainly due to the impact of the strengthening of the shekel in relation to the dollar compared to the first nine months of 2017; the Minimum Wage Update and a one-time impact resulting from the agreement entered into with the Company's pilots, as described in the explanations for the reported quarter's results. Additionally, expenses for fees and services increased by approx. USD 12.6 million, mainly as a result of the growth in operations and the intensified impact of increased fee rates paid by the Company to the Israel Airport Authority for its operations at Ben Gurion Airport, inter alia, due to a decline in the Company's market share at Ben Gurion Airport, which led to a decrease in discount rates obtained by the Company. Operating expenses were further affected by the IFRS 15 implementation, which led to an increase of USD 4.5 million in the Company's expenses. On the other hand, operating expenses were offset by the presentation of passenger compensation payments as a decline in income due to the initial implementation this year of IFRS 15, totaling USD 9.5 million, as explained above.

The table below demonstrates the impact of jet fuel expenses on the Company's results, including the impact of hedging transactions (in USD millions):

3. Selling expenses – selling expenses increased by approx. USD 6.3 million (about 4.0%) compared to the nine-month period ended September 30, 2017, mainly due to an increase in distribution expenses resulting from the growth in sales.

4. General and administrative expenses – general and administrative expenses rose by approx. USD 4.9 million (about 5.9%) compared to the nine-month period ended September 30, 2017. This increase is primarily attributable to a provision for legal actions and the increase in IT systems maintenance expenses and professional consulting services.

5. Net financing expenses – net financing expenses amounted to approx. USD 21.3 million, compared to USD 14.7 million for the nine-month period ended September 30, 2017. This increase is mainly due to the increase in the amount of loans taken by the Company following receipt of three 787-9 Dreamliners acquired by the Company and the increase in the LIBOR interest rate, as well as due to expenses for exchange rate differentials in the reported period compared to income from exchange rate differentials for the nine-month period ended September 30, 2017.

6. Loss before tax - Loss before tax totaled approx. USD 26.3 million compared to profit before tax of approx. USD 46.9 million in the nine-month period ended September 30, 2017.

7. Tax benefit – tax benefit amounted to USD 5.8 million compared to a tax expense of USD 11.5 million for the nine-month period ended September 30, 2017, as a result of the loss before tax for the reported period, compared to profit before tax for the nine-month period ended September 30, 2017.

8. Loss for the period – loss for the period amounted to approx. USD 20.5 million, constituting 1.2% of the turnover, compared to a profit after tax of USD 35.4 million for the nine-month period ended September 30, 2017, which constituted 2.2% of the turnover.

Below are the main changes in the assets, liabilities and equity items as of September 30, 2018 compared to December 31, 2017:

1. Current assets - amounted to approx. USD 502.7 million, indicating a decline of approx. USD 15.7 million compared to their balance as of December 31, 2017. This decline mostly resulted from a decrease in cash, cash equivalents and short-term deposits, offset in part by an increase in the fair value of derivatives.

2. Current liabilities - totaled approx. USD 928.0 million, indicating a decrease of approx. USD 28.3 million compared to their balance as of December 31, 2017. The change is attributable to a decrease in prepaid revenues from sales of airline tickets, primarily due to the impact of the IFRS 15 implementation, as explained in Note 7 to the financial statements, as well as a decline in provisions and liabilities to employees (among others, due to the payment made under the compromise agreement entered into with the Assessment Officer), partially offset by an increase in current maturities.

3. Working capital - the Company has a working capital deficit of approx. USD 425.3 million compared to a deficit of approx. USD 437.9 million as of December 31, 2017. It should be noted that a substantial part of the working capital deficit does not reflect short-term cash flows, as explained below. As of September 30, 2018, the Company's current ratio remained unchanged compared to current ratio of 54.2% as of December 31, 2017. As of September 30, 2018, the working capital deficit consisted of substantial components included in the current liabilities item and characterized by current business cycle; however, the Company is not required to use cash-flow sources in the short term in order to repay these components: prepaid revenues from sale of airline tickets and the Frequent Flyer Club totaling approx. USD 328 million, to be settled by providing future flight services, and liabilities to employees for vacation pay in the amount of approx. USD 42 million, which are expected to be paid upon retirement but classified as a short-term liability in accordance with accounting principles. Current liabilities also include loans totaling USD 37 million, taken by the Company to finance advance payments on the 787 aircrafts, to be repaid through long-term financing obtained upon receipt of aircrafts.

4. Non-current assets - amounted to approx. USD 1,669.6 million, showing a growth of approx. USD 336.6 million compared to their balance as of December 31, 2017, mainly due to the receipt of three 787-9 Dreamliners owned by the Company during the reported period and advance payments for the acquisition of the 787 aircrafts that have not yet been received, less current depreciation.

5. Non-current liabilities - totaled approx. USD 930.2 million, reflecting an increase of approx. USD 313.4 million compared to December 31, 2017. This increase was primarily attributable to three loans obtained by the Company to finance the acquisition of three 787-9 Dreamliners. See note 5.B to the condensed financial statements.

6. Equity - amounted to approx. USD 314.0 million. The increase of approx. USD 35.8 million compared to equity as of December 31, 2017 was mainly attributable to the positive impact USD 37.5 million on equity as a result of the IFRS 15 implementation (see note 7.A to the condensed financial statements), and improvement in the cash flow hedge funds due to cash flow hedging of USD 18.6 million, offset by the negative impact of the loss for the nine-month period.

It is hereby clarified that this notice does not replace reading the Company's financial statements as of September 30, 2018.

About El Al

El Al Israel Airlines Ltd. is the National Air Carrier of Israel. In 2017, El Al recorded revenues of nearly USD 2 billion. El Al carries about 5.5 million passengers a year. The Company operates flights to about 35 direct destinations around the world and many other destinations by means of cooperation agreements with other airlines, thus it currently operates 45 aircrafts, of which 28 are owned by the Company.

www.elal.com

Details of Conference Call

A conference call to review the Company's results took place on Wednesday, November 21, 2018, at 12:30 IL. A recording of the conference call will be available to all interested parties from November 21, 2018, at 14:00, until November 28, 2018, via phone number +972-3-9255943, as well as on the Company's Investor Relations website at: https://ir.elal.com commencing November 22, 2018.

For further details:

Related Links

http://www.elal.com