El Al Israel Airlines Announced Today its Financial Results for the Third Quarter and the First Nine Months of 2017

Editor -

El Al Israel Airlines (TASE: ELAL) announced today that revenues in the third quarter of 2017 amounted to approx. USD 626 million, compared to approx. USD 644 million in the third quarter of the previous year;

Operating revenues in the third quarter of 2017 amounted to approx. USD 69 million, compared to approx. USD 96 million in the third quarter of the previous year;

Profit before tax in the third quarter of the year amounted to approx. USD 64 million, compared to profit before tax of approx. USD 93 million in the third quarter of the previous year;

Net profit in the third quarter of 2017 amounted to approx. USD 49 million, compared to a profit of approx. USD 69 million in the third quarter of 2016;

EBITDA In the third quarter amounted to approx. USD 109 million, compared to approx. USD 142 million in the third quarter of last year;

EBITDAR In the third quarter amounted to approx. USD 147 million, compared to approx. USD 191 million in the third quarter of last year;

The Company's cash balances and deposits as of September 30, 2017 totaled approx. USD 289 million.

The number of flight segments in the third quarter of 2017 decreased by approx. 4.4% compared to the third quarter of the previous year; seat availability decreased by approx. 3.6% and RPK decreased by approx. 5.9%

Average total income per RPK (Yield) in the third quarter increased about 1.4%;

The Company's market share from passengers traffic at Ben Gurion Airport in the third quarter declined to about 26.5%;

Aircraft load factor in the third quarter of 2017 stood at approx. 85.3%, compared to 87.4% in the third quarter of the previous year;

The Company's revenues in the first nine months of 2017 amounted to approx. USD 1,585 million, compared to approx. USD 1,578 million in the first nine months of last year;

Operating profit in the first nine months of 2017 amounted to approx. USD 62 million, compared to profit before tax of approx. USD 118 million in the first nine months of last year;

Profit before tax in the first nine months of 2017 amounted to approx. USD 47 million, compared to profit before tax of approx. USD 106 million in the first nine months of last year;

Net profit in the first nine months of 2017 amounted to approx. USD 35 million, compared to a profit of approx. USD 83 million in the first nine months of last year;

David Maimon, El Al's CEO:

"The Company presented today a net profit of USD 49 million in the third quarter of 2017 as well as cash balances and high equity indicating financial strength and stability.

Operating data for the quarter was affected by the timing of the Jewish Holidays, which reduced the number of operating days compared to the previous quarter of last year, and was further adversely affected by continuous maintenance work on two of the Company's aircrafts.

The first of sixteen expected Dreamliner aircrafts arrived in August, and the second Dreamliner arrived in October. Both have commenced flights to London and Newark, and two additional Dreamliners are expected to arrive shortly and will fly to the Far East and Newark, where additional frequency will be added. Passengers report high satisfaction, generating a large demand for flights on those aircrafts, which are anticipated to serve as a significant growth engine for EL Al in years to come.

At the same time, we are working on developing additional growth engines and strengthening existing ones. We continue to implement the Company's business strategy, headed by the acquisition program of the Dreamliners, as well as the continued expansion of our network of routes and installation of Internet in airplanes (currently installed in six 739 aircrafts and commencing the first quarter of 2018, the service will be available in the new Dreamliner aircrafts). The acquisition of Israir, subject to the Commissioner's approval, strengthening the Frequent Flyer Club's credit card - "Fly Card", which currently stands at approximately 255,000 holders, and non-aviation sources of income, all these constitute a strong infrastructure for the Company's future operations and its ability to cope with competition

As part of the Company's regeneration efforts, route network expansion and the Company's intensification, El Al launched this month a direct route to Miami, to enhance the variety of destinations in the United States, for the benefit of its customers, while maintaining high availability and comfortable flight connectivity to cruise embarkation ports and diverse vacation resorts in Central America and the Caribbean Islands.

I am utterly convinced that El Al will continue to provide its customers with high quality service, maximum comfort, technological innovation and advanced aircrafts, and successfully cope with both market conditions and competition.

I would like to take this opportunity to thank and express my deepest appreciation to El Al employees, on the ground and in the air, in Israel and worldwide, who work with diligence and dedication, allowing us to successfully cope with the challenges facing us."

Dganit Palti, El Al's CFO, stated:

"The financial results for this quarter were affected by the intensifying competition and traffic at Ben Gurion Airport, in particular on the part of low-cost airlines, the weakening of the dollar compared to the shekel by about 6%, which affected payroll costs, as well as by an increase in jut fuel costs due to a 19% rise in jet fuel market price. Despite all these, the Company announced a profit before tax of about USD 64 million for the third quarter of 2017, as well as net profit of USD 49 million

Moreover, we completed the third quarter of 2017 with high cash balances of around USD 290 million, high cash flow from operating activities of approx. USD 65 million, EBITDA standing at approx. USD 109 million and equity totaling USD 305 million. These results indicate the Company's financial robustness, which allows El Al to safely move forward with the implementation of the Dreamliner aircraft acquisition strategy and meet our current and future liabilities."

Profit and loss results for the three months ended on September 30, 2017

  1.  Operating revenues – operating revenues in the reported period decreased by approx. USD 17.6 million (about 2.7%), as revenues from passengers declined by 2.5% (abuot USD 14.5 million) due to the decrease in passenger revenue per kilometer (RPK) flown by the Company, which was slightly offset by an increase in passenger yield per kilometer. Cargo revenues increased by about 4.9% (about USD 1.8 million), mainly as a result of a decline in revenue ton kilometer (RTK) flown by the Company, which was offset by the decrease in yield per ton-kilometer.

  2.  Operating expenses –operating expenses in the reported period increased by approx. USD 2.5 million (about 0.5%) compared to the third quarter of 2016. Operating expenses were mainly affected by an increase of approx. USD 8 million in the Company's payroll expenses. The increase in payroll expenses resulted from several factors, of which the most important are: the weakening of the dollar against the shekel, an increase in employee wages following wage increases under the Company's wage agreements, inter alia, agreements executed with the Pilots' sector in December 2016 and February 2017. Furthermore, the Company's jet fuel expenses also increased, as specified below. The increase in expenses was partially offset by a decline in the ad hoc lease expenses of passenger and cargo aircrafts as well as in maintenance expenses, compared to the third quarter of 2016, and also by the decline in depreciation expenses due to a change in the estimated useful life of the Boeing 777 aircrafts, as explained in Note 3.E. to the condensed financial statements.

  3.  Jet Fuel Expenses –jet fuel expenses in the third quarter rose by approx. USD 8.1 million (about 7.2%) compared to the third quarter of 2016, as a result of an increase in jet fuel prices. This impact was partially offset by the change in the results of jet fuel hedging transactions and the decline in flight hours.

  4.  Selling Expenses – selling expenses amounted to approx. USD 55.7 million, recording an increase of about USD 2 million, mainly due to an increase in the Company's advertising expenses as a result of the launching of new advertising campaigns, the increase in payroll expenses, mainly due to the change in the dollar exchange rate, and the amendment to the wage agreements, as explained above. This increase was partially offset by a decrease in the Company's distribution expenses, mostly as a result of the decline in revenues.

  5.  General and Administrative Expenses - general and administrative expenses amounted to approx. USD 28.2 million, reflecting an increase of about USD 5 million compared to the third quarter of 2016. Most of the growth comes from an increase in wage expenses, mainly due to the same reasons elaborated above, as well as an increase in various services consumed by the Company in the reported quarter.

  6.  Financing Expenses - net financing expenses amounted to approx. USD 5.0 million compared to approx. USD 6.4 million in the third quarter of 2016, mostly as a result of a decrease in exchange rate differences and an increase in income from interest on deposits.

  7.  Taxes on income – taxes on income amounted to approx. USD 14.9 million, compared to approx. USD 23.2 million in the third quarter of the previous year, mainly as a result of the drop in the Company's profit before tax.

  8.  Profit for the Period – profit before tax for the reported period totaled approx. USD 63.8 million, and profit after tax totaled approx. USD 49 million, constituting about 7.8% of the turnover, compared to a profit before tax of approx. USD 92.7 million and profit after tax of approx. USD 69.5 million in the third quarter of 2016, which constituted about 10.8% of the turnover. 

  9.  Cash Flows from Operating Activities – the Company had a positive cash flow from operating activities amounting to approx. USD 64.5 million, compared to a positive cash flow from operating activities of approx. USD 22.0 million in the third quarter of 2016. The increase in cash flow from operating activities, despite the decrease of approx. USD 20.6 million in the Company's profit, mainly resulted from the timing of salary payments, because the end of the quarter fell on Saturdays and holidays, and therefore only two months' salaries were paid during the reported quarter, whereas four months' salaries were paid during the third quarter of last year. In addition, changes also occurred in the assets and liabilities items as a result of timing differences in payments and receipts.

Profit and loss results for the nine months ended on September 30, 2017

  1.  Operating revenues – operating revenues in the reported period increased by approx. USD 7.0 million, reflecting an increase of about 0.4% compared to the first nine months of 2016, with an increase of about 1.0% in passenger revenue and a decrease of about 5.1% in cargo revenue. The increase in passenger revenue results from of an increase in passenger yield per kilometer, which was partially offset by the decline in passenger revenue per kilometer (RPK) flown by the Company. The decrease in cargo revenue in the reported period was the result of a decline in revenue ton kilometer (RTK) and yield per ton-kilometer.

  2.  Operating expenses – operating expenses in the reporting period increased by approx. USD 37.2 million (about 3.0%) compared to the first nine months of 2016. The increase in operating expenses was mainly due to an increase in the Company's payroll expenses as a result of the weakening of the dollar against the shekel and the changes in wages agreements (as explained above in the Third Quarter Results) and due to the 2016 bonus that was approved in April 2017, as well as an increase in jet fuel expenses. This increase in operating expenses was partially offset by a decrease in the ad hoc lease expenses of passenger and cargo aircrafts as well as by a decrease in maintenance expenses compared to the first nine months of 2016.

The following table reflects the impact of jet fuel expenses on the Company's results, including the impact of hedging transactions (in USD million):

  1.  Selling Expenses –selling expenses amounted to approx. USD 156.7 million, recording an increase of about USD 10 million (7.1%) compared to the first nine months of 2016, mainly as a result of an increase in payroll expenses, as explained above, and the launching of new advertising campaigns during the reported period.

  2.  General and Administrative Expenses - general and administrative expenses amounted to approx. USD 82.6 million, reflecting an increase of about USD 15 million (about 21.6%) compared to the first nine months of 2016, mostly as a result of an increase in payroll expenses, as elaborated above, as well as from an increase in expenses for various services consumed by the Company in the reported period.

  3.  Financing Expenses - net financing expenses amounted to approx. USD 14.7 million compared to approx. USD 17.0 million in the first nine months of 2016, mostly due to exchange rate differences.

  4.  Taxes on income – taxes on income in the reported period amounted to approx. USD 11.5 million, compared to approx. USD 23.0 million in the first nine months of the previous year. The decrease is mainly the result of the decline in the Company's profit before tax. It should be noted that in the first nine months of 2016, tax income of approx. USD 3.8 million was recognized due to corporate tax rate reduction in the first quarter of 2016.

  5.  Profit for the Period before Tax – profit before tax for the reported period totaled approx. USD 47 million, and profit after tax totaled approx. USD 35 million, constituting about 2.2% of the turnover, compared to a profit before tax of approx. USD 106.1 million and profit after tax of approx. USD 83.1 million in the first nine months of 2016, which constituted about 5.3% of the turnover.

  6.  Cash Flows from Operating Activities – during the first nine months ended on September 30, 2017, the Company had a positive cash flow from operating activities amounting to approx. USD 242.6 million, compared to a positive cash flow from operating activities of approx. USD 200.8 million in the first nine months of 2016. This cash flow increase is due to the same reasons mentioned above with respect to the cash flow increase in the reported quarter.

Balance Sheet Data as of September 30, 2017:

  1.  Current Assets – as of September 30, 2017, the Company's current assets amounted to approx. USD 543.8 million, recording a growth of approx. 105.6 million compared to December 31, 2016. This growth mostly resulted from an increase in cash and short-term deposit balances (see the above cash flow analysis), compared to such balances at the end of 2016, and from a seasonal increase in the receivables item, which was partially offset by a decrease in the derivative financial instruments item (see note 4 to the condensed financial statements).

  2.  Current Liabilities - as of September 30, 2017, the Company's current liabilities amounted to approx. USD 938.4 million, reflecting a growth of approx. USD 135.2 million compared to December 31, 2016. This growth mainly arises from a seasonal increase in the income from pre-sale of airline tickets' item and in trade payables and other payables compared to December 31, 2016. A further increase occurred in short-term loans designed to finance advances on aircrafts, expected to be repaid upon receipt of aircrafts by means of long-terms loans.

  3.  Working Capital – as of September 30, 2017, the Company has a working capital deficit of approx. USD 394.6 million compared to a deficit of approx. USD 365.1 dollar as of December 31, 2016. It shall be noted that a substantial part of the working capital deficit does not reflect short-term cash flows, as explained below. The Company's current ratio as of September 30, 2017 increased to approx. 58.0% compared to 54.6% as of December 31, 2016.

The working capital deficit as of September 30, 2017 consists of substantial components which are included in the Company's current liabilities items and are 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 revenue from the sale of airline tickets and from the Frequent Flyer Club totaling approx. USD 365 million, to be settled by providing future flight services, and an employee leave liability totaling approx. USD 42 million, which expected to be paid upon retirement but classified as a short-term liability in accordance with accounting principles. Furthermore, current liabilities include loans taken to finance advance payments for the 787 aircrafts, whose source of payment is based on long-term financing to be provided upon receipt of these aircrafts. As of September 30, 2017, the amount attributable to these liabilities, of the total current liabilities, stands at approx. USD 85 million.

  1.  Non-Current Assets – as of September 30, 2017, the Company's non-current assets amounted to approx. USD 1,319.9 million, indicating an increase of approx. USD 38.0 million compared to December 31, 2016, mainly as a result of advance payments made for the 787 Boeing aircraft acquisition, less current depreciation.

  2.  Non-Current Liabilities - as of September 30, 2017, the Company's non-current liabilities totaled approx. USD 620.3 million, indicating a decrease of approx. USD 12.5 million compared to December 31, 2016, mostly as a result of a decrease in bank loans, partially offset by an increase in deferred tax liabilities, mainly due to the profit before tax for the period and an increase in employee benefit liabilities (principally as a result of the strengthening of the shekel compared to the dollar).

  3.  Equity – as of September 30, 2017, the Company's equity amounted to approx. USD 305.0 million. The growth of approx. USD 20.9 million, compared to equity as of December 31, 2016, mainly resulted from the profit for the period less a dividend of approx. USD 9.9 million, net of changes in the Company's equity funds, totaling approx. USD 4.8 million.

It shall be clarified that this notice is not a substitute for reading the Company's financial statements as of September 30, 2017.