El Al Israel Airlines Ltd. (TASE:ELAL) could not have dreamed of better compensation for the damage caused by the Covid pandemic, which almost led to its collapse, than the consequences of the war, which have resulted in record profits over the past year, and boosted the company’s market cap to NIS 3.4 billion.
The long list of those benefiting from the turnaround in El Al’s business performance includes the company’s shareholders, led by controlling owner Kenny Rozenberg, its senior executives, and, as it turns out, the company’s pilots too. An examination by “Globes” found that if the company’s profit rate is maintained in the second half of 2024, and all the signs are that this will be the case, then El Al’s pilots will receive bonuses worth a total of NIS 130 million ($35 million).
This is in accordance with a clause in the collective wage agreement signed in 2018, when nobody imagined the airline earning so much money in one year. At the end of 2023, El Al employed 555 pilots, so each of them is expected to receive an average bonus of nearly NIS 250,000 ($67,500).
Under the 2018 agreement, if El Al’s annual pre-tax profit exceeds $100 million, the pilots will receive 6% of that year’s profits. El Al has already earned almost $300 million before tax in the first half of 2024. Market estimates are that the third quarter will be even better than the previous two record quarters, the only question is by how much.
Even if El Al earned nothing in the fourth quarter, and assuming the third quarter was as good as the second, the pilots would pocket a bonus of NIS 84 million. No wonder El Al has already made provisions for this in its financial statements.
Targets that were recently considered far-fetched
Even if El Al’s results were not nearly as good, the 2018 salary agreement would still have earned the pilots a great deal of money. According to the agreement, if pre-tax profit is $25 million, the pilots receive 2% of the company’s profits. In the case of a profit of up to $50 million they receive 4% of the profits, and on a profit of up to $100 million they receive 5%.
It should be noted that the pilots’ bonus is conditional on the company’s decision to distribute bonuses to its management or to any of its employees. But there is no reason to assume that it will not do so, in such a successful period for El Al; so successful that it has allowed El Al to dream big and try to acquire control of credit card company Isracard, at a valuation of NIS 3.1 billion – although its offer has since been withdrawn.
Until the war broke out, these were far-fetched profit targets. In 2023, El Al recorded a pre-tax profit of $125 million, and in 2022 it lost $14.4 million dollars, with massive losses in the preceding years due to the Covid pandemic.
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Evidence of El Al’s difficulty in making a profit prior to 2023 can be found in the company’s executive remuneration policy. The desired target was annual profit of $20 million, which would allow CEO Dina Ben Tal Ganancia to receive a special bonus of up to 2% of annual pre-tax profit, up to an amount of NIS 3 million, and 90% of that bonus to chairman Amikam Ben Zvi, as well as bonuses to other top executives.
Even without the huge bonus from profits, El Al pilots are well paid. In 2020, El Al revealed in court that its pilots earned an average salary of NIS 95,000 per month, and that some had monthly salaries of up to NIS 160,000. The pilots argued that the figures were inflated and that their real salary was less than half these amounts. The revised salary agreement with the pilots in 2022 (valid until the end of 2025) stated that the annual salary cost of the pilots was NIS 635 million (before additional benefits).
Dividing this amount by the number of El Al’s pilots, supports the salary estimates presented in court by the company. Pilots’ salaries accounted for over 42% of all the company’s salary expenses in 2022, despite the fact that their proportion of El Al’s workforce is only 11%.
In the 2022 agreement, the 31% cut in pilots’ salaries, which they had to absorb during the Covid pandemic, was canceled, and this was reflected over the last two years in a jump of almost 30% in the company’s total salary expenses. These are extremely significant amounts, since employee compensation is El Al’s largest expense (exceeding expenditure on fuel), totaling $334 million in the first half of 2024, and $567 million in all of 2023.
As part of their salaries, El Al pilots enjoy a benefits package that includes, among other things, six free flights, a 90% discount for the pilot and family members on all flights, as well as payments for car and travel expenses, telephones, dental insurance and other perks.
Owner and management also profiting big time
Of course, the pilots’ remuneration pales into insignificance in comparison with that of Kenny Rozenberg, the US businessman who seized the opportunity – taking an enormous risk – when he acquired control of the airline in the midst of the Covid pandemic in 2020. Rozenberg, until then an unknown name to the Israeli public, invested a total of NIS 800 million in the company (in shares, options and loans). His shares and options are currently worth almost NIS 1.9 billion, so on paper he is NIS 1.1 billion up on his investment.
The jump in value is of course due to the circumstances of the war which has seen El Al’s share price jump 170% since last October. Because so many foreign airlines have stopped flying to Israel, El Al has become a monopoly on many routes, particularly between Israel and North America, and has had a 46% market share of passengers flying to and from Ben Gurion airport. This situation has led to a jump in fares and huge profits. On those profits, El Al does not pay taxes to the state, as it is still carrying over large losses from previous years, and the company is not expected to pay tax on its profits in the coming quarters either.
Generous remuneration options for the CEO and chairman
El Al executives, led by CEO Dina Ben Tal Ganancia and chairman Amikam Ben Zvi, along with other executives, are among the biggest beneficiaries of the boom in the company’s business. These managers have received options at an exercise price of NIS 3.89 per share, while the share price in the market today is over NIS 8 – more than double.
The value of the benefit in options for Ben Tal Ganancia is currently about NIS 6.2 million, that of Ben Zvi is NIS 4.9 million, while 11 other senior executives have options worth NIS 30.2 million and two more have options worth NIS 6.7 million. In total, these options are worth about NIS 48 million.
In addition these executives enjoy one-time bonuses for profits. The CEO already benefited in 2023 from a bonus of NIS 2.4 million and the chairman from almost NIS 1.8 million. In the coming year, their bonuses are expected to increase to NIS 3 million and NIS 2.7 million respectively.
No response to this report has been forthcoming from El Al.
Published by Globes, Israel business news – en.globes.co.il – on October 31, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.
