El Al pilots, executives raking in huge bonuses

El Al Israel Airlines Co., Ltd. (Tase:Eral) could dream of better compensation for the damage caused by the coronavirus pandemic, which almost led to bankruptcy, than the impact of the war, which brought record profits last year and pushed the company’s market capitalization to NIS 3.4 I didn’t think so. Billion.

The long list of beneficiaries of El Al’s turnaround includes the company’s shareholders, led by controlling owner Kenny Rosenberg, senior executives and, as it turns out, the company’s pilots. According to a study by Globes, El Al pilots will receive bonuses worth NIS 130 million ($35 million) if the company’s profit margins are maintained in the second half of 2024 and all trends are met. It will be.

This is based on the terms of a labor pay agreement signed in 2018, when no one expected airlines to earn this much in a single year. By the end of 2023, El Al state will employ 555 pilots, and each pilot is expected to receive an average grant of nearly 250,000 NIS ($67,500).

Under the 2018 agreement, if El Al’s annual pre-tax profits exceed $100 million, Pilot will receive 6% of El Al’s profits for that year. El Al has already made a pre-tax profit of almost $300 million in the first half of 2024. Market expectations are that the third quarter will be even better than the past two record quarters, but the only question is by how much?

Even if El Al doesn’t earn anything in the fourth quarter, the pilots will pocket Sh84 million in bonuses, assuming the third quarter is as good as the second. No wonder El Al already has provisions regarding this in its financial statements.

Goals that were recently considered unrealistic

Even if El Al’s performance hadn’t been as good, the pilots would still have made a lot of money under the 2018 salary agreement. According to the agreement, Pilot will receive 2% of the company’s profits on a pre-tax profit of $25 million. For profits up to $50 million, you will receive 4% of profits, and for profits up to $100 million, you will receive 5%.

Please note that pilot bonuses are conditional on the company’s decision to distribute grants to management or employees. But at such a successful time for El Al, there’s no reason to think otherwise. The plan was so successful that El Al was able to dream big and try to acquire control of the credit card company Isracard at a valuation of NIS 3.1 billion, but the offer was later withdrawn.

Until the beginning of the war, these were tremendous profit targets. El Al posted a pre-tax profit of $125 million in 2023, but posted a loss of $14.4 million in 2022, after suffering huge losses the previous year due to the coronavirus pandemic.

Evidence that El Al will have difficulty turning a profit before 2023 can be seen in its executive compensation policy. The desired target is an annual profit of $20 million, for which CEO Dina Ben Tar Ganancia will receive a special subsidy of up to 2% of annual pre-tax profit, up to a maximum of NIS 3 million, and 90% of the subsidy. You will be able to do that. In addition to the award to Chairman Amicum Ben Zvi, other members of the management team will also receive grants.

Even without the huge profit bonuses, El Al Al’s pilots are well paid. In 2020, El Al revealed in court that the average monthly salary for its pilots was N95,000, with some earning up to N160,000 per month. The pilots claimed that the figure was inflated and that their actual pay was less than half that amount. The pilot salary agreement revised in 2022 (valid until the end of 2025) states the annual pilot salary cost at Sh635 million (before additional benefits).

Dividing this amount by the number of El Al pilots supports the salary estimates the company presented in court. Despite pilots making up only 11% of El Al’s workforce, pilot salaries accounted for more than 42% of the company’s total payroll expenditure in 2022.

The 2022 agreement reverses the 31% reduction in pilot pay that the company had to absorb during the coronavirus pandemic, which is reflected in a nearly 30% jump in the company’s total payroll spending over the past two years. Ta. These are significant, as payroll costs at El Al are the company’s largest expense (more than fuel costs), totaling $334 million in the first half of 2024 and $567 million in all of 2023. It is the amount.

As part of their salary, pilots in El Al enjoy a benefits package that includes six free flights, a 90% discount for pilots and their families on all flights, and payment of car, travel, and phone bills. I am. Dental insurance and other benefits.

Owners and management also benefit greatly

Of course, the pilots’ compensation is due to American businessman Kenny Rosenberg, who seized control of the airline in the midst of the 2020 coronavirus pandemic, taking a huge risk and seizing the opportunity. It is insignificant compared to the reward. Unknown to the Israeli public at the time, he invested a total of NIS 800 million in this company (stocks, options, loans). His shares and options are now worth almost NIS 1.9 billion. So, on paper, his investment amounted to NIS 1.1 billion.

This increase is, of course, due to the war situation, with El Al’s stock price soaring 170% since October last year, especially as foreign airlines suspended flights to Israel, giving El Al a monopoly on many routes. be. , is particularly used between Israel and North America, with a market share of 46% for passengers traveling to and from Ben Gurion Airport. This situation led to soaring freight costs and huge profits. El Al has not paid taxes to the state on these profits and does not plan to pay taxes on them in the coming quarters because it is still “carrying forward” large losses from previous years.

Rich compensation options for CEO and Chairman

El Al’s management team, led by CEO Dina Ben Tar Ganancia and Chairman Amikam Ben Zvi, is one of the biggest beneficiaries of the company’s business boom, along with more than a dozen other executives. It is. These managers received options with an exercise price of NIS 3.89 per share, but today’s market share price is more than NIS 8, more than double.

The profit value of Ben Tar Ganancia’s options is currently worth approximately NIS 6.2 million, that of Ben Zvi is worth NIS 4.9 million, 11 other senior executives hold options worth NIS 30.2 million, and two more It holds options worth NIS 6.7 million. These options are worth a total of approximately Sh48 million.

Additionally, these executives enjoy one-time subsidies for their profits. The CEO has already benefited from a subsidy of NIS 2.4 million in 2023, while the Chairman has received a subsidy of almost NIS 1.8 million. Next year, their grants are expected to increase to NIS 3 million and NIS 2.7 million, respectively.

El Al has not yet responded to this report.

Published by Globes, Israel Business News – en.globes.co.il – on October 31, 2024.

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