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El Al ends 2007 with record revenues

El Al‘s revenues totaled $1.93 billion, compared to $1.67 billion for the comparative period last year, an increase of 16% as the carrier’s Chairman of the Board Prof. Israel (Izzy) Borovich and Haim Romano, El Al’s President announced during the presentation of the El Al’s financial reports for 2007.

Highlights:

  • Operating revenue for the year totaled $71.4 million, compared to a loss of $8.5 million last year
  • Annual pre-tax profit totaled $40.4 million, compared to a loss of $40.7 million last year
  • Annual after-tax profit totaled $31.7 million, compared to a loss of $33.9 million last year
  • Cash flow from regular ongoing activities in 2007 totaled $231.2 million, an increase of about 136% compared to last year
  • Revenues for the fourth quarter totaled $524.3 million, an increase of about 26%, compared to the same quarter last year
  • Annual growth of about 4.4% in aircraft load factors (seat occupancy), from 81.3% to 84.9%

Prof. Israel (Izzy) Borovich, Chairman of the Board of El Al, noted that: "Once again, in 2007, El Al continued to be the leading player in the Israeli civil aviation market, and remains the biggest carrier of passenger traffic to and from Israel. The 2007 financial reports reflect significant changes for the Company in several parameters. The reality of today’s competition facing El Al differs entirely from that which the Company had to face in the past. Competition is expected to increase in the near future. The shareholders and Management continued determinedly in implementing the business strategy "El Al 2010", and within that framework, took steps to implement the growth policy. The total of investments until now, including future investments, totaled about $1.1 billion – an unprecedented amount in Israeli terms. These investments covered aircraft purchases, upgrading the present fleet, and improvements in technological infrastructure. The Company Management continues implementing its investment and efficiency programs, and I believe that the Company’s financial strength will continue to allow us to invest in and achieve the Company’s targets".

Haim Romano, Company President, noted that: "The Company made a remarkable recovery in 2007, even though the results of the Second Lebanese War, which reduced incoming tourism sharply in 2006, were still very apparent during the first half of the year. El Al’s ability to show profits is the result of the determined effort to reduce expenses while increasing revenues, particularly through the growth engines the Company defined for itself  – the business passenger segment and incoming tourism. All this, together with optimizing and reorganizing routes and fleets, brought about the increases in all the Company’s growth engines and resulted in record growth in revenues and increases in load factors.

"We saw expressions of all these in 2007, in spite of the fierce new competition. Beginning in the second quarter of 2006, foreign carriers have increased their seat capacity by about 57%. Meeting the growing competition is a parallel challenge to facing other critical outside factors as well: The increase in the price of fuel, reaching new levels of over $110; the sharp drop in the dollar to a low of 3.4 shekels; and if that were not enough – geopolitical conditions continue to destabilize tourism, and Israel is as vulnerable as always.

"In response, El Al stuck steadfastly to its "El Al 200" strategic policy, and continued to optimize all its activities; to reduce unprofitable activities; to add capacity for developing and increasing markets and destinations, such as the Far East.

During 2007, the Company increased the number of passengers and increased seat availability by 2%, while at the same time using the aircraft fleet at high efficiency. The Company attained a load factor of better than 85%.

As part of the efficiency plans, the Company reduced management and general expenses to about 4.7%. In addition, in 2007, the Company reduced average human resources requirements by about 230 manpower/years, compared to 2006. This reduction was achieved in cooperation with the employees."
 
El Al presented its financial results for the 4th quarter of 2007.

Results for 2007:

  • Annual revenues totaled $1.93 billion, compared to $1.67 billion last year, an increase of about 16%. The increase in revenues resulted mainly from the increase in passenger revenues, stemming from the increase in passenger-segments flown by the Company, and the average revenue increase per passenger/kilometer. In addition, there was an increase in other revenues, in particular from providing maintenance services to other airlines, and in duty-free sales.
  • Operating revenues totaled $1.54 billion, compared to $1.39 billion last year, and increase of about 10%. The increase in operating expenses stem largely from the increase in the cost of jet fuel – the most significant expense of all the Company’s expenditures. Another significant expenditure was on salaries, because of the revaluation of the shekel and the euro against the dollar, although this was partly offset by the reduction in the average number of employees throughout the year. Other costs included increased aircraft maintenance and flight equipment expenses, and also overflying (transit) fees. The ratio of operating costs to turnover dropped from about 83.7% last year to about 79.7% in 2007. The cost of aviation fuel for the Company in 2007, after hedging returns of about $8.3 million, rose by about 19% compared to last year, and totaled $556.3 million in 2007, compared to $465.9 million in 2006. Aviation fuel expenses represented about 28.8% of turnover, compared to about 28% last year, and about 36.1% of operating expenditures, compared to about 33.4% of last year’s operating expenditures. At the same time, the Company presents operating efficiencies, expressed as a growth of about 4.4% in aircraft load factors, from 82.3% last year, to 84.9% in 2007.
  • Gross profits totaled about $392.8 million (a ratio of about 20.3% on turnover), compared to about $271.3 million last year (a ratio of about 16.3% on turnover), an increase of about 45%. The increase in gross profits and the ratio to turnover stem largely from increased revenues, which were higher than the increase in operating expenses.
  • Management & general expenses dropped by $1.2 million, and totaled $90.8 million in 2007, compared to $92 million last year. The ratio of these expenses to turnover dropped from about 5.5% last year to about 4.7% in 2007.
  • Operating Profits totaled $71.4 million, at a ratio of 4% on turnover, compared to an operating loss of $8.5 million last year. Cost-of-sales expenditure rose by $42.8 million, largely as a result of increased commissions to agents, on higher sales.
  • Pre-tax Profit totaled $40.4 million, a ratio of 2.1% on turnover, compared to a pre-tax loss of $40.7 million last year.
  • Net profits totaled $31.7 million, compared to a loss of $33.9 million last year. The 2007 net profit represents 1.6% of turnover.
  • Cash flow from current activities totaled $231.2 million, compared to $98.1 million last year, an increase of about 136%. The increase stems largely from the pre-tax profits this year, compared to the pre-tax loss recorded last year, as well as from the increase in the balances of payable suppliers.
  • Cash balances for the Company as at the 31st December 2007 stood at $260.2 million, compared to $143.4 million as at 31st December 2006, an increase of about 81%. This is after current repayments of loans totaling $103.6 million, as well as investments in fixed assets and in purchasing aircraft, totaling $248.6 million.
  • Company equity as at 31st December 2007 totaled $292.5 million, compared to $214.1 million as at 31st December 2006, an increase of about 37%. The increase is largely the result of profits for the period; from deposits from the State of Israel in the employees’ compensation funds; and from exercising share options to shares, and offsetting dividends paid and an additional dividend for shareholders that was announced (and paid in January 2008).

Fourth quarter results:

  • Revenues totaled $524.3 million, compared to $416.7 million in the parallel quarter last year, and increase of about 26%. The increase stems from the increased passenger and cargo revenues, and other revenue sources.
  • Operating expenditure totaled $429.3 million (at a ratio of 81.9% on turnover), compared to $349.3 million in the parallel quarter last year. (ratio of about 83.8% on turnover), an increase of about 23%. The increase in operating expenditure stems largely from the drastic increase in expenditure on aviation fuel. Nevertheless, as stated, the ratio of operating expenditure to turnover dropped.
  • Allocations for bonuses to employees and managers totaled $6.1 million
  • Net profits totaled $95.0 million (18.1% on turnover), compared to $67.4 million in the comparative quarter last year (16.2% on turnover) an increase of 41%
  • The operating loss totaled $1.1 million, compared to an operating loss of $9 million in the comparative quarter last year. Expenses on sales during the quarter totaled $71.3 million, compared to $52.1 million in the comparative quarter last year. The increases arose from the increase in sales, resulting in higher commissions paid to agents.
  • Losses in the quarter totaled $8.4 million, compared to a loss of $15.9 million in the comparative quarter last year, a drop of about 49%

Professor Borovich thanked Mr. Haim Romano the Company President, the Company employees both in Israel and around the world, and the Managers, for adhering to the targets and fulfilling the aims. He added that everyone had been determined to reach targets of increased profits for the Company, to increase revenues and decrease expenses – resulting in the positive results we see today. Achieving these results, especially when the Company struggles against the stiff competition of other airlines serving Israel, airlines that increase their seat capacity on direct and indirect routes from Israel, is proof of the commitment and joint efforts of the Company’s employees to make the Company the leader, and to realize its vision to always be the first and preferred choice for air travelers into and out of Israel.

Haim Romano, El Al President, said: "The Company achieved the targets it set for itself in 2007: Increased revenues, reduced expense ratios, and correct handling of the Company’s intrinsic value. The overall aim is to become profitable and financially powerful. The Company takes pride in offering attentive, quality service for passengers’ benefit and the benefit of the employees and shareholders, while proceeding with its investment programs. The Company continued with its efficiency program, reduced inefficient and unprofitable routes, increased services to the Far East, and added flights on high-demand routes. As part of the efficiency program, the Company reduced the average human resources requirements in 2007, by about 230 manpower/years, in comparison to 2006. This reduction was achieved in cooperation with the employees. We make extra efforts in the domain of human resources, so that we can reach a positive agreement with the employee representatives in the coming period.

"We continue to invest resources and planning concepts with the aim of maintaining El Al’s status as the leader in the field. We are continuing to implement our "El Al 2010" strategy, which includes many activities to implement our growth policy. This includes: Last summer the Company received its new Boeing 777s, "Sderot" and "Kiryat Shmonah", purchased directly from Boeing. In the summer of 2008, two 737-800s will be added to the fleet, and three more in the beginning of 2009. In addition, the Company has acquired another 747-400 from Singapore Airlines. The aircraft will begin El Al service in October 2008. All these aircraft are outfitted with new seats and state of the art entertainment systems. On the 16.3.08, the Company announced that it has signed an agreement with Boeing, through which it will purchase four new 777-200s, at a cost of about $540 million. These will be supplied during 2012.

"The Company recorded revenues of $1.93 billion million in 2007, an increase of about 16% compared to the comparative quarter last year. The Company increased the number of passengers; increased seat availability by 2% while efficiently using the fleet of aircraft; and achieved extremely high load factors on its aircraft during the year – about 85%. In addition, the Company recorded its highest ever profits since its establishment in 1948. All this in spite of increasing competition, characterized especially by increased capacity offered by foreign carriers for both passengers and cargo. I must emphasize that these impressive results were achieved while facing challenges, record highs in fuel costs (that added $86 million to the Company’s expenses compared to last year), and changes in the currency rates that resulted in an increase of about $26 million in expenditure for the Company.

"Moreover, the Company continued in purchasing and assimilation activities of advanced computer equipment, including the AMADEUS reservations system and the ERP system.

"The Company launched its new Business Lounge at JFK airport, in cooperation with Bank Leumi, and continues cooperating in service strategies. Special emphasis was placed on handling the premium business sector, by adding frequencies to high-demand destinations, and more".

In December 2007, a cooperative code-share agreement with American Airlines was signed. This will offer El Al passengers the possibilities of onward connections to more than 20 major destinations served by American Airlines, through the USA.

Haim Romano concluded: "I do believe that the steps we have taken will continue to bear fruit in the foreseeable future. The continued revenue growth and volume of passenger traffic, together with effectively meeting the challenges and influences of outside factors – soaring fuel costs, the weakening dollar – becoming more efficient and the ongoing steps taken to improve the excellent service, are proof of the Management and employees’ ability to meet growing competition. We will preserve El Al’s position as the leader in aviation. The Company will continue to meet all and every challenge brought on by the stiff competition of the foreign air carriers".

Mr. Nissim Malki, El Al’s Vice President Finance, said: "We are proud to present these impressive results in 2007; increases in the Company’s activities and profitability, in spite of the many challenges and the outside influences that the Company had to face. These include the effective cost of aviation fuel (after a rebate of $8.3 million through hedging) that rose by 18% this year; as well as the strengthening of the shekel and euro against the dollar, which led to an increase in expenditure of $112 million. Some of this cash flow stems from obligations concerning employee/employer relations. The increase in the Company’s shekel expenses in dollar terms is especially noticeable in the field of employee salaries, some of which was partly offset by a reduction of about 235 employees during the year. This was part of our efficiency efforts, and additional shekel obligations to payable suppliers in Israel. Fine revenue management capability brought about an impressive increase in revenue turnover. In view of this, and in spite of the increase in operating expenditure, we are able to present a significant improvement in gross profits, which totaled $392.8 million, and operating profits of $71.4 million – amongst the highest the Company has ever attained – compared to an operating loss last year. The substantial results are reflected in the bottom line, in the net profit of $31.7 million, compared to the loss of $33.9 million last year".

Mr. Malki concluded: "The Company’s financial robustness is reflected in the strong cash flow from ongoing activities, totaling $231.2 million, an increase of 136% compared to 2006. Within the strategic planning framework, we invested $248.6 million this year in rejuvenating and renewing the aircraft fleet, and in fixed assets. This year we also repaid current debts, to the tune of $103.6 million, including repayment of a balloon loan of $40 million, in a one-time payment. Company equity totaled $292.5 million, an increase of 37% compared to the previous year. This leaves the Company with a cash situation of $260.2 million, as a powerful and stable base on which to continue the investment and growth policy, and to ensure the Company’s position as the leader in the field."

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