El Al Israel Airlines Ltd. Announces Financial Results for 2018 and the Fourth Quarter of 2018

Focus from 2019

The company has in the past announced a number of initiatives to improve revenue and reduce expenses, as well as actions to improve operational excellence:

• Receipt of six other 787 aircraft (a total of 14 aircraft by the end of 2019) to significantly enhance the product and the customer experience. The company expects that by the end of 2019, the average age of the aircraft fleet will decline for the first time under 10 years.
• Closure of the 747-400 aircraft fleet.
• Additional extension of the road network; by adding new routes to San Francisco, Las Vegas, Manchester and Niece, along with the expansion of existing routes.
• Preparations to open a route to Chicago in 2020.
• Expansion of cargo transport in the belly of the 787 aircraft.
• Complete interior renovation of the 737-800 aircraft fleet, including seat replacement, improved luggage storage areas and replacement of interior lighting.
• Launch an interior refurbishment project for the 777-200ER aircraft fleet, including seat replacement, entertainment system, WI-FI system installation and renovation of the general appearance of the cabin. plane.
• Updated the Frequent Flyer Club program and upgraded the Internet and mobile digital platforms.
• Modification of the compensation model for travel agents.
• Extension of the activities of the "Ofek 2021" program, among others, the logistics chain, the maintenance network and the pbadenger service.
• Implementation of the collaboration agreement with CAL, Diners, Poalim Express and Mastercard.

Results for the year ended December 31, 2018 (in millions of USD):

Operating income
Operating revenues for 2018 increased by approx. 2.1%, indicating a growth of approx. $ 45.0 million compared to 2017. Pbadenger revenues increased by approx. 2.9%, a growth of approx. $ 53.6 million, following the decrease in revenues for 2018 of approx. $ 10.7 million, following the initial application this year of the International Financial Reporting Standard 15 (the "Standard" or "IFRS 15"), which provides that the compensation of pbadengers will be recorded as a decrease of revenue instead of an expense in operating expenses, as was done in 2017. Excluding said change, the income pbadengers increased by about $ 3,000. $ 64.3 million. This increase is attributable to the increase in pbadenger revenues per kilometer traveled by the Company, an increase in the yield per pbadenger kilometer and the positive effect of foreign exchange rates in which certain sales transactions are made, the dollar.

Freight revenues decreased by about 5.0%, reflecting a drop of approx. $ 7.6 million, compared to 2017, following the increase in turnover of approx. $ 5.4 million in the year under review, following the application of the standard, whereby freight revenue from flight segments operated by foreign airlines is recognized as gross revenue; on the other hand, payments to foreign airlines are expensed, whereas in the past, the company's net share was recognized as revenue. If we exclude said change, freight revenues decreased by approx. $ 13 million as a result of a drop in the yield per tonne-kilometer and the amount of freight stolen, despite the positive impact of exchange rates.

Operating expenses
Operating expenses for 2018 increased by approx. USD 111.1 million, showing a growth of about 6.4% compared to 2017. Excluding the impact of IFRS 15, as explained in the section "Revenues" above, the results increased by approx. USD 116.5 million, For the following reasons:

• Spending on jet fuel has increased $ 96.6 million, as specified below.
• Aircraft rental expenses increased by $ 28.3 million, mainly due to the operation of 4 new aircraft leased 787-9 in 2018, in accordance with the aircraft acquisition program.
• Depreciation charges decreased by $ 11.7 million, despite the operation of 3 new 787-9 aircraft owned by the company, due to the decommissioning of some of the 747-400 aircraft in 2017 and the late decommissioning of other 747-400 aircraft, which was deferred to the fourth quarter of 2019.
• Staff costs attributable to the operation increased by $ 12.6 millionmainly due to the updating of the minimum wage and wage agreements implemented during the year.
• In 2017, the company recorded an extraordinary charge of $ 16.3 million because of the compromise agreement reached with the evaluation officer.
• The remaining increase in expenses is mainly due to business growth.

Fresh jet fuel
The company's aviation fuel costs for 2018 increased by approx. $ 96.6 million (an increase of 23.0%) compared to 2017, mainly due to the surge in jet fuel prices, partly offset by the change in the results of jet fuel hedging operations and the reduction in the amount of fuel consumed by the society. aircraft, despite the increase in the number of weighted flight hours, due to the increase in the number of 787-9 aircraft in the company's fleet, with more efficient fuel consumption.

The table below shows the impact of jet fuel expenses on the Company's results, including the impact of hedge transactions (in millions of dollars):

For further details on the coverage of the price of jet fuel, see section B (3) below. For further details on the impact of financial derivative instruments on the financial statements, see note 18 of the financial statements.

Selling fees
Selling costs have increased by approx. $ 5.9 million (approximately 2.8%) compared to 2017, primarily due to higher distribution costs attributable to the Company's revenue growth.

General and administrative expenses
General and administrative expenses increased by approx. $ 5.0 million (approximately 4.4%) compared to 2017, mainly due to a litigation provision and an increase in professional advisory fees.

Other net expenditure
Other net expenditures amounted to approx. $ 14.0 million and included capital gains from the sale of two aircraft, a 767-300 and a 747-400, which were no longer in operation in the company's fleet, as well as the sale of six engines, as well as as insurance receipts for a 767 -300 aircraft taken out of service, in accordance with Note 9E (4) of the financial statements.

Financing costs
Net financing costs in 2018 amounted to approximately $ 28.8 million compared to $ 20.5 million in 2017. The increase in costs is attributable to the increase in borrowings contracted by the Company over the fiscal year compared to 2017, resulting from the financing of 3 Boeing 787-9 aircraft acquired by the Company and from the previous year. an increase in the average exchange rate.

Loss before tax
The pre-tax loss in 2018 was approx. $ 67.7 million compared to a pre-tax profit of approx. USD 8.7 million in 2017.

Tax benefit
The fiscal advantage in 2018 was $ 15.6 million in relation to the income taxes of $ 3.0 million in 2017, due to the pre-tax loss of the reported period compared to pre-tax earnings for the reported period of 2017.

Loss for the period
The after-tax loss in 2018 was $ 52.2 million, compared to a profit of $ 5.7 million in 2017.

Results for the three-month period ended December 31, 2018 (in millions of USD)

Operating income
Operating revenues for the period considered decreased by approx. $ 18.9 millionapproximately 3.7% compared to the quarter ended December 31, 2017. Pbadenger revenues decreased by 1.7%, reflecting a drop of approx. $ 7.6 million (after excluding the impact of the application of IFRS 15 – a decrease of $ 6.5 million). This decrease is attributable to a slight decrease in the pbadenger revenue per kilometer traveled by the airline and a decrease in the yield per pbadenger-kilometer due to the worsening of competition, as well as the negative impact of currencies in which are carried out some of the sales transactions of the company, in relation to the dollar. Freight receipts decreased by approx. $ 9.4 million (a decrease of 21.9%) (excluding the impact of the implementation of IFRS 15 – a decrease of $ 10.5 million) because of the decrease in the quantity of cargo and the yield per tonne kilometer.

Operating expenses
Operating expenses for the reporting period decreased by approx. $ 20.6 million (-4.4%) compared to the three-month period ended on December 31, 2017. This decrease is mainly due to an extraordinary load of $ 16.3 million recorded in 2017 under the terms of the Compromise Agreement with the Valuation Agent for crew living expenses and the reduction of maintenance costs and salary costs attributable to aircraft 39; operating (mainly due to the weakening of the shekel against the dollar compared to the third quarter). month ended December 31, 2017). In contrast, jet fuel costs increased by approx. $ 14.6 million, as shown below, and the aircraft rental fees have increased by $ 9.8 millionprimarily due to the operation of 4 new 787-9 leased aircraft, compared to 2 aircraft in the fourth quarter of 2017. Depreciation expense decreased by USD 4.2 million taking into account the 747-400 device removal program.

The table below shows the impact of jet fuel expenses on the Company's results, including the impact of hedge transactions (in millions of dollars):

Selling and general and administrative expenses
During the reporting period, there were no significant changes in selling and general and administrative expenses.

Financing costs
Net financing costs during the period considered amounted to approximately USD 7.4 million, compared to $ 5.8 million during the three-month period ended December 31, 2017. The increase in costs is attributable to the increase in the amount of the loans contracted by the Company following the receipt of three 787-9 Dreamliners acquired by the Company, as well as the receipt of prepayment loans for purchased aircraft but not yet delivered to the Company, and an increase in the LIBOR rate.

Loss before tax
The pre-tax loss for the reporting period was approximately $ 41.5 million compared to a pre-tax loss of approx. $ 38.2 million during the three-month period ended December 31, 2017.

Tax benefit
The tax benefit during the reporting period was $ 9.8 million, compared to a tax advantage of USD 8.4 million during the three-month period ended December 31, 2017.

Loss for the period
The after-tax losses of the period in question amounted to $ 31.6 millionaccounting for 6.4% of sales, compared to a loss after tax of $ 29.7 million during the three-month period ended December 31, 2017which represents 5.8% of turnover.

Additional balance sheet data at the date of December 2018

Current badets
Short-term badets of the company at December 31, 2018, rose to around. $ 417 million, indicating a drop in USD 102 million compared to their balance at December 31, 2017. This decrease is mainly due to a decrease in cash and cash equivalents, short-term deposits and receivables, as well as a decrease in the fair value of derivatives due to the drop in jet fuel prices.

Current liabilities
The current liabilities of the company at December 31, 2018, rose to around. $ 1.015 million, indicating an increase of approx. USD 58 million compared to their balance at December 31, 2017. The variance is due to an increase in short-term credits and current maturities resulting from loans made to the Company to fund aircraft advances, which must be repaid upon receipt of aircraft through long-term loans, and an increase in increase in current liabilities of derivative financial instruments due to the fall in jet fuel prices towards the end of the year. On the other hand, the income recognized on sales of prepaid air tickets from the sale of airline tickets decreased, mainly due to the impact of the application of IFRS 15, as explained in note 2D financial statements.

Working capital
From December 31, 2018, the company had a working capital deficit of approx. $ 598 million compared to a deficit of approx. $ 438 million from December 31, 2017. It should be noted that a substantial portion of the working capital deficit does not reflect short-term cash flows, as explained below. From December 31, 2018, the current ratio of the company has decreased to 41.1%, compared to the current ratio of 54.2% to December 31, 2017. From December 31, 2018, the working capital deficit consists of significant components included in the current liabilities item and characterized by the current business cycle; However, the Company is not required to use short-term cash flow sources to reimburse these items: prepaid products from the sale of airline tickets and the Frequent Flyer Club of approximately. USD 311 million, to be settled by providing future flight services, and vacation pay commitments to employees in the amount of approx. $ 44 million, which should be paid upon retirement, but clbadified as a current liability in accordance with accounting principles. Current liabilities also include loans totaling USD 102 million, taken by the Company to fund advances on the 787 aircraft, to be repaid by means of long-term financing obtained upon receipt of aircraft.

Non-current badets
Non-current badets at December 31, 2018, rose to around. $ 1.692 million, showing a growth of approx. $ 359 million compared to their balance at December 31, 2017primarily due to the receipt of three 787-9 Dreamliners owned by the Company during the reporting period and advance payments for the acquisition of the 787 aircraft that have not yet been received, less the amortization expense. course. See note 9 of the financial statements.

Non-current liabilities
Non-current liabilities at December 31, 2018 it was up to about. USD 865 million, reflecting an increase of approx. $ 248 million compared to December 31, 2017. This increase is mainly due to three loans received by the Company to finance the acquisition of three 787-9 Dreamliners received during the reporting period, offset by the current loan maturities. See note 13 (b) of the financial statements.

Equity
From December 31, 2018, the total equity of the company was approximately $ 229 million. The decrease of USD 49 million compared to equity in December 31, 2017 This is mainly attributable to the year-to-date loss and the negative change in equity funds in terms of hedging of cash flows to jet fuel prices, partially offset by the positive impact on equity of the aircraft. Society. $ 37.5 million following the implementation of the IFRS 15 international financial reporting standard (see note 2D of the financial statements).

This announcement does not replace the reading of the Company's financial statements for 2018.

About EL AL
El Al Israel Airlines Ltd. is the national airline of Israel. In 2018, El Al recorded revenues of nearly USD 2.15 billion. El Al carries around 5.6 million pbadengers a year. the The company operates flights to 36 direct destinations around the world and many other destinations through codeshare agreements with other airlines and currently operates 42 aircraft.

Teleconference Details
A teleconference was held on Wednesday, March 13, 2019at 12:30. A recording of the teleconference will be available for all interested parties March 13, 2019at 2:00 pm, until the March 20, 2019, at telephone number 972-3-9255943, as well as on the company's investor relations website at: https://ir.elal.com, from March 15, 2019.

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SOURCE EL AL Israel Airlines Ltd.

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