El Al Israel Airlines
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Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding EL AL ISRAEL AIRLINES LTD. FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2013 (unaudited( CONTENTS SECTION A - UPDATE OF CHAPTER A TO 2012 ANNUAL REPORT SECTION B - DIRECTOR'S REPORT SECTION C - FINANCIAL STATEMENTS Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding Update to Chapter A (Description of the Corporation’s Business)1 to the 2012 Periodic Report (the “Periodic Report”) of EL AL Israel Airlines Ltd. (the “Company”) The following are updates to Chapter A - a Description of the Corporation’s Business: General The Group’s Concise Consolidated Financial Statements (hereinafter: the “Interim Financial Statements”) have been prepared in accordance with IAS 34, “Interim Financial Reporting”. In the preparation of these Financial Statements the Group implemented accounting policy, rules of presentation and calculation methods identical to those implemented in the preparation of its Financial Statements for December 31 2012 and the year ending on that date. Regarding new accounting standards adopted, see Note 3 to the Financial Statements. This update includes material changes or innovations occurring in the Company’s business over the course of the third quarter of 2013 that must be described in the Periodic Report. The update refers to item numbers in as they appear in the Description of Corporate Business in the Group’s 2012 periodic report published March 21 2013 (ref. no. 2013-01-013387). To Item 3.1 – Investments in the Corporation’s Capital – General Following the Company’s reports in its Financial Statements, regarding an investment agreement regarding funds from the FIMI Group (“FIMI”), FIMI informed the Company on October 10 2013 that it was canceling the investment agreement between the parties, as the preconditions set in the investment agreement were not met. To Item 6.1 – Movement in the International Aviation Industry and to Item 7.1.3.(a) – Changes in the Extent of Activity in the Field and its Profitability – International Developments IATA data for January-September 2013 indicate a 5.0% increase in passenger traffic on both international and domestic flights, with international traffic alone listing a slightly greater increase, at 5.2% compared to the corresponding period last year. An increase was listed in all areas, with the most significant increase in passenger traffic listed in the Middle East, Africa and South America. The airlines’ seat offerings on international flights increased by 4.4% in this period, a lower rate than the growth in passenger traffic, and led to a slight improvement in load factors on international passenger flights, to 80.0% versus 79.3% in the corresponding period last year. Note also that in January-September 2013, airborne cargo shipping in international flights increased by 0.3% compared to the corresponding period last year. 1 This update is in accordance with Regulation 39a of the Securities Regulations (Periodic and Immediate Reports), 1970 and includes material changes or additions that have occurred in corporate business on any matter to be described in the periodic report. The update refers to item numbers in Chapter A (Description of Corporate Business) in the Group's 2012 periodic report published March 21 2013. A-1 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding By regional cross-section: January-September 2013 vs. January-September 2012*: *The above table describes international traffic data only. ASK - Available Seat Kilometer – number of seats offered for sale multiplied by the distance flown. RPK - Revenue Ton Kilometer - the weight in tons of passengers and paid cargo multiplied by the distance flown. FTK- 1. Freight Ton Kilometer – the weight in tons of paid cargo (including mail) multiplied by the distance flown. PLF - Load Factor – the occupancy rate in passenger flights (percentage of seats used). FLF - 2. Freight Load Factor – the occupancy rate in cargo flights. AFTK - Available Freight Ton Kilometer – total available cargo capacity (weight in tons of cargo including mail) offered for sale multiplied by the distance flown. To Item 6.2 – Movement in the Israeli Aviation Industry and to Item 7.1.3.(b) – Changes in the Extent of Activity in the Field and its Profitability – Developments in the Israeli Market According to data provided by the Central Bureau of Statistics, the third quarter of 2013 saw 1.7 million exits of Israelis via air, a 12% increase compared to the same quarter last year. Note in this regard that the significant increase in Israeli departures derives from the timing of the holidays, meaning that this year all of the Tishrei Holidays took place in September, while last year the Sukkot holiday took place in October, in the fourth quarter. In addition, the third quarter of 2013 saw 623,000 tourist and visitor entrances (not including day trips) via air (BGN and Eilat), a 3% decrease compared to the same quarter last year. According to IAA (Israeli Airports Authority) data, total international passenger traffic through BGN increased by 10% in this quarter compared to the same quarter last year. Airlines operating at BGN increased their seat capacities by 11%, a slightly higher rate than the growth rate in passenger traffic, and as a result, the average load factor on passenger flights dropped slightly from 87.3% in the third quarter of 2012 to 86.5%. Cargo traffic increased by 0.5% in the third quarter of 2013 compared to the same quarter last year. A-2 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding To Item 6.3 – Fluctuations in Jet Fuel Prices, and to Item 9.5.1 – Raw Materials and Suppliers – Fuel The third quarter of 2013 saw a 1.5% drop in the average market price of jet fuel compared to the same quarter last year. The effective average jet fuel price paid by the Company, after hedging activity, remained unchanged compared to the same quarter last year. In Q3 2013, fuel costs constituted 30.3% of the Company’s turnover (in the same quarter last year, fuel costs constituted 31.61% of its turnover). The following data refers to jet fuel prices (markets basket), as quoted by Platts.[1] As of September 30 2013 the Company held an inventory of jet fuel purchased from suppliers in Israel and abroad worth $9.3 million. For further details, see Section b.1.(3) of the September 30 2013 Board of Directors Report. To Item 6.4 – Fluctuations in Foreign Currency Rates As of September 30 2013, the exchange rate of the NIS vs. the USD was revalued by 9.6% relative to September 30 2012, and by 5.3% relative to December 31 2012. As of September 30 2013, the exchange rate of the U.S. dollar vs. the euro was devalued by 4.1% relative to September 30 2012, and devalued by 2.3% relative to December 31 2012. For further details, see Section b.1.(5) of the September 30 2013 Board of Directors Report. To Item 6.5 – Interest Rate Fluctuations The average 3-month Libor rate dropped from 0.43% to 0.26% in the third quarter of 2013 compared to the same quarter last year. For further details, see Section b.1.(4) of the September 30 2013 Board of Directors Report. 1. Passenger Aircraft Activity To Item 7.1.3 – Changes in the Volume of Activity and Profitability of the Area In September 2013, IATA revised its projected profit forecast for global airlines for 2013 from $12.7 billion to $11.7 billion, constituting 1.7% of the airlines’ revenues, which are expected to amount to $708 billion. Airline performance continued to improve in Q2 2013, albeit at a slower rate than expected by IATA in its previous forecast. Expected airline profits for 2013 are significantly higher than profits of $7.4 billion listed in 2012. Airline performance remains good in 2013 and operating profits will reach a rate of 3.2%, as in 2006, despite a 54% increase in jet fuel prices. The airlines are expected to absorb this significant increase in costs as a result of the industry’s streamlining, meaning structural changes (such as consolidation and collaboration between airlines) and an increase in airline revenues from the sale of associated products. IATA forecasts predict that the improvement will continue in 2014 as well, with global airlines earning $16.4 billion in that year. The data in the table below refers to the total activity of international airlines on both international flights and on domestic flights, by region: [1] To the best of the Company's knowledge, Platts is a company from the McGraw-Hill Group that has provided information on the energy industry for over 75 years. Platts provides information and up-to- date analyses, among other things, on international prices and events pertaining to the petroleum, petrochemical, natural gas and electric and nuclear power markets. A-3 Free Translation of the Hebrew Language Financial Report - Hebrew Wording Binding The key factors for the change in IATA’s 2013 projections: GDP – the global growth rate for 2013 is expected to be 2.0%, less than the growth rate earlier predicted by IATA and less than the 2012 growth rate, which amounted to 2.2%. Passengers – the expected growth in passenger traffic remains high (5%), slightly less than the 5.3% growth rate listed in 2012 and the growth rate IATA predicted earlier. At the same time, according to the IATA forecast, the total number of passengers is expected to exceed three billion, for the first time in history. Yield per passenger is expected to remain unchanged compared to 2012 (compared to a 0.3% improvement in the previous forecast from June).