MIAMI – El Al Israel Airlines (LY) controlling shareholder Eli Rozenberg has decided to inject an additional US$50m into the ailing airline. The money was part of an agreement with the Ministry of Finance, which saw Rozenberg buy a controlling 42.9% stake for US$105m in El Al’s public offering on the Tel Aviv Stock Exchange (TASE) in September.
The US$50m injection is in addition to an owner’s interest free US$10m loan that Rozenberg’s holding company Kanfei Nesharim Aviation announced. It is part of the debt that El Al is currently trying to raise with government guarantees.
As reported earlier this week by “Globes,” the Israeli Ministry of Finance has agreed to raise the amount of loans it is prepared to guarantee from US$250m to US$300m. It will also raise the percentage of the guarantees from 75% to 82.50%. Kanfei Nesharim said, “Businessman Eli Rozenberg is committed to the financial stability of El Al. He will put the necessary resources and tools to strengthen the company at its disposal.”
El Al chairman David Brodet said, “We have earned full cooperation and high trust from the Ministry of Finance in order to lead El Al to take off anew and assure the future of the company. The commitment of Eli Rozenberg and the injection of additional capital with the state guarantees will ensure that El Al will meet its commitments.”
Some in Israel argued that selling to Rozenberg would amount to a circumvention of the law prohibiting non-Israelis from owning the airline. Eli Rozenberg is a resident of Israel and an Israeli citizen. His father Kenny, Kenny, who owns a nursing home chain in the United States, is not.
The source of the financing for the deal is a 25-year loan from Kenny Rozenberg, Eli Rozenberg confirmed in a meeting with the El Al board of directors, the Israeli business daily Globes reported.
Kenneth (Kenny) Rozenberg is the founder and CEO of Centers Heath Care, a chain of nursing homes in the United States. The Rozenbergs, Orthodox Jews from New York, have no known experience in the airline business. According to a recent report in Hebrew business daily Calcalist, Kenny’s rabbi instructed him to buy the Israeli airline.
Many have speculated that Eli will simply become the new owner de jure — because he has Israeli citizenship, a precondition for ownership of the airline — with his father pulling the strings.
However, the Times of Israel reports, in their correspondence with Israeli regulators, Eli Rozenberg’s representatives have stressed that he, and only he, will be the new owner of El Al and that it will be he, and not his father, who will be running the business.
Those questions have placed a focus on the business of the older Rozenberg, with some press reports in the US offering an unsavory portrayal of how he runs some of his nursing homes. These reports paint a picture of a business that scoops up not-for-profit nursing homes and turns them into for-profit machines — laying off employees to cut costs, altering the ratio of workers to residents, and diluting the quality of patient care.
The company recently paid a US$1.65m settlement to the US federal government and New York state for fraudulent billing practices.
The travel-restricting Coronavirus crisis dealt an almost-fatal blow to the already-troubled airline. El Al ceased its scheduled passenger operations and sent some 5,800 of its 6,303 employees out on unpaid leave. Over the past months the airline has gradually begun a return to regular service.
Revenues at the airline for the second quarter of the year plunged by 74% to US$152m. The company recorded a net loss of some $105 million for the quarter, compared with a US$100,000 net profit in the same quarter in 2019.
In the first half of the year, revenue had dropped 53% to US$472m from US$1.01bn in the first half of 2019, the company said. Net loss in the first half of 2020 widened 344% to US$244m, from a net loss of US$55m in the first half of 2019.
Featured image: Luca Flores/Airways