Next to Bibi’s three-ring coronavirus circus with its magical disappearing coronavirus czars, cast of clownish ministers and 3,000-shekel checks falling like confetti from the sky, El Al Airlines is a sideshow. But it’s no less crazy.
Since the coronavirus struck, the airline has would down its operations to zero with no hope in sight of their returning anytime soon. While other countries have given tens of billions of dollars in aid to their carriers or let them go bankrupt, Israel has let El Al twist in the wind amid months of bailout negotiations. Greedy as ever, El Al pilots act as if the coronavirus is someone else’s problem.
And, in the midst of this craziness emerges, seemingly out of nowhere, a wealthy American who is ready to buy control of El Al – as is, no questions asked. It seems as if El Al has a savior who will rescue it from all the madness.
It doesn’t. Kenny Rozenberg (or more precisely his son, Eli, who as an Israeli citizen is the only one in the family legally entitled to control the airline) doesn’t have what it will take to save Israel’s flagship carrier. This has nothing to do with his business acumen. To his credit, he built a nursing home and health care empire from scratch and his fortune is reported to be between $500 million and $1 billion. But he lacks the two things El Al needs right now.
One is a controlling shareholder with deep pockets. It was ailing even before the coronavirus and even the most optimistic forecasts don’t see the global aviation market returning to its pre-coronavirus activity before the end of 2023.
Rozenberg is offering to inject $75 million into El Al in exchange for being issued just under 45% of the stock, which would give him control without having to make a general offer to all the other shareholders. But El Al will need a lot more cash than that. It has debt of $1.3 billion to banks and owes another $300 million to ticketholders whose flights were canceled. Even the $250 million government-guaranteed loan the treasury is offering won’t keep El Al afloat for long. Rozenberg certainly doesn’t have that kind of cash and it’s hard to imagine he would be able to raise from others in the current environment.
The other thing he needs is airline experience. True, Rozenberg could hire a CEO or a turnaround expert to lead the company, but El Al’s recent history as a privatized business shows that it needs a lot more leadership than a hired-hand CEO can likely give it. Even before the pandemic struck, El Al was losing market share at a rapid pace because it simply couldn’t effectively compete in the freer air travel market created by the Open Skies agreement with the European Union.
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Why is Rozenberg willing to take such a big risk? Some media reports say that his rabbi urged him to buy El Al. Whether there’s any substance to that report or not, the fact that Rozenberg is willing to invest tens of millions in El Al without due diligence should sound alarm bells. This isn’t an ordinary business deal.
Without a White Knight, El Al is left with two choices.
The first is bankruptcy. No one in any official capacity has seriously uttered the word, but the treasury’s foot-dragging may be designed to bring about just that outcome. There are some advantages: El Al would be able to negotiate with its creditors and labor unions to cut costs and alleviate some of its debt.
The coronavirus has already driven a handful of global airlines into bankruptcy and many have continued to fly. It’s no great embarrassment even if it the country’s legendary, iconic and other buzzwords airline. El Al might emerge stronger financially with its name and reputation intact.
But it would be messy and in the end the government may well have to step in anyhow to provide the money to keep El Al flying. The airline business is prone to bankruptcy due to its high fixed costs and highly cyclical business, and the Israeli airline business is even more cyclical due to wars. The idea that somehow Israel can be home to a major world airline and never cost the taxpayers a shekel is a fantasy.
The second option is the one that seemed to be El Al’s fate before Rozenberg arrived on the scene, namely backdoor nationalization via the government’s buying into a stock offering.
There are a lot of problems with the state taking control of El Al. Government-owned companies have a poor record of being well run, unions ride roughshod over weak CEOs and politicians interfere with management.
The treasury hopes to avoid the worst side-effects of nationalization by appointing a trustee and passing legislation that would prevent El Al from being officially designated a state-owned enterprise. Presumably, the airline industry’s coronavirus depression will tame the unions for the next couple of years.
That should be enough for now. Under government ownership, El Al won’t become a dynamic, entrepreneurial business, but given the outlook for air travel, the airline would do best to hunker down and wait for better times. When they arrive, the kind of owner El Al needs will be there.