Just six weeks ago it looked as if the treasury was ready to put an end to the El Al Airlines farce. Just before he stepped down as the ministry’s director general, Shai Babad presented a revised rescue plan for the ailing airline. Its main feature was the government’s commitment to buy whatever portion of a $150 million share offering the public wouldn’t buy.
Given El Al’s desperate financial situation and its shrinking market capitalization, that promise would leave the State of Israel holding as much as 61 per cent of the carrier’s stock, thereby nationalizing it after 16 years in private hands.
The chances that Tami Mozes Borovitz would be able to retain control of El Al were slim, especially given her poor record running the airline before the coronavirus brought it to its knees. When Eli Rozenberg, the scion of a New York nursing home fortune, emerged as a potential buyer that chance disappeared entirely. Rozenberg offered to pay $75 million in exchange for being allocated 44.99 per cent of El Al stock. Mozes Borovitz would be diluted to just 26 per cent from 28 per cent today.
But now it increasingly looks as if she will retain control of El Al after all. The airline will get the $250 million government-guaranteed loan on offer (the other component of the treasury rescue plan) long before she moves forward with the share offering that dilutes her stake. She won’t have to put a penny of her own capital into the airline.
Meanwhile, the Histadrut labor federation is giving her a helping hand by forcing El Al’s pilots to agree to wage reductions that will save the airline between $110 million and $140 million annually, depending on who you ask.
In the midst of a severe liquidity crisis, El Al has been pressuring the Finance Ministry to let it take the $250 million loan already in the next few days. It notes that under recently passed legislation it needs the cash to pay ticket holders whose flights were cancelled due to the coronavirus.
If the treasury consents, it will mark a complete reversal of what its new director general, Keren Terner-Eyal said just last week in a letter to the airline’s board, namely that the state “will provide the guarantees only after the public share offering and the company’s receiving the proceeds.”
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El Al is pulling all the political strings it can to reverse Terner-Eyal’s stand. It not only wants to get the guarantees immediately but to remove the condition that the share offering takes place. It contends that Terner-Eyal’s timeframe is unrealistic. She wants the offering to be completed by the end of August, much earlier than the end-October deadline that had been set by Babad.
El Al owes ticket holders some $300 million, which it must begin repaying either by August 14 or within 90 days of the cancelled flight, whichever is later. It’s estimated that the airline will have to come up with $60 million of that sum in the final two weeks of the month.
The treasury is insisting that the share offering take place no later than September 17 because after that date the High Holidays begin and it will be difficult to raise money. El Al is saying that if the Finance Ministry isn’t willing to let it borrow the whole $250 million, then it should at least let it borrow $60 million to repay ticket holders. If not that, then it wants to be able to withdraw excess money it contributed to the company pension fund, which amounts to about $67 million.
It’s also lobbying the Knesset Economics Committee to push back the deadline for beginning to repay ticket holders by two weeks.
Delays in granting Rozenberg and his self-appointed trustee, Harel Locker, a license to control the airline is another factor working in favor of Mozes Borovitz’s campaign to retain control of El Al. After retracting a decision to halt the process of examining his application, the Government Corporations Authority has been moving it forward at a snail’s pace. Rosenberg’s offer is becoming more irrelevant by the day.
On Monday, El Al itself erected a new obstacle for Rozenberg: The company’s attorney, Avigdor Klagsbald, notified Rozenberg’s lawyer that the airline could not respond materially to his offer, among other reasons, because it is unclear whether it is Rozenberg himself or his father, Kenny, who is really the investor. Therefore, Klasgbald said, he would need the approval of a general shareholders meeting, which can only be called on 35 days’ notice. If so, Rozenberg’s end-of-August deadline for El Al to accept his offer renders the offer null.
Sources close to Rozenberg reacted angrily, saying that instead of calling him to a meeting to discuss his offer to rescue the airline, the board is raising baseless technical problems and pressuring the treasury. They noted that El Al could seek a court order cutting the shareholders’ meeting notice time. Such requests are made routinely.
Klagsbald’s letter shows the board isn’t interested in seriously entertaining Rozenberg’s offer, they said. In addition, they noted, Rozenberg has already reached an understanding with the pilots that would award them share options in exchange for wage cuts, but the source said, Mozes Borovitz has since been trying to drive a wedge between the two sides.