Eli Rozenberg, a 27-year-old New York-born yeshiva student who lives in Jerusalem, became the owner of Israel’s embattled national carrier El Al on Wednesday after he placed the only bid at a share offering at the Tel Aviv Stock Exchange.
Rozenberg’s Kanfei Nesharim company bought a controlling 42.85% stake in the airline with a $150 million offering.
The state, which had committed to buying any unwanted shares as part of a rescue package, bought some $30 million worth of shares for a stake that could equal between 12% and 15% of the company.
The share issue was part of a $400 million rescue package formulated by the Finance Ministry, consisting of government-backed loans for a total of $250 million with guarantees for 75 percent of the loan in case of defaults; the share offering on the Tel Aviv Stock Exchange at a minimum price of NIS 0.671 per share to help prop up the equity of the firm, which has more than $2 billion of net debt; and efficiency steps, including cutting back on 2,000 workers.
Rozenberg was one of three potential buyers, including David Sapir, a Russian-Israeli businessman involved in tourism and telecommunications in Russia, and Meir Gurvitz, a British-Israeli businessman who has real estate activities in the UK and US.
On Wednesday, only Rozenberg put in a bid.
“First and foremost Kanfei Nesharim takes upon itself a great responsibility to restore the trust of passengers, and to ensure the jobs of thousands of El Al employees, and lead Israel’s airline into a secure future. Throughout recent months Kanfei Nesharim has proven its seriousness, commitment and financial ability to help rehabilitate El Al,” the company said in a statement following the purchase.
It said that under new management El Al would put a focus on “punctuality” and upgrading food services across all classes.
The already troubled airline was dealt an almost-fatal blow by the travel-restricting coronavirus crisis, which caused El Al to cease its scheduled passenger operations and send some 5,800 of its 6,303 employees out on unpaid leave.
Its financial statements for the first and second quarter of the year warned that there are “considerable doubts” regarding the continued existence of the company as a going concern, with revenues plunging and losses ballooning.
Rozenberg, a 27-year-old Israeli citizen and yeshiva student who lives in Jerusalem, had already deposited $15 million for the purchase in a trustee account to prove his seriousness.
The cash for the transaction will come from Rozenberg’s father Kenneth (Kenny) Rozenberg, 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 report last month in Hebrew business daily Calcalist, Kenny was instructed by his rabbi to buy the Israeli airline.
Many have speculated that if Eli became the new owner de jure — because he has Israeli citizenship, a precondition for ownership of the airline — the father will be pulling the strings.
Last month in fact, El Al’s lawyer Avigdor Klagsbald asked for clarifications from Eli Rozenberg’s Israeli attorney about whether Eli is actually representing his father and/or other investors in the acquisition process.
Klagsbald also asked for clarifications regarding a $1.65 million settlement that Centers Health Care, the nursing home chain that Kenny Rozenberg runs, paid to the US federal government and New York state for fraudulent billing practices.
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 some of his nursing homes are run. 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.
No immediate comment was available from Centers Health Care regarding the reports.
In their correspondence with Israeli regulators, Eli Rozenberg’s representatives, meanwhile 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.
The share offering and the rescue package come as the firm has been grounded by the coronavirus pandemic, causing it to put 80 percent of its 6,303 workers on unpaid leave, cut management’s and directors’ salaries by 20%, halt investments, and sign accords for the sale and lease-back of three Boeing 737-800s. The firm owes some $350 million to passengers whose flights were canceled because of the pandemic.
Revenues at the airline for the second quarter of the year plunged by 74% to $152 million, with the company recording a net loss of some $105 million for the quarter, compared with a $100,000 net profit in the same quarter in 2019. In the first half of the year, revenue had dropped 53% to $472 million from $1.01 billion in the first half of 2019, the company said. Net loss in the first half of 2020 widened 344% to $244 million, from a net loss of $55 million in the first half of 2019.
Ahead of the offering Knafaim Holdings Ltd. hold a 38% stake in the firm, the Ginsburg Group held and 8% stake and the public a 54% stake, according to a company presentation filed to the Tel Aviv Stock Exchange. As of September, the airline had a fleet of 45 planes, 27 of which are owned by the airline and 18 of which leased. The average age of its aircraft is 9.4 years, compared to 13.7 years in 2017.
The nation’s flagship airline flew 5.8 million passengers and 74,500 tons of cargo in 2019, the presentation said.