Grounded by virus, ailing long before, El Al’s future could be sealed next week
Yeshiva student Eli Rozenberg, 27, whose dad owns US nursing home chain, seeks control; owner Tamar Mozes Borovitz may fight back; government hopes it won’t have to nationalize
Shoshanna Solomon was The Times of Israel's Startups and Business reporter
As El Al Israel Airline’s grounded airplanes bake under the blazing August sun on the tarmac of Ben Gurion International Airport, a battle over the fate of the debt-laden airline is also heating up.
With an end-of-the-month deadline for a government rescue package looming, the flagship carrier whose history is entwined with that of the nation could be sold to a new owner, could face opposing parties battling for control of its shares on the Tel Aviv Stock Exchange, or could fold after 72 years of operations.
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.

The government’s rescue package
In light of the firm’s dire straits, the Finance Ministry has formulated a $400 million rescue package, accepted by El Al’s board, which consists of government-backed loans for a total of $250 million with guarantees for 75 percent of the loan in case of defaults; a share offering on the Tel Aviv Stock Exchange to raise $150 million to help prop up the equity of the firm, which has more than $2 billion of net debt; and efficiency steps, including the dismissal of 2,000 workers.
This week, TheMarker financial website said the Finance Ministry was mulling allowing El Al to issue government-backed bonds for $250 million, instead of getting bank loans for that amount as originally planned, since the banks have been reluctant to cough up the money.
The original Finance Ministry proposal also says that should investors, or one strategic investor, for the share sale fail to materialize, the government will step in and buy up any unsold shares. This move could make the government once again the controlling shareholder of the airline, which it privatized in 2004 after having taken it over in 1982, when it was hobbled by strikes and labor disputes.
The share sale, for a 61% stake in the firm, would dilute the 38.33% held by the airline’s current controlling shareholder, Knafaim Holdings Ltd., to some 15%, should Knafaim decide not to purchase more shares. Knafaim is controlled by Tamar Mozes Borovitz, who has a 23.58% stake in the holding firm.
If El Al wants the rescue package, it has only until Monday, August 31, to hold the share offering. If it fails to do so, the Finance Ministry’s offer will expire.
Another August 31 deadline
Meanwhile, a new and hitherto unknown player has appeared on the scene: Eli Rozenberg, a 27-year-old Israeli citizen and yeshiva student who lives in Jerusalem. Rozenberg has made an offer to pay $75 million for a 44.9% stake in the airline, which would give him control of the firm, as defined by Israeli regulation. The offer is to buy new shares issued by El Al, without any preconditions and in cash.
To show he is serious, the bidder has already deposited $15 million for the purchase in a trustee account. Rozenberg’s offer is valid till August 31, and if accepted, would lead to the dilution of holdings of all of the current shareholders by some 45%.

The cash for the transaction will come from Rozenberg’s father Kenneth (Kenny) Rozenberg, the founder and CEO of a chain of nursing homes in the United States. If Eli becomes the new owner de jure — because he has Israeli citizenship, a precondition for ownership of the airline — it seems obvious to many that the father will be pulling the strings.
Earlier this 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 if he manages to buy the stake, and that it will be he, and not his father, who will be running the business.
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.
A growing chain, and negative reports
According to the Centers Health Care website, Kenny Rozenberg founded the chain of nursing homes in 1996, when he bought his first nursing home, Williamsbridge Manor, a 77-bed skilled nursing facility in the Bronx.
Since that acquisition, Rozenberg the father has founded and bought 25 more nursing homes, two home health care agencies, and multiple medical transportation services. All are part of Centers Health Care, which operates its own facilities as well as those of third parties, according to the company’s website.
The Centers Health Care business today includes nearly 50 nursing and rehabilitation facilities in New York, New Jersey, Rhode Island and Kansas. In addition, it provides home healthcare, managed long-term care, adult day healthcare, assisted living, renal dialysis, and walk-in medical care facilities.
More recently, Rozenberg set up the Centers Plan for Healthy Living (CPHL), an approved HMO and a unit of Centers Health Care, which provides services in New York City as well as Rockland, Niagara, and Erie counties, with plans to expand to other areas in which Centers Health Care has a presence, the website says.
It has over 24,000 staffers and caregivers and over 9,000 long-and short-term residents at Centers Health Care facilities, the website says.
According to a 2017 article published by the Emergency Nurses Association, relatives of residents of the Schenectady Center for Rehabilitation and Nursing voiced concerns over the quality of care in one of the region’s largest and newest nursing homes, including unchanged diapers and cold food, due to poor staffing conditions.
However, that same 240-bed facility was later selected by US News & World Report as one of New York State’s best nursing homes, based on data from August 2019 and earlier.
A 2018 article in the Buffalo News cited an ex-head nurse at the Buffalo’s Ellicott Center for Rehabilitation and Nursing, run by Centers Health Care, who said she left because of understaffing and a lack of supplies, including clean towels and sheets, and the failure of the facility’s owners to correct the problems.

More recently, a June 10, 2020, special report by Reuters on nursing homes in the US exposed “systemic staffing problems,” including at the Hammonton Center for Rehabilitation and Healthcare, during the coronavirus pandemic. It described the case of Robyn Esaw, a double amputee, getting help with her bedpan only after wheeling herself to the nursing station and yelling, while another resident was seen sitting in a puddle of urine for hours. A COVID-19 outbreak at the site resulted in 238 infections and 39 deaths, the report said, citing state data.
Centers Health Care, which runs the facility, declined to comment on most accounts of residents and workers cited in the article, Reuters said, and denied any lapse of care at the home. The company also disputed an allegation that residents were not discovered for hours after they died, Reuters said.
In addition, a February 18, 2020, article by the Daily News said that a Bronx woman with dementia died after wandering out of her house and freezing to death. The woman’s health insurance provider, Centers Plan for Healthy Living, had declined the woman’s daughter’s plea for a round-the-clock home health aide for the mother, the report said, agreeing to provide an aide during daytime only. Centers Plan for Healthy Living did not respond to three requests for comment, the Daily News said.
Rival bidders
Eli Rozenberg’s bid received the blessing earlier this month of Israel’s Government Companies Authority, which agreed to recommend to the relevant state bodies the granting of a permit for control of the airline, if Eli Rozenberg acquired the necessary EL AL shares or presented a conditional agreement to purchase them.
Eli Rozenberg has also set up a team of experts, including former army officers, lawyers, economists and pilots, to help him navigate the acquisition of what he has said he sees as a company with potential, whose role is very important to Israel.
But two other potential buyers have also approached the Government Companies Authority regarding acquiring control of El Al. They are Meir Gurvitz, a British-Israeli businessman who has real estate activities in the UK and US, and David Sapir, a Russian-Israeli businessman involved in tourism and telecommunications in Russia, Globes reported earlier this week. The authority has not given them its nod of approval to date.
As of the writing of these lines, El Al had not yet responded to Eli Rozenberg’s bid and the firm is proceeding toward holding the share sale, which is a prerequisite for getting the government-backed loans. “El Al is getting ready for an issue of shares for a total of $150 million, as per the rescue framework of the state,” El Al said in a statement on Wednesday, as it published its second quarter financial data.
With time running out, it is unclear whether El Al will manage to meet the August 31 deadline for the share offering. The Finance Ministry reiterated to The Times of Israel that the rescue package would be off the table if the deadline were missed. On Wednesday, the chairman of the Knesset’s Economics Affairs Committee, Yakov Margi, called on Finance Minister Israel Katz to set up a meeting for a discussion with the committee regarding the status of the share sale and the rescue outline.
Rozenberg on August 24 underlined the seriousness of his bid for control by promising, in a letter to the Finance Ministry, that he would buy at least $101 million worth of El Al shares during the share offering if his existing $75 million offer for a 44.9% controlling stake is rejected.
“We hope the share sale to the public will proceed at the determined time and in a fair and transparent way, and there will be no additional difficulties placed upon my client regarding his participation in this process,” attorney Adi Zaltzman of Shibolet Law Firm in Tel Aviv wrote in the letter. “We are sure that immediately after the public offering of the shares, my client will become the controlling shareholder of El Al.”
Both of these Rozenberg options — the acquisition of a controlling El Al stake, or attaining control via the participation in the the share sale — would reduce the holdings of the current controlling shareholder, Tamar Mozes Borovitz, who is likely to fight to maintain control of the airline by buying more shares.
This could lead to a bidding war between the two contenders, and maybe others who could appear — which would be great news both for El Al and the Finance Ministry. Pre-Rozenberg, the government’s fear was that no buyers would show up for the share sale, and that it might have to take control of the airline if it were to be saved.
Ailing before COVID-19

Under the control of Mozes Borovitz, who is also the vice chair of the airline’s board, El Al was suffering from high leverage and a bloated cost structure, and facing strong labor unions, even before COVID-19 struck. That made the firm even more vulnerable when the crisis devastated the airline industry.
An investigative report in TheMarker magazine in June this year claimed that Mozes Borovitz was responsible for a number of decisions and policies that undermined the airline, including allowing bloated salaries for management and pilots, giving free or cheap tickets to family members of El Al employees, and operating non-profitable routes.
A spokesman for Mozes Borovitz declined to comment for this article.
When the coronavirus hit, El Al first halted flights to China, and then, since April, canceled all of its commercial flights, running only special and cargo flights. The firm has put 80% of its 6,303 workers on unpaid leave, cut management’s and directors’ salaries by 20%, halted investments, and signed 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 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.
Since Israel began its “open skies” policy with the US (in 2010) and with Europe (in 2013), El Al has struggled to compete with the charter and low-cost airlines that have landed on its home turf. At the end of 2019, there were 100 airlines operating regular and charter flights at Ben-Gurion Airport.
In 2019, El Al transported 5.9 million passengers, accounting for 24.6% of airport traffic. Since 2017, El Al has lost market share in all of its travel routes — Europe, transatlantic flights and Asia and Africa — falling from 28.4% in 2018 to 24.6% in 2019, according to the firm’s 2019 financial report.
The company widened its losses by 14% to $60 million in 2019, though revenues rose to $2.2 billion from $2.14 billion in 2018. The firm’s biggest expenses by far are salaries, at 27% of total costs, and fuel, at 26%.
El Al is also a highly leveraged company, meaning it is financing its operations through debt versus wholly owned funds. Indeed, its debt to equity ratio — used to evaluate a company’s financial leverage — was some 1,300% at the end of 2019. The average ratio for other airlines is around 50%, according to an expert estimate.
Besides the increased competition, El Al is crippled by other local factors. Its home market is small, so it gains no advantages from size. And it pays high security costs, even though the government covers 97.5% of these, enabling it to ensure it is considered one of the safest in the world, after witnessing a spate of terrorist attacks and hijackings in the last century.
So where will it end?
With El Al’s fate potentially to be determined in the very next few days, the options look less than stellar. The existing owners were struggling before the pandemic hit. A would-be new owner is young and inexperienced. The government is offering a rescue package but does not want to re-nationalize.
Some experts consulted for this article have privately suggested that the most rational option for the firm is to go bankrupt. This would enable the sale of assets and the possible creation of a new El Al — possibly even with the same name, but without the baggage that has weighed it down.
But then again, no Israeli politician would want to see the nation’s flagship airline go belly-up on their watch.
The Times of Israel Community.