El Al to raise $100m and buy 3 Dreamliners

El Al Boeing 787 Dreamliner  credit: Boeing
El Al Boeing 787 Dreamliner credit: Boeing

The Israeli airline's TASE offering will also allow controlling shareholder Kenny Rozenberg to convert owner's loans into equity.

The management of El Al Israel Airlines Ltd. (TASE:ELAL) is striving to take advantage of its positive momentum to raise hundreds of millions of shekels. Together with its report at the end of last week that it is buying three new Dreamliners, the company controlled by Kenny Rozenberg said that it is raising capital by issuing new shares.

The money raised, about $100 million, will help El Al in a range of areas. It will improve its financial situation and enable it to shift to positive equity and also put it onto the leading TASE indices, while helping to repay the owners loans extended by Rozenberg without diluting his stake in the company.

The war left El Al alone at Ben Gurion airport

El Al's share price has been rising strongly in recent months and it is currently trading at levels not seen since the eve of the Covid pandemic, which dealt such a huge blow to global tourism and aviation. Since the start of 2024, El Al's share price has risen 48%, giving the company a market cap of NIS 1.3 billion. Since the stock's low point just after outbreak of the war in October, El Al's market cap has doubled.

The positive momentum in El Al's share price and financial results has been fueled by the exclusive status that the carrier has enjoyed at Ben Gurion airport in recent months. The company has remained almost the sole airline flying to and from Israel, allowing it to charge passengers high fares. Many of the most popular foreign airlines with Israelis, including the low-cost carriers, have still not resumed flights to Israel as the war continues.

This was not what El Al forecast at the start of the war. In mid-October the company warned of the harm to its fourth quarter results and also expected its first quarter 2024 results would be hit.

But this gloomy trend rapidly changed as foreign airlines halted their flights to Israel and El Al's market share at Ben Gurion airport ballooned to 80% in November and December, compared with 21.5% in the corresponding period of 2022. This meant that despite the war, El Al carried more passengers in the fourth quarter of 2023 than in the corresponding quarter of 2022 and at higher fares. This led to a net profit of $40 million in the fourth quarter.

The deal with Boeing captured the attention

In these positive circumstances, El Al led by CEO Dina Ben Tal Ganancia, announced on Thursday that it had signed a deal for a preliminary order with Boeing for three 787-9 Dreamliners for $650-730 million. The aircraft are due to be delivered in 2029-2030. In addition, El Al has options to buy up to six more similar aircraft for delivery in 2030, depending on when the options are exercised.

El Al currently has a fleet of 16 Dreamliners, which will expand to 19 by 2026 and could reach 28 by 2030 if all the options are exercised.

The controlling owners loan will be repaid

The capital to be raised reported by El Al, at the same time as the announcement of the Boeing deal, may help pay the advances for the purchase of the Dreamliners. But in the short term it will probably have several other possible uses for the benefit of the company and its controlling owner Kenny Rozenberg (who owns about 48% of El Al shares). Rozenberg has already announced that he plans participating in the $100 million offering which will be led by Leader Capital Markets.

Rozenberg will likely be able to finance his participation in the IPO through the conversion into equity of owner loans that he made to El Al in 2021-2022 totaling $70 million, of which $43 million can be repaid after the company raises over $62 million in an offering (any amount over the threshold will be used to pay off an owner's loan). The rest of the loans will be repaid after the group raises over $105 million (or at the end of 2025). So raising a large amount of capital in the market, while the share price is high, may benefit the controlling owner and allow repayment of the loans.

The aim: to join the Tel Aviv 125 Index

The offering, if successful, will increase El Al's financial strength. Even after reporting net profit of $117 million dollars in 2023 and improved performance, El Al still faces an equity deficit of $187 million. Raising significant capital plus the profits from its operations this year will allow the company to move to positive equity in 2024. El Al also hopes that the improvement in its business and financial situation will pave its way to the Tel Aviv 125 Index, which will include it in the ETF, and will attract more investors to the stock (in which there is currently no institutional stakeholder).

El Al CEO Ben Tal Ganancia, said in the announcement of the deal to purchase aircraft and the stock offering plan that "our moves to expand the aircraft fleet alongside our intentions to raise capital express our adherence to the realization of the strategic plan. We again call on foreign companies to return and operate in Israel."

Flight tickets worth $100,000

The improvement in El Al's results is also reflected in a sharp rise in the salaries of senior executives. CEO Ben Tal Ganancia received a salary of NIS 5.9 million in 2023 and chairman of the board Amikam Ben Zvi received NIS 4.2 million for his 80% position.

Controlling owner Rozenberg isn't being short changed. Last June, El Al's shareholders approved owner Kenny Rozenberg and Daryl Hagler as vice chairmen with monthly remuneration of NIS 50,000, which can be converted into airline tickets.

In addition Rozenberg and Hagler are entitled to plane tickets for themselves and their family members, including their spouses, children, and children's spouses, worth $100,000 for each of the vice chairmen. El Al will also bear "the reasonable travel expenses of the vice chairmen of the board of directors as part of their duties."

Published by Globes, Israel business news - en.globes.co.il - on March 24, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

El Al Boeing 787 Dreamliner  credit: Boeing
El Al Boeing 787 Dreamliner credit: Boeing
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