Anyone calling El Al Israel Airlines Ltd. (TASE: ELAL) in the past few days to ask for a cash refund for cancelled flights booked during the coronavirus period is referred to an automatic answering service via WhatsApp. There's no joy there either. "Dear customers," the message reads. "We are happy to inform you that the government of Israel has approved the aid program for El Al. In the coming days we will update customers who have not yet received their money, directly or via the travel agency through which the tickets were purchased. There is no need to wait for a representative or to fill in forms. We are here at your service on any other matter."
In other words, although the latest date stipulated by Israeli law for refunds passed long ago, El Al continues to inform some of its customers that the matter is being dealt with and even admits in its financial statements that 30% of those entitled to a refund are still waiting.
The challenges facing El Al are not just to do with cash refunds. For example, in the past few days a new name joined the airline's board of directors - Kenny (Naftali) Rozenberg, father of Eli Rozenberg, who until now was the front man as the controlling shareholder in the company.
Does this move mean official acknowledgment that the father who up to now financed the acquisition from behind the scenes is moving to the front of the stage? Not only that, but meanwhile David Brodet has announced that he has decided to stand down as chairman.
A cash refund? It'll turn up someday
Some of the answers about El Al's position are to be found in the financial statements for the first quarter of 2021 released last week. Despite the loss of $38 million in the quarter, and a going concern qualification by the auditors, El Al broadcast optimism, mainly on the grounds that the loss was substantially lower than in the corresponding quarter of 2020 ($86 million). Nevertheless, El Al's financial position continues to be precarious, even if the state is injecting $210 million.
The first challenge for El Al is to do with what the airline describes as the most important factor- the passenger. As mentioned, El Al has not managed to complete the process of refunding customers for cancelled flights. How much is the debt exactly? Over the year, El Al reported that the debt to passengers amounted to $350 million, but in its financials it does not disclose the amount, and the estimates are that it is now about $120 million - still a tidy sum.
The note in the financial statements says, "The company has not managed to complete the payment of refunds for flight cancellations at the time required by the relevant laws." Thus El Al admits that it is in breach of Israeli aviation law, even after the relaxations introduced into the law for the benefit of the airlines.
If that were not enough, the US Department of Transportation is angry, saying that it has received complaints from customers claiming that they had not received the money from the airline on time after cancellations or postponements of flights to North American destinations and that it is suspected that it has acted in way that breaches provisions of the law. The US Department of Transportation further says that if it turns out that El Al has indeed broken the law, it is exposed to the imposition of penalties.
El Al has not even troubled to answer calls from customers waiting for their refunds. They have received automatic responses only. The company justified this by, among other things, a lack of manpower that has prevented it from dealing with customer refunds. This approach changed with the arrival of a new VP Service at the company, Oren Cohen Butansky, who brought back some 300 service representatives to provide responses to customers. Still, even now customers say that they receive only an automated reply to calls.
El Al's problem in dealing with customers is liable to surface shortly. For example, the competition that has opened up, including on North American routes that are the core of the airline's business, will not help it to maintain blind customer loyalty, especially in the light of the fact that there are customers who have found out that faster refunds can be obtained even from low-cost airlines.
El Al stresses that in the coming weeks and months it will refund the balance owed to customers. This, however, will not solve other problems. El Al has to use the money it received from the state, $210 million, to pay debts to suppliers and severance pay for 1,900 employees in accordance with the streamlining plan that it signed. All this while its current liabilities, according to its financial statements, totaled $1.9 billion (including $977 million owed to its banks).
Kenny Rozenberg emerges from the shadows
As mentioned, Kenny Rozenberg has joined El Al's board of directors. Up until now, his son Eli was the face of the company, although that was on paper only - El Al's employees have never met him, and no photo of Rozenberg junior has been released to the press.
Now, however, the son can be sent backstage, after the father, Kenny, immigrated to Israel two months ago. The fact that up to now he did not hold Israeli citizenship prevented him from controlling the company in which the state holds a golden share. Rozenberg senior has still not assumed control, but he does now have a permit to do so.
All during the wrangling by the previous controlling shareholders, Knafaim Holdings Ltd. (TASE: KNFM), and the attempt to scupper the transfer of control on the grounds that Rozenberg junior was serving as a straw man for his father, the claims of the father's involvement were dismissed and he was presented as simply lending money to his son. El Al, under the previous ownership, applied to the Government Companies Authority asking it to consider whether it was awarding an acquisition permit to someone who was not an Israeli citizen.
In the end, the deal was approved, after the Government Companies Authority stressed that Rozenberg junior "will act as sole controlling shareholder in El Al and will employ the means of control in the company in accordance with his independent judgment." Independent or otherwise, Kenny, who runs a network of clinical centers in the US, can now act openly in the company he bought out of Zionist motives.
Who will replace David Brodet?
The announcement by El Al chairman David Brodet that he will leave the post is no surprise. Brodet was recruited to the job last October, but when he took it up he said that it would be for a limited period. The choice of Brodet, a former chairman of Bank Leumi (TASE: LUMI), was made among other things because of his familiarity with the Ministry of Finance, where he was head of the Budgets Division and director general, and he was really brought in to conduct the negotiations with the ministry when the company was trying to obtain financial aid from the state.
In his letter of resignation to the board, Brodet wrote, "I didn't hide anything, and I even said that I had come 'for reserve duty'. I set goals for myself, and I'm happy to say that they have been achieved accordingly. As far as I'm concerned, my period of reserve duty has come to an end,"
Who will replace Brodet? Until a permanent chairperson is appointed, his deputy, Amikam Ben-Zvi will be acting chair. Sources inform "Globes" that in the past two weeks possible candidates have been considered from outside the company. The new chairperson will have to take into account a 15% cut in compensation in comparison with the chairperson's pay in 2019, and a cut in the free flights perk.
Finance Ministry reviewing unpaid leave benefits
El Al is up against June 30 as the date on which the state will cease paying benefits to workers on unpaid leave. About 3,800 El Al employees are still on unpaid leave, some of them since March 2020. About one third of the workforce (some 1,900 employees) will have their employment terminated over the next two months. On the basis of El Al's activity, however, it still does not need a 3,800-strong workforce.
Histadrut (General Federation of Labor in Israel) chairperson Arnon Bar-David recently approached Prime Minister Benjamin Netanyahu with a demand that benefit to workers on leave without pay should be extended for workers in the tourism and aviation industries. The assessment is that in the end the state will meet El Al halfway, despite its infringements vis-a-vis its customers, and a model will be formulated that will allow the extension of unpaid leave for a sector that, clearly, will still be far from its normal dimensions in a month's time.
El Al stated in response: "As we promised, with the completion of the aid plan we shall expedite the refund of money to customers. To that end, 300 employees have been brought back to man the telephones, and we shall finish the refunds within a few weeks."
Published by Globes, Israel business news - en.globes.co.il - on May 24, 2021
© Copyright of Globes Publisher Itonut (1983) Ltd. 2021