The past three years have been stormy for El Al Israel Airlines Ltd. (TASE:ELAL), which was on the threshold of collapse following the outbreak of the Covid pandemic, which virtually closed down all its operations and required a state-backed rescue plan, including the injection of capital and a streamlining plan with hundreds of layoffs.
US Jewish businessman Kenny Rozenberg, who has made his fortune from nursing homes, rehabilitation and medical treatment centers 'seized' the opportunity and took control of the airline during the crisis.
After the previous controlling shareholder, the Mozes Borovitz family's Knafaim Holdings, gave up on the company, Rozenberg's Kanfei Nesharim replaced them through a share offering in which it injected NIS 360 million into the company, while the state injected an additional NIS 120 million.
Rozenberg has continued to increase his gamble on the airline, and over 30 months has invested roughly NIS 800 million in the purchase of shares, warrants and providing an owner loan to El Al, and he currently owns about 45% of the company's shares (while the state owns 13% of the shares). It seems that this is not sufficient for him. Earlier this week Rozenberg's Kanfei Nesharim submitted an offer to purchase up to 5% of El Al shares for NIS 36 million, which would increase its holding to 50%.
The state also lost on its investment in El Al
Despite an impressive recovery in El Al's business over the past year, Rozenberg has still lost heavily on his investment. Over the past three years, the company's stock has provided a negative return of almost 50%, and the company is currently trading at a market cap of NIS 750 million. Rozenberg, who has invested over NIS 500 million in the company's shares to date, has on paper lost about NIS 230 million on his investment. The state can also take no satisfaction from its investment in the El Al IPO 30 months ago, and is currently losing tens of millions of shekels. The state also injected hundreds of millions of dollars into El Al in advance payments for flight security expenses.
At the time of the IPO in which Rozenberg became El Al's controlling shareholder, his 26-year-old son Eli Rozenberg in practice served as the controlling shareholder because Kenny Rozenberg himself did not have Israeli citizenship, which is required for controlling the national airline. This issue was formally settled in 2021 when he officially immigrated to Israel.
After the public offering in 2020, Rozenberg continued to pour in funds into the airline and invested another NIS 166 million in tradable options issued by El Al in February 2021. This week he exercised warrants for NIS 46 million, increasing the current value of the shares that he holds to NIS 332 million.
In 2021-2022, Rozenberg provided the airline with owner loans totaling NIS 240 million. These are loans inferior to other debts of the company, which Rozenberg can convert into shares in the future. This is a step that Rozenberg expressed interest to the El Al board of directors, led by chairman Amikam Ben-Zvi, last December, but there is a legal obstacle to its implementation.
According to Israel Companies Law, in order to exceed the 45% holding, Rozenberg must submit an offer to purchase 5% of the company's shares held by the public - a move that was announced this week. Converting the owner's loan in full may increase his holdings in El Al up to 75%.
To examine the fair value of the company's shares at the time of the loan conversion, a financial consulting company was recently appointed to conduct the examination. It is also necessary to obtain the approval of a special committee of the board of directors, and a majority of the shareholders in El Al who are not related to the controlling owner.
Why is Rozenberg now increasing his gamble on the battered airline, which despite the removal of the "going concern" qualification from its latest financial reports still carries huge debts of about $3.6 billion dollars, as well as a deficit of more than $300 million dollars in equity.
El Al's share price has risen 90% from its low-point in December 2021 but is still down 50% since the start of the outbreak of the Covid pandemic.
But El Al's controlling shareholder prefers to look at the crowded airports, and hope for the boom in the aviation industry to continue after the difficult days of Covid. The reopening of skies around the world, the recovery in the global tourism sector and the improved economic situation in Israel are already having a positive effect on El Al's results, which have shown strong sales over the past year due to high demand from Israeli tourists.
In the third quarter of 2022, which is traditionally El Al's strongest quarter each year, passenger traffic in Israel increased by 270% compared with the corresponding quarter in 2021, and on top of that, fare prices soared last summer. Revenue in the third quarter of 2022 was up 21% from the preceding quarter and up 147% from the corresponding quarter of 2021. Compared with the third quarter of 2019 (before the Covid crisis), revenue fell by only 3%.
El Al ended the first nine months of 2022 with revenue of $1.42 billion up 140% for $592 million in the corresponding period of 2021, which was stillin the midst of the epidemic. Between January and September 2022 El Al recorded a profit of $100 million, after a loss of $413 million in all of 2021.
The airline, which was founded shortly after the establishment of the state in 1948, has seen quite a few business upheavals over the years. Since May 2022 the airline has been led by CEO Dina Ben Tal Ganacia, formerly El Al's VP Commercial. She stressed in the most recent financial report that El Al sees continued stability in the rate of demand and bookings.
Even after the busy summer months she said, "Israelis want to fly, and tourists are also starting to fly to Israel again. We see the rate of bookings rising above 2019. Part of this is of course due to the increase in fare prices but we also see strength in demand, similar to 2019 in terms of booking dates, as well as advance bookings."
Published by Globes, Israel business news - en.globes.co.il - on February 2, 2023.
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