Kenny Rozenberg: I mend broken companies

Kenny Rozenberg Photo: Yossi Zamir

In his first interview since becoming El Al's controlling shareholder, Rozenberg tells why he once stopped flying El Al and says he will 'mend' the airline through personal service.

In September 2020, as El Al Israel Airlines Ltd. (TASE:ELAL) was mired in debts of NIS 1 billion, and having failed to raise bank loans to save it from the Covid crisis, Uncle Sam came to the rescue. Kenny Rozenberg, until then a name few had heard of in Israel, invested $105 million in the airline for a 40% stake - pushing out Knafaim, controlled by Tami Mozes-Borovitz, which had controlled the company for 15 years.

One year later, the Covid crisis is still with us and Israel's airlines are far from recovery. In September 2021, 144,500 passengers flew El Al, a quarter of the usual number for the holiday month. To make matters worse, the $100 million compensation that the airline hoped to receive from the Ministry of Finance has yet to materialize.

To cope with all this, El Al is set to embark on a massive streamlining plan in which it will sell 16 of its 45 aircraft, layoff 1,500 employees (after already shedding 1,900 employees) and halt the operations of its Sun D'Or subsidiary, which operates flights on Shabbat. This week El Al also reported that it is in merger talks with Arkia.

"I don't regret it for one second," Rozenberg asserted in his first-ever interview since acquiring control of El Al. "Although I would prefer that it happened without the negative publicity and without the slurs but El Al will become a profitable business."

When Rozenberg mentions the slurs he is referring to the pressures against the person who actually bought control in El Al - his son Eli Rozenberg - a young yeshiva student who had immigrated to Israel several years previously. This was because the state, which has a golden share in El Al, insists that the airline's controlling shareholder is an Israeli citizen while Kenny Rozenberg was at the time only a US citizen, although he has since immigrated to Israel and taken Israeli citizenship.

Eli Rozenberg's attempt to buy control of El Al was not greeted kindly by all those involved. Mozes-Borovitz described Eli Rozenberg as a "straw man, without means and without business experience." She claimed that the buyer was really a foreign citizen and that the government should disqualify him. Requests to halt the transfer of control were sent to the Government Companies Authority, Ministry of Transport and Ministry of Defense.

Rozenberg said, "Eli is my son. He is a mature boy and what happens in the family stays in the family. We are a team and we have other joint businesses. The entire family was involved in the deal.

"They warned me that I didn't know what I was getting myself into by buying El Al. I thought, what else can they already say about me? I am transparent and I don't hide anything. What you see is what I am. But I discovered that there was actually a lot that they could say and much of it was completely wrong. I have a lot of employees and so it's fine if they'll say things about me from time to time but here this was enormously powerful."

Rozenberg's aim was to buy control of El Al outside of a public offering. But the negotiations with Knafaim did not lead anywhere due to the claims that Rozenberg was not an Israeli citizen. He said, "That ploy was not acceptable to us and the negotiations were broken off before they began." Rozenberg was represented by businessman Amikam Ben-Zvi, who is today El Al chairman, and Brig. Gen (res.) Reem Aminoach. Eventually, Rozenberg took control of El Al by investing $105 million in the public offering.

Were it not for the public offering would you have invested less?

"Let's say that it was challenging but I took on the challenge. I didn't know what it would lead to."

The state, or in effect the public, also profited from the offering. In order to encourage El Al to raise capital at the time, among other things in order to repay the debt to all the passengers whose flights had been canceled due to Covid, the Ministry of Finance committed to buy shares for $75 million (half the shares on offer). But due to Rozenberg's appearance on the scene, the state cut its investment by more than half to $33 million. The state currently holds a 13% stake in El Al, Knafaim holds 9%, Rozenberg 40% and the remainder is held by the public. Rozenberg's investment has grown to $160 million, and is due to grow further to $200 million.

"A broken company that can be mended

Rozenberg (55) was interviewed in his home in Jerusalem - an impressive and spacious house. Rozenberg is married with five children and five grandchildren. He opens the door to us with a welcoming smile and invites us up to the meeting room on the second floor. The grandchildren's toys are strewn across the floor and there are as yet unpacked crates.

We hold a further meeting with Rozenberg two weeks later in El Al's VIP lobby at Ben Gurion airport, just before he takes off for the US. The other passengers don't recognize that this is El Al's owner. El Al's employees do recognize him and he is offered a glass of wine or something to eat every so often. "I'm not drinking I'm boarding the plane," he told them with a smile.

He admitted that his experiences with El Al in the past were, "not positive." I was a Matmid Frequent Flyer with gold status and I decided to give it up. They called me to ask why and asked was I not bothered about all the points I'd accumulated. I said no. The representative who spoke to me said: but we are the only company who serves soup in first class. That was a comment that so much lacked understanding about what passengers expect to get from an airline.

"I really wasn't thinking about investing in the world of aviation at all but then I saw an article in a US newspaper, which said that El Al was on the brink of bankruptcy. I thought that what I know how to do is to mend broken companies. So far that has been in the field of health services but an opportunity to save this company has come my way."

Rozenberg is the founder and CEO of Centers Health Care, which he established in 1996 and has 40,000 employees including 49 nursing homes, rehabilitation and medical treatment centers, mostly in New York and northeast US including a fleet of ambulances and home services for medical emergencies. "Today we have 50,000 people insured who need health services."

He came to all this via a surprising route. He has a degree in Art and a degree in Psychology from Yeshiva University in New York and a M.Sc. in Public Health specializing in medical services from Columbia University.

"After the specialization I was in a hospital in New York, working as an administrator for a chain of nursing homes for five years. The owner got sick and I bought a branch with 77 beds from him in an old building. Later he sold me another branch and slowly I grew - at the start to three centers and then to five. Today we have 49 centers. Then we grew laterally. After all people come to a nursing home by ambulance, so we bought a license to operate one ambulance, and today we have 300. After that we understood that people released to their homes need the appropriate services and equipment, so we bought companies in the sector."

Rozenberg until today is also a volunteer paramedic. He was even called out on 9/11 to attend those injured in the twin towers attacks. "The things I saw I will never forget. That was 120 minutes that changed the world. I'm in the business of saving lives, saving companies, exactly like El Al."

Even so, the question remains, what caused Kenny Rozenberg, the owner of such a sound and stable company, to want to gain control of El Al. Why go into a sector in the midst of a deep crisis and especially with a company deep in debt and with a 'going concern' qualification attached to its financial reports?

"It's like owning a soccer club, a matter of status," people close to him told us. Others spoke about Zionism including encouragement from rabbis.

But Rozenberg rejects reasons not related to the business world. "I am a businessman who sees opportunities, and sometimes there are unexpected decisions in that. Here I felt that I want to change the world and make Israel into a better place, and I knew that this will happen by saving El Al, which will also cause the world to talk about it positively. El Al is a known and loved brand and I am convinced that it will succeed. It is the national carrier and it fills the public with pride and that is something that cannot be counted in money."

They'll tell you that it's like putting a healthy head into a sickbed.

"I don't agree. If I thought that here is a company with no chance, I wouldn't have done this deal. But it is a broken company that can be mended. This is an opportunity - to take a company that was not managed as it should have been managed, and to change it.

"It wasn't in a good state even before the crisis. This was a company that provided service as it fancied. In the health centers sector the main preoccupation is service. El Al is also a services company except it has planes. Customer service is everything. If El Al says it can make you feel more at home anywhere in the world, then it has to genuinely give you what makes you feel at home. But it hasn't been that way. Today acquaintances tell me that there experience is different and they feel treated differently. In the world of airlines, a company has just one opportunity. If you don't receive good service - you'll go to a rival. El Al had a significant market share and it lost its focus. In business you need to aim for the target and be consistent in this."

From Rozenberg's point of view, the vision is to import the level of service that consumers know in the US. "We have excellent management and the CEO Avigal Soreq (who served as SVP for Delek USA) breathed in America for 10 years. When we bring the level of service that is known in America, we will turn El Al into a global company.

"A lot of people switched to flying with Delta and United, and that happened because they treat them better in the foreign companies. If they will encounter a different service with an Israeli company, they will stop flying with the foreign airlines. We are starting out from a place where we can only go up. It was important to change the management and the direction that the company was going in. Every person in the world has a reason to come to Israel, whether out of religious considerations, to visit family or for a vacation, and I only need to ensure that it happens with El Al."

American Airlines, the world's largest carrier recently resumed flying to Israel, which immediately stimulated huge competition between the players on the New York route - United, Delta and El Al, and which resulted in all the airlines offering return fares for $500.

How can the company make a profit from such fares?

"The opportunity that American Airlines received was created by El Al. Competition is good and proof of this is the number of flights to North America."

El Al plans remaining with 29 planes, How will it cope on routes to North America against companies with fleets of hundreds of aircraft?

"North America is a critical market for El Al. The European market is more challenging due to the present of low-cost operators. Every decision taken has to be logical. To fly an empty plane is something illogical. El Al needs to take hard decisions against challenging competition.

This year competition has also begun with the Gulf states with the entry of the UAE carriers, which for sure will offer fares that it will be tough for El Al to match to East Asia.

"And so we will focus on destinations that are right for us to fly to. Competition is welcome, if it is fair, and here things aren't fair. The UAE companies can fly over Saudi Arabia and we can't. That's outright discrimination. The fact that Air India has already flown for years via the short cut to India and for us it is prohibited causes El Al damage of millions of dollars annually. In the US there is the Fly America plan by which flights for government employees are only undertaken by American companies, and this happens in other countries too, but in Israel no.

"And if we are already talking about the world, there is almost no airline that hasn't received government assistance during Covid. The Ministry of Finance says that the owners have to invest, and it is right and I am investing, but the state has to be a partner - I have invested $160 million so far and there is another $43 million that I am committed to invest and that will happen."

"Like going to a restaurant without food"

In May 2021, the state paid El Al $210 million as an advance payment for tickets for security officers over the next 20 years. As part of a similar arrangement Israir received an advance payment of $16 million. Against the payment, the airlines committed to raise 50% of the amount as an injection of capital from the owners or through a share offering. El Al was required to conduct an offering and raise $105 million by the end of July 2021, in which Rozenberg committed to inject $43 million.

"The government decided to restrict aviation activities, and I am not criticizing its conduct but I would have expected them to say: we acted in that way in order to protect the health of the public and we must compensate the companies damaged by that. I came and invested in a company that did not have other investors - we didn't do the offering that was planned for July because the timing was awful. Who would have bought shares at a time when it was impossible to fly? As an investor I wouldn't have purchased any. It was the recommendation of the underwriters and they were right. Closing the skies is like telling you to go into a restaurant that isn't serving any food or riding in a car without an engine. It's impossible to operate that way and for sure impossible to raise capital from investors."

El Al's demand for compensation was also expressed in a letter from CEO Soreq to the Ministry of Finance last month. The letter was sent after Ministry of Finance director general Ram Belnikov offered El Al a balloon loan of $50 million over three years. Rozenberg responded, "As an entrepreneur and the owner of a large business group with 40,000 employees and revenue of $5 billion, the combination of Zionism and business really excites me, and nothing compares to El Al in fulfilling both.

"It would not be an exaggeration to say that the State of Israel flows through my veins and it excites me every time I see an El Al plane with the Israeli flag landing in New York, London, Paris and anywhere in the world. The historical challenges that the company has carried out did not go unnoticed during the acquisition. I declare this because I am committed to El Al and I take full responsibility as part of proper corporate governance to maintain stability and nurture growth, especially during this period."

He concluded by saying that he would keep regulatory details down to the smallest detail and that together with the expectation of compensation from the state, "I am of course open to all negotiations with the Ministry of Finance about my part in support while paying attention to the fact that I hold only 40% of the company's shares."

Belnikov was not impressed by these fine words. He wrote, "I can only wonder at the demand of the company to receive immediate compensation of $100 million when it is not clear on what this is based, while completely ignoring the huge agreements that were given it over the past year."

Belnikov is referring to the advance payment for security officers as well as the furlough payments the state paid El Al employees who have been put on unpaid leave. So far as Belnikov is concerned, the solution is for El Al to streamline.

In recent weeks, Rozenberg has met with workers' representatives in order to calm things down over the streamlining plan, which will make El Al a leaner and smaller company by selling 16 of the company's 45 planes and laying off 1,500 more employees, leaving the company with half the work force it had before the Covid pandemic.

The Histadrut is angry. El Al workers committee chairman Sharon Ben Yitzhak said, "The company's owner is cut off from what is happening and does not understand the reality that the workers find themselves in. Ben Yitzhak believes that the workers fulfilled their part of the bargain in the collective agreement that was signed during the Covid restrictions, when 1,900 El Al employees were laid off and now he expects the owner to fulfill his part of the bargain. He reminds the owners that a work dispute has already been declared allowing El Al workers to take immediate strike action or other sanctions. Histadrut chairman Arnon Bar-David also weighed into the dispute earlier this month, sending a sharp letter to El Al's management and owner. "If you cannot operate responsibly and intelligently then give other buyers the chance to invest in the company. The expectation looking ahead is that you will work on all fronts in order to resume leading a competitive and recovering market. To my regret, there are real doubts raised about the efforts being invested so that this will happen."

This week the dispute intensified when Ben-Yitzhak sent a letter to El Al's management protesting plans to halt the operations of Sun D'Or. "Following the unequivocal declarations of Rozenberg, it is understood that the management has no mandate to conduct talks with the workers' representatives. But he intends implementing his decisions. The conduct of the owner shows lack of good faith."

Rozenberg is convinced that everything can be solved through dialogue. "I understand the concerns but the change that is required at El Al cannot be avoided. People are scared of change and that is absolutely understandable. We will do our best so that whoever has to leave will receive the best possible terms. It will be hard and it will be painful but it would hurt more to see El Al collapse. In such a situation everybody would lose. The employees must understand that either the company will be smaller and more efficient or there won't be a company. We have an orderly plan for two years and things must begin now. El Al is managed as an international company including its membership in global airline alliances."

An international company that doesn't fly on the Sabbath and holidays?

"Traditionally, since the 1950s El Al has not flown passengers on Shabbat and that is El Al's status quo. When you interview me in another year, you will see that it is possible to be efficient and international, even when the company works six days a week. The workers need a day of rest and we'll take the status quo and make it more efficient. We haven't changed the policies and it has been that way at El Al for years and we don't want and we don't need to change it. We need to mend the operations of the company in those six days that it does work. The seventh day will already mend itself."

As part of the streamlining plan, the Ministry of Finance is also demanding that El Al sell a major part of the Matmid Frequent Flyer loyalty club. The value of the club before the Covid pandemic was $300 million, with its 2.1 million members, although only 350,000 hold the FlyCard credit card. The company is conducting talks with Bank Hapoalim to sell 30% of the club to the bank, which wants to merge it with its Bit app, for accruing points. Rozenberg said, "The Matmid Frequent Flyer club is a market that we need to develop and build and to improve. It is one of El Al's assets, and a tool that can help us to recover."

"Employees need to receive love"

One of the things that most bothers Rozenberg is the sharp tone of the public discourse about El Al, which he hopes to change. "I thought that we could bring about a faster change but the process is slow and profound. Despite that it arouses emotions and that's a good start. To everybody who has something to say against El Al, I say come and fly and then talk. There are cabin crew who have worked for the company for 20 years and some of their parents worked for El Al before them. They are people who love the company, and as a large employer I say to them that everything that an employee needs is love. We have huge data and we have talented people that can take the vision and transform it into reality.

"I know that we have a long process before us but I am a very patient man. We built Centers Health Care over 28 years and we will continue to grow because the way is full of opportunities. In the business world, the moment the moment that you aren't growing, you are going backwards and your employees also need to feel all the time that they are working in a place that is growing and that they can develop. We will grow El Al in a balanced way and we will also strengthen the tourism segment."

Does that mean you will also enter areas like hotels?

"I don't rule it out. We have passengers and we need to think about what else we can sell them that will make them happy and allow us to profit more. Tourism and vacation packages are a field that we are thinking and talking about. The next stage is to act. In our fields you have to look at the good things that our rival companies are doing and take ideas from them."

Your rivals, American companies, are working to increase their market share on routes to Tel Aviv. The competition is not easy.

"If we add 6% of the market on routes to the US, then we will reach 35%. A small and efficient El Al can offer VIP services that the big companies don't have. They are too big - exactly like a huge hotel chain versus a boutique hotel. I have no plans to bring back first class but to focus on personal service and to remember what my passenger likes and use that information when he boards the plane and what we have learned about him and if he likes an aisle seat or white wine. It's easy to apply. Everything begins and ends with service. I met the crews and I came to the conclusion that they also want to be loved so that they can provide this service. I have enough love in me to give."

What do you know about Israeli passengers?

"I am not Israeli by birth and I didn't grow up here. I know about Americans, for example, and they board the plane and they don't want to be shouted at, they want to get good service and they want to encounter courtesy and a pleasant tone. Before the flight, they want to stand in an orderly line and they are mainly looking for the best value for their money. We will make El Al into an international company that is the beating heart of Israel."

Rozenberg immigrated to Israel in March and thus openly became the owner of El Al.

Did the acquisition motivate you to make the move?

"I would have anyway immigrated to Israel but the deal sped things up. I persuade other people to make aliyah. Israel is after all the home of the Jewish people. Some of my children live here and others will come to live here. My mother has five siblings here. My grandmother was born near the Kotel and moved to Argentina and my mother moved from Argentina to the US and her siblings came to Israel. I have family in Yerucham, Maaleh Levana, Netanya, Kfar Saba and throughout the country."

You also want to bring tourists here? That's a challenging task because Israel is an expensive destination.

"In 2019, 4.5 million tourists visited Israel. Malta, which has a population of four million had more visitors (in proportion to its population). This ratio can and needs to change. True there is the security issues here and there are things that have to be corrected but it is also not so safe in New York. And there is no city like Jerusalem anywhere in the world. People don't know Jerusalem, so they fly to Paris and Rome. That can be changed."

Will you also bring your healthcare business to Israel?

"There are opportunities and there were in the past enquiries about investments in medical centers. When we will understand how this sector works in Israel, an area which is completely different from the US, I am also open to this, including cooperation with Kupat Holim Clalit. At the current moment my hands are full with work in the aviation world."

$2.5 million fine

In recent years, there has been criticism of Kenny Rozenberg in the US media about the conduct of some of the health centers that he owns. The company has been involved in several affairs concerning irregularities over non-payment of staff salaries, insurance issues and false reports to the Inland Revenue Services.

As part of a settlement with the US authorities, Rozenberg paid a $2.5 million fine. "They're always looking to catch blunders," Rozenberg said, "But we operate according to the law and in close cooperation with the authorities. When you manage a business like this that is so enormous, you have to be cautious and to protect your name."

Published by Globes, Israel business news - en.globes.co.il - on October 22, 2021.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.

Kenny Rozenberg Photo: Yossi Zamir
Kenny Rozenberg Photo: Yossi Zamir
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