Save embattled El Al, not top shareholders

The coronavirus crisis has dealt a mortal blow to airlines worldwide, and El Al is no exception. Many have entered bankruptcy and face the threat of immediate collapse. To land safely, they will need infusions of capital, cost-cutting measures and a rapid recovery of the aviation industry.

El Al is publicly traded on the Tel Aviv Stock Exchange. Its controlling shareholder is the Knafaim company, owned by Dedi Borovitz and Tami Mozes Borovitz. But ever since the crisis began, the controlling shareholders’ role has been in question. It was clear that the state would have to help, and that it would do so through loans and loan guarantees. But it wasn’t clear how committed the controlling shareholders were to saving the company. After all, it’s unreasonable for the taxpayer to inject hundreds of millions of dollars into the El AL, while the controlling shareholders get a pass on doing anything.

Yet this logic has somehow escaped the controlling shareholders, who don’t want to stick their hands in their own pockets. The latest idea to be proposed was having the state guarantee a loan of $250 million, which El Al would take from the banks, while the company would raise another $150 million. But the government would also commit to providing that sum if necessary, while diluting the controlling shareholders’ stakes. Thus in practice, this would transfer control of the company from the controlling shareholders to the state.

Nationalizing El Al doesn’t fit with the ideology of privatizing government companies that has reigned here for the past three decades. It’s also problematic due to the implications of such a step – turning the government into a target of pressure from the companies’ unions, which will exploit their political and strategic power to avoid cost-cutting measures.

Yet many paradigms have been shattered in the coronavirus era, and this is one more. The company’s nationalization is likely to go ahead. Selling control of El Al to another investor is an option, and one, Eli Rozenberg, has in fact expressed interest in buying the airline. But the source of his money is his father, who isn’t Israeli and therefore can’t obtain a permit to control the company.

The current controlling shareholders are continuing to exert heavy pressure on the Finance Ministry to find some formula that would leave them with control of the company without their having to inject any money into it. Given the enormous uncertainty in the aviation market, no solution guarantees that El Al will survive the crisis, and there are grounds for fearing that the state may have to put more money into it in the future. Consequently, the government’s efforts should focus on saving the company, not saving its controlling shareholders.

If the company were given temporary protection from its creditors, a trustee would be appointed to run it in place of the controlling shareholders and try to navigate it safely to shore. This would require massive cost-cutting as well as government loan guarantees, but it would at least enable taxpayers to benefit from the possibility of the company recovering and perhaps being sold in the future to another private investor.

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The above article is Haaretz’s lead editorial, as published in the Hebrew and English newspapers in Israel.