El Al aiming to snap up smaller rival

Israel’s small airline sector will shortly undergo a significant shift if plans for national carrier, El Al, to take over the country’s second-largest airline come to fruition.

El Al signed a memorandum of understanding (MoU) with Arkia Airlines in February, under which the national airline will acquire its smaller rival. 

Under the terms of the proposed deal Arkia, which flies a small fleet of two Airbus A321neoLRs and three Embraer E195 regional jets, will become a wholly owned subsidiary of El Al. In turn, Arkia shareholders will own a 10%-14% stake in El Al through shares and options. 

El Al said it would acquire all shares in privately owned Arkia, which operates both international and domestic services. The two airlines had earlier said, in October 2021, that they were in discussions about a possible acquisition. 

However, although it will become part of El Al, Arkia will continue to operate in its own colours and as a distinct brand. The two airlines’ flight crews will also remain separate workforces. 

The deal is currently in the midst of a lengthy due diligence process. This was hoped to have reached a binding agreement around the time Arabian Aerospace went to press, with the transaction being finalised after a further 90 days.

If completion is not achieved by then, a 60-day extension is possible. If the two sides have been unable to reach a conclusion by that point, however, both companies will have the right to walk away. 

The agreement will also depend on regulatory approvals from the Israel Government and the country’s competition authority, as well as a collective labour agreement being signed between Arkia and the country’s General Workers Union.  

One major bonus for El Al would be gaining access to the busy domestic route between Tel Aviv and Eilat, the popular holiday resort at the southern tip of Israel. This route is currently controlled by Arkia and another small independent carrier, Israir.

An El Al spokesman declined to comment on the acquisition, on the grounds that negotiations between the two parties were still continuing.