El Al in Merger Talks with Arkia

El Al Airlines may soon merge with Arkia, the country’s second largest carrier, Globes reported on Monday.

“Talks have begun with Arkia to examine a possible deal in which the company would buy Arkia’s shares in exchange for an allocation of the company’s securities to Arkia shareholders,” El Al said, in notifying the Tel Aviv Stock Exchange (TASE).

Such a merger could provide the financially beleaguered El Al with the means to reinvigorate itself as it struggles to put the pandemic behind it. Globes quoted experts who “feel that a merger is necessary due to the relatively small size of Israel’s market and the plight of the airlines. Such a merger would allow El Al to focus more on North America while Arkia would complement it with shorter haul routes to Europe and vacation packages, where El Al has not been particularly strong,” it said.

In 2018, the Israeli Competition Authority barred El Al from merging with the No. 3 Israeli airline, Israir, due to a concern that it could strangle competition on the route to Eilat. But given the devastating effect of the pandemic on the Israeli airline industry, it is thought that regulators will take a more lenient view of a merger. Better less competition in the industry than no industry at all.

In its notice to the TASE, El Al stressed the tentative nature of contacts with Arkia:

“No memorandum of understanding or agreement has been signed between the parties and the negotiations are only at the outset. There is no certainty that a potential deal will be formed and a binding agreement will be signed between the parties, and if a binding agreement will be signed, there is no certainty that all the required approvals according to law would be received for completing the potential deal,” the company said.