El Al Signs MoU to Acquire Rival Arkia

El Al (LY) has informed the Tel Aviv Stock Exchange (TASE) that it has signed a non-binding Memorandum of Understanding (MoU) to acquire rival airline Arkia Airlines (IZ). The move comes following previous merger talks reported in late 2021.

Israeli business news outlet Globes reported that the deal will include the purchase of all of IZ's shares from LY in exchange for an allocation of 10% of its own securities. Options could increase the share allocation by up to 14%. The deal values IZ at between US$27m-38m (NIS85m-120m).

Under the terms of the agreement, IZ will continue to operate as a separate brand, with its own separate staff. The deal must be approved by IZ's employees, who own a 30% stake in the company, and the Israel Competition Authority (ICA).

For context, the ICA stopped the merge of LY and Israir (H6) in 2018, citing monopoly concern over domestic routes. However, with Israelian airlines hardly hit by the pandemic and the prolonged border closure, the situation now appears different.

El Al Recovery Strategy

Thanks to the acquisition of IZ, the Israeli carrier is taking its first steps toward recovery following the cuts in employees and fleet size required to obtain government funds in 2021. It will also allow the airline to chase its strategic vision of becoming more than an airline.

On the topic, Avigal Soreq, CEO of El Al Airlines, commented, "El Al is entering an era in which it will allow travelers to Israel to enjoy a complete tourism package that includes, among other things, a very high-level flight experience, a wide range of hotels and accommodation options; ground services, including car-rental and public-transportation management applications; insurance products; and tickets to a variety of attractions and events."

The intention to acquire IZ integrates well with this view as it will allow LY to fly to the Red Sea resort city of Eilat in southern Israel, a route currently controlled by IZ and LY.