Arkia Airlines Faces Critical Week Amid Financial Woes and Takeover Bids

Arkia Airlines is facing a pivotal week as its controlling Nakash family plans a capital injection that will dilute employee shareholders, who currently hold 22% of the company's stock through the T.U.T. corporation. The employees, led by Avi Edri, oppose this move, deeming it illegal and threatening to declare a labor dispute. Industry sources warn that employee actions could be devastating for Arkia, which is already struggling with a capital deficit of approximately $60 million. The airline is at a crossroads, with potential sale deals on the table. One option involves a group of three investors: Yariv Lerner, Avi Elkiaim, and the Vror family. This deal is favored by employees but less so by the Nakash brothers. Lerner, an expert in company turnarounds, is expected to join the others if due diligence is successful. The Nakash brothers, however, prefer a sale or merger with Israir, though a merger is unlikely due to regulatory hurdles unless Arkia is deemed a "failing firm."

Another potential path for the Nakash family is a merger with a publicly traded shell company, which would involve raising tens of millions of shekels from the public. Shlomi Fogel, a partner of the Nakash brothers, is also considering joining this venture. Arkia's financial difficulties stem from its business structure, making it vulnerable to demand fluctuations, fuel prices, and security changes. Despite expanding its operations and increasing its market share at Ben Gurion Airport, the company has reportedly lost over $30 million since the start of 2026. Security concerns have also impacted Arkia's routes, leading to the suspension of flights to Dubai and Marrakech, and the cancellation of planned flights to Tokyo due to regulatory issues. Furthermore, a regulatory change in the U.S. may affect its New York route starting in March 2027.

In contrast, El Al, another Israeli airline, has reported record revenues and a strong financial position, highlighting the significant gap between Arkia and its competitors. Arkia, as a private company, does not publicly disclose its financial reports. Previous negotiations for a sale to businessman Eliot Zamel at a $140 million valuation did not materialize. Meanwhile, Israir, controlled by businessman Rami Levy, is undergoing significant investment, including the acquisition of new aircraft. Israir's CEO, Uri Sirkis, sees acquiring Arkia as an opportunity to create a larger aviation group. However, a merger between Arkia and Israir faces significant regulatory challenges from the Competition Authority, as they are direct competitors. The Competition Authority will assess the potential impact on competition, pricing, and the possibility of foreign airlines entering the market. A merger might only be approved under the "failing firm" doctrine, which requires proving Arkia is on the verge of collapse with no viable alternatives, and that the merger would cause less harm than Arkia's demise. This condition is not yet definitively met, as other offers have been made for Arkia. The Competition Authority will compare the merger scenario with Arkia's potential collapse, referencing past cases like the acquisition of Clubmarket by Shufersal and the merger of Reshet and Channel 10.