Israir-Arkia Merger Faces Regulatory Hurdles
Translated & summarized from Globes by baba
Israir is in talks to acquire its financially struggling competitor Arkia, with El Al also reportedly considering a bid. The merger faces significant regulatory hurdles from the Competition Authority, although a "failing firm" exception might apply. Experts emphasize that Arkia must prove severe financial distress and a lack of other viable buyers to qualify for this exception. The deal's impact on domestic routes and competition against El Al will be key considerations for regulators.
The story in 7 lines · by baba
- Israir is in talks to acquire rival airline Arkia, which is facing significant financial losses.
- El Al is also reportedly considering acquiring Arkia, adding complexity to the potential deal.
- The merger requires approval from the Competition Authority, which will scrutinize its impact on market competition.
- A "failing firm" legal exception might allow the merger, but Arkia must meet strict insolvency criteria.
- Experts warn that Arkia has not shown formal signs of bankruptcy required for the failing firm doctrine.
- The deal's effect on domestic routes and competition against dominant El Al will be critical factors.
- Uri Sirkis, CEO of Israir, believes the merger would create a strong competitor to larger airlines.
Israir, controlled by Rami Levy, is in talks to acquire rival airline Arkia, which is reportedly being put up for sale by its owners, the Nakash brothers, due to significant financial losses. Arkia has lost approximately $30 million in the first three quarters of the year and is expected to end the year with a deficit of $50 to $60 million. El Al is also reportedly considering acquiring Arkia.
A primary obstacle to the merger is obtaining approval from the Competition Authority. However, competition law includes an exception for acquiring a failing firm, which could allow the deal to proceed despite potential negative impacts on market competition. Past examples of this exception include the mergers of food chains Clubmarket and Shufersal, and the merger of Reshet and Channel 10.
Experts caution that Arkia must meet strict criteria to qualify as a failing firm, including demonstrating insolvency and a lack of viable alternative buyers. Dror Strum, former Director General of the Israel Antitrust Authority, stated that the "failing firm doctrine" requires the company to be in a state of bankruptcy and to have gone through a tender process to ensure the least anti-competitive outcome. He emphasized that Arkia has not shown formal signs of bankruptcy, such as an "ongoing concern" note from auditors or the appointment of a receiver.
The authority will also consider the competitive landscape, including the role of foreign airlines and consumer preferences for Israeli carriers, especially post-Operation Iron Swords. The merger could also be viewed favorably as a way to create a stronger competitor against the dominant El Al.
Hagai Doron, head of Antitrust and Competition at S. Horowitz, described the merger as "challenging" and subject to intense regulatory review. Uri Sirkis, CEO of Israir, expressed optimism that the combined entity would create a formidable competitor to larger airlines operating in Israel. However, former Director General David Gila suggested that if alternative buyers exist for Arkia, even those offering less financial return, the Competition Authority might oppose the merger with Israir to preserve competition.