Arkia Faces Financial Crisis Amidst Ownership Change and Labor Dispute

Arkia, an Israeli airline that recently underwent an aggressive expansion, is now facing significant financial difficulties, including substantial debt and a labor dispute. Just a year ago, the company was lauded for its growth, leasing wide-body aircraft and launching routes to exotic destinations like Hanoi and Phuket, with plans for Tokyo and Manila. This expansion was driven by CEO Oz Berlovich, who aimed to challenge El Al's monopoly on profitable routes and had increased Arkia's market share to 11% at Ben Gurion Airport. The company's rapid growth, however, was fueled by leasing nine additional foreign aircraft with crews, on top of its existing seven planes, straining its operational and financial infrastructure.

By early 2026, Arkia had accumulated $30-40 million in debt, leading to a deficit in its equity and a projected $50 million loss for the year. This financial strain is exacerbated by a dispute between the owners, the Nakash brothers, and the employees, who own 20% of the company's shares and hold veto power over significant decisions. The Nakash brothers blamed CEO Berlovich for the company's predicament, casting doubt on his position.

Adding to the crisis, Arkia's gamble on fuel prices backfired. Unlike competitors El Al and Israir, which hedged against rising jet fuel costs, Arkia did not, leading to significant losses as prices doubled due to geopolitical tensions. The airline also suffered from decreased demand following threats of military escalation with Iran, and claimed insufficient compensation from the state for flight disruptions. The extensive use of expensive "wet leases" (aircraft with crew) for 60% of its operations, far exceeding the industry norm of 15%, further eroded profit margins and contributed to flight delays and poor service.

Amidst these challenges, the Nakash brothers sought to inject capital, which would dilute employee shares. The employees, backed by the Histadrut labor union, threatened a strike, leading the owners to abandon the capital injection plan and accelerate the sale of the company. Several potential buyers emerged, including American investor Eliot Zamel and Ezra Unger, but negotiations faltered. The employees favored a group led by businessman Yariv Lerner, known for restructuring companies.

Ultimately, the Nakash brothers announced an agreement to sell a controlling stake in Arkia to a new investor group. This group, which includes Yariv Lerner, Einav Adib-Berrer, Yaron Adib, and Kidyan Dahari, plans to inject tens of millions of dollars to stabilize and strengthen the company. The deal involves injecting $46 million upon closing, with an additional $20 million in Arkia's treasury. The Nakash brothers will retain a 3% stake. The new investors aim for a long-term commitment to Arkia, emphasizing its brand and professional staff, while Lerner is expected to lead the company's recovery.