Arkia Faces Financial Crisis Amidst Ownership Dispute and Expansion Woes

Arkia, an Israeli airline that recently underwent an aggressive expansion, is now facing significant financial losses and internal conflicts. Just a year ago, the company was celebrating its growth, launching new routes to exotic destinations like Hanoi and Phuket, and planning a Tokyo line. This expansion was driven by CEO Oz Berlovich, who aimed to challenge El Al's monopoly on profitable routes. Arkia introduced a business class, captured 11% of the market share at Ben Gurion Airport, and offered lower prices than its competitor. To support this growth, Arkia leased nine additional foreign aircraft with crews, on top of its existing seven planes.

The company's rapid expansion, however, has come at a high cost. Since early 2026, Arkia has accumulated debts of $30 to $40 million, resulting in a deficit in its equity. It is projected to end the year with a $50 million loss. This financial strain is exacerbated by a dispute between the employees, who own 20% of the company's shares and hold veto power, and the owners, the Nakash brothers. The owners have accused CEO Berlovich of mismanagement, and his position is reportedly unstable.

Adding to the turmoil, the Nakash brothers' plan to inject capital into the company, which would dilute employee shares, was met with strong opposition. Employees threatened a labor dispute and strike, backed by the Histadrut labor union. Recognizing that a strike could jeopardize the company's sale, the owners backed down from the capital injection and instead focused on accelerating the sale of Arkia.

Several factors contributed to Arkia's financial woes. A significant miscalculation involved hedging jet fuel prices; unlike El Al and Israir, Arkia did not hedge, betting that prices would not rise significantly. When fuel prices doubled due to geopolitical tensions, it led to substantial losses, particularly on new, long-haul routes like New York. The company also suffered from decreased demand following threats of military escalation with Iran, which caused customers to freeze bookings. Furthermore, Arkia's heavy reliance on wet leases (leasing aircraft with crews) increased operational costs and reduced profit margins compared to competitors operating their own aircraft. Experts suggest that Arkia's rapid growth outpaced its operational and financial infrastructure, with leased aircraft comprising 45% of its operations, far exceeding the industry norm of 15%.

Despite the challenges, Arkia announced it would continue operations as usual, though it has reduced flights on routes like London and New York, citing seasonal demand drops. The sale of the company has been a long process, with various investors expressing interest. Initially, the Nakash brothers rejected offers from American investor Eliot Zemel and another from Ezra Unger. A potential merger with Israir was also considered but deemed unlikely due to regulatory hurdles. Ultimately, the Nakash brothers announced on Thursday they had signed an agreement to sell a controlling stake in Arkia to a group of investors, including businessman Yariv Lerner, who is known for restructuring companies. The deal involves injecting tens of millions of dollars into Arkia to stabilize and strengthen its operations. The new investors will hold the majority of shares, with the Nakash brothers retaining only 3%. The employees have a three-day window to find alternative investors who can match the terms while preserving employee rights. The new ownership group expressed confidence in Arkia's future, committing to long-term stability and growth.