Israel's flag carrier El Al Airlines, forced to trim its fleet and workforce following a government bailout during the pandemic, says it has entered a non-binding memorandum of understanding to buy smaller local rival Arkia.
Reuters reports that under the proposed deal, Arkia would become a fully-owned subsidiary of El Al. In return, Arkia's shareholders would get a 10%-14% stake in El Al through shares and options, the airline said in a regulatory filing.
In its own statement, Arkia said the deal stipulates it would continue operating as an independent brand.
Whether the deal will be approved by Israel's competition regulator is an open question. In 2018, El Al made a bid to buy another small carrier, Israir, but permission was denied.
"We still have a long way to go before the deal to acquire Arkia is completed, which is part of El Al's strategy to expand into additional areas of activity," said El Al chairman Amikam Ben Zvi.
Any deal would need approval from the government, Israel's competition regulator and the companies' labor unions.
El Al said in October it had entered talks with Arkia regarding a possible acquisition. Both airlines were hit hard by the COVID-19 pandemic with Israel's borders largely closed to foreign tourists since March 2020.
In exchange for a government bailout, El Al was forced to trim its workforce by one-third, eliminate routes and reduce its all-Boeing fleet size to 29 from 45 planes.
The privately owned Arkia has seven aircraft and mainly flies domestic routes and European routes using Embraer and Airbus aircraft.
Reuters says El Al has long been interested in flying to the Red Sea resort city of Eilat in southern Israel -- a route controlled by Arkia and Israir.
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