Israir Group (TASE: ISRG), controlled by Rami Levy, is in talks to acquire rival airline Arkia. Meanwhile, El Al is also considering the acquisition of this smaller competitor. It appears that the Nakash brothers have decided to put Arkia up for sale because of the severe problems the company is facing. In the first three quarters of the year, it lost $30 million, and it is projected to end the year with a total loss of $50 to $60 million.
One clear obstacle is obtaining the Competition Authority’s consent to the exit of one of the players. However, under competition law, in the case of a failing firm, the Competition Authority may permit a competitor to acquire it even if doing so harms market competition. Such approval was granted in the merger of supermarket chains Club Market and Shufersal twenty years ago and in the merger of the Reshet network and Channel 10.
In the light of this, market observers suggest that the deal might overcome possible objections from the Competition Authority through the "failing firm" legal exception. Nevertheless, competition law experts emphasize that this is a complex issue, and that it is by no means certain that Arkia meets the criteria.
Adv. Dror Strum, a former director of the Antitrust Authority (now the Competition Authority), says, "The 'failing firm' doctrine requires that the company should be in a state of insolvency and that it be should put up for sale via an auction process; this allows the regulator to evaluate which offer would cause the least harm to competition."
"If the alternative is worse"
As another source explains, "If the alternative is significantly worse, meaning that Arkia would otherwise exit the market and cease operations, then the Authority has the discretion to approve mergers that it otherwise would not have authorized. But this is a very rare occurrence, granted perhaps once every few years as a last resort." According to another expert, "For this to apply, Arkia would need to be in a dire situation, supported by concrete evidence. It would have to show, for instance, that no other market player who is not a direct competitor is willing to acquire the company. Meeting these conditions is no simple task."
Strum notes: "Had Arkia held an auction, and an investor from abroad, a new entrant rather than a competitor, had emerged, that investor would have been given priority over a local competitor. As long as no such auction takes place, the 'failing firm' doctrine does not apply. Furthermore, a company’s insolvency is typically marked by formal indicators, such as an auditor’s 'going concern' warning in the financial statements, or the appointment of a receiver or liquidator."
In other words, Strum emphasizes, "to qualify for this exception, one must point either to formal legal proceedings or to something in the financial statements appended by the auditors indicating that the company is at grave risk. No-one has said that Arkia is bankrupt."
Adv. Hagai Doron, head of the Antitrust and Competition practice at S. Horowitz & Co., agrees that this is a "challenging merger, which the Competition Authority will scrutinize with the utmost care. This is not something that goes through easily."
Strum assesses that the current deal presents a considerable challenge for the regulator. "They might find ways to overcome it," says Strum, "but from a competition standpoint, there is a substantial difficulty-even with the understanding that these are two small companies compared with El Al, and that they are seeking the benefits of scale."
Arkia and Israir are the primary operators on domestic routes. In the first nine months of this year, Arkia (61%) and Israir (36%) accounted for 97% of all traffic between Tel Aviv’s Ben Gurion Airport and Ramon Airport at Eilat. In 2018, a proposed merger between El Al and Israir fell through, partly because of the potential harm to competition on the Eilat route.
"The operations of these two Israeli carriers are similar in terms of their destination profiles and flight characteristics, even though Arkia has expanded into routes such as Tokyo and New York," says Doron. Furthermore, the Competition Authority will examine whether foreign carriers provide a "counterbalance", serving as a viable alternative for the Israeli consumer, especially in the light of market shifts that have occurred in recent years. "The Authority will examine where the companies operate, including defining the specific routes themselves, for instance, whether Larnaca and Limassol constitute the same market or represent two distinct products. It will also assess whether Cyprus is a destination distinct from Rhodes, Athens, and other nearby vacation spots. The Authority might also impose certain conditions on the parties in order to approve the merger."
He notes that the Authority will also need to take into account that, in recent years, the data have been misleading. "The war boosted the market share of the Israeli airlines. Especially following the flydubai incident, there has been a tendency to turn to familiar Israeli airlines, which offer a sense of personal security, as well as a greater degree of certainty that the flight will actually take place and will not be cancelled."
Counterbalancing El Al
On the other hand, market observers note that a key argument for approving such a merger between competitors is the power the new entity would gain to challenge the dominant El Al, a carrier that holds a monopolistic position on many routes.
The Competition Authority will need to examine whether the merger would expand options for consumers, and whether it would lead to higher or lower fares. According to a market source, "The existence of two weak competitors facing a strong third rival is a consideration that the Competition Authority might view in a positive light."
These points align with a letter sent to employees over the weekend by Uri Sirkis, CEO of Israir, who stated: "If this move is approved... we will establish an exceptional aviation group capable of competing on both price and service with the major global airlines operating in Israel. This could reshape the Israeli aviation landscape."
In any event, Prof. David Gilo, a former director of the Antitrust Authority, assesses that the alternative, even if it yields less money for Arkia, might be preferred by the Authority, in order to preserve as many competitors as possible. "If there is an alternative buyer for Arkia, or another way of ensuring that it continues as a going concern, even if this yields significantly less for Arkia’s owners, creditors, or employees, the Competition Commissioner should oppose the merger with Israir," he says.
"The concern applies both to the Eilat route and to international routes, especially as customers have a preference for Israeli carriers. Merging two small competitors contending with large competitors isn’t always good for competition."
Published by Globes, Israel business news - en.globes.co.il - on November 9, 2026.
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