El Al Israel Airlines Ltd. (TASE: ELAL) today reported that it was in initial talks to merge the business of its Sun D'Or International Airlines subsidiary into Israir Airlines and Tourism Ltd., owned by IDB Development Corporation Ltd. (TASE:IDBD). Sun D'Or markets charter flights by leasing airplanes' seating capacity to charter flight organizers at prices agreed in advance, selling seat packages to agents, and selling to the general public. According to the emerging deal between the parties, this activity will be transferred into Israir, and El Al will receive a number of Israir shares in exchange, to be determined by a valuation for the companies.
Managed by CEO Uri Sirkis, Israir operates internal flights within Israel and charter flights to Europe. In the past, Sirkis said that in order to cope with the international airlines, it was necessary to reduce the number of Israeli companies in international aviation, and it appears that he has previously considered similar cooperation with Arkia Airlines Ltd..
El Al itself does not operate internal flights within Israel, and it is therefore difficult to imagine that the Antitrust Authority director general would prevent this merger of activities for reasons of competition. A merger between Sun D'Or and Israir will also strengthen El Al's status in the market for charter flights and low-cost flights to Europe.
Two deals as a condition for progress in negotiations
At the same time, in order for the negotiations between the parties to progress, Sirkis will have to accept two substantial deals: the purchase of a third Airbus 320 airliner by Israir and the sale of the Diesenhaus travel agency. Israir has already agreed on terms with Airbus, but it still has to finish its talks with Deutsche Bank on terms for a loan for the purchase of the airplane.
As CEO of IDB Tourism, Israir's parent company, Sirkis is also waiting for approval from the Antitrust Authority director general to complete the sale of Diesenhaus to Ofer Chodorov's Business Travel Center (BTC) group for $12.5 million.
IDB Tourism finished 2014 with a 23% drop in earnings before interest, taxes, depreciation and amortization (EBITDA) to NIS 39 million. IDB Tourism posted a NIS 20 million net loss, compared with NIS 25 million in 2013, due mostly to reporting financing expenses for an owner's loan obtained from IDB Development. IDB Tourism is the sole owner of the Diesenhaus travel agency and Israir, and owns a 54% controlling interest in Open Sky, which represents foreign airlines.
Ahead of the publication of its annual financial statements, IDB Tourism obtained a $149 million valuation from a consultant firm for Israir's business, excluding debt.
Published by Globes [online], Israel business news - www.globes-online.com - on May 25, 2015
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