Steven Scheer, Ari Rabinovitch

JERUSALEM, (Reuters) – Israel’s flag carrier El Al Airlines said Thursday that it had entered a non-binding agreement to purchase Arkia, a smaller rival local to its government-funded bailout.

Arkia will become an El Al fully owned subsidiary under the terms of the proposed deal. Arkia’s shareholders would receive an additional 10%-14% interest in El Al by options or shares.

Arkia said in its own statement that it had agreed to continue as an independent company.

Amikam Zvi, El Al chairman said “We have much to do before we complete the Arkia acquisition.”

The government and Israel’s competition regulator would have to approve any deal.

Following a month of diligence, both companies are hoping to come to a binding agreement within 30 days. They will then have up to 150 business days to close the deal.

El Al had in 2018 tried to purchase another small carrier Israir but was denied by the competition regulator.

El Al Shares were trading at 3.86 shekels, up 8.7% in Tel Aviv after-hours trading.

El Al announced in October that they had reached out to Arkia for a possible acquisition. Both airlines were hard hit by COVID-19, which saw Israel close its borders to tourists for the first time since March 2020.

El Al, which was recently rescued by the government, had to reduce its workforce and eliminate routes in exchange for being able to receive a bailout. It also had to decrease its total Boeing (NYSE) fleet to just 29 planes.

Arkia, which is owned privately by the Nakash Group has seven aircraft. They mainly fly domestic routes as well as to Europe via Embraer and Airbus.

El Al was interested for a long time in flying to Eilat (red sea resort) in southern Israel. It is a route that Arkia, Israir control.