Arkia's costly gamble: how rapid expansion pushed Israeli airline into crisis

Arkia, once seen as a rising force in Israeli aviation, embarked on an aggressive expansion plan by leasing additional wide-body aircraft and adding routes to Hanoi, Phuket, and a Tokyo service planned for January, with Manila targeted for 2027.

The airline, which operates domestically from Ben Gurion and has pursued a higher-profile battle with El Al on London and US routes, relied heavily on leased planes to support its growing network, bringing in nine extra aircraft and crews to support the expansion.

By 2026, Arkia faced rising costs from jet fuel, a heavier reliance on wet leasing, and weaker demand tied to regional tensions, leading to substantial losses and mounting debt. The company reported a potential annual loss and negative shareholders’ equity, while fuel-price volatility and unhedged fuel purchases exacerbated financial strain.

Internal turmoil accompanied financial stress, with employees who are also shareholders holding veto power and clashing with owners over a capital-injection plan. The labor dispute intensified as the owners weighed a capital raise or a sale, and management faced public criticism from the Nakash brothers.

A sale process advanced as the owners sought to transfer control to a new investor group, with a proposed capital injection and share dilution for employees. The deal outline would shift ownership with the Nakash brothers retaining a small stake, while the new investors would inject tens of millions of dollars to stabilize Arkia’s operations and protect jobs, passengers, and the Israeli economy.

Negotiations included potential buyers such as Israir and other investor groups, with plans to compensate employees through a future-profit mechanism if profitability returns. Government funding was discussed to support the latest Iran-related disruption, contingent on the owners’ investment, as Arkia pursued a path to solvency and operational stability.