El Al Israel Airlines announced it had entered talks with Arkia to examine a possible acquisition of its smaller rival.
In a regulatory filing in Tel Aviv, Israel's flag carrier said it was considering buying Arkia and in exchange would issue its own shares to Arkia shareholders.
El Al, hit hard during the COVID-19 pandemic since Israel's borders have been largely closed to foreign tourists since March 2020, said negotiations are early and no binding agreements have been signed.
In exchange for a government bailout, El Al – which last year changed ownership and management – was forced to trim its workforce by one-third, eliminate routes and reduce its all Boeing fleet size to 29 from 45 planes.
Privately owned by the Nakash Group, Arkia, also financially strapped due to the pandemic, has seven aircraft and mainly flies domestic routes and to Europe using Embraer and Airbus aircraft.
El Al in 2018 had sought to buy Israir, another small Israeli carrier that flies to the southern resort of Eilat and a host of European cities, but Israel's competition regulator would not allow the merger.