Sun D’Or owned by El Al and Israir, held by IDB Tourism will merge according to an agreement signed on Sunday, after months of negotiations.
Under the terms of the agreement, Sun D’Or will acquire full ownership of Israir in exchange for cash at Israir’s equity at the end of 2017 and no more than $ 24 million in cash, and the allocation of 25% of Sun D’Or’s shares to IDB Tourism.
Part of the payment from Sun D’Or will provide as a loan to IDB Development and part of it will be designated as Sun D’Or’s investment in Israir.
Before completing the deal, Israir will sell the planes it owns in a sale & lease back deal with a third party, with El Al pledging that the transaction will complete for a consideration of no less than $ 70 million.
The $70 million from the sale of the planes will be used to repay a $35 million loan to Bank Leumi. The rest of the proceeds will provide most of the cash payment that IDB Development is to receive from the sale of Israir. In its first quarter financial statements, IDB Development estimated that it would receive $154 million in 2018 as a result of the merger’s completion.
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The planes will be re-leas to Israir, where El Al will be given an option to purchase the planes under the terms of the transaction – to the extent that within a period from receipt of the Antitrust Commissioner’s approval, no binding agreement will sign for their sale to a third party.
El Al will receive an option to acquire the holding of IDB Tourism in Sun Dor (25%), and IDB Tourism will receive an option to obligate El Al to purchase these shares at a price and under the conditions stipulated in the shareholders’ agreement to be signed between El Al and IDB Tourism.
Open sky reform and increasing competition
In 2016 EL AL led the international passenger traffic with 32% of the international traffic at Ben-Gurion International Airport.
In light of its operations in many of the regular routes operating in Israel, the company was forced by the government to work in a competitive market.
In 2012 the government implemented the ‘open sky’ reform against the European Union, which enabled the entry of new players and increased frequencies to Israel from different destinations in Europe, and made it difficult for El Al to maintain its volume of activity, in addition to the increase in traffic at Ben Gurion Airport.
Israir CEO Uri Sirkis is expected to serve as CEO of the merged company.
The assumption is that after the merger, Israir will continue to operate according to the strategy of a tourism company.
In recent months, Israir has shown an upward trend in the volume of passengers on international flights, with May showing a 37% increase in passengers compared with the corresponding period last year, holding 2.3% of all international airlines at Ben-Gurion International Airport, similar to Alitalia and AEGEAN.
In 2016, Israir held 3.16% of all international transactions at Ben Gurion Airport. Arkia owns 3.76% of the international traffic in 2016. Also, Arkia holds a significant share of domestic flights, with 68.6% of all passengers, compared with 31.1% operated by Israir. Is also considering opening the domestic flights market to competition and the participation of foreign international companies, which will help lower prices and increase frequencies, especially on lines from Tel Aviv to Eilat.