UPDATE – International Airlines Group (IAG) has a deal to acquire Spanish airline Air Europa. It announced an agreement with the airline’s owner Globalia on Thursday evening, saying it intends to pay €400 million for the independent carrier. The acquisition is subject to regulatory approval, which could take eighteen months to complete. IAG and Globalia agree on Air Europa deal.
If approved and completed, this concludes a take-over process that started in November 2019 with a bid of €1.0 billion for Air Europa. This was just months before the Covid-crisis brought aviation to an almost worldwide standstill and pushed many airlines into serious problems. Air Europa was one of them and the airline received a combined €610 million in loans from two different Spanish institutions.
IAG lowered its offer to €500 million later in 2020, but this was rejected by the Hildago family that owns Air Europa. Negotiations continued well into 2021 but took a twist in August 2022 when IAG announced that it had taken up an option to convert a previous €100 million loan into a twenty percent stake in Air Europa.
It now follows this up with an agreement to acquire the remaining eighty percent of the shares for €400 million. Once the transaction is closed, IAG will pay €100 million in cash and €100 million in IAG shares. One year after the completion, it will pay another €100 million, followed by an identical sum on the second anniversary. Including the €100 million of the original loan, IAG will have paid €500 million for the airline, exactly as it intended in 2020. IAG CEO Luis Gallego said on Friday in the earnings call that the €400 million is additional to what IAG has already paid, which also includes a €75 million break-fee for terminating the 2019 agreement. The latest agreement includes another €50 million break-fee if no conclusive agreement can be reached.
Although IAG promised to maintain the Air Europa name and brand, its plans to integrate it into the hub structure of Iberia at Madrid Barajas. From the start, IAG has been interested in Air Europa as it would offer the option to strengthen the Madrid hub and the network to South America and the Caribbean from there. The combination could also expand its network to Asia.
“Madrid is the main gateway”
Luis Gallego confirms this again in a media statement: “This agreement will enable IAG’s Madrid hub to compete on an equal footing with other European hubs and consolidate its position in the South Atlantic. Madrid is the main gateway between Latin America and Europe and there are opportunities to expand its network, providing significant benefits to our customers, employees and shareholders.” The acquisition should also bring IAG significant synergies and cost savings, but only between 2026 and 2028 if the transaction gets approval no later than in the second half of 2024.
Getting approval might come with certain conditions, notably from the European Commission. Already in June 2021, the EC announced an in-depth investigation into the proposed airline combination. At the time, it was concerned that “the proposed transaction could significantly reduce competition on seventy origin and destination (O&D) city pairs within and to/from Spain, on which both airlines offer direct services. On some routes, IAG and Air Europa have been the only two airlines operating.”
The acquisition will also need approval from the Spanish authorities and institutions that granted loans to Air Europa in 2020 and 2021 and which mature in 2027. Of the €141 million granted by the Instituto de Crédito Oficial (ICO), the airline has repaid only €8.5 million.
TAP Air Portugal
Asked if the acquisition of Air Europe completes IAG’s acquisition plans or if he has an interest in buying TAP Portugal, Gallego said he didn’t rule that option out. TAP Air Portugal is currently fully state-owned and has received hundreds of millions in state aid, but the government has said that it intends to privatize the carrier in the next few years. Air France-KLM CEO Ben Smith reiterated his interest in TAP last week.
On the topic, Gallego said today: “Several years ago, we tried to close an agreement with LATAM, because South America is an important market for us. That was not possible and we started negotiations with Air Europa. We hope we can conclude this deal now, but this group (IAG) has always been a platform for consolidation. We are always looking at all the options. I am not going to talk particularly about TAP but we are going to explore any option that comes and would make the group stronger.”
