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March 3, 2024
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International Airlines Group (IAG) has exercised its option to convert a €100 million loan to Spanish carrier Air Europa into a twenty percent share, it announced on August 16 in a regulatory filing. This means that IAG has finally got a foot in the door with the independent airline that is still majority-owned by travel group Globalia. IAG swaps Air Europa loan for a 20 percent stake.

In March, IAG provided Globalia with a seven-year, unsecured €100 million loan to quench capital needs for Air Europa following the Covid crisis. The airline already received a €141 million loan from the Instituto Credito Official (ICO) and a €475 million loan from the Sociedad Estatal de Participaciones Industriales (SEPI), the latter maturing in 2027. Both ICO and SEPI approved the loan to Globalia.

With the loan, IAG got the exclusive right to continue negotiations about the acquisition of Air Europa for a year. But it also included the right to convert the loan into a twenty percent share. There was also an exit strategy for IAG if Globalia would sell Air Europa to a third party, but this scenario seems unlikely now that IAG has secured a minority share.

On the radar since 2019

Air Europa, which operates a fleet of twenty Boeing 737-800s, 22 787-8s and -9s, and three Embraer E195s, has been on IAG’s radar since 2019. The airline group made a first, €1.0 billion offer in November 2019 but tried to renegotiate this to €500 million after the outbreak of the Covid crisis in 2020. On and off talks continued for most of 2021, until IAG and the Hildago family that owns Globalia reached an agreement on the unsecured loan.

The question is: what happens next? Will the equity share be the start of something more for IAG? According to the Spanish newspaper El Pais, the IAG stake is conditional on Air Europa continuing to operate as an independent airline without any interference from IAG subsidiary Iberia. The original 2019 plan had an investment unit of Iberia, IB OPCO, make the €1.0 billion investment in Air Europa and integrate Air Europa within Iberia. This would provide significant cost and revenue efficiencies through synergies before Air Europa would be fully integrated in 2025.

Brussels concerned about Air Europa-Iberia merger 

The stake of IAG in Air Europa will certainly get the attention of the European Commission. In June 2021, the competition branch of the EC launched an in-depth investigation into the acquisition plan which at the time consisted of the €500 million offer from IAG. Brussels has always been concerned about the size that a combination of Air Europa and Iberia would have on competition in Spain and on routes from Madrid to the US and Latin America.

In a preliminary market investigation, the Commission said that “it is 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 Commission is also concerned about the effect of the proposed transaction on routes on which other airlines rely on Air Europa’s domestic and short-haul network for their own operations at the Madrid airport and a number of other EU airports. Without Air Europa’s feeder traffic, some airlines may decide to terminate their services to international destinations also served by IAG, reducing choice for travelers.”

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Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.

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