The International Airlines Group (IAG) has announced it will convert the €100 million loan it gave to Globalia to a 20% share stake at Air Europa. Acquiring this share will only be possible by also keeping Air Europa and Iberia –a key member of IAG and Spain’s main carrier– independent of each other.
IAG, the new shareholder of Air Europa
On March 17, IAG and Globalia (current owner of Air Europa) announced an agreement in which the airline group would give the Spanish touristic holding a non-guaranteed loan for €100 million. This agreement gave IAG a one-year exclusivity period in which IAG would be able to negotiate the 100% acquisition of Air Europa (which then would fall into the hands of Iberia). The loan also included the right for any third party to try to equal the offer.
On Tuesday, IAG published an announcement on the Spanish National Securities and Exchange Commission (CNMV, in Spanish). The statement said,
“Following the announcement made by International Airlines Group ('IAG') on March 17, 2022, in connection with the convertible loan to Globalia, IAG announces that it has exercised its option to exchange the Group's €100 million seven-year unsecured loan to Globalia for a 20% equity interest in Air Europa.”
The latest chapter in a three-year-negotiation
It was back in November 2019 when Iberia announced it would acquire Air Europa for €1 billion. Nonetheless, the COVID-19 pandemic, the severe economic crisis within Air Europa, and the concerns from the European Union regarding a merger between Iberia and Air Europa have delayed the acquisition.
For instance, after the pandemic, Iberia reduced €500 million in its offer to acquire the Globalia airline and then paid €75 million in compensation to cancel the original contract and start all over again. When announcing the cancelation of the agreement, Luis Gallego, IAG’s chief executive, said it was a very disappointing thing to do.
Still, the decision made sense due to the market conditions. However, IAG remained committed to analyzing alternative arrangements that could deliver significant benefits and would continue to work to strengthen Iberia’s position in Europe and develop the Madrid Barajas International Airport (MAD) hub “so that it can compete as an equal with other European hubs.”
Luis Gallego added that it could take up to a year and a half for the group to acquire Air Europa. He described the purchase as a very complex process, but it would benefit the Spanish airline and airport industry.
Air Europa issues
Air Europa is the third biggest airline in Spain, behind Iberia and Vueling (both members of IAG). The last few years have been plagued with economic issues, prompting the Spanish government to rescue the airline, which owes nearly €1bn, after receiving over €600 million from SEPI, a Spanish state holding company characterized as a sovereign wealth fund controlled by the Ministry of the Treasury, and an additional €140 million loan from another Spanish entity.
Air Europa currently has a fleet of 40 aircraft and expects to receive 32 additional units in the future, according to data provided by ch-aviation. The airline owns one Airbus A320-200, 17 Boeing 737-800s, ten Boeing 787 Dreamliner 8s, and 12 Dreamliner 9s.