IAG Still Wants Air Europa – But For A Lower Price

On Tuesday, it was reported that IAG and Air Europa had reached an agreement for a new purchase price. IAG, which already controls a large part of the Spanish market, is set to acquire its latest airline for less than half of the €1 billion the group initially offered. That is, if the Spanish government gives its approval.

IAG Air Europa
Air Europa’s owners will get less than half of the original purchasing price. Photo: Getty Images

International Airlines Group (IAG) is still looking to acquire the third-largest Spanish carrier Air Europa, despite the ongoing crisis. However, the British Airways owner is once more lowering the purchasing price. What began as a one billion euro deal a little over a year ago has now left Air Europa’s owners with less than half that amount on offer.

Less than half the initial price in shares

According to the Spanish newspaper El Confidencial, the two parties have reached an agreement for IAG to pay between €300 to €400 million ($355-$474 million). The London-based buyer is offering most of the amount in IAG shares.

While IAG and Air Europa’s owner Globalia have reached an understanding, the deal is still pending the approval of the authorities. The Spanish government has made it clear that it will also play a role in the takeover, having granted Air Europa €475 million ($553 million) in state-aid only two weeks ago.

According to El Confidencial, IAG’s current CEO, Luis Gallego, who was CEO of IAG-owned Iberia at the time of the acquisition’s announcement, has convinced Javier Hidalgo, CEO of Air Europa, to agree to the new deal.

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Air Europa 787-9 Getty
Acquiring Air Europa will extend IAG’s reach to South America and the Caribbean. Photo: Getty Images

IAG’s other unions disapprove

The lower price is a reflection of the diminished value of Air Europa due to the unprecedented impact of the COVID-19 crisis on commercial aviation. It is also a way to appease the unions of IAG’s other carriers, such as British Airways, which have vehemently opposed the acquisition. If IAG were to have backed out of the deal, there would be a €40 million ($46 million) penalty fee.

This is not the first round of price reductions. In July this year, IAG lowered the price to €500 to €600 million ($593 to $712 million). While IAG already owns both Spanish legacy carrier Iberia and its low-cost compatriot Vueling, the acquisition of Air Europa is to further expand IAG’s reach to South America and the Caribbean.

vueling to receive state-guaranteed funding
Along with Iberia and low-cost carrier Vueling, buying Air Europa means IAG will control a significant part of the Spanish market. Photo: Getty Images

Could Madrid become a European hub post-crisis?

Furthermore, the group hopes that it will transform its Madrid base into a European hub rivaling those of Amsterdam, Frankfurt, London Heathrow, and Paris Charles de Gaulle.

“This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs. Following this agreement, Madrid will be able to compete with other European hubs on equal terms with a better position on Europe to Latin America routes and the possibility to become a gateway between Asia and Latin America,” Louis Gallego, then CEO of Iberia, now IAG, commented at the time of announcing the initial agreement in November 2019.

Do you think the deal will go through? What do you think this means for Spanish aviation in the long term? Let us know in the comments.