International Airlines Group (IAG) is now seeking a new price for Air Europa amid the coronavirus pandemic. Five months after news first broke that the conglomerate was taking over the Spanish airline, IAG is now saying that the airline is worth less than it was before.
Seeking a new purchase price
A report in Reisetopia indicates that the current crisis has made the acquisition of Air Europa less attractive. IAG’s airlines have also been faced with grounding and losses. Prior to this crisis, the European giant was turning healthy profits and, with the addition of Air Europa, would further consolidate its presence in Spain.
However, these past few months have wreaked havoc on airline balance sheets everywhere. Even Air Europa, which was in a decent position before this crisis, is facing strong headwinds. Previously, IAG had planned for a €1bn price for the acquisition.
The volatility of this current market also means that IAG may not get the planned return on its investment from Air Europa. The Spanish airline is known for its connections between Latin America and Europe– especially to leisure destinations. Unfortunately, leisure travel is in a volatile state of affairs.
Will IAG get a lower price?
Air Europa’s owners could also be in need of cash amid the current crunch. Plus, most airlines are not in the market for acquiring another carrier as they try to stabilize their own economics. Therefore, IAG is really the only buyer for the airline.
IAG could lowball the offer and leave the bargaining table. Most companies have been walking away from deals. LOT Polish’s owner walked away from a Condor acquisition, and Boeing and Embraer are no longer partnering on commercial aircraft. This could be a ploy for IAG to save cash and find a way to get out of that commitment.
Could the acquisition be blocked?
If IAG proceeds with a takeover of Air Europa, it will see Spain’s market dominated by Iberia and Vueling– which are owned by IAG. In the long-haul segment, it would essentially see IAG have a monopoly on crucial transatlantic routes.
As a way to increase cash reserves, IAG could increase fares and reduce the capacity to fill its coffers without competition from Air Europa. With this in mind, regulators may have concerns about this takeover– especially with the tourist economy in the current state.
What could IAG do with Air Europa?
Air Europa could work in tandem with Vueling– a low-cost carrier catering to leisure travelers. There are several cities where Iberia and Air Europa both offer services– such as New York, Montevideo, Buenos Aires, and other South American cities. Air Europa could operate some of these services while Iberia others. With any leftover capacity, IAG could launch additional long-haul routes, although it may be some time before Iberia adds new services.
IAG is seeking a discount on Air Europa given the current downturn, saying that the airline is not worth as much as it was before. These negotiations will likely take some time, and it is unclear how this will end up.
Do you think IAG will acquire Air Europa at a discount? Let us know in the comments!