Aviation’s biggest “will they, won’t they” relationship between IAG and Air Europa is back on. Speaking at this week's "Wake Up Spain" event, IAG Chief Executive Luis Gallego has stated that the acquisition of the airline may take at least 18 months, though IAG had decided “on a calendar” to take 100% of the airline.

Gallego did not give details on how much IAG would pay for Air Europa, though he noted that the company will have to secure antitrust approvals for the deal in several different countries.

Details of the deal

International Airlines Group (IAG) was founded by a merger of British Airways and Iberia back in 2010. In the consecutive 12 years, the group has built up its brand by purchasing similar airlines, including now-defunct BMI, Aer Lingus, LEVEL, and Vueling. It unsuccessfully attempted to purchase Norwegian in 2018.

IAG announced its intent to purchase Air Europa in November 2019 as part of a €1 billion deal. The addition of Air Europa to IAG’s brand were set to contribute to the construction of a hub in Madrid; however, plans were derailed following the onset of the pandemic and antitrust concerns.

With the low-cost carrier being hit hard by the pandemic, the deal was reduced to €500 million in January 2021. Plans were scrapped in late last year following regulatory concerns over the merger's impact on certain markets.

Air Europa is the third biggest airline in Spain behind Iberia and IAG-owned Vueling, with a merger leaving little competition within the Spanish market.

Returning to talks

Following its withdrawal from the deal in December 2021, IAG shelled out €75 million in break fees to Air Europa’s holding company, Globalia. Speaking at the time of the initial cancellation of the deal, Gallego said,

"It is very disappointing that we have had to terminate the current agreement to acquire Air Europa but the decision makes sense due to the market conditions, the deep crisis resulting from COVID-19 and taking into account our desire to maintain a disciplined approach to capital allocation."

However, Gallego noted that the deal was not dead just yet, with the €75 million break fees set “to be applied to reduce any future purchase price if a new agreement is reached and to avoid any litigation relating to the acquisition." He later added,

"We have committed to analyse alternative arrangements with Globalia that could deliver significant benefits. In the same way, we will continue to work with the Spanish Government to guarantee the connectivity of Spain and the development of the Madrid hub.”

Negotiations had been stalled until March when IAG granted Air Europa an unsecured €100 million loan, convertible to a 20% stake in the airline. The loan gave IAG and Air Europa some breathing space to resume fresh talks on the deal. IAG has been given an exclusivity period of one year and an exit clause if Globalia moves to sell Air Europa at any time in the future. Of the renewed deal, Gallego said,

"We remain convinced about the strategic importance of this deal to the development and competitiveness of Madrid's hub. Since we started negotiations, the world has changed. This agreement will give us time to evaluate with exclusivity alternative structures that may be of interest to both companies and offer significant benefits for their customers, employees, and shareholders."

What do you think of IAG and Air Europa’s merger? Let us know in the comments.

Source: Reuters