IAG, the International Airline Group, has finally agreed to purchase the remaining 80% of Air Europa. In a filing made yesterday, the airline group revealed that it would buy the remainder of the Spanish carrier for €400 million ($424 million), made up of several payments.

It's been four years since IAG initially attempted to buy Air Europa back in 2019. The deal has changed a few times throughout the process, with IAG backing out of the agreement entirely to the tune of €75 million ($79.5 million) in late 2021. Despite all this, it seems all the Is have now been dotted, and Ts crossed. The deal is now expected to close in 18 months, with payments beginning at this time.

What has been announced?

IAG already acquired 20% of Air Europa last August. Now, the airline group has agreed to purchase the remaining 80%. According to the group, it will pay €400 million to take over Air Europa fully. This will be paid in three sections. €200 million ($211.9 million) will be paid when the deal closes, expected in 18 months. Half of this will be paid in cash, with the other half being paid in shares of IAG. The airline group will spend a further €100 million ($106 million) one and two years after the deal closes.

Spanish market dominance

Taking over Air Europa will give IAG incredible dominance over the Spanish flight market, as it already owns Iberia and Vueling. According to IAG, the Air Europa brand will remain but be managed by Iberia. Assuming no further hiccups, there could be a threat to competition for Spanish airfares at Vueling, Iberia, and Air Europa.

Post-acquisition, all three would have IAG as the sole owner. In the past, this has been an issue for regulators. However, Head For Points reports that "the reason the deal is expected to be nodded through is that Air Europa would probably not have survived otherwise. The Spanish Government is believed to have been working to ensure approval."

Several years in the works

The efforts by IAG to purchase Air Europa began in earnest in 2019 with an original price tag of €1 billion versus €400,000,000. Back when Willie Walsh was IAG CEO, Walsh said,

“Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership, therefore generating additional financial value for our shareholders. IAG has a strong track record of successful acquisitions, most recently with the acquisition of Aer Lingus in 2015 and we are convinced Air Europa presents a strong strategic fit for the group.”

IAG has maintained this perception throughout the years but faced difficulties in this acquisition. For instance, IAG faced opposition from the European Commission on the grounds the purchase would reduce airline competition in Spain. The European Commission explained;

"The Commission is concerned that the proposed transaction could significantly reduce competition on 70 origin and destination 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.

It added,

"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."

The UK's Competition and Markets Authority was also investigating. The concern is that there was potentially reduced competition in UK markets. These investigations, plus the economic impacts of COVID-19, helped lead to a December 2021 attempt to terminate these efforts. IAG issued a statement saying in part, "discussions are at an advanced stage to terminate the agreement" to have Iberia buy Air Europa. The eventual cost of termination was €75 million.

In 2022 loans were extended from IAG to Air Europa. These loans allowed IAG to take a 20% equity stake in Air Europa. As Simple Flying reported, The airline's pandemic decline has significantly impacted the deal, with IAG reducing its initial valuation to just €400 million ($434.1mn) to purchase a roughly 50% stake in the company to avoid taking on its debts.

What do you make of the new deal to acquire Air Europa? Let us know what you think and why in the comments!

Sources: IAG, Head For Points

• 

  Air Europa

  IATA/ICAO Code:

  UX/AEA

  Airline Type:

  Full Service Carrier

  Hub(s):

  Madrid Barajas Airport

  Year Founded:

  1986

  Alliance:

  SkyTeam

  CEO:

  Juan José Hidalgo

  Country:

  Spain