Following three years of stalled negotiations, the Spanish government has stepped in to speed up the IAG’s acquisition of Air Europa, El Confidencial is reporting.
Renewed interest
IAG has had its eye on the Spanish airline since 2019, putting forward a €1 billion ($1.1 billion) bid, which fell through during the pandemic, setting the Spanish-British airline group back €75 million ($81.4mn).
The renewed attempt comes several weeks after a meeting between Iberia President Javier Sánchez-Prieto and Air Europa CEO Nuño de la Rosa to soothe the airline owner’s concerns about an acquisition by a foreign carrier. President and founder of the airline’s current parent group, Globalia, Juan José Hidalgo, previously expressed dissatisfaction at the group’s reduced €500 million ($542.2mn) bid in January 2021, demanding a €125 million ($135.6mn) upfront payment to close the merger in early 2022.
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.
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IAG loaned the airline €100 million ($108.5mn) in March last year, providing a year of exclusivity to broker an agreement. IAG subsequently converted the loan into a 20% stake in Air Europa, making the group the second largest shareholder in the airline.
The government-backed meeting will coordinate a new agreement between IAG and Globalia to resolve any remaining issues before the exclusivity period expires on March 31. Shares in IAG rose 2.6% in the hour following the announcement.
Pros and cons
If approved, the acquisition is set to provide a significant boost to Air Europa’s network, adding further connections into the Americas, the Middle East, and Asia.
Air Europa has invested significantly in its fleet development and expansion despite the airline teetering on the line of a post-pandemic-induced bankruptcy. In November, the carrier announced plans to integrate 50 leased Boeing jets into its fleet, upping its long and short-haul capacity with an even mix of Boeing 737 MAX and 787 Dreamliners.
Another potential concern frequently raised is the European Commission’s anti-competition laws, with the body criticizing the acquisition’s potential impact on competition and ticket prices across Spain. Iberia and Air Europa are the second and third largest airlines based on passenger traffic behind low-cost carrier Vueling, representing around 18% of the country’s market share, according to Statista. Post-acquisition, all three would be owned by IAG.
In November 2021, the European Commission’s Competition and Markets Authority (CMA) officially opened an investigation into IAG’s potential purchase, stalling IAG’s acquisition planned for that year. However, the group has maintained that it would collaborate with CMA to resolve potential issues but remains cautious over the deal.
“Air Europa, let’s see if finally we can find a way to do it,” IAG Chief Executive Luis Gallego told Reuters at CAPA Live in December 2021. "We are not going to continue with the current structure; we are trying to have a new structure that allows this deal to happen.”
What are your thoughts on IAG’s potential purchase of Air Europa? Let us know in the comments.
Sources: El Confidencial, Proactive Investors, Reuters