IAG buys Air Europa for €400 million

IAG buys Air Europa for 400 million, acquiring the remaining 80% stake in the airline. The International Airline Group finally agreed to purchase the Spanish carrier with several payments. IAG had initially attempted to buy Air Europa in 2019.

IAG had backed out of a potential deal in 2021 with €75 million since it had changed several times. Based on filings from IAG, the deal is expected to close in 18 months.

Announcements

IAG purchased a 20% stake in Air Europa in August 2022. The group has agreed to acquire the remaining 80% stake. IAG agreed to pay €400 million to own Air Europa fully. The deal will be paid in three phases.

IAG buys Air Europa for €400 million
IAG purchased a 20% stake in Air Europa in August 2022. The group has agreed to fully acquire the remaining 80% stake by agreeing to pay €400 million. | © Sarah Loetscher

According to filings from IAG, €200 million will be paid when the deal closes in 18 months. Half will be paid in cash, and the other half will be paid in IAG shares. The group will pay an additional €100 million two years after closing the deal.

Market dominance

IAG’s acquisition of Spanish carrier Air Europa means the group will dominate the Spanish market. In addition, the group owns two other Spanish airlines, Iberia and Vueling. In a statement, the group said that the Air Europa brand will remain but will be managed by Iberia.

There could be a threat for Spanish airfares at Air Europa, Iberia and Vueling, assuming no further hurdles exist. After the acquisition, all three airlines will be owned by IAG. This has been an issue in the past for regulators.

IAG buys Air Europa for €400 million
IAG’s acquisition of Spanish carrier Air Europa means the group will dominate the Spanish market. | © Slavik Robtsenkov

Future works

IAG’s interest and efforts to acquire Air Europa began in 2019 with an initial price tag of €1 billion versus the current €400,000,000. Former IAG CEO Willie Walsh said in a statement,

“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, 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.”

The group has maintained this perception over the years but has encountered challenges in this acquisition. The group faced opposition from the European Commission because the acquisition would create unfair competition in the Spanish market. In a statement, the Commission said,

“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. 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 travellers.”

Loans were extended from IAG to Air Europa in 2022. In addition, the loans enabled the group to take a 20% equity stake in Air Europa. Air Europa’s pandemic decline affected the deal, with the group reducing its initial valuation to 400 million to acquire a 50% stake to avoid taking on its debts.

What do you think about the IAG acquisition of Air Europa? Let us know in the comment section below.

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