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IAG to acquire Air Europa in all-cash deal

International Consolidated Airlines Group (IAG), the parent of British Airways and other carriers, on Nov. 4 said it reached an agreement for subsidiary Iberia to acquire Air Europa from privately held Globalia, Spain’s largest tourism group, for €1 billion ($1.1 billion).

The all-cash acquisition of Spain’s third-largest airline, to be funded by external debt, is expected to close in the second half of 2020, following receipt of regulatory approvals.

Air Europa operates scheduled domestic and international flights to 69 destinations, including European and long-haul routes to Latin America, the U.S., the Caribbean and North Africa. The acquisition will help IAG’s Madrid hub become more competitive with other European gateways, such as Paris and Frankfurt, especially for Latin America service, IAG officials 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 Chief Executive Willie Walsh said in a statement. “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 acquisition was panned by Ryanair CEO Michael O’Leary on a conference call with analysts as the Ireland-based low-cost carrier announced a flat net profit of €1.15 billion for the first half of the 2020 fiscal year. “I think it is a good deal for IAG, for Willie Walsh. I think it is a bad deal from a competition point of view,” he said.

“It is a merger to monopoly in Madrid and I think we would certainly be looking for the competition authorities to require some competition divestments, particularly in the Air Europa short haul,” O’Leary said. 

IAG also owns low-cost carrier Vueling. Acquisition of Air Europa would give IAG the largest number of routes between Europe and Latin America of any airline group, strengthening its position in the South American trans-Atlantic market and the Caribbean. 

The proposed acquisition follows by six weeks an announcement by U.S. major Delta Air Lines to acquire a 20% stake in South America-based Latam Airlines. 

In 2018, Air Europa achieved net revenue of €2.15 billion, a 9.3% increase over the 2017 result, and operating profit of about €100 million. The carrier broke the 11 million passenger barrier for the first time in 2018 and implemented the new Air Europa Cargo division that moves cargo in aircraft belly holds.

Groundforce Cargo, the Spanish group’s ground-handling division, is not part of the acquisition.

IAG has agreed to pay Air Europa a break fee of €40 million in the event that the transaction fails to receive the necessary regulatory approvals and either party elects to terminate the transaction agreement.