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International Airlines Group, the parent company of Aer Lingus, BA, Iberia, LEVEL and Vueling, is not giving up on Air Europa.
Before Christmas 2021, IAG terminated its planned purchase of Air Europa from Globalia.
The transaction, first negotiated before the COVID-19 pandemic, was under review by the European Commission and the Competition & Markets Authority in the UK. It was clear that the planned deal would not pass either regulator without a significant divestment of airport slots on overlapping routes.
As part of this, IAG agreed to pay Globalia a break fee of €40 million and an additional €35 million.
IAG also agreed to explore “alternative structures” with Globalia that could work for all sides.
During IAG’s annual results presentation, IAG CEO Luis Gallego indicated that Globalia was exploring offers for Air Europa from other European airline groups.
IAG To Loan Air Europa €100 million
IAG is to hand over more money to Air Europa.
IAG has today, Thursday 17 March 2022, agreed to loan Globalia €100 million.
This loan is for a 7 year period, and can be converted into a 20% stake in Air Europa.
IAG will also have an exclusivity period of one year to explore alternative structures with Air Europa. It will also be able to match any offer for Air Europa from another airline for a period of three years.
This buys IAG time to pursue Air Europa and prevents Air France-KLM or Lufthansa from immediately acquiring the airline.
IAG evidently does not want to give up on Air Europa. That said, it remains hard to envisage a structure that could satisfy competition regulators, whilst also securing cost & revenue synergies to make a deal worthwhile.
IAG’s approach to consolidation to date has always involved having full ownership and management control, without potential interference from government or third parties.
The full statement from IAG is as follows:
International Airlines Group (“IAG”) and Globalia have reached an agreement under which IAG will make a €100 million seven‐year unsecured loan to Globalia. Subject to any relevant regulatory approvals, IAG will have the option to convert the loan into an up to 20 per cent equity stake in Air Europa.
Luis Gallego, IAG’s chief executive, 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.”
The agreement is conditional on Globalia receiving approval from syndicated banks that provided the loan agreement partially guaranteed by the Instituto de Credito Oficial (ICO) and by Sociedad Estatal de Participaciones Industriales (SEPI).
It provides for a period of exclusivity of one year while discussions take place and this is accompanied by a right to match any third party offer for the airline in the next three years, together with a right to exit alongside Globalia should it sell Air Europa at any time in the future.
Copyright London Air Travel 2022.
Given enough time, will IAG find a way around the regulatory hurdles? One option is to find a way of creating ‘an airline within an airline’ which could be sold as a stand-alone carrier and future competitor. Will they succeed? Only time will tell.