International Airlines Group has acquired a 20% stake in Air Europa.
This is the latest instalment in a long running attempt by IAG to buy Air Europa from Globalia.
It was nearly three years ago IAG agreed to buy Air Europa for €1 billion in cash.
This was framed as a “transformational” deal intended to boost IAG’s presence in Madrid and make the airport a hub to rival Amsterdam, Frankfurt and Paris.
Much of course has happened since then. The original deal was first renegotiated post COVID-19. It was then torn up after competition regulators in the UK & EU made it clear they would demand significant concessions. This was both due to the number of overlapping routes and reduction of choice for passengers connecting to long haul routes via Madrid.
IAG had to pay Globalia a break fee of €40 million and an additional €35 million.
Undeterred, IAG agreed to pursue alternative structures that could work for both sides.
In March of this year, amid news that Air Europa was in talks with other airline groups, IAG granted the airline a loan of €100 million. IAG also secured an exclusivity period of one year to pursue “alternative structures” with Air Europa.
This, today 16 August 2022, has been converted into a 20% stake in Air Europa.
What Happens Now?
In terms of the relationship between Air Europa and other IAG airlines, nothing changes.
The airlines remain competitors and must continue to treat each other as such.
Why Is IAG Doing This?
IAG does want to give up on Air Europa.
The question is why. A period of exclusivity keeps the airline out of the hands of Air France KLM and Lufthansa.
That’s about it. It is hard to envisage any sort of deal that will satisfy competition regulators, whilst also securing cost & revenue synergies to make it worthwhile.
There is little commonality between Air Europa and Iberia in terms of fleet. There is nothing Air Europa does that Iberia cannot do itself. Iberia also has ample opportunities to pursue organic growth in Madrid.
IAG shareholders may question why it still spending money on this transaction instead of focusing on other areas such as repairing its balance sheet and improving operational performance.