Contributor - Europe

Cathy Buyck

British Airways and Iberia parent International Airlines Group (IAG) is moving ahead with the planned acquisition of Air Europa in spite of Covid-19, though the pandemic and the collapse in air travel has cut the purchase price in half. Iberia—which will buy Air Europa on behalf of IAG—will pay only €500 million ($607 million) for its Spanish rival, down from the €1 billion in cash to which the parties agreed when they announced the deal in November 2019. In addition, Iberia will defer payment until the sixth anniversary of the acquisition’s completion. The parties expect to complete the contract by the second half of 2021, IAG noted in a statement Wednesday.

 


Originally, the companies had scheduled to close the contract in the second half of 2020.&nbsp; However, the Covid pandemic and a bailout of Air Europa by the Spanish government prompted IAG to negotiate new conditions of the planned take-over with Globalia, the tourism conglomerate that owns Air Europa.

 


“This transaction is a great effort by all of us and is the best way to recover tourism, transport in Spain, and the Madrid hub,” commented Globalia chief executive Javier Hidalgo.

 


According to IAG CEO Luis Gallego, who took over from Willie Walsh in September last year, belonging to a large group is the “best guarantee” to overcome current market challenges. “I am pleased that we have reached agreement with Globalia to defer payment until well into the expected recovery in air travel following the end of the pandemic and when we expect to be realizing significant synergies resulting from the transaction,” he said.

 


IAG said it continues to believe that the Air Europa acquisition remains strategically important for the future of the group and positions the company to benefit from growth opportunities as the industry recovers. Adding Air Europa to an airline portfolio that includes Aer Lingus, Barcelona-based low-cost carrier Vueling, and long-haul LCC Level will strengthen IAG’s presence in the Europe-to-Latin America market and increase the importance of its Madrid hub, “transforming it into a true rival to Amsterdam, Frankfurt and Paris Charles de Gaulle,” noted IAG.

 


Air Europa retains an operating fleet of 52 aircraft, compared with 68 at the end of 2019. All aircraft except one are on operating lease, equating to lease liabilities of about €1.6 billion as of the end of 2020. The airline carried 13.1 million passengers in 2019 and passenger volume declined by approximately 70 percent last year.

 


The amended deal remains conditional on what IAG described as the “satisfactory negotiation” between Iberia and Spanish state-owned industrial holding SEPI regarding non-financial terms associated with loans provided by SEPI.&nbsp; The acquisition also needs the approval of the European Commission.

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