IAG, the parent of Iberia, agreed on 4 November 2019 to buy Air Europa from Globalia for €1,000 million. The deal depends on the competition authorities and is aimed at the Madrid hub.
On Monday 4 November 2019, the IAG group, owner of Iberia, British Airways, Vueling and Aer Lingus, announced an agreement with Globalia to buy 100% of the share capital of Air Europa for €1,000 million, to be paid in cash at completion. The purchase is made through Iberia and is conditional on obtaining the necessary approvals, among them those of the competition authorities. Completion is expected in the second half of 2020.
What is being bought
Air Europa is one of Spain’s leading private airlines. In 2018, according to the figures released with the announcement, it had revenue of about €2,100 million, an operating profit of about €100 million and carried 11.8 million passengers, with routes to 69 domestic and international destinations: Europe, Latin America, the United States, the Caribbean and North Africa. The fleet that would pass to IAG is 66 aircraft. Globalia, the selling group, had revenue of €3,850 million in 2018, and 52% of it came from Air Europa.
According to the statement, the Air Europa brand will be kept initially and the company will operate as an autonomous revenue centre within Iberia, under Luis Gallego, Iberia’s chief executive. IAG has also said that the workforce will not be merged with those of the group’s other airlines and that the collective agreements and the employees’ historic rights will be respected.
Why Madrid
IAG presents the deal as a boost for the Madrid-Barajas hub, which, according to the group, could become a real rival to Europe’s four largest connecting airports: Amsterdam, Frankfurt, Heathrow and Paris Charles de Gaulle. Luis Gallego described it as a deal of great strategic importance for that hub, which in recent years had fallen behind other European ones. The company also wants to lead the market between Europe and Latin America and the Caribbean, and sees Madrid as a possible gateway between Asia and Latin America.
The group estimates that the deal would raise Iberia’s passenger revenue by 50% and IAG’s by 10%. It expects cost and revenue synergies that would reach full run-rate in 2025, with measures such as codeshares between the two companies, schedule alignment in Madrid and the integration of Air Europa into the Avios loyalty programme.
What is missing: approval
The deal depends on the competition authorities approving it, and that is where the delicate point will lie. IAG already controls Iberia, Iberia Express and Vueling; with Air Europa it would hold four of the six largest Spanish airlines by passengers on domestic routes. The authorities will have to assess what effect the purchase has on the routes on which the two companies compete today, and they could require conditions. Until completion, the companies remain independent and competitors.
The announcement does not foresee immediate changes for customers: the brand is kept and completion is expected in 2020. Companies with corporate travel agreements with any of these airlines, and people who collect points in their loyalty programmes, can follow the approval timetable and review their contracts and terms as decisions are made.
A deal of this size is decided in two stages: the agreement between the companies and the go-ahead from the authorities.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
