Summary
- IAG has abandoned acquiring Air Europa due to regulatory obstacles, requiring a €50 million termination fee.
- The airline group tells Simple Flying that it believes its offer to the European Commission was strong and any additional concessions make the deal financially unviable.
- Despite ending the deal, IAG is open to other airline acquisitions, including outside Europe.
The International Airlines Group (IAG), which owns
Aer Lingus
, British Airways, and Iberia, among others, has announced it will abandon plans to acquire Air Europa, citing regulatory obstacles. In a statement, the company said that the deal no longer made financial sense. IAG already owns 20% of Air Europa, acquired back in August 2022. The plan was to take on the remaining 80%.
A deal of hefty sacrifices
In a statement, the group said that it would be terminate its agreement with Air Europa’s parent company, Globalia, after the Board of Directors “concluded that in the current regulatory environment it would not be in the best interests of shareholders to continue with the transaction.”
IAG is now required to pay Air Europa’s parent company €50 million ($54 million) to terminate the deal. IAG’s CEO, Luis Gallego, said:
“We believe this decision is in the best interests of our shareholders. IAG remains committed to its strategy, including competing effectively from its Madrid hub. This is a strategy which is delivering strong results. We will continue to develop our presence in Madrid so that the hub can develop as a rival to Europe’s largest hub airports.”
Once completed, the investment in Air Europa was meant to be worth nearly €400 million ($430 million). Instead, it will be limited to the 20% that the group already owns in Air Europa.
Photo: Vincenzo Pace | Simple Flying
The European Union’s demands
The deal was waiting on European Union approval. This is normal procedure with deals such as this, which could have an impact on competition within the market. In the case of the ITA-Lufthansa deal, for example, the Commission provided the green light last month after all parties agreed to competition-enhancing concessions.
In the case of Air Europa and IAG, similar issues were at stake. When asked by Simple Flying whether Brussels was the reason it abandoned the deal, an IAG spokesperson directed us to the European Commission and added:
“We have been discussing with the Commission the remedy package; we had made our first offer, and then we had improved that offer. We really believe that our package was comprehensive and very strong. We were offering 52% of the frequency, so it’s almost half of the business.
But what we had learned last week, in a meeting that we had with the commission was that that was not enough. As our CEO has always said, we will do this deal if it makes financial sense for us. You cannot buy a company and then give more than half of that to your competitors. So what we really believe is that making a bigger offer doesn’t make sense in the in the financial aspect of the deal. And we decided to stop here.”
Photo: Iberia
At the end of April, the Commission had sent IAG its preliminary understanding of the deal and its impact on competition. It said at the time that it was concerned by the following points related to the deal:
- It would reduce competition on certain domestic routes and short-haul flights with countries in Europe and in the Middle East
- Competition was limited on many of the above routes, sometimes with only low-cost airlines like Ryanair (operating from more remote airports).
- It would reduce competition on some long-haul routes, particularly between Spain and North and South America.
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Related
EU Commission Questions IAG’s Air Europa Deal
Sources have indicated that the probability of the EC blocking the Air Europa–IAG merger was very high.
In a release, the Commission had added the following at the time of the Statement of Objections.
“The Commission is concerned that, absent suitable remedies, the removal of Air Europa as an independent airline may have negative effects on competition in these already concentrated markets.”
Looking elsewhere?
As reported in the Financial Times back in early July, Luis Gallego was quoted as saying that the group could look outside of Europe for its next acquisition. He noted that a South American airline could be on the table, to further strengthen the group’s position on the transatlantic side. TAP Air Portugal was also said to be on the table.
Photo: John Gress Media Inc | Shutterstock
An IAG spokesperson told Simple Flying today that the group continues to look at all options and reiterated the potential of acquisitions outside of Europe.
“We are always open to look for opportunities in market. What is important is that those opportunities add value to the group. And right now the group is performing very well.
Our business is doing good and we [would] need to find other companies to join the group that are in that sense, it could be any region in the world if they meet our requirements.”
Any such deal would be the first time IAG ventures into another continent for expansion.