IAG, Globalia Close the Sale of Air Europa to Iberia

DALLAS — The boards of directors of International Airlines Group (IAG) and Globalia have approved the final agreement for the purchase of Air Europa (UX).

Once the regulatory approvals are received, the goal is to complete the purchase within 18 months. According to Spanish news outlet El Confidencial, which first broke the news that was later confirmed by IAG to the CNMV, the Hidalgos accepted the conditions offered by IAG to sell the whole of UX to Iberia (IB), which had already bought 20% for €100m last year.

IAG is now set to purchase the additional 80% for a figure close to €400m and assume the payment of a penalty in the event that the European Union refuses to authorize the merger for undermining competition in the air transport market.

"International Airlines Group is pleased to announce that it has agreed with Globalia to acquire the remaining 80% of the issued share capital of UX for €400 million," the Spanish-British airline holding company said in a statement.

Payment Scheme

The payment will be structured in a hybrid form between cash and IAG shares, "The first €200m will be paid upon receipt of approval from the competition authorities, €100m in IAG ordinary shares and €100m in cash. In the second and third years, after the date of approval of the transaction, a further €100m each will be paid," the note states.

When Brussels shut down the first operation at the end of 2021, IAG had already paid the Hidalgos €75m to break up the deal.

Thus, the family of Salamanca origin will get about €600m for a company that three years ago was valued at €1bn due to the fallout of the pandemic, which caused losses of nearly €700m. A situation that led it to ask SEPI for a €475m bailout.

Will the Merger Go Thru?

The merger of the two airlines has aroused the misgivings of the competition authorities, as it would significantly reduce competition on numerous domestic routes.

The conditions that the European Commission demanded at the time to authorize the operation, which included heavy divestments of airport slots, were considered unacceptable by IAG and UX, whose objective was to create a large hub in Western Europe that could compete with other European hubs and increase connectivity with Latin America and the Caribbean, as well as with Asia.

For perspective, when combining UX's fleet of 46 aircraft, including Air Europa Express' (X5) (3), with IB's 84, including Iberia Regional's (41) and Iberia Express' (I2) (24), the total comes to 208 aircraft.

Iberia (Oneworld) serves 38 domestic destinations and 89 international destinations in 40 countries. UX (SkyTeam) serves 17 domestic destinations and 41 international destinations in 30 countries, according to both airlines' data on flightconnection.com as of February 2023.

The operation "transforms IAG's hub in Madrid so that it can compete with the largest hubs in Europe" and "improves IAG's position in the highly attractive market from Europe to Latin America and the Caribbean and allows the company to open routes to new destinations in Asia," IAG stated in its press release.

IAG added that the operation "offers significant synergies, in line with those obtained in previous acquisitions, which will be achieved between 2026 and 2028, assuming that the transaction closes in around 18 months."

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Featured image: EC-MTI Air Europa Boeing 787-9 MAD LEMD. Photo: Adrian Nowakowski/Airways