IAG chief expects Spanish acquisition, with greater market ‘certainty’ supporting Air Europa deal

IAG group chief executive Luis Gallego sees “more certainty” in the market as providing greater hope that it can complete a deal for Air Europa after a previous acquisition attempt collapsed in late 2021.

The Iberia parent, which took a 20% stake in Air Europa last year, has now agreed terms with Globalia on a €400 million ($424 million) deal to acquire the outstanding shares in the Spanish carrier. 

IAG pulled the plug on an earlier structure for the deal to acquire the Spanish carrier, itself revised from down from a purchase price of €1 billion to €500 million in light of the pandemic, after talks between IAG, Air Europa parent Globalia and the Spanish government broke down.

Collapse of the previous deal also came amid scrutiny from both European and UK regulators over its impact on competition; the European Commission later disclosed that proposed IAG remedies were not sufficient to allay its concerns.

Asked during a full-year results call today about the likelihood of completing a deal this time around, Gallego cites the more positive operating environment as a key factor.

“Last time when we abandoned the deal, there was uncertainty in the market. We had Omicron and we weren’t sure how the recovery of the industry was going to be,” he says. “Now we see things are coming back strongly and I think we are going to have a similar approach but with more certainty about the future and I think we are going to work hard to close this deal within the next 18 months.”

IAG has agreed to pay €400 million for the remaining 80% of Air Europa, having converted a €100 million loan to Air Europa into 20% equity last August. While that price is in line with the earlier €500 million fee, IAG will not, as originally envisaged, take account in the fresh agreement of the €75 million break fee it paid in terminating the previous deal.

“These negotiations have been in a different context than we had before, because we are seeing demand is strong….Air Europa is more focused in leisure traffic and leisure traffic is doing very well, so €400 million is additional to what we paid in the past,” explains Gallego. IAG took a €75 million one-off exceptional charge related to the break fee in 2021. 

IAG turned to SkyTeam carrier Air Europa to supplement Iberia’s existing Madrid base and develop its presence in Latin America and the Caribbean after regulators blocked a planned joint venture with then-Oneworld partner LATAM Airlines. Another European carrier with strong links to Latin America, TAP Portugal, is also on the market. While Gallego would not comment on IAG’s interest in TAP, he reiterates the group’s continued commitment to consolidation.

“This group has always been a platform for consolidation… and we are always looking at alternatives,” he says. ”I’m not going to talk particularly about TAP, but we are going to explore any options that can make the group stronger and doing the Air Europa operation does not stop us doing other possible M&A.”