IAG Slashes Air Europa Purchase Price In Half, Will Pay In Six Years

Filed Under: Other Airlines

Several weeks ago it was rumored that IAG had renegotiated its purchase of Air Europa, and that’s now official. IAG is getting 50% off plus 0% APR for 72 months, which isn’t half bad. šŸ˜‰

IAG moves forward with Air Europa acquisition, at a discount

In November 2019 it was announced that International Airlines Group (IAG) would acquire Air Europa in a ā‚¬1 billion deal. IAG is the parent company of British Airways, Iberia, Aer Lingus, and Vueling, and this would essentially allow Iberia to acquire its biggest Spanish competitor.

The deal was initially expected to close in the second half of 2020. I’m sure IAG was happy about the delayed closing in retrospect, because the airline industry has been turned upside down since then. Compare that to Delta purchasing a 20% stake in LATAM in 2019 — Delta paid more for that stake than the entire airline is worth now.

There has been talk about whether or not the IAG & Air Europa deal would end up closing, because at a minimum IAG was looking to renegotiate the purchase.

There’s now an official update on that front — the boards of IAG and Air Europa have come to an agreement for a modified acquisition price. IAG will acquire Air Europa for a sum of ā‚¬500 million, and payment will be deferred until the sixth anniversary of the acquisition (which is 2027). It’s expected that the takeover will be completed in the second half of 2021.

So IAG will acquire Air Europa for half off, and will only have to pay six years down the road, by which time the industry has hopefully recovered.

Iberia will acquire its global competitor in Spain

Did IAG get a deal on Air Europa?

IAG will now acquire Air Europa for half off, and won’t even have to pay for six years. This allows Iberia to acquire its largest Spanish rival. So, did IAG get an absolutely amazing deal? Maybe, maybe not:

  • The main reason for Iberia to take over Air Europa was to eliminate a competitor, rather than any particular strength Air Europa has; would Air Europa have gone out of business if it weren’t for being acquired by IAG?
  • Integrating airlines is challenging under normal circumstances, let alone in the middle of a pandemic when demand has decreased significantly, especially when you’re dealing with different work groups
  • Arguably part of the reason for an acquisition was to avoid another airline group acquiring Air Europa, though realistically which other airline group could have afforded to acquire the airline right now?

So yeah, IAG is paying less than it previously would have, but I’m not sure I’d go so far as to say that this is a “deal.” For what it’s worth, IAG argues that this acquisition will increase the importance of the Madrid hub, making it a true rival to Amsterdam, Frankfurt, and Paris.

IAG also claims that this acquisition unlocks further network growth opportunities, and delivers significant customer benefits through increased choice and schedule flexibility and greater opportunities to earn and redeem miles.

What would have happened to Air Europa if it weren’t for this acquisition?

Bottom line

IAG will move forward with its acquisition of Air Europa, though at half the original cost, and payment will only take place six years from when the deal closes. The fact that the deal is going through at all is probably a blessing for Air Europa, because I can’t imagine the airline would have had much of a future otherwise.

What do you make of IAG’s modified purchase of Air Europa?

Comments
  1. How these European carriers are able to get away with buying out their direct competition is beyond me. First BA gobbling up BMI and now Air Europa.

    There has been plenty of consolidation in the U.S. airline industry of course. But it’s not like those airlines had bases in the same airports. In fact, US Airways was forbidden from getting any larger at DCA after their merger with AA.

  2. In my opinion Air Europa would probably have gone bust quite soon. IAG is bleeding money due to lock downs and travel restrictions that wonā€™t end for at least 4 months. The last thing it should be doing is committing to buy another loss making business.

  3. Looks like IAG would be on the hook for ā‚¬40 million if they backed out of the deal. So they’re really only paying ā‚¬460 million and not until 2026.

  4. Wouldn’t Air Europa probably have gone bust during this pandemic and IAG would have lost a competitor without paying anything?

  5. @niko_jas The brand has value and the airline could be recapitalized down the road and survived. This way they gain control now and any new competitors will need to build out there customer base.

  6. @Daniel There are really only 3 big airlines in the USA now – they were all allowed to merge, as well as getting vast amounts of state subsidy (either directly or through the bizarre Chapter 11 process that we don’t have here).

    Looking at European airlines on a country-by -country basis is like looking at airlines in the US on a state-by-state basis. We have more people across our continent, yet we have far more airlines than the US does across a smaller population, so saying competition in the UK, or Spain, or Italy, or Germany is reduced ignores the wider context. As well as 3 huge “legacy” carriers (IAG, AF/KLM, and LH and its subsidiaries) we also have Ryanair, EasyJet and WizzAir. Air travel in Europe is incredibly cheap given all that, so I don’t think one can easily compare the US and Europe so directly.

    Thoughts?

  7. Nannette – probably not.

    Other than BA and a Iberia none of the other IAG airlines – Aer Lingus, Vuelling and Level – are members of One World and theyā€™ve been owned by IAG for far longer.

  8. @Nannette – I think the plan is for it to be merged into Iberia/Iberia Express, so effectively it will end up as part of oneworld.

  9. Bottom line I think it is a good deal for both IAG and UX. If travel recovers by say 2024/25, IAG will make a good investment, gaining a dominant position in SW Europe and Europe to LatAm – for relatively little money and with virtually no conditions imposed. In case travel will not recover, they can let UX go bankrupt before 2026 and will presumably have to pay nothing.

  10. With the LATAM JV off, this was a must for them – Spain was going to save UX if IAG didnā€™t buy them. They had to act before AF/KL materialized their JV with UX and LATAM potentially partnered with them. There is no place for two hub carriers in MAD anymore…

  11. “IAG argues that this acquisition will increase the importance of the Madrid hub, making it a true rival to Amsterdam, Frankfurt, and Paris”

    That’s a laugh. MAD airport does not come to mind when I think of pleasant experiences. Maybe there’s an opportunity here to address that, but I highly doubt it.

  12. Does Air Europa have a partnership with LOT? A couple of years ago I flew a LOT flight from BUD to ORD but the plane operating the route was actually Air Europa.

  13. If it does result in Madrid becoming more of a hub, that would definitely be a good thing. With Brexit / no more single customs union, Delta/AF/KLM having a monopoly on Amsterdam and Paris, and Lufthansa/Swiss having a monopoly on Frankfurt and Zurich, it would be good to have IAG competing in mainland Europe. But I’m not holding my breath.

  14. @ Charles
    I have actually never traversed MAD and have read reports that are negative. I know my way around FRA for decades, nobody really likes FRA or considers it a pleasant experience.
    I am not disabled but the FRA refusal to allow use of an elevator, escalator or arrange a ride when the gate is 1.3 km away is stunning. Please understand, gates in FRA term Z are built to require using steps for one floor when boarding. Gate agents prefer to allow steps only unless there is a documented disability. While I am not permitted to state this in Germany, their behavior is reminiscent of German SS behavior during WW 2 towards disabled.

  15. @Donato I have had excellent experiences transferring at MAD and using the lounges at this airport. I have already appreciated the ability to use AA miles to get to Europe without having to deal with LHR and the extra fees that are charged on the BA flights. I see this as presenting more options for this.

  16. @guflyer
    I appreciate the information.
    I have avoided using MAD as a transfer point on trips to the ME, not served by any of the ME3 nonstop. I select stopovers as perhaps healthier than a nonstop.
    Is a MAD transfer as simple as walk to lounge, walk to flight? This assumes origin and destination both not in EU? I have heard of long lines out of control, no help if you are late and no priority based on class of travel.

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