Major: Turkish Airlines Investing In Air Europa, In Wild Card Deal

Global aviation in Europe is very much controlled by the “big three” European airline groups — Air France-KLM, IAG, and Lufthansa Group. These airline groups often try to buy up independent airlines, both to further their strategic interests and to prevent competitors from doing the same.

For some time now, acquisition talk in Europe has largely centered around Air Europa and TAP Air Portugal, two long-haul carriers that don’t belong to any of the major long-haul joint ventures. Last week, I covered how Air Europa received an interesting investment offer. There’s now an update, as this offer has been accepted…

Turkish Airlines acquiring minority Air Europa stake

In recent times, we’ve heard reports of Air France-KLM and Lufthansa Group considering an investment in SkyTeam carrier Air Europa, which has its largest hub in Madrid. Those offers were ultimately withdrawn, and Air Europa has instead accepted another deal.

Turkish Airlines has submitted a binding offer to acquire a minority stake in Air Europa, and that offer has been accepted. Specifically, the global airline giant intends to acquire a 27% stake in Spain’s second-largest long-haul airline for roughly €300 million.

This investment comes in the form of a loan that will convert into equity. Air Europa’s goal is to clear all of its debt with the government, including early repayment of a €475 million loan granted during the pandemic. In a filing, Turkish Airlines explains the rationale for this investment:

Following feasibility studies, the investment has been evaluated as being in line with our Company’s long-term value generation objectives under its 2033 strategy, based on the following:

i. The complementary nature of Turkish Airlines’ global network and Air Europa’s strong presence in the Iberian Peninsula and Latin America across both passenger and cargo segments, enabling scaled and accelerated growth in the Latin American market; and

ii. The potential to create a leverage effect for our aviation ecosystem — including subsidiaries and JVs — through new revenue streams and increased regional operational diversity.

This deal is expected to close within the next 6-12 months, and is, of course, subject to government approval. However, given that this is a minority stake, that is unlikely to be a major issue.

The backstory of Air Europa’s current ownership structure is interesting. In 2019, IAG (the parent company of British Airways, Iberia, etc.) intended to acquire Air Europa. This would’ve been a major shakeup for aviation in Spain, and for the general dynamics in the industry, given that we would’ve seen the same company controlling Spain’s two biggest long haul airlines.

That deal never ended up happening as intended. First, there was a major delay due to the pandemic, and then regulators ended up blocking the deal due to concerns over a lack of competition. IAG did manage to acquire a 20% stake in Air Europa, though there’s no closer cooperation between Iberia and Air Europa.

Air Europa is actually doing pretty well financially. In 2023, the company reported a profit of €165 million, and in 2024, the company reported a profit of €205 million. For what it’s worth, IAG purchased its 20% stake in Air Europa for roughly €100 million, though that was at a time where the airline wasn’t doing as well.

This is a fascinating, unconventional investment

Generally, airline consolidation in Europe is very focused on the western part of the continent, with the “big three” airlines just trying to swallow up smaller airlines and add them to their long-haul joint ventures. So in that sense, I’d say that Turkish Airlines investing in Air Europa is generally great for consumers:

• Air Europa will continue to be an independent player, since Turkish Airlines can never acquire a majority stake in an airline from the European Union
• Air Europa will continue to compete with the “big three” joint ventures, rather than simply joining one of them
• Turkish Airlines has a massive route network and a ton of global connectivity, so this would help the airline strengthen that even further, including in geographies where the airline is relatively weak

I see the strategic rationale behind this deal… sort of. As mentioned in Turkish Airlines’ own filing, the goal would be to tap into Air Europa’s strong presence on the Iberian Peninsula and in Latin America. If a deal were to happen, presumably we’d see Air Europa increase its service in Istanbul (IST), and Turkish Airlines increase its service in Madrid (MAD), to facilitate connections. Air Europa also doesn’t fly any further east than Tel Aviv (TLV), so Turkish Airlines can add a lot of value there.

Turkish Airlines currently flies to more countries than any airline in the world, so the carrier has an incredible network. However, if there were more plans to offer combined Turkish Airlines and Air Europa itineraries beyond Madrid and Istanbul, we’d be looking at two-stop service, rather than one-stop service.

The other thing to keep in mind is that Turkish Airlines won’t have a majority stake in Air Europa, so its power would be limited. IAG would have almost as much of a stake in the carrier as Turkish Airlines, so I think there are limits to the extent to which Turkish Airlines could push the agenda at Air Europa.

I’m sure many people wonder what alliance Air Europa will belong to once this deal is finalized. Air Europa is currently in SkyTeam, but will have investments from Star Alliance and oneworld airlines. I think it’s unlikely that Star Alliance will welcome Air Europa, since the airline competes with the Star Alliance transatlantic joint venture.

I don’t know what this will look like, but I think it would reflect the decreasing importance of global alliances. For that matter, Turkish Airlines isn’t exactly heavily reliant on Star Alliance either. So maybe Air Europa will stay in SkyTeam, or maybe it’ll just leave the alliance? We’ll see…

Bottom line

There has been a lot of talk of Air Europa getting an investment from another airline. Air France-KLM and Lufthansa Group have withdrawn their offers, and now Turkish Airlines has submitted a binding offer, which has been accepted. The plan is for Turkish Airlines to require a minority stake in Air Europa for an investment of €300 million.

I’d say Turkish Airlines’ investment in Air Europa is generally good for competition in Europe. It means that Air Europa will continue to compete with the existing long-haul joint ventures, while offering enhanced connectivity in cooperation with Turkish Airlines’ network. Then again, most of the routing synergies will be for itineraries involving at least two connections, since presumably passengers will have to route through both Istanbul and Madrid.

What do you make of Turkish Airlines investing in Air Europa?