The holding company International Airlines Group (IAG), to which Iberia, British Airways, Vueling, Aer Lingus and Level belong, will buy 80 % of Globalia’s airline, Air Europa, for 400 million euros, to become the sole shareholder and close a deal that has been open for more than three years.
Last August, IAG had converted a loan of EUR 100 million into the capital of Globalia’s airline, thus acquiring 20 % of Air Europa.
Thus, the total amount of the transaction amounts to 500 million, the same amount that both groups had agreed more than a year ago, after lowering it from the 1,000 million they had agreed in November 2019.
The deal is subject to “regulatory approvals” that could take 18 months, IAG has told the CNMV.
IAG will pay the first 200 million when it has Competition approval, of which 100 million will be paid in IAG shares (based on the average reference price in the Spanish market in the five stock exchange sessions prior to the date of the agreement) and the other 100 million in cash.
The Air Europa brand will remain under Iberia’s management following this transaction, which will have a “limited” impact on IAG’s financial leverage ratio.
OPPORTUNITY TO REINFORCE THE MADRID-BARAJAS HUB
For IAG, the purchase is “strategically important” and positions the Group to benefit from growth opportunities in the Latin American and Caribbean markets and to increase connectivity with Asia.
IAG’s CEO, Luis Gallego, explained that this purchase will contribute to strengthening the “hub” (air traffic distribution centre) to compete with the major European hubs (London-Heathrow, Amsterdam, Paris-Charles de Gaulle and Frankfurt).
Air Europa’s CEO, Jesús Nuño de la Rosa, said in a note that the agreement with IAG endorses the success of the plan to consolidate Air Europa as an international reference after the pandemic and demonstrates its viability.
The Spanish-British group considers that the operation implies “significant” benefits for customers as it offers more network opportunities and gives access to IAG’s Avios loyalty scheme.
The purchase offers significant synergies, which will be achieved between 2026 and 2028, if the deal is confirmed to close in 18 months. These include the creation of commercial links between Air Europa and other IAG operating companies, as well as the inclusion in the joint ventures of the acquiring group.
Among them, the airline owned by the Hidalgo family (the owners until now) will benefit from the common services of IAG Loyalty and IAG Cargo and IAG’s technology and procurement services.
According to Globalia, this transaction reinforces the value of the company, underlines the solidity of the project, contributes to strengthening the Madrid-Barajas hub and will allow the consolidation of the air connectivity offer between Europe and Latin America and the Caribbean region, where Air Europa has a wide network of destinations and a solid presence.
Air Europa operates scheduled domestic and international flights to 36 destinations, including European and long-haul routes to Latin America and the Caribbean.
It carried 13.1 million passengers in 2019; in 2020 – at the height of the pandemic – down to 4.3 million; in 2021, 5 million; and in 2022, 10 million travellers.
The deal is subject to approval by the syndicate of banks that offered the 141 million loan guaranteed by the ICO (132.5 million remain outstanding) and SEPI, which had granted Globalia 475 million to deal with the pandemic-related drop in activity.
IAG has agreed to pay compensation of 50 million if it terminates the agreement at any time before closing or if the conditions for closure are breached before the second anniversary of the agreement.
In addition, IAG retains the right of exit together with Globalia in the event that it sells Air Europa to a third party if the agreement reached today is terminated.
THREE YEARS OF NEGOTIATIONS
The deal was initially closed in November 2019 for 1 billion, which IAG would pay in cash to the Hidalgos, but the covid disrupted all plans.
The deal was renegotiated and lowered to 500 million in January 2021, after Air Europa received the SEPI loan for 475 million and the credit from the banks backed by the ICO.
The government has not made a clear statement on the operation, arguing that it involves two private companies, but it has made it clear on several occasions that it likes the idea of strengthening the Madrid hub.