The British Airways and Iberia owners (IAG) lower their purchase offer of Air Europa from a year ago down from $1.1 Billion.
IAG gets the deal of a lifetime of the century! The Consortium buys the largest counterweight for Spanish Competition.
The International Airlines Group comprised of British Airways, Air Lingus, and Iberia has other leading airlines in its portfolio. Iberia’s parent haggles for Air Europa for €500,000,000 million Euros (or $613,000,000 million USD).
The Consortium is expanding the list of airlines under its umbrella
Under the Spanish side, it has Level, Vueling, and Iberia. Having Air Europa on their side expands its Latin America presence and increase their stronghold in the Ibero-Spanish market. The departure of LATAM has left them without a partner in the Ibero-Spanish market.
In November 2019, the Consortium Group bought the number 3 airline for €1 billion Euros ($1.3 billion USD). This haggle takes place when mergers and acquisitions over the last year have to be reassessed during the pandemic of COVID-19.
When is the deal expected to close?
Here’s when things get tricky. According to the Spanish newspaper El Confidencial, the Consortium is under a deferred payment until 2026.
The only thing hinging this deal is for the Spanish Wealth Fund State Holding Company the State Society of Industry Participants (Sociedad Estatal de Participaciones Industriales) to accept the resignation of two members as part of the €475 million Euro loan ($556 million USD) given to Air Europa parent Globalia Corporation.
As for when the deal is to close, consolidation might not happen until 2026, not until the Spanish Government receives the 475 Million Euro given to Air Europa’s parent company. However, details are sketchy as the Spanish Government hasn’t said much of how it could be.
Also, there is the possibility that before 2023 Air Europa could belong to the IAG family. This is while waiting for the Euros needed to pay the Hidalgo family. At the same time, the Hidalgo family is paying the loan to the Spanish Government.
Also, let’s remember that all mergers and acquisitions go in front of the European Union and their member states. It shouldn’t be a problem as Lufthansa Group (based out of Germany) has a similar structure between Central European Airlines and its parent.
Turning Madrid-Barajas into a Global Hub
If the Spanish and European governments accept IAG having Air Europa within its umbrella it won’t only be competing in the Ibero-Spanish market.
It will also be competing with Lufthansa Group at the individual level of each airline. IAG’s for Madrid-Barajas is turning the airport into a better connector than Heathrow Airport. As the fight for the third runway ensues.
While it happens, the consortium wants to create a better connection and a better experience from Europe to Latin America. IAG intends to utilize the airport (since it is underutilized) and to transform it into the European Hub, joining the ranks of Heathrow, Schiphol, De Gaulle, and even Frankfurt.
In a future article we will delve into the advantages for IAG expanding their base customer, the offshoring of Heathrow to Barajas and the greater European War with Lufthansa.
However, Brexit can place a wrench into IAG’s plan to purchase Air Europa
The United Kingdom will soon be rebuffed by Germany and France. This not only concerns the IAG structure but Wizz Air and Ryanair as well.
Airline ownership dilemma for non-EU members
France and Germany have been against softening their stance toward UK ownership requiring airlines in the EU to be owned and controlled by EU nationals or else risk losing their licenses altogether. Lawyers in 2021 will soon have a free for all in the discussion and suing of the EU government.
This was designed so that Middle Eastern Airlines and Groups are prevented from becoming majority owners. This is something the EU clearly didn’t think about when drawing the Constitutional Treaty for the European Union.
This, in turn, is certainly causing trouble to the airline sector in Europe during the pandemic.
From a Business Perspective, getting Air Europa was a gift
…Only time will tell the rest of the story. (Author’s opinion)
I like to say that what IAG did from a business perspective was poetic justice. Haggling for a year for a better price is just great business.
Now in the realm of EU Ownership laws to the EU, I’ll say the following:
“Don’t be throwing stones into glass houses, because you might not know who can be the next great samaritan.”
While this clears I really hope the UK gets the fair deal they are looking for and that the EU and the UK will still be neighbors.
The UK won’t pack and go, they just want to seek a different flight level in life. Let them be and you won’t be disappointed.
What do you think about IAG’s move to purchase Air Europa once again? You can contact the author below.
Featured Image: Air Europa B787-8, photo: Alan Wilson.