International Airlines Group (IAG) has announced an agreement to buy Madrid-based airline Air Europa for €1 billion.

The Skyteam member carrier is the third largest Spanish airline after Iberia and Vueling – both of which are already part of IAG.

Air Europa will be acquired by IAG subsidiary Iberia, with the group stating that the brand “will initially be retained and the company will remain as a standalone profit centre within Iberia run by Iberia CEO Luis Gallego”.

IAG said that the move would transform its Madrid hub “into a true rival to Europe’s four largest hubs: Amsterdam, Frankfurt, London Heathrow and Paris Charles De Gaulle”, and would re-establish the group “as a leader in the highly attractive Europe to Latin America and Caribbean market”.

The transaction is expected to complete in the second half of 2020 providing IAG is granted relevant approvals, and the group said that it had agreed to pay Air Europa a break fee of €40 million “in the event that the transaction fails to receive the necessary regulatory approvals and either party elects to terminate the transaction agreement”.

IAG said that it anticipated “opportunities to unlock value” in three areas:

  • Integrating Air Europa into the existing Iberia hub structure at Madrid
  • Creating commercial links between Air Europa and other IAG operating companies, in addition to inclusion into IAG’s joint businesses
  • Integrating Air Europa onto the IAG platform of common services

The group also plans to add reciprocal intra-group codeshares “across all connecting gateways”, adjust timings “to maximise connectivity through the Madrid hub”, and integrate Air Europa into the Avios loyalty programme.

Air Europa currently flies to 69 domestic and international destinations, and had a fleet of 66 aircraft at the end of 2018.

The airline launched in 1986, and became an affiliate member of the Skyteam alliance in 2007, before being upgraded to a full member in 2010.

It will now presumably leave the alliance, with BA and Iberia being founding members of rival Oneworld, although there has been no confirmation of this.

In 2017 Ryanair announced plans to partner with Air Europa for connecting flights, although this agreement came to an end earlier this year.

And last year Air France KLM said it was exploring the possibility of a joint venture with Air Europa on routes between Europe and Central and South America.

Commenting on the news Willie Walsh, chief executive of IAG, said:

“Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership, therefore generating additional financial value for our shareholders.

“IAG has a strong track record of successful acquisitions, most recently with the acquisition of Aer Lingus in 2015 and we are convinced Air Europa presents a strong strategic fit for the group.”

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