International Airlines Group (IAG) has agreed an amended deal with Globalia for the acquisition of Madrid-based carrier Air Europa.

IAG had originally agreed to pay €1 billion for Air Europa back in 2019, but a much changed aviation landscape due to the Covid-19 pandemic has resulted in the purchase price being halved to just €500 million.

Payment will also now be deferred until the sixth anniversary of the completion of the acquisition, which is expected to take place in the second half of 2021, subject to approval by the European Commission.

It is also conditional on the satisfactory negotiation between IAG member carrier Iberia and Spain’s state-owned industrial holding company Sociedad Estatal de Participaciones Industriales, “regarding the non-financial terms associated with the financial support provided by SEPI to Air Europa during 2020”.

In a statement IAG said that its board “continues to believe that the Acquisition remains strategically important for the future of IAG and Iberia and positions the Group to benefit from growth opportunities as the industry emerges from the unprecedented impact of the COVID-19 crisis”.

Highlighted benefits include:

  • Increasing the importance of IAG’s Madrid hub, transforming it into a true rival to Amsterdam, Frankfurt and Paris Charles de Gaulle
  • Unlocking further network growth opportunities
  • Delivering significant customer benefits through providing increased choice and schedule flexibility and greater opportunities to earn and redeem miles

IAG said that assuming the deal does complete later this year, the group “will be taking on Air Europa at a time when air travel recovery could be meaningful as the rollout of Covid-19 vaccines proceeds worldwide”.

It added that “Net cash outflow to IAG of this transaction is expected to be minimal in 2021 and net cash flows are expected to be positive until at least the repayment of the loan from SEPI in 2026 when merger synergies are expected to be at their full run-rate”.

In November 2019, pre Covid-19, Air Europa had a network of 69 domestic and international destinations. The carrier currently has an operating fleet of 52 aircraft, compared to 68 at the end of 2019.

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. With BA and Iberia being founding members of the rival Oneworld alliance, it seems likely that Air Europa will leave Skyteam following the acquisition.

Announcing the news Luis Gallego, IAG’s chief executive said:

“Both Iberia and IAG are demonstrating their resilience to face the deepest crisis in aviation’s history. Being part of a large group is the best guarantee to overcome current market challenges which will also benefit Air Europa once the transaction is completed.

“I am pleased that we have reached agreement with Globalia to defer payment until well into the expected recovery in air travel following the end of the pandemic and when we expect to be realising significant synergies resulting from the transaction.”

Meanwhile Javier Sánchez-Prieto, Iberia’s chief executive, said:

“This transaction makes perfect strategic sense to reinforce Madrid’s hub competitiveness on a global stage. It will benefit consumers and Air Europa’s incorporation into the Iberia Group will improve the company’s viability benefitting both Iberia and Air Europa employees.”