IAG to further lower price of Air Europa purchase
International Airlines Group (IAG) (IAG) and the struggling Air Europa reportedly reached an agreement for a reduced purchase price of less than half of the initial €1 billion.
According to the Spanish newspaper El Confidencial, IAG would pay between €300 and €400 million for the acquisition of Air Europa, the price that would be mainly compensated with the shares of IAG. The newspaper announced that Luis Gallego, the current CEO of IAG, and Javier Hidalgo, the chief executive of Air Europa, came to an agreement.
The agreement is still pending for the Spanish government’s approval to provide Air Europa with two credits worth €475 million. As one of the conditions for the rescue package, the government reserved a right to have a last say in case of a company sell out.
According to El Confidencial, the Hidalgo family, the major owner of Air Europa, prefers this deal, which reduces the sale price of Air Europa to less than half, instead of the company being controlled by the Society for Industrial Participations (SEPI) that granted the credit.
IAG already controls a significant part of the Spanish market as it is the owner of Iberia and Vueling airlines. The purchase of Air Europe would further expand the group's network to South America and the Caribbean.
It is not the first time IAG is trying to reduce the price of acquiring Air Europa. Initially, on November 4, 2019, the group agreed to buy Air Europa for almost €1 billion. In July 2020, due to the coronavirus crisis, IAG demanded a price reduction from Air Europa's owner, the holding company Globalia, and got it reduced to €500 - €600 million.
In October 2020, IAG chief executive Luis Gallego said the company was still interested in making the purchase. “For sure if possible, we would like to do this deal,” Gallego said. “We are waiting to see the package and the conditions attached, and at that moment, we will continue the negotiation.”
Iberia group and Globalia have not yet confirmed this new agreement. However, if IAG was to back out of the deal, there would be a €40 million penalty fee.
IAG's decision to acquire Air Europa is criticized by Unite, Britain and Ireland's biggest worker union, that has been affected by the layoffs and pay cuts. Reducing the price of the deal would be a way for IAG to appease union’s concerns.
IAG announced an operating loss of €1.3 billion in the third quarter of 2020. It has seen its passenger revenue plummet by 88.6% to just €737 million.
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