The European Commission has launched an investigation into the proposed acquisition of Air Europa, Spain’s second largest airline, by its direct competitor Spanish flag carrier Iberia.
The European regulators are concerned about the potential reduction in competition in the Spanish domestic air travel market as well as on international routes to and from Spain, particularly to Latin America.
Iberia already controls 20% of Air Europa and now aims to buy the remaining 80% in order to obtain full ownership of the carrier. If the merger is fully completed, Air Europa will then join the International Airlines Group (IAG) stable of airline brands, which includes British Airways, Aer Lingus, Vueling and LEVEL, in addition to Iberia.
Since at least 2019, when the two companies first began talks, Iberia has had its sights set on Air Europa. At the time Iberia was willing to pay up to €1 billion ($ 1.09 billion) for its competitors, but, with the advent of the COVID-19 pandemic, those talks were put on hold.
When the air travel market started to recover, negotiations resumed, but the worsening financial situation of Air Europa, which posted over €700 million ($760 million) in cumulative losses in 2020 and 2021, led to the acquisition price being halved.
In fact, IAG provided Air Europa with a lifeline in March 2022 in the form of a seven-year unsecured €100 million loan, which was converted five months later into the 20% equity stake that Iberia currently holds in Air Europa.
In February 2023 Iberia made a move for the rest of Air Europa and offered an additional €400 million for the remaining shares.
Although this offer was accepted, the deal put the European competition watchdog on alert, which opened a preliminary investigation.
Spanish domestic routes, particularly those between peninsular Spain and the Balearic and Canary Islands are of particular concern to the European Union’s competition authorities, as are some short-haul routes between Madrid and key EU cities, Israel, Morocco, the United Kingdom and Switzerland.
Other markets where both carriers have a strong presence and, it is feared, could see reduced competition and higher prices should the merger go ahead are those linking Madrid to North and South America.
After the European Commission was formally notified of the acquisition on December 11, 2023, it has now 90 working days, until June 7, 2024, to issue a ruling.
The announcement follows another issued by the European Commission competition authority just a day earlier which revealed that a similar investigation into the proposed acquisition of ITA Airways by German carrier Lufthansa had been opened.
