Market consolidation in Spain, Iberia acquires Air Europa

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Major consolidation is coming to the Spanish airline industry. Spain’s flag carrier Iberia, which is part of the IAG Group, has completed the acquisition of Air Europa, its largest Spanish competitor. 

This is a deal that’s been in the making since 2019, when Iberia formalized its firs acquisition offer for privately-owned Air Europa.  

At the time Iberia offered to pay over €1 billion for the airline to current owners the Globalia, a travel and leisure group of the Hidalgo family. However, the outbreak of the COVID pandemic put the deal on hold. Negotiations were later reopened and called off several times, with the price tag dropping roughly in half in the process. 

By March 2022 Air Europa was facing a difficult financial situation, having posted operational losses of €304M in 2020 and €427M in 2021. As a result, it received a seven-year €100M unsecured loan from the IAG Group. In August 2022, only a few months later, the loan was converted into equity, with IAG taking a 20% stake in its competitor. 

IAG is now paying an additional €400M for the remaining 80% of the shares, for a total valuation of €500M. Of these, €100M will be paid in IAG shares and €100M in cash, with a further €200M to follow the moment, the moment the deal is greenlighted by the competition authorities. 

The latter may well scrutinize the operation and is expected to stipulate some conditions, since this deal consolidates IAG’s hold on the Spanish market where it already operates with the Iberia, Iberia Express and Vueling brands (in addition to a regional operation franchised to Air Nostrum). 

With this in mind, Barcelona-based Volotea has already expressed its interest in taking over some of those routes or frequencies that the airlines of the IAG Group may be forced to sacrifice for the deal to go through. 

This move will enable Iberia and IAG to prevent rival airlines that had shown an interest in Air Europa, such as Air France-KLM, a partner of Air Europa through its SkyTeam membership, from entering the Spain to Latin America market.  

The latter had strategic significance for both Iberia (and by extension IAG) and Air Europa, with both airlines deploying a significant share of their long-haul fleets and commercial efforts to that region. 

“With this move IAG protects its Madrid hub. In recent years SkyTeam airlines have been gaining ground in the Europe to Latin America market and allowing Air Europa to go to a rival would have threatened its position in this market” explains Pere Suau-Sánchez, an aviation lecturer and researcher at Cranfield University and Open University of Catalonia, before adding “another effect of this acquisition will be a significant decrease in competition in the domestic market, at least in the short term, but since most Spanish airports, including Madrid, do not have slot restriction issues, other airlines, including LCCs may keep any dominant airlines in check”

Air Europa operates a fleet of 22 Boeing 787 Dreamliners (10 of the –8 version and 12 of the –9) as well as 17 Boeing 737-800s. It also has 15 B787-9 and 31 Boeing 737-8 MAX on order. 

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