British Airways and Iberia is moving ahead with the purchase of Air Europa despite the impact of COVID-19, although the pandemic has cut the purchase price of the airline by 50%. Iberia, which will buy Air Europa on behalf of its parent International Airlines Group (IAG), will now only pay €500 million for its Spanish rival, which is a reduction of €1 billion in cash to which all parties agreed when the deal was first revealed in November 2019. Additionally, Iberia will defer payment until the sixth anniversary of the acquisition’s completion. Sources within IAG state that the contract will be completed by late 2021.
The contract had initially been due to be completed last year, but COVID-19 and a bailout of Air Europa by the Spanish government prompted the IAG to revise its conditions of the planned takeover with Globalia, the tourism conglomerate that owns Air Europa.
“This transaction is a great effort by all of us and is the best way to recover tourism, transport in Spain, and the Madrid hub,” commented Globalia CEO Javier Hidalgo.
According to IAG CEO Luis Gallego, who took over from Willie Walsh in September last year, belonging to a large group is the “best guarantee” to overcome current market challenges. “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,” he said.
IAG said it continues to believe that the Air Europa acquisition remains strategically important for the future of the group and positions the company to benefit from growth opportunities as the industry recovers.
The amended deal remains conditional on what IAG described as the “satisfactory negotiation” between Iberia and Spanish state-owned industrial holding SEPI regarding non-financial terms associated with loans provided by SEPI. The acquisition also needs the approval of the European Commission.
It is a brave move by IAG, but also shows faith within the industry too. After months of doom and gloom, with the airlines asking for assistance and help from their governments, it appears that for some, its time for them to help themselves. There may well be a few bargain airlines that can be snapped up at a reduced price; it might well be a better alternative than collapsing. For others, such as Norwegian, it’s a major reassessment of their services.
While the opportunity for recovery might now be in sight for the commercial aviation industry, when we get there, it might well be very different with some operators under new management, while others will just be a memory.