Iberia renounces the purchase of Air Europa under the agreed terms

The Iberia and Air Europa airlines, which operate between Spain and Latin America, are in the “advanced stage” of negotiations to “terminate” the agreement by which the former sought to seize the latter, initially for one billion euros (about 1,127 million dollars) and then, due to the covid pandemic, for five hundred (about $ 563.5 million).

Iberia’s parent company, International Airlines Group (IAG), confirmed this Wednesday to the National Securities Market Commission, the stock market regulator in Spain, that it negotiates the breach of the agreement with Globalia, owner group of Air Europa, in November 2019.

“IAG and Globalia confirm today that the negotiations to terminate the agreement signed on November 4, 2019 and modified on January 20, 2021, are at an advanced stage, according to which the IAG subsidiary, Iberia, had agreed to acquire all the issued shares of Air Europa”, Says the group in its brief statement.

This confirmation of Iberia’s intention to renounce its attempted merger with Air Europa, with which it has been speculating for months, comes even before the next January 4 expiry of the deadline in which the European Commission must pronounce on the effects on competition.

The sources consulted in the environment of the operation explain that Iberia understands that the five hundred million that were agreed with Globalia are still a very high amount, taking into account the deterioration of the numbers of the second as a consequence of the pandemic.

Already last November Luis Gallego, CEO of the IAG Group – in which Iberia and British Airways are integrated, among others – said he was “more pessimistic” about the operation and the situation has not improved since then, rather on the contrary, according to sources.

Gallego stated on that occasion that the purchase would only go ahead if “the equation” between the demands of Brussels to get rid of routes to guarantee free competition, “the conditions of the Spanish Government” for a state loan of 475 million euros (about 535 million dollars) granted to Air Europa and the conditions of Globalia.

The European Commission had to rule on the transfer of routes to other airlines presented by Iberia to guarantee free competition, because the union of both could generate concurrency problems in some 70 routes in which they are the main or even the only operators.

The Latin American market

Air Europa competes with Iberia in the Latin American market And, before the pandemic, they overlapped in many destinations such as the Dominican Republic, Cuba, Panama, Asunción, Bogotá, Buenos Aires, Miami or New York.

According to the current agreement, if the purchase was not successful, IAG would have to pay Air Eurpa 40 million euros (about 45 million dollars) as compensationAlthough according to today’s statement the groups could be negotiating new terms.

Without the merger with Air Europa, IAG has other options in its portfolio to strengthen its positions, especially in Latin America, although it has not revealed which companies it is thinking of.

Too Globalia could explore other potential buyers: shortly before the purchase was announced by Iberia, it was negotiating with Air France-KLM, but both are in a more delicate situation because they have received public aid from their respective states. (I)