International Airlines Group (IAG) announced that it will give up trying to acquire the 80% of Air Europa that it doesn’t own yet due to the European Commission’s requirement for greater remedies to allow the takeover to proceed.
This was the second failed attempt by IAG to take over its rival in Spain, Air Europa. The airline group that includes Iberia, Vueling, British Airways and Aer Lingus announced this afternoon that it is abandoning the operation in response to the European Commission's demand for strong concessions to competition in the form of routes and slots.
In an exceptional decision, the company headed by Luis Gallego has brought forward the presentation of the first half of the year results to this afternoon, a date with the market that was scheduled for tomorrow.
The move gives investors time to digest the bad news before the opening of the Stock Market this Friday. With the termination of the agreement with Globalia, parent company of Air Europa, a penalty of 50 million euros is activated that IAG will pay to the group controlled by the Hidalgo family.
The CEO of IAG, Mr. Luis Gallego, has issued the following statement:
We believe this is the best decision to protect the interests of our shareholders. IAG remains committed to its strategy, which includes competing effectively from its hub in Madrid, a strategy that is yielding positive results. We will continue to develop our presence in Madrid so that the hub can compete with the largest airports in Europe.
The IAG offered €1B to acquire Air Europe before the pandemic in 2019 , and then called the purchase off during the pandemic until trying it for the second time with a halved valuation.
The purchase of Air Europe would have cemented IAG’s presence in the Spanish market, leading to higher prices and worse service for consumers.
IAG CEO Luis Gallego has assured the media that he does not plan to reactivate this operation, “at least in the medium term”. The abandonment of the project to integrate Iberia and Air Europa has been communicated to the Directorate General for Competition, which they say has taken note of.
The Community spokesperson for Economic Affairs, Veerle Nuyt, has indicated that “the Commission is currently evaluating whether all the relevant conditions for abandoning the merger are met according to the EU Merger Regulation”.
The EU competition authority warned a couple of weeks ago that the remedies granted to rival airlines were not sufficient to avoid consumer harm from Air Europa's entry into IAG. But the buyer was not prepared to go any further after proposing the distribution of 52% of Air Europa's production among its rivals in 2023.
Gallego said this afternoon that “the operation has lost its meaning” and that resignation is “the best decision to protect the interests of our shareholders.” IAG says it remains committed to investing in Spain and strengthening Iberia at Madrid airport. This year, Spain’s largest network airline plans to grow its capacity by 14%.
The approval in July of the absorption of the airline ITA, formerly Alitalia, by Lufthansa had raised certain hopes among Spanish companies, in a context in which the sector is in the process of consolidation throughout the world.
100% of Air Europa's capital had been valued at 500 million, to which is added more than 500 million of debt contracted during the pandemic and which must be repaid at the end of 2026.
IAG holds 20% of the capital that it does not intend to sell in the short term. The holding company, which is now looking towards other opportunities, is analysing the possible acquisition of the Portuguese company TAP. As for Air Europa, it is once again free to see options with Lufthansa or Air France.
IAG's latest offer of remedies responded to a report of objections submitted by the Competition Authority on 26 April, in which the Community had already expressed opposition to a merger between Iberia and Air Europa that would control 64% of traffic between Spain and America (45% for Iberia and 19% for Air Europa) before the aforementioned transfers. "We have met all of Brussels' requirements," laments Luis Gallego.
Iberia's first offensive against the Globalia airline, which began in October 2019 and was put on hold in 2021, has already met with EU reluctance.
The European Commission has taken note of IAG's announcement to end its agreement with Globalia under which it intended to acquire exclusive control of Air Europa.
The Competition Authority now has until August 20 to make public its verdict on the operation, but the Iberia group has preferred to avoid a negative response.
The Commission found, however, that the sum of Iberia and Air Europa resulted in excessive dominance both in the Spanish domestic market and on routes to Buenos Aires, Montevideo, Lima, Panama, Caracas, Panama City, Quito, Santo Domingo, Miami and New York.
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