Sunday, August 14

Iberia and Air Europa suspend their merger

The airlines negotiate the termination of the sales contract two years after its announcement

Iberia will not buy Air Europa, at least for now. The IAG group airline is “in an advanced stage of negotiations to terminate the agreement“with the Hidalgo family company, as announced by the holding company that runs Luis Gallego in a relevant event sent to the National Securities Market Commission (CNMV).

The IAG group agreed in November 2019 to buy Air Europa for 1,000 million euros, but the arrival of the pandemic meant a halt in the operation. The coronavirus caused most of the planes to stay on the ground and that caused damage to airline accounts. So much so that Air Europa needed the rescue of the Spanish Government worth 475 million euros and a ICO credit worth 140 million euros. That forced Iberia to rethink the purchase in January last year: it lowered the price to 500 million euros to be paid in five years.

But a few months later the deal began to falter. A few weeks ago, when traffic seemed to be beginning to recover, the operation seemed to be further than ever from becoming effective after some statements by Gallego himself in which he acknowledged being “more pessimistic about the future of the operation.” “We have continued trying to carry it out in the worst aviation context. Few people are buying airlines today and we are betting on them, but we cannot do more. If the numbers don’t come out, unfortunately we will have to go“Gallego was saying then.

The president of the airline holding company focused on three variables necessary for the operation to “make sense”: “The conditions of the Government (for the rescue), of Globalia (for the conditions of the agreement) and of the ‘remedies’ (Discarding routes to avoid damaging the competition that Brussels must endorse.) If these three variables come out positive, we will do so, if not, no, “he warned. According to El Confidencial, the main problem lies precisely in the endorsement of Brussels which was due to air in the next few weeks and would be unfavorable.

Both in the purchase contract and in the expansion carried out after the coronavirus, a compensation from Iberia to Air Europa of 40 million euros, in the event that the IAG company decides to forego the purchase of its competitor. Gallego acknowledged a few weeks ago his willingness to pay this penalty. “There is an exit clause that we would not like to use, but if there is no other option, we will have to leave,” he said. However, according to El Confidencial, Iberia would have offered a consideration of double, 75 million euros, to Air Europa to temporarily suspend the operation pending a new agreement that could avoid the blockade by the European Commission.

The ‘Hub’ of Madrid

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The IAG group has insisted on numerous occasions on the importance of the merger of both groups to transform the Madrid hub “in a true rival for the four” largest hubs in Europe: Amsterdam, Frankfurt, London-Heathrow and Paris-Charles De Gaulle. “For Iberia, its weight at Madrid airport is less than that of other similar airlines in their respective hubs. In fact, the IAG’s joint share with Air Europa would be 39%, lower than that of competitors in Paris Charles de Gaulle, Frankfurt or Amsterdam, which exceed up to 45%, according to pre-pandemic figures.

Of the 20 largest airports in Europe, Madrid ranks (according to previous pandemic data) number 19 in terms of the number of destinations offered. Traditionally link window with Latin America, Iberia’s intention was to also promote new routes to large less-traveled markets such as Asia or Africa.

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