• Joe Breitfeller

IAG Iberia’s Acquisition Price for Air Europa Reduced by 50 Percent to €500 Million

The International Airlines Group and Globalia have amended the original agreement signed on November 4, 2019, under which Iberia would acquire Air Europa. The total equity value has been reduced from €1 billion to €500 million, with payment deferred for six years.

Iberia to Acquire Air Europa for 50 Percent of Original Equity Value – Courtesy Iberia

On Wednesday (January 20, 2021) the International Airlines Group (IAG) announced that their agreement for acquisition of Air Europa by Iberia has been amended. The original agreement, signed on November 4, 2019, valued Air Europa’s equity at €1 billion, which has now been reduced by 50 percent to €500 million. Additionally, payment will be deferred for six years until the sixth anniversary after the acquisition is completed, which is expected to occur in the second half of 2021. The amended agreement is subject to successful negotiations between Iberia and Sociedad Estatal de Participaciones Industriales (SEPI), regarding non-financial terms associated with financial support received by Air Europa from SEPI in 2020.

IAG’s Board continues to believe in the strategic importance of the acquisition and that it will deliver benefits including increasing the importance of IAG’s Madrid hub and making it a true rival to Amsterdam, Frankfurt and Paris-CDG and will also generate substantial cost and revenue synergies. The company also believes the acquisition will unlock further network growth opportunities and deliver customer benefits such as increased choice and schedule flexibility, as well as greater opportunities to earn and redeem miles. In Wednesday’s announcement, IAG’s Chief Executive, Luis Gallego, said,

“Both Iberia and IAG are demonstrating their resilience to face the deepest crisis in aviation’s history. Being part of a large group is the best guarantee to overcome current market challenges which will also benefit Air Europa once the transaction is completed. 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 realizing significant synergies resulting from the transaction.”

Also commenting on the amended agreement, Globalia’s Chief Executive, Javier Hidalgo, said,

“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.” Further commenting on the acquisition, Iberia’s Chief Executive, Javier Sánchez-Prieto, added,

“This transaction makes perfect strategic sense to reinforce Madrid's hub competitiveness on a global stage. It will benefit consumers and Air Europa’s incorporation into the Iberia Group will improve the company's viability benefitting both Iberia and Air Europa employees.”

Air Europa is one of the leading private airlines in Spain, operating scheduled domestic and international flights to Europe and long-haul flights to Latin America, the U.S., the Caribbean and North America. At December 31, 2019 Air Europa had gross assets valued at €967 million, annual revenue of €2.1 billion, an operating profit of €71 million and a pre-tax profit of €42 million (based on Spanish GAAP). During 2019, the carrier carried 13.1 million passengers, which was reduced by approximately 70 percent in 2020 due to the global COVID-19 pandemic. Air Europa currently has a fleet of 52 aircraft, a reduction from 68 at the end of 2019, and all aircraft except one are leased. IAG estimates that Air Europa’s IFRS 16 lease liabilities at the end of 2020 totaled around €1.6 billion.

Source(s): IAG, Iberia