By Barbara Kollmeyer
More than a year after announcing its intentions to buy Air Europa, British Airways owner International Consolidated Airlines (IAG) said on Wednesday that it had finally reached a cut-price deal for the Spanish airline worth €500 million ($607 million).
Through its Spanish airline Iberia, the airline group said it would acquire all shares of Air Europa from owner Globalia Corporacion Empresarial, but that payment will be deferred until the sixth anniversary of the deal’s completion. Shares of IAG /zigman2/quotes/208070069/delayed UK:IAG +4.08% , which have lost 64% over the last 12 months, were last up 1.6%.
IAG first announced its intentions to buy Air Europa, one of Spain’s biggest airlines, for €1 billion in November 2019.
That was shortly before the COVID-19 pandemic came along, devastating passenger traffic in early 2020 as countries closed borders and restricted travel amid surging cases, deaths and hospitalizations. Airline travel remains under pressure as the U.S. and Europe, and parts of Asia struggle with a third wave of the virus that has killed more than 2 million world-wide and infected over 96 million.
Struggling against this backdrop, IAG announced a capital raising of $3.26 billion last July, and said it had began talks with Globalia about restructuring the original deal.
“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,” said IAG Chief Executive Luis Gallego in a statement announcing the deal.
Also helping, said Gallego, was the fact that payment for the deal has been deferred “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.”
IAG expects the purchase of the Spanish airline to “generate significant cost and revenue synergies,” with full run-rate synergies similar to those originally envisaged and now expected by 2026. The deal is expected to be earnings accretive in the first full year following completion.
Revised deal terms are dependent on negotiations between Iberia and industrial holding company Sociedad Estatal de Participaciones Industriales regarding financial support it provided to Air Europa in 2020. The deal is expected to be completed by the second half of 2021, but is subject to EU approval.
IAG said the deal would increase the importance of its Madrid hub, transforming it into a rival to Amsterdam, Frankfurt and Paris Charles de Gaulle, and also give customers greater choice and schedule flexibility.