Air Europa taken over by IAG: it's (almost) done

It has been more than 3 years since the takeover of Air Europa by IAG was announced and it looked like the deal would never happen but finally the deal was confirmed last week.

A bargain for IAG

Originally the deal was supposed to be worth 1 billion Euros, but in the end IAG will only have to pay 500 million to acquire the Spanish airline. To do this, it will spend 400 million to acquire the 80% of the capital that it still lacks.

Indeed, the COVID has been through so much that it was thought at one point that the deal would be abandoned despite the declarations of the Anglo-Spanish group.

But it will still have to wait for the approval of the competition authorities.

IAG in a dominant position in Spain?

This is the last point that remains to be validated in order to authorise the transaction and this will take time, obviously around 18 months. For while IAG owns British Airways, Aer Ligus and Level, it also owns Iberia and Vueling. So with Air Europa it would have the bulk of the Spanish market and the routes to Latin America.

Should we expect the operation to fail?

We don’t think so. Firstly, because concessions have already been made ( sale of routes to Volotea to strengthen competition on domestic routes), and secondly, because there are alternatives with the airlines of the countries in question for destinations in Latin America.

But as long as the approval of the anti-trust authorities is not obtained there will remain a doubt!

Once the deal is done Air Europa will be run directly by Iberia and not by IAG and, in effect, Iberia will further increase its footprint at its Madrid hub.

A new balance in Europe

With this takeover, IAG, which had a stranglehold on the United Kingdom (excluding low cost), is also locking in the Spanish market. And through this operation, OneWorld is strengthening its position in Europe.

On the other hand, there is Star Alliance, which has a stranglehold on northern and eastern Europe, notably with the Lufthansa Group, which already owns Brussels Airlines, Swiss, Austrian and, tomorrow, probably ITA.

The big loser is therefore Skyteam, which will probably lose its presence in Spain and Italy in the coming months or years, with Air France and KLM finding themselves very isolated and besieged by the competition. Of course, the alliance has already begun to compensate by increasing the number of direct routes to Spain, notably thanks to Air France and KLM, but this does not compensate for the presence of a real partner with whom to share codes and routes. In one case, the risk is to fly aircraft that are poorly filled for part of the year, and in the other to offer a reduced and unattractive offer.

And tomorrow there will be the question of the takeover of TAP, where Air France-KLM, Lufthansa Group and IAG will again be in competition. And as in the ITA case, we do not think that the Franco-Dutch group is a credible candidate until it has repaid its COVID aid. If things do not change between now and then, we are heading for an IAG-Lufthansa duel where, this time, IAG risks being really handicapped by its presence in Spain because it would give it control over the Iberian peninsula and reinforce its domination over Latin American routes.

Unless in 18 months time IAG decides it is better to drop Air Europa and concentrate on TAP? Finally, the duration of the competition authorities’ investigations may be an advantage in allowing them to buy time to decide.

Bottom line

IAG will take over Air Europa for half the price originally planned. However, the transaction will not take place before approximately 18 months in order to obtain the approval of the anti-trust authorities.

Image: B787 Air Europa by Luciano de la Rosa via Shutterstock