IAG accepts €100m loan for Air Europa owner
International Airlines Group (IAG) has signed an agreement with Globalia Corporacion Empresarial, owner of Air Europa, to lend it 100 million euros ($110.3 million) over a period of seven years. IAG planned to buy Air Europa last year, but abruptly ended talks in December due to anti-competitive concerns. After stepping away, IAG said he would look for alternative links.
Loan opens opportunity for IAG to take stake in Air Europa
IAG says this week’s unsecured loan gives it and Air Europa some breathing room while further talks resume. Subject to relevant regulatory approvals, IAG will have the option to convert the loan into an equity stake of up to 20% in Air Europa. This conversion capability gives IAG another way to strengthen its already formidable presence in the Spanish aviation market.
IAG, owner of British Airways, Iberia, Aer Lingus and Vueling, among others, remains very committed to the Mallorca-based airline. After Iberia and Vueling, Air Europa is the third Spanish airline. Its 34 jets serve 56 destinations in 28 countries. Air Europa’s normally lucrative routes between Spain and South America are of particular interest to IAG.
The loan is conditional. It gives IAG a one-year period of exclusivity while talks take place and comes with a right to match any third-party offers for the airline within the next three years, as well as a right exit alongside Globalia if it sells Air Europa at any time. in the future.
Air Europa flies its 34 jets to 56 destinations in 28 countries. Photo: Tom Boon/Simple Flying
Loan blocks respite for IAG and Globalia
This period of exclusivity is important for IAG, as they were well aware that Globalia was talking about Air Europa to other airlines as recently as February. With the decision to end talks in December costing IAG €75m in severance pay, the €100m loan means IAG granted Globalia €175m in the space of four month.
“We remain convinced of the strategic importance of this agreement for the development and competitiveness of the Madrid hub,“says Luis Gallego, Managing Director of IAG. “Since we began negotiations, the world has changed. This agreement will give us time to exclusively evaluate alternative structures that may be of interest to both companies and provide significant benefits to their customers, employees and shareholders. “
Negotiating the anti-competitive interest of the European Commission
IAG has been tracking Air Europa for several years now. The airline group wants to make Madrid a European IAG hub. In 2019, IAG offered to buy Air Europa for one billion euros. This plan has been disrupted by the pandemic. IAG later reduced that offer, but at that time the European Commission was flagging competition concerns. If IAG buys Air Europa, it would control Spain’s top three airlines.
Like many airlines, the pandemic has hit Air Europa hard. The airline’s most lucrative routes were to South America where borders quickly closed. In September 2020, the airline successfully requested and obtained €475 million in state aid. This aid, in the form of two loans, is repayable by 2026.
In mid-2021, the airline was considering a return to its main South American markets. But at that time, the European Commission was increasing its interest in IAG’s interest in Air Europa. However, as this week’s loan proves, IAG has more than one way to skin a cat.
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