It seems that International Airlines Group’s plans to acquire Air Europa have been put to bed, with the airline preparing to line up a termination payment of €50 million.
Air Europa Airbus A330 at Amsterdam Schiphol – Image, Economy Class and Beyond.
For those who are interested, it’s in IAG’s Interim Management Report, published today at https://www.iairgroup.com/media/oc1du3qg/interim-management-report-for-the-six-months-to-30-june-2024.pdf.
According to the headlines for the withdrawal, it was “in the best interests of (IAG) shareholders”.
They add
Due to the Group’s assessment that its intended acquisition of the remaining 80% of the share capital of Air Europa Holdings that it does not currently own was no longer probable, with a subsequent decision on 1 August 2024 to withdraw from the acquisition, a contractual €50 million break-fee became payable. Accordingly, the Group has recognised an exceptional charge to Other non-operating credits/(charges) within the Income statement in the first six months of 2024. The related tax credit was €5 million
IAG currently owns 20% of Air Europa. The original plan was to purchase the remaining 80% of the airline from Globalia of Air Europa holdings.
Given the market share, this would have given IAG Airlines a large hold in the Madrid market, this takeover would be subject to approval by relevant competition authorities, who would have demanded a lot of concessions.
And some of those were offered – but it doesn’t seem to be enough.
The agreement states
that at any time over a 24 month period from execution of the agreement, if any relevant approval is not obtained, or if the Group decides not to proceed with the acquisition, the Group is required to pay a break-fee to Globalia of €50 million.
In addition, at any time over this 24 month period, if the Group decides to or it is probable that either any relevant approval is not obtained or that the Group will not proceed with the acquisition, then the break-fee shall be recognised within the financial statements.
Thus, IAG has to open its wallet and pay Air Europa to terminate the planned takeover.
And that’s that.
The planned takeover of Air Europa was… an odd one, considering how much IAG would have had to give away to even have a chance at making it work, especially at a capital hub airport.
Attempting to consolidate a position at an airport is fine – but completion must be allowed to flourish – least of all to drive choice, but also to avoid Fortress Hubs, where one airline dominates the entire facility.
And IAG has come to the conclusion that that battle isn’t worth fighting for Madrid.
We’ll have to see who has a sniff around Air Europa next, as well as some of the mid-sized airlines that could well be a good fit for IAG’s portfolio.
As for Air Europa, we’ll have to see how €50 million goes, as we move from the profitable summer and into the winter season, where money gets a lot tighter a lot quickly.
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So the Spanish escape the profiteering plummet in servive BA has undergone in the past decade…
Watch Lufthansa Group swoop in and buy Air Europa now…
It’s a shame that the IAG and Air Europa deal fell through, but it sounds like it was the right decision given the circumstances. The €50 million break-fee is a hefty price, but sometimes it’s better to cut losses early. It’ll be interesting to see who steps in next for Air Europa and how this impacts the Madrid market. Thanks for the detailed update, Kevin!