IAG Calls Off Acquisition of Air Europa Amid Regulatory Challenges
IAG International Airlines Group has decided to terminate its plan to acquire an 80% stake in Air Europa from Globalia for EUR 400 million (approximately USD 432 million). This decision, routed through its subsidiary Iberia (IB, Madrid Barajas), comes after a comprehensive review by IAG’s board of directors who concluded that proceeding with the acquisition would not align with the best interests of its shareholders given the current regulatory environment.
As part of the termination agreement, IAG will compensate Globalia with a break fee of EUR 50 million (USD 54 million), which has been recorded as a non-operational expense in IAG’s financial results for the second quarter of 2024. Despite the cancellation of this acquisition, IAG will maintain its 20% minority stake in Air Europa, secured in August 2022.
The decision to pull out of the acquisition followed close scrutiny by the European Commission, which was reportedly on the brink of blocking the deal. Concerns were raised that the merger would not adequately preserve competitive fares and services for passengers, despite IAG’s offer to relinquish up to 52% of Air Europa’s 2023 frequencies and assurances of no monopolized routes.
The potential impact of this termination is significant, affecting not just IAG and Air Europa, but also other airlines. For instance, the proposed joint venture between Volotea and Abra Group hinged on the successful acquisition of Air Europa, as it was contingent on them acting as remedy takers for the deal. Following IAG’s withdrawal, this joint venture has also been shelved, with both parties indicating a continuation of exploring separate commercial opportunities.
Volotea expressed that the IAG-Air Europa alliance represented a significant opportunity for growth in the Spanish market. Although the merger did not proceed, Volotea plans to continue expanding its operations, albeit at a different pace, by increasing seats and destinations annually and maintaining high service standards for its passengers.
The European Commission’s response highlighted the dominant position of IAG in the Spanish market, owning major airlines including Iberia and Vueling Airlines, with Air Europa being the third largest. The remedy package proposed by IAG was deemed insufficient to mitigate competition concerns on numerous domestic, short-haul, and long-haul routes where the two airlines directly compete.
Margrethe Vestager, Executive Vice-President in charge of competition policy, emphasized that their thorough analysis indicated that the merger would likely have had adverse effects on competition, potentially leading to higher prices and reduced service quality for both business and consumer passengers. Despite IAG’s proposed remedies, the Commission concluded that they did not satisfactorily address the identified competition issues.
This development underscores the complexities and regulatory hurdles in airline mergers and acquisitions, particularly in tightly regulated markets like the European Union.
Sources: AirGuide Business airguide.info, bing.com, ch-aviation.com