IAG agrees to pay €1 bn for Spanish carrier

Aer Lingus-owner IAG has agreed to buy Spanish carrier Air Europa for €1 billion in cash, the company said on Monday.

In an announcement to the stock exchange, IAG flagged its purchase of Spain’s third largest carrier, a move designed to transform its hub in Madrid into a rival for Amsterdam, Frankfurt, London and Paris.

Air Europa is owned by Spanish company Globalia which also operates hotels and travel agencies.

"Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving south Atlantic leadership, therefore generating additional financial value for our shareholders," said Willie Walsh, the chief executive of IAG.

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Long haul

Air Europa operates scheduled domestic and international flights to 69 destinations including long haul routes. Last year, the company generated revenue of €2.1 billion and posted a €100 million operating profit. Its pre-tax profit was €67 million.

IAG-rival Ryanair is to ask competition authorities to force the company to make divestments as part of its purchase of Air Europa, chief executive Michael O’Leary said according to a Reuters report. “I think it is a good deal for IAG, for Willie Walsh. I think it is a bad deal from a competition point of view,” Mr O’Leary said on a conference call with analysts.

IAG said the Air Europa brand will initially be retained and the company will sit under Iberia, Spain's largest carrier which it owns. IAG also controls Vueling, Spain's second largest airline.

The transaction, which IAG will fund through external debt, is expected to generate “significant revenue synergies” by 2025.

The deal is expected to complete by the second half of next year. IAG has agreed to pay Air Europa a €40 million break fee in the event the transaction fails to receive the necessary regulatory approvals.