IAG International Airlines Group anticipates that the EUR100 million euro (USD105 million) loan it provided Globalia with in March, with a view to ultimately buying its airline Air Europa (UX, Palma de Mallorca), can be turned into a 20% shareholding in the carrier within the next six months, CEO Luis Gallego said during an IAG first-quarter earnings call.
A statement on the results, which yielded a group-wide operating loss of EUR754 million (USD794 million), recalled that IAG and Globalia reached an agreement on the seven-year unsecured loan by which, “subject to any relevant regulatory approvals, IAG will have the option to convert the loan into an up to 20% equity stake in Air Europa.”
The deal, which provides for a period of exclusivity of one year, is conditional on Globalia receiving approval from banks that gave it a EUR150 million (USD158 million) syndicated loan guaranteed by state-owned credit institution ICO and from the sovereign wealth fund SEPI which granted it a loan of EUR475 million (USD500 million) in November 2020.
Gallego elaborated in the earnings call that “we are still awaiting the waiver from the ICO and from SEPI. The moment we have the waiver, we will execute the loan. And the idea is, when we have the approval [...], we can convert it to up to 20% in the company. So I think we are going to have the waiver soon, and after that we consider that in less than six months we can do the conversion into equity.”
Asked about the tough opposition to such deals that are typically posed by competition regulators, Gallego responded that “we are dealing now with competition authorities that we consider are necessary to have the 20% of the company. This is not going to be a very complex process, to be honest, because the level of overlap in the countries we are working in is not very high. So we are very confident we will have that 20% of the company.”
To a question on whether IAG’s aspiration is to eventually take full control, the chief executive agreed that “the objective is to arrive at full control of the company because it’s the way to capture the synergies that the end are the objective of this deal, to develop a Madrid hub, to develop opportunities for the customer, to have our network, etc.”
He went on: “So it’s true that last December the competition authorities said that the remedies we were putting on the table were not enough to do this deal. But that’s something that with the new type of agreement we need to develop still with Globalia, we want to have the flexibility to put the remedies on the table that can allow us to do these deals.”
Gallego concluded: “In case this deal doesn’t make sense for us - often we have abandoned other deals with the group - we still have a partner in Latin America. And we can develop other opportunities. But to give you an example right now, we have a joint business with LatAm in Peru and Ecuador. It’s working. And I think we can have more opportunities with them. We have an agreement for distribution with Avianca Group. So we’re analysing the different scenarios, although our base case is to do the Air Europa operation because we consider it the best option for the Madrid Barajas hub.”
Asked if he was more optimistic now than before, Gallego referred to the filters of the competition authorities, which have always suspected that a merger could result in a monopoly on certain routes to Latin America. But at least “we deserve an award for perseverance,” he joked.
