IAG International Airlines Group has announced its decision to scrap its agreement with Globalia to acquire the remaining 80% of Air Europa (UX, Palma de Mallorca) for EUR400 million euros (USD432 million) through its subsidiary Iberia (IB, Madrid Barajas).

In a statement, IAG’s board of directors concluded that in the current regulatory environment it would not be in the best interests of shareholders to proceed with the transaction. As a consequence of the termination, the Iberia and British Airways parent will pay Globalia a break fee of EUR50 million (USD54 million). This amount was recorded as a non-operational expenditure in IAG’s financial results for the second quarter of 2024.

Luis Gallego, chief executive of IAG, said the holding company remains committed to its strategy, which includes "competing effectively" from its Madrid Barajas hub. IAG will continue to retain its 20% minority stake in Air Europa, which was acquired in August 2022.

According to local reports, the European Commission was close to blocking the deal under the reasoning that despite the remedies offered (including abandoning up to 52% of Air Europa’s 2023 frequencies and pledging that there would not be a single route operated exclusively by Air Europa and Iberia), passengers would not have existing services guaranteed, which could lead to an increase in fares.

The termination of the Air Europa acquisition could have ample consequences in the airline market, as many carriers were eyeing the proposed conditions, which included releasing slots and frequencies in Madrid. For instance, a Volotea and Abra Group joint venture was contingent on the European Commission approving Air Europa’s acquisition.

In a statement sent to ch-aviation, Abra Group confirmed that the joint venture with Volotea is off, as it depended on whether the companies could act as remedy takers from the IAG-Air Europa deal, and that now both will continue to explore future commercial opportunities.

Meanwhile, Volotea said the Air Europa-IAG tie-up represented a unique opportunity for the sector. The independent Spanish LCC had offered to act as a remedy taker and did everything it could to ensure the merger assessment was positive, including partnering Abra. "The tie-up was undoubtedly a good opportunity to grow in Spain, but we will continue with our development strategy in the market, although the pace will be different. We will continue to increase seats and destinations every year, and offer the best service to our passengers," the carrier told ch-aviation.

The European Commission released a statement on August 2 pointing out that “IAG owns several airlines, including Iberia and Vueling Airlines, and is the largest airline operator in Spain, Air Europa is the third largest airline in Spain,” and the remedy package proposed was “not able to adequately address the competition concerns identified by the Commission.”

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “We looked closely at the impact of the transaction on competition, especially on those routes in which alternative flights are limited. Our in-depth analysis indicated that the merger would have negatively affected competition on a large number of domestic, short-haul, and long-routes within, to, and from Spain on which the two airlines compete closely.”

She added that she was “concerned that the transaction may have led to adverse effects for passengers - business customers and consumers alike - in terms of increased prices or decreased quality of services. IAG offered remedies, but taking into account the results of a market test, the remedies submitted did not fully address our competition concerns.”

ch-aviation has reached out to Air Europa for comment.