IAG International Airlines Group is in advanced talks with Air Europa (UX, Palma de Mallorca) parent Globalia to halt the long-planned acquisition of its rival, the group revealed in a brief disclosure to the Madrid Stock Exchange on December 15.
“International Airlines Group and Globalia confirm today that negotiations to terminate the agreement signed on November 4, 2019, and amended on January 20, 2021, are at an advanced stage, according to which IAG's subsidiary Iberia had agreed to acquire all of the issued capital shares of Air Europa. A new update will be made in the future, as appropriate,” the group's chief financial officer, Stephen Gunning, said in the filing.
IAG agreed in 2019 to buy Air Europa for EUR1 billion euros (USD1.13 billion), and after the coronavirus outbreak it cut the price to EUR500 million (USD564 million).
According to sources close to the negotiations cited by the digital newspaper El Confidencial, Iberia and Air Europa have mutually agreed to suspend the merger in order to give themselves time to renegotiate the conditions and avoid a veto from the European Commission, which had been likely to request significant concessions from IAG in its investigation into the deal due to conclude by January 4.
The sources claimed that IAG had agreed to hand Air Europa EUR75 million (USD85 million) to release it from the contract - almost double the EUR40 million (USD45 million) specified as a penalty in the event the transaction falls through, confirming earlier reports that Globalia patriarch Juan Jose Hidalgo was preparing to file a claim against IAG that exceeded the penalty.
Given the interest of both parties, as well as the government of Spain, that Iberia and Air Europa eventually integrate when financial and operational conditions allow, both airlines have opted to give themselves an additional period of time to close a new agreement that is not vetoed by Brussels, the sources explained.
IAG and Iberia declined to comment on the report, while Globalia confirmed the negotiations but added that certain details still needed to be fine-tuned.
By paying so much as a penalty, Iberia guarantees itself a preferential right to resume talks with Air Europa once the pandemic is over and each company can quantify the final impact on their accounts and on their balance sheets, El Confidencial speculated.
However, to certify any such “continuity solution”, Iberia and Air Europa will need the approval of Spain's industrial development fund (Sociedad Estatal de Participaciones Industriales - SEPI), which in November 2020 awarded EUR475 million (USD535 million) to the latter embattled carrier. Globalia also owes an estimated EUR800 million (USD902 million) to banks and suppliers.
Local media have suggested that Globalia would have a difficult time convincing an investor without as much potential synergy as Iberia to agree to pay more for it than IAG. At the same time, the Air Europa bailout has left the shadow of a possible nationalisation or substantial state shareholding that could happen at any time thanks to the carrier's precarious situation. These factors are likely to keep talks between IAG and Globalia progressing.
