The saga of IAG’s attempt to acquire Air Europa has reached a decisive turning point. Faced with unsustainable regulatory demands from the European Commission, IAG, the parent company of Iberia, British Airways, Vueling, and Aer Lingus, has decided to withdraw from the deal. This marks the second failed attempt by IAG to acquire Air Europa, and the intricate details of this corporate drama have garnered significant attention.

Second Failed Acquisition Attempt

IAG’s first attempt to acquire Air Europa began in 2019, but it was thwarted in 2021 due to objections from the European Commission. The concerns centered on approximately 70 routes where both airlines were the sole operators. In August 2022, IAG managed to acquire 20% of Air Europa, aiming to secure the remaining 80% by December 2023. However, the conditions imposed by the European Commission proved too demanding.

European Commission’s Demands

To approve the deal, the European Commission’s Directorate-General for Competition required IAG to make significant concessions of routes and slots to other competing airlines. This was intended to prevent market dominance, as the proposed merger would control approximately 65% of the air traffic between Spain and the Americas.

Luis Gallego, IAG’s CEO, stated, ‘This is the best decision to protect shareholders’ interests. The Commission’s demands no longer make business sense for Iberia.’ Despite offering to relinquish up to 52% of Air Europa’s operating frequencies, the Commission remained unswayed.

Compensation to Globalia

As a result of the deal’s cancellation, IAG will pay Globalia, the owner of Air Europa, 50 million euros in compensation. This agreement was stipulated in the purchase contract, reflecting the complexities and risks involved in large mergers and acquisitions.

Comparison with Other Industry Cases

IAG had regained some hope for the deal after the approval of Lufthansa’s acquisition of ITA (the former Alitalia). However, the concessions proposed by Iberia were insufficient for the European Commission, which had until August 20 to make a final decision. Rumors of an imminent rejection prompted IAG to announce its decision to withdraw before releasing its financial results.

Reactions and New Plans

Iberia sought to reassure its shareholders by emphasizing its current priorities: consolidating financial stability, developing the leadership of its Madrid hub, and ensuring a sustainable future for its handling and maintenance businesses. IAG surprised many by announcing the resumption of dividend payments, which had been suspended since 2020 due to the pandemic. The board approved the distribution of 0.030 euros per share, payable in September 2024.

Future of Air Europa

Air Europa, on the other hand, will continue with its strategic plan to strengthen connectivity between Europe and the Americas. In a letter to the staff, Air Europa’s executives assured that the company remains ‘profitable, solvent, and with a future independent of IAG.’

Conclusion

IAG’s decision to abandon the acquisition of Air Europa highlights the regulatory challenges in the aviation sector and the complexity of international mergers. As IAG and Air Europa move forward with their respective plans, it is clear that the European Commission’s demands have had a decisive impact on this operation. Investors and employees are now closely watching the next steps of both companies in this dynamic industry.