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Iberia Buys Rival Air Europa for a Bargain Basement Price of €500 Million

Iberia Buys Rival Air Europa for a Bargain Basement Price of €500 Million

The parent company of British Airways and Iberia has struck a deal with Spanish tourism company Globalia to buy the country’s second-largest airline, Air Europa for just €500 million – half the original selling price after the pandemic decimated the aviation industry and cut a big hole in IAG’s finances.

As part of the deal, Iberia (which will purchase Air Europa on behalf of International Consolidated Airlines Group) will also defer payment for six years. The contract is expected to be completed by the second half of 2021.

Luis Gallego, the new chief executive of IAG who was previously head of Iberia, said the deferral had been set for a point in the future where even the most pessimistic of analysts believe the airline industry will have recovered from the effects of prolonged lockdowns and travel restrictions.

“Both Iberia and IAG are demonstrating their resilience to face the deepest crisis in the history of aviation,” Gallego commented on Wednesday. “Being part of a large group is the best guarantee to overcome the challenges of the current market that will also benefit Air Europa once the transaction is completed.”

IAG has been eager to push ahead with the acquisition of Air Europa despite the current environment in order to consolidate its position in Madrid. The airline group says the purchase will allow it to turn Madrid into a hub that can compete head-on with European rivals like Amsterdam (AMS) and Frankfurt (FRA).

Javier Sánchez-Prieto, Iberia’s chief executive said the acquisition will allow the airline to build on the airline’s current strengths in South and Central America.

“The purchase is expected to generate significant cost and revenue synergies, which are expected to reach full performance in 2026 and generate attractive returns on invested capital in line with those historically achieved by IAG. In turn, it is expected to contribute positively to results in the first full year after closing,” a statement released by Iberia explained.

Even so, Sánchez-Prieto insists that the purchase of Air Europa will benefit consumers with plans to open new routes and keep existing, less profitable routes open.

The deal is still subject to approval from European competition regulators, as well as an agreement with Spain’s state-owned holding company over loans provided to Air Europa to help it survive the pandemic.

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