The parent company of British Airways and Iberia, IAG, has once again abandoned a planned takeover of Spanish rival Air Europa and will be made to pay the airline’s owners a €50 million break fee after concluding that it was “in the best interest of shareholders” to terminate the takeover agreement.
The European airline group, which also owns Aer Lingus and Spanish low-cost carrier Vueling, saw the takeover of Air Europa as a key part of its strategy to transform Madrid Barajas Airport into a major European hub that could effectively compete with London Heathrow, Amsterdam Schiphol, and Frankfurt Am Main.
Announcing the decision on Thursday afternoon, IAG chief executive Luis Gallego said the group was “still committed” to its Madrid strategy but that this would now mean “competing effectively” with other carriers from the Spanish capital.
The statement is perhaps the closest that Gallego and IAG will get to admitting that it would have struggled to get the takeover deal cleared by European antitrust regulators who feared the combined company would have significantly stifled competition and reduced choice for travellers.
The road to get to this point has been long and winding and this isn’t the first time that IAG has effectively walked away from its planned takeover of Air Europa.
IAG first announced its intention to purchase Air Europa from the airline’s owners, Globalia, in late 2019 in a deal valued at the time at €1 billion. The pandemic, however, quickly slammed the breaks on the planned acquisition, and it wasn’t until 2021 that IAG announced that it once again intended to purchase Air Europa for just €50 million.
Regulators quickly opened an in-depth investigation into the takeover, saying that it was concerned the deal would significantly reduce competition on domestic flights within Spain, as well as international flights from the country.
IAG acquired a minority equity stake of 20% in Air Europa in August 2022 and in February 2023, the group announced that it once again wanted to acquire the remaining 80% stake in the carrier.
However, announcing its decision to walk away from the deal on Thursday, IAG said its board of directors “has concluded that in the current regulatory environment, it would not be in the best interests of shareholders to continue with the transaction.”
Gallego added: “We will continue to develop our presence in Madrid so that the hub can develop as a rival to Europe’s largest hub airports.”
Matt’s take
This outcome really shouldn’t come as a surprise to anyone, given how much IAG would have stifled competition in Madrid if it had been cleared to acquire Air Europa. Regulators have been very clear that the takeover would have had a negative impact on consumers and were likely pushing IAG to make significant concessions in order to get the deal over the finish line.
The key difference between German flag carrier Lufthansa being allowed to acquire a majority stake in Italian airline ITA despite a wide range of competition concerns is that IAG already holds a dominant position in Madrid.
How IAG now goes about growing its presence in Madrid will be interesting to watch. IAG will, however, its 20% stake in Air Europa.
