IAG will take over Air Europa for €1 bil­lion to grow its pres­ence in Latin Amer­ica

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IAG, the par­ent of Bri­tish Air­ways and Spain’s Ibe­ria, an­nounced a €1 bil­lion (Dh4.1bn) takeover of Air Europa to boost its pres­ence on routes to Latin Amer­ica and the Caribbean.

The deal fol­lows a set­back in Latin Amer­ica for IAG af­ter Chile’s Supreme Court ruled against a plan that would have al­lowed it to bol­ster co-op­er­a­tion with part­ners in the oneworld air­lines al­liance.

Chile’s Latam Air­lines in Septem­ber then an­nounced it planned to leave the al­liance, opt­ing in­stead for a tie-up with SkyTeam mem­ber Delta Air Lines.

IAG shares ini­tially rose more than 2 per cent fol­low­ing the Air Europa takeover an­nounce­ment but some an­a­lysts said IAG may have to shed routes in or­der to win reg­u­la­tory ap­proval.

IAG shares were up 1.2 per cent at 1.15pm GMT.

Ryanair chief ex­ec­u­tive Michael O’Leary said his com­pany will ask the UK’s mar­ket watch­dog to force IAG to make di­vest­ments as part of its takeover of Spain’s Air Europa, a deal he said would be bad for com­pe­ti­tion.

“I think it is a good deal for IAG, for Willie Walsh. I think it is a bad deal from a com­pe­ti­tion point of view,” Mr O’Leary said.

“It is a merger to mo­nop­oly in Madrid and I think we would cer­tainly be look­ing for the com­pe­ti­tion author­i­ties to re­quire some com­pe­ti­tion di­vest­ments, par­tic­u­larly in the Air Europa short-haul,” he said.

Ryanair filed third quar­ter re­sults yes­ter­day which showed its first half net profit was largely flat year-on-year at €1.15bn, de­spite rev­enue ris­ing 11.4 per cent to €5.39bn.

“Po­ten­tial reme­dies, per­haps in the form of slot re­lease or be­havioural re­stric­tions, may be re­quired and these could im­pact the po­ten­tial syn­er­gies,” an an­a­lyst at Liberum wrote in a note.

IAG also owns air­lines Ibe­ria Ex­press, Level, Ire­land’s Aer Lin­gus and Vuel­ing.

“We are not con­vinced that hav­ing just an­other brand plat­form is the op­ti­mal move, and could see it po­ten­tially com­bin­ing with Level, Vuel­ing or po­ten­tially Ibe­ria Ex­press af­ter some time,” an­a­lysts at re­search com­pany Bern­stein said.

Air Europa serves 69 des­ti­na­tions, in­clud­ing long-haul routes to the Amer­i­cas and the Caribbean. It had a fleet of 66 aircraft at the end of 2018.

Air Europa’s Span­ish par­ent com­pany Glob­alia ear­lier this year re­ceived au­tho­ri­sa­tion from the Brazil­ian gov­ern­ment to ex­plore the pos­si­bil­ity of fly­ing do­mes­tic routes within Latin Amer­ica’s largest econ­omy.

It is un­clear if that au­tho­ri­sa­tion will re­main with Glob­alia or be trans­ferred to IAG.

Air Europa will ini­tially keep its brand and as it gets in­te­grated into the ex­ist­ing hub at Madrid it will be a stand­alone op­er­a­tion run by Ibe­ria boss Luis Gal­lego, IAG said.

It will also with­draw Air Europa from the SkyTeam al­liance once the deal is com­pleted. Air Europa has a joint ven­ture with Air France-KLM.

“This is of strate­gic im­por­tance for the Madrid hub, which in re­cent years has lagged be­hind other Euro­pean hubs,” said Gal­lego, adding that Madrid had the po­ten­tial to serve as a gate­way be­tween Asia and Latin Amer­ica.

IAG said it ex­pected the Air Europa deal to close in the sec­ond half of next year and for it to add to its earn­ings in the first full year af­ter the clo­sure.

Air Europa serves 69 des­ti­na­tions, in­clud­ing long-haul routes to the Amer­i­cas and the Caribbean

Reuters

Bri­tish Air­ways’ par­ent IAG says it ex­pects the Air Europa deal to close in the sec­ond half of next year

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