British Airways Group IAG to acquire Air Europa for €1 billion

IAG signed definitive agreements with Air Europa owner Globalia, under which IAG’s wholly owned subsidiary, IB OPCO Holding SL. (Iberia), will acquire the entire issued share capital of Air Europa for €1 billion in cash, subject to a closing accounts adjustment, IAG stated in a filing with the stock exchange.

IAG said its purchase of Spain’s third largest carrier is a move designed to transform its hub in Madrid into a rival for Amsterdam, Frankfurt, London and Paris.

Air Europa is owned by Spanish company Globalia, which also operates hotels and travel agencies.

“Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving south Atlantic leadership, therefore generating additional financial value for our shareholders,” said Willie Walsh, the chief executive of IAG.

The acquisition of Air Europa will catapult IAG as a leader in the highly attractive Europe to Latin America and Caribbean market while offering significant synergy potential in terms of cost and revenue.

The acquisition is expected to be completed in the second half of 2020, following receipt of relevant approvals, AIG said adding that EPS is accretive in the first full year and accretive to IAG’s return on invested capital by the fourth year after completion.

“Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership, therefore generating additional financial value for our shareholders,” Willie Walsh, chief executive of IAG, said.

IAG has a strong track record of successful acquisitions, most recently with the acquisition of Aer Lingus in 2015 and we are convinced Air Europa presents a strong strategic fit for the group,” he added.

“For Globalia, the incorporation of Air Europa to IAG implies the strengthening of the company’s present and future that will maintain the path followed by Air Europa in the last years. We are convinced that the incorporation of Air Europa to a group such as IAG, who over all these years has demonstrated its support to the development of airlines within the group and the Madrid hub, will be a success,” Javier Hidalgo, chief executive of Globalia, said.

Air Europa is one of the leading private airlines in Spain, operating scheduled domestic and international flights to 69 destinations, including European and long-haul routes to Latin America, the United States, the Caribbean and North Africa. In 2018, Air Europa generated revenue of €2.1 billion and an operating profit of €100 million. It carried 11.8 million passengers in 2018 and ended the year with a fleet of 66 aircraft.

The Air Europa brand will initially be retained and the company will remain as a standalone profit centre within Iberia run by Iberia CEO Luis Gallego. The managements of IAG and Iberia anticipate opportunities to unlock value through the acquisition across three key areas:

The acquisition is expected to generate cost synergies across selling, general and administrative expenses, procurement, handling and distribution costs with full run-rate synergies to be achieved by 2025. IAG expects implementation costs to be phased over the same period.

In addition, the acquisition is expected to generate significant revenue synergies by 2025, including: 

The acquisition will be funded by external debt. After completion, IAG’s net debt to EBITDA is expected to be 0.3 times higher as a result of the Acquisition compared to 1.2 times last reported at the end of Q3 2019.

Assuming satisfaction of all conditions to the Acquisition, Completion is expected to take place in 2H 2020.

IAG has agreed to pay Air Europa a break fee of €40 million in the event that the transaction fails to receive the necessary regulatory approvals and either party elects to terminate the transaction agreement.