Iberia and Air Europa will Negotiate

Iberia‘s purchase of Air Europa will undergo its umpteenth reconversion. International Airlines Group (IAG), the parent company of the former flag carrier, sent a statement to the CNMV on Wednesday in which it assures that both parties are at an advanced stage of negotiations to terminate the purchase agreement.

In the note, signed by IAG’s chief financial officer, Stephen Gunning, both companies confirm that they will reverse the agreement they signed on November 4, 2019 and subsequently modified on January 20, 2021, for Iberia to acquire the all of Air Europa. A resounding statement that, in reality, hides thousands of nuances.

Because the purchase of Air Europa has not yet lived its last chapter.

Both parties have decided to break the original agreement because it was an obstacle for Brussels to approve the operation. The European Commission was going to pronounce shortly on the purchase and its impact on competition within the airline sector and, in principle, was going to impose draconian conditions that conditioned the commercial interest of the agreement.

That is why the two companies have decided to anticipate this resolution by negotiating the breaking of the original agreement. Iberia, with this decision, will agree to pay compensation of 75 million to the Globalia group company. Sources in the sector also assure that this amount will go to Air Europa’s balance sheet, which still has to return the 475 million of the rescue granted by the State Industrial Participation Society (SEPI).

Is the purchase ruled out? No. The same sources assure, in fact, that today the sale of Air Europa is closer than yesterday. What is clear is that the operation that can be closed in the future will no longer be the same as the one originally planned. One option being considered is for the State to enter the negotiations by converting the participative loan it granted to Air Europa into shares, which would allow the Administration to maintain a small stake in the airline and would alleviate the company’s debt in a certain sense. A debt that had become a stumbling block for the operation in recent weeks. But at the moment there is nothing closed about it.

In principle, the intention is that the new agreement will be closed during the month of January.

As published by ‘El Confidencial’ Iberia has a preferential option to resume talks with Air Europa when the pandemic is over. In the event that an agreement is finally reached, according to the aforementioned media, the 75 million would be discounted from the final price, now set at 500 million.

It is the last bullet left to an operation that ran into the coronavirus. The sale closed in November 2019, but only a few months later the pandemic broke out, forcing a rethinking of the acquisition. The pandemic was a gigantic blow to Air Europa, prompting Iberia to modify the initial terms. The price, for example, went from 1 billion to 500 million in a first renegotiation.

The airline of the Globalia group has suffered a great deterioration due to the mobility restrictions generated by Covid-19. As ABC has published, 75% of the bailout granted by SEPI was simply used for Air Europa to maintain its activity.

The operation continues to be strategic for Iberia as well as for Air Europa and the State. The purchase promised to create a giant in Barajas to turn the airport into a European hub capable of competing with Paris or Frankfurt.