IAG International Airlines Group has announced it will acquire Air Europa (UX, Palma de Mallorca) from Spanish leisure group Globalia for a cash consideration of EUR1 billion euro (USD1.1 billion). The pan-European carrier conglomerate said in a stock market filing on Monday, November 4, that the acquisition would be carried out via its wholly-owned Iberia (IB, Madrid Barajas) subsidiary.

"This is of strategic importance for the Madrid Barajas hub, which in recent years has lagged behind other European hubs. Following this agreement, Madrid will be able to compete with other European hubs on equal terms with a better position on Europe to Latin America routes and the possibility to become a gateway between Asia and Latin America," Luis Gallego, Chief Executive of Iberia, said.

Founded in 1984, Air Europa specialises in scheduled passenger flights connecting Spain with Latin America, the United States, the Caribbean, and North Africa. It also operates domestic Spanish and regional European services using a mainline fleet of nine A330-200s, two A330-300s, eight B787-8s, five B787-9s, eighteen B737-800s, and five ATR72s (one -200 and four -500s) wet-leased from Swiftair. Its Aeronova production carrier, which goes by the brand Air Europa Express, operates six ATR72-500s, two B737-800s, and eleven E195s. It maintains bases at Madrid Barajas, Palma de Mallorca, Tenerife Norte, and Tenerife Sur.

According to IAG, Air Europa's integration into the consortium will increase the role of Madrid as a key European hub rivalling those of Amsterdam Schiphol, Frankfurt Int'l, London Heathrow, and Paris CDG. According to the ch-aviation capacities module, IAG, through its Iberia, Vueling Airlines, British Airways, and Aer Lingus subsidiaries, operates 2,543 departures a week from Madrid Barajas accounting for 67% of its overall traffic. The addition of Air Europa, the airport's second most prominent carrier with 657 weekly departures, would drive that figure up to 84%.

IAG added that Air Europa's extensive Latin America network would also unlock further network growth opportunities and re-establish IAG's South Atlantic leadership.

In terms of operations, IAG said the Air Europa brand would be retained, at least initially, while the company itself would be a standalone profit centre within Iberia run by Iberia CEO Luis Gallego.

Integration into IAG is also expected to unlock numerous cost-efficiencies and economies of scale for Air Europa itself. IAG, in turn, expects to see the following benefits by 2025:

  • The addition of reciprocal intra-group codeshares across all connecting gateways;
  • Adjusted flight timings to maximise connectivity through the Madrid hub;
  • Aligned commercial policies and integrated sales forces in home markets.

It also expects Air Europa to be integrated into its existing IAG joint businesses and the Avios currency for loyalty by 2025.

Assuming it meets all closing conditions and secures all requisite regulatory approvals, IAG expects the sale to close during the second semester of 2020.

"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."