IAG Drops Plans to Acquire Air Europa

IAG, the parent company of British Airways and Iberia, announced Thursday that it was terminating its proposed takeover of Air Europa. 

The company had offered concessions to European Union regulators in June after they warned that the acquisition could be anticompetitive. Some of these concessions included ceding 52% of Air Europa’s flights to its rivals. 

Air Europa is the third-largest carrier in Spain with a hub in Madrid. IAG already had a 20% stake in the carrier, but the buyout could have given IAG the opportunity to fly more long-haul routes between Madrid and Asia. 

The proposed takeover fell through because regulators seemed poised to block it, according to Reuters. 

IAG said Thursday that its Board of Directors concluded that “in the current regulatory environment, it would not be in the best interests of shareholders to continue with the transaction.” The company is paying €50 million ($54 million) termination fee, but will still retain its 20% stake in Air Europa.

EU Regulators Are Not Convinced on Airline Consolidation

European regulators have been skeptical about airline mergers. Airline executives in the region have been advocating for more consolidation, arguing it would help smaller airlines scale and lead to fewer government bailouts. 

At an industry conference in March, Ryanair CEO Michael O’Leary said the European Commission should “get on with it and approve these mergers because, ultimately, it is the way forward in Europe,” according to a report from Reuters. 

O’Leary tried to acquire Aer Lingus (now owned by IAG) three separate times, but EU regulators rejected each bid, arguing it would reduce choices for consumers and drive fares up. 

However, in July, Lufthansa received approval from regulators to acquire a 41% stake in ITA Airways, the Italian flag carrier that had been struggling financially. The European Commission said ITA’s long-term viability as a carrier “would have remained highly uncertain absent the transaction.”

IAG CEO Luis Gallego would continue to bolster its presence in Madrid. 

“We will continue to develop our presence in Madrid so that the hub can develop as a rival to Europe’s largest hub airports,” he said.

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