Increased competition, rising costs of fuel and global economic issues have caused a hiccup in the expansion of global airline industry forcing companies in the sector to look for deals an d consolidation even as there has been failure of some high profile deals.
Keeping in line with this trend in the industry, Spain’s Air Europa has been agreed to be bough over by British Airways owner IAG. The companies announced on Monday.
A transaction agreement with Air Europa owner Globalia has been signed by it, said the London-listed International Airlines Group in a statement. The deal with is worth 1.0 billion euros ($1.2 billion) will help the IAG to enhance number of long-haul routes to Latin America and the Caribbean. It will also make the Madrid airport one of the major players in the global aviation industry.
IAG said in a statement that the deal will not only help the IAG’s existing Spanish divisions Iberia and Vueling to adequately complement with Air Europa, it would also help in elevating the Spanish capital into one of the four largest air hubs in Europe – which include Amsterdam, Frankfurt, London Heathrow and Paris Charles De Gaulle.
The IAG’s portfolio also includes Ireland’s Aer Lingus and low-cost European carrier Level, and this deal will further boost that portfolio. The deal is also a part of a larger process of consolidation in 2019 in which a number of airlines collapsed.
“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 IAG Chief Executive Willie Walsh.
“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.”
Both the companies expect to close the deal that is expected to deliver “significant” cost savings, sometime in the second half of next year. It has to be approved by regulators in a number of countries where both the airlines operate.
“This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs,” added Iberia boss Luis Gallego.
“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.”
Every year on an average, 12 million passengers to 69 destinations around the world are ferried by Air Europa and the destinations include the likes of the Caribbean, Latin America, North Africa and the United States.
About 113 million passengers to 268 destinations globally is carried by IAG every year. .
The British group regards itself as a key actor in the fast-moving industry, independent aviation analyst John Strickland told AFP. “IAG sees itself as a leading industry consolidator and the acquisition makes sense, barring any regulatory challenges, in the context of its Madrid hub position and its strong presence in Latin America,” Strickland said.
(Adapted from AlJazeera.com)