After agreeing to purchase Air Europa prior to the COVID-19 pandemic, International Airlines Group (IAG) has managed to significantly reduce the price it will pay for the Spanish carrier.

Under the original agreement with Globalia announced in November 2019, IAG’s subsidiary, Iberia, was to acquire rival Air Europa for €1 billion ($1.6 billion).

However, IAG announced last week that both parties have agreed to a reduced purchase price of €500 million ($784.4 million), with payment deferred until the sixth anniversary of the acquisition’s completion.

The revised terms in the amendment agreement are conditional on negotiations between Iberia and Sociedad Estatal de Participaciones Industriales (SEPI) regarding the non-financial terms associated with the financial support provided by SEPI to Air Europa during 2020.

Assuming the revised agreement’s conditions are met and it is approved by the European Commission, IAG expects the acquisition to be completed in the second half of 2021.

“Both Iberia and IAG are demonstrating their resilience to face the deepest crisis in aviation’s history,” IAG chief executive Luis Gallego said.

“Being part of a large group is the best guarantee to overcome current market challenges, which will also benefit Air Europa once the transaction is completed.

“I am pleased that we have reached [an] agreement with Globalia to defer payment until well into the expected recovery in air travel following the end of the pandemic, and when we expect to be realising significant synergies resulting from the transaction.”

Iberia CEO Javier Sánchez-Prieto said: “This transaction makes perfect strategic sense to reinforce Madrid’s hub competitiveness on a global stage.

“It will benefit consumers and Air Europa’s incorporation into the Iberia Group will improve the company’s viability benefitting both Iberia and Air Europa employees.”

Javier Hidalgo, CEO at Globalia, said: “This transaction is a great effort by all of us and is the best way to recover tourism, transport in Spain and the Madrid hub.”

Air Europa operates scheduled domestic and international flights on European and long-haul routes to Latin America, the United States of America, the Caribbean and North Africa.

The airline carried 13.1 million passengers in 2019 before seeing passenger volume declining by roughly 70 per cent in 2020.

Air Europa currently has an operating fleet of 52 aircraft compared to 68 at the end of 2019. All aircraft except one are on an operating lease.

Featured image source: iStock/herraez