International Consolidated Airlines Group SA (LSE:IAG) (IAG) has announced a deal to acquire 80% of the issued share capital of Air Europa from Globalia for an eye-watering sum of €400mln.
The move is expected to position the British Airways (BA) owner to benefit from lucrative growth opportunities in the Latin America and Caribbean market while providing greater connectivity to Asia.
It follows IAG's decision last year to convert a €100mln unsecured loan to Globalia into a 20% equity stake in Air Europa.
IAG's Madrid hub is set to be transformed by the acquisition, with the company looking to compete with some of Europe's largest airports.
The move will also enhance IAG's position in the highly attractive Europe to Latin America and Caribbean market, and open up exciting new routes to Asia.
According to the company, the deal is set to provide significant customer benefits, unlocking further network opportunities and providing access to IAG's Avios loyalty scheme.
Furthermore, the acquisition is set to generate substantial synergies, with potential cost savings in line with those of previous IAG acquisitions.
The Air Europa brand will be retained under the management of Iberia, and the deal is expected to close in around 18 months pending regulatory approvals.
Whilst IAG anticipates the deal will have a limited impact on its financial leverage ratios, the company plans to provide further strategic and financial information at a Capital Markets Day later this year.
In a statement, IAG's CEO, Luis Gallego, said: "This agreement will enable IAG's Madrid hub to compete on an equal footing with other European hubs and consolidate its position in the South Atlantic.
“Madrid is the main gateway between Latin America and Europe, and there are opportunities to expand its network, providing significant benefits to our customers, employees, and shareholders."
The deal was announced alongside annual results, which showed that IAG's airlines, including BA and Iberia, returned to the black in 2022 after suffering during and in the aftermath of the Covid pandemic.
It made an operating profit of €1.26bn in the 12 months to 31 December 2022 on revenues of €23.1bn. The group, which has long been linked with a bid for easyJet, is sitting on a cash pile of €9.6bn.
"2022 was a year of strong recovery, driven by sustained leisure demand and markets reopening,” said CEO Gallego.
“At this point of the year, we continue to see robust forward bookings, while also remaining conscious of global macro-economic uncertainties.
“We are transforming our businesses, to return IAG to pre-Covid levels of profit within the next few years, through major initiatives to improve customer experience and operational performance.”