Niki is one of the last assets to be sold out of the collapse of Air Berlin towards the end of 2017.
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Germany’s Lufthansa had previously made an offer for the holiday airline but this was withdrawn after the European Commission raised concerns over competition.
IAG beat interest from other potential bidders – including Niki’s former owner and Formula One champion Niki Lauda – with a €20mln bid to acquire the carrier and up to 15 Airbus A320 single-aisle aircraft, as well as a portfolio of landing slots across Europe.
On top of that, IAG said it would inject €16.5mln to provide Niki with liquidity.
The new company – which will be a subsidiary of IAG’s Vueling – which will house the assets, plans to employ around 740 former Niki employees to run the operation.
“NIKI was the most financially viable part of Air Berlin and its focus on leisure travel means it's a great fit with Vueling,” said IAG boss Willie Walsh.
“This deal will enable Vueling to increase its presence in Austria, Germany and Switzerland and provide the region's consumers with more choice of low cost air travel.”