International Consolidated Airlines Group PLC (LON:IAG) has signed an agreement with Spanish transport company Globalia Corporacion Empresarial to acquire Air Europa for €1bn, which the owner of British Airways is funding by external debt.
Air Europa is the third largest Spanish airline and at 31 December had €901mln gross assets and full-year pre-tax profits of €67mln, having generated €2.1bn revenue.
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IAG - which also owns Spanish carrier Iberia and Vueling - said that adding Air Europa to its portfolio would increase the importance of its Madrid hub, strengthen its network in South America and boost customer benefits by providing more flexibility and opportunities to earn and redeem miles.
The acquisition, expected to be completed in the last six months of 2020, would achieve full run-rate synergies and implementation costs phase-out by 2025, the group added.
The FTSE 100-listed firm said the transaction would boost underlying earnings 0.3 times higher than last reported in its quarterly results, a year after its completion.
Broker Liberum said in a note that while there is strong strategic logic, the transaction multiples are unclear and it is difficult to assess the true price paid.
Moreover, the approval by competition authorities is not seen as a formality and may require potential remedies such as behavioural restrictions.
"We believe that the EU may be minded to focus on EU-level market share, and while the combined slot share at Madrid is likely to still fall short of that of the other major groups at their respective hubs, clearance may not be straightforward," the broker said.
“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,” IAG’s chief executive Willie Walsh said in a statement.
“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,” he added.
In early morning trading, IAG shares were 1.9% higher at 552.80p having flown lower last week following weak third-quarter results.
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