British Airways owner IAG moves to terminate takeover agreement with Air Europa

IAG, the aviation giant that owns British Airways, Iberia and Aer Lingus, has moved to back-track on its takeover of Spanish airline Air Europa, bringing down shares by 4.59 per cent to 126.48p.

The BA owner this morning said “discussions are at an advanced stage to terminate the agreement signed on 4 November 2019” whereby Iberia would buy all of Air Europa’s issued share capital.

The takeover – which would have helped IAG expand into the Latin American market – had been hampered not only by the ailing state of aviation in the Covid-19 pandemic but also by competition concerns.

In November, the UK Competition and Markets Authority (CMA) launched an inquiry into the £420m merger, to see if it could lead to “a substantial lessening of competition” in the UK market.

IAG first announced plans to buy the Spanish airline for £840m although the price was slashed after the Covid-19 pandemic knocked the entire sector by grounding planes. It has now been scrapped entirely.

Bosses had already offered concessions to EU antitrust bodies over the deal, although the details have not been made public.

A European Commission investigation was launched in June over concerns that the plans would reduce competition on Spanish domestic routes and international routes to and from the country.

According to Hargreaves Lansdown’s equity analyst Laura Hoy, IAG’s decision was not completely unexpected.

“Bringing Air Europa and the significant debt that came with it under its umbrella would have put further strain on the group’s balance sheet,” she said. “With concerns about new covid variants looming over the travel industry at present, news that the deal is off the table isn’t all bad.

“Right now caution not bravery seems the game plan so the shopping list is being folded up, as the airline battens down the hatches to deal with the Omicron storm.”

Buckinghamshire New University’s professor of aviation management David Warnock-Smith believes that, while atypical, current circumstances pushed IAG to pull out.

“With the more recent onset of the Omicron variant of Coronavirus, the chances of a quick rebound on international markets has suffered a further set back and as such the takeover’s business case has weakened further, prompting IAG to pull out of its bid and focus resources that would have been dedicated to dealing with regulatory requirements, on dealing with the pandemic response instead in addition to focussing on an alternative way for the two organisations to co-operate in the future, which may fall short of a full takeover scenario,” he said.