The International Consolidated Airlines Grp SA (LON: IAG) share price fell 5.56% after announcing the acquisition of Air Europa for €400 million. The consideration will be paid in three tranches, with the first tranche of €200 million, payable upon closing, which is expected to be in the next 18 months.
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IAG owns British Airways, Spain’s Iberia, Aer Lingus, Vueling, and BMI. The acquisition of Air Europa will expand the company’s portfolio, allowing it to expand its Madrid hub to compete with Europe’s largest hubs. The airline will be managed by Iberia but will be retained as an independent brand.
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Other significant benefits of the acquisition touted by IAG include enhancing its position in the highly lucrative Europe to Latin America and Caribbean market air routes. The company also expects to open new routes to Asia through the acquisition.
Furthermore, IAG expects to deliver significant benefits to Air Europa’s customers, including providing access to its Avios loyalty scheme and opening other network benefits. The acquisition will also open massive synergies for IAG, starting in 2026 to 2028, if the deal closes within the anticipated 18 months.
IAG reminded investors that it had an enviable track record of maximising the synergies of any acquisition based on its previous takeovers. Furthermore, the company will only pay the sum agreed upon for Air Europa once the deal closes in 18 months.
Therefore, the acquisition will not immediately impact IAG’s finances. After the closing, IAG will pay €100 million of the €200 million initial payment in cash, with the remaining €100 million being paid out in IAG shares. The remaining €200 million will be split into two payments of €100 million, each payable on the first and second anniversaries of the closing date.
Today’s decision comes after IAG converted its €100 million convertible loan to Globalia, Air Europa’s current owner, on 16 August 2022 for a 20% stake in Air Europa. The current deal is for acquiring the remaining 80% stake in the airline.
IAG does not expect the acquisition to impact its financial leverage ratios and has agreed to pay a €50 million break-up fee if it fails to complete the deal.
*This is not investment advice.
The British Airways (LON: IAG) share price.
The British Airways (LON: IAG) share price plunged 5.56% to trade at 156.47p, from Thursday’s closing price of 165.68p.
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.