The Spanish government is stepping in to push forward stalled negotiations to finalize the proposed Air Europa acquisition by the International Airlines Group (IAG), the parent company of Iberia and British Airways.

The proposed merger would allow IAG to merge Air Europa with Spani’s flag carrier, Iberia. That would give Iberia a similar market share at Madrid-Barajas Airport as its major European competitors do at their home airports with the goal of giving it the needed scale to turn Madrid into emerge a leading European and international hub.

Spain’s Prime Minister Steps In To Promote Merger

Spanish newspaper El Confidencial is reporting that the Prime Minister’s office hosted a meeting between the parties in an attempt to finalize negotiations for the proposed takeover.

Iberia was represented by its president, Javier Sánchez-Prieto, while Air Europa was represented by its CEO, Nuño de la Rosa, at the meeting led by Manuel de la Rocha, Spain’s Secretary General for Economic Affairs and G20. The Prime Minister of Spain, Pedro Sánchez, ordered the meeting after speaking separately with leadership of both companies.

The Spanish government has long shown support for the proposed merger that would allow consolidate and secure Spain’s aviation industry and allow Madrid to emerge as a leading connecting hub in Europe. The government aims to coordinate a new agreement between IAG and Globalia, the parent company of Air Europa, before the exclusivity period expires on March 31st.

The Spanish government sees the potential merger as a crucial step in the development of Madrid-Barajas Airport as a European and international hub. Having one carrier consolidate traffic at the airport would allow it to build scale that supports expanded connecting destinations across Latin America, the United States, the Middle East, and Asia.

“The merger would have a positive impact on the development of the Madrid-Barajas Airport as a European and international hub, facilitating connections between destinations in Latin America, the United States, the Middle East, and Asia.”

Manuel de la Rocha, Secretary General for Economic Affairs and G20 of Spain

Background of Proposed IAG Takeover of Air Europa

IAG, the parent company of Iberia, has had its sights set on Air Europa since 2019, when it first put forward a €1 billion ($1.1 billion) bid for the airline. However, the bid fell through during the pandemic, setting IAG back €75 million.

The pandemic was a big factor in the original deal falling through. IAG reduced its initial valuation of Air Europa to just €400 million to purchase a roughly 50% stake in the company, an offer refused by Air Europa and its parent company, Globalia. In March 2022, IAG loaned Air Europa €100 million ($108.5mn) with a year of exclusivity to broker an agreement. IAG subsequently converted the loan into a 20% stake in Air Europa, making the group the second-largest shareholder in the airline.

While Air Europa has not indicated its willingness to budge on its desired valuation, the government’s intervention is significant. The government’s Air Europa’s parent company Globalia is the Spanish company to have received the most government aid during Covid-19. El Confidencial notes that Spanish government support for Air Europa’s parent company totals over €1.5 billion. With its strong ties to the government and level of public support, the government’s interest in finalizing the acquisition is something that Globalia and its ownership are likely to take seriously.

The acquisition would be a loss for the SkyTeam alliance. While Air Europa is currently a member, IAG members are mostly members of the Oneworld alliance meaning its SkyTeam membership is unlikely to survive an Iberia merger.

Bottom line

The Spanish government is intervening in the long-stalled negotiations between International Airlines Group (IAG) and Air Europa to push forward the acquisition. The latest move is a brokered meeting hosted by the Prime Minister’s office between Iberia President, Javier Sánchez-Prieto, and Air Europa CEO, Nuño de la Rosa in an attempt to force a resolution to negotiations and finalize the acquisition. The prime minister is making the deal a priority to ensure that Air Europa stays in Spanish hands and develop Madrid-Barajas Airport as a European and international hub.

We’ll be paying close attention to see if the government’s intervention is successful ahead of the March 31 expiration of the exclusivity period for negotiations between Globalia and IAG.