• SEPI can become a shareholder in the airline of the Globalia group due to the participating credit granted in 2020
  • The operation is not ruled out and both parties will seek a new agreement in the coming weeks

Two years after their merger was announced, the tug of war between Iberia and Air Europa continues. And everything indicates that it will be delayed during the next year . With all eyes on the opinion of the European Commission on the operation, IAG announced yesterday that both companies are in an advanced stage of negotiations to terminate the agreement for the purchase.

In a statement sent to the National Securities Market Commission (CNMV) and signed by the financial director of IAG, Stephen Gunning, the company confirmed that it will reverse the pact that both parties signed on November 4, 2019 and that they modified partially a posteriori, on January 20

2021, for Iberia to acquire all of Air Europa. A resounding statement that, in reality, hides hundreds of nuances.

Because the purchase of Air Europa has not yet lived its last chapter . Both parties open the door to a new negotiation to save the operation (or part of it), despite breaking the original agreement, filled with clauses and signed at a time of economic boom. In practice, this agreement was an obstacle for Brussels to approve the operation. The European Commission was shortly to issue its binding report on the purchase of Air Europa and its impact on competition within the airline sector and, in principle, was going to impose draconian conditions that conditioned the commercial interest of the agreement.

That is why the two companies have decided to anticipate this resolution, opening a negotiation to break the original agreement. Iberia, by virtue of this decision, will agree to pay compensation of 75 million to the Globalia group company, almost double the amount originally agreed, 40 million. Sources in the sector also assure that this amount will go to Air Europa’s balance sheet, which still has to return the 475 million of the ransom granted by the State Society for Industrial Participations (SEPI) at the end of 2020. A bottle of oxygen for the company .

Does this mean that the purchase is ruled out? No. The same sources assure, in fact, that today it is closer than on Tuesday. In recent weeks Iberia had been pessimistic – in public and in private – regarding the solution to the acquisition. The purchase not only depended on the Brussels verdict, but also on the two companies reaching a final agreement on the price and the Government accepting a restructuring of the debt owed by the airline of the Globalia group to the Administration.

New structure

All this has generated a breeding ground that has materialized in the rupture of the agreement signed in 2019. A pact that had already been modified, because Iberia and Air Europa agreed at the beginning of the year to reduce the operation by 500 million. Now the question is whether both parties will reach a new agreement shortly.

“We are not going to continue with the current structure, we are trying to have a new structure that allows this agreement to be carried out,” said IAG CEO Luis Gallego yesterday in an online conference. His words, however, did not calm investors and IAG fell 4.5% on the stock market, to 1.49 euros per share.

Guaranteed survival

What is clear is that the operation that is closed in the future will no longer be the same as the one originally planned. One option that is being considered, as this newspaper has learned, is for the State to enter into the negotiations by converting the participative loan worth 240 million euros that it granted to Air Europa into shares.

This would give the Administration a small stake in the airline and would somewhat alleviate Air Europa’s debt, an item that had become a stumbling block for the operation in recent weeks. In fact, the amount of the airline’s debt also gives a fundamental role in the closing of the operation to the banks. Market sources assure that the banks will not block the agreement, but insist that the terms of a possible restructuring will have to be agreed. At the moment there is nothing closed about it and all options are open.

The State was already playing a fundamental role in the purchase, which it considers strategic for Spain’s connectivity. On the one hand, he had lobbied Brussels for the merger to go ahead and had played an active role in the negotiations. Now his role seems even more necessary, because both companies have shown that they need a push from the Administration to close the operation. In principle, business sources assure that the intention is for the new agreement to be closed during the month of January. A new negotiation against the clock opens.

Yesterday, the Executive already gave signs of his role in the operation by ensuring that he will guarantee the operation of Air Europa and be receptive to “different options.” Sources from the Ministry of Economy explained that Air Europa is a “strategic company for Spain” due to its importance for the aviation and tourism sectors and stressed that they have given great “support” to the group from the first moment, through the rescue of the 475 million from SEPI and the loans guaranteed by the ICO granted to the company. In sum, both aid add up to more than 600 million.

Regarding the future of the company, from the Government they dropped that Air Europa will maintain its activities and operations . And “the different options that open up in this situation” will be analyzed. “In this difficult environment for the air transport sector, the Government will continue to work to strengthen business solvency, protecting adequate competition for the benefit of travelers and ensuring the proper use of public resources at all times,” they underline from Economy. In other words, despite the breakdown of the first agreement, all possibilities remain open for both companies.

Even that of the appearance of a third airline interested in Air Europa. As published by ‘El Confidencial’, Iberia keeps, after the breakdown of the 2019 pact, a preferential option to resume talks with Air Europa, the sale of which has generated interest in the market. In the event that an agreement is finally reached, according to the aforementioned media, the 75 million would be discounted from the final price, now set at 500 million euros.

It is the last bullet left to an operation that promised to create a national giant and ran into the coronavirus head-on. The sale closed in November 2019, but only a few months later the pandemic broke out, forcing a rethinking of the acquisition. The coronavirus was a gigantic blow for Air Europa, which led Iberia to modify the initial terms and demand a first reduction in the price, which went from one thousand to 500 million.

The truth is that the airline of the Globalia group has suffered a great deterioration due to the mobility restrictions generated by Covid-19. As ABC has published, 75% of the bailout granted by SEPI was simply used for Air Europa to maintain its activity.

Despite everything, the sale and purchase operation between the two airlines continues to be strategic for Iberia as well as for Air Europa and the State. The purchase promised to create a giant in Adolfo Suárez Madrid-Barajas to turn the airport into a European ‘hub’ that looks at both Latin America and Asia and is capable of competing with other connection centers on the Old Continent such as Paris or Frankfurt. Now, after weeks of certain pessimism and a trail of obstacles, the most relevant operation in recent years in the airline sector remains more in the air than ever.

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