Iberia and Air Europa have signed an armistice to continue negotiating their integration. International Airlines Group (IAG) and Globalia have reached an agreement whereby the Spanish-British group to which Iberia belongs will grant the Hidalgo family holding company in which the airline is included an unsecured loan of 100 million euros over seven years.
IAG will have the option to convert the loan into a stake of up to 20% in the capital of Air Europa if the airline does not return it at maturity, according to the statement sent by the group this Thursday to the National Securities Market Commission ( CNMV). In return, Iberia secures a one-year period of exclusivity to negotiate the purchase of the airline originally agreed in November 2019 for 1,000 million euros, but whose materialization was frustrated by the outbreak of the coronavirus pandemic in March 2020 .
The pact between the two groups also includes IAG’s right to match any offer from third parties received by Air Europa, thus shielding itself from the interest expressed by other competitors and, in particular, Air France-KLM.
The agreement is conditional on Globalia receiving the approval of the syndicated banks that facilitated the loan contract partially guaranteed by the Official Credit Institute (ICO) and the State Industrial Participation Company (SEPI). Specifically, the Spanish Government injected 615 million euros into the Globalia airline through a loan guaranteed by the ICO for an amount of 140 million and a rescue of 475 million authorized by SEPI charged to the aid fund for strategic companies due to the effects of covid-19.
More than two years of negotiations
The granting of this loan unblocks the negotiations between both groups, which were interrupted at the end of January. The president of Iberia, Javier Sánchez-Prieto, already announced shortly after that this break in the talks was due to the fact that the president of Air Europa, Juan José Hidalgo, had requested an immediate injection of capital, which in negotiation sources amounted to 100 million euros.
He knows in depth all the sides of the coin.
The purchase of Air Europa by Iberia has been in the wings for more than two years. After the signing of the original agreement for 1,000 million euros in November 2019, Iberia requested a renegotiation due to the outbreak of the pandemic and announced at the beginning of 2021 that it was only willing to put 500 million on the table. The offer did not bear fruit and both parties gave themselves until January 31, 2022 to reach another agreement, which they did not reach either.
The IAG and Air Europa agreement means valuing the company’s total at 500 million euros, the same that Iberia offered at the beginning of 2021. A very important detail because in the event that Air Europa cannot pay the 475 million of the loans SEPI convertibles, which expire in 2026, three years before the one now granted by IAG, the State could keep 95% of the company, leaving the Hidalgo family out of the capital.
The CEO of IAG, Luis Gallego, has highlighted that they remain convinced of “the strategic importance of this operation for the development and competitiveness of the hub from Madrid”. “This agreement will give us time to exclusively evaluate alternative structures that may be of interest to both companies and that offer significant benefits for their clients, employees and shareholders,” the manager said in a statement.