British Airways buys competitor Air Europa for €1 billion

International Airlines Group, the parent company of British Airways and Spain’s Iberia, has agreed to buy Air Europa for €1bn, as it seeks to open up the South American transatlantic market and turn Madrid into Europe’s next hub airport.

This means that IAG will now operate a staggering 84% of seats sold domestically in Spain, with the ambitions of the Air Europa transaction to solidify Madrid as an IAG hub along with London Heathrow for British Airways.

The airline group has now expanded to seven brands after also recently acquiring low-cost carrier Level and Aer Lingus in Ireland.

The acquisition drew immediate fire from Michael O’Leary, Ryanair chief executive, who said: “I think it’s a good deal for IAG, for [its chief executive] Willie Walsh. I think it’s a bad deal from a competition point of view.”

IAG said in a statement to the stock exchange on Monday that it had agreed a cash deal for the Spanish airline, which offers domestic and international flights to 69 destinations with its fleet of 66 aircraft, including long-haul routes to the Americas.

The London-based group is betting the deal will establish Madrid as one of Europe’s premier airports, able to rival Amsterdam, Frankfurt, London Heathrow and Paris. It would also open up new routes to Latin America and the Caribbean market, and give IAG a 26 per cent share in the Europe to Latin American market, up from 19 per cent.

The acquisition comes after IAG was thwarted in a previous attempt to spread its wings into South America when the Chilean Supreme Court this year struck down a proposed joint venture with American Airlines and Chile-headquartered Latam.

The Air Europa brand will be retained initially, and be run as a standalone part of Iberia. Over time, Mr Walsh said he expected IAG to reduce the number of brand names operating in Spain. The deal, funded by external debt, is expected to be completed in the second half of 2020, subject to regulatory approval.