British Airways owner IAG pays €1bn for Air Europa
British Airways’ parent company, IAG, has reached a €1bn deal to acquire rival Air Europa in a bid to bolster its presence in the South Atlantic.
The deal means IAG can turn its Madrid hub into “a true rival” to the four European hubs of Amsterdam, Frankfurt, Heathrow and Paris Charles De Gaulle airports, the company said.
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“Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership,” IAG boss Willie Walsh said.
“IAG has a strong track record of successful acquisitions, most recently with the acquisition of Aer Lingus in 2015 and we are convinced Air Europa presents a strong strategic fit for the group.”
Air Europa, one of Spain’s biggest private airlines, flies to Europem South America, the US, the Caribbean and North Africa. It generated an operating profit of €100m in 2018 on revenue of €2.1bn carrying 11.8m pasengers.
IAG believes the purchase can improve its South Atlantic operations, with the brand being run as a “standalone profit centre” within its Iberia unit.
Luis Gallego, Chief Executive of Iberia, said:
“This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs,” Iberia chief executive Luis Gellego said.
“Following this agreement, Madrid will be able to compete with other European hubs on equal terms with a better position on Europe to Latin America routes and the possibility to become a gateway between Asia and Latin America.”
The Share Centre’s investment research analyst, Joe Healey, called the acqusiition a “brave move in difficult market conditions” with IAG’s share price under pressure.
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“However, from a strategical standpoint it makes sense taking advantage of the group’s strong balance sheet,” Healey added.
“With an attractive relative valuation in comparison to competitors EasyJjet and Ryanair, a solid dividend yield and the potential for growth we continue to view IAG as a ‘Buy’ for investors willing to accept a higher level of risk.”
IAG’s share price climbed 1.36 per cent to 550p on the deal.