IAG agrees to purchase Air Europa for half of what it offered 2019

On Tuesday, International Airlines Group (IAG) finalized an amendment to the original purchase agreement for Air Europa.

IAG-owned Iberia has been given the go-ahead to acquire Air Europa for €500 million -- half of the 2019 equity value of €1 billion. IAG also detailed that it will not make the final payment until six years after the acquisition.

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However, before the sale can officially go ahead, Iberia must finalize negotiations with the Sociedad Estatal de Participaciones Industriales (SEPI) -- a Spanish state-owned sovereign wealth fund. The negotiations will be centered around the non-financial terms associated with the financial support that SEPI provided to Air Europe throughout the turbulent year of 2020.

IAG expects the completion of the deal to take place in the latter half of 2021, around the time when the recovery of air travel is hoped to be well underway.

"Both Iberia and IAG are demonstrating their resilience to face the deepest crisis in aviation's history," IAG CEO Luis Gallego said in a statement. "Being part of a large group is the best guarantee to overcome current market challenges which will also benefit Air Europa once the transaction is completed. I am pleased that we have reached agreement with Globalia [the owners of Air Europa] to defer payment until well into the expected recovery in air travel following the end of the pandemic and when we expect to be realizing significant synergies resulting from the transaction."

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IAG hopes that with the incorporation of Air Europa, it will bolster its presence at Madrid Barajas Airport (MAD). With the expanded route network as a result of the acquisition, IAG hopes that MAD can become a competitor with other European hub airports like Amsterdam, Frankfurt and Paris.

"This transaction makes perfect strategic sense to reinforce Madrid's hub competitiveness on a global stage," said Iberia CEO Javier Sánchez-Prieto. "It will benefit consumers and Air Europa's incorporation into the Iberia Group will improve the company's viability benefitting both Iberia and Air Europa employees."

Additionally, with Air Europa as part of the IAG umbrella, passengers will have better opportunities to earn and redeem miles. Iberia uses Avios as its currency — the same that fellow IAG airlines British Airways and Aer Lingus use.

Related: How to transfer your Avios between British Airways, Iberia and Aer Lingus accounts

Air Europa is Spain's third-largest airline after Iberia and Vueling, and is based out of Palma on the Balearic island of Mallorca. Currently, Air Europa is a member of SkyTeam, though it will likely switch to rival airline alliance Oneworld with IAG-owned airlines such as British Airways and Iberia.

Related: Surprise and (mostly) delight: Across the Atlantic in business class on Air Europa's 787-9