Thursday, March 4

The Air Europa rescue ‘skips’ the Brussels filter, but its purchase by Iberia will need authorization

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Following the approval of the Council of Ministers of the rescue of 475 million to Air Europa, the future of the airline clears a little more if possible if we take into account that the European Commission filter should not pass it, as was originally planned for bailouts of more than 250 million euros.

Brussels does not have to authorize it, since it already gave the green light on July 31 to the Spanish fund of 10,000 million to help companies in trouble. Now it is up to the Spanish Government to verify that in the specific case of Air Europa they apply the conditions and safeguards provided for the beneficiaries of this fund and that were approved by the Commission.

“It is the Member States that must ensure that the conditions and safeguards of the regimes approved by the Commission are met and, in general, that the EU rules on State aid are respected,” according to an explanation to Invertia. spokesperson for the European Commission.

In cases where aid exceeds the threshold of 250 million euros, they should be notified to the Commission, as happened with Air France KLM or Lufthansa. It is true that the rescue of Air Europa amounts to 475 million, but distributed in a participative loan of 240 million and in another ordinary of 235 million. Two loans that must be repaid in six years.

When dealing with subsidized loans and no direct capital injection, should not be reported, per CE requirements. It would only apply if these loans end up becoming capital of the company. In addition, experts consulted by this means assure that the Government “chopped up” the rescue also with this intention.

Although the Spanish Government does not enter the capital of the airline (as happened with Lufthansa), the level of intervention in strategic decisions is high. The Executive may authorize the merger operations, appoint two members to the airline’s board, agree on the appointment of the CEO and, in the event of dismissals being considered, will also have a voice and vote.

Regardless of it, Ryanair has already announced that it will report to the community authorities this state aid by considering it “illegal” and “discriminatory”. Whoever was a former ally does not see with good eyes that the Spanish Government, through the sepi, has come to the rescue of Juan José Hidalgo’s company, considering it a competitive disadvantage.

And the purchase?

Parallel, IAG has been preparing the purchase of Air Europa for a year. Before the arrival of the Covid, Iberia was producing the definitive sending of documentation to the competent authorities with the exchange of information, queries and clarifications. Process that, according to Iberia, is still underway, although “its course is slow”. In fact, the operation has not been definitively notified.

Iberia acknowledges that the operation is expected to close in the first half of 2021 and not at the end of this year as planned. Not only for sending documentation, but for the negotiation on the purchase price since IAG is not willing to disburse the 1,000 million euros agreed in November 2019.

The president of Iberia, Luis Gallego, and the CEO of Globalia, Javier Hidalgo, sealing the agreement to purchase Air Europa by Iberia.

In this part, in addition, many aspects come into play. It must be taken into account that the purchase of Air Europa by IAG will create an air giant in Spain with six of its airlines monopolizing more than a third of national traffic, which in 2019 reached 275 million passengers, according to data from Aena.

Precisely because it involves the control of more than a third of national traffic, these data will be analyzed by the European Commission taking into account Council Regulation (EC) No. 139/2004, of January 20, 2004, on the control of concentrations between companies.

Route overlap

In most mergers or purchases at this level, the European Commission assesses the effect that possible overlaps would have on each route, among other issues. Iberia and Air Europa overlap on some 50 national and international routes. In addition, the purchase would allow IAG to control 72% of the national routes and gain great power in the Madrid hub.

It should be remembered that Ryanair tried up to two times to buy Aer Lingus in an operation with many similarities. The first time, the European Commission determined that the union of the two leading airlines in the Irish market would increase prices. The second attempt was rejected to avoid a situation of absolute monopoly on the routes in Ireland.

However, to pave your way, IAG signed an agreement in March with Volotea with a view to the agreement that, within the framework of the acquisition of Air Europa by Iberia, Volotea would start operating certain routes and slots of these companies.

In short, the most immediate future of Air Europa is framed by the evolution of the Covid and the authorization of the IAG purchase operation after negotiating the price, necessary to refloat its business and be able to return the loans to the Government within the established period.

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