IAG in talks with Globalia over cancellation of Air Europa deal

British Airways and Iberia owner IAG said on Wednesday that it was in advanced talks to cancel the acquisition of Air Europa from Spain’s Globalia.

IAG agreed in 2019 to buy rival Air Europa for €1bn, but the price was reduced earlier this year to €500m after the travel sector took a hit from the pandemic.

The company said a further update will be made "in the future, as appropriate".

Last month, the UK’s competition regulator said it was conducting a probe into IAG's planned purchase of Air Europa to see if it would harm competition in Britain.

At 1215 GMT, the shares were down 1.1% at 131.04p.

Laura Hoy, equity analyst at Hargreaves Lansdown, said "the bad news just keeps coming" for IAG.

"News that the group will abandon plans to acquire Spain’s Air Europa is disappointing, though not completely unexpected. The deal was under scrutiny from EU Regulators who said the combination of IAG Spanish subsidiary Iberia and Air Europa created anti-competition concerns.

"Plus, the pandemic’s taken a toll on IAG’s operations. Bringing Air Europa and the significant debt that came with it under its umbrella would have put further strain on the group’s balance sheet. With concerns about new Covid variants looming over the travel industry at present, news that the deal is off the table isn’t all bad.

"IAG had called the acquisition a brave decision but one it was prepared to make to see Madrid to compete against other major European hubs and serve destinations around the world. Right now caution not bravery seems the game plan so the shopping list is being folded up, as the airline battens down the hatches to deal with the Omicron storm."

How said the airline industry is still ripe for consolidation as the pandemic separates weaker players from the herd.

"But without a clear path toward normalcy in the sector, it could be some time before anyone’s ready to make a bold move."