September 29, 2020

IAG renegotiates the purchase of Air Europa and gives the green light to a capital increase of 2,750 million




The President of International Airlines Group (IAG), Antonio Vazquez, has recognized this Tuesday that it expects to complete the purchase of Air Europa “in the second half of this year or at the beginning of 2021”, once the terms of the agreement have been renegotiated and that they will mean a reduction in the initial price of 1,000 million euros .

These statements were made during the group’s shareholders’ meeting -which includes British Airways, Iberia, Air Lingus, Vueling and Level- and in which Vázque has informed that they continue to negotiate the “Potential restructuring of the agreement” reached last November, in a pre-COVID scenario, “including the price and financing needs of Air Europa’s business.”

This meeting has meant the departure of Willie Walsh as CEO of the group -after 42 years in the world of aviation- and its replacement by Luis Gallego, until today president of Iberia. The change was announced for March but the outbreak of the pandemic led to postpone it.

New agreement to buy Air Europa

Things have changed a lot since November, when IAG agreed with the group chaired by Juan José Hidalgo the purchase of Air Europa for one billion, but the crisis that the airlines are going through, the biggest in their history, has modified these valuations downwards The market places the price around 500 million.

In parallel, Globalia -owner of Air Europa- has requested 400 million euros fund managed by Sepi for the recapitalization of strategic companies those that the pandemic has left in a situation of weakness that threatens their future viability.

Vázquez has come out in defense of this movement, since it continues to serve for strengthen the Madrid hub (traffic distribution center), especially due to the connection with Latin America, will be positive for consumers and will benefit the tourism sector and the Spanish economy as a whole.

In your opinion, It is too early to define whether, once the operation is closed, the Air Europa brand will be maintained, routes and fleet, issues that will be discussed with Globalia’s management team based on the market situation and prospects.

Capital increase

Another milestone of the shareholders’ meeting has been lto approval of the capital increase for 2,750 million euros that this Tuesday, which will not go to finance the purchase of Air Europa. That acquisition, he added, is an Iberia operation, not the group. The capital increase, Vázquez explained, is the best way to ensure that IAG can emerge from this crisis with more “resilience, flexibility and capacity” to make the right operational and strategic decisions.

The largest shareholder of the company, Qatar Airways (25.1%), has supported the operation -which will be insured by Goldman Sachs, Morgan Stanley and Deutsche Bank- and to which the members of the council have also agreed to attend IAG management and management team.

This crisis has led IAG to harvest in the second quarter the biggest quarterly losses in its history, consequence of the falls of the traffic in more than 98%. Forecasts suggest that recovery will not occur before the end of 2023 or 2024.

Lower costs

Willie Walsh, the outgoing CEO has told the board that to deal with the crisis the group is focused on reducing costs (they have gone from 440 million euros a week in the first quarter to 205 million in the second), in improving liquidity and in ensure that each of the companies is the right size and structure for the new post-covid operating environment.

Cost containment has been made possible by government employment support programs in the UK and Spain, salary reductions and the elimination of non-essential expenses. In addition, the group has halved capital expenditures for the next three years, which brings a savings of 7,000 million; the reception of 68 new aircraft was postponed, and the Boeing 747 and Airbus A340-600 models from British Airways and Iberia, respectively, were withdrawn.

Level, operations center in Barcelona

It has also canceled Level’s short haul operations and closed its bases in Vienna and Amsterdam, while the subsidiary of this company in France, OpenSkies, studies the closure of the long distance base in Paris. From now on, Level will focus on its long distance operations from Barcelona.

Walsh has called on governments to take an approach «More constructive» to face the coronavirus, replacing quarantines with tests at airports and the extension of safe international air corridors between Europe and the regions of the United States with less risk.

Javier Sánche-Prieto, President of Iberia

To Luis Gallego will replace him in the presidency of Iberia Javier Sánchez-Prieto, until now Chairman and CEO of Vueling, who is replaced by Marco Sansavini (Iberia’s commercial director).

At the time, Antonio Vázquez will leave his function as president of IAG at the beginning of 2021 after 10 years at the helm, in line with the recommendation of the UK Corporate Governance Code. He will be replaced by Javier Ferrán, which comes from the Diageo distribution group.

Coinciding with the Board, the risk rating agency Moody’s has downgraded the rating one more notch IAG and British Airways. At the end of May she had placed it on junk bond and now it goes down one more notch

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