Friday, May 27

Iberia and the Government relax the deadlines to reach an agreement on Air Europa



Iberia Y Air Europa They decided in mid-December to break the merger agreement reached two years earlier. The airlines considered broken that agreement that had dragged on for so long, but they gave themselves until the end of January to find a plan B that allows them another type of alliance or integration that does not imply the total absorption of Air Europa. some conversations in which the government also has a leading role because the alternative operation will involve the entry of the State in the shareholding of Air Europa to guarantee its viability.

Iberia and Air Europa gave each other very little time to reach a new agreement, barely a month and a half since they announced the breakdown of the merger agreement. A tight deadline fueled by the haste of the owners of Air Europa -the group Globalia, controlled by the hidalgo family– because of the financial problems of the airline. Iberia showed its interest in continuing with the operation by paying a kind of advance of 75 million of the amount of a future operation, and with which it also guards its back in the event of the eventual appearance of competing offers for the total or partial purchase of Air Europa.

The talks in recent weeks have been intense and progress has been made towards an agreement, but the negotiations are tremendously complex and, with the Christmas holidays in between and with the difficulties in holding some meetings due to the worsening of the pandemic (and some positive among the negotiators), the parties assume that it is possible to reach the end of the term without a definitive agreement.

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Iberia, Air Europa and the Government continue to work with the aim of closing an agreement before the end of the month, but the three parties they are open to giving themselves more time to save the operation if necessary, as confirmed by several sources close to the talks. The first option for the airlines and for the Government – in the negotiations Moncloa, the Ministry of Economic Affairs and the Ministry of Transport– is to carry out an integration between Iberia and Air Europa, and lengthening the process for a few weeks will not be an impediment.

The companies and the Government carry out very complex negotiations and with many fronts to agree on: the corporate structure of the airline resulting from the operation; the present and potential valuation of Air Europa; the exact shareholding distribution between Iberia, the Government and the Hidalgo family, which would be maintained with a minority stake; ensure a sufficient capitalization of the company… All aspects that several sources involved underline that they are still not closed and that they change practically with each meeting.

The state as a shareholder

The purchase of 100% of Air Europa by Iberia to add it as one more brand of the IAG group (the holding company that, in addition to Iberia, includes Vueling, British Airways, Aer Lingus y Level) is discarded. The crisis in the airline sector caused by the pandemic, the extreme financial situation that drowns Air Europa and the more than foreseeable veto of the European Commission to the operation for reasons of competition put an end to the merger to create a national giant.

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The stoppage of the merger between the two companies pushes the Government to enter the shareholding of Air Europa to guarantee its viability. The State has already rescued Air Europa with two loans amounting to 475 million euros from the SEPI fund for strategic companies. It is an ordinary loan of 235 million to be repaid before 2026 and another participating loan for the remaining 240 million. The failure of the integration forces the Executive to execute this last loan and turn it into a direct shareholding in Air Europa. A movement that the Vice President and Minister for Economic Affairs, Nadia Calviño, has publicly admitted as possible.

in negotiations Government, Iberia and Globalia They try to agree on the exchange equation to establish the shareholding weight of each of them in the airline. The shareholding distribution has not yet been fixed and, according to various sources, the only thing that is clear is that the State and Iberia will have similar participations and that none of them will exceed 50% (if Iberia were to exceed it, it would have to consolidate the losses of its rival in its results and, if the State did so, Air Europa would become a public company for all purposes). The Hidalgo family will continue in the capital of Air Europa, but with a very minority package.

price collapse

IAG and Globalia last month terminated the purchase agreement reached at the end of 2019 (which involved the absorption of the airline for 1,000 million euros), which was modified a year ago (to lower the amount to 500 million). In the new operation, the value of Air Europa, drowned by debt and the stoppage of activity, will be even lower.

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Both Iberia and Air Europa continue to defend the strategic sense of an integration, of one type or another, of both companies to reinforce Madrid airport as a great European hub (flight interconnection center), to defend tourism in Spain and to strengthen IAG’s leadership on routes between Europe and Latin America, the most profitable business of both airlines.

The Government emphasizes that it has already made clear its intentions to support Air Europa from the first moment of the crisis caused by the pandemic by lending its support, both through the SEPI Strategic Companies Solvency Support Fund with 475 million as with loans for another 140 million through the Official Credit Institute (ICO).


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