British Airways' parent company, IAG, called off its planned acquisition of Spain's Air Europa on Thursday, pointing to worries about the regulatory climate. This move comes less than two months after IAG proposed adjustments to satisfy competition authorities to greenlight the transaction. In June, IAG had already made concessions to the European Commission following warnings from the competition watchdog that the merger could limit competition. Sources close to the situation indicated that EU antitrust officials were ready to veto the deal after IAG refused to offer more concessions to alleviate their concerns.
"It's not viable for our investors, which is why we're ending this deal," stated IAG CEO Luis Gallego during a press briefing on Thursday. Gallego also revealed that the European Commission deemed the group's concessions insufficient. Market analysts found IAG's decision understandable but speculated about the company's next potential acquisition targets, with Portugal's TAP being a possible candidate.
Alex Irving, an analyst at Bernstein, noted, "The stock didn't seem to price in any premium for this approval." IAG announced it will compensate Air Europa with 50 million euros as a termination fee. Representatives from Air Europa and its parent company, Globalia, were unavailable for immediate comment. Last year, IAG revealed plans to acquire the remaining 80% of Air Europa it didn't already own for 400 million euros, while maintaining its 20% stake.
IAG's pursuit of Air Europa began in 2019. Despite challenges faced by other European airlines, IAG posted a better-than-anticipated second-quarter performance, achieving an operating profit of 1.24 billion euros, surpassing the 1.08 billion euros predicted by analysts. The second quarter was tough for European airlines due to stabilizing demand and rising costs, following a post-COVID travel surge.
IAG's robust performance is largely attributed to the strong North Atlantic travel market, with minimal exposure to Asia, where overcapacity from Chinese airlines has affected other carriers like Lufthansa. Gallego commented, "The capacity we have in those markets is very limited. For now, our yearly projections align with our forecasts." IAG's shares have shown greater resilience compared to other European airlines, which have struggled with increasing costs in recent months.
