The owner of British Airways is buying a private Spanish airline for €1 billion ($1.1 billion) in a push to turn Madrid’s airport into a global aviation hub that rivals London, Paris and Frankfurt.
International Consolidated Airlines Group (IAG), which owns the national airlines of Britain, Spain (Iberia) and Ireland (Aer Lingus), said Monday that it had agreed to buy Air Europa from Spain’s largest tourism group, Globalia.
The deal would help transform the Spanish capital into a “true rival” to Europe’s four big hubs — Amsterdam, Frankfurt, Paris and London’s Heathrow, IAG said in a statement.
The acquisition will be handled by Iberia, with the Air Europa brand initially retained and the company run as a standalone business, IAG said. Madrid is one of Spain’s most important economic centers and the “favourite region in Europe” to do business with Latin America, according to the European Commission.
“Following this agreement, Madrid will be able to compete with other European hubs on equal terms with a better position on Europe to Latin America routes and the possibility to become a gateway between Asia and Latin America,” Luis Gallego, chief executive of Iberia, said in a statement.
Madrid’s Barajas airport handled nearly 58 million passengers in 2018, according to its operator. London Heathrow ranked first in Europe with just over 80 million visitors, followed by Charles de Gaulle in Paris, Amsterdam’s Schiphol and Frankfurt International, which all handled around 70 million.
The deal with Air Europa will increase IAG’s share of passengers flying between Europe and Latin America from 19% to 26%, Bernstein analyst Daniel Roeska said in a research note. Air Europa also flies to the United States, the Caribbean and North Africa.
Last year, the airline carried 11.8 million passengers, generating profit of €100 million ($111.6 million). That is about a quarter of Iberia’s profit in 2018, but only a small fraction of IAG’s €3.2 billion ($3.6 billion) in annual earnings.
“We are not convinced that having just another brand platform is the optimal move,” Roeska said of the decision to retain the Air Europa brand. But Air Europa could combine with one of IAG’s other brands in future, such as low-cost offerings LEVEL, Vueling or Iberia Express, he said.
The deal is expected to be completed by the second half of next year, said IAG.