IAG’s agreement for the full acquisition of Air Europa

International Airlines Group announce it has agreed with Globalia to acquire the remaining 80 per cent of issued share capital of Air Europa. The consideration is 400 million euros, including 200 million euros upon closing, comprising 100 million euros in IAG ordinary shares and 100 million euros cash, followed by a further 100 million euros payable in cash on each of the first and second anniversaries of closing. The agreement is subject to regulatory and other approvals, which could take around 18 months.

This Agreement follows the conversion made by IAG on 16 August 2022 of a 100 million euros seven- year unsecured loan to Globalia into a 20 per cent equity stake in Air Europa.

Strategic rationale

The Board of IAG believes that the acquisition remains strategically important for the Group and positions it to benefit from growth opportunities in the Latin America and Caribbean market, as well as to increase connectivity to Asia.

Upon completion, the benefits of the acquisition include:

• Transforming IAG’s Madrid hub to compete with Europe’s largest hubs.
• Enhancing IAG’s position in the highly attractive Europe to Latin America and Caribbean market and enabling the company to open routes to new destinations in Asia.
• Delivering significant customer benefits by unlocking further network opportunities and providing access to IAG’s Avios loyalty scheme.
• Offering significant synergies, in line with those of previous acquisitions, to be delivered around 2026 to 2028 assuming closing in around 18 months.

IAG has a strong track record of maximising synergies from previous acquisitions.

Highlights

• On completion, the Air Europa brand will be retained under the management of Iberia.
• Closing is expected to take place in around 18 months following receipt of relevant approvals.
• Payment deferred until closing and one to two years post-closing.
• Limited impact expected on IAG’s financial leverage ratios.

Further strategic and financial information will be provided at a Capital Markets Day later in 2023. 1 54,064,575 shares based on the average trading price of IAG shares of €1.8496 on the Spanish Market in the five stock exchange sessions immediately prior to the date of the agreement.

Luis Gallego, IAG’s chief executive, said: “This agreement will enable IAG’s Madrid hub to compete on an equal footing with other European hubs and consolidate its position in the South Atlantic. Madrid is the main gateway between Latin America and Europe and there are opportunities to expand its network, providing significant benefits to our customers, employees and shareholders.”

The Acquisition will provide opportunities for IAG to unlock value across three key areas:

• Integrating Air Europa into the existing Iberia hub structure at Madrid.
• Creating commercial links between Air Europa and other IAG operating companies, in addition to inclusion into IAG’s joint businesses.
• Enabling Air Europa to benefit from IAG Loyalty and IAG Cargo and IAG’s common technology and procurement services.

Air Europa overview

Air Europa is a well-recognised brand and one of the leading private airlines in Spain, currently operating scheduled domestic and international flights, including European and longhaul routes to Latin America and the Caribbean. It carried 13.1 million passengersin 2019, 4.3 million in 2020, 5.0 million in 2021 and 10.0 million in 2022. Air Europa currently has an operating fleet of 50 aircraft with 15 aircraft on order via aircraft lessors. All aircraft are on operating lease, apart from one Boeing 737 finance lease.

Transaction details

The payment will be comprised of 100 million euros in IAG ordinary shares upon closing of the acquisition based on the average trading price of IAG shares on the Spanish Market in the five stock exchange sessions immediately prior to the date of this agreement and 100 million euros in cash upon closing, followed by 100 million euros in cash on each of the first and second anniversaries of the closing date. The consideration for the transactions will be a total amount of 500 million euros for 100 per cent of the equity capital of Air Europa.

The agreement is conditional on Globalia receiving approval from syndicated banks that provided the loan agreement partially guaranteed by the Instituto de Crédito Oficial (ICO) and by Sociedad Estatal de Participaciones Industriales (SEPI). The acquisition is also subject to approval by relevant competition authorities.

IAG has agreed to pay a break-fee of 50 million euros if (i) it terminates the agreement at any time prior to the closing date or (ii) the conditions for closing are not met prior to the second anniversary of the date of the Agreement. IAG retains the right to exit its current stake in Air Europa alongside Globalia should Air Europa be sold to a third party after termination of the Agreement.

The acquisition constitutes a Class 2 transaction for the purposes of the UK Financial Conduct Authority’s Listing Rules and, as such, does not require IAG’s shareholders’ approval.

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