Iberia asks Spanish government to intervene in Air Europa

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Following a determination by the European Commission a few weeks ago, Iberia’s board of management has adopted a pessimistic stance over the purchase of Air Europa. The strategic deal was set to transform Spain’s aviation sector, however, following the collapse of passenger demand and Air Europa’s debt burden, the deal is now far from materializing.

The news comes following a recent ruling by the European Commission which set out a list of further conditions regarding the purchase of Air Europa. The free market conditions were imposed following fears that the IAG Group would create a monopolistic or semi-monopolistic presence in around 70 routes if it was allowed to take over Air Europa. Most of these routes are located in Latin America, where both companies make most of their revenues.

Even though Iberia offered to give up some slots to Volotea and World2Fly on many decisive routes, this wasn’t enough for European rule-makers, who now want both carriers to reduce the number of services to these key markets.

The European Commission has stated that the 3rd of December will be the final date for the conclusion of the takeover bid. But there are still two outstanding factors that have to be addressed; a newly discounted price tag and the possible intervention of the Spanish state.

However, it is the intervention of the Spanish state that could possibly determine the viability of the company, at least, in the short run. So far, the State Society of Industrial Participations (SEPI) has injected around €475 million into Air Europa since last year. Most of this state aid has already been spent during the pandemic, the company also recorded a €365 million loss for 2020 and is expected to record another loss of between €250-300 million for this year.

All this means that Air Europa is in a dire situation and in urgent need of capitalization. The SEPI has therefore decided to transform part of its financial aid package (a €240 million loan to be precise) into shares. This means that the Spanish government would become one of the company’s main shareholders and thus impede it from becoming insolvent.

It is worth mentioning that due to the extraordinary times, the Spanish government has prevented all major Covid-19 affected companies from declaring bankruptcy before the end of the year, which would also apply in the case of Air Europa. Should the government not pursue this alternative, the company will have no other option but to resort to a venture capital fund, increasing the instability the airline is already experiencing.

In any case, the public loans totalling €475 million will have to be repaid and are due to begin in 2024 and will run until September 2026. The Spanish carrier will only have to pay the interest totalling €24.7 million between now and 2023 which relates to its participatory loan.

Source: https://aeronewsx.com/iberia-asks-spanish-government-to-intervene-in-air-europa/