London and Brussels – International Airlines Group (IAG), the parent company of British Airways, Iberia, and Aer Lingus, has officially abandoned its acquisition of Air Europa. The decision comes after facing significant regulatory challenges from the European Commission and an expression of support from the U.S. Department of Justice. Earlier this summer, the EC approved another merger – between Italy’s ITA Airways by Germany’s Lufthansa – but with significant conditions.
The proposed IAG / Air Europa deal, valued at €1 billion ($1.1 billion), was proposed to bolster IAG’s presence in the lucrative European-Latin American travel corridor. By acquiring Air Europa, IAG sought to strengthen its Madrid hub, making it a more formidable competitor to Europe’s largest airports. However, the European Commission expressed concerns about the potential anti-competitive effects of the merger. The Commission argued that the deal could lead to higher airfares and reduced choice for consumers. Despite IAG offering substantial concessions, including divesting a significant portion of Air Europa’s operations, the Commission’s objections remained insurmountable.
IAG’s decision to terminate the acquisition comes with a €50 million breakup fee. The company says it remains committed to its Madrid hub and plans to expand its presence there independently.
The Justice Department’s Antitrust Division played a supporting role in the matter, issuing a statement backing the European Commission’s decision. Deputy Assistant Attorney General Michael Kades said the Antitrust Division is committed to protecting competition in the airlines industry.
Lufthansa and ITA Airways Merger Approved with Conditions
The EC approved another deal in June – the acquisition of joint control of ITA Airways by Lufthansa and the Italian government. The body’s approval, however, comes with strict conditions aimed at preserving competition in the European aviation market.
The merger, combining Germany’s largest airline with Italy’s flag carrier, is expected to create a stronger European aviation player. However, the Commission raised concerns about reduced competition on certain short-haul routes between Italy and Central Europe, as well as on long-haul routes between Italy and North America.
To address these concerns, Lufthansa and the Italian government have agreed to a series of measures. These include making available assets to rival airlines to enable them to compete on specific routes, improving competition on long-haul routes through agreements with other carriers, and divesting take-off and landing slots at Milan Linate airport.
The Commission will now oversee the selection of suitable airlines to take over the divested assets and routes. Only after these airlines are approved can Lufthansa and the Italian government proceed with the merger.
The decision marks a significant step for both airlines, but the road to a fully integrated operation is still subject to regulatory hurdles and the successful implementation of the agreed-upon remedies.
Read airline market commentary by Jonathan Rubin:
· Judge Calls American Airlines-JetBlue Alliance a Naked Restraint of Trade
· Southwest Airlines’ December Debacle Fuels Anti-Merger Campaign Against the Industry
· Spirit’s Merger with Frontier May Face Turbulence (co-written with Tim LaComb)