(Alliance News) - IAG's decision to call off the acquisition of Air Europa may seem like bad news, an analyst at Hargreaves Lansdown said on Wednesday, but at least the British Airways parent will no longer be saddled with the Spanish carrier's debt.
International Consolidated Airlines Group SA on Wednesday announced it is close to axing a planned EUR500 million takeover of Spanish carrier Air Europa. The update came just weeks after the UK's competition watchdog opened a probe on the deal.
IAG - which also owns Iberia and Aer Lingus - said it is in the "advanced stage" of talks to end the buyout.
IAG added that it will provide a further update in the future.
"The bad news just keeps coming for British Airways parent IAG. News that the group will abandon plans to acquire Spain's Air Europa is disappointing, though not completely unexpected. The deal was under scrutiny from EU regulators who said the combination of IAG Spanish subsidiary Iberia and Air Europa created anti-competition concerns," Hargreaves Lansdown analyst Laura Hoy commented.
"Plus, the pandemic's taken a toll on IAG's operations. Bringing Air Europa and the significant debt that came with it under its umbrella would have put further strain on the group's balance sheet. With concerns about new Covid variants looming over the travel industry at present, news that the deal is off the table isn't all bad. IAG had called the acquisition a brave decision but one it was prepared to make to see Madrid to compete against other major European hubs and serve destinations around the world."
IAG first announced plans to buy Air Europa back in 2019, so prior to the pandemic, for EUR1 billion. The price tag was cut after the Covid-19 hit the travel sector and emptied skies.
In November, the UK Competition & Markets Authority said it began a probe into IAG's potential buy.
Peel Hunt was less sanguine. "No reason was given, but we find it surprising for IAG to terminate it given the synergies that could be generated and the increase in market share it would achieve in the Spanish market," the broker commented.
"We did not include the acquisition in our forecasts and therefore make no changes to estimates. The recent removal of the red list from the UK is a positive for the group, but the ongoing requirements for testing are likely to dampen demand and we therefore retain our Hold recommendation."
Peel Hunt has a 184 pence price target on IAG shares.
IAG shares were trading 1.7% lower at 130.31 pence each in London on Wednesday afternoon.
By Eric Cunha; ericcunha@alliancenews.com
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International Airlines (IAG)