IAG gets EU warning shot over €400 million Air Europa deal

IAG SA’s €400 million ($428 million) takeover of Air Europa risks being derailed for a second time, unless the firms fix a list of anticompetitive concerns handed down by European Union regulators. 

The European Commission said Friday it fired off a so-called statement of objections warning that the deal could hamper competition on multiple routes within Spain as well as connections with the rest of Europe, the Middle East and the Americas. Domestic routes lacking high-speed train alternatives could be particularly hard hit, the regulator said.

“Every year, millions of passengers travel on those routes for a total annual spending of over €3 billion,” the commission said. “Absent suitable remedies, the removal of Air Europa as an independent airline may have negative effects on competition in these already concentrated markets.”

While on some national and European routes the pair currently compete head-to-head, the commission said competition on others is “limited” and comes primarily from regional Spanish airlines and low-cost airlines, such as Ryanair Holdings Plc.

IAG and Air Europa can now respond to the EU’s concerns with an offer to remedy the anticompetitive risks. The regulator has until July 15 to decide whether to block or approve the planned deal. 

IAG said in an emailed statement it “will continue to engage on a package of remedies to meet those concerns” and “still remains committed to closing the deal as quickly as possible” this year. 

“As Luis Gallego, CEO of IAG said, we are willing to transfer the equivalent of 40% of the flights operated by Air Europa in 2023 to other airlines,” the company added.

Aside from warning about possible reasons for a veto, EU statements of objections typically flag potential ways forward to avoid such a scenario. Such filings are increasingly routine in complex deals. In airline deals, this can include a remedy to share or give up routes to rival airlines, as well as a potential divestment of assets.

IAG is seeking EU approval for the deal a second time after an earlier attempt was thwarted by intense scrutiny from regulators. Their second bid to get the deal cleared comes as Brussels regulators are ramping up their scrutiny of large airline deals — increasingly calling for robust concessions. 

A recent EU approval of Korean Air Lines Co.’s 1.8 trillion won bid for smaller rival Asiana Airlines Inc. involved remedies that included the divestment of Asiana’s cargo business, as well as a commitment to allow rival airline T’Way to provide flights on routes between Seoul and Barcelona, Paris, Frankfurt, and Rome. 

The Brussels based regulator also recently warned Deutsche Lufthansa AG about anticompetitive risks arising from its planned investments into ITA Airways.