IAG’s Air Europa deal on verge of collapse after EU pushback

IAG SA’s planned €400 million ($434 million) takeover of Air Europa is on the verge of collapse for the second time after European Union officials pushed back on concessions aimed at clearing the deal.

EU watchdogs are skeptical that an offer from IAG to open up certain short and long-haul routes to rivals fixes their anticompetitive concerns, according to people familiar with the matter. 

IAG is unlikely to offer improved remedies to quell the EU’s concerns with Brussels regulators prepared to issue a veto of the deal, the people added who asked not to be identified because the negotiations are private.

Should IAG opt to walk way from the deal it’ll be liable to pay a €50 million breakup fee under the terms of the merger agreement. There is still time ahead of the European Commission’s deadline of Aug. 20. for the companies to offer an improved package of remedies and potentially save the merger..

The European Commission and IAG declined to comment. The Financial Times earlier reported the EU’s likely veto of the deal.   

Doubts in Brussels were first cast on the future of the tie-up following a formal EU warning that the takeover could hamper competition on multiple routes within Spain as well as connections with the rest of Europe, the Middle East and the Americas. 

IAG then responded to those concerns by pledging to offer certain long-haul routes to Avianca, World2Fly and Iberojet, and some short-haul flights to Ryanair, Volotea and Binter.   

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

A recent EU approval of Deutsche Lufthansa AG’s €325 million investment in Italy’s ITA Airways came with a slate of concessions aimed at preserving fair competition on key routes out of Italy to the rest of Europe and North America.