IAG’s original cash deal of €1bn for Air Europa was agreed before the pandemic ripped through the aviation industry © AP

International Airlines Group, the owner of British Airways and Iberia, is to buy Spain’s Air Europa for a cut-price €500m.

The airline will pay half the original amount of €1bn, which will be deferred for six years after the deal’s completion.

The original cash deal in 2019 was agreed just three months before the pandemic ripped through the aviation industry.

It offers IAG the chance, once the industry recovers, to open up the South American transatlantic market and turn Madrid into Europe’s next hub airport, attracting more passengers by providing global connections.

“I am pleased that we have reached agreement with Globalia [Air Europa’s owner] to defer payment until well into the expected recovery in air travel following the end of the pandemic,” said IAG chief executive Luis Gallego.

The original deal was the final act in IAG’s near decade of expansion under former boss Willie Walsh, who left the airline conglomerate last year to be replaced by Mr Gallego.

Mr Gallego, the former chief executive of Iberia, spent six months renegotiating the deal with Globalia after inheriting a drastically different landscape to Mr Walsh.

The airline group reported an operating loss of €5.95bn in the first nine months of 2020, and has had to tap shareholders for €2.75bn to help it cope with the losses.

IAG said the acquisition of Air Europa remained strategically important, allowing the group to benefit from growth opportunities once the industry emerges from the “unprecedented impact of the Covid-19 crisis”.

The deal is expected to be completed in the second half of 2021, “at a time when air travel recovery could be meaningful as the rollout of Covid-19 vaccines proceeds worldwide”, IAG said.

Air Europa will join IAG’s stable of airlines, which include Ireland’s Aer Lingus and low-cost carriers Vueling and Level.

Air Europa has a fleet of 52 aircraft, down from 68 at the end of 2019. It operates domestic flights in Spain as well as European routes and long-haul destinations in the US, South America and Africa.

The airline received nearly €500m in state aid in November, and IAG said the deal is contingent on negotiating terms with the Spanish government.

The government aid leaves Air Europa with net debt of about €2.1bn, according to calculations by Mark Simpson, an aviation analyst at Goodbody.

However, given the potential benefits from combining operations with Iberia at its Madrid hub and the six-year delay in payment, “we think this is still a good deal for IAG,” he said.

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