Thu 12/09/2021 13:03 PM
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Relevant Document:
FY’20 Financial Results

Funds are monitoring Spanish airline Air Europa as the company’s proposed acquisition by International Airlines Group stalls amid regulatory woes. The airline will likely have to request another emergency loan from Spain’s Sociedad Estatal de Participaciones Industriales, or SEPI, if the acquisition is held up much longer or fails, sources told Reorg.

The acquisition was delayed after the European Commission launched an investigation over competition concerns in June. The U.K.’s Competition and Markets Authority, or CMA, followed suit and launched a merger inquiry in November. Meanwhile, the emergence of the Covid-19 omicron variant has also added a great deal of uncertainty to an already strained travel sector.

The Spanish airline said in its 2020 results that it was having liquidity problems driven by the impact of the Covid-19 crisis and was taking action to improve short term liquidity. Air Europa said in the report that its holding company is expected to receive additional aid to solve future liquidity needs pending approval of what is applicable.

As of Dec. 2020, the airline's outstanding net debt amounted to €360 million, which mainly comprises the Spain’s Instituto de Crédito Oficial (ICO) loan of €141 million and a shareholder loan provided by the state (SEPI) of €200 million, net of €12.6 million cash. The group also had about €2 billion of future value of operating lease payments. It reported negative EBITDA of over €400 million in 2020 and losses of €428 million.

The airline’s capitalization as of December 2020 is below:
Air Europa Lineas Aereas SA
EBITDA Multiple
(EUR in Thousands)
Finance Leases
Total Senior Secured Debt
ICO Loan
Other Debt 1
Shareholder Loan 2
Total Other Debt
Total Debt
Less: Cash and Equivalents
Net Debt
Operating Metrics
LTM Revenue
Plus: Cash and Equivalents
Total Liquidity
Credit Metrics
Gross Leverage
Net Leverage

The group reported €2 billion of future value of operating lease payments as of Dec. 31, 2020, which, under Reorg calculations, equate to approximately €1.5 billion of operating lease liability assuming a 6% discount rate.
1. Other debt refers to deferred income from operating leases.
2. Shareholder loan corresponds to the state aid's first tranche of €240M, denominated "préstamo participativo". On Nov. 11, 2020 the parties subscribed the loan in an amount of €200M.

In November 2020, Air Europa secured through its parent company, Air Europa Holding, €475 million of state financial aid from SEPI, which matures in 2026, according to the company’s financial report. The state aid is divided into two tranches: a full-drawn €240 million equity-linked loan, or préstamos participativos, and an undrawn €235 million loan that was undrawn as of December 2020. The €235 million loan is expected to be fully used by the end of the year.

On May 18, 2020, Air Europa signed a syndicated financing of €138 million and a bilateral agreement of €3 million, both guaranteed 70% by ICO, maturing in 2025, according to the report.

The impact of the Covid-19 crisis affected Air Europa’s long-haul flight operations in particular due to border restrictions under government induced health protection measures. This caused constraints in key markets in Latin America.

The airline’s revenue dropped 67.6% to €758 million in 2020 from €2.34 billion a year earlier. During the early months of the Covid-19 outbreak, 97.53% of the company’s staff was placed on Spain’s ERTE furlough scheme.

Merger Investigation

The CMA launched a merger inquiry on Nov. 19 to investigate whether the merger would reduce domestic competition for goods or services. On Nov. 22, the regulator said it would decide by Jan. 19 whether or not the investigation will move into a phase two inquiry.

IAG, based in the U.K. and Spain, is the holding company of Spanish airlines Iberia and Vueling, British Airways and Ireland’s Aer Lingus. IAG is a Spanish registered company with shares trading on the London and Spanish stock exchanges. The company has a market capitalization of about £7 billion. It is the largest airline group in Spain, while Mallorca-based Air Europa ranks as the country’s third-largest airline, according to news reports.

On June 29, the European Commission opened an in-depth investigation to assess the impact of IAG’s €500 million proposed purchase of Air Europa and whether it negatively affects competition on domestic, short-haul and long-haul routes to and from Spain. This included 70 origin and destination city pairs with and to/from Spain on which both airlines offer direct services.

The commission is also assessing if the acquisition will negatively impact routes for other airlines, particularly those that rely on Air Europa’s domestic and short-haul network for their operations at the Madrid and other EU-based airports.

IAG said in a recent report that Iberia submitted remedies to the European Commission on Oct. 27 as part of the ongoing review. The provisional legal deadline for a decision was extended to Jan. 4, 2022, according to the European Commission’s website.

In January, IAG and Air Europa owner Globalia agreed to amend the proposal under which IAG’s subsidiary, Iberia, would purchase Air Europa for 50% less at €500 million. This included a deferred payment until the sixth anniversary of the acquisition’s completion. The original purchase deal of €1 billion was made in November 2019 but was halted due to the pandemic.

Air Europa was founded in 1986. The group is owned by Spanish tourism group Globalia. As of Dec. 31, 2020, Air Europa had 43 aircraft, all of them under leasing agreements. It was the first private airline to establish regular flights, first domestic and then international, breaking the monopoly held by Iberia until that time in Spain, according to its website.

--Lucía Camblor, Giulia Rusconi, Jaishree Kalia
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