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The conditions of the rescue of Air Europa complicate its purchase by Iberia

The Government approved yesterday the rescue of Air Europa with the injection of 475 million euros. But it subjects the aid to conditions that complicate the projected purchase of the airline by Iberia. The State reserves the power to authorize strategic operations and layoffs, appoints two directors and the CEO may “agree”. These limitations have not sat well with the IAG group, Iberia’s parent company, which wants to have a free hand to manage a company for which it is no longer willing to pay even half of the 1,000 million agreed a year ago. The problem is that the airline of the Hidalgo family does not have the financial capacity to repay the aid alone in six years, as required by the fund managed by the Treasury.

“We do not buy the same as a year ago. You have to look at everything again, from the conditions for repaying the debt to the restrictions on the ability to make strategic decisions imposed by the Executive ”, said Luis Gallego, the CEO last Friday at the presentation of the group’s results. from IAG, the holding company to which Iberia, British Airways, Air Lingus, Vueling and Level belong.

Gallego, then president of Iberia, was the one who closed the purchase of Air Europa for 1,000 million euros in November 2019, in an agreement that has become dead paper after the tsunami that the airline sector is experiencing due to the coronavirus pandemic. which punishes companies with the biggest losses in their history.

And although Iberia and IAG are officially silent, the truth is that in the Spanish-British group the conditions imposed by the Government to come to the rescue of Air Europa have not settled well. Industry sources point out that the limitations “greatly complicate the already compromised purchase operation of a bankrupt airline at the most delicate moment in the history of commercial aviation, in which the outbreaks of the pandemic and the new mobility imposed by the most important EU states are ruining the prospects for recovery, even the most pessimistic.

Iberia now hopes to know first-hand the specific conditions of the aid, since so far they are only known from the statements of the Minister of Finance and spokesperson for the Executive, María Jesús Montero, to questions from journalists at the end of the Council of Ministers who approved the measure.

The official note from the Ministry of Finance was limited to informing of the approval of public aid of 475 million from the solvency fund intended to support strategic companies that have been impacted by the covid-19 pandemic. Some funds articulated through a participative loan of 240 million euros and another ordinary of 235 million, which must be repaid within a maximum period of six years.

Air Europa already obtained last May, in full confinement, a loan of 140 million euros guaranteed by the Official Credit Institute (ICO). Therefore, its debt with the State after the rescue will reach 615 million euros, a liability that Iberia will have to assume in case of completing the purchase. The airline will have to pay the company headed by Javier Hidalgo an indemnity of 40 million euros if it withdraws from the purchase, “an amount that seems acceptable compared to the risks of assuming the acquisition of a company indebted and protected by the State” , indicate sources of the negotiation.

Although the Ministry of Finance has not made public the feasibility plan presented by the company to obtain the funds, all analysts agree that Air Europa is unable to face the repayment of the aid alone in six years.

Nationalized company?

The airline owned by the Hidalgo family, which is part of the Globalia group, obtained in 2018, its best year, a net profit of 50 million euros. In the current one, it foresees losses close to 600 million due to the second wave of the pandemic and the generalization of new restrictions on mobility. Its fleet is operating at less than 30% capacity and it consumes € 30 million of liquidity per month for fixed costs. If the airline is not able to repay the loans, the State can become the majority shareholder of Air Europa, as has already happened with the bailouts of Air France-KLM, Lufthansa or Alitalia, among others, which have received millionaire aid from their respective States that have entered the capital of the companies

Nor do the prospects for the sector help, which are becoming increasingly dire. According to forecasts by IATA (the acronym in English for the International Air Transport Association), air traffic will not recover until 2023 or 2024.

The purchase operation by Iberia is also complicated on the labor side, since the State reserves the right to decide on any record of employment regulation. And one of the unavoidable consequences of the merger, if it occurs, would be a reduction in the workforce, both due to the overlapping of the routes covered by both companies and, above all, due to the crisis derived from the coronavirus.

In fact, both airlines have announced a reduction in their fleets for next year and are immersed in labor adjustment processes, with a large part of their workforce in a situation of ERTE which, in the case of the Globalia airline, is being appealed to the National audience.

“No one would understand that Iberia reduced its workforce while keeping Air Europa’s intact. But it will also be difficult to justify the layoffs in a company rescued with public money, “say industry sources.

The aid must now also pass the Brussels filter by exceeding the amount of 250 million euros. A matter not trivial because Ryanair has already announced that it will request the prohibition of this injection as it considers it an “illegal” and “discriminatory” aid, and it would see a “madness” that the Globalia airline “receives more than 400 million taking into account its size “, And that” it will be bought by a British group so that Spanish citizens will not see a return on public money, “according to Dara Brady, the airline’s marketing director.