Brussels will analyze if the rescue of Air Europa facilitates its sale to Iberia.

The sale of Air Europa to Iberia has been complicated by the outbreak of the pandemic. The operation, announced more than nine months ago, has been put on hold after the coronavirus created a financial hole in the Globalia group airline of more than 400 million euros. The government has come into play and, to ensure the acquisition, has announced that it will rescue Air Europa because of its “strategic” nature. But it has not yet clarified how it will prevent this aid from ending up in private hands if the airline is sold.

In this context, another player is becoming increasingly important: Brussels. The European Commission has relaxed EU rules to allow Member States to rescue and even enter the capital of certain companies. But it has maintained certain limitations. Based on these criteria, the institution has already forced Lufthansa to give up several “slots” to receive 9 billion euros from Germany.

Thus, the new Community rules provide that the European Commission must assess the aid exceeding 250 million euros before Member States grant it. In the case of Air Europa, the company has notified an impact of 400 million euros by the Covid, so everything points to the rescue of the Spanish government will have to go through the filter of the European Commission. And not only that, but it is likely that it will demand certain concessions from Spain, such as Air Europa giving up routes.

“If the beneficiary of a recapitalization measure in the context of the Covid-19 of more than 250 million euros is a company with significant market power in at least one of the reference markets in which it operates, the Member States must propose additional measures to protect effective competition in those markets”, explains the text approved by the European Commission in spring to delimit the rescues motivated by the coronavirus.

It is still unknown how the State will help the airline. The fund promoted by the Government to help strategic companies in difficulty due to the pandemic contemplates several formulas: the granting of participative loans, the purchase of subordinated debt and the sucription of shares. But at this time, the Administration has not clarified which method it will use.

Nor is it clear how the Government will prevent the aid from ending up in private hands. The fund only explains that companies that prove they were solvent before the pandemic and are now at risk of dissolution will be able to benefit from these support measures. Furthermore, rescued companies will have to present a viability plan and limit their investments after receiving this public aid.

What happens if one of the rescued companies is sold a few months later? This is the million dollar question. The Government keeps the secrecy while negotiating with Air Europa’s managers the rescue through SEPI and under the supervision of the Ministry of Transport. The agreement has not yet been announced, although it is expected that a pact will be reached before the end of August. The next few days will be key for an operation which can be sealed in one of the first Council of Ministers which will take place after the vacations. It will be then when the negotiations for the acquisition will get a new impulse.

The position of the United Kingdom

Brussels was already watching the operation because of the possible monopolies it could generate on certain routes. An obstacle that the company presided by Luis Gallego tried to overcome by giving up certain “slots” to Volotea.

Despite this, the argument of competition continues to be used by the British union Unite to try to paralyze the operation. The organization opposes the purchase because it believes that it will further aggravate the employment adjustment undertaken in British Airways, which like Iberia belongs to the IAG group. In a meeting with the Commissioner for Competition, Margrethe Vestager, already warned of the impact that the operation would have on certain routes. And not only that, but union sources assure that “a complaint is already being prepared if it is detected that the purchase is financed with public money”.

The pressure from Unite is making a dent in the UK’s consideration of the acquisition. Unlike Madrid, London has not been so adamant in defending the purchase of Air Europa by the Spanish-British group IAG, partly because the acquisition would mainly benefit the Madrid-Barajas “hub” Adolfo Suárez. More than 260 members of the British Parliament have signed a letter condemning the layoffs at British Airways, which intends to cut up to 12,000 jobs due to the coronavirus crisis. And the conservative chairman of the transport committee, Huw Merriman, has gone so far as to say that there is no point in buying Air Europa when IAG is “so in need of cash”. Willie Walsh, CEO of the holding company, had to point out that it is Iberia, and not IAG, that will undertake the acquisition of Air Europa.

What is clear is that the sale is having a tremendous impact. According to union sources, between Air Europa and Iberia bring together 70% of the cabin crew who are licensed in Spain, a dimension that conditions the possible employment adjustments to be made in the sector in the coming months. Meanwhile, from Iberia insist that the rescue does not have to affect the subsequent sale. Airline executives have already stressed on several occasions that both companies will be competitors until the operation is closed, which before the pandemic was already at the expense of receiving the approval of the European Commission.

Iberia plans to resolve the acquisition before the end of the year. But it does not rule out that negotiations will be broken off. The president of the company himself, Luis Gallego, has stated that Air Europa “is no longer worth what it was worth”, so it was necessary to lower the one billion that the former flag company offered at first. The company would now be willing to offer half for its historic competitor.

By Guillermo Ginés – ABC