BA’s IAG stablemate Iberia will acquire Air Europa, Spain’s third largest carrier, for just €500 million, down from an original €1 billion.
Payment will be deferred until the sixth anniversary of completion, which is still yet subject to approval by the European Commission.
IAG expects the deal to go through during the second half of 2021.
In a trading update, IAG said the acquisition remained "strategically important" to the future of both the group and Iberia, adding it foresaw benefits to the group from growth opportunities as aviation emerges from the Covid crisis.
These include transforming IAG’s Madrid hub into a "true rival" to Amsterdam, Frankfurt and Paris Charles de Gaulle; creating new network growth opportunities; and offering customers increased choice and schedule flexibility.
"IAG will be taking on Air Europa at a time when air travel recovery could be meaningful as the rollout of Covid-19 vaccines proceeds worldwide," said the group, adding payment would likely come in 2026 when an synergies from the deal will be fully realised.
Luis Gallego, IAG chief executive, said: "Both Iberia and IAG are demonstrating their resilience to face the deepest crisis in aviation’s history.
"Being part of a large group is the best guarantee to overcome current market challenges which will also benefit Air Europa once the transaction is completed."
Javier Hidalgo, chief executive of Air Europa owner Globalia, hailed the deal as a "great effort" for all involved, and the best way to support tourism, transport in Spain and the country’s Madrid hub.
Iberia chief executive Javier Sanchez-Prieto added: "This transaction makes perfect strategic sense to reinforce Madrid’s hub competitiveness on a global stage.
"It will benefit consumers and Air Europa’s incorporation into the Iberia Group will improve the company’s viability benefitting both Iberia and Air Europa employees."
