IAG will loan Air Europa owner Globalia €100 million over the next seven years to ensure it remains the frontrunner to buy the Latin America and Caribbean specialist airline, which is based in Madrid.

It comes after IAG shelved a protracted, cut-price bid to acquire Air Europa late last year owing to competition concerns raised by authorities in the UK and EU.

The deal, which dated to November 2019, had been for around €1 billion but this was cut to €500 million in January 2021 owing to the impact of Covid-19 on Air Europa.

The group said a move for the Madrid-based carrier would allow it to create a hub in the Spanish capital to rival Heathrow, Schiphol and Charles de Gaulle.

It also said it hopeful it would strengthen its market position on routes to Latin America and the Caribbean. IAG, though, pulled out of deal in December 2021.

It has now agreed to loan Globalia €100 million over a seven-year period, which can be converted at any time into an up to 20% stake in the airline.

Luis Gallego, IAG chief executive, said: "We remain convinced about the strategic importance of this deal to the development and competitiveness of Madrid’s hub.

"Since we started negotiations, the world has changed. This agreement will give us time to evaluate with exclusivity alternative structures that may be of interest to both companies and offer significant benefits for their customers, employees and shareholders."

IAG’s exclusivity on any move for Air Europa will be available for a year, along with the right to match any third party offers made in the next three years.