The group said the move would allow it to transform its hub in Madrid into a rival for the likes of Heathrow, Charles de Gaulle, Schiphol and Frankfurt.
IAG also stressed the deal would re-establish the group in Latin America and the Caribbean and create opportunities for network growth in the South Atlantic.
The deal is expected to be completed during H2 2020 following receipt or relevant approvals.
“Acquiring Air Europa would add a new competitive, cost-effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership, therefore generating additional financial value for our shareholders,” said IAG chief executive Willie Walsh.
“IAG has a strong track record of successful acquisitions, most recently with the acquisition of Aer Lingus in 2015, and we are convinced Air Europa presents a strong strategic fit for the group.”
Air Europa joins the IAG stable alongside BA, Iberia, Level, Vueling and Aer Lingus. It currently flies to 69 destinations across a range of European short-haul routes, and longer-haul services to Latin American, the US, the Caribbean and North Africa.
IAG will “initially” retain the Air Europa brand, with the company operated as a standalone business by Iberia chief executive Luis Gallego.
Its ambitions for Air Europa include integrating the carrier into the Iberia hub structure at Madrid; creating new commercial links between the carrier and other IAG companies; and integrating Air Europa onto IAG’s common service platform.
The group says the deal will increase intra-group codesharing; allow it to adjust schedules to maximise connectivity through Madrid; and bring Air Europa into the Avios scheme.
The deal will be financed by external debt, with IAG’s net debt to its Ebitda (earnings before interest, tax, depreciation and amortisation) expected to come in 0.3 times higher as a result of the acquisition compared to 1.2 times when it last reported Ebitda at the end of Q3 2019.
IAG will pay Air Europa a €40 million break fee in the event the transaction fails.
