NewsAir Europa's Debt Runs Amok And Forces Iberia To Renegotiate Purchase

Air Europa’s Debt Runs Amok And Forces Iberia To Renegotiate Purchase

The sale of Air Europa to Iberia is still stuck. On the one hand, both companies are awaiting the first official resolution of the European Union’s Competition authorities, the so-called Statement of Objections , a document that will arrive in the next few days but will not put an end to the negotiations. The requirements that Brussels may impose on the operation were, until a few months ago, the main obstacle to overcome. Instead, with the course of events, the focus of the negotiators, as confirmed to elEconomista sources of the sector, has been modified and is now focused on the financial situation of Air Europa.

The airline of the Hidalgo familyIt is at a delicate point with a “minimal” income generation, according to sources close to the company, and with a debt that does not stop growing. This has caused that in Iberia, the buying part of this operation, the alarms have gone off and they are already looking for alternatives to try to save a key operation for the sector in Spain.

Air Europa’s debt, according to financial sources familiar with the company’s situation, will exceed 1,000 million at the end of the year. To the 475 million that the Rescue Fund for Strategic Companies managed by the Sociedad Estatal de Participaciones Industriales (Sepi), we must add the credits with ICO endorsement that were granted in 2020.

In addition, according to the same data , also accumulates about 180 million debt derived from aircraft rental contracts that are increasing at a rate of about 20 million per month. Only with these three key points, taking into account that the current situation would continue until the end of the year as expected, Air Europa would have a debt of 855 million.

To this should also be added a part of the airline tickets that were sold for the months in which it was not possible to fly and whose amounts have not yet been returned to travelers. The figures around this part of the debt vary constantly but, as the Economist has been able to know , they would add up to several million euros more.

At the end of 2020, according to the accounts that the airline sent to the Commercial Registry, it stood at 243 million , but since then, as recognized by the same sources, the amount has been reduced considerably, although part of the Long-haul flights that have not been reactivated remain unreturned.

To this, we should add a possible new rescue in which the company is already working to try to survive in a period of low activity like the current one. Different sources put this new lifesaver at about 150 million . In other words, in total, the company would accumulate a debt that would exceed 1,000 million by the end of the year . This figure was precisely the key to the operation in 2019, when Iberia announced the purchase.

With the data on the table, Iberia is forced to renegotiate this key purchase for the sector. Despite the fact that in January the initial 1,000 million were lowered to 500, the rise in debt has forced all possibilities to be put on the table.

Brussels conditions
The first step is to know what the final conditions will be that will be imposed by the Brussels Competition authority. Initially, conflicts were raised on 70 routes to or from Spain, a figure that will be cut in the so-called Statement of Objections that will be sent in the coming days. Beyond the number of routes, what is really relevant is what they will be, since the operation has a strategic sense, allowing Iberia to arrive in Asia and strengthening connections with Latin America.

Be that as it may, it is expected that, despite the resources, Europe will impose remedies that, while waiting to know them in detail, could ruin the operation. All this, while Air Europa’s cash situation is increasingly complicated and forces a second public rescue. The situation in Brussels is, therefore, complicated, since it must decide whether to save the company through the public rescue or the approval of the sale operation to Iberia and avoid activating the failing firm criterion , that is, saving more jobs. beyond other criteria.

But in a theoretical exercise in which everything went smoothly in Brussels, there is still an obstacle to overcome, the debt . The company’s situation makes a purchase unfeasible without a renegotiation of the conditions. It is precisely there where the Government has the key that, thanks to the participative loans granted through the Sepi, it can postpone the payment or even get to capitalize the debt and pave the way to bring Spain to the level of other European hubs .

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