Air Europa and Iberia have been talking acquisition since before the pandemic. | Europa Press

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International Airlines Group (IAG) and Globalia have reached an agreement whereby IAG will grant Globalia an unsecured loan of 100 million euros over seven years, with the option of converting it into a stake of 20% in Air Europa.

The deal between the parent companies of Iberia and Mallorca-based Air Europa is conditional on Globalia receiving the approval of the syndicated banks that facilitated the loan contract by which the Spanish government injected 615 million euros into Air Europa. In principle, Globalia does not have to return the money until 2024, but it has to resolve the airline's situation before the start of July.

The CEO of IAG, Luis Gallego, says that he is "convinced of the strategic importance of this operation for the development and competitiveness of the Madrid hub". "Since we started negotiations, the world has changed. This agreement will give us time to evaluate alternative structures that may be in the interest of both companies and offer significant benefits to their customers, employees and shareholders."

The arrangement in effect will mean that Air Europa stays afloat. For Iberia, which has been looking to acquire Air Europa, the loan in theory gives a valuation of 500 million euros, half the amount that was originally under consideration prior to the pandemic. In practice, though, and assuming acquisition does eventually happen, the valuation may well be lower.

Any agreement on acquisition is still subject to European approval and requirements to relinquish routes.