MIAMI – Spanish carrier Air Europa (UX) has applied for €400m ($471.64m) in government aid, according to reports from El País and Reuters. However, the impending acquisition of UX by International Airlines Group (IAG) might be an obstacle to receiving said funds.

Air Europa, a SkyTeam Alliance Member, is facing major financial difficulty due to the spike of COVID-19 cases in South America. The airline operates long haul service between its main base in Madrid (MAD) and major airports in South America including Bogotá (BOG), Lima (LIM), São Paulo (GRU), and Buenos Eres (EZE), among others.

Air Europa Boeing 787. PHOTO: Alan Wilson/Wikimedia

Buyout and Bailout Obstacles

In November 2019, IAG announced it would be purchasing UX for a reported sum of €1 billion ($1.18 billion). IAG is not only the parent company of British Airways (BA) and Aer Lingus (EI) but also UX rivals Iberia (IB) and Vueling (VY). A potential buyout has since been delayed by the emergence of the global pandemic.

Given the current status of the industry, there is a potential for IAG to renegotiate the purchase of UX. Leisure travel has seen a sharp decline with no end in sight for the virus. Thus, the perceived value of the airline is not what it once was.

Air Europa has already received a government loan, for the amount of €140m ($165.20m), back in mid-May. There is concern that a second bailout would essentially be lowering the asking price for UX, as the IAG purchase is yet to be finalized.

Air Europa aircraft at the gate. PHOTO: Oleg Yunakov/Wikimeda

A Potential Monopoly

Despite the need for a second cash injection, UX is still an airline with a lot of value. This is recognized by IAG, which remains optimistic about the carriers’ future. The purchase of UX means IAG would control a large majority of domestic routes in Spain. Of course, this would be subject to review by the European Commission for Trade.

While the short-term financial condition seems grim, IAG is keeping the bigger picture in sight. Leisure travel will return to previous levels at some point and CEO Willie Walsh, who just retired from his position at IAG, remains optimistic about the deal’s completion, according to a Flight Global report.

A second cash injection could be vital to UX’s short-term survival. However, an intersection of short and long term financial strategy creates a major complication.

Featured Image: Air Europa Boeing 787 “Julio Iglesias”. PHOTO: Jordi Plantalech/Wikimedia