IAG, the aeronautical giant formed after merger of British Airways and Iberia, confirmed a takeover to fully own Vueling.
IAG already controls 45.85 percent of the Catalan company’s capital, now IAG intends to buy the remaining 54.15 percent of Vueling.
With the aim of owning 100 percent of Vueling’s capital, International Airlines Group is offering 7 Euros per share over 16.19 million shares it doesn’t control. The offered price represents 28 percent premium over Vueling’s last trading price on the stock exchange. The purchase operation would be paid in cash and not by exchanging stocks.
Yesterday evening, once news about IAG’s potential takeover on Vueling broke, the CNMV, the Spanish Stock Market Regulation Authority, temporarily suspended trading of Catalan company, which was set at 5.47 Euros per share. Vueling’s capital represents 29.9 million shares, with a 1 Euro nominal value.
IAG has not disclosed the details of the operation, but it seems likely to run the Catalan airline as a separate brand, using its own specific business model, which has proven to be quite successful.
Born as a low cost airline, Vueling has developed its own model, combining relatively cheap prices with services going beyond a basic low cost company. In fact, Vueling has been one of the very few European airlines posting profits during recent years.
It has Barcelona airport as its main base. In October, it announced it would link the Catalan capital to 100 different destinations from summer 2013. It also announced it would transform Barcelona’s airport to eventually become Europe’s main hub for short and medium distance flights by 2014.
According to IAG’s note to the CNMV confirming the takeover, Vueling would keep its own business model and brand, despite being owned by IAG, if the operation is successful.
IAG said its objective is to have a leading position in Barcelona and to be growing in the rest of Europe, while allowing IAG to have a low cost platform. In addition, IAG could also generate potential synergies with Vueling regarding financial aspects, although they do not expect them to be significant.
For this reason, Lluís Recoder, Transport Minister of Catalonia, stated this afternoon he is worried about IAG’s purchase plans as Vueling has prioritized Barcelona airport and is committed to its expansion. However, Iberia has gradually abandoned Barcelona to concentrate on Madrid Barajas.
Also this afternoon, Ramon Tremosa, Catalan member of the European Parliament, filed a formal question to the European Commission regarding Vueling’s full control by IAG and its potential impact on the free competition of South European airport market.
However, IAG considers it does not need to inform an anti-trust authority and only reports on the operation to the CNMV and the Spanish aeronautical authorities, both controlled by the Spanish government. IAG expects to conclude the deal next spring.
But Tremosa believes that the IAG takeover might represent a risk for free competition within the South European airport and flying market, as the Spanish State owns 12.87 percent of IAG, after the nationalization of Bankia.
In addition, he stressed the Spanish government also owns all Spanish and Catalan airports and runs the aeronautical authorities. Tremosa argued that Iberia and Vueling are Spain’s main airlines, and both would be controlled by the Spanish government, creating a new aeronautical group with a monopolistic will.
Tremosa stated that if IAG’s takeover is successful, it would create a group that would be first in Spain and Catalonia by volume of passengers and the first operator in both Barcelona and Madrid airports, impeding any possibility of future free competition between airports.
In fact, Tremosa fears that, considering Iberia and the Spanish government’s track history regarding Barcelona airport, the new group could favor Madrid Barajas and Iberia’s interests over the Catalan airport’s.
Therefore, Tremosa asked the European Commission to study the operation and eventually requests the Spanish government to either privatize its airport network or to sell its shares within IAG, as otherwise free competition is not guaranteed. Now, the European Commission has three weeks to answer.