IAG Concessions Seek EU Approval for Air Europa Buy

Key Takeaway

• IAG offers new concessions to EU regulators for its €400 million Air Europa acquisition, including route relinquishments to Avianca, Ryanair, and others.
• Taqa and Criteria Caixa end takeover talks for Naturgy Energy Group SA, potentially reigniting tensions among major shareholders controlling 83% of the company.
• Elliott Investment Management acquires a $2 billion stake in Southwest Airlines, boosting shares by 8% pre-market amid expectations for profitability improvements.

IAG's Concessions to EU Regulators

British Airways parent company, IAG SA, has offered new concessions to European Union competition regulators to address concerns over its €400 million ($430 million) acquisition of Air Europa. In an emailed statement, IAG mentioned, “We submitted a new remedy package with some adjustments compared to the previous one. It includes improvements that have come from the constructive dialog we have been maintaining with the European Commission, with the aim of ensuring that the acquisition of Air Europa is carried out with all guarantees for consumers.” The European Commission has set a new deadline of August 20 to decide on the deal after receiving the proposed remedies on June 10.

The concessions come after the European Commission raised concerns that the takeover could reduce competition on multiple routes within Spain and connections with Europe, the Middle East, and the Americas. Domestic routes without high-speed train alternatives were highlighted as particularly vulnerable. The new remedy package includes a list of proposed remedy takers for routes that IAG and Air Europa will have to relinquish. For long-haul routes, IAG has pledged to offer routes to Avianca, World2Fly, and Iberojet, while for short-haul routes, Ryanair, Volotea, and Binter have been selected.

This is IAG's second attempt to gain EU approval for the deal after an earlier bid was blocked due to regulatory scrutiny. The current bid comes amid increased scrutiny from Brussels regulators on large airline deals, often requiring significant concessions to ensure competitive markets.

End of Naturgy Takeover Talks

Abu Dhabi National Energy Co. (Taqa) and Criteria Caixa SA have ended their discussions to jointly take over Naturgy Energy Group SA, a €24 billion ($26 billion) Spanish utility. Criteria announced in a regulatory filing on Monday that talks with Taqa “have been ended without any agreement.” This development may reignite tensions among Naturgy’s four largest shareholders, who collectively control about 83% of the company. Criteria owns approximately 27% of Naturgy, while Global Infrastructure Partners (GIP) and CVC Capital Partners each hold about 20%, and Australian infrastructure group IFM owns about 15%.

Criteria had announced in mid-April that it was in preliminary talks with a potential investor to jointly take control of Naturgy, aiming to resolve long-standing tensions with GIP and CVC. Taqa later confirmed it was the potential partner and was in discussions with GIP and CVC to acquire their stakes. A takeover deal would likely have faced scrutiny from the Spanish government, which has the authority to veto acquisitions of stakes greater than 10% in companies deemed strategic. Naturgy, being Spain’s largest natural gas firm and a key energy provider, falls under this category. The government has previously restricted Naturgy’s attempts to split its power networks and energy businesses.

Despite the end of talks with Taqa, Criteria reiterated its commitment as a long-term investor in Naturgy and mentioned it is still in discussions with other potential partners.

Activist Investor Targets Southwest Airlines

Elliott Investment Management has acquired a $2 billion stake in Southwest Airlines, according to the Wall Street Journal. Known for pushing for changes at underperforming companies, Elliott’s involvement has already led to an 8% increase in Southwest’s shares in pre-market trading, even before any specific demands from the fund have been disclosed. Elliott is expected to push for measures to improve Southwest’s profitability, which has significantly declined since the pandemic.

Southwest posted a net income of $977 million in 2021, just 40% of its 2019 figure, and the situation worsened in 2022 and 2023, with net profits dropping to $465 million. The airline reported a loss of $230 million in its most recent quarter. Despite the broader trend of consumers spending more on air travel, Southwest has faced challenges, including a high-profile operational meltdown in December 2022 that cost the airline $140 million and delays in aircraft deliveries from Boeing, its exclusive supplier.

Management Quotes

• IAG SA:

  "We submitted a new remedy package with some adjustments compared to the previous one. It includes improvements that have come from the constructive dialog we have been maintaining with the European Commission, with the aim of ensuring that the acquisition of Air Europa is carried out with all guarantees for consumers."