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Latam takes positions in Brazil against the integration of Iberia and Air Europa

The airline reveals to the Brazilian Competition Authority a possible market dominance of IAG on the route between Sao Paulo and Madrid

A Latam plane departs from Congonhas airport, in Sao Paulo (Brazil).Victor Moriyama (BLOOMBERG)

The Latin American airline giant Latam is preparing to put obstacles to the takeover of Air Europa by the IAG group. The deadline is open for affected third parties to file a complaint against the integration project, the aforementioned Latam, through its subsidiary TAM Linhas Aéreas, has filed a complaint and filed a complaint with the Administrative Council for Economic Defense (CADE), the body that looks after the competition in Brazil.

The group he leads Roberto Alvo warns that the addition of Iberia, from the IAG group, and the aforementioned Air Europa will impact competition on the route between Brazil’s main airport, Sao Paulo-Guarulhos, and Spain’s busiest airport, Madrid-Barajas. CADE has accepted the request for intervention, as reflected in this morning’s edition of the Diario Oficial da Uniao and Bloomberg has warned.

In addition to the supervision by the General Directorate of Competition of the European Union, the historic marriage in the Spanish airline sector passes the filters of different competition authorities, coinciding with some of the countries most affected by the operation and with possible voice over it. This is the case of Brazil, the United Kingdom or Germany.

Latam, as an interested third party, now has 15 days to support its argument against the agreement between Spanish companies. The group has hired the advice of the Brazilian law firm IWRCF, which has put at its disposal Ricardo Inglez de Souza, one of the most reputable lawyers in the country in matters related to competition and international trade, or Stefanie Schmitt Giglio, with extensive experience also in competition cases. The latter collaborated with the Spanish firm Uría Menéndez in Brussels and has worked for large international groups in relevant processes before CADE.

In an interview given to Cinco Días last November, Roberto Alvo, CEO of Latam, stated that “air integration in Europe will be positive for the industry and also for passengers,” referring to IAG’s interest in Air Europa or from Lufthansa by ITA. “The sector is very competitive and the European market is an open market. Latam has a very important network in South America and flies to Barcelona, ​​Madrid, Milan, Rome, London, Paris, Frankfurt and Lisbon. This is one of our most important areas of development,” he added.

Latam, today in the sphere of the American Delta, managed to set up a shared business agreement with IAG and American Airlines that was overturned by the competition authorities in Chile. In fact, it is one of the groups, along with the Colombian Avianca, that stands up more strongly to the holding company Anglo-Spanish from Latin America. “Latam is used to competing in our region with the most important airlines in the world. I insist that consolidation is healthy and I add that Europe is lagging behind other parts of the world in this regard. It is not a risk but the natural evolution of the market,” Alvo said in November, showing an open vision about the possible integration of Iberia and Air Europa.

In any case, the European airline with the greatest dominance in the corridor between Brazil and Europe is neither Iberia nor Air Europa, but the Portuguese TAP, 100% state-owned and with a project to reopen to private capital. In fact, the IAG itself has expressed its interest in continuing this process in the neighboring country.

Research underway

The intended purchase of Air Europa was transferred by IAG to the European authorities on December 11, with the formal presentation of the documentation (filing) before the European Commission (EC). He holding company led by Luis Gallego, with advice from Garrigues, the London firm Slaughter and May, and with Morgan Stanley on the economic side, has promised to make significant concessions to the competition (remedies) to move forward with the process after a first failed attempt in 2021. The conglomerate that includes Iberia, Vueling, British Airways and Aer Lingus plans to close the acquisition of the eternal rival in Spain throughout 2024.

The EC, which already identified in the previous purchase attempt up to 70 routes in which the sum of Iberia and Air Europa should reduce its weight for the benefit of other companies, has now once again spoken of risks to competition. The operation has just entered a second phase (in-depth investigation) of greater depth in the investigation, but from Brussels it has been anticipated that both players in the Spanish air sector are direct competitors and could dominate routes in the domestic market without an alternative in the train and, of course, traffic between the Peninsula and the islands . This situation of restriction of competition would also occur on direct routes to America and to countries such as Israel, Morocco, the United Kingdom and Switzerland, to which Iberia and Air Europa offer direct connections.

In the long-haul business segment, the Commission put its magnifying glass on destinations in North and South America on January 24, “in which both parties offer direct connection and have competition with few competitors with direct connection.”

IAG and Iberia are holding talks with potential winners of routes and airport rights (slots) to meet the weight loss requests that come from Brussels. Already in 2021, the EC targeted flights from Madrid to Miami, Montevideo, Panama, Santo Domingo, Havana, Quito, Lima, Buenos Aires, Sao Paulo or Medellín, so Iberia decided to stop the operation.

IAG made a first offer of 1 billion for Air Europa in October 2019, but ran into the aforementioned demand for strong remedies and froze the project in December 2021. Failure to complete the purchase cost IAG 40 million due to the breach of the contract. And he paid another 35 million so that Globalia would give up reporting and open up to speaking again.

Once contacts were reestablished, the price dropped to 500 million plus a debt that exceeded 600 million. In a first step in search of integration, IAG took over 20% of Air Europa for 100 million on February 23, and agreed to pay the rest, if the green light is obtained in Competition, in cash and shares.

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Source: Cincodias



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