Iberia and Vueling parent IAG has agreed to acquire another Spanish operator, Air Europa, for a cash transaction of €1 billion ($1.1 billion).
IAG says the agreement – placing the carrier under Iberia – will transform its Madrid hub into a "true rival" to other major European bases such as Paris, London and Frankfurt.
Iberia chief Luis Gallego says the Madrid hub has "lagged behind" other European stations, and the acquisition will enable the Spanish capital to compete "on equal terms" – potentially becoming a link between Asia and Latin America.
The acquisition is expected to be completed in the first half of 2020. It will be accretive to earnings per share in the first full year, says IAG, and to return on invested capital by the fourth year.
IAG says the agreement will establish the company as a "leader" in the markets between Europe and Latin America as well as the Caribbean.
"Acquiring Air Europa would add a new competitive, cost-effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership," says chief executive Willie Walsh.
Air Europa operates a fleet of 66 aircraft and last year turned in €100 million operating profit.
IAG says its brand will "initially be retained" and the carrier will become a standalone profit centre within Iberia.
It will integrate the airline into the Iberia hub structure at Madrid, and establish commercial links with other IAG carriers. Air Europa will also be included in IAG's joint businesses.
Air Europa is owned by parent company Globalia.
Globalia chief Javier Hidalgo says the IAG acquisition will "maintain the path" followed by the Spanish carrier over the past few years, and that the takeover "will be a success".
IAG says it aims to achieve "full run-rate synergies" by 2025, with revenue synergies achieved through intra-group codeshares, timing adjustments at Madrid, and alignment of sales and loyalty programmes.
