British Airways owner International Airlines Group has agreed a cut-price deal to take over Spain’s third largest carrier Air Europa.

IAG-owned Iberia is to pay €500 million in an amended agreement for the Latin American specialist airline instead of a pre-pandemic valuation of €1 billion agreed in November 2019.

Payment will deferred until the sixth anniversary of the completion of the acquisition, which is expected to be sealed subject to European Commission approval in the second half of 2021, according to IAG.

The group said it continues to believe that the acquisition remains “strategically important” for the future of IAG and Iberia.

It also positions the group “to benefit from growth opportunities as the industry emerges from the unprecedented impact of the Covid-19 crisis”. 

Bringing Air Europa into the IAG fold will increase the importance of IAG’s Madrid hub, “transforming it into a true rival to Amsterdam, Frankfurt and Paris Charles de Gaulle”.

It will also unlock further network growth opportunities and provide “increased choice and schedule flexibility”.

Air Europa currently has a fleet of 52 aircraft compared to 68 at the end of 2019, with all except one are on operating lease.

The airline received a €141 million Spanish government agreed loan in May 2020 to mitigate the economic impact of Covid-19.

IAG said: “Assuming completion in the second half of 2021, IAG will be taking on Air Europa at a time when air travel recovery could be meaningful as the rollout of Covid-19 vaccines proceeds worldwide.”

Chief executive Luis Gallego said: “Both Iberia and IAG are demonstrating their resilience to face the deepest crisis in aviation’s history.

“Being part of a large group is the best guarantee to overcome current market challenges which will also benefit Air Europa once the transaction is completed.

“I am pleased that we have reached agreement with [Air Europa owner] Globalia to defer payment until well into the expected recovery in air travel following the end of the pandemic and when we expect to be realising significant synergies resulting from the transaction.”

Globalia chief executive Javier Hidalgo said: “This transaction is a great effort by all of us and is the best way to recover tourism, transport in Spain and the Madrid hub.”

Iberia chief executive Javier Sanchez-Prieto added: “This transaction makes perfect strategic sense to reinforce Madrid’s hub competitiveness on a global stage.

“It will benefit consumers and Air Europa’s incorporation into the Iberia Group will improve the company’s viability benefitting both Iberia and Air Europa employees.”