International Airlines Group's proposed acquisition of Spanish carrier Air Europa would harm competition, according to the European Commission (EC).
In particular, such a merger would reduce competition between Spain and the Americas as well in the domestic Spanish market and in short-haul international markets from Spain, the EC wrote in an April 26 Statement of Objections.
IAG owns Spanish airlines Iberia and Vueling and is also the parent of British Airways, Aer Lingus and Level.
"The Commission is concerned that customers may face increased prices and/or decreased quality of services after the transaction," reads the letter.
IAG currently owns 20% of Air Europa. It entered into a purchase agreement for the remaining 80% in February 2023 for 400 million British pounds.
The company previously pursued a purchase of Air Europe between 2019 and 2021, but that fell through over similar competition-related scrutiny from the EC.
IAG noted that the Statement of Objections is a normal regulatory step for the European Commission when dealing with complex transactions.
IAG said it is working to achieve EC approval by offering a suite of remedies aimed easing concerns over competition.
"We are willing to transfer the equivalent of 40% of the flights operated by Air Europa in 2023 to other airlines," IAG said. "Likewise, we commit to ensuring that no route is operated exclusively by Iberia and Air Europa. We remain committed to closing this transaction as quickly as possible in 2024, so that we may start delivering the deal's benefits for consumers and the wider Spanish economy, while increasing Madrid's competitiveness with other European hubs."
In the Spain-U.S. market this summer, Air Europa is slated to overlap with IAG's Iberia on two routes: Madrid-Miami and Madrid-New York JFK. Those carriers will be joined by Iberia's joint venture partner, American Airlines, on the Miami route and by American and Delta on the JFK route.
The EC noted that on some routes flown by Air Europa between Spain and the Americas, an acquisition by IAG would quash competition.
"For other routes, competition from other airlines appears limited and both parties have relatively high market shares," the commission wrote.
IAG says that its proposed remedies will go well beyond divesting of slots on designated routes. The company plans to provide aircraft, maintenance technicians and ground crew to airlines that take over those slots, in addition to turning over existing bookings.
"We offer to structurally transfer everything that is required to run a competitive and viable business on all divested routes," reads an IAG fact sheet.