Proactive Investors - British Airways owner International Consolidated Airlines Group (LON:ICAG)'s agreed €400 million takeover of Air Europa faces objections from the European Commission's antitrust regulators, which could block the deal.
A preliminary view from the EC was provided late on Friday that the acquisition "may restrict competition in the market for passenger air transport services, in particular for routes within, to and from Spain", with concerns that it may result in prices and/or decreased quality of services.
The EC's competition regulator launched an in-depth investigation into the takeover in January, gathering information from the companies, competing airlines, airports, slot coordinators and customer organisations.
Both IAG, which owns Iberia and low-cost option Vueling, and Europa already operate many domestic routes in Spain, as well as short-haul routes within Europe as well as long-haul routes, in particular to and from North and South America.
The EC said IAG can now reply to its objections, request a hearing and/or put forward remedies to address these preliminary competition concerns and can submit them at any time before a deadline of 10 June.
On domestic competition in Spain, the EC's main objections was over a number of routes where high speed trains do not provide an alternative, and on routes between peninsular Spain and the Balearic and Canary Islands, where IAG and Air Europa currently compete head-to-head and for which there will be no direct competition after the transaction.
A similar situation is described for a number of long-haul routes connecting Spain with North and South America, where competition from other airlines "appears limited and both parties have relatively high market shares".
Competiton on a number of short-haul routes connecting Spain with countries in Europe and the Middle East also "appears limited".
With millions of passengers travelling on those routes, total annual spending tops €3 billion, the EC said.