Spain approves 475 million euro aid package for Air Europa

By Nathan Allen

MADRID (Reuters) - The Spanish government approved on Tuesday a 475 million euro (£427 million) aid package for Air Europa, making the airline the first major Spanish company to tap into funds established to help companies in strategic sectors weather the pandemic.

The package will comprise a 240 million euro equity-backed loan and a 235 million euro regular loan, government spokeswoman Maria Jesus Montero told a news conference.

In return, the government will have a say on Air Europa's potential sale to IAG <ICAG.L>, the spokeswoman said, without giving details on what role Madrid would want to play.

British Airways owner IAG agreed to buy Air Europa for 1 billion euros last November, but is seeking to reduce the price amid the travel crisis caused by the pandemic.

Montero told reporters the government "reserved the right to give an opinion and decide criteria" on the possible deal, without elaborating.

She also said the government wanted to participate in the nomination of the airline's chief executive and in any layoff plans.

"In the case of Air Europa, the impact of the pandemic ... is evident, due to the drastic reduction in air traffic caused by reduced mobility and fewer tourist arrivals," Montero said after a weekly cabinet meeting, adding the number of flights operated by the airline plunged 95% in the second quarter.

Air Europa will have a maximum of six years to repay the loans, she said.

IAG declined to comment, but referred to remarks by its CEO Luis Gallego on Friday, who said IAG was waiting to see what conditions the Spanish government would attach to its help for Air Europa. Gallego also said IAG had to look at "everything" about the deal as so much had changed for the airline industry.

Air Europa declined to comment on what the government aid could mean for talks with IAG.

International travel restrictions have brought the global transport sector to a grinding halt, pushing several airlines to rely on state aid.

Air France-KLM received 7 billion euros from the French government in April, while German flag carrier Lufthansa secured a 9 billion euro bailout in June.

(Reporting by Jesus Aguado, Inti Landauro, Nathan Allen, Belen Carreno, Emma Pinedo; Additional reporting by Sarah Young in London; Writing by Ingrid Melander; Editing by Mark Potter)