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* Buys Air Europa for 1 bln euros

* To be funded by external debt

* Shares rise more than 2%

* To be run by Iberia CEO

* Regulators may set requirements -analysts

Nov 4 (Reuters) – IAG, the parent of British Airways and Spain’s Iberia, announced a 1 billion euro ($1.12 billion) takeover of Spain’s Air Europa to boost its presence on routes to Latin America and the Caribbean.

The deal follows a setback in Latin America for IAG after Chile’s Supreme Court ruled against a plan that would have allowed it to bolster cooperation with partners in the oneworld airlines alliance.

**BA parent IAG ups bet on Latin America with Air Europa takeover**
Ryanair Chief Executive Michael O’Leary attends a Reuters Newsmaker event in London

Chile’s LATAM Airlines in September then announced it planned to leave the alliance, opting instead for a tie-up with SkyTeam member Delta Air Lines.

IAG shares initially rose more than 2% following the Air Europa takeover announcement but some analysts said IAG may have to shed routes in order to win regulatory approval.

IAG shares were up 1.2% at 1315 GMT.

Ryanair CEO Michael O’Leary said his company will ask the UK’s market watchdog to force IAG to make divestments as part of its Air Europa takeover, a deal he said would be bad for competition.

“Potential remedies, perhaps in the form of slot release or behavioural restrictions, may be required and these could impact the potential synergies,” an analyst at Liberum wrote in a note.

IAG also owns carriers Iberia Express, Level, Ireland’s Aer Lingus and Vueling.

“We are not convinced that having just another brand platform is the optimal move, and could see it potentially combining with Level, Vueling or potentially Iberia Express after some time,” analysts at Bernstein said.

FILE PHOTO: An Air Europa-branded Boeing 737 MAX aircraft is seen grounded at a storage area in an aerial photo at Boeing Field in Seattle

Air Europa serves 69 destinations, including long-haul routes to the Americas and the Caribbean. It had a fleet of 66 aircraft at the end of 2018.

Air Europa’s Spanish parent company Globalia earlier this year received authorisation from the Brazilian government to explore the possibility of flying domestic routes within Latin America’s largest economy.

It is unclear if that authorisation will remain with Globalia or be transferred to IAG.

Air Europa will initially keep its brand and as it gets integrated into the existing hub at Madrid it will be a standalone operation run by Iberia boss Luis Gallego, IAG said.

It will also withdraw Air Europa from the SkyTeam alliance once the deal is completed. Air Europa has a joint venture with Air France-KLM.

“This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs,” said Gallego, adding that Madrid had the potential to serve as a gateway between Asia and Latin America.

IAG said it expected the Air Europa deal, which will be funded through external debt, to close in the second half of next year and for it to add to its earnings in the first full year after the closure.

($1 = 0.8951 euros) (Reporting by Yadarisa Shabong in Bengaluru; additional reporting by Andres Gonzalez in Madrid and Marcelo Rochabrun in Sao Paulo, editing by Patrick Graham and Jason Neely)

An Air Europa Boeing 737 airplane takes off at the airport in Palma de Mallorca

BRASILIA (Reuters) – Brazil is determined to lure airlines to operate domestic flights in Latin America’s largest aviation market, and is taking meetings with at least three carriers, a senior government official told Reuters.

“We are going to talk with Jet Blue, we are going to talk with Volaris, a Mexican group … we are going to talk with Sky Airline, which is Chilean,” Ronei Glanzmann, Brazil’s civil aviation secretary, told Reuters on the sidelines of the ALTA Airline Leaders Forum, an industry conference.

“These are conversations to introduce Brazil to them, they do not mean that the airlines are saying that they will come here,” he added.

Glanzmann said the meetings with Volaris and JetBlue Airways Corp <JBLU> will take place on Monday.

A representative for Sky said they had canceled their participation in the ALTA conference due to the civil unrest in Chile, but declined to comment on taking a meeting with the Brazilian government. Jet Blue and Volaris did not immediately respond to a request for comment.

Brazil’s government has recently begun a push to open its aviation market, the largest in Latin America. Right-wing president Jair Bolsonaro has allowed foreign carriers to set up domestic carriers in the country.

Currently, Brazil’s domestic air travel market is highly concentrated among three airlines. Until earlier this year, there was a fourth player, Avianca Brasil, but the airline stopped operations in May after filing for bankruptcy operations late last year, highlighting the high risk and volatility of operating in Brazil.

Reaction to Brazil’s liberalization has been slow, but already Spanish airline group Globalia has declared its intention to operate a domestic airline in Brazil. But Glanzmann hopes others will too.

His strategy, he said, involves airlines dipping their toes in the Brazilian market first by operating international flights.

“We are working first with international routes, but we are already working so that those operations will become domestic operations in the Brazilian market,” Glanzmann said.

In the past year, four foreign low cost airlines have begun operating international flights to Brazil: JetSMART, which belongs to Indigo Partners, Sky Airline, Norwegian Air Shuttle <NWARF> and Argentina’s Flybondi.

Still, some industry watchers are skeptical that anyone will attempt to enter Brazil’s domestic market anytime soon.

“We don’t see anything changing in the short term regarding a new low cost airline operating domestically,” said Eduardo Sanovicz, who heads ABEAR, an industry group that represents Brazil’s two largest airlines. “For a company to start flying in Brazil, they will need to know that they will have the same costs as we do.”

Brazil’s carriers have long complained about high costs of operating in Brazil, especially value-added taxes on fuel that can be as high as 25%.

(Reporting by Marcelo Rochabrun; Editing by Nick Zieminski)

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