By Joanna Plucinska, Foo Yun Chee and Corina Pons

(Reuters) -British Airways owner IAG terminated its proposed takeover of Spain’s Air Europa on Thursday, citing regulatory environment concerns, less than two months after it offered remedies to antitrust regulators to secure approval for the deal.

IAG had offered concessions to the European Commission in June, after the watchdog warned the deal could reduce competition.

EU antitrust regulators had been poised to block the deal after IAG declined to offer additional remedies to address their concerns, people with direct knowledge of the matter said.

“It doesn’t make sense for our shareholders and that’s the reason we are abandoning the operation,” IAG Chief Executive Luis Gallego told a press call on Thursday.

Gallego confirmed that the European Commission said the concessions offered by the group were not enough.

Analysts said IAG’s decision was unsurprising, but prompted questions about where IAG may turn its acquisition interests in the future. Portugal’s TAPis seen as a potential target for acquisition.

“The shares appeared to give no premium for this getting approved,” said Alex Irving, an analyst at Bernstein.

IAG said it would pay Air Europa 50 million euros ($54 million) as termination fee.

Air Europa officials were not immediately available for comment. Air Europa owner Globalia was also not immediately available.

IAG had announced last year that it would buy out the 80% of Air Europa it did not already own for 400 million euros. The company would retain its 20% stake in Air Europa.

It first made an attempt at a bid take over the carrier in 2019.

STRONG RESULTS

Unlike its rival European carriers, IAG reported stronger than expected second quarter results with an operating profit of 1.24 billion euros ($1.34 billion), compared to an analysts’ consensus of 1.08 billion compiled in a company-led poll.

The second quarter has been rough for European airlines as they deal with a normalization of demand and spiralling costs. That comes after a years-long post-COVID rally for carriers as revenge travel boomed around the world.

Much of IAG’s strength remains in the popularity of travel in the North Atlantic market, while the group has little exposure to Asia, which has seen overcapacity from Chinese carriers and has negatively impacted other carriers like Lufthansa.

“The capacity that we have in those markets is very reduced. So, for the time being, the projections we have for the year are in line with our forecast,” Gallego said.

IAG shares have proven to be among the most resilient compared to other European airlines, many of which have lagged in recent months as they struggle with spiralling costs.

($1 = 0.9268 euros)

(Reporting by Unnamalai L and Pushkala Aripaka in Bengaluru; Editing by Shilpi Majumdar and David Evans)

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