British Airways owner IAG yesterday agreed to buy Spain’s Air Europa for 1 billion euros (US$1.12 billion) to expand routes to Latin America and the Caribbean, boosting Madrid as a key hub.

The London-listed company said in a statement that it has signed a transaction agreement with Air Europa owner Globalia in a deal it aims to complete in the second half of next year.

IAG added that Air Europa would complement existing Spanish divisions Iberia and Vueling — and help Madrid take on the four largest air hubs in Europe: Amsterdam, Frankfurt, London Heathrow and Paris Charles de Gaulle.

The deal, which is subject to regulatory approvals, would further expand IAG’s portfolio, which also includes Ireland’s Aer Lingus and low-cost European carrier Level.

The British company said that it would fund the deal with debt, and expects the transaction to generate significant savings in terms of costs and sales.

“Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership, therefore generating additional financial value for our shareholders,” IAG chief executive officer Willie Walsh said in yesterday’s statement.

“IAG has a strong track record of successful acquisitions, most recently with the acquisition of Aer Lingus in 2015 and we are convinced Air Europa presents a strong strategic fit for the group,” Walsh said.

Iberia chief executive officer Luis Gallego added that the move was a boost for Madrid.

“This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs,” Gallego said.

“Following this agreement, Madrid will be able to compete with other European hubs on equal terms with a better position on Europe to Latin America routes, and the possibility to become a gateway between Asia and Latin America,” he said.

Air Europa flies to 69 destinations around the world. It flew 11.8 million passengers last year, with revenues of 2.1 billion euros and an operating profit of 100 million euros.