The takeover of Air Europa by British Airways owner IAG could face a formal investigation by the competition watchdog.

The Competition and Markets Authority (CMA) said it is considering whether the £420 million deal could lead to a substantial reduction of competition in the UK.

IAG first announced plans to buy the Spanish airline in 2019 for 1 billion euros (£840 million) although the price was slashed after the Covid-19 pandemic knocked the entire sector by grounding planes.

Bosses have already offered concessions to EU antitrust bodies over the deal, although the details have not been made public.

A European Commission investigation was launched in June over concerns that the plans would reduce competition on Spanish domestic routes and international routes to and from the country.

IAG already owns Iberia and the deal would see it buying Air Europa on behalf of IAG, but trade unions and rival carriers have raised concerns.

The CMA said it will make a decision by January 19 on whether to launch a formal investigation.

IAG said: “We will collaborate with the CMA. The London-Madrid route is highly competitive and is already part of the European Commission (investigation) process.”