IAG has decided to make a cash tender offer to buy 100% of Spanish low cost Vueling.
The airline group, which owns British Airways and Iberia, expects to pay €113 million for a 54% stake in the airline, which is already 46% owned by Iberia.
The deal will be funded using internal IAG resources.
IAG chief executive Willie Walsh said: "With its leading position in Barcelona, European growth strategy and low cost base, Vueling has much to offer IAG.
"It has significantly increased capacity while remaining profitable, despite the Spanish economic slowdown, and already has extensive commercial arrangements with Iberia. We would plan to retain the current Vueling management team.
Walsh said Vueling would benefit from the financial strength of a larger airline group, making it better able to compete with other airlines and invest in new customer products and services.
"The airline will also be able to generate some cost and revenue synergies as part of IAG mainly through joint financing and procurement," he added.
