The deal will see IAG pay 20 million euros ($24 million, £17.8 million) for Niki assets and provide liquidity of up to 16.5 million euros to the airline, the buyer said in a statement.
Around 740 of Niki’s 1,000 employees will be hired by IAG, which will incorporate its new venture as a subsidiary of its no-frills Spanish airline Vueling.
“This deal will enable Vueling to increase its presence in Austria, Germany and Switzerland and provide the region’s consumers with more choice of low cost air travel,” said IAG chief executive Willie Walsh.
Niki hit turbulence when parent Air Berlin went bankrupt earlier this year and was forced to stop flying on December 14, leaving thousands of passengers stranded.
Lufthansa had been lined up to buy Niki as part of the German carrier’s broader takeover of Air Berlin assets, but dropped the plans over EU competition concerns.
The newly-announced deal will see IAG buy up to 15 planes in Niki’s fleet of around 20, which served resorts in southern Europe and north Africa, as well as take on runway slots at airports including Vienna, Munich and Zurich.
While 2017 has been a bruising year for some European airlines — after the collapse of Air Berlin and Monarch Airlines in the UK, and as Alitalia in Italy went into administration — IAG has bucked the trend.
The Anglo-Spanish group, owner also of Aer Lingus and Iberia, has said it expects underlying operating profit to hit three billion euros in 2017, a 20-percent jump on the year before, thanks to rising demand and falling costs.