Avianca's strongest competitor, Latam Airlines, hasn't had the easiest time since 2012, when two influential carriers – Chile's LAN and Brazil's TAM — closed their merger. But Latam is finally making money, and it's likely Latin America's leading carrier. Avianca has some work to do to keep pace.
Latin America’s airline industry is moving toward having just two dominant players serving the region and the world. Avianca Holdings SA says it can be one of these, boosted by its alliance with United Continental Holdings Inc. and a merger with a Brazilian airline.
The carrier hopes to reach a commercial agreement this year with United, with the ultimate aim that passengers will be able to travel “seamlessly” between the two distinct airlines, Chief Executive Officer Hernan Rincon said Tuesday in an interview in New York. Meanwhile, due diligence regarding a potential merger with Avianca Brasil, a separate carrier run by Chairman German Efromovich’s brother, is about 75 percent complete, he said.
“We believe only two will survive with operations everywhere in Latin America, and connecting it with the world, and we’re building the company to be one of them,” Rincon said, adding that Latam Airlines Group SA would probably be the other big player. “The benefits of the alliance are so strong for United and for Avianca that it is unlikely that we’re going to let anything get in the way.”
The stock had rallied above $10 earlier this year amid takeover speculation, and is back down to $7.30 in New York trading. An investment in the Colombian airline by United isn’t being discussed, Rincon said.
Avianca faces a hearing next month in a suit brought by its second-largest shareholder. Kingsland Holdings, which sued the airline, the Efromovich brothers and Chicago-based United in New York state court, saying they secretly negotiated an $800 million loan and strategic partnership. They allege German Efromovich, Avianca’s controlling shareholder, chose the deal for his own benefit and discarded offers from two other major international airlines that gave the Colombian airline a higher value.
As for Avianca Brasil, Rincon said four independent bodies, including an auditor and a bank, were looking at that potential tie up. Rincon said he couldn’t say right now how much the Brazilian airline is worth, but would probably have the answer in a few weeks.
The path to joining rival Latam at the top of the region’s airline heap is clear to Rincon. From the airline’s prior experience, it saw that an alliance would get the company 90 percent of the benefits with 20 of the costs compared to a full merger.
“The outlook for the rest of the year is very strong, we’re running our business and we’ll continue to do that, and in the very unlikely scenario that we don’t come to an agreement with United, we’ll go back to the drawing board and say who’s next, what can we do? We have many other options.”
–With assistance from Helder Marinho and George Ferguson
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Photo credit: An Avianca Airlines Boeing 787 arrives in Madrid. The airline is hoping its proposed commericial partnership with United Airlines will help it compete better in Latin America. Alan Wilson / Flckr