Skift Travel News Blog

The potential merger of Avianca and Viva Air took a small step forward Wednesday when the former partially accepted the conditions laid out by the Colombian government for the combination of the country’s largest and third largest airlines.

While Avianca accepted regulator Aerocivil’s passenger protection provisions, including guaranteeing refunds for all travelers affected by Viva’s closure, it asked for “clarifications and minor modifications” to other conditions. The Star Alliance carrier asked that the remaining provisions, which include giving up slots at Bogotá’s congested El Dorado airport and committing to operating certain routes, reflect the “reality of the current market and to the operating conditions currently available to Viva.”

The latter point referred to Viva’s shutdown in February and subsequent repossession of several of its planes aircraft leasing companies. Then in March, budget competitor Ultra Air also shutdown, which upped pressure on the government to bring some budget airline capacity back to the Colombian domestic market, which had fully recovered to 2019 traveler numbers by October.

Avianca and Viva have called for “quick solutions” from Aerocivil in its response.

Competitors JetSmart and Latam Airlines, however, have appealed Aerocivil’s tentative approval of the merger. Both have previously expressed interest in acquiring the assets of Viva, which would give JetSmart its first domestic operation in Colombia and Latam a larger presence.

Latam, Avianca’s main competitor in South America, said Tuesday that it is seeking additional slots at the Bogotá airport from the merger. It added that, since Viva and Ultra shutdown, it has added five aircraft to its Colombian operation and increased the number of seats by 20 percent. Latam is backed by Delta Air Lines and Qatar Airways.

JetSmart, for its part, received a local operating certificate in March to begin domestic flights in Colombia. The Chilean discounter’s owners include U.S. private equity firm Indigo Partners and American Airlines.

The responses this week are the latest in what has turned into something of a soap opera over the future of the Colombian aviation market, which is the third largest in Latin America. Avianca, in the course of its takeover, may have violated local antitrust law after it took economic control of Viva last year and then, reportedly, installed a board to oversee the business that had its interests in mind. The airlines first sought approval to merge in August, a request that Aerocivil denied in November, and then reopened in January.

The Avianca-Viva merger is separate from Avianca’s plan to merge with Brazil’s Gol to create the new Abra Group.

Struggling Colombian budget airline Viva Air stopped flying late Monday, less than a month after it filed for the local equivalent of bankruptcy.

The Medellin-based carrier, and Colombia’s third largest, cited the delay by the country’s civil aviation regulator, Aerocivil, in approval of its proposed merger with Avianca for its closure. Aerocivil has been considering the airline’s merger, which former Viva CEO Felix Antelo said last year was critical to the airline’s future, for nearly seven months.

“Unfortunately, we are at this point due to the repeated delays of the [Aerocivil] and their inability to recognize that what is best for Viva is also the best for all Colombians,” Viva said in a statement. “We remain hopeful that [Aerocivil] will take immediate action to ensure that Viva continues to paint the skies yellow.”

Aerocivil first rejected Avianca and Viva’s merger request in November due to competition concerns. The regulator reopened the review in January after Avianca and Viva offered concessions to preserve competition. However, after JetSmart and Latam Airlines expressed interest in acquiring Viva, Aerocivil postponed a decision on the merger earlier in February.

Viva said that it will continue talks with creditors with the hopes it can restart operations in the future.

It may be a full on bidding war for bankrupt Colombian budget airline Viva Air. Latam Airlines has expressed interest in acquiring the carrier, joining Chile’s JetSmart, and put Avianca in defense mode over its proposed merger with Viva.

“The ‘proposals’ of the competitors that have expressed their alleged interest in Viva are, by all accounts, unfeasible, late and seem more of a distraction in the face of the request for integration of Avianca and Viva,” Bogotá-based Avianca said Wednesday. The airline acquired a controlling stake in Viva earlier this year but, as yet, its proposed merger with the discounter has been blocked by Colombian regulator, Aerocivil.

Aerocivil took a second look at the Avianca-Viva deal in January after the airlines offered to divest slots in Bogotá, among other conditions, in order to preserve competition. The regulator tweeted on February 10 that it anticipated a “prompt” decision on the proposed merger following Viva’s filing for the Colombian equivalent of bankruptcy.

Avianca’s comments Wednesday came after Latam said the day before that it had sent an expression of interest to acquire Viva to the airline’s management and shareholder Castlesouth Limited.

“We consider that this potential acquisition would be the best option to strengthen the conditions of the free market, as well as offer the necessary support to respond to the financial situation of Viva Air Colombia and its creditors, ultimately resulting in the strengthening of the Colombian airline industry,” Latam said.

Viva is Colombia’s third largest airline. In the first quarter, Viva is scheduled to fly nearly 17 percent of all seats in the country, according to Diio by Cirium schedule data. Avianca will fly 43 percent and Latam nearly 21 percent. JetSmart currently does not have a domestic operation in Colombia, but serves the country from Chile.

The potential bidding war for Viva comes amid a wave of potential airline consolidation in Latin America. Avianca is separately in the process of merging with Brazil’s Gol to form the new airline holding company, Abra. And Brazil’s Azul tried unsuccessfully to acquire Latam in 2021.

Latin America’s airlines likely face two more years to return to “total normality,” Roberto Alvo, the CEO of the region’s largest carrier, Latam Airlines, warned Sunday.

“The pressures that the industry has to bear … has not yet fully recovered and that means the industry has not yet left this major crisis behind,” he said at the ALTA Airline Leaders Forum in Buenos Aires. Those pressures include a strong U.S. dollar, high fuel costs, and the continued lack of any state financial support from the region’s governments.

With that in mind, plus the financial toll many Latin American airlines suffered during the pandemic, Alvo expects “total normality” for the industry by the end of 2024.

Alvo’s comments come on the eve of the annual general meeting of the regional airline trade association, ALTA. The CEOs of many of Latin America’s major airlines, including Aeromexico, Avianca, Azul, and Gol, are expected to share their views on the recovery and outlook at the event. Alvo is president of the ALTA executive committee.

Normality, however, does not mean travelers won’t return sooner. In fact, Alvo forecast a full recovery in terms of airline passenger traffic by the end of next year. That is a little later than the outlook for his airline; Latam expects a full traffic recovery by around the middle of 2023.

“We are at a period of strong recovery of [the] industry,” Alvo said. Air travel in some countries, including Colombia, the Dominican Republic, and Mexico, is already above pre-pandemic levels, with others in the region rapidly catching up.

In August, data from global airline trade group IATA show Latin American passenger traffic had recovered to nearly 90 percent of 2019 levels. That made Latin America the most recovered air travel market — in terms of passenger traffic — in the world, even ahead of North America that was at 89 percent of pre-pandemic traffic.

South America’s largest airline, Latam Airlines Group, can exit its U.S. Chapter 11 bankruptcy restructuring after a judge approved its reorganization plan Saturday.

The Chile-based carrier will exit its restructuring leaner than when it went in after shedding its Argentine subsidiary, but with $8 billion in new capital including $5.4 billion in new financing from shareholders Delta Air Lines, Qatar Airways, and the Cueto family, as well as its major creditors. Delta, Qatar Airways, and the Cuetos will also maintain equity stakes in Latam.

“This is a very important step in the process to emerge from Chapter 11, and we will continue working hard to complete the remaining steps in the coming months,” Latam CEO Roberto Alvo said in a statement on June 19.

Latam is the last of the big three Latin American airline bankruptcies to come to a close following Avianca’s exit in December, and Aeromexico in March. Latam plans to exit Chapter 11 in the second half of the year.