Avianca, Gol Plan Four-Way South American Airline Merger

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Never a dull day in Latin American airline circles. Two of the biggest in the region, Avianca and Gol, plan to merge and create a pan-South American group with budget competitors Sky aviation Airline and Viva Air.

Edward Russell

Two of South America’s largest airlines, Avianca and Gol, plan to join forces to create a European-style holding company to dominate air travel in Latin America.

the new group, Abrawould own Avianca, Gol and Viva Air, as well as a minority stake in Sky Airline in Chile under the plan unveiled Wednesday. Abra would compete with Latam Airlines Group, currently the largest in Latin America, in the market, but break with its competitor’s single-brand strategy by retaining – for now – the individual identities of each of its owned airlines. exclusive.

Abra’s announcement comes less than two weeks after Avianca and Viva announced its intention to merge while continuing to operate as separate airlines.

“Abra will provide a platform for operating airlines to further reduce costs, achieve greater scale, continue to operate a fleet of state-of-the-art aircraft and continue to expand their routes, services, product offerings and fidelity. programs,” group president Roberto Kriete said during a briefing on Wednesday.

Of its four airlines, Abra operated 21% of passenger capacity in Latin America in the year ending May, according to Cirium schedules. Latam tapped nearly 24 percent. Abra would occupy a leading position in the important markets of Brazil, Colombia and Peru.

Abra would operate a diverse fleet of aircraft centered on Airbus models. Avianca, Sky and Viva all primarily fly Airbus A320 family aircraft, while Gol is an all-Boeing 737 operator. Avianca also has Boeing 787s for long-haul routes.

Bradesco BBI analyst Victor Mizusaki said in a research note on Wednesday that the proposed deal was positive for Gol, which is almost exclusively a national airline in Brazil. The combination could also create “significant synergy opportunities” between the four airlines.

European airlines have successfully consolidated under a holding company structure similar to Abra’s proposal. Air France-KLM, International Airlines Group and the Lufthansa Group all own multiple individual airline brands, but benefit from scale and other synergies through their larger group structures. Previously in Latin America, Avianca and Latam grew through acquisitions in which they unified their operations under a single brand while maintaining individual airlines in each country.

“Everyone is looking for additional synergies, [and] cooperations,” Gol CEO Paulo Kakinoff said in March. He added that, in his view, many synergies could be realized without a “full merger”.

Kriete and Abra CEO Constantino de Oliveira Junior, who founded Gol in 2001, stressed on Wednesday that the deal would create growth opportunities for all four airlines. This will include expansion into new markets for each airline, as well as new international long-haul and cargo opportunities.

An unanswered question on Wednesday was Abra’s partnership strategy. Avianca has close ties with United Airlines and Golf with American Airlines. United holds a 16.4% stake in Avianca and American a 5.2% stake in Gol. Neither Kriete nor Junior have commented on the group’s alliance plans.

Financial details of the proposed combination and the creation of Abra were also not disclosed.

Avianca CEO Adrian Neuhauser and Gol CFO Richard Lark will become co-chairmen of Abra once the deal closes. They will retain their current positions with their respective airlines.

Abra expects to complete the purchases of Avianca, Gol, Sky and Viva under the new group structure in the second half. The agreement is subject to certain regulatory approvals.