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Want to buy a Latin American Airline?

Tuesday, September 20, 2016


There are various strategies for a potential buyer of some or all of the assets of Colombia-based Avianca Holdings.

If cultural differences don’t outweigh the benefits, a big North American or European group could bring economies of scale to an airline, which is an important player in the northwest sector of South America.

If new connections are not of primary importance, a Chinese-based group could give its owners a strategic asset in Latin America.

Meanwhile, some or all of Colombia-based Avianca is available, according to various reports published in recent weeks.

Delta Air Lines, United Continental Holdings, and Copa Airlines have made non-binding offers for part of Avianca Holdings, according to Bloomberg.

A Chinese conglomerate whose assets include part of Hainan Airlines, is another potential investor, according to Reuters.

Avianca in 2015 had a net loss of $140 million, following two years of declining profits.

In terms of potential strategies, a partnership with or adquisiton by a major international airline could be complicated, insofar as it involves a cultural clash, while doing little to reduce high compliance costs typically present in Latin American air transport operations.

On the other hand, such an approach could bring improved economies of scale to Avianca, which last year had operating revenues of just under $3.5 billion.

Meanwhile, United Airlines and Delta Air Lines each reported revenues of around $40 billion.

For its part, a Chinese airline would not gain a major logistical advantage through an acquisition of part or all of Avianca, since Chinese travelers can currently reach all major cities in South America with a connection in Los Angeles or Mexico City.

On the other hand, a Chinese investor might want to own an important logistics asset in South America, where several state enterprises, along with private companies, have major resource-sector investments.

A potential loss of market share in Central America, following the expected launch within the next year of Volaris Costa Rica, along with the growth in recent years of Copa Colombia, are some of the challenges facing Avianca.

On the other hand, Avianca is the biggest domestic airline in Colombia, and an important local carrier in Ecuador and Peru, as well as the operator of several connections between Latin America and major cities in the United States.

As far as investors are concerned, Delta Air Lines, United Continental Holdings, and Copa Airlines have made non-binding offers for part of Avianca Holdings, according to a Bloomberg report last week.

HNA Group, a Chinese conglomerate whose assets include part of Hainan Airlines, is another possible investor, according to a Reuters report from last June.

Avianca Holdings in 2015 had a net loss of $140 million, following two years of declining profit - $128 million in 2014, barely half of the figure of a year earlier.

The company is controlled by brothers German and Jose Efromovich, who in addition own Avianca Brasil, a separate business.