Consolidation moves continue in South America, with merger plans in Colombia plus two Venezuelan carriers set to join forces in the transatlantic market.

Colombia's two largest carriers, Avianca and Aces, have unveiled a bold plan to merge ownership under a holding company. It would own both of them, plus SAM, the regional subsidiary of Avianca. The holding company's proposed ownership remains unclear, but Juan Emilio Posada, chief executive of Aces, would head it, and officials from all three airlines would be directors.

In the plan, which still requires shareholder and government approval, the three carriers will keep their identities and current operations, but may rationalise routes and reallocate some aircraft. Only Avianca has flights to Europe and an extensive Latin American network. Aces flies primarily to the USA. They presently compete with each other and several other airlines on domestic routes.

This merger could face close scrutiny from Colombia's competition office, since it runs directly counter to Mexico's recent decision to split Cintra, a holding company that owns both Aeromexico and Mexicana. Avianca argues, however, that Colombia's carriers have been hard hit by a weak economy and peso devaluation. A merger is the only effective way for them to meet foreign competition.

As a first step toward that merger, Avianca has completed a restructuring of $150 million in foreign debt, chiefly with aircraft lessor, GECAS, and has gained a commitment from its major shareholder, the Santo Domingo group, for a recapitalisation of nearly $200 million. Both were prerequisites under its agreement with Aces.

Across the border in Venezuela, Avensa has unveiled commercial links with rival Aeropostal that could lead to closer co-operation. Instead of operating its own flights to Europe, Aeropostal will codeshare with Avensa and feed traffic to the latter's transatlantic flights. Without this accord, Avensa faced the prospect of head-to-head competition from Aeropostal, which Caracas has designated as Venezuela's second carrier to Spain and Italy. The accord will also feature an aircraft maintenance pool.

Avensa was on the verge of a similar deal last year with Aserca, Venezuela's third major airline. Aserca and Avensa had agreed to a phased co-operation plan that eventually could lead to a merger, but Aserca was scared off by Avensa's worsening finances.

Last year Aeropostal also proposed what was essentially a takeover of Avensa, but Avensa rejected it despite its difficulties. Its new alliance with Aeropostal could lead to co-operation in other markets, but there is no talk of a merger.

Source: Airline Business