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Avianca and TACA reluctant to 'pick a fight' with Copa or Lan

Avianca and TACA expect their planned merger will lead to new revenue opportunities that will be generated from market stimulation rather than stealing market share from other Latin American carriers.

TACA CEO Roberto Kriete told the ALTA 2009 Airline Leaders Forum the tie-up with Avianca should stimulate market as the two carriers will be able to offer new city pairs and better connections on existing city pairs. He points out the TACA and Avianca networks are very synergistic with overlap in only two routes - Bogota to San Salvador and Lima.

"Our idea is not to pick a fight with Copa, pick a fight with Lan or pick a fight with anyone," says Kriete, who will be chairman of the new holding company that will be created after TACA and Avianca formally merge.

Kriete told the forum the merger will also generate new cost savings as the two carriers plan to renegotiate supplier contracts and "wring our friends here" by 2% to 3%. "We believe from a cost standpoint size does matter," he says.

Avianca and TACA announced plans to merge last week. Avianca will own 67% of the new holding company that will be created once the two carriers merge, with Grupo TACA Holdings owning the remaining 33%. But Kriete says Avianca will not have a controlling stake and conceptually it is a "merger of equals".

The chairman of Avianca parent Synergy, German Efromovich adds: "In this marriage there is no controlling stake."

Before the new company can be established the proposed merger must be approved by several authorities throughout Latin America and the US. But Kriete does not expect any problems with the approvals, including securing exemptions from the US DOT to ownership-related restrictions in bilateral agreements

"We don't foresee any problems at all with the approvals," he says.

From a competition standpoint Kriete says "the overlap is insignificant". From an ownership standpoint he points out that the three major markets involved in the deal - Colombia, El Salvador and Costa Rica - do not have any foreign ownership restrictions for airlines.

Brazil, where Avianca sister carrier OceanAir is based, has ownership restrictions. But Kriete says that is not an issue because Avianca's owner, Efromovich, has dual Brazilian and Colombian citizenship.

While the two airline groups will be merging from a regulatory standpoint Kriete says "we intend to for the time being to maintain the two separate brands". But he says over the long term the new company could "possibly look at gradually moving to a single brand".

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