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Avianca posts 1H profit and ponders IPO

Avianca, which has remained profitable this year despite the global economic downturn, is ready to pursue an initial public offering (IPO) when market conditions improve.

The president of Avianca parent Synergy Group, German Efromovich, said yesterday at a ceremony inaugurating the Colombian carrier's new headquarters building that "Avianca is prepared to return to the local [Bogota] stock exchange".

But he added the carrier has no immediate requirement for an IPO as Avianca's successful completion earlier this week of a local $250 million bond offering satisfies its "current financial needs". He says the timing of an IPO also hinges on "favourable" market conditions.

Synergy, which acquired Avianca at the end of 2004 as the carrier emerged from bankruptcy protection, has always planned to eventually take Avianca public again. Avianca's shares had been traded on the Bogota stock exchange prior to its bankruptcy.

Speaking to Airline Business Magazine earlier this month, Avianca president Fabio Villeags said the carrier has been ready for an IPO for some time and Synergy is now running the company "very much as if we were in the market".

"We worked on putting together an IPO several years ago. We were almost there but then [market conditions worsened and] we had to postpone the idea," Villegas explains.

"We still have to wait for the market to recover a bit. Let's see what happens with the market. But to be prepared and ready when the markets are there, we are building our financial numbers in US GAAP, we [have implemented] corporate governance in our company and we have an independent board of directors."

Villegas says Avianca is interested in pursuing an IPO because it would "give us better governance and a lot of access to different markets we don't have today in terms of financial capabilities. It will [also] give us more accountability and a lot of benefits in the way we administer the company."

In addition to a possible listing in Bogota, Avianca according to Villegas will consider a listing on the New York Stock Exchange. Four Latin American carriers - Copa, Gol, LAN and TAM - now trade on the New York exchange.

Before pursuing an IPO, Avianca will also have to decide whether to include its sister carriers. Villegas and Avianca are now managing Brazil's Ocean Air, which like Avianca is completely owned by Synergy, but Villeags says it is not decided if Ocean Air will be grouped with Avianca in the potential IPO.

Synergy also owns small Ecuadorian carrier VIPSA and last year entered into a memorandum of understanding (MOU) to purchase an 80% stake in a larger Ecuadorian carrier, AeroGal. Villegas says Avianca now has a commercial alliance with AeroGal and Synergy continues to discuss with AeroGal's owners the possibility of converting the MOU into a formal contract.

"We're working on that," he says. "It makes sense."

AeroGal now operates about 10 Boeing 737s domestically and to neighbouring Colombia and has one Boeing 757 which it uses on services to Miami. Villegas says the carrier plans to launch services to New York by year-end and Avianca, which plans to phase out its 757 fleet next year, owns one 757 which could be transferred to AeroGal.

From a financial perspective, Avianca is clearly ready for an IPO, having posted four consecutive years of profits since the Synergy takeover. Villegas says Ocean Air is now break-even and Avianca was again profitable in the first half of 2009 despite the difficult economic conditions.

Villegas says Avianca turned an operating profit before interest, taxes, depreciations, amortisation and extraordinary provisions (EBITDA) of $40 million to $50 million in the first half of 2009 and is on pace to have a full-year EBITDA of $100 million to $150 million. Avianca last year recorded an EBITDA of $189 million on revenues of $1.9 billion. These figures include domestic passenger subsidiary SAM, which is now in the process of being folded into Avianca, and cargo subsidiary Tampa but exclude Ocean Air and VIPSA.

"This year we are fulfilling the budget," Villegas says. "Certainly we've had an impact of revenues by the crisis but we've been managing to control costs and reduce costs and therefore we expect by the end of this year we will to be on budget, which is around $100 million to $150 million [EBITDA]."

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