• News
  • LAN-TAM alliance decision not expected until at least 2012: Barroso

LAN-TAM alliance decision not expected until at least 2012: Barroso

Brazil's TAM is on course to generate $60 million in additional annual revenues as a result of its new membership in Star Alliance, and does not expect to decide until 2012 whether to remain in Star as a result of its proposed merger with Oneworld member LAN.

TAM joined Star in May and at the time TAM CEO Libano Barroso outlined an expectation that its membership in the alliance would generate at least $60 million in additional annual revenues. Barroso told analysts today the carrier is "on the path" to generating these revenues and "doing very well" in meeting the $60 million target. He adds the establishment of the LATAM Airlines Group, the proposed new parent company for LAN and TAM, will not result in these $60 million in additional revenues disappearing from TAM's top line.

"We believe this LATAM combination will even more fit the potential for that [additional revenues]. In our view there will be even more opportunity for better connections, better feeding and better distribution power," Barroso said during a conference call to discuss TAM's second quarter earnings.

Barroso says TAM for now plans to stay in Star while LAN plans to stay in Oneworld as the two carriers focus on completing the merger transaction. Reiterating comments made by LAN CEO Enrique Cueto during a 13 August call with investors, Barroso says "in our view it's too early to think about" potentially selecting one alliance for both carriers.

"First of all we have six to nine months on the integration period and during that we have to look for the external third-party authorisation - meaning regulatory, stock exchange offer and so on. Beyond that as we integrate and decide on the comprehensive network for the joint combined companies will be time for us to discuss if we will maintain two independent alliances - meaning Star for TAM and oneworld for LAN - or if we discuss in future a single alliance for LATAM," Barroso explains.

He adds that while the two carriers do not plan to discuss alliances until after LATAM is formally up and running, "for sure this is an issue that we will be able to address in future. We believe it will take at least a year to answer on this decision process".

Answering a similar question from another analyst, Barroso responded: "It's not time for us to discuss potential change in alliance. First of all we have to put all the things up and running at the LATAM level. But in the future - we believe this should take more than a year or two years - we will discuss if we will maintain separately Star Alliance and Oneword because the two companies will be independent - LAN and TAM - or if in future there will be a single alliance for both."

Separate from their alliance memberships, LAN and TAM expect their merger will generate $400 million in annual synergies, including $170 million in new annual passenger revenues.

Barroso says some of these revenues will come from new flights as the two carriers will look to launch services to Africa - a continent currently not served by either LAN or TAM - as well as additional flights to Europe and Asia. He expects the merger will also result in "integrating even better the south cone" of South America.

He says TAM does not expect the merger will result in new domestic flights but will provide additional feed for TAM's existing domestic services. "For sure the outcome will be higher load factors. With the same slots and same aircraft we will collect more and better occupation," Barroso explains.

The merger is being structured to ensure balanced control with LAN and TAM each having 50% voting power in LATAM. The LATAM board will comprise of nine members, including two from LAN's Cueto family and two from TAM's Amaro family

But from an ownership standpoint the Amaro family will hold a 13.5% stake of LATAM while the Cueto family will have a larger 24.1% stake. The remainder includes a 15.8% free float from TAM and 46.6% from LAN.

The CEO of TAM's parent company, Marco Bologna, told analysts today that two shareholder agreements have been forged, one between the Amaro and Cueto families to regulate control of LATAM and the second between the Amaro family and LATAM. The second agreement covers how TAM's parent company will be controlled because the Amaro family will retain 80% of the voting shares in TAM.

This 80% is required to meet current Brazilian regulations, which limit foreign ownership of airlines to 20%. While LATAM will only own 20% of TAM's parent company it will have veto authority on certain issues. But Bologna says this veto power "will not give any power to change the operational business of TAM". As a result he does not expect this will become an issue with Brazilian authorities as they are asked to approve the proposed transaction.

Related Content