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LAN-TAM expect $400m in synergies from merger

LAN and TAM expect their proposed merger will generate annual synergies of at least $400 million.

The carriers estimate $280 million in synergies will come from the revenue side as their passenger and cargo networks are combined. The other $120 million will come from cost reductions.

In a 13 August conference call to discuss the proposed LAN-TAM transaction with analysts, TAM president Libano Barroso called the $400 million "real and achievable synergies" and "consistent with other transactions in the industry". He says LAN and TAM are also confident that the initial $120 million estimate for annual costs savings is conservative.

The carriers expect one third of the synergies can be realised within the first year after the historic merger closes. Barroso points out that this initial portion of synergies alone more than offsets the cost of the transaction.

The carriers expect all $400 million should be realised by the end of the third year.

On the revenue side Barroso expects "faster top line growth" as the merger will allow the carriers to launch flights which wouldn't be viable as independent carriers. "We will have the ability to grow into new markets, which makes this announcement particularly exciting," Barroso says.

Specifically, LAN and TAM expect to generate $170 million in additional passenger revenues and $110 million in additional cargo revenues. The passenger figure includes $125 million from network related synergies, $35 million from consolidation of partner airline contracts and $10 million from consolidating frequent flier programmes.

On the cost side, the $120 million figure includes $25 million for consolidation of functions at overlapping airport stations; $25 million for leveraging economies of scales in supplier contracts; $20 million for streamlining corporate overhead; $20 million for efficiencies in common IT platforms; $15 million for leveraging economies of scales in maintenance; and $15 million resulting from combining sales efforts.

The two airline groups say combined they will provide passenger services to over 115 destinations in 23 countries with a fleet of more than 220 aircraft and over 40,000 employees. They say they also have over 200 aircraft currently on order.

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