Avianca's acceptance of the equity offer from Brazil's Sinergy group appears to end a long uncertainty over who would own South America's oldest airline.

Several Latin carriers considered investing, but in the end the choice came down to Sinergy and a bid by Copa Airlines, backed by Continental Airlines. After Avianca's board picked Sinergy, Copa declined to raise its initial offer.

Comparing the two bids is hard because the terms of Copa's were never disclosed. Avianca said a major concern was that Copa's bid was "highly conditional". For example, Copa was willing to pay off Avianca's $50 million pension debt only if it could borrow that amount.

Insiders suggest an unstated reason for Avianca preferring Sinergy is that Copa and Avianca have had a long and sometimes contentious rivalry. According to local reports, Avianca's board feared that if Copa won the bid, ultimately it might relegate Bogotá, Colombia's capital and Avianca's base, into a spoke serving Copa's Panama hub. Copa denies any such designs.

Sinergy's offer includes $64 million in new capital and assumption of Avianca's debts, estimated at $300 million. In return it will take a 75% stake in Avianca. Sinergy is controlled by Germán Efromovich, a Brazilian entrepreneur.

Sinergy's ownership of Brazilian regional Ocean Air raises the prospect of Ocean and Avianca feeding cross-border traffic to each other. Because Brazil's main international gateways Rio de Janeiro and São Paulo are both in southern Brazil, Ocean Air could feed international passengers from northern Brazil into Bogotá for overseas connections on Avianca, thus benefiting both.

Avianca's unsecured creditors are opposed to a deal with Sinergy, but have yet to say why. Court approval of Avianca's plan, based on Sinergy's equity injection, could clear the last major hurdle for Avianca to leave Chapter 11 bankruptcy protection.

Source: Airline Business