Call it ownership once removed. The Brazilian domestic carrier TAM has signed a $40 million management contract to run the Paraguayan flag carrier, Lapsa. But while the deal gives TAM access to international routes it will not co-brand the operation in order to protect its own image.

TAM launched services on behalf of Lapsa on September 2 with three Fokker 100s on wetlease. They operate twice daily services from Asuncion to Sao Paulo and Buenos Aires and flights to Montevideo (four weekly), Santiago and a combined Santa Cruz-Lima service. It is also providing marketing and other management support.

Rolim Amaro's TAM Group, which owns 85 per cent of TAM and two other regional airlines in Brazil, gained control of Lapsa through its 49 per cent stake in a Paraguayan holding company, Transamerica. Rolim has indirect control of another 25 per cent of Transamerica which owns another regional carrier, Arpa. The latter purchased an 80 per cent stake in Lapsa from Ecuador's Saeta in August, the principal asset being Lapsa's route authorities in the Mercosur region.

TAM has been Brazil's fastest-growing domestic operator, using its monopoly franchise on high-density sectors between the country's downtown airports. Net profits doubled to $47.7 million in 1995 on a 22 per cent rise in sales to $435 million. Revenues are forecast to top $600 million in 1996 with passengers up 1 million to 3.6 million.

The airline has curbed any international aspirations in a bid to strengthen its balance sheet and views Lapsa as a revenue generator rather than a strategic move. 'We did not put our image at risk,' says Ramiro Tojal, the airline's vice president planning. 'This must stay as a Paraguayan entity.'

TAM will not dedicate aircraft to the operation, but the six hours of daily wetlease operation will net $2 million a month, rising to $3.5 million if two additional aircraft are added as planned. This will push TAM's F100 utilisation up to nine hours a day. The initial one-year contract for a five-aircraft operation is worth up to $40 million.

The recovery in the Brazilian airline sector over the past two years has discouraged TAM from becoming the country's fourth international carrier. Ramiro says it will focus on building up frequencies - the average load factor is 85 per cent - adding two to three routes over two years.

TAM is the world's fourth largest F100 operator with a fleet of 25 aircraft, plus five F50s and seven F27s. With RPK growth of 24 per cent in the first eight months of 1996 it could have been one of the casualties of the collapse of Fokker, but Ramiro says there is no question of changing its fleet plan. Two F100s have already been sourced from GPA and two aircraft will arrive from Fokker's leasing arm, AFT, later this year.

Ramiro is confident that the Fokker market will remain liquid and is hopeful the firm will survive. 'We have firm expectations that Fokker will be revived by Samsung, perhaps by the end of September,' he says. The carrier already has options with Fokker's administrators to take 10 more F100s and eight F50s over the next two years, which Ramiro says will arrive even if the Samsung deal falls through.

The TAM Group remains more thinly capitalised than Varig and Vasp but has built up a reputation as a full-service operator. With 15 per cent of its stock already traded it is considering a secondary offering to bolster its balance sheet. Ramiro says it is prepared for more competition on its domestic sectors but believes the government will afford it protection. 'In exchange for service quality I'm sure the government will be happy to keep a smaller level of competition,' he says. TAM has 57 per cent of the Brazil regional market and 17 per cent of the trunk market.

Vasp's acquisition of stakes in LAB and Ecuatoriana last year aimed to sew up intra-regional markets and the airline says it dropped out of the Lapsa bidding as the potential feed failed to justify the asking price. Ecuatoriana was relaunched in July with two DC-10-30s from Vasp operating to Miami and Sao Paulo and three B727-200s for regional services. Vasp is also integrating LAB's operations, and is leasing it three B727s.

The other consolidating force in the region, the LanChile Group, remains caught in the fallout from Iberia's pullback. LanChile has offered $8 million for Iberia's 25 per cent stake in Ladeco but the Spanish carrier says it is talking to other potential buyers. LanChile sees this as a bluff and has put Ladeco in administration with debts of $14 million. A creditors meeting was set for 26 September.

Doug Cameron

Source: Airline Business