The LATAM Group is still the undisputed number one in South American passenger and cargo traffic. However, a second alliance is setting out to stand up to it: Colombian carrier, Avianca, and Brazil’s Gol Linhas Aereas. They intend to unite under a common ownership structure bearing the name Grupo Abra, registered in the UK. Abra will also own but not control Colombian low-cost airline Viva Air. Just weeks ago, an intended merger between Brazilian Azul and Avianca failed to materialize.
South American mega carrier is in the starting blocks
The pact, agreed last week by the carrier’s main shareholders, is expected to be concluded in the second half of this year - provided, regulators consent the intend. Despite their joint venture, both airlines will continue operating under their individual brands and maintain their own management teams. The main objectives of joining forces are to improve their competitive position in Latin America, both in passenger and cargo transports, strengthen their balance sheet by reducing costs and attracting additional business, and provide opportunities for growth, argues Avianca chairman, Roberto Kriete. The Salvadorian-Colombian tycoon will become Abra Group’s Chairman.
High growth expectations
Constantino de Oliveira Junior, who founded Gol in 2001, will serve as Group CEO. He said the agreement puts Abra’s member airlines in a unique position in the region’s air transport market, serving a population of more than one billion people, and a GDP of close to US$3 trillion – generating capacity and revenue growth opportunities. “Our particular and unique company structure will allow each airline to pursue its results while maintaining the independence of its brands, talent, team, and culture; and it will provide employees with more opportunities for personal and professional growth at every stage of their careers.”
Adrian Neuhauser, current President and CEO of Avianca, and Richard Lark, current CFO of GOL, will serve as the group’s Co-Presidents.
The deal, once accomplished, marks the most significant consolidation for the region’s air travel sector since the fusion of Chilean LAN and Brazilian TAM back in 2012.
Hence, Abra Group intends to fiercely rival Latam as the still biggest group of carriers registered in the subcontinent based on fleet size and network, a company statement reads. “We are talking about the lowest costs in the region, a group with one of the strongest balance sheets and lowest leverages,” pronounced Senhor de Oliveira. Together, the Abra airlines operate more than 250 aircraft and fly to destinations across Latin America, the U.S., and Europe. Since exiting Chapter 11 in December, Avianca said it has received $1.7 billion of fresh investments.
Seamless passenger and freight services
Following the announcement, shares of Gol rose as much as 5% in New York trading Wednesday before paring gains. The stock will continue to trade after Abra gains regulatory approval, though the fund that controls Gol will transfer its shares to the Abra structure, de Oliveira stated.
According to Bloomberg, the group has lined up an additional $350 million in investments once the deal is approved. Abra will also own a non-controlling 100% economic interest in Viva’s operations in Colombia and Peru, and convertible debt representing a minority interest investment in Chile’s Sky Airline.
Customers will eventually have access to a “seamless” experience where they can combine flights of Abra carriers on a single ticket, Mr. de Oliveira said. This applies equally to air freight consignments handled and flown by the members of the Group.
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