LAN / TAM projet de fusion

LAN and TAM have unveiled plans to merge and create a new single parent company.

Chile-based LAN and Brazil-based TAM announced this evening they have forged "a non-binding memorandum of understanding that outlines their intentions to combine their holdings".

The deal is subject to both companies completing a binding definitive merger agreement and securing approval
from their shareholders and relevant regulatory authorities.

LAN and TAM are the two largest Latin American airline groups by revenue.

In addition to its Chilean operations, LAN has passenger airline affiliates in Argentina, Chile, Ecuador and Peru as well as cargo airline affiliates in Brazil, Colombia, Mexico and the US.

TAM has passenger airlines in Brazil and Paraguay as well as a Brazilian business aircraft operation that is one of the largest in Latin America.

The two groups, once combined, will be known as the LATAM Airlines Group.

They say the new group "would offer seamless passenger and cargo service across the continent and around the world".

Combined, LAN and TAM would have annual revenues approaching $10 billion.

While this would dwarf any other Latin American airline group by about $7 billion, it would still be significantly smaller than the largest airline groups in North America, Europe and Asia.

Brazil's Gol and the newly formed Avianca-TACA group, for example, have annual revenues of roughly $3 billion.

Air France-KLM, Lufthansa and Delta all have annual revenues of roughly $30 billion.

LAN and TAM are both already traded in the New York stock exchange.

The new parent company LATAM would continue to be listed in New York as well as in Chile - where LAN is also now
traded - and in Brazil - where TAM is currently traded.

Both have similar narrowbody fleets consisting of Airbus A320 family aircraft, and also operate Boeing 767s and Airbus A340s in their widebody fleets.

But from an alliance perspective the two are very different - LAN is a long-standing member of the Oneworld alliance while TAM joined Star earlier this year.

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.

The proposed LAN-TAM tie-up will create an airline powerhouse in Latin America that will control an unprecedented share of traffic and could spur further consolidation in the fast-growing region.

Chile-based LAN and Brazil-based TAM are already the two largest airline groups in Latin America, controlling between them passenger carriers in six countries and cargo carriers in four countries. While the world's three largest airline groups - [Vous devez être inscrit et connecté pour voir ce lien], [Vous devez être inscrit et connecté pour voir ce lien] and Delta - each now generate three times as many revenues as the proposed LATAM Airlines Group, LAN and TAM will control an unprecedented share of traffic for a single region.
Combined the duo will account for over one third of the passengers carried by the region's carriers, according to figures from Latin America and Caribbean airline association ALTA. In 2009, LAN and TAM combined carried 45.8 million passengers while all ALTA carriers collectively transported 123.5 million passengers.

On a capacity basis, LAN and TAM flew 103.5 billion ASKs in 2009 while all ALTA carriers flew 253.5 billion. On a revenue basis, LAN and TAM generated almost $9 billion in 2009 while ALTA members collectively generated just over $21 billion.

ALTA members account for over 90% of the region's traffic. As a result, LATAM will potentially account for roughly 35% of passengers carried, roughly 37% of capacity and about 40% of revenues.
"It really puts pressure on the others," says ALTA executive director Alex de Gunten.
Brazil's Gol, currently the third largest airline group in the region after TAM and LAN, could in particular be persuaded to make a move. Gol currently only operates an airline in Brazil, where in the first half of this year it had a 41% share of the domestic market and 14% share of the international market compared to 42% domestic and 86% international shares at TAM.

"LAN, we believe, will make TAM a more competitive airline by lowering its costs and improving its revenue generation. Thus Gol will have to pick up the pace and lower its Brazil-leading low costs even further," says Raymond James analyst Duane Pfennigwerth.

The LAN-TAM deal follows less than a year after Colombia-based [Vous devez être inscrit et connecté pour voir ce lien] and El-Salvador based [Vous devez être inscrit et connecté pour voir ce lien] inked a merger agreement which created Latin America's fourth largest airline group. Avianca-[Vous devez être inscrit et connecté pour voir ce lien] was formally established earlier this year, incorporating 13 passenger airlines spread across 10 countries.
Mexico, which has seen five airlines cease operations over the last two years, is also now poised for further consolidation as its largest player, Mexicana, attempts to restructure after filing for bankruptcy in early August. Mexicana and Aeromexico are currently the fourth and fifth largest airline groups in Latin America, slightly ahead of Panama's Copa Holdings based on 2009 revenues. Copa acquired Colombia's Aero Republica in 2006 and the LAN-TAM and Avianca-TACA deals could also prompt it to look for other potential acquisitions.

De Gunten says the LAN-TAM deal "continues the trend of what's been happening in the region for some time [with] fewer and fewer and stronger and stronger players".
While LAN-TAM will account for over one-third of traffic at Latin American carriers and roughly half of all capacity in the intra-South America market, the carriers do not expect any major regulatory challenges. de Gunten points out LATAM will still face major competition in every market except Chile, a small domestic market in which LAN has an over 80% share.

"In the other markets they do have significant domestic local competition. They also have international competition," de Gunten says.
In fact on South America-US routes, American Airlines will retain its number one position even after LAN and TAM merge. On a capacity basis, LAN and TAM in presentation charts outlining their deal say they will be number two in the US-[Vous devez être inscrit et connecté pour voir ce lien] market after American but ahead of Delta.
In the South America-Europe routes, LAN and TAM say LATAM will be the fourth largest airline grouping based on July 2010 capacity figures. The [Vous devez être inscrit et connecté pour voir ce lien]-Iberia combination is the largest player on the South Atlantic, followed by Air-France [Vous devez être inscrit et connecté pour voir ce lien] and Portugal's TAP.
LAN and TAM expect their merger will result in more long-haul flights but clearly these markets will remain competitive.

de Gunten points out that in Ecuador and Peru, both LAN and Avianca-TACA have strong affiliates which compete on domestic as well as international routes.

In Brazil, the region's largest market, TAM competes against Gol as well as Avianca, Azul and Webjet. In fact TAM's market share in Brazil has been steadily shrinking despite its own growth and its acquisition late last year of regional carrier Pantanal. During the first half of this year traffic in Brazil's domestic market jumped 28%, driven mainly by fast expansion at low-cost operators Azul and Webjet.

In Argentina, LAN competes on all its domestic routes against Aerolineas Argentinas, which has been rejuvenated with a new business plan. Aerolineas has struggled to compete internationally against stronger LAN and TAM but Oliver Wyman consultant Vikram Krishnan says "a benign duopoly with LATAM may be better for Aerolineas than a competitive situation with both LAN and TAM".

In South America's other big domestic market, Colombia, LAN is only planning to launch a passenger affiliate carrier next year. Colombia, which recorded 38% domestic passenger growth in the first half of this year, is now mainly controlled by Avianca, fast-growing low-cost carrier Aires and Copa subsidiary Aero Republica.

LAN and TAM do not expect any changes in their fleets or order books but anticipate their planned merger could lead to some new orders.

LAN CFO Alejandro de la Fuente says the fleets at LAN and TAM will "remain the same" as the two airline groups work on merging under a new parent company. But, speaking to analysts on 13 August to discuss the proposed transaction, he added that "obviously some things we will need to coordinate".

In a presentation to analysts outlining their proposed merger, LAN and TAM say they now operate a combined fleet of over 240 aircraft, including 143 at TAM and 98 at LAN, with more than 220 additional aircraft currently on order. The two carriers intend to keep all these orders and de la Fuente says there will also be opportunities to further expand the fleet as network synergies are explored.

de La Fuente in particular sees opportunities to further grow the freighter fleet as the cargo operations of the two carriers are combined. "We'll need more aircraft in future to develop that business," he says.
LAN currently has a large freighter fleet, with aircraft based at affiliate cargo carriers in Brazil, Chile, Colombia, Mexico and the US. TAM currently does not operate freighters but its belly cargo sales operation, when merged with LAN Cargo, should create growth opportunities across the region and particularly in Brazil.

LAN currently operates [Vous devez être inscrit et connecté pour voir ce lien] and 777 freighters. On the passenger widebody side, LAN operates 767s and [Vous devez être inscrit et connecté pour voir ce lien] A340s with [Vous devez être inscrit et connecté pour voir ce lien] 787s on order while TAM operates a mixed fleet of 767s, A340s, 777s and Airbus A330s with Airbus A350s on order.

The two carriers have very complementary narrowbody fleets consisting entirely of [Vous devez être inscrit et connecté pour voir ce lien] family aircraft. LAN and TAM combined have over 160 A320s with roughly 150 more on order
Most of their existing A320s are powered by IAE V2500s although TAM also operates some [Vous devez être inscrit et connecté pour voir ce lien]-powered A320s and LAN last month selected CFM56s for 70 additional A320s that were ordered late last year and earlier this year.

There are currently no regional aircraft in the fleets of either group except five ATR 42s at newly acquired TAM regional subsidiary Pantanal. TAM plans to phase out these turboprops within the next couple of years, and has been looking at acquiring 20 new 100 to 150-seat aircraft for Pantanal.
TAM president Libano Barroso told analysts this evaluation, which includes E-190/E-195s as well as Airbus A319s, is still ongoing and is not impacted by TAM's recent decision to temporarily sublease to Pantanal two A319s and one A320 "We don't have a decision yet," Barroso says, adding it is "a decision for the next months".

Members of the Oneworld alliance predict a significant battle will ensue during the next two-to-three months among the three large global alliances to secure membership from the merged LAN and TAM airlines.

Oneworld managing director John McCulloch made that declaration today during the annual International Aviation Forecast summit hosted by the Boyd Group International.
McCulloch states he feels pretty certain that despite "rhetoric out there", that the carrier will only select a single alliance partner.

LAN and TAM unveiled their plans to merge in August of this year, and have previously said they wouldn't settle on an alliance decision until 2012, but McCulloch tells ATI "they seem well ahead of the timetable" in their integration, and from Oneworld's perspective, it is important now for the group to begin making its case to the carriers.

TAM joined Star in May of this year while LAN is a long-standing member of Oneworld, joining the alliance in 2000.

McCulloch says Oneworld will try to persuade LAN-TAM that choosing the grouping will give the combined Latin American carrier a key footprint in Europe and the USA, which are "crucial for LAN-TAM's future profitability".
He also believes Oneworld has insight into other areas where the combined carrier would like to grow, citing the UK and Spain as examples. "We can play to those strengths," he says.

In parallel to the battle for LAN-TAM's alliance allegiance, Oneworld continues to pursue opportunities in Brazil, Canada and China. The alliance lost a key contest earlier this year when China Eastern opted to join the SkyTeam grouping. McCulloch believes that Oneworld had the better value proposition for China Eastern, but certain "leadership ambitions within the airline" led to the carrier's selection of SkyTeam.

While Canada's second largest carrier WestJet has repeatedly stated its desire not to formally join one of the three major alliance groupings and instead focus on building as many bilateral relationships as possible, McCulloch states that there are six-to-eight Oneworld members that could forge important bilateral relationships with WestJet.
American and WestJet on 19 October announced an interline agreement whose first phase will cover 25 of WestJet's Canadian destinations not currently served by American.

Oneworld is also celebrating the recent launch of the transatlantic joint venture of American, British Airways and Iberia. As the new venture gets off the ground McCulloch says Oneworld is ramping up its corporate selling push, something he admits Star partners United, Air Canada and Lufthansa have historically performed better at than Oneworld.

Chile's LAN promises lower airfares, competition

LAN Airlines LAN.SN promised on Thursday to guarantee lower fares and more competition on key routes shared with Brazil's TAM to win approval for a proposed merger as a regulatory probe neared an end.
LAN laid out the concessions, which are expected to have a limited impact on its bottom line, in oral arguments before Chile's antitrust tribunal, defending the creation of Latin America's largest carrier from a consumer group's challenge.
The probe has pushed back the effective date of any merger from the third quarter to early next year, but most analysts agree the tribunal is likely to approve the deal with some competitive guarantees before the end of July.
Mauricio Amaro, a member of TAM's controlling family, told reporters at the hearing that he expects final approval from Brazilian regulators soon.
"The process is going well in [Vous devez être inscrit et connecté pour voir ce lien]," Amaro said. "We expect approval by the end of July."
Brazil's civil aviation authority approved the planned merger in March.
"We definitely expect the approval to trigger a jump in share prices," said Santander GBM analyst Carmen Concha, adding that any concessions would have a minor impact on the $400 million in annual cost savings that LAN and TAM forecast within three years.
Concha said the best way for investors to bet on the deal's upside is with TAM stock, which traded in New York at a 0.76 to 1 discount compared to LAN stock on Thursday. If the deal passes, LAN will swap 0.9 shares per TAM share

LAN Merger With TAM Progresses

LAN Airlines expects its merger with Brazil’s Grupo TAM to be completed in March as part of an expansion plan, under which the Santiago-based operator will also formally launch its LAN Colombia brand in December.

The merger received a boost late yesterday with a new accord between LAN and Chilean carrier PAL Airlines that resolves a dispute over the merger’s antitrust implications. According to LAN, PAL accepts the understanding that the larger carrier’s merger with TAM is not anti-competitive as well as LAN’s recent appeal on three demands made by Chile’s antitrust court. In return for this and PAL’s guarantee that it will not issue any further objection to the merger, LAN will cover the roughly $5 million of costs PAL has incurred by objecting to the merger.

This resolution enables LAN to proceed unhindered, for now, in its appeal against three of the 14 demands required by the Tribunal de Defensa de la Libre Competencia before the court approves the TAM merger. At issue are the TDLC’s call to end all code-share agreements with airlines outside of the chosen alliance, expected to be Oneworld, the access agents for Chile’s antitrust regulator Fiscalia Nacional Economica and the court will have to the carriers’ internal data and procedures, and the release of four of LAN’s fifth-freedom rights to Lima.

LAN must also gain approval from regulators in Brazil, Chile and the U.S. and must wait for shareholder backing from both operators before proceeding with the exchange offer and closing, which CEO Enrique Cueto says is likely to occur in March.

Separately, LAN is proceeding with its expansion across South America with the integration of Colombian operator Aires, and has already planned the introduction of three Airbus A320s for November (Aviation Daily, Aug. 1). This will be followed by the formal rebranding of the carrier as LAN Colombia in December, a marketing effort that contributed to a $10 million loss for the unit in the third quarter.

Systemwide, LAN’s third-quarter costs rose almost $330 million to $1.3 billion with increases posted across the board, dominated by the 57% or $167.5 million growth in fuel costs. Improved yields and expanded operations, however, added $334.2 million to LAN’s sales, which reached almost $1.5 billion for the three months to Sept. 30.

Operating income as a result grew 2.9% to $161.2 million, although the operating margin slipped 2.7 percentage points to 10.8%. A near $19 million increase in non-operating costs, however, depressed LAN’s net income 11% to $94.5 million and pushed down the net margin 2.9 points to 6.4%.

Growth remains a key factor in LAN’s success, and passenger capacity is still projected at 14-16% for 2011, some five to six points above that of the two preceding years. Into next year, this double-digit rate will continue, says Cueto, with 12-14% more available seat kilometers expected. Cargo growth of 12-14% for 2011 is expected to fall to 7-9% in 2012.

This growth is aided by a plan that adds 15 Airbus narrowbody aircraft to LAN’s fleet in 2011, eight in 2012, 10 in 2013 and 15 the year after. At the same time, the airline is adding three Boeing 767s this year, five next year and two in 2013, along with five Boeing 787s in 2012, three in 2013 and four in 2014. LAN Cargo’s fleet also adds one 767F in 2011 and two 777Fs in 2012.

Brazil’s Council for Economic Defense (CADE) has approved the merger between Chile’s LAN Airlines and Brazil’s TAM in a unanimous vote.

The antitrust regulator imposed two conditions before allowing the carriers to combine under LATAM Airlines Group, the single holding company that will own them both.

- The airlines must give up two slot pairs at Sao Paulo Guarulhos for the Sao Paulo-Santiago route and exit either oneworld or Star Alliance.

Santiago-based LAN is a oneworld member and TAM is part of Star Alliance ([Vous devez être inscrit et connecté pour voir ce lien]).

In a statement, LAN and TAM said “both conditions are in line to what LAN offered to the Chilean Fiscalía Nacional Economica last January, through an out-of-court agreement and were afterward reiterated by
Chile’s antitrust court” ([Vous devez être inscrit et connecté pour voir ce lien]).

The carriers said the regulation approval process for the merger is now complete in Brazil and the merger will close in the first quarter of 2012.

LAN shareholders will meet Dec. 21 to approve the terms and conditions of the merger and of the entities that will hold the TAM shares after the exchange offer occurs. TAM’s shareholders will meet Dec. 23.

Shareholders of Brazilian airline TAM agreed to the terms of a stock swap central to a takeover by Chilean rival LAN Airlines that would form Latin America's biggest airline.

TAM said shareholders representing 14.95 percent of stock in circulation unanimously accepted a valuation of the company indicating each of their shares was worth 0.9 shares of LAN, according to a Tuesday regulatory filing.

"This is another important step in the process of merging the two companies to create LATAM Airlines Group," TAM said in the filing, adding that the new company should be formed by the end of the first quarter.

LAN's and TAM's revenue exceeded USD$10 billion in 2010 and their combined market capitalisation is second only to Air China among the world's airlines.

In Brazil, the new company will face increased competition from Gol, which grabbed first place in the domestic market for the first time last year.

Gol announced a strategic alliance with Delta Air Lines last month, offering a 3 percent stake and a seat on its board to the US carrier for a USD$100 million investment as they expanded a code-sharing agreement.

Higher fuel costs and a glut of new capacity challenged Brazil's airlines last year, driving a wave of consolidation as congested airports and cooling customer demand began to drag on air traffic growth.

(Reuters)

Les actionnaires de la compagnie aérienne brésilienne TAM ont approuvé les modalités de la fusion de leur société avec sa concurrente chilienne LAN, qui va donner naissance au premier transporteur d'Amérique latine, selon un communiqué publié mardi soir.

© 2012 AFP