The Colombian carrier Avianca and the Chilean low-cost operator Sky Airline could be planning to merge under one brand. The move would create the single largest low-cost airline in Latin America. Let’s investigate further.
Would the merger be possible?
The word consolidation is often repeated among airline executives. Whenever a crisis happens, we have seen airlines merging into one another. The Latin American region is not the exception to the rule. In the past, we have witnessed LAN and TAM join and create LATAM; Avianca itself is the product of many (many) mergers, and so on.
Now, the COVID-19 crisis has led to many changes in the region. Avianca (along with LATAM and Aeromexico) is in a Chapter 11 bankruptcy process; we’ve seen unexpected alliances like the codeshares between Azul and LATAM, GOL and American, and American with JetSMART. In the meantime, the low-cost carriers have grown their market share.
Nevertheless, not all low-cost carriers have benefitted from the crisis. One example is the Chilean operator Sky Airline, which has not seen the greatest recovery due to the many travel restrictions in its country. Moreover, the carrier invested US$500 million to renew its fleet, including the only order for the Airbus A321XLR in Latin America, arriving in 2023, leaving the company in debt.
Due to this crisis, Holger Paulmann, Sky’s CEO, has been looking at new investment options, according to the Chilean newspaper DF. That’s when the name Avianca started to appear.
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Why would Avianca be interested in Sky Airline?
Holger Paulmann spoke with several possible investors, including the Brazilian carrier GOL Linhas Aereas and Indigo Partners. Nevertheless, nothing was concrete until the global fund management enterprises Elliot Partners and Caoba came along.
According to the Chilean newspaper, Elliot and Caoba spoke first with Avianca and offered US$1 billion to acquire 70% of the company. The plan is currently in the hands of the US bankruptcy court, expecting to be approved. Then, they approached Sky Airline and offered up to US$70 million to take 40% of the company.
Once those deals were on the table, Elliot and Caoba came with a new proposition, to merge both carriers under one brand. According to DF, Sky’s CEO has recently approved the proposal.
Nevertheless, the merger is far from being a done deal. Avianca still has to exit its Chapter 11 process; the US court and several trade commissions across South America have to approve the merger.
Additionally, Avianca informed today that it is unaware of the plan that the Tranche B financiers (Elliot and Caoba) may seek as possible controllers of the company.
How can they benefit?
Both airlines are poised to benefit from the possible merger. Sky Airline would get a needed investment to continue its low-cost operation in Chile and South America. Additionally, it would allow Sky to compete against LATAM and JetSMART better.
In the meantime, Avianca could have a low-cost feeder across South America. Avianca would focus its post-covid efforts on the medium and long-haul routes, and Sky Airline could provide Avianca with domestic passengers.
Nevertheless, there are still many doubts regarding this future merger. If it indeed happens, it would change the Latin American airline landscape for good.
What do you think? Would a merger between Avianca and Sky Airline be good news for the Latin American market? Let us know in the comments below.
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