Two major South American airlines are to merge and create the biggest carrier in the region as demand for air travel continues to grow.
Brazil’s largest airline TAM Linhas Aereas confirmed it has a non binding agreement with Chile’s LAN to create a business that will fly to 115 destinations in 23 countries, with a 40,000 strong workforce.
The new carrier is to be called the Latam Airlines Group and be headed by LAN boss Enrique Cueto if the merger goes ahead while TAM deputy chairman Mauricio Rolim would be company chairman.
However, as was the case with the Air France-KLM merger in Europe, the airlines’ brands would remain separate.
TAM is a member of the Star Alliance group of airlines which includes BMI, Lufthansa, SAS and Air China. Meanwhile LAN is a member of the Oneworld airline alliance, which includes Iberia, British Airways, Qantas and JAL.
Both are family business dynasties. The Cueto family, who own around 34% of LAN of Chile, and the Amaro family, who have a similar holding in Tam of Brazil, will together control around 38% of the new airline, making them the group’s largest shareholders. The Cueto family will have the largest stake of the new airline, at 24%.
The two families have been in talks with each other for some time, according to press reports. But pressure on airlines to consolidate as competition intensifies, along with the opportunities to capitalise on growing regional and intra regional air traffic demand led to the two families agreeing a deal, say analysts.
Latam Airlines will have revenues of around $8.5 billion, making it the 15th largest airline in the world, but the 11th largest in terms of passenger numbers.
Cueto, helped save Chile’s flagship carrier from the brink of bankruptcy in the 1990s by cutting costs. Starting as head of a tiny cargo carrier, Cueto, is renowned for running a tight operation that made LAN one of Latin America’s most profitable airlines.
‘If we wanted to play in the big leagues we had to become the undisputed leader in Latin America. If you want to survive in this business you have to gain in size,’ he said.
The merger is expected to be completed in 2011 as it will take around six months to get all the regulatory approvals.
