United Continental, Delta Among Possible Bidders Circling Avianca
03 June 2016 - 11:20AM
Dow Jones News
United Continental Holdings Inc. and Delta Air Lines Inc. are
among suitors considering bids for Avianca Holdings SA, according
to people familiar with the matter, as airlines around the world
seek combinations to help them withstand fierce competition and
bulk up internationally.
Advisers to Avianca have distributed a document to potential
bidders seeking a $500 million capital injection, one of the people
said, adding that could develop into a full sale. The process is in
early stages, the people said, and there may be no deal at all.
Avianca, one of the largest airline companies in Latin America,
is based in Panama and owns carriers including its Colombian
namesake and Tampa Cargo SA in that country, and AeroGal in
Ecuador. In 2010, Avianca merged with Grupo Taca, which had
airlines in El Salvador, Costa Rica, Peru, Nicaragua and Honduras.
Avianca went public in 2011 and has a market value equal to roughly
$600 million.
Should there be a deal for Avianca, it would be the latest in a
recent string of airline tie-ups. The pace of consolidation in the
industry has quickened in recent years, particularly in Europe, the
U.S. and Latin America, as carriers seek to bulk up and broaden
their scope amid stiff competition. In the U.S. alone, eight
airlines have merged into four since 2008 and those four control
more than 80% of domestic capacity. In Latin America, there also
have been some big mergers, including the 2012 joining of Chile's
Lan and Brazil's Tam—in addition to the marriage of Avianca and
Taca.
As Latin American carriers have developed and some local
economies improved, U.S. airlines have been picking partners and
trying to lock in relationships. American Airlines Group Inc., the
leading U.S. carrier to the region, benefits from its relationship
with Latam Airlines Group SA, formed by the merger of Lan and
Tam.
Avianca had revenue of $4.7 billion in 2014. Profit, excluding
foreign exchange and fuel-hedging charges, was $120 million. As of
September 2015, the company had debt of $3.3 billion.
It serves more than 100 destinations in 26 countries, with 176
airplanes operating 5,400 weekly departures, according to a
December 2015 corporate presentation. Avianca has hubs in Bogotá ,
Colombia; San Salvador, El Salvador; and Lima, Peru.
The group also runs a loyalty program, a logistics business,
airport and maintenance services and runs tours. It sold a 30%
stake in the loyalty business to a private-equity investor last
year.
Avianca named Herná n Rincó n Lema, a Microsoft Corp. executive
in Latin America, as its new chief executive in March to replace an
interim CEO who had stepped in after longtime chief Fabio Villegas
resigned in January.
The family of Germá n Efromovich, a Bolivian-born entrepreneur,
owns just over half of Avianca through a holding company called
Synergy Group, with the Kriete family that controlled Taca holding
14.5%.
A majority of the Avianca common stock owned by Synergy has been
pledged to secure loans, according to a regulatory filing. Mr.
Efromovich, who has interests in businesses including oil-and-gas
exploration, hydroelectric power plants and telecommunications
infrastructure, started investing in airlines several years
ago.
Avianca is the second-largest carrier in South America after
Latam, which also has airline affiliates in Peru, Argentina,
Colombia, Ecuador and Paraguay. Latam is a member of the Oneworld
alliance anchored by American and the parent of British Airways and
Iberia of Spain.
Both United Continental and Delta could have reasons to want to
explore a deal with Avianca. United Continental lost its largest
Star Alliance member in the region when Tam merged into Latam,
leaving a hole in its network. Last year, United invested $100
million for a 5% stake in Brazil's No. 3 carrier, Azul Linhas
Aereas Brasileiras SA.
In 2012, the Taca brand went away and Avianca became the single
brand for all the airlines in the group. The companies joined the
Star Alliance, a global marketing group anchored by United and
Deutsche Lufthansa AG, in 2012.
Delta has arguably been the most active in looking for deals to
strengthen its international business. In 2011, it took stakes in
Gol Linhas Aereas Inteligentes SA, one of Brazil's biggest
airlines, and Grupo Aeromexico SAB, the big Mexican carrier. Since
then, Delta has boosted its AeroMexico stake and is on track to
raise it further, to 49%. Delta has also indicated it may add to
its Gol ownership.
Write to Dana Mattioli at dana.mattioli@wsj.com, Liz Hoffman at
liz.hoffman@wsj.com and Susan Carey at susan.carey@wsj.com
(END) Dow Jones Newswires
June 02, 2016 21:05 ET (01:05 GMT)
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