Avianca Brasil has hired UBS Group AG, and “the sale process has started” on its plan to spin off a 20% stake of its airline for $150 million USD, according to Bloomberg. The Brazilian carrier appears to be moving faster down the same path that Avianca Holdings SA is taking to find a strategic partner in order to remain competitive.
The Financial Times has reported that the pressure on Avianca Brasil to sell is coming from Elliott Management. The fund is already notorious in South America due to its status as a holdout bond holder of Argentinean debt, and it currently serves as a major lender to Bolivian-born mogul Germán Efromovich, the controlling shareholder and chairman of the board of Avianca Holdings and owner of the Synergy Group Corp. congomerate that controls Avianca Brasil. His brother, José Efromaovich, is also a key figure in ownership of Avianca Holdings and sits on the board.
The Financial Times reported that this financing arrangement is linked to the company’s share price. This means that if the carrier sells or forms a strategic partnership that improves market confidence for an airline operating in a very difficult climate, then Elliott Management stands to profit.
Avianca Brasil has some attractive selling points. In addition to having a 11% domestic market share and a new fleet of 41 Airbus jets, it increased its revenue — per seat flown per kilometer — in the first six months of 2016 by 21%, per Bloomberg. It did lose nearly $300 million USD in 2015, however, in a continuation of what is now a five-year losing trend.
As for the future of Avianca Holdings, several airlines have been rumored to have interest in becoming a strategic partner. U.S. carriers Delta Air Lines and United Continental Holdings, as well as Copa Airlines of Panama, have each reportedly shown interest with bids this year. The Financial Times reported that Delta’s top executive, Ed Bastian, claims to have not made a “committed bid.”
In July, Bancolombia, the largest bank in Colombia, looked to Qatar Airlines’ $613 million USD investment into Chilean carrier LATAM as a good omen for Avianca’s search for a partner. “In our opinion, the transaction — still pending approval — demonstrates the interest of large global players to get market exposure to Latin America, where in recent years the airline industry has grown substantially,” wrote Bancolombia analysts about the LATAM deal in a note to investors.
The analysts added, in July, that, “we believe that Avianca’s stock still shows a fairly significant discount vs. our fundamental valuation and relative valuation.”