Viva – Avianca Airline Merger Under Investigation For Violating Colombian Competition Laws

Colombia’s Superintendence of Industry and Commerce (SIC), something akin to the Federal Trade Commission (FTC)in the US, has announced that it has opened an investigation into the proposed merger between airlines Viva and Avianca, that has so far been blocked by Aeronáutica Civil, Colombia’s Civil Aviation Authority.

According to the SIC, the proposed merger announced improperly for not obtaining prior authorization, though the SIC has not announced infractions, only the investigation underway based upon compliance of articles 8,9,10,11, of law 1430 of 2009 in Colombia, and article 1866 of Colombia’s commercial code.

The SIC also said it is investigating Avianca’s general counsel, Richard Galindo Sánchez individually, for “allegedly having facilitated, collaborated, authorized, promoted, promoted, executed or tolerated the conduct imputed to market agents.”

The SIC is investigating whether the two airlines “did a deal” before obtaining final government approval.

SIC says that there is no appeal against the decision of the its Delegation for the Protection of Competition. The charges are serious, as the airlines could be penalized up to 100,000 current legal minimum wages, or up to 20 percent of their operating income or up to 20 percent of their assets, as provided in article 67 of Law 2195 of 2022.

It is common in Colombia for financial penalties to be based on some fraction or multiple of the prevailing official minimum wage, which for 2021 is an even $1 million pesos, or approximately $208 US dollars on the date of publication. The wage will increase in January.

Viva shared a statement with Finance Colombia when asked about the investigation saying:

Regarding the communication recently issued by the Superintendency of Industry and Commerce (SIC), we would like to inform you of the following:

• • • At Viva we are respectful of the institutions and the decisions that, within the framework of their function, they make. So far, the company is in the process of official notification of this process.
    • Viva has made every effort to comply with Colombian regulations and reiterates that, in response to the request for an alliance with Avianca, it has followed all the due and required processes, guaranteeing direct and permanent communication with the authorities. However, it will diligently attend to any requirement by the SIC.
    • To date, and while the Civil Aeronautics makes a decision regarding the application, we continue to be competing companies and make totally independent decisions.
    • Aware of the correct behavior of the company in this process, Viva makes itself fully available to the authorities to collaborate with the information that is required.

Finally, from Viva we will continue to be committed to promoting and maintaining air inclusion in the region hand-in-hand with our ‘Super Low Cost’ model that has generated higher levels of connectivity and development in Colombia and the region, as we have done throughout our ten years of operations.

When contacted by Finance Colombia, an Avianca spokesperson shared this written statement (translated by Finance Colombia), vehemently denying the allegations:

Avianca learned, through the media and through publication on the SIC website, of the initiation of an investigation and formulation of charges regarding the transaction on the economic rights of Viva Colombia and Viva Perú.  Although the company has not been formally notified, it is emphatic in pointing out that:

1. 1. Avianca complies with and has complied with all applicable rules on integration control, and that the transaction on Viva’s economic rights did not constitute an integration. Avianca and Viva remain fully independent airlines, competing vigorously in the market for the benefit of users.
   2. It considers, in the light of its knowledge of the case, that the arguments used by the SIC, promoted by other competing airlines, are erroneous and imprecise in both substance and form. Avianca has delivered to the public and the respective authorities, all the information it is obliged to submit. At the time, in a timely manner, the legitimate request for integration with Viva was submitted to Aerocivil. Likewise, Avianca has taken into account the concerns expressed by Aerocivil by presenting a comprehensive, detailed and, above all, innovative offer of conditions.  Pending the definition of Aerocivil, each company has maintained and continues to maintain full independence.

1. 3. The conduct of Avianca and its officials is fully supported  by the applicable regulations, the precedents on the matter and the rules issued by the same SIC to guarantee the separation of businesses, which clearly indicate that the only relevant criterion to evaluate the independence of the parties is the absence of control and full independence.
   4. Avianca and Viva have never stopped competing and continue to compete vigorously, just as they have historically. To date, Avianca completely lacks influence or control over Viva, and contrary to what is stated in the fragments of the resolution of the SIC to which the company has had access, the figures show the strong competition between both airlines.  Proof of this is the market share that other low-cost airlines have steadily gained. In addition, it is worth remembering that in Colombia the aeronautical market is one of the most competitive in the world, with 30 airlines operating in the country, 10 of them flying domestic routes.
   5. Avianca considers that the competing airlines that have promoted the opening of an investigation by the SIC, have the clear purpose of hindering – for their own benefit and not for the benefit of Colombians – the outcome of this operation and seek to remove Viva from the market.
   6. The company will respond in a respectful and forceful manner to all the requirements of the authorities, following the institutional channels for this purpose.