Colombian Aviation Regulators Unblock Avianca’s Acquisition Of Viva, But Critical Questions Remain

At 11:32pm last night, Colombia’s civil aviation regulator, Aerocivil, announced a decision allowing, with certain conditions, Avianca’s takeover of insolvent low cost carrier Viva Air, even though Avianca’s shareholders bought (and some accuse of mismanaging) Viva almost a year ago.

The two airlines were dealt a blow after the April 2022 deal when Aerocivil in November rejected the merger on grounds of market dominance. Viva no longer had access to additional capital once the airline changed hands, leading to the repossession of several of its airlines, and in February of this year, a chaotic termination of operations, stranding passengers, abandoning employees, and (possibly irrevocably) destroying the airline’s brand trust.

But by this point, Colombia’s Ministry of Transportation, which Aerocivil reports to, had ordered Aerocivil to re-evaluate the acquisition based on technicalities in its original decision. The long-delayed final ruling was released at almost midnight, last night.

Still, Shareholders and certain executives of both Avianca and Viva are now facing civil charges from Colombia’s commerce regulator, and potential criminal charges for fraud from the attorney general—the latter due to the airline continuing to sell tickets for future travel once executives determined to shut down operations.

Last night, Aerocivil issued the following announcement (translated by Finance Colombia):

Faced with the request for pre-evaluation of a business integration presented by Avianca S.A., Viva Air and Viva Air Peru, Civil Aeronautics informs:

1. 1. On November 4, 2022, [Aerocivil] Civil Aeronautics, in accordance with the preceding procedures, objected to the application for integration in the terms that were presented because it considered it contrary to free competition and the condition of the company [Viva] being in difficulty was not proven.
   2. On January 18, 2023, through resolution 00079 of the Secretariat of the Aeronautical Authority of this entity [Ministry of Transportation], it was ordered to redo the administrative action and establish as a procedure for this type of request as enshrined in Law 1340 of 2009 with norms concordant to the tenor of extant consumer protection rules.
   3. The intervening companies, in the context of the new procedure, submitted a “final offer” of remedies to mitigate the underlying anticompetitive effects of the proposed transaction, which were the subject of analysis.
   4. The Directorate of Air Transport and Commercial Air Affairs of this entity carried out a detailed and technical study of the application submitted and, in turn, of the related remedies, to evaluate the viability of the solution, finding that the proposed ones failed to mitigate the effects of concentration, dominance and asymmetry derived from the transaction.
   5. Management took stock of the situation generated by the suspension of VIVA’s operations, its operational condition and the crisis that materialized in February, as well as the possibility of authorizing the integration by imposing a set of remedies that, from the point of view of competition, would mitigate the effects that current market agents and potential entrants would experience on behalf of the operation.
   6. As a consequence of the above, it was decided to authorize the integration, conditioning it to the fulfillment of various structural and behavioral remedies that guarantee, among others:
      1. That the rights of VIVA users be respected, that they be reimbursed for cancelled flight tickets and that those who have outstanding tickets be allowed to fly. In any case, they must respond to VIVA passengers affected by the unilateral decisions of the company to cease their operations.
      2. The return of the slots that imply aggravating the situation of concentration in the most demanded slots (prime) for both the Summer and Winter seasons, both in departures and arrivals, in order not to increase the barriers to [market] entry that this market generates access to the infrastructure of [Bogotá’s] El Dorado Airport
      3. Maintain the low-cost scheme of VIVA as an option in terms of air transport, which materializes options for air service users.
      4. The return of frequencies on the Bogotá – Buenos Aires route, which is particularly impacted.

Critical questions (and charges) remain:

The good news is that this provides in the short term, some certainty and a path for remedy for customers and travel agents affected by the recent chaos. The second immediate question is whether, with a damaged brand, repossessed planes, and key employees departed, Viva will continue to exist as a separate airline, or be absorbed into Avianca as many suspected all along?

The third question is what will happen to the Superintendency of Industry and Commerce investigation charges against Avianca and Viva, specifically Resolution 87164 of 2022 for “allegedly having participated in a business integration operation without the prior authorization of the SPECIAL ADMINISTRATIVE UNIT OF CIVIL AERONÁUTICA (hereinafter, AEROCIVIL).”

The agency, which is independent of Aerocivil and the Ministry of Transportation said in a statement:

“For this Superintendency, the acquisition of the economic rights of VIVA AIR and VIVA PERÚ by INVESTMENT VEHICLE 1 LIMITED, parent company of AVIANCA, could be sufficient to constitute a business integration or, at least, the beginning of the execution of the business integration between the aforementioned airlines. Operation that was not informed or authorized prior to its completion by the competent authority. Therefore, the investigated companies allegedly engaged in practices restricting free competition.”

Lastly, the Ministry of transportation Guillermo Reyes stated that he has submitted a criminal fraud complaint to Colombia’s attorney general for Viva’s management continuing to sell tickets to passengers and travel agencies once the decision had been made to shut the airline down.

Viva in a press release issued earlier this month, defends its actions, instead blaming Aerocivil for not approving the merger: “We want to be vehement, Aerocivil did not respond to our urgent calls in the face of the urgent need to define the alliance with Avianca, nor did our calls for notice of temporary suspension of operations, unlike what they are saying in the media about our misnamed ‘surprise’ anyone.”

Who is to blame? Will Viva fly again? Let us know in the comment section below.

Photos: Loren Moss