Jetsmart Offers To Buy Viva, Further Disrupting Avianca-Viva Airline Merger Plan, Viva & Avianca Respond

As if the Colombian government has not already created significant turbulence in Bogotá-headquartered Avianca’s proposed acquisition of low-cost competitor Viva based in Medellín, now, Chilean low-cost airline Jetsmart has further disrupted efforts by launching its own offer to buy Viva.

“At JetSmart we have the experience, capabilities and resources to carry out this transaction and we hope to be able to move forward on it quickly and effectively,” said Jetsmart CEO Estuardo Ortiz.

Colombian regulators initially opposed the Viva-Avianca merger, saying that it would monopolize 61% of Colombia’s airline routes, though the civil aviation authority known as Aerocivil was ordered by Colombia’s ministry of transportation to redo its review of the merger. On the other hand, Jetsmart only flies to Cali, Bogotá and Medellín in Colombia between its international base in Santiago, Chile. A Jetsmart-Viva tieup would not carry the perceived monopoly baggage of an Avianca-Viva merger, but quite the opposite: It would present Avianca with a deep-pocketed rival on both domestic and additional South American routes.

A Jetsmart-Viva tie-up could pose a serious threat to the Abra Group strategy of consolidating the South American airline market.

Jetsmart is backed by US private equity firm Indigo Partners, with an additional investment from American Airlines, Avianca emerged from bankruptcy after a debt-for equity swap that includes former creditor United Airlines. Avianca has been working with Brazilian carrier Gol Linhas Aéreas Inteligentes to form a group called Abra that would be the holding company for Avianca, Gol and Viva. Viva is backed by Irelandia Aviation with additional investment from Cartesian Capital.

“We believe that a transaction between JetSmart and Viva Air will allow us to maintain the ultra-low-cost model in Colombia and that will allow us to continue offering more routes at lower prices. We have a long-term vision to expand in South America and we are in a position to continue investing in our growth . We believe in the potential of the Colombian market. Our alternative will benefit users, strengthening free competition in the sector and will promote tourism and connectivity in the country,” said Ortiz yesterday.

A Jetsmart-Viva tie-up could pose a serious threat to the Abra Group strategy of consolidating the South American airline market. Avianca and Gol are both members of Star Alliance, along with United Airlines, a shareholder of Avianca. Jetsmart shareholder American Airlines has a mileage partnership with Gol also, but was left without a South American loyalty partner in its One World alliance when Delta Airlines disrupted its relationship with Latam, also based in Chile. On the other hand, low cost carriers like Viva and Jetsmart tend not to participate in mileage and lounge access alliance programs. Viva currently has no mileage or spend-based loyalty program.

Viva flies from Colombia to the United States, Brazil, Peru, and Argentina, while operating domestic routes in both Colombia and Peru. Jetsmart flies between its base of Chile and Perú, Argentina, Brazil, Colombia, Uruguay, and Paraguay.

Avianca disgruntled

Faced with the prospect of a financially strengthened Viva with South American ties to Jetsmart, and potentially American Airlines, (which was left jilted after Delta stole away its South American airline partner Latam), Avianca reacted with a harshly worded statement issued late yesterday:

Regarding the recent interviews of JetSmart representatives in the media, Avianca reports:

1. 1. 1. Neither Avianca nor its shareholders have received offers to transfer their economic participation in Viva.
      2. Avianca considers that JetSmart’s declaration of interest is not a real option to solve the Viva crisis since:

• • • • • Both JetSmart and its second largest shareholder – American Airlines – operate in the Colombian market and therefore any transaction would require the same approvals that Avianca needs for integration with Viva.
        • Said permitting process, which in the case of Avianca and Viva began six months ago, could not even start until after there is an agreement for JetSmart to acquire Viva.
        • Additionally, this transaction could be subject, not only to approvals in Colombia, but also in the other markets in which Viva participates together with JetSmart and/or American Airlines, including countries such as Peru, Argentina, Chile and the United States.

1. 1. 3. Therefore, Avianca and its shareholders consider that the sole purpose of JetSmart’s declaration of interest is to use a proposal, clearly unfeasible, to distract from the integration request of Viva and Avianca.
      4. Avianca and its shareholders reiterate that their intention for Avianca and Viva to be part of the same business group remains intact, and they trust in the timely response of the authority so that the rescue of Viva, the connectivity of the regions of Colombia, prevails. the provision of the essential air transport service and the preservation of formal jobs.

Viva speaks

Caught between two suitors, Viva issued a carefully worded, diplomatic statement yesterday night:

Regarding the communication recently issued by the airline JetSmart in which they express interest in acquiring 100% of Viva’s shares, the company reports:

• • • • • Today, February 7, 2023, Viva was officially contacted by JetSmart, expressing its interest in acquiring all the company’s shares.
        • At this moment, the organization is reviewing the possible implications that this announcement may have in the development of the process that is being carried out today before Aerocivil, in which there is already a request that seeks to promote the integration between Viva and Avianca, and with this, will create a group of airlines that improves the connectivity of travelers in Latin America.

Finally, at Viva we will continue to focus on promoting air inclusion and guaranteeing connectivity for the thousands of travelers who travel with us daily inside and outside the country.