Perhaps as a Valentine’s day present, Chilean international air carrier Latam made public its intention to initiate negotiations to purchase Medellín-based low cost airline Viva (Fast Colombia S.A.S.). Latam joins fellow Chilean airline Jetsmart, and UK-based / Colombia operated Avianca.
The offer comes after Colombian government regulators initially rejected a Viva – Avianca merger, but later agreed to reconsider the deal. After the Colombian Ministry of Transportation and its subordinate civil aviation regulatory authority Aerocivil slowed the deal down, low-cost carrier Jetsmart submitted an offer, and now Latam.
“The Colombian subsidiary of the Latam group is prepared and has the capacity to strengthen its operations in the country. In this way, an eventual acquisition of Viva Air Colombia becomes a growth opportunity offering Colombian consumers the best value offer in the local market in terms of service, and the country new alternatives for strengthening its connectivity and the development of tourism,” said Latam in a statement shared with Finance Colombia.
“Latam Airlines Colombia has been operating in the Colombian market for 11 years, and in its trajectory, it has had a constant concern to invest in the Colombian market. For this reason, we believe that this potential operation would be the best option to strengthen the conditions of free competition, as well as to offer the necessary support that will allow us to respond to the financial situation of Viva Air Colombia and its creditors, which will result in the strengthening of the Colombian airline industry.”
Based on passenger volume, Latam is almost eight times as large as Viva, with a route network that extends throughout Latin America, the Caribbean, North America and Europe. This new twist further weakens Avianca’s position in line to purchase Viva, as the Colombian government initially opposed the tie up because the combined company would dominate the Colombian domestic travel market. Avianca, due to a dismal service record, has also garnered plenty of enemies even in Colombian government.
Friends and allies
Viva is currently an independent airline, run by former Latam executive Felix Antelo. It was backed by airline venture capitalist Declan Ryan’s Irelandia Aviation. Ryan’s father, aviation legend Tony Ryan established European low cost airline Ryanair, but Declan Ryan is no longer involved in Ryanair, choosing instead to develop low-cost airlines across the globe, including Viva Aerobus in México, Allegiant in the US, Tiger Air in Singapore (now merged with Scoot, a unit of Singapore Airlines), and of course Viva. Viva has no relationship with Ryanair, and is not affiliated with Viva Aerobus in México, but has done some limited codesharing agreements in the past with the latter. Declan Ryan last year joined the board of Avianca after Avianca announced its intention to acquire Viva and form, along with Brazilian airline Gol, a South American airline group called Abra.
Latam is backed by both Delta Airlines and Qatar airways, Delta snatching an alliance with Latam away from American Airlines in 2019. American Airlines now backs Jetsmart with a minority investment, though the two airlines have distinct operating models. American Airlines, like Qatar, Latam and Delta are legacy airlines, while Jetsmart, like Viva, is a low-cost carrier.
In the case of Avianca, United Airlines ended up with a significant stake in the airline after former chairman Germán Efromovich defaulted on a $400 million USD loan collateralized by Efromovich’s shares in Avianca. United Airlines ended up appointing Efromovich’s business nemesis, Roberto Kriete as chairman, a post he still holds.
Viva’s growth in market share over the past several years has come largely at the expense of Avianca, though Viva is quick to point out that with its ultra-low-cost model, it competes as much with the country’s terrestrial bus lines as it does with other airlines. A merger with Viva would create a competitive fortress in Colombia, especially if the merged airline is not forced to surrender routes or gates at congested Colombian airports such as Bogotá’s El Dorado, or Medellín’s José María Córdova international airport.
On the other hand, a Viva merger with a deep pocketed partner that does not currently have a comprehensive domestic route network—Jetsmart, Latam, or perhaps Copa subsidiary Wingo—would be potentially disastrous for Avianca; an airline that recently doesn’t seem sure what it wants to be, as the post-bankruptcy legacy carrier more and more mimics Viva’s low-cost, a-la-carte passenger offering. So far, neither Panamá-based Copa nor its Colombian low-cost subsidiary Wingo have expressed interest in Viva.
Expect more of the unexpected as this aviation drama plays out. Will the victorious suitor absorb Viva, or keep it as a separate, subsidiary operation? Will the Colombian government rule in favor of original suitor Avianca? In their original negative ruling, they said that Viva had not sufficiently shopped for savior investors, and that the merger would be anti-competitive and bad for Colombian travelers. Or will regulators rule in favor of Avianca by virtue of it being first in line chronologically?