The sudden appearance of the Chilean airline JetSmart has posed a new obstacle in the career of Avianca and its project of merging with the “cheap” Viva Air. The southern company, also low-cost and with local offices in Chile, Argentina and Peru, yesterday announced its interest in acquiring 100% of Colombia’s Viva, which was founded in Medellín in 2009 by a group of shareholders led by Irishman Declan Ryan. Son of the founder of the great pioneer in the world of low cost flights: Ryanair.
Last year, the Colombian aviation regulator Civil Aeronautics vetoed the Avianca-Viva merger plan because it violated the right to free competition. Since then, various players in the sector have opposed the transaction, arguing that not only would it mean a concentration of nearly 60% of the local market, a scenario close to monopoly, but it would also have been launched without the approval of regulators . With a new director on board, Aerocivil said in mid-January it would start studying the file from scratch after discovering procedural flaws.
Avianca, whose centuries-old origins are Colombian but now has its financial headquarters in England, has indicated that JetSmart’s interest “is not a real option”. The company issued a statement Tuesday, describing the proposal as “unworkable” and a strategy “to distract from the Viva and Avianca integration request.” Jorge Enrique Sánchez, former superintendent and one of the most critical voices of this merger, explains that the path is difficult: “The problem is that today the economic rights of Viva belong to Avianca, so who should authorize the sale of Viva to JetSmart, the Avianca Board of directors.
That’s why Sánchez finds a paradox in the company, chaired by Chilean Adrian Neuhauser, publicly rejecting the JetSmart proposal. Adding to the confusion, Avianca’s announcement refuted the Chilean company’s aspirations, arguing that none of its shareholders “received offers to transfer their beneficial interest to Viva.”
The mess now goes through several channels. The regulator of industry and commerce, which ensures free competition and has audit powers, must close the file opened in December and clarify whether Avianca carried out the transaction with Viva without the approval of the regulator.
This problem would open the view to other fronts. Attorney and former superintendent Emilio Archila, representative of the Ultra airline and opponent of the merger of Avianca and Viva, believes that the supervisory authorities “should examine under what conditions Avianca rejects the current JetSmart proposal, rather than the recipient of the offer (Live )”.
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The Chilean press reported last December that local authorities had given the go-ahead for American Airlines to acquire an unspecified number of shares in JetSmart. An alliance that Avianca shareholders say represents another potential bottleneck to Chilean interests’ aspirations: “Both JetSmart and its second shareholder – American Airlines – operate in the Colombian market, so any transaction would require the same approvals that Avianca for the required integration of Viva”.
JetSmart, one of the fastest growing airlines in the region, operates 79 routes in seven South American countries. In Colombia, where it landed at the end of 2019, it has lines between Bogotá, Cali and Medellín towards the capital Santiago de Chile.
But Archila, a representative of a company that has repeatedly objected to Avianca’s behavior, believes that the appearance of the southern competitor destroys one of the flagship’s argumentative axes in its first demand for unity: “The company’s exception in the Crisis presented by Avianca to save Viva when it is clear that there are other alternatives.
In other words, the merger of Avianca and Viva would pose greater challenges from a competitive point of view, because there would be other possible solutions to avoid the bankruptcy of the “low cost”.
Various financial media such as Portafolio or La República have spread the thesis that Viva is on the verge of bankruptcy due to the rise in the dollar exchange rate and the effects of inflation. Archila comments in this regard: “Now it is the responsibility of the authorities to assess whether these new alternatives have the same effect of saving Viva without the dire consequences that there would be for competition and for consumers if the integration with Avianca takes place.”
The CEO of JetSmart, an American-origin multinational based in Santiago de Chile, has praised the project in Colombia in statements collected in various press reports: “We believe that a transaction between JetSmart and Viva Air will represent the ultra-low Enable cost model will be maintained in Colombia and this will allow us to continue offering more routes at lower prices.”
With all this, the fate of the announced Grupo Abra Limited, an ambitious regional conglomerate that includes Avianca and Brazil’s Gol, the country’s third-largest airline with 250 aircraft and connections to Latin America and the United States, remains in the air . The Colombian-Brazilian couple, released in an official statement since May 11, would seek to even the balance of power with Chilean giant Latam. And at the same time resolve other crises that have been plaguing the world’s second-oldest commercial airline for years.
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