Home' Asian Aviation : AAV November 2010 Contents AsianAviation | NOVEMBER 21
LAN, TAM join forces
Brazil's largest carrier TAM Airlines and
Chile's LAN Airlines expect to have
completed their merger, announced
in August, by the middle of next year.
A non-binding Memorandum of
Understanding (MoU) envisages the
two operators' holdings being merged under a single
parent entity, to be known as LATAM Airlines Group.
If nalised as proposed, the combined operation
will create a new Latin American airline group o ering
"seamless passenger and cargo ser vice across the continent
and around the world", according to the two parties.
LATAM would include : LAN Airlines and its
Argentinean, Ecuadorean and Peruvian affiliates;
LAN Cargo and its a liates; TAM; TAM Mercosur;
Multiplus; and all other LAN and TAM holdings. e
two partners intend to continue operating under their
existing operating certi cates and brands and retain
their respective current headquarters in Santiago and
e transaction is seen as supporting expansion to new
destinations, creating more opportunities for employees
and more value for shareholders, while fostering
economic development and job growth. LATAM would
be "among the leading airline groups in the world in size,
pro tability, and market reach," the airlines said.
e two carriers would have a combined workforce
of more than 40,000 employees, supporting services to
more than 115 destinations in 23 countries. eir route
networks are essentially complementary.
" ere is very little overlap in ser vice, meaning that
this agreement is about creating growth for employees
and our home country economies, and creating more
travel options for our customers," claim LAN and TAM.
Addressing the carriers' outstanding orders for competing
new-aircra designs -- TAM has ordered 27 Airbus
A350s and LAN 26 Boeing 787s -- TAM President
Libano Barroso told October's Airline Profitability
Summit in Montreal that the two airlines could y both.
" ey can live with each other," he said.
But the TAM chief was less categorical about
membership of global airline alliances. e Brazilian
carrier is a member of the Star Alliance, while LAN is
part of Oneworld.
As the alliances continue to vie for dominance in each
major region, the in uence in Latin America that could
be gained by teaming up with the new, combined entity
will be a much sought prize. LATAM is set to become
the largest South American operator and would provide
valuable passenger tra c to the successful alliance suitor.
By September stock values, the combined carrier
would have a market capitalisation of some US$13.2
billion -- double that of Continental Airlines and United
Airlines, which plan to have completed their merger by
the end of 2010. Last year, TAM carried some 30 million
passengers, compared with about half that number
travelling on LAN services. Their combined traffic
would be su cient to put LATAM among the world's
leading dozen carriers.
In terms of eet size, TAM has about 150 aircra
with about 90 more on order, while LAN ies about
100 machines with outstanding orders for about 120
more. e two operators currently provide more than 40
percent of Latin American airline capacity, as well as the
second-largest capacity -- a er American Airlines -- on
routes to North America.
Presenting the planned merger to LAN and TAM
investors, the carriers argued that the "evolving global
context" has provided an opportunity for the emergence
of a Latin American lead operator. "The world is
consolidating. International players are consolidating,
either through mergers or broad anti-trust agreements
[and] these airlines are looking at Latin America for
growth," the airlines said.
Regional rationalisation of airline operations, such as
the proposed merger, will allow a Latin American carrier
with "a strong presence in all major home markets ...
to enter on an equal footing with the world leaders".
LATAM will o er "an unparalleled level of ser vice in
the region", claimed LAN and TAM, and will be able to
grow into new markets.
"Future growth would result in the creation of jobs and
economic growth in Brazil and rest of Latin America,"
the carriers said.
Four primary growth areas are seen initially for the
planned LATAM network. Operating from Brazil,
the partnership will see an increased ow of passengers
to support new ser vices to Europe and Africa. More
passengers travelling between Brazil and Lima would
furthermore feed in to support new services to Mexico
and the USA.
In addition, potential -- but still unidenti ed -- new
hubs could connect South America to Europe and the
USA. Finally, cargo operations that combine "LAN's
expertise and TAM's footprint" are seen as providing a
fourth growth opportunity.
One factor to be considered in the proposed merger is
the fact that Brazil limits foreign ownership of a Brazilian
air carrier to 20 percent. Such a regulated marketplace
makes participation by foreign operators such as LAN
very di cult. Still, LAN's good connections throughout
the South American region support north-south tra c
between Latin America and the USA, while for its part
TAM can provide good connections to Europe.
LAN, in which the Cueto family has a 34 percent
holding, is thought to have the stronger hand in leading
the new LATAM operation because of its reputation
for being well managed. e Amaro family holds a 48
percent stake in TAM. n
As increasing competition pushes towards consolidation, South American carriers TAM and LAN have announced
plans to merge. Ian Goold considers some of the factors that could make the combination an attractive potential
partner for global alliances.
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