The sudden appearance of the Chilean airline JetSmart has raised a new obstacle in the career of Avianca and its project of union with the ‘low cost’ Viva Air. The southern company, also low-cost and with local operations in Chile, Argentina and Peru, reported yesterday its interest in acquiring 100% of the Colombian Viva, founded in Medellín in 2009 by a group of shareholders headed by the Irishman Declan Ryan. , son of the founder of the great pioneer in the world of cheap flights: Ryanair.
Last year the Civil Aeronautics, the Colombian air market regulator, vetoed the Avianca and Viva merger plan on the grounds that it violated the right to free competition. Since then, various players in the sector have rejected the transaction based on the argument that it would not only mean a concentration of close to 60% of the local market, a scenario close to a monopoly, but also that it would have been launched without the approval of the regulators. With a new director on board, Aerocivil reported in mid-January that it would start from scratch with the study of the file, having found procedural errors.
Avianca, whose centuries-old origin is Colombian, but today has its financial headquarters in England, has indicated that JetSmart’s interest “is not a real option.” The company issued a statement on Tuesday that described the proposal as “unfeasible” and a strategy to “distract the integration request of Viva and Avianca.” Jorge Enrique Sánchez, former superintendent and one of the most critical voices of that merger, explains that the road is difficult: “The problem is that today the economic rights of Viva belong to Avianca, so who should approve the sale of Viva to JetSmart is the Avianca board.
That is why Sánchez finds a paradox in that the company chaired by the Chilean Adrian Neuhauser publicly rejects the JetSmart proposal. To add to the confusion, Avianca’s communication refuted the aspirations of the Chilean company, arguing that none of its shareholders “has received offers to transfer their economic participation in Viva.”
The mess now goes through several channels. The Superintendence of Industry and Commerce, which ensures free competition and has audit powers, must conclude the file opened in December and clarify whether Avianca carried out the operation with Viva without the authorization of the regulator.
That issue would clear the outlook to move on to other fronts. The lawyer and former superintendent Emilio Archila, representative of the Ultra airline and opponent of the union between Avianca and Viva, considers that the control entities should “assess under what conditions Avianca rejects the current JetSmart proposal, instead of the recipient of the offer (Live)”.
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The Chilean press reported last December that the local authorities gave the green light to the acquisition of an undetermined number of shares of JetSmart by American Airlines. An alliance that represents another potential bottleneck, according to Avianca shareholders, for the aspirations of Chilean interests: “Both JetSmart and its second shareholder -American Airlines- operate in the Colombian market, therefore any transaction would require the same approvals that Avianca needs for the 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 bound for the capital Santiago de Chile.
But Archila, a representative of a company that has raised multiple objections to Avianca’s conduct, considers that the appearance of the southern competitor demolishes one of the argumentative axes of the flag carrier in its first request for unity: “The exception of company in crisis presented by Avianca to rescue Viva, to the extent that it is clear that other alternatives do exist.
In other words, the merger between Avianca and Viva would face greater demands in terms of competition because there would be other possible solutions to avoid the bankruptcy of the ‘low cost’.
Various financial means, such as Portfolio or The Republic, have spread the thesis that Viva would be on the verge of bankruptcy due to the rise in the price of the dollar 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 any of the terrible consequences that there would be for competition and for consumers if the integration is done with Avianca.”
The CEO of JetSmart, a multinational of American origin based in Santiago de Chile, has praised the project in Colombia in statements collected by various press reports: “We believe that a transaction between JetSmart and Viva Air will allow the model to be maintained ultra low cost in Colombia and that 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 would include Avianca and the Brazilian Gol, the third largest airline in that country with 250 planes and connections with Latin America and the United States, remains even more up in the air. Advertised in an official statement since May 11, the Colombian-Brazilian couple would seek to balance the relationship of forces with the Chilean giant Latam. And by the way, remedy other crises that have plagued the second oldest commercial airline in the world for years.
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