LATAM has sent a letter to Colombia’s civil aviation authority voicing concerns about “serious flaws” in the review process of the proposed Viva Air-Avianca merger. The letter alleges that the review is being done behind closed doors with significant segments of the sector that would be affected by the merger excluded.

This comes after JetSMART submitted an opposing bid to take over Viva Air. Both JetSMART and LATAM were two of the 9 airlines that previously requested to be included as interested third parties as Colombian authorities evaluate the potential merger.

Proposed Viva Air-Avianca Merger

The proposed partnership between Avianca and Viva, announced on April 28, 2022, would see the two airlines become part of the same business group, with Viva becoming part of the holding company Avianca Group while maintaining its independent identity.

The move has been met with opposition from several airlines and the Colombian tourism industry. Opponents are concerned about the impact the merger would have on competition, prices, and customer rights. After rejecting the merger, Colombia’s aviation authority is reevaluating after finding irregularities in the initial review.

The merger is the first step in the creation of the proposed holding company, Abra Group Limited, which would consist of Avianca, Viva Colombia, Viva Peru, GOL Linhas Aéreas, and a minority interest investment in Sky Airline.

The proposed holding company is currently under scrutiny by local authorities. In a statement, Roberto Kriete, President of the Board of Directors of Avianca, said that the new group “would benefit customers by using a more efficient cost structure to offer lower fares, a route network that delivers direct connections between destinations, a strong loyalty program, and friendly and efficient service. In addition, the combination will help ensure that customers in Colombia and Latin America have two airlines that serve the Latin American market.”

Opposition to Viva-Avianca Merger

Ultra Air, Colombia’s latest low-cost carrier, was the first to publicly oppose the proposed partnership, claiming that a merger between Avianca and Viva would create a monopoly in Colombia and result in rising fares that would directly impact small and medium-sized competitors and customers.

LATAM, along with the other airlines who have requested to be involved in the process, seem to share these concerns. LATAM has now taken its opposition a step further by sending a letter questioning the second review of the merger. The carrier, which has its own joint venture with Delta, believes that the aviation authority is not running a transparent process while excluding the views of interested parties opposed to the proposed merger.

The Colombian Travel Agencies and Tourism Association (ANATO) has also requested to be involved as it seeks to learn more about how the partnership would work and in ensuring that customer rights are respected. Competing airlines including EasyFly, Wingo, Aerolíneas Argentinas, Air Europa, JetSMART, SATENA, and Lufthansa have also registered as interested parties.

SATENA’s opposition is particularly significant as it’s a domestic Colombian carrier controlled by Colombia’s ministries of defense and finance.

The civil aviation authority has stated that it will “carefully analyze the information, arguments, and exceptions presented by the intervening companies and will determine, following the highest standards of analysis developed by the national and international competition authorities, the effects of the transaction in order to adopt a determination on the same in light of the regulations and principles of free economic competition.”

JetSMART Proposes Rival Deal

Creating another potential roadblock for the proposed merger of Avianca and Viva, Chilean discount carrier JetSMART is offering a rival offer for troubled Viva Air.

JetSMART is backed by US-based private equity firm Indigo Partners and American Airlines, which plans to take a minority stake in JetSMART. The offer for Viva Air comes after Colombia’s aviation regulator said it would re-evaluate the airline’s proposed merger with Avianca.

The airline has announced plans to create its own holding company, which would include the Colombian carrier, EasyFly, as well as Ecuadorian airline, Viva Air Ecuador. The group aims to compete with the proposed Abra Group Limited and provide customers with more choices and lower fares.

Avianca has a say in any potential sale of Viva Air to JetSMART as it is a controlling shareholder in Viva Air. It immediately poured cold water on the announcement, calling it an “unfeasible” proposal.

With all the moving pieces, it’s unclear what the outcome of the evaluation process by Colombia’s civil aviation authority will be or if either deal will come to fruition.

Bottom line

LATAM has sent a letter to Colombia’s civil aviation authority, alleging serious flaws in the review process of the proposed Viva Air-Avianca merger. The move has faced opposition from several airlines and the Colombian tourism industry, who are concerned about the impact on competition, prices, and customer rights. JetSMART has submitted a rival offer for Viva Air, creating competition in the ongoing airline consolidation in South America.