The case of Viva Air and Ultra Air was relatively similar to that of Aeromar in this last point. Viva Air fell waiting to be bought by the Colombian giant Avianca, since the aeronautical authority did not authorize the purchase due to competition issues, and only a few weeks ago it approved a conditional integration that is still pending official status. In the case of Ultra Airthe promise was the purchase by the Chilean jetSMARTwhich also did not happen.
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The fever for agreements and investments in the Latin American air sector is not something new, as it has occurred particularly from US companies interested in expanding their footprint in the region.
Among the most representative cases is the participation of the American Delta in Aeromexico and LATAM Airlines; an agreement of United Airlines with the Panamanian Cup; an investment of American Airlines in the brazilian GOAL for 200 million dollars, and even other agreements that are still pending approval, such as the joint venture of the American Allegiant and Viva Aerobuswhich implies an investment of 50 million dollars.
The decision of one airline to invest in another lies in the value that both parties see to enter a market where they could not enter alone, since frequently one has more capital, experience or labor than another, says Sergio García del Bosque, director executive and partner at the mergers and acquisitions firm Seale & Associates
“Very commonly they are made joint venture from global companies in regions where they say: ‘I’m not sure if it’s better to do it alone, I don’t know the culture, the region or I’m not as good as my local partners, so we looked it up and that’s how we went in without us taking full control’”, Explain.
The opportunities are so vast that Latin American airlines seek a greater presence through the same scheme.
This has been the case for Avianca in recent years. Since 2016 the airline had announced its intention to invest 100 million dollars in Aeromar to increase its presence in the Mexican market; however, the company backed out and the transaction never took place.
But that did not stop the Colombian airline from looking for opportunities in other companies. In May 2022, Avianca and the controlling shareholder of the Brazilian GOL signed an agreement to create a holding company called Abra Group Limited (or open group), which will control Avianca already GOAL and would have 100% of the economic rights of the operations of Viva Air in Colombia and Peru without controlling it. In addition, it will have a credit convertible into shares in the Chilean airline Sky Airlinewhich is also going through a difficult time.
For Del Bosque, these types of agreements support an extremely challenging sector, where forecasts are hardly enough to anticipate contingencies such as covid-19, which ended up destabilizing several companies.
“The industry is doomed to always live in cycles where some airlines are not going to survive, not because of bad management but because financial management sometimes does not allow them to get out of difficult situations,” he says.