LAN Airlines and TAM Outline South American Merger

TWO OF South America’s leading operators have announced their intention to merge, establishing a combined venture that would rank as the 15th largest airline group by revenue and 11th largest by passenger traffic.
Under the terms of an initial Memorandum of Understanding (MoU), Chilean carrier LAN Airlines, along with its affiliates in Argentina, Ecuador and Peru and its freight division, LAN Cargo, will be integrated with Brazilian carrier TAM Lineas Aéreas under a new holding structure, LATAM Airlines Group.
The holding company will be formed from LAN Airlines SA, currently the parent organisation of the LAN associates, and will be headed by Mauricio Rolim Amaro – currently Vice-Chairman of the Board of Directors at TAM – who will serve as Chairman; and Enrique Cueto – the existing Chief Executive of LAN, who will hold the same position at LATAM.  Both airlines will retain their individual brands and separate operating certificates, as well as their headquarters in Santiago and São Paulo.
The combined airline group will serve more than 115 destinations in 23 countries with a fleet of more than 220 aircraft.  In 2009 they generated combined revenues of $8.5 billion and carried more than 45 million passengers and 832,000 tons of cargo. Through the deal, annual synergies of approximately $400 million are expected to be achieved – balanced between the alignment of the passenger networks, growth in the cargo network (both internationally and in Brazil) and reduced costs.  The management team expects to implement around a third of the synergies within the first year following the close of the transaction and complete the process by the end of the third year.
The carriers say they will work to build a comprehensive network of international passenger flights and cargo services throughout the region, adding that any growth would reach new destinations, create more opportunities for employees of both companies and more value creation for shareholders.  It would also, they say, “foster economic development and job growth in the home countries of the group airlines and the countries they serve”.
Marco Bologna, CEO of TAM, said: “This is the completion of the vision of our founder, Captain Rolim, who believed that, in an open skies market, a large Latin American airline group would provide much more competitive services to our passengers and cargo customers.  Together, LAN and TAM will be able to offer new destinations that neither company could have supported on its own.”
Enrique Cueto, CEO of LAN Airlines added: “With this combination, we take two Latin American leaders and create a global leader that will make Latin Americans proud.”
One major stumbling block could be the airlines’ existing membership of different global alliances and the current marketing and operating agreements they have in place with partners. LAN is part of oneworld, while TAM became a full member of the Star Alliance in May this year.  Neither alliance has commented on this subject but, with the airlines planning to merge their LANPASS and TAM Fidelidade frequent-flyer programmes, it is certain that the LATAM subsidiaries will take their place in one of the groups, leaving the other searching for a new partner in South America.