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United moves deeper into Latin America with Avianca, Copa tie-up

Stock Markets Nov 30, 2018 07:49PM ET
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© Reuters. Copa Airlines plane lands at the Tocumen International airport in Panama City
 
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By Tracy Rucinski and Marcelo Rochabrun

CHICAGO, SAO PAULO (Reuters) - United Continental Holdings Inc (O:UAL) on Friday said it had finalized a three-way joint venture with carriers Avianca Holdings SA (CN:AVT_p) of Colombia and Copa Airlines of Panama, giving the U.S. airline a deeper foothold in Latin America where travel demand is rising.

Like its main U.S. rivals, No. 3 U.S. carrier United has been eyeing untapped potential for leisure and business travelers in Latin America, where many still travel long distances by car and bus.

United, Avianca and Copa are already codeshare partners and Star Alliance members, but a joint venture will allow them to plan routes and fares together and share revenues on those routes.

Shares in each of the three carriers ended higher on Friday.

Under the deal, United said it would provide a $456 million term loan to cash-strapped Avianca's top shareholder, Synergy Group Corp. Loss-making Avianca has a roughly $4 billion debt pile, of which 40 percent is due within the next two years, according to recent financial statements.

Latin American airlines in general have experienced a turbulent few years, hit by a double whammy of high oil prices and devaluing currencies in local markets, which make it more expensive to cover dollar-denominated costs like fuel and aircraft rent.

Travel has also suffered in the dominant regional economy Brazil, which has suffered from its deepest recession in decades but remains the largest aviation market in the region, and one of the biggest in the world.

United, which already owns an 8 percent stake in Brazilian carrier Azul SA, said it was exploring the possibility of adding the country to its joint partnership with Avianca and Copa.

The three carriers' agreement is subject to regulatory approval in the United States and several jurisdictions in Central and South America. Copa Airlines said in a press release that process would take between 12 and 18 months.

However, a similar deal between American Airlines Group (O:AAL) and Chile's Latam Airlines Group (SN:LTM) signed in January 2016 only received Chilean antitrust approval last month.

United's deal with Avianca, long in the works, had undergone significant legal back-and-forth after the Colombian flagship carrier's No. 2 shareholder Kingsland Ltd tried to halt negotiations between United and Synergy. The parties eventually came to an agreement.

United moves deeper into Latin America with Avianca, Copa tie-up
 

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