LAN, TAM Forge Ahead With Merger

 - November 7, 2011, 9:40 AM
From left: vice chairman of the TAM board of directors Mauricio Rolim Amaro, LAN CEO Enrique Cueto, TAM board chairman Maria Claudia Amaro and LAN president and COO Ignacio Cueto celebrate the LAN/TAM merger agreement.

Chile’s LAN Airlines S.A. and TAM S.A. of Brazil continue preparations for their planned merger to create Latin America’s leading operator and one of the world’s largest airlines, while at the same time appealing conditions imposed by Chile’s antitrust court.

The carriers said on October 28 that they have started preparations to integrate under parent company Latam Airlines Group. They had previously announced that Mauricio Rolim Amaro, vice chairman of TAM’s board of directors, will chair the Latam board. Enrique Cueto, LAN’s CEO, will become Latam CEO.

Preparations to consummate the merger by the first quarter of 2012 continue despite an appeal to the Supreme Court of Chile of three “mitigation measures” imposed by the country’s TDLC antitrust court, which approved the merger with conditions in late September. Among those conditions, Latam Airlines Group must relinquish participation in one of two global airline networks—LAN belongs to Oneworld and TAM to Star Alliance.

The airlines said the measures “are broadly in line” with actions they agreed to accept in an out-of-court settlement with the Chilean antitrust authority. However, they are appealing three stipulations “the companies deem to be unconstitutional and disproportionately severe.” They would require Latam to submit for approval code-share agreements with airlines outside of its chosen alliance; relinquish four flights from Santiago to Lima to other Chilean airlines; and make records available to a consultant required by the TDLC.

“It is important to highlight that LAN and TAM plan to move forward, in parallel with the Supreme Court appeal process, with the various regulatory and corporate authorizations that are still required to complete the transaction,” the airlines said.

The merger will create an airline group with some $8.5 billion in combined revenue and 295 aircraft. By terms of the agreement announced in August 2010, LAN and TAM will continue to operate under their existing operating certificates and brands, and maintain their current headquarters in Santiago and São Paulo, respectively.

LAN has ordered 32 Boeing 787 Dreamliners for delivery between 2012 and 2019. In a presentation in Seattle in September, Capt. Christian Staiger, LAN technical pilot, said the airline plans to become the first to perform required navigation performance approaches with the 787, using the procedures at Lima’s Jorge Chavez International Airport. TAM in October made final an order for 32 Airbus A320s, including 22 A320neos. It will serve as the Latin American launch customer of the A320neo.