MercoPress. South Atlantic News Agency

Merger of Chile’s Lan and Brazil’s Tam to become the region’s largest carrier

Latam Airlines Group is the name of the new merger

Two major South American airlines announced on Friday plans to merge and create the biggest carrier in the region. Brazil's largest airline TAM Linhas Aereas will be teaming up with Chile's LAN.

The combined airline would fly to 115 destinations in 23 countries, with a 40,000-strong workforce. In 2009, Lan Chile perceived an income of 3.66 billion, while its Brazilian counterpart gained 4.89 billion.

According to a joint statement Lan Chile, (Latin America’s biggest carrier by market value), agreed to merge with TAM S.A. in an all- stock transaction valued at 3.7 billion US dollars. Tam investors will receive 0.9 Lan shares for each Tam share, the companies said Friday in a statement. Tam shares surged 28%, the most since December 2004 and Lan rose the most in two years in Santiago.

The combination follows similar tie-ups between US and European carriers trying to reduce operating costs and increase revenue by offering a broader global market to passengers. Carriers worldwide have been battered in the past two years by record high fuel prices and a drop off of lucrative business travel during the economic slowdown.

Enrique Cueto from Lan will become chief executive officer of the new company, called LATAM Airlines Group SA, while Tam Mauricio Rolim Amaro will be chairman. Tam’s controlling shareholders will retain 80% of Tam’s voting shares and Lan will own the remaining 20% to comply with Brazilian regulations, the statement said. The agreement calls for the delisting of Tam in Brazil.

Both airlines said they will continue to operate as “distinct airlines and independent brands” and keep their respective headquarters. Lan is based in Santiago and Tam in Sao Paulo.

“Lan has a stronger management and financial position” according to Fernanda Marques, analyst at Banco do Brasil SA.

Banco BTG Pactual is advising Tam, while JPMorgan Chase & Co. is advising Lan, according to the statement. The transaction is subject to regulatory and shareholder approval.

Amaro is currently the vice-chairman of the holding company which TAM created earlier this year. He is the son of TAM founder Captain Rolim Amaro, who died in 2001. Over the last 50 years the Amaro family has grown TAM from a small air taxi company to Brazil's main flag carrier.

Cueto has been CEO of Lan for 16 years. He and his family have expanded the company from a tiny flag carrier in one of South America's smaller markets with annual revenues of only 300 million US dollars to a Latin American powerhouse with airline subsidiaries throughout the region.

Enrique Cueto in a statement says LAN is already “a true leader in Latin America [but] as the industry consolidates, we cannot stand still”.

“Today we announced our intention to join forces with our friends at TAM, setting forth on a journey that will create one of the leading airline groups in the world,” he adds. “We have great admiration and respect for our friends at TAM and have enjoyed many years of collaboration. They share our passion for service, for integrity and our belief in the great potential of the Latin American market. With this combination, we take two Latin American leaders and create a global leader that will make Latin Americans proud.”

Bologna, who served as TAM's CEO from 2003 to 2007 and returned earlier this year as CEO of the newly created holding company, says: “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. Combining our strengths and complementary networks will bring great benefits to our customers, employees, shareholders and Latin America”.

”Together, LAN and TAM will be able to offer new destinations that neither company could have supported on its own. This will position us to compete with the foreign carriers that continue to increase service to our region while creating new jobs in our home countries”.