MercoPress. South Atlantic News Agency

LAN assessing regulator’s tough conditions for the takeover of Brazil’s TAM

Chief operating officer, Ignacio Cueto, a big step forward, but hopefully in the first quarter of 2012

LAN Airlines said it hopes its multibillion-dollar takeover of Brazil's TAM will be completed in the first quarter of 2012, but it is studying conditions imposed by Chile's regulator.

LAN's chief operating officer, Ignacio Cueto, told a conference in Santiago that Chile's antitrust tribunal's approval was a step forward, but administrative issues arising from the ruling will take four to five months to iron out.

The regulator's conditional approval last week paves the way for the creation of one of the world's biggest airlines.

“This pretty long process will continue to advance toward a possible integration with TAM ... God willing, in the first quarter of next year,” Cueto said.

LAN is carefully studying the tribunal's conditions and is expected to comment on them Monday, he added. Analysts appeared split on whether LAN would appeal any of the mitigation measures at Chile's Supreme Court.

The airlines are seen appealing at least three of the measures, according to a report by Santander GBM in Santiago who said the restrictions would significantly affect the carriers' operations.

The most restrictive measures are those calling for so-called “interline” agreements with other airlines interested in operating three key routes, quitting one of the two global alliances LAN and TAM are part of, and opening the domestic market to non-Chilean carriers, according to Santander GBM.

The Chilean government endorsed the deal, saying it would bring benefits to the country.

Industry experts say the ruling of the antitrust tribunal will act as a blueprint for future mergers in Chile. However, they say the deal could face delays in Chile if a third party, such as a rival airline, appeals the decision to the Supreme Court.

The combined 12.38 billion dollars market capitalization of LAN and TAM, Thomson Reuters data shows, would rank company as the world's second-largest publicly traded airline, though the deal involves a share swap that will likely dilute the merged group's overall market value.

The Chilean antitrust tribunal, TDLC, said the merged airline must comply with a host of conditions, including ceding slots on the key Santiago to Sao Paulo route and renouncing participation in one of two global alliances.

The measures also require LAN to modify its self-regulation and cancel and revise code-sharing agreements with airlines that do not belong to the same alliance as the newly merged LATAM on some routes.

LAN has been asked to cede four of its frequencies from Santiago to Lima to other Chilean airlines, which would also limit its flights from the Peruvian capital to other destinations.