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Lan and Tam complete merger to become world’s second largest airline by market value

Sunday, June 24th 2012 - 15:02 UTC
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Chilean Enrique Cueto becomes chief executive of Latam Chilean Enrique Cueto becomes chief executive of Latam
Maria Claudia Amaro Tam CEO and Ignacio Cueto LAN General Manager Maria Claudia Amaro Tam CEO and Ignacio Cueto LAN General Manager

Chile's LAN Airlines completed a takeover of Brazilian rival TAM on Friday, creating the world's second-largest airline by market value in a deal that executives expect to yield up to 700 million dollars in costs savings within four years.

The new carrier, called LATAM Airlines Group, takes to the skies at a time of slowing economic growth and demand for air travel in Brazil, Latin America's biggest aviation market. That means the airline will need to adopt strict cost cuts to boost profits in a challenging market grappling with high operation costs and fierce competition from smaller rivals.

Chief Executive Enrique Cueto said he expects the Santiago-based carrier to win investment-grade debt ratings within a year mostly because of its ability to produce significant cost savings. He said the airlines will focus on improving performance in Brazil and ruled out significant layoffs during the combination.

“We will focus on Brazil and, as LATAM, we will introduce important changes in the local airline market,” Cueto said in Sao Paulo. “There are great opportunities stemming from stimulating demand and enforcing a disciplined use of capacity, something that hasn't happened in years”.

The creation of LATAM Airlines comes amid growing mergers and acquisitions activity among airlines in Brazil as carriers struggle with high labour costs, an unwieldy tax burden and overcrowded airports. Industry consolidation and reduced capacity by TAM arch rival Gol Linhas Aéreas should help improve profitability for LATAM, which will count on scale gains from the merger.

Rapid growth in Brazil, by far the largest airline market in Latin America, drove ticket prices down, pressuring profits at TAM, Gol and other carriers in spite of soaring demand for air travel.

Chile's Cueto family, the majority shareholders in LAN, came to São Paulo to announce the success of a plan to de-list TAM shares in Brazil after 95.9% of the latter's shareholders tendered their stock in a swap. A minimum two-thirds of all TAM shareholders was required to approve the transaction.

The share swap was the last step before completing a takeover that was first announced in August 2010 and went through tough regulatory scrutiny in Chile, where LAN enjoys a dominant market position.

The completion of the tie-up will allow LATAM Airlines to generate additional revenues and cost savings between 170 million and 200 million in the first year of operations.

LATAM Airlines will fly to as many as 150 different destinations in 22 different countries, stretching from Frankfurt to Sydney.

LAN's and TAM's revenues exceeded 13.3 billion dollars last year, and their combined market value is second only to Air China among the world's airlines.

Categories: Economy, Latin America.

Top Comments

Disclaimer & comment rules
  • ChrisR

    We always fly TAM from Uruguay to London. Great service, good baggage allowances, best price.

    Let's hope the Cueto family don't balls it up.

    Jun 24th, 2012 - 03:52 pm 0
  • Fido Dido

    “Let's hope the Cueto family don't balls it up.”

    Don't worry, both will still operate seperate . This is a win for TAM, since LAN is the best to business with. It already paid out for TAM in 2011, Chosen Best Airline of Latin America. Also a win for LAN to have more accesss through TAM to the largest market and fastest growing market of latin america. Chile alone is to I typed before its not even close to the economy of the state of sao paulo..the richest state in latin america.

    This deal is similar like Air France and KLM, though in my opinion, the LAN and TAM are much better.

    I'm looking forward to read the idiotic comments from those dumb f##k mapucho indians with a low self esteem (condomrito and manclown).

    Jun 24th, 2012 - 05:17 pm 0
  • briton

    Nice to know, what you think of others,
    not as well off or as intelligent as you then, fido..

    Jun 24th, 2012 - 06:13 pm 0
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