By Gabriel Araujo and Andre Romani
SAO PAULO (Reuters) -Brazilian carrier Gol Linhas Aereas Inteligentes SA and Colombia's Avianca said on Wednesday they were combining under the roof of a common holding company, signaling a move toward post-pandemic Latin American airline consolidation.
The deal would create one of the region's largest airlines, roughly matching Chile's LATAM Airlines (OTC:LTMAQ) Group SA in terms of scheduled seats, according to global aviation consultancy ICF.
The holding company, called Abra Group, will be jointly controlled by Avianca and Gol's main shareholders, the firms said, adding that both airlines would operate independently and maintain their respective brands.
They said other financial investors had committed to invest up to $350 million in Abra Group upon the closing of the deal, which is expected in the second half.
The move comes after Avianca completed a bankruptcy reorganization last December and agreed in April to merge with Viva - another key Colombian airline - and could attract notice from competition regulators.
Abra, which has called itself a "pan-Latin American network of airlines," will also own a non-controlling 100% economic interest in Viva's operations in Colombia and Peru and a minority interest in Chile's Sky Airline.
Shares in Gol, Brazil's largest airline, closed down 1.7%, underperforming the broader Bovespa stock index, which rose 1.25%.
CONSOLIDATION SIGNS
ICF managing director Carlos Ozores said that commercial benefits seemed limited given the lack of overlap between the two airlines, which use different aircraft types.
But Abra Group could boost consolidation momentum in the sector, he said in an interview.
Avianca is Colombia's flag-carrier as well as a leading airline in Central America and Ecuador.
"Through this deal they are already positioning themselves to be one of the three or four airlines that I think will form the Latin American aviation marketplace," Ozores said. "I think this is going to drive a wave of further action, because nobody wants to be left out."
Brazil's Azul SA (NYSE:AZUL) confirmed late in 2021 it was making a bid for Chile's LATAM, which is in bankruptcy proceedings, but then decided to focus on its own operations.
ANTITRUST CONSIDERATIONS
Analysts at Citi cautioned that antitrust considerations as well as Gol and Avianca's separate partnerships with U.S.-based airlines could raise issues. American Airlines (NASDAQ:AAL) Group Inc holds a stake in Gol and in Chile's JetSmart while Avianca is an United Airlines partner.
American Airlines and United did not immediately respond to requests for comment.
In Brazil, operations of Avianca's local unit were suspended in 2019 after it filed for bankruptcy.
Roberto Kriete, an Avianca board member, will serve as the group's chairman, while Gol's founder Constantino de Oliveira Junior will be its chief executive.
Abra will focus on achieving synergies to ensure lower costs and expand routes, the firms said, without providing details.
Gol said in a separate filing that the transaction involved its controlling shareholder, investment fund MOBI FIA, and certain shareholders of Avianca Holding including Kingsland International, Elliott International and South Lake One.
MOBI FIA will contribute its Gol shares to the newly formed company in exchange for common shares of Abra, Gol said.
Gol said the deal would not entail a public tender offer as there would be no sale or transfer of control. But a Brazilian minority shareholders association disagreed.
"The truth is that MOBI FIA will no longer be the controller, its shares will be transferred to a holding company in the UK ... So a takeover bid is imperative," Aurelio Valporto, head of the Abradin association, said.