Airline consolidation is an irreversible trend that is reaching Latin America now. British and Iberia in partnership with American; Delta and Northwest and an agreement with Air France / KLM which in turn have a share in Alitalia; Lufthansa taking control of Swiss and Austrian; United and Continental; and so on.

To date, the closest airline consolidation had come to Brazil was the union of Avianca, Taca and Avianca Brasil (former OceanAir). The merger advances at a very slow pace, at least Brazil-wise. This merger might have been one of the reasons behind Lan and Tam’s reaction.

The current president of Chile, Mr Piñera, was one of the majority stockholders at Lan. Before reaching the presidency he promised he would get rid of this shares. When the sale of his stock took place Tam was repeteadly mentioned as a prospective buyer, given the good relationships between the Amaro family (Tam) and the two families controlling Lan. But the deal never came about and part of Piñera’s shares were sold at the stock exchange. The biggest share ended up in the hands of the Cueto family, which became the main controller of Lan.

The release issued to the market states that Tam, controller of Tam Linhas Aéreas, ceases to exist as a company and joins the Holding LAN, known from now on as LATAM. Tam’s stock is out of the Bovespa and the NYSE. LATAM’s stock will be negotiated at the Santiago SE and NYSE.

Enrique Cueto, Lan’s CEO, becomes LATAM’s CEO too.

Lan will control 79% of the voting stock while Tam will have 20,4%, according to Exame magazine.

All leads us to believe that in actual fact Lan bought Tam. Two reasons prevent the deal to be presented as such:

• the strict limits imposed by Brazilian legislation to the foreign control of airlines. 20% is the limit to foreign capital on a national airline (Congress is currently debating increasing that limit to 49%).
• marketing issues, with Tam still attempting to occupy the space left by Varig in the public’s imagination.

It is clear we don’t know all the details of the business deal. Due mostly to nationalistic issues, both companies will continue operating for a while with their respective names and frequent flyer programs. But the future might bring changes. Avianca/TACA are allowing transfer of rewards between their respective programs.

Tam’s Multiplus can become a useful tool for the exchange of points for miles and viceversa. That would allow the Lan Pass and Fidelidade Tam programs to continue operating independently.

Another unresolved issue is the status of two merged airlines belonging to two different alliances. Will Tam throw away the considerable investment made to join the Star Alliance? Or will Lan leave the Oneworld alliance leaving a space for Gol? Speaking of which, foreign capital is likely to set its eyes on Gol sooner than later.

Tap should be quite concerned and who knows, it might even be considering joining LATAM in the not so distant future.

Many uncertainties remain making room for speculation. Exciting months ahead.

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