beyondbrics

There once was an airline called Lan,
Which decided to merge with Brazil’s Tam.
The two made a deal,
Which looked easy to seal,
To create a giant group called Latam.

And then everything got more complicated.

When Chile’s flagship carrier, Lan, signed the all-stock merger with Brazil’s biggest airline back in August last year, the deal looked nice and simple. The two companies would combine to create the biggest airline in Latin America, conveniently named Latam Airline Group, which would help generate synergies at a time when the sector as a whole was under pressure.

But it’s been anything but straightforward. Late in January, Chile’s Free Trade Tribunal said it would examine the merger following competition concerns raised by a consumer group. There were also doubts about whether Brazil, which has been fiercely protective of its air space, would effectively hand over control to its Andean friends. (The deal will give Lan 70 per cent of the new holding after the offer of 0.9 Lan shares for every Tam share).

No wonder then that the shares of both companies rallied on Wednesday and Thursday as it came to light that ANAC, Brazil’s civil aviation authority, had approved the proposed merger. Most importantly, they approved it without any type of suggested alteration.

Analysts are now more confident the deal will go through. If Brazil can put decades of protectionism behind it, then perhaps the complaints of one relatively small consumer group in Chile shouldn’t be too hard to overcome either.

It is also worth noting that Chile’s Antitrust Court imposed a self-regulated fare plan for domestic routes more than a decade ago – rules which could easily be applied to international routes. This may help to calm fears over unfair competition and ensure a happy ending for the companies’ respective investors.