Avianca and TACA Fly Together

Colombian airline Avianca is merging with Central American carrier TACA to form a group that the pair says will produce nearly $3bn in aggregate annual revenue. The deal could lead to equity issuance, according to an analyst covering the sector. “The shares of both Avianca and TACA’s controlling entities will be contributed to a new holding company in a business combination worth in excess of $3bn,” says TACA. Avianca shareholders will control two thirds of the new company, with the other third in the hands of TACA owners, according to Reuters, which cites TACA CEO and chairman Roberto Kriete. “Each operating company will remain independent while the new group will leverage best business practices across both organizations,” TACA says. “It makes sense in that the 2 didn’t have a choice,” says an equity analyst covering the sector who asks not to be identified. “It doesn’t make sense because they both need money . . . the equity market is the logical next step,” he adds. Kriete will become chairman of the new group’s board, Avianca CEO Fabio Villegas will serve as CEO, while TACA COO Estuardo Ortiz will be COO and Avianca CFO Gerardo Grajales will head up finance. The merging entities note that the airline sector faces a still challenging economic environment, volatile fuel prices and intense competition. Bank of America-Merrill Lynch and Caoba Capital acted as financial advisors to TACA, while Greenberg Traurig was counsel. Simpson Thacher & Bartlett and Gomez-Pinzon Zuleta were counsel to Avianca. Avianca and TACA serve more than 100 destinations worldwide, including 75 cities in LatAm. The transaction is subject to regulatory and other antitrust approvals.