Just like his grandfather-who in 1961 bought a majority stake in what was then the Honduras-based TACA International Airlines, founded 30 years earlier by a pilot from New Zealand-Roberto Kriete took a big gamble when he invested millions of dollars into his family’s business during the turbulent 1980s.

“During the lost decade of Central America, the 80s, when other people were pulling out of the region, we were investing in it,” said Kriete, now president of Grupo TACA. “We put all our bets (on the fact) that Central America was going to come through the political turmoil.”

So far that bet has paid off. The once small company-which at one time only consisted of a few aircraft, a landing strip and a contract with the Honduran government-has transformed itself from a $15 million operation in the 1970s into a consortium of Central American airlines that today generates annual sales of $600 million.

Based in El Salvador since 1983, Grupo TACA now operates the third largest aircraft fleet in Latin America and serves more than 60 cities throughout North America, Latin America and the Caribbean. Its management team has also skillfully garnered cheap financing for its aircraft acquisitions by teaming up with other major regional players.

“(TACA) is quiet on the financial front, but is very successful,” said Brian Rynott, manager of research and development at the newsletter Aviation Latin America and Caribbean.

TACA’s rise to the top, say industry observers, really began when Kriete met the company’s CEO, Federico Bloch, at business school in Boston, where they first started plotting the airline’s future coordinates. But it wasn’t until the end of the 1980s when the two men really started reaping the dividends from their efforts. It was then that shareholders decided to create a larger scale operation by investing in the flagship airlines of five Central American countries-El Salvador’s TACA International, Costa Rica’s Lacsa, Guatemala’s Aviateca, Honduras’ TACA, and Nicaragua’s Nica.

“They knew that if they remained small, they would not be a factor (in the airline industry in the region),” said Hossein Amir-Aslani, managing director of Chase Securities Inc., who has worked with TACA on several financing deals. “Therefore, their strategy was to have management or equity ownership in other airlines.”

Added Kriete: “We needed to get the economies of scale and the savings of running a single organization vis-à-vis running several airlines, and that’s why we unified them.”

Reaching Higher
And while that consolidation process has been long and slow-it was only last year that all those airlines were melded under one name and logo-Grupo TACA’s management now clearly has its seatbelt fastened to take the company to the next level.

Last year, Grupo TACA, Brazilian airline TAM and LAN Chile jointly purchased 175 single aisle aircraft from Airbus Industrie-a deal that was estimated to be worth $4 billion and represented the largest aircraft order ever placed by any airline consortium in Latin America.

Under the order, which included 110 firm purchases plus another 110 options to buy, Grupo TACA took on 60 aircraft, LAN Chile 40, and TAM 75. “What (Grupo TACA) has ordered is impressive,” said Thomas Spang, head of corporate banking for Central and South America at Dresdner Bank in Miami. “It’s not just five or six aircraft, but a range of new aircraft.”

With each plane costing about $40 million, Grupo TACA’s order alone was worth about $1.2 billion, equity for which came from the group and its shareholders, says Kriete. “(This deal) makes one realize (TACA’s) purchasing power and how committed they are to becoming a strong competitive force in the region,” said Rynott.

Lower acquisition costs, say observers, was the major benefit of this multi-airline structure. “(Bloch) wanted to try to get the same pricing on aircraft as the big US, European and Asian airlines, and he achieved this by getting together with other airlines and making a bulk order of aircraft,” said Chase’s Amir-Aslani. “By making this order together, it gave (the group) more leverage in negotiating with the manufacturers.”

This transaction-which was sealed with a couple of good-faith handshakes, according to Kriete-also put a smile on the faces at Airbus Industrie, which more than doubled its total orders registered in Latin America, a region where airline traffic and fleet development is increasing 4.8% and 3.5% annually.

TACA’s shopping spree began in 1997, when it was involved in a $210 million financing deal to lease six Airbus A320 aircraft. And although this smaller transaction may have attracted less publicity, its structure has won kudos for combining both commercial and export credit agency financing. France’s COFACE, Germany’s HERMES and the UK’s ECGD were the European ECAs involved. Meanwhile, Credit Agricole Indosuez and Chase Securities Inc. arranged the transactions in which Banque Nationale de Paris, ING Lease, Societe Generale, Kreditanstalt Für Wiederaufbau and Dresdner participated.

“It’s encouraging to see a group of banks that have agreed to support TACA in this financing because it means that banks are willing to look at situations which they were not willing to look at in the past,” said Michel Dembinski, vice president in charge of aircraft financing for the Americas at Credit Agricole Indosuez.

The battle to win the confidence of foreign investors is perhaps the tallest hurdle that Grupo TACA has leapt, say some observers. As Amir-Aslani points out, less than 10 years ago, many financial institutions were hesitant to take TACA risk. “They were more skeptical back then, because they weren’t comfortable with the name and the country risk,” he said. “Before we had to do a lot of convincing to sell the name. But today, the name TACA is much better known and is easier to sell in the market.”

Looking Inside
Insiders say that part of TACA’s marketing success can be attributed to its management team. “They are bringing gringos to the system that have the management training,” said one industry observer. “They are bringing that talent to Central America to build upon.”

Still, Grupo TACA Chief Operating Officer Ben Baldanza notes that although North American expertise is fundamental, it is the mix of both Latin and US cultures that has created the airline’s winning formula. The company’s management resume includes former executives from Continental Airlines, Northwest Airlines and Chase Manhattan Bank.

“We have a very good balance between the Latin flavor of the airline, the Latin talent that knows the market and knows what our traditional passengers want, and the high tech input for yield management, revenue management, scheduling and forecasting that US airlines have,” said Kriete.

He added: “We believe we are the best management team in the industry south of the border.”

Whether that is true or not, American Airlines has been impressed enough with TACA’s credentials to start a code-share partnership with the Central American airline, which was finally approved last year by US authorities after a two-year wait. More than anything else, that stamp of approval from a US carrier has added to TACA’s credibility among foreign investors.

With all the changes that are sweeping across the airline industry, alliances, code-share agreements and consolidations are really the only way to survive, says Dresdner’s Spang. “Today you need a strong partner,” he said, “and TACA has it.”

It has this, and much more, say industry observers. “TACA is one of the most envied airlines because they are a very strong carrier,” said Rynott. “They are a hidden gem. Because they are privately held, no one knows what they do.”