As airlines around the world seek combinations to help them withstand fierce competition and bulk up internationally, the United Continental Holdings Inc. and Delta Air Lines Inc. are among suitors considering bids for Avianca Holdings SA, reported the Wall Street Journal citing sources that are familiar with the matter.

One of the sources told the newspaper that advisers to Avianca have distributed a document to potential bidders seeking a $500 million capital injection. This could develop into a full sale, the sources added. There may be no deal at all as the process is in early stages, the people told the Wall Street Journal.

Avianca owns carriers including its Colombian namesake and Tampa Cargo SA in Panama and AeroGal in Ecuador and is one of the largest airline companies in Latin America based in Panama. Grupo Taca, which had airlines in El Salvador, Costa Rica, Peru, Nicaragua and Honduras, merged with Avianca in 2010. Avianca has created a market value equal to roughly $600 million since it went public in 2011.

In recent times there has been a string of airline tie-ups. As carriers seek to bulk up and broaden their scope amid stiff competition, the pace of consolidation in the industry has quickened in recent years, particularly in Europe, the U.S. and Latin America.

Since 2008, in the U.S. alone, four airlines are now present from eight earlier due to mergers and these four control more than 80% of domestic capacity. In addition to the merger of Avianca and Taca, there also have been some big mergers in Latin America that include the 2012 joining of Chile’s Lan and Brazil’s Tam.

U.S. airlines have been picking partners and trying to lock in relationships as Latin American carriers have developed and some local economies improved. Due its relationship with Latam Airlines Group SA, formed by the merger of Lan and Tam, the American Airlines Group Inc., the leading U.S. carrier to the region, benefits significantly.

In 2014, Avianca had revenue of $4.7 billion. Profit, excluding foreign exchange and fuel-hedging charges, was $120 million. The company had debt of $3.3 billion as of September 2015.

According to a December 2015 corporate presentation, the airline with 176 airplanes operating 5,400 weekly departures, serves more than 100 destinations in 26 countries. Bogotá, Colombia; San Salvador, El Salvador; and Lima, Peru are the hubs of Avianca.

A loyalty program, a logistics business, airport and maintenance services and runs tours are also run by the group. Last year a private-equity investor was old a 30% stake in the loyalty business.

Replacing an interim CEO who had stepped in after longtime chief Fabio Villegas resigned in January, Rincón Lema, a Microsoft Corp. executive in Latin America, was named the new chief executive of Avianca in March.

After Latam, which also has airline affiliates in Peru, Argentina, Colombia, Ecuador and Paraguay, Avianca is the second-largest carrier in South America.

A whole in the network of United Continental was created when Tam merged into Latam and consequently the former lost its largest Star Alliance member in the region. United invested $100 million a 5% stake in Brazil’s No. 3 carrier, Azul Linhas Aereas Brasileiras SA last year.

With the aim to strengthen its international business, Delta has arguably been the most active in looking for deals. Stakes in Gol Linhas Aereas Inteligentes SA, one of Brazil’s biggest airlines, and Grupo Aeromexico SAB, the big Mexican carrier were taken by it in 2011.

(Adapted from Wall Street Journal)

Categories: Economy & Finance, Strategy