On the 12^th December, Avianca and Aces obtained the authorisation of the Colombian Civil Aviation to merge their operations, deal in which SAM, a small regional airline belonging to Avianca was included.

The sectors analysts welcomed the Colombian government’s decision that offers an excellent chance to the involved companies and could be the preamble of similar operations in Latin America.

The attitude change of the authorities could be due not only to the sector crisis but also to the modifications to the first request presented by Avianca and Aces.

In the second presentation the improvement of the consumer’s situation was contemplated projecting the optimising of the service efficiency and they expressly committed themselves to keep to a code of conduct which object is to calm the rest of the competitors.

Civil Aviation director made clear also, that there are a series of requisites the companies must comply with. To begin with they will not be able to oppose the entry of new companies to cater to the local market.  He also specified that each company must maintain its brand name and its colours, although public spaces for the clients’ attention at the airports may be unified.

Additionally, both companies will keep patrimonial independence, will keep security levels according to the international requirements, and guarantee service availability without abandoning routes.

Shareholders signed the merger agreement on the last 19^th December, in which their obligations regard capitalisation, indemnities, allocation of resources and such are detailed.

The closing of the deal, the definite merger agreement, will be signed on the 31^st January, expecting that at the end of May it will be operating an integrated itinerary and that clients will be able to feel the benefits of the joint fleet operation and an efficient use of resources.

During an initial period, the presidents of Avianca and Aces will continue at their posts for legal reasons, but an integration co-ordinating team has been formed, of which both presidents are part, the integration manager for Avianca and Aces and the Mackinsey consulting firm. The team will be presided by Juan Emilio Posada, president of Aces.

The creation of two fiduciary institutions, with their respective boards, is being worked on, aiming for the 31^st of January. As from then, freight contracts will start to be executed, with shared codes on some routes and the implementation of a schedule that would be operative as from the 20^th of May.

The negotiation

Avianca as well as Aces had requested the Colombian government authorisation to merge in March 2001, but the Commerce and Industry Superintendence – maximum anti monopoly regulating entity, denied it by considering it would damage free competition in the Colombian air transport (look up “In Crisis”, Air Market, June 2001).

Both airlines appealed the decision in July, after a dispute generated within the Government that led to the Superintendent Emilio Archila’s resignation. The process passed on to the Civil Aviation Commission.

The truth is that already at the beginning of 2001 both Colombian companies saw merging, or finding another international alliance, in the case of Avianca, as the only survival options.

Naturally, after September 11^th the crisis worsened. High insurance costs and the already existing impossibility to compete with great international airlines placed both in a high-risk situation.

Latin American airlines in general, that shift 80 million passengers in domestic and international flights a year, watched their traffic to the United States fall 30% and reduced domestic flights 10%. These dramatic figures, naturally, reached Colombian companies as well.