Just as LanChile started a new partnership in Ecuador that fits with its expansion strategy, its LanPeru joint venture has blown up in its face.
The Ecuador opportunity comes in the wake of collapsing relations between Ecuatoriana and its parent, Brazil's Vasp. Vasp itself is struggling to survive, and it left Ecuatoriana in a precarious state when it withdrew the Airbus A310 it had wet-leased, thus depriving Ecuatoriana of its main revenue source.
LanChile has come to the rescue. Under a two-year agreement, LanChile will fly aircraft on behalf of Ecuatoriana between Ecuador and the USA. Ecuador granted LanChile traffic rights to launch these flights in mid-December. They will start as charters, but Ecuatoriana hopes to have codeshare rights within two months. LanChile will handle reservations and sales.
The agreement says nothing about ownership, although Vasp is keen to sell its half interest in Ecuatoriana. LanChile, after testing the market, may wish to buy it.
But the recent blow-up in Peru is a strong reminder of what can go wrong in equity deals. The LanPeru dispute started innocently enough with a quarrel over freight rates on LanChile cargo carried between Lima and Miami on a Boeing 767 which LanChile leased to LanPeru. The latter claimed it was being underpaid for the cargo side of the deal.
But the dispute quickly escalated into a slanging match over many issues. Airing their differences in newspapers and lawsuits, the dispute focused on Lorenzo Sousa, president of the Peruvian company that holds a majority of LanPeru's shares, and various LanChile officials. Sousa was also president of LanPeru until late November, when he resigned in a flurry of accusations after a lawsuit was filed by LanChile to remove him.
This row has caused a suspension of LanPeru's international flights and threatens to shut down the airline entirely. LanChile estimates that would cost it $5.5 million.
A Lima court has appointed an administrator so that neither side can act unilaterally, but LanPeru's future is now uncertain. What seems most clear is that substantial changes in LanPeru's ownership and control will be needed to preserve any role in it for LanChile.
Source: Airline Business
