Consolidation of Latin America's aviation sector is under way through a process of attrition. Five struggling airlines are either in or headed for bankruptcy and only two - Colombia's Avianca and Brazil's Varig - show a strong chance of survival.
Varig is one of those two, mostly because Brazil's government is unwilling to watch it collapse. That is less certain for VASP. While officials develop a rescue plan for Varig, VASP faces several crises. It has renegotiated debts with Infraero, Brazil's airport operator, and deposited 9 million reals ($3 million) in court to forestall bankruptcy demands by General Electric. But it still faces work stoppage threats over unpaid wages, an investigation into its use of passenger taxes, and reallocation of some domestic routes to rivals.
Avianca is the other likely survivor, although the form of its survival remains unclear. In US Chapter 11 bankruptcy protection since March 2003, Avianca seeks court approval for a reorganisation plan. But its pilots are unhappy with the proposed investment by Brazil's Sinergy Group, which would give it a 75% stake in the airline.
Pilots are pressing their own offer, backed by a Dubai investor, to buy 51% of Avianca for $64 million. How it will meet foreign ownership limits under either plan is unclear.
Intercontinental, Colombia's other troubled airline, faces more-severe problems. Its local market share has slid in recent years from 17% to 2%, and now it is grounded over unpaid airport charges. Intercontinental is also months behind on its payroll. It has filed for Colombian reorganisation, but reports liabilities of over 42,000 million pesos ($20 million). Without a white knight, its prospects appear grim.
The common woes among these airlines have been weak local economies, currency devaluations, limited access to capital, and a lack of cross-border alliances typical of Latin America's more successful airlines. Varig and VASP have also suffered at the hand of Gol, the region's first low-cost carrier. Since its 2001 launch, Gol has expanded fast. It now claims 22% of Brazil's domestic market. Some of that growth is from traffic stimulation, but the rest comes at the expense of Varig and VASP.
The last seriously troubled airline is Peru's Nuevo Continente, formerly AeroContinente. Unlike the other cripples, its troubles are political. Before it was blacklisted by US authorities on the charge that its de facto owner is a drug "kingpin", AeroContinente controlled 60% of Peru's market. Now it is grounded and its rivals have filled the vacuum.
DAVID KNIBB SEATTLE
Source: Airline Business
