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LAN-TAM Merger Delayed

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Chilean airline LAN Airlines S.A and TAM S.A. merger agreement is being delayed by Chilean antitrust review till early next year. It is expected that the Chilean authorities are likely to approve and give a go-ahead to the deal with some restrictions.

Originally, the agreement proposed in August 2010, was expected to conclude by end 2011. In January 2011, both LAN Airlines and TAM approved and signed the binding agreement containing the definitive terms and conditions of the proposed business combination. In March, shares of both the companies fell to a seven month low due to the rejection of the appeal of purchase review by the Chilean antitrust tribunal.

The merger of LAN Airlines and TAM to form a new company called LATAM Airlines Group and S.A. (LATAM) is expected to increase the number of flights, destinations and connections, thereby benefiting passengers and cargo customers of both companies. The planned tie-up is expected to create Latin America’s largest carrier.

Upon completion, LAN will become the parent company with a 73% stake in TAM and the shareholders of TAM will receive 0.9 shares of LATAM for each share of TAM. It will be an all-stock transaction of approximately US$2.7 billion. The merger is expected to provide annual synergies of approximately US$400 million, out of which approximately $133 million will be realized in the first year of the close of transaction and $267 million in the next two years.

Of late, TAM has recorded a demand growth (in revenue passenger kilometer) of 38.5%, combined with an increase of 18.6% in the supply (in ASKs) in the domestic market. TAM has recorded the best load factor rate in domestic and international flights for the month of April, according to the Brazilian National Civil Aviation Agency.

LFL recorded system passenger traffic increase of 13.3%. The Company’s load factor for the month increased 0.5 points to 82.7%. International passenger traffic accounted for approximately 68% of total passenger traffic including domestic and international operations, according to the January 2011 statistics.

TAM is a Brazilian airline company operating through its subsidiaries TAM Linhas Aéreas and TAM Mercosur. The company has been providing air transportation services in both the domestic and the international markets.

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