Aeronáutica Civil rejects Avianca-Viva merger

The civil aviation authority of Colombia, Aeronáutica Civil has rejected the merger of Avianca and Viva citing seven reasons. One of the most important factors was that the merger would be a risk to the competition as it would only reinforce the market power of Avianca and Viva. These two carriers currently fly on 59 domestic routes, with over 93.7% of the domestic traffic.

Aeronáutica Civil said: “The integration between Avianca, Viva Colombia, and Viva Peru poses risks to competition in the sector and consumer welfare. If the proposed integration were allowed, it would generate or reinforce market power in favour of the integrated entity.”

In its objection to the planned deal, Aeronáutica Civil ruled that Avianca and Viva “did not prove that Viva’s economic crisis is of such a magnitude” that it affects its viability to continue operations. It further added that Viva had not shown that it had “explored and exhausted other alternatives,” such as applying for loans or seeking out other potential investors.

Avianca and Viva submitted a formal proposal for a merger on August 8, 2022. The main reason behind the merger was to allow Viva’s survival as an airline was under a financial burden due to global geopolitical tensions.

Surprised by the decision of the Colombian civil aviation authority Viva released a statement saying that the integration of both companies would have meant a backing to the continuity of the low-cost model in the region.

Following the ruling, Avianca president and CEO Adrian Neuhauser, said: “The airline was concerned about the direction of the decision, as it goes against the needs of the country and ignores the potential effect that the disappearance of Viva would have on users and the market. At Avianca, we reiterate our willingness to actively participate in rescuing Viva, seeking to maintain connectivity for travelers, strengthen tourism and preserve formal employment. We would evaluate all available legal alternatives to seek the necessary approvals.”

Avianca acknowledged that the merger with Viva was independent of its plans to create a new holding company named Abra Group. In May 2022, Avianca announced a deal with GOL Linhas Aereas to form Abra Group, which would become one of the largest airline groups in Latin America and include Viva as well as having a minority stake in Chile’s Sky Airline.

Going ahead, Aeronáutica Civil has shown a willingness to consider the Avianca-Viva merger following a new request inclusive of the remedies to solve the competition problem.

Avianca exited a restructuring process late last year after earlier filing for Chapter 11 bankruptcy in the United States. The airline has more than 130 planes and employs 12,000 staff while Viva has 23 planes and around 1,000 employees.