SKY Airline -again- does not rule out merger with Avianca: «It would make sense»

In October 2021, strong hints about a SKY-Avianca merger appeared, as the Chilean LCC received a significant investment from the same group that is running the Colombian carrier.

While Avianca emphatically denied any talks on the matter -without denying the possibility, when we read between the lines- the market received well the consolidation between Caoba and Elliot Management investments and expected a mega airline to be created, despite keeping both brands apart.

On April 17 Holger Paulmann, SKY’s CEO, stated to Chilean newspaper El Mercurio that he «is not ruling out» a merger between the companies, and that said merger is compatible with SKY’s goal of reaching the United States market.

«Reaching the United States is a huge step for us, and a big challenge. Florida was always on our sights, since we set up our Lima hub», says Paulmann. «From Lima, many Chileans will be able to reach Miami with ultra-convenient fares. Those fares are yet to be announced but they’ll be extremely competitive.»

Thriving after COVID

The pandemic is a bad dream from the past: the company expects to exceed 2019 passenger levels within this year, reaching nine million occupied seats by the end of 2022. A completely different outlook than the one Paulmann faced two years ago.

«Insolvency was a clear risk,» he said. «We could have survived without external financing, but we thought that it was better to provide certainty about business sustainability. We found a perfect partner and we were able to maintain our people, our brand, our image.»

SKY opted to offer a convertible bond representing 40 percent of the airline, rather than put a value for the whole company. «How do you value an organization when you’re making less than five percent of the revenue you made before the crisis?», he wonders. «All in all, it is a question of good faith and how much are you willing to concede for the best interest of the majority.»

Avianca: more coincidences than differences

While not confirming that Caoba and Elliot Management are the main buyers of the bond, Paulmann admits there are «some coincidences within the stakeholders that are part of Avianca’s DIP». And he also admits that a merger between the two carriers would bear some logic.

«[The coincidence] does not imply that it will automatically lead to a Sky-Avianca merger, we’d have to have conversations about it. Should we go forward, there’s a formal process to follow and that would take months or years. If we see that it is the way to go, we’ll have to start that process.»

«I wouldn’t rule it out. The transition they are leading to become a Low-Cost Carrier it’s a process we’ve done in the past, and we did it well. We are a leading case, not only in the regional level, but globally. There are compatibilities to explore between a 100-percent low-cost carrier and a hybrid carrier like Avianca.»

«We are talking with Avianca some commercial topics. The option to create a Joint Business Agreement is on the table, we are figuring out technical details, but the depth of the agreement is yet to be determined», Paulmann states.