Avianca Pushes Back on Colombia’s Conditions for It to Take Over Bankrupt Viva Air

March 27th, 2023 at 1:07 PM EDT

Colombian authorities have tentatively approved Avianca’s proposed merger with bankrupt Viva Air under strict conditions following alleged antitrust violations by the legacy carrier.

Aerocivil, Colombia’s civil aviation regulator, approved the deal earlier in March with a number of conditions. They include resurrecting Viva, which shut down on February 27, as its own standalone discount brand; refunding tickets for all passengers affected by the shutdown; and giving up slots at the congested Bogotá airport to competitors. Most of these are the standard fare when it comes to mitigating the impact of airline mergers that concentrate capacity in the hands of one carrier or group.

But Avianca, after months of arguing its case to merge with Viva — and even offering some concessions in exchange for approval — is not simply accepting the approval and getting on with things. “We will analyze in detail the feasibility of conditioning in light of what is Viva today. That company no longer has the same capabilities in terms of route network, aircraft, and workers,” Avianca CEO Adrian Neuhauser said in a LinkedIn post following Aerocivil’s decision.

The key difference appears to be the fact that Viva is not a going entity anymore. Maintaining the brand would require restarting the airline and that would likely require more capital than Avianca budgeted for— capital that Avianca may not have following its emergence from U.S. Chapter 11 bankruptcy restructuring in late 2021.

But the harsh conditions come into a new light given the recent revelations that Avianca may have violated Colombian antitrust law in its takeover of Viva. Numerous local media outlets have reported that, following Avianca’s purchase of Viva early last year, it installed a board loyal to its own interests at the ultra low-cost carrier despite repeated assurances that it had no say over commercial matters at the airline. What’s more, reports suggest that Viva had several options to avoid the bankruptcy and shutdown that occurred earlier this year but the Avianca-backed board pursued a strategy that it believed would force Aerocivil to approve the merger.

Aerocivil made no mention of Avianca’s plan to merge with Brazil’s Gol under the new Abra Group holding company, or a South American equivalent to International Airlines Group in Europe. The creation of Abra would allow its airlines to better compete with the region’s largest carrier, Latam Airlines. Gol executives said earlier in March that Abra would officially be established in April, while the consolidation of both airlines’ economic interests in the group would take more time and antitrust approvals. In addition to Avianca, Gol, and Viva, Abra could also eventually include Chilean discounter Sky Airline.

All of these deals, plus an American Airlines investment in JetSmart and Delta Air Lines’ stake in and partnership with Latam, have made Latin America one of the most dynamic aviation markets in the world. United has a stake in Avianca following the airline’s bankruptcy.

Colombia is of particular interest to airlines because of its sheer size. The country is Latin America’s third largest aviation market behind Brazil and Mexico, according to data from regional trade group ALTA. In 2022, Colombian domestic passenger numbers were up 20 percent from 2019 levels to 47.9 million.

Aerocivil’s movement on the Avianca-Viva merger comes amid other changes in the Colombian market. Chilean discounter JetSmart, which is backed by U.S. private equity firm Indigo Partners, plans to launch domestic flights in Colombia following the receipt of a local air operators certificate earlier in March. JetSmart, which had expressed interest in acquiring Viva, dropped plans to buy Colombian discounter Ultra Air on March 23 citing “various factors.” Reports indicated that Ultra Air subsequently halted ticket sales but that it has since received new capital from investors.

Ultra Air is Colombia’s third largest airline — fourth if including bankrupt Viva — by seats, according to Diio by Cirium schedules for March. Avianca is the country’s largest airline followed by Latam.

JetSmart’s launch in Colombia — it currently serves Bogotá, Cali, and Medellin from Chile — would add low-cost competition from a new competitor. That could help make up for the potential loss of Viva and Ultra if the latter faces continued difficulties. JetSmart would also stand to benefit from any slot divestiture by Avianca and Viva at Bogotá’s El Dorado airport.

Latam also continues to grow in Colombia. Earlier in March, it notified Aerocivil of plans to launch daily service between Bogotá and Riohacha, and Medellin and Miami with Airbus A320-family aircraft later this year. The airline, whose investors include Delta and Qatar Airways, plans to operate nearly 24 percent more capacity that touches Colombia in the second quarter than it did last year, Diio schedules show. Latam’s Colombia capacity in the period will be up nearly 40 percent compared to 2019.

Avianca, for its part, has said it can appeal Aerocivil’s decision on the proposed Viva merger. Until it either accepts the conditions or appeals them and receives a subsequent decision, Avianca said it is “not authorized to intervene in the operational or financial situation of Viva.”

Up Next

The Airline Weekly Lounge Podcast

El Al Comes Out on Top

In this week's episode, Gordon Smith and Jay Shabat discuss the final results from Airline Weekly's Earnings Scoreboard for Q2 2024. From household names to niche regional players, we examine…
The Airline Weekly Lounge Podcast

Skift Global Forum: The Airline Storylines

In this special episode, Gordon Smith and Jay Shabat are in New York City for the Skift Global Forum. Recorded just minutes after stepping off stage, the pair debrief following…
The Airline Weekly Lounge Podcast

Southwest Airlines’ Evolving Route Network 

Airline Weekly analysis of Cirium Diio data shows fascinating shifts in Southwest’s route network over the past decade. In this week’s episode we drill into the detail.

The Airline Weekly Lounge Podcast

Qantas in Focus

Australia’s Qantas is flying high once again, but will its ‘Project Sunrise’ ultra-long haul endeavors be worth the time and effort?

The Airline Weekly Lounge Podcast

Busiest Global Airports: The Q4 2024 Preview

Of the 100 busiest airports worldwide, we reveal the likely winners and losers for Q4 and ask what these capacity trends tell us about the industry’s broader direction of travel.