NYTimes.com Article: With Bid, Continental Looks to Expand in South America

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With Bid, Continental Looks to Expand in South America

April 16, 2004
 By JUAN FORERO





BOGOTÁ, Colombia, April 15 - Continental Airlines and its
partner in Panama have made an offer to buy Colombia's
financially troubled airline, Avianca, which, if approved,
would expand Continental's already long reach into Latin
America.

Neither Continental, which is based in Houston, nor its
partner, Copa Airlines, offered details on Thursday about
the bid to purchase Avianca, which began flying in 1919 and
offers 300 flights a day, including service to Madrid and
Kennedy International Airport in New York. Avianca, short
for Aerovías Nacionales de Colombia, is the world's
second-oldest airline.

The bid appears to provide more money for Avianca than was
offered by Brazil's Grupo Sinergy, which in March announced
that it would inject $64 million into Avianca and assume
its $300 million debt as part of a takeover.

"We are not going to make a counteroffer for Avianca,"
German Efromovich, the Brazilian entrepreneur who controls
Grupo Sinergy, told reporters. "The offer that we made was
the last one."

The proposed purchase underscores a trend in the Latin
American airline industry: the consolidation of weaker
airlines or government-run airlines by larger, more
financially stable carriers, like LanChile in South America
or Taca in Central America.

"As carriers have become public, instead of government
entities, that consolidation has begun," said Robert W.
Mann Jr., an airline analyst in Port Washington, N.Y.

Avianca and its subsidiary airline, SAM, filed for
bankruptcy protection in New York in March of last year.
The company has been battered by the drop-off in travel
after the terrorist attacks of Sept. 11 and skyrocketing
fuel costs, though it had fallen on hard times long before
the recent regional downturn in air travel.

Avianca, though, is seen by aviation analysts as
well-positioned for a recovery.

The airline's hub in Bogotá, which has undergone
improvements recently, is in the middle of Latin America,
making it a gateway into South America. Avianca also
controls most of Colombia's market, flying its 41 planes to
18 cities in this country of 40 million and to 16 cities
abroad, including Miami and Fort Lauderdale, Fla.,
according to Avianca's Web site.

"Avianca has a bright future ahead and should survive to be
a hundred in the next couple of decades," Bob Booth, an
aviation analyst in Florida, wrote in his newsletter,
AVNews.

Avianca would also be helped if Colombia's economy grows at
4 to 5 percent this year, as some economists and government
officials have predicted. American carriers increasingly
see Latin America as an opportunity for growth this year,
as the economies of Argentina, Colombia, Peru and Venezuela
continue stabilizing.

Continental's chief executive, Gordon M. Bethune, said
Thursday in a conference call that the deal, if it goes
through, would better position Continental in a region
where it has focused much of its growth in recent years.

Mr. Bethune explained that it was Copa that was making the
offer for Avianca, though he said that Continental is
supporting the venture. Continental owns 49 percent of
Copa, which was founded in 1947 and owns 21 Boeing 737
airliners that fly to 20 countries.

"It appears that they are going to use Copa as their proxy
for acquisitions in the region," Mr. Mann said. The rest of
the company is owned by Grupo Motta, a Panamanian
conglomerate.

Continental, the fifth-largest airline in the United
States, flies to 117 international destinations. On
Thursday, the airline reported first-quarter net losses of
$124 million, an improvement over first-quarter losses in
2003.

The latest offer to purchase Avianca has the support of
Colombia's pilots union, whose president, Alberto Padilla,
is part of a committee that is trying to renegotiate
Avianca's debt. The United States Bankruptcy Court in New
York must approve any sale and its terms.

Arturo Salazar, vice president of the pilots union, told
the Bogotá newspaper, El Tiempo, that the latest offer
gives more security to Avianca's 5,184 employees while
offering stockholders more guarantees that the airline's
debt will be absorbed.

In a statement issued Wednesday, Copa said that under the
offer, Avianca would continue to operate as an independent
airline.

Avianca is owned by National Federation of Coffee Growers
of Colombia and by Valores Bavaria, a private conglomerate
owned by Colombia's powerful Santo Domingo family.

http://www.nytimes.com/2004/04/16/business/worldbusiness/16avianca.html?ex=1083122829&ei=1&en=a3e2115d0285779b


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