The merger between Avianca and Chile’s low-cost carrier Sky Airline may be closer than anyone thought. Earlier this week, it was reported that Sky Airline had put $100 million in bonds in the market and was not taken by some Avianca investors. So what does this mean?
Elliott Management and Cuba Capital
Last year, it was reported that Sky Airline was looking at new investment options to help the airline through the COVID-19 crisis. Holger Polmann, CEO of Sky Airline, spoke with several potential investors, including Brazilian airline GOL Linhas Aereas and Indigo Partners. However, these negotiations did not bear fruit.
Then it came to Elliott Management and Caoba Capital, two global fund managers. This company is better known because it holds an undisclosed share of the debtor’s debt financing to Avianca and will convert it into equity. According to Chilean newspaper Diario Financiero, Elliott and another investment firm called Caoba Capital will invest about $1 billion in Avianca and will acquire about 70% of the company.
At the same time, Elliott Management became interested in investing in the low-cost Chilean airline Sky Airline.
Elliott Management acquires Sky bonds
Sky Airline submitted a $100 million bond in November last year, Diario Financiero reported. The bond was acquired by Elliott Management and Caoba Capital and would allow both companies to control 40% of the low-cost Chilean carrier.
There is still a long way to go before the possibility of consolidation; However, Elliott Management and Cuban Capital’s investment in both carriers gives hope for this possibility.
Simple Flying has reached out to Avianca for comment. The airline did not provide a statement regarding the latest developments. In October 2021, Avianca notified that it was not aware of a plan that might seek Tranche B financiers (Elliott and Cuban) as potential monitors for the company.
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How did we come to this?
The COVID-19 crisis has had a huge impact on the Chilean aviation industry. LATAM Airlines Group is currently in the process of Chapter 11 bankruptcy (although there is light at the end of the tunnel); Sky Airline is looking for new investments. Meanwhile, JetSMART signed an impressive partnership with American Airlines last year.
By November 2021, Chilean airlines were serving 41.9% fewer passengers than in 2019; The international portion was 83.9% lower than pre-pandemic levels. However, Chile’s freight market rebounded, growing by 13.4% and 9.0% in the international and domestic markets respectively.
In May 2020, Sky Airline CEO Holger Polmann began looking for new partners after seeing the impact of the pandemic. He set up a company called BTG Pactual to search for new investors.
According to local reports, Sky has met with GOL, Indigo Partners and Chilean businessmen, but without any breakthroughs. Apparently, Sky was only willing to give away a third of the company for US$70 million.
Pullman said the company needed a strategic partner that would allow it to acquire more shares for future growth.
Meanwhile, Avianca is out of Chapter 11 proceedings. The airline is looking to open 50 new routes in the next three years. Avianca aims to offer the most competitive pricing, with a customized product, without losing its old-fashioned appeal. In order to effectively combine a legacy product with the practicality of a modern, low-cost carrier, perhaps a merger with Sky is exactly what Avianca needs. Only time will prove it.
What do you think of the potential merger between Avianca and Sky? Let us know in the comments below.