Wednesday, August 10, 2011

LAN/TAM Merger Hurdles

Consolidation in the Latin American aviation market may be put on hold as Chile's Constitutional Court has been asked by Pal Airlines to block the pending merger between Chile's LAN and Brazil's TAM.  See Anthony Esposito, Chile LAN, Brazil TAM Merger Could Face New Roadblock, Wall St. J., Aug. 9, 2011 (available here).  Chilean antitrust authorities, which are already reviewing the merger, are expected to rule on the deal later this month.

If the merger proceeds, TAN/TAM will become Latin America's largest airline and one of the ten largest carriers in the world.  The deal is also historic since it marks one of the largest crossborder consolidations in the airline industry without the aid of a supranational governance authority.  European air carrier mergers and acquisitions, such as Air France/KLM or Lufthansa's purchase of Austrian Airlines, were facilitated by the Union's common air transport regulations and the creation of a single aviation market.  In most areas of the world, however, crossborder mergers are severely limited by national investment caps and treaty-based restrictions which require a State's airlines to be owned and controlled by its citizens before the carrier is eligible to perform international services.  The pending LAN/TAM merger constitutes one of the most significant departures from this nationalistic norm since the creation of the Chicago Convention in 1944.

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