The ongoing drama in the merger between Avianca and Viva Air following the signal of interest from Chilean ultra-low-cost carrier JetSMART continues this week. On Monday, Castlesouth, the holder of the voting rights of Viva Colombia, said it has not received any purchase offer.
No offer to acquire Viva Colombia
Castlesouth Limited, the holder of the voting rights of Viva Colombia, has disregarded JetSMART’s interest in acquiring Viva Air. The company released a statement on Monday, addressing the position of its board of directors following JetSMART's comments to purchase 100% of the shares of Viva. Castlesouth Limited said,
“To date, JetSMART has not provided Castlesouth Limited with any offer. Additionally, JetSMART has requested extensive due diligence information from Viva.”
By doing so, Castlesouth believes that negotiations with JetSMART or any other third party would likely take significant time, something which Viva does not have. Last week, the Colombian carrier began a reorganization process under local law, which will give Viva 90 days to renegotiate its debts.
Moreover, any transaction between JetSMART and Viva, if approved, would then be subject to further regulatory approval delays. Castlesouth noted,
“Given Viva’s current critical financial condition, immediate approval by the National Government to integrate Viva with Avianca is in the best interests of Viva and its passengers, creditors, employees, and other interested parties, including the Colombian public.”
Simple Flying reached JetSMART for comment on Castlesouth’s statement. The airline wasn’t immediately available.
What did JetSMART do last week?
The Chilean ultra-low-cost carrier JetSMART announced its intentions to acquire ailing Viva Air last week. Estuardo Ortiz, Chief Executive Officer of JetSMART, said that purchasing the Colombian airline would “strengthen free competition,” keeping the ultra-low-cost model alive in the country and generating significant benefits for consumers, employment levels, and tourism.
JetSMART has a long-term vision to expand in South America and sees Colombia as a crucial market. Last year, the airline filed a request to open a domestic branch in the country, which would create JetSMART Colombia (the company already has airline branches in Chile, Argentina, and Peru). It is currently uncertain what would happen with this process if Viva accepts JetSMART’s offer.
Both Viva and JetSMART are ultra-low-cost carriers. They have fleet commonalities since they both use Airbus A320 family narrowbody jets. More importantly, they currently do not overlap in Colombia (although they do in Peru, on at least one route: Lima-Cuzco).
The future of Viva Air – unpredictable
Viva Air is said to be in a complex financial situation. The ultra-low-cost airline has canceled routes, returned leased aircraft, and launched a reorganization process in the last few months. Viva’s administration has gone public multiple times, saying the merger with Avianca is the only way the carrier can survive in the long term. If it disappears, it would leave an almost 7 million passenger market open in Colombia. Moreover, Colombia would lose about 15% of all weekly seats offered.
The airline urgently needs a response to its proposed merger. Last week, Colombia’s civil aviation authorities announced they would speed up the review process after Viva began its debt reorganization.
What do you think Viva Air should do? Stick with its merger process with Avianca or begin a transaction with Chile’s JetSMART? Let us know in the comments below.