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LAN, TAM make it official

By Hpanchal on June 22, 2012

South American carriers LAN Airlines and TAM have banded together, forming the LATAM Airlines Group. The merger forms the largest airline group in South America, according to a press release. The combined LAN Cargo, which has three smaller affiliate carriers, and TAM Cargo will now be able to offer routings to 169 cities around the world.

Closing costs for the companies may approach $200 million, but this number will be vastly offset by an expected synergy of up to $700 million four years down the road. More than half of this money will come from cargo and passenger revenue increases. For now, each airline is staying in its present headquarters and will continue to operate as separate brands.

"This is the beginning of a long journey, and the benefits to our customers will be added gradually as the integration of our companies progresses,” the new executive vice president and CEO of LATAM Airlines Group, said Enrique Cueto, said in a statement. Cueto formerly served as the CEO of LAN.

According to the two companies, combining their cargo operations will bring with capacity capacity, a modern infrastructure and broader access to e-systems. Creating a wider reach is at the heart of the merger, which has been moving slowly forward for years. A deal between the two carriers first came to light in August 2010, and the companies entered into binding agreements in January 2011, simply waiting for the approval of regulators. Approvals came through on May 7 and May 9 of this year.

"The creation of this group of airlines is an opportunity to take South America to the world and to allow us to position ourselves to operate in an increasingly competitive environment, due to the continuing consolidation of the global airline industry," Cueto said.

LAN Airlines ended the first quarter of 2012 with a net income of $76.1 million, which represented a 21.8-percent, year-over-year, decline. At the time, officials blamed this on rising fuel prices, the development of LAN Colombia and a challenging cargo environment. In the financial release detailing its first-quarter results, LAN officials predicted that cargo capacity will grow no more than 5 percent in 2012.

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