Colombia's Avianca Taca seeks to take on LAN with IPO funds.

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Fuente: Bloomberg con San Francisco Chronicle.



Avianca Taca Holding SA, owner of Colombia's biggest airline by sales, plans to use $260 million raised from an initial public offering to help fend off expansion by Chile's Lan Airlines, said Chief Executive Officer Fabio Villegas.

Avianca Taca shares will begin trading May 11 and the offering will help the carrier gain international financing for a $4 billion expansion that includes the integration of hubs in Bogota, San Salvador, San Jose and Lima, Villegas said in an interview in Bogota.

"Our strategy to compete with Lan and the market in general is to move forward with our plan of expansion," said Villegas, a 56-year-old former Colombian interior minister who helped lead the U.S.-backed manhunt for drug lord Pablo Escobar in the 1990s. "The share issuance will work in our favor in getting international financing."

Colombian companies are preparing a record amount of share offerings this year to raise $3.7 billion as the economy expands at its fastest pace since 2007, said Cesar Cuervo, senior stock analyst at brokerage Correval SA. Avianca Taca is seeking to bolster its market share and compete with Copa Airlines Colombia and Lan, which bought Aerovias de Integration Regional SA, Colombia's second-largest airline, in a $32.5 million deal in October.

Avianca sold 100 million shares for 5,000 pesos each in its initial sale, which began March 28.

'Good Chance'

Lan, Latin America's biggest airline by market share, plans to invest $7.7 billion through 2018 to double its fleet after agreeing to buy Sao Paulo-based Tam SA in August. Avianca flies to 100 cities, including Madrid and New York, compared to 49 destinations for Copa and more than 130 for Lan and Tam.

Latin America's fourth-largest economy will expand as much as 6 percent this year after growing 4.3 percent in 2010, according to central bank projections. Colombian consumer spending rose 13.2 percent in February from the year-earlier period, according to the national statistics agency.

"Colombia is going to grow and has a big population with big cities," said Ray Neidl, senior aerospace specialist at investment bank brokerage Maxim Group in New York. Avianca Taca has a "good chance" of being profitable, he said.

While Avianca's four-hub operation is more dispersed than its one-hub competitor, Panama City-based Copa Holdings SA, the airline's foothold in a growing market will help it, he said.

Avianca's revenue rose to 2.8 trillion pesos in 2009, up from 1.9 trillion pesos in 2005. Net income was 19 billion pesos in 2009.

Revenue Growth

Revenue reached 5.1 trillion pesos ($2.9 billion) between February and December of 2010, six years after Grupo Synergy, a Brazilian company led by investor German Efromovich, paid $64 million for control of Avianca to save it from bankruptcy. Avianca Taca revenue will nearly double to $5.7 billion in 2015, Villegas said.

The company's 2010 net income of $50 million was one-fourth of Copa's and less than an eighth of Lan's as merger costs cut into profit, said Mabel Weber, analyst at BICE Inversiones in Santiago. Bogota-based brokerage Bolsa y Renta expects Avianca Taca net income of $145 million this year with a net margin of 4.2 percent and $398 million for 2015 with a 7 percent margin.

Colombia's four-decade armed conflict and a year of heavy rains triggering landslides have kept travelers off rural roadways and pushed them on to flights. The U.S. State Department recommends flying for travel within the country as President Juan Manuel Santos extends the fight against guerrillas and drug gangs.

Cargo Business

About 85 percent of Avianca Taca's 2010 revenue came from passenger flights, compared to 70 percent at Lan.

Villegas, who served in President Cesar Gaviria's cabinet along with Santos in the 1990s, said he plans to boost cargo to 20 percent of revenue by 2015 from the current 12 percent as the country moves toward a free trade accord with the U.S.

"The trade agreement will give us a big push on all fronts," he said in an interview in his 10th-floor office in Avianca's office complex overlooking the capital.

U.S. House Speaker John Boehner said May 5 he wants free- trade agreements with South Korea, Colombia and Panama passed before lawmakers begin a recess scheduled for August.

Deprisa, the company's cargo service, signed an agreement with United Parcel Service last month to offer courier services.

Avianca will add 44 Airbus SAS planes by 2014, and 12 delayed Boeing Co. 787s as soon as 2013 -- at least three years later than expected -- while shedding old Fokker models to streamline the fleet. The company also has plans to purchase aircraft from Embraer SA this year.

Ecuador Market

Most of the 14 Airbus planes to be delivered this year will go to Ecuador, where Avianca Taca acquired Aerolineas Galapagos SA in November 2010.

"If it is a good market in the U.S., Avianca will do good business and shares will increase by twenty to thirty percent within two days," said Melo. The share is a 'buy' at Alianza Valores, with a target price of 7,000 pesos within 12 months.

Colombian security has improved since the height of its drug war, when Avianca flights were targets of bombings and hijackings, Villegas said. A 1989 Escobar-ordered bomb attack on an Avianca flight, intended for presidential candidate Cesar Gaviria, instead killed all 107 passengers.

Villegas later oversaw the hunt that brought down Escobar, ranked the world's seventh-richest man by Forbes in 1989. There hasn't been a bomb attack on Avianca since 1990.

"Those kind of terrorist threats don't exist anymore," Villegas said.