Through its merger with Grupo Taca, Avianca, Colombia's biggest airline, has become the frontrunner for consolidation in Latin America's air transport sector. The success of the deal may be one of the factors that impelled LAN and TAM to follow suit.

And Avianca may achieve even greater growth if its majority owner, Synergy Group, follows through with its ambitious goals.

Synergy is a holding company that manages the Efromovich family's investments in various industries. Founder German Efromovich made a fortune as a major supplier to the Brazilian oil industry and later moved into aviation. His initial foray included Ocean Air, a small regional carrier in Brazil, which is quickly becoming a significant domestic player. Efromovich also bought Aerogal in Ecuador, followed by Avianca after the company had filed for bankruptcy. In spite of its tiny margins so far, he wants to invest more in the airline industry, which has become the largest revenue generator at Synergy.

Along with the former Ocean Air, which is now flying under the Avianca brand, Efromovich is eyeing some airlines in Europe.

His plans are particularly welcome at Star Alliance, which hopes to effect a smooth transition from one Brazilian member to another early next year. Avianca Brazil is slated to join the alliance—as a replacement for TAM—as early as the end of March.

TAM, the largest Brazilian airline, is leaving the Star Alliance as a consequence of merging with LAN Airlines to form the Latam Group. The Chilean competition authority has ruled that Latam cannot be in the same alliance as Avianca, its largest competitor in the region, which was in the process of joining Star. Latam therefore had few options other than to pull TAM from the Star Alliance; the airline must leave Star by mid-June at the latest to comply with the ruling.

The decision left Star with a significant gap in Latin America's largest air transport market. Its first step toward rectifying this was adding Avianca Brazil. Although that airline will not be a separate Star member, it will be a part of the Avianca membership, further aiding integration between the two airlines.

Sources within the Star Alliance say it also has looked at approaching Azul, the airline set up by JetBlue founder David Neeleman. But Azul operates from Viracopos–Campinas International Airport, which Star carriers do not, so linking expeditiously would be a problem. By contrast, Avianca Brazil already has a sizable operation on domestic trunk routes and is growing rapidly. “They have a good presence in the most important markets,” says Avianca CEO Fabio Villegas. The airline has transitioned from a Fokker 100 fleet to Airbus A319s and A320s.

Efromovich's plans for the Brazilian operation go beyond the alliance question. He sees Avianca Brazil and Avianca Colombia merging at some point. “They should, but we do not have a date and are not under pressure,” therefore “it might not happen.” The potential merger is a contentious issue internally because Villegas wants to complete the integration of Avianca and Taca before looking at other initiatives.

Whatever Efromovich has planned for Avianca, he must first reach an agreement with Roberto Kriete, head of the Kriete family who, since the merger with Kriete-owned Grupo Taca, is Avianca's second-largest shareholder.

But even if the merger does not take place, the Brazilian airline has many options. Synergy Aerospace, a Synergy Group affiliate, has placed orders for six Airbus A330-200s, three A330Fs and 10 A350-900s that need to be used somewhere in the growing Efromovich empire. However, Avianca Colombia has ordered 15 Boeing 787-8s, the first of which is due to arrive in late 2014. And Villegas has made clear that he has no interest in taking any of Synergy's A350s, which would be very big aircraft for the relatively small Colombian long-haul market.

Therefore, the only realistic place the A350s could go is to Brazil. Synergy is mum about building a long-haul operation for Avianca in Brazil, but given the market size and the fact that TAM will be joining the competing alliance, such a project, although risky, is conceivable. While there has also been talk about the Ecuadoran carrier Aerogal moving into long-haul operations, along with adding onto LAN and TAM's operations, this also would require a smaller aircraft type.

Efromovich's ambitions extend far beyond South America. He is still exploring ways to invest in a European airline; TAP Portugal and LOT Polish Airlines are serious candidates, he says.

“We might put an offer in for TAP if the conditions are still the same as a year ago,” Efromovich confirms. “But you need two partners to agree to a marriage.” Synergy was close to buying TAP a year ago, but the Portuguese government demurred at the last minute. Efromovich claims he still does not know why.

The process of privatizing TAP has not been officially revisited. But CEO Fernando Pinto has made clear in the past that he would very much welcome another Synergy bid for his carrier.

TAP would be a particularly good fit for the Brazilian part of Avianca. Because it serves more destinations in the country from its Lisbon hub than any other European airline, there would be an advantage from strong economic and cultural links. Pinto is Brazilian and has been CEO of long-defunct Varig.

But Efromovich says, “We cannot sit and wait forever,” adding that he is “looking in Europe and I am Polish.” While he was born in La Paz, Bolivia, his family is originally from Poland. In 2012, he became a dual-citizen of Poland and Bolivia.

Like TAP, LOT Polish Airlines is poised for privatization. While no formal negotiations between Synergy and the government have taken place, according to Efromovich, he says he would consider a judicious offer for the airline.

Synergy is the second non-European investor to be interested in LOT—Etihad Airways is said to have been investigating the company. But the Abu Dhabi-based airline is also allegedly close to a decision to buy a minority stake in Alitalia and may decide to opt for just one or the other, given its many other initiatives.

Unlike TAP, LOT has no clear strategic direction, and nothing that would make it a natural link for a growing Latin American airline group. And unlike Synergy, it is in the process of taking delivery of a fleet of 787s rather than A350s. The struggling airline is in the midst of a draconian restructuring plan.

At Avianca Colombia, things look very different. The airline now has a track record of much-improved financial results three years after the merger with Grupo Taca—it reached a net profit of close to $150 million in the first half of 2013 (on $2.2 billion in revenues). Last November, the airline was listed on the New York Stock Exchange and gained access to $409 million in fresh funds via its initial public offering. This money mainly will be used for ongoing fleet renewal. Of the 15 787s, three will arrive later this year and the balance in 2019. In addition to the 787s, the company has 70 A320-family aircraft and 15 ATR 72-600s on firm order. The first ATR has arrived.

Avianca is benefitting from the fast economic development of its home market and adjacent countries. With the Colombian government having gained a reasonable level of control vis-a-vis the country's infamous drug cartels, the economy has picked up noticeably in the past several years, as has foreign investment. In air transport, the domestic market has seen double-digit growth, and Avianca has made a point of not only expanding traffic to and from its Bogota hub; but also on secondary routes; thus the ATR order.

Its development has been helped by the renovation of Bogota's El Dorado International Airport, where a new international terminal has opened and the original Terminal 1 is undergoing a total renovation. When completed this year, the airline will be able to move its domestic flights to the upgraded facility and give its temporary quarters to some low-fare airlines.

While the first phase of the Avianca-Taca integration—launched in 2013 and projected to span two years—concentrated on enhancing revenues, the second phase tackles costs. Villegas is convinced Avianca can increase its operating profit by $150 million. “Processes are going to be integrated,” he says. These will apply to operations as well as maintenance, repair and overhaul; both areas have remained separate, so far. Villegas is upbeat about the potential. “On the revenue side, we were very much above what we expected.”

Given Efromovich's steady influx of new ideas, Villegas can be assured that life as Avianca's CEO will not be boring.

Avianca Fleet
In Service On Order
Airbus
A318-100 10
A319-100 21 32
A320-200 51 22
A321 10
A330-200 9 1
A330-200F 2
ATR 72-600 4 11
Boeing
767-200F 3
767-300F 1
787-8 15
Embraer 190 12
Fokker 50 10
Total 123 91
Sources: Airline and AWIN Fleet database