New estimates suggest the merger between LAN Airlines and Grupo TAM could generate as much as $700 million in annual pre-tax synergies, a significant improvement on the $400 million previously forecast by the two operators.

The new guidance anticipates about 60% of the total will come from new revenues and the remaining 40% from cost savings.

Between $170 million and $200 million in synergies could be achieved in the first year following the creation of Latam Airlines Group, according to the carriers, while the full benefit should be realized in the fifth year. The merger is expected to be completed in March.

“The new estimate, which is based on work performed by the companies together with consultants McKinsey & Co. and Bain & Co. over the past 10 weeks, reflects further revisions and updates of the expected combined cost savings and revenue-generating opportunities arising from the proposed combination and includes best practice sharing benefits that have been identified in certain areas,” say the airlines.

According to the guidance, the largest portion of these synergies, between $225 million and $260 million, would come from improved passenger revenues stimulated by the combination of networks and the addition of new routes. A further $120-125 million is anticipated to be generated from freight operations for the same reasons.

Some $100-135 million would derive from the “coordination of airport and procurement activities [that] should allow Latam Group to leverage economies of scope and scale,” while $120-130 million would be generated by the “convergence of LAN’s and TAM’s information technology systems, the increased efficiency of combined sales and distribution processes, and the increased efficiency in corporate overhead costs.”

Cost savings from a combined maintenance operation would contribute between $20 million and $25 million, while some $15-25 million should be saved from merging LAN’s and TAM’s frequent flyer programs, the airlines say.

These synergies do not include $170-220 million in costs to implement the merger, but they also exclude about $150 million the carriers expect to save from reduced investments in engine and spare parts.