- Colombia's Avianca said to turn down purchase of OceanAir
- Efromovich brothers have controlling stake in both carriers
Avianca Holdings SA rejected a proposal this month from Chairman German Efromovich to purchase a separate airline he controls with his brother in Brazil, two people with knowledge of the matter said.
Efromovich, the controlling shareholder at Avianca, tried to persuade the Colombian airline to buy closely-held OceanAir Linhas Aereas SA, which uses the name Avianca Brasil under a licensing agreement, according to the people, who asked not to be identified because the information is private. Avianca had previously turned down an option to purchase the Brazilian airline in 2010, and is still owed cash for aircraft leases and working capital it provided while the option was pending.
Avianca Holdings said that “it’s not considering this initiative” at this time in an e-mailed reply to questions. German Efromovich didn’t reply to requests for comment sent through Avianca. An external press official for Avianca Brasil referred questions to Avianca Holdings.
Efromovich’s attempt to sell the Brazilian airline comes as the worst recession in 25 years punishes Brazilian carriers, which are facing shrinking demand and increased dollar costs as the currency plunges. Last year, Synergy Group Corp., the holding company through which Efromovich holds a controlling stake in Avianca, put shipyards in Brazil up for sale after discontinuing operations and halting payments to workers at one of its main shipyards. An official at Synergy didn’t answer questions sent by e-mail.
“There’s been a lot of speculation about an eventual integration,” said Cesar Cuervo, the Bogota-based head of north Andean equity research at Credicorp Capital, which rates the shares a buy. “It’s generated concern, at a time when Brazil’s economic conditions and the airline industry have been so complicated.”
Avianca’s American depositary receipts jumped, climbing 3.5 percent to $4.79 as of 3:35 p.m. in New York.
Avianca Holdings had sent executives to Brazil to perform due diligence on the airline before rejecting the deal earlier this month, the people said.
Efromovich said last month that he wants “to survive until the end of 2017” in Brazil, forecasting a recovery in 2018. Avianca Brasil, which doesn’t publicly release earnings, “is making a profit, a very little profit, but considering the circumstances right now, it’s doing very well,” he said.
In the same interview, Efromovich said he had no short-term plans to merge his airline with another. “We’re looking for the right moment,” he said. “Today, or next month, it’s not going to happen, but obviously we keep that light on, permanently.”
Latin American airline stocks have tumbled 47 percent this year after the carriers reported disappointing earnings hurt by lower demand and weaker currencies. Brazil’s Gol Linhas Aereas Inteligentes SA leads losses with a 75 percent fall, followed by Avianca’s 49 percent drop.
Avianca is the third largest Latin American carrier in terms of capacity, according to Bloomberg data, with hubs in Bogota, Lima and El Salvador.
Efromovich bought control of Avianca in 2004 and helped it recover from bankruptcy. Avianca then combined with San Salvador-based Taca in 2010 and held a Colombian initial public offering in 2011.
Operating revenue fell 7 percent in the second quarter from a year earlier to $1.06 billion amid a drop in passenger revenue. The company posted an adjusted net loss, excluding special items, of $24.8 million in the quarter, compared with profit of $21.4 million a year earlier.