Bidding for Bogotá: Colombia’s largest airline is losing its luster, and two global giants seem eager to help

June 6 Avianca, Latin America’s second largest airline after LATAM, wants to improve its balance sheet. That’s evident from recent decisions to slow growth, slash capital spending, defer $1.4b worth of aircraft orders and put its E190 fleet up for sale. Now, according to The Wall Street Journal, it’s looking to raise $500m in new capital, perhaps leading to an outright sale of the company. And who might the interested parties be? None other than Delta and United, according to the Journal, not to mention the ubiquitous HNA Group from China.

Avianca, to be clear, is not acting out of desperation. It earned a decent enough 6% operating margin last year, and began this year with a 7% operating margin. Its direct exposure to the toxic Brazilian market is limited. It earns strong profits in the large Colombian domestic market. And its 2010 merger with Central America’s TACA worked well, building scale and enabling many new routes across multiple hubs. Avianca is far removed from the bankruptcy it endured in the early 2000s.

But it’s also navigating a treacherous mix of currency volatility, weak South American economies and tough competition, while carrying $3b in debt. What’s more, when Avianca looks around at its Latin American rivals, it sees LATAM forming a joint venture with American and IAG; Gol partly owned by Delta and Air France/KLM; Azul partly owned by HNA and United; Aeroméxico partly owned by Delta; and Copa, which was once partly owned by United’s predecessor Continental, retaining its close ties to United. All of this surely makes Avianca feel lonely.

Well, it won’t have any problem finding a date. United, for its part, knows as well as anyone what a financial killing Continental made on its investment in Panama’s Copa years back, and United would love the chance to replicate that success in Colombia. United certainly has the balance sheet strength to take chances, and it certainly has the motivation to act boldly in its quest to close the margin gap it suffers against Delta and American. In addition, it can use more allies in South America after…

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