Brazil's TAM and Chile's LAN announced a proposed merger that would create Latin America's biggest airline by far and compete for the region's booming demand for passengers and cargo.

LAN said the merger would mean synergies of about $400 million a year, giving a crucial edge in a tough global airline market.

  • If approved, the merger would mean the newly formed group, Latam Airlines Group, with 46 million passengers combined last year, would match the scale of top carriers such as US Airways, Air France and Continental Airlines and become a major global player.
  • Both companies win access to new markets. LAN has a strong presence in other South American countries including Peru, Argentina and Ecuador, as well as cargo businesses in the United States and Colombia and Brazil. TAM has highly profitable routes to Europe and the new group plans to add new destinations.
  • The merger would seal LAN's long held aim of entering Brazil's coveted passenger airline market, a plan previously held back by regulatory issues, and would boost its passenger traffic volumes and revenues.
  • Crucially, the deal means the new group would have an extensive cargo network. LAN's cargo business has set it apart from other passenger carriers, and helped make it one of Latin America's most profitable airlines. LAN has seen stronger growth in its cargo unit, increasing traffic by 34 percent in June from a year ago.
  • The newly merged group says it would be able to save around $400 million a year through synergies, boosting its competitiveness amid an expected upsurge in global passenger traffic in the wake of the world financial crisis.
  • The fact both carriers use planes from Europe's Airbus for short-haul routes, and a combination of Airbus and Boeing aircraft for long-haul routes, should give the new group leverage when negotiating future aircraft purchases.
  • Both LAN and TAM have more than 200 new planes ordered for future delivery between them, much of them for fleet renewal to ensure competitiveness in the global airline market. LAN has been planning to double its fleet with an investment of around $7.7 billion by 2018. (Reuters)