TAM/LAN MERGER BLOCKED? AND WATCH OIL

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By TESTCustomwebLP TESTCustomwebLP January 31, 2011 11:06

TAM/LAN MERGER BLOCKED? AND WATCH OIL

There are multiple reports coming from within Chile that top antitrust authorities have suspended the merger between Chilean airline LAN and Brazilian airline TAM. The daily newspaper La Tercera has reported that the five members of the Court for the Defense of Free Competition agreed to suspend the merger while they determine whether it complies with antitrust regulations.

The newspaper reported over the weekend that the decision was issued on Friday, based on a petition submitted by the private National Consumer Corporation. Corporation president Hernan Calderon told radio Cooperativa on Saturday that “we value the court’s ruling.”

This news, if confirmed today, is a terrible blow for LAN/TAM who could have gone on to great things and would be just the latest in a long series of regulatory measures curtailing the advance of aviation.

Meanwhile in India……… The Comptroller and Auditor General (CAG) has questioned the government’s reasoning to order 111 planes for Air India for almost Rs 50,000 crore in 2006 and also why the MRO facility, which is part of the offset clause with Airbus, is yet to be built. Airbus was to set up the MRO as part of the offset obligation for Indian Airline’s Rs 9,890-crore 43-aircraft acquisition proposal.

The CAG is believed to have asked the airline and the government whether they could justify the massive order through a detailed business plan and give the reasons behind Air India’s dwindling market share, which has brought down its position to fourth, lower than the no-frill carrier IndiGo, Jet Airways and Kingfisher.

The government and the national carrier have already sent their response to the CAG, which audits Air India’s finances. In response, the Civil Aviation Ministry is understood to have said that ageing fleet was the prime reason for placing a big order as competing airlines were taking away passengers through their new and young fleet.

On the MRO issue, the Ministry is believed to have responded by saying that the work was in progress. The CAG is understood to have asked why the number of aircraft ordered by the airline was increased to 50 when the Government was earlier planning to take 35 on firm orders and have the option of taking another 15 at a later date. It has also sought government’s response on why a bridge loan was taken to finance the aircraft deal.

The CAG report, which is to be tabled in Parliament soon, is also said to have raised questions on the rationale behind the merger process between Air India and Indian Airlines and talked about the poor financial performance of the merged company.

Since its merger in 2007, Air India’s decisions have come under scathing attack from two parliamentary panels – the Committee on Public Undertakings and the Standing Committee on Transport, Tourism and Culture.

Shares of airline companies were trading lower today after international crude prices rose to near $100 a barrel.

Brent oil surged to a 28-month peak today on concerns protests in Egypt could spread instability across the Middle East and disrupt oil shipments through the Suez Canal. Airlines in India are down across the board and this should be mirrored in trading moving west today.

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By TESTCustomwebLP TESTCustomwebLP January 31, 2011 11:06
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