Dow Jones reports Brazil's TAM and Chilean airline LAN are in talks over a possible joint bid for Brazilian airline Varig, according to the local Estado newswire Thursday. In January, LAN lent Varig $17.10 million in exchange for an exclusive option for shares. In Brazil, foreign investors cannot own more than 20% of a local carrier.
It would seem there are two good reasons for this deal to occur.
- Varig's brand – despite the trouble Varig went through year after year, it has an amazing following in Brazil. Outside Brazil, TAM is finding its brand to be unknown and expensive to market. Far easier would be to have the Varig brand back on overseas flights, where Varig is Brazil for many people inside and outside the travel trade.
- GOL – this little airline has been growing at fantastic rates. Its January capacity rose 64% while its traffic climbed 70%. It obviously has to look for new markets and recently was given permission to fly to to other countries – daily flights began recently on its new route from Santiago, Chile to Lima, Peru. The route, which begins in Buenos Aires, Argentina, connects three important South American countries — Argentina, Chile and Peru. Since GOL takes every 737 it can find, its growth is cutting into LAN and TAM.
Consequently we see a deal between TAM and LAN to acquire Varig to be a smart move.
