Paris 2011: Avianca-TACA accelerates expansion with neo, plans fleet of more than 160 A320s


Avianca-TACA has decided to expand its acquisition of A320-family aircraft to drive further expansion in the second half of this decade at its various subsidiaries throughout Latin America. The airline group used the Paris Air Show to sign a memorandum of understanding on 22-Jun-2011 for 18 additional A320s and 33 A320neos.

The deal makes Avianca-TACA the largest customer in Latin America so far for the A320neo, which is slated to enter service in 4Q2015. But rival Latin American airline groups LAN and TAM are poised to have larger A320neo fleets if they complete their proposed merger. LAN on 22-Jun-2011 placed its own order for 20 A320neo aircraft. This follows an MOU signed in Feb-2011 by TAM for 22 A320neos

LAN, TAM and TACA have been loyal A320 customers since 1998, when they placed a landmark joint order for 90 A320s. The "three amigos" deal was historic as it was the first time competing airlines came together to renew their fleets. Avianca followed much later, placing its first A320 order in 2007 as part of the first phase of a dramatic fleet renewal plan pursued by its new owners, the Synergy Group. The Colombian carrier took its first A320 in 2008 and has since replaced nearly its entire fleet with new A320 family aircraft and A330s.

Avianca early last year completed its landmark merger with TACA, creating a new group which according to Airbus currently operates 78 A320 family aircraft and seven A330s. Avianca-TACA is one of only 13 Airbus customers worldwide which operate all four members of the A320 family.

Avianca-TACA poised to grow A320 fleet to 161 aircraft by 2020

Excluding this week's deal, the group already had 40 additional Airbus aircraft on order, including 37 A320 family aircraft and three more A330s. Avianca-TACA says the new deal lifts the group's total Airbus order to 133 aircraft, including aircraft which have already been delivered over the last three years. This figure excludes the A320 family aircraft that Avianca-TACA has sourced from leasing companies, including the 10 ex-Mexicana A318s from GECAS which it took in 1H2011 to replace F100s.

Once this week's MOU is firmed up the group will be committed to growing its A320 family fleet to 161 A320 family aircraft by the end of this decade. Avianca-TACA was already committed to grow its A320 family fleet to 89 aircraft by the end of 2011 and to 110 aircraft by the end of 2014, when the deliveries from the new order are expected to start.

Avianca-TACA fleet plan, 2011-2014

Avianca-TACA board member and Avianca Brazil CEO Jose Efromovich said at the MOU signing ceremony in Paris that the 18 A320s and 33 A320neos covered under the new deal are seen as growth rather than replacement aircraft. So far Avianca has used its A320s primarily as replacements for MD-80s, B757s and F100s but all three of these types will have exited the fleet by the end of this year, completing an ambitious narrowbody fleet renewal programme in less than four years. This excludes Avianca Brazil, which plans to continue operating some F100s for a couple more years but for now is not part of Avianca-TACA.

Mr Efromovich said Avianca-TACA does not envision significantly expanding its network over the next decade as the group already serves over 100 cities but there is demand to boost frequencies and capacity on many existing routes. He pointed out most of Avianca-TACA's destinations are within Latin America and its passengers across the fast-growing region are asking for more flight options.

Passenger traffic at Avianca-TACA has been growing at about an 11% clip so far this year, while the group's revenues were also up 16% in 1Q2011 to COP 1.588 trillion (USD890 million). Most of the growth has come in short and medium-haul markets, in particular travel within Latin America as the region's rapidly growing economies has spurred on air travel.

Almost all of Avianca-TACA's network is within the range of A320 family aircraft. Widebodies are currently used at only one of the group's four hubs - Bogota - where they operate flights to Spain, Los Angeles and some of the flights to New York and the southern cone of South America. The A319 can already be used for New York and most of South America. The improved range of the A320neo will likely open up all of the Americas from Bogota, potentially allowing Avianca to focus its widebody fleet on expanding its European network. Currently Avianca only serves Madrid and Barcelona in Europe.

Avianca-TACA's current network

Mr Efromovich said the commitment for the A320neo is an "historical step" for Avianca-TACA and will give "new life to the second oldest airline of the world". The A320 family, including the new A320neos, will continue to be the backbone of the Avianca-TACA fleet. But Mr Efromovich said the group will also consider acquiring other aircraft types.

"The world is changing. The market is growing in South America. This is just covering the medium and short haul programmes. Definitively we will keep our eyes open to what's going on. More announcements may come anytime," he said.

Avianca-TACA has been looking at potentially acquiring new turboprops to replace the 10 F50s which Avianca still operates on thin domestic Colombian routes and the fleet of 26 smaller turboprops operated in Central America under the TACA Regional brand. The group also has 12 E190s, a fleet which will continue to be used to serve thinner markets in Central America and Peru but is not expected to grow.

On the widebody side, Avianca-TACA has 12 B787s on order which are intended to replace its A330s. Avianca is now slated to take its last three A330s in 2012, giving it a fleet of 10 A330s, and begin B787 deliveries in 2013.

Avianca-TACA not considering A380s

Mr Efromovich says the A380 is currently not under consideration, even for the dense Bogota-Madrid route where Avianca operates two A330 daily frequencies back to back. "The problem with the A380 starts with infrastructure. In Latin America, there is no real infrastructure to receive those aircraft on a regular basis today in many places," he said.

The Efromovich-controlled Synergy Group placed an order in 2008 for 10 A350s which were intended for Avianca Brazil, then known as Ocean Air. These orders are not currently part of the order backlog at Avianca-TACA because ownership of Avianca Brazil has not yet transferred from Synergy to the new Avianca-TACA holding company. But this is expected to occur later this year.

Avianca-TACA chairman and Synergy CEO German Efromovich told CAPA earlier this month that Avianca-TACA will now start to work on bringing in Avianca Brazil as its IPO project, which required significant resources and attention internally, was recently completed. He explained that the group wanted to first focus on bringing in Ecuador's AeroGal and complete the IPO. AeroGal formally was integrated into Avianca-TACA in Nov-2011 and now operates nine A320 family aircraft which were sourced from the Avianca-TACA order book. The Avianca-TACA IPO was completed in May-2011, raising COP500 billion in proceeds which will be used to help fund the fleet expansion.

Avianca Brazil already operates four A320 family aircraft that were sourced from Avianca-TACA alongside its original fleet of 14 F100s. Once Avianca Brazil is formally brought into the fold, Avianca-TACA group will have six subsidiaries operating A320 family aircraft - AeroGal in Ecuador, Avianca in Colombia, Avianca Brazil, TACA Costa Rica, TACA International in El Salvador and TACA Peru.

Avianca-TACA's current A320 family fleet

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The group also already includes Colombian cargo carrier Tampa and five very small carriers in Central America which operate turboprops under the TACA Regional brand. The total group fleet, excluding the 18 aircraft at Avianca Brazil and including the five B767Fs at Tampa, is expected to consist of 113 jets and 36 turboprops at the end of this year.

LAN-TAM to grow A320 fleet to about 340 aircraft

LAN and TAM, even before their merger, are already larger airline groups in terms of revenue. LAN started this year with a group fleet of 131 aircraft, including 61 A320 family aircraft. TAM started this year with a group fleet of 151 aircraft including 119 A320 family aircraft. With their new A320 neo orders, the two carriers combined now have roughly 180 additional A320s on order. As a result the new LATAM parent company will likely have a fleet of about 340 A320 family aircraft by 2019 (takes into account some lease returns, including the planned phase-out of LAN's A318s).

LATAM is already planning to have a fleet of 249 A320 family aircraft at the end of 2014 (109 at LAN and 140 at TAM), a net increase of 69 aircraft in only four years. At the end of 2014, Avianca-TACA now plans to have an A320 family fleet of 110 aircraft.

With Avianca-TACA and LATAM projected to have a combined fleet of 359 A320 family aircraft at the midpoint of this decade and roughly 500 A320 family aircraft by the end of this decade, Boeing is certainly now wishing it had beaten Airbus in the "three amigo" campaign back in 1998.

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