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Elliott Management, the US hedge fund, is leveraging its position as lender toAvianca’s majority shareholder to force Colombia’s flagship airline into a sale or strategic partnership.
The New York-based activist fund, famed for a decade-long pursuit of Argentina over its defaulted bonds, has become increasingly influential in discussions about Avianca’s future even though it does not hold a stake in the carrier, according to people close to the company.
Elliott has held talks with the company’s senior executives in recent weeks and has provided input on what it thinks Avianca should do.
Elliott provided loans to Germán Efromovich, the carrier’s controlling shareholder, more than a year ago, say people with knowledge of the financing arrangement.
The loans made by Elliott to Mr Efromovich, a Bolivian-born tycoon who bought Avianca out of bankruptcy in 2004, are secured against the value of his 51 per cent stake in the carrier and are linked to its share price — meaning the hedge fund stands to gain if the airline is sold.
Mr Efromovich took out the loans with Elliott to invest in shipyards in Brazil with his Synergy Group conglomerate. That investment fell into financial difficulty. Elliott declined to comment.
Senior managers at Avianca said talks over a potential sale were “speculation”, but confirmed the company was “seeking a strategic partner” to counter other regional alliances. Delta, United and Panama’s Copa Airlines are considering bids for all or part of Avianca, say people close to the talks with Avianca.
Ed Bastian, Delta’s chief executive, said this month that he had not made a “committed bid” yet for Avianca.
Avianca is seen as one of the last available assets in Latin America for two of the three large US airlines that are competing to secure partnerships with local carriers to provide greater access to the region.
The Latin American aviation industry has already seen substantial consolidation, with Avianca’s merger with Grupo Taca in 2009 and the combination of Chile’s Lan and Brazil’s Tam to create Latam.
Air France-KLM and Delta invested in Brazil’s Gol, while United and China’s HNA Group have taken stakes in another Brazilian carrier, Azul.
Avianca is regarded as an attractive asset not just in Colombia, Latin America’s third-largest aviation market, but also for wider access into a region offering attractive growth potential.
In addition to its 59 per cent share of the Colombian market, Avianca has solid positions in Peru, Ecuador and El Salvador.
The airline, which returned losses last year, flies to more than 100 destinations in the Americas and Europe each day, compared with 35 a decade ago.
“The investment will allow Avianca to weather difficult near-term economic conditions and remain on an equal footing with its competitors, while the company’s suitor obtains strategic positioning in one of most important growth markets — Latin America — for the next decade and beyond,” said analysts at the Centre for Aviation.
Avianca is part of the Star Alliance network. Bankers say this has motivated United to consider a bid to ensure the Colombian airline does not slip into a rival’s hands. Delta’s SkyTeam network lacks significant presence in Colombia and Bolivia, and could improve access to both markets by snatching up Avianca.
American Airlines already has a strong footprint in countries served by Avianca.