Volaris-Viva merger eyes lower fleet costs for new airline group

By Kylie Madry

MEXICO CITY, Dec ⁠19 (Reuters) - The proposed ⁠merger ‍of Mexican budget carriers Volaris and Viva Aerobus aims to put the new airline group in stronger conditions to negotiate its highest costs, acquiring ‍and renting aircraft, executives from both firms said on Friday.

Reuters exclusively reported ​on Thursday that the two were nearing an agreement, which Volaris and Viva later confirmed.

"A significant opportunity ​lies in reducing aircraft ownership costs, which represent the largest expense - exceeding even fuel," Viva CEO Juan Carlos Zuazua told analysts on a conference call.

"Notably, major global carriers operate with ownership costs up ​to 60% lower than their Latin American counterparts, including Viva and Volaris," he added.

Both airlines exclusively fly Airbus planes, and operate similar routes.

While Volaris and Viva ​will continue to operate as separate brands, the new group - to trade as Grupo Mas Vuelos - would become Mexico's ‌largest domestic carrier by far.

Shares of Volaris were on track for their best day ever, shooting up nearly 17% after the call.

Under the ​terms of the agreement, the companies will combine ⁠in a merger of equals. Volaris CEO Enrique Beltranena conceded that his carrier represented about 60% of enterprise value while Viva brought ‌in 40%, though Volaris' net debt was higher.

"So when you bridge from enterprise value to equity value, the relative equity contributions become much closer," he said.

REGULATORY HURDLES AHEAD

Analysts repeatedly pressed the executives ‌on the regulatory process ahead to clear the deal. Among Mexican carriers, the two represented a ‌combined 69% of passengers carried in the year through October. They were trailed by flagship airline Aeromexico, which is likely to oppose the merger.

"We're confident in the merits of this transaction," Beltranena said. "(We) ‍prefer right now not to speculate on the results or the potential outcomes, and conditions or remedies" stipulated by the regulator.

Mexico's government ⁠this year dissolved its independent anti-competition regulator, Cofece, and put its powers in the hands of a new agency controlled by the economy ministry.

($1 = 17.9908 Mexican pesos)

(Reporting by Kylie Madry in Mexico City; Additional reporting by Aida Pelaez-Fernandez and Noe Torres in Mexico City; Editing by Brendan O'Boyle and Matthew Lewis)

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