Latin American Carriers LAN and TAM to Merge

Brazil's TAM and Chile's LAN airlines agreed to a merger Friday in a deal that would create Latin America's largest carrier and the 11th largest carrier in the world.

Rather than combine the airlines into one megacarrier, a la Delta and Northwest, the deal would create a subsidiary company, the LATAM Group, under which both airlines could continue operating separately. According to Reuters, "The structure seems designed to portray a merger of equals that could help it clear potential legal and political hurdles in both countries. Brazilian regulations forbid foreigners from holding more than 20 percent of a domestic airline."

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This structure could also impact the global airline alliance picture, as LAN and TAM each belong to different global alliances—TAM in Star Alliance, and LAN in oneworld. Whether or not one airline jumps ship to join the other's alliance remains to be seen, but bears watching for travelers in the U.S., particularly frequent flyers.

Executives said the deal was made to keep both airlines competitive in an industry experiencing rapid consolidation.

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