LAN Airlines ( LFL , quote ) of Chile has almost completed its takeover of Brazil's TAM SA (TAM, quote ) in a stock trade that investors certainly hope will result in a more rewarding situation than that besetting American Airlines ( AMR , quote ) and Republic Airways Holdings ( RJET , quote ).
Around the world, airlines are being offered for sale. Republic Airways Holdings (RJET) is trying to offload Frontier Airlines, a disastrous acquisition from only two years ago. American Airlines (AMR) has been offering American Eagle, its regional carrier, for some time now with no takers. Aer Lingus Group PLC has also been on the market. And the exchange-traded fund ( FAA , quote ) for the American airlines -- which does not include LAN or TAM -- is down almost 40% for 2011.
The merger between LAN Airlines (LFL) and TAM SA (TAM) will result in one of the biggest airlines in the world. It is certainly not taking place at a propitious time. The cost of fuel is increasing as economic activity is decreasing. As fuel is about 40% of an airline's total expenses, this is a significant concern.
But, Mauricio Amaro, who will be Chairman of the new LANTAM Group, projects that the resultant airline from the merger will have a fleet of over 500 planes, making it one of the biggest in the world, according to an interview in El Mercurio , a newspaper in Chile. He also predicted that flights would commence to Asia within a decade.
Now around $21.50, the mean target price for LAN Airlines from the analyst community is $33.20 over the next year.