Efromovich to own Latin America’s No. 2 airline

CARTAGENA, Colombia – A little more than 10 years after buying his first jet in Brazil, Bolivian-born German Efromovich is set to control the second-largest airline in Latin America, with a total flee

CARTAGENA, Colombia – A little more than 10 years after buying his first jet in Brazil, Bolivian-born German Efromovich is set to control the second-largest airline in Latin America, with a total fleet of almost 150 airplanes.

Last week, he unveiled plans to merge Colombia’s largest airline, Avianca SA, which he owns, with El Salvador’s Grupo Taca under a new holding company. Efromovich’s Synergy Aerospace Corp. will control two thirds of the new company, while El Salvador’s Kriete family, which owns Grupo Taca, will have the remaining third.

A combined Avianca and Taca will be the second-largest airline in the region in terms of revenue, behind Chile’s LAN Airlines.

The agreed merger is the latest move by Efromovich, the 59-year-old son of Polish Jews who fled to Bolivia to escape Europe during World War II. He didn’t know anything about the aviation business until 1998, when a supplier paid a bill to his oil-servicing company with a small King Air airplane.

The current deal involves the acquisition by Synergy of a 10% stake in Taca for $40 million, which under the terms of the agreed merger would value Avianca at $800 million, according to market analyst Natalia Agudelo, who covers the Colombian stock market with local brokerage Interbolsa. Including Efromovich’s other businesses such as the 9% stake in Canadian-Colombian oil company Pacific Rubiales Energy Corp. (PRE.T), which is worth $216 million, Efromovich and his brother Jose are now worth well over $1 billion.

They also own two shipyards in Brazil and other ventures such as a hotel in Cartagena, Colombia, and a project to grow palmoil in the Andean nation.

Efromovich said he built his airline assets, which following the merger will be second in the region in terms of revenue with a combined $3 billion annual sales behind LAN, by taking risks and not being scared by challenges.

“The key is not to sell expensive, but to buy cheap,” he told Dow Jones Newswires in an interview. The charismatic Efromovich said he wants people to work hard and he will reward them. “There shouldn’t be worries about layoffs. If we all work the best we can to make the company successful, it gets ever more successful.”

In 1998, his company, Synergy, was offering maintenance services for oil operations in Brazil. The company started to fly its staff from cities to fields and quickly offered the service to its clients, marking the birth of his OceanAir carrier.

Efromovich spotted an opportunity in the fast-growing Latin American region. In several countries, the air transportation business had been in the hands of poorly run private or state-owned companies. As the demand for air travel quickly grew, well-managed private companies took over the industry.

In late 2004, Efromovich’s company agreed to buy a controlling stake in Avianca, which at the time was under protection of Chapter 11 bankruptcy proceedings. He paid $63 million in cash and assumed nearly $220 million in debt. Synergy subsequently acquired the remainder of Avianca in 2005.

Avianca, which traditionally has been a domestic Colombian airline, has gained market share and increased profitability by cutting costs. It replaced aging McDonnell Douglas MD-83 jets with newer, more fuel-efficient airplanes, and increased the number of flights.

Efromovich, who already had Brazilian citizenship, was granted Colombian citizenship in 2005.

Avianca and Taca are part of the new breed of airline in Latin America that are both more efficient than previous state-owned or private flagship carriers and more ambitious in entering other markets.

“This is not a rescue merger. Both companies are successful and profitable,” Fabio Villegas, Avianca’s chief executive, said when the planned merger was announced.

The new company additionally will include Efromovich’s other airlines, OceanAir and two Ecuadorean carriers, VIP SA and Aerogal, which he is in the process of acquiring.

“We’ll need many more airplanes” than what Avianca and Taca had been in the process of acquiring, Efromovich said, making clear that his airline business is aiming for further growth in the region and beyond.

Efromovich has suffered some setbacks. In late 2004, he created an airline in Peru called Wayra Peru with local partners, but had to shut the failed venture after only a few months. His bid on VarigLog, the cargo unit of bankrupt Brazilian airline Varig, is lingering in local courts. Also, his shipyard operation is engaged in a dispute with Petroleo Brasileiro SA, or Petrobras, Brazil’s state-controlled oil giant, over alleged embezzlement.

Efromovich’s concept of the airline business doesn’t follow the low-cost model. Avianca’s fares aren’t cheap and since low-cost competitors have sprung up in the Colombian domestic market, Efromovich has lobbied the government to limit competition. “The government must realize that predatory competition is as harmful as a monopoly,” he said.

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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