United inks deal with Avianca, Copa to expand footprint in Latin America

Key Points
  • If approved, United will be able to share revenue and coordinate schedules with Copa and Avianca.
  • The deal is subject to regulators in each country.
  • Such agreements have become a popular way for airlines to expand internationally.
An airplane sits at the Avianca Holdings SA Maintenance, Repair and Overhaul (MRO) Aeronautical Center in Rionegro, Colombia on Tuesday, Nov. 7, 2017. Avianca Holdings SA reported a net income of $36.1 million USD in the third quarter despite a pilot strike that lasted for almost two months. 
Nicolo Filippo | Bloomberg | Getty Images

United Continental Holdings has reached a long-sought after deal with two major Latin American airlines allowing the third-largest carrier in the U.S. to expand in the region.

The agreement, which United announced on Friday, will allow United Airlines, Panama's Copa Holdings and Colombia-based Avianca Holdings to share revenue from flights and coordinate schedules. The three-way partnership is subject to approval from regulators. Avianca, Copa and United are already tied through a code-sharing partnership.

Joint ventures that allow airlines to coordinate routes and share either profits or revenue have become more common in recent years as carriers seek to expand internationally. Foreign ownership rules generally limit airlines from abroad to purchase another carrier outright, so such deals along with minority stakes, are a way to provide them with exposure to international markets.

Avianca serves around 170 destinations and has more than 180 aircraft, while Copa has a fleet of about 100 aircraft and serves about 75 destinations, according to the companies.

Flying to and from Latin America accounted for about 8 percent of United's revenue in the third quarter, while American Airlines, the largest U.S. carrier in the region, received more than 11 percent of its revenue from Latin America flying in the quarter.

United's agreement with Avianca comes after a legal battle that could have further delayed the deal was dropped last year.

In a filing on Friday detailing the deal with Avianca, United said it would provide a $456 million loan to Syngery Aerospace Corporation, Avianca's owner, using stock in Avianca as collateral. The Wall Street Journal, which reported the deal earlier on Friday, said it would be used to repay a loan from hedge fund Elliott Management. Elliott did not immediately respond to a request for comment.