LAN Airlines merges with Brazil's TAM to create LATAM Airlines

Chile's LAN Airlines yesterday announced the takeover of rival Brazilian carrier TAM, in a merger that creates a new entity, LATAM Airlines Group.

The take over completed yesterday marks the emergence of the second-largest airline by market value in a deal that is expected to yield around $700 million in costs savings within four years.

LATAM takes to the skies in the backdrop of slowing economic growth and falling demand for air travel in Brazil, Latin America's biggest aviation market.

Analysts say, this would require the  airline to adopt strict cost cuts to boost profits in a challenging market, as it grapples with high operation costs and fierce competition from smaller rivals.

According to chief executive Enrique Cueto, who spoke to  Reuters yesterday, he expected the Santiago-based carrier to win investment-grade debt ratings within a year mostly because of its ability to produce considerable cost savings.

He said the carrier would focus on improving performance in Brazil and ruled out significant layoffs during the combination.