United Airlines (UA, Chicago O'Hare) has reached an agreement with Copa Airlines (CM, Panamá City Tocumen International) and various Avianca Holdings subsidiaries, including Avianca, over their long awaited revenue-sharing Joint Business Agreement (JBA).

In a joint statement, the carriers said the tie up, which is subject to regulatory approval, would drive significant traffic growth at major gateway cities across the Americas and is also expected to help bring new investment and create more economic development opportunities. Further, the JBA is expected to provide customers with expanded codeshare flight options, competitive fares, a more streamlined travel experience and better customer service, resulting in significant projected consumer benefits.

"Although JBAs have been proven around the world to benefit consumers and enhance competition, currently 99% of the US carrier passenger traffic that makes connections in Central and South America does so without a JBA," they said. "Competition in the US-Latin American market has grown and includes a diverse set of carriers offering service across multiple price points. Yet the market lacks a comprehensive revenue-sharing, metal-neutral network of carriers and the associated heightened competitive forces that drive value and better consumer experiences. The JBA represents an innovative, best-in-class new product offering that will make competition in this robust market even stronger."

The JBA currently includes cooperation between the US and Central and South America, excluding Brazil. However, with the recently concluded Open Skies agreement between the US and Brazil, the carriers are exploring the possibility of adding Brazil to the JBA.

Once approved, the JBA will enable deep commercial and strategic cooperation that will apply exclusively in the itineraries between Latin America and the US contemplated in the agreement, but each of the three airlines will remain independent companies.

Although no equity transaction is included in the JBA, United could take a shareholding in Avianca Holdings (AVH) by virtue of a loan transaction agreed between itself and AVH's parents Synergy Aerospace and Kingsland Holdings.

According to a United Continental Holdings stock exchange disclosure, United Airlines has agreed to extend a USD456 million loan to affiliates of Synergy Aerospace which has, in turn, put down 516 million shares of common stock of Avianca Holdings S.A. (AVH) as a security. The Wall Street Journal said the funds will be used to pay off a loan from US hedge fund Elliott Management.

The loan is due and payable in five annual instalments beginning on November 30, 2021, to be repaid in full on November 30, 2025 (a portion of which is subject to extension in limited circumstances).

"Subject to the satisfaction of collateral coverage thresholds, minimum share price levels and certain other conditions, Synergy may repay United in shares of AVH common stock, at market value, in an amount up to 25% of any principal installment, or with cash from the sale of Synergy’s shares of AVH stock," the filing said. "The loan bears interest at an annual rate of 3% per annum, payable quarterly in arrears."

United also obtained an option to acquire, on a gross or net basis and at a fixed price, up to 77.4 million shares of AVH common stock from Synergy, and agreed with Synergy to share in any increase in value of the remaining 438.6 million shares of Synergy’s AVH common stock within certain price ranges.

In connection with the loan's funding agreement, on November 29, 2018, United also entered into an agreement with AVH’s significant minority shareholder, Kingsland Holdings Limited, wherein it pledged its 144.8 million shares of AVH common stock and its consent to Synergy’s pledge of its AVH common stock to United under the loan.

In return, Kingsland may offer its AVH shares to United at market price on the fifth anniversary of the Loan Agreement (i.e. on November 30, 2023). In addition, United has also guaranteed Synergy’s obligation to pay Kingsland if the market price of AVH common stock on the fifth anniversary is less than USD12 per ADR on the NYSE, for an aggregate maximum possible combined put payment and guarantee amount on the fifth anniversary of USD217.2 million. United also agreed with Kingsland to share in any increase in value of AVH common stock within certain price ranges.