Chile’s Lan Airlines SA plans to add international commercial routes and expand its freight business to build on its $3.7 billion purchase of Brazil’s Tam SA, which will create the world’s 11th largest carrier by passengers.

“We will expand into new markets,” Lan’s Chief Financial Officer Alejandro de la Fuente said in a telephone interview after the acquisition was announced Aug. 13. “There are a lot of opportunities.”

Acquiring Tam will give Santiago-based Lan 43 percent of the domestic airline market in Latin America’s largest economy and $4.9 billion in annual sales. Lan already is the region’s biggest airline by market value while Tam is the largest by revenue. Together, they will have an unrivalled network of 116 destinations in 23 countries. De la Fuente said Lan will develop the cargo business from Brazil. The companies also plan to add flights to Europe from Brazil and to North America from Peru.

The purchase follows tie-ups of US and European carriers to cut costs and may spur further consolidation, said Eduardo Favrin from HSBC Global Asset Management in Sao Paulo. Lan gained 7.7 percent in Santiago and Tam jumped 28 percent in Sao Paulo after a report by Brazilian magazine Exame anticipated the deal announced later that day.

“More mergers will come along. It’s not going to stop there,” said Favrin, who helps oversee $2.5 billion, including Tam shares, as head of equity for HSBC Global Asset Management’s Brazil unit, in a telephone interview.

The airline industry is set to post its first profit in three years as the economy rebounds, the International Air Transport Association said in June.

Under the terms of a non-binding agreement, Lan will buy Tam with stock. Tam investors will get 0.9 Lan share for each Tam share held. Lan will have about 70 percent of the combined carrier, LATAM Airlines Group. Tam’s controlling shareholders will retain 80 of the Brazilian carrier’s voting stock to comply with local regulations. Lan’s Enrique Cueto will be chief executive officer of the new company while Tam’s Mauricio Rolim Amaro will be chairman.

The agreement calls for the delisting of Tam in Brazil. LATAM Airlines will trade in Santiago, New York and Sao Paulo. The companies will have combined revenue of $8.5 billion and expect $400 million in annual savings from the deal. The companies said a binding deal may come in two to three months.

Lan’s $9.2 billion market value makes it the world’s fifth- largest airline, according to Bloomberg data. The acquisition of Tam, with a market value of $2.9 billion, may make LATAM Airlines the third biggest, ahead of Cathay Pacific Airways Ltd. and China Eastern Airlines Corp. and behind Air China Ltd. and Singapore Airlines Ltd.

There is a “strong chance” that the deal will trigger other mergers and acquisitions among Latin American carriers, Libano Barroso, chief executive officer of Tam Linhas Aereas SA, the operating unit, said in an Aug. 13 telephone interview. (Bloomberg)