WRAPUP 1-Avianca, TACA to merge, AeroMexico eyes deal

* Avianca shareholders to own two-thirds of new company

* AeroMexico looks at stock deals

* Airlines struggle to cut costs in tough economy (Recasts; wraps in AeroMexico, European airline details)

MEXICO CITY/SAN SALVADOR, Oct 7 (Reuters) - Latin American airlines Avianca and TACA said on Wednesday they will merge and AeroMexico said it is looking at deals with rivals as carriers around the world struggle with a deep downturn.

In a deal worth $3 billion in combined annual sales, El Salvador-based TACA and Colombia’s Avianca said they will join operations to cut costs and bolster their clout in the region.

Avianca’s shareholders will control two thirds of the new company, with the rest in the hands of TACA owners, TACA chief executive Roberto Kriete told reporters in San Salvador.

Underscoring the damage the global economic slump has done to the airline industry, AeroMexico, one of Mexico’s two main carriers, said it is interested in stock deals with local and foreign players to help improve efficiency.

“What we are analyzing, beyond commercial alliances, are investment alliances where it isn’t a merger but stock stakes between two groups,” AeroMexico Chief Executive Andres Conesa told reporters at an event in Mexico City.

Hit by the economic slowdown, airlines around the world are struggling with weak demand and volatile fuel prices, although some carriers have said they see early signs of improvement.

In Europe, Aer Lingus AERL.I said on Wednesday it will ax nearly one in five jobs and cut salaries to secure its survival, a day after British Airways BAY.L announced plans to cut the equivalent of 1,700 cabin crew. [ID:nL7615726]

Citigroup C.N and local investors bought money-losing AeroMexico from Mexico's government in 2007 for about $250 million but have struggled to turn it around.


Privately held Avianca and TACA will remain separate brands for now, but together they would have 129 planes and more than 100 destinations in the Americas and Europe, Avianca CEO Fabio Villegas said at the news conference in the Salvadoran capital.

The deal has yet to be approved by regulators.

Avianca, with sales of $1.9 billion last year, is controlled by Colombian-Brazilian businessman German Efromovich while TACA has been owned by the Kriete family since 1961.

TACA, which flies to 22 countries in the Americas and nine cities in the United States, was founded in 1931 as a one-airplane operation with a contract to the Honduran government.

“The joining of the airlines is part of... what’s happening in the industry,” Kriete said. “This puts us on par with Latin America’s largest airlines.”

Chilean airline LAN LAN.SNLFL.SN, one of Latin America's biggest air carriers, said in August it was interested in deals to help it expand in Colombia, Brazil, Mexico and Central America.

Also in August, Gol Linhas Aereas GOLL4.SAGOL.N, Brazil's No. 2 airline, said it was planning to sell stock to raise cash to let it take advantage of market opportunities. (Reporting by Nelson Renteria in San Salvador, Tomas Sarmiento in Mexico City and Javier Mozzo in Bogota; writing by Noel Randewich; editing by Carol Bishopric)