Grupo Taca Business Information, Profile, and History

Company Perspectives:

GRUPO TACA has an aggressive growth and development strategy driven by a four part vision aimed at ensuring dominant revenue production, world class product integrity, a competitive well-prioritized cost structure, and programs to treat our people with the communication and compensation structures needed to maintain high morale and productivity. This 'FOCUS PLAN,' coupled with an aggressive and prudent growth strategy, today generates over $500 million in annual revenues and is expected to generate over $1 billion in annual sales within five years. Daily, more than 4,000 employees apply their knowledge and experience at every level to operate a complex air transport operation, thus allowing GRUPO TACA to face future challenges and penetrate new markets efficiently.

History of Grupo Taca

Grupo TACA (Transportes Aéreas Centro-Americanos) is the third largest air carrier in Latin America. 'There has never been an airline quite like TACA anywhere in the world,' writes aviation historian R.E.G. Davies. An amazing story of opportunistic success and derring-do in the pioneer days of Central American aviation, TACA has risen again to become a leading force in the region. Reformed from five national airlines, TACA boasts a fleet of 30 airplanes that fly to 39 destinations in 19 countries. It holds cooperative agreements with American Airlines and several smaller regional carriers. The company has been controlled by the Kriete family since the 1960s. TACA operates a large aircraft maintenance unit called Aeroman.

Opportunistic Origins

Lowell Yerex, a New Zealander, was educated in Indiana and flew for Canada's Royal Flying Corps in World War I. He was shot down in May 1918 and spent the rest of the war in a POW camp. After the war, he returned to the United States. He barnstormed for a brief time in a war surplus plane he had bought with money earned at a San Francisco shipyard.

In 1929, Yerex went south of the border to join Mexico's short-lived C.A.T. airline. In October 1931, he followed a prospector named Henson to Honduras where his partner, T.C. Pounds, had started the first airmail service. After three months of not getting paid for flying various ad hoc flying jobs, Yerex emerged as the sole owner of Pounds and Henson's Stinson Junior biplane.

This was the beginning of Transportes Aéreas Centro-Americanos, popularly known as TACA. Yerex won the Honduran airmail contract in February 1932, and with it the right to issue his own postal stamps (which cost about 50 cents per kilogram). TACA's mail service linked the capital of Tegucigalpa with provincial centers such as La Ceiba, Trujillo, and Juticalpa.

As Davies recounts in Airlines of Latin America Since 1919, Yerex worked out a very efficient forwarding system, charging different rates for cargo based on priority. His dedication also helped solidify his business prospects. For example, Yerex took a bullet in the eye while dropping pamphlets over a guerilla village, securing his relationship with the new Honduran Presidente, General Tiburcio Carias-Andino.

Going International in 1933

Success on the home front thus assured, Yerex began to expand. He bought his only Honduran competitor of any size, Empresa Dean, in 1933. TACA soon opened its first international route, connecting Tegucigalpa and San Salvador. Service was extended to Guatemala City and Managua in 1934. TACA acquired airlines in Guatemala (Compañia Nacional de Aviación, S.A.) and Nicaragua (Líneas Aéreas de Nicaragua, Empresa Palacios) in 1935, and Costa Rica (Empresa Nacional de Transportes Aéreas) in 1936.

However, the Nicaraguan operation lost its local contract in 1938. TACA bought Líneas Aéreas Nicaraguenses in 1939, putting it back in the airmail business there. For the next six years, TACA participated in an enormous airlift to support a gold mining operation called La Luz in the center of the Nicaraguan jungle.

Like most airlines in underdeveloped countries, TACA had to carve many of its own airfields out of the jungle. The mountainous terrain they encountered made the pilots' role even more challenging. In addition, the company operated 29 radio stations. TACA carried 90,000 passengers and 14,000 tons of cargo in 1941; freight accounted for 60 percent of revenues.

Most of these operations TACA acquired consisted of only two or three planes each, typically Ford or Fokker trimotors. TACA began to replace these with twin-engine Lockheed 14s in 1939. By 1940, TACA had accumulated 40 aircraft--up from just 14 in 1934--but only half as many pilots. TACA renamed its acquisitions along the following model: Compañía Nacional TACA de Guatemala, S.A. On August 25, 1939, a non-operating holding company, TACA, S.A., capitalized at $4 million, was registered in Panama City, although the group did not fly there until 1943. The El Salvador unit became a base for TACA's international operations.

Yerex, a citizen of the British Empire, founded British West Indian Airways (BWIA) separately from TACA in Trinidad in 1939. When he sold his controlling interest in TACA to American Export Lines, Inc. for $2 million on October 1, 1940, the deal brought the parties into conflict with Pan American, the influential U.S. airline led by Juan Trippe. Soon Guatemala's dictator, General Ubico, had forced TACA out of his country in favor of a Pan Am-backed startup. According to Davies, Yerex was paid pennies on the dollar for his assets there. Further, Pan Am overpowered American Export in the U.S. Congress and courts.

In 1942, Yerex entered a joint venture, Empresa de Transportes Aerov&iacute Brasil, S.A., that promised significant opportunities for growth below the equator. Panama's TACA, S.A. became Inter-American Airways, S.A. on January 27, 1943, as Yerex was planning to sell off TACA and the newly formed BWIA. Seeking a solid U.S. connection with which to win rights to fly to Miami, on October 5, 1943 Yerex sold $2.25 million worth of Inter-American stock to a group of U.S. investors including the Maryland Casualty Company, Time Inc., and Transcontinental & Western Air Inc. (TWA), then controlled by Howard Hughes. Inter-American's name was changed to TACA Airways, S.A. in November 1943, and capitalization increased to $10 million.

TACA extended its route network to Lima, Peru, and formed subsidiaries in Venezuela and Colombia. To counter TACA's threat, Pan Am bought minority interests in a dozen state-owned airlines in the Caribbean and Central America. When Yerex shopped for more enthusiastic investors in Great Britain in 1945, TACA's board of directors replaced him as chairman with Benjamin Pepper of the Pennsylvania Railroad.

Postwar Decline

TACA's Colombian affiliate ceased operations in May 1947, after suffering several accidents and losing $4 million during the year. This removed a strategically important staging ground for TWA's assault on Pan Am, via TACA. By then, TACA only held a nine percent stake in Aerov&iacute Brasil, and its influence along the Atlantic coast would only decline further.

TACA had opened a sales office in New York City. In January 1947, it moved this to Miami and appointed the Waterman Steamship Corporation its agent for the United States. Although Waterman helped TACA acquire a handful of DC-3 and DC-4 aircraft, the airline could not match the vigorous new wave of postwar competition. Paul Richter, a TWA executive, took over the chairmanship of TACA in September 1947.

TACA had acquired a 51 percent holding in a local San Salvador airline, Aerov&iacute Latino-Americanos, in 1947. TACA's Honduran and Nicaraguan units were sold in February 1948. The next month, a new revolutionary government in Costa Rica impounded TACA's three planes in that country. TACA de Costa Rica had served routes ranging from San José to Panama. TACA was left with separated operations in just El Salvador and Venezuela.

In spite of these setbacks, Waterman acquired a 35 percent interest from TWA in February 1949. It injected $600,000 to keep the airline running and sold off the Venezuelan subsidiary. A new holding company was chartered as a Delaware corporation in New Orleans: the TACA Corporation. Its capital was listed as $200,000. El Salvador's TACA, S.A. became TACA International Airlines.

Waterman eventually sold its TACA shares to its own shareholders. Many were acquired by McLean Industries in May 1995, then by Southern Industries Corporation, in January 1956.

New Blood: 1960s-80s

Ricardo H. Kriete bought a controlling interest in the El Salvador operation in April 1961. The Kriete family saw annual revenues grow to about $15 million in the 1970s.

The company made El Salvador its base in 1983. TACA's AEROMAN aircraft maintenance unit was established at the same time. While political upheaval prompted many businesses to pull out of Central America in the 1980s, Roberto Kriete, Ricardo's grandson, invested millions in Grupo TACA.

Roberto Kriete met Federico Bloch at a Boston business school and made him TACA's president and CEO. The company's management team was eventually populated with former executives from Continental Airlines, Northwest Airlines, Continental, and Chase Manhattan Bank, giving it a unique, technically savvy, Anglo-Latino corporate culture. Kriete told LatinFinance: 'We believe we are the best management team in the industry south of the border.'

Kriete and Bloch felt the group needed more mass to remain viable so in 1989 they began investing in five Central American flag carriers: TACA International of El Salvador, LACSA (Líneas Aéreas Costarricenses) of Costa Rica, AVIATECA (Compañía Guatemalteca de Aviación, S.A.) of Guatemala, TACA of Honduras, and NICA (Nicaraguenses de Avación) of Nicaragua.

Unified in the 1990s

The union of these airlines together created some needed economies of scale, but gathering them under one banner was an extended process not completed until 1997. A new corporate identity was unveiled in the same year: five stylized golden macaws flying in tight formation.

The group's focus on its home region and high frequency of flights helped its cargo business grow by more than 20 percent in 1997. TACA operated three dozen dedicated freighter flights a week between Central America and four U.S. airports: Miami, Los Angeles, Houston, and New Orleans. Perishable produce and textiles continued to make up a large part of its business; TACA had begun serving U.S. firms with manufacturing operations in Central America, such as Intel. TACA partnered with American Airlines, its Dallas sales agent, and competed with Delta Air Lines and Continental Airlines, which it accused of predatory pricing in its passenger business.

Grupo TACA joined other airlines in large aircraft purchases to get financing rates similar to those obtained by large U.S., European, and Asian carriers. The consortium leased six Airbus A320 aircraft in 1997 for $210 million. It then teamed with TAM of Brazil and LAN Chile in a 1998 order for 175 Airbus aircraft worth $4 billion. Grupo TACA accounted for $1.2 billion of the total. TACA also used ATR-42 turboprops to service its shorter, regional routes.

TACA promoted both southbound and northbound leisure travel. The airline partnered with the state of Louisiana, which provided promotional money and offered sales-tax rebates to tourists on jewelry, equipment, and furniture. Honduras and Costa Rica were the source of the most traffic to New Orleans.

The consortium's sales were more than $600 million in 1998. A new affiliate, TACA-Peru, was added in the fall of 1999. TACA began service to Montreal in October 2000. The carrier already served Toronto. Both flights originated in San Jose and stopped in El Salvador and Havana.

Principal Divisions: Cargo; Aeroman.

Principal Competitors: CINTRA; Continental Airlines, Inc.; Delta Air Lines, Inc.; UAL Corporation.

Chronology

• Key Dates:

• 1931: Lowell Yerex starts Transportes Aéreas Centro-Americanos (TACA) in Honduras.
• 1933: TACA begins its international expansion.
• 1940: Yerex sells control of TACA to American Export Lines.
• 1943: TWA buys into TACA.
• 1945: TACA's board forces Yerex out of chairman slot.
• 1949: Waterman Steamship Corporation buys control of TACA, charters it in New Orleans.
• 1961: Ricardo Kriete acquires controlling interest in TACA.
• 1983: TACA relocates headquarters to El Salvador.
• 1989: TACA acquires interests in five Central American airlines.
• 1997: Grupo TACA is unified under a common logo.
• 1998: TACA participates in a $4 billion order for Airbus aircraft.