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Coffee airline seeks partner
The Miami Herald / April 5, 1997

By Larry Luxner

MEDELLIN, Colombia -- One of South America's most luxurious airlines is owned largely by Colombian coffee farmers -- most of whom never have, and probably never will, fly in an airplane.

Aerolineas Centrales de Colombia S.A. (known by its Spanish acronym ACES) was founded in 1971 as a "puddle jumper" serving passengers between the coffee-growing centers of Medellin and Manizales, and between Medellin and the capital, Bogota.

In 1996, ACES' total revenues came to $170 million, with profits of $5.3 million. The airline operates 181 flights a day, and last year transported 1.2 million passengers.

Now, the airline is doing so well it wants to take on a strategic partner -- with an eye towards eventually going public.

ACES President Juan Emilio Posada Echeverri said in a recent interview that the airline's owners want to sell 30% of ACES stock in order to finance an ambitious expansion program. In fact, Posada recently hired a London-based investment firm, said to be a subsidiary of Germany's Deutsche Bank, to organize the private placement. Additionally, the airline "has access" to $300 million in financing, he said without elaborating.

"I wouldn't be surprised if some U.S. carrier bought a piece of ACES. With [Venezuela's] Viasa going down, we're hoping to get more destinations," Posada said, adding that "we will place the airline with the best strategic partner. We do not want undesirable stockholders."

Currently, ACES is 54% owned by Colombia's Federacion Nacional de Cafetaleros (National Coffee Federation), and 44% by the Flota Mercante Grancolombiana (which is itself 80% owned by the National Coffee Fund, and 20% by Ecuador's Banco de Fomento). The remaining 2% of ACES shares are owned by more than 500 individual stockholders. While none of the board members are officers of ACES, according to Posada, the coffee growers' presence has had a strong influence.

"We're very closely associated with coffee growers who tend to own very small pieces of land," said Posada. "Most of them are not sophisticated, and most do not fly on the airline. But they have pulled their resources together and have made some very wise investments."

In fact, the airline's chairman of the board is Mario Gomez, president of the Seguros Atlas insurance company in Manizales and local representative of Colombia's National Coffee Committee.

"That ownership gives us a lot of our personality," says the executive. "We're proud of being kind and cheerful. We're not owned by [the chairman of defunct Texas Air] Frank Lorenzo. It would not be consistent with our shareholders' equity."

ACES has 21 aircraft dedicated to domestic service and three for international service: 10 Twin Otters, six ATR-42s, five Boeing 727-200s and three Boeing 727-100s. With 19.5% of the domestic market, it is the dominant airline in Colombia's coffee-growing region, serving 33 cities throughout the 440,000-square-mile country. Efforts are now underway to capture a share of the air market between Colombia and nearby countries.

ACES has 14% of the U.S.-Colombia market (behind American Airlines and Avianca), and 71% of its passengers are business flyers. The airline, with 1,850 employees, recently began flying between Bogota and Panama, and has been designated as authorized operators to Quito, Guayaquil, Santiago, La Paz and Lima.

"We were well-prepared to fly into New York, but then Continental took the risk of flying that route. But it's in our long-range plans," he said, adding that ACES plans to go as far north as New York and as far south as Buenos Aires.

"Colombian coffee growers are the best-organized anywhere in the world," he said. "Our roots are very strong in what we consider our competitive advantage, and our on-time service, which has consistently been the best in the country."

Indeed, ACES is known for first-class meals (featuring Colombian coffee, of course) and wide, comfortable seats in an era when most airlines are cutting back on food and comfort. That's partly due to practical considerations, but it also gives ACES a clear marketing edge.

"We're not able to fill the plane with 155 passengers because of the altitude of the airports at Bogota and Medellin unless we were to make a technical stopover," he said. "Secondly, we were coming late to the market with American and Avianca. So we had to differentiate ourselves. The whole airline gains in terms of prestige and image."

In 1996, the airline spent $1.2 million on employee training; $1.8 million will be spent this year. ACES also plans on investing $8 million in a computerization program.

"The cost per seat for our airline is higher, and in-flight service is more expensive. Even though it's not a money machine, we insist on keeping that service as long as we can, and it gives us a lot of stability in the long run," Posada says. "We're not a major player yet, but we'll get there."

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