Clear for take off: first, CEO Federico Bloch crafts Grupo TACA from Central America's smaller carriers. Now he is expanding into South America - Strategies

Latin CEO: Executive Strategies for the Americas, Dec, 1999 by Mike Seemuth

Federico Bloch is about to face the roughest test of his aviation career. In an industry shaken out by deregulation, economic woes and dependent on economies of scale, he must now keep his Grupo TACA on a steady course and keep it in the air--easier said than done.

Cobbled together from a handful of small Central American carriers, Bloch overcame many hurdles to do what many industry insiders said was the only step the regional players could take to avoid crashing into bankruptcy or being swallowed by bigger players looking to increase marketshare.

"We basically saw that the Central American airlines were not going to survive as small entities of the different countries," Bloch says. "So we put a strategy together that would bring them together under one umbrella, and basically allow them to maintain the rights of each of the individual countries, but to operate as a consortium, a single entity, from an operational standpoint."

The development of a viable Latin airline group subject to multiple regulatory authorities is no small task. But Bloch has managed so far. A Harvard graduate, Bloch has turned Grupo TACA into an active consolidator of Central American airlines and a strategic partner of American Airlines, the US carrier with the biggest presence in Latin America. Grupo TACA and American have reciprocal frequent-flyer programs and a code-sharing agreement, under which they sell seats on each other's flights.

It's a feat that has garnered Bloch much respect. He recently was awarded one of the top US aviation industry honors - The Tony Jannus Award. Other winners of the coveted prize include World War I fighter pilot and former Eastern Airlines Chairman and President Eddie Rickenbacker as well as US Air Force test pilot Chuck Yeager, the first man to fly faster than the speed of sound. Bloch and LanChile CEO Enrique Cueto were also named the most admired airline leaders in Latin America in a confidential survey of airline executives by Spencer Stuart, a Chicago-based executive search firm with a global aviation practice.

"Federico is a highly intelligent individual, and one heck of an airline executive," says Barry Fine, CEO of the Miami-based holding company that owns two cargo carriers prominent in Latin America, Fine Air and Arrow Air. "He knows how to make money, and he knows how you can lose your ass."

Bloch first started work for El Salvador-based Taca International Airlines in 1981. By 1992 he was president and CEO, and looking for expansion opportunities. The answer: Grupo TACA, a holding company for Taca International and other Central American airlines. "At that time, some of the airlines were government-owned, some were partially government-owned. There were multiple opportunities," Bloch says. "Little by little, we bought an interest in the different carriers, until we basically managed to put a whole consortium together in Central America."

Grupo TACA now includes Taca of Honduras, Nica of Nicaragua, Aviateca of Guatemala and Lacsa of Costa Rica, plus several regional air carriers it bought or created. Its carriers operate 35 passenger jets and 44 turboprop planes, along with five freighter aircraft. By eliminating the duplication of services and combining resources and buying power, the group has prospeted. The revenues of privately held Grupo TACA are expected to total $600 million in 1999, up approximately 10 percent from 1998.

Robert Booth, former chief of Braniff International and an industry consultant, says the small increase in revenues is partly due to a sluggish Central American economy, still recovering from the effects of Hurricane Mitch. TACA's bottom line also suffered from shrinking yields in the market, the consequence of a price war sparked by deregulation and spurted by US giants like Delta and Continental, the latter being named in a predatory-pricing complaint filed by TACK But TACA is still doing better than many others, including regional carriers like AeroPeru which folded in the last year.

TACA is still a tiny airline in comparison to its billion-dollar competitors. In Latin America it is seventh or eighth in terms of revenues, says Booth, behind Varig, AeroMexico, Mexicana, LanChile and even embattled Aerolineas Argentinas. Until it reaches critical mass -- $1 billion in revenues - financing will not come easy. "That's the number one obstacle," Booth says, "because you don't have a capital market in Central America. He's going to end up on Wall Street, but he's too small - $600 million is a peanut in the airline business."

Now, looking to grow beyond its home markets, Grupo TACA has set up an international hub in Lima, Peru, with plans for new South American, Mexican and US routes. "Basically we are going to start flying to Buenos Aires, Sao Paulo, Mexico and Miami, and build from there," says Bloch.

In the important US market, "I think we'll see passenger growth on two ends. One is sort of economic - more business travel - and we're also going to see more leisure travel," Bloch says. Miami accounts for much of the US passenger traffic of Grupo TACA, though not the majority of it. "We operate into ten US cities, so we're not dependent on one gateway like a lot of Latin carriers are. Miami is our number-one [passenger] gateway, but it's certainly no more than a third of our US business. We have other very strong gateways, like New York and Los Angeles."