The $600-$700 million annual figure won't be realized until four years after the completion of the merger transaction, but the airlines believe $170-$200 million will be achieved within a year of the combination's finalization.
The higher synergy estimate "reflects further revisions and updates of the expected combined cost savings and revenue generating opportunities arising from the proposed combination and includes best practice sharing benefits that have been identified in certain areas," the carriers said in a statement.
Breaking down the numbers further, LAN/TAM said approximately 40% of the potential synergies will come from increased passenger revenue ($225-$260 million), 20% from higher cargo revenue ($120-$125 million) and 40% from cost savings. According to LAN/TAM, expense savings will come from consolidating frequent flyer programs ($15-$25 million), coordinating airport and procurement activities ($100-$135 million), improved maintenance efficiency ($20-25 million) and information technology system convergence ($120-$130 million).
The synergy estimates do not count one-time merger costs of $170-$200 million expected to be incurred by LAN/TAM. But those costs will be somewhat offset longer-term by reduced investments of around $150 million for engine and spare part purchases that will be avoided because of the merger.