Chile's Lan and Brazil's Tam merge to create huge airline Published duration 22 June 2012

image caption Latam will be Latin America's biggest airline

Chile's Lan airline has completed a takeover of Brazil's Tam, creating the world's second largest airline by market value, to be known as Latam.

After two years of negotiations, Tam shareholders agreed to the takeover.

The new company will have its headquarters in the Chilean capital, Santiago.

Brazil and Chile have enjoyed years of economic growth, which has brought about a massive increase in air travel but also recently tougher competition.

Tam, once Brazil's leading airline, has seen its profits drop as rivals began to offer cheaper tickets and better deals.

Lan - a much bigger company flying to more than 20 countries - has the financial resources to make Latam Airlines Group a serious competitor in Brazil's huge internal market as well as overseas.

Latam's chief executive, Enrique Cueto, told the Reuters news agency that the new carrier "will focus on Brazil and will introduce important changes in the local airline market".

The combined revenues of Lan and Tam last year exceeded $13bn (£8.3bn). Their combined market value is second among the world's airlines to Air China.

Analysts say both companies gain from the deal.