UPDATE 1-Colombia's aviation regulator conditionally approves Avianca, Viva Air merger

(Includes comments from airline Avianca)

BOGOTA, March 22 (Reuters) - Colombia's civil aviation authority has approved a merger between Avianca, the Andean country's flag carrier, and Viva Air under conditions that include the smaller carrier reimbursing passengers affected by canceled flights and keeping its low-cost model.

The merger is a lifeline for embattled Viva, which has struggled financially in the wake of the coronavirus pandemic and seen its situation worsen due to higher fuel prices in 2022 and the depreciation of Colombia's peso.

"The decision to authorize the integration is conditioned on compliance with diverse structural and behavioral remedies," the authority said in a statement late on Tuesday.

Viva must also allow passengers with pending bookings to fly, the authority said, and reinstate frequent flights between Bogota and Buenos Aires.

Avianca will analyze the financial and technical implications of going through with the deal, it said in a statement, adding that Viva Air no longer has the same route capacity or planes and workers that it had before it temporarily suspended operations in February.

"Avianca will study the resolution and the implications of the measures set forth by the regulator as soon as possible, to determine the feasibility of complying with them," the company said.

Viva Air did not immediately respond to requests for comment.

The two airlines signed a deal last April to merge their operations into one group while keeping their brands and strategies separate, in a bid to strengthen both companies.

However, the proposal was blocked by the civil aviation authority in November, which said the deal represented a risk to competition and consumer welfare.

The regulator annulled that ruling in January, citing procedural irregularities, and restarted its assessment of the merger.

Avianca exited Chapter 11 bankruptcy at the end of 2021 after completing a corporate restructuring. It has more than 130 planes and over 12,000 employees.

Viva, which has operations in Colombia and Peru, has a fleet of 21 planes and around 1,000 direct employees.

Both LATAM Airlines and JetSMART Airlines had also expressed an interest in acquiring Viva. (Reporting by Luis Jaime Acosta Writing by Oliver Griffin Editing by Paul Simao, Kirsten Donovan)