(Adds creditors' vote results)
By Marcelo Rochabrun
SAO PAULO, April 5 (Reuters) - Creditors led by hedge fund Elliott Management approved on Friday a restructuring plan for bankrupt airline Avianca Brasil, hours after the country's antitrust regulator announced preemptively that the plan could run afoul of competition laws.
The regulator, known as CADE, said on Friday morning that it could block the plan, which Avianca Brasil hopes could raise some $210 million. The carrier filed for bankruptcy protection in December.
CADE's warning means the creditor approval may not bring short term relief to Avianca Brasil given that the regulator itself said its review of the deal could last some eight months. During that time, the cash-strapped carrier would have to operate with its own funds, or take on additional debt.
The plan was modified on Friday evening during a creditors' meeting, although the new details were not immediately available.
Under Avianca Brasil’s plan filed this week, Gol Linhas Aereas Inteligentes SA and LATAM Airlines Group would buy Avianca Brasil's airport rights, known as slots, in three high-traffic terminals. Gol and LATAM already control over two-thirds of the slots in each of those three airports, two of which are in Sao Paulo and one in Rio de Janeiro.
That plan would raise much-needed funds but is high-risk, lawyers said, because the carrier could be left hanging for a long time without access to new cash injections.
If Avianca Brasil fails as a business before receiving CADE approval, then it will be too late and there will be no airport slots to sell.
Avianca Brasil fell behind on its payroll obligations in March and for months has been battling aircraft lessors trying to repossess parts of its fleet.
The carrier would not receive any funds until CADE greenlights the operation, antitrust lawyer Tatiana Lins Cruz said in an interview on Thursday.
A person familiar with LATAM's thinking said the airlines hoped CADE would approve the deals because they only involve a modest increase in their presence at Brazil's busiest airports.
Avianca Brasil’s plan was a setback for rival Azul SA , which ranks as Brazil's third largest airline and has a small presence in those three airports. In Sao Paulo's domestic Congonhas airport, Gol and LATAM already control a combined 92 percent of the slots, whereas Azul has just 3 percent.
Azul had struck a preliminary deal with Avianca Brasil to take over the slots for $105 million and had already provided some $8 million so the carrier could meet its March payroll.
But that deal was off once Gol and LATAM came in, in a surprise announcement on Wednesday.
On Friday, CADE appeared to take a more positive view of an Azul takeover.
"A scenario where Azul becomes the buyer represents a lower antitrust concern than in a scenario with LATAM or Gol," the regulator said in its report.
The plan could also draw scrutiny from Brazil's civil aviation regulator, because airport slots are not meant to be bought and sold. Azul was planning to buy Avianca Brasil's assets as a single airline, but the new plan would create seven different companies, each holding little more than slots.
"In our view, it is not clear whether the Brazilian Civil Aviation Agency (ANAC) will approve this new structure," wrote analysts at Brazil bank Bradesco BBI in a note to clients. (Reporting by Marcelo Rochabrun; Editing by Brad Haynes, Richard Chang and Muralikumar Anantharaman)