Aviation
Commercial /
Brazil
Back and forth
The complicated negotiations between Azul and Latam
Rafael Ramos
6/23/2021
That the pandemic has fully affected the aviation sector, everyone already knows. However, the pandemic affected some more strongly than others, such as Latam Brasil, which was more affected than Azul, its younger rival. In June and July, the demand for domestic flights is expected to resume at 75% of its capacity, but international flights continue with less than 20% of total capacity, since Brazil is still very poorly regarded abroad because of the delay in immunization and high levels of contamination.
The current scenario of Brazilian aviation does not favor Latam. The domestic aviation market is much hotter than the international one, and, at this point, Gol e Azul has fared much better than Latam. It is not clear what aviation will be like from now on, but it is believed that it will be different from the pre-pandemic period, as explained by Jorge Leal Medeiros, a professor at the Polytechnic School of the University of São Paulo (Poli-USP) and former director of Vasp.
The recent purchase of MAP by Gol and the announcement of expansion by Azul reinforce this scenario. Latam remains in a bad situation. The company held 38% of the domestic market in March 2020, before the pandemic. By April 2021, that number had dropped to 28.5%. By way of comparison, Azul grew from 25% to 45% in the same period. “Latam became very fragile with Covid. In recent years, it has focused a lot abroad and neglected the domestic market, giving space to its rivals to grow. Furthermore, the government did not help, as it signaled it would at the beginning of the pandemic.” With an estimated debt of 13 billion reais for its Brazilian operation, the Chilean group started a judicial recovery process in New York ten months ago. The main creditors are leasing companies and banks, but the value also includes paid and unused tickets”, says Francisco Lyra, president of the Brazilian Institute of Aviation.
Embraer E195 da Azul
Mariordo (Mario Roberto Durán Ortiz), CC BY-SA 3.0, via Wikimedia Commons
After the end of the codeshare agreement between Azul and Latam, it became clear that Azul intends to buy Latam, in fact, the purchase is already classified as “very likely”. Latam says it has no intention of leaving the largest market in Latin America. On the other hand, before the end of the codeshare agreement, the two even discussed the possibility of integrating the operations.
The codeshare agreement was the starting point for the companies to discuss, in Brasília, with Cade, the subject of the merger. The conversation, however, stopped when it came to defining who would run the operations. Each company wanted to own the operations: Latam for being the largest, Azul for having its operations center in Brazil.
Azul is waiting for Latam to present its proposal for judicial reorganization, which would be in July, but was postponed to September because it needed more talks with creditors, who, in turn, have already shown interest in the merger. One of the creditor companies owns 2% of Aul as well. In other words, the decision will come from the creditors.
Airbus A320
Latam
CC BY-SA 2.0, via wikimedia commons
Analysts are also divided on the merger. Those in favor say that it would be good, as Azul managed well during the pandemic. Opponents say it could be bad, since Azul is the holder of the largest gross debt in the sector, at 19.4 billion reais. In any case, the merger should be viewed with caution.
“Cade must view the operation with concern. It is understood that it is necessary to look not only at the traditional approach to overlapping routes, but also at the future dynamics of the market”, says lawyer Olavo Chinaglia, former president of Cade.
Contains information published in Veja.
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Rafael Ramos
Aviation enthusiast from an early age, he had his first contacts with the area developing that good old habit of spending dozens of hours in front of the screens of Micrsoft Flight Simulator and other simulators. With a solid background in various technological areas, including engineering and chemistry, Rafael has rejoined aviation as editor and author of articles and materials on our portal, providing invaluable help to the dynamics and expansion of the website and the aeronautical community, bringing us the news and updates so indispensable for us to remain current in our area of operation.
   
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