Brazil’s Azul readies bid for entire LATAM group
Azul Linhas Aéreas Brasileiras (AD, Sao Paulo Viracopos) “would buy the entire asset” of bankrupt LATAM Airlines Group, not just LATAM Airlines Brasil (JJ, Sao Paulo Congonhas), and it plans to make an offer for the whole company if creditors cannot agree on a restructuring plan, Azul CEO John Rodgerson told the Chilean newspaper Diario Financiero in an interview.
However, first Rodgerson’s company must wait until November 23, when the Chapter 11 process’s exclusivity period to negotiate with creditors runs out.
“We know exactly what we will offer and we have spoken with some of the creditors, but we have to respect the process. If LATAM reaches an agreement with its creditors, then there will be no Azul plan, but everything indicates that they are not reaching an agreement, they keep asking for extensions. If the LATAM management team doesn’t want Azul in the mix, the best way to achieve it is to give the creditors what they want, it is really simple,” he said.
Asked whether Azul was evaluating buying the entire group but keeping only the Brazilian unit and selling the rest, the chief executive responded: “No, that is definitely not part of our plan. We would buy the entire asset. I think that the group as a whole has a lot of value, so we are not thinking about spinning off units. LATAM as a group has a lot of value and keeping it together is culturally important. Dividing it would not be in our interest.”
Executives at Azul have previously hinted at an acquisition only of LATAM’s Brazilian operations. In August, for example, in a second-quarter earnings call also attended by David Neeleman, Azul’s founder and chairman, Rodgerson referred to the exclusivity period but said that the synergies of domestic consolidation in Brazil are “in the best interests of all of their stakeholders and especially their creditors.”
Rodgerson told Diario Financiero that he was confident of regulatory approval for such a deal in Brazil, as “the overlap between Azul and LATAM is very small.”
He explained that Azul planned to “grow the market” by serving more destinations, “by bringing in new technology, the Airbus A320neo and the Embraer E2, smaller aircraft.” The smaller cities Azul has been targeting need a different size of aircraft to what GOL Linhas Aéreas Inteligentes and LATAM Airlines Brasil currently operate, “and that works well in Rio and Sao Paulo, but it does not work in the mid-west of Brazil, in the north, or in the interior.”
Rodgerson underlined: “LATAM entered Chapter 11 saying that the market was going to change fundamentally, that the demand was no longer going to be there. And the best way to respond to a drop in demand is with consolidation, increasing connectivity, and generating synergies. We can contribute to the 45 destinations that LATAM currently flies in Brazil with our network of 130 cities, generating additional demand.”
He also commented that for such a transaction “there is a lot of capital out there, a lot of people who want to allocate capital to a good story, so it would be a mix of equity and debt. I don’t want to get ahead of myself, but there are many financing opportunities.”