Merger between the Brazilian companies Azul and Gol would allow the creation of a new commercial aviation giant in the region

Merger between the Brazilian companies Azul and Gol would allow the creation of a new commercial aviation giant in the region

Two of the main airlines in Brazil they advance in a fusion process that will allow the creation of a new aviation giant in Latin America. It is about Blue and Goal who signed a memorandum of understanding that, if the companies’ plans are met, will allow them to keep 60% of the Brazilian airline market.

After the disappearance of the state-owned Varig in 2008, the Brazilian market is currently made up of three large companies: Latam Airlines (merger of the Chilean Lan with the Brazilian Tam), Gol and Azul.

The potential merger between Azul and Gol (whose main shareholder is the Abra group), who had been in talks since last year to “explore opportunities”will change that map again.

The companies signed a non-binding memorandum of understanding for the potential union of their operations, according to official reports.

The CEO of Azul, John Rodgerson, he said in statements to the agency Reuters that the combined company, which would continue to operate the two brands separately despite the joint strategy, would be a “national champion”, alluding to the fact that it will dominate the market that Latam currently leads.

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The Brazilian Gol fleet is made up of Boeing 737 aircraft.

To remove suspicions that the merger puts competition at risk or generates monopolistic advantages, Rodgerson mentioned that There are many countries that have strong companies that dominate their national markets, such as Latam in Chile, Lufthansa in Germany and IAG (merger between Iberia and British Airways) in the United Kingdom.

“These other countries They understood the importance of having a strong company that can grow. Especially a strong company that buys local aircraft,” said the executive.

In that sense, it is worth clarifying that Azul’s fleet includes regional aircraft EmbraerBrazil’s national aircraft factory. And it also has single-aisle and twin-aisle aircraft manufactured by Airbus. On the other hand, Gol only operates airplanes Boeing 737.

The dilemma between connectivity and monopoly in the aeronautical business

On the other hand, Rodgerson said that the combination of operations between both companies would allow greater connectivity In a large territory like Brazil, with lower operating costs.

The memorandum of understanding reinforces Azul and Gol’s interest in continuing negotiations in relation to the share exchange proposed last year and marks the beginning of the process to obtain regulatory approvals from Brazilian authorities, such as the Administrative Council of Defense Economic (Cade).

“If the operation is implemented, Azul y Gol will keep their operating certificates segregated under a single entity resulting quoted price,” Azul anticipated in the statement.

The combined company, according to Rodgerson, would have three board members appointed by Azul, three by Gol and three independent members. Azul would nominate the company’s executive president and Gol would appoint the president of the board of directors.

Analysts warn that the transaction could be complex from a regulatory perspectivebut they acknowledge that recent turbulence in the markets, including the sharp devaluation of the real in recent months, may have helped the agreement move forward.

Azul and Gol, which already operate under a codeshare agreement, must focus on the complementarity of their networks to obtain antitrust approvalnoting that approximately 90% of the routes are complementary and they do not overlap.

Gol is more focused on large cities such as São Paulo, Rio de Janeiro and Brasilia, while Azul serves a broader network of destinations throughout the Brazilian territory.

Debt, a key issue to resolve in the merger

As happened in other countries, especially due to the impact of the Covid-19 pandemic, airlines faced deep financial difficulties. The majority were forced to restructure debts and several entered into judicial recovery processes.

This is the case of Gol itself, which filed for bankruptcy in early 2024 and is in the process of reorganization under Chapter 11 of the United States bankruptcy law.

Also last year, Azul had to reach agreements with the owners of the planes it leases to offset obligations in exchange for an equity stake in the company, as well as with bondholders to raise new capital.

In fact, in the first days of this year, President Lula’s government reached an agreement with Gol y Azul to reduce the debt of the two airlines with the treasuryallowing payment to be made in up to 120 installments as reported by the Attorney General’s Office of the National Treasury.

Azul promised to pay about US$186 million on a total debt estimated at US$462 million. For its part, Gol’s debt fell from US$825 million to millions US$145 million.

The discounts granted to tax debts were not linear and depended on the debt and guarantee portfolio of each company, in addition to the payment capacity, as reported. The expectation is that payments will begin in about 30 days, after operational arrangements are made.

Source: Ambito

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