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Brazil’s Embraer, airlines monitor impacts on costs, operations

Embraer engata rota ascendente após rejeição pela Boeing

Although the war in Ukraine has not affected the flights of Brazilian companies so far, planemaker Embraer and airlines Latam, Gol and Azul are closely monitoring its developments, which may have a significant impact on costs and operations in the sector.

In the case of Embraer, the international community’s sanctions against Russia may disrupt access to titanium, a light metal used to make aircraft and their engines.

VSMPO-Avisma, controlled by the state-owned Rostec, has a monopoly on the production of titanium and parts forged with the metal in Russia. And it is an important supplier to the aircraft industry. Boeing and Airbus also depend in good part on Russian titanium.

An embargo on Russia, therefore, could directly impact the largest planemakers in the world.

According to Reuters, VSMPO-Avisma accounts for 25% of global titanium supply. Specifically in the aircraft market, this share rises to 50%, according to international consultants.

Sought for comment, Embraer said it evaluates the titanium supply chain on an ongoing basis, as it does with other materials. “At this moment, the supply of titanium does not concern Embraer, since the company holds a high level of stock of this material,” the company said in a note.

In a LinkedIn post last week, Latam Brasil CEO Jerome Cadier listed potential impacts of the war for airlines and stressed that the pressure on costs is “undeniable,” also citing titanium. “Unfortunately, in the situation the industry is in, these increases will impact ticket prices. It is a shame, especially at a time when what we most want is to fly again,” he wrote.

In the executive’s view, the war in Ukraine can affect the capital market and the availability of credit and the price and supply of commodities relevant to the industry, including metal.

Sought to comment on the consequences of the war, Latam said it does not fly to Ukraine and, so far, its flights have not been affected by the closure of airspace in different countries.

Gol also reported that it does not operate flights to Ukraine and reinforced recent positioning of the Brazilian Association of Airline Companies (Abear), which already warned about potential impacts of the exchange rate and oil on the costs of the airline industry.

“About this sad moment, we inform that our members do not operate flights that have as final destination the conflict region and we follow closely the impacts on the foreign exchange rate and oil prices, which can further increase costs,” the association reported.

Azul said in a note that “its operations continue as normal and without any impact.” “A possible effect on the value of tickets will depend on the impact of the war on costs such as foreign exchange rate or oil, which are constantly monitored by the company,” it added.

Source: Valor International

https://valorinternational.globo.com

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Airlines under strong pressure as Brazilian currency weakens

An Azul plane: CEO said company may cut capacity — Foto: Marcelo Carnaval/Agência O Globo
An Azul plane: CEO said company may cut capacity — Foto: Marcelo Carnaval/Agência O Globo

Russia’s invasion of Ukraine may put strong pressure on the shares of airlines around the world. In Brazil, Gol and Azul were also impacted. The armed attack led to an increase in the price of oil and the real lost value against the dollar — about 55% of the costs of Brazilian airlines are dollarized and fuel accounts for 30% of expenditures.

The war, whose duration and unfolding cast a shadow over the world economy, comes just as the tourism sector was beginning to pick up after two years of pandemics and travel restrictions.

Unlike international airlines with operations in the region and that need to readjust their networks, the impacts on Brazilian companies are more related to foreign exchange and oil, said Pedro Bruno, a transport analyst at XP.

At the end of the day, the preferred shares of Gol closed down 2.57%, at 17.45. Azul’s preferred shares lost 5.85%, to R$26.06.

“The rise of oil prices and the weakened real are very negative for the finances of the companies,” he said.

The sector, the expert said, has already seen a jump in ticket prices due to the rise in oil prices in recent months. Used to volatility, the airlines have tools to circumvent this scenario in the short term, such as hedges. If the conflict is long, however, it tends to convert itself into higher prices to the consumer, says the analyst of brokerage house XP.

The upward trend in oil prices is expected to motivate an adjustment of less profitable routes, said Azul CEO John Rodgerson on Thursday in a conference call to present 2021 data.

“When fuel prices rise fast, you cut capacity, you cut some not-so-profitable flights. Our team is checking route by route to see what we may cut,” he said. The escalations in oil prices now, he said, will be felt by the company in 30 days (today’s fuel price is a Petrobras average of the last 30 days).

The tensions already bring negative effects on the world oil price. Mr. Rodgerson, however, said that the company’s planning will be conducted calmly and will not be based on the events of the last few hours.

Alexandre Wagner Malfitani, Azul’s chief financial and investor relations officer, pointed out that the company has been able to raise fares to cope with cost increases in recent months. “We can generate profit and EBITDA even in a scenario of high oil prices,” he said.

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