Sources say talks are in the initial stages; airline had also approached Latam years ago

06/03/2024

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Azul’s proposal is expected to be launched during the formulation of Gol’s exit financing—a type of financing granted to companies facing reorganization — Foto: Leo Pinheiro/Valor

Azul Airlines is considering making a bid to acquire the operations of its competitor Gol, which is in court-supervised reorganization (Chapter 11) in the United States. Sources say the company has hired Guggenheim Partners and Citi to put together a strategy to buy its rival. The news of the deal was first reported by Bloomberg News.

This is another attack by rivals on Gol, which reported R$20 billion in debt when it filed for protection from creditors in the United States. The company is at loggerheads with airline Latam for seeking aircraft from its lessors at the same time of the Chapter 11 filing, which began on January 25.

Talks are in the early stages and there is no formal proposal on the table, three sources told Valor. In recent weeks, Azul has been seeking legal information on the acquisition of assets included in the court-supervised reorganization.

Azul has always shown interest in advancing consolidation in the Brazilian market. During Latam’s Chapter 11 process, between May 2020 and the end of 2022, Azul engaged in a public dispute for Latam by making a proposal to the creditors of the Chilean group for its Brazilian assets. However, the plan did not go through, although it disrupted the competitor’s restructuring process.

A potential bid for Gol’s assets, which may or may not include Avianca, would need to be competitive to convince Gol’s current shareholders and creditors—who must determine throughout the process whether the operation is advantageous for them.

Azul’s proposal is expected to be launched during the formulation of Gol’s exit financing—a type of financing granted to companies facing reorganization. The purpose is to pay credits restructured by the reorganization plan and finance the debtor’s operations after the process closure.

According to a source, the structuring of this loan is expected to gain momentum in the second half.

During this period, however, there is a chance of a dispute over the composition of this loan, as it will determine the shareholding structure of the company after the Chapter 11 process.

Behind the scenes, Azul’s rationale mirrors what prompted its move against Latam to take over its operations in Brazil. Here, the greatest overlap occurs between Latam and Gol’s networks. Azul, with its strong regional appeal, operates approximately 70% of its routes independently.

The low overlap could serve as a mechanism to support arguments in a potential review by the antitrust watchdog CADE. With consolidation, the prospect of one less airline in the country may not sit well with the government, especially with plans to try to reduce fare prices.

In January, the domestic market was led by Latam with 36.7%, followed by Gol (34.1%) and Azul (28.7%), according to data by the National Civil Aviation Authority (ANAC).

There are doubts in the market about Azul’s ability to finance an operation of this size, given that the company also recently went through a debt renegotiation process.

Azul said in a statement to the market that it is always attentive to the strategic dynamics of the airline industry and possible partnership opportunities, and may hire consultants to assist the company in these endeavors. Azul also said that it has not negotiated or approved any specific transactions to date. Guggenheim Partners did not immediately reply to a request for comment. Gol, Citi, and Abra, the holding company that controls Gol and Avianca, declined to comment.

*Por Cristian Favaro, Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/