Azul intends to take over LATAM. This is not only the latest, but also by far the hottest topic currently being discussed within the Latin American aviation industry from Tierra del Fuego to the Rio Grande. If the advance is successful, this would mean that subcontinent’s number 3 airline, the relatively small fish, Azul, would swallow up Latin America’s largest carrier, the LATAM Group. But how likely is that?
Should AZUL’s advance be successful, it would result in a South American aviation giant operating 464+ aircraft, among them a substantial number of freighters belonging to LATAM Cargo’s current fleet. The driver of the airline’s merger is an illustrious figure in the aviation world: the U.S.-Brazilian multi-millionaire David Neeleman. He founded numerous airlines, including JetBlue in New York (1998) and Sao Paulo-based AZUL ten years later.
AZUL’s first takeover plans became apparent in JUN21, when Mr. Neeleman surprised the aviation world by declaring that his carrier intends to acquire the Brazilian part of the LATAM Group, formerly TAM. Now, however, he is going all in. This is confirmed by AZUL CEO, John Rodgerson, who told local media that his airline is putting together a bid package to purchase the entire LATAM Group, not just its Brazilian branch as formerly announced.
Takeover offer is in the drawer
In his rush forward, one particular day plays an important role: 26NOV21. That is the date on which the Chilean carrier’s exclusivity period to present a thorough reorganization plan, as demanded by the U.S. bankruptcy court in whose hands LATAM’s Chapter 11 filing lies, ends. Should the LATAM Group succeed in presenting the court with a comprehensive and credible restructuring plan by then, Neeleman's offer will lapse. But CEO Rodgerson, told the Chilean newspaper, Diario Financiero, that he does not assume this outcome. He said that AZUL had already prepared an offer supported by key creditors of the LATAM Group. “LATAM as a group has a lot of value, and to keep it together is important culturally, and is the best option,” Rodgerson stated. “I believe that dividing it is not in our (AZUL’s) interests.”
The deal will not go through without the broad support of financiers, especially since LATAM has so far strictly rejected a possible merger. For this reason, too, Rodgerson strives for the holistic picture instead of getting caught in the minutiae. He claims that AZUL’s proposal would create more value for LATAM creditors, sharply contrasting LATAM management’s conviction to go it alone would be the better option. Rogerson is also confident that the intended merger would get the go from the Brazilian anti-trust authority.
To bypass concerns of market concentration, AZUL could give up some of LATAM’s international routes, complemented by passing on slots to competitors at Sao Paulo and Rio de Janeiro, a report by investment bank, Bradesco BBI, states.
The project is ambitious, but not without a chance. This is shown by historical examples where a smaller airline has taken over a larger competitor. In 2013, the comparatively smaller US Airways took over its bigger competitor, American Airlines, in an 11-billion-dollar deal aimed at creating a stronger rival to United and Delta, despite strong opposition from the AA management. Incidentally, at that time, AA was flying under Chapter 11 protection as LATAM is doing today.
A decision is drawing near
Should the AZUL-LATAM merger go through, an industry giant would be created, controlling 50+% of the entire South American air travel market, and a large chunk of its cargo volume. It would have operating units in Brazil, Chile, Colombia, Ecuador, and Peru, complemented by an intercontinental network stretching from Latin America to the U.S., Europe, and South Africa.
26NOV21 is high noon for the decision for or against a merger; a date that is certainly also eagerly awaited by competitors, Avianca and Aero Mexico, as it could considerably shift the balance of power in Latin American aviation.
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