Azul Sets Its Eyes On Buying LATAM Airlines Brazil

The Brazilian carrier Azul Linhas Aereas may be interested in buying LATAM Airlines Brazil, according to some reports. Yesterday, Azul talked about the possible consolidation in South America following the impact of the COVID-19 pandemic and said it was looking closely at areas of opportunity. Let’s investigate further.

Azul seems to be interested in acquiring LATAM Brazil. Photo: Vincenzo Pace | Simple Flying.

Consolidation on the horizon

On Monday, LATAM Brazil announced the ending of its domestic codeshare agreement with Azul Linhas Aereas.

LATAM said that it expects to operate at a 90% pre-pandemic capacity level by December; plus, it has already resumed all the destinations it had from its main hub, Guarulhos International Airport; therefore, there was no longer need for the codeshare agreement with Azul.

Meanwhile, Azul’s CEO, John Rodgerson, stated that consolidation will be an essential part of the post-pandemic industry response. He added that Azul is in a solid position to drive the consolidation. The company has hired advisors and is exploring opportunities in the region.

Rodgerson said,

“The codeshare with LATAM was a unique solution in our pandemic response. We also realized that industry consolidation would be important for the post-pandemic recovery, and Azul would be a key part of any such activity. We believe the cancelation of the codeshare by LATAM is a reaction to that process.”

Now, Reuters is reporting that Azul has approached LATAM’s management intending to buy its Brazilian operation. The Brazilian newspaper O’Globo is publishing the same interest.

Tam and Azul Airlines
A possible merger between both carriers would disrupt the Brazilian market. Photo: Getty Images

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Breaking up the LATAM merger?

LATAM Airlines Group officially started operations in 2012. Before that, LAN was a Chilean airline operating mainly with Boeing aircraft, while TAM, from Brazilian origins, had an Airbus fleet.

The merger created the largest airline in South America, with a fleet of 300 plus aircraft. Before the COVID-19 pandemic, it averaged more than 70 million passengers per year. Nevertheless, the crisis hit LATAM hard, which is now under a Chapter 11 bankruptcy in the US.

The bankruptcy process has led LATAM to undertake many changes already. The company ceased operations in Argentina; it rejected all the leasing contracts of its A350 fleet; LATAM reduced a Boeing 787 Dreamliner order; accessed a US$2.45 billion Debtor-in-possession funding, among other initiatives.

Breaking the merger, which is not yet ten years old, would be massive news in the region. Nevertheless, it would require authorization from the bankruptcy court unless it happens once LATAM exits its Chapter 11 (which might occur in the second half of the year). But, what does LATAM say about the merger? In a statement sent to Simple Flying, it said,

“LATAM Group intends to aggressively compete in Brazil and other markets and doesn’t have the intention of selling or breaking apart its Brazilian, or any other, branch. LATAM Group has not received any acquisition proposal. The ending of the domestic codeshare by LATAM is not related to this topic.”

LAN and TAM merged to create LATAM in 2012. Photo: Getty Images

What would it mean for the Brazilian market?

Merging Azul and LATAM Brazil under one brand would also pose so many questions for the Brazilian market. Azul, LATAM, and GOL already dominate this country, and there’s no real low-cost player. In short, a merger would only increase the ticket’s price all over Brazil.

Moreover, GOL most likely would object to the possible merger as it did with the codeshare agreement.

Meanwhile, two other players may have something to say about LATAM Brazil’s possible sale. These are Delta Air Lines and Qatar Airways.

The latter’s CEO, his Excellency Mr. Akbar Al Baker, said today that he is not interested at all in selling its stake in LATAM. He briefly talked about the subject during Simple Flying’s Future Flying webinar.

We’ve reached Azul and Delta for comment. None have responded so far.

Would you be surprised if Azul buys LATAM Brazil? Let us know in the comments.