The Brazilian carrier Azul Linhas Aereas is no longer interested in acquiring South American giant, LATAM Airlines Group, at least for now. Following LATAM’s filing of its Reorganization Plan, Azul issued a statement regarding the possibility of buying its rival company. Let’s investigate further.
Azul did submit a proposal
LATAM’s Chapter 11 Plan put a stop to Azul’s intentions of possibly acquiring the Chilean-based company. Before that, Azul’s management had been pretty vocal about the possibility of buying 100% of LATAM.
The interest was such that Azul confidentially submitted, together with select LATAM creditors, “a non-binding proposal for a business combination with LATAM on November 11, 2021,” as reported by the Brazilian airline in a statement.
If Azul’s proposal had gone through, the ownership of LATAM would have been split between Azul’s current shareholders, LATAM's creditors, and new participants of the merger.
Additionally, LATAM would have gained increased network growth, more destinations, convenience, products, and services. It would have benefited Azul’s and LATAM’s customers, said the Brazilian carrier.
Azul claims a merger with LATAM would have generated synergies estimated to be worth over US$4 billion in incremental equity value over LATAM’s Chapter 11 plan.
LATAM believes otherwise
In its Chapter 11 Plan, LATAM accepted there were other business proposals available. Nonetheless, these proposals were not applicable while LATAM retained its Exclusivity Period. Additionally, LATAM believes they would not have provided a better outcome for the company’s creditors.
Regarding Azul’s proposal, LATAM said,
“The overview did not provide any process or timeline for the transaction and did not address various regulatory concerns or other value and execution risks if such transaction were pursued.”
Moreover, the airline said that rejecting LATAM’s Plan in favor of some alternative could require an extensive and time-consuming process. And, in the end, it would not fare better results. According to LATAM, “any alternatives now available to the Debtors are inferior.”
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Anyway, Azul is out now
Despite the interest in LATAM, Azul has backed, for now, in acquiring the Chilean company.
Azul believes LATAM standalone plan is unable to generate synergies. Additionally, LATAM valuation is too high to be credible “given the continued uncertainties in the aviation industry, especially in the international long-haul markets.”
Therefore, Azul will continue to focus on its market. Azul will also push the growth of all businesses such as Azul Cargo, Azul Viagens, and TudoAzul. Nonetheless, it will continue evaluating future partnerships and consolidation opportunities available in the market.
How’s Azul doing right now?
Despite the COVID-19 pandemic, Azul has had a good 2021. While the company hasn’t bounced back to its pre-pandemic levels, it is recovering faster than its competition, GOL, and LATAM.
According to Brazil’s Civil Aviation Authorities, Azul has carried 18.1 million passengers in 2021. It has a 35.70% market share in the country, and it is the leading operator. LATAM has had 15.2 million travelers, followed by GOL, with 14.3 million.
Azul has recovered 81.5% of its pre-pandemic traffic numbers. Nonetheless, financially, the Brazilian company is still far-away from profitability.
Do you expect Azul could make an offer again in the future? Let us know in the comments below.