The Brazilian government and its top three airlines are at odds over the terms of their financial aid package. On Friday, the Brazilian government confirmed that GOL, Azul, and LATAM had accepted a US$683m bailout to weather the coronavirus. However, the airlines say they have yet to agree to the terms. Despite their interest in financial support, the carriers are wary of state ownership attached to the bailout terms.

Has an aid package been agreed in Brazil?

Yesterday, the Brazilian government shared information that it had reached an agreement with three Brazilian airlines for the provision of financial aid. According to Reuters, GOL, Azul, and LATAM accepted $683m from the government of Brazil on 15th May to help them through the coronavirus pandemic.

Although the airlines say that any financial assistance at this point would be greatly appreciated, there are some issues with the government's admission. The three airlines maintain that they have not signed an agreement to receive the aid. That's because they are unsatisfied with potentially damaging contractual obligations. It is thought that the Brazilian government is seeking part-ownership of the airlines in exchange for the stimulus package.

The $683m proposed by the government is also significantly less than the airlines were expecting. On 10th May, we reported that the amount that the airlines were supposed to receive has already dropped. GOL, Azul, and LATAM had initially hoped for around US$1.7bn, but that figure was lowered to US$1.05bn. In actuality, what the government has produced it a package nearly half that amount.

The US$683m is comprised of a mixture of state loans, private bank equity, and capital market funding from the Development Bank (BNDES) and Bradesco.

Dissatisfaction with the current agreement

Azul, GOL, and LATAM have all maintained that they are interested in receiving state aid. They are all currently operating less than 10% of their normal operations. Domestic capacity in Brazil has also reduced by 91.61%.

Azul and GOL have been open in sharing that they have only enough capital to support their operations for no more than one year.

In an interview with NeoFeed, the CEO of Azul Linhas Aéreas Brasileiras, John Rodgerson said that state aid would "definitely help." However, he went further to say that the government must be careful about how it presents the assistance. He said:

"The BNDES 'measures are good, they will help, but we have to be very careful:' at what price? '. The price of debt will impact the future of the growing industry. If you put financial conditions at a very high cost, it will hinder the growth of our industry going forward."

State ownership would prevent these airlines from operating with as much freedom as they have now. Involving a political bias in their decisions could see GOL, Azul, and LATAM on a growth trajectory dissimilar to what they had planned.

When will a verdict be reached?

One concern is that the government may not be willing to move on the terms of its agreement. Backtracking could garner a lot of unwanted media attention. That's the last thing Brazil needs after it's received so much backlash for its handling of the coronavirus lockdown and the loss of two health ministers in a month.

What's more, in the government's eyes, the agreement has already been reached.

It is unclear how much power LATAM, Azul, and GOL have to change the terms of the government's bailout. They say that they are still in talks, but how constructive will they be? We contacted the airlines for information about this, but they were unavailable to comment at the time of publication.

What do you think? Let us know in the comments.