Azul Linhas Aereas Brasileiras SA is getting the equivalent of four years’ worth of growth by acquiring Trip Linhas Aereas, said David Neeleman, Azul’s founder who will be the combined company’s biggest shareholder.
Azul and Trip announced yesterday an agreement to consolidate operations into Azul Trip SA, a holding company that’s the third-biggest Brazilian airline by market share. Azul shareholders will have two thirds of the new venture and Trip shareholders will own the remainder in the all-stock transaction. Neeleman owns about 90 percent of Azul’s shares. The companies didn’t disclose financial terms.
The synergies created by the operation, which the companies called a merger, will cause growth to accelerate, Neeleman, who was born in Brazil and also founded JetBlue Airways Corp., said in an interview yesterday in Sao Paulo. “It’s a leap of four years of growth for us. This year we expect about 4.2 billion reais ($2.12 billion) in revenue as a single company.”
Brazil’s airline industry is being reshaped as Tam SA (TAMM4), the country’s biggest carrier by market share, is bought by Chile’s Lan Airlines SA. The deal will create the world’s largest airline by market value. Gol Linhas Aereas Inteligentes SA (GOLL4), Brazil’s second-biggest carrier, is cutting employees and flights to return to profitability as it struggles with high fuel prices and a weaker real that makes servicing debt denominated in U.S. dollars more expensive.
Azul and Trip will retain their brands pending approval by Brazil’s antitrust and civil aviation regulators, known as Cade and Anac, Trip Chief Executive Officer Jose Mario Caprioli told reporters yesterday in Sao Paulo. If the deal is approved, the company will consider dropping one of the brands, according to Caprioli and Neeleman.
Within their present networks, Azul and Trip compete in about 15 percent of the 96 cities they serve, according to Neeleman. The airlines often operate different routes in these cities “so the actual overlapping is even lower than that,” Neeleman said.
After the acquisition, Azul Trip would operate 316 routes with 837 daily flights, according to the companies’ statement yesterday. Both airlines have fleets comprised of regional jets manufactured by Embraer SA (EMBR3) and turboprops made by ATR Aircraft. Combined, the two carriers have 14.2 percent of Brazil’s domestic market, according to Anac.
“During the last few years, it became more and more obvious that a partnership between both companies would be the way to go, since both business models were so similar,” Caprioli said.
Closely-held Trip bought its stake in the new airline using all of its own shares. SkyWest Inc. (SKYW), which held a 20 percent stake in Trip, was bought out by Trip’s controlling shareholders a couple of weeks ago, Caprioli said without specifying a date.
An earlier deal that would have allowed Tam to acquire a 31 percent stake in Trip will probably be canceled, Caprioli said. Neeleman said Tam’s option to buy the Trip stake expired in December, just before Azul and Trip began negotiating.
Neeleman founded Azul in May 2008 and the airline’s first flight was seven months later. It was the first Brazilian carrier to fly Embraer’s E-Jets. Trip was created in 1998 by the Caprioli and Chieppe families, both owners of bus-transport companies. Both airlines are based in Campinas, Brazil.
Embraer shares rose the most in more than a month yesterday, increasing 3.1 percent to 14.7 reais in Sao Paulo trading, while the Bovespa benchmark index advanced 1.4 percent. The acquisition could boost Embraer’s sales, said Pedro Galdi, an analyst at SLW Corretora brokerage in a phone interview from Sao Paulo yesterday.
Neeleman said the combined company currently has enough aircraft orders to support expansion until 2015. Azul Trip will end 2012 with a fleet of 120 airplanes, he said.
Neeleman and Caprioli said it isn’t a favorable moment for an initial public offering. Neeleman said the company plans to eventually go public and when it does so, he expects its market valuation to be higher than Gol’s market capitalization of 2.45 billion reais. Gol is Brazil’s second-biggest airline by this measure.
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