South America’s third-largest carrier Azul has set its sights on a big acquisition target: The continent’s largest airline, Latam Airlines Group.
In an interview with Chilean daily Diario Financiero, Azul CEO John Rodgerson said the airline has put together a proposal to acquire all of Latam, not just its Brazilian unit as it previously said publicly. With the support of some of Latam’s creditors — as yet unnamed — Azul plans to submit its proposal to the U.S. bankruptcy court overseeing Latam’s Chapter 11 case once the Chilean carrier’s exclusivity period to file a reorganization plan ends, which is currently set for November 26.
“Latam as a group has a lot of value and to keep it together is important culturally, and is the best option,” Rodgerson said. “I believe that dividing it is not in our interests.”
A Latam spokesperson declined to comment on Azul’s plan to make a hostile takeover bid. Executives have previously spoken against any combination with Azul.
An Azul-Latam combination has the potential to upset Latin American aviation. Latam carried more than four times the passenger traffic than Azul in 2019, the last full year before the Covid-19 pandemic disrupted air travel. A merger would create an industry giant controlling half of all South American capacity — and almost 58 percent of the key Brazilian market — based on 2019 numbers, according to Cirium schedules. The carrier would have operating units in Brazil, Chile, Colombia, Ecuador and Peru, and an international network that stretches from Australia to Europe, the U.S., and South Africa. And it would operate at least 464 aircraft, ranging from ATR turboprops to Embraer E-Jet-E2s, Airbus A320neos and Boeing 787s.
South America is rife with airline merger talk. There is discussion of a possible combo between Avianca, which is awaiting a U.S. bankruptcy court judge’s decision on its own restructuring plan, and Chilean ultra low-cost carrier Sky Airline driven by two of the former’s creditors. And American Airlines, the largest international carrier into South America in 2019, is expanding its reach within the continent with investments in Gol in Brazil, and JetSmart in Chile and Argentina. And, on a smaller scale, Gol is in the process of acquiring Brazilian regional carrier Map Transportes Aéreos.
If an Azul-Latam merger moves forward, it would also have big implications for their respective international partners. Azul is aligned with United Airlines — which owns an 8 percent stake in the carrier — and TAP Air Portugal; while Latam has strategic partnerships with Delta Air Lines and Qatar Airways, which owned 20 percent and 10 percent stakes, respectively, in the Chilean group prior to its bankruptcy. Even without an Azul deal, Delta and Qatar face the risk of their investments being wiped out through the Chapter 11 process.
Airline mergers through bankruptcy is a well trod trail. A decade ago, then-US Airways CEO Doug Parker was selling the benefits of a merger with American, which at the time was reorganizing under Chapter 11, despite opposition from the larger carrier. American then flew almost double the amount of passenger traffic as US Airways across its global network. But we all know how that ended: American and US Airways announced their merger on Valentine’s Day 2013, and Parker leads what is the largest airline in the world to this day.
In the interview, Rodgerson spoke positively of industry consolidation and claimed that Azul’s proposal could create more value for Latam creditors — which are key to the success of any bankruptcy restructuring — than what Latam has proposed to date.
Rodgerson was also confident that an Azul-Latam tie up would be green lit by Brazilian regulators. He cited the approved merger of rental car companies Localiza and Unidas, which he described as having a 70 percent share of the local market. Wall Street analysts have also said a combination of the two airlines would likely be approved by Brazilian authorities, for example Raymond James Analyst Savanthi Syth described any anti-trust concerns as “solvable” in a May report.
Updated with Latam Airlines Group comment, and additional information on regulatory approval of an Azul-Latam merger in Brazil.
