US regional airline company SkyWest, Inc., has agreed to dispose of its 26% stake in Trip Linhas Aereas, the Brazilian regional that recently agreed to merge with local rival Azul Linhas Aereas.
The proposed sale by SkyWest to Trip Investimentos is priced at $42 million, and will be paid in three instalments over a three-year period, SkyWest says. Brazilian regulatory authorities still must approve the transaction, the carrier adds.
As part of the deal, SkyWest received an option to buy a 15.38% ownership stake in Trip Investimentos, SkyWest says. The option can be exercised up to six years after Trip begins making the required instalment payments to SkyWest.
SkyWest expects to post a financial gain on sale, but it will not know for sure until Trip reports its financial results.
The St. George, Utah-based company has invested $30 million in Trip over a nearly four-year period, but was not showing a profit. As of 31 March, SkyWest had valued the carrying amount of its stake in Trip at $23.2 million under equity accounting rules.
The proposed sale marks an end to SkyWest's foreign ventures. For several months in 2008, the parent of US regional carriers SkyWest Airlines, Atlantic Southeast Airlines and - since a year ago - ExpressJet evaluated potential investments in multiple regional airlines in Brazil, Ireland, Mexico and the UK.
SkyWest finally decided in August 2008 to invest $5 million for a 6% share of the company, with a provision allowing its stake to grow to $30 million or 20% ownership over a two-year period if Trip hit an undisclosed set of financial metrics.
At the time, SkyWest officials dismissed the challenge posed by Azul, which was then just starting-up. "Their operation is different," Michael Kraupp, then-SkyWest vice president and treasuer, told financial analysts in September 2008. He explianed Trip's strategy was to connect city-pairs abandoned by Brazil's major airlines. Ultimately, Azul adopted the same strategy to achieve its rapid growth over the last five years.