Azul expects to conclude a planned acquisition of Avianca Brazil's assets "relatively quickly", stressing that the proposed deal will benefit both Avianca Brazil customers and industry capacity.
"The process should run relatively quickly," Azul chief executive John Rodgerson told analysts on an earnings call on 14 March. He notes an upcoming Avianca Brazil creditors meeting later this month, which will kick off a months-long process for Azul to complete the deal.
Under a nonbinding agreement announced on 11 March, Azul will purchase Avianca Brazil's operating certificate, 30 Airbus A320 family aircraft and 70 pairs of airport slots for up to $105 million.
While Azul had previously denied reports that it was in talks to acquire Avianca Brazil, talks picked up in the last two to three weeks after Avianca Brazil indicated it was open to spinning off certain assets, FlightGlobal understands. Azul is expected to fund the $105 million purchase of Avianca Brazil assets with cash.
The deal hinges on approvals from Avianca Brazil's creditors and regulatory agencies, and the conclusion of Avianca Brazil's judicial reorganisation process. Azul says it expects the deal to conclude in three months.
The 30 A320 family aircraft that Azul plans to take over are a portion of Avianca Brazil's current in-service fleet of 44 aircraft, Cirium's Fleets Analyzer shows. Before it filed for bankruptcy protection in December 2018, the airline operated a fleet of more than 50 aircraft.
FlightGlobal understands that 12 A320neo aircraft are among the 30 A320 family aircraft that Azul plans to take over. The 12 A320neos include two aircraft that Avianca Brazil had previously exited leases for, which had transferred to Azul in January. Another three A320neos (MSN 7854, MSN 7856 and MSN 7795) are in storage while the remaining seven A320neos are still being operated by Avianca Brazil, according to Fleets Analyzer.
It is understood that Azul plans to renegotiate the leases on the older A320ceos so it can replace those aircraft with its own A320neos as it takes delivery of them. Azul has 36 A320neos on order, Fleets Analyzer shows.
Avianca Brazil's 30 aircraft, 70 pairs of airport landing slots and operating certificate will be transferred to a new entity free of debt and liabilities, Azul has said. FlightGlobal understands that Azul plans to hire a portion of Avianca Brazil employees associated with the 30 aircraft, such as flight and cabin crew. Avianca Brazil employees will also be given priority when applying for Azul jobs.
Azul plans to grow capacity 18-20% in 2019, which takes into account the small number of A320neos whose leases Avianca Brazil had previously exited, Azul chief revenue officer Abhi Shah says on the airline's earnings call. The planned capacity growth is split between 16-18% growth in domestic, and 20-25% in international.
"From a commercial perspective, the Azul announcement will allow the market to have confidence that they [Avianca Brazil] will continue to serve the routes," says Shah.
Rodgerson tells analysts that he expects industry capacity rationalisation from the deal, a sentiment that is echoed by his counterpart at LATAM Airlines Brazil, Jerome Cadier. "We expect to see capacity reduction once all of this is resolved," said Cadier on an earnings call on 13 March, noting that capacity in the market had begun declining since the bankruptcy protection filing by Avianca Brazil. "We expect that to continue going forward."
CONGONHAS SLOTS KEY TO AZUL DEAL
The 70 pairs of airport slots that Azul will take over from Avianca Brazil are for flights at Sao Paulo Congonhas and Guarulhos airports, as well as Rio de Janeiro Santos Dumont, FlightGlobal understands.
Avianca Brazil's presence at the downtown Congonhas airport in Sao Paulo is especially attractive to Azul. Avianca Brazil is currently the third largest player at the airport, while Azul is the fourth and smallest operator, Cirium schedules data show. Absorbing all of Avianca Brazil's capacity at Congonhas will allow Azul to triple its capacity at the airport, even though it will still be a smaller player compared with Gol and LATAM.
Gaining a larger presence at Sao Paulo Congonhas will help Azul complete a piece of its network and expand its presence in the key market of Sao Paulo. With more than 100 cities in Brazil, Azul is already the largest domestic carrier in terms of destinations served. The airline will, however, retain the centre of its Sao Paulo operations at its hub in Viracopos Campinas.
At Rio de Janeiro Santos Dumont, Azul is the third largest carrier after Gol and LATAM Brazil. Avianca Brazil is in fourth place. Taking over all of the airline's capacity will allow Azul to pass LATAM Brazil to become the second largest carrier at the airport, Cirium schedules data show.
Source: Cirium Dashboard
