‘I’ll wait for Latam to fight with its creditors in court’, says president of Azul

Retreating for momentum seems to be Azul’s new mantra. The Brazilian airline, led by American John Rodgerson, saw its attempt to make a hostile offer by Chilean rival Latam Airlines frustrated. In judicial reorganization, Latam had until last Friday (26) to present its judicial reorganization plan to the United States Bankruptcy Court, in New York.

The presentation was made with less than two hours to go before the deadline. This gave Latam exclusivity in negotiating its debt with creditors, which totaled almost US$ 18 billion (approximately R$ 100 billion). Latam adhered to the United States bankruptcy law (Chapter 11, a kind of judicial reorganization) in May 2020, followed two months later by its subsidiary, Latam Brasil.

“If Latam hadn’t delivered its plan on time, our proposal would already be on the judge’s table,” he told sheet John Rodgerson. Together with a third of the creditors, headed by the investment bank Moelis& Company, Azul claims to have made a US$5 billion (R$28 billion) proposal for the Chilean group.

The plan proposed by Latam, on the other hand, involves the injection of US$ 8.19 billion (R$ 46 billion) through a combination of new capital, convertible bonds and debt. “Our proposal was better, they will leave even more indebted”, bet Rodgerson, for whom the rival’s plan benefits the current shareholders a lot.

“But American law gives preference to creditors, not shareholders,” says the president of Azul, who has ruled out, at this time, raising the offer for the rival. “They [Latam] they say they have the support of 71% of creditors, but that is not quite the case. These lenders agree to review the plan, just that. There will be a big legal fight involving Latam and its creditors,” he says.

Azul, according to him, tried to take the merger proposal directly to the administration of Latam, but it was not received. “We remain faithful to the thesis of leading the consolidation of the Brazilian aviation market”, says Rodgerson. “after March [quando vence o prazo para a aprovação do plano pelos credores], we come back to evaluate”.

A report by Goldman Sachs, signed by analysts Bruno Amorim and João Frizo, released this Monday (29) states that Azul’s proposal provided for the division of command of the new company between the airline, Latam’s creditors and participants in the financing. An independent group of managers would take over the company, according to the report.

“Blue expected that the proposal would generate around US$ 4 billion in synergies, with the growth of its network and the greater variety of destinations”, says the report. “Blue stated that it will continue to focus on its competitive advantages and should evaluate partnerships and consolidation opportunities in the future,” according to analysts.

“Although we recognize that there may be synergies with the proposed combination, we note that the new company (Latam + Azul) would hold more than 60% of the Brazilian domestic market, therefore, this transaction could be subject to extensive Cade procedures. [Conselho Administrativo de Defesa Econômica] in the merger analysis and there may be execution risks”, they state.

Goldman Sachs analysts classify Azul’s share as neutral, with a target price of R$36.40. Around 15:00 on Monday, the company’s paper registered a high of 2.32% in B3, quoted at R$ 23.84.

For Rodgerson, Cade is not a problem for the merger to proceed. “Cade cares about overlap and I have no overlap with Latam”, says the Executive. “Today, with our routes that involve 130 destinations, there would be less overlap than there was with Trip [comprada pela companhia em 2012] and less than Gol with Webjet [operação de 2011]”he says.

Less Paris and more Trancoso

About 2022, the executive believes that the market should remain volatile, as it is an election year. The pandemic will make airlines, including Azul, value domestic tourism.

“The best thing that can happen to Brazil is for the country to close borders and for the rich to spend their money here,” he says. “Having fewer travelers going to Paris and more people visiting Trancoso helps the local economy,” he says.

As for the new variant, omicron, Rodgerson believes that the solution lies in the advance of vaccination. “South Africa [onde a variante foi detectada pela primeira vez] it has 23% of the population vaccinated, while the state of São Paulo has reached 100%,” he says. “It is a more contagious variant, but it is not killing.”