No middle ground: Azul is preparing an offer to buy LATAM as a whole

In the post-pandemic scenario, consolidation is a trend that will come back as stronger as ever, and companies are prepping their guns for a brutal fight to capture the best portion of South American fast recovering market.

John Rodgerson, Azul’s CEO, prefers not to be shy about his intentions: in an interview with Chilean Diario Financiero, he stated loud and clear that the carrier will make an offer for LATAM once Chapter 11 process comes to an end, but not only for LATAM Brazil: Azul will go for the whole package.

«Chapter 11 protects LATAM of its creditors and provides exclusivity for them to negotiate a restructuring plan, but all signs indicate that they’re not reaching an agreement. The airline has been requesting extensions for the presentation of such a plan, but there is a hard deadline set by November 23. We are interested and we know exactly what we are going to offer but we have to respect that process,» said Rodgerson.

«LATAM filed for Chapter 11 protection stating that the market was set to change fundamentally, that the demand was going to vanish. And we think that the best way to react to a demand downturn is consolidating, increasing connectivity, and creating synergies. We can add 130 destinations to LATAM Brazil’s current 45, generating additional demand. That’s the way, as we are seeing in similar agreements like American Airlines and JetSMART and the SKY and Avianca yet-to-be-confirmed deal,» Rodgerson added.

Both deals Rodgerson cites are good examples of how that consolidation trend is accelerating in the region. Thus, an agreement for just LATAM Brazil would fall a bit short: «LATAM Group as a holding has a high value and keeping it as one is important for the company culture. To split it and divest would go against our interest,» he states.

There are two big ifs in this operation: the failure of a Chapter 11 restructuring plan and the approval of Brazilian competition authorities. For the latter, Rodgerson is confident that the deal would go through: «Brazil has quite a bunch of leading cases of mergers that concentrate big portions of the market. Localiza and Unidas, two huge car rental competitors, had merged into a single company that comprises 70 percent of the market, and they got the approval.»

Rodgerson says that «there are studies here that the engineering behind Merge and Acquisitions had helped boost the market they´re serving. When LAN bought TAM it had over 85% of the Chilean market, and now Chile has SKY and JetSMART and Brazil also saw new competitors arise, so I wouldn’t see that as an obstacle.»

Regarding Chapter 11, Azul’s CEO is crystal clear: «If they exit the process as a stronger company, good for them; but coming out as a stronger, more connected and with better synergies would be even better. When you say that you will emerge as a more efficient company, a good amount of times that means that you’re not paying your creditors all you owe them. If you come out as more efficient and with more connectivity, you will create more value for them. And at the end of the day, what we all as an industry must seek is to assure that our investors get the best return we can,» he concluded.