Azul CEO touts M&A as fix for Latin America’s troubled airlines

Consolidation would lower the cost of capital for Latin American airlines, resulting in better services for customers, according to Azul SA Chief Executive Officer John Peter Rodgerson.

“We’ve always been big believers in consolidation,” Rodgerson said in an interview in New York Wednesday. “The product improves for customers, and it could really strengthen a great market in Brazil that we’re seeing today.”

Rodgerson declined to comment on “active” M&A processes. Azul is said to be exploring a merger with Gol Linhas Aereas Inteligentes SA, with talks underway for a potential deal with the controlling shareholder of the struggling rival Brazilian airline. 

Latin American airlines have largely struggled since the pandemic as governments across the region offered little help for the sector. Avianca Holdings SA, Latam Airlines Group SA and Grupo Aeromexico SAB filed for bankruptcy in 2020. Brazil’s Gol filed for protection from creditors in late January after a dozen debt exchanges. 

The Azul CEO has met with Brazilian President Luiz Inacio Lula da Silva to discuss a plan to use public funds as collateral for loans, giving airlines some breathing room. He said the government understands the importance of providing debt relief, and is actively working on a solution, which should come “in a few months.”

“If you have access to credit at a lower cost of capital, it allows for fares to be cheaper, and for more aircraft to be purchased,” Rodgerson said. “When I talk with the Brazilian government, those are the most important things.”

Growth Prospects

Rodgerson also reaffirmed the company’s Ebitda forecast for the year, even as Brazilian airlines get hit by a falling currency, rising fuel costs and deadly floods that have devastated the country’s southern region.

The Rio Grande do Sul state accounts for about 8% of Azul’s network, with about two thirds of that is currently off-line due to the aftermath of the heavy rains that have left at least 140 people dead. The airport in the state capital of Porto Alegre was left underwater and still has no expected reopening date. 

The company’s earnings before items should total around 6.5 billion reais ($1.3 billion) in 2024, a 25% increase from last year, and its net debt to last 12 months Ebitda ratio is expected to fall to around 3 times, from a current 3.7 times. Azul has a $68 million dollar bond maturing in the fourth quarter, and intends on paying it off in cash, Rodgerson said. 

“The airline is twice the size as it was pre pandemic in terms of revenue,” he said. “We have more debt, but we’re a much larger airline today.”