Azul, Gol deal to connect flights is a step toward combining

An agreement between Azul SA and Gol Linhas Aereas Inteligentes SA to connect their flight networks is the first step toward the companies consolidating, according to one person familiar with the matter.

Conversations among creditors and shareholders pertaining to a merger between the firms are still ongoing, the person said, asking not to be identified discussing a private matter.

Shares of both airlines jumped on Friday on the back of a codeshare agreement connecting their networks in Brazil that was announced in a filing late on Thursday. Azul’s shares jumped as much as 10% in Sao Paulo trading on Friday — the biggest intraday gain since September — while Gol’s stock soared as much as 19%.

Azul declined to comment. A representative for Gol didn’t immediately respond to requests for comment. Folha de S. Paulo earlier reported the codeshare agreement is a first step toward a potential merger.

Azul is said to be in talks for a merger with Gol. In one scenario under consideration, Gol’s holding company Abra Group Ltd. would contribute its shares of the airlines company to Azul in exchange for a stake in the combined entity. 

Sao Paulo-based Gol filed for Chapter 11 earlier this year after carrying out a dozen debt exchanges. 

In an interview with Bloomberg News earlier this month, Azul’s Chief Executive Officer John Peter Rodgerson declined to comment on “active” M&A processes, but said that the company has always been a “big believer” in consolidation.

The new partnership between the two companies is positive for Azul, according to Itau BBA analyst Gabriel Rezende, as it highlights the “positive competitive environment” in the sector and could unlock additional revenue for the airline, he wrote in a note to clients.

“This news might increase investors’ perception of the possibility of a merger between the airlines. Given that Azul flies alone on more than 80% of its routes,” Rezende added.

Routes

The codeshare agreement, which is set to begin at the end of June, will cover all domestic routes that are operated by either airline, according to the statement. 

Azul and Gol are part of a trio of carriers — including Santiago-based Latam Airlines Group SA — that dominate air travel in Brazil. While both airlines service some heavily trafficked routes, Gol has concentrated more on flights between Sao Paulo, Rio de Janeiro and Brasilia, while Azul’s network to other cities has been wider.  

“The agreement represents an opportunity for both Gol and Azul due to their complementary network strengths, potentially boosting demand,” said BTG Pactual analyst Lucas Marquiori.