March 11, 2019

Azul to acquire Avianca assets

Brazil’s third-largest airline Azul, behind Latam and Gol, with a 14.8% market share, has signed a $105 million non-binding agreement to buy certain assets of rival carrier Avianca Brasil, which is operating under bankruptcy court projection.

With the deal, Azul, which already planned to grow 18% to 20% in 2019 by boosting fleet size, will accelerate expansion.

Avianca, the country’s fourth-largest airline with a 7.4% domestic market share, will shrink dramatically with the sale of its most important assets.

The proposal includes a $20 million to $40 million advance in the form of a senior bridge loan with real guarantees.

Azul said the plan is to purchase the assets through an isolated productive unit (UPI) that Avianca would create.

The UPI will count among assets the company’s operating certificate, 70 landing and takeoff slots and approximately 30 A320 aircraft.

The UPI would be one way for Avianca to liquidate debts, which stood at about $130 million in December 2018.

Consultancy Galeazzi e Associados devised the plan that would create a new company that would go to auction after the court approves the restructuring plan.

If another company tenders a higher bid, it will have to pay back Azul for the loan and interest within five days after the court declares the winner.

Avianca Brasil intends to hold its first meeting with creditors on 29 March.

The rescue plan also includes raising $75 million from investment funds Manchester Securities, Elliott Associates and Elliott International.

The transaction would allow Azul to keep all of Avianca’s slots in Congonhas and Guarulhos airports in São Paulo as well as half of the carrier’s slots at Santos Dumont airport in Rio de Janeiro.

The transaction would boost Azul’s slots at Congonhas to 34 from 13.

National Agency of Civil Aviation (Anac) and antitrust watchdog Cade are likely to clear the deal as the airlines have little operational overlap.

Closing also hangs on finishing the due diligence process and winning approval from regulators and creditors.

Azul expects to wrap up the deal in three months, although Avianca has yet to present the UPI proposal to Anac.

In December 2018, David Neeleman, Azul founder and chairman, was reported to be considering making a takeover offer for Avianca.