March 14, 2019 / 5:50 PM / a year ago

Brazil's Azul hopes to take over Avianca Brasil's planes at lower lease rates

SAO PAULO (Reuters) - Brazilian airline Azul SA hopes to take over 30 of struggling Avianca Brasil’s aircraft at cheaper lease rates, take control of two-thirds of Avianca’s airport slots and rehire many of its workers, while avoiding its crippling debts and any labor disputes, Chief Executive John Rodgerson said on Thursday.

If the bid is successful, it would restructure the domestic Brazilian air travel market, reducing the number of big players from four to three.

It would also allow Azul to become a big competitor in Brazil’s most desirable domestic airports - Rio de Janeiro and Sao Paulo - which have profitable routes but where available airport slots are hard to come by.

Rodgerson said the domestic routes Azul would operate in would represent a “back to the basics” move for the struggling carrier, which expanded to unprofitable international markets in recent years.

Avianca Brasil filed for bankruptcy in December after it struggled to meet lease payments on its planes, which led to bitter legal fights to repossess the aircraft. But the carrier had been able to hold on to most of the planes so far.

Azul already has a preliminary agreement with Avianca Brasil worth $105 million, which is not enough to cover all the carrier’s current debts.


But any takeover of Avianca Brasil’s assets would have to take place through a public auction supervised by a Brazil bankruptcy judge.

Rodgerson, however, said he was not too worried about its main competitors, Gol Linhas Aereas Inteligentes and LATAM Airlines, showing up.

“I think domestically if Gol and LATAM were to bid on it they would have a real hard time on the anti-trust front,” Rodgerson said in an interview, because those airlines currently have a significant overlap on their routes, which Azul does not.

The deal would also help Azul boost capacity significantly after reporting on Thursday that fourth-quarter net income fell 54 percent to 138 million reais ($35.98 million).

The carrier expects to increase capacity by 18-20 percent in 2019, without accounting for any gains from Avianca Brasil.

Rodgerson said the airline already had had discussions with some of Avianca Brasil’s lessors, which include GECAS and Aircastle, to take over the planes at cheaper rates.

But he noted Azul would not be responsible for any outstanding payments missed by Avianca Brasil.

He added the carrier would rehire many of Avianca Brasil’s staff, but would structure that move so that any labor claims are not passed on to Azul. Avianca Brasil has in recent weeks failed to meet its full payroll.

Azul’s profit for the full year jumped 36 percent to 700 million reais. Its main rival, Gol, posted a loss of 1.1 billion reais for 2018.

($1 = 3.8350 reais)

Reporting by Marcelo Rochabrun; editing by Bernadette Baum

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