MercoPress. South Atlantic News Agency

Azul and Gol announce merger to create aviation giant

The new company would serve more than 200 destinations in Brazil and abroad but the process is at least one year away

Brazilian airlines Azul and Gol announced Wednesday after trading closed on the São Paulo Stock Exchange (Bovespa) that they had signed a memorandum of intent to finalize a merger whereby one of the largest airlines in Latin America would be created. If the plan goes through, the resulting airline would have a 60% share in Latin America's largest country, thus challenging Latam's hegemony.

Signing the papers on behalf of Gol was the UK-based Abra Group, which will be the largest shareholder in the merged company, and currently owns a majority of Colombia's Avianca Holdings.

“The improvements in the offer to customers and the efficiencies generated by this transaction will allow the resulting entity to continue to grow and develop aviation in Brazil, through a network that serves the largest number of destinations in Brazil, supported by a flexible fleet and focused on service excellence,” Azul's statement read.

In addition to other entrepreneurial details such as the culmination of Gol's current judicial debt restructuring in the United States, the merger would need approval from Brazil's National Civil Aviation Agency and the Administrative Council for Economic Defense (CADE), the federal government's antitrust agency, which is expected to take roughly about one year.

Azul's CEO, John Rodgerson, said he spoke about the operation about eight months ago with Brazilian President Luiz Inácio Lula Silva, who favored a robust national company, according to Folha de Sao Paulo

The new single entity would have its shares listed on the Brazilian stock exchange. “A combination of these two companies will allow us to have a stronger airline sector in Brazil, with better reach connecting to more remote locations,” said Abra's Chief Financial Officer (CFO) Manuel Irarrazaval. “But it will also ensure that we have strong enough companies that will survive in the region and particularly in Brazil.”

The deal comes after years of turmoil caused by the Covid-19 pandemic that forced some of the largest airlines to restructure, even as travel demand has recovered.

Gol filed for bankruptcy last year and Azul spent nearly six months negotiating with creditors in a restructuring process to reduce its debt. Irarrazaval said the merger could only go ahead after Gol has emerged from the bankruptcy process.

Both companies are listed on the Brazilian stock exchange but hold US certificates of deposit that trade in New York. Azul's shares have fallen 51% in the past six months, while Gol's have gained 31.5%, according to Bloomberg.

The new company would serve more than 200 destinations in Brazil and abroad. “The two are complementary,” Irarrazaval argued. “Gol has very good coverage in major cities, while Azul has better reach in smaller cities in the country.”