Enirlia reports that the government of Brazil is working to engineer a three-way merger between LATAM, Gol, and Azul. The objective seems to be for the government to save money on subsidies and bailouts with a single dominant carrier.
The government is putting together what is perhaps the most difficult merger ever carried out in Brazil. It is about bringing together the country’s three major airlines: Latam, Azul and Gol…The discussions around the triple association are based on the premise that the support program for airlines being formed by the government – which we don’t even know very well what it is – will be nothing more than a finger in the dam.
The Union would have at least one seat on the company’s Board. Among the many obstacles to the operation, one is within the structure of the public machine itself: Cade. The eventual association between Gol, Latam and Azul would practically place all Brazilian commercial aviation under the same roof. Last year, the trio had a 99.5% market share in domestic flights.
This would upend U.S. airline partnerships in the region.
- Gol, part-owned by American Airlines, is currently in Chapter 11 bankruptcy.
- Delta Air Lines owns 20% of LATAM. They stole the LATAM partnership out from under American Airlines, which had been trying to secure an anti-trust immunized joint venture with what was then a member of oneworld. Delta divested its stake and ended its partnership with Gol as part of getting approvals for the LATAM deal.
- United Airlines codeshares with Azul.
There was literally talk of then-American Airlines CEO Doug Parker losing his job over being blindsided by Delta’s swooping in and stealing the LATAM partnership out from under him. The CEO of Qatar Airways, which held a stake in LATAM, expected him to be fired.
Currently the three carriers that have 99.5% of the domestic Brazilian market partner separately with the 3 largest U.S. airlines. A three-way merger would bring all of that flying under a single roof. Surely the Biden administration would oppose such a carrier partnering with a U.S. airline in an anti-trust immunized fashion. Such a merger would have to break up the Delta-LATAM deal.
Depending on terms, individual carriers might not go along with the deal. Brazil may not be able to get it done – especially over union objections even though there appears to be talk of buyoffs to gain at least tacit labor support. However if this comes to pass it would be disruptive to aviation both in Brazil and in the United States and surely bad for consumers.
Better would simply be not having the government subsidize the aviation sector to begin with, and even inviting in foreign carriers to operate in order to preserve competition without redistributing money from the nation’s taxpayers to airline equity-holders.
Well, I’ll give them an A for ambition anyway.
This would never be approved by any other S. American government or any other government to which that airline could fly. It is simply an attempt for the leftist Brazilian government to control air travel.
and, as much as you love to make inflammatory statements to generate page clicks, DL didn’t steal Latam. LA wanted a JV with AA and that was blocked for antitrust reasons by the Chilean government. DL offered billions of dollars in equity and other consideration, most of which was wiped out in LA’s chapter 11 proceeding – but DL went in and re-invested and still is a partial owner with QR.
and even if this megamerger in Brazil is allowed, the US will not allow any partnerships with any US airlines.
The US is playing hardball w/ Mexico about MEX access, part of a considerable deterioration of relations between the US and Mexico.
Latin airlines are fundamentally disadvantaged to US airlines – which carry at least half of Latin traffic to the US, the largest market for Latin America. There are multiple attempts by Latin governments to fix that imbalance but none of the proposals or attempts so far are going to work.
Good article for a basic understanding of what’s being proposed, even better comment by @Tim Dunn regarding the analysis.
@ Tim — In other words, DL made a strategic error. Too bad for them.
no, Gene, DL made a brilliant move in getting what AA could not have.
Investing in any company is risky; DL has gotten burned by several of its equity investments but it has doubled down on each of its joint venture airlines in which it has equity by maintaining or strengthening its partnership with those airlines even though some or all of its equity was wiped out in those airlines’ court-approved restructurings.
The DL-LA partnership simply creates the strongest JV to cover the US-Latin market and is not going to be challenged by any other including by this proposed merger which will go absolutely nowhere.
and it is noteworthy that the DL-LA JV has allowed DL plus the JV to become the largest airline from NYC and LAX to Latin America. Even from MIA, LA has more seats than AA in several markets even before DL’s addition of service from MIA to Latin America on DL’s own metal.
Nothing good would ever come from this dumb decision.
@ Tim — How’s it brilliant when they ate about to be tossed to the curb?
@ Tim — You have no idea if this merger will “go absolutely nowhere”. Brazil isn’t the US, and you wishing that it goes nowhere won’t make it so. Learn to admit DL is not immune from errors in judgement.
This is CRAZY. I hope Brazilians fight this nonsense.
But isnt Latam still owned by a majority based in Chile? Brazil trying to force this, especially after the Lan-TAM mess…. don’t see it happening.
Gene,
the only people that argue that DL can’t make strategic mistakes are those that call Delta the perfect airline – which doesn’t include me.
DL has simply outsmarted and outstrategized its competitors more than any other US airline.
This proposed merger will go nowhere unless it is a solely Brazilian domestic airline. No country is going to approve a merger that creates a single massive Brazilian airline. In international antitrust cases, foreign governments do have the right to block the ability of cross-border mergers – at least the ability of companies to operate to their country.
Brazilians can see this proposal would be bad for them. Every other country can see it as well.
And as for DL’s equity investment losses, DL bought back less of its own stock in the decade of the 2010s than AA, UA and WN and instead bought equity in its foreign partners. DL not only generated more cash than AA and UA – WN still generated lots of cash – but regularly vied with WN for having the largest market cap – value of the company on the stock market. DL has now taken that lead and it is Ryanair and DL that are vying w/ each other for highest market cap among all airlines worldwide.
AA has debt to pay down. UA has made massive fleet commitments that will drain its cash for years. WN has a strong balance sheet which gives it the ability to invest in its future but weak earnings right now.
DL has strong earnings and the best balance sheet among AA and UA. DL can invest in its business including its non-traditional sources of revenue which include equity partnerships.
DL’s relationship with LA is not in danger and even if Brazil succeeded at creating a single huge domestic carrier, no other US airline would gain an advantage because the US government would not allow them to codeshare w/ anyone or require them to codeshare w/ everyone.
Brazil is being run by socialists that want to eliminate competition but Brazil is still the largest economy in S. America and there are plenty of people that know and understand the free market; this merger is counter to that.
The people who call Delta a PERFECT airline don’t think it’s incapable of making mistakes. At least one of those individuals is calling out individuals who disparagingly compare Delta to other airlines, thereby implying that Delta is not merely excellent (which it is) but PERFECT.
No company is perfect.
Tim Dunn’s recollection of the “theft” of LATAM from AA is largely accurate. Chile turned down the American joint venture because it would have created a true behemoth in the western hemisphere.
The author has a pointless, emotional vendetta against American Airlines and especially Doug Parker. That’s all there is to it. The airline the author waxes poetically about never really existed, at least not in my experience.
@ Tim — BREAKING NEWS! No ome cares.
Ghost,
your logical flaw is that you think that comparing two things mean that one is better or superior.
You yourself frequently say that there are essentially multiple ways to reach the same place but yet resist seeing AA compared to anybody else – clearly because they come up short on many metrics.
as for Gary and what you think is a perceived vendetta against AA, you do realize that he has loyalty to AA and also tries to make money selling page views? Of course he is going to write about what is most front and center to him.
Where the heck did you get this from?? It absolutely DOESN’T exist and that affects your credibility when publishing clear fake news!
Had even such rumour be true, it’d be major headlines in ALL Brazilian and South American papers.
Again, be careful with what you publish, it affects your credibility!
Just wondering what this proposed three way merger airline would be named. GOL is a great airline usually but I expect Latam will be the chosen name of the new combined carrier. If the merger is allowed. Interesting still…
How much actual news really gets out in fervently-Catholic Latin America/Lusophone America on Holy Saturday, Vitor? Relatorio Reservado reported it on March 19th (they’re Brazil’s equivalent to the Wall Street Journal or Financial Times). Unfortunately, since most airline bloggers don’t speak Portuguese, we’re only getting it now.
This should be put very much in the category of speculative rumor, if not fake news. There isn’t any indication from any reliable source that this is real, and many reasons to believe it’s not and could not be. What is real is that GOL is operating under Chapter 11 in front of a US Federal Bankruptcy Court in New York which will have to approve it’s restructuring plan or liquidation. Azul has made a bid to take over Gol’s assets. Avianca is potentially implicated as it shares a holding company owner – Abra – but isn’t likely to be involved in any restructuring. Like LATAM, all of these companies are public and none have made any of the required regulatory filings if this was true. Like the USA, Brazil is a government with separation of powers, and judicially protected private property, and this might be some fantasy by somebody in government, but an idea that isn’t going anywhere.
What really ails Brazilian airlines by the way, and Brazilian aviation generally, is punishing airport and fuel taxes, and idiocy like imposing visa requirements that dissuades tourism to the most beautiful country in the world out of pure political spite. Changing this is the only hope for Brazilian aviation, and has a better chance of happening (and as is happening in Argentina) than a merger with LATAM.
What is the source of this article issue?? I have never heard about this… Anyway, even if the former corruption arrested – now president – Lula wanted an absurd thing like this, HE COULD NEVER MAKE IT HAPPEN.
Just found the “source”…
** relatorioreservado **
U must be kidding…
ANYONE’s X post has more credibility than this unknown and irrelevant blog.
Brazil is one of the most digusting and crime ridden cesspools in the world.
It’s not surprising they voted in that convicted criminal and marxist LULA who is once against dragging down an already dying nation even further. The fact that post of the population can’t even feed itself shows how messed up the priorities of LULA are.
Bolasniro was the last hope for that nation.