Azul and the Abra Group, which controls Gol, announced on Wednesday the signing of a Memorandum of Understanding (MoU) to evaluate the merger of their businesses in Brazil.
The two airlines are the third and second largest in the country, behind LATAM, but combining their operations under a single corporation would form the largest Brazilian carrier and one of the largest in the Americas.
Indebted Azul and Gol have been in talks for almost a year, studying ways to optimize their operations amid difficulties with lessors, exchange rates and other rising costs.
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According to Azul, the MoU includes governance and capital structure agreements, but provides for the maintenance of each brand’s commercial identity, as well as their Air Operator Certificates (AOC).
“This combination of forces would provide the opportunity to strengthen the sector, increasing the number of flights offered, reaching more than 200 cities served in Brazil and the ability to compete in a highly globalized sector”, said Azul CEO John Rodgerson.
The plan now is to seek consensus between Abra and Azul regarding the economic terms, conduct due diligence and finally sign a definitive agreement.
The corporation to be created to manage the two airlines would have a board of directors with nine representatives, three from Abra, three from Gol and three independents.
90% of complementary routes
With the project defined, the regulatory approval phase would then come in order to materialize synergies between the air networks and aircraft fleets.
The two companies claim to have almost 90% of complementary routes, already anticipating one of the possible questions about the merger. Together, Azul and Gol would have two-thirds of the aviation market in Brazil, drastically reducing the options for passengers.
Another problem in sight is the lack of synergy between the aircraft operated by both. Gol has 137 Boeing 737s, 52 of which are from the MAX 8 series, while Azul operates the Airbus A320 and A330 families, in addition to a large fleet of Embraer jets and ATR turboprops, totaling 188 aircraft.
Gol wants to leave Chapter 11 in May
The Memorandum of Understanding depends mainly on Gol’s situation, which will complete one year of financial restructuring in the United States on the 25th, known as Chapter 11.
The airline presented a revised business plan for the next five years in which it states that it will seek financing to cover US$ 1.87 billion in debt and thus enable its exit from bankruptcy.
To this end, the company will offer as collateral the airline’s brands and intellectual property, the Smiles mileage program, landing and takeoff slots and spare parts pool.
Also according to Gol, the expectation is to leave Chapter 11 in May.
