Last year, Azul Linhas Aereas was interested in acquiring LATAM Airlines Group and even made a proposal as the South American giant faced Chapter 11 proceedings; nevertheless, LATAM management rejected the potential transaction, and now Azul has filed a statement to correct certain characterization errors and omissions in the unfortunate process.

Crucial missing details

When LATAM Airlines Group filed its Chapter 11 plan and disclosure statement, the airline confirmed that it had received certain non-binding expressions of interest, including one from Azul. Azul is one of the largest airlines in Brazil.

On November 11, 2021, Azul sent a letter offering a general, non-binding and preliminary outline of a potential transaction. Nevertheless, according to LATAM, this letter “did not provide any process or timeline for the transaction and did not address miscellaneous regulatory concerns or other value and performance risks if such a transaction were to proceed. » Moreover, since LATAM filed its Chapter 11 plan within the court-approved timeframe, LATAM had exclusivity on the matter, thus closing any other alternative.

According to Azul, its proposal had crucial missing details only because LATAM declined any substantive engagement with Azul. The Brazilian carrier added that LATAM has repeatedly rejected Azul’s attempts to start a constructive dialogue. If that had happened, Azul could have introduced a “value maximizing transaction between airlines.”


At all times, LATAM rejected Azul’s plans. Photo: Getty Images

Azul’s proposal

As LATAM went through an unfinished Chapter 11 bankruptcy process, Azul saw an opportunity for consolidation. The airline had a business combination proposal with LATAM Airlines, submitted with certain LATAM creditors.

That proposal included about $5 billion in equity financing, backed by creditors made up of multiple financial institutions, Azul said.

If approved, the new ownership of LATAM would have been divided among current Azul shareholders, LATAM creditors and equity financing participants. It would have been a massive merger between Latin America’s No. 1 and No. 2 airlines (by fleet size).

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A merger between the two airlines would have significantly increased network growth and expanded the range of destinations, Azul said. The synergies from the transaction would have been well in excess of US$4 billion in incremental equity value beyond LATAM’s standalone plan.

Tam and Azul airlines

LATAM and Azul are the two largest carriers in South America. Photo: Getty Images

LATAM categorically declined the plan

At all times, LATAM flatly rejected Azul’s plan. Additionally, on the same day, Azul announced that it would explore M&A opportunities, LATAM “Unilaterally terminated the codeshare agreement” between the two parties.

LATAM’s plan proposes the injection of 8.19 billion dollars into the group. The money would come in through a mix of new stocks, convertible notes and debt. Once LATAM emerges from the bankruptcy process, it would have total debt of approximately $7.26 billion and cash on hand of approximately $2.67 billion, representing prudent leverage and adequate liquidity, said the airline company.

When filing the plan, Roberto Alvo, CEO of LATAM, said:

“Injecting significant new capital into our business is a testament to their support and confidence in our long-term prospects.”

Currently, LATAM is expected to seek the judge’s approval of its plan in the coming weeks. After that, the airline would begin a voting process among its creditors (and could receive backlash, like Aeromexico). LATAM is aiming to get final Chapter 11 approval in April.

Nevertheless, even if approved, Azul will continue to believe that his proposal “was superior and provided a more value-maximizing transaction than the (LATAM) plan.”

Do you think a merger between Azul and LATAM would have been better? Let us know in the comments below.

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