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Brazil government supports Gol-Azul merger to enhance airline sector

An organized merger in between Brazilian airline companies Gol and Azul would enhance the sector and avoid either business from failing, Brazil's ports and airports minister told Reuters, offering the prospective move an essential federal government nod.

Azul and Abra, the majority financier of Gol and Colombia's. Avianca, announced earlier this month they had signed a. non-binding memorandum of understanding with the intent of. integrating their companies in Brazil.

It's a federal government priority to preserve the air travel sector. and, above all, safeguard jobs and incomes, Silvio Costa Filho. stated in an interview. The possibility of a Gol-Azul merger is. favorable to strengthen Brazil's aviation.

The merger of the 2 airline companies would develop a dominant. provider in Latin America's No. 1 economy as the combined business. would hold roughly 60% of the domestic market, going beyond the. 40% market share of LATAM Airlines. That has actually raised issues about competitors and air travel costs. LATAM's Brazil head Jerome Cadier informed paper O Globo that a. deal would need major mitigation procedures from antitrust. regulator CADE.

Its former head Gesner Oliveira stated the country required. more, not less competition.

If the merger proceeds, the most significant loser will be the. customer, he told Reuters.

Nevertheless, Costa Filho argued that a tie-up would help both. companies make it through, preserve jobs, allow for lower expense of credit. and increase connection.

Latin American airline companies have struggled with high financial obligation because. the COVID-19 pandemic, with most required to restructure and. numerous ending up in insolvency. Gol has actually been under Chapter 11 insolvency reorganization in the. United States considering that early 2024, while Azul just recently needed to. strike a deal with lessors to scrap obligations in exchange for. an equity stake. LATAM exited Chapter 11 in 2022.

I don't see it affecting rates, the minister said about. the prepared tie-up.

Still, both airline companies would need to encourage the regulator of. its advantages in a carefully monitored and gone over procedure that. might be settled by early 2026, Costa Filho stated.

CADE's superintendent Alexandre Souza said in a current. interview with CNN that the regulator would take a look at competitive. conditions completely.

Costa Filho, who last week met with Gol and Azul employers,. said that potential price boosts have actually been discussed with the. airline companies.

They made it clear that their objective is to benefit through. volume, not price, he stated. As airlines reinforce, increase. capacity, rework their local networks and improve management. capacity, there is even the possibility of lowering fares.

Azul CEO John Rodgerson said in a separate interview that. the business clarified to the minister they were eyeing. capability growth. How do we tackle rates? By increasing supply,. capability, he said.

Brazilian President Luiz Inacio Lula da Silva has also been. keeping an eye on the discussions on the potential merger for months,. according to a person knowledgeable about the talks.

He supports the offer to make sure the nation does not lose an. airline business, the individual stated. Under the memorandum of. understanding, a merged firm would continue operating two. different brands regardless of the combined ownership.

Lula desires scale, he desires Brazilians to be able to afford. plane tickets, the individual near the president informed Reuters.

Experts at JPMorgan state the low network overlap in between. Azul and Gol would play in favor of the merger despite their 60%. combined domestic market share.

(source: Reuters)