March 11, 2019 / 11:47 AM / 6 months ago

Avianca Brasil strikes deal with Azul, holds on to planes for now

SAO PAULO (Reuters) - Brazilian airline Azul SA on Monday said it will seek to buy certain assets held by struggling rival Avianca Brasil for $105 million, on the same day a local court allowed the carrier to hold onto its planes despite mounting missed payments.

An airplane of Avianca takes off as an Azul plane sits on the tarmac at Santos Dumont airport in Rio de Janeiro, Brazil March 11, 2019. REUTERS/Sergio Moraes

Under the proposed terms, Azul would buy airport slots and assume some aircraft leases from Avianca Brasil but inherit none of its debts.

Azul will also extend an immediate financial lifeline to Avianca Brasil, disbursing as much as $40 million to pay for the carrier’s operating expenses from now until April, two sources familiar with the matter said. Avianca Brasil has continued to miss payments on its airplane leases, and has fallen behind on its payroll, the sources said.

At a higher court hearing on Monday, a panel of Brazilian judges postponed ruling for an additional two weeks on an appeal from aircraft lessors, allowing Avianca Brasil to keep operating its planes despite missed payments.

Azul said the nonbinding purchase agreement would involve 70 pairs of slots, which grant airlines the rights to operate regular flights between airports.

The sale would more than double Azul’s presence at Congonhas, Sao Paulo’s busy domestic airport, according to one of the sources familiar with the deal.

“These are slots that the company could not have obtained on its own,” said the source.

Azul shares jumped more than 7 percent after the announcement.

Brazil’s air travel regulator ANAC said they have not yet received a formal proposal from the carriers regarding the sale.

“The deal, if approved, could be accretive for Azul,” wrote analysts at Brazil bank BTG Pactual in a note to clients, highlighting the profitability of operations at Congonhas and the possibility of acquiring Avianca Brasil’s loyalty program.

Azul already operates two Airbus A320 planes that were previously used by Avianca Brasil until they were repossessed in December due to outstanding payments.

Under the agreement announced on Monday, Azul said it could end up operating up to 30 Airbus planes currently in use by its rival.

Azul did not disclose how it would be able to take over the leases.

Avianca Brasil filed for bankruptcy protection in December in an attempt to stall aircraft lessors who had sued to repossess its fleet, two months after the carrier started missing payments on many of its aircraft.

Since filing for bankruptcy, Avianca Brasil has secured a $75 million loan from hedge fund Elliott Management.

Reporting by Alberto Alerigi and Marcelo Rochabrun; additional reporting by Ana Mano and Paula Arend Laier; editing by Chizu Nomiyama, Bill Trott, G Crosse and Jonathan Oatis

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