Equities

Azul CEO Sees M&A as Key, Eyes $1.3B Ebitda Amid Sector Woes

Azul CEO advocates for industry consolidation as a remedy for Latin America's airline challenges, amidst financial forecasts and natural disasters.

By Mackenzie Crow

5/16, 13:34 EDT
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Key Takeaway

  • Azul CEO advocates for M&A as a strategy to reduce capital costs and enhance services in Latin America's struggling airline sector.
  • Despite industry challenges and natural disasters, Azul maintains a positive Ebitda forecast of 6.5 billion reais ($1.3 billion) for 2024.
  • Discussions with Brazil's President on using public funds for airline debt relief show government recognition of the sector's financial struggles.

Consolidation Benefits

Azul SA's Chief Executive Officer, John Peter Rodgerson, emphasized the advantages of consolidation in the airline industry during an interview in New York. He highlighted that such moves could lower the cost of capital for Latin American airlines, leading to improved services for customers and strengthening the market in Brazil. Rodgerson, however, refrained from commenting on specific merger and acquisition activities but acknowledged the ongoing discussions about a potential merger with Gol Linhas Aereas Inteligentes SA.

Industry Challenges and Government Intervention

The Latin American airline sector has faced significant challenges since the pandemic, with minimal government support compared to other regions. Notable airlines, including Avianca Holdings SA, Latam Airlines Group SA, and Grupo Aeromexico SAB, filed for bankruptcy in 2020. Brazil's Gol sought creditor protection in late January after multiple debt exchanges. Rodgerson discussed a plan with Brazilian President Luiz Inacio Lula da Silva to use public funds as collateral for loans to provide airlines with financial relief. The government's understanding of the importance of debt relief for the sector was acknowledged, with expectations of a solution within a few months.

Financial Outlook and Natural Disasters

Despite facing a depreciating currency, rising fuel costs, and the impact of deadly floods in Brazil's southern region, Rodgerson reaffirmed Azul's Ebitda forecast for the year. The floods have significantly affected the Rio Grande do Sul state, disrupting about two-thirds of Azul's operations in the area and leaving the Porto Alegre airport inoperable with no set reopening date. Yet, Azul projects a 25% increase in earnings before items to around 6.5 billion reais ($1.3 billion) in 2024. The company also plans to reduce its net debt to last 12 months Ebitda ratio to approximately 3 times, down from 3.7 times, and intends to pay off a $68 million bond maturing in the fourth quarter in cash.

Management Quotes

  • John Peter Rodgerson, CEO of Azul SA:

    "We’ve always been big believers in consolidation. The product improves for customers, and it could really strengthen a great market in Brazil that we’re seeing today." "If you have access to credit at a lower cost of capital, it allows for fares to be cheaper, and for more aircraft to be purchased. When I talk with the Brazilian government, those are the most important things." "The airline is twice the size as it was pre pandemic in terms of revenue. We have more debt, but we’re a much larger airline today."