July 6, 2020

Brazilian airlines negotiate aid to avoid bankruptcy in the face of the pandemic



The three main Brazilian airlines -Azul, Gol and Latam- are looking for ways to avoid bankruptcy and are negotiating aid with the government due to the severity of the coronavirus crisis, which has forced major Latin American companies to go through restructuring processes.

The Brazilian development bank, the state-owned BNDES, recently started a negotiation with Azul, Gol and the Brazilian subsidiary of Latam for the concession of a line of credit that prevents the three companies from having the same destination as Avianca Brasil, declared bankrupt the last year.

Under the proposal, each airline is expected to receive up to 2 billion reais (about $ 378 million) in resources, an offer that provides for the participation of private financial institutions and other market players.

Latam’s Brazilian subsidiary expressed interest in the proposal presented by BNDES, but stated that the parties have not yet reached an agreement and are still in negotiation, at a delicate moment for the parent company.

The largest air transport group in Latin America accepted bankruptcy law in the United States on Tuesday due to the impact of the coronavirus, but did not include its subsidiaries in Argentina, Paraguay and Brazil in the process, where it continues in talks with the Banco de promotion.

“The company hopes to close the negotiations shortly and believes in solutions that serve everyone, but that respect the characteristics of each company,” the company, which has no headquarters in Brazil or shares traded on the stock exchange, said in a statement sent to Efe. from Sao Paulo.

In the search for a way out of the crisis, Latam also began a new negotiation with unions on Wednesday to reduce the number of officials of the company, which currently has about 21,000 employees, and hopes to reduce its fleet by up to 40% to end of the year, according to the company’s executive director, Jerome Cadier, in statements to local media.

For his part, Gol, a leader in the domestic market, stressed that the confirmation of the talks with the development bank “do not represent acceptance of the terms proposed by the BNDES and by the banks union, which will be the subject of discussions and negotiations between the parties “throughout the week.

Azul declined to make any kind of comment and said that “it continues in talks and negotiations on the government’s proposal.”

In this scenario, the risk rating agency Fitch recently highlighted the importance of the airlines’ negotiations with the BNDES, amid “high uncertainty about the magnitude and duration of the cash flow erosion over the next 12 months. ”

“This cash inflow is a key credit consideration at this time and any significant delay or failure to reach an agreement could lead to additional rating actions,” said Fitch, who last week downgraded Latam, Gol and Blue.

AN UNCERTAIN FUTURE FOR THE SECTOR

As in other countries of the world, the Brazilian air sector has been one of the ones that has felt the suffocating pressure of the COVID-19 crisis the most, with a 92% drop in domestic traffic and 100% in international traffic. , according to the Brazilian Association of Air Companies (Abear).

The pandemic has forced the sector to revise the optimistic projections it had at the beginning of the year, which forecast growth of between 6 and 9% in terms of demand, and has led companies to an uncertain future.

“It is impossible to make projections, whoever is doing it is futurology,” Abear president Eduardo Sanovicz told Efe.

Despite the difficulties and challenges, Sanovicz stressed that the sector entered the coronavirus crisis with a “good muscle”, strengthened after the departure of Avianca, but said that its recovery will depend on a combination of factors.

“There are different variables, such as the change, the price of kerosene, the economic structure and how it will be available to passengers,” he said.

The Brazilian government has turned on alerts after Latam’s request for judicial recovery, but is confident that the line of credit negotiated with the government can give companies a break.

“I am sure that this line of credit is going to be fundamental, a further step in government aid to aviation companies,” Brazilian Infrastructure Minister Tarcisio Gomes de Freitas said yesterday.

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