Why Brazil Increased Its Airline Bailout

Last week, the National Bank for Economic and Social Development (BNDES) announced an increase in the airline bailout, from 2.4 billion reais (US$440 million) to 3.6 billion reais (US$660 million). Why did the bank do that? Also, what are the airlines thinking about financial support? Let’s investigate further.

Brazil will give over 660 million USD in bailouts to its airlines. Photo: Getty Images

How will the bailout work?

Since March, Brazilian airlines and the BNDES have been negotiating on a bailout to help them during the COVID-19 crisis. However, the talks between the parties have had delays over and over again.

Meanwhile, the financial situation for Brazilian airlines has deteriorated. LATAM Brazil is under a Chapter 11 reorganization in the US. Several attorney firms are currently investigating GOL Linhas Aereas for possible ‘unlawful business practices.’ Azul Linhas Aereas sold its TAP Portugal stake while also taking a few measures to weather the crisis.

Last Friday, Leonardo Mendes Cabral, BNDES CEO, talked about the bailout for the airlines in Brazil. He said,

“Our program for the air industry increased from 2.4 to 3.6 billion reais to attend the three major airlines.”

He added that it has been a long process due to the many extraordinary circumstances around the current crisis. First, the plan of the BNDES wasn’t to give a bailout to the airlines so they could pay to lessors and creditors. Instead, the Bank told the airlines to renegotiate with those parties. Mendes Cabral put Azul Linhas Aereas as an example of this. The low-cost airline said last week that it had deferred the delivery of 84 airplanes after 2024.

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Also, Mendes Cabral said that the bailout is not a subsidy. Instead, it is a plan that is under the current market situation. The BNDES will get in with 60% of the transactions. Partner banks will have 10%, and “each transaction should count with at least 30% participation from the market,” he added.

But what are the airlines saying of this bailout?

Azul Getty
The Brazilian airlines are not relying entirely on the BNDES bailout. Photo: Getty Images.

What do the airlines think?

Simple Flying talked with Marcelo Bento Ribeiro, Network Planning, Alliances, and Azul Viagens director. He said that Azul welcomes with open arms the help from BNDES but is not relying 100% on that to survive.

“We have survived so far without the bailout. [Neverthless, the package] is not going to be cheap money, so the conditions are aligned with the private markets. This is not a traditional government bailout or aid.”

He added that Azul has come this far without having to raise money. The airline had cash, and it has been using it during the last few months to survive. Azul also implemented other measures like stopping payment to suppliers and reducing costs, which helped it stretch the cash. Bento Ribeiro added that the negotiations Azul currently has (not only with BNDES but with many others, he said), will give the airline flexibility to fly in the next months.

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A couple of weeks ago, Paulo Kakinoff, GOL’s CEO, said that the company was studying the proposed terms of BNDES.

Finally, LATAM’s CEO Jerome Cadier said O’Globo that the bank’s bailout is not fundamental to the airline’s survival, as it is now under a Chapter 11 reorganization. As stated by O’Globo,

“We do not depend on this financing today because we went searching for another path. Still, I would like to count on this option because the crisis can worsen,” Cadier said.

In July, GOL led the recovery in Brazil. Photo: GOL Linhas Aereas

How’s Brazil doing right now?

In July, GOL led the recovery with a 44.3% market share in Brazil. Azul had a 32% market share and LATAM 23.2%.

According to data provided by the Brazilian government, there were 1.6 million passengers in July, an 81.1% decrease. The domestic demand also fell 78.9%, while the load factor in the country was 75.1%.

The country recently opened up its borders for international travelers. Nevertheless, Brazil has the second most number of coronavirus cases and deaths worldwide, after the US. As of 17 August, Brazil has 3.3 million cases and 108 thousand total deaths.

What do you think of the airlines’ bailout in Brazil? Is it too late? Let us know in the comments.

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