In an attempt to compete in the bustling Latin and South American markets, United will pay $100 million to acquire a 5% stake in Azul, the third largest airline in Brazil.
The cash payment will be a capital injection, rather than a stock deal, as Azul has yet to become a public company. Azul is currently overseen by David Neeleman, who many in the aviation industry recognize as significant due to founding JetBlue in the United States. The airline has seen growth in its domestic and international market, and currently operates a fleet of over 145 aircraft serving as a low cost carrier to nearly one-third of all departing flights from Brazil.
“Brazil is an important market in United’s global route network and this partnership with Azul further strengthens our ties to the region,” said Jim Compton, United’s vice chairman and chief revenue officer. “Together we will offer our mutual customers more choice and convenience when traveling to and from destinations across Brazil.”
United has labeled the acquisition as a “long-term strategic partnership,” as it will begin offering both codeshares and reciprocal mileage benefits on each others airline. United will add one of its members to Azul’s board of directors as a part of the agreement as well. United hopes that the acquisition will aid in its growth in the market, as it is currently playing catch-up to both Delta and American Airlines.
American has been serving a large amount of both Latin America and South America through its hub in Miami for quite some time, and is also able to utilize its Oneworld alliance partner, TAM, to better serve the Brazilian market. Delta on the other hand purchased a 3% stake in Gol Airlines which is Brazil’s second largest carrier in 2011 for $100 million and has continued to see success in flights to Sao Paolo, Rio de Janiero and other major cities throughout South America. United feels as though this acquisition will not only lead to growth between the two airlines, but hopefully the eventual application from Azul to join the Star Alliance network.
While Oneworld has the largest Brazilian airline, LAN-TAM, this stake has allowed United to have an almost equal playing field in the South American market. United Continental Holdings from past management action by the pre-merger Continental has a past of investing in other airlines. For example, at one point Continental used to own a 49 percent stake in Panama based airline Copa. This sizable stake in Copa by Continental is still evident. One may notice a similar livery and the use of nearly identical mileage programs.
“This will be great for customers,” said David Neeleman, Founder and CEO of Azul. “Through this partnership, Brazilians will have access to destinations in United’s worldwide route network, while U.S. customers will be able to fly conveniently to famous destinations in Brazil such as Belo Horizonte, Iguazu Falls and the Amazon.”
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