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A GOL 737-700 taxies in Porto Alegre, Brazil. (Photo: AirlineGeeks | João Machado)

Bailout for Brazilian Airlines Likely to Be Confirmed Next Week

After several weeks of discussions between companies, agents of the federal government and private banks, an agreement surrounding a bailout for airlines in Brazil is set to be closed by the end of next week, according to Brazil Journal, a local economic news website.

The COVID-19 crisis fell severely over the country’s airline industry, just as in the rest of the world, causing bookings to plummet and sending cancellations skyrocketing. In Brazil, domestic demand started feeling the hit during the second half of March, when coronavirus cases began to emerge in the country.

According to the outlet, loans will start to be granted by June and should total around 6 billion reals ($1.05 billion), which is less than the expected figure. Reuters, which confirmed the final value, reported that the three major airlines in Brazil — Azul, GOL and LATAM Brasil — had each hoped to receive 3 billion real in loans.

Said loans will be provided by Brazil’s state-owned National Bank of Economic and Social Development (BNDES) as well as private banks. According to Brazil Journal, BNDES has been constantly pushing the private finance sector to help, stressing that leaving the government to work alone could result in there being no deal.

Another condition to an agreement, says the outlet, is that airlines would negotiate extended payment terms with aircraft lessors.

The loan issuing is set to take place along with a “debt warrant” that would “grant the debt owner the right to buy shares in five years and at the market price” on the date the loans were issued. This operation is being coordinated between BNDES and private bank Bradesco.

There are “technical concerns” about the concession of loans to LATAM Brasil, both Brazil Journal and Reuters affirm. Given LATAM Group is headquartered in Chile and is spread throughout South America, there are concerns that the group’s assets in Brazil could be subjected to a foreign takeover, giving rise to the possibility that the government and other debtors could be left out to dry when it comes to the share purchase agreements.

Another company hardly hit during the coronavirus crisis is Brazilian planemaker Embraer. After an abrupt end of a deal with Boeing, the company is also set to receive a $500 million loan, as well as $500 million in “export finance” credit lines.

As negotiations finish, collateral macroeconomic effects of the crisis start to be felt, which should severely affect the health of the local airline sector. The most painful is the devaluation of the Brazilian real, triggered by a reduction in base interest rates. One dollar today is worth 5.73 reals, up from 4.02 reals on Jan. 1. In an industry like aviation that has become so centered around the dollar, this discrepancy will slow the resumption to normalcy after the crisis is over.

João Machado
João Machado
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