United Airlines targets South American Market with purchase of 5% stake in Azul

In an area of air travel well represented by United’s competitors, to become more competitive they have acquired a 5% stake in Brazil’s third-largest airline, Azul, for $100million. The intention is for the two airlines to operate a codesharing agreement, and the purchase of a percentage of the airline will be made in the form of cash, thus diluting the stakes of current shareholders. The offer is made subject to approval from the government and will involve United naming a representative to the board of Azul.
The deal was announced by David Neeleman, founder and CEO of Azul, as well as the founder of JetBlue Airways, having recently completed the purchase of a 61% stake in Portugal’s national airline, TAP. As far as this intended deal goes, United will benefit by opening up more Brazilian cities to its customers, while Azul will benefit from the cash injection. The airline has been postponing any attempt at a public offering while the economy struggles, so this capital injection will ease any sense of urgency in that matter. However Neelemann confirmed that shares in the airline would be listed “when the outlook improves.”
According to United’s Chief Revenue Officer, Jim Compton, this tie-up is seen as the beginning of a “long-term” relationship that has the potential for further strengthening as and when opportunities arise. Currently United flies into Guarulhos, Sao Paolo’s biggest international airport. Azul has a larger hub at nearby Campinas, though the partnership will target adding destinations from Guarulhos, thus allowing the airline to improve connections to additional places, according to Compton
This connection between United and Azul follows on from a move by rivals Delta in 2011 when it bought a 3% stake in Brazil’s second airline, Gol, for USD$100 million, though at that time Brazil’s currency was 40% stronger.