Azul and Abra: A New Dawn for Brazilian Aviation

Azul S.A. (B3: AZUL4, NYSE: AZUL) and Abra Group, the majority investor of Gol Linhas Aereas Inteligentes SA (GOL), have signed a non-binding Memorandum of Understanding (MoU) with the intent to combine their businesses in Brazil. This strategic move aims to strengthen Brazil's aviation sector globally and create one of the largest airlines in Latin America. The MoU, signed on January 15, 2025, outlines the potential merger between Azul and Gol, which would serve more than 200 cities in Brazil, potentially increasing domestic and international flight offerings.

The proposed combination represents a major development for the national aviation industry and all the economic activity facilitated by a mode of transport of such importance for a continental country. With more than 220 million inhabitants and around 110 million air journeys a year, the Brazilian market is less developed than that of several neighboring countries and has enormous potential for expansion. The MoU announced today seeks to develop the industry in an accelerated manner.

The parties have agreed to a business principle that any combination will result in net leverage of the combined entity that will be at least comparable to the net leverage of Gol at the time of the Transaction and after consummation of its plan of reorganization. The closing of the transaction is subject to Abra and Azul agreeing on economic terms of the transaction, the satisfactory completion of due diligence, entering into definitive agreements, obtaining corporate and regulatory approvals (including from the Brazilian antitrust authorities), satisfaction of customary closing conditions, the consummation of Gol's Chapter 11 plan of reorganization, and receipt by Abra of consideration thereunder.



The strategic rationale behind the merger centers on market development in an underpenetrated Brazilian aviation sector. The combined network would serve 200+ cities, significantly expanding reach into secondary markets. The complementary route structure is particularly valuable, as Azul's regional strength pairs well with Gol's trunk routes. This combination would provide the opportunity to strengthen the sector, increasing the number of flights on offer and the ability to compete in a highly globalized sector.

Fleet optimization opportunities are substantial but complex. Azul operates primarily Embraer jets and Airbus A320s, while Gol runs an all-Boeing 737 fleet. This diversity could provide flexibility in aircraft deployment, allowing for better utilization of each airline's strengths. However, maintaining separate operating certificates and brands could limit cost synergies but helps navigate regulatory concerns. The explicit mention of net leverage requirements, tied to Gol's post-reorganization levels, signals financing complexities given Gol's ongoing Chapter 11 proceedings.

Regulatory hurdles are substantial, as Brazilian antitrust authorities will scrutinize market concentration effects, particularly given the combined entity's domestic market share. The non-binding nature and multiple closing conditions suggest a lengthy completion timeline of 12-18 months minimum. The satisfaction of customary closing conditions, including the consummation of Gol's Chapter 11 plan of reorganization, is also a critical factor in the merger's completion.

In conclusion, the proposed merger between Azul and Abra (controlling Gol and Avianca) represents a transformative consolidation in Brazilian aviation. The 90% route complementarity suggests minimal competitive overlap and strong operational synergies. However, several critical factors warrant attention, including the deal structure, regulatory hurdles, and financing complexities. The strategic rationale centers on market development in an underpenetrated Brazilian aviation sector, with the combined network serving 200+ cities and expanding reach into secondary markets. Fleet optimization opportunities are substantial but complex, and regulatory hurdles are substantial, with a lengthy completion timeline expected.