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Merger would create carrier with 60% market share

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Concerns over competition and airfare costs raised by

LATAM

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Minister argues merger preserves jobs, increases

connectivity,

and lowers credit costs

By Luciana Magalhaes, Gabriel Araujo

SAO PAULO, Jan 27 (Reuters) - A planned merger between

Brazilian airlines Gol and Azul ( AZUL ) would

strengthen the sector and prevent either company from failing,

Brazil's ports and airports minister told Reuters, giving the

potential move a key government nod.

Azul ( AZUL ) and Abra, the majority investor of Gol and Colombia's

Avianca, announced earlier this month they had signed a

non-binding memorandum of understanding with the intent of

combining their businesses in Brazil.

"It's a government priority to preserve the aviation sector

and, above all, safeguard jobs and incomes," Silvio Costa Filho

said in an interview. "The possibility of a Gol-Azul merger is

positive to strengthen Brazil's aviation."

The merger of the two airlines would create a dominant

carrier in Latin America's No.1 economy as the combined company

would hold roughly 60% of the domestic market, surpassing the

40% market share of LATAM Airlines.

That has raised concerns about competition and airfare costs.

LATAM's Brazil head Jerome Cadier told newspaper O Globo that a

deal would require "serious mitigation measures" from antitrust

regulator CADE.

Its former head Gesner Oliveira said the country needed

more, not less competition.

"If the merger goes ahead, the biggest loser will be the

consumer," he told Reuters.

However, Costa Filho argued that a tie-up would help both

companies survive, preserve jobs, allow for lower cost of credit

and increase connectivity.

Latin American airlines have struggled with high debt since

the COVID-19 pandemic, with most forced to restructure and

several ending up in bankruptcy.

Gol has been under Chapter 11 bankruptcy reorganization in the

United States since early 2024, while Azul ( AZUL ) recently had to

strike a deal with lessors to scrap obligations in exchange for

an equity stake. LATAM exited Chapter 11 in 2022.

"I don't see it impacting prices," the minister said about

the planned tie-up.

Still, both airlines would have to convince the regulator of

its benefits in a "closely monitored and discussed" process that

could be finalised by early 2026, Costa Filho said.

CADE's superintendent Alexandre Souza said in a recent

interview with CNN that the regulator would examine competitive

conditions thoroughly.

Costa Filho, who last week met with Gol and Azul ( AZUL ) bosses,

said that potential price increases have been discussed with the

airlines.

"They made it clear that their goal is to profit through

volume, not price," he said. "As airlines strengthen, increase

capacity, rework their regional networks and improve management

capacity, there is even the possibility of lowering fares."

Azul ( AZUL ) CEO John Rodgerson said in a separate interview that

the companies clarified to the minister they were eyeing

capacity growth. "How do we tackle prices? By increasing supply,

capacity," he said.

Brazilian President Luiz Inacio Lula da Silva has also been

monitoring the discussions on the potential merger for months,

according to a person familiar with the talks.

He supports the deal to ensure the country does not lose an

airline company, the person said. Under the memorandum of

understanding, a merged firm would continue operating two

separate brands despite the combined ownership.

"Lula wants scale, he wants Brazilians to be able to afford

plane tickets," the person close to the president told Reuters.

Analysts at JPMorgan say the low network overlap between

Azul ( AZUL ) and Gol would play in favor of the merger despite their 60%

combined domestic market share.