Ciro
Topic Author
Posts: 639
Joined: Mon Aug 16, 1999 5:00 pm

Sad Brazilian News

Wed Oct 13, 1999 9:51 am

Airlines are one of the most sensitive businesses in times of recession. Brazilian airlines were severely damaged by the financial turmoil and currency devaluation, resulting in heavy losses for the four major carriers in the country. According to "Revista Veja", from August 99, here are the latest figures regarding VASP, TAM VARIG and TRANSBRASIL (I presume these are the consolidate figures for the first operating semester).


VASP

Current losses: around U$42 million

Total debt: around U$550 million

Number of aircraft: 50 jets

Destinations: 29 domestic and 10 international cities


TAM

Current losses: around U$55 million

Total debt: around U$265 million

Number of aircraft: 52 jets + 44 turboprops

Destinations: 73 domestic and 10 international cities


VARIG

Current losses: around U$ 15 million

Total debt: U$ 1.4 BILLION (Those guys DO have a problem!)

Number of aircraft: 82 jets

Destinations: 36 domestic 25 international cities


TRASBRASIL

Current losses: around U$15 million

Total debt: U$ 50 (yeah... 50! Not 50 million!)

Number of aircraft: 21 jets

Destinations: 21 domestic 5 international cities.


The bad results are mainly a result of the currency devaluation and not passenger decline, because most expenses are in US dollars and revenues are in weak Brazilian Reais (national currency). The figures are quite frustrating and the carriers must restructure themselves if they are willing to survive.

I personally feel very sorry for TAM. It used to be the most profitable airline in Latin America. TAM paid a high price for its aggressive expansionist strategy by agreeing to lease brand new aircraft this year. Historically, TAM has always offered its cash flow as collateral to lease planes. It doesn't quite work in times of recession.

Well... That's it from me! I will be glad to discuss these matters if you post any ideas!

Tchau!





The fastest way to become a millionaire in the airline business is to start as a billionaire.
 
Ice Cream Man
Posts: 121
Joined: Sat May 22, 1999 3:45 am

RE: Sad Brazilian News

Wed Oct 13, 1999 10:55 pm

I have heard rumours that the four mentioned airlines may merge into two airlines, although I forgot which ones would go together. Do you know more about this ?
 
PU803
Posts: 139
Joined: Thu Aug 19, 1999 8:06 pm

RE: Sad Brazilian News

Wed Oct 13, 1999 11:51 pm

Hi,
What you think could be the influence to south american small airlines
connected to brazilian airlines,
like Pluna or LAB?
 
Ciro
Topic Author
Posts: 639
Joined: Mon Aug 16, 1999 5:00 pm

Rumours

Thu Oct 14, 1999 12:33 pm

Hello Ice Cream Man,


Thank you for your interest in the Brazilian airline industry. There are no facts or hard data available in merging processes in Brazil yet. The airlines are trying to organise themselves first, before making the matter even more complex.


However, there are a few rumours going on. Let me list you a few:


1. Rio-Sul, Varig's regional subsidiary, quietly bought (and did not disclose) some 33% of Transbrasil's common stocks.

2. Varig has intentions to sell some of its stocks to United Airlines and Lufthansa.


3. Varig and Transbrasil formed a joint venture and launched Galileo Brazil, a franchise of Galileo Systems. Some analysts believe this is the first step towards a total merger.

4. Vasp is going bankrupt due to its lunatic management style. A MD-11, which costs U$500,000 a month in leasing payments, is being cannibalised at GRU airport because the carrier cannot afford to buy spare parts from the supplier.

5. The Brazilian government has suggested that all the country's international network should be awarded to a single airline, keeping the domestic routes divided among the remaining players.

6. A merger between TAM and VASP is quite logic, but very difficult. Both CEOs are mortal enemies.


7. All four airlines are studying a complete merge between them, if the anti-trust Brazilian committee approves it.


It is difficult to take any conclusions or even draw further speculation due to the current crisis situation in the industry at this point in time.
However, I don't think the country can support four highly inefficient airlines for much longer.


I will keep you informed as I get more news.


Cheers
The fastest way to become a millionaire in the airline business is to start as a billionaire.
 
Ciro
Topic Author
Posts: 639
Joined: Mon Aug 16, 1999 5:00 pm

To PU803

Thu Oct 14, 1999 12:58 pm

Hello PU803,

Your question is very interesting. Vasp has just reported its willingness to sell 50% of LAB to Continental Airlines. There are no news regarding a possible bid or even a take-over. LAB was bought in 1997 for U$ 50 million.

TAN, from Argentina, is quite a small player in Argentina and it doesn't quite fit Vasp's current route network and strategy. If Vasp goes belly up, TAN is most likely to remain an independent airline, go broke or be absorbed by a larger Argentinian airline.

Ecuatoriana, which belongs to Vasp as well, is not doing that great. The current Ecuatorian financial crisis, bad management and increasing competition from AA in the MIA route are certainly digging the grave for this carrier. It is even possible that Ecuatoriana may go out of business before the parent company.

Pluna, Varig's airline in Uruguay, has vital links with its Brazilian parent airline. It is vital for Pluna that Varig improves its current performance, because Pluna's European and North-American services are all done by Varig through Sao Paulo, Rio de Janeiro and Salvador hubs. Discontinuations of any of these flights by the Brazilian government will have a negative impact in the Uruguain travel industry. This is pretty much the same sceario regarding TAM - Mercosur, TAM - Brazil and the Paraguay.

However, in the case of a possible merger between Brazil's Big Four, the world will see one of the most important strategically positioned airlines around, with services in Brazil, Uruguay, Argentina, Paraguay, Bolivia and Ecuator (not to mention the extensive code-share agreements they have everywhere). It would certainly not be the largest and well-managed carrier around, but it will surely be an interesting player for any major world alliance for its route network and virtual monopoly in key South-American markets.

Best regards
The fastest way to become a millionaire in the airline business is to start as a billionaire.
 
Ciro
Topic Author
Posts: 639
Joined: Mon Aug 16, 1999 5:00 pm

To PU803

Thu Oct 14, 1999 12:59 pm

Hello PU803,

Your question is very interesting. Vasp has just reported its willingness to sell 50% of LAB to Continental Airlines. There are no news regarding a possible bid or even a take-over. LAB was bought in 1997 for U$ 50 million.

TAN, from Argentina, is quite a small player in Argentina and it doesn't quite fit Vasp's current route network and strategy. If Vasp goes belly up, TAN is most likely to remain an independent airline, go broke or be absorbed by a larger Argentinian airline.

Ecuatoriana, which belongs to Vasp as well, is not doing that great. The current Ecuatorian financial crisis, bad management and increasing competition from AA in the MIA route are certainly digging the grave for this carrier. It is even possible that Ecuatoriana may go out of business before the parent company.

Pluna, Varig's airline in Uruguay, has vital links with its Brazilian parent airline. It is vital for Pluna that Varig improves its current performance, because Pluna's European and North-American services are all done by Varig through Sao Paulo, Rio de Janeiro and Salvador hubs. Discontinuations of any of these flights by the Brazilian government will have a negative impact in the Uruguayian travel industry. This is pretty much the same sceario regarding TAM - Mercosur, TAM - Brazil and Paraguay.

However, in the case of a possible merger between Brazil's Big Four, the world will see one of the most important strategically positioned airlines around, with services in Brazil, Uruguay, Argentina, Paraguay, Bolivia and Ecuator (not to mention the extensive code-share agreements they have everywhere). It would certainly not be the largest and well-managed carrier around, but it will surely be an interesting player for any major world alliance for its route network and virtual monopoly in key South-American markets.

Best regards
The fastest way to become a millionaire in the airline business is to start as a billionaire.
 
Guest

RE: Sad Brazilian News

Thu Oct 14, 1999 1:38 pm

I actually posted several times about this matter before, but I will refresh some stuff. The rumors are all true, but since its initial talks nothing has progressed since some unhearted blood can be spilt when making these decisions. Personally I like having all these airlines operating in Brazil independently, but the situation this far has complicated matters, especially for the more traditional company that Varig is, and all its prestige it had in the market. It sure topped the all service expectations and was accredited worldwide for a long time. Anyway, I'll just paste one of the posts I wrote a while ago about this that I found. Cheers.


---------------------------------------------
So far, all of this is being speculated and some meetings have already
occurred in the unions of the industry. The proposal comes from the
government and all airlines seem to agree. To be rational, Brazil is one
of the only countries that crosses my mind at the moment with four large
carriers competing in both domestic and international legs(apart from the
US obviously). The market has been somewhat saturated. The demand for
some routes, especially international, decreased and at the same time
maintenance and restructuring costs swooped up pretty high. Even fuel and
slot designations at airports were raised, and now the aviation
authorities require companies to payback certain dividends.

I find it unfortunate, but at the same time necessary. Varig has proposed
to acquire Transbrasil. In this case fleet and operation methods would be
straight forward, especially because of the commonality in fleet
opearions of these two airlines. TAM buying Vasp is a morre complex case.
These though don't have much in common and a different background.
Different maintenance philosophies are also carried out at these two
carriers in terms of operations technicality. It will be very hard to see
a MD-11 flying in TAM colours(would be nice though), but once the
airlines decision to a 'family' of fleets is made, all the effort is put
in to maintain that stream as is the case with TAM's Airbuses(involving
operation, maintenance etc.) -- Which is a suitable choice.

My view is that there is still more to be carried out but merging is
inevitable. I'm just worried about companies going back to their
monopoly, as Brazil had several years, especially in some minor domestic
routes. Apart from that I reeckon efficiency will lay-out far better.

Cheers,
-----------------------------------------

However, since that post was written, new talks came out that Varig and Vasp were to fuse. It's an unpredictable game really. Unfortunately it looks that unrelated things such as economy, politics and marketing will make the decision here. It's only life, even in aviation external factors take control. Cheers again.
 
LH423
Posts: 5868
Joined: Sun Jul 11, 1999 6:27 am

Ice Cream Man

Thu Oct 14, 1999 7:56 pm

The rumour you heard was correct. The Brazilian gov't is trying to merge TAM and Varig Brasil together, and TransBrasil and VASP together, although no firm action (I think!) has taken place.

LH423
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