Airlines Shoot up to 10% Between Rumor of Purchase and Preview

Azul leads Ibovespa’s earnings after news about possible purchase of Latam‘s operations in Brazil; Gol, which appears in second place, rises with an optimistic preview for the second quarter.

The shares of the airline sector are highlighted in the trading session on Wednesday, 26, leading Ibovespa’s gains, amid rumors about a possible purchase by Azul (AZUL4), which jumps 9.75%, of Latam’s operations in Brazil, and after the most encouraging preliminary outlook for the second quarter and semester of Gol (GOLL4), which rises 6.25%.

Regarding Azul, Valor reported this morning, citing unidentified sources, that the company would be in talks with Latam’s creditors in search of support to buy the group’s Brazilian operations, since negotiations with the airline, based in Chile, have had no effect.

As Latam has until July to present its recovery plan to creditors, one of Azul’s strategies could be to enter this process and show a new proposal, pointed out the newspaper, indicating that the company could finance the acquisition with money, offering shares or take on the debts.

The news encourages investors as the possible merger would result in good synergies, such as increased market share for Azul, although there is still resistance on the part of Latam to consider the proposal, commented the analysts of Ativa Corretora. To Estadão, the president of Latam in Brazil, Jerome Cadier, said that the group does not intend to part with its Brazilian operation.

In a July report last year, when speculation began to emerge in the market about a possible purchase, analysts at Bradesco BBI pointed out that, with the acquisition, Azul could achieve a 62% share of the domestic market (compared to the current 25%) , in addition to increasing its presence in restricted airports in Brazil, such as Congonhas, in São Paulo, and Santos Dumont, in Rio de Janeiro.

“The market reacts to the discussion of consolidation in the sector, but it also has a bit of ‘short squeeze’ (pressure on sold), since the shares of both companies have a high ‘short’ position, with rent representing around 5% of the outstanding shares in the market “, commented Bruno Lima, head of share analysis at EXAME Invest PRO. With the rise, investors are collecting this “short” a little, that is, seeking to clear a part of the short position.

One of the consequences of the merger would be to make the sector more concentrated and, consequently, with greater bargaining power, more expensive airline tickets and higher margins, since all domestic traffic would be concentrated in the two companies, said Lima. “Any more concentrated sector leads to higher operating margins in the future”.

In relation to Gol, investors also passed on their previews for the second quarter and semester, which brought optimistic expectations from the company, in addition to showing improvement in May sales.

Goldman Sachs analysts commented in a report that, although slightly below their estimates, the company’s revenue guidance pointed to a significant recovery in the figures for the second half, supporting a view of a sharp recovery after the covid crisis. They kept the purchase recommendation for the stock.

Is there more room for highs?
Despite the surge today, the roles of the two companies are still far from the pre-covid level.

Azul’s shares operate 17% below the price recorded on February 21 of last year, before starting the collapse on the Stock Exchange, while Gol has accumulated a 19% drop since then.

“Although there is a pent-up demand for travel, as we are seeing with real estate and cars, this is not a trivial sector. We will probably see an increase in demand when everything goes back to normal, just as it is happening abroad, and these companies they can present more relevant numbers ahead. Now, how much this is already in the price is difficult to say. I think there is already an important part priced “, evaluated Lima.