Brazilian Airline Azul Wins US Investor

By Mark Beresford, Contributing Reporter

RIO DE JANEIRO – Brazil’s youngest airline, Azul, has new investors, the US private equity firm Texas Pacific Group, which on January 22nd confirmed that it had acquired a stake in the fast growing carrier.

Azul started flying on December 15th, 2008, and was founded and is chaired by David Neeleman, the São Paulo born founder and former CEO of US airline JetBlue. It is now Brazil’s fourth largest airline, having flown 2.2 million passengers in its first twelve months of business, winning a market share of four percent.

“We are excited about TPG’s arrival. Their experience and resources will be very valuable to our strategy,” Neeleman said in a recent statement.

According to press reports, TPG acquired a ten percent stake valued at between US$20 million and US$30 million, although this has not been officially confirmed. TPG is not injecting new funds into the carrier, as it acquired the shares from two other investors, Pequot Capital and Wexford Capital; Pequot remains an investor in Azul.

Azul follows the JetBlue model closely, using secondary airports and often flying routes to smaller cities; its main operating base is Viracopos airport in Campinas, just outside São Paulo, and in Rio de Janeiro it operates out of Santos Dumont airport.

The Azul fleet is exclusively Brazilian, and is composed of fourteen Embraer jets, flying twenty routes to sixteen cities. In 2010, seven more aircraft will be added to the fleet.

The carrier is well funded, cash flow positive, and is set to turn its first full year profit in 2010, according to Neeleman.

TPG says the airline is well positioned to benefit from the projected growth of the Brazilian air travel market by providing service to customers in under-served markets, adding new, non-stop routes, flying greater frequencies, and providing a better customer experience.

“The Brazilian market is growing rapidly, as is the popularity of Azul,” TPG partner Rick Schifter said in a statement. “We believe this will continue to be an amazing success story.”

Azul is shaking up the Brazilian airline market and triggering new demand among Brazilians who normally do not use airplanes for long distance travel. Many Azul passengers are first time flyers, and Azul seems to be successfully accessing parts of the expanding middle class in Brazil that are not being served by Gol and TAM.

Since March 2009, Azul says it has achieved the highest load factor – or percentage of seats sold – of any Brazilian carrier, at above 85 percent.

Neeleman has said that an initial public offering of shares in Azul will be the likely exit strategy for investors such as TPG, although no timetable has been set for an IPO.

TPG Growth, the fund which acquired the stake, has over US$2.5 billion under investment in high growth areas, and is backed by the resources of TPG, which has about US$45 billion of assets under investment.

TPG already has major interests in the airline and travel industry, including holdings in Continental Airlines and America West Airlines, and reservations system Sabre.

Correction: January 27, 2010
This article was first published on January 26th with an TPG listed incorrectly, it is Texas Pacific Group.