Azul Orders Airbus Jets To Start US Flights

April 23, 2014

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Brazil's third-biggest airline Azul will add 11 wide-body aircraft from Airbus to start service to the United States.

Azul Linhas Aereas said it would receive six Airbus A330-200s in early 2015, when the airline will begin flying overseas, and five Airbus A350-900s starting in early 2017.

Together the planes are worth close to USD$2 billion at list prices, executives said at a news conference near Azul's hub in Campinas, outside Sao Paulo. The airline has secured leasing deals from industry financier ILFC for eight of the planes. It is still negotiating the lease or purchase of three A330s.

The selection of Airbus is another blow to Boeing in Latin America's biggest market. Boeing also lost out on a coveted Brazilian fighter jet contract in December.

The expansion will transform Azul, which is controlled by JetBlue Airways founder David Neeleman, from a niche regional carrier into an international player directly challenging heavyweight LATAM Airlines Group, which controls Brazil's number one carrier, TAM.

WHAT'S ORTHODOX?

Azul is also making a jump from the 120-seat Embraer regional jets which have helped tap underserved domestic routes, to double-aisle lonh-haul aircraft making 10-hour flights. Azul's A330s will seat about 245 passengers, and the A350 will have more than 320 seats.

The strategy contrasts with Brazil's number two airline Gol, which started domestic service with a fleet of Boeing 737s and now flies those jets to the United States with a refuel stop in the Dominican Republic.

"Who says what's an orthodox fleet?" said Neeleman at the news conference, dismissing any pressing need for traditional narrow-body jets from Airbus or Boeing.

Improvements in the fuel efficiency of next-generation 737s and A320s also make it a "foolish" moment to buy versions currently on the market, he added.

The structure of the new leasing deals make it unnecessary for Azul to raise new capital in order to add new aircraft, said Neeleman, who founded Azul after leaving JetBlue in 2008.

Last year, Azul announced plans for an initial public offering estimated at up to BRR1 billion reais (USD$445 million). Plans were frozen in August amid turbulent financial markets. Neeleman said on Wednesday he sees no urgency for an IPO.

The Azul deal is a double boost for Airbus, which is trying to maintain demand for its current-generation A330, while marketing the new A350, which enters service this year.

Although the leasing arrangement does not directly generate a new sale for Airbus, the availability of aircraft looking for a home on the books of its leasing customers has been blamed for adding to a sense of oversupply as it tries to keep high production levels of the jet going beyond 2016.

Neeleman said Azul is looking to start service to southern Florida early next year followed by flights to New York, although the airports involved are still under negotiation.

The choice of airports will be closely watched for signs of potential alliances with US airlines. Azul has held off codeshare agreements while Gol tightened its relationship with Delta Air Lines and TAM recently joined the oneworld alliance, which includes American Airlines.

Azul also signed a USD$400 million service contract with Britain's Rolls-Royce, which makes the jet engines that power the Airbus aircraft.

(Reuters)