Azul and Virgin America IPO

Azul SA is Brazil`s third-biggest airline after TAM and GOL, founded by David Neelman, who also founded JetBlue Airways Corp (JBLU.O). They may become No. 1 as Azul could offer about 3,000 more seats than their biggest competitors. Azul has a 15,9% market share and is the fastest growing airline in Brazil based on passenger kilometers flown, according to the National Civil Aviation Agency. Azul had $1,64 billion (4,2 billion reais) in revenue for the fist nine months in 2014.


Neelman left JetBlue Airways Corp in 2008 to launch the Brazilian carrier, which is his fourth airline startup.

David Neelman`s family is American, but he was born in Brazil and has Brazilian citizenship. That`s important, because Brazilian law forbids majority foreign ownership of airlines.

Azul SA revived plans for an IPO in Sao Paulo and New York. According to the U.S SEC filing, Azul plans to list referred shares on the Level 2 chapter of the Sao Paulo Stock Exchange, and American depositary shares on the New York Stock Exchange. It doesn`t say when the IPO will take place.

So far, they expect the IPO will be worth around $1 billion. Neelman owns 67% of voting shares and 4,58% of outstanding preferred shares. The private equity firms TPG Growth, Weston Presidio, Grupo Bozano, and Gàveo Investimentos, which is owned by J.P. Morgan, also own stakes in Azul Airline. The shareholders in Azul may sell an unspecified portion of their shares as part of the offering.

According to Azul`s prospectus, the money raised will be used to finance expansion plans and to pay down debt. They plan to buy 38 Airbus A320neo jets and lease 25 more. They have also begun international service with the first flight connecting Brazil and the U.S. In April, they announced plans to start flights to southern Florida early next year, followed by flights to New York, using a dozen leased wide-body jets, first A330-200 and then A350-900 aircraft.

Azul`s president Antonoaldo Neves said they are going to grow the cake, not steel from their competitors. He also said there`s no reason the market can`t double. Brazil`s airline association has said domestic demand is expected to rise to about 200 million passengers by 2020. That`s up 100%.

The IPO comes during a periode with few Brazilian offerings, as the equity issuance market stagnated this year as the economy slipped into a technical recession in the first half of 2014. The falling petroleum prices is helping airline stocks around the world, so the timing could be good. (Read my article “Airlines hammered”, October 14, 2014).

Sir Richard Branson know that. Delta (DAL) and JetBlue (JBLU) are both up over 50% this year. He`s low-cost airline Virgin America (VA) made an impressive debut on Nasdaq. The stock jumped 30,43% to close at $30 on November 2014. Virgin America raised $307 million through the offering.

Virgin America is the U.S offshoot of Branson`s London-based Virgin Group. Branson, through VX Holdings LP, own 24,8% stake after the IPO. The biggest shareholder with 32,8% is the Hedge fund Cyrus Capital Partners LP.

Virgin America has had a troubled time ever since its launch in 2007, and witnessed profits for the first time in 2013. Third quarter profits climbed about 24% buoyed by an increase in passenger traffic and higher fare rates. Revenue was up 4,7%, totaling $405,5 million.

Take note that Virgin America is the only U.S airline company to have gone public since another low-cost carrier, Spirit Airlines went public in 2011. Can Virgin America win this battle with their Wi-Fi service and comfortable leather seats? Will a hip airline work on Wall Street?

Anyway, it`s gonna be hard for Virgin America to fight with big players like American Airlines, Delta Airlines and United Airlines. It`s not going to be easy for Azul either, but investors will not ignore their growth in the future. Nor Azul and Virgin`s competitors.


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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