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CADE approves merger of Azul and Trip

Merger

Operation creates third largest Brazilian airline company and increases competition in the industry
published: Mar 07, 2013 10:00 AM last modified: Apr 14, 2016 11:17 AM

Merger of Azul S.A. and Trip Linhas Aéreas S.A. was approved by the Administrative Council for Economic Defense – CADE, on the 06 March trial session. The operation (Merger No. 08700.004155/2012-81) was considered pro-competitive by the Tribunal considering that Azul and Trip together are in a better position to compete with the market leaders of national civil aviation, TAM and GOL.

The merger approval was conditioned to the signing of a Performance Agreement (“TCD” for its acronym in Portuguese), which determines by the end of 2014 the termination of Flight share agreement (codeshare) that Trip has with TAM the end of Flight share agreement (codeshare) that Trip has with TAM. The TCD also requires the merged companies to use with intensity at least 85% of their scheduled takeoffs and landings at the Santos Dumont airport, located in Rio de Janeiro.

End of codeshare - The closing of the agreement that allowed Trip to sell available seats on TAM flights and vice versa was also required so that the two companies could become competitors. Ricardo Ruiz, Reporting Commissioner of the case, said that a relevant percentage of the revenues came from Trip agreement with TAM, which restricted competition because the two companies operated in association in various routes.

"Trip did not compete effectively with TAM, but this scenario changed with the codeshare closure. With the approval of the transaction under the terms set by CADE, the three companies (Azul-Trip, Gol and TAM) are competing against each other on all Brazilian routes" emphasized Ruiz. Nationally, the merged companies market share is close to 15%, while GOL and TAM control 39% and 41% of the market respectively, according to National Civil Aviation Agency (“ANAC” for its acronym in Portuguese).

Efficiency – In the agreement, CADE also determines that Azul and Trip use each of their slots (times of takeoffs and landings) 85% of the time. The requirement applies only to the Rio airport, which has no infrastructure available today to accommodate the entry of another airline company.

The efficiency demand for the Santos Dumont airport becomes effective within 30 days and will be measured quarterly. If breached, a pair of the merged company’s slots will be returned to ANAC for redistribution.