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Nice pop today
juangoicoa profile picture
Azul has a convertible bond that gives the option to convert it in preferred shares that represent 41% of the capital of the company and, if I my memory is correct, around 5% of the voting shares. The gov has 16%, employees 5% and gateway (neelman & partners) the rest.
HardCovenant profile picture
@juangoicoa thanks for pointing out the AZUL preferred shares, my thoughts are:

The AZUL preferred shares in the cap structure enabled AZUL to raise a lot of capital in April 2017 at a low cost of capital, the preferred shares are in the calculation of EPS,

Hainan Airlines sold their preferred shares to United Airlines in April 2018, the United AZUL alliance is being negotiated,

The preferred are listed as ADS's through Citibank and the NYSE but they are non voting and not the typical convert with a big dividend so I just go with the liquid common, the preferred will do well when AZUL is eventually acquired by United or whomever, and

AZUL's founder David Nelleman had the relationship with TAP the Portugal carrier so AZUL has huge upside in TAP through their bond investment in TAP

best of luck
juangoicoa profile picture
Anytime. Just an additional comment. The capital structure of Azul or Gol, with a huge amount of preferred shares, is related with a limitation of foreign ownership of Brazilian airlines according to the Brazilian law. If you check the conversion rates of ordinary to preferred, the relation is 25 or 35 ordinary to 1 preferred, so with little capital you could be in compliance with the mentioned law and have the control of the company by Brazilians.

Regarding to United, they have been in negotiation for establishing an alliance with Avianca for years, (I don’t like at all Mr. Efromovich, controlling shareholder of AVH) without any success.

A couple of months ago Copa Airlines (once with a big investment from United, no more), Avianca and Azul announced that they where in conversations with United around this matter. United only has an investment in Azul. (But in US, United is a competitor of Jet Blue?). Avianca also has an operation in Brasil, not owned by the listed company in US but controlled by Mr Efromovich.

Delta has a 10% of Gol and Qatar airways has a 10% of Latam Airlines.

Jetsmart (Chile/Argentina), Frontier (US) and Volaris (Mexico) are controlled by indigo partners.

There’s a complex scenario around alliances this days in latam skies but here we could have a relevant driver for prices going up in the coming months. (Not to mention that the investment of United in Azul was barely noticed by the market)
HardCovenant profile picture
@juangoicoa excellent insight on preferred stock...I think the conversion on AZUL preferred is 75:1 upon sale

I started focusing on AZUL when I was in Brasil during the trucker strike in May and AZUL's monthly data was strong irrespective of the economy nosedive, air freight unappreciated, studied the air fleet upgrades, my first aircraft transaction was in mid 1980's, around $60M raised....then when AZUL went from $34 to $15 and change I entered, Goldman then upgraded...same when GOL went to $4 and change

Long term I believe United will increase its stake in AZUL, Delta in GOL, and American and Qatar with Latam

juangoicoa profile picture
Don’t forget to consider the call on TAP Portugal. A great stock to buy & hold. I expect at least a 50% upside from this level.
HardCovenant profile picture
Isn’t TAP owned by the government of Portugal, David Neeleman and Barraqueiro Group?
HardCovenant profile picture
@Mwenda72 AZUL is up 21% from when I recently bought, DM Martins may gone long a bit early but he is writing about the fundamentals, the stock price tanked b/c of the dollar headwinds, political noise, and even the trucker strike in May which wrecked the economy but ironically illustrated the importance of air freight and travel in a country like Brasil with no rail system. The point of investing is to identify overshoots up or down relative to fundamentals. And AZUL’s fleet upgrade to efficient E2 is very promising.
DM Martins Research profile picture
I second what Hard Covenant has said above. Thanks.
Why are you pushing this stock? It's down over 32% in a year. If you want to support an airline OK, but it's not an investment.
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