JETBLUE FOUNDER LAUNCHES BRAZILIAN AIRLINE AZUL

UNCLAS SECTION 01 OF 02 SAO PAULO 000471

SENSITIVE
SIPDIS

STATE FOR WHA/EPSC AND EEB/TRA - TROBL, YVLIMAYE-DAVIS
STATE PASS USTR FOR KATE DUCKWORTH
FAA FOR BAHUMADA, CTFRANCESCHI, KBERQUIST
DEPT OF TRANSPORTATION FOR BHEDBERG
BUENOS AIRES FOR TSA ATTACHE
MEXICO CITY FOR TSA ATTACHE MGALVAN
NSC FOR GTOMASULO
TREASURY FOR JHOEK
SOUTHCOM FOR POLAD
USAID FOR LAC/AA

E.O. 12958: N/A
TAGS: EAIR ECON EINV BEXP BR
SUBJECT: JETBLUE FOUNDER LAUNCHES BRAZILIAN AIRLINE AZUL

SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY

REF: SAO PAULO 090


1. (SBU) SUMMARY: By the end of 2008, start-up airline Azul Linhas
Aereas (Blue Airlines),the fourth airline started by JetBlue
founder David Neeleman, will be poised to initiate its inaugural
flight in Brazil. With a business plan replicating JetBlue's,
Neeleman is building the new airline with the expertise of former
JetBlue executives, leased JetBlue aircraft, and utilizing JetBlue's
training facilities in the U.S. As a Brazilian-American dual
national, Neeleman is not subject to Brazil's restrictions on
foreign participation in a Brazilian airline, allowing him to tap
into a substantial and growing, yet underserved, aviation market.
Azul plans to focus initially on point-to-point service in select
domestic markets. END SUMMARY.


2. (SBU) On August 29 Consul General and Econoff met with the
president of start-up Brazilian airline Azul Linhas Aereas (Blue
Airlines),Pedro Janot. Azul was founded in March 2008 by David
Neeleman, founder, former CEO, and former Chairman of JetBlue.
Neeleman has US $200 million in financial support from institutional
investors, and is courting Brazil's development bank, BNDES, for
additional, locally-denominated loans. Janot told the Consul
General that Azul's business plan anticipates US $1.5 billion in
annual revenue within five years, which in today's market would make
Azul Brazil's third largest airline.


3. (SBU) Azul's management is a mixture of former JetBlue
executives and local aviation experts. The company has hired 200
employees, with expectations of reaching 6,000 once in full
operation over the next three years. Janot told the Consul General
that Azul will likely begin operations in January 2009, although
other executives present said it could be as early as October 2008
depending on certification approval. Janot praised Brazil's civil
aviation regulatory agency, ANAC, for their support throughout the
process, but said that the certification has been held up by
complaints from competitors.


4. (U) Following JetBlue's model, Azul plans to fly
Brazilian-manufactured Embraer planes (E-195 and E-190),the first
of which they recently received on lease from JetBlue. Azul and
Embraer have a US $1.4 billion contract to purchase 36 E-195
aircraft for delivery over the next three years, with an option to
buy an additional 36 aircraft. The aircraft will be equipped with
General Electric engines and Honeywell avionics. Azul's first
pilots are already being trained at JetBlue University in Orlando.
The company's management and eventual 'Azul University' will be
based in Alphaville, a suburb of Sao Paulo. Janot told the Consul
General that Azul University will also have Brazil's first flight
simulator.


5. (SBU) Azul is maintaining a tight hold on the details of their
strategy so as to ensure market surprise, but Janot confirmed press
speculation that the airline's operational hub will be Rio de
Janeiro's domestic airport, Santos Dumont (SDU). Azul will adopt a
point-to-point flight schedule, with initial focus on Santos Dumont
and Viracopos (VCP) airport in Campinas, near Sao Paulo. Janot said
that Azul is also very focused on accessing flight slots at Brazil's
busiest airport, Congonhas (CGH),serving Sao Paulo's domestic

SAO PAULO 00000471 002 OF 002


market. (COMMENT: Slot allocation at Congonhas airport is a very
contentious issue. Current procedures favor established airlines,
making it difficult for a start-up to get a foothold. Airlines such
as TAM and GOL/VARIG are expected to fight any attempt by Azul to
access this airport. END COMMENT.)


6. (SBU) The Consul General inquired about whether Azul has any
future plans for the international market. Janot signaled that
Azul's plans are ambitious, but that Azul "does not plan for
international flights yet." (NOTE: In separate conversations with
Econoff, Institutional Relations Manager set his sights on regional
flights to Chile and Argentina. END NOTE.) With regards to
possible codesharing agreements with international carriers, Janot
said this is not currently under discussion, although they are
working with international carriers to ensure smooth distribution of
international passenger traffic. When asked about the possibility
for synergies between JetBlue and Azul should JetBlue choose to
apply for frequencies to Brazil (as was rumored after the June
bilateral negotiations),Janot denied that this possibility is under
active consideration, but admitted that "JetBlue would not have
participated in bilateral negotiations if they didn't have some
interest in the Brazilian market."


7. (U) Azul is betting that the Brazilian market will respond
favorably to additional competition beyond two dominate carriers.
According to Neeleman, ticket prices in Brazil are 50 percent higher
than in the U.S. In addition, Azul expects that Brazil's travel
market will continue its current trend of rapid expansion.
According to the Brazilian airport authority INFRAERO, passenger
traffic increased 8.2 percent between 2006 and 2007. (Note: By
TAM's estimate, the sector has grown 12 percent annually for the
past five years. End Note.) Brazil's burgeoning middle class ("the
C class" as it is referred to in Brazil) today accounts for 51
percent of the population (compared to 31 percent in 2001 and 38
percent in 2005),with the expectation that an additional 20 million
people will join the ranks over the next two years. With numbers
like these, the future for domestic air travel appears bright.


8. (SBU) COMMENT: With ambitious plans to rival established
airlines TAM and GOL/VARIG, Azul has adopted a sensible strategy of
courting key decision-makers within the Brazilian government (GOB)
who are eager to see the civil aviation market out of crisis mode.
With new leadership in ANAC favorable to increased liberalization
(septel),Azul is meeting a real market need. The company's move
into the Brazilian market comes in the wake of major industry
upheaval following the July 2007 crash of a TAM flight at Congonhas
airport, and a September 2006 mid-air crash of a GOL flight - both
accidents killing all passengers on board and tarnishing the public
image of the companies. Promises of cheaper flights and improved
in-flight services appeal to all Brazilians and in particular the
growing Brazilian middle class that is just now starting to travel.
Combined with national pride in Embraer jets - an icon of Brazilian
technology and innovation - Azul has a strategy that bodes well for
early success. END COMMENT


9. (U) This cable was cleared by the embassy in Brasilia.

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