TransBrasil S/A Linhas Aéreas

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TransBrasil S/A Linhas Aéreas

Rua General Pantaleao Telles 40
BR 04355-040 Sao Paulo/SP
Brazil
Telephone: (11) 532-4600
Toll Free: (800) 872-3153
Fax: (11) 533-4983
Web site: http://www.transbrasil.com.br

Public Company
Incorporated: 1955 as Sadia S.A. Transportes Aéreos
Employees: 4,600
Sales: $750 million (1998)
Stock Exchanges: Rio de Janiero
Ticker Symbol: TRLA
NAIC: 481111 Scheduled Passenger Air Transportation;481112 Scheduled Freight Air Transportation; 481212 Nonscheduled Chartered Freight Air Transportation; 481211 Nonscheduled Chartered Passenger Air Transportation

TransBrasil S/A Linhas Aéreas, Brazil’s third-largest airline, flies about three million passengers a year. In spite of impressive growth, it has suffered through harsh recessions and cut-throat fare wars that have made a merger between it and the three other major Brazilian carriers likely.

Origins

The company’s origins lie in the 1950s, when a meatpacker 1,000 kilometers away from his prime market in the days before refrigerated trucks had an aviation buff for a son, factors that combined to engender a new air cargo service. Attilio Fontana owned the Sadia Concordia Group in Santa Catarina. In 1953 the company relied on trucks to carry frozen beef to Sao Paulo, a three-and-a-half day ordeal over terrible roads that involved cooling stops along the way. Fontana’s son Omar flew part-time for Panair do Brasil (in addition to working for his father, going to law school, composing music, and playing piano). He persuaded his father to lease one of the carrier’s DC-3s, which sat parked on weekends, in order to ship the meat to market in two and a half hours. Pelo ar para seu lar —“from the air to your lair”—became the company’s catchy new slogan.

The next year, over the objections of his father, the younger Fontana convinced the Sadia board to buy a DC-3 from Panair do Brasil. It was heavily utilized, logging fifteen hours a day in three round trips. Maintaining the plane at its home base in Joaç was a primitive affair, with fuel poured out of barrels. Although more modern facilities and cheaper fuel were available in Sao Paulo, at the other end of the line, the operation was hit by heavy tariffs in maintaining the private plane. In addition, VARIG (Viagao Aérea Rio-Grandense) refused to let the company use its radio facilities.

These factors prompted Omar Fontana to fly in the face of the established airlines of Brazil and start his own. Sadia S.A. Transportes Aéreos was created on January 5, 1955, and began flying charters the next year. Scheduled service began on March 16, 1956, on a Sao Paulo-Joacaba-Videira-Florianopolis route. The company had seventeen employees and three aircraft (two DC-3s and a C-46). The cargo business helped keep the flights profitable, whatever the passenger turnout, and the route system soon expanded. In 1957 Sadia was flying beef to feed the workers building the new capital of Brasilia. Later that year, the new carrier entered a cooperation agreement with REAL, an established national carrier. In exchange for 50 percent of its shares, Sadia received four aircraft, allowing it to stretch its routes to Rio de Janeiro and Porto Alegre. Omar Fontanta became of vice-president of REAL. He bought his shares back in 1961, however, when VARIG took over REAL.

Sadia bought Transportes Aéreos Salvador in 1962. Its five aircraft allowed expansion to the northeast, bringing the number of destinations served past fifty. Another auspicious development in the 1960s was the National Integration Network (Rede de Integracao, or RIN), a government subsidy aimed at developing feeder routes in the face of increasing aircraft costs.

A New Name in 1972

Sadia became known as Transbrasil S.A. Linhas Aéreas in July 1972. At the same time, employees were offered shares in the company through the Transbrasil Foundation. New red, yellow, and blue livery symbolic of Brazil’s natural resources began adorning the planes. The next year, along with Transportes Aéreos Regionais S.A. (TAM), Transbrasil began flying the Embraer EMB-110 turboprop, the first commercial aircraft produced in Brazil. Transbrasil had been operating the British BAG 1–11 jet since 1970, and became the largest operator of Boeing 727s in Latin America by 1978. In 1983, Transbrasil began operating the state-of-the-art Boeing 767, a widebody, twin-engine jet. A few years later, it bought updated versions of the smaller Boeing 737.

Except for a few charter flights, Transbrasil was excluded from serving the international market. This placed it at a particular disadvantage, as it had to pay for aircraft in hard currency but could only take in income in cruzeiros. Toward the end of the decade, Transbrasil and VASP (Via9ao Aérea de Sao Paulo) intensified their campaign to break the monopoly given VARIG by the government. They met with some success. VASP, owned by the state of Sao Paulo, began making scheduled flights to Aruba in 1989.

However, before Transbrasil could win international routes, it had to rectify its financial situation—it was $120 million in debt, thanks to an economic reform program (Plano Cruzado) that froze fares while allowing its costs to rise. Transbrasil began selling off planes in order to survive. (So did VASP, which owed $520 million.) It also laid off 800 employees and borrowed $40 million from the government.

A long-running legal dispute unfolded. The governor of the State of Sao Paulo proposed merging Transbrasil with VASP. When Transbrasil failed to make its first payment on its $40 million, two-year loan, the Air Ministry installed Brig. Josué Mil-Homens as president of Transbrasil. Within a few months Fontana had sued Mil-Homens for mismanagement, and a shareholders meeting selected new administrators. The government intervened, again placing Mil-Homens in charge. Fontana appealed to the Supreme High Court. A proposed joint power-sharing agreement was scuttled by a group of pilots who preferred the government administrator, Mil-Homens, who had meanwhile committed Transbrasil to the purchase of several new aircraft.

Meanwhile, the carrier also cast about for a foreign investor, which stimulated much controversy within the Brazilian aviation community, particularly as Transbrasil’s focus was on domestic routes. At the time, Fontana owned 35 percent of the company and served as the president of the Transbrasil Foundation, which owned 49 percent. In the midst of this confusion, on September 1, 1989, Transbrasil began scheduled service to Orlando. Mil-Homens favored cutting this route to save costs.

New Freedom in the 1990s

Wagner Canhedo bought VASP, Brazil’s largest airline after VARIG, from the State of Sao Paulo in September 1990. Number three Transbrasil entered a wide-ranging, 10-year agreement with VASP in April 1991 that had the potential of saving the two airlines $7 million a month. Still, Transbrasil officials felt that Canhedo’s investments were putting too much capacity in the market. Further, a new entrant, Air Brasil, was about to take wing.

Aviation Week and Space Technology cataloged Transbrasil’s advantages in 1991. It had grown to employ 4,800 and operated a rather new fleet of 23 aircraft. It had recently given Brasilia and Washington, D.C., their first non-stop connection, which saved passengers eight hours of flying time. It was planning special ecological tour packages to Manaus, in the heart of the Amazon, to appeal to North Americans and Europeans. However, these plusses could not outpace Brazil’s runaway inflation and a global recession, and Transbrasil lost $91 million in 1991. It only owned three planes of its own and owed $270 million—most to the Brazilian government. In 1992 Brazil’s nine airlines asked the government for a $2.2 billion low-interest loan, which was refused. Banks were charging 40 percent interest at the time.

TransBrasil lost $45 million in 1993 on sales of $422 million. By the second half of 1994, the Brazilian’s government’s Piano Real had introduced some stability to the economy, and the airline showed every sign of a promising recovery. In 1994 it posted a $34 million profit on sales of $562 million. However, one survey at the time found Brazilian airline productivity to be less than half of that in America.

The Fontana family owned about three-quarters of Transbrasil in 1995, increased from the less than fifty percent share Fontana held during the crisis of the late 1980s. The airline’s fleet comprised 29 aircraft, all made by Boeing. However, it canceled an order for three Boeing 777s—part of Fontana’s hardball fleet rationalization tactics. The carrier aimed to own two-thirds of its aircraft by 2000.

The domestic market accounted for about 75 percent of sales. In July 1995 Transbrasil formed a regional carrier, Interbrasil Star Airlines. Cargo, operating through the Aerobrasil subsidiary, accounted for 15 percent of revenue. The carrier teamed with Evergreen Airlines for Boeing 747 freight service to and from New York and Miami, soon adding Hong Kong.

Company Perspectives:

TransBrasil operates the youngest fleet in Latin America, and one of the youngest in the whole world, 6.8 years. This means more passenger comfort and safer operations. Our fleet consists exclusively of the WideBoeing 767–200/300ER and Boeing 737 in the 300 and 400 versions, the most advanced aircraft today. One of TransBrasil’s characteristics is that our main aircraft is the WideBoeing 767, which ensures a very comfortable travel for our passengers due to its spacious cabin. But passengers are not the only ones who benefit from our young fleet. The environment is also thankful: TransBrasil’s aircraft are less noisy and pollute less.

Finding international partners was a critical focus of Transbrasil’s survival strategy in the mid-1990s. The airline began flying to Vienna in 1993 and had ambitious plans stretching as far as Beijing and Moscow, both to be served via Europe. Trans World Airlines joined Transbrasil in a code share agreement in 1996. Transbrasil also began leasing a Boeing 767 from TWA. Delta Air Lines signed its own code share accord in the fall of 1997. The Economist noted that from Sao Paulo, it was cheaper to fly to Miami than to north-east Brazil.

The Brazilian commercial aviation market was radically deregulated in January 1998. Airlines began slashing fares, which filled planes with record numbers of travelers. TAM had meanwhile grown from a small air taxi operator to a serious, low-cost threat to Brazil’s top three—and on TransBrasil’s home turf. It had carved itself a 16 percent market share and partnered with American Airlines, the region’s strongest international operator. VARIG had also grown leaner and more competitive and had joined the formidable Star Alliance. Brazilian reals were devalued in January 1999. The resulting increases in costs had the country’s air carriers cutting international routes. By this time, all four major U.S. airlines were flying to Brazil.

Antitrust regulators, anxious about the foreign domination of faltering domestic industries, gave their blessing to the same consolidation in the airline industry that had restructured brewing and maritime industries. VARIG had a 41 percent market share, while VASP and TransBrasil each held about 16 percent. In October 1999, Andrea Calabi, president of Brazil’s National Development Bank (BNDES), announced definite plans for the country’s four major carriers (VARIG, VASP, TAM, and TransBrasil) to merge. In the meantime, TransBrasil faced the new millennium with a new corporate logo, a new capital letter in its name, and a new director/president, Paulo Enrique Coco.

Principal Subsidiaries

AeroBrasil; InterBrasil Star Airlines.

Principal Competitors

VARIG (Viagao Aérea Rio-Grandense); VASP (Via$ao Aérea de Sao Paulo); Transportes Aéreos Regionais S.A. (TAM); American Airlines; United Air Lines.

Key Dates:

1953:: Omar Fontana suggests his father’s meatpacking company fly beef to market in a rented plane.
1955:: Sadia S.A. Transportes Aéreos is founded.
1963:: Creation of National Integration Network helps subsidize Transbrasil as a feeder airline.
1972:: Transbrasil name is adopted.
1988:: Brazilian government installs its own administrator after the airline misses a loan payment.
1994:: Newly stabilized currency helps carrier again post a profit.
1998:: Brazilian aviation market deregulated, increasing likelihood of eventual merger.