Brazil's Azul adds Airbus jets to start U.S. flights

By Brad Haynes

CAMPINAS, Brazil (Reuters) - Brazil's third-biggest airline, Azul Linhas Aereas, unveiled plans on Wednesday to add 11 wide-body jets from European planemaker Airbus to start service to the United States.

Azul said it would receive six Airbus A330-200s in early 2015, when the airline will begin flying overseas, and five Airbus A350-900 jets starting in early 2017.

Together the planes are worth close to $2 billion (1.19 billion pounds) at list prices, executives said at a news conference near Azul's hub in Campinas, outside Sao Paulo. The airline has secured leasing deals from industry financier ILFC for eight of the planes. It is still negotiating the lease or purchase of three A330s.

The selection of Airbus planes, first reported on Tuesday by Reuters, is another blow to U.S. rival NYSE:BA in Latin America's biggest market. Boeing also lost out on a coveted Brazilian fighter jet contract in December.

The expansion will transform Azul, which is controlled by NASDAQ:JBLU founder David Neeleman, from a niche regional carrier into an international player directly challenging heavyweight Latam Airlines Group SA , which controls Brazil's No. 1 carrier, TAM Linhas Aereas.

WHAT'S ORTHODOX?

Azul is also making a leap from the 120-seat regional jets built by Brazil's SA:EMBR3 , which have helped tap underserved domestic routes, to double-aisle jumbo jets making 10-hour flights. Azul's A330 will seat about 245 passengers, and the A350 will have more than 320 seats.

The strategy contrasts with Brazil's No.2 airline Gol Linhas Aereas , which started domestic service with a uniform fleet of Boeing 737s and now flies those jets to the United States with a layover to refuel in the Dominican Republic.

"Who says what's an orthodox fleet?" said Neeleman at the news conference, dismissing any pressing need for traditional narrow-body jets from Airbus or Boeing.

Dramatic improvements in the fuel efficiency of next-generation 737s and A320s also make it a "foolish" moment to buy versions currently on the market, he added.

The structure of the new leasing deals make it unnecessary for Azul to raise new capital in order to add new aircraft, said Neeleman, who founded Azul after leaving JetBlue in 2008.

Last year, Azul announced plans for an initial public offering estimated at up to 1 billion reais ($445 million). Plans were frozen in August amid turbulent financial markets, and Neeleman said on Wednesday he sees no urgency for an IPO.

The Azul deal is a double boost for Airbus, which is trying to maintain demand for its current-generation A330, while marketing its all-new A350, which enters service this year.

Although the leasing arrangement does not directly generate a new sale for Airbus, the availability of aircraft looking for a home on the books of its leasing customers has been blamed for adding to a sense of oversupply as it tries to keep high production levels of the jet going beyond 2016.

Airbus shares were down 0.84 percent in Paris on Wednesday, while Boeing's stock was up 2.1 percent in New York.

Neeleman said Azul is looking to start service to southern Florida early next year followed by flights to New York, although the airports involved are still under negotiation.

The choice of airports will be closely watched for signs of potential alliances with U.S. airlines. Azul has held off codeshare agreements while Gol tightened its relationship with NYSE:DAL and TAM recently joined the Oneworld alliance, including American Airlines Group .

Azul also signed a $400 million service contract with Britain's Rolls-Royce , which makes the jet engines that power the Airbus aircraft.

(Additional reporting by Tim Hepher in Paris; Writing by Todd Benson; Editing by Jan Paschal)