Amid pandemic, mysterious airline set to launch in Brazil

</p> <p>While the aviation industry seems to be in shreds, with a <a href="https://valor.globo.com/empresas/noticia/2020/06/22/demanda-por-voos-domesticos-cai-9097percent-em-maio-diz-abear.ghtml">90-percent drop in passengers</a> in May, the millennial executive — who presents himself as the &#8220;owner of a conglomerate with core business in investments, transportation, and technology&#8221; — launched Nella Linhas Aéreas,&nbsp;which promises to be a <a href="https://brazilian.report/business/2019/04/01/low-cost-carriers-air-travel-brazil-cheaper/">low-cost carrier</a> providing regional flights to medium-sized destinations currently outside of airlines&#8217; destination map.&nbsp;</p> <p>To cater to that demand, the new company claims to have four ATR-42 units — a twin-turboprop, short-haul regional aircraft which can fly up to 42 passengers in a single travel class. Nella was created with a capital of less than USD 1 million and plans to invest about USD 2.9 million in its first year. Despite the timid investment for industry standards, the firm promises to offer affordable tickets, on-board service, and have a frequent flyer program. It also plans to get the same certifications as major carriers.</p> <p>Mr. Souza doesn&#8217;t seem fazed by the scenario imposed by the <a href="https://brazilian.report/coronavirus-brazil-live-blog/">pandemic</a>&nbsp;— as a matter of fact, he feels elated. &#8220;It is during tough moments that great opportunities arise,&#8221; he told <strong>The Brazilian Report</strong> in a phone interview from his home in Orlando. Businessmen in Brazil like to evoke a famous phrase by one marketeer who said: &#8220;In times of rain, you should go into the umbrella business.&#8221;</p> <p>By that analogy, we could say Mr. Souza is rather choosing to sell buckets of water amid a storm. Still, he seems to be doing this with brave optimism. &#8220;We face a frightening scenario for us all. However, we must believe in the recovery and give our contribution to the development of our country.&#8221;</p> <iframe src="https://www.google.com/maps/d/u/0/embed?mid=1aEBQUj2ATqxWqWhOp1VB_bQ26GEOM0un" width="640" height="480"></iframe> <hr class="wp-block-separator"/> <h2>Not flying … under the radar</h2> <p>There is a business adage in Brazil according to which secrecy is the key to success. If that is true, then Mr. Souza has certainly started off well — the launch of his airline has been absent, with the exception of specialized websites.</p> <p>With <a href="https://brazilian.report/society/2020/06/30/pandemic-architecture-urbanism-brasilia-model-cities/">federal capital Brasília</a> as its main hub, Nella will initially fly to the Northeast region —&nbsp;and operations are set to kick off early in 2021, Mr. Souza told <strong>The Brazilian Report</strong>. But routes are yet to be defined. As a matter of fact, not much around Nella seems to have been decided —&nbsp;as the company has yet to request operating licenses from the National Civil Aviation Agency.</p> <p>Also unclear is the airline&#8217;s corporate structure. The company is owned by Orlando-based JKL Holdings S.A, which claims to have expertise in areas as varied as energy, investment solutions, airlines, business mergers, and leasing deals.</p> <p>According to the parent company&#8217;s own website, the carrier&#8217;s structure would be the following: Nella Airlines Corp would be based in Panama, a tax haven, and owned by the Nella Airlines Group Inc., a U.S. company, which is in turn under the JKL Holdings S.A&#8217;s umbrella. Besides Panama, Brazil, and the U.S., the <a href="https://www.jklbank.com/business-organization">group also holds businesses</a> in Ireland, the British Virgin Islands, and the United Kingdom.</p> <p>Very little, however, is known about these businesses, and Mr. Souza prefers to talk about them in broad terms.</p> <p>Nella, his pet project, has hired a total of 16 people —&nbsp;top executives and other professionals necessary to comply with regulators&#8217; minimum standards.</p> <p>To lead his airline, Mr. Souza hired Moisés de Lima Paes, a veteran with 42 years of experience in the business. Mr. Lima Paes should know how tough it is to thrive in Brazil&#8217;s aviation business. He is a former executive at companies such as TAM, Pantanal, Vasp, and Air Minas.&nbsp;The first two were acquired by a bigger competitor, while the latter two folded many years before the pandemic.</p> <p>But, Mr. Souza believes he is not flying solo, as he told <strong>The Brazilian Report</strong> during our interview: &#8220;if the airport helps you, and the government helps you —&nbsp;and the businessman has faith in the country and the will to reinvent himself, it is possible.&#8221; Though he didn&#8217;t explain exactly what he means by &#8220;help.&#8221;</p> <h2>Nella won&#8217;t be the only post-pandemic debutant</h2> <p>The year 2021 could see a second new airline in Brazil. Bus group Itapemirim is looking to expand into air travel —&nbsp;and could sign plane leasing deals as early as this month. The company has sustained its plan to position itself as a top-tier service, to contrast with low-cost companies, which is what Nella aims to be. &#8220;The intention is to return to serve alcoholic beverages —&nbsp;at least one measure of scotch per passenger,&#8221; future CEO Thiago Senna <a href="https://economia.uol.com.br/todos-a-bordo/2020/07/02/itapemirim-linhas-aereas-entrevista.htm">told</a> news website UOL. He says the aim is to recapture the quality of Varig, Brazil&#8217;s first airline —&nbsp;which was known for impeccable service. The company, of course, <a href="https://www1.folha.uol.com.br/folha/dinheiro/ult91u108398.shtml">went out of business</a> 14 years ago with massive debts.</p> <p>The plan is to operate mainly from Guarulhos (in Greater São Paulo), Brasília, and Recife, in the Northeast. Itapemirim Airlines should hire about 600 staff members, including 160 pilots and 320 flight attendants for its first ten planes.</p> <p>But making this business-class-type airline a profitable endeavor is easier said than done. Last week, a managing director at Citi said corporate travel is likely to come <a href="https://www.cnbc.com/2020/06/11/the-airline-industry-may-struggle-to-be-profitable-post-virus-citi.html">under pressure in the long term</a>, and that could cause airlines to struggle with profitability. “Given the fact that a 1-percent movement in corporate travel volumes impacts airline profitability by 10 percent, it’s not a crazy supposition to assume that the airline industry will struggle actually to become profitable again,” Citi&#8217;s Mark Manduca told CNBC.</p> <p>Meanwhile, the International Air Transport Association said airlines are expected to <a href="https://www.iata.org/en/pressroom/pr/2020-06-09-01/">lose USD 84.3 billion this year</a>.</p> <h2>A grim scenario ahead</h2> <p>The duo of newborn companies will have an uphill battle to climb. At least if consulting firms are worth their salt. According to Moody&#8217;s Investors Services, air passenger demand globally will remain severely depressed in 2021 — and will not see a substantial recovery before 2023.</p> <p>It decreased 13 airlines&#8217; rates in April and 22 companies&#8217; rates in March. The agency also warned airports, jet fuel providers, aircraft lessors, travel agencies, suppliers, and airline service firms about profound effects.&nbsp;</p> <p>Moody’s underlined: &#8220;Stronger and state-supported airlines have significantly improved liquidity since March. Rated airlines have sufficient liquidity to survive on average for about 450 days at current low activity levels. For weaker airlines, this may be insufficient if groundings persist into 2021.&#8221;</p> <p>For Brazilian players, there is one additional element of risk: the devaluation of the Brazilian currency, which <a href="https://brazilian.report/business/2019/01/18/weaker-currency-tourism-airlines/">leads to fuel price bumps</a>. In 2020, the Brazilian Real lost 34 percent against the U.S. Dollar.</p> <p>The outlook is not rosy for these new players, who will be fighting over scraps.