VZCZCXRO6566
PP RUEHRG
DE RUEHSO #0471/01 2491617
ZNR UUUUU ZZH
P 051617Z SEP 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 8501
INFO RUEHBR/AMEMBASSY BRASILIA 9638
RUEHAC/AMEMBASSY ASUNCION 3485
RUEHBU/AMEMBASSY BUENOS AIRES 3238
RUEHCV/AMEMBASSY CARACAS 0776
RUEHME/AMEMBASSY MEXICO CITY 0845
RUEHMN/AMEMBASSY MONTEVIDEO 2763
RUEHLP/AMEMBASSY LA PAZ 3898
RUEHSG/AMEMBASSY SANTIAGO 2485
RUEHRI/AMCONSUL RIO DE JANEIRO 8835
RUEHRG/AMCONSUL RECIFE 4182
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 3161
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHDC
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUEAYVF/FAA MIAMI ARTCC MIAMI FL
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEHC/DEPT OF LABOR WASHDC

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. 
 
White