Outside group to take over management of Brazil's TAM

Published: July 31 2009 03:00 | Last updated: July 31 2009 03:00

The controllers of TAM, Brazil's biggest airline, and BTG, a Brazilian investment company, have signed an agreement under which BTG will take over the management of the airline on the promise of developing the business and delivering greater value to its shareholders.

Other international airlines such as Alitalia and Olympic have entered similar arrangements in the past. But this is believed to be the first time that any big listed Brazilian company has reached a management agreement with an outside group.

BTG was created last year by André Esteves, former head of fixed income at UBS and previously a partner at Pactual, a Brazilian investment bank bought by UBS in 2006 and which BTG bought back from the Swiss bank in April this year.

BTG executives have worked with TAM for several years and were among the team that ran its initial share offering in São Paulo in 2004. A person familiar with the agreement said they could be expected to look for unrealised value in TAM operating units such as its loyalty programme and maintenance division, possibly by spinning them off into separate companies.

TAM is Brazil's biggest airline, with about 49 per cent of the domestic market in March. However, its share of the domestic market fell by 2 percentage points in the year to March and last year it made a loss of R$1.36bn (US$722m) after buying fuel on futures markets.

BTG can be expected to bring financial expertise to avoid such mistakes in the future, although the person said this was not the main motivation for the agreement.

Maria Claudia Amaro, chairman of the board of TAM Airlines, said: "The timing is right for TEP [TAM's controlling shareholder] to improve its financial and execution capabilities, as well as its strategic thinking, in evaluating the ever-changing dynamics of the aviation industry. Our intention is to clearly maintain and further promote the TAM brand and the Amaro family's legacy in the aviation industry. We found through this arrangement with BTG, a way to bring in-house world-class financial sophistication and strategic vision, as well as managerial discipline."

Rolim Amaro, TAM's founder and former chief executive, was killed in a helicopter crash in 2001.

"This is an innovative model of asset management [in Brazil], through which BTG will provide TEP with financial sophistication and management and execution capabilities . . The contract represents a milestone in combining the activities of BTG in non-traditional asset management, private equity and merchant banking businesses," said Carlos Fonseca, a partner at BTG.