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TAM: Hurdles, But Good Outlook

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TAM, Brazil's top airline, faces short-term challenges, but has an overall good, long-term outlook.

BY CHRONICLE STAFF

TAM, Brazils largest airline, is expanding dramatically internationally, but a major plane crash in Brazil in July caused the airline to post a strong decrease in profits. Net operational revenue in the third quarter fell by 0.7 percent to 2.1 billion Reais (approximately US$1.2 billion), while net income fell by 77.2 percent to 48.5 million Reais.  The result: A 14 percentage point drop in earnings before taxes (EBIT) to 2.8 percent.

"It hurt all the Brazilian carriers ...but they [TAM] are coming out strongly," says Bob Booth, chairman of U.S.-based consultancy AvGroup, says of the crash and its effect on the Brazilian aviation sector. "I believe TAM did a very professional job of handling the aftermath of the accident."

RESTRUCTURING HELP

The restructuring of Brazil aviation may actually help TAM - and its rival GOL - in the long run as it will force the companies to slow down their growth rates, which were already becoming unmanageable and had severely strained yields, according to Ray Neidl, an analyst at Calyon Securities.

TAMs ADR closed at $25.74 today due to the third-quarter results. That...



Keywords: Airbus, domestic traffic, international traffic

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