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Bankruptcy of Brazil’s Second Largest Tour Operator Sends Chills throughout Distribution System
October 7, 2015 by Tom Berrigan
The news from several months ago that a major Brazilian tour operator, Nascimento Turismo, had declared bankruptcy was just one thread in the fabric of a story that went beyond the more than $6 million the operator reportedly owed creditors—at least half of which is owed to U.S.-based receptive tour operators—when the news became public. Other factors include:
—The impact of the strong U.S. dollar vs. the weak Brazilian real, as the latter dropped in value by some 40 percent from the first week of October 2014 to the first week of October 2015;
–Its size, which did not protect Nascimento, a company founded in 1961 and had 350 employees with offices in São Paulo, Santos, Sorocaba, Belo Horizonte, Brasilia and Rio de Janeiro;
—The impracticality of the period of due diligence, which left suppliers and receptives with the belief that CVC, the company that indicated it was going to acquire Nascimento, would do so, only to suddenly withdraw its bid;
—The danger of the practice of Brazilian operators covering the cost of a holiday purchased by consumers who then pay for the experience in parcelized segments following the vacation over periods of 10 to 12 months, as well as the fuzzy line between operators and agencies in Brazil, which are sometimes located in the same office; and
—The absence of protection for Brazilian travelers who do pay the full amount for their travel.
On its face, the bankruptcy of the operator had mostly to do with the collapse of the Brazilian economy and the currency exchange rate–which is what the company’s top officers, Eduardo Nascimento and his son, Plinio, told the Brazilian trade journal, Panrotas, in an interview.
Tour products are sold to Brazilian travel agencies and consumers in Brazilian reales. But the operator has to pay for U.S. product in U.S. dollars. This meant that—depending on when they purchased their room allotments, airline seats and the other elements of a tour package from U.S. receptive tour operators or suppliers—the Nascimentos owed at least 20 percent more than the price of the product they sold the Brazilian travelers.
While word of the precarious situation of Nascimento was likely well known within the small tour operator community of Brazil—the annual report of Panrotas includes the company in its list of the 90 major tour operators in the country, all of whom are members of Associação Brasileira das Operadoras de Turismo (BRAZTOA), which generates 90 percent of all outbound travel from Brazil—it did not sound any alarms, as most of the other operators were dealing with the same situation.
Moreover, CVC, the largest travel company in Brazil—even though it is majority owned by the Washington-based Carlyle Group, a global venture capital firm–had indicated that it was set to acquire Nascimento, and the company was in a six-month period of due diligence. This fact was sufficiently encouraging to those receptives in the USA who continued to sell product to the company. Nascimento continued to buy product in U.S. dollars only to sell it for a loss to agencies and customers who paid for it in rapidly depreciating Brazilian reales. Apparently, when CVC discovered the operator’s debt had ballooned, it cancelled out and instead acquired two other companies in neighboring Peru. Eduardo Nascimento told Panrotas that the reason for CVC’s departure from the deal was the number of employees (350), which CVC believed were too many for the company.
Regardless of the reason, when CVC indicated that it was no longer interested in Nascimento, the company had to shut down. According to Panrotas, a Brazilian court has established Nascimento’s unpaid debt at more than $6 million. One U.S. US-based receptive indicated that they were owed $275,000 and another told INBOUND they were owed nearly $2 million.  Account receivable insurance, which is readily available for European countries, is difficult, if not impossible, to find for Latin American countries.
In another follow-up, the president of Braztoa, Magna Nassar, and the CEO of the organization, Monica Samia, used the occasion of the just concluded ABAV conference (Sept. 24-26 in São Paulo) to announce the launch of an insurance program which will ensure that consumers receive compensation in case of cancellation of travel, and failed tour companies, as well as businesses such as airlines, operators and suppliers abroad—or even business scams. Under the program, the cost of paying for the coverage (up to 10,000 reales, or, currently, $2,500) will be included in all Braztoa associated packages. “The example of Nascimento Turismo is currently the best business card for insurance,” noted Panrotas.
Also, In a related development Oswaldo Freitas, who had been Nascimento Turismo’s USA product manager, has accepted a position as is the new regional director of sales for Latin America, JTB Americas manager for JTB’s Brazilian operation, which is based in São Paulo.
(The Nascimentos have reportedly launched an online B2C website, but we were unable to locate it prior to the posting of this article.)
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