Azul Nears Agreement with Aircraft Lessors, Paving Way for Capital Increase

Azul Airlines is close to finalizing negotiations with aircraft lessors, a crucial step towards securing a private capital increase.

The company aims to convert approximately $600 million of debt into equity, giving lessors a 20-22% stake in Azul‘s capital. This agreement is essential for bondholders to approve a new capital injection of up to $400 million.

Insiders expect the capital increase to occur by the end of October, earlier than some market skeptics anticipated.

The airline plans to use Azul Cargo, its logistics arm valued at $800 million, as collateral for the new funds. This approach mirrors last year’s negotiations involving the Tudo Azul loyalty program.

Azul has already reached agreements with 90% of its lessors and expects to achieve 100% in the coming days. The proposed conversion would value Azul’s shares at R$30, significantly higher than the current market price of R$5.10.

This arrangement aims to avoid excessive shareholder dilution, a concern that previously led to a sharp decline in Azul’s stock price.

The airline industry continues to face challenges, including delayed aircraft deliveries and high fuel costs. However, Azul’s margins have returned to pre-pandemic levels.

The company is also pursuing a R$1 billion ($180 million) loan repayment from TAP, the Portuguese airline, amid privatization talks.

Azul Nears Agreement with Aircraft Lessors, Paving Way for Capital Increase

Recent approval of credit lines backed by the National Civil Aviation Fund offers additional optimism. Government officials and the BNDES president have assured that approximately R$5 billion will be available to airlines this year.

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This financial support could provide a much-needed boost to the sector. Despite stable revenue and improved EBITDA in the first half of 2024, Azul faces headwinds from currency depreciation and high interest rates.

These factors have contributed to negative free cash flow and recent credit rating downgrades by Fitch and Moody’s.

As Azul navigates these challenges, the potential agreement with lessors and capital increase represent critical steps towards strengthening the company’s financial position and future growth prospects.

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