Facing a complex financial situation, Azul announced on Sunday that it had successfully reached commercial agreements with lessors, a breakthrough in the company’s comprehensive plan to strengthen cash generation and improve its capital structure.
On Sunday, the Brazilian carrier Azul Linhas Aéreas announced it had successfully reached commercial agreements with lessors a day before releasing 2022’s full financial results. In a statement, the airline said these agreements were signed with lessors representing more than 90% of its lease obligations.
They also represent a significant part of a comprehensive plan designed to strengthen Azul’s cash generation, improve its capital structure, and deliver to lessors 100% of the prior-committed values through a combination of long-term and equity valued at a reset balance sheet, it said.
Under the new agreements, lessors will reduce Azul’s lease payments to eliminate COVID-related deferrals and the gap between the airline’s lease rates and agreed-upon current market rates. In exchange, lessors will receive a tradeable note maturing in 2030 and equity priced accordingly to reflect Azul’s new cash generation and reduced credit risk.
Alex Malfitani, the company’s Chief Financial Officer, said in a statement,
“Lessors represent 80% of our nominal gross debt. Reaching these agreements demonstrates tremendous success in our approach. The leasing community has recognized that supporting Azul is an intelligent, revenue-maximizing business decision, yet we are still honored and grateful for their valuable support. No aircraft have left the fleet throughout this negotiation, and in fact, our partners have delivered 12 additional new aircraft to us over the past five months. Negotiations continue with lessors and other stakeholders such as OEMs, and we are very optimistic about reaching agreements with all of them.”
With the OEMS, Azul is looking to improve payment terms for most of its COVID-19 deferrals, increase its credit limits, and exchange the remaining deferrals for a similar structure as that of lessors.
These agreements have allowed Azul to eliminate its projected cash gap for 2023, and cash flow should be positive in 2024 and beyond.
Azul results in 2022
Last year was a record year for Azul Linhas Aéreas. The company had 16 billion reais in total revenue (around US$3.1 billion), a 40% increase from 2019. Nonetheless, the Brazilian carrier posted a 1.37 billion net loss last year (about US$267 million).
Looking ahead to 2023, the airline’s management is encouraged by the robust demand environment and certain milestones in its route network. For instance, on March 27, Azul will begin flying its expanded network at Sao Paulo’s Congonhas International Airport (CGH) after earning valuable former Avianca Brasil slots. “We will more than double our operations to 84 daily flights, serving the largest corporate destinations and showing new customers all that Azul has to offer,” said John Rodgerson, Azul’s CEO.
Internationally, Azul expects to fully recover its pre-pandemic capacity in 2023, supported by new routes and destinations, including recently announced Paris and Curazao. The airline will continue adding more flights to the United States from Belo Horizonte, Recife, Manaus, and Belém, and there are talks about possible flights to New York John F. Kennedy.
“We are excited and optimistic about what we see in 2023 and beyond. For the year, we expect to generate record revenue of 20 billion reais and record EBITDA of more than 5 billion, around 40% above 2019. With the support of these strong operational trends, we have turned our focus to implement a comprehensive long-term plan to address the remaining COVID-related effects in our capital structure,” Rodgerson added.
Daniel Martínez Garbuno is a Mexican journalist. He has specialized in the air industry working mainly for A21, a Mexican media outlet focused entirely on the aviation world. He has also published on other sites like Simple Flying, Roads & Kingdoms, Proceso, El Economista, Buzos de la Noticia, Contenido, and Notimex.