Azul Airlines Chapter 11: Brazil airline Azul files for Chapter 11 to restructure debt, ET Infra

Time of India

30-05-2025

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Brazilian airline Azul on Wednesday filed for Chapter 11 bankruptcy protection in the United States, it said in a securities filing, after months of trying to restructure mostly pandemic-era debt.The move, which may scupper a potential merger with peer Gol , makes the carrier the latest Latin American airline to file for bankruptcy in the aftermath of the severe industry fallout from the initial months of COVID-19.Sao Paulo-traded shares of Azul fell as much as 12% after the filing, before paring losses to trade down around 3% in the afternoon. The stock is now down 70% year-to-date.A restructuring deal includes a commitment of $1.6 billion in financing throughout the process, elimination of more than $2 billion of debt, and a commitment of up to $950 million in equity financing upon emergence, the carrier said."We had too much debt on the balance sheet that principally came from COVID. We now have an opportunity to clean it all up," Chief Executive John Rodgerson told Reuters in an interview.Azul said it had entered into agreements with key financial stakeholders, including existing bondholders, aircraft lessor AerCap, and strategic partners United Airlines and American Airlines to support the restructuring."We believe we could be in and out prior to the end of the year," Rodgerson said. "The exit is sometimes the most difficult part of this process. So we're already entering with the exit in mind, and exiting with the financing lined up."Azul's move follows in the footsteps of Aeromexico, Colombia-based Avianca and its two largest rivals, Gol and LATAM Airlines, all of which filed for bankruptcy."This development comes as no major surprise," analysts at JPMorgan said in a note to clients, saying the bankruptcy process should lead to significant equity dilution and downgrading their recommendation on the stock to "Underweight" from "Neutral."Azul last year struck a deal with lessors to scrap $550 million in debt in exchange for an equity stake of around 20%, as well as a deal with bondholders to raise an additional $500 million.But factors such as high costs, supply-chain issues delaying aircraft deliveries and maintenance plans, as well as a weaker Brazilian real, have kept the company under pressure."What I used to pay in interest in 2019 has gone up 10 times with a currency that is 50% weaker," Rodgerson said.United and American agreed to invest up to $300 million to backstop an equity rights offering to repay the airline's debtor-in-possession financing when it emerges from bankruptcy.Azul's net debt soared 50% year-on-year by the end of the first quarter to 31.35 billion reais ($5.6 billion), with its leverage ratio hitting 5.2, up from 3.7 a year earlier.The latest blow came last month, as a capital increase fell short of expectations, pressuring Azul's shares.Fitch and S&P recently downgraded Azul's credit ratings, with the latter citing an elevated default risk.Azul said it would maintain its operations and sales normally while in Chapter 11.The Chapter 11 filing likely spoils Azul's plans for a potential business combination with rival Gol, which would have created a dominant carrier in Latin America's No. 1 economy that Rodgerson once touted as a "national champion"."We believe that consolidation discussions with Gol should be put on hold until Azul emerges from Chapter 11," JPMorgan said.