Brazil’s Azul is close to a new agreement with the lessors, Reuters sources say

By Gabriel Araujo and Luciana Magalhaes

SAO PAULO (Reuters) – Brazilian airline Azul has moved closer to a new deal with lessors, three people familiar with the talks said, as the company offers them equity to pay off about $600 million in debt.

The carrier’s shares have fallen more than 40 percent since August on media reports that Azul was considering filing for Chapter 11 bankruptcy protection as it struggles with debt. The company said it was focusing on direct talks with creditors.

“There is momentum towards a successful conclusion of the out-of-court restructuring,” one of the sources said, adding that Azul and the lessors had met in New York in recent weeks.

Azul declined to comment on the negotiations.

The carrier told Reuters last month that Azul was not considering Chapter 11 and would offer lessors a stake to pay off its obligations that had been scheduled for payment over a three-year period.

The Brazilian airline managed to avoid Chapter 11 even as a number of Latin American carriers filed for bankruptcy following the COVID-19 pandemic, including Aeromexico, Avianca, LATAM and, most recently, local rival Gol.

The sources, who spoke on condition of anonymity to discuss confidential discussions, said most of Azul’s landlords had already signaled they would agree to the plan on the table. Two of the people said an agreement could be signed within weeks.

Under the current framework, one of the sources said, the lessors would get about a 20 percent stake in Azul.

“It’s not 100% what Azul would want, and it’s not 100% what the landlords would want, but it may be a good way to ease that burden,” one of the people said.

Azul struck a deal with lessors and equipment manufacturers in 2023 to give them up to $570 million in preferred shares valued at 36 reais ($6.46) each, part of a wider restructuring that has been delayed, also debt maturities and raised additional capital.

Azul shares have fallen more than 70 percent so far this year and now trade at around 4 reais as the company struggled with a weaker exchange rate and disastrous floods in the key market of Porto Alegre, triggering the need for another restructuring.

The new agreement with the lessors would also open the door to raising new funds from bondholders, the sources said.

The company previously said it could use the Azul Cargo cargo unit as collateral for up to $800 million. Azul would likely raise $300 million to $400 million in a new deal, one of the sources said.

Azul has also held talks with Gol’s parent Abra Group to “explore opportunities”, amid speculation of a potential tie-up. The two carriers announced a codeshare agreement in May.

($1 = 5.5702 reais)