Azul Linhas Aéreas Brasileiras (AD, São Paulo Viracopos) has reached a restructuring deal with lessors that gives them equity and tradeable debt in exchange for lower payments, a move that will cut lease payments by BRL5.4 billion reais (USD1.1 billion) in the long term, it announced on May 15.
The commercial agreements the airline said it had reached with lessors and OEMs (original equipment manufacturers) as part of its permanent restructuring plan include:
- the elimination of lease payment obligations that were previously deferred during the pandemic
- a permanent reduction in lease payments from original contractual lease rates to “agreed-upon current market rates”
- “the deferral of certain payments” to lessors and OEMs, and “certain obligations” under supplier agreements
- other concessions including improved end-of-lease compensation obligations and aircraft return conditions, the elimination of future maintenance reserves payments, and early termination of some aircraft leases.
Lessors and OEMs “have generally agreed” to receive an unsecured tradeable note maturing in 2030, which the carrier outlined in March, with a coupon of 7.5% per year and convertible into preferred shares valued at BRL36 (USD7.36) per share. The shares are subject to a lock-up provision until the second half of 2024 and will vest in 14 quarterly instalments ending in the second half of 2027.
Current shareholders will be given preemption rights enabling them to subscribe in proportion to their shareholding. The “contemplated” equity instrument is designed to minimise dilution to shareholders, with dilution estimated at 17.5%, the airline said. If during the three years from the second half of 2024 the trading price of the shares is lower than BRL36, “Azul may compensate for the difference by issuing additional preferred shares, or through a cash settlement, or through the issuance of new debt instruments.” If the trading price is higher than certain thresholds, the number of shares issuable will be reduced.
Azul said it estimates that the restructuring “will reduce lease payments going forward” by around BRL5.4 billion, with a reduction in annual lease payments from BRL4.4 billion to BRL2.6 billion (USD899 million to USD531 million) in 2023, BRL4.1 billion to BRL2.9 billion (USD838 million to USD593 million) in 2024, BRL3.5 billion to BRL2.6 billion (USD715 million to USD531 million) in 2025, and BRL3.2 billion to BRL2.4 billion (USD654 million to USD491 million) in 2026.
Azul also released its results for the first quarter of 2023, posting a narrowed net loss of BRL322 million (USD66 million) during the period on net revenue that rose 40%. In a stock exchange filing it provided upbeat estimates and forecasted “a robust demand environment” that would allow it to raise earnings before interest, taxes, depreciation, and amortisation (EBITDA) by 70% from 2022 to around BRL5.5 billion (USD1.12 billion) for 2023, driven by “expectations of capacity growth, unit revenue increase, higher productivity, and a more favourable fuel environment.”