Azul Secures Financing Deal with Bondholders

By Gabriel Araujo

SAO PAULO (Reuters) – On Monday, Brazilian airline Azul announced a deal with its bondholders to secure additional financing, aiming to alleviate concerns regarding its debt load as part of its restructuring efforts.

Azul is a major player in Brazil's airline industry, alongside LATAM and Gol, and has successfully avoided the bankruptcy faced by several Latin American carriers during the COVID-19 pandemic.

This fresh capital is part of Azul's recent agreement with lessors, which involved eliminating nearly $550 million in obligations in exchange for roughly 20% equity in the company. Analysts believe this move is essential for enhancing the airline's cash position.

Under the bondholder deal, Azul will receive $150 million this week and another $250 million by year-end, summing up to the targeted $400 million in new debt. The agreement may also incorporate another $100 million in financing and a potential $800 million debt-for-equity swap—conditional on improving cash flow by reducing costs by approximately $100 million annually.

"It will allow for a quick deleveraging of Azul," said Chief Executive John Rodgerson. He explained that creditors are interested in becoming equity holders if cost reductions are achieved, which Azul is confident will happen.

Rodgerson mentioned potential strategies for cost reduction, including negotiations with lessors and manufacturers like Embraer, Airbus, GE, and RTX's Pratt & Whitney.

Acknowledging the reality of equity dilution, Rodgerson remained optimistic, stating, "It's obvious that there will be dilution, but of a much stronger company. It is better to have a smaller piece of a much larger cake."

The announcement also detailed systematic plans to enhance cash flow by $150 million through reduced obligations with lessors and equipment manufacturers over the next 18 months.

Previous reports indicated that Azul was engaging with various parties, including bondholders and lender Jefferies, to raise about $400 million in fresh capital through debt financing, with an agreement nearing completion.