Azul Airlines Shares Jump After Debt Deal Announcement

SAO PAULO (Reuters) – Shares in Brazilian airline Azul surged on Tuesday following the announcement of a debt resolution with lessors, a move analysts believe alleviates concerns regarding the company's potential Chapter 11 bankruptcy filing.

Sao Paulo-traded shares of Azul rose over 20% in early Tuesday trading, significantly outperforming the benchmark stock index Bovespa, which declined by 0.8%.

On Monday evening, the carrier revealed that it had successfully negotiated commercial agreements with lessors and equipment manufacturers (OEMs) holding roughly 92% of its existing equity obligations, allowing them to settle these obligations in exchange for a pre-determined equity stake.

According to the securities filing from Azul, the deal will see lessors and OEMs eliminate obligations totaling 3 billion reais (approximately $544.64 million) in return for up to 100 million new preferred shares of Azul in a one-time issuance.

Last month, Reuters reported that Azul was nearing a debt-for-equity swap with lessors.

JPMorgan analyst Guilherme Mendes expressed positivity regarding the announcement, stating, "We welcome the announcement as it removes the short-term overhang related to a potential Chapter 11 filing, which led to a 17-percentage-point underperformance since late August." He estimated that this move would imply an equity dilution of around 23%, with the 100 million shares valued at 575 million reais as of Monday's closing.

Earlier in 2023, Azul had already struck a deal with lessors and OEMs to give them up to $570 million in preferred shares, valued at 36 reais each, as part of a broader restructuring that postponed debt maturities and secured additional capital.

However, Azul’s shares have fallen over 60% this year amid a weaker exchange rate and significant flooding in the crucial market of Porto Alegre, sparking the need for further restructuring.

Azul clarified that the new debt arrangement depends on amendments to other obligations, including securing additional financing, and is contingent upon finalizing definitive binding documentation.

Negotiations are ongoing with the holders of the remaining 8% of equity obligations and other stakeholders.

> ($1 = 5.5082 reais)