MercoPress. South Atlantic News Agency

Azul files for Chapter 11 bankruptcy protection

The move follows months of negotiations with creditors and investors

Brazil's Azul Airlines, the country’s third-largest carrier, filed for Chapter 11 bankruptcy protection in a New York court on Tuesday to restructure R$ 31.35 billion (US$ 5.56 billion) in debt. The filing follows a 50.3% debt increase in Q1 2025, driven by currency volatility, high US interest rates, and supply-chain issues, including Pratt & Whitney engine recalls resulting in grounded aircraft. Additionally, partnerships with ACMI providers like EuroAtlantic faced legal challenges from Brazilian labor unions over foreign crew usage.

Azul CEO John Rodgerson, previously critical of Chapter 11 costs, acknowledged the process provides “temporary shielding” from creditors while streamlining operations.

The airline's cash reserves dropped 51% to R$ 655 million (US$ 115.08 million), with annual lease and debt servicing costs of R$7.4–7.8 billion (US$ 1.3-1.37 billion). The restructuring plan includes US$ 1.6 billion in financing, a US$ 2 billion debt reduction, and US$ 950 million in new capital, with United Airlines and American Airlines committing US$ 100–150 million each post-restructuring.

Creditors will convert US$ 784.6 million of debt into preferred shares and extend US$ 780 million in maturities to 2029–2030. Despite a 15.3% revenue increase, Azul reported a R$ 1.816 billion (US$ 0.32 billion) Q1 net loss, prompting an S&P downgrade to CCC-.

The airline aims to lower its debt-to-EBITDA ratio from 5.7x to 2x within a year, with minimal passenger disruptions expected. Azul joins regional peers Gol and LATAM in using US bankruptcy courts for reorganization, focusing on fleet modernization with 15 new Embraer jets by late 2025. EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It is a financial metric used to assess a company's profitability by focusing on its core operations, excluding costs related to financing, taxes, and accounting decisions. It provides a clearer picture of a company's ability to generate earnings from its business activities before external factors like debt and tax obligations come into play. It is often used by investors and analysts to compare companies within the same industry.

However, success depends on stabilizing Brazil’s forex market and resolving aircraft shortages. Bondholders and lessors will hold 45% of equity post-restructuring, diluting existing shareholders, with Azul’s stock dropping 12% in São Paulo and up to 40% in New York pre-market trading.