In a move towards financial stability and enhanced capital structure, Azul S.A., commonly known as Azul, has successfully completed the restructuring of its obligations with a range of stakeholders, bringing an end to the uncertainties created by the COVID-19 pandemic.
This initiative marks a pivotal moment in Azul’s journey, as the Brazilian airline takes proactive steps to secure its future.
The Restructuring Essentials
The breakdown of the Azul restructuring initiative is as follows:
Elimination of Deferred Lease Payment Obligations
One of the key aspects of this restructuring is the permanent elimination of lease payment obligations that had previously been deferred during the COVID-19 pandemic.
This move provides Azul with immediate relief from past obligations and sets the stage for a more stable financial outlook.
Reduction in Lease Payments
Azul has also achieved a permanent reduction in lease payments. These reductions are not arbitrary but have been negotiated to align with current market rates.
This adjustment ensures that Azul’s financial commitments are more in line with prevailing economic conditions.
Deferral of Certain Payments
As part of the restructuring process, certain payments to lessors and original equipment manufacturers (OEMs) have been deferred.
This measure provides Azul with some breathing space, allowing the company to manage its cash flow more effectively during challenging times.
The restructuring agreements include several other concessions that further strengthen Azul’s financial position. These concessions encompass:
- Improved End-of-Lease Compensation Obligations: Azul has negotiated improved terms for end-of-lease compensation obligations, reducing financial burdens in the event of lease terminations.
- Elimination of Future Maintenance Reserves Payments: Future maintenance reserve payments have been eliminated, relieving Azul of this ongoing financial obligation.
- Negotiated Early Termination of Certain Aircraft Leases: Azul has successfully negotiated the early termination of certain aircraft leases, allowing for more flexibility in its fleet management.
Financing the Restructuring
To fulfill its obligations under these agreements, Azul Investments LLP, a subsidiary of Azul, has issued US$370,490,204 principal amount of 7.500% Senior Unsecured Notes due in 2030.
These notes serve as a dollar-for-dollar satisfaction of certain payment and other obligations owed to certain lessors and OEMs, further streamlining Azul’s financial commitments.
In addition to the issuance of senior unsecured notes, lessors and OEMs have agreed to receive up to US$570 million in Azul’s preferred shares valued at R$36.00 per share.
This issuance will take place in quarterly installments, commencing in the third quarter of 2024 and concluding by the fourth quarter of 2027.
Importantly, Azul has the flexibility to adjust for market conditions during this period, ensuring fairness and transparency in the process.
Looking to the Future
Alex Malfitani, Azul’s CFO, expressed his satisfaction with the agreements, stating, “We are happy to communicate the effectiveness of the commercial agreements announced in March.”
“Through these agreements, we have significantly improved our capital structure and cash flows by reducing our lease liabilities and payments, while at the same time honoring our commitment to fully compensate our partners.”
“We also have no significant maturities until the end of 2028 and can now rely on a strong balance sheet and liquidity position, consistent with our superior network, product offering, and cost structure.”
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