Azul Reaches Commercial Agreement with Lessors

An Azul Airbus takes off.
Photo Credit: Azul.
Adrian Olstad 4 Min Read
4 Min Read

The Brazilian carrier Azul has announced the successful establishment of commercial agreements with lessors that represents more than 90% of the company’s lease obligations.

The agreements are subject to certain conditions and applicable corporate approvals, but is set to be a key role in a comprehensive plan designed to strengthen the company’s cash generation and improve the capital structure.

The agreement details


Azul is just one of many airlines hit hard during the Covid-19 pandemic, and the new agreement between the lessors and the company is designed to strengthen cash generation as well as improve the capital structure of the airline.

The agreement will also deliver lessors 100% of the prior-committed values through a combination of long-term debt and equity valued at a reset balance sheet.

Throughout these agreements, the respective lessors will reduce the lease payments Azul has. This will eliminate Covid-19 related deferrals, as well as the gap between the airline’s contractual lease rates and agreed-upon current market rates.

In exchange, the lessors will receive a tradeable note set to mature in 2030, along with equity priced in such way to reflect the new cash generation, improved capital structure and reduced credit risk of Azul.

Statement


Azul’s Chief Financial Officer (CFO), Alex Malfitani, commented the following on the agreements: “Lessors represent 80% of our nominal gross debt. Reaching these agreements demonstrates tremendous success in our approach.”

“The leasing community has recognized that supporting Azul is an intelligent, revenue-maximizing business decision, yet we are still honored and grateful for their valuable support.”

“No aircraft have left the fleet throughout this negotiation, and in fact our partners have delivered 12 additional new aircraft to us over the past five months.”

“Negotiations continue with lessors and other stakeholders such as OEMs, and we are very optimistic about reaching agreements with all of them.”

Fleet overhaul helps lower costs – Embraer jets


In September 2022, Azul announced the exit of twelve Embraer E-195 E1 series aircraft. The carrier is a massive operator of the type, at the time having a total of 50 E-195 E1 aircraft.

Formally, Azul announced they would be cutting the E-195 fleet size by 40% compared to their 2019 E195 fleet statistics, meaning the airline is going to remove 22 of them.

The 40% reduction decision comes in great favour for Azul as it will accelerate the airline’s plans in regard to a fleet transformation.

The Brazillian carrier is a great example of the Embraer E2 series becoming more known to the aviation market, as the removal of the older E-Jet E1 series aircraft will make the airline advance in the delivery of the new E-195 E2 aircraft, which Azul currently operates 9 of.

Azul’s CFO, Alex Malfitani, said: “This announcement demonstrates our ability to accelerate the phase-out of previous-generation Embraer E1s.”

“The exit of the E1s gives us the opportunity to advance the delivery of next-generation E2, further expanding our margins given the E2’s 26% lower seat cost compared to the E1.”

Malfitani also added: “This also confirms our position as the airline with the youngest, most fuel-efficient fleet in the region and moves us one step further in our commitment to reach carbon neutrality by 2045.”

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