By Gabriel Araujo and Luciana Magalhaes
SAO PAULO (Reuters) – Brazilian airline Azul has moved closer to striking a new deal with lessors, three people familiar with the talks said, as the company offers them equity to pay down about $600 million in debt to pay.
The airline’s shares rose more than 20% in Friday trading after Reuters first reported on the progress of negotiations.
Shares of Azul had fallen more than 40% since August following media reports that the company was considering filing for Chapter 11 bankruptcy protection as it struggles with its debt burden. The company has said it is focusing on direct discussions with creditors.
“Momentum is growing towards a successful conclusion of the out-of-court restructuring,” one of the sources said, adding that Azul and landlords met in New York in recent weeks.
Azul declined to comment on the negotiations.
The airline told Reuters last month that Azul was not considering Chapter 11 and would offer lessors an equity stake to settle liabilities due in three years.
The Brazilian airline has managed to avoid Chapter 11 even as a number of Latin American airlines filed for bankruptcy following the COVID-19 pandemic, including Aeromexico, Avianca, LATAM and, most recently, local rival Gol.
The sources, who requested anonymity to discuss confidential discussions, said a majority of Azul’s landlords have already indicated they agree to the plan on the table. Two of the people said a deal could be signed within weeks.
Under the current framework, landlords would get an equity stake of about 20% in Azul, according to one of the sources.
Analysts at Goldman Sachs told clients in a note on the Reuters report that these terms could be beneficial for Azul’s shares, which have been pressured by concerns about greater dilution from the talks.
“It’s not 100% what Azul would want, nor 100% what the landlords would want, but it could be a good way to ease this burden,” one of the people said.
Azul struck a deal with equipment lessors and manufacturers in 2023 to give them up to $570 million in preferred shares worth 36 reais ($6.46) each, part of a broader restructuring that also delayed debt maturities and added raised capital.
Azul shares have fallen more than 70% so far this year and are now trading at around 4 reais, as the company faces a weaker exchange rate and disastrous flooding in Porto Alegre’s main market, forcing the need for a new restructuring emerged.
The new deal with landlords would also open the door to raising new funds from bondholders, the sources said.
The company had previously said it could use its freight unit Azul Cargo as collateral for up to $800 million. Azul would likely look to raise between $300 million and $400 million in a new transaction, one of the sources said.
Azul has also been in talks with Gol’s parent company, Abra Group, to “explore opportunities” amid speculation of a possible tie-up. The two airlines announced a codeshare agreement in May.
($1 = 5.5702 reais)
