Stay informed with free updates
Simply sign up to the Airlines myFT Digest — delivered directly to your inbox.
Brazilian airline Azul has filed for bankruptcy protection in the US, casting doubt over a proposed merger with local rival Gol to form the South American country’s largest carrier.
The company said on Wednesday that it had entered into restructuring agreements with bondholders, its largest aircraft lessor AerCap and shareholder United Airlines, under plans to repair its finances.
Azul was founded in 2008 and challenged LatAm and Gol’s dominance of Brazil’s aviation sector by focusing on smaller cities not served by other airlines.
It is the latest Latin American airline to file for Chapter 11 bankruptcy protection — which allows financially distressed companies to continue operating while restructuring debts — as the sector struggles with volatile currency movements, higher costs and the impact of the Covid-19 pandemic.
Azul’s chief executive John Rodgerson previously told the Financial Times that its proposed merger with Gol would strengthen the company’s balance sheet and allow it to expand routes.
“We have made a strategic decision to pursue a voluntary financial restructuring as a proactive move to optimise our capital structure, which was burdened by the Covid-19 pandemic, macroeconomic headwinds and aviation supply chain issues,” he said on Wednesday.
The airline hopes its overhaul will eliminate about $2bn of borrowings and reduce leasing liabilities. Azul said some existing lenders had committed to providing $1.6bn in new loans.
Existing shareholders are likely to be wiped out, according to people familiar with the arrangements. The bankruptcy protection was filed in the US because most of Azul’s investor base is foreign and its bondholders are largely based in America, said people familiar with the process.
Azul said it would continue to operate and fly as normal. However, it was unclear what the development meant for its planned tie-up with Gol, which was announced in January and would create an industry leader controlling about 60 per cent of the domestic market.
South America’s aviation sector has skirted with crisis since the pandemic when, unlike peers in Europe and the US, it did not receive any direct government assistance when flights were grounded.
The region’s dominant airline, Chile-based LatAm, exited Chapter 11 in late 2022, while Gol won approval from a New York court this month to conclude its own bankruptcy proceedings.
Azul said its restructuring was different to others in the industry because it already has agreements in place with many of the company’s stakeholders.
Successful execution of the proposals would help reduce its gross debt pile — including financial and lease obligations — which stood at R$34.7bn (US$6.1bn) in the first quarter, according to company filings.
Additional reporting by Claire Bushey
