Brazil's Azul close to new debt deal with lessors, sources say

By Gabriel Araujo and Luciana Magalhaes

SAO PAULO (Reuters) - Brazilian airline Azul has moved closer to clinching a new deal with lessors, three people familiar with the talks said, as the company offers them equity to pay off some $600 million in debt.

Shares in the carrier jumped over 20% in Friday trading after Reuters first reported on the progress in negotiations.

Azul's shares had slipped over 40% since August on media reports that it was considering filing for Chapter 11 bankruptcy protection as it struggles with its debt load. The company has said it is focused on direct talks with creditors.

"There is momentum building towards a successful conclusion of the out-of-court restructuring," one of the sources said, adding that Azul and lessors met in New York in recent weeks.

Azul declined to comment on the negotiations.

The carrier told Reuters last month that Azul was not considering Chapter 11 and would offer lessors an equity stake to settle obligations that had been scheduled for payment over three years.

The Brazilian airline has managed to avoid Chapter 11 even as a number of Latin American carriers filed for bankruptcy after the COVID-19 pandemic, including Aeromexico, Avianca, LATAM and, most recently, local rival Gol.

The sources, who requested anonymity to discuss confidential talks, said a majority of Azul's lessors have already signaled they would agree to the plan on the table. Two of the people said a deal could be signed within weeks.

Under the current framework, one of the sources said, lessors would get an equity stake of around 20% of Azul.

Goldman Sachs analysts told clients in a note about the Reuters report that those terms could be favorable for Azul's shares, which have been weighed down by concerns of a greater dilution from the talks.

"It is not 100% what Azul would like nor 100% what the lessors would like, but can be a good way to relieve this burden," one of the people said.

Azul struck a deal with lessors and equipment manufacturers in 2023 to give them up to $570 million in preferred shares valued at 36 reais ($6.46) each, part of a broader restructuring that also delayed debt maturities and raised additional capital.

Azul's shares have dropped more than 70% so far this year and now trade at around 4 reais, as the company has struggled with a weaker exchange rate and disastrous flooding in the key market of Porto Alegre, triggering the need for another restructuring.

The new deal with lessors would also open the door to raising fresh funds from bondholders, the sources said.

The company had previously said it could use its cargo unit Azul Cargo as collateral for up to $800 million. Azul would likely aim to raise $300 million to $400 million in a new transaction, one of the sources said.

Azul has also been in talks with Gol's parent Abra Group to "explore opportunities," amid speculation about a potential tie-up. The two carriers announced a codeshare deal in May.

($1 = 5.5702 reais)

(Reporting by Gabriel Araujo and Luciana Magalhaes; Editing by Brad Haynes and Jonathan Oatis)