After Dodging Chapter 11 For Years, Azul Enters Bankruptcy Protection

Brazil has reached a trifecta now that all three of its major airlines have filed for U.S. Chapter 11 bankruptcy protection during the last five years after Azul commenced a formal restructuring.

Azul arguably made every effort to restructure outside of Chapter 11, reaching major agreements to restructure its debt in 2023 and late 2024. But currency headwinds, supply chain disruptions, aircraft delivery delays, groundings, and government support that never materialized has forced the carrier to succumb to the same fate as LATAM Airlines Group and GOL.

The carrier’s decision to enter into Chapter11 “follows multiple attempts over the past few years to address the weight of liabilities accrued as a result of the COVID pandemic and the devaluation of the Brazilian real, resulting in a 750% increase in interest expense versus 2019,” Raymond James analyst Savanthi Syth noted in a research report.

Despite reaching a deal in October 2024 to eliminate BRL$3.1 billion ($547.6 million) in obligations to 98% of its lessors and manufacturers, Azul’s net debt jumped by 50% year-over-year in the first quarter of 2025.

The airline has gained support from key industry players in its Chapter 11 restructuring, including an up to $300 million exit equity investment from United Airlines and American Airlines, subject to certain conditions. Azul has reached an agreement with its largest aircraft lessor AerCap that will produce total annual cash flow savings of $334 million from 2025 to 2030. The company also estimates the cumulative contribution from lessors and manufacturers to its restructuring should average $275 million from 2025-2029.

Azul has secured a commitment for debtor-in-possession (DIP) financing for $1.6 billion from financing partners to repay some of its existing debt and supply the company with roughly $670 million of new capital. In total, Azul expects to gain $950 million of equity investments when it emerges from Chapter 11, for which it is targeting an exit date of February 2026.

Since its debut, Azul has operated a unique business model, flying Cessna Caravans, ATR 72-600 turboprops, Airbus A320/320neos and A330 widebodies. Its restructuring plan includes a 35% shell count reduction in its future fleet. The airline’s estimated fleet count for 2025 will drop from 201 to 170 and for 2027 from 218 to 172. Azul’s annual capacity growth for the time period spanning 2025 to 2029 will drop from 11% to 3.8%. Azul believes slowing growth should reduce overall risk, currency exposure and leverage.

Azul’s fleet has enabled the airline to open up numerous markets throughout Brazil. It currently serves 160 destinations and is the only carrier operating 82% of its routes.

The airline’s President Abhi Shah told Aviation Week Network during the IATA annual general meeting in June 2024 that when the airline entered the market in 2008, Brazilian airlines transported approximately 50 million passengers. Over the past 16 years that has grown to 100 million, and Azul was responsible for 60% of the growth, flying approximately 30 million passengers, he said.

Despite wrestling with hefty debt loads the last couple of years, Azul’s revenue has continued to expand, growing 15% year-over-year in the first quarter of 2025.

Azul’s Chapter 11 filing occurs as its potential merger partner GOL prepares to exit bankruptcy protection in early June. In January, Azul reached a non-binding memorandum of understanding with GOL’s parent Abra Group to combine the airlines. But now that Azul has entered its own formal restructuring those ambitions are “tabled for now, albeit management still believes in the merits of a merger with GOL,” but does not view it as a must-have for success, Raymond James analyst Syth wrote.  

After Azul’s latest restructuring reached with manufacturers, lessors and bondholders in late 2024, the company’s CEO John Rodgerson declared: “It is a comprehensive, final fix to the balance sheet ... and so it’s done, now we can look forward.”

But now just a few months later in announcing the airline’s Chapter 11 restructuring, Rodgerson said Azul “continues to fly–today, tomorrow, and into the future. These Agreements mark a significant step forward in the transformation of our business, one that enables us to emerge as an industry leader in the main aspects of our business.”