Brazilian airline Azul expects its restructuring will reduce its leasing costs by "approximately R$5.4bn" (US$1.1bn) to 2027 "and beyond".
The savings, the company believes, should see its leverage ratio, measured as net debt to the previous 12 months' EBITDA, decrease by 0.6x from 5.2x to 4.6x.
Discussing what it said were its obligations "with certain lessors and OEMs [original equipment manufacturer]", Azul said on May 15 that the agreements "contemplate" eliminating lease payment obligations that were deferred during the Covic-19 pandemic, permanently reducing lease payments from previously agreed rates to "agreed-upon" current market rates, deferring "certain payments to lessors and OEMs, as well as certain obligations under supplier agreements".
Also included, Azul said, were improved end-of-lease compensation obligations and aircraft return conditions, the elimination of future maintenance reserves payments, and the negotiated early termination of certain aircraft leases.
The airline said the lessors and OEMs have "generally agreed" to receive an unsecured tradeable note maturing in 2030 with a coupon of 7.5% per year and an equity instrument convertible into preferred shares valued at R$36 per share.
The shares are subject to a lock-up provision until the second half of 2024 and will vest in fourteen quarterly instalments, starting at the end of the lock-up period and ending in the second half of 2027, with Azul shareholders to be given "preemption rights" to allow "to subscribe for the convertible instrument in proportion to their shareholding in Azul".
"The contemplated lessor and OEM equity instrument is limited in its upside and downside, aiming to minimise dilution to shareholders and at the same time provides full recovery to Azul’s partners", the carrier announced.
Explaining further, Azul said dilution from the equity instrument is estimated at 17.5%, while throughout the vesting period, given as between the second half of 2024 and the second half of 2027, if, at the time of measurement, the trading price of Azul’s preferred shares is lower than R$36, Azul may compensate for the difference by issuing additional preferred shares, or through a cash settlement, or through the issuance of new debt instruments.
Azul announced should its preferred shares trade higher than certain thresholds, the number of shares issuable pursuant to the equity instrument will be reduced and dilution will therefore be lower.
“Today we are proud to provide additional details about the commercial agreements we announced in March," said chief financial officer Alex Malfitani, who added that the airline's management was "honouring our commitment to fully compensate our partners for their confidence".