Government is calm about Azul’s situation, says national secretary

The government is calm about the situation faced by the airline Azul, despite the company’s financial challenges, said the national secretary of civil aviation at the Ministry of Ports and Airports, Tomé Franca.

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“The ministry has been following the issue calmly because Azul is an extremely consolidated and structured company in the aviation market, with strong regional reach,” he told Reuters.

Azul shares have plummeted since last week as concerns grew about the company’s leverage, pressured by the depreciation of the real, and possible alternatives to deal with its debts.

Last Thursday, Azul CEO John Rodgerson said the airline is financially healthy, receiving new aircraft, and has no plans to file for bankruptcy protection.

In a material fact on the same day, the company reaffirmed a series of negotiations that it had previously disclosed involving actions to improve its capital structure.

The trigger for the stock’s plunge was a Bloomberg News report that Azul is evaluating options ranging from a share offering to filing for bankruptcy protection to meet its debt obligations. According to Azul, the news was “misinterpreted.”

Since then, however, the shares have accumulated a drop of around 33% until the previous day, having renewed historical lows. On Wednesday, at around 3:50 pm, the shares rose 4.73%, to 5.09 reais, while the Ibovespa was up 1.4%.

Earlier this week, S&P cut its global Azul rating to “CCC+,” saying first-half results were weaker than expected, widening its operating cash flow deficit for the year and weakening liquidity.

On Azul’s radar is the project that reformulates the National Tourism Policy and, among other things, reopens the possibility of loans guaranteed by the National Civil Aviation Fund (Fnac) for airlines.

According to Azul’s president, last Thursday, the company will “definitely” use Fnac’s resources, which provide 5 billion reais in annual credit to the sector. Already approved by Congress, it awaits presidential sanction.

Rodgerson did not disclose the amount, but mentioned that Azul may apply to receive “a third” of the fund’s amount. “It is a debt that is a little cheaper than what we would get on the market.”

According to the rules of the project, Fnac’s resources cannot be used to reduce or extend debts, but they give companies more breathing room. According to the national secretary of civil aviation, it is a solution used by other countries, especially during the pandemic, when airline revenues plummeted.

“The United States, France, Germany, Portugal, all granted millions of dollars to airlines during the pandemic,” said the secretary.

Franca added that air demand remains strong in the country, as does economic activity, which creates positive prospects for the aviation sector.

“Air traffic in Brazil continues to be very strong, with growth of close to 5% in the first half of the year compared to the same period last year. The Brazilian economy is showing strength and is growing above expectations,” he said.

“I believe that airlines will have an ideal scenario here to expand their service capacity and achieve financial balance.”