Azul Launches New Regional Carrier Having Reached Agreement With Lessors

Yesterday, Azul Linhas Aereas launched its new regional carrier, Azul Conecta. The low-cost airline has big plans for connecting the smaller communities of Brazil with this new branch. Azul also announced an agreement with lessors on new payment profiles for its fleet. Let’s investigate further.

Azul Conecta
Azul launched yesterday its new regional carrier Azul Conecta. Photo: Azul Linhas Aereas.

What’s the deal with Azul Conecta?

As we announced last week, Azul presented its new regional carrier Azul Conecta. The new airline was born after Azul bought TwoFlex in January 2020.

“We will reach more than 200 Brazilian cities with this new operation. We intend to connect smaller communities and more regions to our route map of domestic and international flights,” Azul said.

As part of the deal, valued at US$22.6 million, Azul received 17 Cessna Caravan aircraft, a regional turboprop with a capacity for nine passengers.

Of this fleet, Azul Conecta will use three Cessna Caravan for cargo-only flights. “It will help Azul Cargo Express to reach cities that need the air service to transport goods,” said.

Before the pandemic, TwoFlex had a map route of 39 destinations across Brazil. Azul and TwoFlex only overlapped in three destinations. Additionally, the airline had 14 slots at Congonhas International Airport in Sao Paulo, the leading domestic hub in Brazil.

Azul Conecta
Azul bought TwoFlex in January. Photo: Azul Linhas Aereas.

What’s the deal with the lessors?

The launch of Azul Conecta wasn’t the only news coming from the Brazilian low-cost airline. It also announced that it had reached agreements on new payment profiles with its lessors. These agreements provide “working capital relief equivalent to R$3.2 billion (US$583 million) from the beginning of the crisis until December 2021,” said Azul.

According to the airline, it reduced by 77% of its operating lease payments due from April to December 2020. Azul will follow an adjusted debt scheduled that is based on a conservative demand recovery scenario.

The carrier added that the lower monthly lease rates would be compensated with two initiatives. The first is slightly higher rates starting in 2023, while the second is the extension of certain lease agreements at market rates.

Lessors represent 80% of the total debt position of Azul Linhas Aereas. The airline has a fleet of 140 aircraft composed of several families. It has Airbus A320s, A330s, Boeing 737, Embraers E2, ERJ-190, and ATR 42 and 72. Approximately 90% of the fleet is under operating leases.

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Azul Embraer 195
In the last few months, Azul has deferred the delivery of new jets, signed a codeshare agreement and many other initiatives. Photo: Getty Images

Where is Azul standing now?

In the last few months, Azul has been very active with a few initiatives to counteract the current crisis worldwide. For example, it sold its 6% TAP Air Portugal stake to the Portuguese government.

Azul also signed a codeshare agreement with local rival LATAM Brazil. This alliance set the rumor that both carriers might merge in the future or that Azul would buy LATAM. Nevertheless, these rumors have been put to bed since. The codeshare agreement for 64 domestic routes in Brazil will start next Monday, 17 August.

Regarding its fleet, Azul reached an agreement with Embraer to defer the delivery of 59 E2 jets until 2024. It also agreed to sub-lease 53 Embraer E195 to the start-up airline Breeze.

In all, Azul is in a strong position, or as strong as it can be due to the current circumstances. It can also benefit from the existing arrays its two biggest rivals, LATAM and GOL, are having.

What do you think of Azul’s latest plans? Let us know in the comments.