Azul Linhas Aereas expects to have a better-than-expected liquidity position in its third-quarter financial results. The Brazilian low-cost carrier said that it reduced its cash burn, renegotiated with its stakeholders, and benefited from an increased ramp-up in Brazilian demand. Let’s investigate further.
Azul reduced its cash burn
According to the airline, its liquidity position by the end of the third quarter will be 2.3 billion reais (more than US$400 million). That’s an increase from the 2.25 billion reais that it expected initially.
Azul will manage to have these better financial results thanks to a decrease in its daily cash burn. The airline initially forecasted a daily cash burn of approximately 3.0 million reais (US$536,000). Now it says that it actually burned through 2.5 million reais (US$447,5000). Additionally, Azul claims that it increased its cash by 1.5 million reais per day, excluding severance payments. It added,
“This better cash performance was mostly due to the successful execution of our management plan, including effective negotiations with its stakeholders, and faster than expected ramp-up in demand.”
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Azul renegotiated with stakeholders and got Government deals
Like many other carriers worldwide, Azul has renegotiated its terms with stakeholders, leasing companies, and more. The current crisis has forced airlines to postpone payments, delay deliveries, cancel orders, and furlough people.
In the case of Azul, it deferred 82 aircraft deliveries to 2024 due to the current travel demand uncertainty. Azul also inked agreements with its lessors on new payment profiles. These agreements provided working capital relief equivalent to US$583 million to the airline. Azul also reduced by 77% its operating lease payments and launched a new regional carrier during this quarter, Azul Conecta.
Additionally, the Brazilian Development Bank proposed a funding loan worth US376 million to Azul. While the carrier hasn’t announced accepting the loan, it is a positive sign for the airline. There’s one final piece to the seemingly remarkable recovery of Azul: connectivity.
How’s the Brazilian aviation sector recovering?
Before the pandemic, Azul was the largest airline in Brazil by the number of flight departures and cities served. It offered 916 daily flights to 116 destinations, with an operating fleet of 140 aircraft. It had 249 non-stop routes.
The pandemic struck the airline hard, leaving it with less than 100 daily flights at the start of the shutdown in Latin America. Since then, Azul has worked hard to ramp back up. In October, the low-cost carrier operated 505 daily departures to 89 destinations.
The total capacity for the month is expected to be 55% of the same period last year. Domestic capacity is around 60%, Azul said. For GOL and LATAM Brazil, the recovery is in similar terms. Alex Malfitani, Azul’s CFO, said,
“The combination of a leaner and more efficient cost structure with the better-than-expected increase in demand indicates that we are on the right track to restore our position as one of the most profitable airlines in the region.”
Currently, Brazil is doing as well as it can be. In Latin America, only Mexico has had a better recovery so far. But Brazil still has to go its busiest season, the summer. So we can expect to see many more flights in the South American giant in the following weeks.
What do you think of Azul’s recovery so far? Let us know in the comments.