Major Latin American airline files for bankruptcy, stock crashes

In 2019 the number of worldwide airline flights reached 38.9 million. Then Covid happened. 

We all felt it personally when travel was impossible. After all, our freedom to move was abruptly taken away from us. And there was nothing we could do about it.

While travel enthusiasts all around the globe felt frustrated by the sudden halt, it was the industry that suffered the most. In early May 2020, airline capacity was lower than one-third of the level in May 2019, according to OAG, a data platform for the global travel industry.

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Two years later the industry started to quickly recover, and by the end of 2023, many markets across the globe reached 2019 levels, which was considered the benchmark of business as usual.

This year, worldwide airline flights are expected to surpass 2019 levels and reach 40 million, according to Statista.

While Covid was a huge blow for the airline industry, the turbulence in the space widely continues. Some airlines have successfully recovered and are prosperously answering the current demand, while others are facing multiple challenges in the post-pandemic environment.

Some of the hurdles faced by airline operators include high jet fuel costs, aircraft supply problems, growing cybersecurity risks, as well as geopolitical instability, trade wars, and the overall economic situation.

With all these burdens, it comes as no surprise that yet another major airline has filed for bankruptcy.

Struggling Brazilian airline files for Chapter 11, share price crashes

Brazil's third-largest airline Azul  (AZUL)  has been struggling over the last few years amid crushing debt.

In September 2024, Bloomberg reported that the company was considering several options to recover, including a bankruptcy filing in the U.S. Another possible solution, according to people familiar with the matter, would have been a merger with its rival GOL Linhas Aereas  (GOL) .

Since the start of Covid and by the end of the first quarter, Azul’s debt piled up to more than BRL 31.35 billion (around $5.56 billion), and its leverage ratio hit 5.2, up from 3.7 a year ago.

The debt pressure and high operating costs in Brazil led to Azul’s filing for Chapter 11 bankruptcy in the United States on Wednesday, May 28, reported Reuters.

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"We had too much debt on the balance sheet that principally came from Covid. We now have an opportunity to clean it all up," Chief Executive John Rodgerson told Reuters.

Shortly after the news broke, the stock plunged 40.08% in the pre-market trading session on Wednesday, making it a 70% dip year-to-date.

United Airlines and American Airlines to support restructuring

A restructuring deal encompasses a commitment of $1.6 billion in financing, elimination of $2 billion of debt and another commitment of up to $950 million in equity financing upon emergence.

The company noted it has reached deals with major financial stakeholders such as AerCap and strategic partners United Airlines and American Airlines to support the restructuring. The two airlines agreed to finance up to $300 million to help Azul repay its bankruptcy loan when it exits bankruptcy.

"We believe we could be in and out prior to the end of the year," Rodgerson said. "The exit is sometimes the most difficult part of this process. So we're already entering with the exit in mind, and exiting with the financing lined up."

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The carrier is the latest Latin American airline to file for bankruptcy during these post-pandemic challenging times for the space. Aeromexico  (GRPAF) , Avianca  (AVHOQ)  and Azul’s biggest rivals Gol and Latam Airlines all filed for bankruptcy over the last few years.