By Brazil Stock Guide – Brazilian airline Azul S.A. (AZUL4) won approval for its Chapter 11 reorganization plan from a US bankruptcy court, clearing a critical hurdle in a restructuring that will transfer control of the company to creditors and significantly dilute existing shareholders.
The decision by the US Bankruptcy Court for the Southern District of New York confirms broad creditor backing for the plan and allows Azul to move into the execution phase of a process launched in May 2025, as the carrier sought protection to deal with a heavily leveraged balance sheet strained by the pandemic and adverse macroeconomic conditions in Brazil.
Under the approved plan, Azul expects to eliminate more than US$2 billion in financial debt, renegotiate aircraft leasing contracts and exit Chapter 11 with a more flexible capital structure and improved liquidity.
Debt-for-Equity Conversion
At the core of the restructuring is a large-scale debt-for-equity swap involving the airline’s first- and second-lien notes. First-lien creditors are expected to emerge holding approximately 97% of Azul’s equity, while second-lien creditors would hold about 3%, before any additional capital increases or incentive programs.
Existing shareholders who do not exercise their preemptive rights will face severe dilution, effectively resetting the company’s ownership structure. The conversion will be carried out through a public offering registered with Brazil’s securities regulator, with creditors temporarily consolidating claims through special-purpose vehicles to facilitate execution.
Fresh Capital and Strategic Investors
Beyond debt conversion, Azul plans a capital increase of up to US$950 million, anchored by investors that have committed funding under previously disclosed backstop arrangements. Strategic partners United Airlines and American Airlines have each agreed to invest US$100 million in equity, subject to regulatory approvals and the completion of the restructuring.
Shares issued in the capital raise are expected to be priced at a 30% discount to the equity value defined in the plan, implying further dilution that could exceed 80% of the post-conversion shareholder base if preemptive rights are not exercised.
Governance Overhaul
As part of its exit from Chapter 11, Azul plans to simplify its capital structure by converting all preferred shares into common stock and adopting a new governance framework. The airline is expected to emerge without a controlling shareholder or shareholder agreements, leaving ownership broadly dispersed.
The plan also предусматриes a management incentive program that could represent up to 7% of fully diluted capital, subject to approval by the new board of directors after the restructuring is completed. Azul said it will continue to update the market as it advances toward implementation and emergence from Chapter 11.
Read more: Azul Prepares Chapter 11 Exit with $650 Million Capital Injection and $2 Billion Debt Cut
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