The recent Chapter 11 filing by Azul Airlines in May 2025 marks a significant turning point for the Brazilian carrier—one that underscores both the fragility and complexity of operating in Latin America’s turbulent aviation landscape.
While not unprecedented in a region known for economic volatility and currency shocks, Azul’s bankruptcy filing was nonetheless expected. Just months earlier, the airline had closed a Superpriority Notes offering aimed at refinancing existing obligations and enhancing liquidity. It had also renegotiated terms with key stakeholders, including bondholders, aircraft lessors, and Original Equipment Manufacturers (OEMs). Yet, these measures proved insufficient to stave off a financial reckoning.
A region of contrasts
Azul’s decision to seek Chapter 11 protection places it on a path well known by its regional peers—but perhaps too late. During the pandemic, carriers such as LATAM Airlines, Avianca, and Aeromexico proactively filed for bankruptcy in the United States. Their early restructuring allowed them to reduce debt burdens, streamline fleets, and recalibrate network strategies. Brazil’s two leading airlines—Azul and Gol—opted to defer similar action. That decision has had consequences.
Gol eventually filed for Chapter 11 in January 2024 and is expected to emerge from bankruptcy in June 2025 with a healthier balance sheet and more flexible capital and cost structure. In contrast, Azul entered 2025 with mounting debt, an imbalanced revenue-cost structure, and deteriorating liquidity—ultimately prompting its late-stage filing. The airline's timing meant it entered the process amid a more challenging credit environment, with less patience from investors and fewer tools at its disposal.
Foreign currency risk and financial stress
Azul’s financial strain was exacerbated by Brazil’s macroeconomic instability. At the end of 2024, approximately 46% of the airline’s operating expenses - including lease payments, aircraft debt service, and working capital—were denominated in foreign currencies. Meanwhile, 82% of its revenue was derived from domestic passengers paying in Brazilian reals. When the real depreciated by 27% against the U.S. dollar in 2024, Azul’s dollar-linked costs soared.
This sharp currency mismatch proved untenable. Azul’s net debt ballooned nearly 50% year-over-year in Q1 2025. Its share price plummeted from USD 8.50 to just USD 0.50 before the Chapter 11 filing. Fitch Ratings downgraded the company to CCC-, reflecting a heightened risk of default. In stark contrast, LATAM and Avianca—buoyed by their earlier restructuring—are now forecast to maintain gross leverage ratios between 2.5x and 3.5x. Azul’s leverage, on the other hand, is projected at around 5.0x this year, driven largely by high lease obligations and interest costs.
Liquidity and revenue headwinds
Despite efforts in 2024 to cut costs and bolster liquidity, Azul struggled to generate the free cash flow necessary to reinvest or even sustain operations. Passenger services accounted for 93% of total revenue that year, but fare increases were insufficient to offset spiraling costs. While fares rose modestly in Q1 2024, they plateaued in Q3 and declined in Q4 - a concerning trend for a carrier heavily dependent on domestic demand.
Seasonal fluctuations further strained liquidity. With limited ancillary revenue—under USD 20 per passenger - Azul had few buffers to absorb macroeconomic shocks. Creditors questioned the viability of the airline’s recovery plans, particularly given the lack of near-term liquidity, increasing interest rates, and rising inflation. Brazil’s domestic capital markets also offered little respite, with investor appetite waning under broader economic pressures.
Azul’s lease and debt obligations became increasingly difficult to meet. With 182 out of 220 aircraft leased in U.S. dollars as of 2024, the company’s ability to refinance on favorable terms became doubtful. Additional aircraft on order, coupled with supply chain bottlenecks and delayed deliveries, only added to the burden.
Fleet and network complexity
Azul’s operational scale is impressive—it operates Brazil’s most expansive domestic network, with nearly 900 daily flights and over 400 non-stop routes. Its diverse fleet of 185 aircraft as of December 2024 spans regional jets, turboprops, widebodies, and cargo aircraft. Yet this breadth is both a strength and a liability. The carrier’s high labor efficiency—85 full-time employees per aircraft, compared to 104 at Gol and 111 at LATAM - is commendable, but cannot alone counterbalance the costs associated with fleet complexity.
As of December 2024, the airline’s fleet includes Embraer E-Jets, ATR 72s, Airbus A320-family jets, Airbus A330s, Boeing 737 freighters, and Cessna Caravans. This diversity creates significant logistical and cost challenges related to maintenance, training, spare parts, and engine management. Moreover, the viability of Azul’s cargo operations—while potentially lucrative—is undermined by limited scale and operational redundancy.
A strategic reset
Chapter 11 offers Azul a pivotal opportunity to recalibrate its business model for long-term sustainability. While reducing leverage and restoring liquidity are immediate goals, the airline must also undertake deeper structural transformation to regain competitiveness. One critical step would be the divestiture of non-core assets such as maintenance, repair, and overhaul (MRO) facilities and full-flight simulators, which could generate much-needed capital and allow management to focus on core operational priorities.
At the network level, Azul should concentrate on high-demand, high-yield routes—both business and leisure—while phasing out marginal or underperforming markets. Rationalizing seasonal and regional routes would help improve aircraft utilization and bolster key metrics like PRASK.
Fleet simplification is equally important. By consolidating aircraft types—ideally to no more than three—Azul could achieve significant operational efficiencies. Replacing smaller regional aircraft with larger, next-generation narrowbodies would reduce unit costs (CASK) and improve per-departure revenue. The airline should also address its limited ancillary revenue potential. Raising ancillary revenue per passenger through offerings such as baggage fees, seat selection, onboard sales, and loyalty programs remains an untapped source of margin improvement, as evidenced by carriers like Ryanair, Spirit, Volaris and Wizz Air.
In parallel, Azul could benefit from introducing two-class configurations on selected domestic routes to attract premium travelers and enable better revenue segmentation and enhanced ancillary revenue potential. Finally, a reassessment of its cargo strategy is warranted. Scaling back or divesting from dedicated freighter operations would allow Azul to concentrate on its resources where returns are strongest, improving overall efficiency and financial performance.
Azul’s path through Chapter 11 is not merely about financial repair - it is a chance to fundamentally reshape the airline for a more resilient future. With thoughtful execution of a restructured fleet strategy, improved cost discipline, and a leaner network model, Azul can regain competitiveness in a challenging market while competing in a more cost balanced field against LATAM and Gol.
The airline’s ability to emerge from bankruptcy stronger will depend on its willingness to challenge legacy structures and make bold, forward-looking decisions. While the road ahead is complex, the case for decisive transformation has never been clearer.
