Business context and reporting period
Azul S.A.’s Form 20-F, filed April 29, 2022, reports audited consolidated IFRS results for the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. This is an annual filing, not a standalone Q4 report. Azul is a Brazilian airline with loyalty, cargo and travel-package businesses.
Key financial and operating metrics
Amounts below are in Brazilian reais (R$); financial statement amounts are in millions unless otherwise noted.
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Net revenue | 9,976 | 5,744 | +73.7%; 2019 was 11,442 |
| Operating profit (loss) | 55 | (1,399) | Returned to a small operating profit |
| Net loss | (4,213) | (10,835) | Loss narrowed; 2019 loss was 2,403 |
| Net cash from (used in) operating activities | (311) | 976 | Cash use reflected resumed supplier payments |
| Cash and cash equivalents | 3,074 | 3,065 | Separately, management reported total cash, short- and long-term investments of 3,982 |
| Total loans, financing and lease liabilities | 24,909 | 19,881 | Includes lease liabilities; excludes sublease receivables |
| Current assets / current liabilities | 5,846 / 11,710 | 5,417 / 10,213 | Negative working capital of 5,864 at year-end 2021 |
| Total equity | (18,333) | (14,149) | Negative equity |
Passenger revenue rose 74.8% to R$8,811 million; cargo and other revenue increased 65.3% to R$1,165 million. Capacity (ASKs) grew 53.9%, while load factor was 79.2% versus 80.0%. PRASK rose 12.5% and RASK 11.9%. Fuel was 32.8% of operating expenses, and average fuel price per liter increased 43.3% year over year. No operating margin percentage is stated clearly in the filing text.
Material changes versus comparable periods
- Revenue recovery and network rebuilding drove the move from an operating loss in 2020 to a small operating profit in 2021. Azul reported record Q4 2021 operating revenue of R$3.7 billion, 14.7% above Q4 2019 and more than double Q4 2020.
- Despite higher revenue, operating cash flow turned negative. The company attributed the decline largely to resuming supplier payments deferred during the pandemic.
- Financial expenses increased to R$3,838 million from R$2,515 million, mainly reflecting lease interest and other interest costs. Net foreign-exchange loss was R$1,443 million, compared with R$4,303 million in 2020; the filing says this was mostly non-cash.
- A R$864 million derivative gain in 2021 compared with a R$2,207 million loss in 2020, including unrealized gains on fuel hedges. A R$1,076 million impairment credit was recorded in 2021, versus a R$758 million credit in 2020; fleet plan changes and reversals of prior impairment and onerous-contract provisions were significant factors.
Outlook, risks and unusual items
- Management expected air-travel demand to increase steadily in 2022, mostly in the domestic market, while corporate and international demand recovery remained outstanding. The filing provides no quantified 2022 financial guidance; it says 2021 guidance had been suspended amid pandemic uncertainty.
- Management concluded that the going-concern basis remained appropriate, relying on its business plan, demand recovery assumptions, liquidity actions and access to funding. However, 2021 ended with negative equity, a R$5,864 million working-capital deficit and a R$4,213 million net loss.
- Debt and liquidity are key risks: total loans, financing and lease liabilities were R$24,909 million. The company reported obtaining covenant waivers; it disclosed that it did not meet a debt-service coverage covenant under a DFC financing, with the temporary waiver expiring December 31, 2022. Future waivers or refinancing are not assured.
- Azul had commitments to acquire 131 aircraft, with disclosed present-value commitments of R$12,632 million, and total contractual obligations of R$51,075 million, including leases, debt, aircraft commitments and interest.
- Fuel-price increases, real depreciation, interest rates, pandemic developments and Brazilian political and economic conditions could pressure costs, demand and liquidity. Fuel supply concentration is notable: Vibra Energia supplied 69.9% of fuel in December 2021.
- Legal exposures include tax, labor and civil matters. Provisions for tax, civil and labor risks totaled R$559 million. A labor case alleging work-hour and rest-period violations claimed approximately R$66 million; Azul classified the loss as possible and expected any ultimate liability to be lower.
- Management identified a material weakness in IT general controls, related in part to access-management processes and employee turnover. The auditor issued an adverse opinion on internal control over financial reporting, while issuing an unqualified opinion on the financial statements. Management planned remediation during 2022.
Important facts for investors to verify
- Reconcile the reported R$3,982 million total cash and investment position with cash and cash equivalents, available liquidity and near-term obligations.
- Review the debt and lease maturity profile, covenant-waiver terms and the status of the DFC waiver expiring in 2022.
- Assess whether operating cash flow can recover as deferred supplier and lease payments and aircraft-related commitments fall due.
- Verify the assumptions behind the impairment reversals, aircraft sublease plans and management’s going-concern forecast.
- Track remediation of the IT-controls material weakness and any resulting changes in audit conclusions.