Azul S.A. — FY2020 Form 20-F Summary
Period and basis: The filing, submitted April 30, 2021, is an annual report for the fiscal year ended December 31, 2020—not a standalone fourth-quarter filing. Financial statements are audited and prepared under IFRS, in Brazilian reais (R$), unless otherwise noted. The company operates a Brazilian airline and related cargo, loyalty and travel businesses. COVID-19 materially disrupted the year.
Key financial and operating metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net revenue | R$5.744bn | R$11.442bn |
| Operating profit (loss) | (R$1.399bn) | (R$1.195bn) |
| Net loss | (R$10.835bn) | (R$2.403bn) |
| Adjusted EBITDA and margin (non-IFRS) | R$264.8m; 4.6% | R$3.623bn; 31.7% |
| Cash flow from operating activities | R$976.2m | R$2.595bn |
| Cash and cash equivalents, year-end | R$3.065bn | R$1.648bn |
| Loans and financing, including lease liabilities, year-end | R$19.881bn | R$15.625bn |
- Total cash, cash equivalents and short- and long-term investments were R$4.011bn at year-end. Current assets were R$5.417bn versus current liabilities of R$10.213bn, a R$4.795bn working-capital deficit. Equity was negative R$14.149bn.
- Net loss included substantial foreign-exchange and derivative losses: R$4.303bn and R$1.452bn, respectively. Financial expense was R$3.270bn. The filing attributes much of the currency impact to the real’s depreciation against the U.S. dollar.
- Passenger revenue fell 53.8% to R$5.040bn; cargo and other revenue rose 31.8% to R$704.5m. Azul Cargo reported gross revenue of R$764.1m, up 38.4%.
- Capacity (ASKs) fell 43.1%; passenger traffic fell 46.5%; load factor declined to 80.0% from 83.5%. RASK fell 11.0% to 28.41 centavos, and PRASK fell 18.0% to 24.95 centavos.
- Operating cash flow declined 62.4% year over year. Investing cash outflow was R$403.8m; financing cash inflow was R$933.5m, including proceeds from convertible debentures.
Material changes and unusual items
- Revenue nearly halved as the pandemic sharply reduced flying; domestic ASKs fell 37.7% for the full year. At the April 2020 low, domestic capacity was about 13% of April 2019 levels. By December, domestic capacity had recovered to about 93% of the prior-year level, according to the financial-statement notes.
- Reported operating expenses fell 43.5%, reflecting lower activity and cost reductions, but maintenance expense rose 31.2% and depreciation and amortization rose 11.3%. The 2020 impairment line was a R$757.6m gain, compared with a R$2.897bn charge in 2019.
- Aircraft lease renegotiations reduced lease liabilities by R$5.702bn and generated a R$902.9m gain from lease modifications, partly offset by a R$4.799bn reduction in right-of-use assets. Azul said it renegotiated 96% of aircraft and engine lease contracts; cash outflow under lessor arrangements fell about 77% for April–December 2020, with higher amounts deferred to later years.
- Azul issued R$1.746bn of five-year convertible debentures in November 2020, bearing 7.5% interest in year one and 6.0% thereafter. The embedded conversion right generated a reported fair-value expense of R$755.4m as the share price recovered.
- The elimination of the conversion right on Azul’s TAP bonds following Portuguese government aid arrangements resulted in a R$637.6m loss. Azul sold its 6.1% TAP equity stake for approximately R$70m in cash, while retaining the bonds’ stated creditor rights and interest terms.
Outlook, risks and contingencies
- Azul suspended 2021 guidance because of uncertainty around air-travel demand and Brazil’s vaccination progress. Management described demand recovery as uncertain; in March 2021, a second COVID-19 wave reduced demand, and the company was negotiating payment deferrals and suspending non-urgent spending.
- Management concluded the company could continue as a going concern based on its business plan and liquidity actions. The auditor issued an unqualified opinion but identified the pandemic-related going-concern assessment as a critical audit matter, citing uncertainty in forecasts, future demand and access to capital. The auditor also highlighted the judgment involved in valuing maintenance-reserve recoverability.
- Key risks include continued pandemic effects, foreign-exchange and fuel volatility, high fixed costs and lease obligations, access to financing, covenant compliance, and dependence on aircraft suppliers, airport access and major hubs. The filing reports that Azul was in compliance with, or had obtained waivers for, financial covenants at year-end; it also describes restructuring negotiations and prior defaults or covenant difficulties.
- Contractual aircraft acquisition commitments were R$10.174bn for 132 aircraft as of year-end. The company had postponed deliveries, including 59 E2 aircraft, and was negotiating subleases; the timing and completion of these arrangements remained uncertain. Contractual obligations in the filing totaled R$45.885bn, including lease liabilities, interest and aircraft commitments.
- Possible legal matters include a labor claim seeking about R$66m in punitive damages, which the company classified as a possible loss, and tax, civil and labor proceedings. Recorded provisions for civil and labor claims were R$104.9m and R$48.0m, respectively.
Most important facts for investors to verify
- Whether Azul can sustain adequate liquidity and meet near-term payments given the R$4.795bn current-liability deficit, negative equity and substantial lease and debt obligations.
- The terms, duration and status of creditor and lessor waivers, covenant compliance, payment deferrals and any further refinancing or capital-raising plans.
- How much of the lease-modification gain and impairment reversal is non-recurring, and how these accounting adjustments affect future cash payments and reported performance.
- The status of aircraft delivery postponements and sublease negotiations, and the resulting cash commitments under the 132-aircraft order book.
- How demand, currency movements and fuel prices evolve after year-end; the filing provides no clear quantified 2021 earnings or revenue guidance.