Azul S.A. — 2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023; filed May 15, 2024. Although the request refers to 2023 Q4, this is an annual report and does not provide a standalone fourth-quarter income statement. Financial statements are prepared under IFRS in Brazilian reais (R$), unless otherwise stated.
Business context and operating performance
Azul is a Brazil-focused airline with passenger, cargo, loyalty-program and travel-package businesses. At year-end it reported 183 passenger operating aircraft, 167 destinations and 44.0 billion available seat kilometers (ASKs). Capacity rose 11.2% year over year; passenger traffic (RPKs) rose 12.2%, and load factor increased to 80.4% from 79.7%.
Financial results and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Operating revenue | R$18.55 billion | R$15.95 billion |
| Operating profit | R$1.66 billion | R$1.43 billion |
| Financial result | Loss of R$4.00 billion | Loss of R$2.15 billion |
| Net loss | R$2.38 billion | R$722 million |
| Cash from operating activities | R$3.44 billion | R$2.44 billion |
| Cash used in investing activities | R$874 million | R$640 million |
| Cash used in financing activities | R$1.39 billion | R$4.20 billion |
Operating revenue grew 16.3%, led by passenger revenue, up 18.0%; other revenue declined 2.0%, primarily due to lower international cargo revenue. Operating expenses increased 16.4%. Fuel expense fell 10.2% as average fuel cost per liter declined 16.1%, while maintenance expense rose 45.8% and salaries and benefits rose 23.2%. Operating cash flow was positive, and cash and cash equivalents ended the year at R$1.90 billion. The company reported total cash, cash equivalents and investments of R$2.68 billion.
The larger net loss reflected higher financing costs and a less favorable derivative result: financial expenses rose 17.0% to R$5.61 billion, and derivatives recorded a R$238 million loss versus a R$958 million gain in 2022. A R$1.63 billion foreign-exchange gain partly offset these items and was principally non-cash. No dividends were distributed for 2021–2023.
Azul disclosed negative working capital of R$9.70 billion and negative equity of R$21.33 billion at year-end. Management states it expects to continue as a going concern, based on its business plan and completed debt restructuring. The auditor identified liquidity and capital structure as a critical audit matter. Total loans and financing were reported as R$24.39 billion, including lease liabilities and convertible debentures; contractual obligations also include R$16.45 billion of future aircraft commitments.
Material changes, financing and unusual items
- In 2023 Azul restructured obligations with lessors and aircraft manufacturers, exchanged much of its 2024 and 2026 notes for higher-coupon debt due 2029 and 2030, amended convertible debentures, and issued US$800 million of 11.93% secured notes due 2028.
- The lessor/OEM restructuring included US$370.5 million of 7.5% notes due 2030 and arrangements covering up to US$570 million of obligations that may be settled in preferred shares or cash. Share settlement could dilute existing holders; scheduled issuances may begin in 2024 and continue through 2027.
- The 2020 convertible debentures were amended: maturity extended to 2028, stated interest increased to 12.3%, and conversion price changed to R$22.78 per preferred share. The restructuring and amendments generated material expenses.
- Cash and cash equivalents increased by R$1.23 billion during 2023. Operating cash flow improved, while financing cash flow remained negative; the year-end cash balance should be considered alongside substantial near-term obligations and negative working capital.
Outlook, risks and contingencies
Management describes demand as strong and expects to pursue growth and margin expansion, including planned additions in 2024–2025 of approximately 30 Embraer E2s, two A320neos and four A330neos, primarily replacing older aircraft. These plans depend on aircraft delivery, financing and operating conditions; the filing does not provide quantified earnings guidance.
Key risks include high debt and lease obligations, refinancing and covenant compliance, Brazilian-real depreciation, fuel-price volatility, high interest rates, maintenance supply-chain constraints, labor and staffing costs, competition and airport-slot limitations. Azul reported that it had complied with, or obtained waivers for, relevant financing covenants at December 31, 2023. It also disclosed provisions of R$284.6 million for tax proceedings, R$131.5 million for civil claims and R$141.7 million for labor proceedings. In May 2024, severe flooding in Rio Grande do Sul closed airports; Azul said it was assessing the effects and mitigation options.
The auditor issued an unqualified opinion on the IFRS financial statements, but an adverse opinion on internal control over financial reporting. Material weaknesses involved risk assessment and controls over significant transaction classes, including the 2023 capital restructuring, and validation of information from IT systems and spreadsheets. Management said remediation and control improvements are ongoing. The auditor also highlighted estimation judgments in passenger revenue and breakage, maintenance reserves, liquidity forecasts and lease modifications.
Most important facts for investors to verify
- Whether operating cash generation and available liquidity can meet debt, lease, aircraft-purchase and other contractual obligations as they fall due.
- The terms, timing and likely dilution from potential preferred-share settlements under the lessor/OEM restructuring, and the effect of the 2024–2028 debt maturities and high coupons.
- Progress in remediating material weaknesses in financial reporting controls, especially controls over restructuring accounting and supporting data.
- Actual results versus management’s demand, fleet-renewal and growth assumptions, including fuel, foreign-exchange and interest-rate sensitivity.
- The final financial and operational impact of the May 2024 flooding and any subsequent disclosures or changes in outlook.