Business context and reporting period
Azul S.A. filed its Form 20-F on April 19, 2023, reporting for the fiscal year ended December 31, 2022, with comparisons to 2021 and 2020. This is an annual filing, not a standalone fourth-quarter report; separate Q4 financial results are not clearly provided in the filing text. Financial statements are prepared under IFRS in Brazilian reais (R$).
Azul operates passenger and cargo air services, a loyalty program (TudoAzul), and travel-package services in Brazil and internationally. It reported service to 158 destinations and approximately 1,000 daily departures at year-end.
Financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | R$15.95bn | R$9.98bn |
| Operating profit | R$1.43bn | R$54.8m |
| Net loss | R$722.4m | R$4.21bn |
| Cash from operating activities | R$2.44bn | Cash used: R$310.6m |
| Cash and cash equivalents at year-end | R$668.3m | R$3.07bn |
| Total loans, financing and lease liabilities | R$23.22bn | R$24.91bn |
- Revenue increased 59.9%; passenger revenue rose 65.6% to R$14.59bn, while other revenue rose 16.2% to R$1.35bn.
- Operating margin was approximately 9.0% in 2022, compared with approximately 0.5% in 2021. Net loss margin was approximately 4.5% in 2022, improving from approximately 42.2% in 2021.
- Passenger capacity (ASKs) grew 26.1%, load factor increased to 79.7% from 79.2%, and passenger revenue per ASK rose 31.4% to R$0.3688. Fuel expense increased 101.4% to R$6.56bn and represented 45.2% of operating expenses.
- Net financial expense was R$2.15bn, down from R$4.26bn, reflecting a R$1.41bn foreign-exchange gain and R$958m gain on derivative instruments. Financial expenses nevertheless increased 24.9% to R$4.79bn.
- Year-end cash and cash equivalents plus short- and long-term investments totaled approximately R$1.40bn. Net cash from operations was outweighed by R$4.20bn of financing cash outflows; cash and cash equivalents declined R$2.41bn during the year.
- Working capital was negative R$10.18bn and shareholders’ equity was negative R$19.01bn. These figures, alongside substantial lease commitments, indicate significant liquidity and capital-structure pressure.
Material changes versus the prior comparable period
- Passenger demand recovery and fare increases drove higher revenue and operating profit. Operating cash flow also turned positive.
- Fuel prices and capacity growth drove sharply higher fuel costs. The real’s average appreciation against the U.S. dollar partly offset foreign-currency expenses.
- Net loss narrowed substantially, but the company remained loss-making because financial expenses exceeded operating profit.
- Operating capacity expanded, with 304,429 departures versus 245,102 in 2021. On-time performance declined to 88.9% from 90.5%; the filing reports mishandled bags increased to 3.36 per 1,000 passengers from 2.68.
Outlook, risks and unusual items
- Management expected air-travel demand to increase steadily in 2023, with much of the anticipated growth coming from international travel. It said it would continue adjusting schedules to demand; no quantified financial guidance is provided.
- Management cited recovery in demand and operating cash generation, but the auditor highlighted recurring losses, negative equity and negative working capital as challenging going-concern considerations. The auditor issued an unqualified opinion on the financial statements; the statements use the going-concern basis.
- After year-end, Azul disclosed agreements with lessors representing more than 90% of lease liabilities, subject to conditions and approvals. The proposed exchange involves reduced lease payments and lessors receiving a tradeable note maturing in 2030 and Azul shares. A separate April 2023 deferral agreement covered 57 aircraft. The audited notes state US$114.3m of deferred payments, while other filing text gives US$144.3m; verify the amount and final terms.
- As of December 31, 2022, Azul was not in compliance with a net-debt-to-EBITDA covenant under a DFC agreement, although it reported compliance with the debt-service coverage covenant. The filing describes subsequent waivers and payment deferrals; compliance and waiver terms remain important to verify.
- Fuel, foreign-exchange and interest-rate volatility are key risks. Fuel made up 45.2% of operating expenses; Azul reported hedging 17.6% of expected fuel consumption for the following 12 months. Brazil’s economic and political conditions, financing access, lease obligations, aircraft commitments, supplier concentration and operational disruption are also material risks.
- Azul reported a R$1.10bn net impairment and onerous-contract reversal in 2022, mainly associated with resuming use of E1 aircraft. This was a significant non-cash contributor to operating results.
- Management and the auditor identified material weaknesses in IT general controls and information supporting financial reporting. The auditor gave an adverse opinion on internal control over financial reporting, while stating the weaknesses did not result in a material misstatement of the 2022 consolidated financial statements.
Important facts for investors to verify
- Standalone Q4 performance, which is not clearly presented in the annual filing, and reconciliation to the audited annual figures.
- Progress, approvals, accounting and liquidity effects of the lessor restructuring; reconcile the conflicting US$114.3m and US$144.3m deferral disclosures.
- Current covenant compliance, creditor waivers, debt maturities and the company’s ability to meet lease and other obligations.
- Cash availability, including restrictions on investments, and the company’s plan for addressing negative working capital and negative equity.
- How much of 2022 operating profit depended on impairment reversals and other adjustments, and the sustainability of margins given fuel prices and financing costs.
- Remediation and independent testing of the disclosed internal-control weaknesses.