Tuesday, May 16, 2017

Brazilian Airline Azul Focused on Cutting Debt, Adding Capacity After Initial Public Offering: Carrier is adding higher-capacity planes to long-haul routes

The Wall Street Journal 
By Luciana Magalhaes
May 15, 2017 6:44 p.m. ET

SÃO PAULO—Azul Linhas Aéreas Brasileiras SA is focusing on cutting debt after its recent initial public offering while rebalancing its fleet to add more capacity to long-haul flights, Chief Executive David Neeleman said Monday.

Azul, Brazil’s third-largest airline by passengers, was able to swing to a profit of 55.3 million reais ($17.8 million) in the first three months of 2017 from a loss of 66.9 million reais in the first quarter of last year.

Founded in 2008 by Mr. Neeleman—who also founded U.S. discount carrier JetBlue Airways Corp. —Azul raised about $644 million in its April IPO, with $406 million in net proceeds to the airline.

The airline has recently paid about 401 million reais of working capital debt, which is owed mostly to Brazilian banks, and intends to gradually continue reducing its most expensive borrowing while keeping some cash available, taking advantage of still-high interest rates in Brazil, said Mr. Neeleman, who is also Azul’s chairman.

At the end of the first quarter, Azul had total debt equivalent to about 3.7 billion reais, roughly half of it denominated in the Brazilian currency.

“Every real of profit we make will be used to pay off debt,” Mr. Neeleman said.

The airline made the right choice when it decided to cut debt, said Pedro Galdi, an analyst at São Paulo-based investment firm Upside Investor.

“The company has to use this money to get its house in order,” he said.

Upside Investor doesn´t usually recommend the airline sector, given its dependence on factors it can´t control, such as the currency and oil prices, Mr. Galdi added. “This sector is not for any investor.”

Azul postponed previous efforts to sell shares in past years because of economic and political problems in Brazil. The company is now seeing some signs the country’s recession has bottomed out, but the economy isn’t out of the woods yet, Mr. Neeleman said.

“It will be ‘Hallelujah!’ when the economy does [recover],” Mr. Neeleman said.

After declining for several quarters, “business travel has flattened [since October or November],” Azul President Antonoaldo Neves said, noting about 65% of Azul´s client base are corporate. “It’s very hard to predict when it will come back, but we are right-sized for the economy now.”

Azul trimmed staff about two years ago, Mr. Neves said. Instead of firing workers, the company offered a leave-of-absence program, and about 300 of its employees accepted, he said. Azul is now calling them back.

The airline’s performance this year is being helped by the introduction of new Airbus A320neo aircraft to its fleet starting in December for use for long-haul flights, Mr. Neeleman said.

The new aircraft, which add 56 seats per flight compared with the previous model used on the same routes, reduced costs by about 30% per seat, he said.

The real’s gains against the dollar over the past year also helped reduce some costs, according to Chief Financial Officer John Rodgerson.

The company is expanding its network in 2017 and adding five to seven new destinations, mainly in Brazil, Mr. Neeleman said.

Azul says it is Brazil’s leading airline in terms of departures and cities served, with 792 daily flights serving 104 airports. It recently expanded its network to include international destinations such as Fort Lauderdale and Orlando in Florida, and Lisbon.

Original article can be found here:  https://www.wsj.com

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