Azul Linhas Aereas announced yesterday that it has received a two billion reais ($ 376 million) funding proposal from the Brazilian Development Bank. Now the low-cost airline is analyzing the terms of the proposal. Will it take? Let’s investigate further.
What are the loan terms like?
The Brazilian Development Bank (BNDES) has held talks with Brazilian airlines since the beginning of the COVID-19 pandemic. Still, six months after the crisis began, the loan is still ongoing. Now it seems to be going a step further.
According to a statement from Simple Flying, the loan would have three main lenders: the BNDES, a banking consortium, and qualified investors. So how would it work?
“The proposal provides for a public offering of a hybrid financial instrument with the aim of raising at least two billion reais.” The hybrid financial instrument consists of simple bonds and stock option certificates, with the premium and exercise price not yet set.
Azul also stated that the BNDES would be the anchor investor and would subscribe up to 60% of the offer. Then the banks can provide a fixed guarantee of 10% of the bid. In the end, “The rest must be raised by a public offer from qualified investors.”
Last month, Marcelo Bento Ribeiro, Director of Institutional Relations at Azul, spoke to Simple Flying. During that interview, he said that the government loan would not be cheap money; instead, he expected credit terms to be based on private markets. Does Azul need this money?
Azul is well positioned financially
In the second quarter of 2020, Azul managed to reduce its daily cash burn and increase its liquidity position. According to the airline, it ended with 2.3 billion reais in liquidity (about $ 434 million) when it ended up with 2.0 billion reais.
The low-cost airline also stated that 1.8 billion reais were available in cash, while 0.6 was included in claims. Alex Malfitani, CFO of Azul said:
“Azul’s recovery plan has produced better results than expected. We have covered our short-term liquidity needs and are confident that we can overcome this crisis and restore our position as one of the most profitable airlines in the region. ”
For the remainder of 2020, Azul expects to burn about $ half a million a day. It also said that it has no debt settlement. Finally, Azul said something very interesting:
“The company’s forecasts show sufficient liquidity until the end of 2021, provided there is no new capital increase.” However, she added that she plans to raise additional capital in due course.
The question now arises as to whether Azul will take out this BNDES loan.
Will Azul take out the loan?
Azul sees its liquidity position as more robust than initially expected. Therefore, the board of directors will discuss the proposal received from BNDES and other alternatives to raise capital, the airline announced.
Marcelo Bento Ribeiro said that while the government loan is welcome, Azul is not 100% relying on it to survive. “We have other alternatives to the rescue package” he said, adding that the company survived without that money.
There are some similarities between Azul and Volaris in Mexico. Both companies seem to be doing well in the current crisis. Despite the uncertainty, they are in a mood of expansion, like us at Introduction of Azul Conecta. Taking out a government loan could jeopardize these plans as it would involve many conditions. Hence, we might expect Azul to consider other funding proposals.
What do you think will happen? Let us know in the comments.