Azul restructuring puts Gol merger talks on back burner

People close to the situation say the company now aims to complete its Chapter 11 process by the end of this year, since the group has already secured debtor-in-possession (DIP) financing and exit funding from investors. Yet, the same sources warn Azul must navigate the complexities of U.S. bankruptcy proceedings, which are often fraught with unexpected challenges and disputes.

The prospect of a merger between Azul and Gol has been a prominent topic in the aviation sector since mid-January, when a memorandum of understanding was announced by Azul’s shareholders and Abra, the holding company that controls Gol and Avianca. Since then, Azul has been more actively pursuing the merger discussions, while Gol and its shareholders have been focused on concluding their own Chapter 11 process.

With Gol’s restructuring expected to conclude by June 6, attention now turns to Azul. The airline has announced that it has raised $1.6 billion in DIP financing from creditors and investors. Azul also plans to eliminate approximately $2 billion in debt from its balance sheet by the end of the process, including the removal of lease liabilities with the support of AerCap, the group’s main lessor.

Azul’s restructuring plan includes a 35% reduction in its fleet, allowing the company to return aircraft that are currently challenging to operate. For instance, large aircraft like Airbus models face maintenance part shortages, complicating flight operations.

One of Azul’s strategies has been to invest in ACMI (aircraft, crew, maintenance, and insurance) contracts, which involve hiring a company to provide aircraft and crew. The ACMI model was approved by Brazil’s National Civil Aviation Agency (Anac) at the end of last year, and Azul initiated an agreement with Portuguese company EuroAtlantic. Another source close to the matter indicated that Azul is also working to bring another partner into the ACMI operation in Brazil: another Portuguese airline called Hi Fly.

This partnership has been utilized by Azul to address component shortages. In the first quarter, Azul experienced up to a 3% loss in seat capacity in a single month due to supply chain issues, particularly affecting larger aircraft.

The most surprising aspect of the deal involves investments from American Airlines and United Airlines, both U.S. competitors, which are expected to invest up to a combined $300 million in Azul upon the completion of the process. Azul’s documentation states that these investments are subject to certain conditions, though it does not specify what they are.

United Airlines has been a partner of Azul and holds a stake in the company. Conversely, American Airlines is a significant partner of Gol and is a shareholder in the Brazilian airline. Therefore, market expectations were that American Airlines would invest in Gol’s restructuring, which did not occur.

Azul was the only major airline in Brazil that had not sought restructuring in U.S. courts following the pandemic’s impact. In the first quarter, Azul’s debt reached R$31.35 billion, a 50.3% increase compared to the same period the previous year.

Sources close to the matter emphasized that Azul anticipates a swift process in court, with the possibility of completion still this year. However, Chapter 11 proceedings are known for their unpredictability and potential complications.

Gol, for instance, entered Chapter 11 on January 25, 2024, with an initial expectation to complete its restructuring within a year. In 2024, the company faced conflicts with bondholders and had to negotiate to prevent them from hindering the process.

By late 2024 and early 2025, currency volatility and U.S. tariff increases led Gol to project a definitive exit from Chapter 11 on June 6—six months after the original deadline, yet still a relatively quick process.

LATAM underwent a particularly tumultuous Chapter 11 process from 2020 to 2022, amid disputes between creditors and shareholders over control of the company. LATAM’s main shareholders were the Cueto family, Qatar Airways, and Delta Air Lines, who collectively held about 46% of its capital. After the process, their stakes were diluted: the Cueto family retained 5%, Delta 10%, Qatar 10%, Sixth Street Partners 28%, and Strategic Value Partners 16%.

LATAM’s process differed from those of Azul and Gol, as the airline began its restructuring without having secured DIP financing or exit funding. Nonetheless, sources noted that LATAM’s Chapter 11 experience served as a learning opportunity for future airline restructurings and helped Gol expedite its negotiations.