Azul(AZUL) - 2025 Q1 - Quarterly Report

Azul S.A. First Quarter 2025 Results Financial and Operating Highlights In Q1 2025, Azul achieved a record first-quarter operating revenue of R$5.4 billion, a 15.3% increase year-over-year, driven by a 15.6% growth in capacity (ASK), though EBITDA decreased by 2.1% to R$1.4 billion, with the margin contracting by 4.6 percentage points to 25.7% primarily due to a 7.6% rise in CASK influenced by Brazilian real depreciation, higher fuel prices, and inflation 1Q25 Financial and Operating Highlights (vs. 1Q24) | Indicator | 1Q25 | 1Q24 | Change | | :--- | :--- | :--- | :--- | | Total operating revenue (R$ million) | 5,394.4 | 4,678.4 | 15.3% | | Operating income (R$ million) | 570.6 | 800.7 | (230.2) | | EBITDA (R$ million) | 1,385.8 | 1,415.2 | (29.4) | | EBITDA margin (%) | 25.7% | 30.3% | -4.6 p.p. | | ASK (million) | 12,802 | 11,077 | 15.6% | | RASK (R$ cents) | 42.14 | 42.23 | -0.2% | | CASK (R$ cents) | 37.68 | 35.01 | 7.6% | - Operating revenue reached a record R$5.4 billion for a first quarter, up 15.3% YoY, supported by strong demand and ancillary revenue growth[8] - Consolidated capacity (ASK) grew 15.6% YoY, primarily driven by a 39.2% increase in international operations, with passenger traffic (RPK) increasing 19.4%, leading to a load factor of 81.5%[8] - CASK increased by 7.6% to R$37.68 cents, mainly due to an 18.0% average depreciation of the Brazilian real, 5.5% inflation, and growth in international operations[9] Management Comments The CEO highlighted record Q1 revenue of R$5.4 billion, driven by strong demand and significant contributions from business units like Azul Viagens and Azul Cargo, despite operations being impacted by macroeconomic factors including an 18% currency depreciation and inflation which increased CASK by 8%, with the company continuing to focus on its unique network where it is the sole carrier on 82% of its routes and actively working to optimize its capital structure and reduce debt - Business units demonstrated strong growth, with Azul Viagens increasing gross bookings by 57% YoY and Azul Cargo's revenue growing by 18% YoY[12] - Despite a 16% capacity increase, unit revenue (RASK) remained strong at over R$42 cents, demonstrating the resilience of the business model[13] - Cost pressures were partially offset by productivity gains, with ASKs per FTE increasing by 19% and fuel consumption per ASK dropping by 2.5% YoY due to fleet modernization[15] - The company is in ongoing discussions with partners to further optimize its capital structure and liquidity, having already made significant progress in reducing debt and leverage[18] Recent Developments In April 2025, Azul executed several capital structure optimizations, including issuing new preferred shares to lessors to settle a R$3.0 billion equity obligation and to bondholders to eliminate approximately US$270 million of debt (35% of notes due 2029/2030), additionally securing R$600 million in new funding from existing bondholders to bolster its short-term liquidity - On April 3, 2025, 96 million new preferred shares were issued to lessors, eliminating an outstanding equity obligation of approximately R$3.0 billion[21] - On April 28, 2025, 450.6 million new preferred shares were issued to bondholders, eliminating 35% of the notes due in 2029 and 2030, valued at approximately US$270 million[21] - On April 30, 2025, Azul secured approximately R$600 million in additional funding from existing bondholders to support its short-term liquidity position[20] Consolidated Financial Results Operating Performance In Q1 2025, total operating revenue grew 15.3% to R$5.4 billion, with passenger revenue up 15.2% and cargo revenue up 17.3%, however, total operating expenses surged 24.4% to R$4.8 billion driven by higher fuel costs, depreciation, and airport fees, leading to a 28.7% decrease in operating income to R$570.6 million and a contraction in the operating margin from 17.1% to 10.6% 1Q25 Income Statement Summary (R$ million) | Item | 1Q25 | 1Q24 | % Δ | | :--- | :--- | :--- | :--- | | Total operating revenue | 5,394.4 | 4,678.4 | 15.3% | | Passenger revenue | 5,017.4 | 4,357.0 | 15.2% | | Cargo revenue and other | 377.0 | 321.4 | 17.3% | | Total Operating Expenses | (4,823.8) | (3,877.7) | 24.4% | | Aircraft fuel | (1,572.0) | (1,353.3) | 16.2% | | Depreciation and amortization | (815.2) | (614.5) | 32.7% | | Operating Result | 570.6 | 800.7 | -28.7% | | EBITDA | 1,385.8 | 1,415.2 | -2.1% | - International cargo revenues showed a remarkable recovery, increasing 62% year-over-year[27] - Operating expenses per ASK (CASK) increased by 7.6%, with notable rises in depreciation (+14.8%) and airport fees (+13.5%) on a per-ASK basis[29] Non-Operating Results The non-operating result was significantly influenced by foreign exchange movements, with a net gain of R$2.6 billion on foreign currency exchange due to the appreciation of the Brazilian real more than offsetting net financial expenses of R$2.4 billion, which included a R$1.1 billion accounting impact from debt modification and R$604 million in lease-related interest 1Q25 Net Financial Results (R$ million) | Item | 1Q25 | 1Q24 | % Δ | | :--- | :--- | :--- | :--- | | Net financial expenses | (2,361.9) | (1,117.0) | 111.5% | | Foreign currency exchange, net | 2,567.1 | (847.3) | n.a. | | Net financial results | 212.5 | (1,925.9) | n.a. | - Net financial expenses of R$2,361.9 million included a R$1.1 billion non-cash accounting impact from debt modification agreements[32] - A net gain of R$2,567.1 million was recorded from foreign currency exchange due to a 7.3% appreciation of the Brazilian real against the US dollar during the quarter[34] Liquidity and Financing Liquidity Position Azul ended Q1 2025 with total liquidity of R$6.7 billion, including R$2.3 billion in immediate liquidity (cash and receivables), and during the quarter, the company raised approximately R$3.0 billion in new notes while paying down over R$4.0 billion in leases, debt repayments, and interest, reflecting active balance sheet management Liquidity Position as of March 31, 2025 (R$ million) | Item | 1Q25 | 4Q24 | 1Q24 | | :--- | :--- | :--- | :--- | | Immediate liquidity | 2,345.2 | 3,057.3 | 2,713.9 | | Total Liquidity | 6,664.4 | 7,490.4 | 5,989.0 | - Immediate liquidity of R$2.3 billion represents 11.6% of last twelve months' (LTM) revenues[35] Debt Structure and Leverage Gross debt stood at R$34.7 billion at the end of Q1 2025, an increase from Q4 2024 mainly due to a R$3.0 billion loan raised in January, with the company's leverage, measured as net debt to LTM EBITDA, at 5.2x, and the average debt maturity, excluding leases and convertibles, at 4.1 years with an average interest rate of 12.5% Key Financial Ratios | Ratio | 1Q25 | 4Q24 | 1Q24 | | :--- | :--- | :--- | :--- | | Gross debt (R$ million) | 34,664.1 | 33,677.1 | 24,384.1 | | Net debt (R$ million) | 31,350.1 | 29,579.4 | 20,865.1 | | Net debt / EBITDA (LTM) | 5.2x | 4.9x | 3.7x | - Gross debt increased by R$987.0 million compared to Q4 2024, primarily due to a R$3.0 billion loan raised as part of the restructuring plan[40] - The leverage ratio of 5.2x was impacted by the depreciation of the Brazilian real on dollar-denominated debt, with the company continuing to explore opportunities to manage its leverage and debt profile[43] Fleet and Capex Fleet Composition As of March 31, 2025, Azul's passenger operating fleet comprised 184 aircraft, with the company having advanced its fleet modernization, as next-generation aircraft now account for approximately 80% of its total capacity, a key driver for fuel efficiency Passenger Operating Fleet | Aircraft Type | 1Q25 | 1Q24 | | :--- | :--- | :--- | | Airbus widebody | 13 | 9 | | Airbus narrowbody | 57 | 55 | | Embraer E2 | 32 | 20 | | Embraer E1 | 29 | 37 | | ATR | 29 | 36 | | Cessna | 24 | 24 | | Total | 184 | 181 | - The share of capacity from next-generation aircraft reached 80% at the end of 1Q25, which is significantly higher than regional competitors[46] Capital Expenditures Net capital expenditures (capex) in Q1 2025 totaled R$141.9 million, a 67.4% decrease compared to the same period last year, with spending primarily directed towards the capitalization of engine overhauls and the acquisition of spare parts Capex (R$ million) | Item | 1Q25 | 1Q24 | % Δ | | :--- | :--- | :--- | :--- | | Capex | 144.3 | 446.2 | -67.7% | | Sale and leaseback | -2.4 | -10.3 | -76.9% | | Net capex | 141.9 | 435.9 | -67.4% | ESG and Non-Recurring Items ESG Responsibility Azul reported its key ESG indicators based on SASB standards, showing environmentally, fuel consumption per ASK improved by 1.9% compared to Q4 2024, socially, 100% of employees are covered by collective bargaining agreements, and governance metrics indicate 92% of directors are independent and 23% are women Key ESG Indicators (1Q25) | Category | Metric | Value | | :--- | :--- | :--- | | Environmental | Total fuel consumed per ASK (GJ / ASK) | 1,053 | | Social | Employee monthly turnover (%) | 1.0% | | Social | Employee covered under collective bargaining agreements (%) | 100% | | Governance | Independent directors (%) | 92% | | Governance | Percent of Board members that are women (%) | 23% | Non-Recurring Items Reconciliation The company's reported operating results for Q1 2025 included a significant non-recurring positive adjustment of R$910.3 million, which, related to the capital optimization plan, increased reported operating income from an adjusted R$570.6 million to a reported R$1,480.9 million, and boosted reported EBITDA from R$1.4 billion to R$2.3 billion 1Q25 Non-recurring Adjustments (R$ million) | Item | As recorded | Adjustments | Adjusted | | :--- | :--- | :--- | :--- | | Operating income | 1,480.9 | (910.3) | 570.6 | | Operating Margin | 27.5% | -16.9 p.p. | 10.6% | | EBITDA | 2,296.1 | (910.3) | 1,385.8 | | EBITDA Margin | 42.6% | -16.9 p.p. | 25.7% | - A positive non-recurring impact of R$910.3 million was recorded in 1Q25, related to the capital optimization plan and final terms negotiated with lessors, OEMs, and bondholders[51] Financial Statements Balance Sheet As of March 31, 2025, Azul's balance sheet showed total assets of R$25.5 billion, with total liabilities at R$54.0 billion significantly exceeding assets and resulting in a negative equity of R$28.5 billion, while current liabilities were R$17.0 billion against current assets of R$6.0 billion Balance Sheet Summary (R$ million) | Item | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | 5,960.9 | 5,658.0 | | Total Assets | 25,548.7 | 26,274.9 | | Total Current Liabilities | 17,021.5 | 21,342.3 | | Total Liabilities | 53,999.8 | 56,710.2 | | Total Equity | (28,451.1) | (30,435.3) | Cash Flow Statement In Q1 2025, cash flow from operating activities was a net outflow of R$313.2 million, compared to an outflow of R$63.2 million in Q1 2024, with investing activities using R$238.2 million and financing activities using R$176.8 million, resulting in a net decrease in cash and cash equivalents of R$749.3 million for the quarter Cash Flow Summary (R$ million) | Item | 1Q25 | 1Q24 | | :--- | :--- | :--- | | Net cash generated (used) by operating activities | (313.2) | (63.2) | | Net cash generated (used) in investing activities | (238.2) | (435.9) | | Net cash generated (used) in financing activities | (176.8) | (59.4) | | Net decrease in cash and cash equivalents | (749.3) | (559.7) |