Azul(AZUL) - 2023 Q4 - Annual Report

Financial Risk Management - The company engages in currency forward contracts for periods with currency exposure of up to 12 months to mitigate foreign currency risk, particularly related to U.S. dollar indexed loans and lease liabilities [942]. - Interest rate risk exposure primarily relates to long-term obligations subject to variable interest rates, with sensitivity analyses indicating potential adverse impacts of R$ 19,602 thousand under adverse scenarios and R$ 39,205 thousand under remote scenarios for CDI [941]. - The adverse scenario for foreign currency risk indicates a potential loss of R$ 6,606,669 thousand due to an increase in the U.S. dollar rate, while the remote scenario suggests a loss of R$ 13,213,337 thousand [941]. - The company does not have significant exposure to any single counterparty in relation to derivative transactions, minimizing credit risk associated with derivatives [939]. - The company has implemented a risk management policy since April 14, 2011, revised on March 9, 2020, to monitor and mitigate market risks associated with derivatives [938]. - The company utilizes derivative financial instruments to mitigate fuel price volatility, primarily through fixed price agreements and hedging contracts [944]. - Sensitivity analyses for commodity price risk indicate potential adverse impacts of R$ 1,472,621 thousand under adverse scenarios and R$ 2,945,243 thousand under remote scenarios for fuel prices [941]. Fuel Cost and Commodity Prices - As of December 31, 2023, aviation fuel accounted for 34.9% of operating expenses, down from 45.2% in 2022 and 32.8% in 2021, indicating a significant fluctuation in fuel cost impact on operations [944]. - Brent oil prices increased from approximately US$ 75 per barrel at the end of 2021 to US$ 128 per barrel on March 8, 2022, before stabilizing at US$ 77 per barrel as of December 31, 2023, highlighting volatility in commodity prices [944]. ADS and Preferred Shares Regulations - Preferred shares must be accompanied by confirmation that all conditions for deposit have been satisfied under Brazilian law [960]. - The depositary will issue ADSs upon the deposit of preferred shares and payment of applicable fees, which may include taxes and charges [961]. - ADS holders can cancel their ADSs to receive the corresponding number of underlying preferred shares, subject to payment of fees and taxes [962]. - Voting rights for ADS holders are limited, and instructions must be received by the depositary in writing before the specified date [964]. - The depositary may give a discretionary proxy to a designated person if no timely voting instructions are received from ADS holders [966]. - ADS holders must comply with Brazilian law and provide requested information regarding their ownership of ADSs [968]. - The company will comply with Brazil's Monetary Council Resolution 4373 and furnish required information to regulatory bodies [970]. - Transfers of preferred shares may be restricted to comply with ownership limits imposed by applicable laws [971]. - ADS holders are responsible for satisfying reporting requirements and obtaining regulatory approvals as required by applicable laws [972]. - Service fees for ADS holders include up to US$0.05 per ADS for issuance, cancellation, and distribution of dividends [974]. - For the year ended December 31, 2023, Citibank N.A. reimbursed the company approximately US$275,488.84 for expenses related to the ADR program [979]. - The depositary may refuse to issue ADSs or deliver securities until all taxes and charges are paid by the ADS holders [981]. - The deposit agreement allows for the pre-release of ADSs, which can be up to 30% of the total outstanding ADSs at any time [996]. - The depositary will maintain records of ADS holders and may close its facilities when necessary for performance of its duties [987]. - The company has the right to direct the depositary to terminate the deposit agreement, with a notification period of at least 30 days [985]. - The depositary is not liable for indirect, special, consequential, or punitive damages for any breach of the deposit agreement [989]. - Each ADS holder is responsible for any taxes incurred related to the deposit of preferred shares or withdrawal of deposited property [982]. - The depositary may take administrative actions to obtain tax refunds and reduced tax withholding for distributions on behalf of ADS holders [981]. - The deposit agreement may be amended without consent if it does not materially prejudice existing rights of ADS holders [984]. - The depositary may refuse to register transfers of ADSs if it deems it necessary or advisable [993].