In a turbulent trading session on Wednesday, the stocks of Brazil’s two largest publicly traded airlines jumped in opposite directions on starkly conflicting news.
Gol Linhas Aéreas (GOLL4) jumped 35.29% to R$1.38, fueled by investor optimism after a US judge accepted its restructuring plan, a crucial step toward exiting Chapter 11 bankruptcy protection.
Meanwhile, Azul (AZUL4) fell 5.56% to R$1.02, weighed down by market speculations of an impending Chapter 11 filing and a fresh credit downgrading from S&P Global Ratings.
Gol gains altitude with court approval
According to the local media outlet, InfoMoney, the rise in Gol shares follows the approval of the airline’s restructuring plan by a US bankruptcy court on Tuesday.
The company now expects to exit the Chapter 11 process in the months to come with a liquidity of approximately US$900 million.
A significant capital infusion is part of the restructuring plan.
Gol’s board previously approved a capital increase of R$5.34 billion to R$19.25 billion, making it one of the largest ever disclosed by a Brazilian firm.
While the attempt still needs shareholder approval, this move is focused on resetting the balance sheet and enabling the business to operate stably over the long term.
Analysts from BTG Pactual noted that the court’s green light reduces financial uncertainty and enhances Gol’s strategic options.
While the capital raise implies potential dilution for existing shareholders, the long-term outlook appears to have strengthened, with investors likely to refocus on the airline’s ability to rebuild consistent operations and improve cash flow.
Azul falters under liquidity pressure
Meanwhile, Azul’s shares have suffered, tumbling as investor fears have increased.
S&P downgraded Azul’s credit rating from “CCC+” to “CCC-” on Tuesday, pointing to a greater risk of default.
It also flagged pressures on liquidity and the potential to miss financial commitments in the near term as the reason for the downgrade.
Although Azul’s debt maturities are moderate over the next 12 months, totalling R$730 million, the airline is under stress from operating lease commitments, interest expense, and planned capital expenditure.
By the end of the first quarter, the company ended with a worrying adjusted net loss of R$ 1.82 billion, R$ 5 times larger than a year ago in the same period.
Azul’s financial leverage had also risen to 5.2 times EBITDA by the end of March, up from 3.7 times the year before.
Though the airline has yet to file for judicial recovery, it is the only major player in the Brazilian market that has not used the restructuring mechanism. However, this status may soon change.
Bankruptcy speculation intensifies
Azul is said to be exploring Chapter 11 protection as one possibility.
Sources referenced by Broadcast and later Bloomberg say creditors are in talks to provide the airline with up to US$600 million in financing to help the airline through a bankruptcy filing.
The filing could come as soon as next week, Bloomberg said.
A Chapter 11 filing would be a sea change for Azul and could fundamentally alter the aviation backdrop in Brazil.
Increasing speculation highlights the financial strain Azul is under and marks an upcoming storm.
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