Brazil airline Azul lowers 2024 earnings, capacity forecasts; shares fall
Updates share reaction; adds analyst, CEO comments
By Gabriel Araujo
SAO PAULO, Aug 12 (Reuters) -Brazilian airline Azul AZUL.N reduced its estimate for 2024 core earnings on Monday while bumping up its leverage forecast in the face of slower than previously expected capacity growth and weakness of Brazil's currency.
Azul now expects earnings before interest, tax, depreciation and amortization (EBITDA) to be "more than 6 billion reais ($1.1 billion)" this year, it said in a securities filing, down from a previous projection of about 6.5 billion.
Its leverage ratio was forecast to end 2024 at 4.2, above the 3.0 estimated previously.
The carrier, Brazil's second-largest by market share, said the reduced capacity growth reflects the impact of recent floods in southern Brazil, which affected operations in the region, and delayed aircraft deliveries.
Sao Paulo-traded shares of Azul AZUL4.SA declined more than 10% on the news, making it the biggest faller on Brazil's benchmark stock index Bovespa .BVSP, which was up 0.7%.
"We remain Buy-rated on Azul as we believe the company should maintain pricing power as the whole industry remains rational," Goldman Sachs analysts said.
"However, we note that the combination of weak second-quarter results coupled with the downward revision in guidance could lead to a negative share price reaction."
The aviation industry has struggled with delays from manufacturers in recent years as planemakers grapple with supply chain constraints.
Azul, which operates Airbus AIR.PA and Embraer EMBR3.SA jets, said its 2024 available seat kilometer, an important capacity metric, is now slated to grow 7% from the previous year, down from the previously expected 11%.
It expects to receive 15 to 18 Embraer E2 jets by the end of next year, despite delays related to engine supply.
'DIFFICULT QUARTER'
In the second quarter, the carrier reported an adjusted net loss of 744.4 million reais, wider than the 566.8 million-real loss seen a year earlier, with costs rising in light of the weakness of Brazil's real BRBY and higher fuel prices.
Azul said it took a hit of at least 200 million reais due to the May floods in Rio Grande do Sul state, which represents 10% of its network. The region is as relevant for Azul as Los Angeles for a major U.S. airline, the firm said.
The local Salgado Filho airport, one of Brazil's busiest, will remain closed until October as its runway was damaged.
"We navigated a challenging combination of seasonality, fleet, high fuel and currency devaluation combined with the devastating floods, all of which made this an especially difficult quarter," CEO John Rodgerson said.
Azul's net revenue came in at 4.17 billion reais, down 2.3% year-on-year and below the 4.5 billion expected by analysts polled by LSEG. EBITDA slipped 9% to 1.05 billion reais, while analysts expected 1.12 billion.
Nonetheless, Rodgerson said he is optimistic as Brazil enters its seasonally strong spring and summer periods. Bookings have been improving over the last four weeks and Azul expects the trend to accelerate.
Azul in late June started acodeshare deal with Gol GOLL4.SA, Brazil's No.3 airline, amidspeculations of a potential merger.
($1 = 5.5064 reais)
Reporting by Gabriel Araujo; Editing by David Goodman, Jonathan Oatis and David Gregorio
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