Azul () announced on Wednesday (28) that it entered the so-called Chapter 11, following a path already traveled by two other Brazilian airlines, and Gol ().
A, and A a week ago.
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But after all, what is Chapter 11? And why do aviation companies resort to it instead of entering the order in Brazil?
What is Chapter 11?
Chapter 11 is a legal tool for the US Bankruptcy Law. It is triggered to suspend debt execution and allow the company to propose a financial and operational restructuring plan, so that the company follows operant and gets more time to pay its creditors. It is a mechanism similar to judicial recovery in Brazil.
This process can be divided into five phases, as below:
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- Restructuring request: When the company goes to court, requesting protection against creditors. That’s what Azul did today.
- Initial audience: This is where the initial legal structure for the process is established. In general, it is when justice gives or denies permission to reorganize the company and its operations.
- Plan Development: When the company, along with investors and partners, prepares a plan to improve its financial health.
- Plan Voting: The restructuring plan must be voted and approved by creditors to be implemented. With it, it is expected that the company’s level of indebtedness falls and that it gets breathtaking, not only to pay creditors but also to play their operations.
- CONCLUSION OF THE PROCESS: After completing the company’s reorganization, it usually leaves Chapter 11 stronger from the financial point of view, enabling continuity and even expansion of its activities.
Why do Brazilian airlines resort to Chapter 11?
According to experts, this happens for a number of factors, but the main thing is that debts with leasing companies, ie with companies that lease aircraft, are automatically suspended in this process.
These debts have the highest weight in the airline indebtedness profile, as much of your fleet is usually leased, it is not own.
Other factors that are often pointed out as reasons for resorting to Chapter 11 is the most ease of debtors in negotiating dollar debts, the slightest bureaucracy and even American culture, more focused on entrepreneurship.
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Several airlines, Brazilian and foreign, requested judicial recovery after the pandemic. During the worst phase of COVID-19, they had to completely suspend their flights. Even when they could fly again, the demand for flights was slow to recover.
In addition, there was a disorganization of the aviation production chain, with a lack of pieces and even pilots, which affected the financial health of the companies.
