Founder & Managing Director, AIR Control Tower, AIR Control Tower

Neil Glynn

Founder & Managing Director, AIR Control Tower

AIR Control Tower

AIR Control Tower is an independent research and analysis platform. Its mission is to provide impactful insight and analysis across the global airline industry at a company and market level via detailed financial models to aid decision making for key stake holders at a time when risks have seldom, if ever, been higher and the global sector grapples with the imperative of funding de-carbonisation. Unique analysis forecasting global carrier-level earnings/cash flows, and restructuring/de-leveraging prospects, is designed to dynamically assess the health of the industry, predict surprises and identify potential requirements for third party support.

Insights on the global airline industry

Equity Bottom-Up

<ul>
<li>Azul and GOL running with liability positions over double LATAM – convergence required to ensure financial sustainability.</li>
<li>Azul’s USD-denominated liabilities continue to weigh heavily, suggesting profitability and full balance sheet clean up distant prospects despite lessor re-negotiations.</li>
<li>GOL’s Chapter 11 process needs to focus on balance sheet recalibration – BRL weakness may require recalibration.</li>
</ul>


Azul and GOL running with liability positions over double LATAM – convergence required to ensure financial sustainability.
Azul’s USD-denominated liabilities continue to weigh heavily, suggesting profitability and full balance sheet clean up distant prospects despite lessor re-negotiations.
GOL’s Chapter 11 process needs to focus on balance sheet recalibration – BRL weakness may require recalibration.


Brazilian Airlines – Liability Management Even More Crucial Following BRL Weakness

<ul>
<li>Azul's valuation looks optically below, but we publish a deep dive illustrating that cash outflow concerns are the key driver.</li>
<li>Heavy levels of payment arrears built up through COVID are likely to take time to wash through the cash flow statement, which should be a watch point for Abra discussions</li>
<li>Given Azul's margins are top tier by global standards, and Abra airlines Avianca and GOL have moderate leverage, we struggle to see major synergies that would change Azul's situation.</li>
</ul>


Azul's valuation looks optically below, but we publish a deep dive illustrating that cash outflow concerns are the key driver.
Heavy levels of payment arrears built up through COVID are likely to take time to wash through the cash flow statement, which should be a watch point for Abra discussions
Given Azul's margins are top tier by global standards, and Abra airlines Avianca and GOL have moderate leverage, we struggle to see major synergies that would change Azul's situation.


Azul – Cash Flow Overhang Requires Structural Solution

Gol Linhas Aereas Intel-Adr / Equity Bottom-Up

<ul>
<li>We cut our 2024 EBITDAR by 19% following a disappointing May revenue performance at GOL.</li>
<li>We also emphasise that plans to double 2023 EBITDAR by 2029 are highly ambitious in the context of Brazilian competitors LATAM and Azul margin progress since 2019.</li>
<li>GOL, undergoing Chapter 11, is the subject of much consolidation focus with an Azul codeshare and parent Abra discussing combining GOL with Azul. Leverage plans render effective consolidation more difficult. </li>
</ul>


We cut our 2024 EBITDAR by 19% following a disappointing May revenue performance at GOL.
We also emphasise that plans to double 2023 EBITDAR by 2029 are highly ambitious in the context of Brazilian competitors LATAM and Azul margin progress since 2019.
GOL, undergoing Chapter 11, is the subject of much consolidation focus with an Azul codeshare and parent Abra discussing combining GOL with Azul. Leverage plans render effective consolidation more difficult. 


GOL – Short-Term Challenges to Navigate Before Delivering on Complicated Long-Term Pitch

<ul>
<li>GOL has filed for CH11 in a New York court and will look to restructure, as major competitors/peers LATAM Group, Avianca and Aeromexico did when COVID struck, disadvantaging GOL.</li>
<li>To illustrate GOL's disadvantage; in 9M23, GOL's financing costs outweighed its EBITDAR to drive a negative PBT, whereas LATAM's PBT represented 29% of EBITDAR, despite lower EBITDAR margins of 22%. </li>
<li>Based on recent precedents, we expect the process may take two years.</li>
</ul>


GOL has filed for CH11 in a New York court and will look to restructure, as major competitors/peers LATAM Group, Avianca and Aeromexico did when COVID struck, disadvantaging GOL.
To illustrate GOL's disadvantage; in 9M23, GOL's financing costs outweighed its EBITDAR to drive a negative PBT, whereas LATAM's PBT represented 29% of EBITDAR, despite lower EBITDAR margins of 22%. 
Based on recent precedents, we expect the process may take two years.


GOL - Chapter 11 Filing In a Bid to Ensure Financial Sustainability

Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

<ul>
<li>Lucror Analytics' ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).</li>
<li>We assess Azul's ESG as "Adequate", in line with its Environmental, Social and Governance scores. Controversies are "Immaterial" and Disclosure is "Adequate".</li>
<li>Founded in 2008, Azul SA is a Brazilian airline offering the largest number of flights and destinations in the domestic market.</li>
</ul>


Lucror Analytics' ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Azul's ESG as "Adequate", in line with its Environmental, Social and Governance scores. Controversies are "Immaterial" and Disclosure is "Adequate".
Founded in 2008, Azul SA is a Brazilian airline offering the largest number of flights and destinations in the domestic market.


Brazil

Azul S.A. offers airline services. The Company provides passenger air transportation services by air carriers, assistance for boarding, and cabins for pets, as well as compartments for elderly and disabled passengers. Azul serves customers worldwide.

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Azul SA (AZUL US)

Brazilian Airlines – Liability Management Even More Crucial Following BRL Weakness

We publish a deep dive on balance sheet and liability evolution at the Brazilian airlines in the context of continued BRL weakness which threatens...

Neil Glynn

Azul – Cash Flow Overhang Requires Structural Solution

Deep dive on Azul's optically low valuation, illustrating underlying cash flow concerns beyond published net debt levels which should persist over...

Neil Glynn

GOL – Short-Term Challenges to Navigate Before Delivering on Complicated Long-Term Pitch

Update on GOL as it navigates Chapter 11 in a swirl of consolidation speculation/possibility. We cut 2024 forecasts due to concerning revenue...

Neil Glynn

GOL - Chapter 11 Filing In a Bid to Ensure Financial Sustainability

Perspective on GOL filing for Chapter 11 in the US, including its disadvantage to restructured peers and the likely timeline based on recent...

Neil Glynn

Azul - ESG Report - Lucror Analytics

Lucror Analytics' ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable). We assess Azul's ESG as "Adequate",...

Lucror Analytics

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