Azul Airlines, a Brazilian carrier, filed for Chapter 11 protection in May 2025, highlighting the challenges of operating in Latin America’s volatile aviation industry. This move was expected, as the airline had previously taken measures such as refinancing obligations and renegotiating terms with stakeholders in an attempt to improve its financial situation. However, these efforts proved insufficient, and the airline ultimately had to file for bankruptcy.

Azul’s decision to file for Chapter 11 is not uncommon in the region, as other carriers such as LATAM Airlines, Avianca, and Aeromexico had proactively filed for bankruptcy during the pandemic. This allowed them to restructure their debt, streamline operations, and adjust their network strategies. In contrast, Azul and Gol, Brazil’s two leading airlines, chose to defer this action, which had consequences for their financial stability.

Gol eventually filed for Chapter 11 in January 2024 and emerged from bankruptcy in June 2025 with a healthier balance sheet and more flexible capital and cost structure. On the other hand, Azul entered 2025 with mounting debt, an unbalanced revenue-cost structure, and deteriorating liquidity, leading to its late-stage filing. This timing put the airline in a more challenging credit environment, with less patience from investors and fewer options at its disposal.

Azul’s financial strain was further compounded by Brazil’s macroeconomic instability. Nearly half of the airline’s operating expenses were denominated in foreign currencies, while the majority of its revenue came from domestic passengers paying in Brazilian reals. When the real depreciated against the US dollar, Azul’s costs increased significantly. This mismatch of currencies was unsustainable, and the airline’s net debt increased by 50% in Q1 2025. Its share price also plummeted, and Fitch Ratings downgraded the company’s credit rating.

Despite efforts to cut costs and improve liquidity, Azul struggled to generate the necessary cash flow to sustain operations. While passenger revenue accounted for 93% of total revenue, it was not enough to offset rising costs. Additionally, seasonal fluctuations put a strain on the airline’s liquidity, as it had limited ancillary revenue to buffer against economic shocks. This, coupled with a lack of investor appetite and increasing interest rates, made it difficult for Azul to refinance its lease and debt obligations.

Azul’s operational scale is impressive, with an expansive domestic network and a diverse fleet of 137 aircraft. However, this breadth is also a liability, as managing a diverse fleet comes with logistical and cost challenges. The airline’s cargo operations, while potentially lucrative, are hindered by limited scale and redundancy. To regain competitiveness, Azul must undertake deeper structural transformation, including divesting non-core assets and focusing on high-demand, high-yield routes. Rationalizing seasonal and regional routes, simplifying the fleet, and increasing ancillary revenue are all crucial steps for the airline’s long-term sustainability.

In conclusion, Azul’s filing for