Azul: Confirmed Chapter 11 Airline Restructuring

Azul S.A. and 19 affiliated debtors filed chapter 11 petitions on May 28, 2025 in the U.S. Bankruptcy Court for the Southern District of New York (Case No. 25-11176). The case produced a balance-sheet restructuring for an operating airline rather than a sale process. The filing record shows a plan built around equitizing debt, a $1.35 billion debtor-in-possession facility, and continued operations across more than 70 destinations in 15 countries while the company managed dollar-linked costs, fleet disruption, and pandemic-era leverage. The court approved the plan on December 19, 2025 and later overruled the remaining U.S. Trustee objections in the modified bench ruling. Azul emerged from chapter 11 on February 20, 2026, having reduced debt and lease obligations by approximately $2.5 billion and secured $850 million of new equity investment.

The First Day Declaration says the company entered the case with about $3.03 billion of funded debt and a target of more than $2 billion of debt reduction. After confirmation, the company updated its business plan and increased its capital-raise target to $950 million and later announced a R$5 billion capital raise and reverse stock split.

Debtors	Azul S.A. and 19 affiliated debtors
Court	U.S. Bankruptcy Court, Southern District of New York
Case Number	25-11176
Petition Date	May 28, 2025
Confirmation Date	December 19, 2025
Judge	Hon. Sean H. Lane
DIP Facility	$1.35 billion total commitments under the final DIP order, including $250 million of interim DIP loans and $1.1 billion of final-order loans

Currency Pressure, Fleet Disruption, and Pandemic-Era Leverage

The First Day Declaration describes a filing driven by several pressures at once rather than a single event: U.S.-dollar-denominated operating costs combined with depreciation of the Brazilian real, aircraft and engine supply-chain delays from OEM backlogs that grounded aircraft and disrupted service, severe flooding in Rio Grande do Sul, elevated consumer litigation exposure, and a capital structure the debtors said had become too expensive to carry after pandemic-era losses. The debtors said they sought chapter 11 protection to reduce debt, raise new capital, rationalize the fleet, and stabilize trade obligations without interrupting core operations.

The declaration says the airline had a fleet of 226 aircraft, more than 16,000 crewmembers, and a loyalty program (Azul Fidelidade) with more than 18 million members that recorded R$3.4266 billion of gross billings in 2024. Azul served both major urban markets and underserved regional destinations in Brazil, with meaningful commercial relationships that included United Airlines and American Airlines. Davis Polk described the filing as pairing court protection with a $1.6 billion financing bridge, early outside coverage said the goal was to shed more than $2 billion of funded debt, and a rating agency downgraded Azul to D after the filing.

Prepetition Capital Structure and Restructuring Support Agreement

The First Day Declaration breaks the approximately $3.03 billion funded-debt stack into six tranches: about $1.0488 billion of first-lien notes, $529.7 million of superpriority notes, $510.0 million of second-lien notes, $274.7 million of lessor notes, $257.5 million of convertible debentures, and $126.0 million of local debenture facilities.

Restructuring support. The debtors disclosed that key financial stakeholders, including noteholder groups and AerCap, had agreed to support a transaction that combined debt equitization with a backstopped $650 million equity rights offering and a proposed $200 million to $300 million strategic equity investment from United Airlines and American Airlines. The First Day Declaration describes the broader deal as targeting more than $2 billion of debt reduction and up to $950 million of new equity investment upon emergence. External reports later described Azul's equity raise as part of the confirmed restructuring plan, and Cleary Gottlieb said the ad hoc bondholder group it represented backed Azul's confirmed pre-arranged chapter 11 restructuring. Brazilian antitrust authority CADE later approved United's $100 million equity stake in the restructured entity.

DIP Financing, Roll-Up, and Exit Path

The Final DIP Order entered on July 28, 2025 authorized a facility with $250 million of interim DIP loans and $1.1 billion of final-order loans, for total stated commitments of $1.35 billion. The order also references a $65 million convertible debenture roll-up, repayment and refinancing of bridge and secured note obligations, and additional AerCap-related roll-up treatment. UMB Bank served as DIP agent and DIP indenture trustee for the facility.

Adequate protection and milestones. The final order provided cash-collateral authority and layered in extensive adequate-protection mechanics for prepetition secured parties, including lien priorities, reporting requirements, and restrictions tied to prohibited challenge actions. It also incorporated DIP milestones and an exit-financing framework in the DIP loan documents that tied directly into the emergence structure.

Exit financing. As the case neared emergence, Azul priced $1.375 billion of exit notes and launched secured notes with B2 and expected B- ratings as part of the emergence financing package.

Confirmed Plan, Debt Equitization, and GUC Trust

The Confirmation Order was entered on December 19, 2025, defining the effective date as the date of substantial consummation after any stay was lifted, all conditions precedent were satisfied or waived, and the debtors filed a notice on the docket declaring the plan effective.

DIP claim treatment. DIP facility claims are deemed allowed in the full amount outstanding as of the effective date, including accrued interest, fees, and expenses. DIP holders receive a pro rata mix of cash and exit notes, subject to an election mechanism that can redirect cash into the equity rights offering.

Secured creditor treatment. The confirmation order authorized issuance of new equity interests to holders of first-lien claims and second-lien notes claims through creditor entities and recognized the equity rights offering as part of the transaction structure.

General unsecured creditors. The order approved the GUC trust architecture, including GUC warrant and contingent value rights (CVR) documents. Holders of general unsecured claims who failed to make a timely GUC trust election were subject to a cash-out default and limited to their cash-out share of the pool. Willkie Farr, representing the official committee of unsecured creditors, said the plan included a settlement that provided a trust to fund future distributions to unsecured creditors. The debtors' confirmation memorandum characterized the plan as the product of a global settlement among the debtors, the secured ad hoc group, and the unsecured creditors' committee and noted that all voting classes had accepted the plan.

Confirmation Objections and Release Mechanics

By the time the debtors filed their confirmation memorandum, the U.S. Trustee was the sole remaining confirmation objector. The U.S. Trustee's objection centered on the exculpation language, third-party releases, the management incentive plan (1% of new equity interests to be awarded after the effective date by the new strategy committee), debtor releases, and unsecured indenture trustee expenses.

The debtors responded by revising release mechanics so voluntary releases applied only when a creditor affirmatively returned a ballot and did not opt out. Judge Lane's Modified Bench Ruling entered January 6, 2026 overruled the remaining U.S. Trustee objections and approved the revised exculpation and release framework. The ruling states that the releases were treated as consensual because creditors had to affirmatively return a ballot and then choose not to opt out. The revised release mechanics and the bench ruling resolved the remaining disputed points without changes to the economic terms of the plan.

Emergence, Debt Reduction, and Post-Restructuring Capital

Azul emerged from chapter 11 on February 20, 2026, completing the restructuring approximately nine months after the petition date. The company reported reducing its debt and lease obligations by $2.5 billion and securing $850 million of new equity investment alongside the $1.375 billion of exit notes. Cleary Gottlieb, counsel to the ad hoc bondholder group, described the restructuring as involving equitization of debt, new equity offerings, and payoff of the $1.6 billion DIP financing package.

Governance changes. At emergence, the company announced that former GE Aviation CEO John Slattery joined Azul's board. Reuters reported that the airline planned to shift focus to "responsible growth" and ruled out M&A in the near term after emerging from the restructuring.

During-case financial performance. The November 2025 monthly operating report states a consolidated group cash book balance of about $224.9 million, made up of approximately $224.0 million in bank balances, $975,757 of petty cash, $729,549 of float, and a negative $815,062 judicially restricted funds adjustment. The same report notes roughly $9 million of November net borrowings under the DIP facility and cautions that the statements included deferred revenue from unflown tickets and accrued liabilities not yet due. During the restructuring, Azul posted record third-quarter EBITDA while reporting a net loss, and Aviacionline reported that the company reported BRL 1.468 billion of Q2 net income.

Professional Retentions and First Interim Fee Awards

The order granting first interim fee applications approved compensation for twelve professionals: Davis Polk and Togut Segal as debtors' counsel, White & Case as counsel to the ad hoc group, Willkie Farr as counsel to the unsecured creditors' committee, Guggenheim and Houlihan Lokey as financial advisors, Skyworks and Alvarez & Marsal as restructuring advisors, Grant Thornton and Alton Aviation as consultants, and Pinheiro Neto and Stocche Forbes as Brazilian counsel. The order reflects negotiated reductions after discussions with the U.S. Trustee, including voluntary reductions by Davis Polk, White & Case, Willkie Farr, and Alton Aviation.

The Davis Polk first interim fee application alone sought more than $10.35 million in fees plus $87,094 in expenses for the May 28 through August 31, 2025 period, before order-level reductions.

Key Timeline

Date	Event
May 28, 2025	Chapter 11 petitions filed for Azul S.A. and 19 affiliates; First Day Declaration and DIP motion filed
July 28, 2025	Final DIP Order entered authorizing $1.35 billion postpetition financing
December 2, 2025	First interim fee order approved compensation for twelve professionals
December 19, 2025	Confirmation Order entered approving plan of reorganization
January 6, 2026	Modified Bench Ruling overruled remaining U.S. Trustee objections
January 28, 2026	Azul launched $1.375 billion secured exit notes offering
February 11, 2026	CADE approved United Airlines' $100 million equity stake
February 20, 2026	Azul emerged from chapter 11 with $2.5 billion of debt and lease reductions

Frequently Asked Questions

Is Azul still operating after chapter 11? Yes. Azul emerged from chapter 11 on February 20, 2026 and continued operations throughout the case. The company posted record third-quarter EBITDA during the restructuring.

Was Azul's bankruptcy a sale process? No. The Final DIP Order and Confirmation Order show a plan-driven restructuring built around financing, debt equitization, and new capital rather than a section 363 sale.

When was Azul's chapter 11 plan confirmed? The court entered the Confirmation Order on December 19, 2025. Judge Lane later entered the Modified Bench Ruling on January 6, 2026 addressing the remaining U.S. Trustee objections.

How large was Azul's DIP financing? The Final DIP Order authorized total stated commitments of $1.35 billion, consisting of $250 million of interim DIP loans and $1.1 billion of final-order loans.

How much debt did Azul eliminate in the restructuring? Azul reported reducing its debt and lease obligations by approximately $2.5 billion, emerging with $850 million of new equity and $1.375 billion of exit notes.

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