Azul Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 15, 2023

There are 15 speakers on the call.

Operator

Hello, everyone. Hello, all from all Transo's First Quarter Earnings Call. My name is Eric, and I will be your operator for today. This event is being recorded, and all participants will be in a listen only mode until we conduct the Q and A session following the company's presentation. If you have questions, click on the Q and A icon at the bottom of your screen and write your name and company.

Operator

When your name is announced, please turn on your microphone and then proceed. For those who are listening to the conference on the phone, press 9 to join the queue and 6 to accept the audio when requested. I would like to turn the presentation over to Thijs Eberle, Head of Investor Relations. Please proceed.

Speaker 1

Thank you, Zack, And welcome all to Azul's Q1 earnings call. The results that we announced this morning, the audio of this call And the slides that we reference are available on our IR website. Presenting today will be David Milman, Azul's Founder and Chairman John Modgerson, CEO and Alex Malfitano, our CFO Abi Shah, the President and our Zoom is also here for the Q and A Before I turn the call over to David, I would like to caution you regarding our forward looking statements. Any matters discussed today that are not historical facts, Particularly comments regarding the company's future plans, objectives and expected performance constitute forward looking statements. These statements are based on a range of assumptions that the company believes are reasonable, but are subjected to uncertainties and risks They are discussed in details in our CBM and SEC files.

Speaker 1

Also, during the course of the call, we will discuss non IFRS performance measures, which should not be considered in isolation. With that, I will turn the call over to David. David?

Speaker 2

Thanks, Hais. Welcome, everyone, and thanks for joining us for our Q1 20,003 earnings call. First of all, let me thank our crew members As usual, for their incredible experience they delivered every day. In March, we are once again the most on time airline in the world, Following our recognition as the world's most on time airline in 2022, we are flying more than ever, our NPS scores are high And all of this with an airline that is more productive and more efficient than ever, 15% more than last year to be exact. It is truly remarkable what our crew members have achieved, and I could not be prouder.

Speaker 2

On Slide 4, you will see that our business model is stronger than ever. We serve 158 destinations. We have a leadership position in 93% of our routes, and we have the most fuel efficient fleet in the region. And we combine all of this into several fast growing high margin businesses. One recent milestone has been the start of expanded Cangoia service, Where we more than doubled our slots to 98 daily flights, we can now fly from Sao Paulo's downtown airport To the largest corporate markets in Brazil.

Speaker 2

In addition, we just launched our nonstop service to Paris, the only nonstop From South America to convenient Orly Airport. Excitingly, our data shows that more than 30% Of our customers flying us in these new markets are first time Azul customers. That means we have an incredible opportunity to bring them On Slide 5, you can see that our business units performed You can see how our business units performed this quarter. TudoAzul, our loyalty program, more than doubled its gross billings Since 2019 and is benefiting significantly from our expanded presence in Congonius. My personal favorite, Azulviagings, continues its remarkable expansion, growing an impressive 4x in gross billings versus the pre pandemic level.

Speaker 2

Azulviaxing is now firmly the 2nd largest vacations agency In Brazil and the largest seller of Disney tickets in Latin America. Our logistics business, Azul Cargo, almost tripled Since 2019 and continues to be the largest air logistics provider in Brazil with an impressive 33% market share. Finally, I'm excited to announce that we just launched our newest business unit, Azul Tech Hubs. With a rich 15 year history supporting Azul's operation And a world class facility, and we have we're in a unique position to be able to handle All of the regions, have your maintenance needs. Azul TechOps is now ready to bring this expertise to our customers, And we know how challenging the MRO capacity is around the world.

Speaker 2

So this is a perfect time to launch this new venture. Before I turn this time over to John, Let me share my thoughts on the restructuring process that we have been working on this year. We set out with a goal to protect our shareholders And make our business partners whole. I am amazed at the progress this team has made, and I am excited about the opportunities This new optimized Azul creates. As John and Alex will share in their presentation, the results of this process are transformational to our business.

Speaker 2

As we said before, these are permanent structural solutions that significantly improve our cash flow, leverage and capital structure. I want to thank our team for their hard work. I also want to thank our partners who have supported us during this process. This is a unique plan that is strengthening Azul's capital structure and the cash generation matching it to our superior business model and profitability. With that, I'll turn the time over to John to give you more details on the Q1 results.

Speaker 2

John?

Speaker 3

Thanks, David. I would also like to start off by thanking our crew members for taking care of Each other and our customers every single day. I recently spotted on the World of Statistics Twitter account a listing of the world's most punctual airlines and Azul was first on the list. That was really cool. We have a lot to show you today, including important updates on our restructuring plan.

Speaker 3

Before that though, let me describe our Q1 results. As you can see on Slide 6, we had a strong quarter. Revenue was an all time record BRL4.5 billion with an EBITDA of more than BRL1 1,000,000,000, An increase of 74% versus last year, even with a 24% increase in fuel prices. EBITDA margin for the quarter was 23% and the operating result was BRL460 1,000,000 with an operating margin of 10.3. On Slide 7, you could see the strength of the revenue performance with a record Q1 RASP of $0.4147 PRASK increased a strong 23% year over year, even with 120% increase in our long haul widebody capacity.

Speaker 3

Looking at just the domestic market, frasc increased 28% year over year, highlighting the advantages of our network And our disciplined capacity. Turning to Slide 8, you could see that we generated more than $1,000,000,000 of EBITDA, 42% higher than Q1 2019. This is even more impressive considering that fuel more than doubled since 2019. This clearly shows that our structural competitive advantages and fleet transformation program allow us to grow and at the same time recapture the effects of higher costs with higher revenues. One incredible example of this is that departures in 2023 Verses 2019 will increase only 5%.

Speaker 3

Departure is up 5%, while total ASKs will increase 25%, All on next gen aircraft. This is truly sustainable, profitable growth. On Slide 9, you can see our EBITDA trajectory And how we consistently grew profitability since we launched. COVID was a temporary setback, and now we're firmly back on our margin expansion for 2023 and beyond. With that, we expect 2023 EBITDA of BRL5.5 billion, by far the highest in our history.

Speaker 3

On slides 10 and 11, we want to show you the combination of the tailwinds that we're seeing this year. First on slide 10, you could see the effect of a significant reduction in jet fuel prices. The second half of the year is currently showing 29% lower fuel price in reais per liter versus the Q1. This is a result of the reduction in global fuel prices as well as the strengthening of the Brazilian real versus the U. S.

Speaker 3

Dollar. Combine this with Slide 11, which shows our expectation for RASK performance this year. We expect similar overall RASK performance oscillating just with seasonality. On the capacity side, we expect to grow 14% overall versus 2022, but only 6% in the domestic market, Once again, strongly reaffirming our commitment to capacity discipline. The best part is that 100% of the capacity increase is from up gauging In transforming our fleet into extremely fuel efficient aircraft, trip cost actually goes down while revenue opportunities increase.

Speaker 3

The natural Brazilian market's stronger second half seasonality combines really well with the expected fuel curve for the remainder of the year. Slide 12 illustrates the combination of lower fuel with stable RASK and our expected EBITDA per quarter for the year. You can see how the fuel price reductions by themselves contribute to $1,100,000,000 of EBITDA over what we generated in the Q1 alone. Therefore, the Q1 results annualized together with lower fuel and seasonality gives us a high level of confidence to deliver on the guidance $5,500,000,000 EBITDA for the full year. To summarize, we had a strong first quarter results.

Speaker 3

Revenue performance is robust. Fuel prices are coming down and the best Seasonality is still ahead of us. Transitioning now from earnings to our restructuring plan, we're really excited to give you new details on the progress we have made. If you remember on our last call, we described a comprehensive and permanent plan to address our capital structure and significantly improve our cash flow and financial leverage. This plan has been implemented amicably, ensuring a fair treatment and full recovery to all of our partners.

Speaker 3

Today, we're excited to share with you New and important details about these commercial agreements and how they will positively impact our capital structure and cash flow going forward. Let me turn it over to Alex, so he can give you the details on this plan. Thanks, John.

Speaker 4

Yes, today we're proud to provide you Details about the commercial agreements we announced during our last call in March. First, let me remind everyone of the general terms of that plan. Our agreements with LeSource and OEMs contemplate the elimination of lease payments that were deferred during the pandemic. They also provide a permanent reduction in our lease payments going forward from the original contractual lease rates to agreed upon current market rates. We have also agreed to defer certain additional lease and OEM payments in 2023, as well as improved end of lease compensation and aircraft return conditions, The elimination of future maintenance reserve payments and the negotiated early termination of certain aircraft leases.

Speaker 4

In exchange, Littors and OEMs have generally agreed to receive an unsecured tradable note maturing in 2,030 with a coupon of 7.5% per year And an equity instrument convertible into preferred shares valued at BRL36 per share. On Slide 13, we show you exactly how these agreements reduce our lease payments each year. As you can see, we're reducing our annual payments in the neighborhood of BRL1 1,000,000,000 And even more in 2023 2024. As you recall, almost 80% of our nominal debt comes from operating leases. So this significantly reduces our debt burden and improves our cash flow.

Speaker 4

We now expect to be cash flow breakeven in 2023 and generate positive free cash flow in 2024. And more importantly is that Azul has more than 70% of our ASKs already coming from next generation fuel efficient aircraft. So we now have the most efficient fleet with also the most competitive lease rates. This is a permanent solution that enables us to convert our strong Operational profitability to positive free cash flow. On Slide 14, you can see the aggregate results of these lease reductions.

Speaker 4

Our nominal lease payments are dropping by BRL5.4 billion in total, a 21% reduction. On a present value basis, assuming constant discount rates, This is a reduction of over $4,100,000,000 in our balance sheet debt and even bigger reduction for those who use 7 times rent to capitalize our leases. In the Q1, leverage organically decreased 0.5 turns to 5.2 as we paid down debt and increased our last 12 months EBITDA. With the reduction in lease liabilities from our agreements, our deleveraging process is accelerating. On Slide 15, you can see that our 1Q 'twenty three leverage We'd reduce another 0.6 to 4.6.

Speaker 4

This already includes the 2,030 notes that lessors and OEMs will receive in exchange for their contribution to the plan. And then if you recall, we originally expected to end leverage in 2023, starting with a 4. With these agreements, we now expect to end 2023 with leverage of 3.5 and 2024 around 3, in line with our pre pandemic levels. I would just like to remind everyone that we're returning our leverage to 3 in 2024 without any government support, Without using bankruptcy or other judicial restructuring process and without imposing a haircut on our creditors as other airlines around the world did. On Slide 16, we give you the details on the equity portion of our commercial agreements.

Speaker 4

You all saw the material fact we released this morning, but just to provide you with A little bit more detail. Lessors and OEMs are also receiving an instrument an equity instrument in exchange for their contribution to the plant. This instrument converts part of their contributions into preferred shares valued at BRL0.36 per share. The equity instrument is limited In its upside and downside, aiming to minimize dilution to our shareholders and at the same time to provide full recovery to our partners. The instrument has a lockup provision until the second half of twenty twenty four.

Speaker 4

After that, it vests over 14 quarterly installments, taking it all the way to the second half of twenty twenty seven. That amount we'll vest per quarter the amount that we'll vest per quarter Ranges from 3,200,000 to 7,500,000 shares. Just to give you a reference point, our preferred shares in ADRs trade almost 28,000,000 shares per day, so the vesting profile of the equity instrument should not create any noticeable selling pressure. With the conversion price of R0.36 per share, we estimate the dilution from the equity instrument at 17.5%. Throughout the vesting period between the second half of twenty twenty four and the second half of twenty twenty seven, if at the time of measurement, as those market prices higher At certain thresholds, the number of shares issuable via the equity instrument will be reduced and dilution will therefore be lower.

Speaker 4

If the market price is lower than $36,000,000 we'll compensate our partners, and we may do so with additional shares or with cash or with the issuance of new debt insurance acceptable to our partners. Our comprehensive solution and its corresponding reduction of our net debt, combined with our EBITDA growth, give us strong confidence that we're creating all of the necessary elements for Azul's equity value to reflect our strong fundamentals, as John will explain on Slide 17.

Speaker 3

Thanks, Alex. I'm extremely proud to see the evolution of our comprehensive plan and everything that you and your amazing team are doing for Azul. Since Azul's IPO, we've historically traded at about 8x EBITDA, and we're currently trading at 4x. We know the cost of capital around the world has increased since COVID, but our comprehensive plan was designed to optimize our capital structure and increase our cash generation going forward. Reason why we estimate a significant upside in our stock price even at a reduced multiple.

Speaker 3

Considering our net debt estimated after reflecting the new capital Sure. In the equity investment and new shares to be issued, as well as a multiple of 6.5 lower than our historical average, Our stock should be trading almost 3 times the current market price. This is the reason we're so excited about this plan and all the upside to come. As you can see on Slide 18, our fundamentals are strong. Our business model is unique, and I'm very excited to see all the great things Azul will deliver in the coming years.

Speaker 3

And I also want to thank all of our incredible and passionate crew members, and I'm confident that Azul will deliver better than expected results as we move forward. With that, David, Alex, and Avi and I will answer your questions as I turn the call over to the operator for Q and A.

Operator

Ladies and gentlemen, thank you. We will now begin the Q and A session. For those who are listening to the conference on the phone, press 9 to join the queue and 6 to accept the audio when requested. Let's go to the first question From Gabriel Resengi, sell side analyst, Itau BBA, we're going to open your microphone So that you can ask your question, please proceed.

Speaker 5

Hi, David, John and Alex. Good morning, and thanks for Providing the valuable details on the restructuring. Actually, my first question is on that thing. We'd just like to confirm with you guys the understanding that we had on the details you shared. So you mentioned in the material fact that what happens in case Azul shares do not reach 36 CIs between second half 'twenty four and second half 'twenty seven.

Speaker 5

And it seems, Zach, like you have 3 options here: to issue additional shares, issue a new note or pay it in cash. I would just like to understand who can decide on this, whether it is Azul, the Lassers or you expect some kind of negotiations In that scenario. And the second point here on a different subject. You just released your guidance for 2023, mentioning a 14% increase in this case for the year and also saying that international traffic should grow above that. So can you explore that a little bit more?

Speaker 5

I mean, will this expansion on international traffic be sustained by Azul increasing its On the same routes you operate right now or maybe creating new routes such as the one you just announced at connecting Sao Paulo and Paris? That's it. Thanks.

Speaker 4

Thanks, Gabriel. So we have the option to do it in shares. So obviously, less stores, if we choose to do it in cash, They also accept that. And we also have the option to do it in debt, but that the terms of that debt would be Negotiated and agreed by the lift source, right? So in a way, the option is ours, but the terms of the debt needs to be agreed by the lift source.

Speaker 3

I think it's really important to reinforce how much cash savings come as a result of this deal. When you're talking about not getting to R36, it would be an enormous disappointment. We need to continue trading at Four times this year, I think three times next year and to not move the stock from where it is today. And And there's a significant improvement in our cash flow generation because of this deal. And with that, we'll kind of pass it over to Avi to talk about the ASK growth.

Speaker 6

Hi, Gabriel. So overall, we're looking at 14% ASK growth. That's total. In the domestic market, as John mentioned in his remarks, We're growing only about 6%. So very disciplined overall and especially disciplined in the domestic market.

Speaker 6

Internationally, it's basically the network that we have right now. I do not see any major new markets or destinations For the remainder of the year, we are selling the capacity. We are selling the network that leads to that number. So nothing new. We do have some new stuff to fly, which is Resifi to the U.

Speaker 6

S. As well as Confluence to the U. S. But Everything is already selling, 14% overall and 6% domestic.

Speaker 5

Okay. Thank you, guys. That's very clear.

Speaker 3

I just want to highlight one other thing too is that As we go through between now and 2027, as the stock rises, there can actually be less shares issued as well, right? I think that I think you're looking at the downside scenario, but there's actually an upside scenario to it as well. And I want to remind everybody that we were trading in these ranges 2, 3 years ago and now we're at EBITDA numbers that this business has never seen, cash flow generation that this business has never seen And an improved capital structure as our leverage is down to 3 in 2024.

Speaker 5

Thanks, John.

Operator

The next question comes from Josh Milberg, sell side analyst, Morgan Stanley. We will open your orders so that you can ask a question. Josh, please proceed.

Speaker 7

Hey, everyone. Can you guys hear me?

Speaker 4

Yes. Hey, Josh.

Speaker 7

Oh, great. Good morning, and good to connect with you guys. Thank you for the call. My first question was if you could Give some additional detail around the near BRL300 million of non recurring items that you recognized in the period. Think the biggest piece of that were fleet adjustments related to your restructuring, but you also had advisor fees and A one time adjustment that you mentioned could reverse.

Speaker 7

So if you could just give some more color around that, it would be great.

Speaker 4

Sure. Yes, the biggest part of the 300, more than half of it is that adjustment on the engine powered by the hour agreement. Right now, the agreement is being renegotiated. The agreement doesn't really exist, but we're confident that we're going to have another agreement in place before the end of the year, right? And those Amounts that have been deposited towards future engine maintenance within the sort of the first life of the agreement Should be restored once we have another agreement, right?

Speaker 4

And that so we expect that amount, which represents more than half of the nonrecurring adjustment for this quarter, To be reversed, right? The rest the next biggest item are advisory fees and legal fees Related to the all of the negotiations that we're doing with the multiple stakeholders, right, lessors, OEMs, Bondholders, we're going to raise additional capital as well. So all those fees related to restructuring Dan would be sort of the next biggest item there. And then you have some just adjustment as part of that restructuring as well. As we mentioned, some of We had some lease terminations as part of our agreements, some restructurings in the fleet, and that is sort of the 3rd largest item In the non recurring adjustment that we mentioned.

Speaker 3

I think, Josh, what's really important is majority of that will be reverted back, And we'll call it out as one time when it comes back in as well, so.

Speaker 7

Perfect. Thanks for that, John and Alex. My second question is just on the prospective lessors agreement. From our understanding, both the note component and equity instrument components are that you're now contemplating are somewhat lower than what you had Earlier in the year, but I think that the rent payment reductions are fairly in line. So I was just hoping you could reconcile those two items.

Speaker 7

And I also wanted to hear a little bit more about what hurdles remain to close a definitive agreement And to what extent a definitive agreement is linked to an agreement with your bondholders?

Speaker 4

Sure. So we didn't provide we're only now kind of close to the formalization of all of these agreements. So Only now we're providing the details. I think last earnings call, we provided some general views, right, but not The full amount? So I think the reconciliation is essentially a The fine tuning of the agreements as we continue to transform sort of the high level term sheet that we have negotiated To a final document with all the details that go into a new kind of leasing agreement Until the end of the leasing term, right, and all the details that goes along with that.

Speaker 4

And in the meantime, you also saw the real strengthening throughout These last few weeks, so maybe there's a little bit of that as part of the reconciliation.

Speaker 3

And Josh, we're a little conservative Initially as well, and I think that was part of our plan. And as we talk about the next step, which is the bondholders, we're in Active discussions with the bondholders, right? And the bondholders have organized around the 24s and 26s. They have about 75% are in one unit and those conversations are ongoing. And I think you're going to see something over the next couple of weeks with those bondholders.

Speaker 3

So we're excited that We're sequencing the plan exactly the way we said we would. And I think getting this information out to you was really important today. And I think the bondholders Excited about all the work we've done as well, right? And so there's discussions with the bondholders around, Hey, how far out are we going to roll? What's the interest rate going to be?

Speaker 3

Can they provide new money capital? So there's robust discussions with the 24s and the 26s. And as part of our plan and as we told you earlier, we hope to have all this wrapped up prior to the start of the Q3. Yes.

Speaker 4

And we get that question a lot on whether the LaSora agreements are conditional on the bondholder agreements. And that's not really how we think about this and how we structured this, right? The plan, as we said in the beginning, encompasses all stakeholders and benefits all stakeholders. And so I think we were able to come up with something fairly unique that you haven't really seen on any other airline restructurings. And it's also fairly unique in terms of Other deals that you see in other industries, right, where the agreement of one group of stakeholders actually benefits The other, right?

Speaker 4

So it's very synergistic. It's something that by resolving the issue with our lessors, which are 80% of our nominal debt, That's buying us the confidence, giving us the confidence on reaching an agreement with the bondholders. And the bondholders love What we saw with the lessor is because really what they want is recovery, right? And every other airline out there that didn't get government help Apply the haircut to bondholders either through Chapter 11 or through an exchange offer, right? And so it's not that we think we need the bondholders to solidify the lessors.

Speaker 4

It's really the Support that we got from the resource that's giving us this tailwind to be able to reach an agreement with the bondholders as well.

Speaker 3

And it all starts, Josh, with a company that's going to produce over $1,000,000,000 of EBITDA this year, a company now that previously all of our EBITDA was Eaten up by aircraft rent payments. But as you can see, as you move forward into 2024, 2025 and beyond, Our aircraft rent is significantly lower, significantly lower, and that's where the cash generation goes going forward. That's great for our lessors, for the long term viability of our company. It's great for our bondholders. It's great for our shareholders as well.

Speaker 7

That was super clear. Thank you guys for all the color.

Speaker 8

Have a great day.

Speaker 3

Thanks, Josh.

Operator

The next question comes from Lucas Barbosa, sell side analyst from Santander. We will open your audio so that you can ask your question. Lucas, please proceed.

Speaker 3

We're not hearing you, Lucas.

Speaker 4

Lucas?

Operator

Luca's question is, good morning and thank you for taking my question. I have two questions. Can you provide me more details on how the conditions on the convertible debt issued to lessors vary according to Azul's stock price? Second question, with the development on the agreement with Lassers, how does Azul's fleet commitment plan look like for the next several years?

Speaker 3

Let me answer the second part and then Alex will answer the first part. I think what's really important about this is this doesn't change Azul's growth, right? The lessors believe in Azul. That's why they did this plan. That's why we did it amicably.

Speaker 3

So the number of aircraft we were That came to take previously, is the same number of aircraft we will continue to take over the next few years. There's some delivery delays because of the OEMs, But our fleet plan does not change. And as Alex highlighted, we are well ahead of all Latin American peers in terms of having next generation aircraft in our fleet, right? And so you take a look at how many A320neos we have, How many A321neos we have, how many E2s we have. And so over the next couple of years, we'll continue to finalize that fleet transformation to have an all next gen fleet.

Speaker 3

And that's already reflected in our forecast and it's already reflected in our leverage assumptions as well. So when Alex talks about getting leveraged out The 3.5% this year, 3.1% into 2024, that is the reflection of additional fleet coming in over the next couple of years.

Speaker 4

Yes. Just continuing on the fleet, right? I think we've indicated to you sort of the way we think about managing the fleet growth Going forward, right, and I think we've created a lot of optionality throughout the pandemic, because right now what we're thinking is, If the markets don't grow significantly, right, if Brazil grows only 1% a year GDP or less, right, We're going to keep our fleet fairly stable, right, with just a low single digit fleet growth in terms of aircraft count, We're going to grow our capacity significantly because as we move into next generation aircraft, We get a lot of incremental seats at a negative cost, right? And so we can stimulate the demand On Azul markets, we don't need to steal customers from other airlines. We can essentially just steal the just simulate demand within our own markets with these Costs with the seats that are coming in at a negative cost.

Speaker 4

Now if Brazil grows more than we expect, right, more than our conservative assumption, We have the ability of accelerating aircraft deliveries, especially from Embraer, provided that these Short term supply chain issues are resolved, which we know they will be, right? So that gives us the optionality to grow safely, right, at a low risk With the fleet transformation, but also be able to grow on an absolute basis if the demand is there, maintaining the capacity discipline that we've demonstrated All these years, right? And then on the detail of the equity instrument, right, it's not a convertible debt. It is equity that we're going to issue to the lessors, which will have an adjustment on the number of shares that are issued In case the shares trade better than we expect or worse than we expect. Now, obviously, the price per share It should be an output of everyone's model, right, and not an input, right?

Speaker 4

And so when we do our valuation like we had on the slide on our presentation, When you look at the EBITDA guidance that we've provided, the new level of debt that we have achieved with the negotiation with our resource and OEMs, If you use the historical multiple of 8, we would be way beyond the 36, right? And potentially, We might be talking about why we settled on 36 when the fundamental value of the shares of Azul are much higher than that, right? But assuming a conservative multiple, even at 6.5%, when you get to 36% with 2023 EBITDA, Right, not even 2024. And as we indicated, we need the shares to sort of be around the 36 level between the end of 2024 And the end of 'twenty seven, right? So at the end of 'twenty seven, you're going to be looking at 2028 EBITDA, right?

Speaker 4

And I don't know what your EBITDA for 2028 for Azul is, But it's significantly higher than $5,500,000 The share price is significantly higher than $36,000,000 right? So as you calculate the Fundamental value of Azul shares, if you get to more than 36,000,000, you don't have to worry about incremental dilution. The dilution will be the 90,000,000 shares That we indicated, if you start getting to something higher than 36%, then potentially the dilution could be even lower.

Operator

Okay. So the next question will come from Alberto Valerio from sell side analysts from UBS. We will open your order so that you can ask your question. Alberto, please proceed.

Speaker 9

Hi, John, Alex, Avi. Thank you for taking my question. The first one, I would like to know if There is a percentage of lessors that are agreed with these new conditions and how much would be that. The second one on the same subject. It's about the leasing payments that look more expensive for next year and then decrease Why we have this dynamic for the future leases and change subject on the guidance, Going a little bit over the follow-up on Josh's question.

Speaker 9

You mentioned that the maintenance The cancellation fee that you're paying this quarter might be reversed when you make a new agreement for the maintenance. How it works? And how much on your EBITDA guidance You had no recurring items? That's my question. Thank you very much.

Speaker 3

Yes, let me just address that. So It's not there wasn't a cancellation fee. It was just that we've already paid money into the Transcendent 1,000, a total care agreement with Rolls Royce, okay? And the contract is temporarily suspended as we negotiate a new contract, but the money has already been deposited there And we're negotiating with them. So what we wanted to do from a guidance perspective is neutralize that.

Speaker 3

So it'll be a one time bad guy in the Q1, most likely a good guy in the 2nd or Q3. So that has nothing to do with the $5,500,000,000 that we have in there. It's neutral to that overall.

Speaker 4

Right. And then on the percentage of this, so these are new agreements, right? These are Essentially, we're just detailing the agreements that we announced back in early March, right? So the agreements are exactly the same. We're just Refining them, we've been refining the language in the documentation that we're signing, and we're now providing to you the details on Those agreements, right?

Speaker 4

The table that we provided with the lease payments is essentially aimed at updating you For Note 19.1 of our financial statements. When you look at our financial statements, Note 19.1 shows all of the Lease payments that we are contractually obligated to make throughout the following years And that is what gets calculated on a present value basis to get to the value of our lease liability on our balance sheet. So now we're providing you with that updated 19.1 note on a pro form a basis based on the agreements that we are Finalizing, right. We had more than 90% of LISRs in March when we announced these agreements originally. Now we're closer to 95%, and we're talking again to every lessor that hasn't committed to the commercial agreement yet.

Speaker 4

So we still believe That it is possible for us to reach 100%. Now for your cash flow estimates in terms of rent payments going forward, Obviously, we're going to get more aircraft as we go forward. And so the rent payment will not be as low as what's indicated On 2019, right? But it won't grow significantly. I think you can take 2024 as a starting point.

Speaker 4

And then like I said, the fleet is not going to grow significantly unless there is significant demand in the Brazilian market. But so with that kind of low single digit growth in aircraft count, you can calculate how the lease Payments would go forward from 2024 and beyond.

Speaker 3

Yes, but just to kind of highlight your question, why is it a larger reduction in 23 versus 2024, it's just a negotiation with the lessors, right. And so that's we know that we're going to have more cash generation going into 2024, and so we ask for More relief upfront. And so it's just a small timing issue, though.

Speaker 4

Yes. In terms of sort of annualized rent payment, I think you can look at 2024 as a representative year And move forward from there.

Speaker 9

Make total sense. Thank you, John and Alex. Just a follow-up. So Taking these new numbers in consideration, we may find a cash gap. Now we had a positive cash for the year Close to BRL300 1,000,000 to BRL400 1,000,000, is that correct?

Speaker 4

This year, we're expecting breakeven for 2023.

Speaker 9

Okay. Fantastic. Thank you very much.

Speaker 4

And then positive 24% beyond.

Operator

The next question comes from Bruno Morin, from sell side analysts from Goldman Sachs. Blum, we're going to open your order so that you can ask a question. Please proceed.

Speaker 10

Yes. Thank you. Good morning, everybody. So the first question is on the transaction with the last resort suppliers. You mentioned The transaction as it is reduces the debt of the company by SEK 1,800,000,000 excluding the Aquashe instruments.

Speaker 10

Can you just give us an idea of what would be the additional liability if eventually the equity instrument is not actually converted Thank you, Cher. The second question is on the fleet plan you have commented to some extent on. I just wanted to understand What's the level of flexibility that you have around the base case and also what's the implied ASK growth in the base case for the next couple of years. And finally, one last question. If you deliver on the EUR 5,500,000,000 EBITDA, as you showed, you seem to be on track.

Speaker 10

This would mean going back Margin, similar to 30% roughly, which is similar to pre pandemic levels. So is it fair to say that from 2024 onwards, EBITDA should be primarily driven by revenue growth as opposed to margin expansion or do you see it otherwise? Thank you very much.

Speaker 4

I'll take the first and the third, and I'll let Abhi talk about the ASKs. So again, the shares will be issued, right? And We believe that the market will trade based on our fundamentals. And if you calculate the value of Azul shares, As the market has always calculated, using the EBITDA, which we will deliver and using a more conservative multiple than we've always had, The shares will be converted and no additional shares need to be issued, right? So there is a chance that The business becomes shares and additional debt, right?

Speaker 4

We're essentially committing To making our resource whole. So one way or another through debt through a combination of debt plus cash, through the combination of Equity plus cash plus debt, they're going to get $0.0100 on the dollar roughly. So if you assume that they don't get the equity, They're going to get debt or cash, but then you don't get the dilution, right? So when you're calculating your share price, you can include the debt as it was originally, Whatever the list scores gave up, they're going to be made whole, but then the number of share count that we're using, which is north of $500,000,000 in our kind of pro form a calculation would be a lot lower than that, and you're going to get so it's kind of a circular reference. If you do it either way, Using it as fully as debt or using it fully as equity, you're going to get to a share price over 30 highs, one way or another, as long as you don't double count, Which I know you're not going to, right?

Speaker 4

But just to kind of highlight that if you don't consider this equity and you consider this debt, Right. You're going to have a reduced equity value for Azul, but you're also going to have a lower number of outstanding shares, and you're essentially going to get the same number of shares, which is why we're confident that this goes back to BRL0.36 per share, and we pay our lessorres in full using the shares.

Speaker 3

And Bruno, remember, this is through 2027, a few 1,000,000 shares per quarter. And to the extent that the stock doesn't hit that, Let's say it comes up, oh, the stock is R30 dollars as opposed to R36 dollars big disappointment obviously for our equity holders, You're talking about a very minimal adjustment there overall.

Speaker 4

Yes. As we showed, you're right, the first kind of vesting period is about 3,000,000 shares. If we're short by BRL 6,000,000, we're talking about BRL 18,000,000 out of a company that at that point is going to be North of BRL20 1,000,000,000 in revenue, right? So probably not a material number. The fact that this has been distributed Over 14 quarterly installments gives us a lot of confidence.

Speaker 4

And by the time you get to 2027, right, you're probably having the opposite problem where With the EBITDA that we're going to generate in those years, you will see a share price much higher than 36 And then you're going to compensate for whatever shortfall you have in the beginning, if you have any shortfall, right? The assumption that we wouldn't That we would pay more than what we always if the shares never trade based on fundamentals for the next 4.5 years, Right, which is very unlikely, right, if not impossible. On the let me talk about on the margin and then turn it over to Abi. You're right. I mean, we're going to be in the kind of high 20s in terms of EBITDA margin.

Speaker 4

Our best year was 2019 with 31.6 Percent EBITDA margin, we believe that we will get back to those margin levels, But we believe that we should do better and the whole industry should do better, because when you talk about cash flow generation, When you calculate the amount of cash that we generated in 2019, and just to remind everyone, we were free cash flow positive in 2019, to generate the same amount of cash With the real at $3.90 which was where it was in 2019, you need higher margins to generate the same amount of cash with the real at $4.90 where it is Today, right. And hopefully, the whole industry is thinking that way that it's not enough to just go back to the pre COVID margins Because the real is weaker, we also need higher margins, right? When we do our 5 year kind of plan and our valuation based on discounted cash flow, Yes. We get back to that margin and we get above that margin. I'm not going to say we're going to get to a 40% margin, but once we get there, obviously, we're not going to Kind of rest on our laurels and give up, but the first order of business is to get back to that pre COVID margin and then

Speaker 3

to continue expanding And Bruno, just to remind you, the entire Azul business is 76% larger than it was in 2019, But TudoAzul is 2 times as big. Our packaging business, 4 times as big. Our cargo business, 2.5 times It's big. We also have Congonius that we didn't have previously. We will also have more next gen aircraft in our fleet As we move forward over the next couple of years as well, and so margin expansion should come through those highly profitable business units, Adding our new Ozil Tech Ops business unit as well as the next gen aircraft kind of taking place, we still fly 50 E1s in our fleet today, right?

Speaker 3

And so think about what that looks like when those 50 E1s come out and are replaced with 50 E2s in the coming years.

Speaker 6

Yes. And Bruno, just a final point. In terms of 2024 capacity and beyond, you can consider something around High single digits, 8% to 10% capacity growth kind of 2024 and beyond. And the philosophy on unit revenue is similar to what we have right now, which is Stable, steady unit revenues. The industry overall is at a new level compared to pre pandemic, 35% plus, it's maintained very steady the last four quarters.

Speaker 6

I expect that to continue this year Apart from seasonality, and so as an industry, we're not giving that back. We should not be giving that back. Our philosophy certainly is not to give that back And use the efficiencies that John mentioned to increase earnings and increase margins.

Speaker 4

And the capacity growth that Abhijit mentioned is consistent with What I mentioned in terms of the fleet growth, right? The fleet is almost not growing at all, maybe Couple of aircraft here and there per year, but because we are shedding smaller aircraft and bringing in next gen aircraft with higher seat count, Yes, which is what we call the upgauging, right? That's where the ASK growth comes from. So it's very low risk growth because these seats are coming in At a negative cost, and we are deploying those seats in Azul markets, right, not using that to steal share from other competitors. Now if we grow more than the other competitors, obviously, our market share will grow, but that's just a mathematical construct, right?

Speaker 4

You need to distribute 100 Percent of market share across all players, if we grow more than the other guys that we will increase market share. But we The plan here is to grow in Azul markets, stimulate Azul markets using our fleet transformation.

Speaker 10

Thank you. Can you just clarify, Abhi, please, the 8% to 10%, especially in 2024, is it evenly split between domestic and international? Or is international still growing more kind of recovering from The pandemic is slow.

Speaker 6

Yes. Starting in 2024, international will be more stable. The reason it's growing so much more now in 2023 is because we are recovering our international network. We will actually be larger by the end of this year. So you have a little bit of full year effect in 2024 and then from that point onwards, it will be more stable.

Speaker 10

Thank you very much. And just one final follow-up, sorry for so many questions. Alex, on your initial remarks, you commented on several scenarios. But is it possible to let us know roughly what would be the amount of debt or cash needed to settle the liability if Shares are not issued, just for reference. And I agree this is maybe a too pessimistic scenario, but just so we have the scenarios in mind.

Speaker 4

You have the vesting, the number of shares that vest every quarter, and that's the calculation, right? The number of shares Times the surplus or the deficit against 36.

Speaker 10

Okay. Thank you.

Operator

The next question comes from Michael Lindbergh, sell side analyst from Deutsche Bank. We will open your audio so that you can ask a question. Michael, please proceed. Yes.

Speaker 11

Can you guys hear me?

Speaker 3

Yes. Hey, Mike.

Speaker 11

Hey, guys. Just a couple here. Just by the way, Congrats on getting through this process here. Just in the release that you put out, the separate lease that has the notes, BRL2.3 billion. Is that I know it was a forty-sixty split and maybe it's a rounding error, but it looks like that it maybe is more like 43, 57 Just based on that number there, but that could be rounding.

Speaker 11

It looks like it's a little bit more debt than what we thought, a little bit less equity, which is fine.

Speaker 4

Yes. I think the way some of this depends on kind of how you're calculating the present value of the lease payments, Right. Because essentially, we're taking the resource weren't going to get all of the R5 $1,000,000,000 plus today, right? They would get that across up to 12 years, Right. So what they are giving up, what they're contributing to the plan has been calculated back using a PV and then that has Given back to them on a note and equity, the equity has a floor and a cap.

Speaker 4

So that kind of all So we did calculate using forty-sixty, but when you calculate the way you do it, Mike, it may end up slightly different just because of The present value calculation?

Speaker 11

Yes, it's small. And then as we think about the next phase, I think Alex and John, you both sort of said, we get the sense of the next few weeks. And so maybe by mid June, we're actually done. What From an equity holder perspective, should we anticipate additional dilution? Or I know you've talked about Some of the some of your assets and your collateral and maybe that's the equity component That ties to this next round of negotiations.

Speaker 3

Yes. Mike, I think it's really important. The dilution has happened via the lessor deal, Right. And that's the way that our shareholders have contributed here. Just to remind you, we We have Azul Viagins, our packaging business.

Speaker 3

We have our cargo business. Those are all kind of unencumbered assets. And so the idea is once complete, We will raise some new debt using TudoAzul, right, and that new debt. And it's important to sequence it, right? And so get the lessor The bondholders done and then kind of raise the new capital to strengthen the balance sheet even further.

Speaker 3

But there's no Especially given these equity prices, Mike, there's no intent to issue equity at these levels, because we think we're a third of where we should be trading At a 6.5 multiple, right? And I think as we migrate up, as you go into 2024 and beyond, The stock should be significantly better than where it is today. And so I think we did this the right way. We got through the pandemic with those assets At our disposal, to be able to use to raise debt at the right price levels. And Obviously, getting the lessors was very important, kind of rolling the 24s and 26s is the next step that we'll be doing then bringing in the new cash.

Speaker 3

And then we're off to the races, right? And I think that we're feeling very good about where we are today and about the progress, because It's been a good healthy process that's been amicable across the board, right? And so all lessors working with Bondholders giving us their feedback and what they think is appropriate, right? And then also kind of looking at these Great assets that we have still at our disposal to use to raise cash.

Speaker 11

Okay, good. Very good. And then just 2 non restructuring questions. Did I See that you guys renewed your deal with United, maybe I did see that. And what were the changes, if any, in The term of the deal, etcetera?

Speaker 6

Yes. Hey, Mike. We just put out a note saying we expanded the codeshare. So, it's our commercial agreements continue with United. And so we expanded the codeshare to include more cities that they fly From Orlando and from Fort Lauderdale.

Speaker 6

That was the note that we have, yes.

Speaker 11

Okay. Okay. That's good. And then just as Avi, since I have you, Just one other. The new Convoyance service, the ramp up, presumably, It's RASK accretive.

Speaker 11

How is it on a margin basis? Is it margin accretive? I know you're ramping up, you added a bunch of new service, But historically, those tend to be some of the higher yield markets out there. Any color that you could give on that? Thanks for taking my questions.

Speaker 11

Yes.

Speaker 6

Thanks, Mike. We expect them to be margin accretive once ramped up and especially once we're beginning the second half seasonality. We're still in

Speaker 11

the quarter

Speaker 6

April with Easter, had a bunch of holidays. But yes, our expectation and from what we know The other markets we find Congonhas and Congonhas demographics in general is that this is definitely margin accretive, and we expect that To happen through the year, again, just having so many new people fly the services is great because they're signing up for the credit card, our loyalty program And flying internationally with us as well. So but just by itself, yes, margin accretive.

Speaker 11

Very good. Thanks, everyone.

Speaker 12

[SPEAKER ARI DE SA CAVALCANTE NETO:] Thanks, Mike. Moving on to

Operator

the next question We will come from Victor Mizusaki from Bradesco BBI. We will open your order so that can ask your question, Victor. Can you please proceed?

Speaker 13

Hi. Congrats on the restructuring. I have two questions here. The first one, Jon, you just mentioned to me about the bonds. And I mean, in this case, we can see that You closed a deal with the lessors and this new bond you pay SEK 7.5 per year.

Speaker 13

So Is there any kind of collateral that you need to grant to these lassars? And can you say that Basically, you are anchoring the negotiations with the bondholders for the 2024 and the 2026. And my second question, think about the guidance for this year, what you're assuming for the first, I mean, do you assume that these Tax benefit will be approving the you're passing the Congress or basically you do terminate in May? Thank you.

Speaker 3

So, Victor, just quickly, the 7.5% is unsecured to the lessors, right? So, we still have that collateral out there. The 24s and 26s is there is some security we're in discussions with them on, right? And so I think that that's a positive thing to help get the rate down overall. As far as the 2023 guidance of $5,500,000,000 we're very confident that the Pisco fees tax will pass, but it's not in our current guidance.

Speaker 3

It was only for the 1st 5 months of this year. However, we may have positive news in that regard in the next 10 days, which could be very beneficial as well.

Speaker 13

Okay. Thank you.

Operator

Moving on to the next question. It will come from Daniel McKenzie, sales analyst, Seaport Global. We will open your order so that you can ask your question, Daniel. Please proceed.

Speaker 3

We can't hear you, Dan.

Operator

Okay. So let's move on to the next question. The next question will come from Jay Sieg, sell side balance from Citi. Jay, we're going to Ask your question, we're going to open your eyes so that you can ask a question. Can you please proceed?

Speaker 14

Sounds good. Yes. So my first question is regarding the most recent upgrade Of your agreement with United, do you see any possibility to adjust these agreements further with others such as JetBlue? And as a follow-up, can you tell us a little bit more about how your Demand patterns compare with 2019 and if they're different in how you view these adjustments as temporary or structural? Thanks again.

Speaker 6

Yes. Hi. Thanks so much for the question, Jay. So currently, together with United and JetBlue, We've been slowly expanding our network into the United States. And actually, we have a really A broad network with these two partners.

Speaker 6

So in total, via our gateways in Orlando and Fort Lauderdale, We now can connect to 27 destinations in the U. S. And additional 8 in the Caribbean. And so that obviously, with all the major cities, U. S.

Speaker 6

Domestic, with a mix of JetBlue and United Via Orlando and Fort Lauderdale. And we serve those cities in multiple origins here in Brazil, Arjarvi and Sao Paulo, Recife, Bello Horizonte, Manaus and Bellem as well. So a really broad network into the U. S. And then 35 destinations with our partners in the U.

Speaker 6

S. In addition, we also connect to 24 European cities Via our partnership with TAP in Lisbon. So we're really able to provide great connectivity with our partners. In terms of demand patterns, overall average fares are higher as we've seen In the unit revenue performance, this is not just pent up demand as was initially thought in the initial Pandemic or even the post Omicron recovery, the last four quarters, we've seen RASK basically between $0.41 $0.42 And so that shows very, very consistent unit revenue performance. Corporate revenue is Above 2019 levels, between 30%, 35% above.

Speaker 6

Large corporates, a little bit below, but one demand pattern that's changed that's very interesting is groups revenue. Groups, meetings, conventions revenue is more than double what we've seen before. Small and medium businesses are up very strong as well. From a customer behavior, we are seeing average, let's say, purchase size increasing. So people are taking one extra person with them on their trips, sort of a little bit of a mix of business and leisure, personal.

Speaker 6

And so but in general, we are 76% larger in terms of revenue right now than we were in the Q1 2019. And I've looked across many airlines across the world, and I couldn't find anybody else that was 76% larger. So this is really robust sustained revenue performance.

Speaker 14

Thanks so much.

Operator

We will open the order so that Daniel McKenzie, the sell side analyst from Seaport Global can ask a question. Please, Daniel, proceed.

Speaker 12

Yes. Hey, can you guys hear me this time?

Speaker 4

Yes. Hey, Dan.

Speaker 12

Yes. Okay, great. Sorry about that. So my question was, you did talk about unsecured assets. That was my initial question.

Speaker 12

But big picture, what's the collective value of those unsecured assets? And then just on TudoAzul, what percent of EBITDA was TudoAzul in 2022? And how much capital would you like to raise ultimately here?

Speaker 4

Hey, Dan. So the we mentioned at our last We had our unencumbered assets appraised to Azul, Azul Biagis, Azul Cargo and our brand. And collectively, they were valued at about BRL25 1,000,000,000, right? So a little over $5,000,000,000 And we're working with advisers to try to structure this. We want to use some of those unencumbered assets To renegotiate our convertible debenture and to raise new money and also to Get some additional time on the 2024 and 2026 senior notes, right?

Speaker 4

It's essentially extending them. And also keep some of our assets unencumbered too for a rainy day, right? We don't want to encumber everything Because I think the main objective here is just to de risk the company. As we've been mentioning on this call, The business is doing great, right? And we are focused on generating cash going forward And derisking, right?

Speaker 4

So the idea is to not encumber everything. So we'll provide that detail over time as we get there. But the idea is to not encumber everything, and we want to use the assets that we do encumber to cover All of what I mentioned, right? The new capital that we want to raise with a secured note, no equity, We negotiate our convertible debentures and extend our 2426 loans.

Speaker 12

Okay. That's terrific. Avi, you talked about the current revenue environment. Pricing today is pretty strong. And for those of us that track pricing, If foreign exchange continues if the Brazilian held continues to strengthen, should we expect fares to fall somewhat?

Speaker 12

Usually, there has been or at least historically, there's been a link between the Brazilian hail and pricing. Yes.

Speaker 6

Hey, Dan. I think that that link is more a second order effect. I don't see the industry doing it Just because I think that it's more linked to capacity. And if I look at capacity In the system for the Brazilian industry today, it's pretty well disciplined. And I don't see a lot of new capacity coming in.

Speaker 6

We've given our number today around 6% domestic growth. GOL LatAm have their guidance out as well. And You can do the math. And the industry overall domestically is growing about 4% to 5% versus 2019. We're talking 4 years ago, right?

Speaker 6

And so the capacities environment, I think, is actually very constructive For the industry to maintain these unit revenues. And so I think that as currency Strengthens or fuel continues to come down as long as the capacity situation remains disciplined, which from what I can see today We'll continue to be disciplined. That should not affect unit revenue.

Speaker 3

Dan, one other thing too is if you take a look at the industry in Brazil and our competitors, Everybody's cost of capital is significantly higher today than it was in 2019. So everybody needs high fares, right? We have 2 of our Closest competitors that need to get listed in New York over the next coming years, and I think it's going to be important for them to show positive results. I think that's good overall for industry discipline across the board.

Speaker 12

Yes, that's terrific. Thanks so much you guys.

Speaker 3

Thanks, Dan.

Operator

The next question comes from Chris Reddy, Southside Analyst, T. T. Cohen. We will open your order so that you can ask a question. Chris, please proceed.

Speaker 3

Yes, good morning, guys. Thanks. I just wondered if you Give me a little bit of insight into the forward looking competition and capacity on the various routes you serve.

Speaker 6

And the rest

Speaker 3

of my questions have been answered. Thank you very much.

Speaker 6

Yes. Hi, Chris. We continue to be to have a very different network. We haven't seen significant changes in market overlap over time. In fact, they've actually reduced, Which I think is a sign of a healthy industry dynamic overall.

Speaker 6

I think airlines are focusing where they are strong and what makes them strong. Our network by nature is different. We are alone in 80% of us that we serve, a leadership position in over 90% of us that we serve. And again, I think that industry is that discipline is good overall and the industry realizes that. So I don't envision, I don't see I haven't seen, frankly, any major changes to the market overlap or to the industry dynamic from a capacity.

Speaker 6

I see. I don't see anybody trying to attack somebody else or enter into a hub or anything like that. I think airlines are focusing where they are strong.

Operator

Great. Thank you very much. Appreciate

Speaker 12

it.

Operator

The next question comes from Rogerio Araujo, Southside Analyst Bank of America. We will open your order so that you can ask your question, Rogerio. Please proceed.

Speaker 8

Hi, gentlemen. Thanks a lot for the opportunity. I have a Few follow ups on the restructuring. One is, you're talking about a liability that is going to be I recognized, I think this is linked to the equity instrument. And my question is, how is this going to be calculated?

Speaker 8

Is there going to be a market to market effect on that every quarter? And is there a starting point How much this is going to be recognized in the next quarter or so when the deal is concluded? And then another one on the BRL36 per share conversion price, is there any adjustment rate to $27,000,000 or this is a fixed at $0.36 per share? Lastly, on the confirmation, You're talking about several conditions on this restructuring. One of them is new capital raise.

Speaker 8

This can be a debt, correct? I think you talked about 2.0 as a collateral on raising new debt. This is a new debt already fulfills this new capital raise condition? Thank you very much.

Speaker 4

Yes. So, Rogerio, under IFRS, unless the amount of shares is completely fixed And predetermined, you need to recognize the whole structure as a liability, right? So it will be easy for you to Look at the amount, it will be essentially what the lassoers have given up on the equity side, So essentially the 60%. But if you include that as a debt, again, you don't include the 90,000,000 shares that are going to be issued. But the way we see it is, if you do the calculation, not including that debt and including the 90,000,000 shares in your total shares outstanding, you're are going to get something higher than 36%.

Speaker 4

Therefore, there is no adjustment and the equity instrument Will be equity as designed, right? But it will be either equity or debt. And in the balance sheet, until that amount is determined, it will show up As one specific line on the balance sheet, kind of similar to the convertible debenture that we have maturing in 2025, right, if you include that as debt, Then you don't include it in the number of outstanding shares. If you do include it in the number of outstanding shares, then you disregard the debt component On the balance sheet, right? The 36 on the floor, there's no adjustment going forward.

Speaker 4

And then you're right. On the new money, as we mentioned, it will be a secured note essentially based on TudoAzul as collateral With no equity component.

Speaker 8

Very clear, Alex. Thanks very much. Have a great one.

Speaker 3

Thank you. Thanks, Roger.

Operator

This ends our Q and A session. We will now have our final remarks.

Speaker 3

Thank you for joining us today. Obviously, a lot to digest, a lot of information. And so we'll be available to take any of your Questions offline. We're excited about what we have. This significantly improves our cash flow over the coming years.

Speaker 3

And Azul is back the races. Thanks, everybody.

Operator

Thank you. This concludes Esdras audio conference call for today. Thank you very much for your participation, and have a good day.

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Azul Q1 2023
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