*

Azul aims to raise $400 million, potentially using Azul

Cargo as

collateral

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Deal with lessors and OEMs eliminates $550 million in

obligations

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Shares jump 21.7% after deal announcement, easing debt

concerns

By Gabriel Araujo

SAO PAULO, Oct 8 (Reuters) - Brazilian airline Azul

is looking to raise fresh capital after it clinched a

deal with lessors to scrap nearly $550 million in obligations,

easing market concerns about its debt load, the firm's chief

executive told Reuters on Tuesday.

Shares in the carrier jumped after it announced the eagerly

anticipated deal with lessors and equipment manufacturers

(OEMs), agreeing to give them an equity stake to eliminate some

obligations.

"We had to solve this problem first and now we can raise

capital," John Rodgerson said in an interview. "We can look

forward and not backwards."

Azul now aims to raise about $400 million, Rodgerson said,

potentially using subsidiary Azul Cargo as collateral.

The company, which dominates Brazil's airline industry

along with LATAM and Gol, also counts on

getting money soon from a

credit line

approved by the government to help local carriers.

"As we said, we were going to use Azul Cargo to raise debt

- perhaps a convertible debt - to strengthen us and help us

grow, knowing now that the money will not go to lessors as that

matter has been addressed," Rodgerson said.

He noted the company has been in amicable talks with

bondholders but there were "many people" willing to borrow Azul

money, expanding the firm's options as it looks at "several

types of debt" for a potential transaction.

'FUNDAMENTAL PIECE'

Azul late on Monday said it reached commercial agreements with

lessors and OEMs holding about 92% of its existing equity

issuance obligations to settle them with an equity stake.

Under the deal, lessors and OEMs agreed to eliminate

obligations totaling some 3 billion reais ($544.64 million) and

will receive, in exchange, up to 100 million new preferred

shares of Azul in a one-time issuance.

Genial Investimentos analysts said the move, despite the

shareholder dilution, was a "fundamental piece" in Azul's effort

to strengthen cash generation and improve its capital structure,

providing "significant" financial relief.

Reuters first reported last month that Azul was close to

clinching the debt-for-equity swap with lessors.

Investors cheered the news, with Sao Paulo-traded shares of

Azul jumping as much as 21.7% on Tuesday.

"The announcement removes the short-term overhang related to

a potential Chapter 11 filing, which led to a

17-percentage-point underperformance since late August,"

JPMorgan analyst Guilherme Mendes said.

He referred to media reports that suggested the firm was

considering a Chapter 11 filing. Mendes estimated the fresh deal

to imply an equity dilution of around 23%, with the 100 million

shares valued at 575 million reais as of Monday's closing.

Azul first struck a deal with lessors and OEMs in 2023 to give

them up to $570 million in preferred shares valued at 36 reais

each, part of a broader restructuring that also delayed debt

maturities and raised additional capital.

But its shares had dropped more than 60% this year as it

struggled with a weaker exchange rate and disastrous flooding in

the key market of Porto Alegre, triggering the need for another

restructuring.