SAO PAULO, Oct 23 (Reuters) - Brazilian airline Azul

is in talks with multiple parties to raise about $400

million in fresh capital via debt financing and an agreement may

come as soon as this week, three sources close to the

discussions told Reuters.

Azul dominates Brazil's airline industry along with LATAM

and Gol. It managed to avoid Chapter 11 even

as a number of Latin American carriers filed for bankruptcy

after the COVID-19 pandemic, including its two main rivals.

The fresh capital is a condition of Azul's recent deal with

lessors to scrap nearly $550 million in obligations in exchange

for an equity stake which it undertook in a bid to ease concerns

about its debt load and strengthen its cash position.

According to the sources, who requested anonymity to discuss

confidential talks, the two options on the table for Azul are a

fresh financing accord with its existing ad hoc group of

bondholders or receiving capital that investment bank Jefferies

has tentatively arranged from additional investors.

An agreement with bondholders could entail a future

debt-for-equity swap in addition to a chunk of fresh debt, two

of the sources said, while the Jefferies option would be based

on the issue of a traditional convertible bond.

Azul declined to comment. Jefferies did not immediately

respond to a request for comment.

The carrier told Reuters this month that it was looking to

raise capital, potentially using its Azul Cargo unit as

collateral, and that it had multiple options to go forward with

the transaction.

It was unclear whether a final deal would still include the

cargo division as collateral.

Azul has struggled this year with a weaker exchange rate and

disastrous flooding in the key market of Porto Alegre.

The recent deal with lessors was contingent on amendments to

certain other obligations, including the raising of additional

financing.