← Back to AZUL filing summaryThis is the extracted source text from the SEC filing. Formatting may differ from the original document.
A.[Reserved]
B.Capitalization and Indebtedness
Not applicable.
C.Reasons for the Offer and Use of Proceeds
Not applicable.
D.Risk Factors
The risks described below are those we consider material to our business and to investments in our securities. In general, investing in securities of issuers in emerging markets countries such as Brazil involves risks that are different from the risks associated with investing in securities of U.S. companies and companies located in other countries with more developed capital markets. You should carefully evaluate the risks described below. We believe we could be materially adversely affected by any of these risks. Other risks that we currently deem immaterial or that are currently not known to us may also adversely affect us.
To the extent that information relates to or is derived from sources related to the Brazilian government, Brazilian macroeconomic data, industry data, or other third parties, the following information has been extracted from official publications of the Brazilian government or other reliable third-party sources and has not been independently verified by us.
Risks Relating to the Voluntary Reorganization
The Voluntary Reorganization is based in large part upon assumptions and analyses developed by us, which may be incorrect.
The Voluntary Reorganization affected our capital structure and the ownership, structure and operation of the business. See “Item 4. Information on the Company—Business Overview—Voluntary Reorganization.” The outcome of the Voluntary Reorganization reflects assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we considered appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to: (i) the factors described throughout these risk factors, (ii) our ability to obtain adequate liquidity and access financing sources, (iii) our ability to maintain customers’ confidence in the viability of our business, (iv) our ability to retain key employees and (v) the overall strength and stability of general macroeconomic conditions, including factors that impact fuel prices such as geopolitical tensions and conflicts, as described in these risk factors.
Our actual financial results may vary significantly from the financial projections relied upon in the Voluntary Reorganization.
Azul S.A. 13
The Voluntary Reorganization relied upon financial projections that are necessarily speculative, and it is possible that one or more of the assumptions and estimates that are the basis of these financial forecasts will not result as expected. In our case, the forecasts may be even more speculative than normal because of the many uncertainties we face relating to, among others, macroeconomic conditions. Accordingly, our actual financial condition and results of operations could differ, perhaps materially, from what we have anticipated. Such financial projections were not audited or reviewed by our independent auditors and should not be relied upon. Consequently, the results or developments contemplated by the Voluntary Reorganization may not occur or, even if they do occur, they may not have the anticipated effects on us or our business or operations. The failure of any such results or developments to materialize as anticipated could materially and adversely affect us.
Our historical financial information may not be indicative of our future financial performance.
Our capital structure was significantly altered under the Voluntary Reorganization, with existing shareholders being substantially diluted, and certain of our then-current creditors acquiring significant share ownership. See “Item 4. Information on the Company—Business Overview—Voluntary Reorganization.” We expect that our financial condition and results of operations following our emergence from the Chapter 11 Cases will not be comparable to the financial condition and results of operations reflected in our historical financial statements.
In connection with our emergence from Chapter 11 Cases, it is also possible that additional restructuring and related charges may be identified and recorded in future periods. Any such charges could be material to our financial condition, results of operations, liquidity and cash flows and could have a material impact on our results of operations.
“Fresh-start” accounting was not applied upon emergence from the Chapter 11 Cases and the Voluntary Reorganization because we report under IFRS, which may limit comparability and may cause our post-emergence financial statements to differ from what investors may expect for a reorganized company.
Following our emergence from the Chapter 11 Cases and the consummation of the Voluntary Reorganization, our financial statements have been prepared in accordance with IFRS as issued by the IASB. IFRS does not provide for, and generally does not permit, “fresh-start” accounting of the type applied by certain companies reporting under U.S. GAAP in connection with an emergence from bankruptcy (which can involve remeasuring assets and liabilities to reorganization value and resetting opening equity balances). As a result, we have not “reset” our balance sheet to the reorganization value implied by the Plan or otherwise presented our post-emergence financial statements on a fresh-start basis.
Accordingly, our post-emergence financial statements may not be comparable to (i) the financial statements of other companies that emerged from bankruptcy and applied fresh-start accounting under U.S. GAAP or (ii) financial information that may be presented by other reorganized companies on a “successor” basis. This could make period-to-period comparisons (including comparisons to peers) less meaningful for investors and could affect how investors evaluate our financial condition and results of operations following emergence.
We may not be able to achieve our stated goals.
Following the Voluntary Reorganization, we will continue to face a number of risks, including challenging macroeconomic conditions, geopolitical circumstances or otherwise. Accordingly, the Voluntary Reorganization may not achieve our stated goals and may not permit us to effectively implement our strategy. Furthermore, even though our levels of indebtedness have been reduced through the Voluntary Reorganization, we may need to raise additional funds through public or private debt or equity financing or other various means to fund the group’s business after the completion of the Chapter 11 Cases. Our access to additional financing for the foreseeable future will likely continue to be limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms
We may be subject to claims that will not be discharged in the Voluntary Reorganization or that must be repaid in full under the Plan, which could have a material adverse effect on our financial condition and results of operations.
14 Azul S.A.
The Bankruptcy Code provides that the confirmation of a Chapter 11 plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to confirmation of the Plan: (i) would be subject to compromise and/or treatment under the Plan and (ii) would be discharged in accordance with the Bankruptcy Code and the terms of the Plan. Any claims not ultimately discharged through the Voluntary Reorganization or that are not impaired could be asserted against us and may have an adverse effect on our business and financial condition and results of operations on a post-reorganization basis.
The Voluntary Reorganization may adversely affect our ability to maintain important relationships with creditors, customers, suppliers, employees, financing sources and other personnel and counterparties, which could materially and adversely affect us.
The Voluntary Reorganization may adversely affect our commercial relationships and our ability to negotiate favorable terms with important stakeholders and counterparties, including potential sources of financing. Further, public perception of our continued viability may also adversely affect our relationships with customers and their loyalty to us. Strains in any of these relationships could materially and adversely affect us. In particular, critical suppliers, credit and debit card processors and acquirers, banks, export credit agencies, providers of letters of credit, surety bonds or similar instruments, vendors, lessors and customers may determine not to do business with us due to the Voluntary Reorganization.
The Voluntary Reorganization has consumed a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.
Our management has spent a significant amount of time and effort focusing on the Voluntary Reorganization. This diversion of attention may have a material adverse effect on the conduct of our business, and, as a result, on our financial condition and results of operations. During the Voluntary Reorganization, our employees faced considerable distraction and uncertainty and we have experienced, and may continue to experience, increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations. Likewise, we could experience losses of suppliers and other business partners, who may be concerned about our ongoing long-term viability.
Upon emergence from bankruptcy and the adoption of new governance arrangements, including the creation of the Strategy Committee, our corporate governance structure and decision-making processes changed significantly, which may affect our future strategy and operations.
Upon our emergence from bankruptcy, our corporate governance structure and decision-making processes changed significantly. As part of the governance arrangements adopted in connection with the Voluntary Reorganization, our bylaws established an autonomous and independent statutory Strategy Committee with defined authority over key strategic matters (the “Strategy Committee”).
Our new governance structure introduces a different allocation of authority among our shareholders, board of directors, and the Strategy Committee. While there has been an orderly transition process as we integrate newly appointed directors and Strategy Committee members, these governance changes may result in shifts in perspectives on strategic priorities, capital allocation, growth initiatives, risk tolerance, and other matters that are critical to our business. In particular, the Strategy Committee has exclusive authority to approve, among other matters, our annual operating and capital budgets, business plans, certain indebtedness and capital expenditures, aircraft acquisitions and leases above specified thresholds, strategic partnerships, and other significant transactions, and plays a central role in the nomination of directors and executive officers.
Azul S.A. 15
As a result of these changes, decisions affecting our strategy and operations may be made through processes and by bodies that differ materially from those in place prior to our emergence from bankruptcy. Our future strategy, policies, and plans may therefore differ materially from those pursued in the past, and there can be no assurance that the decisions made under this new governance framework will be successful or aligned with the expectations of all stakeholders. See “Item 6.A. Directors and Senior Management—Strategy Committee.”
Risks Relating to Brazil
The Brazilian government has exercised, and continues to exercise significant influence over the national economy, which, combined with Brazil’s political and economic conditions, could adversely affect our operations and the price of our common shares, including in the form of ADSs.
The Brazilian government regularly exerts significant influence over the country’s economy and occasionally makes significant changes in monetary, credit, fiscal, and other policies and regulations. In its efforts to control inflation and address other economic challenges, the Brazilian government has often resorted to measures such as changes in monetary and tax policies, price controls, foreign exchange rate controls, currency devaluations, capital controls and important restrictions, among other measures. We have no control over, nor can we predict, the actions or policies the Brazilian government may adopt in the future. We and the market price of our securities may be adversely affected by changes in Brazilian government policies, as well as broader economic factors, including, but not limited to:
•growth or downturn of the Brazilian economy;
•interest rates and monetary policies;
•exchange rates and currency fluctuations;
•inflation;
•liquidity of the domestic capital and lending markets;
•import and export controls;
•exchange controls and restrictions on remittances abroad and dividend payments;
•changes to laws, regulations, and policies based on political, social and economic interests;
•fiscal policy and changes in tax laws, including related interpretations by tax authorities;
•economic, political and social instability, including general strikes and mass demonstrations;
•increases in unemployment;
•labor and social security regulations;
•changes in environmental, health and safety laws and regulations;
•energy and water shortages and rationing;
•public health issues, including epidemics and pandemics, such as the COVID-19 pandemic;
•intervention by the Brazilian government in the modification of or rescission, of existing concessions;
•Brazilian government control over, or influence on, certain oil producing and refining companies; and
•other political, social and economic developments in or affecting Brazil.
16 Azul S.A.
From 2014 to 2016, Brazil experienced a recession, and from 2017 to 2019, its economy grew slowly. Brazil’s Gross Domestic Product (“GDP”) grew by 1.1% in 2019, but as a result of the COVID-19 pandemic and its economic impact, it declined by 4.1% in 2020, and then rebounded with a 4.6% in 2021, surpassing the losses caused by the effects of the COVID-19 pandemic in 2020. GDP grew by 3.2% in 2023, 3.4% in 2024 and 2.5% in 2025, according to IBGE. The trade war initiated by the United States in the beginning of 2025 against great part of the world, including Brazil, together with heightened geopolitical tensions involving the United States and Venezuela in early 2026, has created uncertainty, which might lead to a contraction in the global economy and affect negatively Brazil’s GDP for the next few years. We cannot predict the impacts of this trade war in the global economy and in Brazil, but an eventual recession can negatively affect the Company.
Furthermore, the Brazilian government is under increasing pressures from the population to implement economic reforms. We cannot predict what measures the Brazilian government will take in response to growing macroeconomic pressures or otherwise.
Developments in Brazil’s political landscape may also impact us. Uncertainty regarding political developments and over whether the current government of President Luis Inácio Lula da Silva, or future Brazilian governments, will implement changes in policy or regulatory that might affect these or other factors in the future, military conflicts, the current turmoil in the global banking industry, other internal or external factors sustaining persistent inflation, among other factors – could affect economic performance and contribute to economic uncertainty in Brazil, which may have an adverse effect on us and our common shares, including in the form of ADSs. Recent economic and political instability in Brazil has negatively impacted public perception of the Brazilian economy, contributing to increased volatility in the Brazilian securities markets, which may also adversely affect us and the trading price of our common shares, including in the form of ADSs. We cannot predict what future policies will be adopted by current or future Brazilian governments, or whether these policies will have adverse consequences for the Brazilian economy or adversely affect us. See “—Economic uncertainty and political instability in Brazil may adversely affect us and the trading price of our common shares, including in the form of ADSs.”
Economic, health, political, and environmental crises, or any other kind of crisis that could impact the Brazilian economy, may affect the purchasing power of the Brazilian population, which may result in a decrease in demand for air travel and, consequently, affect our business.
Economic, health, political, and environmental crises, or any other type of crisis that could impact the Brazilian economy, may affect the purchasing power of the Brazilian population, which may result in a decrease in sales of our products and services. Between 2014 and 2016, for example, when Brazil faced one of the worst recessions in its history, the country's GDP declined by 3.5% in 2015 and 3.3% in 2016. However, for the year ended December 31, 2025, due to the sustainable competitive advantages of our business model, Azul achieved a record operating revenue of R$21.6 billion, representing an increase of 10.8% compared to the year ended December 31, 2024. This clearly demonstrates the strength of our business model.
Economic uncertainty and political instability in Brazil may adversely affect us and the trading price of our common shares, including in the form of ADSs.
Brazil has experienced economic instability due to various political and economic events in recent years, with the slowdown in GDP growth and impacts on supply factors, including levels of investment and the use of technology in production, and demand factors, including employment rates and income levels. Consequently, uncertainty about whether the Brazilian government will be able to approve the economic reforms needed to address the deterioration of public accounts and the economy has led to a decline in market confidence in the Brazilian economy. Brazil’s economy remains subject to government policies and actions, which, if unsuccessful or not implemented, could affect the operations and financial performance of companies, including ours. Recent economic and political instability in Brazil has contributed to a decline in market confidence in the Brazilian economy and increasing uncertainty.
Azul S.A. 17
In recent years, the Brazilian political scenario has experienced intense instability, mainly due to the unfolding of a corruption scheme involving several politicians, including high-ranking members of the government. This led to the impeachment of a Brazilian President and lawsuits filed against her successor and team. Various investigations into allegations of money laundering and corruption, conducted by the Office of the Brazilian Federal Prosecutor, have had a negative impact on the country’s economy, political environment, and capital markets, and damaged the image and reputation of the companies involved. The largest of these investigations was known as Lava Jato. Members of the Brazilian government, as well as senior officers of large state-owned companies, have faced allegations or convictions of political corruption and money laundering or entered into plea bargains or leniency agreements. Although the task force in connection with Lava Jato was wound up in February 2021, we cannot assure that new investigations will not be launched or that additional persons will not become subject to investigation.
We have no control over, and cannot predict, whether such investigations, allegations, convictions, plea bargains, and agreements will lead to further political and economic instability or whether new allegations, convictions, plea bargaining, or agreements against or with government officials, officers and/or companies will arise in the future. In addition, we cannot predict the outcome of any such allegations, convictions, plea bargains and agreements, nor their effect on the Brazilian economy.
Political demonstrations in Brazil in recent years, including following the 2022 presidential election, have also affected the development of the Brazilian economy and investors’ perceptions of Brazil. Any difficulty of the federal government on reaching the majority of the seats in the congress may result on an impasse, political agitation and massive demonstrations and/or strikes that may adversely affect our operations. Uncertainties regarding monetary and fiscal policies, as well as applicable legislation, may contribute to economic instability and increase the volatility in the Brazilian securities market.
We cannot assure you that the unfolding of these events will not lead to additional adverse impacts on Brazil's political and economic situation. Furthermore, we cannot assure you that other current or future political events, including new allegations against former or current government officials, may not come to cause even more instability in the Brazilian economy, in capital markets, or in the listing of our shares.
Moreover, the policies President Luiz Inácio Lula da Silva may adopt or alter may have material adverse effects on the macroeconomic environment in Brazil, as well as on businesses operating in Brazil, including ours. See “—We cannot predict which policies the President of Brazil may adopt or change during the remainder of his mandate, or the effect that any such policies may have on our business and on the Brazilian economy, and political uncertainty may increase as we approach the next presidential elections in October 2026.”
Any of the above factors may create additional political uncertainty, which could have a material adverse effect on the Brazilian economy and, consequently, on us and the trading price of our common shares, including in the form of ADSs.
We cannot predict which policies the President of Brazil may adopt or change during the remainder of his mandate, or the effect that any such policies may have on our business and on the Brazilian economy, and political uncertainty may increase as we approach the next presidential elections in October 2026.
Luiz Inácio Lula da Silva was elected president in October 2022 for a four-year term that began in January 2023. Uncertainties regarding the implementation of policies by the new government, especially considering that the majority of the members elected to the congress are from opposition parties to the elected president, changes in monetary and fiscal policies, as well as the political climate after the elections and may contribute to an economic instability and increase the volatility of the Brazilian securities market.
The president of Brazil has the power to determine monetary and fiscal policies and to issue government measures related to the conduction of the Brazilian economy, which can consequently affect the operations and financial performance of companies, including the performance of the Company. We cannot predict which policies will be maintained, which may be adopted or changed during the term, or the effect such policies may have on our business and on the Brazilian economy. Furthermore, the uncertainty as to whether the current Brazilian government will implement policy or regulatory changes in the future may contribute to economic uncertainty in Brazil and to increased volatility of securities issued abroad by Brazilian companies.
18 Azul S.A.
Brazil will hold its next presidential election in October 2026, an event that has historically been associated with heightened political and economic uncertainty. Electoral periods in Brazil often lead to increased volatility in financial markets, shifts in economic policy and changes in regulatory priorities, which may adversely affect macroeconomic conditions and investor confidence. Any resulting instability could negatively impact consumer spending, credit availability and overall business activity in the country and, as a result, may affect our financial condition, results of operations and the trading price of our common shares, including in the form of ADSs.
In addition, any new policies or changes to current policies, as well as any specific legislation applicable to our business under the administration beginning on January 1, 2027, may have a material adverse effect on us or on the trading price of our common shares, including in the form of ADRs.
Exchange rate instability may have adverse effects on the Brazilian economy, our business, and the trading price of our common shares, including in the form of ADSs.
The Brazilian currency has historically been volatile, experiencing frequent devaluations over the past three decades. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (with adjustments ranging from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. While the long-term depreciation of the real is generally linked to Brazil’s inflation rate, short-term depreciation has led to significant fluctuations in the exchange rate between the real, the U.S. dollar, and other currencies. In 2021, the real depreciated against the U.S. dollar and, as of December 31, 2021, the U.S. dollar selling rate reported by the Central Bank was R$5.58 per US$1.00. In 2022, the real appreciated against the U.S. dollar and, as of December 31, 2022, the U.S. dollar selling rate reported by the Central Bank was R$5.22 per US$1.00. In 2023, the real further appreciated against the U.S. dollar and, as of December 31, 2023, the U.S. dollar selling rate reported by the Central Bank was R$4.84 per US$1.00. In 2024, the real depreciated against the U.S., as of December 31, 2024, the U.S. dollar selling rate reported by the Central Bank was R$6.19 per US$1.00, and as of December 31, 2025, the U.S. dollar selling rate reported by the Central Bank was R$5.50 per US$1.00. There can be no assurance as to whether the real will appreciate or depreciate against the U.S. dollar or other currencies in the future.
A devaluation of the real relative to the U.S. dollar could create inflationary pressures in Brazil, which may prompt the Brazilian government to increase interest rates, among other measures. Depreciation of the real may also limit access to the international capital markets and decrease the U.S. dollar value of our results. Restrictive macroeconomic policies intended to address these issues could reduce the stability of the Brazilian economy and adversely affect our operations and profitability. In addition, domestic and international reactions to restrictive economic policies could have a negative impact on the Brazilian economy. These policies and any reactions to them may adversely affect us by curtailing access to foreign financial markets and leading to further government intervention. A devaluation of the real relative to the U.S. dollar, particularly amid an economic slowdown, may also reduce consumer spending, increase deflationary pressures, and hinder economic growth.
On the other hand, an appreciation of the real relative to the U.S. dollar and other foreign currencies could negatively impact Brazil’s foreign exchange current accounts. We, along with some of our suppliers, purchase goods and services from countries outside Brazil. Therefore, fluctuations in the value of the U.S. dollar against other currencies may affect the costs of goods and services that we purchase. Depending on the situation, either a devaluation or appreciation of the real relative to the U.S. dollar and other foreign currencies could restrict the growth of the Brazilian economy, and negatively affect our business, results of operations and profitability.
In recent periods, the Brazilian real has experienced significant depreciation against the U.S. dollar, accompanied by pronounced volatility in both magnitude and speed. This rapid depreciation may have an adverse effect on us, as the pace of these developments leaves limited time to adjust our fares and other revenue streams to offset rising costs.
Azul S.A. 19
Most of our revenues are linked to the Brazilian real, and a significant portion of our operations – including fuel costs, certain aircraft lease agreements, flight-hour maintenance contracts, and aircraft insurance – are denominated in or linked to foreign currencies. In addition, we have, and may incur, substantial amounts of U.S. dollar-denominated lease or financial obligations, fuel costs linked to the U.S. dollar, and U.S. dollar-denominated indebtedness, or similar exposures to other foreign currencies. As of December 31, 2025, 2024 and 2023, 45.5%, 43.6% and 45.5% of our operating expenses, respectively, were denominated in or linked to, foreign currencies. These operating expenses are therefore subject to fluctuations in exchange rates and may result in us incurring substantial additional expenses as the Brazilian real depreciates, which may adversely affect us. Historically, we have been able to increase our fares and revenues to offset the impact from U.S. dollar appreciation on our expenses, but there is no assurance that we will continue to be able to do so.
Furthermore, largely due to the Russia-Ukraine conflict, Brent oil prices sharply increased from around US$75 per barrel at the end of 2021 to US$128 per barrel on March 8, 2022. As of December 31, 2025, 2024 and 2023, the Brent oil prices were US$60.85 per barrel, US$73.98 per barrel and US$77.04 per barrel, respectively. There was significant volatility in Brent oil prices during 2022 and, to a lesser extent in 2023 and 2024, with heightened volatility in 2025. There is no certainty that Brent oil prices will not rise in the future. In 2025, our U.S. dollar denominated operating expenses increased by 1.9 percentage points, compared to 2024, mainly due the need to hire aircraft under the ACMI agreement.
We are not always fully hedged against fluctuations of the real. Given the above factors, no assurance can be given that we will be able to protect ourselves against the effects of fluctuations in the real. Depreciation of the real could led to inflationary pressures in Brazil, higher interest rates, and negative impacts on the Brazilian economy, which could harm us, restrict access to financial markets and prompt government intervention, including the implementation of recessionary governmental policies. Additionally, depreciation of the real may reduce consumer spending and reduce the growth of the economy as a whole.
Any depreciation of the real against the U.S. dollar may adversely affect us, potentially leading to lower profit margins or to operating losses. These losses could result from increased U.S. dollar-denominated costs (including fuel costs), higher interest expenses, or exchange losses on unhedged fixed obligations and foreign currency-denominated debt.
Inflation and the Brazilian government’s measures to curb inflation have historically adversely affected the Brazilian economy and Brazilian capital markets. If inflation remains high in the future, it could adversely affect us and the trading price of our common shares, including in the form of ADSs.
Brazil has experienced periods of extremely high rates of inflation. Inflationary pressures, along with the Brazilian government’s efforts to control inflation, have caused significant negative effects on the Brazilian economy generally. These factors, combined with uncertainties regarding potential future governmental interventions, have contributed to economic instability and increased volatility in the Brazilian capital markets.
According to the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, Brazil’s inflation rates were 4.3%, 4.8% and 4.6% for the years 2025, 2024 and 2023, respectively. There is a risk that Brazil may experience high levels of inflation again in the future. Such inflationary pressures could prompt the Brazilian government to intervene in the economy, potentially introducing policies that may adversely affect us and the trading price of our common shares, including in the form of ADSs. In the past, the Brazilian government’s interventions included maintaining restrictive monetary policies with high interest rates that restricted access to credit, reduced economic growth, and led to volatility in interest rates.
20 Azul S.A.
For example, the Monetary Policy Committee (Comitê de Política Monetária do Banco Central do Brasil), or COPOM, has frequently adjusted interest rates during periods of economic uncertainty to meet the targets of Brazil’s economy policy. The SELIC (Sistema Especial de Liquidação e Custódia), the Central Bank’s overnight rate, as established by the COPOM, increased from 10.00% at the beginning of 2014 to 14.25% in 2016. It was then reduced in subsequent years, bringing the SELIC rate down to 7.00% as of December 31, 2017, 6.50% as of December 31, 2018, 4.50% as of December 31, 2019 and 2.00% as of December 31, 2020. Starting in March 2021, inflationary pressures began to rise due to global supply chain disruptions, higher commodity prices, and domestic factors. To address these pressures and anchor inflation expectations, COPOM progressively raised the SELIC rate, which reached 9.25% by December 31, 2021. As of December 31, 2025, 2024, 2023 and 2022, the SELIC rate was 15.0%, 12.25%, 11.75% and 12.37% respectively.
Conversely, more lenient government and Central Bank policies, along with interest rate reductions, have contributed to rising inflation in the past. This may continue, triggering growth volatility and the need for sudden significant interest rate increases, which could negatively affect us and increase our indebtedness.
We cannot guarantee that we will be able to implement effective measures to offset inflation in our operations, which might lead in a decrease in our net income, adversely affecting us. Inflationary pressures could also negatively affect our capacity to access foreign financial markets.
Developments and the perceptions of risks in other countries, including in other emerging markets, the United States, and Europe, as well as developments relating to the Russia-Ukraine conflict, the conflict between Israel and militant groups in the Middle East (including Hamas), rising tensions between the United States and Venezuela, between the United States and Cuba, and the conflict among the United States, Israel and Iran, may adversely affect the Brazilian economy and the price of Brazilian securities, including the trading price of our common shares, including those in the form of ADSs.
The market for securities issued by Brazilian companies is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions in other Latin American and emerging markets, as well as the United States, Europe and other countries. If global market conditions or economic environments deteriorate, Brazilian companies may face adverse impacts on their businesses. Weakness in the global economy in recent years has been characterized by factors such as lower levels of consumer and corporate confidence, decreased business investment, reduced consumer spending, higher unemployment, declining income and asset values, reduced global growth, bank failures, persistent inflation, currency volatility, and limited availability of credit and access to capital. Economic and market conditions in other countries, including the United States, European countries, and emerging markets, may affect credit availability and the volume of foreign investment in Brazil and other countries in which we do business, to varying degrees. For example, the turmoil caused by bank failures in the United States in March 2023 and the forced sale of Credit Suisse highlight the international financial risks we are exposed to. Developments or economic conditions in other emerging market countries have, at times, significantly affected the availability of credit to Brazilian companies, leading to substantial outflows of capital from Brazil and a decrease in foreign investment, which affected Brazil’s economic growth prospects. Any of these factors could have a material adverse effect on our results of operations and financial condition.
Furthermore, global developments relating to Russia’s invasion of Ukraine have (i) contributed to increases in the prices of energy, oil and other commodities, (ii) generated uncertainty in global capital markets, which led to increased price volatility in the United States and European stock markets, and (iii) reshaped international sanctions policies. Russian military actions and the subsequent sanctions could adversely affect the global economy and financial markets, potentially leading to instability and liquidity shortages in capital markets, particularly if sanctions persist for an extended period of time or if geopolitical tensions result into broader military operations on a global scale. In addition, the Russia-Ukraine conflict, along with the impact of sanctions on Russia and the possibility of retaliatory actions, could result in increased cyberattacks.
Azul S.A. 21
In addition, the recent global tensions arising from the conflict between Israel and militant groups in the Middle East (including Hamas, Hezbollah and Houthis), as well as the conflict among the United States, Israel and Iran, have disrupted, and may continue to disrupt, the broader regional or global economic environment. In late February 2026, the United States and Israel launched significant military operations against Iran, and Iran responded with retaliatory missile and drone attacks on Israel, U.S. military assets and Gulf states, including the United Arab Emirates, Saudi Arabia, Qatar, Kuwait and Bahrain. This conflict has caused significant casualties in the region, disrupted commercial air travel, damaged critical infrastructure, effectively suspended shipping through the Strait of Hormuz and led to severe volatility in global oil and natural gas markets. The duration and ultimate scope of this conflict remain highly uncertain. A prolonged or expanding conflict could result in sustained disruptions to regional and global economic conditions, continued volatility in energy markets and further deterioration of commercial and financial activity across the Middle East and globally. While we do not operate in the Middle East, the effects on our business, as well as the duration and severity of these effects on the global economy (including global supply chain disruptions, inflation, rising interest rates, and the imposition of sanctions) are inherently unpredictable.
Political risks persist, primarily from the ongoing war in Ukraine, the conflict among Israel and militant groups in the Middle East, medium-term relationship between the United States and China, uncertainty over government instabilities in Europe, and other regional geopolitical risks, as well as trends such as increasing economic protectionism, onshoring and nearshoring. Additionally, with Donald J. Trump assuming the U.S. presidency again in 2025, shifts occurred in U.S. economic, trade and fiscal policies and foreign relations which further influenced global and regional economies and market dynamics.
Since the first quarter of 2025, the U.S. government has announced and implemented additional tariffs on a broad range of imports, from numerous countries, including Brazil, and expanded the use of trade remedies and enhanced customs enforcement. Other jurisdictions have responded with reciprocal tariffs and trade restrictions, and additional measures may be imposed in the future. These developments and additional changes in U.S. or international trade policies, including evolving export controls, sanctions and other trade-related policies, along with continued uncertainty surrounding such policies, could lead to further weakened business conditions for the airline industry, which may adversely impact our operations through increased supply chain challenges, commodity price volatility and a decline in discretionary spending and consumer confidence, among others. Any of the foregoing could harm our business, results of operations and financial condition, and we cannot anticipate all of the ways in which such conditions could adversely affect our business, results of operations and financial condition.
Concerns about the potential for armed conflict are relevant to the evolving security situation in and around Venezuela and across Latin America. During the past months, the United States has increased political and military pressure on the leadership of that country, including by stationing naval resources on its maritime borders and publicly declaring that the airspace above Venezuela should be considered closed. On January 3, 2026, the United States conducted a joint U.S. Justice Department and military operation to apprehend and arrest Nicolás Maduro and his wife and bring them to trial in New York, which included airstrikes against certain targets in Venezuela, and President Donald Trump has indicated that the U.S. will oversee a transition of the Venezuelan government. It is difficult to predict the development of the security, political and economic situation in Venezuela and the region, and further developments, including the escalation of military conflict and the potential for civil and social unrest, could adversely impact our business.
The materialization of these risks may affect global economic growth, increase volatility in the Brazilian economy and reduce investor interest in assets from Brazil and other countries in which we do business. Any of the foregoing factors may materially adversely affect the trading price of our common shares, including in the form of ADSs, making it more difficult for us to access capital markets and, as a result, to finance our operations in the future. While it is difficult to predict how these global events will unfold, their potential impact on Brazilian capital markets and our business operations remains a significant risk.
22 Azul S.A.
Any further downgrading of Brazil’s credit rating could adversely affect the trading price of our common shares, including in the form of ADSs.
Brazil’s sovereign credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently, the prices of securities issued by Brazilian companies have been adversely impacted. A new Brazilian recession, continued political uncertainty, or other factors could lead to further ratings downgrades.
We can be adversely affected by investors’ perceptions of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil’s sovereign ratings based on a number of factors, including macroeconomic trends, fiscal and budgetary conditions, indebtedness levels, and potential changes to these factors. Brazil lost its investment grade sovereign debt credit rating by the three main U.S. based credit rating agencies, Standard & Poor’s, Moody’s and Fitch in 2015. Standard & Poor’s reaffirmed Brazil’s sovereign credit rating at BB- with a stable outlook in November 2021. On April 12, 2022, Moody’s reaffirmed Brazil’s Ba2 rating with a stable outlook. On June 14, 2022, Standard & Poor’s reaffirmed Brazil’s sovereign credit rating at BB- with a stable outlook. On July 14, 2022, Fitch reaffirmed Brazil’s sovereign credit rating at BB- and upgraded its outlook to stable, which it reaffirmed on December 20, 2022. On December 15, 2023, Fitch upgraded Brazil’s sovereign rating to BB with a stable outlook. On December 19, 2023, Standard & Poor’s upgraded Brazil’s sovereign rating to BB with a stable outlook, where it has remained since then. As of the date of the filing of this form, Brazil’s sovereign debt credit rating were BB with a stable outlook, Ba1 with a stable outlook and BB with a positive outlook by Standard & Poor’s, Moody’s and Fitch, respectively.
Any future downgrades of Brazil’s sovereign credit ratings could increase investor perceptions of risk, which may adversely affect the trading price of our common shares, including in the form of ADSs.
Variations in interest rates may have adverse effects on us.
We are exposed to the risk of interest rate variations, primarily in relation to (i) the Secured Overnight Financing Rate, or SOFR, and (ii) the Interbank Deposit Rate, or CDI Rate. For the years ended December 31, 2025, 2024 and 2023, (i) the annual average SOFR index was 4.24%, 4.99% and 5.01%, respectively, and (ii) the average CDI Rate index was 14.32%, 10.08% and 13.04%, respectively.
If market interest rates continue rising, our variable-rate indebtedness and other obligations will result in higher debt service and payment requirements. This could adversely affect our cash flow, our ability to comply with covenants, and our obligations under our existing indebtedness and leases. Additionally, we may not be able to adjust the prices we charge to offset increased payments. Although we may enter into agreements to limit exposure to higher market interest rates, these agreements may not provide complete protection from this risk.
Significant increases in consumption, inflation or other macroeconomic pressures could lead to further increases in interest rates. For example, stock prices on the B3 S.A. – Brasil, Bolsa, Balcão, or the B3, are highly sensitive to variations in U.S. interest rates and by the performance of major U.S. national securities exchanges. An increase in interest rates in other countries, especially the United States, could reduce overall liquidity and investor interest in Brazilian capital markets.
In addition, while tight monetary policies in Brazil with high interest rates may restrict Brazil’s growth and the availability of credit, more lenient government and Central Bank policies and interest rate reductions could lead to higher inflation, increased economic volatility, and the need for sudden and significant interest rate increases. These developments could adversely affect our business.
See “Item 5. Operating and Financial Review and Prospect—Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Effects of Exchange Rates, Interest Rates and Inflation” for further information regarding our exposure to the risk of interest rate variations.
Azul S.A. 23
Deficiencies in Brazilian infrastructure, particularly in airports and ports, may adversely affect us.
We offer products and services that depend on the performance and reliability of the infrastructure in Brazil and abroad. Historically, public investment in the construction and development of airports, ports, highways and railroads has been relatively low, which affects demand for domestic tourism and may also affect our ability to carry out our operations, limiting our expansion plans, causing delays, and increasing operational costs. For example, in 2007, Brazil faced a significant crisis in its air traffic control system, which negatively impacted air travel and the tourism industry as a whole. Insufficient public and/or private investment in the expansion of Brazilian infrastructure, particularly airports, ports and other travel hubs, could result in lower sales or growth rates than expected, which may adversely affect us and growth prospects. In particular, a lack of insufficient investment in the maintenance at our main hub in Campinas could impact the general activity and airport operations, which would adversely impact us.
The lack or insufficient investments in the maintenance of our main hub in Campinas may affect its activities and the operation of the airport, which would affect us negatively. In 2018, Aeroportos Brasil, which holds the concession for operating Viracopos airport from ANAC, filed for bankruptcy protection due to its failure to meet contractual obligations related to the construction of a new terminal. On February 14, 2020 creditors approved Aeroportos Brasil’s debt restructuring plan, which involves returning the concession for Viracopos airport to ANAC to initiate a re-bidding process for a new operator. On February 18, 2020, the court overseeing the debt restructuring approved the judicial recovery plan. On March 19, 2020, Aeroportos Brasil filed an application with ANAC for the rebidding of Viracopos airport, in accordance with the judicial recovery plan. On July 17, 2020, Brazil’s federal government enacted Decree No. 10.427/2020, authorizing the rebidding process for Viracopos airport. On June 14, 2022 CPPI Resolution 232 extended the deadline for completing the licensing process for Viracopos airport to July 16, 2024 and for the auction. On July 12, 2022 the CCPI Resolution 243 revoked the second article of the previous CPPI resolution, nonetheless, the deadline for completing the licensing process for Viracopos airport remained unchanged.
In April 2021, the Grupo de Consultores em Aeroportos, or GCA, a consortium of various private companies and a potential bidder in the auction, submitted a feasibility study to the Brazilian government for a new bidding process for the Viracopos airport concession. A public consultation on the feasibility study was held in October 2021. After ANAC approved the feasibility study on March 8, 2022, it was sent to the Federal Court of Accounts (Tribunal de Contas da União), or TCU. At the beginning of 2022, the process was suspended due to discussions between the concessionaire and ANAC regarding the indemnification for non-depreciated assets. However, on December 12, 2022, the minister of the Tribunal de Contas da União authorized the resumption of the process. In August 2023, however, Aeroportos Brasil formally requested to Brazil’s federal government that the rebidding process be ended, allowing the company to retain control of the terminal concession.
In December 2023, the Ministry of Ports and Airports asked the TCU for a consensual solution, with the subsequent cancellation of the re-bidding and the continuation of the concession as signaled by the operator of Viracopos (Aeroportos Brasil).
The request was accepted by the TCU presidency in March 2024. However, in October 2024 the consensual solution procedure was shelved by the court, given the impossibility of finding a consensus solution to resume the original concession. There was no agreement between the government and the airport operator regarding compensation and the amounts owed by the two parties.
Negotiations were then resumed for the re-bidding of Viracopos airport, with 2 June 2025 set as the deadline for the conclusion of the re-bidding process, with the contract only being extended in the cases provided for by law, such as the lack of interested parties in the re-bidding process.
As the agreement is not extended or the bidding is unsuccessful, the lack of maintenance of our main hub in Campinas might affect its activities and the operation of the airport, resulting in deficiencies in the provision of our services. These deficiencies and its outcomes may adversely affect our business.
See “Item 4.B. Business Overview—Airports and Other Facilities and Properties—Airports” and “Item 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings.”
24 Azul S.A.
Failure to adhere to the LGPD or other privacy laws enacted in Brazil and/or other jurisdictions may adversely affect our reputation, business, financial condition, or results.
We are subject to personal data protection legislation, including the Internet Civil Framework (Law No. 12,965/2014) and the General Data Protection Law (Lei Geral de Proteção de Dados, Law No. 13,709/2018), or the LGPD. The LGPD established a comprehensive framework of principles and obligations governing data protection across multiple economic sectors and contractual relationships, which framework is complemented by related regulations including those published by the National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or the ANPD.
The LGPD came into effect on September 18, 2020, following the enactment of Provisional Measure 959/2020 by former President Jair Bolsonaro pursuant to Article 62, §12 of the Federal Constitution. Administrative sanctions under the LGPD have been enforceable since August 2021. The LGPD establishes a new legal framework for processing personal data, covering rights of data subjects, legal bases for processing of personal data, consent requirements, obligations for handling security incidents and leaks, regulations for domestic and international data transfers, and the authorization for the creation of the ANPD.
Since the LGPD sanctions took effect, non-compliance by us or by any of our subsidiaries may result in judicial actions initiated by data subjects, as provided for in the LGPD, or judicial or extrajudicial actions by consumer protection authorities. In addition, we and our subsidiaries could face sanctions, in an isolated or cumulative manner, or may, separately or cumulatively, be subject to (i) warnings with deadlines for the adoption of corrective measures, (ii) obligations to disclose incidents, (iii) partial suspension of database operations for up to six months, renewable for an equal period, until compliance is achieve (in cases of recurrence); (iv) partial suspension of data processing activities for up to six months, renewable for an equal period, until compliance is achieved (in cases of recurrence); (v) temporary blocking or deletion of personal data; (vi) partial or total prohibition of data processing activities; and (vii) a fine of up to 2% of our revenue in Brazil for the previous fiscal year, excluding taxes, capped at R$50,000,000 per infraction. We may also be held liable for material, moral, individual or collective damages resulting from our non-compliance with the obligations established by the LGPD.
Failures in the protection of the personal data processed by us, or failure to comply with applicable legislation, could result in significant fines, disclosure of the incident to the market, the obligation to delete the personal data from the relevant database, suspension of access to our databases, and prohibition of data processing activities related to the compromised data. These outcomes could adversely affect our reputation, business, financial condition or results. Accordingly, any inability to safeguard personal data or to implement appropriate data protection measures in accordance with applicable legislation may subject us to additional costs. These costs could include fines, indemnities, remedial measures, loss of business, and civil penalties, all of which may adversely affect our reputation and results.
See “Item 4.B. Business Overview—Data Protection.”
Risks Relating to our Business and the Brazilian Civil Aviation Industry
Substantial fluctuations in fuel costs or the unavailability of fuel, which we primarily source from a single supplier, could have an adverse effect on us.
Historically, international and local fuel prices have experienced significant fluctuations driven by geopolitical issues and supply-demand dynamics. Fuel expenses represent a significant portion of our total operating expenses, accounting for 33.0% for the year ended December 31, 2025, 34.6% for the year ended December 31, 2024 and 34.9% for the year ended December 31, 2023. Fuel availability is also subject to market conditions, including periods of surplus and shortage, influenced by demand for heating oil and gasoline. Geopolitical events, such as prolonged instability in the Middle East or disruptions in production by major oil producers, could lead to substantial price increases and/or make it challenging to secure adequate fuel supplies, which may adversely affect us. Natural disasters or other unexpected large-scale disruptions in regions that normally consume significant amounts of alternative energy sources could have comparable effects.
Azul S.A. 25
As Russia is one of the world’s largest oil exporters, global developments stemming from Russia’s invasion of Ukraine in February 2022 and the resulting export restrictions, have caused aircraft fuel shortages, particularly due to targeted sanctions and export control measures imposed by the United States and other governments. Furthermore, ongoing conflicts between Israel and militant groups in the Middle East (including Hamas), together with heightened geopolitical tensions involving the United States and Venezuela in the beginning of 2026, as well as conflicts among the United States, Israel and Iran in early 2026 have contributed to increased volatility in oil prices. This volatility has been, and could continue to be, exacerbated by disruptions to key maritime trade routes in the region. For example, since late February 2026, shipping through the Strait of Hormuz has been effectively suspended, and led to supply shortages and severe volatility in global oil and natural gas markets. The duration and ultimate scope of these conflicts and their impact on oil prices remains highly uncertain. There is no guarantee that oil supply shortages and disruptions will not become more severe. The continued impact of sanctions, export control measures, trade disruptions, and potential retaliatory measures by governments also remains uncertain. Shortages in the availability, or an increase in demand, of crude oil and its derivatives and aircraft fuel in particular, have led – and could continue to lead – to higher fuel prices.
We cannot predict the price and future availability of fuel with any degree of certainty, and significant increases in fuel prices could harm our business.
Our fuel purchases are sourced from distributors in Brazil. In 2025, from the majority of our fuel – approximately 61% - was supplied by Raízen Combustíveis Ltda, with additional fuel provided by Air BP Brasil Ltda, Vibra Energia and others. Fuel supply contracts can be terminated for many reasons, including non-compliance with some contractual obligations, non-payment of invoices, or the occurrence of judicial or extrajudicial liquidation. Distributors may also face challenges in guaranteeing supply, such as difficulties with fuel importation or distribution. If we were unable to obtain fuel on similar terms from alternative suppliers, our business could be adversely affected.
We have significant levels of indebtedness and other financial obligations and insufficient liquidity could materially adversely affect our financial condition and business.
We have a significant amount of indebtedness and other financial obligations, including aircraft lease agreements, debt financings, and other material cash obligations. See “Item 5. Operations and Financial Review and Prospects—Loans and Financings” for further information on our loans and financings. In addition, we have substantial capital expenditure commitments, including obligations related to future aircraft financings. Historically, our operating cash flows and available capital were generally sufficient to meet our financial obligations and commitments. However, extraordinary market conditions and other factors affecting the airline industry adversely affected our liquidity, capital structure including the impacts of the COVID-19 Pandemic, significant changes in foreign exchange rates, global inflation, OEM disruptions, the effects of customer litigation, and the temporary closure of Porto Alegre airport, one of our strategic airports, due to severe flooding. These and other factors ultimately led us to implement the Voluntary Reorganization described further under “Item 4.B. Business Overview—Voluntary Reorganization.” Following our emergence from the Chapter 11 Cases and the completion of transactions negotiated in connection with our Voluntary Reorganization to address our capital structure and liquidity needs, our liquidity remains subject to, and may continue to be adversely affected by, the risks outlined in this annual report. See “—We, as the airline industry as a whole, are particularly sensitive to changes in economic conditions, and prolonged negative economic conditions that would likely continue to adversely affect our business and limit our ability to secure financing on favorable terms”.
If our liquidity is significantly reduced and we are unable to raise funding as and when required, we may not be able to meet our lease and debt obligations or comply with the operating and financial covenants under our financing and other agreements. See “—The affirmative and negative covenants in our financing agreements impose significant operating and financial restrictions on us, which limits our flexibility to respond to changing business and economic conditions, to complete certain transactions and to take advantage of business opportunities. Failure to comply with the terms of our debt and other obligations may result in the acceleration of debt and enforcement action being taken against collateral.” In addition, the covenants and restrictions contained in our debt securities, loans, aircraft leases and aircraft debt financing agreements may limit our access to new credit facilities to support our investment plans or maintain sufficient cash reserves. This could adversely affect our business and results of operations.
26 Azul S.A.
Our substantial level of indebtedness, non-investment grade credit rating, as well as market conditions and the availability of unencumbered assets to serve as collateral for any additional financings, may hinder our ability to raise additional capital on acceptable terms, or at all, if needed to meet liquidity requirements. Our ability to raise additional capital to meet our liquidity needs on acceptable terms or at all may be further challenged by the effects that exchange rate volatility, high inflation, supply chain issues, natural disasters, geopolitical events and tensions and other factors influencing the global economy generally and on us and the air transportation industry specifically, may make it difficult for us to raise additional capital if needed to meet our liquidity needs on acceptable terms, or at all.
Despite our efforts to address our liquidity and capital structure challenges, including the Voluntary Reorganization, we cannot assure that we will not require further restructuring of our indebtedness and our Fleet and other obligations. If we are required to seek additional short-term liquidity or long-term financing, or to pursue refinancing and/or liability management transactions or further restructurings of our indebtedness and obligations, there is no assurance that such financing or other transactions will be available or, if available, that its terms will be acceptable.
The affirmative and negative covenants in our financing agreements impose significant operating and financial restrictions on us, which limits our flexibility to respond to changing business and economic conditions, to complete certain transactions and to take advantage of business opportunities. Failure to comply with the terms of our debt and other obligations may result in the acceleration of debt and enforcement action being taken against collateral.
Our debt securities, loans, aircraft leases, and aircraft debt financing, contain certain affirmative and negative covenants and other restrictions, which vary depending on the terms of each financing and which are subject to certain limitations and exceptions. Such covenants include, among other provisions (i) restrictions on the incurrence of debt and other obligations, the granting of liens, the making of restricted payments and investments, entering into certain business activities, entering into mergers, consolidations or certain other transactions and the disposal of assets (including the disposal of collateral securing financings), (ii) obligations to deliver financial statements and certain certificates, including relating to compliance with financial covenants and restrictions, and (iii) obligations to redeem or offer to repurchase the relevant debt in certain circumstances, and to provide and perfect additional collateral in certain circumstances. See “Item 5. Operations and Financial Review and Prospects—Loans and Financings” for further information on these covenants and restrictions.
In particular, the terms of the Exit Notes and our other debt instruments impose incurrence-based restrictions on our ability to incur additional indebtedness, grant liens on collateral securing the Exit Notes, make restricted payments and investments, and engage in certain transactions. Although the indenture governing the Exit Notes include a number of fixed dollar- and ratio-based baskets that permit the incurrence of additional debt (including first lien, junior lien and unsecured debt subject to specified leverage ratio thresholds) and allow certain restricted payments and investments subject to leverage and other conditions, these limitations may restrict our ability to raise additional financing for working capital, capital expenditures, strategic investments or acquisitions, restrict our ability to respond to changing business or economic conditions, and restrict our ability to take advantages of other corporate opportunities . In addition, while certain transactions may be permitted under the terms of the Exit Notes, they may require satisfaction of specified financial tests, compliance with other covenants and procedural requirements, which could limit our financial flexibility or delay the execution of such transactions.
Limitations such as these may prevent or delay, or result in additional costs from, the implementation of certain business or operational transactions or actions that we would be permitted to undertake but for the terms of such debt. As a result, we are subject to significant limits on our flexibility to respond to changing business and economic conditions, to complete certain transactions and to take advantage of business opportunities.
Azul S.A. 27
Our ability to comply with the covenants and restrictions to which we are subject may also be affected by events beyond our control, including changes in economic, financial and industry-related conditions, and we cannot assure you that we will be able to comply with such provisions. See “—We, as the airline industry as a whole, are particularly sensitive to changes in economic conditions, and prolonged negative economic conditions that would likely continue to adversely affect our business and limit our ability to secure financing on favorable terms.” Failure to comply with any of the covenants, restrictions or payment obligations under our debt securities, loans, aircraft leases, and aircraft debt financing could trigger an event of default under these agreements, as well as under other agreements due to cross-default provisions. If we were unable to comply with the covenants and restrictions to which we are subject, we need to seek waivers from our creditors, such as waivers that we obtained on a number of occasions in the recent years from local and international financing sources relating to financial covenants such as debt service coverage ratio and our net debt to EBITDA ratio.
In 2025, as a result of the economic distress and travel disruptions that resulted from the COVID-19 pandemic and a catastrophic flood in 2024 which forced the temporary closure of Porto Alegre airport (one of our strategic airports), combined with the effects of customer litigation, a difficult macroeconomic environment, including the effect of global inflation, as well as OEM disruptions, we sought the Voluntary Reorganization under the Chapter 11 Cases. Following extensive negotiations with our key financial stakeholders, the Bankruptcy Court entered the Confirmation Order confirming the Plan and we emerged from the Chapter 11 Cases on February 20, 2026, (which we refer to herein as the Effective Date). Upon our emergence from the Chapter 11 Cases, we concluded the Voluntary Reorganization contemplated by the Plan, which effected a comprehensive transformation of our capital structure, liquidity profile and operational framework. The Plan provided for the equitization of a substantial portion of our funded indebtedness, new equity investments and the adoption of a streamlined and more cost-efficient fleet structure, among other significant changes to our capital structure that impacted our creditors. See “Item 4.B. Business Overview—Voluntary Reorganization.”
As of the date hereof we are in compliance with the covenants outlined in our long-term indebtedness agreements. However, we cannot assure you that we will continue to comply with these covenants or that we will be successful in obtaining or renewing any necessary waivers.
We, as the airline industry as a whole, are particularly sensitive to changes in economic conditions, and prolonged negative economic conditions that would likely continue to adversely affect our business and limit our ability to secure financing on favorable terms.
Our operations, and the airline industry as a whole, are particularly sensitive to changes in economic conditions. Adverse economic conditions such as high unemployment rates, restricted credit markets, low or negative GDP growth, unfavorable exchange rates, increased business operating expenses, reduced consumer confidence and purchasing power can lead to decreased spending on both leisure and business travel. For many consumers, leisure travel is a discretionary expense, and short-haul travelers, in particular, may opt for surface travel as an alternative to air travel. The COVID-19 pandemic further exacerbated these trends, with businesses and other travelers increasingly substituting air travel with virtual communication tools such as videoconferencing and business communication platforms. There is no guarantee that business travel will recover to pre-COVID-19 levels. See “—The outbreak of highly contagious diseases worldwide, such as the COVID-19 pandemic, has had, and may in the future cause, a material adverse effect on our business, financial condition, liquidity and results of operations” for further information on risks related to the COVID-19 pandemic.
The recent recession in Brazil, coupled with political instability, has adversely affected industries with significant travel expenditures, such as government, oil and gas, mining, and construction. In addition to decreases in load factors, reduced spending on business travel also affects the quality of demand, affecting our ability to sell as many high-yield tickets.
28 Azul S.A.
We cannot predict macroeconomic developments or their impact on us, including exchange rate volatility and rising fuel prices, particularly given the Russia-Ukraine conflict, the conflict between Israel and militant groups in the Middle East (including Hamas), rising tensions between the United States and Venezuela, between the United States and Cuba, and the conflict among the United States, Israel and Iran, as well as the continued political and social tensions following Brazil’s 2022 presidential election, but we continue to expect to face inflationary pressures and these price increases may affect significantly and adversely our business, financial conditions and operations results.
Any material change to the global financial markets or the Brazilian economy, caused by any factor, including pandemics, regional or international conflicts, military conflicts, market turmoil associated with bank failures, internal or external factors sustaining persistent inflation, among other factors, may increase short- and long-term local interest rates. Such disruptions may limit our access to new favorable financing terms and issuances of securities, negatively impacting our growth and investment plans. An increasingly adverse economic environment could adversely affect us. In addition, significant instability in credit, capital, and financial markets may lead to higher borrowing costs, adversely affecting us.
We may face challenges in securing financing on acceptable terms or at all. If we are unable to obtain such financing, we may need to modify our aircraft acquisition plans or incur higher financing costs than anticipated, which could hinder our growth strategy and overall operations. These conditions could also adversely affect our liquidity.
The airline industry is characterized by high fixed costs and relatively elastic revenues, making it challenging to quickly reduce expenses (including debt service costs and obligations owed to lessors and OEMs) in response to revenue shortfalls, which may harm our ability to achieve our strategic goals.
The airline industry is characterized by low gross profit margins, high fixed costs – including aircraft ownership and leasing, facilities, personnel, information technology system licenses, training, and insurance expenses – and revenues that generally exhibit substantially greater elasticity than costs. The operating expenses for each flight remain largely unchanged regardless of the number of passengers flown, so even if there is a small change in the number of passengers, fare pricing, or traffic mix could have a significant impact on finance and operational results.
We expect to incur additional fixed costs, including contractual debt, as we lease or acquire new aircraft and other equipment to support our growth strategy or other needs. Currently, we have contractually assumed the commitment to acquire 61 aircraft, 52 directly from manufactures and nine from lessors.
Given our fixed cost structure, we may (i) have limited ability to secure additional financing; (ii) be required to dedicate a significant part of our cash flow to cover leases and other debt obligations for aircraft; (iii) incur higher interest or leasing expenses if interest rates increase; or (iv) have limited ability to plan for, or react to, changes in our business operations, the civil aviation sector, or broader macroeconomic conditions. In addition, volatility in global financial markets could make it difficult for us to secure financing for managing fixed costs on favorable terms, or at all.
As a result, we may be unable to quickly adjust fixed costs in response to revenue fluctuations. A shortfall from expected revenue levels could have a material adverse effect on us.
Changes to the Brazilian civil aviation regulatory framework or other policies of the Brazilian government related to the aviation industry may adversely affect us.
Brazilian aviation authorities, such as the National Civil Aviation Agency (Agência Nacional de Aviação Civil), or ANAC, play a significant role in monitoring and influencing the developments in Brazil’s airline market. For example, in June 2022, ANAC introduced new rules for allocating slots at major Brazilian airports, prioritizing operational efficiency (such as on-time performance and regularity) as the main criteria for the allocation of take-off and landing slots. Policies implemented by ANAC and other aviation authorities may adversely affect us and our operations.
Azul S.A. 29
In December 2018, the former Brazilian president approved Provisional Measure MP 863/2018, lifting restrictions on foreign ownership of voting shares in Brazilian airlines. This measure was converted into Law No. 13,842/2019 on June 17, 2019, amending the Brazilian Aeronautical Code to allow 100% foreign ownership of voting shares in Brazilian airlines. For further information, see “Item 4.B. Business Overview—Restrictions on the Ownership of Shares in Air Transportation Service Providers.”
For a description of recent changes to the Brazilian civil aviation regulatory framework, see “Item 4.B. Business Overview—Regulation.”
Changes to the Brazilian civil aviation regulatory framework, including the policies of ANAC and/or INFRAERO, as well as other aviation supervisory authorities, including the Brazilian Aeronautical Code, may lead to increased costs alter the competitive dynamics of our industry, which may adversely affect us. In addition, other Brazilian government policies concerning the aviation industry, may adversely affect us. There is no guarantee that the Brazilian government will not impose further restrictions on airfares, and any such measures could have a material impact on our business, financial condition and results of operations. Furthermore, we cannot ensure the renewal of our existing operating concessions or the acquisition of new ones. Regulatory changes requiring significant resources for compliance with new aviation regulations, for example, could lead to additional expenditures, thereby adversely affecting us.
We operate in a highly competitive industry, and actions by our competitors could adversely affect us.
We face intense competition on certain routes within Brazil, both from established scheduled airlines, charter airlines, and potential new market entrants, as well as from our own business units – Azul Fidelidade, Azul Cargo and Azul Viagens. In particular, competition is strong on a limited number of routes and markets where our network overlaps with that of our main competitors. As of December 31, 2025, 16% of our domestic network routes overlapped with that of Gol, while 14% overlapped with LATAM. Airlines.
Decisions by our competitors that increase overall industry capacity, or to expand capacity in specific regions, markets, or routes, as well as any other strategic moves that increase a competitor’s market share, could have a material adverse impact on us. Our growth and the success of our business model may prompt competitors to adopt similar strategies, intensifying competition in our markets. If these competitors adopt and successfully execute similar business models, we could be adversely affected.
We may face increased competition from existing and new participants in the Brazilian market. In addition, any consolidation of airlines within Brazil and Latin America could adversely impact our business, financial condition and results of operations. The air transportation sector is highly sensitive to price discounting and the use of aggressive pricing policies. Changes in practices, including with respect to change and cancellation fees as a result of the COVID-19 pandemic, have already led to further pricing adjustments among our competitors. Other factors, such as flight frequency, schedule availability, brand recognition, and quality of offered services (such as loyalty programs, VIP airport lounges, in-flight entertainment and other amenities) also have a significant impact on market competitiveness. In addition, the barriers to entry in the domestic market are relatively low, and we cannot assure that existing or new competitors in our markets will not offer lower prices, more attractive services, or expanded route capacity to gain a greater market share. We may also face competition from international airlines as they introduce and expand their services to Brazil. In addition to competition among scheduled airlines and charter operators, the Brazilian airline industry faces competition from ground transportation alternatives, such as interstate buses and automobiles. Finally, the Brazilian government and regulators could favor new entrants or support our competitors, such as by granting new or current slots, as previously occurred with respect to new slots at Congonhas airport.
In addition, technological advancements may reduce demand for air travel. For instance, new developments in video teleconferencing and other electronic communication methods may reduce the need for in-person meetings, thereby introducing a new form of competition to the industry as travelers seek more affordable substitutes for air travel.
30 Azul S.A.
Our Azul Fidelidade program faces significant competition from the loyalty programs of other major airlines, as well as from frequent traveler programs offered by other airlines and credit card companies. Potential members have many frequent flyer program alternatives to choose from, and they select based on factors such as accrual and redemption rates, airline and co-branding partners, benefits, and reputation. Other loyalty programs, along with travel-centric proprietary credit cards, may offer more favorable point earning rates or enhanced redemption opportunities, leading customers to perceive these alternatives as providing better value than the Azul Fidelidade program and its branded credit cards. In addition, new competitors may target Azul Fidelidade’s business partners and members or enter the loyalty marketing industry.
Our Azul Viagens business faces significant competition, including from travel agencies, tour operators, online travel agencies and marketplaces, and business-to-business (B2B) travel agencies. The success of the Azul Viagens business depends on the attractiveness of its business model of the intermediation of tourism services provided to customers. The performance and growth prospects of the Azul Viagens business could be adversely affected if it fails to anticipate and respond to changes in market trends and customer preferences. Our Azul Viagens business is also subject to risks of disintermediation in the tourism sector, where customers may purchase the travel packages directly from suppliers, such as hotel chains, car rental companies, cruise operators, and insurance providers.
We cannot assure that an increase in competition faced by Azul Fidelidade or by Azul Viagens will not have an adverse effect on the growth of our business, either within these specific segments or more generally. If we are unable to adjust rapidly to the evolving competitive landscape in our markets, it could adversely affect us.
Further consolidation in the Brazilian, regional and global airline industry may adversely affect us.
As a result of the competitive environment in which we operate, there may be further consolidation in the Brazilian, regional and global airline industry, whether by means of acquisitions, joint ventures, partnerships or strategic alliances. We cannot predict the effects of further consolidation on the industry. Our competitors could increase their scale, diversity and financial strength and may have a competitive advantage over us, which would adversely affect us. Any consolidation within the airline industry and changes in international alliances may affect the competitive landscape in the industry, which could lead to the formation of new airlines and alliances with increased financial resources, more extensive global networks and reduced cost structures than us.
We routinely engage analyze and engage in discussions regarding our own strategic position, including alliances, codeshare arrangements, investments, acquisitions, interline arrangements and loyalty program enhancements, and may have future discussions with other airlines regarding similar arrangements. For example, on January 15, 2025, we entered into a non-binding memorandum of understanding with Abra, the controlling holding company of Gol, to explore the possibility of a business combination between Azul and Gol, and on May 23, 2024, we entered into a commercial cooperation agreement (codeshare) to connect ours and Gol’s flight network in Brazil through a codeshare agreement. However, on September 25, 2025, we announced that we had terminated the commercial discussions with Abra in relation to this potential transaction, as well as the commercial cooperation agreement we had entered into with Gol. To the extent we enter into any mergers, acquisitions or business combinations, we may not be able to successfully integrate the business and operations of companies acquired, governmental approvals may be delayed, costs of integration and fleet renovation may be greater than anticipated, synergies may not meet our expectations, our costs may increase and our operational efficiency may be reduced, all of which would negatively affect us. To the extent we do not engage in any such transactions, our competitors may increase their scale, diversity and financial strength and may have a competitive advantage over us, which would negatively affect us, including our ability to realize expected benefits from our own strategic partnerships.
Azul S.A. 31
We are subject to costs and risks associated with changing laws and regulations that affect our business, including those relating to the sale of consumer products. Specifically, developments in data protection and privacy laws could harm our business, financial condition or results of operations.
We operate in a complex regulatory and legal environment, exposing us to compliance and litigation risks that could materially affect our results of operations. These laws may change, sometimes significantly, due to political, economic or social events. Some of the key federal, state or local laws and regulations in Brazil that affect us include those relating to consumer products, product liability, and consumer protection; those relating to advertising, marketing, and sales practices; labor and employment laws, including wage and hour laws; tax laws or interpretations thereof; data protection and privacy laws and regulations; and securities and exchange laws and regulations.
For instance, data protection and privacy laws are developing to reflect changing cultural and consumer attitudes towards the protection of personal data. These laws may be interpreted in ways that could harm our operations. We cannot assure that we will have sufficient financial resources to comply with new regulations or to successfully compete in a shifting regulatory environment.
Any new laws or regulations enacted or approved in Brazil or in other jurisdictions where we operate could impose unforeseen regulatory obligations. This may require us to incur additional costs to implement operational and systemic changes or controls within the required deadlines. If we are unable to comply, we could face restrictions on our operations.
We rely significantly on automated systems, and any cyberattacks, breakdown, hacking, or changes in these systems may adversely affect us.
Our business operations depend on automated systems, including our sales system, automated seat reservation system, fleet and network management system, telecommunications system, and website. Significant or repeated breakdowns of our automated systems may impede our passengers and travel agencies from accessing our products and services, potentially causing them to purchase tickets from other airlines, adversely affecting our net revenues. Our website and ticket sales system must handle a high volume of traffic and deliver important flight information. The increase in work-from-home arrangements since the onset of the COVID-19 pandemic has heightened cybersecurity risks. Substantial or repeated website, ticket sales, scheduling or telecommunication systems failures (including misconfigurations, bugs, and other vulnerabilities in software and hardware that support our operations) could reduce the attractiveness of our services and could cause our customers to purchase tickets from other airlines. Any disruption in these systems or their underlying infrastructure could result in data loss, increased costs, and overall harm to our business.
These interruptions may include but are not limited to telecommunications failures, computer hacking incidents, computer viruses, employee misconduct, malware, or other disruptive software or malicious activities. In particular, both unsuccessful and successful cyberattacks on companies have increased in frequency, scope, and potential harm in recent years.
We and our business partners have been the target of cybersecurity attacks and data breaches in the past, and we expect that we will continue to be in the future. We cannot assure that our responses will be sufficient to prevent or mitigate the potential adverse impacts of such incidents, which may be material. Furthermore, we cannot ensure that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information. Despite efforts to maintain and improve the security of digital information, individuals – whether employees or contractors – we may find ways to circumvent the security measures we have in place. Furthermore, we may be unable to anticipate new techniques used in cyberattacks and intrusions, or to implement adequate preventative measures.
32 Azul S.A.
The costs associated with a major cyberattack could include expensive incentives to retain existing customers, increased spending on cyber security measures, lost revenue due to business interruptions, litigation expenses, and damage to our reputation. In addition, as cyber security incidents become more frequent, severe, and sophisticated, the costs of implementing proactive defensive measures may increase. If we fail to prevent the theft of valuable information or to protect the privacy of customer and employee confidential data against breaches of network or IT security, it could impact our brand and damage our reputation, which could adversely impact customer and investor confidence. We may also implement certain changes to our systems that could lead to breakdowns, reduced sales, mismanagement of our fleet and network or telecommunications disruptions, all of which would negatively affect us.
We are also subject to evolving global privacy and security regulatory obligations, including reporting obligations for significant cybersecurity incidents, and increasing customer focus on privacy issues and data security. See “—The failure to adhere to LGPD or other privacy laws enacted in Brazil and/or other jurisdictions may adversely affect our reputation, business, financial condition, or results.” A significant number of recent privacy and data security incidents, including those involving other large airlines, have led to substantial adverse financial consequences for those companies. If our technology systems are compromised, resulting in the loss, disclosure, misappropriation of, or access to customers’, employees’ or business partners’ information could result in legal claims or proceedings, liability, fines, damages, sanctions or other regulatory penalties under laws protecting the privacy of personal information, or disruption to our operations. A significant number of recent privacy and data security incidents, including those involving other large airlines, have resulted in very substantial adverse financial consequences for those companies.
In recent years, there has been a global increase in security threats, including, but not limited to, phishing, malware, ransomware campaigns, and the exploitation of vulnerabilities in video collaboration, among other issues. These security threats are expected to escalate even more in both frequency and magnitude as threat actors become increasingly sophisticated in leveraging techniques and tools that circumvent security controls, evade detection, and even erase forensic evidence. In addition, the rise in remote work, prompted by the COVID-19 pandemic and the ongoing shift toward hybrid or remote work arrangements, may amplify cybersecurity risks due to vulnerabilities associated with these work environments.
Any of these events could result in a material adverse effect on us.
We, our reputation, and the trading price of our common shares, including in the form of ADSs, could be adversely affected by events beyond our control.
Accidents or incidents involving our aircraft could lead to significant claims by injured passengers and others, as well as significant costs associated with the repair or replacement of damaged aircraft and its temporary or permanent removal from service. We are required by ANAC and lessors of our aircraft, under our lease agreements, to maintain liability insurance. However, the amount of liability insurance we maintain may not be sufficient, and events outside the scope of our coverage could occur, leaving us to bear substantial losses in the event of an accident. Significant claims exceeding our insurance coverage may harm our business and financial results. Moreover, any accident or incident involving our aircraft – or even those involving the aircraft of other major airlines – could lead to negative public perceptions about us, our aircraft, or the air transport system, due to concerns over safety or other issues, whether real or perceived. This could harm our reputation, financial results and the trading price of our common shares, including in the form of ADSs.
We may also be affected by other factors that influence travel behavior or increase costs, such as epidemics or acts of terrorism. These events are beyond our control and may affect us even if occurring in markets where we do not operate and/or involve other airlines. Uncertainty surrounding the Russia-Ukraine conflict, the ongoing escalation of conflict in the Middle East, or other sustained geopolitical tensions could affect our operations in unpredictable ways. Any future terrorist attacks or threats of attacks, whether or not involving commercial aircraft, or any increase in hostilities relating to reprisals against terrorist organizations, including an escalation of military involvement in the Middle East, or otherwise, and any related economic impact, could result in decreased passenger traffic and materially adversely affect us.
Azul S.A. 33
Demand for air travel may be adversely impacted by events beyond our control, such as adverse weather conditions, natural disasters, terrorist attacks, war, or political and social instability. Epidemics and outbreaks – such as the COVID-19 pandemic, Zika virus, Ebola, avian flu, foot-and-mouth disease, swine flu, Middle East Respiratory Syndrome, or MERS, and Severe Acute Respiratory Syndrome, or SARS – may also result in quarantines of our personnel or prevent access to facilities or our aircraft, harming our business, reputation, and the trading price of our common shares, including in the form of ADSs. Outbreak of diseases such as COVID-19 could lead to a significant decline in passenger traffic, the imposition of government restrictions on services, and a material adverse impact on the airline industry. Situations like these, or other conditions beyond our control in any of the markets where we operate, could substantially affect our business, financial condition, and results of operations, and the effects of such public health developments could have a widespread and prolonged effect on air travel demand.
Natural disasters, severe weather conditions and other events beyond our control may affect and disrupt our operations. For instance, in 2018, a truckers’ strike in Brazil led to fuel distribution disruptions, affecting flights and passengers’ ability to commute to and from airports for a period of approximately 10 days. About 37 airports where Azul operates ran out of fuel, and some airports remained closed for three days. Recently, the effect of the severe flooding in the state of Rio Grande do Sul in April and May 2024 led to cancellations and impacted operations in the region.
Severe weather conditions can result in flight cancellations or significant delays that may result in increased costs and reduced revenue. Any natural disaster or similar event that affects air travel in the regions where we operate could have a material adverse impact on us. See also “—We are subject to risks associated with climate change, including increased regulation of our CO2 emissions, changing consumer preferences and the potential for more frequent or severe weather events that could impact our operations and infrastructure.”
The outbreak of highly contagious diseases worldwide, such as the COVID-19 pandemic, has had, and may in the future cause, a material adverse effect on our business, financial condition, liquidity and results of operations.
Disease outbreaks, such as the COVID-19 pandemic, or potential disease outbreaks, along with governmental responses thereto, have had and may in the future cause significant impacts on global and Brazilian macro-economic and financial conditions. This includes disruptions to supply chains, closure and interruption of many business, loss of revenue, increased unemployment, and economic stagnation and contraction.
The COVID-19 pandemic also resulted in materially increased volatility in both Brazilian and international financial markets and economic indicators, including exchange rates, interest rates and credit spreads. For example, in March 2020, as a result of heightened volatility, the value of assets on the B3 stock exchange decreased significantly and quickly, triggering their circuit breaker eight times. Sudden or unexpected movements in these market factors have resulted, and may in the future result, in financial losses associated with our trading portfolio or financial assets, which could deteriorate our financial condition. Measures taken by governmental authorities worldwide, including Brazil, to stabilize markets and support economic growth may not be sufficient to control high volatility or to prevent serious and prolonged reductions in economic activity. Furthermore, as a result of the COVID-19 pandemic, access to credit lines became restricted, negatively impacting, and potentially continuing to impact, our financial expenses and ability to finance our operations.
In addition, the social distancing measures imposed by governmental authorities to contain the spread of the COVID-19 pandemic, such as quarantine measures, travel restrictions, and the cancellation of business conventions and concerts, among others, resulted in a sharp decline in air travel in 2020 and 2021. We experienced a significant decline in passenger demand and bookings for both business and leisure travel. Such measures, combined with the market downturn caused by the COVID-19 pandemic, had negative impacts on our business performance and results of operations. While cases have declined globally and many of these restrictions have since been lifted, there is no way to predict whether new patterns of contagion, increasing disease severity, or other factors related to the COVID-19 pandemic or other disease outbreaks, such as the accessibility or efficacy of any vaccines developed in response to any pandemic, could lead to renewed tightening of these policies or the imposition of new and different restrictions.
34 Azul S.A.
In April 2020, in response to the uncertainty caused by the COVID-19 pandemic, which severely impacted air traffic demand, we operated just 70 non-stop flights per day to 25 cities, representing a 90% reduction of our consolidated planned capacity in terms of ASKs for that month. As a result, we significantly reduced capacity from the original plan in 2020.
As air travel demand rebounded more quickly than anticipated following the global decline in COVID-19 cases and the lifting of travel restrictions, suppliers and many of the airports we work with experienced acute personnel shortages. This led to increased delays, flight cancellations, and, in certain cases, restrictions on passenger capacity or the number of flights to or from certain airports. Further, we encountered challenges in recruiting and retaining sufficient personnel to manage significantly expanded schedules, which required offering substantial increases in pay and other benefits to attract and retain pilots and other personnel. We cannot assure that ongoing or future supply chain disruptions or staffing shortages will not impede our operations or those of our third-party partners and the airports we serve. Similarly, we cannot ensure timely procurement of all necessary products and services we require in the course of our business, or the successful identification of suitable alternatives.
The ability to attract and retain passengers also depends, in part, on our reputation and on the public perception and concerns regarding the health and safety of travel generally, particularly airline travel. Actual or perceived risks of infection on our flights have had, and could continue to have, a material adverse effect on public confidence in air travel, potentially harming our reputation and business. We expect to continue incurring COVID-19-related costs related to sanitizing airplane, implementing enhanced hygiene protocols, and taking additional measures to limit infections among employees and passengers. In addition, the industry may remain subject to enhanced health and hygiene requirements aimed at addressing future outbreaks. Implementing these measures could be costly and time-consuming.
Disease outbreaks, such as the COVID-19 pandemic, may also exacerbate other risks described in this “Risk Factors” section, including, but not limited to, our competitiveness, fluctuations in demand for our services, shifting consumer preferences, and our substantial amount of outstanding indebtedness.
Changes in the credit ratings issued by credit rating agencies could adversely affect our ability to raise funding, our financing costs and the trading prices of our securities.
Credit rating agencies rate our securities based on factors that include operating results, actions taken by us and our subsidiaries, their view of the airline industry’s general outlook, and their view of broader economic conditions. Rating agencies may take actions including (i) maintaining, upgrading or downgrading our rating, or (ii) placing us on a watch list for possible future downgrade.
Our credit rating was: (i) downgraded by S&P to B (in March 2020), to CCC+ (in March 2021, reaffirmed in February 2023 with a negative outlook), upgraded to B- (in July 2023 with stable outlook), downgraded to CCC+ (in September 2024 with negative outlook), further downgraded to CC (in October 2024 with a negative outlook), and further downgraded to D (in May 2025 with negative outlook); (ii) downgraded by Fitch to B (in March 2020), to CCC+ (in March 2021), to CCC- (in February 2023), upgraded to B- (in July 2023 with stable outlook, reaffirmed in July 2024 with a negative outlook), downgraded to CCC (in September 2024), further downgraded to CC (in October 2024), further downgraded to C (in December 2024), and further downgraded to D (in May 2025 with negative outlook); (iii) downgraded by Moody’s to B1 (in March 2020), to CCC+ (in March 2021), and Caa2 (in February 2023), upgraded to Caa1 (in July 2023 with a positive outlook), downgraded to Caa2 (in September 2024 with a negative outlook), and further downgraded to Ca (in June 2025 with negative outlook). The downgrades of our ratings were based on a number of factors, including liquidity risks and our currently highly leveraged balance sheet. Any further downgrades in our credit ratings or market perceptions assigning higher risk to our ratings, the airline industry, or us, could adversely affect our business, financial condition and results of operations.
Ratings are limited in scope and do not address all material risks relating to any debt securities, but instead represent the views of the rating agencies at the time the ratings are issued.
Azul S.A. 35
Our ability to access the capital markets is partially influenced by our credit ratings. Any downgrade in the credit rating of our securities or the placement of Azul on a watch list for potential future downgrades could, among other things: (i) limit our access to capital markets or otherwise hinder our ability to secure new financing on favorable terms, or at all; (ii) lead to more restrictive covenants in agreements governing the terms of any future indebtedness we may incur; (iii) increase our financing costs; and (iv) adversely affect the trading price and liquidity of our outstanding securities.
There is no guarantee that such ratings or outlooks will remain unchanged over a period of time. Rating agencies may lower, suspend, or withdraw entirely if they determine that circumstances warrant such actions. Any of these changes could have a material adverse effect on us.
Our insurance expenses may increase significantly due to events such as terrorist attacks, wars, aircraft accidents, seizures, or similar incidents, adversely affecting us.
Insurance providers may substantially increase premiums for airlines to reduce the scope of coverage available for civil liability resulting from acts of terrorism, war, aircraft accident, seizures, or similar incidents. This occurred, for instance, after the September 11, 2001 terrorist attacks in the United States.
Following those attacks, insurance premiums for terrorism-related risks rose sharply, prompting the Brazilian government to enact Law No. 10,744, of October 9, 2003. This legislation authorized the Brazilian government to assume civil liability for third-party damages, including harm to property or individuals (whether passengers or not), caused by terrorist acts or acts of war involving Brazilian aircraft operated domestically or internationally. However, the Brazilian government retains the right, at its sole discretion, to suspend or terminate this assumption of liability. If this occurs, Brazilian airlines would need to assume liability once more and secure insurance coverage independently from the market.
In the event of new terrorist attacks, wars, aircraft accidents, seizures, or the Brazilian government’s withdrawal of its liability assumption, or other events affecting civil aviation in Brazil or abroad, airline insurers could further reduce coverage or increase premiums. Any significant reduction in insurance coverage would substantially elevate our liability exposure. Similarly, significant increases in insurance premiums would raise our operating expenses, adversely affecting us.
Consistent with global industry practices, we do not insure against certain business risks, such as business interruptions, loss of profit or revenue, and consequential losses resulting from mechanical breakdown. To the extent that uninsured risks materialize, we could be materially adversely affected. In addition, there is no guarantee that our insurance coverage will address all potential risks associated with our operations and activities. If actual losses exceed the coverage provided by our insurance, we may have to bear substantial losses, which would have an adverse impact on us.
Technical and operational problems within Brazil’s civil aviation infrastructure, including air traffic control systems, airspace and airport infrastructure, may have a material adverse effect on our strategy and, consequently, on us.
Our success depends on improvements in the coordination and development of Brazilian airspace control and airport infrastructure. The rapid growth of civil aviation in Brazil in recent years has highlighted the need for substantial improvements and government investments in these areas. Past technical and operational problems in Brazil’s air traffic control systems have caused widespread flight delays, higher than usual flight cancellations, and increased airport congestion. Although the Brazilian government and air traffic control authorities have taken measures to improve the Brazilian air traffic control systems, there is no guarantee that these efforts will be successful. If these challenges persist or worsen, they could materially adversely affect us and our growth strategy.
36 Azul S.A.
Certain airports that are significant to our operations face significant limitations. For example, slots at Congonhas airport in São Paulo are fully utilized, while Santos Dumont airport in Rio de Janeiro operates under restrictions, including a cap of 6.5 million passengers annually, imposed by the Brazilian government in January 2024. Other key airports, for example Brasília, Salvador, Belo Horizonte (Confins), São Paulo (Guarulhos and Viracopos) and Rio de Janeiro (Galeão), have limited the number of landing rights per day due to infrastructural constraints. Any condition that delays or prevents our access to airports or routes that are vital to our strategy, or that restricts our ability to maintain existing landing rights, slots, and destinations, or secure additional ones, could have a material and adverse effect on us.
New operational and technical restrictions imposed by Brazilian authorities at current or prospective airports we operate may also adversely affect us. There is no assurance that the Brazilian government will invest in the Brazilian aviation infrastructure to increase capacity at congested airports, which would allow for additional slot allocations.
Similarly, we cannot assure that the holders of concessions to operate the airports which we serve will make the necessary investments. See “Item 4.B. Business Overview—Airports and Other Facilities and Properties—Airports” and “Item 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings.”
Increases in labor benefits, union disputes, strikes, and other worker-related disturbances may adversely affect us.
Our business is labor intensive, with workforce expenses (salaries and benefits) accounting for 15.6%, 16.9% and 14.3% of our total operating expenses for the years ended December 31, 2025, 2024 and 2023, respectively. All Brazilian airline employees, including ours, are represented by regional aviation unions and by two national labor unions: (i) the National Pilots’ and Flight Attendants’ Union (Sindicato Nacional dos Aeronautas) and (ii) the National Aviation Union (Sindicato Nacional dos Aeroviários). Salary adjustments and cost-of-living increases are negotiated annually between those unions and the National Union of Airline Companies (Sindicato Nacional das Empresas Aeroviárias), or SNEA, which represents all Brazilian airline companies. Work conditions and maximum work hours are regulated by federal legislation and are not subject to labor negotiations. Future terms and conditions of collective agreements could become more costly for us due to increasing threats of strikes binding negotiations between the unions and SNEA. Additionally, certain employee groups, such as pilots, mechanics, and airport personnel, possess highly specialized skills and cannot be easily replaced, which could further increase our labor costs as our business expands. Any labor disputes or proceedings involving unionized employees could adversely affect us or interfere with our ability to conduct normal business operations.
We are also subject to periodic and regular investigations by labor authorities, including the Brazilian Ministry of Labor and the Public Prosecutor’s Office, or the Labor Prosecution Office, to ensure compliance with labor rules and regulations, including those relating to occupational health and safety. These investigations could result in fines and proceedings that may materially adversely affect us. For instance, in February 2017, the Public Labor Prosecutor’s Office filed a lawsuit against us alleging violations of labor regulations, including limits on daily working hours and resting periods. The Public Labor Prosecutor’s Office claimed approximately R$66 million in punitive damages.
A failure to implement our growth strategy may adversely affect us.
Our growth strategy and the consolidation of our leadership in the markets we serve, among other objectives, includes increasing the number of markets we serve and the frequency of our flights. Achieving these objectives depends on obtaining regulatory approvals for operating new routes and securing adequate access to necessary airport facilities. Some airports we serve or that we may want to serve in the future face capacity constraints and impose landing rights and slot restrictions during certain periods of the day. Examples include Santos Dumont airport in Rio de Janeiro and the Juscelino Kubitschek airport in Brasília. We cannot assure that we will be able to maintain our current landing rights, slots and permitted destinations, and secure sufficient number of landing rights and slots, gates, and other airport facilities to support our planned expansion. Airports that currently have no capacity constraints or operational restrictions may implement such measures in the future. Airlines must also utilize their allocated slots regularly and punctually to avoid the risk of reallocation to other airlines. If landing rights, slots, or airport resources are unavailable or restricted, we may need to adjust our schedules, change routes, or reduce aircraft utilization.
Azul S.A. 37
Some of the airports we serve impose various restrictions, such as limits on aircraft noise levels, limits on the number of average daily departures, or curfews on runway usage. We cannot assure that airports without such restrictions will not introduce restrictions in the future or that existing restrictions will not become more stringent. These limitations may affect our ability to provide or expand our services at these airports, which may adversely affect us.
We cannot assure that we will successfully execute of our growth strategy or success in consolidation of our leadership position in terms of markets served. Any factors that prevent or delay our access to airports or routes which are vital to our growth strategy, including our ability to maintain our current slots and obtain additional landing rights and slots at certain airports, may restrict our operations or expansion plans, which may adversely affect us, our financial results and our growth strategy.
Our current business plan contemplates the continued addition of Airbus and Embraer aircraft to replace older generation aircraft and serve high-density markets. Disruptions or changes in the delivery schedules of manufacturers for new Embraer and Airbus aircraft have affected and may continue to affect our operations. Such delays may limit our ability to meet increasing passenger demand, achieve our growth plans and maximize our use of next generation fuel efficient aircraft, which may adversely affect our business and financial results.
The successful execution of our strategy depends in part on the maintenance of a high daily aircraft utilization rate, making us especially vulnerable to delays that could adversely affect us.
Maintaining a high daily aircraft utilization rate is essential to the successful execution of our strategy. High aircraft utilization enables us to maximize the amount of revenue per aircraft and spread fixed costs. Achieving this requires reducing turnaround times at airports and developing schedules that enable us to fly more hours per day on average. Our ability to maintain aircraft utilization rates can be adversely affected by factors beyond our control, such as air traffic and airport congestion, disruptions in air traffic control services, adverse weather conditions, and delays by third-party service providers, including fueling and ground handling operations. Such delays could result in a disruption in our operating performance, resulting in reduced daily aircraft utilization rates. This, in turn, could lead to customer dissatisfaction due to delays or missed connections, which could adversely affect us.
Any expansion of our business activities will require us to incur additional and possible expenses, and we may be unsuccessful in generating profits from any such new activities, potentially adversely affecting us.
We intend to expand our business activities by introducing new products and services if we believe this expansion will increase our profitability or strengthen our market position. As part of our growth strategy, we periodically acquire additional aircraft, including different types of aircraft than the ones we currently operate or have operated in the past, and enter into commitments for additional aircraft based on anticipated traffic growth, given the significant time frames for ordering and delivery of these assets. We cannot assure you that we will successfully integrate these new aircraft into our operations and maintain our historical levels of operational performance.
As the international and domestic markets develop and expand in Brazil, our expansion plans may also include acquiring additional existing service-related businesses, aircraft hangars, and other assets that are complementary to our core and ancillary operations and help us compete more effectively. We cannot assure that we will be successful in executing these plans as they depend on several factors, including obtaining necessary regulatory approvals, if required, securing additional facilities or rights, recruiting personnel and arranging adequate insurance. Activities like these may require us to incur material costs and expenses, including capital expenditures, increased personnel, training, advertising, maintenance, fuel costs, and costs related to management oversight of any new or expanded activities. We may face substantial expenses related to the integration of these assets and activities into our existing businesses that may require significant ancillary expenditures for the integration and expansion of systems, financial modeling and development of pricing, traffic monitoring and other management tools, all aimed at achieving profitability from these ventures.
38 Azul S.A.
Unless and until any such new activities generate profits, the associated costs and changes in management oversight may adversely affect our results and financial condition. Given the current and expected competitive landscape of the airline industry in general, particularly in Brazil, and other market factors and conditions, there may be a significant delay before these new or existing activities become profitable. In some cases, we may not achieve profitability at all, which may adversely affect us.
We may not be able to grow our operations to or within the United States and Europe and may be adversely affected if Brazil fails to maintain a favorable safety assessment or if we fail to comply with the United States and European civil aviation regulatory frameworks.
We cannot assure that the laws and regulations of the jurisdictions of the countries where we operate (including, without limitation, immigration and security regulations, which directly affect passengers) will remain unchanged or that new laws adverse to us will not be enacted. Any such events may adversely affect us and our ability to sustain or expand our international operations.
For example, the Federal Aviation Administration, or FAA, periodically audits the aviation regulatory authorities of other countries, assigning each rating under the International Aviation Safety Assessment, or IASA, program. Brazil currently holds a “Category 1,” rating, which means that Brazil complies with the International Civil Aviation Organization, or ICAO, safety standards. This enables us to maintain regular service from our hubs in Brazil to the United States in a normal manner and participate in reciprocal code-sharing arrangements with U.S. carriers. However, we cannot guarantee that Brazil will continue to meet international safety standards, and we have no direct control over the country’s compliance with IASA guidelines.
If Brazil does not maintain a favorable safety assessment or if we fail to comply with the United States and European civil aviation regulatory frameworks, our ability to maintain or expand services to or in the United States and Europe could be restricted, which could, in turn, adversely affect us.
We are highly dependent on our three hubs at Viracopos airport, Confins airport and Recife airport for a large portion of our business and as such, a material disruption at any of our hubs could adversely affect us.
Our business is heavily dependent on our operations at our three hubs at Viracopos airport, Confins airport and Recife airport. Many of our routes operate through these hubs, and account for a large portion of our daily arrivals and departures. Like other airlines, we are susceptible to delays caused by factors beyond our control, which could affect one or more of our hubs or other airports in any of the regions we serve. For instance, in 2018, an incident involving a LATAM led to the closure of a runway at Confins airport, one of our main hubs, for 21 hours which negatively impacted our operations and forced us to re-accommodate our passengers on new flights. Due to this geographical capacity concentration, we may not be able to respond as quickly or efficiently as our competitors to any delays, service interruptions, or fuel shortages at any one or more of our hubs, which could have a material adverse impact on us. Furthermore, ANAC has granted concessions for the operation of Viracopos and Confins airports. We have no control over these concessions and cannot predict how the current concessions, any future concessions or the termination of any concessions could affect these airports.
For example, Aeroportos Brasil, which holds a concession for the operation of Viracopos airport from ANAC, filed for bankruptcy protection in 2018 due to its failure to meet its contractual obligations relating to the construction of a new terminal. On February 14, 2020, creditors approved Aeroportos Brasil’s debt restructuring plan, which included returning the Viracopos airport concession to ANAC to initiate a new bidding process of the concession for a new operator. On February 18, 2020, the debt restructuring court approved the judicial recovery plan and on March 19, 2020, Aeroportos Brasil submitted an application to ANAC for the rebidding of Viracopos airport, in compliance with the judicial recovery plan.
See “Item 4.B. Business Overview—Airports and Other Facilities and Properties—Airports” and “Item 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings.” Any changes to these concessions could have a material adverse impact on us.
Azul S.A. 39
Delays or failures by original equipment manufacturers, lessors, suppliers, or maintenance providers to fulfill their obligations may adversely affect us.
We rely on OEMs and lessors, aircraft and engine suppliers, and maintenance providers to meet our operational needs, including the timely delivery of aircraft, spare parts, and maintenance services. Delays or failures by these parties to meet their contractual obligations can significantly impact our operations and financial performance. For instance, we may experience delays in the receipt of spare parts, deferred aircraft delivery schedules, and disruptions in maintenance services. These challenges could lead to an increased number of grounded aircraft, reduced fleet availability, and adjustments to our operational schedules, all of which may adversely affect us.
We cannot assure that these third parties will fulfill their contractual commitments on time or at all. If delays or non-performance occur, we may need to make adjustments to our operational schedules, including the postponement or cancellation of flights, which could result in customer dissatisfaction, reduced revenues, increased passenger reaccommodation costs and other expenses. In some cases, we may incur unexpected expenses to lease replacement aircraft, source alternative spare parts, or address unforeseen maintenance needs. Additionally, we may need to make unplanned investments to mitigate the operational impact of grounded aircraft, which could adversely affect us. Delays in the delivery of new aircraft may also hinder our ability to expand our fleet, replace older aircraft and successfully execute our growth plans. Prolonged issues with OEMs, lessors, suppliers, or maintenance providers, particularly with those providers on whom we more heavily rely, could adversely affect our operations, our business and our financial performance.
General Electric is the sole manufacturer and supplier of the CF34 engines on our Embraer E-Jets, and, together with Safran through CFM International, of the LEAP engines on our next-generation Airbus A320neos. Pratt & Whitney is the sole manufacturer and supplier of the PW 127M engines on our ATR 72 aircraft and engines for our Embraer E2s aircraft, while Rolls Royce is the sole manufacturer of the Trent 700 and Trent 7000 engines for our A330 aircraft. Since the prices for these engines and parts are payable in U.S. dollars, they are subject to fluctuations in exchange rates, which may lead to us incurring substantial additional expenses in the event that the U.S. dollar appreciates. We have also outsourced all engine maintenance for our Embraer E-Jet and next-generation Airbus A320neo fleet to General Electric, for our ATR fleet to Pratt & Whitney, and the engine maintenance of our A330 fleet to Rolls Royce. If General Electric, Rolls Royce or Pratt & Whitney are unable to perform their contractual obligations or if we are unable to acquire engines from alternative suppliers on acceptable terms, we could lose the benefits we derive from our current agreements with General Electric, Pratt & Whitney and Rolls Royce. This could result in substantial transition costs or the suspension of certain aircraft operations due to the need for unscheduled or unplanned maintenance, during the period in which these contractual obligations are not being performed.
We are particularly reliant on Embraer, ATR and Airbus aircraft for our operations, and our business could be adversely if deliveries from these companies are affected, if aircraft from these companies become unavailable or if these aircraft are subject to significant maintenance events or if the public has a negative perception of these aircraft.
As of December 31, 2025, our passenger operating fleet consisted of 61 Embraer E-Jets, 27 ATR aircraft, 60 Airbus narrowbody aircraft, and 5 Airbus widebody aircraft. Additionally, we operate 23 Cessna Cavarans aircraft, each with 9 passenger seats.
Risks associated with Embraer, ATR and Airbus include (i) our failure or inability to obtain Embraer, ATR or Airbus aircraft parts or related support services in a timely manner due to high demand or other factors, (ii) directives issued by the aviation authorities restricting or prohibiting the use of Embraer, ATR or Airbus aircraft, (iii) negative public perception of a manufacturer as a result of an accident or other adverse publicity, or (iv) delays between the time we determine the need for new aircraft and the time it takes us to arrange for Embraer, ATR and Airbus or from a third-party provider to deliver the aircraft.
40 Azul S.A.
Our ability to obtain new aircraft from Embraer, ATR and Airbus may be affected by several factors, including (i) Embraer, ATR or Airbus refusing or being financially unable to fulfill the obligations it assumed under the aircraft delivery contracts, (ii) events such as fires or strikes or other events affecting Embraer’s, ATR’s or Airbus’s ability to fulfill its contractual obligations in a complete and timely manner, and (iii) our inability to secure aircraft financing or any refusal by Embraer, ATR or Airbus to provide financial support. We have been and may continue to be affected by any failure or inability of Embraer, ATR, Airbus or other suppliers to supply sufficient replacement parts in a timely manner, which could to unscheduled or unplanned maintenance and result in the temporary withdrawal of the relevant aircraft from our operation. Any such unavailability of aircraft or suspension of operations would decrease passenger revenue, increase passenger reaccommodation costs, and adversely affect our business, financial results and our ability to successfully execute our growth strategy.
We could be adversely affected by expenses or disruptions associated with planned or unplanned maintenance on our aircraft, as well as any inability to obtain spare parts in a timely manner.
As of December 31, 2025, Azul operated a passenger fleet of 176 aircraft and had a passenger contractual fleet of 227 aircraft, with an average aircraft age of 7.2 years, excluding Cessna aircraft.
As our fleet ages, it will require more maintenance, and our repair costs for each aircraft will be incurred at approximately the same intervals. If we are unable to renew our fleet, scheduled and unscheduled maintenance expenses will increase as a percentage of our revenue in the coming years. Any significant rise in maintenance and repair expenses would have a materially adverse impact on us.
Our business would be significantly harmed by unplanned stoppages or suspensions of operations associated with planned or unplanned maintenance due to mechanical issues. For example, if a design defect or mechanical issue were discovered in our aircraft, these aircraft may be grounded until the defect or mechanical problem was corrected. We cannot assure that we would be able to obtain the necessary aircraft and parts to solve such defect or mechanical problem, or if we would obtain such parts in a timely manner, or that we would succeed in solving such defect or mechanical problem even if the parts were available. This could result in prolonged suspension of operations for certain aircraft, while we attempted to obtain such parts and solve such defect or mechanical problem, which could have a materially adverse effect on us. See also “—Delays or failures by original equipment manufacturers, lessors, suppliers, or maintenance providers to fulfill their obligations may adversely affect us.”
We rely on agreements with third parties to provide us and our customers with facilities and services that are integral to our business and the termination or non-performance of these agreements could affect us.
We have entered into agreements with third-party contractors to provide certain facilities and services required for our operations, such as aircraft maintenance, ground handling, baggage handling and in-flight television and internet services. All of these agreements are subject to termination on short notice. The loss or expiration of, or inability to renew, these agreements, or our inability to negotiate new agreements with other providers on comparable terms and conditions or at all, could harm our business and results of operations. Further, our reliance on third parties to provide essential services on our behalf gives us less control over the costs, efficiency, timeliness and quality of those services. Any third party may fail to meet its service performance commitments, experience system disruptions that hinder its ability to fulfill obligations, or face termination of its contract. Any third party may fail to meet its service commitments, experience system disruptions that hinder its ability to fulfill obligations owed to us, or face the termination of its contract. If any third-party contractor fails to perform adequately, or if services are interrupted, we could experience reduced revenues, increased expenses, or even be prevented from operating flights or offering other services to customers. In addition, our reputation could be materially adversely affected if our customers believe that our services or facilities are unreliable or unsatisfactory.
Azul S.A. 41
We rely on partner airlines for codeshare and loyalty marketing arrangements, and the loss of a significant partner, whether through bankruptcy, consolidation, or otherwise, could adversely affect us.
Azul has codeshare agreements with several international carriers, including United, TAP, JetBlue and Emirates, among others. These agreements allow certain flight segments operated by us to be marketed and sold as United, TAP, JetBlue or Emirates flights, and vice versa. In addition, these agreements provide that our Azul Fidelidade members can earn points on or redeem points for flights with United or TAP flights, and vice versa.
We generate revenue from flights sold under codeshare agreements and we believe that frequent flyer arrangements are a key component of our Azul Fidelidade program. The loss of a significant partner, whether through bankruptcy, consolidation, or otherwise, could adversely affect us. We may also be adversely affected by the actions of one of our significant partners, such as a failure to meet their material obligations or any misconduct. These issues could expose us to liabilities, or lead to poor service delivery, which could damage our brand.
We may be adversely affected if Azul Fidelidade loses business partners or if these business partners change their policies in relation to the granting of benefits to their clients, or take other decisions or actions that are beyond our control.
Azul Fidelidade relies on key business partners for a significant portion of its gross billings. The current business partners include (i) financial institutions such as Caixa, Itaú, Livelo (Banco do Brasil’s and Bradesco’s loyalty joint venture) Inter, Nubank, C6 Bank, BTG Pactual and Santander; (ii) retailers such as Via Varejo, Magazine Luiza, KMV and Satelital Brazil; and (iii) travel partners such as Accor, Airport Park and Assistcard.
A decrease in the volume of points sold to any one of the significant partners of Azul Fidelidade for any reason, whether due to a temporary or permanent downturn in their business, financial condition, reduced activity, or their decision to adopt new loyalty strategies for their clients, could adversely affect the Azul Fidelidade business and therefore our business, results of operations and financial condition. In addition, a decision by any one of these partners not to participate in the Azul Fidelidade program could have a negative effect on our business, results of operations and financial condition.
Most agreements with the business partners of Azul Fidelidade are relatively short-term, and may be terminated or renewed under different terms when they expire or are renewed prior to expiry. In addition, some of these agreements may be terminated early due to breaches by one of the parties. The termination or failure to renew agreements with business partners of Azul Fidelidade could have a material adverse effect on the business and results of Azul Fidelidade.
The success of Azul Fidelidade also depends in part on decisions or actions of our partners that are beyond our control. Many of the business partners of Azul Fidelidade have the ability to change their policies regarding accumulation, transfer, and redemption of points, as well as develop their own platforms for clients to exchange points for rewards, including airline tickets issued by other airlines. Such changes could reduce the gross billings of Azul Fidelidade and demand for points. Changes in these policies may (i) make Azul Fidelidade less attractive or efficient for its partners’ clients; and (ii) increase competition in the loyalty sector, which may further reduce the demand for points, increase downward pressure on the average price of points and harm the business of Azul Fidelidade. If the loyalty program sector does not expand enough to accommodate new participants, or if Azul Fidelidade does not adequately respond to the market changes or to the partners’ policies, the business of Azul Fidelidade may be adversely affected.
In addition, financial institution business partners of Azul Fidelidade may change the terms and conditions of their customers’ credit card accounts, including finance charges, fees, and required minimum monthly payments, in order to maintain their competitive position in the credit card industry or to comply with, among other things, regulatory guidelines, relevant law or prudent business practices. Changes in the terms of these credit card accounts may lead to fewer new accounts, reduced credit card spending, or lower account retention, all of which could decrease the number of points accrued and sold or impact Azul Fidelidade, any of which could in turn negatively affect the revenue generated from these partnerships.
No assurance can be given that Azul Fidelidade’s business partners will not take actions that adversely affect the success of Azul Fidelidade.
42 Azul S.A.
If actual redemptions by Azul Fidelidade members are greater than expected, or if the costs related to redemption of reward points increase, we could be adversely affected.
Most of Azul Fidelidade’s revenue comes from selling points to business partners. However, the earnings process is not complete when points are sold, as we incur most of our costs related to Azul Fidelidade when the points are actually redeemed by Azul Fidelidade members. Based on historical data, the estimated period between the issuance and redemption of Azul Fidelidade points is approximately nine months. However, we cannot control the timing of the point redemptions or the number of points ultimately redeemed. Since we do not incur redemption-related costs for points that are not redeemed, our profitability is partly dependent on the number of accumulated Azul Fidelidade points that remain unredeemed by Azul Fidelidade members, known as “breakage.” Breakage occurs when points are not redeemed for various reasons.
Our estimate of breakage is based on historical trends. We expect that breakage will decrease from historical amounts as Azul Fidelidade expands its network of business partners and offers a wider range of rewards to our Azul Fidelidade members. To offset the anticipated decrease in breakage, we adjust our pricing policy for points sold. If we fail to adequately price our points, or if actual redemptions exceed our expectations, Azul Fidelidade’s profitability, and consequently our own profitability, could be adversely affected. Furthermore, if actual redemptions exceed our expectations, we may not have sufficient cash on hand to cover all actual redemption costs, which could materially adversely affect us.
We depend on our senior management team, and the loss of any member of this team, including our Chairman and key executives, could adversely affect us.
Our business depends upon the efforts and skill of our senior management team, including our Chairman, who has played a key role in establishing our corporate culture, and our key executives. Our future success is dependent on the continued service of our senior management team, who are critical to the development and the execution of our business strategies. Any member of our senior management team may leave us to establish or join a competing business. While we have established compensation arrangements and non-competition agreements with our senior management team, there is no guarantee that these agreements will be sufficient to prevent them from resigning to work for or establish a competitor, nor can we be certain that these agreements would be enforceable in court. In the event that our Chairman or a number of our senior management team leave our company, we may face challenges in finding suitable replacements, which could have a material adverse effect on us.
We may be unable to maintain our culture and to retain and/or hire skilled personnel as our business grows, including pilots, which could have an adverse impact on us.
We believe that our growth potential and ability to maintain strong results are closely tied to our ability to attract and retain the best professionals in the Brazilian airline industry while preserving our customer-focused company culture. As we expand, we may be unable to identify, hire, train, and retain individuals who align with our company culture and who bring diverse skill sets. Furthermore, we may face difficulties in maintaining our culture as our business grows in size.
The airline industry has periodically experienced a shortage of skilled personnel, particularly pilots. We compete with other airlines, both within Brazil and internationally, for these highly qualified professionals. To attract and retain top talent, we may need to increase salaries and benefits, or risk significant employee turnover. Our culture is crucial to our business plan, and failure to maintain that culture and/or retain skilled personnel could have an adverse impact on us.
The airline industry is subject to increasingly stringent environmental regulations and non-compliance with these regulations may adversely affect us.
The airline industry is subject to an increasingly stringent body of federal, state, local and foreign laws, regulations and ordinances (including those in the United States and Europe) that regulate environmental protection. These laws, regulations and ordinances address issues such as air emissions, noise levels, discharges into surface and groundwater, safe drinking water, and the management of hazardous substances, oils, and waste materials.
Azul S.A. 43
Brazilian environmental laws, in particular, adopt a strict and joint liability approach when it comes to civil liabilities. These laws and regulations are enforced by various governmental authorities. Non-compliance with such laws and regulations may subject the violator to administrative and criminal sanctions, in addition to the obligation to repair or to pay damages caused to the environment and third parties. Pursuant to Brazilian environmental laws and regulations, the corporate veil may be pierced to help provide sufficient financial resources are available for environment damage recovery.
We could be held liable for violations by third parties hired to dispose of our waste, among other activities. Also, we may not hold all valid environmental licenses deemed necessary by the environmental authorities to perform our activities, which could subject us to financial fines. Depending on the degree of irregularity, these fines may be up to R$50 million, or may lead to the total or partial suspension of our operations, in accordance with Federal Decree No. 6,514/2008, in addition to indemnity fines. State and municipal laws and regulations may impose distinct administrative sanctions at lower or higher values than stated above.
We are subject to risks associated with climate change, including increased regulation of our CO2 emissions, changing consumer preferences and the potential for more frequent or severe whether events that could impact our operations and infrastructure.
Efforts to transition to a low-carbon future have increased the focus of global, regional and national regulators on climate change and greenhouse gas emissions, including CO2 emissions.
In 2016, the ICAO adopted a resolution establishing the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA, providing a framework for a global market-based measure to stabilize carbon dioxide emissions in international civil aviation, i.e., flights that depart from one country and arrive in another. CORSIA is being implemented in phases, starting with the participation of ICAO member states on a voluntary basis during a pilot phase (from 2021 through 2023), followed by a first phase (from 2024 through 2026) and a second phase (from 2027 through 2035). ICAO member states have agreed that 2019 emissions would be used as the baseline for the CORSIA pilot phase (2021-2023) and that 85% of 2019 emissions would be used as the baseline for the remainder of CORSIA’s phases (2024-2035). Accordingly, ICAO member countries further agreed to a long-term aspirational goal of reaching net zero aviation emissions by 2050. Certain CORSIA program details remain to be developed and may be influenced by political developments in participating countries or the results of the program. In 2020, we began reporting our emissions to Brazilian authorities. Brazil is expected to become a signatory of CORSIA in 2027.
To the extent most of the countries in which we operate remain members of the ICAO, we may be affected by regulations adopted under the CORSIA framework. In addition, CORSIA is expected to increase operating costs for airlines operating internationally. At this time, the costs of complying with our future obligations under CORSIA are uncertain. The potential impact of such costs would ultimately depend on a number of factors, including baseline emissions, the price of emission allowances or offsets that we would need to acquire, the efficiency of our fleet and the number of flights subject to these requirements. There is also considerable uncertainty regarding the future availability and price of carbon offset credits and sustainable or lower-carbon aircraft fuels, which could help us reduce our CO2 emissions. Due to the competitive nature of the airline industry and unpredictability of the market for air travel, we cannot assure you that we may be able to increase our fares, impose surcharges, or otherwise increase revenues or decrease other operating costs sufficiently to offset our CORSIA-related expenses. If CORSIA is not implemented as expected, we and other airlines may face an unpredictable and inconsistent set of national or regional emissions regulations, leading to a complex regulatory landscape that could affect global competitors differently, without delivering significant environmental benefits for aviation.
In addition, the proliferation of national regulations and taxes on carbon emissions in the countries where we operate domestically, including environmental regulations that the airline industry is facing in Brazil, may also affect our operational costs and margins.
44 Azul S.A.
Concerns about climate change and greenhouse gas emissions may result in additional regulations (including corporate reporting requirements) or taxes on aircraft emissions in Brazil, the United States or Europe. Any such changes could be difficult to implement and could require us to incur significant additional costs to comply, including by imposing significant additional measurements and internal controls processes and procedures regarding matters that have not been subject to measurement, reporting and managerial oversight. Moreover, certain airports have adopted, and others could in the future adopt, greenhouse gas, or GHG, emission or climate-related goals that could impact our operations or require us to make changes or investments in our infrastructure. Reporting expectations are also increasing, with a variety of commercial counterparties, including finance providers.
The European Union has proposed a directive to extend the existing emissions trading scheme, or ETS, in each European Union member state to all airlines. In June 2022, both the European Parliament and European Council adopted their respective positions on a set of measures to reform the ETS as part of the European Union’s “Fit for 55” program, an initiative published by the European Commission in July 2021. On December 6, 2022, the European Parliament and European Council reached a provisional political agreement on the revision of the ETS rules applying to the aviation sector. Under the provisional agreement, the ETS would have a narrow scope, applying only to intra-European flights, including departures to the United Kingdom and Switzerland, while CORSIA would apply to extra-European flights to and from third countries participating in CORSIA from 2022 to 2027. In 2023, the European Union adopted new legislation extending this narrow scope of the ETS until 2027, but requires a review of CORSIA’s effectiveness in 2026. If CORSIA is not deemed sufficiently effective, this could potentially lead to the expansion of the ETS to include all flights departing the European Union and the European Economic Area. Further, in 2023, the European Union adopted legislation that will impose a sustainable aviation fuel, or SAF, mandate on fuel supplied at European Union airports. Under this mandate, 2% of the jet fuel supplied in the European Union must be SAF starting in 2025, with the percentage increasing incrementally to 70% in 2050. This mandate is expected to increase the cost of SAF in the European Union. Individual European Union member states have been developing their own requirements, such as the SAF mandate in France that came into force on January 1, 2022. We currently operate three routes to and from Europe (Lisbon, Porto and Madrid) and service additional destinations in Europe through our code-sharing agreements.
All such climate change-related regulatory activity and developments may adversely affect our business and financial results. They could require us to reduce our emissions before cost-effective reduction technologies become available, potentially forcing us to make capital investments in specific equipment or technologies, purchase carbon offset credits, or incur other costs related to our emissions. Such activity may also impact us indirectly by increasing our operating costs, including fuel costs. As consumers become more aware of the dangers of climate change, some may choose to fly less frequently or opt for airlines they perceive as operating more sustainably. Business customers may also shift to alternatives to travel, such as virtual meetings and workspaces. The expansion of high-speed rail in markets currently served by short-haul flights could offer passengers lower-carbon alternatives to flying with us. Our collateral for securing loans, including aircraft, spare parts, and airport slots, could lose value as customer demand shifts and economies move to low-carbon alternatives, which may increase our financing cost.
Finally, the potential acute and chronic physical effects of climate change, such as increased frequency and severity of storms, floods, fires, rising sea levels, wildfires, excessive heat, longer-term changes in weather patterns and other climate-related events, could affect our operations, infrastructure and financial results.
Operational impacts of acute and chronic physical effects of climate change, such as delays, diversions or cancellation of flights, required us, and could further require us in the future, to incur additional operating or capital expenditures, reduce the demand for certain of our flight offerings, or otherwise adversely impact our business, financial condition, or results of operations. We could incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change. The long-term implications of such events, particularly in key operating areas, emphasize the importance of proactive measures to address these challenges.
Azul S.A. 45
We may incur financial losses and damages to our reputation from ESG risks.
Environmental and social risks are considered material issues for our business since they can affect the creation of shared value in the short, medium and long term, both from our organization’s perceptive and that of our key stakeholders. Further, we understand environmental and social risk as the potential for losses resulting from environmental and social events arising from our activities. We also recognize climate risk as an emerging environmental and social risk. Climate change poses a risk to our clients, suppliers and our operations, including property and equipment. See “—We are subject to risks associated with climate change, including increased regulation of our CO2 emissions, changing consumer preferences and the potential for more frequent or severe weather events that could impact our operations and infrastructure” for further information on risks associated with climate change.
In addition to regulatory and compliance risks associated with environmental laws and climate policy frameworks, evolving consumer preferences and societal attitudes could, over time, influence demand for air travel. Some consumers, particularly in certain markets, may express greater concern about the environmental impact of aviation and show increased interest in alternative or lower-emission travel options, as well as regarding diversity, inclusion, health and safety and human rights initiatives and governance standards, which could, over the long term, influence travel patterns and demand for air transportation services. Although global air travel demand has continued to grow overall and there is not yet clear evidence of a material decline in demand directly attributable to such trends, these developments could negatively impact our revenues and results of operations.
As a result, we may face increasing pressure to improve our ESG practices and disclosures. We may also be unable to complete certain initiatives or targets, either on the timelines initially announced or at all, due to technological, legal, cost, or other constraints, whether within or outside our control. Furthermore, actions or statements that we may take, based on expectations, assumptions, or third-party information we believe to be reasonable, may later be found to be inaccurate or subject to misinterpretation.
Our reputation and brand image could be adversely affected by any actual or perceived failure to maintain satisfactory practices relating to our environmental, safety, diversity, equity and inclusion or other social and governance goals. This risk includes (i) any failure to comply with applicable federal, state and international binding or non-binding legislation, standards and accords, including voluntary commitments, such as Equator Principles, Principles for Responsible Investment and National Pact for the Eradication of Slave Labor, among others; (ii) customer perceptions of our advertising campaigns, sponsorship arrangements or marketing programs, including greenwashing concerns regarding our advertising campaigns and marketing programs related to our sustainability initiatives; and (iii) customer reactions to statements made by us, our employees and executives, agents or other third parties. Damage to our reputation or brand image, or loss of customer confidence in our services, could adversely affect our business and financial results, as well as require additional resources to rebuild our reputation.
If we fail, or are perceived to fail, in advancing or complying with ESG initiatives, we may be subject to various other adverse consequences, including potential stakeholder engagement and/or litigation, even if such initiatives are currently voluntary. For example, there have been increasing allegations of greenwashing against companies making significant ESG claims, often citing perceived deficiencies in their actions, statements, or methodologies, especially as stakeholder perceptions of sustainability continue to evolve. the risk is particularly pronounced in the airline industry, where claims regarding the use of “sustainable aviation fuel” and carbon offsets have been subject to intense scrutiny and associated liabilities.
In addition, new government regulations may impose new or more stringent forms of ESG oversight and expanded reporting, due diligence, and disclosure, both mandatory and voluntary. These change could lead to increased ESG-related compliance costs, including, but not limited to, increased costs related to compliance, stakeholder engagement, contracting, and insurance, thereby raising our overall operational expenses. Such increases could have a material adverse effect on our business, results of operations and financial condition.
46 Azul S.A.
We benefit from tax incentives on our purchases of jet fuel in Brazil, and these tax incentives may be suspended, changed, cancelled, revoked or not renewed at any time adversely affecting us.
The price of the jet fuel we purchase in most Brazilian states is subsidized through tax incentives provided to us by those states. Depending on the type of agreement, failure to comply with our obligations in the tax incentive agreements that we have executed with those states could lead to suspension, revocation, or non-renewal of these tax incentives by governmental authorities. However, even if we fully comply with the terms, authorities may still choose to do so if, for instance, they are no longer committed to the agreement.
To maintain these incentives, we are required to comply with various tax, labor, social and environmental obligations. These requirements may be challenged, either administratively or judicially, by third parties such as the Federal Public Prosecutor (Ministério Público Federal), other Brazilian States, or even other public authorities.
We cannot assure that the laws and regulations governing these tax incentives will remain unchanged or that the incentives will be maintained under the same favorable conditions until their expiration. Furthermore, we cannot ensure that we will be able to renew these incentives on similar terms once their current agreements expire.
Also, we cannot ensure that new tax incentives will be introduced after the expiration of tax incentives that we currently benefit from, nor that we would qualify for their terms if they are created. Furthermore, there is no assurance that any new tax incentives would offer terms and conditions equivalent to or more favorable than those currently in effect. If existing tax incentives change, expire, or we are unable to renew them, or if new tax incentives are introduced after the expiry of those in effect, or if the terms and conditions of new incentives provide less favorable terms, we could also be adversely affected.
New tax incentive agreements entered between Azul and Brazilian states shall comply with the general rules established under Complementary Law No. 160, dated August 7, 2017. Tax regimes granted before the enactment of Complementary Law No. 160/17 were validated by the National Council of Treasury Policy (Confaz) and, as a result, are not subject to cancellation. While tax agreements that fail to comply with these procedures may be revoked or have their legality challenged, Brazilian states generally do not grant new tax incentives without adhering to the rules set forth in Complementary Law No. 160/17. However, if any of these tax incentives are canceled, revoked, suspended, or not renewed, jet fuel prices would increase, potentially forcing us to reduce the number of flights we operate. Such outcomes could lead to a significant impact on our results and adversely affect us.
On December 20, 2023, the Brazilian congress approved the Constitutional Amendment No. 132/23 enacting a comprehensive tax reform on consumption. The amendment provides for the phase-out of: (i) three federal taxes: Tax over Industrialized Products (except for goods manufactured in the Manaus Free Trade Zone) Social Contribution to the Social Integration Program, or PIS, and the Social Contribution to Social Security Financing, or Cofins; (ii) one State tax, the Tax on Circulation of Goods and Services, or ICMS; and (iii) one Municipal tax, the Tax on Services, or ISS. In their place, the Constitutional Amendment No. 132/23 approved the creation of (i) the Social Contribution on Goods and Services, or CBS; and (ii) the Tax over Goods and Services, or IBS.
According to Complementary Law no. 214/25, which provides for the general rules of IBS and CBS, regional aviation services will be subject to a specific tax regime of IBS and CBS that grants a 40% reduction of the standard applicable tax rate. Although the combined IBS and CBS rate has not yet been determined, it is expected to be approximately 28%.
The Tax Reform on Consumption will be implemented as of 2027, with a transition period extending through 2032, and will become fully effective as of 2033. There are certain aspects of the Tax Reform on Consumption that are still pending regulation and, therefore, it is not yet possible to determine the full effect of these changes.
Azul S.A. 47
In addition to the Tax Reform on Consumption, as of 2026, Law no. 15,270, dated November 26, 2025, revoked the tax exemption on dividends and provided for the levy of withholding income tax at a 10% rate on dividends paid to shareholders that are (i) individuals resident and domiciled in Brazil in amounts exceeding BRL50,000.00 per month; or (ii) non-resident in Brazil for tax purposes. Non-resident shareholders may be granted a tax credit in connection with such withholding tax; however, the procedures for claiming this credit are still pending regulation by the Brazilian federal government. See “Item 10. Additional Information—Taxation—Dividends”.
Additionally, Complementary Law No. 224, dated December 26, 2025, increased the withholding income tax rate applicable to interest on shareholders’ equity (juros sobre o capital próprio) from 15% to 17.5% and provided for the reduction of certain tax incentives or benefits granted under applicable legislation. The Brazilian federal government has also enacted tax decrees increasing the IOF rates applicable to certain transactions, including foreign exchange transactions and loans.
We cannot assure you that the Brazilian government will not change other taxes or implement new taxes that may adversely affect our operations.
In addition, certain tax laws may be subject to varying interpretations the tax authorities. Any increase in the amount of taxation resulting from challenges to our tax positions could adversely affect our business, financial condition and results of operations. We are also subject to inspections by tax authorities at the federal, state, and local government levels. During such inspections, our tax positions may be challenged by the tax authorities, on grounds similar to those underlying our existing disputes. There is no assurance that the provisions for such proceedings, if any, are adequate, that no additional tax exposures shall be identified, or that further tax reserves shall be required for any tax exposure. The Brazilian tax authorities have been intensifying the frequency of inspections. Any judicial or administrative proceedings related to tax matters before the courts, including the Administrative Council for Tax Appeals (Conselho Administrativo de Recursos Fiscais) and state and municipal administrative courts, may adversely affect us.
Unfavorable decisions in judicial or administrative proceedings could adversely affect us.
We and our subsidiaries are parties to various judicial and administrative proceedings, including civil, labor, social security, tax, consumer protection, civil, regulatory actions and environmental matters. We cannot assure that these lawsuits will be ruled in our favor and/or our subsidiaries, or that the amounts provisioned are sufficient to cover amounts from adverse rulings. Any decisions that are unfavorable to us or our subsidiaries, resulting in significant financial payments, damaging our reputation or the reputation of our subsidiaries, or hindering our ability to execute our business plans, could have a material adverse effect on our business, the business of our subsidiaries, financial condition, and results of operations.
We are subject to tax surveillance by tax authorities in the federal, state and municipal levels.
As a result of tax surveillance, our finances may be questioned by tax authorities. We cannot guarantee that provisions made for these investigations will be sufficient, that no additional tax exposures will arise, and that no additional tax reserves will be required to cover any identified tax exposures. Any increase taxes due as result of inquiries into our taxes matters may adversely affect our business, results of operations and financial condition.
The Brazilian tax authorities have recently intensified the number of audits they conduct. There are several fiscal issues of concern to the Brazilian authorities, including inventory control, premium amortization expenses, corporate restructuring, and tax planning, among others, which are regularly monitored. Any judicial and administrative proceedings related to fiscal matters before the courts, including the Administrative Board of Tax Resources (Conselho Administrativo de Recursos Fiscais), or CARF, and state and municipal administrative courts, may adversely affect us.
48 Azul S.A.
We are subject to certain tax legislation due to the registration of tax debts in specific payment programs overseen by tax authorities. If we fail to comply with any of the requirements of applicable legislation, the programs may be terminated and the benefits derived from them revoked.
We are registered in certain payment programs administered by competent tax authorities concerning various federal, state and municipal tax debts.
The federal, state and municipal payment programs we are party to require us to meet specific conditions, including the timely payments of debts subject to installment agreements. Failure to comply with these conditions would result in the termination of the programs and the revocation of their benefits. In such a case, the full outstanding debt would become immediately enforceable, along with any additional charges applicable under the relevant legislation at that time. This could negatively impact our operational and financial results by reinstating the debt on our liabilities.
Any violation or alleged violation of anti-corruption, anti-bribery and anti-money laundering laws, or the failure to detect such violations, could adversely affect us, including our brand and reputation.
We cannot assure that our employees, agents, or third-party contractors will not engage in actions that violate anti-corruption, anti-bribery, and anti-money laundering policies, for which we may be ultimately held responsible. We are subject to the United States Foreign Corrupt Practices Act of 1977, or the FCPA, by virtue of having operations in the United States and the listing of our ADRs on a United State stock exchange. We are also subject to the U.K. Bribery Act of 2010, Federal Law No. 8,429, of June 2, 1992, and Law No. 12,846 of August 1, 2013, as well as other national and international anti-fraud, anti-corruption, anti-money laundering, antitrust laws and other laws and regulations.
In addition, our corporate governance, policy, risk management, and compliance processes may not be able to prevent or detect: (i) violations of Federal Law No. 8,429, of June 2, 1992, Law No. 12,846 of August 1, 2013, or other violations related to other applicable laws and regulations; (ii) improper, fraudulent, and unfair conduct by our employees, shareholders, management and third parties that represent us; or (iii) conduct that is inconsistent with our ethical principles. Such violations or misconduct could adversely affect our reputation, business, financial condition and results of operations, as well as the trading price of our common shares.
Failure to comply with anti-corruption laws, anti-money laundering laws, and other laws governing business conduct with government entities, including under the FCPA and other United States and local laws, could result in criminal and civil penalties, as well as other remedial actions. Such violations could harm our brand and reputation, and have a material adverse impact on our business, financial condition, results of operations and prospects. Any investigation into actual or alleged violations of such laws could also adversely affect us, including our brand and reputation. In addition, we may be held liable for corrupt actions committed by third parties. The likelihood of these risks materializing may be heightened due to the absence of consolidated policies for identifying and monitoring politically exposed persons, or for conducting due diligence with third parties.
We are a holding company and do not have any material assets other than the shares of our subsidiaries.
We are a holding company that conducts its operations through a series of operating subsidiaries, and we provide technical and administrative services to these subsidiaries through our other subsidiaries. All the assets we use to perform administrative and technical services, as well as to operate the concessions and authorizations, are held at the subsidiary level. As a result, we do not possess any material assets other than the shares of our subsidiaries. Any dividends or payments that we may be required to make will depend on the availability of cash provided by our subsidiaries. Transfers of cash from our subsidiaries to us may be restricted by corporate and legal requirements, or by the terms of the agreements governing our indebtedness. If a shareholder were to assert a claim against us, the enforcement of any related judgment would be limited to our available assets, rather than our assets and those of our combined subsidiaries.
Azul S.A. 49
Any inability to obtain or renew a material portion, or all, of the licenses, permits and authorizations necessary to conduct our business could have an adverse effect on us.
We are continually in the process obtaining and renewing federal, state, and municipal licenses, permits and authorizations required for our operations. If we fail to obtain or renew a material portion or these licenses, permits and authorizations in a timely manner, or if such licenses, permits and authorizations are suspended or revoked, this could have an adverse effect on us.
Risks Relating to Our Common Shares, Including in the Form of ADSs
Investors in our common shares, including in the form of ADSs, may experience book value dilution in the future.
As part of the Voluntary Reorganization contemplated by the Plan, we issued (i) the GUC Warrants, which entitle the GUC Trust to subscribe for 2.2% of our total outstanding common shares (or ADSs representing such common shares) on a fully-diluted basis as of the Effective Date, (ii) the American Warrants, which entitle American to subscribe for up to approximately 8.7% of our common shares (including in the form of ADSs) outstanding on the date of this annual report, and (iii) the Additional Investment Warrants, which entitle United and the Additional Investment Holders to subscribe for up to approximately 1.3% and 0.9%, respectively, of our common shares (including in the form of ADSs) outstanding on the date of this annual report. Furthermore, in connection with the implementation of the Voluntary Reorganization, we agreed to the terms of the MIP, which was approved at our extraordinary shareholders’ meeting (assembleia geral extraordinária) held on February 12, 2026. The MIP provides for equity-based awards representing up to 7.0% of our common shares on a fully-diluted basis. We have also previously established stock option and restricted share plans for key personnel, including our officers, certain managers, and other key Crewmembers.
The exercise of the Warrants and vested options by the holders could result in substantial dilution of book value for investors if the public offering price for our common shares (including in the form of ADSs) is lower than the book value of these shares when the Warrants or stock options are exercised.
In addition, if we need to raise capital for our operations by issuing new shares in the future, the issuance may occur at a price below the book value of our common shares on the relevant date. In such a case, holders of our ADSs and common shares at that time would experience immediate and significant dilution of their investment.
Trading of our ADSs and common shares in the securities markets is limited and could experience further illiquidity and price volatility; the delisting of our ADS from NYSE may continue to have a material adverse effect on the trading and price of our ADSs, and we cannot assure you that our ADSs will become listed on NYSE American or the NYSE, or will be listed on any other internationally recognized stock exchange, or that if they are ever relisted, they will remain listed.
As a result of our Voluntary Reorganization, on May 25, 2025, the NYSE notified the SEC of its intention to remove the ADSs from listing and registration on the NYSE, which delisting came into effect at the opening of business on June 10, 2025. As of the date of this annual report, the ADSs are quoted on the OTC Pink Limited Market.
The OTC Pink Limited Market is an unorganized, inter-dealer, over-the-counter market which provides significantly less liquidity than the NYSE or other national securities exchange, designed for companies that do not qualify for, or have not applied to, higher OTC market tiers, such as OTCQX, OTCQB or OTCID. Securities quoted on the OTC Pink Limited Market are subject to reduced issuer disclosure and oversight, may have limited or no current public information available, and are often followed by fewer market participants, which may depress the trading price of our ADSs and could have a long-term adverse impact on our ability to raise capital in the future.
In addition, there can be no assurance that the ADSs will continue to be quoted on the OTC Pink Limited Market or that any public market for the ADSs will exist in the future, whether broker-dealers will continue to provide public quotes of the ADSs, whether the trading volume of the ADSs will be sufficient to provide for an efficient trading market, whether quotes for the ADSs may be blocked in the future or that we will be able to relist the ADSs on a securities exchange.
50 Azul S.A.
As described under “Item 9A. The Offer and Listing—Offering and Listing Details” we currently expect to seek a listing on NYSE American and thereafter to seek an uplisting to the NYSE, in each case, as soon as possible following satisfaction of the relevant requirements and conditions to listing. There can be no assurance that our common shares and ADSs will be listed on NYSE American or the NYSE, or if any such listing is obtained, that our common shares and ADS will continue to be listed thereon.
Our common shares are listed on the B3. The price per common share on the B3 is currently lower than the minimum share price required by the B3. The B3 has granted our request for an extension to the deadline to regain compliance with this requirement to April 30, 2026. Based on our current market capitalization, we expect to regain compliance with this requirement upon effectiveness of the Second Reverse Share Split (which we currently expect to be effective as of April 20, 2026), However, there can be no assurance that our common shares will continue to be listed on the B3.
The Brazilian securities market is substantially smaller, less liquid and more volatile than major securities markets in the United States. In addition, Brazilian securities markets may be materially affected by developments in other emerging markets, particularly other countries in Latin America. Accordingly, although you are entitled to withdraw the common shares underlying the ADSs from the depositary at any time, your ability to sell the common shares underlying ADSs in the amount and at the price and time of your choice may be substantially limited. This limited trading market may also increase the price volatility of the ADSs or the common shares underlying the ADSs, which could also result in price disparity between the trading prices of the two trading markets.
An active and liquid trading market for our common shares, including in the form of ADSs, may not be maintained, which could adversely affect the price our common shares, including in the form of ADSs.
An active and liquid public trading market for our common shares, including in the form of ADSs, may not be maintained. While our common shares currently remain listed on the B3, the ADSs were delisted from the NYSE in June 2025, and are currently quoted on the OTC Pink Limited Market. Active, liquid trading markets generally result in lower price volatility and more efficient purchases and sales of shares. If an active trading market is not maintained, the liquidity and price of our common shares, including in the form of ADSs, could be seriously harmed.
The investment in marketable securities traded in emerging countries, such as Brazil, typically carries higher levels of risk as compared to investments in securities issued in countries with more stable political and economic conditions. These investments are generally considered speculative. The Brazilian capital market is substantially smaller, less liquid, more volatile, and more concentrated than major international capital markets. As of December 31, 2025, companies listed on the B3 exchange had an aggregate market capitalization of R$4.8 trillion and a daily average trading volume of R$29.1 billion as of November 2025, according to the B3.
In addition, Brazilian investments, such as investments in our common shares, including in the form of ADSs, are subject to economic and political risks, involving, among other factors, changes in the Brazilian regulatory, tax, economic and political environment that may affect the ability of investors to receive payment, in whole or in part, in respect of their investments, as well as restrictions on foreign investment and on repatriation of capital invested.
These market characteristics may substantially limit the ability of holders of our common shares to sell them at their desired price and time, and this may have an adverse effect on the trading price of our common shares.
Furthermore, in 2023, 2024 and 2025, additional volatility was driven by extreme weather events in Brazil, including droughts and floods, which affected key sectors of the economy, as well as renewed geopolitical tensions and persistent inflationary pressures. These developments disrupted agricultural output, energy generation and transportation infrastructure, contributing to increased price volatility, supply chain pressures and heightened uncertainty regarding Brazil’s short-term growth prospects. These factors, together with uncertainty surrounding Brazil’s fiscal policies and global monetary tightening cycles, have contributed to fluctuations in the trading price of our common shares.
Azul S.A. 51
Finally, the prices of shares in the global airline industry are relatively volatile and numerous factors, including many over which we have no control, may have a significant impact on the market price of our common shares, including in the form of ADSs. These risks include those described or referred to in this "Risk Factors" section, as well as, among other things:
•our operating and financial performance and prospects;
•our ability to repay our debt;
•our access to financial and capital markets to obtain additional financing or refinance our debt;
•investor perceptions of us and the industry and markets in which we operate;
•our dividend policy and capital allocation;
•future sales of equity or equity-related securities; and
•announcements by third parties of significant claims or proceedings against us.
As a result of the foregoing, investors’ perception of the market value of our shares, including our common shares in the form of ADSs, may be further impacted by increased volatility and decreases in the price of our ADSs and common shares.
Holders of our common shares, including in the form of ADSs, may not receive any dividends or interest on shareholders’ equity or may be subject to taxation as a result of such receipts.
According to our bylaws, as long as we record a net income and there are no accumulated losses, we must pay our common shareholders at least 0.1% of our annual adjusted net income as dividends or interest on shareholders’ equity, as determined and adjusted under the Brazilian Corporations Law. Interim dividends and interest on our shareholders’ equity declared for each fiscal year may be attributed toward our minimum obligatory dividend for the year in which they are declared. See “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividend Policy.” This adjusted net income may be capitalized, used to absorb losses or otherwise retained as allowed under the Brazilian Corporations Law and may not be made available for payment as dividends or interest on shareholders’ equity.
Additionally, the Brazilian Corporations Law allows a company like ours to suspend the mandatory distribution of dividends in any particular fiscal year if our board of directors informs our shareholders that such distribution would be inadvisable in view of our financial condition. If these events were to occur, the holders of our common shares, including in the form of ADSs, may not receive dividends or interest on shareholders’ equity.
As part of the ongoing tax reform, Law No. 15,270/25 revoked the income tax exemption on dividends as of 2026 and introduced a 10% withholding income tax on dividends paid by Brazilian companies to (i) individuals resident in Brazil, to the extent monthly payments exceed R$50,000, and (ii) non-resident shareholders. With regard to interest on shareholders' equity (juros sobre capital próprio), Complementary Law No. 224/25 increased the applicable withholding income tax rate from 15% to 17.5%. See “Item 10. Additional Information—Taxation—Dividends”.
The sale of a significant number of our common shares, including in the form of ADSs, may negatively affect the trading price of our common shares, including those in the form of ADSs.
As part of the Voluntary Reorganization, we issued (i) the equivalent of approximately 9.2 trillion common shares in the Equitization Offering, and (ii) approximately 45.5 trillion common shares in the Equity Rights Offering. See “Item 4.B. Business Overview—Voluntary Reorganization.”. Therefore, we have issued a significant amount of common shares in a short period of time, and we may issue further common shares from time to time, and the holders of such common shares may seek to sell their common shares from time to time.
52 Azul S.A.
In addition, we have entered into the Registration Rights Agreement (as defined in “Item 7.A. Major Shareholders—Registration Rights Agreement”) on February 20, 2026, as part of the Voluntary Reorganization. Pursuant to such agreement, we are required to register under the Securities Act the resale of common shares, including in the form of ADSs, held by the RRA Holders named therein. See “Item 7.A. Major Shareholders—Registration Rights Agreement.”
Sales of our common shares, including in the form of ADSs, made by any shareholders referred to above, by our affiliates, including those effected by our directors, or executive officers, or otherwise involving a large number of common shares or ADSs, or market perception of an intention to any of such sales, may negatively affect the trading price of our common shares, including in the form of ADSs.
Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to the disposition of our common shares, including in the form of ADSs.
Under Law No. 10,833, of December 29, 2003, the disposition of assets located in Brazil by a non-resident holder to either a resident or a non-resident of Brazil is subject to taxation in Brazil, regardless of whether the disposition takes place inside or outside the country. This means that withholding income tax may be imposed on the gains arising from a disposition of our common shares by a non-resident of Brazil to either a resident or a non-resident of Brazil. However, there is no judicial guidance determining whether ADSs are considered assets located in Brazil, we cannot predict whether Brazilian courts will rule that withholding income tax under Law No. 10,833 applies to gains from dispositions of our ADSs. In the event that the disposition of assets is interpreted to include the disposition of our ADSs, this tax law would result in the imposition of withholding taxes on the sale of our ADSs by a non-resident of Brazil to either a resident or a nonresident of Brazil. Because any gain or loss recognized by a U.S. Holder (as defined in “Item 10.E. Taxation—Material U.S. Federal Income Tax Considerations”) on the disposition of common shares or ADSs will generally be treated as U.S.-source gain or loss for purposes of the U.S. foreign tax credit, the U.S. Holder may not be able to benefit from a U.S. foreign tax credit for Brazilian income tax imposed on the disposition of common shares or ADSs. See “Item 10.E. Taxation—Material U.S. Federal Income Tax Considerations —Sale or Other Taxable Disposition of Common Shares, Including in the Form of ADSs.”
The Brazilian government may impose exchange controls and significant restrictions on remittances of reais abroad, which would adversely affect your ability to convert and remit dividends or other distributions or the proceeds from the sale of our common shares. It could also impact our capacity to make dividend payments or other distributions to non-Brazilian investors and would reduce the trading price of our common shares, including in the form of ADSs, and our capacity to comply with payment obligations in foreign currency.
In the event of severe economic imbalances, the Brazilian government may impose restrictions on the remittance of proceeds of investments in Brazil and the conversion of the real into foreign currencies. The Brazilian government last imposed such remittance restrictions for a brief period in 1989 and early 1990. While we cannot predict whether such measures by Brazilian government will be reintroduced, if they are, it could hinder or prevent your ability to convert dividends or other distributions or the proceeds from any sale of our common shares into U.S. dollars and to remit those U.S. dollars abroad. It would also affect our capacity to make dividend payments or other distributions to non-Brazilian investors and to meet payment obligations in foreign currency. The imposition of any such restrictions would have a material adverse effect on the trading price of our common shares, including in the form of ADSs, and on our capacity to access foreign capital markets.
Azul S.A. 53
If you surrender your ADSs and withdraw common shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages.
As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our common shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to our common shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw common shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal. Thereafter, upon the disposition of distributions relating to the common shares, unless you obtain your own electronic certificate of foreign capital registration, or qualify under Brazilian foreign investment regulations that allow some foreign investors to buy and sell shares on Brazilian stock exchanges without needing a separate electronic certificates of foreign capital registration, you would not be able to remit non-Brazilian currency abroad. In addition, if you do not qualify under the foreign investment regulations, you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our common shares.
If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or may suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our common shares or the return of your capital in a timely manner. The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes.
If we do not maintain a registration statement and no exemption from the Securities Act is available, U.S. Holders of ADSs will be unable to exercise preemptive rights with respect to our common shares.
From time to time, we may offer common shares, other securities, or preemptive rights to acquire additional common shares or other securities to our shareholders, including as required under the Brazilian Corporations Law. We will not be able to offer such securities or rights to holders of ADSs unless a registration statement under the Securities Act is effective for those common shares and preemptive rights, or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file such registration statement, and we cannot guarantee that we will do so. If a registration statement is not filed and no exemption exists, Citibank, N.A., as depositary, will attempt to sell such preemptive rights or securities, and you will be entitled to receive the proceeds of the sale. However, if the depositary is unable to sell these preemptive rights or securities, U.S. holders of ADSs will not receive any value in connection with such distribution.
If you are not entitled to preemptive rights or are unable or unwilling to exercise preemptive rights in connection with the common shares, including in the form of ADSs or other securities, your investment may be subject to dilution.
54 Azul S.A.
The requirements of being a public company in Brazil subject to reporting requirements in the United States may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members or executive officers.
As a public company in Brazil, we face significant legal, accounting, and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements in Brazil. In addition, as a foreign private issuer with ADSs traded in the United States, we remain subject to certain reporting and disclosure requirements under the Exchange Act and the Sarbanes-Oxley Act of 2002, as amended, and related rules implemented by the SEC. The costs of reporting and corporate governance for public companies in Brazil and for our reporting obligations in the United States have been increasing, and we expect these rules and regulations to further increase our legal and financial compliance expenses, making certain activities more time-consuming and expensive. However, we are currently unable to estimate these costs with any certainty. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance. We may be forced to accept reduced policy limits and coverage or incur substantially higher costs to for the same or similar coverage. These laws and regulations could also make it harder for us to attract and retain qualified individuals to serve on our board of directors, our board committees, or as our executive officers, and may divert management’s attention. While our common shares remain listed on the B3, our ADSs were delisted from the NYSE on June 10, 2025, and are currently quoted on the OTC Pink Limited Market. If we fail to meet our obligations as a public company in Brazil or to maintain required reporting in the United States, we could face consequences such as the delisting of our common shares from the B3, restrictions or removal of our ADSs quotations on the OTC Pink Limited Market or delisting from NYSE American or NYSE (in each case if and when listed on such stock exchanges as described herein), fines, sanctions, and other regulatory actions, and potentially civil litigation, all of which may adversely affect us.
If securities or industry analysts do not publish research or reports about our business, or if they publish negative reports, the trading price and volume of our common shares, including in the form of ADSs, could decline.
The trading market for our common shares, including in the form of ADSs, depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price may be negatively impacted. If one or more of these analysts cease coverage of our company or fail to publish regular reposts, demand for our common shares, including in the form of ADSs, could decline, potentially leading to a decline in both the trading price and volume of our common shares, including in the form of ADSs.
Our status as a foreign private issuer allows us to follow alternative corporate governance standards to those that apply to U.S. domestic reporting companies, which may limit the protections afforded to investors.
We qualify as a “foreign private issuer” under U.S. Securities laws. These rules (and those of any U.S. national securities exchange on which we may be listed from time to time) allow foreign private issuers to elect to comply with the practices of their home country, rather than complying with certain corporate governance requirements applicable to U.S. companies with securities listed on U.S. national security exchanges. We currently adhere to certain Brazilian corporate governance practices and intent to continue doing so.
As a result of our Voluntary Reorganization, on May 25, 2025, the NYSE notified the SEC of its intention to remove the ADSs from listing and registration on the NYSE, which delisting came into effect at the opening of business on June 10, 2025. However, as described under “Item 9A. The Offer and Listing—Offering and Listing Details” we currently expect to seek a listing on NYSE American and thereafter to seek an uplisting to the NYSE, in each case, as soon as possible following satisfaction of the relevant requirements and conditions to listing. There can be no assurance that our common shares and ADSs will be listed on NYSE American or the NYSE, or if any such listing is obtained, that our common shares and ADS will continue to be listed thereon.
Azul S.A. 55
As a foreign private issuer, we intend to rely on certain exemptions from the relevant stock exchange’s corporate governance rules, to the extent applicable if and when listed on any such stock exchange. For example, the NYSE rules requires that a majority of the board of directors be independent. Independence is defined by various criteria, including the affirmative determination by the board of directors that the director does not have a material relationship with the listed company. Under the listing standards of Level 2 segment of the B3, our board of directors must have at least five members, with at least 20% of them being independent. Also, the Brazilian Corporations Law and the CVM establish rules that require directors and executive officers, as well as the restrictions applicable to them. While our directors meet the qualification requirements under the Brazilian Corporations Law and the CVM regulations, we cannot guarantee that a majority of our directors would be considered independent under the rules of NYSE American and NYSE, as the case may be.
Pursuant to the Brazilian Corporations Law and CVM Resolution No. 23, dated February 25, 2021, currently in force (which replaced CVM Instruction No. 308), the statutory audit committee, if established, serves as an advisory body to the board of directors. It must be composed of independent members appointed by the board of directors, with at least one of them also being a member of the board of directors. This differs from the rules of NYSE American and the NYSE , which require all audit committee members to be a member of the board of directors. While the composition of our Audit Committee will comply with the applicable requirements of NYSE American and the NYSE (in each case, if, when and for so long as we are listed on such stock exchange), our Audit Committee may not always meet all of the NYSE’s rules for domestic reporting companies.
In addition, we do not have a nominating committee as required for U.S. issuers under the NYSE rules. While we do have a compensation committee and a corporate governance committee, if we relist on NYSE, we will not be required to comply with the NYSE standards applicable to compensation or corporate governance committees of listed companies.
Furthermore, the corporate disclosure requirements that apply to us may not be equivalent to the disclosure requirements that apply to a U.S. company and, as a result, you may receive less information about us than you would receive from a comparable U.S. company. We are subject to the reporting requirements of the Exchange Act. The disclosure requirements applicable to foreign private issuers under the Exchange Act are more limited than the disclosure requirements applicable to U.S. issuers. Publicly available information about issuers of securities listed on the B3 also provides less detail in certain respects than the information regularly published by listed companies in the United States or in certain other countries.
Accordingly, holders of our ADSs do not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of any U.S. national securities exchange on which we may be listed from time to time. For a comparison of the foregoing requirements, see “Item 16.G. Corporate Governance”.
56 Azul S.A.