(Recasts with details about debt)
By Marcelo Rochabrun
SAO PAULO, May 14 (Reuters) - Brazil’s No. 3 airline Azul SA saw its net debt jump by 94% in reais in the first quarter compared to a year ago, as the country’s currency was battered even before the coronavirus crisis hit in full force.
Azul’s net debt rose to 17.9 billion reais ($3.01 billion) compared to 11.8 billion reais a year ago, the company said on Thursday. Like many airlines, Azul has dollar-denominated liabilities.
Net debt measures a company’s overall debt but subtracts whatever cash they have on hand at the moment.
The increased debt levels show that Azul’s finances were already suffering in the leadup to the coronavirus crisis, even before travel was affected. Brazil’ real depreciated almost 30% in the first three months of 2020, initially at a time when the novel coronavirus was mostly set to affect China’s economy.
Such currency fluctuations disproportionately affect airlines, which receive their revenue in local currency but then pay for expenses, such as aircraft leases and fuel, in dollars.
The currency fluctuations also led Azul to post a 6.14 billion reais loss in the quarter, compared to a profit of 125.3 million reais a year earlier.
Revenues actually rose 10% in the quarter, at a time when Azul was going through an aggressive expansion plan that was brought to a sudden halt in late March.
But it lost 4.2 billion reais on the currency fluctuation alone. And an additional 1.3 billion reais was lost due to fuel hedge bets that assumed oil prices would be much higher than they actually were.
The results of the crisis have led Azul to drastic cost cutting. It said 78% of its employees were taking unpaid leave.
$1 = 5.9420 reais Reporting by Marcelo Rochabrun; Editing by Bernadette Baum