Individual and Consolidated Financial Statements 2023

Azul S.A.

Contents

Management report

3

Declaration of the officers on the individual and consolidated financial statements

12

Declaration of the officers on the independent auditor's report

13

Summary report of the statutory audit committee

14

Fiscal board's report

17

Independent auditor report on the individual and consolidated financial statements

18

Statements of financial position

26

Statements of operations

28

Statements of comprehensive income

29

Statements of changes in equity

30

Statements of cash flows

31

Statements of value added

32

Notes to the individual and consolidated financial statements

33

Management

Report 2023

Management Comments

2023 was a year of many records for Azul: R$19 billion in revenue, a RASK of R$42.48 cents, up 5% from full-year 2022 even with a capacity increase of 11%, and an EBITDA of R$5.2 billion, an increase of R$2.0 billion year over year. In addition to this outstanding financial performance, we were the second most on-time airline in 2023 after reaching the number one spot in 2022. This is a true testament to our incredible crewmembers who delivered a world-class experience to our 30 million customers this year, each and every day. I want to thank them for their passion and dedication.

Azul continues to be unique. Our network strength: we serve 160 destinations, roughly 100 more than anyone else, enabled by flexible fleet which allows us to access and stimulate demand that was never explored before. These structural competitive advantages have only grown over time as we stay true to our business model. These advantages are only further strengthened by our non-ticket businesses: loyalty, vacations, cargo, ancillaries and charters, all of them fast- growing, high-margin ventures. With Brazil very much in our DNA we are extremely proud to partner with the Brazilian Olympic Committee to support team Brazil in the Paris 2024 Summer games.

For the fourth quarter we delivered an all-time record revenue of R$5.0 billion, an all-time record RASK of R$45.30 cents, a record fourth quarter EBIT margin of 17.6% and record fourth quarter EBITDA margin of 29.2%, one of the highest in the world. EBITDA margin improved 7.6 percentage points for the year and 4.5 percentage points for the quarter, clearly demonstrating our ability to continue increasing margins in spite of higher fuel and higher currency. This clearly demonstrates the strength of our business model and our sustainable competitive advantages.

Immediate liquidity remains solid at R$3.0 billion, representing 16.2% our annual revenues. Including long-term investments and receivables, security deposits and reserves, our total liquidity was R$6.1 billion even after paying down debt and making investments to prepare our operations for 2024 growth, as we continue to see a very positive demand environment in Brazil.

With overall revenue growth of 17.2% from 2022 to 2023, it is fair to say that demand for Azul's products and services has never been stronger. Our loyalty business Azul Fidelidade is larger than ever, now with 17 million members with record monthly active users, points redemptions, recurring revenue and credit card revenue. Our vacations business Azul Viagens continues its impressive growth trajectory and is now the second largest vacations business in Brazil. Gross bookings are increasing 50% year-over-year as we take advantage of strong leisure demand and opportunities to increase aircraft utilization with unique nonstop flights. Our cargo business grew in the fourth quarter, in the opposite direction of global trends, by expanding our diversified customer base with even more retailers, manufacturers, and e-commerce operators in Brazil who value our reliable, far-reaching logistic solutions.

In 2023 we continued our deleveraging process, reaching a leverage of 3.7x in 2023, a reduction of 2 full points in one year, and in line with our guidance. This achievement was reached after a successful, amicable capital optimization plan developed and negotiated swiftly in a manner to protect and maximize value to all of our stakeholders. We are confident we will continue reducing our leverage organically and estimate to end 2024 with a leverage of approximately 3x below our pre-pandemic levels. With the success of this plan, we now have a liquidity position and capital structure that matches our unique strategy and operational performance.

Our growth this year, we have made critical investments in our operation, our maintenance capabilities and our staffing. In addition, we have secured strategic partnerships with our OEM partners to ensure our fleet reliability and availability. We are aware that the global operating environment is challenging, and want to make sure that we are ahead of the curve.

We are more confident than ever in our ability to make Azul an even more efficient and profitable airline going forward, and with the strong momentum and encouraging demand environment we are witnessing, we updated our 2024 EBITDA guidance to R$6.5 billion. We are laser-focused on strengthening our business, driving growth and margins in all of our business units, and continuously generating more value to all of our stakeholders.

We thank all of our Crewmembers, partners and stakeholders for the confidence and support last year and look forward to even more successful and rewarding 2024.

John Rodgerson, CEO of Azul S.A.

____________________________________________________________________________ 3

Management

Report 2023

Azul in 2023

  • Largest airline in Brazil in cities served and departures, with more than 1,000 peak daily flights to more than 160 destinations.
  • Operating fleet with 183 aircraft with an average age of 7.4 years (excluding Cessna aircraft)
  • 39% of domestic departures and 28% market share (RPK)
  • The second most on-time airline in the world

Aviation market

2023 was, once again, a year of strong demand for Azul, with significant improvements in capacity, revenue and earnings compared to the previous year.

In 2023, international demand fully recovered to 2019 levels, in the domestic side, business travels also fully recovered and, the number of tourism travel remained growing.

As a result, operating revenue reached once again an all-time record, as travel demand remained strong. Total operating revenue reached R$18.7 billion, up 17.2% above 2023.

RASK were also at record levels, reaching R$42.48 cents, an increase of 5.4% compared to 2022.

During the year, Azul gradually rebuilt its network, ending the year with a capacity increase of 11.2% year-over-year, and a 12.2% increase in RPKs, resulting in a load factor of 80.4%.

Market Share¹

Azul's Domestic Market¹

(Domestic RPK,

(RPK %)

2023)

Others

28%

34%

29%

28%

1%

Azul

23%

18%

Competitor 2

28%

13%

17%

38%

4%

9%

Competitor 1

33%

2009

2011

2013

2015

2017

2019

2020

2021

2022

2023

¹Source: Anac

____________________________________________________________________________ 4

Management

Report 2023

Consolidated Results

Income statement (R$ million)¹

2023

Operating Revenue

Passenger revenue

17,362.9

Cargo revenue and other

1,331.7

Total operating revenue

18,694.6

Operating Expenses

Aircraft fuel

5,890.5

Salaries and benefits

2,397.3

Depreciation and amortization

2,314.3

Airport fees

1,056.9

Traffic and customer servicing

807.6

Sales and marketing

779.3

Maintenance and repairs

686.2

Other

1,862.7

Total Operating Expenses

15,794.7

Operating Result

2,899.9

Operating margin

15.5%

EBITDA

5,214.2

EBITDA margin

27.9%

Financial Result

Financial income

220.1

Financial expenses²

(5,363.5)

Derivative financial instruments, net²

19.9

Foreign currency exchange, net

1,562.8

Result Before Income Taxes

(660.8)

Income tax and social contribution

-

Deferred income tax and social contribution

(39.5)

Net Result²

(700.3)

Net margin

-3.7%

Adjusted Net Result² ³

(2,421.0)

Adjusted net margin² ³

-13.0%

Shares outstanding⁴

347.5

EPS

(2.02)

EPS (US$)

(0.40)

EPADR (US$)

(1.21)

Adjusted EPS³

(6.97)

Adjusted EPS³ (US$)

(1.39)

Adjusted EPADR³ (US$)

(4.18)

2022 % ∆

14,595.6 19.0%

1,352.5 -1.5%

15,948.1 17.2%

6,561.3 -10.2%

1,954.6 22.6%

2,094.4 10.5%

911.2 16.0%

641.9 25.8%

699.0 11.5%

592.1 15.9%

1,357.8 37.2%

14,812.4

6.6%

1,135.7

155.3%

7.1%

+8.4 p.p.

3,230.1

61.4%

20.3%

+7.6 p.p.

277.3 -20.6%

(4,558.1) 17.7%

438.2 -95.5%

1,327.4 17.7%

(1,379.6) -52.1%

  • n.a.
  • n.a.
    (1,379.6) -49.2%

-8.7%

+4.9 p.p.

(2,667.6)

-9.2%

-16.7%

+3.8 p.p.

347.7 0.0%

(3.97) -49.2%

(0.77) -47.5%

(2.31) -47.5%

(7.67) -9.2%

(1.49) -6.1%

(4.46) -6.1%

¹ Operating results were adjusted for non-recurring items.

² Excludes the conversion right related to the convertible debentures.

  • Adjusted net result and EPS/EPADR were adjusted for unrealized derivative results and foreign currency. One ADR equals three preferred shares (PNs). ⁴ Shares outstanding do not include the dilution related to the convertible and equity instruments.

Operating Data¹20232022% ∆

____________________________________________________________________________ 5

Management

Report 2023

ASK (million)

Domestic

International

RPK (million)

Domestic

International

Load factor (%)

Domestic

International

Average fare (R$)

Passengers (thousands)

Block hours

Aircraft utilization (hours per day)² Departures

Average stage length (km)

End of period operating passenger aircraft Fuel consumption (thousands of liters) Fuel consumption per ASK Full-time-equivalent employees

End of period FTE per aircraft

Yield (R$ cents)

RASK (R$ cents)

PRASK (R$ cents)

CASK (R$ cents)

CASK ex-fuel (R$ cents)

Fuel cost per liter (R$)

Break-even load factor (%)

Average exchange rate (R$ per US$) End of period exchange rate Inflation (IPCA/LTM)

WTI (average per barrel, US$)

Heating oil (US$ per gallon)

44,006

39,579

11.2%

34,367

33,605

2.3%

9,639

5,974

61.3%

35,399

31,561

12.2%

27,180

26,517

2.5%

8,219

5,044

62.9%

80.4%

79.7%

+0.7 p.p.

79.1%

78.9%

+0.2 p.p.

85.3%

84.4%

+0.8 p.p.

593.0

531.0

11.7%

29,278

27,485

6.5%

550,843

518,813

6.2%

10.0

9.2

8.6%

316,896

304,429

4.1%

1,159

1,105

4.8%

183

177

3.4%

1,291,297

1,206,925

7.0%

29.3

30.5

-3.8%

15,248

13,543

12.6%

83

77

8.9%

49.05

46.25

6.1%

42.48

40.29

5.4%

39.46

36.88

7.0%

35.89

37.42

-4.1%

22.51

20.85

8.0%

4.56

5.44

-16.1%

68.0%

74.1%

-6.1 p.p.

5.00

5.16

-3.3%

4.90

5.22

-6.1%

4.46%

5.79%

-1.3 p.p.

77.66

93.72

-17.1%

2.81

3.55

-20.7%

¹Operating results were adjusted for non-recurring items ²Excludes Cessna aircraft

Operating Revenue

In 2023, Azul´s total operating revenue increased R$2.7 billion or 17.2%, reaching a record of R$18.7 billion. Passenger revenue increased 19.0% on 11.2% more capacity compared to the same period last year, boosted by the full recovery of corporate and international passenger demand and the outstanding performance of our other businesses.

Cargo revenue and other reached R$1.3 billion in 2023, 1.5% lower than 2022, mainly due to the 40.4% reduction in international cargo operations.

RASK and PRASK reached all-time records of R$42.48 cents and R$39.46 cents, respectively, enabled by our rational capacity deployment and the sustainable competitive advantages of our business model. Compared to 2022, RASK and PRASK increased 5.4% and 7.0%, respectively.

____________________________________________________________________________ 6

Management

Report 2023

The table below sets forth the breakdown of our operating revenue and expenses per ASK basis for the periods indicated:

R$ cents¹

Operating revenue per ASK

Passenger revenue

Cargo revenue and other

Operating revenue (RASK)

Operating expenses per ASK

Aircraft fuel

Salaries and benefits

Depreciation and amortization

Airport fees

Traffic and customer servicing

Sales and marketing

Maintenance and repairs

Other operating expenses

Total operating expenses (CASK)

Operating income per ASK (RASK-CASK)

2023

39.46

3.03

42.48

13.39

5.45

5.26

2.40

1.84

1.77

1.56

4.23

35.89

6.59

2022

% Δ

  1. 7.0%
  1. -11.4%

40.295.4%

  1. -19.3%
  1. 10.3%

5.29-0.6%

2.304.3%

1.62 13.2%

1.770.3%

1.504.2%

  1. 23.4%
  1. -4.1%
  1. 129.7%

¹Operating results were adjusted for non-recurring items.

Operating Expenses

In 2023, Azul recorded operating expenses of R$15.8 billion, compared to R$14.8 billion in 2022, representing an increase of 6.6%, mainly due to the capacity and revenue increase of 11.2% and 17.2%, respectively in addition to investments made in the fourth quarter to support 2024 growth and maximize fleet availability to benefit from the continued strong demand environment, offset by a 16.1% reduction in jet fuel price per liter and 3.3% average depreciation of the real against the dollar.

The breakdown of our main operating expenses compared to 2022 is as follows:

  • Aircraft fuel decreased 10.2% to R$5,890.5 million, even with a 11.2% increase in total capacity, mostly due to a 16.1% reduction in fuel price per liter (excluding hedges) and a reduction in fuel burn per ASK as a result of our more efficient next-generation fleet.
  • Salaries and benefits increased 22.6%, mainly driven by our capacity increase of 11.2% in 2023, a 5.5% union increase in salaries paid two months in advance as a result of collective bargaining agreements applicable to all airline employees in Brazil, insourcing of certain activities to reduce total costs, and hirings made in the quarter to support 2024 growth.
  • Depreciation and amortization increased 10.5% or R$219.8 million, driven by the increase in the size of our fleet compared to 2022.
  • Airport fees increased 16.0% or R$145.7 million, mostly driven by the 11.2% increase in total capacity, in particular our 61.3% growth in international capacity, which drives higher fees.
  • Traffic and customer servicing expenses increased R$165.7 million, mostly due to the 6.5% increase in passengers, 4.1% increase in departures, in addition to 4.5% inflation in the period.
  • Sales and marketing increased 11.5%, or R$80.3 million, mostly driven by a 19.0% increase in passenger revenue, offset by savings from the insourcing of marketing activities.

____________________________________________________________________________ 7

Management

Report 2023

  • Maintenance and repairs increased R$94.1 million compared to 2022, mostly driven by a higher number of maintenance events to maximize aircraft availability and support 2024 growth, partially offset by a higher share of maintenance events insourced, 3.3% average depreciation of the real against the dollar and cost savings from the renegotiation of our engine maintenance agreements.
  • Other increased R$504.9 million, mainly driven by the increase in judicial claims, 11.2% increase in passenger capacity and higher training expenses as we are preparing ourselves for 2024 growth, in addition to an increase of revenue-driven IT expenses, crewmembers accommodations, cargo last- mile operations, and flight contingencies

Liquidity and Financing

Azul ended the year with R$3.0 billion in immediate liquidity, including cash and cash equivalents, accounts receivable and short-term investments, R$478.8 million higher than the same period in 2022 even after paying more than R$8.1 billion in leases, loans, deferral repayments, maintenance reserves, interest and capital expenses. This immediate liquidity represents 16.2% of our LTM revenues.

Total liquidity including deposits, maintenance reserves, long-term investments and receivables was R$6.1 billion as of December 31, 2023. This does not include spare parts or other unencumbered assets, such as our business unit Azul Cargo.

Liquidity (R$ million)

Cash, cash equivalents and short-term investments Accounts receivable

Immediate liquidity

Cash as % of LTM revenue

Long-term investments and receivables Security deposits and maintenance reserves

Total Liquidity

2023

1,897.3

1,124.0

3,021.3

16.2%

796.5

2,293.5

6,111.4

2022

668.3

1,874.2

2,542.5

15.9%

838.9

2,539.6

5,921.0

% ∆

183.9% -40.0%

18.8%

+0.2 p.p.

-5.1%-9.7%

3.2%

Azul's debt amortization schedule as of December 31, 2023 is set out below. The chart converts our dollar-denominated debt to reais using the quarter-end foreign exchange rate of R$4.90.

Loans and financing debt amortization as of December 31st, 2023

(R$ million converted at R$4.90 reais per dollar)¹

¹ Excludes convertible debentures, equity instruments and OEMs' notes.

____________________________________________________________________________ 8

Management

Report 2023

Gross debt increased 6.3% or R$1,370.1 million compared to December 31, 2022, mostly due to a successful capital raise of R$3,831.0 million in the third quarter, the increase in present value of our lease liabilities from the reduction in discount rate from 21.3% to 16.5%, and the 6.1% end of period depreciation of the Brazilian real, partially offset by our continued deleveraging process with more than R$5.0 billion in payments of loans and leases during the year.

Loans and financing (R$ million)¹

2023

2022

% ∆

Lease liabilities

11,805.1

13,771.3

-14.3%

Lease notes

1,030.8

-

n.a.

Finance lease liabilities

650.7

811.5

-19.8%

Other aircraft loans and financing

399.4

792.2

-49.6%

Loans and financing

9,299.5

6,440.5

44.4%

% of non-aircraft debt in local currency

10%

19%

-9.2 p.p.

% of total debt in local currency

4%

6%

-0.3 p.p.

Gross debt

23,185.6

21,815.5

6.3%

¹Considers the effect of hedges on debt, net of aircraft sublease receivables; excludes convertible debentures.

As of December 31, 2023, Azul's average debt maturity excluding lease liabilities and convertible debentures was 4.7 years, with an average interest rate of 11.0%. Average interest rate on local and dollar-denominated obligations were equivalent to CDI + 5% and 10.5%, respectively.

Azul's leverage ratio measured as net debt to LTM EBITDA decreased 2 full points year-over-year, from 5.7x to 3.7x, in line with our guidance. We are confident in our ability to continue reducing leverage organically and we forecast to end 2024 with leverage of approximately 3x.

Key financial ratios (R$ million)

Cash¹

Gross debt²

Net debt

Net debt / EBITDA (LTM)

2023

3,817.9

23,185.6

19,367.7

3.7x

2022

3,381.4

21,815.5

18,434.1

5.7x

% ∆

12.9%

6.3%

5.1%

-2.0x

¹Includes cash and cash equivalents, short-term and long-term investments, and receivables. ² Excludes convertible debentures.

____________________________________________________________________________ 9

Management

Report 2023

Fleet

As of December 31, 2023, Azul had a passenger operating fleet of 183 aircraft and a passenger contractual fleet of 189 aircraft, with an average aircraft age of 7.4 years excluding Cessna aircraft. At the end of 2023, the 6 aircraft not included in our operating passenger fleet consisted of (i) 3 Embraer E1s subleased to Breeze, and (iii) 1 ATR and 2 Embraer E1s being prepared to exit the fleet.

Azul ended the year with approximately 82% of its capacity coming from next-generation aircraft, far higher than any competitor in the region.

Passenger Contractual Fleet¹

2023

Airbus widebody

11

Airbus narrowbody

55

Embraer E2

20

Embraer E1

42

ATR

37

Cessna

24

Total¹

189

Aircraft under operating leases

164

2022

14

52

14

49

41

24

194

168

  • ∆
    -21.4% 5.8% 42.9% -14.3%-9.8%
    -
    -2.6%-2.4%
  • Includes 7 subleased aircraft.

Passenger Operating Fleet

2023

Airbus widebody

11

Airbus narrowbody

55

Embraer E2

20

Embraer E1

37

ATR

36

Cessna

24

Total

183

2022

11

51

13

43

37

22

177

% ∆

-

7.8%

53.8% -14.0%-2.7%

9.1%

3.4%

___________________________________________________________________________ 10

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Azul SA published this content on 12 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 April 2024 00:48:03 UTC.