AZUL SA (Form: F-1, Received: 02/06/2017 14:36:14)

Form of ADR.

Fee Schedule.

As filed with the Securities and Exchange Commission on February 6, 2017

No. 333-•

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Azul S.A.

(Exact name of Registrant as specified in its charter)

Federative Republic of Brazil

4512

Not applicable

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial
Classification Code Number)

(I.R.S. Employer Identification No.)

Edifício Jatobá, 8th floor, Castelo Branco Office Park

Avenida Marcos Penteado de Ulhôa Rodrigues, 939

Tamboré, Barueri, São Paulo, SP 06460-040, Brazil.

+55 (11) 4831 2880

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

National Corporate Research, Ltd.

10 East 40th Street, 10th Floor

New York, NY 10016

(212) 947-7200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies of all communications, including communications sent to agent for service, should be sent to:

Stuart K. Fleischmann, Esq.

Shearman & Sterling LLP

599 Lexington Avenue

New York, NY 10022

Filipe B. Areno, Esq.

J. Mathias von Bernuth, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

Av. Brigadeiro Faria Lima, 3311, 7th Floor

São Paulo, SP, 04538-133, Brazil

Approximate date of commencement of proposed sale of the securities to the public : As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

CALCULATION OF REGISTRATION FEE


Title of each class of securities to be registered	Proposed Maximum Aggregate Offering Price ⁽¹⁾	Amount of registration fee
Preferred shares including in the form of ADSs ⁽²⁾⁽³⁾	US$100,000,000	US$11,590

(1)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act. In accordance with Rule 457(p) under the Securities Act, an aggregate fee of US$13,640 was previously paid in connection with the Registration Statement No. 333-188871 on Form F-1 filed on May 24, 2013, determined at the then-applicable rate of $136.40 per $1,000,000 of the then-proposed maximum aggregate offering price of US$100,000,000. The full unused amount of this fee shall be applied to off-set any registration fees due from time to time for this registration statement. Any additional registration fees will be paid subsequently on a pay-as-you-go basis.

(2)

Includes preferred shares in the form of ADSs, which the underwriters may purchase solely to cover options to purchase additional shares, if any, and preferred shares which are to be offered in an offering outside the United States but which may be resold from time to time in the United States in transactions requiring registration under the Securities Act.

(3)	A separate Registration Statement on Form F-6 will be filed for the registration of ADSs issuable upon deposit of the preferred shares registered hereby. Each ADS represents one preferred share.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS (Subject to completion, dated February 6, 2017)

Preferred shares including preferred shares

in the form of American depositary shares

LOGO

(incorporated in the Federative Republic of Brazil)

This is an initial public offering by us and the selling shareholders referred to in this prospectus, or the Selling Shareholders, of of our non-voting preferred shares, of which preferred shares will be offered by us and preferred shares will be offered by the Selling Shareholders. The preferred shares may be offered directly or in the form of American depositary shares, or ADSs, each of which represents one preferred share (which ratio may be changed, as described in “Description of American Depositary Shares”) and may be evidenced by an American depositary receipt, or ADR, or may be held in uncertificated form (as described in “Description of American Depositary Shares”). This prospectus relates to the offering by the international underwriters of preferred shares, including in the form of ADSs in the United States and elsewhere outside of Brazil. Concurrently, we and the Selling Shareholders are selling preferred shares in Brazil through the Brazilian underwriters by way of a Brazilian prospectus in Portuguese. We refer to the international offering in the United States and elsewhere outside Brazil and the concurrent offering in Brazil as the “global offering.” The closings of the international and Brazilian offerings are conditioned upon each other.

No public market currently exists for our preferred shares or ADSs. We anticipate that the initial public offering price will be between R$ and R$ per preferred share and between US$ and US$ per ADS, calculated at the exchange rate of R$ per US$1.00 at , 2017. We have applied to list the ADSs on the New York Stock Exchange, or NYSE, under the symbol “•.” We have applied to list our preferred shares on the Level 2 ( Nível 2 ) segment of the São Paulo Stock Exchange (BM&FBOVESPA S.A.—Bolsa de Valores Mercadorias e Futuros), or BM&FBOVESPA, under the symbol “AZUL4”.

Investing in our preferred shares, including in the form of ADSs, involves risks. See “Risk Factors” beginning on page 22 of this prospectus.


	Per Preferred Share	Per ADS	Total
Public offering price	R$	US$	US$
Underwriting discounts and commissions ⁽¹⁾	R$	US$	US$
Proceeds, before expenses, to us	R$	US$	US$

(1)	See “Underwriting” for a description of all compensation payable to the Underwriters.

The Selling Shareholders have granted the international underwriters and Brazilian underwriters an option to purchase for a period of 30 days beginning on the date hereof up to , 2017 additional preferred shares, including in the form of ADSs, at the initial public offering price less the underwriting discount to cover options to purchase additional shares. We will not receive any proceeds from the sale of preferred shares including in the form of ADSs, by the Selling Shareholders. See “Underwriters—Option.”

Neither the Securities and Exchange Commission, or the SEC, the Brazilian Securities Commission (Comissão de Valores Mobiliários), or the CVM, nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Delivery of the ADSs will be made through the facilities of The Depository Trust Company, or DTC, on or about , 2017. Delivery of our preferred shares not sold in the form of ADSs will be made in Brazil through the book-entry facilities of BM&FBOVESPA on or about , 2017.


	Global Coordinators
Citigroup	Deutsche Bank Securities			Itaú BBA


Banco do Brasil Securities LLC	Bradesco BBI	JPMorgan	Raymond James	Santander

The date of this prospectus is , 2017

LOGO

TABLE OF CONTENTS


GLOSSARY OF AIRLINE AND OTHER TERMS			iii
PRESENTATION OF FINANCIAL AND OTHER INFORMATION			ix
SUMMARY FINANCIAL AND OPERATING DATA			11
THE OFFERING			16
RISK FACTORS			22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			47
USE OF PROCEEDS			49
EXCHANGE RATES			50
CAPITALIZATION			51
DILUTION			52
SELECTED CONSOLIDATED FINANCIAL INFORMATION			54
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			59
REGULATION			96
INDUSTRY			108
BUSINESS			111
MANAGEMENT			142
PRINCIPAL AND SELLING SHAREHOLDERS			153
RELATED PARTY TRANSACTIONS			160
DESCRIPTION OF CAPITAL STOCK			164
DESCRIPTION OF AMERICAN DEPOSITARY SHARES			175
MARKET INFORMATION			188
DIVIDEND POLICY			192
TAXATION			195
ERISA CONSIDERATIONS			207
UNDERWRITERS (CONFLICTS OF INTEREST)			208
EXPENSES OF THE GLOBAL OFFERING			226
VALIDITY OF SECURITIES			227
EXPERTS			228
WHERE YOU CAN FIND MORE INFORMATION			229
ENFORCEABILITY OF CIVIL LIABILITIES			230
INDEX TO FINANCIAL STATEMENTS			F-1

This prospectus has been prepared by us solely for use in connection with the proposed offering of preferred shares, including in the form of ADSs, in the United States and elsewhere outside Brazil. Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Itau BBA USA Securities, Inc., Banco do Brasil Securities LLC, Bradesco Securities Inc., J.P. Morgan Securities LLC, Raymond James & Associates, Inc. and Santander Investment Securities Inc., will collectively act as international underwriters with respect to the offering of the ADSs and as agents, on behalf of the Brazilian underwriters, with respect to the offering of preferred shares sold outside of Brazil not in the form of ADSs.

Neither we, the Selling Shareholders, the international underwriters or the Brazilian underwriters, nor any of their respective agents, have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We, the Selling Shareholders, the international underwriters, the Brazilian underwriters and their respective agents take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we, the Selling Shareholders, the international underwriters or the Brazilian underwriters, nor their respective agents, are making an offer to sell the preferred shares, including in the form of ADSs, in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus (except as otherwise indicated), regardless of the time of delivery of this prospectus or any sale of the preferred shares, including in the form of ADSs. Our business, financial condition, results of operations, cash flows and prospects may have changed since the date on the front cover of this prospectus.

We are also offering preferred shares in Brazil by way of a Brazilian prospectus in Portuguese. The Brazilian prospectus, which will be filed with the CVM for approval, has the same date as this prospectus and contains substantially the same information but has a different format and is not considered part of this prospectus. The international offering is made in the United States and elsewhere outside Brazil solely on the basis of the information contained in this prospectus. Investors should take this into account when making investment decisions.

In this prospectus, references to “Azul,” the “Company,” “we,” “us” and “our” refer to Azul S.A., a sociedade por ações incorporated under the laws of Brazil, and its subsidiaries on a consolidated basis, unless the context requires otherwise. The term “Selling Shareholders” refers to Saleb II Founder 13 LLC, Star Sabia LLC, WP-New Air LLC, Azul HoldCo, LLC, ZDBR LLC, Bozano, Maracatu LLC, Morris Azul, LLC, Trip Investimentos Ltda., Trip Participações S.A. and Rio Novo Locações Ltda. For more information, see “Principal and Selling Shareholders.” The term “Brazilian underwriters” refers to Banco Itaú BBA S.A., Citigroup Global Markets Brasil, Corretora de Câmbio, Títulos e Valores Mobiliários S.A., Deutsche Bank S.A. – Banco Alemão, BB – Banco de Investimento S.A., Banco Bradesco BBI S.A., Banco J.P. Morgan S.A. and Banco Santander (Brasil) S.A., who will act collectively as Brazilian underwriters with respect to the sale of preferred shares in the public offering in Brazil. The term “international underwriters” refers to Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Itau BBA USA Securities, Inc., Banco do Brasil Securities LLC, Bradesco Securities Inc., J.P. Morgan Securities LLC and Santander Investment Securities Inc., who will collectively act as underwriters with respect to the offering of the ADSs and as agents, on behalf of the Brazilian underwriters, with respect to the offering of preferred shares outside of Brazil not in the form of ADSs. Certain international underwriters will also act as placement agents for the Brazilian underwriters with respect to the placement of preferred shares outside Brazil, including in the United States.

The term “Brazil” refers to the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil. “Central Bank” refers to Banco Central do Brasil. References in the prospectus to “ real ,” “ reais ” or “R$” refer to the Brazilian real , the official currency of Brazil and references to “U.S. dollar,” “U.S. dollars” or “US$” refer to U.S. dollars, the official currency of the United States.

GLOSSARY OF AIRLINE AND OTHER TERM S

The following is a glossary of industry and other defined terms used in this prospectus:

“ABEAR” means the Brazilian Association of Airline Companies ( Associação Brasileira das Empresas Aéreas ).

“ABRACORP” means the Brazilian Corporate Agencies Association ( Associação Brasileira de Agências Corporativas ).

“ADR” means American depositary receipts.

“ Aeroportos Brasil ”, a private consortium that operates Viracopos airport jointly with INFRAERO.

The “Águia Branca Group”, or “Grupo Águia Branca”, is a Brazilian transportation and logistics conglomerate controlled by the Chieppe family.

“Airbus” means Airbus S.A.S.

“Airbus Group” means Airbus Group N.V.

“aircraft utilization” represents the average number of block hours operated per day per aircraft for our operating fleet, excluding spare aircraft and aircraft in maintenance.

“ANAC” refers to the Brazilian National Civil Aviation Agency ( Agência Nacional de Aviação Civil ).

“Atlantic Gateway” means Atlantic Gateway, SPGS, Lda., an entity jointly owned by our principal shareholder and another European investor.

“ATR” means aircraft with turboprop propulsion manufactured by Avions de Transport Régional G.I.E.

“audited consolidated financial statements” means our audited consolidated financial statements as of and for the years ended December 31, 2016, 2015 and 2014.

“available seat kilometers,” or “ASKs,” represents aircraft seating capacity multiplied by the number of kilometers the aircraft is flown.

“average fare” means total passenger revenue divided by passenger flight segments.

“stage length” means the average number of kilometers flown per flight segment.

“average ticket revenue per booked passenger” means total passenger revenue divided by booked passengers.

“block hours” means the number of hours during which the aircraft is in revenue service, measured from the time it closes the door at the departure of a revenue flight until the time it opens the door at the arrival on the gate at destination.

“Boeing” means The Boeing Company.

“booked passengers” means the total number of passengers booked on all passenger flight segments.

iii

“Bozano” means Cia. Bozano, a Brazilian holding company part of the Bozano financial conglomerate.

“BR Distribuidora” means Petrobras Distribuidora S.A., a subsidiary of Petrobras.

“Calfinco” means Calfinco, Inc., a wholly-owned subsidiary of United, which owns a 4.67% economic interest in us.

“CADE” refers to the Brazilian Administrative Council for Economic Defense ( Conselho Administrativo de Defesa Econômica ).

“CAPA” means the Centre for Aviation, a provider of independent aviation market intelligence, analysis and data services.

“Cape Town Convention” means the Convention on International Interests in Mobile Equipment and its protocol on Matters Specific to Aircraft Equipment, concluded in Cape Town on November 16, 2001.

“CASK” represents total operating cost divided by available seat kilometers.

“CBP” means United States Customs and Border Protection.

“Class A preferred shares” means (i) prior to •, 2017, • Class A shares of our preferred stock then issued and outstanding and (ii) after the conversion of (A) our • Class C preferred shares into • Class A preferred shares and (B) our • Class D preferred shares into • Class A preferred shares, and immediately prior to the renaming of our Class A preferred shares to “preferred shares” on •, 2017, • Class A shares of our preferred stock then existing and outstanding.

“Class B preferred shares” means the 2,400,388 Class B preferred shares issued by us on December 23, 2013 in connection with our Private Placement, of which 2,141,897 were repurchased and cancelled on August 30, 2016 and November 30, 2016, and the remainder were redeemed and cancelled under the mandatory redemption provisions of their subscription on December 23, 2016.

“Class C preferred shares” means the 5,421,896 Class C preferred shares issued by us on June 26, 2015 in connection with an investment agreement entered into with Calfinco and United on June 26, 2015. These Class C preferred shares were converted into • Class A preferred shares on •, 2017, and all Class A preferred shares were simultaneously renamed “preferred shares”. See “Principal and Selling Shareholders—United Investment Agreement.”

“Class D preferred shares” means, collectively, (i) the 3,517,936 Class D preferred shares issued by us on August 3, 2016 upon conversion of the Class E preferred shares, (ii) the 21,080,633 Class D preferred shares issued by us on August 3, 2016 to Hainan and (iii) the 7,022,381 Class D preferred shares issues by us on September 28, 2016 to Hainan. These Class D preferred shares were converted into • Class A preferred shares on •, 2017, following which all Class A preferred shares were simultaneously renamed “preferred shares”. See “Principal and Selling Shareholders—Hainan Investment Agreement.”

“Class E preferred shares” means the 3,517,936 Class E preferred shares issued by us on June 7, 2016, in connection with an investment agreement entered into with Hainan on February 5, 2016, as amended on June 6 2016. These Class E preferred shares were converted into Class D preferred shares on August 3, 2016. See “Principal and Selling Shareholders—Hainan Investment Agreement.”

“completion rate” means the percentage of completion of our scheduled flights that were operated by us, whether or not delayed (i.e., not cancelled).

“crewmembers” is a term we use to refer to all our employees, including aircraft crew, airport ground, call center, maintenance and administrative personnel.

“DECEA” means the Brazilian Department of Airspace Control ( Departamento de Controle do Espaço Aéreo ).

“departure” means a revenue flight segment.

“DOT” means the United States Department of Transportation.

“economic interest” means a participation in the total equity value of our company, calculated as if (i) all common shares issued and outstanding had been converted into preferred shares at the conversion ratio of 75.0 common shares to 1.0 preferred share pursuant to the mechanisms set forth in our by-laws such that our common shares would correspond to a total of 6,193,100 preferred shares outstanding on a theoretical fully converted basis prior to the completion of this global offering, and (ii) all Class C preferred shares and Class D preferred shares had been converted into Class A preferred shares at the conversion ratio of 1.0 Class C preferred shares to 1.0 Class A preferred share and 1.0 Class D preferred shares to 1.0 Class A preferred share, respectively, for a total of 127,285,633 Class A preferred shares outstanding, which we expect to occur prior to the completion of this global offering.

“E-Jets” refer to narrow-body jets manufactured by Embraer S.A.

“Embraer” means Embraer S.A.

“FAA” means the United States Federal Aviation Administration.

“FAPESP” means the State of São Paulo Research Foundation ( Fundação de Amparo à Pesquisa do Estado de São Paulo ), an independent public foundation established to foster research and the scientific and technological development of the state of São Paulo.

“FGV” refers to the Getúlio Vargas Foundation ( Fundação Getúlio Vargas ), a Brazilian higher education institution that was founded in December 1944.

“Fidelity” means, collectively, Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund and Fidelity Securities Fund: Fidelity Blue Chip Growth Fund.

“Fifth Amended and Restated Shareholders’ Agreement” means that certain shareholders’ agreement, dated August 3, 2016, entered into by and among holders of our common shares and preferred shares, which will be replaced by the Post-IPO Shareholders’ Agreement following the consummation of this offering.

“flight hours” means the number of hours during which the aircraft is in revenue service, measured from the time it takes off until the time it lands at the destination.

“focus-city” means a destination from which an airline operates several point-to-point routes. A focus-city may also function as a smaller scale hub.

“FTEs” means full-time equivalent employees.

“FTEs per aircraft” means the number of FTEs divided by the number of operating aircraft.

“Global Distribution System” or “GDS” means a system that enables automated transactions between airlines and travel agencies. Travel agencies traditionally rely on GDS for services, products and rates in order to provide travel-related services to end consumers. GDS can link services, rates and bookings consolidating products and services across different travel sectors including airline reservations, hotel reservations and car rentals. GDS charges participant airlines a booking fee per passenger and segment sold, typically applying additional charges for ticketing, credit card authorizations, real time connectivity, information pages and other ancillary services.

“Gol” means Gol Linhas Aéreas Inteligentes S.A.

“gross billings” means the result of the sale of points to commercial partners and the cash portion of points plus money transactions. It is not an accounting measurement. This revenue may affect the current period or may be recognized as revenue in future periods, depending on the time of redemption on the part of program participants.

“Hainan” means Hainan Airlines Co., Ltd.

“high-yield” means high profitability.

“IATA” means the International Air Transport Association.

“IBGE” means the Brazilian Institute of Geography and Statistics ( Instituto Brasileiro de Geografia e Estatística ).

“ICAO” means the International Civil Aviation Organization.

“IFRS” means International Financial Reporting Standards, as issued by the International Accounting Standards Board.

“INFRAERO” means Empresa Brasileira de Infraestrutura Aeroportuária—INFRAERO, a Brazilian state-controlled corporation reporting to the Ministry of Transportation, Ports and Civil Aviation that is in charge of managing, operating and controlling federal airports, including control towers and airport safety operations.

“Innovata” means Innovata LLC, a provider of travel content management that maintains a flight schedule database in partnership with IATA.

“Investors” means Star Sabia LLC, WP-New Air LLC, Azul HoldCo, LLC, Maracatu LLC, ZDBR LLC, Kadon Empreendimentos S.A., Bozano Investments LLC, JJL Brazil LLC and Morris Azul, LLC.

“JetBlue” means JetBlue Airways Corporation.

“LATAM” means LATAM Airlines Group S.A. including all of its subsidiaries. LATAM was formed in 2012, through the acquisition of TAM S.A., or TAM Linhas Aéreas S.A., by Lan Airlines S.A.

“load factor” means the percentage of aircraft seats actually occupied on a flight (RPKs divided by ASKs).

“main competitors” refers to Gol and LATAM, our competitors in the Brazilian market that have a market share larger than ours and publicly disclose their results of operations from time to time. When used in the singular, the term “main competitor” refers to Gol, our only direct competitor for which stand-alone information is publicly available.

“Multiplus” means Multiplus S.A., LATAM’s loyalty program.

“on-time performance” refers to the percentage of an airline’s scheduled flights that were operated and that arrived within 30 minutes of the scheduled time.

“operating fleet” means aircraft in service, spare aircraft and aircraft undergoing maintenance.

“passenger flight segments” means the total number of revenue passengers flown on all passenger flight segments.

“Petrobras” means Petróleo Brasileiro S.A., a mixed economy corporation in the oil and gas industry that is majority owned by the Brazilian government.

“pitch” means the distance between a point on one seat and the same point on the seat in front of it.

“Post-IPO Shareholders’ Agreement” means that certain shareholders’ agreement, to be executed upon the effectiveness of this offering, by and between us and our current shareholders. The Post-IPO Shareholders’ Agreement will replace the Fifth Amended and Restated Shareholders’ Agreement.

“PRASK” means passenger revenue divided by ASKs.

“PRASK premium” refers to the positive difference between an airline’s PRASK and its main competitor’s PRASK over a given time period.

“preferred shares” means (i) with respect to the period prior to •, 2017, our 90,242,787 Class A preferred shares, our 5,421,896 Class C preferred shares, and our • Class D preferred shares, and (ii) after •, 2017, our • preferred shares.

“principal shareholder” means David Neeleman.

“Private Placement” means the private placement offering of our Class B preferred shares under Section 4(a)(2) of the U.S. Securities Act of 1933, or the Securities Act, to Fidelity, Maracatu, LLC and Bozano on December 24, 2013 and that were later repurchased and redeemed in the second half of 2016.

“RASK” or “unit revenue” means operating revenue divided by ASKs.

“revenue passenger kilometers” or “RPKs” means one-fare paying passenger transported per kilometer. RPK is calculated by multiplying the number of revenue passengers by the number of kilometers flown.

“route” means a segment between a pair of cities.

“Smiles” means Smiles S.A., Gol’s loyalty program.

“stage length” means the average number of kilometers flown per flight.

“TAP” means TAP – Transportes Aéreos Portugueses, SGPS, S.A.

vii

“TAP bonds” means Tranche A 7.5% bonds due March 2026 issued by TAP and convertible into TAP special shares that, once issued, will represent certain capital and voting equity, and which are entitled to a right to receive certain dividends.

“TRIP” means the entity formerly known as TRIP Linhas Aéreas S.A.

“TRIP acquisition” means our 2012 acquisition of TRIP.

“trip cost” represents operating expenses divided by departures.

“TRIP’s former shareholders” means, collectively, the Caprioli family and the Águia Branca Group.

“TSA” means the United States Transportation Security Administration.

“Viracopos” means the main airport of Campinas, located approximately 100 km from the city of São Paulo.

“yield” represents the average amount one passenger pays to fly one kilometer.

viii

PRESENTATION OF FINANCIAL AND OTHER INFORMATIO N

Financial Statements

We maintain our books and records in reais . Our audited consolidated financial statements as of and for each of the years ended December 31, 2016, 2015 and 2014 are included in this prospectus. Our audited consolidated financial statements were prepared in accordance with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. We acquired TRIP, a former competitor airline, in 2012. Our results for 2016, 2015, 2014 and 2013 fully reflect the integration and consolidation of TRIP into our financial results.

The financial information presented in this prospectus should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this prospectus and the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In this prospectus, we present (i) EBITDA, which is defined as net income (loss) minus interest income (comprised of interest on short-term investments), plus interest expense (comprised of interest on loans and interest on factoring credit card and travel agencies receivables), current and deferred income tax and social contributions, and depreciation and amortization; and (ii) Adjusted EBITDA, which is defined as EBITDA adjusted to exclude foreign currency exchange, net, derivative financial instruments, net, other financial expenses, other financial income, and result from related parties, net (as applicable) and (iii) Adjusted EBITDAR, which is defined as Adjusted EBITDA further adjusted to exclude expenses related to aircraft and other rent.

EBITDA and Adjusted EBITDA are not financial performance measures determined in accordance with IFRS and should not be considered in isolation or as alternatives to operating income or net income or loss, or as indications of operating performance, or as alternatives to operating cash flows, or as indicators of liquidity, or as the basis for the distribution of dividends. Accordingly, you are cautioned not to place undue reliance on this information. A non-IFRS performance measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not so be adjusted for in the most comparable IFRS measure. EBITDA and Adjusted EBITDA are included as supplemental disclosures because we believe they are useful indicators of our operating performance. EBITDA is a well-recognized performance measurement in the airline industry that is frequently used by investors, securities analysts and other interested parties in comparing the operating performance of companies in our industry. We have also adjusted our EBITDA for foreign currency exchange variations relating to U.S. dollars denominated assets and liabilities as these are mostly non-cash or non-operating expenses that impact our financial result, our result from related party transactions, net, and derivative financial instruments, net.

We also present herein for limited purposes Adjusted EBITDAR solely as a valuation metric. This metric is included as supplemental disclosure because (i) we believe EBITDAR is traditionally used by aviation analysts and investors to determine the equity value of airlines and (ii) EBITDAR is one of the metrics used in our material debt financing instruments for financial reporting purposes. We believe EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing in general, as well as the accounting effects of capital spending and acquisitions (primarily aircraft) which may be acquired directly subject to acquisition debt (loans and finance leases) or by operating leases, each of which is presented differently for accounting purposes and (ii) using a multiple of EBITDAR to calculate enterprise value allows for an adjustment to the balance sheet to recognize estimated liabilities arising from off-balance sheet operating leases. However, Adjusted EBITDAR is not a financial measure in accordance with IFRS, and should not be viewed as a measure of overall performance or considered in isolation or as an alternative to net income, an alternative to operating cash flows, a measure of liquidity, or the basis for dividend distribution because it excludes the cost of aircraft and other rent and is provided for the limited purposes contained herein. As for the use of EBITDAR in our material debt financing instruments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Loans and Financings”.

The performance measures EBITDA and Adjusted EBITDA and the valuation measure Adjusted EBITDAR have limitations as analytical tools. Some of these limitations are: (i) EBITDA, Adjusted EBITDA and Adjusted EBITDAR do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) EBITDA, Adjusted EBITDA and Adjusted EBITDAR do not reflect changes in, or cash requirements for, our working capital needs; (iii) EBITDA, Adjusted EBITDA and Adjusted EBITDAR do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA, Adjusted EBITDA and Adjusted EBITDAR do not reflect any cash requirements for such replacements; and (v) EBITDA, Adjusted EBITDA and Adjusted EBITDAR are susceptible to varying calculations and therefore may differ materially from similarly titled measures presented by other companies in our industry, limiting their usefulness as comparative measures. Because of these limitations EBITDA, Adjusted EBITDA and Adjusted EBITDAR should not be considered in isolation or as a substitute for financial measures calculated in accordance with IFRS. Other companies may calculate EBITDA, Adjusted EBITDA and Adjusted EBITDAR differently than us. For a calculation of EBITDA, Adjusted EBITDA and Adjusted EBITDAR and a reconciliation of each to net income (loss), see “Summary Financial and Operating Data” and “Selected Consolidated Financial Information”.

Effect of Rounding

Certain amounts and percentages included in this prospectus, including in the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” have been rounded for ease of presentation. Percentage figures included in this prospectus have not been calculated in all cases on the basis of the rounded figures but on the basis of the original amounts prior to rounding. For this reason, certain percentage amounts in this prospectus may vary from those obtained by performing the same calculations using the figures in our audited consolidated financial statements. Certain other amounts that appear in this prospectus may not sum due to rounding.

Market and Industry Data

This prospectus contains data related to economic conditions in the market in which we operate. The information contained in this prospectus concerning economic conditions is based on publicly available information from third-party sources that we believe to be reasonable. Data and statistics regarding the Brazilian civil aviation market are based on publicly available data published by ANAC, INFRAERO, ABRACORP, Ministry of Transportation, Ports and Civil Aviation and Aeroportos Brasil , among others. Data and statistics regarding international civil aviation markets are based on publicly available data published by ICAO or IATA. We also make statements in this prospectus about our competitive position and market share in, and the market size of, the Brazilian airline industry. We have made these statements on the basis of statistics and other information from third-party sources that we believe to be reasonable, such as Innovata, ANAC and Dados Comparativos Avançados (Advanced Comparative Data, a monthly report issued by ANAC that contains preliminary information on the number of ASKs and RPKs recorded in the Brazilian civil aviation market), and ABEAR. In addition, we include additional operating and financial information about Gol, LATAM, Smiles and Multiplus, which is derived from the information released publicly by them, including disclosure filed with or furnished to the SEC and other information made available on their respective websites. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect and believe and act as if they are reliable, neither we, the Selling Shareholders, the international underwriters, the Brazilian underwriters, nor their respective agents have independently verified it. Governmental publications and other market sources, including those referred to above, generally state that their information was obtained from recognized and reliable sources, but the accuracy and completeness of that information is not guaranteed. Neither we, the Selling Shareholders, the international underwriters, the Brazilian underwriters, nor their respective agents can guarantee the accuracy of such information. In addition, the data that we compile internally and our estimates have not been verified by an independent source.

Fleet Data

As of December 31, 2016, our total fleet consisted of 139 aircraft, 39 of which we owned or held under finance leases or debt financing and 100 under operating leases of up to 12 years. The future obligations under operating leases are not recorded as debt on our balance sheet. Unless otherwise indicated, any reference to the number of aircraft that we own or operate includes aircraft leased under operating leases. Our fleet in service as of December 31, 2016 consisted of 74 Embraer E-Jets, 39 ATR aircraft, five next-generation Airbus A320neos and five widebody Airbus A330s, totaling 123 aircraft. The 16 aircraft not included in our fleet in service consisted of 15 aircraft that have been subleased to third parties and one aircraft that was not in service.

Financial Information in U.S. Dollars

We have translated some of the real amounts included in this prospectus into U.S. dollars. You should not construe these translations as representations by us that the amounts actually represent these U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated. Unless otherwise indicated, we have translated the real amounts for the year ended December 31, 2016 according to the commercial selling real /U.S. dollar exchange rate (equivalent to R$3.2591 to US$1.00), published by the Central Bank on its website, available on December 31, 2016.

PROSPECTUS SUMMARY

This summary highlights selected information about us and this global offering. It does not contain all of the information that may be important to you. Before investing in our preferred shares, including in the form of ADSs, you should read this entire prospectus carefully for a more complete understanding of our business and this global offering, including our financial statements and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

We are the largest airline in Brazil in terms of departures and cities served, with 784 daily departures serving 101 destinations, creating an unparalleled network of 203 non-stop routes as of December 31, 2016. As the sole airline on 70% of our routes, we are the leading airline in 66 Brazilian cities in terms of departures and carried approximately 21 million passengers in 2016. We are a low cost carrier and have generated a PRASK premium of at least 35% relative to our main competitor since our first year of operations. We derive this PRASK premium from our network, optimized fleet, operating efficiencies and high quality product offering. Complementing our extensive domestic network, we fly to select international destinations, including Fort Lauderdale, Orlando, and Lisbon. We wholly own our loyalty program TudoAzul , a strategic revenue-generating asset, which had 7.0 million members as of December 31, 2016.

Azul was founded in 2008 by entrepreneur David Neeleman, founder of JetBlue, as his fourth successful airline venture, to capture the market opportunities created by the expansion of the Brazilian aviation market. David Neeleman is our controlling shareholder as well as Chairman and Chief Executive Officer. In addition, we have a diverse group of key strategic shareholders, such as United and Hainan (a subsidiary of the HNA Group, a Fortune Global 500 conglomerate and the largest private airline operator in China).

Brazil is geographically similar in size to the continental United States and is currently the fourth largest market for domestic airline passengers in the world. Since 2008, the number of domestic airline passengers carried in Brazil has increased by more than 90% to 96 million in 2015, according to ANAC. Brazil’s air travel market continues to be significantly underpenetrated and is expected to increase to 131 million domestic passengers by 2021, according to ABEAR.

We have the most extensive route network in Brazil, serving 96 domestic destinations, about twice as many as our main competitors Gol and LATAM, which served 52 and 44 destinations, respectively, as of December 31, 2016. We are the only provider of scheduled service to 34 of our domestic destinations and hold the leading position in seven out of the ten largest domestic airports in which we operate in terms of departures. Through our network, we connect travelers to destinations exclusively served by us from our three hubs, which cater to the São Paulo, Belo Horizonte and Recife markets, among the largest metropolitan areas in the country. Notably, we are the leading airline at Viracopos airport, one of the São Paulo area’s principal airports and the largest domestic hub in South America in terms of non-stop destinations served, with a 97% share of its 159 daily departures as of December 31, 2016.

We operate a young, fuel-efficient fleet that we believe is better tailored for the Brazilian market than those of our main competitors as it allows us to serve cities with different demographics, ranging from large capitals to smaller cities. Our operating fleet of 123 aircraft as of December 31, 2016, comprised of 74 Embraer E-Jets, 39 ATR aircraft, five next-generation Airbus A320neos, and five Airbus A330s. Our fleet has an average age of 4.8 years, which is significantly younger than that of our main competitors. In December 2016, we began operating fuel-efficient, next-generation Airbus A320neos on longer, high demand domestic segments. We believe that our diversified fleet is optimized to efficiently match capacity to demand. This enables us to offer superior connectivity as well as more convenient and frequent non-stop service to more airports than our main competitors, which exclusively operate larger aircraft.

A key driver of our profitability is our management team’s extensive experience in implementing a disciplined, low cost operating model. Our optimized fleet yields lower trip costs than our main competitor. For the nine months ended September 30, 2016, our average trip cost was R$23,993, which was 29% lower than that of Gol. With the introduction of the next-generation Airbus A320neos to our fleet, we expect to maintain our market-leading low trip cost advantage. In addition, our FTEs per aircraft were the lowest in Brazil at 85 compared to 112 for Gol as of September 30, 2016. Over the past three years we had one of the best on-time performance records among Brazilian carriers, and were recognized as the “ Most On-Time Low Cost Carrier in the World” and the “Third Most On-Time Airline in the World” in 2015 by OAG .

We have built a strong brand by offering what we believe is a superior travel experience, based on a culture of customer service provided by a highly-motivated and well-trained team of crewmembers. Our service features include passenger seat selection, leather seats, individual entertainment screens with free live television at every seat in all our jets, extensive legroom with a pitch of 30 inches or more, complimentary beverage and snack services, and free bus service to key airports we serve. As a result of our strong focus on customer service, according to surveys we have conducted, 90% of our customers would recommend or strongly recommend Azul to a friend or relative as of December 31, 2016. In 2016 we were named “ Best Low Cost Carrier in South America ” for the sixth consecutive year and “ Best Staff in South America ” by Skytrax.

We continue to invest in and expand our loyalty program, TudoAzul , which had 7.0 million members and 77 program partners as of December 31, 2016. TudoAzul has been the fastest growing loyalty program in terms of members in Brazil for the past three years compared to Smiles and Multiplus, the loyalty programs of Gol and LATAM, respectively, and was elected “Best Loyalty Program in Brazil ” in 2016 by a survey of 25,000 readers of Melhores Destinos, the largest web portal of airline fare promotions and loyalty programs in Brazil. Given our network strength, the expected growth of passenger air travel, credit card penetration and usage and customer loyalty in Brazil, we believe that TudoAzul is a key strategic asset for us. Unlike our main competitors, we own 100% of our loyalty program and benefit from all of TudoAzul ’s cash flows. Since mid-2015, we have managed TudoAzul through a dedicated team and we are constantly evaluating opportunities to unlock value from this strategic asset.

We generate a PRASK premium from our unparalleled network, optimized fleet, operating efficiencies and high quality product offering, which resulted in revenues of R$6.7 billion in 2016. In addition to our PRASK premium, we remain focused on our disciplined low cost operating model as evidenced by having the lowest number of FTEs per aircraft and trip cost advantage compared to our main competitor as of September 30, 2016.

In 2016, we recorded operating income of R$344.3 million, representing an operating margin of 5.2%, and a net loss of R$126.3 million. Despite the contraction of the Brazilian economy, which started in 2014 and deepened in 2015 into the first half of 2016, we began to see a recovery during the second half of 2016, and recorded operating income of R$166.0 million for the three months ended September 30, 2016 and operating income of R$170.0 million for the three months ended December 31, 2016, representing an operating margin of 9.6% and 9.3%, respectively.

As a measure of our equity valuation, our Adjusted EBITDAR margin reached 27.1% in 2016, which we believe is one of the highest among publicly traded airlines in Latin America over the past three years. Adjusted EBITDAR should not be considered as a measure of overall performance since it excludes aircraft rent, which is a normal, recurring cash operating expense. In addition, Adjusted EBITDAR should not be considered in isolation or as an alternative to net income. For a reconciliation of our Adjusted EBITDAR to net income (loss), see “Summary Financial and Operating Data”.

Our Competitive Strengths

We believe the following business strengths allow us to compete successfully:

Largest network in Brazil

We have the largest network in Brazil in terms of departures and cities served, with 784 daily departures serving 101 destinations, creating an unparalleled network of 203 non-stop routes as of December 31, 2016. Our connectivity at large hubs allows us to consolidate traffic, serving larger and medium-sized markets as well as smaller cities that do not generate sufficient demand for point-to-point service. We have grown our network organically and through the acquisition of TRIP in 2012, at that time the largest regional carrier in Latin America in terms of destinations served. We believe that our extensive network coverage allows us to connect more passengers than our competitors, who serve significantly fewer destinations. As of December 31, 2016, we served 96 destinations in Brazil, compared to 52 for Gol and 44 for LATAM. In addition, we were the sole airline on 70% of our routes and 34 of the destinations we served, and the leading player in 66 cities as of December 31, 2016. By comparison, Gol and LATAM were leading carriers in only 13 and 4 cities, respectively, as of December 31, 2016. Furthermore, as of December 31, 2016, 22% and 16% of our domestic network overlapped with that of Gol’s and LATAM’s, respectively, while Gol’s and LATAM’s networks had an overlap of more than 80% between them.

Our optimized fleet enables us to efficiently serve our target markets

Our fleet strategy is based on optimizing the type of aircraft for the different markets we serve. Our diversified fleet of ATR, E-Jets and Airbus aircraft enables us to serve markets that we believe our main competitors, who only fly larger narrow-body aircraft, cannot serve profitably. We believe our current fleet of aircraft allows us to match capacity to demand, achieve high load factors, provide greater convenience and frequency, and serve low and medium density routes and markets in Brazil that are not served by our main competitors. According to ANAC, 67% of the flights in Brazil carried fewer than 120 passengers in 2015. Our domestic fleet consists of modern Embraer E-Jets which seat up to 118 passengers, fuel-efficient ATR aircraft which seat up to 70 passengers, and next-generation Airbus A320neos which seat up to 174 passengers, while all the narrow-body aircraft used by Gol and LATAM in Brazil have between 144 and 220 seats. As a result, the average trip cost for our fleet of R$23,993 as of September 30, 2016 was 29% lower than that of larger Boeing 737-800 jets flown by Gol. We also operate Airbus A330s to serve international markets.

Our fleet plan focuses on maintaining a trip cost advantage relative to our main competitors while also providing us with flexibility for growth into new markets both domestically and internationally. We expect to add up to 58 new next-generation Airbus A320neos between 2017 and 2023, and 33 next-generation E-Jets starting in 2020 to replace older generation aircraft and serve high-density markets. These new generation aircraft are more fuel-efficient than older generation aircraft. We expect that our fleet plan will allow us to maintain market-leading trip costs and to reduce our CASK, both in absolute terms and relative to our main competitors.

Industry-leading PRASK

We utilize a proprietary yield management system that is key to our strategy of optimizing yield through dynamic fare segmentation and demand stimulation. We target both business travelers, to whom we offer convenient flight options, and cost-conscious leisure travelers, to whom we offer low fares to stimulate air travel and to encourage advanced purchases. This segmentation model has enabled us to achieve a market-leading PRASK of 25.3 real cents in 2016. In addition, in 2016, our PRASK represented a •% premium compared to Gol. We believe our superior network and product offering allows us to attract high-yield and frequent business travelers. According to ABRACORP, we held a 29% share in terms of Brazilian business-focused travel agency revenue, compared to a 17% market share in terms of RPKs as of December 31, 2016. In 2016, our average business-focused travel agency ticket price was 21% higher than our main competitor and our total average fare was •% higher than our main competitor.

As an illustration of our ability to stimulate demand, the following table highlights the increase in average customers per day on certain routes from November 2008, shortly before we started operations, to December 2016:


	Total Direct Flights		Azul		Average Daily Enplanements (One Way)
Viracopos—Rio de Janeiro
November 2008		6		—		564
December 2016		21		19		1,773
Viracopos—Salvador
November 2008		—		—		155	⁽¹⁾
December 2016		4		4		480
Viracopos—Belo Horizonte
November 2008		5		—		503
December 2016		13		13		1,160
Belo Horizonte—Goiânia
November 2008		1		—		82
December 2016		3		3		292
Viracopos—Porto Alegre
November 2008		—		—		241	⁽¹⁾
December 2016		9		9		875

Source : ANAC and internal data.

(1)	Itinerary available through connecting flight only.

The increase in flights from Viracopos airport, our main hub, illustrates the success of our demand-stimulation model. Across Brazil, our Viracopos hub offers superior connectivity for connecting passengers, with the most non-stop services in the country as of December 31, 2016. As a result of our focus on underserved markets, we have been able to establish a successful platform that has significantly increased demand at Viracopos airport over the last eight years. In November 2008, before we began operations, airlines serving Viracopos airport offered just nine daily departures to eight destinations. As of December 31, 2016, Viracopos airport offered 159 daily departures to 55 destinations, and we held a 97% share of those daily departures.

Most efficient cost structure in the Brazilian market

We have leveraged our management team’s experience by implementing a disciplined, low cost operating model to achieve our operational efficiencies. We believe we have achieved these operational efficiencies primarily through:

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Optimized aircraft for markets and routes served;

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Low sales, distribution and marketing costs through direct-to-consumer marketing (approximately 86% of our total advertising expenses in 2016), low distribution costs (approximately 87% of all sales were generated by online channels in 2016) and associated use of social networking tools;

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Lower costs due to single class cabin configuration for our domestic flights;

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Operation of a modern fleet with better fuel-efficiency and lower maintenance costs than previous generation aircraft;

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Innovative and beneficial financial arrangements for our aircraft, as a result of being one of the largest customers for Embraer and ATR aircraft;

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Investment in check-in technology to increase operating efficiencies; and

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Creation of a company-wide business culture focused on driving down costs.

As a result, we have achieved lower trip costs than our main competitor. For the nine months ended September 30, 2016, our average trip cost was R$23,993, which was 29% lower than that of Gol. In addition, our FTEs per aircraft were the lowest in Brazil at 85 compared to 112 for Gol as of September 30, 2016.

We have a robust and scalable operating platform that features advanced technology such as ticketless reservations, an Oracle financial system and electronic check-in kiosks at our main destination airports. We believe that our scalable platform provides superior reliability and safety and will generate economies of scale as we continue to expand.

Strategic global partnerships

Over the last two years, we have established long-term strategic partnerships with United, Hainan and TAP. In 2015, United, acting through a subsidiary, acquired shares representing approximately a 5% economic interest in our company for US$100 million. Our alliance with United has enhanced the reach of our mutual networks and created additional connecting traffic, as both we and United began selling each other’s flights on our websites through a code-share agreement. This code-share agreement also provides customers flying on both airlines with a seamless reservations and ticketing process, including boarding pass and baggage check-in to their final destination, and we are evaluating possible additional cooperation with United.

In August 2016, Hainan became our single largest equity shareholder following a strategic investment of US$450 million in exchange for shares representing approximately a 24% economic interest in our company. We have recently transferred two aircraft orders for future deliveries of Airbus A350s to certain Hainan affiliates. Furthermore, with Hainan, we are exploring global networking opportunities, code-sharing and new routes as well as evaluating additional ways in which we can cooperate with Hainan to capitalize on the substantial passenger traffic between China and Brazil.

As part of the privatization process of TAP, a consortium of private investors (including our principal shareholder) acquired a stake in TAP, and we invested €90 million in exchange for TAP bonds convertible into up to a 41.25% economic interest in TAP. Such economic interest is equivalent to up to 6% of TAP’s voting rights and, if converted, would make us TAP’s largest shareholder in terms of economic interest. For information on the conversion mechanism of TAP bonds, see “Business—Strategic Partnerships, Alliances and Commercial Agreements—TAP.” As of December 31, 2016, TAP served more than 75 destinations, including 10 destinations in Brazil, and was the leading European carrier serving Brazil in terms of number of seats. In addition, in June 2016, we successfully launched a non-stop flight between our and TAP’s main hubs, Viracopos airport and Lisbon. We are constantly evaluating the various ways in which we can cooperate with TAP and in 2016 subleased 15 aircraft to TAP as part of our fleet optimization plan, see “Business—Fleet” and “Business—Strategic Partnerships, Alliances and Commercial Agreements—TAP.”

As a result of our existing code-share agreements with United and TAP, our customers have access to more than 130 additional destinations worldwide. In October 2016, Hainan announced flights between China and Lisbon and in 2017, we expect to conclude a code-share agreement with Hainan, expanding our connectivity between Brazil and China. In addition, we believe that our strategic partnerships with these airlines provide our TudoAzul members with a broad range of attractive redemption options.

High-quality customer experience through product and service-focused culture

We believe we provide a high-quality, differentiated travel experience and have a strong culture focused on customer service. Our crewmembers are trained to be service-oriented, focusing on providing the customer with a travel experience that we believe is unique among Brazilian airlines. We provide extensive training for our crewmembers that emphasizes the importance of both safety and customer service. We strive to hold our employees accountable to maintain the quality of our crew and customer service.

Our service features include passenger seat selection, leather seats, individual entertainment screens with free live television at every seat in all our jets, extensive legroom with a pitch of 30 inches or more, complimentary beverage and snack service, free bus service to key airports we serve (including between the city of São Paulo and Viracopos airport) and a fleet younger than Gol and LATAM.

We focus on meeting our customers’ needs and had one of the best on-time performance records among Brazil’s largest carriers for the last three years, at 89% for 2016, 91% for 2015 and 90% for 2014, according to OAG. OAG has also recognized us as the low cost airline with best on-time performance in the world in 2015. In addition, our completion rate has been consistently high, totaling 99% in 2016, 2015 and 2014.

Well-recognized brand

We believe we have been successful in building a strong brand by using innovative marketing and advertising techniques with low expenditures that focus on social networking tools to generate word-of-mouth recognition of our high quality service. As a result of our strong focus on customer service, surveys that we have conducted indicate that, as of December 31, 2016, 90% of our customers would recommend or strongly recommend Azul to a friend or relative. The strength of our brand has been recognized in a number of awards:

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Named “ Best Airline in Brazil ” in 2016 by Melhores Destinos, the largest web portal of airline fare promotions and loyalty programs in Brazil;

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Named “ Best Low Cost Carrier in South America ” in 2016 for the sixth consecutive year by Skytrax, an aviation research organization;

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Named “ Best Staff in South America ” in 2016 by Skytrax;

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Named “ Best Regional Leadership ” in 2016 based on our success in the Brazilian market by Flight Airline Business, an air transport industry news and analysis provider, as part of their Airline Strategy Awards;

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Recognized as the “ Third Most On-Time Airline in the World ” by OAG in 2015;

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Recognized as the “ Most On-Time Low Cost Carrier in the World ” by OAG in 2015;

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Named “ Best Low Cost Carrier in The World ” in 2012 by CAPA, an independent aviation research organization;

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Named one of the “ 50 Most Innovative Companies in The World ” and “ Most Innovative Company in Brazil ” in 2011 by Fast Company, a business magazine; and

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Named one of the “ 50 Hottest Brands In The World ” in 2010 by Ad Age, a leading marketing news source.

In addition, as a result of our strong brand awareness and focus on customer service, our TudoAzul loyalty program had 7.0 million members as of December 31, 2016 and has been recognized with the following awards:

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Named “ Best Loyalty Program in Brazil in 2016 ” by Melhores Destinos;

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Named “ The Loyalty Program with the Best Rates in Brazil in 2016 ” by Melhores Destinos; and

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Recognized as having “ The Most Innovative Co-Branded Credit Card ” at the 2015 Loyalty Awards Event presented by Flight Global, a renowned website recognized by the global aviation community as a reliable source of news, data and expertise relating to the aviation and aerospace industries.

Experienced management team

We believe we benefit from our highly knowledgeable and experienced management team. Our senior management, which has senior airline experience both in Brazil and in the United States, includes:

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Our Chairman and Chief Executive Officer David Neeleman, a dual Brazilian and U.S. citizen, who has founded four airlines in three different countries, including JetBlue Airways;

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The President of our only operating subsidiary – Azul Linhas Aéreas Brasileiras S.A., or Azul Linhas, Antonoaldo Neves, who was appointed on January 27, 2014. He previously served as a Partner at McKinsey & Company where he worked for over ten years, during which time he led our integration process with TRIP, and was appointed by BNDES and the Civil Aviation Authority Secretary as a board member of INFRAERO from 2011 to 2012;

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Azul Linhas’ Chief Operating Officer, Flávio Costa, who has been part of the Azul founding team since inception and has more than 40 years of experience in the airline industry, having served as Technical and Operations Director at Pluna S.A., and OceanAir and as Technical Director at Varig;

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Our Chief Financial Officer and Investor Relations Officer, John Peter Rodgerson, who previously served as Director of Planning and Financial Analysis at JetBlue Airways for five years. He was responsible for implementing our financial strategy and cost structure since our inception;

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Our Chief Revenue Officer, Abhi Shah, who has more than 14 years of experience in the aviation industry and has previously held executive positions at JetBlue Airways and Boeing. He was responsible for developing our yield management, network planning and revenue structure;

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The Head of our TudoAzul loyalty program, Alexandre Wagner Malfitani, who previously served as our Director of Finance and Treasurer. Before joining Azul, Mr. Malfitani held the position of Managing Director of Treasury at United, having also worked in the finance industry, including as a fund manager at Deutsche Bank and as a trader at Credit Agricole Indosuez; and

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Our Vice President of Clients, Sami Foguel, is responsible for customer service, Azul Cargo and Quality assurance. Prior to joining Azul in 2014, Mr. Foguel held several executive positions at HSBC, including Head of Products, Segments, Customer Relationship Management and Customer Experience. Before joining HSBC, Mr. Foguel worked at McKinsey & Company for ten years.

Most of our senior management team has worked together for over eight years and has been with us since our launch. All non-Brazilian individuals on the team are residents of São Paulo with permanent work visas. In addition to Mr. Neeleman, all of our principal officers are also shareholders in our company, and all are motivated by participation in our stock option and restricted stock plans, which we believe aligns shareholders’ and management’s interests. Our management team has focused on establishing a successful working environment and employee culture. We believe the experience and commitment of our senior management team have been a critical component in our growth, as well as in the continuing enhancement of our operating and financial performance.

Our Growth Strategies

Our goal is to grow profitably and increase shareholder value by offering frequent and affordable services to our customers. We intend to implement the following strategic initiatives to achieve this objective:

Adding new destinations, larger aircraft and increasing flight frequencies

We intend to continue identifying, entering into and rapidly achieving leading market presence in new markets or underserved markets with high growth potential. We also intend to continue to grow by adding new destinations to our network, further connecting the cities that we already serve with new non-stop service, increasing frequency in existing markets, and using larger aircraft in markets that we have developed over the years. Finally, we intend to apply our disciplined approach of selecting new destinations that can be served by our ATR or Embraer aircraft, with a continued focus on Brazilian cities where we believe there is the greatest opportunity for profitable growth, and on select destinations in South America with perceived high growth potential. Our ATR aircraft give us a significant strategic advantage in the ability to enter new cities and access previously untapped demand, since these aircraft only have 70 seats and, therefore, require fewer passengers for the flight to become profitable.

We believe there are significant opportunities to connect the cities we currently serve with non-stop service where none existed before. We believe that our Embraer fleet is the ideal fleet type to connect such cities due to the combination of seat count and low trip costs. For example, Azul is the only airline flying non-stop between Porto Alegre and Cuiabá, two of our focus-cities where only we have the optimized aircraft for this service.

On existing routes that we believe present additional demand, we intend to increase the number of daily flights with our E-Jets to achieve or further increase schedule superiority over our competitors. For example, we increased our daily departures on the Viracopos—Rio de Janeiro route from six to 19 between March 2009 and December 2016, and our daily departures on the Viracopos—Belo Horizonte route from four to 13 between August 2009 and December 2016. By providing this additional convenience to our customers, we aim to continue stimulating demand for our products and services.

We have also begun to introduce next–generation Airbus A320neos, which have 56 more seats than our current E-Jets, for longer-haul leisure and peak hour focus-city to focus-city service. For the longer distance leisure domestic markets, we believe the next-generation Airbus A320neo gives us industry leading low seat costs to compete in these markets. For example, in December 2016, we introduced four daily next-generation Airbus A320neo flights between our main hub in Viracopos airport and our regional hub in Recife. This approximately three hour flight provides us with significantly lower seat costs than our current E-Jets and provides sufficient seat capacity to connect customers between both hubs. We believe that by applying this strategy we can increase revenues and generate economies of scale by leveraging the infrastructure and staff at our existing destinations.

We plan to focus our international growth on connecting our strong presence in Brazil via Viracopos airport, Belo Horizonte and Recife and our current international destinations Fort Lauderdale, Orlando and Lisbon. We believe we are especially suited to stimulate additional demand for travel to key long-haul international destinations, which can be served by our Airbus A330s, by taking advantage of our focused domestic route structure, both in terms of passengers and overall connectivity throughout Brazil. We currently offer direct flights to 55 destinations out of our main hub in Viracopos airport, and we continue to leverage our position as the largest airline in Viracopos airport by offering international flights as well as connecting passengers throughout Brazil. Additionally, our new code-share flight with TAP between Viracopos airport and Lisbon enables us to connect our main hub with TAP’s main hub in Lisbon, thus enhancing our passenger connectivity between Brazil and Europe.

Continue to unlock value from our TudoAzul loyalty program

As a result of the growth of our network, we believe there is an opportunity to further unlock value from our TudoAzul loyalty program. With 7.0 million members as of December 31, 2016, TudoAzul has been the fastest growing loyalty program among the three largest programs in Brazil for the past three years. TudoAzul sells loyalty points to business partners as well as directly to program members. Our current business partners include financial institutions (including American Express, Itaú, Santander, Livelo (Banco do Brasil’s and Bradesco’s loyalty joint venture), Caixa, and HSBC), retailers (including Apple, Walmart and Fast Shop) and travel partners (including Hertz, Avis and Booking.com).

In September 2014, we also launched an Azul-branded credit card in partnership with Banco Itaucard S.A. In addition, in December 2015, we launched Clube TudoAzul , an innovative, subscription-based product through which members pay a fixed recurring amount per month in exchange for TudoAzul points, access to promotions and other benefits. We also offer members the ability to buy points to complete the amount required for a reward, or pay a fee to renew expired points or transfer points to a different member’s account. We believe that our international flights and strategic partnerships with international carriers, including United and TAP, provide our TudoAzul members with a broad range of attractive redemption options.

We offer last-seat availability to TudoAzul members and have significant flexibility to price redemptions in a way that is competitive with other loyalty programs, thus helping to maximize TudoAzul ’s attractiveness. We actively manage the price of our redemptions, offering very competitive fares in points when seat availability is high and optimizing margin in peak, high-demand flights. We have also developed an exclusive, proprietary pricing system, which provides ample flexibility to price redemptions within a given flight. This allows us to sell seats using several combinations of points and money. It also allows us to customize pricing using a number of different factors, such as a member’s elite tier, membership in Clube TudoAzul , and age (allowing us to offer lower prices to infants and children). We are confident that this proprietary system offers more flexibility than those of our main competitors, therefore allowing us to create promotions, stimulate cross-sell of other TudoAzul products, and more accurately price redemptions so as to maximize profitability.

Direct sales of points to TudoAzul members via monthly subscriptions to Clube TudoAzul members, internet direct point sales and other means have been the fastest-growing revenue segment for TudoAzul , with a monthly growth rate from direct sales of approximately 25% since December 31, 2015. This source of revenue is extremely attractive as it diversifies our customer base, with direct sales representing a significant volume of over 10% of TudoAzul ’s external gross billings (excluding points sold to the airline), as of December 31, 2016. These direct sales generate recurring revenues and we expect to grow this segment by enhancing our customer offerings and introducing new products to our members.

In an effort to maximize the value creation potential of TudoAzul , we have been managing the program through a dedicated team since mid-2015. On a standalone basis, TudoAzul ’s gross billings totaled R$680.0 million in 2016. Given the number of exclusive destinations we operate, our network strength, and the expected growth of passenger air travel, credit card penetration and usage and member loyalty in Brazil, we believe that TudoAzul is a strategic business for us. We plan to continue investing in TudoAzul ’s expansion and evaluating opportunities to unlock value for this strategic asset.

Continue to establish and extend strategic partnerships

As of December 31, 2016, we had a code-share agreement with United and TAP, as well as 18 interline and code-share agreements with a number of other international airlines, allowing us to handle passengers traveling on itineraries that require multiple flights on multiple airlines. As part of our plans to expand globally, over the last two years, we have established strategic partnerships with United, Hainan and through our investment in certain convertible bonds, also in TAP. We view these and possible future relationships with other airlines as strategic ways of allowing us to expand our network with connectivity throughout the United States, Europe and Asia without having to commit the full resources on our own. We believe that our existing and future customer base are increasingly taking advantage of the ability to fly internationally, and we aim to be able to offer our Brazilian customers a seamless ability to do so, whether by purchasing tickets on partner airlines on our website or through connected and complimentary schedules facilitating onward travel outside of Brazil. In addition to facilitating a more global network for us through these partnerships, we are exploring a variety of cooperative arrangements, including additional interline agreements, code-sharing, access to partner airlines’ frequent flyer programs and possible cobranding. We also see opportunities to leverage these relationships to facilitate greater operating efficiencies by utilizing partner expertise in maintenance, cargo transport and even possible pilot and crew training and redeployment, as well as redeployment of redundant or unneeded aircraft. We have started to observe such opportunities not just in relation to Azul and TAP code-share flights from Brazil to Lisbon, but also with the connectivity with Hainan between TAP’s hub in Lisbon and China announced in October 2016, the transfer of two aircraft orders for future deliveries of Airbus A350s to certain Hainan affiliates, the sublease of 15 aircraft in our fleet to TAP, and other measures. We are exploring joint ventures and other arrangements with our partners to determine the most effective and beneficial ways to leverage these relationships for all parties.

We view our partnerships as critical to our global connectivity but also as a way to addressing macroeconomic pressures in Brazil. By working with our partners we believe we have and can continue to adapt to any local economic conditions and do so swiftly in areas involving our fleet, crews and operating expenses. We expect to continue evaluating strategic partnership opportunities, including investments and acquisitions, that allow us to improve our network, offer more attractive benefits to our TudoAzul members, enhance our brand and build loyalty and revenue.

Continue to increase ancillary and other revenue

We intend to continue growing our ancillary and other revenue, by both leveraging our existing products and introducing new ones. We intend to focus on deriving further value from our existing ancillary and other revenue streams, which represented R$43.4 per passenger as of December 31, 2016 and included revenue from cargo services, passenger-related fees, upgrades, sales of advertising space in our various customer-facing formats, commissions on travel insurance sales, and revenues from airport parking at Viracopos airport. Since the launch of our international routes and aircraft with multi-class cabins in December 2014, we have been able to increase our ancillary revenue per passenger from R$31.3 as of December 31, 2015 to R$43.4 as of December 31, 2016, mostly due to the sale of upgrades to our “Espaço Azul”, “Economy Xtra”, “SkySofa” and business class sections. As a result of the introduction of the next-generation Airbus A320neos to our fleet, we expect to have more seat availability for our TudoAzul loyalty program and our Azul Viagens travel package business as well as additional cargo capacity.

Corporate Information

We are incorporated as a Brazilian Corporation ( sociedade por ações ), with headquarters at Avenida Marcos Penteado de Ulhôa Rodrigues, 939, Tamboré, Edifício Jatobá, 8 ^th floor, Castelo Branco Office Park, Barueri, São Paulo, SP 06460-040, Brazil. Our investor relations office can be reached at +55 (11) 4831-2880 and our website address is www.voeazul.com.br . Information provided on our website is not part of this prospectus and is not incorporated by reference herein.

SUMMARY FINANCIAL AND OPERATING DAT A

The following tables summarize our financial and operating data for each of the periods indicated. You should read this information in conjunction with our financial statements and related notes, and the information included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this prospectus.

This summary financial data as of and for the years ended December 31, 2016, 2015 and 2014 has been derived from our audited consolidated financial statements included elsewhere in this prospectus, which have been prepared in accordance with IFRS.

Statements of Operations Data


	For the Years Ended December 31,
	2016			2016			2015			2014
	(US$)			(R$)			(R$)			(R$)
	(in thousands, except amounts per share and%)
Operating revenue
Passenger revenue		1,775,585			5,786,809			5,575,344			5,129,613
Other revenue		270,959			883,082			682,522			673,440

Total revenue		2,046,544			6,669,891			6,257,866			5,803,053
Operating expenses
Aircraft fuel		(478,728	)		(1,560,223	)		(1,917,606	)		(1,955,036	)
Salaries, wages and benefits		(335,022	)		(1,091,871	)		(1,042,119	)		(991,449	)
Aircraft and other rent		(356,206	)		(1,160,912	)		(1,171,325	)		(689,055	)
Landing fees		(135,833	)		(442,692	)		(382,610	)		(314,402	)
Traffic and customer servicing		(100,423	)		(327,289	)		(307,926	)		(240,783	)
Sales and marketing		(84,748	)		(276,203	)		(258,214	)		(239,359	)
Maintenance, materials and repairs		(217,465	)		(708,739	)		(643,897	)		(353,339	)
Depreciation and amortization		(92,418	)		(301,201	)		(217,983	)		(197,755	)
Other operating expenses, net		(140,062	)		(456,475	)		(483,773	)		(420,949	)

		(1,940,905	)		(6,325,605	)		(6,425,453	)		(5,402,127	)

Operating income (loss)		105,638			344,286			(167,587	)		400,926
Financial result
Financial income		15,669			51,067			43,178			41,518
Financial expense		(224,356	)		(731,200	)		(685,919	)		(460,049	)
Derivative financial instruments, net		3,314			10,800			(82,792	)		4,245
Foreign currency exchange, net		55,128			179,668			(184,305	)		(74,104	)
		(150,245	)		(489,665	)		(909,838	)		(488,390	)
Result from related party transactions, net		50,028			163,045			—			—

Net income (loss) before income tax and social contribution		5,421			17,666			(1,077,425	)		(87,464	)
Income tax and social contribution		2,679			8,731			(1,366	)		(4,368	)
Deferred income tax and social contribution		(46,857	)		(152,711	)		3,886			26,792

Net loss for the year		(38,757	)		(126,314	)		(1,074,905	)		(65,040	)

Basic and diluted loss for the year per common share R$/US$ ⁽²⁾		(0.00	)		(0.01	)		(0.14	)		(0.01	)
Basic and diluted loss for the year per preferred share R$/US$		(0.34	)		(1.10	)		(10.84	)		(0.69	)


	For the Years Ended December 31,
	2016		2016		2015			2014
	(US$)		(R$)		(R$)			(R$)
	(in thousands, except amounts per share and%)
Other financial data (unaudited):
EBITDA ⁽³⁾		238,972		778,833		(449,148	)		437,601
Adjusted EBITDA ⁽⁴⁾		198,057		645,487		50,396			598,681
Adjusted EBITDAR ⁽⁵⁾		554,263		1,806,399		1,221,721			1,287,736
Adjusted EBITDAR Margin ⁽⁶⁾		27.1%		27.1%		19.5%			22.2%

(1)

For convenience purposes only, the amounts in reais for the year ended December 31, 2016 have been translated to U.S. dollars using the rate R$3.2591 as of December 31, 2016, which was the commercial selling rate for U.S. dollars as of December 31, 2016, as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

(2)	Reflects the conversion ratio of 75.0 common shares to 1.0 preferred share.

(3)

We calculate EBITDA as net income (loss) minus interest income (comprised of interest on short-term investments), plus interest expense (comprised of interest on loans and interest on factoring credit card and travel agencies receivables), current and deferred income tax and social contribution and depreciation and amortization. We believe EBITDA is a well recognized performance measurement in the airline industry that is frequently used by investors, securities analysts and other interested parties in comparing the operating performance of companies in our industry. EBITDA is not a measure of financial performance in accordance with IFRS, and should not be considered in isolation or as an alternative to net income, an alternative to operating cash flows, a measure of liquidity, or the basis for dividend distribution. Other companies may calculate EBITDA differently than us. EBITDA serves an indicator of overall financial performance, which is not affected by changes in rates of income tax and social contribution or levels of depreciation and amortization. Consequently, we believe that EBITDA serves as an important tool to periodically compare our operating performance, as well as to support certain administrative decision. Because EBITDA does not include certain costs related to our business, such as interest expense, income taxes, depreciation, capital expenditures and other corresponding charges, which might significantly affect our net income, EBITDA has limitations which affect its use as an indicator of our profitability.

(4)

Adjusted EBITDA is equal to EBITDA adjusted to exclude foreign currency exchange, net, derivative financial instruments, net, other financial income (expense), and result from related party transactions, net. Adjusted EBITDA is not a measure of financial performance in accordance with IFRS, and should not be considered in isolation or as an alternative to net income, an alternative to operating cash flows, a measure of liquidity, or the basis for dividend distribution. Other companies may calculate Adjusted EBITDA differently than us. Adjusted EBITDA serves as an indicator of overall financial performance that we believe serves as an important tool to periodically compare our operating performance, as well as to support certain administrative decisions. Because Adjusted EBITDA does not include certain costs related to our business, it has limitations which affect its use as an indicator of our profitability.

(5)

Adjusted EBITDAR is equal to Adjusted EBITDA adjusted to exclude the expenses related to aircraft and other rent expenses. Adjusted EBITDAR is presented as supplemental information, because (i) we believe EBITDAR is a valuation metric traditionally used by aviation analysts and investors to determine the equity value of airlines and (ii) EBITDAR is one of the measures used in our material debt financing instruments for financial reporting purposes. We believe EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing in general, as well as the accounting effects of capital spending and acquisitions (primarily aircraft) which may be acquired directly subject to acquisition debt (loans and finance leases) or by operating leases, each of which is presented differently for accounting purposes and (ii) using a multiple of EBITDAR to calculate enterprise value allows for an adjustment to the balance sheet to recognize estimated liabilities arising from off-balance sheet operating leases. However, Adjusted EBITDAR is not a financial measure in accordance with IFRS, and should not be considered in isolation or as an alternative to net income, an alternative to operating cash flows, a measure of liquidity, or the basis for dividend distribution because it excludes the cost of aircraft and other rent and is provided for the limited purposes contained herein. Other companies may calculate Adjusted EBITDAR differently than us. Adjusted EBITDAR should not be viewed as a measure of overall performance since it excludes aircraft rent, which is a normal, recurring cash operating expense. Adjusted EBITDAR has significant limitations which affect its use as an indicator of our profitability. Accordingly, you are cautioned not to place undue reliance on this information. For more information on the limitations of Adjusted EBITDAR as an analytical tool, see “Presentation of Financial and Other Information—Financial Statements.” As for the use of EBITDAR in our material debt financing instruments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Loans and Financings”.

(6)	Represents Adjusted EBITDAR divided by total operating revenue.

The following tables present the reconciliation of the non-IFRS performance measures EBITDA and Adjusted EBITDA and the valuation metric Adjusted EBITDAR to net income (loss) for the periods indicated below:


				For the Years Ended December 31,
	2016			2016			2015			2014
	(US$) ⁽¹⁾			(R$)			(R$)			(R$)
				(in thousands, except Adjusted EBITDAR margin)
Reconciliation :
Net loss for the year		(38,757	)		(126,314	)		(1,074,905	)		(65,040	)
Plus ( minus ):
Interest expense ⁽²⁾		152,667			497,557			450,960			364,255
Interest income ⁽³⁾		(11,534	)		(37,591	)		(40,666	)		(36,945	)
Income tax and social contribution		(2,679	)		(8,731	)		1,366			4,368
Deferred income tax and social contribution		46,857			152,711			(3,886	)		(26,792	)
Depreciation and amortization		92,418			301,201			217,983			197,755

EBITDA (4)		238,972			778,833			(449,148	)		437,601
Foreign currency exchange, net ⁽⁵⁾		(55,127	)		(179,668	)		184,305			74,104
Derivative financial instruments, net ⁽⁶⁾		(3,314	)		(10,800	)		82,792			(4,245	)
Other financial expenses ⁽⁷⁾		71,689			233,643			234,959			95,794
Other financial income		(4,135	)		(13,476	)		(2,512	)		(4,573	)
Result from related party transactions, net		(50,028	)		(163,045	)		—			—

Adjusted EBITDA ⁽⁴⁾⁽⁸⁾		198,057			645,487			50,396			598,681
Aircraft and other rent		356,206			1,160,912			1,171,325			689,055

Adjusted EBITDAR ⁽⁹⁾		554,263			1,806,399			1,221,721			1,287,736

Adjusted EBITDAR Margin (%) ⁽¹⁰⁾		27.1%			27.1%			19.5%			22.2%

(1)

(2)	Interest expense is interest on loans, factoring credit card, and travel agencies receivables, which is a component of financial expense. See note 25 to our audited consolidated financial statements.

(3)	Interest income is interest on short-term investments, which is a component of financial income. See note 25 to our audited consolidated financial statements.

(4)

EBITDA and Adjusted EBITDA, as calculated by us, may not be comparable to EBITDA and Adjusted EBITDA as used by other companies which may calculate Adjusted EBITDA in a manner which differs from ours. EBITDA and Adjusted EBITDA are not measures of financial performance in accordance with IFRS. They do not represent cash flow for the corresponding periods, and should not be considered as alternatives to net income or loss or as measures of operating performance, cash flow or liquidity, nor should they be considered for the calculation of dividend distribution.

(5)	Represents the foreign exchange remeasurement on U.S. dollar and Euros denominated assets and liabilities.

(6)	Represents currency forward contracts used to protect our U.S. dollar exposure.

(7)	Other financial expenses are a component of our financial expense. See Note 25 to our audited consolidated financial statements.

(8)

Adjustments exclude the effects of the following items: (i) the foreign currency exchange variation relating to foreign currency denominated assets and liabilities; (ii) gains or losses in connection with our derivative instruments used to protect us against variations of the U.S. dollar compared to the real ; (iii) other financial expenses (does not include interest expenses), which is a component of financial expenses; (iv) other financial income (does not include interest income), which is a component of financial income; and (v) result from related parties, net (as applicable). We believe that such adjustments are useful to indicate our operating performance.

(9)

(10)	Represents Adjusted EBITDAR divided by total operating revenue.

Balance Sheet Data

The following table presents key line items from our historical balance sheet data:

As of December 31,

2016

2015

2014

(US$) ⁽¹⁾

(R$)

(in thousands)

Cash and cash equivalents

168,502

549,164

636,505

388,959

Total assets

2,577,524

8,400,409

7,839,164

6,239,199

Loans and financing ⁽²⁾

1,237,917

4,034,495

4,810,945

3,259,184

Equity

307,443

1,001,987

(392,169

)

416,495

Total liabilities and equity

2,577,524

8,400,409

7,839,164

6,239,199

(1)

(2)	Includes current and non-current loans and financing.

Operating Data


	As of and For the Years Ended December 31,
	Unaudited
	2016 ⁽¹⁾			2016		2015		2014
Operating Statistics (unaudited):
Operating aircraft at end of period		123			123		144		138

Total aircraft at end of period		124			124		152		153
Cities served at end of period		101			101		100		105
Average daily aircraft utilization (hours)		10.1			10.1		9.5		9.6
Stage length (km)		848			848		830		727
Number of departures		261,611			261,611		280,832		283,755
Block hours		403,888			403,888		435,683		422,873
Passenger flight segments		20,822,146			20,822,146		21,794,939		20,409,931
Revenue passenger kilometers (RPKs) (million)		18,236			18,236		18,636		15,671
Available seat kilometers (ASKs) (millions)		22,869			22,869		23,423		19,747
Load Factor (%)		79.7%			79.7%		79.6%		79.4%
Passenger revenue (in thousands)		US$1,775,585	⁽¹⁾		R$5,786,809		R$5,575,344		R$5,129,613
Passenger revenue per ASK (cents) (PRASK)		US$7.76	⁽¹⁾		R$25.30		R$23.80		R$25.98
Operating revenue per ASK (cents) (RASK)		US$8.95	⁽¹⁾		R$29.17		R$26.72		R$29.39
Yield per ASK (cents)		US$9.74	⁽¹⁾		R$31.73		R$29.92		R$32.73
Trip cost		US$7,419	⁽¹⁾		R$24,179		R$22,880		R$19,038
End-of-period FTEs per aircraft		84			84		73		76
CASK (cents)		US$8.49	⁽¹⁾		R$27.66		R$27.43		R$27.36
CASK (ex-fuel) (cents)(2)		US$6.39	⁽¹⁾		R$20.84		R$19.25		R$17.46
Fuel liters consumed (thousands)		880,941			880,941		906,778		789,150
Average fuel cost per liter		US$0.54	⁽¹⁾		R$1.77		R$2.11		R$2.48

(1)

(2)	CASK (ex-fuel) means CASK excluding all fuel costs.

THE OFFERIN G

Issuer

Azul S.A.

The global offering

● preferred shares, to be offered in an international offering and a Brazilian offering, of which ● preferred shares will be offered by us and ● preferred shares will be offered by the Selling Shareholders. The number of preferred shares offered in the international offering and the Brazilian offering is subject to reallocation between the offerings. The closings of the international offering and the Brazilian offering are conditioned upon each other.

International offering

We and the Selling Shareholders are offering ● preferred shares, in the form of ADSs, through the international underwriters in the United States and elsewhere outside Brazil.

The international underwriters will also act as placement agents on behalf of the Brazilian underwriters with respect to the sale of preferred shares to investors located outside Brazil who are authorized to invest in Brazilian securities according to the rules of the Brazilian National Monetary Council ( Conselho Monetário Nacional ), or the CMN, and the CVM.

Brazilian offering

Concurrently with the international offering, we and the Selling Shareholders are offering preferred shares through the Brazilian underwriters to investors in Brazil in a public offering authorized by the CVM. The Brazilian offering will be made by means of a separate prospectus in Portuguese.

A portion of these preferred shares offered through the Brazilian offering may be placed by the international underwriters in their capacity as placement agents outside of Brazil, as described above in the context of the international offering. We are offering a total of ● preferred shares when considering the preferred shares offered through the Brazilian underwriters to investors in Brazil together with the preferred shares placed by the international underwriters outside of Brazil.

Payment for our preferred shares (other than preferred shares in the form of ADSs) must be made in reais through the facilities of the BM&FBOVESPA Central Depository. We expect to deliver our preferred shares in the Brazilian offering through the facilities of the BM&FBOVESPA Central Depository on or about ●, 2017. Trades in our preferred shares on the BM&FBOVESPA will settle through the facilities of the BM&FBOVESPA Central Depository.

Selling Shareholders

Saleb II Founder 13 LLC, Star Sabia LLC, WP-New Air LLC, Azul HoldCo, LLC, ZDBR LLC, Bozano, Maracatu LLC, Morris Azul, LLC, Trip Investimentos Ltda., Trip Participações S.A. and Rio Novo Locações Ltda.

International underwriters

Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Itau BBA USA Securities, Inc., Banco do Brasil Securities LLC, Bradesco Securities Inc., J.P. Morgan Securities LLC, Raymond James & Associates, Inc. and Santander Investment Securities Inc.

Citibank Global Markets Inc., Deutsche Bank Securities Inc. and Itau BBA USA Securities, Inc. will act as representatives, or the Representatives, for the international underwriters.

Brazilian underwriters

Banco Itaú BBA S.A., Citigroup Global Markets Brasil, Corretora de Câmbio, Títulos e Valores Mobiliários S.A., Deutsche Bank S.A. – Banco Alemão, BB – Banco de Investimento S.A., Banco Bradesco BBI S.A., Banco J.P. Morgan S.A. and Banco Santander (Brasil) S.A.

Shares outstanding immediately prior to this global offering

464,482,529 common shares and 127,285,633 preferred shares, including 37,042,846 preferred shares resulting from the conversion of the Class C preferred shares and Class D preferred shares into Class A preferred shares and the simultaneous renaming of the Class A preferred shares as “preferred shares” on ●, 2017, such that our capital is now composed of one single class of preferred shares, the class of preferred shares offered hereby. For more information, see “Principal and Selling Shareholders”.

Each common share is convertible into preferred shares at the ratio of 75.0 common shares for 1.0 preferred share pursuant to our by-laws. After applying this conversion ratio, solely for the purposes of calculating each shareholder’s economic interest in our capital, we would have ● preferred shares outstanding prior to this global offering on a fully-converted basis. This conversion, however, is purely theoretical because, under Brazilian corporate law, the total number of shares with no or with limited voting rights may not exceed 50% of the total number of outstanding shares issued by a corporation.

Shares outstanding after this global offering

● common shares and ● preferred shares. After applying the 75 : 1 conversion ratio, solely for the purposes of calculating each shareholder’s economic interest in our capital, we would have ● preferred shares outstanding after this global offering on a theoretical fully-converted basis, as described in “—Shares outstanding immediately prior to this global offering” above.

Preferred shares being offered

Preferred shares without voting rights, except for the voting rights mentioned in “Description of Capital Stock—Voting rights” for as long as our company is listed on the Level 2 segment of BM&FBOVESPA. Holders of our preferred shares benefit from certain tag-along rights, the right to receive 75 times the dividends paid on our common shares and liquidation preferences, all as described in “Description of Capital Stock.”

ADSs

Each ADS represents one preferred share and may be represented by American depositary receipts, or ADRs. The ADSs will be issued under a deposit agreement entered into among us, Citibank, N.A., as depositary, and the registered holders and beneficial owners from time to time of ADSs issued under the deposit agreement.

Options to purchase additional ADSs and preferred shares

The Selling Shareholders will grant the international underwriters an option, exercisable by ●, on behalf of the international underwriters, upon prior written notice to the other international underwriters, us and the Selling Shareholders, for 30 days from and including the first day of trading of our preferred shares on BM&FBOVESPA, to purchase up to ● additional preferred shares, in the form of ADSs (less any preferred shares sold to the Brazilian underwriters under their option referred to below), at the initial public offering price less the underwriting discount, solely to cover options to purchase additional shares, if any, provided that the decision to allocate the additional preferred shares (including in the form of ADSs) is made jointly by the Brazilian and international underwriters at the time the price per preferred share and ADS is determined. See “Underwriting—Option.” If any additional ADSs are purchased using this option, the international underwriters will offer them on the same terms as the ADSs being offered in the international offering.

The Selling Shareholders will grant the Brazilian underwriters an option, exercisable by ●, on behalf of the Brazilian underwriters upon prior written notice to the other Brazilian underwriters, us and the Selling Shareholders, for 30 days from and including the first day of trading of our preferred shares on BM&FBOVESPA, to purchase up to ● additional preferred shares (less any preferred shares in the form of ADSs sold to the international underwriters under their option referred to above), at the initial offering price less the underwriting discount, solely to cover options to purchase additional shares, if any, provided that the decision to allocate the additional preferred shares (including in the form of ADSs) is made jointly by the Brazilian and international underwriters at the time the price per preferred share and ADS is determined. See “Underwriting—Option.”

Offering price

We expect the offering price will be between R$● and R$● per preferred share and between US$ ● and US$ ● per ADS, calculated at the exchange rate of R$● per US$ at ●, 2017.

Use of proceeds

We estimate that the net proceeds that we will receive from this global offering will be R$● million, calculated at an offering price of R$● per preferred share, the midpoint of the indicative price range in this global offering. We intend to use these net proceeds (i) to repay indebtedness of R$333 million and (ii) for general corporate purposes. For further information, see “Use of Proceeds.”

We will not receive any proceeds from the sale of preferred shares, including in the form of ADSs by the Selling Shareholders.

Conflicts of Interest

As described in “Use of Proceeds,” we intend to use a portion of the net proceeds of the offering to repay R$333 million of indebtedness, including an import financing loan to Azul Linhas and a debenture issued by Azul Linhas (collectively, the “Financings”). Banco do Brasil S.A., the parent entity of Banco do Brasil Securities LLC and BB-Banco de Investimento S.A., underwriters of this offering, is a lender under the Financings and will receive at least 5% of the net offering proceeds and will, therefore, have a “conflict of interest” pursuant to FINRA Rule 5121(f)(5)(C)(i). Accordingly, this offering will be made in compliance with the applicable provisions of FINRA Rule 5121. Any underwriter that has a conflict of interest pursuant to the rule will not confirm sales to accounts in which it exercises discretionary authority without the prior written consent of the customer. Additionally, FINRA Rule 5121 requires that a “qualified independent underwriter” (as defined in the rule) participate in the preparation of the prospectus and perform its usual standard of due diligence for the offering. Deutsche Bank Securities Inc. has agreed to act as qualified independent underwriter for the offering and to perform a due diligence investigation and review and participate in the preparation of the prospectus.

Listing

We have applied to list the ADSs on the New York Stock Exchange, or NYSE, under the symbol “•” and to list our preferred shares on the Level 2 segment of BM&FBOVESPA under the symbol “AZUL4”. We cannot assure you that a trading market for our preferred shares or ADSs will develop or will continue if developed.

Transfer restrictions

Our preferred shares, including in the form of ADSs, will be subject to certain transfer restrictions as described under “Underwriting—Selling Restrictions.”

Dividends and dividend policy

Holders of our preferred shares are entitled to receive 75 times the value of dividends (and other distributions) distributed to holders of our common shares. Holders of our common and preferred shares are entitled to receive, subject to the proportion described above, an aggregate annual mandatory distribution of at least 0.1% of our adjusted net income as calculated and adjusted pursuant to Brazilian corporate law; however, our preferred shares do not carry priority rights to receive fixed or minimum dividends, and therefore will not be entitled to voting rights even if no dividends are paid. Holders of our preferred shares are entitled to the general voting rights provided in the Corporate Governance Rules of the Level 2 segment of BM&FBOVESPA. For further details, see the sections of this prospectus entitled “Description of Capital Stock—Voting Rights” and “Dividend Policy.”

Lock-up agreement

We, the Selling Shareholders, our directors and officers and holders of at least 1.0% of our common shares and/or 1.0% of our economic interest have agreed, for a period of 180 days after the date of this prospectus, subject to certain exceptions, not to issue, offer, sell, contract to sell, pledge, deposit or otherwise transfer or dispose of, directly or indirectly, or file with the SEC or the CVM a registration statement relating to, any preferred shares, ADSs or securities convertible into or exchangeable or exercisable for preferred shares (including our common shares) or ADSs, or publicly disclose any intention to make any such issuance, offer, sale, pledge, deposit, transfer, disposition or filing, without the prior written consent of the Representatives.

Additionally, pursuant to the regulations of the Level 2 segment of BM&FBOVESPA, our controlling shareholders, our directors and executive officers may not sell and/or offer to sell any common and/or preferred shares (or derivatives relating to common and/or preferred shares) owned immediately after this global offering, or any securities or other derivatives linked to securities issued by us, for six months from the effectiveness of the Level 2 segment of BM&FBOVESPA listing agreement. After the expiration of this 180-day period, our controlling shareholders, our directors and executive officers may not, for an additional 180-day period, sell and/or offer to sell more than 40% of the securities that each of we or they hold. See “Underwriting—No sale of similar securities.”

Controlling shareholder

Prior to this global offering, David Neeleman owns, directly or indirectly, 67% of our common shares, giving him 67% of the voting rights in our company. Following this global offering, Mr. Neeleman will continue to control all shareholders’ decisions, including the ability to appoint a majority of our board of directors.

Tag-along rights

Holders of our common and preferred shares have the right to participate in a public tender offer for control of Azul, on the same terms and conditions (taking into account the 75:1 conversion ratio) as are offered to our controlling shareholder in any sale of control transaction. The minimum price per common or preferred share to be offered for such common or preferred shares shall be at least 75 times the price per share paid for the controlling stake. See “Description of Capital Stock—Rights of our Common and Preferred Shares.”

Our principal shareholders also have certain tag-along rights applicable to sales of common shares by them. See “Description of Capital Stock—Post-IPO Shareholders’ Agreement.”

Depositary

Citibank, N.A.

Directed Share Program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to an aggregate of ● ADSs offered in this offering to persons who are our directors, officers or employees, or who are otherwise associated with us, through a directed share program. These reserved ADSs account for an aggregate of up to 5% of the ADSs offered in this global offering (assuming no exercise of the underwriters’ option to purchase additional shares). See “Underwriters—Directed Share Program.”

Brazilian Special Allocation Program

Between 10% and 20% of the preferred shares offered in the global offering will be offered to non-institutional investors. Our and Azul Linhas’ directors, officers or employees will have priority to purchase up to 50% of these preferred shares on ●, 2017 in amounts starting at R$1,000. These reserved preferred shares account for an aggregate of approximately ●% of the preferred shares offered in the global offering (assuming no exercise of the Brazilian underwriters’ option to purchase additional shares). See “Underwriters—Brazilian Retail offering and Special Allocation Program.”

Taxation

For a discussion of the material U.S. federal income tax consequences relating to an investment in our preferred shares, including in the form of ADSs, see “Taxation – Material U.S. Federal Income Tax Consequences.”

Risk factors

Investing in our preferred shares, including in the form of ADSs, involves risks. See “Risk Factors” beginning on page 25 and the other information included in this prospectus for a discussion of the factors you should consider before deciding to invest in our preferred shares, including in the form of ADSs.

RISK FACTOR S

This initial public offering and an investment in our preferred shares, including in the form of ADSs, involve a high degree of risk. You should carefully consider the risks described below before making an investment decision. We could be materially and adversely affected by any of these risks. The trading price of our preferred shares, including in the form of ADSs, could decline due to any of these risks or other factors, and you may lose all or part of your investment.

The risks described below are those that we currently believe may adversely affect us or our preferred shares, including in the form of ADSs. In general, investing in the securities of issuers in emerging market countries such as Brazil involves risks that are different from the risks associated with investing in the securities of U.S. companies and companies located in other countries with more developed capital markets.

To the extent that information relates to, or is obtained from sources related to, the Brazilian government or 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 Brazil

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could adversely affect us and the price of our preferred shares, including in the form of ADSs.

The Brazilian government frequently exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, foreign exchange rate controls, currency devaluations, capital controls and limits on imports. We have no control over and cannot predict what measures or policies the Brazilian government may take in the future. We and the market price of our securities may be adversely affected by changes in Brazilian government policies, as well as general economic factors, including, without limitation:

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growth or downturn of the Brazilian economy;

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interest rates and monetary policies;

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exchange rates and currency fluctuations;

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inflation;

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liquidity of the domestic capital and lending markets;

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import and export controls;

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exchange controls and restrictions on remittances abroad;

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modifications to laws and regulations according to political, social and economic interests;

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fiscal policy and changes in tax laws;

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economic, political and social instability;

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labor regulations;

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energy and water shortages and rationing;

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the Brazilian government’s intervention, modification or rescission of existing concessions;

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the Brazilian government’s control of or influence on the control of certain oil producing and refining companies; and

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other political, social and economic developments in or affecting Brazil.

In addition, Brazil is currently experiencing a recession and weak macroeconomic conditions in Brazil are expected to continue in 2017, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Principal Factors Affecting Our Financial Condition and Results of Operations.” We cannot predict what measures the Brazilian federal government will take in the face of mounting macroeconomic pressures or otherwise.

Uncertainty over whether the Brazilian federal government will implement changes in policy or regulation affecting these or other factors in the future may affect economic performance and contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian capital market and securities issued by Brazilian companies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Brazilian economic environment.”

The ongoing economic uncertainty and political instability in Brazil may adversely affect us and the price of our preferred shares, including in the form of ADSs.

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.

The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment. Weak macroeconomic conditions in Brazil are expected to continue in 2017. In addition, various currently ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigation, known as Lava Jato , have negatively impacted the Brazilian economy and political environment. Members of the Brazilian government as well as senior officers of large state-owned companies have faced or are currently facing allegations of corruption and money laundering as a result of these investigations. These individuals are alleged to have accepted bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas and construction companies. The profits of these kickbacks allegedly financed the political campaigns of political parties forming the previous government’s coalition that was led by former President Dilma Rousseff, which funds were unaccounted for or not publicly disclosed. These funds were also allegedly destined toward the personal enrichment of certain individuals. A number of senior politicians, including members of Congress, and high-ranking executives officers of major corporations and state-owned companies in Brazil have been arrested, convicted of various charges relating to corruption, entered into plea agreements with federal prosecutors and/or have resigned or been removed from their positions. The potential outcome of Lava Jato as well as other ongoing corruption-related investigations is uncertain, but they have already had an adverse impact on the image and reputation of those companies that have been implicated as well as on the general market perception of the Brazilian economy, political environment and the Brazilian capital market. We have no control over, and cannot predict, whether such investigations or allegations will lead to further political and economic instability or whether new allegations against government officials will arise in the future.

President Dilma Rousseff was suspended from office on May 12, 2016, when the Brazilian Senate voted to hold a trial on impeachment charges against her. President Rousseff was replaced by Vice-President Michel Temer, who served as acting President until Ms. Rousseff was permanently removed from office by the Senate on August 31, 2016. President Temer is expected to serve as President until December 2018. We cannot predict how the ongoing investigations and proceedings will affect us or the price of our preferred shares, including in the form of ADSs.

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 price of our preferred shares, including in the form of ADSs.

Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our preferred shares, including in the form of ADSs.

The Brazilian currency has been historically volatile and has been devalued frequently 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 (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real , the U.S. dollar and other currencies. The real depreciated against the U.S. dollar by 41.8% in 2015 as compared to 2014, and by 9.0% in 2014 as compared to 2013. The real /U.S. dollar exchange rate reported by the Central Bank was R$3.9048 per U.S. dollar on December 31, 2015 and R$3.2591 per U.S. dollar on December 31, 2016, reflecting a 16.5% appreciation in the real against the U.S. dollar, but there can be no assurance that the real will not again depreciate against the U.S. dollar or other currencies in the future.

Our revenues are denominated in reais and a significant part of our operating expenses, such as fuel, certain aircraft operating lease agreements, certain flight hour maintenance contracts and aircraft insurance, are denominated in, or linked to, foreign currency. In addition, we have and may incur substantial amounts of U.S. dollar-denominated operating lease or financial obligations, fuel costs linked to the U.S. dollar and U.S. dollar-denominated indebtedness in the future or similar exposures to other foreign currencies. As of December 31, 2015 and as of December 31, 2016, 57.5% and 53.5% of our operating expenses, respectively, were denominated in, or linked to, foreign currency.

We are not always fully hedged against fluctuations of the real . In light of the foregoing, there can be no assurance we will be able to protect ourselves against the effects of fluctuations of the real . Depreciation of the real could create inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole, harm us, curtail access to financial markets and prompt government intervention, including recessionary governmental policies. Depreciation of the real can also, as in the context of the current global economic recovery, lead to decreased consumer spending, and reduced growth of the economy as a whole. Consequently, when the real appreciates, we incur losses on our monetary assets denominated in, or indexed to, a foreign currency, such as the U.S. dollar, and our liabilities denominated in, or indexed to, foreign currency, decreases as the liabilities and assets are translated into reais .

Any depreciation of the real against the U.S. dollar may have an adverse effect on us, including leading to a decrease in our profit margins or to operating losses caused by increases in U.S. dollar-denominated costs (including fuel costs), increases in interest expense or exchange losses on unhedged fixed obligations and indebtedness denominated in foreign currency.

Inflation and certain measures by the Brazilian government to curb inflation have historically adversely affected the Brazilian economy and Brazilian capital market, and high levels of inflation in the future would adversely affect us and the price of our preferred shares, including in the form of ADSs.

In the past, Brazil has experienced extremely high rates of inflation. Inflation and some of the measures taken by the Brazilian government in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally. Inflation, policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty and heightened volatility in the Brazilian capital market.

According to the National Consumer Price Index ( Índice Nacional de Preços ao Consumidor Amplo ), or IPCA, Brazilian inflation rates were 6.3%, 10.7% and 6.4% in 2016, 2015 and 2014, respectively. Brazil may experience high levels of inflation in the future and inflationary pressures may lead to the Brazilian government’s intervening in the economy and introducing policies that could adversely affect us and the price of our preferred shares, including in the form of ADSs. In the past, the Brazilian government’s interventions included the maintenance of a restrictive monetary policy with high interest rates that restricted credit availability and reduced economic growth, causing volatility in interest rates. For example, the official interest rate in Brazil oscillated from 7.25% in 2014 to 13.75% in 2016, as established by the Monetary Policy Committee ( Comitê de Política Monetária do Banco Central do Brasil - COPOM ). Conversely, more lenient government and Central Bank policies and interest rate decreases have triggered and may continue to trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect us and increase our indebtedness.

In the event that Brazil experiences high inflation in the future, we may not be able to adjust the prices we charge our passengers to offset the potential impacts of inflation on our expenses, including salaries. This would lead to decreased net income, adversely affecting us. Inflationary pressures may also adversely affect our ability to access foreign financial markets, adversely affecting us.

Developments and the perceptions of risks in other countries, including other emerging markets, the United States and Europe, may adversely affect the Brazilian economy and the price of Brazilian securities, including the price of our preferred shares, including 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. To the extent the conditions of the global markets or economy deteriorate, Brazilian companies may have their businesses adversely affected. The weakness in the global economy has been marked by, among other adverse factors, lower levels of consumer and corporate confidence, decreased business investment and consumer spending, increased unemployment, reduced income and asset values in many areas, reduction of China’s growth rate, currency volatility and limited availability of credit and access to capital. Developments or economic conditions in other emerging market countries have at times significantly affected the availability of credit to Brazilian companies and resulted in considerable outflows of funds from Brazil, decreasing the amount of foreign investments in Brazil.

Crises and political instability in other emerging market countries, the United States, Europe or other countries could decrease investor demand for Brazilian securities, such as our preferred shares, including in the form of ADSs. In June 2016, the United Kingdom had a referendum in which the majority voted to leave the European Union. We have no control over and cannot predict the effect of the United Kingdom’s exit from the European Union nor over whether and to which effect any other member state will decide to exit the European Union in the future. On January 20, 2017, Donald Trump became the President of the United States. We have no control over and cannot predict the effects of Donald Trump’s administration or policies. These developments, as well as potential crises and forms of political instability arising therefrom or any other as of yet unforeseen development, may adversely affect us and the price of our preferred shares, including in the form of ADSs.

Any further downgrading of Brazil’s credit rating could adversely affect the price of our preferred shares, including in the form of ADSs.

We can be adversely affected by investors’ perceptions of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors.

Brazil has 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. Standard & Poor’s downgraded Brazil’s sovereign debt credit rating from BBB-minus to BB-plus in September 2015, subsequently reduced it to BB in February 2016, and maintained its negative outlook on the rating, citing Brazil’s fiscal difficulties and economic contraction as signs of a worsening credit situation. In December 2015, Moody’s placed Brazil’s Baa3 sovereign debt credit rating on review and downgraded Brazil’s sovereign credit rating in February 2016 to Ba2 with a negative outlook, citing the prospect for further deterioration in Brazil’s indebtedness figures amid a recession and challenging political environment. Fitch downgraded Brazil’s sovereign credit rating to BB-plus with a negative outlook in December 2015, citing the country’s rapidly expanding budget deficit and worse-than-expected recession, and further downgraded Brazil’s sovereign debt credit rating in May 2016 to BB with a negative outlook.

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 negatively affected. A prolongation or worsening of the current Brazilian recession and continued political uncertainty, among other factors, could lead to further ratings downgrades. Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, adversely affect the price of our preferred 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, principally in relation to the Long Term Interest Rate ( Taxa de Juros de Longo Prazo ), or TJLP, with respect to loans denominated in reais , the Interbank Deposit Rate, or CDI Rate, and with respect to operating and finance leases and debt-financed aircraft denominated in U.S. dollars, the London Interbank Offer Rate, or LIBOR.

If the TJLP, the CDI Rate or LIBOR were to increase, our repayments under loans, operating and finance leases would increase, and we may not be able to adjust the prices we charge to offset increased payments. For example, our repayments under many of our operating and finance leases and debt-financed aircraft are linked to LIBOR. The outstanding loan balance due on our finance lease and debt-financed aircraft contracts linked to LIBOR amounted to R$2,270.9 million as of December 31, 2015 and R$1,769.5 million as of December 31, 2016.

Significant increases in consumption, inflation or other macroeconomic pressures may lead to an increase in these rates. Variations in the TJLP, the CDI Rate or LIBOR may have adverse effects on us. For further information regarding our exposure to the risk of interest rate variations, please see “Management’s Discussion and Analysis—Principal Factors Affecting Our Financial Condition and Results of Operations—Effects of exchange rates, interest rates and inflation.”

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 the demand for domestic tourism and could also affect our ability to carry out our operations or limit our expansion plans as well as cause delays and increase operational costs . For example, in 2007, Brazil passed through a significant crisis with its air traffic control systems, 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 lead to a decrease in sales or lower growth rates than we expect, which may adversely affect us and growth prospects. In particular, lack of or insufficient investment in the maintenance at our main hub in Viracopos airport could impact the general activity and operation of the airport, which would adversely impact us.

Risks Relating to our Business and the Brazilian Civil Aviation Industry

Substantial fluctuations in fuel costs or the unavailability of fuel, which is mostly provided by one supplier, would have an adverse effect on us.

Historically, international and local fuel prices have been subject to wide price fluctuations based on geopolitical issues and supply and demand. Fuel expenses, which at times in 2007 and 2008 were at historically high levels, constitute a significant portion of our total operating expenses, accounting for 24.7% of our operating expenses for the year ended December 31, 2016 and 29.8% for the year ended December 31, 2015. Fuel availability is also subject to periods of market surplus and shortage and is affected by demand for both home heating oil and gasoline. Events resulting from prolonged instability in the Middle East or other oil-producing regions, or the suspension of production by any significant producer, may result in substantial price increases and/or make it difficult to obtain adequate supplies, which may adversely affect us. Natural disasters or other large unexpected disrupting events in regions that normally consume significant amounts of other energy sources could have a similar effect. The price and future availability of fuel cannot be predicted with any degree of certainty, and significant increases in fuel prices may harm our business. Our hedging activities may not be sufficient to protect us from fuel price increases, and we may not be able to adjust our fares adequately to protect us from this cost.

We purchase fuel from a number of distributors in Brazil, principally from BR Distribuidora, a subsidiary of Petrobras, Air BP Brasil Ltda. and Raízen Combustíveis Ltda., with whom we have agreements to exclusively purchase all of our jet fuel needs in certain locations. BR Distribuidora provides 66.1% of our fuel and is entitled to terminate its fuel supply contracts with us for a number of reasons, including (i) non-compliance with any contractual obligation, (ii) non-payment of invoices up to 60 days after expiration and (iii) in the event of our judicial or extrajudicial liquidation. In addition, BR Distribuidora may be unable to guarantee its fuel supply to us, for example due to difficulties in its production, import, refining or distribution activities. If we were unable to obtain fuel on similar terms from alternative suppliers, our business would be adversely affected. In addition, our agreement with BR Distribuidora enables us to lock in the cost of the jet fuel that we will consume in the future. Accordingly, in case this agreement is terminated, we will be required to enter into alternative hedging or pay higher prices, which would adversely affect us.

We and the airline industry in general are particularly sensitive to changes in economic conditions and continued negative economic conditions that would likely continue to adversely affect us and our ability to obtain financing on acceptable terms.

Our operations and the airline industry in general are particularly sensitive to changes in economic conditions. Unfavorable economic conditions, such as high unemployment rates, a constrained credit market, low or negative GDP growth, unfavorable exchange rates and increased business operating expenses, can reduce spending for both leisure and business travel. Unfavorable economic conditions can also impact our ability to raise fares to counteract increases in fuel, labor, and other expenses. In particular, the recent recession in the Brazilian economy and political instability has adversely affected industries with significant spending in travel, including 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, resulting in our inability to sell as many high-yield tickets.

An increasingly unfavorable economic environment would likely adversely affect us. In addition, a significant instability of the credit, capital and financial markets, could result in increasing our borrowing costs, adversely affect us. We typically finance our aircraft through operating and finance leases and debt-finance. We may not be able to continue to obtain financing on terms attractive to us, or at all. To the extent we cannot obtain such financing on acceptable terms or at all, we may be required to modify our aircraft acquisition plans or to incur higher than anticipated financing costs, which would adversely affect us and our growth strategy. These factors could also adversely affect our ability to obtain financing on acceptable terms and our liquidity in general.

Because the airline industry is characterized by high fixed costs and relatively elastic revenues, airlines cannot quickly reduce their costs to respond to shortfalls in expected revenue and this may harm our ability to attain our strategic goals.

The airline industry is characterized by low gross profit margins; high fixed costs, such as such as aircraft ownership and leasing, headquarters facility and personnel, IT system license costs, training and insurance expenses; and revenues that generally exhibit substantially greater elasticity than costs. The operating costs of each flight do not vary significantly with the number of passengers flown and, therefore, a relatively small change in the number of passengers, fare pricing or traffic mix could have a significant effect on operating and financial results.

We expect to incur additional fixed costs, including contractual debt as we lease or acquire new aircraft and other equipment to implement our growth strategy or other purposes. As of December 31, 2016, we had 94 orders consisting of 58 next-generation Airbus A320neo family aircraft, to be delivered between 2017 and 2023, three Airbus A350 aircraft to be delivered between 2017 and 2018, eight ATRs to be delivered between 2019 and 2021, and 33 next-generation E-195-E2 aircraft with deliveries starting in 2020.

As a function of our fixed costs, we may (i) have limited ability to obtain additional financing, (ii) be required to dedicate a significant part of our cash flow to fixed costs resulting from operating leases and debt for aircraft, (iii) incur higher interest or leasing expenses for the event that interest rates increase or (iv) have a limited ability to plan for, or react to, changes in our businesses, the civil aviation sector generally and overall macroeconomic conditions. In addition, volatility in global financial markets may make it difficult for us to obtain financing to manage our fixed costs on favorable terms or at all.

As a result of the foregoing, we may be unable to quickly adjust our fixed costs in response to changes in our revenues. A shortfall from expected revenue levels could have a material adverse effect on us.

Changes to the Brazilian civil aviation regulatory framework may adversely affect us, our business and results of operations, including our competitiveness and compliance costs.

Brazilian aviation authorities monitor and influence the developments in Brazil’s airline market. For example, in July 2014, ANAC published new rules governing the allocation of slots at the main Brazilian airports, which consider operational efficiency (on-time performance and regularity) as the main criteria for the allocation of take-off and landing slots at Brazilian airports. The policies of Brazilian aviation authorities, including ANAC, may adversely affect us and our operations.

For a description of recent changes to the Brazilian civil aviation regulatory framework, see “Regulation—Airport Infrastructure”. For a description of recent changes to and pending legislation regarding the Brazilian civil aviation regulatory framework, see “Regulation—Pending Legislation”.

Changes to the Brazilian civil aviation regulatory framework, including the policies of ANAC and/or INFRAERO as well as other aviation supervisory authorities, could increase our costs and change the competitive dynamics of our industry and may adversely affect us. In addition, we cannot guarantee that any of the operating concessions that we hold will be renewed or that we will obtain new concession. Any change that requires us to dedicate a significant level of resources on compliance with new aviation regulations, for example, would result in additional expenditure on compliance and consequently adversely affect us.

We operate in a highly competitive industry and actions by our competitors could adversely affect us.

We face intense competition on certain routes in Brazil from existing scheduled airlines, charter airlines and potential new entrants in our market and also with regards to our loyalty program TudoAzul . In particular, we face strong competition in routes and markets where our network overlaps with that of our main competitors. As of December 31, 2016, 24% and 15% of our domestic network overlapped with that of Gol and LATAM, respectively. Airlines increase or decrease capacity in markets based on perceived profitability. Decisions by our competitors that increase overall industry capacity, or capacity dedicated to a particular region, market or route, as well as any other management decisions that increase a potential competitor’s market share, could have a material adverse impact on us. Our growth and the success of our business model could stimulate competition in our markets through the development of similar strategies by our competitors. If these competitors adopt and successfully execute similar business models, we could be adversely affected.

Each year we may face increased competition from existing and new participants in the Brazilian market. The air transportation sector is highly sensitive to price discounting and the use of very aggressive pricing policies by some airlines. 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 entering the domestic market are relatively low and we cannot assure you that existing or new competitors in our markets will not offer lower prices, more attractive services or increase their route capacity in an effort to obtain greater market share. We may also face competition from international airlines as they introduce and expand flights 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 give preference to new entrants or provide support to our competitors, for example, when granting new and current slots in Brazilian airports, as previously occurred with respect to new slots at Congonhas airport.

In addition, technology advancements may limit the desire for air travel. For example, video teleconferencing and other methods of electronic communication may reduce the need for in-person communication and add a new dimension of competition to the industry as travelers seek lower cost substitutes for air travel.

Furthermore, new competitors may target TudoAzul ’s business partners and members or enter the loyalty marketing industry. We cannot assure you that an increase in competition faced by TudoAzul will not have an adverse effect on the growth of our business with respect to TudoAzul or in general. If we are unable to adjust rapidly to the changing nature of competition in our markets or if the Brazilian loyalty marketing industry does not grow sufficiently to accommodate new participants, it could have an adverse effect on us.

Further consolidation in the Brazilian 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 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. Consolidations in the airline industry and changes in international alliances are likely to affect the competitive landscape in the industry and may result in the formation of airlines and alliances with increased financial resources, more extensive global networks and reduced cost structures than us.

We routinely engage in analysis and discussions regarding our own strategic position, including alliances, code-share arrangements, investments, acquisitions, interline arrangements and loyalty program enhancements, and may have future discussions with other airlines regarding similar arrangements. To the extent we act as consolidators, 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 such consolidations, 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.

We depend significantly on automated systems and any breakdown, hacking or changes in these systems may adversely affect us.

We depend on automated systems to operate our businesses, 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’ access to our products and services, which may cause them to purchase tickets from other airlines, adversely affecting our net revenues. Our website and ticket sales system must accommodate a high volume of traffic and deliver important flight information. Substantial or repeated website, ticket sales, scheduling or telecommunication systems failures could reduce the attractiveness of our services and could cause our customers to purchase tickets from another airline. Any interruption in these systems or their underlying infrastructure could result in the loss of important data, increase our expenses and generally harm us.

These interruptions may include but are not limited to computer hackings, computer viruses, worms or other disruptive software, or other malicious activities. In particular, both unsuccessful and successful cyber-attacks on companies have increased in frequency, scope and potential harm in recent years. The costs associated with a major cyber-attack could include expensive incentives offered to existing customers to retain their business, increased expenditures on cyber security measures, lost revenues from business interruption, litigation and damage to our reputation. In addition, if we fail to prevent the theft of valuable information, protect the privacy of customer and employee confidential data against breaches of network or IT security, it could result in damage to our reputation, which could adversely impact customer and investor confidence. We may also implement certain changes to our systems that may result in breakdowns, reduced sales, fleet and network mismanagement or telecommunications interruptions, all of which would negatively affect us. Furthermore, the compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, customers’, employees’ or business partners’ information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information or disruption to our operations. Any of these occurrences could result in a material adverse effect on us.

We, our reputation, and the price of our preferred shares, including in the form of ADSs, could be adversely affected by events outside of our control.

Accidents or incidents involving our aircraft could involve significant claims by injured passengers and others, as well as significant costs related to the repair or replacement of a damaged aircraft and its temporary or permanent loss from service. We are required by ANAC and lessors of our aircraft under our operating lease agreements to carry liability insurance. The amount of liability insurance we maintain may not be adequate and we may be forced to bear substantial losses in the event of an accident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our business and financial results. Moreover, any aircraft accident or incident involving our aircraft, even if fully insured, or the aircraft of any major airline could cause negative public perceptions about us, our aircraft or the air transport system, due to safety concerns or other problems, whether real or perceived, which would harm our reputation, financial results and the market price of our preferred shares, including in the form of ADSs.

We may also be affected by other events that affect travel behavior or increase costs, such as the potential of epidemics or acts of terrorism. These events are outside of our control and may affect us even if occurring in markets where we do not operate and/or in connection with other airlines. Any future terrorist attacks or threats of attacks, whether or not involving commercial aircraft, 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 and adversely affect us.

Outbreaks or potential outbreaks of diseases, such as the Zika virus, Ebola, avian flu, foot-and-mouth disease, swine flu, Middle East Respiratory Syndrome, or MERS, and Severe Acute Respiratory Syndrome, or SARS, could have an adverse impact on global air travel. Any outbreak of a disease that affects travel behavior could have a material adverse impact on us and the price of shares of companies in the worldwide airline industry, including our preferred shares, including in the form of ADSs. Outbreaks of disease could also result in quarantines of our personnel or an inability to access facilities or our aircraft, which would harm us, our reputation, and the price of our preferred shares, including in the form of ADSs.

Natural disasters, severe weather conditions and other events outside of our control may affect and disrupt our operations. For example, in 2011, a volcanic eruption in Chile had a prolonged adverse effect on air travel, halting flights in, Argentina, Chile, Uruguay and the southern part of Brazil for several days. As a result, our operations to and from these regions were temporarily disrupted, including certain aircraft being grounded in the affected regions. In 2012, an incident with an aircraft from a cargo airline caused the closing of a runway at Viracopos airport for 45 hours, which negatively impacted our operations and forced us re-accommodate our passengers to new flights. Severe weather conditions can cause flight cancellations or significant delays that may result in increased costs and reduced revenue. Any natural disaster or other event that affects air travel in the regions in which we operate could have a material adverse impact on us.

Our insurance expenses may increase significantly as a result of a terrorist attack, war, aircraft accident, seizures or similar event, adversely affecting us.

Insurance companies may significantly increase insurance premiums for airlines and reduce the amount of insurance coverage available to airlines for civil liability in respect of damage resulting from acts of terrorism, war, aircraft accident, seizures or similar events, as was the case following the terrorist attacks of September 11, 2001 in the United States.

In response to substantial increases in insurance premiums to cover risks related to terrorist attacks following the events of September 11, 2001 in the United States, the Brazilian government enacted legislation, specifically Law No. 10.744, of October 9, 2003, authorizing the Brazilian government to assume civil liability to third parties for any injury to goods or persons, whether or not passengers, caused by terrorist attacks or acts of war against Brazilian aircraft operated by Brazilian airlines in Brazil or abroad. In addition, according to the abovementioned legislation, the Brazilian government may, at its sole discretion, suspend or cancel this assumption of liability. If the Brazilian government suspends its assumption of liability, Brazilian airlines will be required to assume the liability once more and obtain insurance in the market.

Airline insurers may reduce their coverage or increase their premiums in case of new terrorist attacks, war, aircraft accident, seizures and the Brazilian government’s termination of its assumption of liability or other events affecting civil aviation in Brazil or abroad. If there are significant reductions in insurance coverage, our potential liability would increase substantially. If there are significant increases in insurance premiums, our operating expenses would increase, adversely affecting us.

In line with global industry practice, we leave some business risks uninsured, including business interruption, loss of profit or revenue and consequential business losses arising from mechanical breakdown. To the extent that uninsured risks materialize, we could be materially and adversely affected. In addition, there is no assurance that our coverage will cover all potential risks associated with our operations and activities. To the extent that actual losses incurred by us exceed the amount insured, we may have to bear substantial losses which will have an adverse impact on us.

Technical and operational problems in the Brazilian 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.

We are dependent on improvements in the coordination and development of Brazilian airspace control and airport infrastructure, which, mainly due to the large growth in civil aviation in Brazil in recent years, require substantial improvements and government investments. Technical and operational problems in the Brazilian air traffic control systems have led to extensive flight delays, higher than usual flight cancellations and increased airport congestion. The Brazilian government and air traffic control authorities have taken measures to improve the Brazilian air traffic control systems, but if the changes undertaken by the Brazilian government and regulatory authorities do not prove successful, these air traffic control related difficulties might recur or worsen, which may have a material adverse effect on us and our growth strategy.

Slots at Congonhas airport in São Paulo are fully utilized. The Santos Dumont airport in Rio de Janeiro, which is important for our operations, has certain landing rights restrictions. Several other Brazilian 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 limitations at these airports. Any condition that would prevent or delay our access to airports or routes that are vital to our strategy, or our inability to maintain our existing landing rights and slots, and obtain additional landing rights and slots, could materially adversely affect us. New operational and technical restrictions imposed by Brazilian authorities in the airports we operate or in those we expect to operate may also adversely affect us. In addition, we cannot assure that any investments will be made by the Brazilian government in the Brazilian aviation infrastructure to permit a capacity increase at busy airports and consequently additional concessions for new slots to airlines.

Increases in labor benefits, union disputes, strikes, and other worker-related disturbances may adversely affect us, including our ability to carry out our normal business operations.

Our business is labor intensive. Our expenses related to our workforce (salaries, wages and benefits) represented 17.3%, 16.2% and 18.4% of our total operating expenses for the years ended December 31, 2016, 2015, and 2014, respectively. All Brazilian airline employees, including ours, are represented by regional aviation unions and by two national labor unions: the National Pilots’ and Flight Attendants’ Union ( Sindicato Nacional dos Aeronautas ) and the National Aviation Union ( Sindicato Nacional dos Aeroviários ). Negotiations regarding cost of living increases and salary payments are conducted annually between these unions and an association that represents all Brazilian airline companies, the National Union of Airline Companies ( Sindicato Nacional das Empresas Aeroviárias ), or SNEA. Work conditions and maximum work hours are regulated by government legislation and are not subject to labor negotiations. Future terms and conditions of collective agreements could become more costly for us as a result of an increase in threats of strikes and binding negotiations between the unions and SNEA. Furthermore, certain employee groups such as pilots, mechanics and other airport personnel have highly specialized skills and cannot be easily replaced. Our labor costs could increase if the size of our business increases. Any labor proceeding or other workers’ dispute involving unionized employees could adversely affect us or interfere with our ability to carry out our normal business operations.

Moreover, we are subject to periodic and regular investigations by labor authorities, including the Brazilian Ministry of Labor and the Public Prosecutor’s Office, with respect to our 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 and adversely affect us.

A failure to implement our growth strategy may adversely affect us.

Our growth strategy and the consolidation of our leadership in terms of markets served includes, among other objectives, increasing the number of markets we serve and increasing the frequency of the flights we provide. These objectives are dependent on obtaining approvals for operating new routes from local regulators and obtaining adequate access to the necessary airports. Certain airports that we serve or that we may want to serve in the future are subject to capacity constraints and impose landing rights and slot restrictions during certain periods of the day such as the Santos Dumont airport in Rio de Janeiro and the Juscelino Kubitschek airport in Brasília. We cannot assure you that we will be able to maintain our current landing rights and slots and obtain a sufficient number of landing rights and slots, gates, and other facilities at airports to expand our services as we propose. It is also possible that airports not currently subject to capacity constraints may become so in the future. In addition, an airline must use its slots on a regular and timely basis or risks having those slots reallocated to other airlines. Where landing rights and slots or other airport resources are not available or their availability is restricted in some way, we may have to modify our schedules, change routes or reduce aircraft utilization.

Some of the airports to which we fly impose various restrictions, including limits on aircraft noise levels, limits on the number of average daily departures and curfews on runway use. In addition, we cannot assure you that airports at which there are no such restrictions may not implement restrictions in the future or that, where such restrictions exist, they may not become more onerous. Such restrictions may limit our ability to continue to provide or to increase services at such airports, which may adversely affect us.

We cannot guarantee that we will be successful in the implementation of our growth strategy and the consolidation of our leadership in terms of markets served and, as a result, any factor preventing or delaying 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 the expansion of our operations and, consequently, adversely affect us, our financial results and our growth strategy.

Our current business plan contemplates the addition of Airbus and Embraer aircraft to replace older generation aircraft and serve high-density markets. Any disruption or change in the manufacturers’ delivery schedules for our new Embraer and Airbus aircraft may affect our operations and might negatively affect us because we may not be able to accommodate increased passenger demand or develop our growth strategies.

The successful execution of our strategy is partly dependent on the maintenance of a high daily aircraft utilization rate, making us especially vulnerable to delays.

In order to successfully execute our strategy, we need to maintain a high daily aircraft utilization rate. Achieving high aircraft utilization allows us to maximize the amount of revenue that we generate from each aircraft and dilute fixed costs. High daily aircraft utilization is achieved, in part, by reducing turnaround times at airports and developing schedules that enable us to fly more hours on average per day. Our aircraft utilization rate could be adversely affected by a number of factors that we cannot control, including air traffic and airport congestion, interruptions in the service provided by air traffic controllers, adverse weather conditions and delays by third-party service providers in respect of matters such as fueling and ground handling. Such delays could result in a disruption in our operating performance, leading to lower daily aircraft utilization rates and customer dissatisfaction due to any resulting delays or missed connections, which could adversely affect us.

Any expansion of our business activities will require us to incur additional costs and expenses and we ultimately may be unsuccessful in generating a profit from any such new activities, potentially adversely affecting us.

We intend to expand our business activities through additional products and services if we believe this expansion will increase our profitability or our influence in the markets in which we operate. 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 our expectations of increased traffic given the significant time frames for ordering and taking delivery of these assets. We cannot assure you that we will be able to successfully operate these new aircraft and maintain our historical operating performance.

As the international and domestic markets develop and expand in Brazil, our expansion may also include additional acquisitions of existing service related businesses, aircraft hangars and other assets that are complementary to our core business and responsive to our perceived need to compete with our competitors. There can be no assurances that our plans to expand our business will be successful given a number of factors, including the possible need for regulatory approvals, additional facilities or rights, personnel and insurance. These new activities may require us to incur material costs and expenses, including capital expenditures, increased personnel, training, advertising, maintenance and fuel costs, as well as costs related to management oversight of any new or expanded activities. We may also incur additional significant costs related to integration of these assets and activities into our existing businesses and require significant ancillary expenditures for systems integration and expansion, financial modeling and development of pricing, traffic monitoring and other management tools designed to help achieve profitability from these new assets and activities.

Any expansion of our activities, change in management oversight and related costs may affect our results and financial condition until we are able to generate a profit from these new activities. Given the current and expected competitive landscape in the airline industry in general and in particular in Brazil, as well as other market factors and conditions, it is possible that there may be a significant period before we are able to generate profits relating to any such new or our existing activities and our overall business, and in certain circumstances we may never turn a profit at all, in each case potentially adversely affecting us.

We may not be able to grow our operations to or in the United States and Europe and may be adversely affected 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.

We cannot assure you that the laws and regulations of the jurisdictions to which we fly (including, without limitation, immigration and security regulations, which directly affect passengers) will not change or that new laws adverse to us will not be enacted, and any such events may adversely affect us and our ability to continue and expand our operations internationally.

For example, the FAA periodically audits the aviation regulatory authorities of other countries. As a result of their investigations, each country is given an International Aviation Safety Assessment, or IASA, rating. The IASA rating for Brazil is currently “Category 1”, which means that Brazil complies with the ICAO safety requirements. This allows us to continue our service from our hubs in Brazil to the United States in a normal manner and take part in reciprocal code-sharing arrangements with U.S. carriers. However, we cannot assure you that Brazil will continue to meet international safety standards, and we have no direct control over its 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 continue or increase service 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, which account for a significant part of our daily arrivals and departures. Like other airlines, we are subject to delays caused by factors beyond our control and that could affect one or more of our hubs or other airports in any of the regions served by us. For example, in 2012, an incident with an aircraft from a cargo airline caused the closing of a runway at Viracopos airport, our main hub, for 45 hours, which negatively impacted our operations and forced us re-accommodate our passengers to new flights. Due to this geographical capacity concentration, we may not be able to react as quickly or efficiently as our competitors to any delays, interruption or disruption in service or fuel at any one or more of our hubs, which could have a material adverse impact on us.

We fly and depend upon Embraer, ATR and Airbus aircraft, and we could suffer if we do not receive timely deliveries of aircraft, if aircraft from these companies become unavailable or subject to significant maintenance or if the public negatively perceives our aircraft.

As our fleet has grown, our reliance on Embraer, ATR and Airbus has also grown. Our operating fleet as of December 31, 2016 consisted of 74 Embraer E-Jets, 39 ATR aircraft, five next-generation Airbus A320neos, and five widebody Airbus A330s, totaling 123 aircraft.

Risks relating to Embraer, ATR and Airbus include: (i) our failure or inability to obtain Embraer, ATR or Airbus aircraft, parts or related support services on a timely basis because of high demand or other factors, (ii) the issuance by the aviation authorities of directives restricting or prohibiting the use of Embraer, ATR or Airbus aircraft, (iii) the adverse public perception of a manufacturer as a result of an accident or other negative publicity or (iv) delays between the time we realize 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 this aircraft.

Our ability to obtain these new aircraft from Embraer, ATR and Airbus may be affected by several factors, including (i) Embraer, ATR or Airbus may refuse to, or be financially limited in its ability to, fulfill the obligations it assumed under the aircraft delivery contracts, (ii) the occurrence of a fire, strike or other event affecting Embraer’s, ATR’s or Airbus’s ability to fulfill its contractual obligations in a complete and timely fashion and (iii) any inability on our part to obtain aircraft financing or any refusal by Embraer, ATR or Airbus to provide financial support. We may also be affected by any failure or inability of Embraer, ATR, Airbus (or other suppliers) to supply sufficient replacement parts in a timely fashion, which may cause the suspension of operations of certain aircraft because of unscheduled or unplanned maintenance. Any such suspension of operations would decrease passenger revenue and adversely affect us and our growth strategy.

The occurrence of any one or more of these factors could restrict our ability to use aircraft to generate profits, respond to increased demands, or could limit our operations and adversely affect us.

We could be adversely affected by expenses or stoppages associated with planned or unplanned maintenance on our aircraft, as well as any inability to obtain spare parts on time.

As of December 31, 2016, the average age of our operating fleet was 4.8 years. Our relatively new aircraft require less maintenance now than they will in the future. Our fleet will require more maintenance as it ages and our maintenance and repair expenses for each of our aircraft will be incurred at approximately the same intervals. In the event we cannot renew our fleet, our scheduled and unscheduled aircraft maintenance expenses will increase as a percentage of our revenue in future years. Any significant increase in maintenance and repair expenses would have a material adverse effect 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 problem with E-Jets, ATRs or Airbus aircraft were to be discovered, this would cause our aircraft to be grounded while such defect or mechanical problem was being corrected. We cannot assure you that we would succeed in obtaining all aircraft and parts to solve such defect or mechanical problem, that we would obtain such parts on time, or that we would succeed in solving such defect or mechanical problem even if we obtained such parts. This could result in a suspension of the operations of certain of our aircraft, potentially for a prolonged period of time, while we attempted to obtain such parts and solve such defect or mechanical problem, which could have a materially adverse effect on us.

Additionally, General Electric is the sole manufacturer and supplier of the CF34 engines on our Embraer E-Jets and 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 Rolls Royce is the sole manufacturer of the Trent 700 engines for our A330 aircraft. As prices for the engines and parts are payable in U.S. dollars, they are subject to fluctuations in exchange rates and may result in 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, incur substantial transition costs, or suffer from the suspension of the operations of certain of our aircraft due to the need for unscheduled or unplanned maintenance while these contractual obligations are not being performed.

We rely on agreements with third parties to provide our customers and us with facilities and services that are integral to our business and the termination or non-performance of these agreements could harm 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 television and internet services for our flights. All of these agreements are subject to termination on short notice. The loss or expiration of these agreements or our inability to renew these agreements or to negotiate new agreements with other providers at comparable term 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 of these third parties may fail to meet their service performance commitments, may suffer disruptions to their systems that could impact the fulfillment of their obligations, or the agreements with such third parties may be terminated. The failure of any third-party contractor to adequately perform their services, or other interruptions of services, may adversely affect us, including reducing our revenues and increasing our expenses or preventing us from operating our flights or providing other services to our customers. In addition, we, including our reputation, could be materially adversely affected if our customers believe that our services or facilities are unreliable or unsatisfactory.

We rely on partner airlines for code-share and loyalty marketing arrangements and the loss of a significant partner through bankruptcy, consolidation, or otherwise, could adversely affect us.

Azul is a party to code-share agreements with international air carriers United and TAP. These agreements provide that certain flight segments operated by us are held out as United or TAP flights, as the case may be, and that certain United or TAP flights, as the case may be, are held out for sale as Azul flights. In addition, these agreements provide that our TudoAzul members can earn miles on or redeem miles for United or TAP flights, as the case may be, and vice versa. We receive revenue from flights sold under these code-share agreements. In addition, we believe that these frequent flyer arrangements are an important part of our TudoAzul program. The loss of a significant partner through bankruptcy, consolidation, or otherwise, could adversely affect us. We may also be adversely affected by the actions of one of our significant partners, for example, in the event of nonperformance of a partner’s material obligations or misconduct by such partner, which could potentially result in us incurring liabilities, or poor delivery of services by one of our partners, which could damage our brand.

We may be adversely affected if TudoAzul loses business partners or if these business partners change their policies in relation to the granting of benefits to their clients.

TudoAzul relies on its four largest business partners (which are the largest banks in Brazil) for a significant majority of its gross billings. We have no control or influence over TudoAzul ’s business partners, which may terminate their relationship with TudoAzul or change their commercial policies with respect to the accumulation, transfer and redemption of miles, as well as choose to develop or offer their customers their own platforms for exchanging points for prizes, including airline tickets issued by other airlines. The loss of a significant TudoAzul business partner or changes to TudoAzul ’s business partners’ policies could (i) make TudoAzul less attractive or efficient for our business partners’ customers, and (ii) increase competition with respect to TudoAzul , thereby reducing our gross sales and the demand for miles, factors that may negatively impact us. If we do not find satisfactory replacement business partners in the event of the loss of one or more of TudoAzul’s significant business partner or adapt satisfactorily to changes to TudoAzul ’s business partners’ policies, we may be adversely affected.

If actual redemptions by TudoAzul members are greater than expected, or if the costs related to redemption of reward points increase, we could be adversely affected.

We derive most of our TudoAzul revenues by selling TudoAzul points to business partners. The earnings process is not complete, however, at the time points are sold, as we incur most of our costs related to TudoAzul upon the actual redemption of points by our TudoAzul members. Based on historical data, the estimated period between the issuance of a TudoAzul point and its redemption is currently nine months; however, we cannot control the timing of the redemption of points or the number of points ultimately redeemed. Since we do not incur redemption-related costs for points that are not redeemed, our profitability depends in part on the number of accumulated TudoAzul points that are never redeemed by our TudoAzul members, or “breakage.” We experience breakage when TudoAzul points are not redeemed for any number of reasons.

Our estimate of breakage is based on historical trends. We expect that breakage will decrease from historical amounts as TudoAzul expands its network of business partners and makes available a greater variety of reward options to our TudoAzul members. We seek to offset the anticipated decrease in breakage through our pricing policy for points sold. If we fail to adequately price our points or actual redemptions exceed our expectations, TudoAzul ’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, including our Chairman, who has played an important role in shaping our company culture, as well as other key executives. Our future success depends on a significant extent 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 work in businesses that compete with ours. There is no guarantee that the compensation arrangements and non-competition agreements we have entered into with our senior management team are sufficiently broad or effective to prevent them from resigning in order to join or establish a competitor or that the non-competition agreements would be upheld in a court of law. In the event that our Chairman or a number of our senior management team leave our company, we may have difficulty 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, such as pilots, which could have an adverse impact on us.

We believe that our growth potential and the maintenance of our results and customer oriented company culture are directly linked to our capacity to attract and maintain the best professionals available in the Brazilian airline industry. As we grow, we may be unable to identify, hire or retain enough people who meet the above criteria, or we may have trouble maintaining our company culture as we become a larger business. From time to time, the airline industry has experienced a shortage of skilled personnel, especially pilots. We compete against all other airlines, both inside and outside Brazil, for these highly-skilled personnel. We may have to increase wages and benefits to attract and retain qualified personnel or risk considerable employee turnover. Our culture is crucial to our business plan, and failure to maintain that culture could have an adverse impact on us.

The airline industry is subject to increasingly stringent environmental regulations and non-compliance therewith may adversely affect us.

The airline industry is subject to increasingly stringent federal, state, local and foreign laws (including those of the United States and Europe), regulations and ordinances relating to the protection of the environment, including those relating to emissions to the air, levels of noise, discharges to surface and subsurface waters, safe drinking water, and the management of hazardous substances, oils and waste materials. As far as civil liabilities are concerned, Brazilian environmental laws adopt a strict and joint liability regime. In this regard we may be liable for violations by third parties hired to dispose of our waste, among other activities. 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 piercing of the corporate veil of a company may occur to help provide enough financial resources for the recovery of damages caused against the environment. As far as civil liabilities are concerned, Brazilian environmental laws adopt a strict and joint liability regime. Thus, we may be liable for violations by third parties hired to dispose of our waste.

Concerns about climate change and greenhouse gas emissions may result in additional regulation or taxation of aircraft emissions in Brazil, the United States or Europe. Future operations and financial results may vary as a result of the adoption of such regulations in Brazil, the United States or Europe.

The European Union has proposed a directive under which the existing emissions trading scheme, or ETS, in each European Union member state was to be extended to all airlines. This directive would require us to submit annual emission allowances in order to operate routes to and from European Union member states. As of the date of this prospectus, this proposal would affect only intra-European flights (which are not material to our business) but there is a possibility that the directive could be extended to all flights in the future. Currently, we operate one route to and from Europe, and service additional destinations in Europe through our code-sharing agreement with TAP. Although this proposal has been postponed for evaluation and it is uncertain whether it will be approved, it is increasingly likely that we will be required to participate in some form of an international aircraft emissions program in the future, which may involve significant costs.

We benefit from tax incentives on our purchases of jet fuel in Brazil and these tax incentives may be revoked at any time adversely affecting us.

The price of the jet fuel that we purchase in certain Brazilian states is subsidized through tax incentives provided to us by those states. Governmental authorities may revoke, suspend or fail to renew these tax incentives at any time, including if we fail to comply with our obligations in the tax incentive agreements that we have executed with those states. In addition, these tax incentives require approval from CONFAZ, the Brazilian National Council of Fiscal Policy, which have not yet been obtained and could therefore be canceled by the Brazilian Supreme Court at any time. If any of these tax incentives are canceled, revoked, suspended or not renewed, the prices that we pay for jet fuel would increase, which may lead to a significant increase in our costs and adversely affect us.

The agreements governing our debt contain covenants and restrictions that limit our ability to engage in change of control transactions, terminate our relationship with certain suppliers and incur certain levels of indebtedness.

Our financing agreements contain covenants and restrictions that restrict our and our subsidiaries’ ability to engage in change of control transactions and terminate concession agreements associated with such financing leases, whether through failure to renew or otherwise. In addition, certain of our financing instruments require us and our subsidiaries to meet financial covenants calculated as of December 31 of each year that, among other restrictions, limit our permissible ratios of debt to EBITDAR and debt to cash freely convertible into U.S. dollars. Our ability to comply with the covenants and restrictions contained in our financing agreements may be affected by economic, financial and industry conditions beyond our control. The breach of any of these covenants and restrictions could result in declaration of an event of default and acceleration of the maturity of indebtedness, which would require us to pay all amounts outstanding.

As of December 31, 2016, we were not in compliance with certain financial covenants in our financing instruments requiring us to maintain certain ratios. We have obtained waivers from our creditors in connection with such noncompliance; nevertheless, had such waivers not been granted, we would have been in default under such financing instruments. For more information on the covenants and restrictions under our financing agreements see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Loans and Financings.”

Unfavorable decisions in judicial or administrative proceedings could adversely affect us.

We and our subsidiaries are parties to various proceedings in the judicial and administrative spheres, including civil, labor, social security, tax, civil and regulatory actions. There is no way to guarantee that such lawsuits will be ruled favorably to us and/or our subsidiaries, or that the amounts provisioned are sufficient to cover amounts resulting from any unfavorable rulings. Decisions contrary to the interests of us and/or our subsidiaries that could eventually result in substantial payments, affect our image and/or the image of our subsidiaries or impede the performance of our business as initially planned may have a material adverse effect on our business, the business of our subsidiaries, our financial condition and our results of operations.

Any violation or alleged violation of anti-corruption, anti-bribery and anti-money laundering laws could adversely affect us, including our brand and reputation.

There can be no assurance that our employees, agents, and the companies to which we outsource certain of our business operations, will not take actions in violation of our anti-corruption, anti-bribery and anti-money laundering policies, for which we may be ultimately held responsible. As a result of this global offering, we will be subject to the United States Foreign Corrupt Practices Act of 1977, or the FCPA, by virtue of our shares being listed and traded in the United States, while in the past, our exposure was less significant due to our limited nexus with the United States. If we are not in compliance with anti-corruption laws, anti-money laundering laws and other laws governing the conduct of business with government entities, including under the FCPA and other United States and local laws, we may be subject to criminal and civil penalties and other remedial measures, which could harm our brand and reputation and have a material adverse impact on our business, financial condition, results of operations and prospects. Any investigation of any actual alleged violations of such laws could also adversely affect us, including our brand and reputation.

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. We support these operating subsidiaries with technical and administrative services through our various other subsidiaries. All of the assets we use to perform administrative and technical services and to operate the concessions and authorizations are held at the subsidiary level. As a result, we do not have any material assets other than the shares of our subsidiaries. Dividends or payments that we may be required to make will be subject to the availability of cash provided by our subsidiaries. Transfers of cash from our subsidiaries to us may be further limited 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 the assets of us and our combined subsidiaries.

Risks Relating to the Global Offering and Our Preferred Shares, Including in the Form of ADSs

Our controlling shareholder has the ability to direct our business and affairs, and its interests may conflict with yours.

In accordance with Brazilian corporate law and our bylaws, our controlling shareholder has the legal power to, among other things, elect the majority of our directors and determine the outcome of any action requiring shareholder approval. This power includes the ability to control decisions with respect to related party transactions, corporate restructurings, dispositions, partnerships, sale of all or substantially all of our assets, withdrawal of our shares from the Level 2 segment of BM&FBOVESPA and the time for payment of any future dividends. Our controlling shareholder may choose to enter into acquisitions, dispositions, partnerships or enter into loans and financing or other similar transactions for us that could conflict with the interests of investors and that may negatively affect us. Upon completion of this global offering, assuming full exercise of the underwriters’ option to purchase additional shares, our controlling shareholder will own 67% of our voting capital and •% of our total capital. In particular, due to our capital structure, the capital contributions made by the holders of our common shares to date were considerably lower than those made by the holders of our preferred shares, which means that our controlling shareholder has the right to direct our business having considerably less economic exposure to any negative results of our activities than holders of our preferred shares. This difference in economic exposure may intensify conflicts of interests between our controlling shareholders and you.

Our controlling shareholder is entitled to receive significantly less dividends than holders of our preferred shares, which may cause his decisions on the distribution of dividends to conflict with your interests.

Holders of our common shares are entitled to receive an amount of dividends equivalent to 75 times less than the amount of dividends paid to holders of our preferred shares. The fact that our controlling shareholder receives a small portion of our dividends in each distribution in comparison to the amount of dividends to which holders of our preferred shares are entitled may influence his decisions on the distribution of dividends, which may differ from interests of the holders of our preferred shares. For more information on distribution of dividends and compensation of our management, see “Dividend Policy” and “Description of Capital Stock,” respectively.

New investors in our preferred shares, including in the form of ADSs, will experience immediate book value dilution after this offering and may experience further dilution in the future.

The initial public offering price of our preferred shares (including in the form of ADSs) is higher than the book value of such shares immediately after this global offering. In addition, this difference will increase further as a result of the exercise of stock options granted to our management.

We have established stock option and restricted stock plans for key personnel, including our officers, certain managers and other key crewmembers. Following the pricing of this global offering, all options that have vested will become exercisable, and any shares issued thereby will be subject to the lock-up restrictions discussed in the section of this prospectus entitled “Underwriters.” We estimate that 4,468,832 new preferred shares would be issued if all of our vested options are exercised by the holders thereof at a weighted average strike price of R$14.90.

Any of the events above could result in substantial dilution in book value to new investors as the initial public offering price for our preferred shares (including in the form of ADSs) will be higher than the book value of such shares immediately after this global offering or in the future upon the exercise of our stock options. See “Dilution” and “Management—Stock Option and Restricted Stock Plans.” In addition, in the event that we need to obtain capital for our operations by issuing new shares in the future, any such issuance may be made at a value below the book value of our preferred shares on the relevant date. In that event, the holders of our ADSs and preferred shares at such time would suffer an immediate and significant dilution of their investment.

Our preferred shares, including in the form of ADSs, have not previously been traded on any stock exchange and, therefore, an active and liquid trading market for such securities may not develop, thereby potentially adversely affecting the price our preferred shares, including in the form of ADSs, after this global offering.

Before this global offering, none of our preferred shares, including in the form of ADSs, have ever been traded on any stock exchange. In connection with the global offering, we will apply to list ADSs representing our preferred shares on the NYSE and our preferred shares on BM&FBOVESPA. An active and liquid public trading market for our preferred shares, including in the form of ADSs, may not develop or, if developed, may not be sufficiently liquid. Active, liquid trading markets generally result in lower price volatility and more efficient purchases and sales of shares.

The investment in marketable securities traded in emerging countries, such as Brazil, usually represents higher levels of risk as compared to investments in securities issued in countries whose political and economic situations are more stable, and in general, such investments are considered speculative in nature. The Brazilian capital market is substantially smaller, less liquid, more volatile, and more concentrated than major international capital markets. BM&FBOVESPA listed companies had a market capitalization of R$2.5 trillion and a daily average trading volume of R$7.4 billion as of December 31, 2016. The top 10 stocks in terms of trading volume accounted for 59.8% and 54.3% of all shares traded on BM&FBOVESPA during 2016 and 2015, respectively. These market characteristics may substantially limit the capacity of holders of our preferred shares to sell them at the price and time of their preference and this may have an adverse effect on the market price of our preferred shares.

In addition, the price of shares of companies in the worldwide airline industry are relatively volatile and investors’ perception of the market value of these shares, including our preferred shares in the form of ADSs, may also be negatively impacted with additional volatility and decreases in the price of our ADSs and preferred shares.

The initial public offering price for our preferred shares, including in the form of ADSs, will be determined by negotiation between us, the international underwriters and the Brazilian underwriters based upon several factors, and the price of our preferred shares, including in the form of ADSs, after this global offering may decline below the initial public offering price. The market price of our preferred shares could vary significantly as a result of a number of factors, some of which are beyond our control. As a result, investors may experience a significant decrease in the market price of our preferred shares, including in the form of ADSs. If an active trading market does not develop or is not maintained, the liquidity and price of our preferred shares, including in the form of ADSs, could be seriously harmed.

Our preferred shares will have limited voting rights even if dividends are not paid.

Except under certain situations, our preferred shares, including in the form of ADSs, do not carry general voting rights. See “Description of Capital Stock—Voting Rights.” Our principal shareholders, who hold the majority of common shares with voting rights and control us, are therefore able to approve corporate measures without the approval of holders of our preferred shares, including in the form of ADSs. Accordingly, you will generally not have control over any matters, including the approval of corporate measures such as appointment of directors, approval of significant transactions or changes in our capital structure.

According to Brazilian corporate law, preferred shares with limited or no voting rights and with rights to fixed or minimum priority dividends, gain voting rights if the company ceases to pay the fixed or minimum dividends to which such shares are entitled for three consecutive fiscal years. However, pursuant to our bylaws, the dividends attributed to our preferred shares are not fixed or minimum priority dividends. Accordingly, our preferred shares will not be entitled to voting rights if we do not pay dividends for three consecutive fiscal years.

In addition, to the extent holders of our preferred shares are entitled to vote on certain limited matters pursuant to Brazilian corporate law, the provisions of our bylaws, and the provisions of or governing the deposited preferred shares, we cannot assure ADS holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote the preferred shares underlying their ADSs. Furthermore, there can be no assurance that ADS holders will be given the opportunity to vote or cause the custodian to vote on the same terms and conditions as the holders of our preferred shares. While ADS holders could exercise their right to vote directly if they withdraw the preferred shares, such ADS holders may not know about the meeting sufficiently enough in advance to withdraw the preferred shares. See “Description of Capital Stock—Voting Rights.”

Holders of our preferred shares, including in the form of ADSs, may not receive any dividends or interest attributable to shareholders’ equity.

According to our bylaws, we must pay our common and preferred shareholders at least 0.1% of our annual adjusted net income as dividends or interest attributable to shareholders’ equity, as calculated and adjusted pursuant to Brazilian corporate law. Interim dividends and interest on our shareholders’ equity declared for each fiscal year may be attributed to our minimum obligatory dividend for the year in which it was declared. For more information, see “Dividend Policy.” This adjusted net income may be capitalized, used to absorb losses or otherwise retained as allowed under Brazilian corporate law, and may not be made available for payment as dividends or interest attributable to shareholders’ equity.

Additionally, Brazilian corporate 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 preferred shares, including in the form of ADSs may not receive dividends or interest attributable to shareholders’ equity.

The sale of a significant number of our preferred shares, including in the form of ADSs, after the offering may negatively affect the trading price of our preferred shares, including in the form of ADSs.

We, the Selling Shareholders, all of our directors and officers and holders of at least 1.0% of our common shares and/or at least 1.0% of our economic interest have agreed not, within 180 days following the pricing of this global offering, subject to certain exceptions, to issue, offer, sell, contract to sell, pledge or otherwise transfer or dispose of, directly or indirectly, or file with the SEC or the CVM a registration statement relating to, any common and/or preferred shares, ADSs or securities convertible into or exchangeable or exercisable for preferred shares (including our common shares) or ADSs, or publicly disclose any intention to make any such offer, sale, pledge, deposit, disposition, loan contract, grant or filing, without the prior written consent of the Representatives.

In addition, pursuant to the regulations of the Level 2 segment of BM&FBOVESPA, our controlling shareholders, our directors and executive officers may not sell and/or offer for sale any common and/or preferred shares of our company or derivatives linked to our common and/or preferred shares, which we or they hold immediately after the offering, for a period of six months as of the effectiveness of the Level 2 segment of BM&FBOVESPA listing agreement. Following this initial six-month period, our controlling shareholders, directors and executive officers may not sell and/or offer for sale, for an additional six-month period, more than 40% of our common and/or preferred shares of our company (or derivatives linked to such shares) immediately after this global offering.

We or our principal shareholders may sell additional preferred shares, including in the form of ADSs, at any time following the termination of these lock-up restrictions. In addition, under a registration rights agreement, as amended and restated, or the Registration Rights Agreement, that we entered into on December 23, 2013 with our then principal shareholders, they have the right to require us to register additional preferred shares held by them with the SEC for future sale at any time commencing six months following this global offering. For further details of the registration rights agreement, see “Principal and Selling Shareholders—Registration Rights Agreement.”

A sale of a significant number of our preferred shares, including in the form of ADSs, or market perception of an intention to sell a significant number of our preferred shares, including in the form of ADSs, may negatively affect the trading price of our preferred shares, including in the form of ADSs.

The participation of our controlling shareholder, members of our board of directors, our officers, the Brazilian underwriters, the international underwriters and any other person related to the offering and their respective relatives, in this global offering may adversely affect the liquidity of our preferred shares, including in the form of ADSs, and the determination of the offering price.

The offering price will be determined after a bookbuilding process, which may include purchase commitments by institutional investors, our controlling shareholder, members of our board of directors, our board of executive officers, the Brazilian underwriters, the international underwriters and any other person related to the offering and their respective relatives, subject to the applicable regulations. CVM Instruction No. 400 dated December 29, 2003 limits the participation in the bookbuilding process of institutional investors that are considered related persons. However, in the event that demand for our preferred shares, including in the form of ADSs, offered in the global offering is less than the number of securities offered plus one-third of this amount, institutional investors that are considered related persons may purchase up to 15% of the total preferred shares, including in the form of ADSs, offered in the global offering. Additionally, affiliates of the Brazilian underwriters may purchase preferred shares, including in the form of ADSs, for hedging purposes using derivate instruments for the account of and on behalf of their clients.

These transactions may influence the demand for our preferred shares, including in the form of ADSs, and the offering price, and the participation of these persons in the offering may have an adverse effect on the liquidity of our preferred shares, including in the form of ADSs, and determination of the offering price per ADS/preferred share.

Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of our preferred shares, including in the form of ADSs.

Law No. 10,833 of December 29, 2003 provides that the disposition of assets located in Brazil by a nonresident to either a resident or a nonresident of Brazil is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposition of our preferred shares by a nonresident of Brazil to either a resident or a nonresident of Brazil. However, since currently there is no judicial guidance determining whether ADSs should be considered assets located in Brazil, we are unable to predict whether Brazilian courts may decide that income tax under Law No. 10,833 applies to gains assessed on 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 nonresident 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 “Taxation—Material U.S. Federal Income Tax Consequences”) on the disposition of preferred shares or ADSs generally will be treated as U.S.-source gain or loss for U.S. foreign tax credit purposes, the U.S. Holder may not be able to benefit from a foreign tax credit for Brazilian income tax imposed on the disposition of preferred shares or ADSs unless the U.S. Holder can apply the credit against U.S. federal income tax payable on other income from foreign sources. See “Taxation—Material U.S. Federal Income Tax Consequences—Sale or Other Taxable Disposition of Preferred 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 preferred shares, our capacity to make dividend payments or other distributions to non-Brazilian investors and would reduce the market price of our preferred shares, including in the form of ADSs, and our capacity to comply with payment obligations in foreign currency.

In case of serious imbalances, the Brazilian government may restrict the remittance abroad 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. We cannot assure you that the Brazilian government will not take similar measures in the future. The return of any such restrictions would hinder or prevent your ability to convert dividends or other distributions or the proceeds from any sale of our preferred shares into U.S. dollars and to remit U.S. dollars abroad, our capacity to make dividend payments or other distributions to non-Brazilian investors, and our capacity to comply with payment obligations in foreign currency. The imposition of any such restrictions would have a material adverse effect on the stock market price of our preferred shares, including in the form of ADSs, and on our capacity to access foreign capital markets.

If you surrender your ADSs and withdraw preferred 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 preferred shares underlying the ADSs in Brazil, permitting the custodian to convert dividends and other distributions with respect to our preferred shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw preferred 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 our preferred shares, unless you obtain your own electronic certificate of foreign capital registration, or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration, you would not be able to remit abroad non-Brazilian currency. 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 preferred shares.

If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our preferred 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 preferred shares.

We may, from time to time, offer preferred shares or preemptive rights to acquire additional preferred shares to preferred shareholders, including as a result of the Brazilian Corporate Law. We will not be able to offer such shares or rights to holders of ADSs unless a registration statement under the Securities Act is effective with respect to such preferred 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 assure you that we will file a registration statement. If a registration statement is not filed and an exemption from registration does not exist, Citibank, N.A., as depositary, will attempt to sell such preemptive rights or preferred shares, as the case may be, and you will be entitled to receive the proceeds of the sale. However, if the depositary is unable to sell these preemptive rights or preferred shares, U.S. holders of ADSs will not receive any value in connection with such distribution.

In the event that you are not entitled to preemptive rights, or are unable or unwilling to exercise preemptive rights in connection with the preferred shares, including in the form of ADSs, your investment could be subjected to dilution.

We will be required to assess our internal control over financial reporting on an annual basis and any future adverse findings from such assessment could result in a loss of investor confidence in our financial reports, significant expenses to remediate any internal control deficiencies and ultimately have an adverse effect on the market price of our preferred shares, including in the form of ADSs.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on Form 20-F for the year ending December 31, 2018, our management will be required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. We are currently in the process of reviewing, documenting and testing our internal control over financial reporting, and can provide no assurance that from time to time we will not identify concerns that could require remediation. We may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. In connection with the attestation process by our independent registered public accounting firm, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation. In addition, if we fail to maintain the adequacy of our internal control over financial reporting we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 which may have an adverse effect on us.

The requirements of being a public company 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, we will incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act of 2002, as amended, and related rules implemented by the SEC. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time consuming and costly, although we are currently unable to estimate these costs with any degree of 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, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers and may divert management’s attention. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our preferred shares, fines, sanctions and other regulatory action and potentially civil litigation which may adversely affect us.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, the market price and trading volume of our preferred shares, including in the form of ADSs could decline.

The trading market for our preferred 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 would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our preferred shares, including in the form of ADSs, could decline, which might cause the market price and trading volume of our preferred shares, including in the form of ADSs to decline.

Our status as a foreign private issuer allows us to follow alternate standards to the corporate governance standards of the NYSE, which may limit the protections afforded to investors.

We are a “foreign private issuer” within the meaning of the NYSE corporate governance standards. Under NYSE rules, a foreign private issuer may elect to comply with the practices of its home country and not comply with certain corporate governance requirements applicable to U.S. companies with securities listed on the exchange. We currently follow certain Brazilian practices concerning corporate governance and intend to continue to do so.

We intend to rely on certain exemptions as a foreign private issuer listed on the NYSE. For example, a majority of our board of directors will not be independent, and we do not plan to hold at least one executive session of solely independent members of our board of directors each year. Also, pursuant to Brazilian corporate law and Instruction No. 308, dated May 14, 1999, as amended, issued by CVM, our audit committee, unlike the audit committee of a U.S. issuer, will not be composed of directors only, will only have an “advisory” role and may only make recommendations for adoption by our board of directors, which will be responsible for the ultimate vote and final decision.

In addition, we do not intend to have a nominating committee as required for U.S. issuers under the NYSE rules and although we have a compensation committee and a corporate governance committee, we are not 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 Securities Exchange act of 1934, as amended, or 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 CVM, which is provided in Portuguese, 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 will not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENT S

This prospectus includes estimates and forward-looking statements principally under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”

These estimates and forward-looking statements are based mainly on our current expectations and estimates of future events and trends that affect or may affect our business, financial condition, results of operations, cash flow, liquidity, prospects and the trading price of our preferred shares, including in the form of ADSs. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to many significant risks, uncertainties and assumptions and are made in light of information currently available to us.

These statements appear throughout this prospectus and include statements regarding our intent, belief or current expectations in connection with:

•

changes in market prices, customer demand and preferences and competitive conditions;

•

general economic, political and business conditions in Brazil, particularly in the geographic markets we serve as well as any other countries we currently serve and may serve in the future;

•

our ability to keep costs low;

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existing and future governmental regulations;

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increases in maintenance costs, fuel costs and insurance premiums;

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our ability to maintain landing rights in the airports that we operate;

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air travel substitutes;

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labor disputes, employee strikes and other labor-related disruptions, including in connection with negotiations with unions;

•

our ability to attract and retain qualified personnel;

•

our aircraft utilization rate;

•

defects or mechanical problems with our aircraft;

•

our ability to successfully implement our growth strategy, including our expected fleet growth, passenger growth, our capital expenditure plans, our future joint venture and partnership plans, our ability to enter new airports (including certain international airports), that match our operating criteria;

•

management’s expectations and estimates concerning our future financial performance and financing plans and programs;

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our level of debt and other fixed obligations;

•

our reliance on third parties, including changes in the availability or increased cost of air transport infrastructure and airport facilities;

•

inflation, appreciation, depreciation and devaluation of the real;

•

our aircraft and engine suppliers; and

•

other factors or trends affecting our financial condition or results of operations, including those factors identified or discussed as set forth under “Risk Factors.”

The words “believe,” “understand,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “seek,” “intend,” “expect,” “should,” “could,” “forecast” and similar words are intended to identify forward-looking statements. You should not place undue reliance on such statements, which speak only as of the date they were made. Neither we nor the Selling Shareholders undertake any obligation to update publicly or to revise any forward-looking statements after we distribute this prospectus because of new information, future events or other factors. Our independent public auditors have neither examined nor compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements. In light of the risks and uncertainties described above, the future events and circumstances discussed in this prospectus might not occur and are not guarantees of future performance. Because of these uncertainties, you should not make any investment decision based upon these estimates and forward-looking statements.

USE OF PROCEED S

We estimate that the net proceeds to us from the sale of preferred shares, including in the form of ADSs, in this global offering will be approximately R$• million, after deducting commissions and estimated expenses payable by us, and assuming an initial public offering of R$• per preferred share (and US$ • per ADS, based on an exchange rate of R$• to US$1.00 as of •, 2017), which is the midpoint of the range set forth on the cover of this prospectus.

We intend to use the net proceeds from this global offering for the following purposes:

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R$333 million to repay indebtedness; and

•

the balance for general corporate purposes.

We intend to use a portion of the proceeds from this global offering to pay down approximately R$333 million of debt with maturities ranging from April 2017 to December 2017 and an average weighted interest cost per annum of 120% of the CDI Rate, which was approximately 15.4% per annum as of the date of this prospectus. During the year ended December 31, 2016, proceeds from loans and debentures, which totalled R$620.5 million, were used principally to finance our fleet optimization, to substitute debts that were due for repayment and general corporate purposes. For additional information regarding our indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Loans and Financings” and “—Off Balance Sheet Arrangements.”

We will not receive any proceeds from the sale of preferred shares, including in the form of ADSs, by the Selling Shareholders.

The total amount of estimated proceeds from this offering excludes any proceeds resulting from the exercise of stock options that will be vested and exercisable following completion of this offering. See “Management—Stock Option and Restricted Stock Plans”.

EXCHANGE RATE S

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

Since 1999, the Central Bank has allowed the U.S. dollar- real exchange rate to float freely. Since then, the U.S. dollar- real exchange rate has fluctuated considerably.

The Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to permit the real to float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. See “Risk Factors—Risks Relating to Brazil—The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could adversely affect us and the price of our preferred shares, including in the form of ADSs.”

The real may depreciate or appreciate against the U.S. dollar substantially. See “Risk Factors—Risks Relating to Brazil—Exchange rate instability may have adverse effects on the Brazilian economy, us, and the market price of our preferred shares, including in the form of ADSs.”

Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian government in the future. See “Risk Factors—Risks Relating the Global Offering and to our preferred 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 preferred shares, our capacity to make dividend payments or other distributions to non-Brazilian investors and would reduce the market price of our preferred shares, including in the form of ADSs, and our capacity to comply with payment obligations in foreign currency.”

The following table shows the period end, average, high and low commercial selling real /U.S. dollar exchange rate reported by the Central Bank on its website for the periods and dates indicated.


	R$ per US$1.00
Year Ended December 31,	Low		High		Average ⁽¹⁾		Period End
2012		1.70		2.11		1.95		2.04
2013		1.95		2.45		2.16		2.34
2014		2.20		2.74		2.35		2.66
2015		2.58		4.19		3.34		3.90
2016		3.12		4.16		3.48		3.26


Month Ended	Low		High		Average ⁽²⁾		Period End
August 2016		3.13		3.27		3.21		3.24
September 2016		3.19		3.33		3.26		3.25
October 2016		3.12		3.24		3.19		3.18
November 2016		3.20		3.44		3.34		3.40
December 2016		3.26		3.47		3.35		3.26
January 2017		3.13		3.27		3.20		3.13
February 2017 (through February 3, 2017)		3.12		3.15		3.14		3.12

(1)	Represents the average of exchange rates on each day of each month during the periods indicated.

(2)	Represents the average of the daily exchange rates during each day of the respective month indicated.

CAPITALIZATIO N

The table below presents our consolidated capitalization as of December 31, 2016:

(a)

on a historical basis; and

(b)

as adjusted to reflect (i) the receipt by us of approximately R$• million in net proceeds from this global offering, after deducting commissions and estimated expenses payable by us (based on offering price of R$• per preferred share, the midpoint of the indicative price range in this global offering), and (ii) the repayment by us of total working capital debt of R$• million as described in “Use of Proceeds.”

The information presented below in the column marked “Actual” is derived from our audited consolidated financial statements as of December 31, 2016. This table should be read in conjunction with, and is qualified in its entirety by reference to, “Selected Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Loan and Financings”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Off Balance Sheet Arrangements,” and our audited consolidated financial statements and the related notes included elsewhere in this prospectus.

Actual

As Adjusted

US$ ⁽¹⁾

(in thousands)

Cash and cash equivalents

168,502

549,164

•

Short-term investments

101,626

331,210

•

Current loans and financing

302,304

985,238

•

Noncurrent loans and financing

935,613

3,049,257

•

Current derivative financial instruments liability

64,781

211,128

•

Noncurrent derivative financial instruments liability

6,205

20,223

•

Total equity

307,443

1,001,987

•

Total capitalization ⁽²⁾

1,616,346

5,267,833

•

(1)

(2)	Total capitalization corresponds to the sum of current and noncurrent loans and financing, current and noncurrent derivative financial instruments and total equity.

The calculations above assume that no stock options will be exercised by the holders thereof.

DILUTIO N

As of December 31, 2016, our total equity was R$1,002.0 million represented by 464,482,529 common shares and 127,285,633 preferred shares outstanding. Total equity represents our total assets net of our total liabilities.

For purposes of this Dilution section, in order to account for the differences in economic interest between our different classes of shares, we have calculated our book value per preferred share on a pro forma basis assuming that (i) all our common shares have been fully converted on a theoretical basis into Class A preferred shares at a ratio of 75:1, such formula as set forth in our bylaws, resulting in 6,193,100 additional Class A preferred shares, (ii) all our Class C preferred shares and Class D preferred shares have been fully converted on a theoretical basis into Class A preferred shares at a ratio of 1:1, resulting in 37,042,846 additional Class A preferred shares, which we expect to occur in connection with this global offering and (iii) the renaming of our Class A preferred shares to preferred shares. After giving effect to these calculations, we would have 133,478,734 preferred shares outstanding as of December 31, 2016 on a pro forma basis, and our pro forma book value per preferred share as of December 31, 2016, calculated by dividing our total equity of R$1,002.0 million by 133,478,734 preferred shares, would have been R$7.51.

Using our pro forma book value per preferred share of R$7.51 as a base and assuming a single class of 133,478,734 preferred shares outstanding on a theoretical fully converted basis as of December 31, 2016 and giving further effect to:

(i)

the issuance of • new preferred shares in this global offering, including in the form of ADSs, at a price of R$• per preferred share (the midpoint of the indicative price range in this global offering), after deducting commissions and estimated expenses of the offering payable by us; and

(ii)

the issuance of 4,468,832 new preferred shares to our management at a weighted average strike price of R$14.90 as a result of the exercise of all stock options that will be vested and exercisable immediately following this global offering.

then our pro forma total equity as of December 31, 2016 would have been R$• million and there would be • preferred shares outstanding following these issuances and conversions, resulting in a pro forma book value per preferred share of R$•.

The issuance of new preferred shares as described above would therefore result in an immediate dilution in our book value of R$• per preferred share to purchasers in this global offering, compared to our pro forma book value per preferred share as of December 31, 2016, considering a single class of preferred shares and the theoretical full conversion of our common shares into preferred shares.

The following table illustrates this dilution:


		R$ (except for %)

Offering price per preferred share		•

Pro forma book value per preferred share as of December 31, 2016, (i) assuming the conversion of • common shares into • Class A preferred shares at a conversion ratio of 75.0 common shares to 1.0 Class A preferred share and (ii) reflecting the conversion of • Class C preferred shares into • Class A preferred shares, and of • Class D preferred shares into • Class A preferred shares and that all of our Class A preferred shares are renamed “preferred shares”		R$7.51

Pro forma book value per preferred share as of December 31, 2016 giving effect to the conversions described above and the issuance of • new preferred shares in this global offering		•

Pro forma book value per preferred share as of December 31, 2016 giving effect to the conversions described above and the issuance of • new preferred shares in respect of stock options to management at a weighted average strike price of R$14.90		•

Increase in pro forma book value per preferred share attributable to the above matters		•

Dilution in pro forma book value per preferred share to new investors in this global offering attributable to the above matters		•

Percentage of dilution per share to new investors ⁽¹⁾		•%

(1)	The percentage of dilution in pro forma book value per share to new investors is calculated by dividing the dilution in pro forma book value per share to the new investors by the price per share of R$• which is the midpoint of the indicative price range in this global offering.

The actual offering price per preferred share, including in the form of ADS, will be established on the basis of a bookbuilding process and will not necessarily bear direct relationship to the book value of our preferred shares on either an actual or pro forma basis.

An increase of R$1.00 in the offering price per preferred share of R$• (which is the midpoint of the indicative initial offering price range per share included on the cover page of this prospectus) would, upon completion of this global offering, increase:

(i)

our equity by R$• million;

(ii)

our pro forma equity per preferred share by R$•; and

(iii)

the dilution in pro forma book value per preferred share to new investors in this global offering by R$•, in each case after giving effect to the issuances and related assumptions described above.

A decrease of R$1.00 in the offering price per preferred share of R$• (which is the midpoint of the indicative price range per share included on the cover page of this prospectus) would decrease the items described above by the same amounts.

SELECTED CONSOLIDATED FINANCIAL INFORMATIO N

The following tables summarize our financial data for each of the periods indicated. You should read this information in conjunction with:

•

our audited consolidated financial statements as of and for each of the years ended December 31, 2016, 2015 and 2014 and the related notes; and

•

the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations;”

all included elsewhere in this prospectus.

Our selected financial data included below is derived from our audited consolidated financial statements, which were prepared in accordance with IFRS. Our selected financial data as of and for the years ended December 31, 2016, 2015 and 2014 is derived from our audited consolidated financial statements included elsewhere in this prospectus. Our financial data as of and for the years ended December 31, 2013 and 2012 has been derived from our audited consolidated financial statements in accordance with IFRS, not included in this prospectus.

Statements of Operations Data


	For the Years Ended December 31,
	2016			2016			2015			2014			2013			2012
	(US$) ⁽¹⁾			(R$)			(R$)			(R$)			(R$)			(R$)
	(in thousands, except amounts per share and %)
Operating revenue
Passenger revenue		1,775,585			5,786,809			5,575,344			5,129,613			4,667,542			2,454,651
Other revenue		270,959			883,082			682,522			673,440			566,613			262,704

Total revenue		2,046,544			6,669,891			6,257,866			5,803,053			5,234,155			2,717,355
Operating expenses
Aircraft fuel		(478,728	)		(1,560,223	)		(1,917,606	)		(1,955,036	)		(1,779,300	)		(1,073,261	)
Salaries, wages and benefits		(335,022	)		(1,091,871	)		(1,042,119	)		(991,449	)		(803,331	)		(510,435	)
Aircraft and other rent		(356,206	)		(1,160,912	)		(1,171,325	)		(689,055	)		(532,498	)		(229,393	)
Landing fees		(135,833	)		(442,692	)		(382,610	)		(314,402	)		(285,709	)		(156,468	)
Traffic and customer servicing		(100,423	)		(327,289	)		(307,926	)		(240,783	)		(206,459	)		(130,076	)
Sales and marketing		(84,748	)		(276,203	)		(258,214	)		(239,359	)		(207,759	)		(131,708	)
Maintenance, materials and repairs		(217,465	)		(708,739	)		(643,897	)		(353,339	)		(331,725	)		(126,817	)
Depreciation and amortization		(92,418	)		(301,201	)		(217,983	)		(197,755	)		(200,067	)		(106,013	)
Other operating expenses, net		(140,062	)		(456,475	)		(483,773	)		(420,949	)		(419,065	)		(244,543	)

		(1,940,905	)		(6,325,605	)		(6,425,453	)		(5,402,127	)		(4,765,913	)		(2,708,714	)

Operating income (loss)		105,638			344,286			(167,587	)		400,926			468,242			8,641
Financial result		—
Financial income		15,669			51,067			43,178			41,518			61,692			9,715
Financial expense		(224,356	)		(731,200	)		(685,919	)		(460,049	)		(316,462	)		(162,675	)
Derivative financial instruments, net		3,314			10,800			(82,792	)		4,245			(12,027	)		10,009
Foreign currency exchange, net		55,128			179,668			(184,305	)		(74,104	)		(105,262	)		(37,659	)
Result from related party transactions, net		50,028			163,045			—			—			—			—

Net income (loss) before income tax and social contribution		5,421			17,666			(1,077,425	)		(87,464	)		96,183			(171,969	)
Income tax and social contribution		2,679			8,731			(1,366	)		(4,368	)		(81,437	)		—


	For the Years Ended December 31,
	2016			2016			2015			2014			2013		2012
	(US$) ⁽¹⁾			(R$)			(R$)			(R$)			(R$)		(R$)
	(in thousands, except amounts per share and %)
Deferred income tax and social contribution		(46,857	)		(152,711	)		3,886			26,792			5,965		1,127

Net (loss) income for the year		(38,757	)		(126,314	)		(1,074,905	)		(65,040	)		20,711		(170,842	)

Basic and diluted (loss) income for the year per common share R$/US$ ⁽²⁾		(0.00	)		(0.01	)		(0.14	)		(0.01	)		0.01		(0.03	)
Basic and diluted (loss) income for the year per preferred share R$/US$		(0.34	)		(1.10	)		(10.84	)		(0.69	)		0.23		(2.53	)
Other financial data (unaudited):
EBITDA ⁽³⁾		238,972			778,833			(449,148	)		437,601			547,762		61,395
Adjusted EBITDA ⁽⁴⁾		198,057			645,487			50,396			598,681			668,309		114,654
Adjusted EBITDAR ⁽⁵⁾		554,263			1,806,399			1,221,721			1,287,736			1,200,807		344,047
Adjusted EBITDAR Margin (%) ⁽⁶⁾		27.1%			27.1%			19.5%			22.2%			22.9%		12.7%

(1)

(2)	Reflects the conversion ratio of 75.0 common shares to 1.0 preferred share.

(3)

(4)

(5)

(6)	Represents Adjusted EBITDAR divided by total operating revenue.

The following table presents the reconciliation of the non-IFRS performance measures EBITDA and Adjusted EBITDA and the valuation metric Adjusted EBITDAR to net income (loss) for the periods indicated below:


	For the Years Ended December 31,
	2016			2016			2015			2014			2013			2012
	(US$) ⁽¹⁾			(R$)			(R$)			(R$)			(R$)			(R$)
	(in thousands, except Adjusted EBITDAR margin)
Reconciliation :
Net (loss) income for the year		(38,757	)		(126,314	)		(1,074,905	)		(65,040	)		20,711			(170,842	)
Plus ( minus ):
Interest expense ⁽²⁾		152,667			497,557			450,960			364,255			262,381			134,850
Interest income ⁽³⁾		(11,534	)		(37,591	)		(40,666	)		(36,945	)		(10,869	)		(7,499	)
Income tax and social contribution		(2,679	)		(8,731	)		1,366			4,368			81,437			—
Deferred income tax and social contribution		46,857			152,711			(3,886	)		(26,792	)		(5,965	)		(1,127	)
Depreciation and amortization		92,418			301,201			217,983			197,755			200,067			106,013

EBITDA ⁽⁴⁾		238,972			778,833			(449,148	)		437,601			547,764			61,395
Foreign currency exchange, net ⁽⁵⁾		(55,128	)		(179,668	)		184,305			74,104			105,262			37,659
Derivative financial instruments ⁽⁶⁾		(3,314	)		(10,800	)		82,792			(4,245	)		12,027			(10,009	)
Other financial expenses ⁽⁷⁾		71,689			233,643			234,959			95,794			54,081			27,825
Other financial income ⁽⁸⁾		(4,135	)		(13,476	)		(2,512	)		(4,573	)		(50,823	)		(2,216	)
Result from related party transactions, net		(50,028	)		(163,045	)		—			—			—			—

Adjusted EBITDA ⁽⁴⁾⁽⁹⁾		198,057			645,487			50,396			598,681			668,309			114,654
Aircraft and other rent		356,206			1,160,912			1,171,325			689,055			532,498			229,393

Adjusted EBITDAR ⁽¹⁰⁾		554,263			1,806,399			1,221,721			1,287,736			1,200,807			344,047

Adjusted EBITDAR Margin (%) ⁽¹¹⁾		27.1%			27.1%			19.5%			22.2%			22.9%			12.7%

(1)

(2)	Interest expense is interest on loans, factoring credit card, and travel agencies receivables, which is a component of financial expense. See Note 25 our audited consolidated financial statements.

(3)	Interest income is interest on short-term investments, which is a component of financial income. See Note 25 to our audited consolidated financial statements.

(4)

(5)	Represents the foreign exchange remeasurement on U.S. dollar and Euro denominated assets and liabilities.

(6)	Represents currency forward contracts used to protect our U.S. dollar exposure.

(7)	Other financial expenses are a component of our financial expense. See Note 25 to our audited consolidated financial statements.

(8)	Other financial expenses for the year ended December 31, 2013 included R$47,423 for the fair value adjustment of other financial liabilities. Other financial income is a component of our financial income. See Note 25 to our audited consolidated financial statements.

(9)

Adjustments exclude the effects of the following items: (i) the foreign currency exchange variation relating to U.S. dollars denominated assets and liabilities; (ii) gains or losses in connection with our derivative instruments used to protect us against variations of the U.S. dollar compared to the real; (iii) other financial expenses (does not include interest expense), which is a component of financial expense; (iv) other financial income and fair value adjustment of other financial liabilities (does not include interest income), which are components of financial income; and (v) related party transactions, net (as applicable). We believe that such adjustments are useful to indicate our operating performance.

(10)

(11)	Represents Adjusted EBITDAR divided by total operating revenue.

Balance Sheet Data

The following table presents key line items from our historical balance sheet data:

As of December 31,

2016

2015

2014

2013

2012

(US$) ⁽¹⁾

(R$)

(in thousands)

Cash and cash equivalents

168,502

549,164

636,505

388,959

546,283

271,116

Total assets

2,577,524

8,400,409

7,839,164

6,239,199

5,612,784

4,751,785

Loans and financing ⁽²⁾

1,237,917

4,034,495

4,810,945

3,259,184

3,034,695

2,989,175

Equity

307,443

1,001,987

(392,169

)

416,495

476,313

351,031

Total liabilities and equity

2,577,524

8,400,409

7,839,164

6,239,199

5,612,784

4,751,785

(1)

(2)	Includes current and non-current loans and financing.

Operating Data


	As of and For the Years Ended December 31,
	Unaudited
	2016 ⁽¹⁾			2016		2015		2014		2013		2012
Operating Statistics (unaudited) :
Operating aircraft at end of period		123			123		144		138		133		118

Total aircraft at end of period		124			124		152		153		137		127
Cities served at end of period		101			101		100		105		103		100
Average daily aircraft utilization (hours)		10.1			10.1		9.5		9.6		10.3		11.5
Stage length (km)		848			848		830		727		726		777
Number of departures		261,611			261,611		280,832		283,755		275,976		143,363
Block hours		403,888			403,888		435,683		422,873		414,660		220,184
Passenger flight segments		20,822,146			20,822,146		21,794,939		20,409,931		19,808,882		11,718,784
Revenue passenger kilometers (RPKs) (million)		18,236			18,236		18,636		15,671		14,975		9,062
Available seat kilometers (ASKs) (millions)		22,869			22,869		23,423		19,747		18,928		11,495
Load Factor (%)		79.7%			79.7%		79.6%		79.4%		79.1%		78.8%
Passenger revenue (in thousands)		US$ 1,775,585	⁽¹⁾		R$ 5,786,809		R$5,575,344		R$5,129,613		R$4,667,542		R$2,454,651
Passenger revenue per ASK (cents) (PRASK)		US$ 7.76	⁽¹⁾		R$ 25.30		R$23.80		R$25.98		R$24.66		R$21.35
Operating revenue per ASK (cents) (RASK)		US$ 8.95	⁽¹⁾		R$ 29.17		R$26.72		R$29.39		R$27.65		R$23.64
Yield per ASK (cents)		US$ 9.74	⁽¹⁾		R$ 31.73		R$29.92		R$32.73		R$31.17		R$27.09
Trip cost		US$ 7,419	⁽¹⁾		R$ 24,179		R$22,880		R$19,038		R$17,269		R$18,894
End-of-period FTEs per aircraft		84			84		73		76		74		76
CASK (cents)		US$ 8.49	⁽¹⁾		R$ 27.66		R$27.43		R$27.36		R$25.18		R$23.56
CASK (ex-fuel) (cents) ⁽²⁾		US$ 6.39	⁽¹⁾		R$ 20.84		R$19.25		R$17.46		R$15.78		R$14.23
Fuel liters consumed (thousands)		880,941			880,941		906,778		789,150		749,861		469,458
Average fuel cost per liter		US$ 0.54	⁽¹⁾		R$ 1.77		R$2.11		R$2.48		R$2.37		R$2.29

(1)

(2)	CASK (ex-fuel) means CASK excluding all fuel costs.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION S

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this prospectus, as well as the data set forth in “Summary Financial and Operating Data” and “Selected Consolidated Financial Information.” The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview

We are the largest airline in Brazil in terms of departures and cities served, with 784 daily departures serving 101 destinations, creating an unparalleled network of 203 non-stop routes as of December 31, 2016. As the sole airline on 70% of our routes, we are the leading airline in 66 Brazilian cities in terms of departures and carried approximately 21 million passengers in 2016. We are a low cost carrier and have generated a PRASK premium of at least 35% relative to our main competitor since our first year of operations. We derive this PRASK premium from our network, optimized fleet, operating efficiencies and high quality product offering. Complementing our extensive domestic network, we fly to select international destinations, including Fort Lauderdale, Orlando, and Lisbon. We wholly own our loyalty program TudoAzul, a strategic revenue-generating asset, which had 7.0 million members as of December 31, 2016.

A key driver of our profitability is our management team’s extensive experience in implementing a disciplined, low cost operating model. Our optimized fleet yields lower trip costs than our main competitor. For the nine months ended September 30, 2016, our average trip cost was R$23,993, which was 29% lower than that of Gol. With the introduction of the next-generation Airbus A320neos to our fleet, we expect to maintain our market-leading low trip cost advantage. In addition, our FTEs per aircraft were the lowest in Brazil at 85 compared to 112 for Gol as of September 30, 2016. Over the past three years we had one of the best on-time performance records among Brazilian carriers, and were recognized as the “ Most On-Time Low Cost Carrier in the World ” and the “ Third Most On-Time Airline in the World ” in 2015 by OAG.

Principal Factors Affecting Our Financial Condition and Results of Operations

We believe our operating and business performance is driven by various factors that affect the global and Brazilian economy, the Brazilian airline industry, trends affecting the broader Brazilian travel industry, and trends affecting the specific markets and customer base that we target. The following key factors may affect our future performance.

Brazilian economic environment

As substantially all of our flight operations are within Brazil, our revenues and profitability are affected by conditions in the Brazilian economy. Our operations and the airline industry in general, are particularly sensitive to changes in economic conditions. Unfavorable economic conditions, such as high unemployment rates and a constrained credit market, can reduce spending for both leisure and business travel. Unfavorable economic conditions can also impact our ability to raise fares to counteract increased fuel, labor, and other expenses, and generally increase our credit rank, particularly with respect to our trade receivables.

The following table shows data for real GDP, inflation and interest rates in Brazil, the U.S. dollar/ real exchange rate and crude oil prices for and as of the periods indicated.


			For the Years Ended December 31,
	2016		2015		2014
Real growth (contraction) in gross domestic product		(4.0)% ⁽¹⁾		(3.8)%		0.1%
Inflation (IGP-M) ⁽²⁾		7.2%		10.5%		3.7%
Inflation (IPCA) ⁽³⁾		6.3%		10.7%		6.4%
Long-term interest rates – TJLP (average) ⁽⁴⁾		7.5%		6.3%		5.0%
CDI Rate (average) ⁽⁵⁾		14.0%		13.4%		10.8%
LIBOR ⁽⁶⁾		0.7%		0.3%		0.2%
Period-end exchange rate— reais per US$ 1.00		3.254		3.905		2.656
Average exchange rate— reais per US$ 1.00 ⁽⁷⁾		3.485		3.339		2.355
Average depreciation of the real vs. US$		(4.4)%		(41.8)%		(9.0)%
West Texas Intermediate, or WTI, crude price (average US$ per barrel during period)		43.34		48.76		92.91
Unemployment rate ⁽⁸⁾		11.5%		8.5%		6.8%

Source: FGV, IBGE, Central Bank, Bloomberg and Energy information administration

(1)	Estimates for the nine months ended September 30, 2016.

(2)	Inflation (IGP-M) is the general market price index measured by the FGV.

(3)	Inflation (IPCA) is a broad consumer price index measured by the IBGE.

(4)	TJLP is the Brazilian long-term interest rate (average of monthly rates for the period).

(5)	The CDI Rate is an average of inter-bank overnight rates in Brazil (daily average for the period).

(6)	Average US dollar three-month London Inter-Bank Offer Rate.

(7)	Average of the exchange rate on each business day of the year.

(8)	Average unemployment rate for year as measured by IGBE.

The Brazilian political and economic scenario has recently been characterized by high levels of uncertainty and instability, including a contraction of economic growth, despite a recent appreciation, an overall sharp depreciation of the real against the U.S. dollar, increased levels of unemployment and depressed levels of consumer confidence and spending. Due in part to a decrease in global commodities prices and amid wide-scale corruption probes focused on certain state-owned companies and uncertainty surrounding the eventual impeachment of former President Dilma Rousseff, Brazil entered into a recession in 2014. We have observed that this macroeconomic scenario generally impacted demand for air travel. While the number of passengers in the domestic market increased by 148% from 2005 to 2015, the number of domestic passengers in Brazil grew only 0.3% in 2015, reflecting the poor economic environment. In terms of passenger demand as measured by RPKs, the Brazilian domestic flight market contracted 5.7% in 2016, and grew 1.1% in 2015, 5.8% in 2014, 1.4% in 2013, 6.8% in 2012, 15.9% in 2011 and 23.5% in 2010 according to ANAC.

We have been able to successfully manage the recent downturn in the Brazilian economy. In 2015 and 2016, we raised a total of US$550 million through investments by United and Hainan. We continued to develop our loyalty program, TudoAzul , which is 100% owned by us, and we believe is a key strategic business driver for us. In 2016, we were also able to leverage our strategic partnerships with non-Brazilian airlines to, among other things, minimize our operating expenses by subleasing 15 aircraft to TAP and redelivering two aircraft that the lessor subsequently leased to TAP, while allowing us to maintain an optimized fleet for the Brazilian market. In addition, we have seen a positive trend in our results of operation starting in the second half of 2016, when the impeachment of former President Dilma Rousseff was finalized and former Vice-President Michel Temer took over the presidency.

Despite the recent economic downturn, we believe Brazil continues to show significant growth potential. According to Central Bank forecasts on January 13, 2016, the Brazilian economy is expected to recover in 2017 with an estimated GDP growth of 0.5% compared to a GDP contraction of 4.0% for 2016. We believe that our business model will allow us to benefit from Brazil’s economic growth potential, particularly among the middle class and in small- and medium-sized cities as well as in the economic strongholds of the São Paulo and Rio de Janeiro areas.

Net Operating Loss Carryforwards

We and our subsidiaries had net operating loss carryforwards of R$766.5 million as of December 31, 2016, represented by income tax losses and negative basis of social contribution. Certain of these net operating losses have been recorded at dormant subsidiaries and any future usage is dependent on transferring operating activities to such subsidiaries. Under Brazilian tax laws, we may only use our net operating losses to offset taxes payable up to 30% of the taxable income for each year. Based on our current calculations, we do not believe we will experience limitations on the use of these net operating losses in the future. See “—Principal Components of our Results of Operations—Taxes” and “—Critical Accounting Policies—Deferred Taxes.”

Impact of airline industry competition

The airline industry is highly competitive. The principal competitive factors in the airline industry are fare pricing, flight schedules, flight times, aircraft type, passenger amenities, number of routes served from a city, customer service, safety record and reputation, brand recognition, code-sharing relationships, and loyalty programs and redemption opportunities. Price competition occurs on a market-by-market, route-by-route and flight schedules basis through price discounts, changes in pricing structures, fare matching, target promotions and loyalty program initiatives.

As of December 31, 2016, 24% and 15% of our domestic network overlapped with that of Gol and LATAM, respectively, while Gol’s and LATAM’s networks had an overlap of more than 80% with each other. At Viracopos airport, our primary hub, only two out of 52 domestic destinations faced direct competition from Gol or LATAM as of December 31, 2016.

In addition, we were the sole airline on 70% of our routes and 34 of the destinations we served, and the leading player in 66 cities as of December 31, 2016. By comparison, Gol and LATAM were leading carriers in only 13 and four cities, respectively, as of December 31, 2016.

Effects of aviation fuel costs

Aviation fuel costs have been subject to wide fluctuations in recent years. Fuel availability and pricing are also subject to refining capacity, periods of market surplus and shortage, and demand for heating oil, gasoline and other petroleum products, as well as meteorological, economic and political factors and events occurring throughout the world, which we can neither control nor accurately predict. We attempt to mitigate fuel price volatility through commodity forward agreements with banks or a fixed price agreement with BR Distribuidora. See “—Principal Components of Our Results of Operations—Operating Expenses.” In addition, the recent slowdown of GDP growth in China and the negative macro-economic outlook for Europe have generally impacted the demand for commodities, including fuel, with the consequent effect of reducing the average price of fuel worldwide. The average WTI price for 2016 was approximately 56% lower compared to the average price in 2013. Our fuel hedging practices are dependent upon many factors, including our assessment of market conditions for fuel, the pricing of hedges and other derivative products in the market and applicable regulatory policies. We had hedged 10.6% of our forecasted next twelve months fuel consumption as of December 31, 2016. Petrobras, the leading player in the Brazilian oil industry and the parent company of BR Distribuidora, has a strategy to equalize aviation fuel prices to international fuel prices every month. There are also regional differences based on different regional taxes.

Seasonality

Our operating revenue and results of operations are substantially dependent on overall passenger traffic volume, which is subject to seasonal and other changes in traffic patterns. Therefore, our operating revenue and results of operations for any interim period are not necessarily indicative of those for the entire year. We generally expect demand to be greater in the first, third and fourth quarters of each calendar year compared to the second quarter of each year. This demand increase occurs due to an increase in business travel during the second half of the year, as well as the Christmas season, Carnival and the Brazilian school summer vacation period. Although business travel can be cyclical depending on the general state of the economy, it tends to be less seasonal than leisure travel, which peaks during vacation season and around certain holidays in Brazil.

The table below shows our average fare in reais for the periods indicated, reflecting our total passenger revenue divided by passenger flight segments for such periods:


	Average Fare (R$)
Year Ended December 31,	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2014		253.4		251.4		254.4		246.6
2015		250.8		238.9		258.6		274.3
2016		280.7		259.3		286.3		283.3

Effects of exchange rates, interest rates and inflation

Our results of operations are affected by currency fluctuations. In 2016, 2015 and 2014, 89.8%, 93.2% and 99.6%, respectively, of our revenue was denominated in reais while 53.5%, 57.5%, and 45.7%, respectively, of our operating expenses were either payable in or affected by the U.S. dollar, such as aviation fuel, aircraft lease payments, certain flight hour maintenance contract payments and aircraft insurance. We also have certain aircraft debt denominated in U.S. dollars, see “—Loans and Financings.”

Inflation also had, and may continue to have, effects on our financial condition and results of operations. In 2016 and 2015, approximately 28.8% and 26.5%, respectively, of our operating expenses, including salaries, catering and ground handling expenses were impacted by changes in inflation.

We use short-term arrangements to hedge against exchange rate exposure related to our aircraft lease and other rent payment obligations.

The Central Bank changes the base interest rate in order to manage inflation. Variations in interest rate affect primarily our long-term obligations subject to variable interest rates, including our loans and financing. As of December 31, 2016, 2015 and 2014, we had R$4,034.5 million, R$4,810.9 million and R$3,259.2 million, respectively, in current and noncurrent loans and financing of which (i) 37.6%, 31.0% and 37.5%, respectively, was indexed to the CDI Rate, or overnight interbank/branch benchmark interest rate, (ii) 0%, 13.7% and 23.5%, respectively, was indexed to the TJLP rate and (iii) 52.6%, 53.9% and 38.3%, respectively, was indexed to LIBOR. In addition, interest rates also affect our financial income to the extent that we have investments indexed to the CDI Rate. The Central Bank has changed the base interest rate several times over the past years in order to keep inflation within its growth targets.

New IFRS standards that may affect our future results of operations

There are certain IFRS standards and interpretations currently issued but not yet in effect that could materially impact the presentation of our financial position or performance once such standard and interpretations become effective. See Note 3.19 to our audited consolidated financial statements.

Trend Information

We believe that demand for passenger aircraft travel in the markets we serve will be stronger in the coming year as a result of a better macroeconomic outlook for Brazil. We believe there is a strong growth opportunity in frequent point-to-point airline service on routes not served by us or underserved routes among larger, medium-sized, and regional cities in Brazil. In addition, we believe there is an opportunity to leverage our domestic network connectivity by serving additional select international destinations. In 2017, we expect our operating capacity in terms of ASKs to increase approximately 13% over 2016, mostly due to the planned introduction of 10 next-generation Airbus 320neos to our fleet, which have 56 more seats than our Embraer E-195s. In terms of number of aircraft, our fleet is expected to grow from 124 aircraft in service as of December 31, 2016 to 123 aircraft in service by the end of 2017.

We believe that growth of our wholly-owned loyalty program TudoAzul will continue to be driven by a number of positive factors, including the increase in passenger traffic, higher penetration and usage of credit cards among the Brazilian population, and greater awareness about the loyalty sector, especially in cities served exclusively by Azul. By the end of 2017, we expect the number of members to grow by over one million, and points issued to grow by 20% compared to 2016, aided by a higher number of partners and the launch of new products.

Principal Components of Our Results of Operations

Operating Revenue

Our operating revenue is primarily derived from transporting customers in our aircraft. In 2015, 89.1% of our operating revenue was derived from passenger revenue, and 10.9% was derived from other revenue (ancillary revenue, including cargo revenue). In 2016, 86.8% of our operating revenue was derived from passenger revenue, and 13.2% was derived from ancillary revenue. For the year ended December 31, 2016, 89.8% of our operating revenue was denominated in reais . Passenger revenue is recognized either upon departure of the scheduled flight or when a purchased ticket expires unused, including revenue related to the redemption of TudoAzul points for Azul flights. Cargo revenue is recognized when transportation is provided. Other ancillary revenue consists primarily of ticket change fees, excess baggage charges, interest on installment sales, booking fees, other incidental services and aircraft subleases. Non-ticket revenue is generally recognized at the time the ancillary products are purchased or services are provided.

Passenger revenue depends on our capacity, load factor and yield. Capacity is measured in terms of ASKs, which represents the number of seats we make available on our aircraft multiplied by the number of kilometers these seats are flown. Load factor, or the percentage of our capacity that is actually used by paying customers, is calculated by dividing RPKs, which represents the number of kilometers flown by revenue passengers, by ASKs. Yield is the average amount that one passenger pays to fly one kilometer. We use RASK, or revenue divided by ASKs, and PRASK, or passenger revenue divided by ASKs, as our key performance indicators because we believe they enable us to evaluate the balance between load factor and yield. Since our first year of operations, we have maintained a significant RASK and PRASK premium compared to our competitors given our higher load factors and yields. We expect that our strategy will enable us to maintain that premium in the future.

Our revenues are net of certain taxes, including state-value added tax, the Tax on Circulation of Goods and Services ( Imposto sobre Circulação de Mercadorias e Serviços ), or ICMS; federal social contribution taxes, including the Social Integration Program ( Programa de Integração Social ), or PIS; social security contributions, or INSS; and the Social Contribution to Social Security Financing ( Contribuição Social para o Financiamento da Seguridade Social ), or COFINS. ICMS does not apply to passenger revenue. The average rate of ICMS on cargo revenues varies by state and ranges from 4% to 19%. In respect of passenger transportation revenues, the applicable rates of PIS and COFINS are 0.65% and 3%, respectively, due to a specific rule which enforces the use of the cumulative system of PIS and COFINS on these revenues. The remaining revenue related to air transportation activity is levied at rates of 1.65% and 7.60%, respectively. The Municipal Tax on Services ( Imposto Sobre Serviços ) is a municipal tax assessed at rates varying from 2% to 5% of our service rendered revenues. On January 1, 2013, the federal government of Brazil, through the “MP 540/12”, later converted into law No. 12,546/11, determined that the INSS contribution would be substituted by a Provisional Contribution on Gross Revenues, or CPRB, calculated at a monthly rate of 1%. On December 1, 2015, this monthly rate was increased to 1.5%. We present the CPRB contribution as a reduction of gross revenue.

The air transportation business is volatile and highly affected by economic cycles and trends. Fluctuations in aviation fuel prices, customer discretionary spending, fare initiatives, labor actions, weather and other factors have resulted in significant fluctuations in revenues and results of operations in the past.

ANAC, the Brazilian civil aviation agency, may adopt regulations that influence our ability to generate revenue as it is responsible for approving the concession of landing rights slots, entry of new companies, launch of new routes, increases in route frequencies and lease or acquisition of new aircraft. Our ability to grow and to increase our revenues is dependent on approvals for new routes, increased frequencies and additional aircraft by ANAC.

Operating Expenses

We are committed to maintaining a low cost operating structure and we seek to keep our expenses low by operating a young and efficient fleet with a single-class of service on domestic routes, maintaining high employee productivity, investing significantly in technology, utilizing our fleet efficiently and deploying low-cost distribution processes.

Our largest operating expense is aviation fuel, which represented 29.8% of our total operating expenses in 2015 and 24.7% in 2016. Aircraft fuel prices in Brazil are much higher than in the United States, as the Brazilian infrastructure needed to produce, transport and store fuel is expensive and aviation fuel prices are controlled by a concentrated number of suppliers. Our aviation fuel expenses are variable and fluctuate based on global oil prices. Since global prices are denominated in U.S. dollars, our aviation fuel costs are also subject to exchange rate fluctuations between the real and U.S. dollar. In 2016, the WTI oil price decreased 11.1%, from US$48.8 per barrel as of December 31, 2015 to US$43.4 per barrel as of December 31, 2016.

We attempt to mitigate fuel price volatility related to global changes in fuel prices through commodity forward agreements with banks and also have the option to enter into hedge agreements with Petrobras, whose subsidiary BR Distribuidora is a key supplier of fuel for us. The Petrobras hedging product available to us enables us to lock in the cost of the jet fuel we will consume in the future, thereby offering a more tailored hedge than WTI or heating oil futures, which are not perfectly correlated to jet fuel. In addition, Petrobras offers us the option to lock the jet fuel price in reais , thereby hedging our exposure not only to fuel prices, but also to the real /U.S. dollar exchange rates as well. As of December 31, 2016, we were not party to hedge agreements with Petrobras.

In addition, local taxes applicable to the sale of jet fuel are high, ranging from 3.0% to 25.0%. Different states in Brazil apply different rates of value-added tax to fuel (which is not passed on to end consumers for passenger services), requiring us to continually adjust our fuel prices to optimize fuel uplift.

Salaries, wages and benefits paid to our crewmembers, include, among others, health care, dental care, child care reimbursement, life insurance, funeral assistance, psychosocial assistance (referred to as the “ Anjo Azul ” program), school aid (granted to expatriate executive officers only), housing allowance (granted to expatriate executive officers only), bonuses, pension plans, transportation tickets, food allowances and meal vouchers. We believe that we have a cost advantage compared to industry peers in salaries, wages and benefits expenses due to high employee productivity measured by the average number of employees per aircraft. While we had 85 FTEs per aircraft as of September 30, 2016, Gol had 112 as of the same date. We also benefit from generally lower labor costs in Brazil, when compared to other countries, which is somewhat offset by lower productivity due to government requirements over employee labor conditions and taxes on payroll.

Our aircraft and other rent expenses consist of monthly operating lease rents for aircraft, spare engines, flight simulators and other equipment under the terms of the related operating leases recognized on a straight-line basis. We use short-term arrangements to hedge against exchange rate exposure related to our aircraft lease and other rent payment obligations.

Landing fees include airport charges for each landing and aircraft parking, connecting fees as well as aeronautical and navigation fees. Most of these fees vary based on our level of operations and the rates are set by INFRAERO, DECEA, and private airports.

Traffic and customer servicing includes the cost of airport facilities, ground handling expenses, customer bus service and inflight services and supplies. We provide complimentary bus services between a limited number of locations and certain strategic airports, such as transportation from the city of São Paulo to Viracopos airport, and we believe that the additional customers we attract by offering this service more than offset its cost.

Our sales and marketing expenses include commissions paid to travel and cargo agents, fees paid to credit card companies and advertising associated with the sale of our tickets and other products and services. We believe that our distribution costs are lower than those of our competitors because a higher proportion of our customers purchase tickets directly through our website instead of through traditional distribution channels, such as ticket offices, and we have comparatively fewer sales made through higher cost global distribution systems. We generated 87% of our passenger revenue through our website, including direct connect bookings with travel agencies, both in 2015 and 2016. We employ low-cost, innovative marketing techniques, focusing on social networking tools (Facebook, Twitter, YouTube and viajamos.com.br, a travel advice website created and owned by us) and generating word of mouth recognition, including visibly branded complimentary bus service and guerilla marketing campaigns to enhance brand recognition and provide promotions directed at our customers. We believe that we have an advantage compared to industry peers in sales and marketing expenses and expect this advantage will remain in the future.

Our maintenance, materials and repair expenses consist of line and scheduled heavy maintenance of our aircraft and engines. Since the average age of our operating fleet was 4.8 years as of December 31, 2016 and 4.2 years as of December 31, 2015, and most of the parts on our aircraft are under four-year warranties, our aircraft have required a low level of maintenance. As our aircraft age, these costs will increase. We do not own most of our spare parts inventories and the costs we incur to contract with third parties to maintain and provide us replacement parts when needed are included in maintenance costs.

Heavy maintenance on aircraft under operating leases is expensed as incurred. For owned aircraft, we employ the deferral method which results in the capitalization of engine shop visits for heavy maintenance. Under this method, the cost of major maintenance is capitalized and amortized as a component of depreciation and amortization expense until the next major maintenance event. The next major maintenance event is estimated based on the average removal times suggested by the manufacturer, and may change based on changes in aircraft utilization and changes in suggested manufacturer maintenance intervals. In addition, these assumptions can be affected by unplanned incidents that could damage a major component to a level that would require a major maintenance event prior to a scheduled maintenance event.

Depreciation and amortization expenses include the depreciation of all fixed assets we own or are under finance leases, including amortization of capitalized maintenance expenses.

Other operating expenses, net consist of general and administrative expenses, purchased services, equipment rentals, communication costs, professional fees, travel and training expenses for crews and ground personnel, provisions for legal proceedings, interrupted flights and all other overhead expenses.

The majority of our expenses, such as fuel, aircraft operating lease payments and maintenance, fluctuate with changes in the exchange rate between the real and the U.S. dollar. Aircraft rents are also partially exposed to interest rate fluctuations. We currently enter into arrangements to hedge against increases in fuel prices, foreign exchange and interest rates. See “—Quantitative and Qualitative Disclosures about Market Risk.”

Financial Result

Our financial income includes interest earned on our cash and cash equivalents (which bear interest indexed to the CDI Rate) and short-term investments. Our financial expenses include interest expense on our owned aircraft debt, loans and financings and working capital facilities. As of December 31, 2014, 2015 and 2016, respectively, 44.2%, 22.8% and 17.9% of our aircraft debt was denominated in reais , respectively, and therefore not exposed to currency fluctuations. The balances of derivative financial instruments include gains or losses on our derivatives not designated for hedge accounting. Foreign currency exchange is the net gain or loss on our assets and liabilities related to the appreciation or depreciation of the real against the U.S. dollar and has limited impact on our cash position. Although all of our non-aircraft debt is in reais , we have both local and foreign currency aircraft-related debt instruments, and are using various financial instruments, including those used to limit our exposure to floating interest rates and foreign currency exchange rates.

Taxes

We account for income taxes using the liability method. We record deferred tax assets only when, based on the weight of the evidence, it is more likely than not that the deferred tax assets will be realized. Deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards. See “—Critical Accounting Policies—Deferred Taxes.” In assessing whether the deferred tax assets are realizable, our management considers whether it is more likely than not that some or all of the deferred tax assets will be utilized. We consider all available evidence, both positive and negative, in determining future taxable income on a jurisdiction by jurisdiction basis.

Critical Accounting Policies and Estimates

The preparation of our audited consolidated financial statements in accordance with IFRS requires our management to adopt accounting policies and make estimates and judgments to develop amounts reported in our audited consolidated financial statements and related notes. Critical accounting policies are those that reflect significant judgments or estimates about matters that could potentially result in materially different outcomes under different assumptions and conditions. We believe that our estimates and judgments are reasonable. However, actual results and the timing of recognition of such amounts could differ from our estimates. For a discussion of these and other accounting policies, see Note 3 to our audited consolidated financial statements.

Property and Equipment . Property and equipment are recorded at acquisition or construction cost (which include interest and other financial charges) and are depreciated to estimated residual values over their estimated useful lives using the straight-line method. Under International Accounting Standard, or IAS, 16 “Property, Plant and Equipment,” major engine overhauls are treated as a separate asset component with the cost capitalized and depreciated over the period to the next overhaul. In estimating the lives and expected residual values of our airframes and engines, we primarily have relied upon actual experience with the same or similar aircraft types and recommendations from third parties. Subsequent revisions to these estimates, which can be significant, could be caused by changes to our maintenance program, changes in utilization of the aircraft, governmental regulations related to aging aircraft.

We evaluate annually whether there is an indication that our property and equipment may be impaired. Factors that would indicate potential impairment may include, but are not limited to, significant decreases in the market value of long-lived assets, a significant change in the long-lived asset’s physical condition, and operating or cash flow losses associated with the use of long-lived assets. An impairment loss exists when the book value of an asset unit exceeds its recoverable amount, which is the higher of fair value less selling costs and value in use. The calculation of fair value less selling costs is based on information available of sales transactions regarding similar assets or market prices less additional costs for disposing of assets.

Lease accounting . Aircraft lease agreements are accounted as either operating or finance leases. When the risks and benefits of the lease are transferred to us, as lessee, the lease is classified as a finance lease. Finance leases are accounted as an acquisition obtained through financing, with the aircraft recorded as a fixed asset and a corresponding liability recorded as debt. Finance leases are recorded based on the lesser of the fair value of the aircraft or the present value of the minimum lease payments, discounted at an implicit interest rate, when it is clearly identified in the lease agreement, or market interest rate. The aircraft is depreciated by the lowest value between the remaining useful life of the lease assets or the contractual term, and impairment tests are performed on an annual basis. Interest expenses are recognized through the effective interest rate method, based on the implicit interest rate of the lease. Lease agreements that do not transfer risks and benefits to us are classified as operating leases. Operating lease payments are accounted as rent, and the lease expenses are recognized when incurred through the straight-line method.

Revenue Recognition . Flight revenue is recognized upon effective rendering of the transport service. Tickets sold and not used, corresponding to advanced ticket sales (air traffic liability) are recorded in current liabilities. Tickets expire one year after their purchase date. We recognize revenue upon the departure of the related scheduled flight and from tickets that are expected to expire unused (breakage). We estimate the value of future refunds and exchanges, net of forfeitures for all unused tickets once the flight date has already passed. These estimates are based on historical data and experience from past events and are assessed on an annual basis, or more frequently. The estimated future refunds and exchanges included in the account of advance ticket sales are compared monthly to actual refunds and exchange activity in order to monitor if the estimated amount of future refunds and exchanges is reasonable.

Other service revenues relate to ticket change fees, excess luggage, cargo transportation, “Espaço Azul” fee, charter and other services, which are recognized when services are provided. Interest income calculated based on the original effective interest rate for the relevant asset.

TudoAzul Program . Under the TudoAzul program, customers accrue points based on the amount spent on tickets flown. The amount of points earned per real spent depends on TudoAzul membership status, booking class and other factors, including promotional campaigns. Points expire two years after the date earned.

Upon the sale of a ticket, we recognize a portion of the fare paid as revenue when the transportation service occurs, as described above, and defer the portion corresponding to the points earned under the TudoAzul program, in accordance with IFRIC 13, Customer Loyalty Programs. The fair value of a point is estimated on an annual basis using the average points redeemed and the estimated value of purchased tickets with the same or similar restrictions as loyalty awards.

Besides awarding points for flights on Azul, we also sell points to our business partners, including credit card issuers and other companies, as well as our TudoAzul members. Our estimated selling price of points is based on the historical price we sell points to third parties. The related revenue is deferred and recognized as passenger revenue when points are redeemed and the related transportation service occurs.

We recognize revenue for points sold to members and to our business partners (including financial institutions, retailers and travel partners) and awarded that will never be redeemed by program members. We estimate such amounts annually based upon the latest available information regarding redemption and expiration patterns.

Maintenance Materials and Repair Costs . For aircraft that we own, including aircraft held under finance leases, we use the deferral method pursuant to which we capitalize and amortize heavy maintenance costs as a component of our depreciation and amortization expense until the next major maintenance event. The frequency of major maintenance events is determined based on the suggestion of the products’ manufacturers, which is subject to variation based on, among other factors, actual utilization, revised guidance from the manufacturers and other unforeseen incidents, all of which could require the scheduling of a major maintenance event earlier (or later) than expected.

Heavy maintenance on aircraft held under operating leases is expensed as incurred.

Certain maintenance functions, including engine maintenance, are outsourced under contracts that require payment based on a performance measure such as flight hours. Costs incurred for maintenance and repair under flight hour maintenance contracts, where labor and materials price risks have been transferred to the service provider, are expensed based on contractual payment terms.

Repairs and routine maintenance service expenses are charged as incurred.

Maintenance Reserves . Our lease agreements provide that we pay maintenance reserves or supplement rent to aircraft lessors to be held as collateral in advance of the performance of major maintenance activities. Maintenance reserves are held as collateral in cash. These lease agreements provide that maintenance reserves are refundable to us upon completion of the maintenance event. The maintenance deposits paid under our lease agreements do not transfer either the obligation to maintain the aircraft or the cost risk associated with the maintenance activities to the aircraft lessor.

Substantially all of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, and are used solely to collateralize the lessor for maintenance time run off the aircraft until the completion of the maintenance of the aircraft. Maintenance reserves are denominated in U.S. dollars and paid to aircraft lessors in advance of the performance of heavy maintenance and are usually recorded as prepaid maintenance deposits on our balance sheet. We paid R$298.3 million (equivalent to US$91.5 million) and R$273.7 million (equivalent to US$84.0 million) in maintenance reserves to our lessors in the year ended December 31, 2016 and 2015, respectively. We have concluded that these prepaid maintenance deposits are likely to be recovered primarily due to the rate differential between the maintenance reserve payments and the expected cost for the related next maintenance event collateralized by the reserves. We have also negotiated with some lessors the replacement of maintenance reserve cash deposits with stand-by letters of credit issued by banks, and as a result, we present letters of credit of amounts equivalent to the deposit due as maintenance reserve to the lessor.

If at any point we determine that the recovery of the amounts retained by the lessor through future maintenance events is not probable, such amounts are expensed as maintenance cost if we consider that the amount will not be reimbursed due to the non-completion of the maintenance event required before the aircraft redelivery. For the years ended December 31, 2016 and 2015 we wrote-off R$4.0 million and R$9.9 million, respectively, for the events that we considered would probably not be reimbursed by the lessors due to the fact that we might not perform the maintenance event prior to the aircraft redelivery.

Our lease agreements also provide that most maintenance reserves held by the lessor at the expiration of the lease are nonrefundable to us and will be retained by the lessor. Consequently, we have determined that any usage-based maintenance reserve payments after the last major maintenance event are not substantively related to the maintenance of the leased asset and therefore are accounted for as contingent rent. We accrue contingent rent starting when it becomes probable and reasonably expected that we will incur such nonrefundable maintenance reserve payments. During the years ended December 31, 2016 and 2015, we did not accrue any contingent rent due to the fact that we considered it was probable and reasonably expected that all of them would be refundable.

Since the maintenance reserves to aircraft lessors are denominated in U.S. dollars, the exchange rate differences on payments are recognized in our financial results. During the years ended December 31, 2016 and 2015, the amount recognized in our financial results due to the exchange rate differences on maintenance reserve deposits was a loss of R$153.5 million and an income of R$264.5 million, respectively.

See Note 12 to our audited consolidated financial statements.

Share-Based Payments . Our share-based compensation program is intended to grant awards priced at the fair market value of our common stock at the date of grant. The fair value of our common stock is estimated based on the market method that uses our estimates of revenue, driven by assumed market growth rates, and estimated costs, as well as appropriate discount rates. These estimates are consistent with the plans and estimates that we use to manage our business. We measure transactions with crewmembers settled with equity instruments at the grant date using the Black-Scholes option pricing model. The resulting amount, adjusted for forfeitures, is charged to expense over the period in which the options vest.

Derivative Financial Instruments . We account for derivative financial instruments in accordance with IAS 39—Financial Instruments: Recognition and Measurement, and record them at fair value. Subsequent changes in fair value are recorded in profit or loss, unless the derivative meets the criteria for hedge accounting. At the beginning of a hedge transaction, we designate and formally document the item covered by the hedge and how it will be effective in offsetting the changes in fair value or cash flows. Our derivative financial instruments are assessed quarterly to determine if they have been effective throughout the entire period for which they have been designated. Any gain or loss resulting from changes in the fair value of our derivative financial instruments during the quarter in which they are not qualified for hedge accounting, as well as the ineffective portion of the instruments designated for hedge accounting are recognized in financial results. When the fair value of financial assets and liabilities presented in our balance sheet cannot be obtained in an active market, we determine fair value using assessment techniques prevailing in the market, including the discounted cash flow method, and a certain level of judgment is required to establish fair value in this way. This judgment includes considerations on the data used, for example, liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the fair value presented of financial instruments.

Impairment of Non-Financial Assets. We assess at each reporting period whether there is an indication that an asset may be impaired. If any such indication exists, or when the annual impairment testing for an asset is required, we make an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the greater of an asset’s or cash-generating unit’s fair value less costs to sell or its value in use and is determined for an individual asset. When the carrying amount of intangibles exceeds its recoverable amount, an impairment charge is recorded and the asset is written down to its recoverable amount.

We operate as a single cash generating unit.

In estimating the value in use of assets, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the weighted average cost of capital for the industry in which the cash-generating unit operates. The fair value less cost to sell is determined, whenever possible, based on a firm sales agreement carried out on an arm’s length basis between known and interested parties, adjusted for expenses attributable to asset sales, or when there is no firm sale commitment, based on the market price of an active market or most recent transaction price of similar assets, as well as based on discounted cash flows, when applicable.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, we estimate the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.

Provision for Tax, Civil and Labor Risks . We recognize provisions for tax, civil and labor suits when we have a present legal obligation, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. The assessment of probability of loss includes assessing the available evidence and jurisprudence, the hierarchy of laws and most recent court decisions, and their relevance in the legal system, or the assessment of independent counsels. Provisions are reviewed and adjusted to take into account changes in circumstances such as the applicable limitation period, findings of tax inspections and additional exposures identified based on new issues or decisions of courts.

Deferred Taxes . Deferred tax is provided using the liability method on temporary differences between the tax base of assets and liabilities and their book values for financial reporting purposes at the reporting time.

Deferred tax liabilities are recognized for all taxable temporary differences, except: (i) when the deferred tax liability arises from initial recognition of goodwill or assets or liabilities in a transaction that is not a business combination and, does not affect either accounting profit nor taxable profit or loss; and (ii) on the temporary differences related to investments in subsidiaries, when the timing of reversal of the temporary differences can be controlled and it is probable that the temporary differences will not be reversed in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences and carryforward of unused tax credits and tax losses to the extent that it is probable that taxable profit will be available for their utilization, except: (i) when the deferred tax assets related to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, on the transaction date, does not affect either the accounting profit or taxable profit or loss; and (ii) on deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will be reversed in the near future and taxable profit will be available so that the temporary differences may be used.

The book value of the deferred tax assets is reviewed on each balance sheet date and written off to the extent that it is no longer probable that taxable profits will be available to allow that all or part of the deferred taxes assets will be used. Unrecognized deferred tax assets are reassessed on each balance sheet date and are recognized to the extent that it becomes probable that future taxable profit will allow that the deferred tax assets be recovered.

Deferred tax assets and liabilities are presented net if there is a legal or contractual right to offset tax assets against tax liabilities and deferred taxes are related to the same taxable entity and subject to the same tax authority.

Our management regularly reviews deferred tax assets, taking into consideration historical operating results and probable term and level of future taxable profits, along with future available tax planning strategies. There are uncertainties regarding the interpretation of complex tax regulations and the amount and time of future taxable profit. Given the long-term nature and complexity of existing contractual instruments, differences between actual results and assumptions, or future changes in these assumptions could require future adjustments to amounts previously recorded.

Goodwill and Intangible Assets . We allocate goodwill and intangible assets (such as certain slots and routes) with indefinite lives acquired through business combinations for impairment testing purposes to a single cash-generating unit. We are required to test goodwill for impairment annually or sooner if we experience indicators of impairment, by comparing the carrying amount to the recoverable amount of the cash-generating unit level that has been measured on the basis of its value-in-use. We make these impairment tests by applying cash flow projections in the functional currency based on our approved business plan covering a five-year period. Considerable judgment is necessary to evaluate the impact of operating and macroeconomic changes to estimate future cash flows and to measure the recoverable amount. Assumptions in our impairment evaluations are consistent with internal projections and operating plans. Airport operating rights which were acquired as part of the TRIP acquisition were recorded at fair value on the acquisition date, and are not amortized. These rights are considered to have indefinite useful lives due to several factors, including requirements for necessary permits to operate within Brazil and limited landing rights availability in Brazil’s most important airports in terms of traffic volume. The carrying values of the airport operating rights are reviewed for impairment at each reporting date, and are subject to impairment testing when events or changes in circumstances indicate that carrying values may not be recoverable. As of December 31, 2016 and 2015, no impairment on goodwill and other intangible assets was recognized.

Results of Operations

General . We believe we have created a robust network of profitable routes by stimulating demand through frequent and affordable air service. We select routes that we believe possess high demand and growth potential and are either not served or underserved by other airlines. We believe we can continue expanding our domestic network while simultaneously leveraging the strong connectivity we have created in Brazil to benefit from the addition of select international destinations in the United States and Europe.

The following chart includes certain operating information that evidences the evolution of our business between 2008 through December 31, 2016:


					Total Aircraft at End of Period
As of	Cities Served		FTEs		Owned		Leased		Total ⁽¹⁾
December 31, 2008		3		712		3		2		5
December 31, 2009		15		1,541		8		6		14
December 31, 2010		27		2,940		15		13		28
December 31, 2011		42		4,323		22		27		49
December 31, 2012 ⁽²⁾		98		8,914		56		71		127
December 31, 2013		101		9,848		57		80		137
December 31, 2014		105		10,501		45		108		153
December 31, 2015		100		10,533		46		106		152
December 31, 2016 ⁽³⁾		101		10,311		39		100		139

(1)	Includes aircraft held under finance and operating leases. We do not record aircraft held under operating leases as assets on our balance sheet.

(2)	Includes operating information resulting from the TRIP acquisition since November 30, 2012.

(3)	Includes 15 aircraft subleased to TAP.

The following table sets forth the composition of our operating fleet, which consists of all aircraft that are being operated by us, including spare aircraft, for the periods indicated.


			As of December 31,
Operating Fleet	Number of seats		2016		2015		2014
Embraer aircraft
E-190		106		10		22		22
E-195		118		64		66		59
ATR aircraft
ATR 72		68-70		39		49		48
ATR 42		46-48		0		0		4
Airbus aircraft
A320neo		274		5		0		0
A330		242-272		5		7		5

Total				123		144		138

Comparison of 2016 to 2015


	For the Year Ended December 31,
	2016		2015		Percent Change
	(in thousands of *reais* , with the exception of percentages and per-share amounts)
Operating revenue
Passenger revenue		5,786,809		5,575,344		3.8%
Other revenue		883,082		682,522		29.4%

Total revenue		6,669,891		6,257,866		6.6%
Operating expenses
Aircraft fuel		(1,560,223)		(1,917,606)		(18.6)%
Salaries, wages and benefits		(1,091,871)		(1,042,119)		4.8%
Aircraft and other rent		(1,160,912)		(1,171,325)		(0.9)%
Landing fees		(442,692)		(382,610)		15.7%
Traffic and customer servicing		(327,289)		(307,926)		6.3%
Sales and marketing		(276,203)		(258,214)		7.0%
Maintenance materials and repairs		(708,739)		(643,897)		10.1%
Depreciation and amortization		(301,201)		(217,983)		38.2%
Other operating expenses, net		(456,475)		(483,773)		(5.6)%

		(6,325,605)		(6,425,453)		(1.6)%

Operating income (loss)		344,286		(167,587)		(305.4)%
Financial result
Financial income		51,067		43,178		18.3%
Financial expense		(731,200)		(685,919)		6.6%
Derivative financial instruments, net		10,800		(82,792)		(113.0)%
Foreign currency exchange, net		179,668		(184,305)		(197.5)%

		(489,665)		(909,838)		(46.2)%
Result from related party transactions, net		163,045		—		100%

Net income (loss) before income tax and social contribution		17,666		(1,077,425)		(101.6)%
Current income tax and social contribution		8,731		(1,366)		(739.2)%
Deferred income tax and social contribution		(152,711)		3,886		(4,029.8)%

Net loss for the year		(126,314)		(1,074,905)		(88.2)%

Basic and diluted net (loss) per common share ⁽¹⁾		(0.01)		(0.14)
Basic and diluted net (loss) per preferred share ⁽¹⁾		(1.10)		(10.84)

(1)	Reflects a conversion ratio of 75.0 common shares to 1.0 preferred share on a theoretical, fully converted basis, pursuant to the mechanisms set forth in our by-laws.

Operating income (loss)

Despite the Brazilian crisis, in 2016 our financial performance improved significantly compared to 2015, which we believe is a strong indicator of the resilience of our business model and our ability to operate under challenging macroeconomic conditions. Our operating income totaled R$344.3 million in 2016, representing an operating margin of 5.2%, compared to an operating loss of R$167.6 million in 2015. Net loss totaled R$126.3 million in 2016 compared to a net loss of R$1,074.9 million in 2015.

As a measure of our equity valuation, in 2016, our Adjusted EBITDAR also increased 47.9% from R$1,221.7 million in 2015 to R$1,806.4 million in 2016, representing a margin of 19.5% and 27.1%, respectively. See, “Summary Financial and Operating Data—Statements of Operations Data–Adjusted EBITDAR Reconciliation Table.” This increase was mainly due to (i) a 9.2% increase in RASK during the period, (ii) lower fuel expenses driven by a 11.1% average reduction of the WTI, and (iii) higher ancillary revenue, mostly derived from revenues earned from upgrades on our international flights, starting in October 2015, and the sublease of 15 aircraft to TAP, see “Business—Strategic Partnerships, Alliances and Commercial Agreements—TAP.”

To better respond to the Brazilian crisis that began in 2014 and to simplify our fleet, we removed 34 aircraft from our fleet in 2016 consisting of 15 aircraft that were subleased to TAP, and 19 aircraft that were redelivered or sold. As a result of this significant fleet reduction, we incurred R$209.5 million in maintenance costs, aircraft rent and other expenses during 2016, partially offset by a R$111.9 million gain related to the sale of 13 aircraft and one engine.

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


	For the Year Ended December 31,
	2016		2015		Percent Change
	(per ASK in R$cents)
Operating revenue
Passenger revenue		25.30		23.80		6.3%
Other revenue		3.86		2.91		32.5%

Total operating revenue		29.17		26.72		9.2%

Operating expenses
Aircraft fuel		6.82		8.19		(16.7)%
Salaries, wages and benefits		4.77		4.45		7.3%
Aircraft and other rent		5.08		5.00		1.5%
Landing fees		1.94		1.63		18.5%
Traffic and customer servicing		1.43		1.31		8.9%
Sales and marketing		1.21		1.10		9.6%
Maintenance materials and repairs		3.10		2.75		12.7%
Depreciation and amortization		1.32		0.93		41.5%
Other operating expenses, net		2.00		2.07		(3.4)%

Total operating expenses		27.66		27.43		0.8%

Operating Revenue

Operating revenue increased 6.6%, or R$412.0 million, from R$6,257.9 million in 2015 to R$6,669.9 million in 2016, reflecting (i) a 3.8% increase in passenger revenue and (ii) a 29.4% increase in other revenue.

Passenger Revenue

The R$211.5 million, or 3.8% increase in passenger revenue in 2016 compared to 2015 was mainly attributable to a 6.3% increase in PRASK, reflecting a 8.6% increase in average fare, partially offset by a 2.4% reduction in capacity, as measured by ASKs over the period. International passenger revenue represented 10.1% of passenger revenue in 2016 compared to 6.8% in 2015 due to an increase in the number and frequency of our international flights over the period.

Other Revenue

The R$200.6 million, or 29.4% increase in other revenue was mainly due to (i) R$77.0 million related to the sublease of 15 aircraft to TAP, see “Business—Strategic Partnerships, Alliances and Commercial Agreements—TAP”, (ii) the creation of online booking fees starting in mid-2015 resulting in R$24.4 million of additional gross revenue, (iii) a 4.7% increase in passenger related ancillary gross revenue, from R$509.9 million in 2015 to R$534.0 million in 2016, mostly due to the launch in October 2015 of a new business and economy class interior for our international flights, (iv) a R$25.3 million increase in cargo gross revenue, and (v) a R$18.3 million increase in gross revenue from charter flights, mostly due to the Rio Olympics. Other revenue per passenger increased 35.4% from R$31.3 per passenger in 2015 to R$42.4 per passenger in 2016 for the reasons described above.

The table below presents our passenger revenue and selected operating data for the periods indicated:


	For the Year Ended December 31,
	Unaudited
	2016		2015		Percent Change
Passenger revenue (in millions of reais )		5,787		5,575		3.8%
Available seat kilometers (ASKs) (millions)		22,869		23,423		(2.4)%
Load factor (%)		79.7%		79.6%		0.1%
Passenger revenue per ASK (cents)		25.30		23.80		6.3%
Operating revenue per ASK (cents)		29.17		26.72		9.2%
Yield (cents)		31.73		29.92		6.1%
Number of departures		261,611		280,832		(6.8)%
Block hours		403,888		435,683		(7.3)%
Average fare (in reais )		277.92		255.81		8.6%
Stage length (kilometers)		848		830		2.2%
Passengers		20,822,146		21,794,939		(4.5)%

Operating Expenses

Operating expenses decreased 1.6%, or R$99.9 million, from R$6,425.5 million in 2015 to R$6,325.6 million in 2016 mainly due to (i) a decrease of 18.6%, or R$357.4 million, in aircraft fuel expenses mainly due to a decrease in the average WTI prices over the period, (ii) a decrease in the number of aircraft in our fleet from 144 operating aircraft as of December 31, 2015 to 123 as of December 31, 2016, (iii) a slight decrease in rent expenses and (iv) a 2.4% reduction in ASKs. This reduction was partly offset by (i) the 4.7% average depreciation of the real against the U.S. dollar, which impacted U.S. dollar denominated expenses, (ii) an increase in landing fees expenses of R$60.1 million, (iii) a R$64.8 million increase in maintenance expenses and (iv) a R$83.2 million increase in depreciation and amortization.

Aircraft fuel . Aircraft fuel expenses decreased 18.6%, or R$357.4 million, in 2016 compared to 2015, mainly due to (i) a 16.3% decrease in jet fuel prices from an average of R$2.11 per liter in 2015 to an average of R$1.77 per liter in 2016, and (ii) a 2.8% decrease in liters consumed resulting from a 2.4% reduction in ASKs. On a per ASK basis, aircraft fuel decreased 16.7%, mostly due to the reasons described above.

Salaries, wages and benefits . Salaries, wages and benefits increased 4.8%, or R$49.8 million, in 2016 compared to 2015, due to an effective scheduled salary increase of 8.9% as a result of collective bargaining agreements with labor unions applicable to all airline employees in Brazil in 2016, partially offset by a 2.1% decrease in the number of crewmembers from 10,533 as of December 31, 2015 to 10,311 as of December 31, 2016. Of the 10,311 employees, a total of 160 enrolled to a leave of absence program, launched by Azul in early 2016 as a response to the Brazilian crisis, which consists in offering employees the opportunity to sign-up for an unpaid leave from a period of six months to up to 24 months and return after this period maintaining the status of employee. On a per ASK basis, salaries, wages and benefits increased 7.3%, mostly due to the reasons described above and a 2.4% reduction in ASKs.

Aircraft and other rent . Aircraft and other rent, which are mostly incurred in U.S. dollars, decreased 0.9%, or R$10.4 million, in 2016 compared to 2015, primarily due to (i) a decrease in the number of aircraft under operating leases from 106 as of December 31, 2015 to 100 as of December 31, 2016 and (ii) the reversal of a provision for return of aircraft and engines in the amount of R$57.7 million related to a change in the estimate of redelivery costs based on more precise information, (see Note 18 of our audited consolidated financial statements), partially offset by the 4.7% average depreciation of the real against the U.S. dollar in 2016 compared to 2015. Aircraft and other rent per ASK increased 1.5%, mostly due to a 2.4% reduction in ASKs.

Landing fees . Landing fees increased 15.7%, or R$60.1 million, in 2016 compared to 2015 primarily due to a 72%, or R$42.0 million, increase in navigation fees starting in October 2015 as a result of fee adjustments implemented by DECEA, (ii) a 10.7% inflation rate in 2015, resulting in higher landing fees in 2016, and (iii) the 4.7% average depreciation of the real against the U.S. dollar, increasing landing fees related to international flights partially offset by a 6.8% decrease in the number of departures. Landing fees per ASK increased 18.5%, mostly due to the reasons described above and a 2.4% reduction in ASKs.

Traffic and customer servicing . Traffic and customer servicing expenses increased 6.3%, or R$19.4 million, in 2016 compared to 2015 primarily due to (i) a 7.9% scheduled salary increase applicable to ground handling and catering contracts, and (ii) the 4.7% average depreciation of the real against the U.S. dollar, which impacted our ground handling and passenger expenses related to international flights, partially offset by a 6.8% decrease in the number of departures combined with a 4.5% decrease in the number of passengers. On a per ASK basis, traffic and customer servicing expense increased 8.9%, mostly due to the reasons described above and a 2.4% reduction in ASKs.

Sales and marketing . Sales and marketing expenses increased 7.0%, or R$18.0 million, in 2016 compared to 2015, primarily due to a 6.6% increase in operating revenue and a corresponding increase in travel agency and credit card fees to reduce commissions. Sales and marketing as a percentage of revenues remained stable at 4.1% during 2016 compared to 2015. On a per ASK basis, sales and marketing expenses increased 9.6%, mostly due to the reasons described above and a 2.4% reduction in ASKs.

Maintenance, materials and repairs . Maintenance, materials and repairs increased 10.1%, or R$64.8 million, in 2016 compared to 2015 primarily due to (i) the 4.7% average depreciation of the real against the U.S. dollar, which increased amounts due under third-party contracts denominated in U.S. dollars by R$26.5 million, and (ii) a maintenance expense increase of R$38.3 million related to aircraft redeliveries in 2016. On a per ASK basis, maintenance, materials and repairs increased 12.7%, mostly due to the reasons described above and a 2.4% reduction in ASKs.

Depreciation and amortization . Depreciation and amortization increased 38.2%, or R$83.2 million, in 2016 compared to 2015 primarily reflecting the depreciation resulting from the acquisition of seven E-Jets under debt financing during 2015, and the conversion of six aircraft under operating leases into finance leases during 2016. Depreciation and amortization per ASK increased 41.5%, mostly due to the reasons described above and a 2.4% reduction in ASKs.

Other operating expenses, net . Other operating expenses, net decreased 5.6%, or R$27.3 million, in 2016 compared to 2015 primarily due to (i) a R$36.6 million increase in gains in 2016 compared to 2015 related to the sale and sale leaseback transactions of 13 aircraft and one engine in 2016 compared to the sale of six aircraft in 2015, (ii) a decrease in expenses in 2016 compared to 2015 related to passenger accommodation and meals of R$19.6 million, and (iii) a 2.4% reduction in ASKs. This decrease was partially offset by a 28.1% increase, or R$31.9 million, in IT expenses related to GDS expenses, which are indexed to the U.S. dollar, as a result of our international partnerships. Other operating expenses per ASK decreased 3.4%, mostly due to the reasons described above and a 2.4% reduction in ASKs.

Financial Result

Financial income . Financial income increased 18.3%, or R$7.9 million, in 2016 compared to 2015, mostly due to an increase in cash and cash equivalents, short-term and long-term investments, and restricted investments (current and non-current) from R$757.8 million as of December 31, 2015 to R$1,795.6 million, as of December 31, 2016 reflecting mainly the US$450 million in proceeds received from Hainan.

Financial expenses . Financial expenses increased 6.6%, or R$45.3 million, in 2016 compared to 2015 mostly due to (i) the 4.7% average depreciation of the real against the U.S. dollar, as 53.1%, or R$2,143.7 million, of our current and non-current loans and financing was denominated in U.S. dollars as of December 31, 2016 compared to 54.5%, or R$2,619.9 million, as of December 31, 2015 and (ii) IOF/Exchange Tax of R$5.4 million related to US$450 million in proceeds received from Hainan, see “Business—Strategic Partnerships, Alliances and Commercial Agreement—Hainan”. These increases were partially offset by a 16.1% reduction in current and non-current loans and financing from R$4,810.9 million as of December 31, 2015 to R$4,034.5 million as of December 31, 2016.

Derivative financial instruments, net . We recorded a gain of R$10.8 million in derivative financial instruments, net, in 2016 compared to a loss of R$82.8 million in 2015, mainly resulting from (i) U.S. dollar derivative instruments used to hedge our foreign exchange exposure resulting from U.S. dollar denominated financial expenses and (ii) heating oil derivative instruments used to hedge our fuel exposure.

Foreign currency exchange, net . The net translation gain on our assets and liabilities when remeasured into reais amounted to a gain of R$179.7 million in 2016 compared to a loss of R$184.3 million in 2015, due to the 16.5% appreciation of the Brazilian real as of December 31, 2016, compared to December 31, 2015. This line item reflects the portion of our assets and liabilities denominated in U.S. dollars, primarily our aircraft financing facilities and the currency exchange movements that occur on a period-to-period basis, and has limited impact on our cash position.

Result from related party transactions, net . In 2016, we recorded a net gain of R$163.0 million from related party transactions, mostly due to a fair value adjustment gain of R$443.4 million related to our investment in TAP bonds, partially offset by a (i) R$151.4 million expense for the derivative financial instrument liability related to the fair value of HNA’s purchase option (corresponding to €30.0 million) to purchase up to 33% of the economic benefits of the TAP bonds and (ii) a R$126.0 million loss provision as a result of seven of the fifteen aircraft sublease contracts to TAP being subleased at an amount lower than the original contractual amount, reflecting market conditions at the time of the sublease, with such loss provision corresponding to this loss over the total term of the sublease contracts discounted to its net present value amount, see “Business—Strategic Partnerships, Alliances and Commercial Agreement—TAP” and Note 11(e) to our audited consolidated financial statements.

Current income tax and social contribution . We recorded an income tax and social contributions gain of R$8.7 million in 2016 mostly due to exchange differences in foreign subsidiaries. In 2015, we recorded an income tax and social contribution expense of R$1.4 million mostly due to a taxable profit reported by one of our foreign subsidiaries.

Deferred income tax and social contribution . In 2016, expenses related to deferred income tax and social contributions totaled R$152.7 million compared to a gain of R$3.9 million in 2015, mostly due to higher deferred tax liabilities as a result of temporary differences between accounting and tax carrying values. As of December 31, 2016, we had income tax loss carryforwards of R$563.6 million and social contribution negative tax base carryforwards of R$202.9 million compared to R$410.7 million of income tax loss carryforwards and R$147.9 million of social contribution negative tax base carryforwards as of December 31, 2015. See Note 15(b) to our audited consolidated financial statements.

Comparison of 2015 to 2014


	For the Year Ended December 31,
	2015			2014			Percent Change
	(in thousands of *reais* , with the exception of percentages and per-share amounts)
Operating revenue
Passenger revenue		5,575,344			5,129,613			8.7%
Other revenue		682,522			673,440			1.3%

Total revenue		6,257,866			5,803,053			7.8%
Operating expenses
Aircraft fuel		(1,917,606	)		(1,955,036	)		(1.9)%
Salaries, wages and benefits		(1,042,119	)		(991,449	)		5.1%
Aircraft and other rent		(1,171,325	)		(689,055	)		70.0%
Landing fees		(382,610	)		(314,402	)		21.7%
Traffic and customer servicing		(307,926	)		(240,783	)		27.9%
Sales and marketing		(258,214	)		(239,359	)		7.9%
Maintenance materials and repairs		(643,897	)		(353,339	)		82.2%
Depreciation and amortization		(217,983	)		(197,755	)		10.2%
Other operating expenses, net		(483,773	)		(420,949	)		14.9%

		(6,425,453	)		(5,402,127	)		18.9%

Operating (loss) income		(167,587	)		400,926			—
Financial result
Financial income		43,178			41,518			4.0%
Financial expense		(685,919	)		(460,049	)		49.1%
Derivative financial instruments, net		(82,792	)		4,245			—
Foreign currency exchange, net		(184,305	)		(74,104	)		148.3%

		(909,838	)		(488,390	)		86.3%

Net loss before income tax and social contribution		(1,077,425	)		(87,464	)		1,131.8%
Income tax and social contribution		(1,366	)		(4,368	)		(68.7)%
Deferred income tax and social contribution		3,886			26,792			(85.5)%

Net loss for the year		(1,074,905	)		(65,040	)		1,552.7%

Basic and diluted loss per common share ⁽¹⁾ :		(0.14	)		(0.01	)
Basic and diluted loss per preferred share ⁽¹⁾ :		(10.84	)		(0.69	)

(1)	Reflects a conversion ratio of 75.0 common shares to 1.0 preferred share on a theoretical, fully converted basis, pursuant to the mechanisms set forth in our by-laws.

Operating income (loss)

Our 2015 results of operations were negatively impacted by (i) 3.8% contraction of GDP in Brazil in 2015, the most significant recession in Brazil in 25 years, resulting in lower demand from corporate and leisure travelers, who we believe demonstrated greater price sensitivity, (ii) the 41.8% devaluation of the real which affected primarily our aircraft rent, fuel, and maintenance expenses, which are indexed to the U.S. dollar, and (iii) expenses of R$176.9 million related to the redelivery of 20 aircraft as part of our fleet standardization process following the TRIP acquisition.

The adverse macroeconomic conditions in Brazil, particularly the sharp depreciation of the real as well as interest rate increases, also negatively impacted our financial expenses, which increased from R$460.0 million in 2014 to R$685.9 million in 2015. The depreciation of the real also had a negative impact on the foreign exchange remeasurement of our U.S. dollar denominated assets and liabilities into reais , resulting in a foreign currency exchange expense of R$184.3 million in 2015 compared to an expense of R$74.1 million in 2014.

As a result of the above and those other factors explained below, we recorded a net loss of R$1,074.9 million in 2015 compared to a net loss of R$65.0 million in 2014. The table below sets forth the breakdown of our operating revenue and expenses on a per ASK basis for the periods indicated:


	For the Year Ended December 31,
	2015		2014		Percent Change
	(per ASK in R$ cents)
Operating revenue
Passenger revenue		23.80		25.98		(8.4)%
Other revenue		2.91		3.41		(14.6)%

Total operating revenue		26.72		29.39		(9.1)%

Operating expenses
Aircraft fuel		8.19		9.90		(17.3)%
Salaries, wages and benefits		4.45		5.02		(11.4)%
Aircraft and other rent		5.00		3.49		43.3%
Landing fees		1.63		1.59		2.6%
Traffic and customer servicing		1.31		1.22		7.8%
Sales and marketing		1.10		1.21		(9.1)%
Maintenance materials and repairs		2.75		1.79		53.6%
Depreciation and amortization		0.93		1.00		(7.1)%
Other operating expenses, net		2.07		2.13		(3.1)%

Total operating expenses		27.43		27.36		0.3%

Operating Revenue

Operating revenue increased 7.8%, or R$454.8 million, from R$5,803.1 million in 2014 to R$6,257.9 million in 2015, reflecting a 8.7% increase in passenger revenue and to a lesser extent, a slight increase in other revenue.

Passenger Revenue

The R$445.7 million, or 8.7% increase in passenger revenue in 2015 compared to 2014 was mainly attributable to (i) the launch of flights to Fort Lauderdale and Orlando, starting in December 2014 from which we derived R$407.8 million in gross revenue in 2015, leading to a 14.4% increase in total capacity, as measured by ASKs, compared to 2014 and (ii) a 3.8% growth in domestic capacity, as measured by ASKs. This growth was partially offset by an 8.4% PRASK reduction mostly due to a weaker demand environment and the increase in stage length associated with the launch of our international flights in December 2014. Considering only our domestic flights, PRASK decreased 1.7% in 2015 compared to 2014 mostly due to lower yields driven by lower passenger demand as a result of the Brazilian recession.

Other Revenue

The R$9.1 million, or 1.3% increase in other revenue was mainly due to a 7.2% increase in passenger related ancillary revenue mostly related to our international flights, partially offset by lower charter flights revenue, which was higher in 2014 due to the World Cup. Other revenue per passenger decreased 5.1% from R$33.0 in 2014 to R$31.3 in 2015 as the number of passengers we carried increased more than our other revenue over the period.

The table below presents our passenger revenue and selected operating data for the periods indicated:


	For the Year Ended December 31,
	Unaudited
	2015		2014		Percent Change
Passenger revenue (in millions of reais )		5,575		5,130		8.7%
Available seat kilometers (ASKs) (millions)		23,423		19,747		18.6%
Load factor (%)		79.6%		79.4%		0.3%
Passenger revenue per ASK (cents)		23.80		25.98		(8.4)%
Operating revenue per ASK (cents)		26.72		29.39		(9.1)%
Yield (cents)		29.92		32.73		(8.6)%
Number of departures		280,832		283,755		(1.0)%
Block hours		435,683		422,873		3.0%
Average fare (in reais )		255.81		251.33		1.8%
Stage length (kilometers)		830		727		14.2%
Passengers		21,794,939		20,409,931		6.8%

Operating Expenses

Operating expenses increased 18.9%, or R$1,023.4 million, from R$5,402.1 million in 2014 to R$6,425.5 million in 2015 mainly due to (i) the 41.8% average depreciation of the real against the U.S. dollar, which affected primarily our aircraft rent expenses, fuel, and maintenance expenses, (ii) expenses of R$176.9 million related to the redelivery process of 20 aircraft in connection with the TRIP acquisition, and (ii) the addition of 11 aircraft under operating leases and seven aircraft under finance leases in 2015.

Aircraft fuel . Aircraft fuel expenses decreased 1.9%, or R$37.4 million in 2015 compared to 2014, mainly due to the 14.6% decrease in the price of jet fuel, from an average of R$2.48 per liter in 2014 to an average of R$2.11 per liter in 2015, which was mostly offset by the 41.8% depreciation of the real and, to a lesser extent, a 3.0% increase in block hours, mostly due to our operation of international flights in 2015. On a per ASK basis, aircraft fuel decreased 17.3%, mostly due to the reasons described above coupled with an 18.6% increase in ASKs.

Salaries, wages and benefits . Salaries, wages and benefits increased 5.1%, or R$50.7 million, in 2015 compared to 2014 mostly due to a 7.0% scheduled increase in salaries as a result of collective bargaining agreements with labor unions applicable to all airline employees in Brazil in 2015. On a per ASK basis, salaries, wages and benefits decreased 11.4% as a result of the 18.6% increase in ASKs.

Aircraft and other rent . Aircraft and other rent, which are mostly incurred in U.S. dollars, increased 70.0%, or R$482.3 million, in 2015 compared to 2014, primarily due to (i) the 41.8% average depreciation of the real against the U.S. dollar during 2015 compared to 2014, (ii) the introduction of 11 new ATRs under operating leases to our fleet in 2015, partially offset by the redelivery of 13 ATRs formerly owned by TRIP, and (iii) the introduction of seven A330s starting in the second half of 2014. Aircraft and other rent per ASK increased 43.3% in 2015 compared to 2014, mostly due to the reasons described above, partially offset by the 18.6% increase in ASKs.

Landing fees . Landing fees increased 21.7%, or R$68.2 million, in 2015 compared to 2014 primarily due to an increase in navigation fee expenses of R$45.7 million related to the launch of our international flights in December 2014. Landing fees per ASK increased 2.6% mainly due to the increase in fees, mostly due to the reasons described above, partially offset by the 18.6% increase in ASKs.

Traffic and customer servicing . Traffic and customer servicing expenses increased 27.9%, or R$67.1 million, in 2015 compared 2014 primarily due to (i) an increase of 65.9% related to catering expenses per passenger, from R$2.26 in 2014 to R$3.74 in 2015, mostly due to the launch of our international flights in December 2014, and (ii) an increase of 21.5% in ground handling expenses per departure, from R$599.0 in 2014 to R$728.0 in 2015, related to the launch of our international flights. On a per ASK basis, traffic and customer servicing expense increased 7.8%, mostly due to the reasons described above, partially offset by the 18.6% increase in ASKs.

Sales and marketing . Sales and marketing expenses increased 7.9%, or R$18.9 million, in 2015 compared to 2014, primarily due to (i) an increase in credit card processing fee expenses and commissions for travel agencies as a result of a 7.8% increase in operating revenue over the period, and (ii) the introduction of international sales, which have higher commissions than domestic sales. Sales and marketing as a percentage of revenues remained flat at 4.1% in 2015. On a per ASK basis, sales and marketing expenses decreased 9.1%, mostly due to the reasons described above, partially offset by the 18.6% increase in ASKs.

Maintenance, materials and repairs . Maintenance, materials and repairs increased 82.2%, or R$290.6 million, in 2015 compared 2014 primarily due to (i) the 41.8% average depreciation of the real , which increased amounts due under third-party contracts denominated in U.S. dollars, and (ii) redelivery expenses totaling R$104.8 million related to maintenance expenses on 20 aircraft which had to be serviced to comply with contractual obligations. On a per ASK basis, maintenance, materials and repairs increased 53.6%, mostly due to the reasons described above, partially offset by the 18.6% increase in ASKs.

Depreciation and amortization . Depreciation and amortization increased 10.2%, or R$20.2 million, in 2015 compared to 2014 primarily due the acquisition of seven E-Jets under debt financing during 2015. Depreciation and amortization per ASK decreased 7.1%, mostly due to the reasons described above, partially offset by the 18.6% increase in ASKs.

Other operating expenses, net . Other operating expenses, net increased 14.9%, or R$62.8 million, in 2015 compared to 2014 primarily due to (i) the 41.8% average depreciation of the real , which increased expenses related to IT services, and aircraft insurance, which are priced in U.S. dollars, and (ii) the launch of international flights in December 2014 resulting in an increase in accomodation and meal expenses for crewmembers of R$19.3 million. This increase was partially offset by a gain of R$75.3 million related a sale-leaseback transaction of five E-175s which were formerly owned by TRIP. Other operating expenses per ASK decreased 3.1%, mostly due to the reasons described above, partially offset by the 18.6% increase in ASKs.

Financial Result

Financial income . Financial income increased 4.0%, or R$1.7 million, in 2015 compared to 2014, mostly due to higher interest rates earned on investments as a result of an increase of the average CDI Rate from 10.8% in 2014 to 13.4% in 2015, partially offset by a lower balance of cash, short-term investments and restricted investments (current and non-current) of R$757.8 million as of December 31, 2015 compared to R$956.3 million as of December 31, 2014.

Financial expenses . Financial expenses increased 49.1%, or R$225.9 million, in 2015 compared to 2014 mostly due to (i) the 41.8% average depreciation of the real against the U.S. dollar, as 54.5%, or R$2,619.9 million, of our total loans and financing was denominated in U.S. dollars as of December 31, 2015 compared to 38.9%, or R$1,268.0 million, as of December 31, 2014, (ii) a 47.6% increase in total loans and financing from R$3,259.2 million outstanding as of December 31, 2014 to R$4,810.9 million outstanding as of December 31, 2015, and (iii) an increase of the average CDI Rate from 10.8% in 2014 to 13.4% in 2015. As of December 31, 2015, 31.0%, or R$2,137.9 million, of our loans and financing was indexed to the CDI Rate compared to 37.5%, or R$1,223.7 million, as of December 31, 2014.

Derivative financial instruments, net . Our derivative financial instrument results varied from a gain of R$4.2 million in 2014 to a loss of R$82.8 million in 2015, mainly resulting from U.S. dollar derivative instruments used to hedge our foreign exchange exposure resulting from U.S. dollar denominated financial expenses.

Foreign currency exchange, net . The net translation loss on our assets and liabilities when remeasured into reais amounted for a loss of R$184.3 million in 2015 and R$74.1 million in 2014. This line item reflects the portion of our assets and liabilities denominated in U.S. dollars, primarily our aircraft financing facilities which increased due to the expansion of our fleet and the currency exchange movements that occur on a period-to-period basis, and has limited impact on our cash position.

Income tax and social contribution . For the year ended December 31, 2015, expenses related to income tax and social contributions totaled R$1.4 million compared to expenses of R$4.4 million in the prior year, due to the fact that we reported a lower taxable profit by one of our foreign subsidiaries in 2015.

Deferred income tax and social contribution . For the year ended December 31, 2015, gains related to deferred income tax and social contributions totaled R$3.9 million compared to a gain of R$26.8 million in the prior year, mostly due to lower deferred tax liabilities as a result of temporary differences between accounting and tax carrying values. As of December 31, 2015, we had income tax loss carryforwards of R$410.7 million and social contribution negative tax base carryforwards of R$147.9 million compared to R$220.2 million of income tax loss carryforwards and R$79.3 million of social contribution negative tax base carryforwards as of December 31, 2014. See Note 15(b) to our audited consolidated financial statements.

Quarterly Financial and Operating Data (Unaudited)

Statement of Operations Data


	For the three months ended
	March 31, 2015			June 30, 2015			September 30, 2015			December 31, 2015			March 31, 2016			June 30, 2016			September 30, 2016			December 31, 2016
	Unaudited (in thousands of *reais* , except percentages)
Operating revenue
Passenger revenue		1,391,769			1,238,878			1,463,180			1,481,517			1,477,835			1,238,245			1,501,326			1,569,403
Other revenue		164,687			158,799			168,391			190,645			190,693			205,704			235,495			251,190

Total revenue		1,556,456			1,397,677			1,631,571			1,672,162			1,668,528			1,443,949			1,736,821			1,820,593
Operating expenses
Aircraft fuel		(498,906	)		(438,872	)		(454,831	)		(524,997	)		(402,434	)		(332,942	)		(404,631	)		(420,216	)
Salaries, wages and benefits		(264,725	)		(262,592	)		(265,322	)		(249,480	)		(272,457	)		(262,371	)		(267,256	)		(289,787	)
Aircraft and other rent		(239,804	)		(273,768	)		(313,859	)		(343,895	)		(338,154	)		(259,353	)		(281,542	)		(281,863	)
Landing fees		(94,759	)		(89,429	)		(86,504	)		(111,918	)		(120,164	)		(102,301	)		(112,531	)		(107,695	)
Traffic and customer servicing		(76,568	)		(75,103	)		(76,548	)		(79,706	)		(84,278	)		(74,510	)		(82,143	)		(86,358	)
Sales and marketing		(62,114	)		(57,407	)		(66,939	)		(71,754	)		(59,798	)		(71,639	)		(66,774	)		(77,993	)
Maintenance materials and repairs		(123,388	)		(131,173	)		(194,283	)		(195,054	)		(189,797	)		(155,930	)		(181,331	)		(181,680	)
Depreciation and amortization		(49,385	)		(51,615	)		(57,241	)		(59,742	)		(68,811	)		(76,611	)		(80,465	)		(75,315	)
Other operating expenses, net		(126,717	)		(54,467	)		(143,934	)		(158,654	)		(125,678	)		(106,975	)		(94,106	)		(129,716	)

		(1,536,366	)		(1,434,426	)		(1,659,461	)		(1,795,200	)		(1,661,571	)		(1,442,632	)		(1,570,779	)		(1,650,623	)
Operating income (loss)		20,090			(36,749	)		(27,890	)		(123,038	)		6,957			1,317			166,042			169,970
Financial result
Financial income		11,922			8,565			14,375			8,316			7,604			7,229			18,829			17,405
Financial expense		(116,795	)		(181,815	)		(199,468	)		(187,841	)		(215,312	)		(176,004	)		(200,513	)		(139,371	)
Derivative financial instruments, net		74,645			(65,706	)		119,772			(211,504	)		(2,799	)		7,100			4,133			2,366
Foreign currency exchange, net		(81,762	)		8,096			(157,687	)		47,048			135,511			85,656			(11,393	)		(30,106	)

		(111,990	)		(230,860	)		(223,008	)		(343,981	)		(74,996	)		(76,019	)		(188,944	)		(149,706	)
Result from related party transactions, net		—			—			—			—			570			32,618			37,834			92,023

Net (loss) income before income tax and social contribution		(91,900	)		(267,609	)		(250,898	)		(467,019	)		(67,469	)		(42,084	)		14,932			112,287
Income tax and social contribution		—			—			—			(1,366	)		(61	)		—			(257	)		9,049
Deferred income tax and social contribution		708			1,964			606			606			607			(122,620	)		329			(31,027	)

Net (loss) income for the period		(91,192	)		( 265,645	)		( 250,292	)		( 467,779	)		(66,923	)		( 164,704	)		15,004			90,309

Other financial data (unaudited):
Operating margin		1.3%			(2.6%	)		(1.7%	)		(7.4%	)		0.4%			0.1%			9.6%			9.3%

Operating Data


	For the three months ended
	March 31,		June 30,		September 30,		December 31,		March 31,		June 30,		September 30,		December 31,
	2015		2015		2015		2015		2016		2016		2016		2016
	Unaudited
Operating Statistics:
Operating aircraft at end of period		138		139		134		144		130		121		119		123
Number of departures		72,318		67,393		69,764		71,357		68,165		61,342		65,337		66,767
Revenue passenger kilometers (RPKs) (millions)		4,822		4,343		4,777		4,694		4,857		3,989		4,616		4,773
Available seat kilometers (ASKs) (millions)		5,986		5,446		5,935		6,057		6,219		5,051		5,696		5,903
Load Factor (%)		80.6%		79.8%		80.5%		77.5%		78.1%		79.0%		81.0%		80.9%
Passenger revenue per ASK ( real cents) (PRASK)		23.25		22.75		24.65		24.46		23.70		24.34		26.36		26.59
Operating revenue per ASK ( real cents) (RASK)		26.00		25.66		27.49		27.61		26.75		28.59		30.49		30.84
Yield ( real cents)		28.86		28.52		30.63		31.56		30.34		30.82		32.53		32.88
Trip cost		21,245		21,284		23,787		25,158		24,376		23,518		24,041		24,722
Average fare (R$)		250.8		238.9		258.6		274.3		280.7		259.3		286.3		283.3
CASK ( real cents)		25.67		26.34		27.96		29.64		26.64		27.43		27.58		27.96
CASK (ex-fuel) ( real cents)		17.33		18.28		20.30		20.97		20.19		20.84		20.47		20.84
Average fuel cost per liter (R$)		2.1		2.1		2.0		2.23		1.7		1.7		1.8		1.85

Liquidity and Capital Resources

General

Our short-term liquidity requirements relate to the payment of operating costs, including of jet fuel, salaries and operating leases, payment obligations under our loans and financings (including finance leases, aircraft debt-financing and debentures) and the funding of working capital requirements. Our medium- and long-term liquidity requirements include equity payments for aircraft that we choose to finance through finance leases and debt-financing, the working capital required to start up new routes and new destinations, and payment obligations under our borrowings and financings.

For our short-term liquidity needs, we rely primarily on cash provided by operations and cash reserves. For our medium- and long-term liquidity needs, we rely primarily on cash provided by operations, cash reserves, working capital loans and bank credit lines including, but not limited to, bank loans, debentures and promissory notes.

In order to manage our liquidity, we review our cash and cash equivalents, short-term investments, and trade and other receivables on an ongoing basis. Trade and other receivables include credit card sales and accounts receivables from travel agencies and cargo transportation. Our accounts receivables are affected by the timing of our receipt of credit card revenues and travel agency invoicing. One general characteristic of the retail sector in Brazil and the aviation sector in particular is the payment for goods or services in installments via a credit card. Our customers may pay for their purchases in up to ten installments without interest or up to 12 installments with 3% interest per month. This is similar to the payment options offered by other airlines in Brazil. Once the transaction is approved by the credit card processor, we are no longer exposed to cardholder credit risk and the payment is guaranteed by the credit card issuing bank in case of default by the cardholder. Since the risk of non-payment is low, banks are willing to advance these receivables, which are paid the same day they are requested. As a result, we believe our ability to advance receivables at any time significantly increases our liquidity position.

As of December 31, 2016 our total cash position consisting of cash and cash equivalents, short term and long term investments, current and non-current restricted investments, totaled R$1,795.6 million, compared to R$757.8 million as of December 31, 2015.

We believe that, after completion of this global offering, we will be able to access equity and debt capital markets if and when necessary.

The table below presents our cash flow from operating, investing and financing activities, as well as the amount of our cash and cash equivalents for the periods indicated:


	For the Year Ended December 31,
	2016			2015			2014
	(in thousands of *reais* )
Cash Flow
Net cash (used in) provided by operating activities		(5,322	)		(371,037	)		297,532
Net cash used in investing activities		(644,349	)		(542,506	)		(701,474	)
Net cash provided by financing activities		562,330			1,161,089			246,618

Net (decrease) increase in cash and cash equivalents		(87,341	)		247,546			(157,324	)

Net Cash Provided By (Used In) Operating Activities

Net cash used in operating activities in 2016 was R$5.3 million compared to R$371.0 million in 2015. The increase in operating cash flows was mainly a result of (i) a net income excluding non-cash adjustments of R$78.5 million in 2016 compared to a net loss excluding non-cash adjustments of R$37.9 million in 2015, (ii) cash provided by other assets of R$183.2 million in 2016 compared to cash used by other assets of R$179.4 million in 2015 due to the reimbursement received in 2016 from lessors of pre-paid expenses related to the retrofit of the cabin interior of our Airbus A330 aircraft, (iii) a R$25.3 million increase in cash provided by air traffic liability, mostly due to an increase in advance ticket purchases and (iv) a decrease in the balance of prepaid expenses, resulting in R$35.0 million in cash gains in 2016 compared to R$70.0 million of cash used in 2015, reflecting the conversion of six aircraft from operating leases to finance leases in 2016. This increase was partially offset by a (i) decrease in the balance of accounts payables, corresponding to a negative cash impact of R$17.8 million in 2016 compared a cash gain of R$170.3 million in 2015, reflecting a R$357.4 million decrease in our fuel expense in 2016 compared to 2015, (ii) an increase in the balance of trade and other receivables (gross of the allowance for doubtful accounts) of R$20.8 million compared to R$0.6 million in 2015 due to a lower advance of receivables in 2016 and (iii) a R$55.7 million increase in cash used in the payment of interest.

Net cash used in operating activities in 2015 was R$ 371.0 million compared to net cash provided by operating activities of R$297.5 million in 2014. The decrease in operating cash flows was mainly a result of (i) a net loss excluding non-cash adjustments of R$37.9 million in 2015 compared to a net income excluding non-cash adjustments of R$537.5 million in 2014, (ii) a R$174.8 million increase in cash used by other assets, from R$4.7 million in 2014 to R$179.4 million in 2015, mostly due to advancements made in the process of retrofitting our fleet used for long-haul flights, (iii) a R$173.8 million decrease in cash provided by air traffic liability, mostly due to a decrease in advance ticket purchases resulting from the Brazilian recession in 2015, and (iv) an increase in cash used in the payment of interest of R$66.1 million as a result of a higher average exchange rate and higher average interest rate in 2015 compared to 2014. This decrease in operating cash flow was offset by (i) an increase in cash provided by trade and other receivables equivalent to R$220.9 million, due to a higher advance of receivables in 2015 compared to 2014, and (ii) a decrease in cash used in security deposits and maintenance reserves of R$122.6 million mostly due to the substitution of cash deposits by letters of credit.

Net Cash Used In Investing Activities

Net cash used in investing activities was R$644.3 million in 2016 compared to R$542.5 million in 2015, an increase of R$101.8 million. This increase in cash used in investing activities is mostly related to (i) a net acquisition of short-term investments of R$301.8 million in 2016 compared to a net disposal of R$479.5 million in 2015, and (ii) the R$360.8 million acquisition of long-term investments from a related party in 2016 related to our acquisition of the TAP bonds, see “Business—Strategic Partnerships, Alliances and Commercial Agreements—TAP.” This increase was partially offset by (i) an increase in the proceeds from the sale of property and equipment from R$248.4 million in 2015 to R$532.0 million in 2016 and (ii) lower amounts expended in connection with acquisitions of property, equipment and intangibles of R$442.1 million in 2016 compared to R$1,246.4 million in 2015.

Net cash used in investing activities totaled R$542.5 million in 2015, a decrease of R$159.0 million compared to R$701.5 million in 2014. The decrease in investing activities was mainly due to (i) a net disposal of short-term investments of R$479.5 million in 2015 compared to a net acquisition of short-term investments of R$377.0 million in 2014 due to higher working capital needs as a result of the Brazilian economic recession and, (ii) an increase in cash received on sale of property and equipment of R$215.1 million, mostly due to refinancing transactions for five aircraft resulting in the conversion of finance leases into operating leases. This was partially offset by higher acquisitions of property, equipment and intangibles of R$798.6 million as a result of more aircraft financed under finance leases in 2015.

Net Cash Provided By Financing Activities

Net cash provided by financing activities decreased 51.6% from R$1,161.1 million in 2015 to R$562.3 million in 2016. The decrease in net cash provided by financing activities was mainly due to (i) an increase in cash used for repayment of loans and debentures from R$1,076.9 million in 2015 to R$1,549.1 million in 2016 coupled with a decrease of R$411.0 million in proceeds from new debentures and loans during the period, (ii) lower proceeds from loans and debentures of R$979.6 million in 2016 compared to R$1,390.6 million in 2015, (iii) payment of R$310.7 million related to redemption of preferred shares in connection with the repayment of the Private Placement in 2016 with no corresponding outflow in 2015 and (iv) lower proceeds from sale and lease back transactions which totaled R$534.4 million in 2015 with no corresponding inflow in 2016. This decrease was partially offset by a capital increase of R$1,451.6 million from the Hainan equity investment in 2016, see “Business—Strategic Partnerships, Alliances and Commercial Agreements—Hainan”, compared to a capital increase of R$313.0 million related to the United equity investment in 2015.

In 2015, the amount of net cash provided by financing activities increased significantly, from R$246.6 million in 2014 to R$1,161.1 million in 2015 reflecting mainly (i) cash inflow of R$534.4 million in 2015 from sales and leaseback transaction compared to R$74.0 million in 2014, (ii) proceeds of R$313.0 million mostly related to United’s indirect investment, through a subsidiary, in us and (iii) a decrease in cash used for repayment of loans and debentures, from R$1,555.8 million in 2014 to R$1,076.9 million in 2015. This increase in cash inflow was partially offset by a decrease in proceeds from loans and debentures from R$1,728.4 million in 2014 to R$1,390.6 million in 2015 reflecting mainly R$1,087.3 million in proceeds in 2014 from our issuance of debentures that year.

Loans and Financings

General

The following table sets forth the financial charges and balances of our aircraft and non-aircraft debt as of the periods indicated:


				As of December 31,
	Financial Charges			2016		2015		2014
				(in thousands of R$)
Aircraft financing ⁽¹⁾⁽²⁾

In local currency (R$)		Fixed of 2.50% to 6.50% p.a.	Monthly repayment		372,535		659,315		767,487

In foreign currency (U.S.$) ⁽²⁾		(i) LIBOR plus “spread” of 1.75% to 4.92% p.a. and (ii) LIBOR plus spread of 2.05% to 5.50% p.a.	Monthly, quarterly and semi-annual repayment		1,769,547		2,270,883		959,044

Non-aircraft financing :

In foreign currency (U.S.$) ⁽¹⁾		(i) LIBOR plus fixed interest of 2.72% to 7.80% p.a. (ii) 5.4% p.a. and (iii) LIBOR plus “spread” of 7.25% p.a.	Bullet, quarterly and monthly repayment		374,164		349,016		308,981

In local currency (R$)		(i) 5.0% fixed p.a. to 135% of CDI Rate and (ii) CDI Rate plus spread of 3.87% p.a.	Monthly, quarterly and semi-annual repayment and monthly repayment after grace period of 20 months		332,039		349,075		204,233

Debentures (R$)		CDI Rate plus 2.85% and 127% of CDI Rate	Quarterly, semesterly and monthly repayment		1,186,210		1,182,656		1,019,439

					4,034,495		4,810,945		3,259,184

(1)	Converted using the exchange rate of R$3.9042 per US$1.00 as of December 31, 2015 and R$3.2591 per US$1.00 as of December 31, 2016.

(2)	Aircraft financing includes financing agreements and finance leases with respect to our aircraft, flight simulators and related equipment.

As of December 31, 2016, we had pledged as security under our aircraft secured loans, property and equipment with a carrying value of R$2,142.1 million. As of December 31, 2016, we had pledged as security under our non-aircraft secured loans receivables, bonds and investments with a carrying value of R$1,516.1 million.

As of December 31, 2016, our aircraft financing consisted of finance leases and loans used to finance 39 aircraft with an aggregate outstanding balance of R$2,142.1 million, with the underlying aircraft serving as security. The remaining 100 aircraft were held by us under operating leases that are not recorded as assets and debt on our balance sheet. Of our contractual fleet of 100 aircraft under operating leases, 15 aircraft were subleased to TAP in 2016. Our non-aircraft secured loans, aircraft finance leases and aircraft debt financing contain customary covenants and restrictions, such as default in case of change of control and termination, or non-renewal of the agreement.

The following are our material debt financing instruments that contained financial covenants, as of December 31, 2016. For the purposes of the covenants in our debt agreements described in items (i) and (ii) below, “EBITDAR” means EBITDA calculated according to market practice plus costs incurred with operating and finance lease related to our aircraft, in the financial year immediately prior to the calculation. For the purposes of the covenants in our debt agreement described in item (iii) below “EBITDAR” means EBIT for that period before deducting any amount attributable to the amortization of intangible assets or the depreciation of tangible assets or any amount which is attributable to payment of operating lease rentals and in each case in respect of the relevant period.

(i)

non-convertible debentures issued on September 19, 2014 by Azul Linhas, in the principal amount of R$1.0 billion, due September 19, 2019. These debentures are guaranteed by receivables generated by sales using Visa-branded credit cards, representing at least one third of the outstanding balance under the debenture (which is referred to in the indenture as the “Minimum Amount”). As long as there is no declaration of event of default under the debentures, receivables exceeding the Minimum Amount may be used and encumbered in other transactions. We are required to comply with the following financial covenants as of December 31 of each year: (A) ratio of cash flow generation/adjusted debt service equal to or greater than 1.0x, provided that in the event of our initial public offering, such ratio shall be equal to or greater than 1.2x; and (B) ratio of adjusted net debt/EBITDAR equal to or lower than 6.0x, provided that in the event of our initial public offering such ratio shall be equal or lower than 5.5x. Beginning on September 19, 2017, payment of principal will be amortized in five semiannual installments and interest payment will be made semiannually at a rate of 127% of the CDI Rate, beginning March 19, 2017;

(ii)

non-convertible debentures issued on December 19, 2016 by Azul Linhas, in the principal amount of R$150 million, due December 19, 2019. These debentures are guaranteed by receivables generated by sales using American Express-branded credit cards, representing at least (i) 25% of the total outstanding amount under the debentures during the grace period, i.e. from the issuance date until December 19, 2017 or (ii) 40% of the total outstanding amount under the debentures, from December 19, 2017 until the maturity date (the “Minimum Threshold”). As long as there is no declaration of event of default under the debentures, receivables exceeding the Minimum Threshold may be used and encumbered in other transactions. We are required to comply with the following financial covenants as of December 31 of each year: (A) ratio of cash flow generation/adjusted debt service equal to or greater than 1.0x, provided that in the event of our initial public offering, such ratio shall be equal to or greater than 1.2x; and (B) ratio of adjusted net debt/EBITDAR equal to or lower than 6.0x, provided that in the event of our initial public offering such ratio shall be equal or lower than 5.5x. Starting on March 19, 2018, we will pay principal under these debentures in eight quarterly installments, and, starting on March 19, 2017, we will pay interest payments on a quarterly basis at a rate of 100% of the CDI Rate plus 2.85%;

(iii)

Export Credit Loan Agreement relating to the financing of ten ATR 72-600 aircraft, dated October 17, 2011, as amended from time to time, between Blue Turbo 1 Finance Ltd, as Borrower; Deutsche Bank AG Paris Branch as Coface Agent, Security Trustee and Mandate Lead Arranger; Deutsche Bank SPA as Sace Agent and Mandate Lead Arranger; and Banco Santander S.A. as Mandate Lead Arranger, on the aggregate amount of US$165.0 million. As of December 31, 2016, the total aggregate amount outstanding under this facility was US$107.8 million. This agreement is guaranteed by Azul, and by the aircraft subject to this financing. We are required to comply with the following financial covenants as of December 31 of each year: (A) a ratio of (i) the aggregate of total debt and operating lease rentals payable during such period multiplied by seven less (ii) unrestricted cash to equity of less than 4.5; and (B) a ratio of (i) the aggregate of total debt and operating lease rentals payable during such period multiplied by 7.0, less unrestricted cash to (ii) EBITDAR of less than six; and

(iv)

Equipment Financing Loan (FINAME) relating to the financing of one Embraer E195 aircraft, dated December 30, 2014, as amended from time to time, between Azul Linhas, as Borrower, Banco do Brasil, as Lender, in the principal amount of R$119.9 million, due December 15, 2025. This financing is guaranteed by the aircraft subject to this financing. We are required to comply with the following financial covenant as of December 31 of each year: ratio of EBITDA/sum of payments of interest and principal from loans and financings equal to or greater than 1.2x.

As of December 31, 2016 and December 31, 2015, we were in compliance with the covenants under our material financing instruments, except for noncompliance related to: (1) items (iii)(A) and (iii)(B); and (2) items (iv). However, we successfully obtained waivers for all such financing instruments until December 2017.

For further information on our financing activities, see Note 16 to our audited consolidated financial statements.

Capital Expenditures

Our capital expenditures (acquisitions of property, equipment and intangibles) for the years ended December 31, 2016, 2015 and 2014 totaled R$442.1 million, R$1,246.4 million and R$447.8 million, respectively, most of which related to the acquisition of new aircraft, engines and aircraft equipment such as spare parts. Other capital expenditures include IT systems and facilities.

Our growth plans contemplate an expansion of our operating fleet from 123 aircraft in 2016 to 125 aircraft by the end of 2017. As of December 31, 2016, we had 94 orders consisting of 58 next-generation Airbus A320neo family aircraft, to be delivered between 2017 and 2023, three Airbus A350 aircraft to be delivered between 2017 and 2018, eight ATRs to be delivered between 2019 and 2021, and 33 next-generation E-195-E2 aircraft with deliveries starting in 2020. We expect to meet our contractual commitments by using cash generated from our operations together with loans and/or capital markets financings.

We typically hold our aircraft under operating leases, finance leases or aircraft loans. All of our deliveries through December 30, 2019 (corresponding to 28 aircraft) are already under lease commitments. Although we believe financing should be available for all of our future aircraft deliveries, we cannot assure you that we will be able to secure them on terms attractive to us, if at all. To the extent we cannot secure these and other financing, we may be required to modify our aircraft acquisition plans or incur higher than anticipated financing costs. We expect to meet our operating obligations as they become due through available cash, internally generated funds and the proceeds from this global offering, supplemented as necessary by short-term credit lines. We believe that our cash provided by operations and our ability to obtain financing (including through finance leases and aircraft debt-financing), by already approved lines of credit with financial institutions, as well as our ability to obtain operating leases and issue debentures in the Brazilian capital market, will enable us to honor our current contractual and financial commitments.

For additional information relating to our commitments for future acquisition of aircraft, see Note 16.3 to our audited consolidated financial statements.

Commitments and Contractual Obligations

Our non-cancelable contractual obligations as of December 31, 2016 included the following:

2017

2018-2019

2020-2021

>2022

Less than 1
year

1 to 3 years

3 to 5 years

More than
5 years

Total

(in thousands of R$) (Unaudited)

Operating Leases

1,139,347

2,170,939

2,064,176

2,646,863

8,021,325

Non-aircraft loans

301,459

368,298

36,434

706,191

Debentures

244,542

941,668

1,186,210

Aircraft finance leases and aircraft loans

439,237

599,006

558,252

545,599

2,142,094

Total

2,124,585

4,079,911

2,658,862

3,192,462

12,055,820

Interest

(74,410

)

(74,410

)

Total

2,050,175

4,079,911

2,658,862

3,192,462

11,981,410

Research and Development, Patents and Licenses

We believe that the Azul brand is associated with innovation as we have been recognized among the top 50 most innovative companies in the world and number one in Brazil by the business magazine Fast Company. We have registered the trademark “AZUL LINHAS AÉREAS BRASILEIRAS,” among others, with the Brazilian Institute of Industrial Property ( Instituto Nacional da Propriedade Industrial ), or INPI. We have also registered several domain names with the Brazilian body for domain registration (“NIC.br”) and other domain registrars, including “voeazul.com.br”, “flyazul.com”, “azulviagens.com.br”, “azulcargo.com.br” and “tudoazul.com”. We also operate software products under licenses from our vendors, such as Oracle, Trax, Sabre, Navitaire and SAP.

Off Balance Sheet Arrangements

All of our off balance sheet arrangements are related to operating leases. Our total future minimum lease payments of non-cancellable operating lease obligations amounted to R$8,021.3 million as of December 31, 2016. As of December 31, 2016 we held 100 aircraft and 17 engines under operating leases. Of the 100 aircraft under operating leases, 15 have been subleased to TAP, consisting of seven Embraer E-195s, six ATRs, and two Airbus A330s. Furthermore, as of December 31, 2016, we had orders for 58 next-generation Airbus A320neo family aircraft, to be delivered between 2017 and 2023, three Airbus A350 aircraft to be delivered between 2017 and 2018, eight ATRs to be delivered between 2019 and 2021, and 33 next-generation E-195-E2 aircraft with deliveries starting in 2020. Approximately 22 next-generation Airbus A320neos, 3 ATRs, and all A350 aircraft deliveries have operating lease commitments.

Some of our monthly rental payments are based on floating rates and we are not required to make termination payments at the end of our leases. Under some of our lease agreements we are required to maintain maintenance reserve deposits and to return the aircraft and engine in the agreed condition at the end of the lease term. Title to the aircraft remains with the lessor. We are responsible for all maintenance, insurance and other costs associated with operating these aircraft; however, we have not made any residual value or other guarantees to our lessors.

Quantitative and Qualitative Disclosures about Market Risk

General

Market risk is the risk that the fair value of future cash flows of a financial instrument fluctuates due to changes in market prices. Any such changes may adversely affect the value of our financial assets and liabilities or our future cash flow and income. We have entered into derivative contracts and other financial instruments for the purpose of hedging against variations in these factors.

We have also implemented policies and procedures to evaluate such risks and approve and monitor our derivative transactions. It is our policy not to participate in any trading of derivatives for speculative purposes. We measure our financial derivative instruments at fair value which is determined using quoted market prices, standard option valuation models or values provided by the counterparty.

Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements. The counterparties to our derivative transactions are major financial institutions with strong credit ratings and we do not expect the counterparties to fail to meet their obligations. We do not have significant exposure to any single counterparty in relation to derivative transactions, and we believe the credit exposure related to our counterparties is negligible.

Market risk includes three types of risk: interest rate, currency exchange and commodity price risk. The sensitivity analyses provided below do not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument fluctuates due to changes in market interest rates. Our exposure to the risk of changes in market interest rates refers primarily to long-term obligations (including operating and finance leases and other financing) subject to variable interest rates. To manage this risk, we engage in interest rate swaps, whereby we agree to exchange, at specified intervals, the difference between the values of fixed and variable interest rates calculated based on the notional principal amount agreed between the parties. As of December 31, 2016, we had interest rate swap contracts designated as cash flow hedges and fair value hedges.

We utilize swap contracts designated as cash flow hedges to protect fluctuations of part of the payments of operating and capital leases and loans and financing in foreign currency. The swap contracts are used to hedge the risk of variation in interest rates tied to contractual commitments executed. The essential terms of the swap contracts were agreed to be coupled with the terms of the hedged loans and financing and lease commitments. As of December 31, 2016 our cash flow hedges included interest rate swap contracts with a notional value of R$90.1 million that we receive a variable interest rate tied to LIBOR and pay fixed interest rates. As of December 31, 2016, our fair value hedges included interest rate swap contracts with a notional value of R$599.9 million, which provide that we receive a fixed interest rate and pay a variable rate corresponding to a percentage of CDI Rate on the notional value. The reduction in the fair value of interest rate swap of R$13.2 million was recognized in financial expenses and offset against a similar gain on the debt hedged. There was no significant ineffectiveness recognized in the year ended December 31, 2016.

Currency exchange rate risk

Currency exchange rate risk is the risk that the fair value of future cash flows of a financial instrument fluctuates due to changes in exchange rates. Our exposure to the risk of changes in exchange rates refers primarily to loans (including finance leases) indexed to the U.S. dollar (net of investments in U.S. dollars) and to our TAP bonds demoninated in Euros. Also, slightly over half of our operating expenses are either payable in or affected by the U.S. dollar, such as aviation fuel, aircraft operating lease payments and certain flight hour maintenance contract payments. Therefore, we enter into currency forward contracts for periods with a currency exposure of up to 12 months. Additionally, as part of our international operations, we maintain offshore bank accounts in U.S. dollars that serve as natural hedges. As of December 31, 2016, we held a U.S. dollar balance of cash and cash equivalents and short-term investments of R$144.6 million (US$44.4 million), representing 65.4% of our next twelve-month exposure to financial expenses indexed in U.S. dollars. We have derivative financial instruments that were not designated as hedges that included forward foreign currency contracts and foreign currency options. As of December 31, 2016, we had R$260.7 million of fixed notional value in foreign currency options at a rate of R$3.2686 for US$1.00. The fair value of these contracts was a loss of R$5.9 million, which was recorded as derivative financial instruments against current liabilities.

Commodity price risk

The volatility of aviation fuel prices is one of the most significant financial risks for airlines. For the years ended December 31, 2016, 2015 and 2014 aviation fuel accounted for 24.7%, 24.4%, and 29.8%, respectively, of our operating expenses. International oil prices, which are denominated in U.S. dollars, are volatile and cannot be predicted with any degree of certainty as they are subject to many global and geopolitical factors. For example, oil prices experienced substantial variances beginning in 2009 and through December 2016. Airlines often use WTI crude or heating oil future contracts to protect their exposure to jet fuel prices. We attempt to mitigate fuel price volatility primarily through derivative financial instruments or a fixed price agreement with BR Distribuidora. As of December 31, 2016, we had hedged 10.6% of our forecasted fuel consumption for the next twelve months.

Credit risk

Credit risk is inherent in our operating and financial activities and such risk is mainly represented in our trade receivables and cash and cash equivalents, including bank deposits. The credit risk associated with our trade receivables include values payable by the major credit card companies, which have a credit risk that is equal or better to our credit risk, and those from travel agencies, sales in installments and government, and individuals and other entities. We assess the corresponding risk of financial instruments and diversify our exposure. We also mitigate such risk by holding financial instruments with counterparties that have strong credit ratings, or that are hired in futures and commodities stock exchange.

Liquidity risk

Liquidity risk is the risk of not having sufficient net funds to meet our financial commitments as a result of a mismatch in term or volume between expected income and expenses. In order to manage the liquidity of our cash in local and foreign currency, assumptions of future receipts and disbursements are set which are monitored daily by our treasury department. We apply our funds in net assets (certificates of deposit and agribusiness credit bills).

Sensitivity analysis

Our sensitivity analysis measures the impact of interest rate risk, exchange variations, and commodity price risk on the statement of operations considering two different scenarios: (i) the adverse scenario, which assumes that the relevant interest rate, exchange rate or commodity price will worsen by 25% and (ii) the remote scenario, which assumes that relevant interest rate, exchange rate or commodity price will worsen by 50%.


			For the Year Ended December 31,
			2016
Risk Factor	Financial Instrument	Risk	Adverse Scenario			Remote Scenario
			(in thousands of R$)
Financing	Interest rate	CDI, LIBOR or TJLP rate increase		(67,945	)		(135,890	)
Liabilities and aircraft leases	Exchange rate	U.S. dollar rate increase		(212,820	)		(425,640	)
Aircraft fuel	Cost per liter	WTI or Gulf Coast jet fuel		(69	)		(107	)

REGULATIO N

Overview

Under the Brazilian Constitution, air transportation is a public service. It is therefore subject to extensive governmental regulation and monitoring by several federal agencies and entities. The sector is regulated by the Brazilian Aeronautical Code, which covers air service concessions; airport infrastructure and operations; flight safety; airline certification; leasing, taking security, disposal, registration and licensing of aircraft; crew training; inspection and control of airlines; public and private air carrier services; civil liability; and penalties for infringement.

Brazil has signed and ratified the Chicago Convention of 1944, the Geneva Convention of 1948, the Montreal Convention of 1999 and the Cape Town Convention of 2001, the leading international conventions relating to worldwide commercial air transportation activities.

The National Civil Aviation Policy ( Política Nacional de Aviação Civil ), or PNAC, which was adopted in 2009, sets out the main governmental guidelines and policies that apply to the Brazilian civil aviation system. The PNAC encourages all regulatory bodies to issue regulations on strategic matters such as safety, competition, environmental and consumer issues, and to inspect, review and evaluate the activities of all operating companies.

Regulatory Bodies

The chart below illustrates the main regulatory bodies together with their responsibilities and reporting lines:

LOGO

The Ministry of Transportation, Ports and Civil Aviation, which was established in September 2016, supervises civil aviation services and activities in Brazil and is responsible for issuing governmental policies for the sector. The Ministry of Transportation, Ports and Civil Aviation reports directly to the President of Brazil and is responsible for the oversight of ANAC and INFRAERO.

ANAC, which was created in 2005, has full regulatory powers regarding the following:

•

guiding, planning, stimulating and supporting the activities of public and private civil aviation companies in Brazil;

•

regulating flight operations; and

•

regulating economic issues affecting air transportation and airports, including air safety, certification and fitness, insurance, consumer protection and competitive practices.

INFRAERO is a state-controlled airport operator that reports to the Ministry of Transportation, Ports and Civil Aviation. It is responsible for managing, operating and controlling all government-operated federal airports (i.e., those whose operations have not been transferred to private parties by way of concessions), including safety, operational conditions and infrastructure.

The National Commission of Airport Authorities ( Comissão Nacional de Autoridades Aeroportuárias ), or CONAERO, which was created in 2011, is a commission within the Ministry of Transportation, Ports and Civil Aviation. Its role is to coordinate the activities of the different entities and public agencies with respect to airport efficiency and safety.

The Department of Airspace Control ( Departamento de Controle do Espaço Aéreo ), or DECEA, reports indirectly to the Brazilian Minister of Defense. It is responsible for planning, administrating and controlling activities related to airspace, aeronautical telecommunications and technology, as well as military aviation. Its functions include approving and overseeing the implementation of equipment and navigation, meteorological and radar systems. The DECEA also controls and supervises the Brazilian Airspace Control.

The Brazilian Civil Aviation Council ( Conselho de Aviação Civil ), or CONAC, which was created in 2000, is an advisory body to the President of Brazil with authority to establish national civil aviation policies, to be adopted and enforced by the Aeronautics High Command and ANAC. CONAC establishes guidelines relating to following:

•

the representation of Brazil in conventions, treaties and other activities related to international air transportation;

•

airport infrastructure;

•

the provision of funds to airlines and airports to further strategic, economic or tourism interests;

•

the coordination of civil aviation;

•

air safety; and

•

the granting of air routes, concessions and permissions for commercial air transportation services.

Airport Infrastructure

Brazil currently has more than 3,000 private and public airfields. Airlines that operate regularly scheduled flights primarily use public airport infrastructure, with 97% of total passenger traffic passing through a network consisting of 67 airports. INFRAERO is responsible for the operational matters of 60 of these airports.

A number of smaller, regional airports in Brazil are under the control of state or municipal governments and are managed by local governmental entities. INFRAERO is responsible for safety and security activities at the largest airports, including passenger and baggage screening, cargo security measures and airport security.

The Brazilian government is implementing a program to grant the operation of certain airports in Brazil by way of concessions granted following public bids. Concessions for the international airports of São Paulo (Guarulhos and Viracopos) and Brasília were granted to private parties following a public bid in February 2012. In November 2013, Belo Horizonte (Confins International Airport) in the state of Minas Gerais, and Rio de Janeiro (Galeão International Airport) have also been privatized by way of concessions. The concessions for these airports have terms of between 20 to 30 years. Previously, a 28-year concession for São Gonçalo do Amarante International Airport, located in Natal in the state of Rio Grande do Norte, was granted to a consortium named Inframérica, the same consortium which currently operates Brasília airport, following a public bid in October 2011.

The following chart summarizes the concession conditions for these airports:

São Paulo
(Guarulhos)

São Paulo
(Viracopos)

Brasília

São Gonçalo do
Amarante

Belo Horizonte
(Confins)

Rio de Janeiro
(Galeão)

Winning bid

R$16.2 billion

R$3.8 billion

R$4.5 billion

R$170 million

R$1.8
billion

R$19 billion

Concession term

20 years

30 years

25 years

28 years

30 years

25 years

Minimum Investment

R$4.7 billion

R$8.7 billion

R$4.7 billion

R$650 million

R$3.5 billion

R$5.7 billion

Additional fee

10% of annual
gross revenue,
equal to
R$1,770
million for
the term of
the concession

5% of annual
gross revenue,
equal to
R$649 million
for the term
of the
concession

2% of
annual gross
revenue,
equal to
R$107 million
for the term
of the
concession

—

5% of annual
gross
revenue

5% of annual
gross revenue

Source : Ministry of Transportation, Ports and Civil Aviation and ANAC.

Guarulhos, Brasília and Viracopos airports represented approximately 33% of total passengers transported in Brazil as of August 2016, including domestic and international traffic, according to ANAC. In 2011, for the first time since 1997, the Brazilian government increased landing and navigation fees at the busiest airports as compared to less busy airports and at peak hours.

Of the 60 Brazilian airports managed directly or indirectly by INFRAERO, approximately 13 airports are currently receiving infrastructure investments and upgrades. The airport upgrade plan does not require contributions or investments by Brazilian airlines, and is not expected to involve increases in landing fees or passenger taxes on air travel.

ANAC has enacted Resolution No. 338, of July 2014, which sets forth new procedures for the distribution of slots in airports operating at full capacity. Under this resolution, airports operating at full capacity are deemed by ANAC “coordinated airports”. The following airports are currently deemed “coordinated airports”: Congonhas (São Paulo), Guarulhos (São Paulo), Santos Dumont (Rio de Janeiro), and Pampulha (Belo Horizonte). This resolution increases the participation of airlines that operate routes in regional airports, which places us in a privileged position before our competitors. By the distribution performed in October 2014, we received 26 slots in the airport and in November 2014, we started operating 13 daily flights from Congonhas airport to some of our most profitable markets including Belo Horizonte, Porto Alegre, and Curitiba, leveraging the connectivity we have in these cities and expanding our flights available to São Paulo passengers.

Airlines and service providers may lease areas within federal, state or municipal airports, such as hangars and check-in counters, subject to concessions or authorizations granted by the authority that operates the airport—which may be INFRAERO, the state, the municipality or a private concession holder, as the case may be. No public bid is required for leases of spaces within airports, although INFRAERO may conduct a public bidding process if there is more than one applicant. In other cases, the use may be granted by a simple authorization or permission issued by the authority that operates the airport. In the case of airports operated by private entities, the use of concession areas is subject to a commercial agreement between the airline and the airport operator.

We have renewable concessions with terms varying from one to five years from INFRAERO and other granting authorities to use and operate all of our facilities at each of the major airports that we serve. Most of our concession agreements for passenger service facilities at our terminals, which include check-in counters and ticket offices, operational support areas and baggage service offices, contain provisions for periodic adjustments of the lease rates and the extension of the concession term. We have airport areas under concession and certain areas which concessions are being duly formalized in order to be renewed.

Air Transportation Service Concessions

Under the Brazilian Constitution, the Brazilian government is responsible for air transportation and airport infrastructure, as a public service, and may provide these services directly or by way of concessions or authorizations to third parties. ANAC is the authority empowered to authorize concessions for the operation of regular air transportation services.

ANAC requires companies interested in operating air services to meet certain economic, financial, technical, operational and administrative requirements. The applicant must be an entity incorporated in Brazil whose constitutive documents have been approved by ANAC, must have a valid Airline Operating Certificate ( Certificado de Operador Aéreo—COA ), and must comply with the ownership restrictions discussed below. ANAC has the authority to revoke a concession if the airline fails to comply with the Brazilian Aeronautical Code and any other relevant laws or regulations relating to the concession agreement, including if the airline fails to meet specified service levels, ceases operations or declares bankruptcy.

Azul Linhas’ concession was granted on November 26, 2008 by ANAC and has a term of ten years. The renewal of the concession agreement or the granting of a new concession would depend on the rendering of adequate services by us, on the maintenance of the necessary authorizations from the Brazilian government to conduct flight operations, including authorization and technical operative certificates from ANAC and on the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.

The concession agreement can be terminated if, among other things, Azul Linhas fails to meet specified service levels, ceases operations or declares bankruptcy. By the end of the term of the concession, the continuation of the provision of airport services depends on the extension of the term of the current concession agreement or the granting of a new concession.

Public bidding is not currently required for the grant of concessions for the operation of air transportation services. Due to the intense growth of the civil aviation sector, however, it is possible that the government may change this rule in order to encourage competition or to achieve other political purposes.

Route Rights

Domestic routes

For the granting of new routes and changes to existing ones, the airline submits a request for additions or modifications in the Air Transportation Schedule ( Horário de Transporte Aéreo ), or HOTRAN, which is the official document of flight registrations in Brazil. ANAC, the airport administration and the control center of air navigation (which is responsible for managing air traffic), evaluates all requests for changes in the HOTRAN, taking into consideration the current capacity of the airport and its passenger traffic, and approve or deny each HOTRAN request.

Any airline’s route frequency rights may be terminated if the airline (i) fails to begin operation of a given route for a period exceeding 15 days, (ii) fails to maintain at least 75% of flights provided for in its HOTRAN for any 90-day period or (iii) suspends operations for a period exceeding 30 days.

ANAC approval of new routes or changes to existing routes is granted through an administrative procedure and requires no changes to existing concession agreements.

The HOTRAN is the official schedule report of all routes that an airline can operate. Once routes are granted, they must be immediately reflected in the HOTRAN. The HOTRAN provides not only for the routes but also the times of arrival at and departure from certain airports, none of which may be changed without the prior consent of ANAC. Brazilian laws and regulations do not permit an airline to sell, assign or transfer its routes to another airline.

The average approval time for a HOTRAN request varies between 20 to 30 days depending on the complexities involving the airports to which the HOTRAN request refers.

International routes

Rights regarding international routes and the corresponding transit rights depend on the bilateral air transport treaties between Brazil and the foreign government. Under these treaties, each government grants to the other the right to designate one or more domestic airlines to operate scheduled services between certain destinations in each country. Airlines are only entitled to apply for new international routes when they are made available under these agreements.

ANAC has the authority to grant Brazilian airlines approval to operate a new international route or change an existing route, subject to the airline having filed satisfactory studies to ANAC demonstrating the viability of the routes and fulfilling certain conditions with respect to the concession for the routes. A Brazilian airline that received ANAC approval to provide international services may address a request for approval of a new or changed route to the Air Services Superintendence of ANAC ( SAS – Superintendecia de Acompanhamento de Serviços Aéreos da ANAC ). The Superintendence submits a non-binding recommendation to the president or ANAC, who may decide whether to approve the request.

An airline’s international route frequency rights may be terminated if the airline fails to maintain an Index of Frequency Utilization ( Índice de Utilização de Freqüência ), or IUF, of at least 66% of flights for any 180-day period, or if the airline does not initiate operations within a period of 180 days from the grant of the new route.

In 2011, United States and Brazil reached an open-skies aviation agreement to liberalize the air services and traffic between both countries, including, among other things, removal of restrictions on pricing and additional scheduled and charter services to the congested airports of São Paulo and Rio de Janeiro. Both countries agreed to a transition period of five years and a full open skies was supposed to be effective in October of 2015 but agreement has not been approved by the Brazilian Congress yet. The Brazilian Government has recently requested that the Congress approve the agreement, which is expected to occur in 2017.

There are ongoing negotiations between Brazil and EU to implement an open skies agreement but the final terms of the treaty have not been approved.

Domestic Slots Policy

For certain airports that are classified as operating at full capacity by ANAC, passenger airlines are required to obtain slots from ANAC. A slot is a predetermined period of time during which the airline is allowed to takeoff or land at a specific airport. To obtain domestic slots, the airline must submit a request to ANAC, and ANAC will, in turn, distribute slots to the requesting airlines in accordance with the number of new slots available as per the slot allocation calendar defined by Resolution No. 338. Airlines may transfer slots with ANAC’s prior approval. An airline may lose its rights to its slots where service provision is below the quality determined by ANAC. In these cases, the slots are distributed to other airline companies by public tender.

Currently, there are only four Brazilian coordinated airports where slots are necessary to perform scheduled flights: Congonhas (São Paulo), Guarulhos (São Paulo), Santos Dumont (Rio de Janeiro) and Pampulha (Belo Horizonte). Congonhas airport, which is the busiest domestic airport in Brazil, has a shortage of slots due to the lack of airport infrastructure to meet current demand. As a result, the number of new slots granted by ANAC at this airport is limited. New slots are awarded by public tender and generally only become available when they are taken from existing airlines as a result of disciplinary proceedings, or when airport capacity is increased. In the most recent distribution of slots, ANAC opened the public tender to all airlines that were qualified to bid. Airports in smaller and medium-sized markets, which are the focus of our growth strategy, do not require slots, which allows us greater flexibility in establishing our timetable when building out our route network.

In 2012 the Brazilian government also announced that as part of the incentive package, Congonhas, the São Paulo downtown airport, will be required to allocate more slots dedicated to regional aviation and, in relation thereto, has ordered, through Civil Aviation Secretariat ( Secretaria de Aviação Civil ), a redistribution of these new slots in 2014.

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In early 2013, ANAC held a public consultation process to change its regulations regarding the redistribution of slots, with the aim of increasing competition between airlines. On July 22, 2014, ANAC enacted its Resolution No. 338, which benefited us by enabling us to penetrate major airports where the slots are currently concentrated with a few airline companies. In October 2014, the distribution of slots in Congonhas airport was completed and we received 26 new slots. In November 2014, we started operating 13 daily flights from Congonhas airport to some of our most profitable markets including Belo Horizonte, Porto Alegre, and Curitiba, leveraging the connectivity we have in these cities and expanding our flights available to São Paulo passengers.

Import of Aircraft into Brazil

Any civil or commercial aircraft must be certified in advance by ANAC before being imported into Brazil. Once certified, the aircraft may be imported in the same way as other goods. Following import, the importer must register the aircraft with the Brazilian Aeronautical Registry ( Registro Aeronáutico Brasileiro ).

Registration of Aircraft

Brazilian aircraft must have a certificate of registration ( certificado de matrícula ) and a valid certificate of airworthiness ( certificado de aeronavegabilidade ), both of which are issued by the RAB after technical inspection of the aircraft by ANAC. The certificate of registration establishes that the aircraft has Brazilian nationality and serves as proof of its enrollment with the aviation authority. The certificate of airworthiness, which is generally valid for 15 years from the date of ANAC’s initial inspection, authorizes the aircraft to fly in Brazilian airspace, subject to continuing compliance with certain technical requirements and conditions. An aircraft’s registration may be cancelled if the aircraft is not in compliance with the requirements for registration and, in particular, if it has failed to comply with any applicable safety requirements specified by ANAC or the Brazilian Aeronautical Code.

All information relating to the contractual status of an aircraft, including title documents, operating leases and mortgages, must be filed with the RAB in order to update public records.

Fares

Brazilian regulations allow airlines to establish their own domestic fares without prior approval from the Brazilian government or any other authority. However, ANAC regularly monitors domestic fares. In particular, under regulations published in 2010, Brazilian airlines must report their monthly prices to ANAC by the last business day of each month.

General Conditions Applicable to Air Transportation

On December 14, 2016, ANAC approved Resolution No. 400, of December 2016, which sets forth certain general conditions applicable to air transportation. Resolution No. 400 is expected to be enacted on March 14, 2017 for all flight tickets purchased on and after this date. This resolution allows airlines to charge baggage fees, which we believe will contribute to an increase on our ancillary revenue. In addition, the resolution establishes boarding documentation requirements, provides customers with a 24 hour post-purchase period to cancel a flight ticket without charge, reduces repayment periods, increases the baggage allowance, allows for free passenger name corrections on flight tickets, guarantees return tickets in the event a one-way cancellation is made in advance for a domestic flight and simplifies the return and compensation process for lost baggage.

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Restrictions on the Ownership of Shares in Air Transportation Service Providers

Under the Brazilian Aeronautical Code, at least 80% of the voting stock of a company that holds a concession to provide scheduled air transportation services must be held directly or indirectly by Brazilian citizens, and the company must be managed exclusively by Brazilian citizens. Our subsidiary Azul Linhas Aéreas Brasileiras S.A., holder of our concession, complies with these requirements. In addition, 100% of our voting stock is held by Brazilian citizens. The Brazilian Aeronautical Code also imposes restrictions on transfers of the shares of companies that hold concessions to provide scheduled air transportation services, including the following:

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all voting shares must be nominative;

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no non-voting shares may be converted into voting shares;

•

prior approval of the Brazilian aviation authorities is required for any transfer of shares (regardless of the nationality, corporate status or structure of the transferee) if the transfer relates to more than 2% of the airline’s share capital, would result in a change in control of the airline, or would cause the transferee to hold more than 10% of the airline’s share capital;

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the airline must file a detailed shareholder chart with ANAC every six months, including a list of shareholders and a list of all share transfers effected in the preceding six months; and

•

based on its review of the airline’s shareholder chart, ANAC may require that any further transfer of shares be subject to its prior approval.

These restrictions apply not only to companies that hold concessions to provide scheduled air transportation services, but also to their direct and indirect shareholders. Our subsidiaries Azul Linhas and TRIP hold concessions to provide scheduled air transportation services. These restrictions therefore apply to Azul, and in the event of any transfers of our shares, ANAC would evaluate whether or not the transferee and its shareholders comply with these requirements.

We have observed some initiatives by members of the Brazilian parliament, as recently as 2016, to amend this rule and allow participation by foreign companies of up to 100% of the voting stock. Nevertheless, and despite frequent discussion of the subject by the Brazilian Minister of Transportation, Ports and Civil Aviation, to date, efforts to amend the Brazilian Aeronautical Code in this regard have been unsuccessful.

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Environmental Regulation

Brazilian airlines are subject to various federal, state and municipal laws and regulations relating to the protection of the environment, including the disposal of waste, the use of chemical substances and aircraft noise. These laws and regulations are enforced by various governmental authorities. If an airline fails to comply with these laws and regulations it may be subject to administrative and criminal sanctions, in addition to the obligation to remediate the environmental damage and/or to pay damages to third parties. In addition, Brazilian environmental law establishes a regime of strict civil liability (i.e., irrespective of fault) as well as joint civil liability, meaning that we may be held liable for violations by any third parties whom we hire, for example, to dispose of waste. Brazilian environmental law also provides for “piercing of the corporate veil,” which imposes liability on a corporation’s controlling shareholders in order to ensure sufficient financial resources to cover environmental damage. Accordingly, we may be directly liable for any violations caused by Azul Linhas and TRIP.

We seek to comply with all environmental legislation and all requirements of public authorities in order to avoid liabilities and limit additional expenses.

Environmental Licenses

Under Brazilian law, the authority to grant environmental licenses for facilities or activities within a state, among other activities, belongs to the state authorities, unless the environmental impact would extend beyond the state border, in which case the Brazilian federal government has jurisdiction. Municipal authorities have jurisdiction over the licensing of facilities or activities that have a local impact. Each state has the power to establish specific regulations regarding environmental licensing procedures, within the scope of general guidelines established by the Brazilian government.

Most of the requests for renewal of an environmental license must be filed at least 120 days prior to its expiry. Provided that this deadline is complied with, the license is automatically extended until the environmental authority issues its decision.

The constructing, implementation, operation, expansion or enlargement, without a license, of any facility or activity that causes significant environmental impact, or the expansion of an activity in violation of an existing license, subjects the violator to various penalties, including the requirement to shut down the facility or activity and fines ranging from R$500 to R$10,000,000. These penalties would therefore apply if we were to carry out any potentially polluting activity without a valid license or in violation of the license conditions.

We seek to require our suppliers to comply with several Environmental Management System procedures and use technical audits to enforce compliance. We exercise caution in environmental matters, and reserve the right to reject goods and services from companies that do not meet our environmental protection parameters unless confirmation of compliance is received.

Gas Emissions

We are monitoring and analyzing developments regarding amendments to the Kyoto protocol and the emissions regulations in the United States and Europe. We may be required to purchase carbon credits for the operation of our business in future. Brazilian Federal Law No. 12,187/2009 (National Policy on Climate Change) is still to be regulated by specific legislation concerning the establishment of the Brazilian Emissions Reduction Market (Mercado Brasileiro de Redução de Emissões – MBRE) and the establishment of goals for the reduction of greenhouse gases.

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Waste

Brazilian law, and particularly the National Policy on Solid Waste of 2010, provides that the transportation, management and final disposal of waste matter may not cause damage to the environment or inconvenience to public health and welfare. Brazilian legislation regulates the segregation, collection, storage, transportation, treatment and final disposal of waste, and states that parties who outsource waste disposal to third party providers are jointly and severally liable with the service provider.

The administrative penalties applicable to the improper discharge of solid, liquid and gas waste, whether or not resulting in effective contamination, include, among others, embargo of the activity or civil work and fines up to R$50 million. The costs for the proper waste management will probably increase in the coming years, in view of the implementation of sectorial agreements and greater regulation.

Proper transportation, treatment and final discharge of waste depend on the waste classification for disposal. The projects are subject to prior approval by the environmental authorities. Waste treatment activities are prone to licensing.

In the context of the shared responsibility ( responsabilidade compartilhada ), the National Solid Waste Policy provides that some industrial sectors shall implement a Reverse Logistics ( Logística Reversa ) system, defined as the actions and procedures to enable the collection and recovery of solid residues, for reusing in the manufacture cycles, as well as in other destination. As stated in the applicable legislation, the Reverse Logistics systems may be implemented jointly or individually by companies.

The Reverse Logistics system shall envisage the take back of products after the consumer’s use for their reuse in the manufacture cycle or for proper final destination. Such obligation is applicable to the Company as a consumer of lubricating oil, tires etc. The reverse logistics systems of these products are currently being implemented in Brazil. Each part of the chain has specific obligations with the goal of reducing the solid residues volume and mitigating adverse impacts on human health and on the environment.

Environmental Liability

The Brazilian Federal Constitution provides for three different types of environmental liabilities: (i) civil, (ii) administrative and (iii) criminal. These liabilities may be applied separately and cumulatively. Any individual or legal entity (public or private) that directly or indirectly causes, by action or omission, any damage to the environment may be held liable for such damage, as well as for any violation of environmental regulation.

Brazil’s National Environmental Policy provides for strict civil liability for damages caused to the environment, which means that we can be held liable for any damage irrespective of fault. To establish strict liability, one simply has to demonstrate a cause-effect relationship between the polluter’s activity and the resulting damage in order to trigger the obligation to redress the environmental damage.

Public Attorneys’ offices, foundations, state agencies, state-owned companies and environmental protection associations are empowered to file public civil actions seeking compensation for environmental damages. The National Environmental Policy establishes joint liability among all the parties involved in polluting activity and that benefit directly or indirectly from it. Accordingly, the affected party or any of the other parties entitled to sue may choose to seek damages against any single responsible party, and the defendant is entitled to seek right of recourse against all other parties involved in polluting activity.

According to prevailing legal opinion in Brazil, there is no statute of limitations for claims seeking compensation for environmental damages.

Brazilian Federal Decree no. 6.514/2008 sets forth the infractions and administrative sanctions regarding the environmental matters and the federal administrative procedure to investigate these infractions. Administrative sanctions include: (i) warnings; (ii) simple fines; (iii) daily fines; (iv) seizure of the animals, products and subproducts of fauna and flora; (v) product destruction; (vi) product sales and manufacturing suspension; (vii) closure of the plant or construction; (viii) construction demolition; (ix) full or partial suspension of the activities; and (ix) restriction of rights.

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Criminal liability for environmental matters in Brazil extends to corporations as well as to individuals. If a corporation is found criminally liable for an environmental violation, its officers, directors, managers, agents or proxies may also be subject to criminal penalties if there is proof of their intent or fault in preventing the occurrence of the crime. The settlement of a civil or administrative lawsuit does not prevent criminal prosecution for the same violation. Freedom-restricting penalties (confinement or imprisonment) are reduced to right-restricting penalties, such as community service mandates. Criminal sanctions encompass imprisonment in the case of individuals, or dissolution or restriction of rights for legal entities. Fines may be replaced by an undertaking by the violator to take specific steps to redress the environmental damage, if approved by the appropriate environmental authority. Enforcement of fines may be suspended upon settlement with environmental authorities for damage redress.

Pending Legislation

The Brazilian Congress is currently discussing a draft bill that would replace the current Brazilian Aeronautical Code. This draft bill deals with matters related to civil aviation, including airport concessions, consumer protection, limitation of airlines’ civil liability, compulsory insurance, fines and an increase in the limit on foreign ownership in voting stock of Brazilian airlines from 20% to 49% (or even to 100%, as speculated from time to time).

The draft bill has been internally approved by the Brazilian House of Representatives, but is still under discussion in the Brazilian Federal Senate. If approved by the Federal Senate without relevant amendments to the approved wording submitted by the Brazilian House of Representatives, it will be sent for presidential approval. If the Brazilian civil aviation framework changes in the future, or if ANAC implements increased restrictions, our growth plans and our business and results of operations could be adversely affected. Considering that these discussions have been ongoing since 2009, and in view of the recent political changes and the reconfiguration of the Brazilian Executive Branch as a result of the impeachment of former President Dilma Rousseff, it is possible that the Brazilian Aeronautical Code could be amended as early as 2017.

The revised incentive package for regional aviation, as announced on July 18, 2016 by an official note issued by the newly integrated Ministry of Transports, Ports and Civil Aviation, comprises of investments in the amount of R$450 million, starting in 2017, a sum that may be increased, by 2020, to up to R$2 billion, depending on the availability of funds to the Brazilian Federal Government. This represents a substantial decrease from the investment amounts initially announced in 2012. Also, the number of regional airports which shall benefit from these investments has also decreased and the criteria to select the “priority target” airports considers, in addition to the infrastructure or developmental needs of a certain region, the potential profitability of the commercial airlines flying to these destinations.

Aircraft Repossession

On March 1, 2012, Brazil ratified the Cape Town Convention, which created a system of international registration of legal interests in aircraft and engines. This convention has been ratified and published by Presidential Decree No. 8,008, dated May 15, 2013, and was regulated by ANAC through Resolution No. 309, of March 18, 2014.

The Cape Town Convention is intended to standardize transactions involving movable property. The treaty creates international standards for registration of ownership, security interests (liens), leases and conditional sales contracts, as well as various legal remedies for default in financing agreements, including repossession and provisions regarding how the insolvency laws of the signatory states will apply to registered aircraft and engines. The Convention provides specific remedies such as the International Deregistration Power of Attorney, which allows recovery of the aircraft in case of default and insolvency. The RAB has been appointed as the responsible authority regarding the international registry in Brazil.

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Government Insurance

In response to substantial increases in insurance premiums to cover risks related to terrorist attacks following the events of September 11, 2001 in the United States, the Brazilian government enacted Law No. 10,744 of 2003, authorizing the government to assume civil liability to third parties for any injury to goods or persons, whether or not passengers, caused by terrorist attacks or acts of war against Brazilian aircraft operated by Brazilian airlines in Brazil or abroad. This statutory coverage is limited to an amount of US$1 billion. In addition, under the abovementioned legislation, the Brazilian government may, at its sole discretion, suspend this assumption of liability at any time, provided that it gives seven days’ notice of the suspension. Brazil is currently the sole jurisdiction worldwide still providing such statutory coverage to its registered fleet.

We maintain all other mandatory insurance coverage for each of our aircraft and additional insurance coverage as required by lessors. See “Business—Insurance.”

U.S. and International Regulation

Operational Regulation

The airline industry is heavily regulated by the U.S. government. Two of the primary regulatory authorities overseeing air transportation in the United States are the DOT and the FAA. The DOT has jurisdiction over economic issues affecting air transportation, such as unfair or deceptive competition, advertising, baggage liability and disabled passenger transportation. The DOT has authority to issue permits required for airlines to provide air transportation. We hold an open skies foreign air carrier DOT permit authorizing us to engage in scheduled air transportation of passengers, property and mail to and from certain destinations in the United States.

The FAA is responsible for regulating and overseeing matters relating to air carrier flight operations, including airline operating certificates, aircraft certification and maintenance and other matters affecting air safety. The FAA requires each commercial airline to obtain and hold an FAA air carrier certificate and to comply with Federal Aviation Regulations 129 and 145. This certificate, in combination with operations specifications issued to the airline by the FAA, authorizes the airline to operate at specific airports using aircraft approved by the FAA. As of the date of this prospectus, Azul Linhas has FAA operations specifications approved as Part 129 to use Airbus A330-200 in scheduled flights to the U.S. We have also obtained the necessary FAA authorization to fly to Fort Lauderdale and Orlando. We hold all necessary operating and airworthiness authorizations, certificates and licenses and are operating in compliance with applicable DOT, FAA and applicable international regulations, interpretations and policies.

Customs and Border Protection

Our service to the U.S. is also subject to U.S. Customs and Border Protection, or CBP (a law enforcement agency that is part of the U.S. Department of Homeland Security), immigration and agriculture requirements and the requirements of equivalent foreign governmental agencies. Like other airlines flying international routes, from time to time we may be subject to civil fines and penalties imposed by CBP if un-manifested or illegal cargo, such as illegal narcotics, is found on our aircraft. These fines and penalties, which in the case of narcotics are based upon the retail value of the seizure, may be substantial. We have implemented a comprehensive security program at our airports to reduce the risk of illegal cargo being placed on our aircraft, and we seek to cooperate actively with CBP and other U.S. and foreign law enforcement agencies in investigating incidents or attempts to introduce illegal cargo.

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Security Regulation

The TSA was created in 2001 with the responsibility and authority to oversee the implementation, and ensure the adequacy, of security measures at airports and other transportation facilities in the United States. Since the creation of the TSA, airport security has seen significant changes including enhancement of flight deck security, the deployment of federal air marshals onboard flights, increased airport perimeter access security, increased airline crew security training, enhanced security screening of passengers, baggage, cargo and employees, training of security screening personnel, increased passenger data to CBP and background checks. Funding for passenger security is provided in part by a per enplanement ticket tax (passenger security fee) of US$2.50 per passenger flight segment, subject to a US$5 per one-way trip cap. The TSA was granted authority to impose additional fees on air carriers if necessary to cover additional federal aviation security costs. Pursuant to its authority, the TSA may revise the way it assesses this fee, which could result in increased costs for passengers and/or us. We cannot forecast what additional security and safety requirements may be imposed in the future in the United States or in the EU, or the costs or revenue impact that would be associated with complying with such requirements. The TSA also assess an Aviation Security Infrastructure Fee on each airline.

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INDUSTR Y

Overview

Despite the recent Brazilian economic recession, we believe Brazil remains one of the strongest emerging economies in the world. Marked improvements in Brazil’s economic prosperity from 2004 to 2014 have led to growth in the Brazilian middle class. According to Brazilian federal government studies, between 2003 and 2013, approximately 45 million people entered the middle class and an additional 13 million people entered the upper income classes. According to information provided by the World Bank, from 2002 to 2015, Brazilian nominal GDP / capita in U.S. dollar terms increased from approximately $2,806 to approximately $8,539, and is projected to reach approximately $15,267 by 2031 according to the Centre for Economics and Business Research, or CEBR. Brazil was named the seventh largest national economy in the world on a purchasing power parity basis by the World Bank in 2015. We believe the past growth in the Brazilian economy has driven higher demand for air transport, both for leisure and business travel.

In Brazil, air transportation has historically been affordable strictly for the country’s higher income segment, resulting in a comparatively low level of air travel. We believe that air transportation in Brazil will increase significantly as it offers a viable, convenient and affordable alternative to other modes of transport, especially bus and car. Long-distance travel alternatives in Brazil are limited, given that there is no interstate rail system and road infrastructure is poor, especially in more sparsely populated regions. Even though Brazil boasts one of the largest rail networks by length, the Brazilian rail network generally lacks passenger transportation, making interstate bus service the most viable alternative to air travel. We believe that, compared with other regions, long-distance bus travel in Brazil is more expensive, significantly more inconvenient given poor infrastructure quality, and less safe. Furthermore, Brazil’s relatively high prices of automobiles, automotive fuel and tolls make driving a less cost-efficient mode of transport when compared to other regions. According to our estimates, a trip by bus from Viracopos to Salvador would take 15 times as long (30 hours) and cost approximately 15% more than a one-way air ticket purchased four weeks in advance for the same route. Despite the significant growth in air travel in Brazil over the last decades, we believe that there is still significant upside potential for bus passengers to switch to low-fare air transport.

Air travel per capita still remains relatively low in Brazil despite significant growth in the aviation market. From 2005 to 2016, the number of passengers in the domestic market increased by 130%. In 2016, passenger growth in the domestic market was affected by the Brazilian economic recession, resulting in a negative growth of 7.8%. Brazil, which is geographically similar in size to the continental United States, is the fourth largest market for domestic passengers, and is expected to reach 122.4 million domestic passengers in 2017, an increase of 33.7 million passengers from 88.7 million in 2016, according to IATA. According to ANAC, there were 90.0 million domestic enplanements and 6.0 million international enplanements by Brazilian airlines in 2013, for a total population of approximately 201 million, according to the IBGE. In contrast, according to the U.S. Department of Transportation, the United States had approximately 696.2 million domestic enplanements and approximately 199.3 million international enplanements in 2015, out of a total population of approximately 316 million, based on the most recent U.S. Census.

The recent growth in the Brazilian middle class led to significantly increased demand for international air travel by Brazilians. As air transportation has become more affordable, Brazilians are allocating a larger portion of their disposable income to international travel. The number of domestic revenue enplanements in Brazil has grown from 43.2 million in 2006 to 88.7 million in 2016. In terms of domestic revenue passenger kilometers, the industry’s passenger traffic has grown from 40.6 billion RPKs in 2006 to 89.0 billion RPKs in 2016. Available domestic capacity in this same period grew from 57.3 billion ASKs in 2006 to 111.2 billion ASKs in 2016. Domestic industry load factors, calculated as RPKs divided by ASKs, ended 2016 at 80.0%. The table below shows the figures of domestic industry passenger traffic and available capacity for the periods indicated:

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	At December 31,
	2016		2015		2014		2013		2012
	(in millions, except percentages)
Available seat kilometers		111,236		118,220		117,053		115,907		119,338
Available seat kilometers— growth ⁽¹⁾		(6.0)%		1.0%		1.0%		(2.9)%		2.8%
Revenue passenger kilometers		89,012		94,372		93,333		88,244		87,047
Revenue passenger kilometers—growth ⁽¹⁾		(5.7)%		1.1%		5.8%		1.4%		6.9%
Load factor		80.0%		79.8%		79.7%		76.1%		72.9%

Source : ANAC, Advanced Comparative Data (Dados Comparativos Avançados).

(1)	Growth percentage denotes year-over-year growth rate. For August 31 data, growth percentage denotes growth relative to January – August period as compared to the previous year.

In the latest Global Competitiveness Report (2015-2016), Brazil ranked 113 out of 144 countries in terms of “Airport Infrastructure”, evidencing the need for substantial additional airport infrastructure investments in the country. In recognition of significant opportunities to improve the quality of this infrastructure, the Brazilian government is carrying out a comprehensive plan of airport privatizations. In August 2011, the Brazilian government privatized Natal airport, which is now operated by a private consortium. In February 2012, the Brazilian government auctioned concessions for Guarulhos, Brasília and Viracopos international airports, which are being operated by three separate consortia for periods of 20 to 30 years. In November 2013, the Brazilian government also auctioned concessions for Galeão international airport, in Rio de Janeiro, and Confins international airport, in Minas Gerais, which are being operated by two separate consortia for periods of 25 and 30 years, respectively. In 2015, the Brazilian government unveiled its plans for concessions at an additional four airports: Porto Alegre, Fortaleza, Salvador and Florianópolis. Other airports are also expected to be privatized or subject to concessions in the near future. See “Regulation—Airport Infrastructure.”

Market Environment

Airlines in Brazil compete primarily on the basis of routes, fare levels, frequency of flights, capacity, airport operating rights and presence, service reliability, brand recognition, loyalty programs and customer service.

Our main competitors in Brazil are Gol and LATAM, which are a full-service scheduled carriers offering flights on domestic and international routes. Since 2011, the airline industry in Brazil has witnessed significant consolidation. In 2012, Lan Airlines S.A. completed the acquisition of TAM S.A. and its subsidiary TAM Linhas Aéreas S.A. to form LATAM. In 2011, Gol acquired Webjet, and in 2012 we acquired TRIP, consolidating the low-cost segment and capitalizing on financial and operational synergies from the combination. We also face domestic competition from other domestic scheduled carriers, regional airlines and charter airlines, which mainly have regional networks.

Air travel in Brazil has been historically concentrated in a limited number of large hubs located in the largest Brazilian cities. According to ANAC, the ten busiest routes accounted for over 21.4% of all domestic air passengers in 2015, while the ten busiest airports accounted for 72.4% of all passenger traffic through Brazilian airports in terms of arrivals and departures in 2015. Given this concentration of demand for air travel, most Brazilian airlines have focused on serving particular high traffic markets and, we believe, have deliberately reduced network coverage of less busy route pairs and markets. This reduction in service and focus on principal markets has created an opportunity to provide convenient air transport connectivity to underserved markets in Brazil. Furthermore, we believe that historically underserved markets, generally located in less densely-populated areas of the country, cannot be profitably served by larger gauge Boeing 737 and next-generation Airbus A320 family aircraft, which make up the principal fleets of our largest competitors, and are better served by smaller, lower trip cost Embraer E-Jets and ATR aircraft that we operate.

As the growth in the Brazilian airline sector evolves, we may face increased competition from our primary competitors and charter airlines as well as new entrants into the market who reduce their fares to attract new passengers in some of our markets.

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The table below shows the historical market shares on domestic routes, based on revenue passenger kilometers, of the main airlines in Brazil for each of the periods indicated:


	At December 31,
Domestic Market Share – RPK	2016		2015		2014		2013		2012
GOL		36.0%		35.9%		36.1%		35.4%		38.7%
LATAM		34.7%		36.7%		38.1%		39.9%		40.8%
Azul ⁽¹⁾		17.0%		17.0%		16.7%		13.2%		14.5%
Others		12.3%		10.4%		9.1%		11.6%		6.0%

Source : ANAC

(1)	TRIP’s results of operations were consolidated into our financial statements commencing November 30, 2012. Our December 31, 2012 financial and operating information include TRIP’s results of operations.

The table below shows the number of destinations served on domestic routes of the main airlines in Brazil as of the dates indicated:


	At December 31,
Number of Domestic Destinations Served	2016		2015		2014		2013		2012
Azul ⁽¹⁾		96		97		103		101		98
GOL ⁽²⁾		52		56		55		51		52
LATAM		44		46		42		42		42

Source : Innovata

(1)	The data presented at December 31, 2012 for Azul includes domestic destinations served by TRIP as well as two airports that were temporarily closed in December 2012.

(2)	On October 3, 2011, Gol acquired Webjet. The results were consolidated into Gol’s financial statements commencing November 3, 2011.

Domestically, we also face competition from ground transportation alternatives, primarily interstate bus companies. Given the absence of interstate passenger rail services in Brazil, travel by bus has traditionally been the only low-cost option for long-distance travel for a significant portion of Brazil’s population. We believe that our low-cost business model has given us flexibility to set our fares to stimulate demand for air travel for passengers who, in the past, have traveled long distances primarily by bus. In particular, the highly competitive fares we have offered for travel on our night flights, which have often been comparable to, or in some routes more economical than, bus fares for the same destinations, as well as promotional fares for selected flights during certain other time periods or when purchased in advance, provide direct competition with interstate bus companies on these routes.

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BUSINES S

Overview

We are the largest airline in Brazil in terms of departures and cities served, with 784 daily departures serving 101 destinations, creating an unparalleled network of 203 non-stop routes as of December 31, 2016. As the sole airline on 70% of our routes, we are the leading airline in 66 Brazilian cities in terms of departures and carried approximately 21 million passengers in 2016. We are a low cost carrier and have generated a PRASK premium of at least 35% relative to our main competitor since our first year of operations. We derive this PRASK premium from our network, optimized fleet, operating efficiencies and high quality product offering. Complementing our extensive domestic network, we fly to select international destinations, including Fort Lauderdale, Orlando, and Lisbon. We wholly own our loyalty program TudoAzul, a strategic revenue-generating asset, which had 7.0 million members as of December 31, 2016.

A key driver of our profitability is our management team’s extensive experience in implementing a disciplined, low cost operating model. Our optimized fleet yields lower trip costs than our main competitor. For the nine months ended September 30, 2016, our average trip cost was R$23,993, which was 29% lower than that of Gol. With the introduction of the next-generation Airbus A320neos to our fleet, we expect to maintain our market-leading low trip cost advantage. In addition, our FTEs per aircraft were the lowest in Brazil at 85 compared to 112 for Gol as of September 30, 2016. Over the past three years, we had one of the best on-time performance records among Brazilian carriers, and were recognized as the “ Most On-Time Low Cost Carrier in the World ” and the “ Third Most On-Time Airline in the World ” in 2015 by OAG.

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Our History

We were founded on January 3, 2008 by entrepreneur David Neeleman and began operations on December 15, 2008. Backed by Mr. Neeleman and other strategic shareholders such as United’s subsidiary Calfinco and Hainan, we have benefitted from our partnerships and have invested in a robust and scalable operating platform. We have a management team that effectively combines local market expertise with diversified international experience and knowledge of best practices from the United States, the largest aviation market in the world.

After less than six months of operations, we became Brazil’s third largest airline in terms of domestic market share in May 2009, according to ANAC. By December 31, 2011, we had a fleet of 45 aircraft serving more than 40 destinations throughout Brazil. Our operating fleet has grown from three Embraer E-Jets in December 2008 to a total of 123 aircraft, consisting of 74 Embraer E-Jets, 39 ATR aircraft, five next-generation Airbus A320neos, and five Airbus A330s as of December 31, 2016.

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In August 2012, we acquired TRIP, which at the time was the largest regional carrier in South America by number of destinations. We have consolidated TRIP’s results of operations into our financial statements since November 30, 2012, after receiving approval for the TRIP acquisition from ANAC. CADE approved the TRIP acquisition in March 2013. No other approvals were required in connection with the TRIP acquisition. The fleet similarity between the two airlines allowed us to integrate all of TRIP’s activities by June 2014.

The TRIP acquisition substantially increased our network connectivity, enabling us to serve 100 destinations upon completion of the acquisition and to become the leading carrier in terms of departures in 66 cities as of December 31, 2016 as well as to consolidate our position as a leader in Brazil’s fast-growing regional aviation market. As of December 31, 2016, we had the largest airline network in Brazil in terms of departures and cities served, with 784 daily departures spanning 101 destinations – an unparalleled network of 203 non-stop routes. In addition, through the TRIP acquisition, we became the leading carrier in Belo Horizonte, Brazil’s third largest metropolitan area, according to IBGE, and gained strategic landing rights at Guarulhos airport in São Paulo and Santos Dumont airport in Rio de Janeiro, complementing our main hub at Viracopos airport in São Paulo.

Leveraging the strength of the network we built over the previous years, in December 2014 we started operating international flights to Fort Lauderdale and Orlando with Airbus A330 aircraft, benefiting millions of passengers that connected throughout our network and that did not have a convenient option to travel internationally.

As part of our plans to expand globally, we have also established code-share agreements with United and TAP giving our passengers the ability to connect to more than 130 destinations worldwide, in addition to the 101 destinations we currently serve. In 2017, we intend to establish a code-share agreement with Hainan, which would enable us to provide our customers with options to travel between Brazil and China. For more information, see “—Strategic Partnerships, Alliances and Commercial Agreements.”

As part of our strategic partnership with TAP, in June 2016, we launched a non-stop flight between Viracopos airport in São Paulo and Lisbon, Portugal, the main hub of TAP, which connects more than 75 destinations, most of which are in Europe. For more information on this strategic partnership, see “—Strategic Partnerships, Alliances and Commercial Agreements—TAP.”

Organizational Structure

We operate as a holding company and own 100% of our two principal subsidiaries: (i) Azul Linhas Aéreas Brasileiras S.A., or Azul Linhas, and (ii) Canela Investments LLC, or Canela Investments. The following organizational chart sets forth, in summary form, our material direct or indirect subsidiaries as of the date of this prospectus:

LOGO

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Azul Linhas is our original operating subsidiary through which we operate all of our flight activities. Azul Linhas wholly owns Azul Finance LLC and Azul Finance 2 LLC, subsidiaries incorporated in Delaware for the purpose of acquiring next-generation Airbus A320neos from Airbus and E-Jets from Embraer. Azul Linhas also wholly owns Azul SOL LLC, a subsidiary incorporated in Delaware, through which Azul Linhas holds the option to purchase six E-Jets under an operating lease structure, and Blue Sabia LLC, a wholly-owned subsidiary incorporated in Delaware, which leases certain aircraft to Portugalia – Companhia Portuguesa de Transportes Aéreos, S.A., a subsidiary of TAP. In addition, Azul Linhas wholly owns ATS Viagens e Turismo Ltda., a subsidiary organized in Brazil, which sells travel packages offered by our Azul Viagens business unit.

We are also in the process of creating an indirect subsidiary, Encenta S.A., or Azul Uruguay. Azul Uruguay, a sociedad anónima incorporated in Uruguay will be held by Azul Linhas indirectly through a holding company, Daraland S.A. Although we currently have operations in Uruguay, Azul Uruguay will be a local airline company, acting as an Uruguayan flag carrier with local employees, which will be able to perform flights to and from Uruguay. Through Azul Uruguay, we expect to begin operating flights between Uruguay and Argentina during the second half of 2017.

Canela Investments, a limited liability company incorporated in Delaware, is the parent company of our aircraft operating companies that finance aircraft in U.S. dollars.

We either acquire aircraft using financing obtained in the United States in U.S. dollars, or in Brazil, in reais , or lease them from third parties. Each aircraft that we purchase through financing in U.S. dollars is owned by a separate subsidiary of Canela Investments. Each subsidiary of Canela Investments owns one such aircraft and leases it to Azul Linhas, whereas aircraft that we purchase through financing in reais are held directly by Azul Linhas. Aircraft that we lease from third parties under operating leases are owned by our relevant counterparty and leased to Azul Linhas.

As of December 31, 2016, our contractual fleet, which is the fleet that we contractually own or lease, totaled 139 aircraft, consisting of: (i) 13 aircraft owned by subsidiaries of Canela Investments, (ii) 26 aircraft owned directly by Azul Linhas, and (iii) 100 aircraft leased from third parties. As part of our fleet optimization efforts, in 2016, we leveraged our strategic partnerships by subleasing 15 aircraft to TAP and redelivering two aircraft that the lessor subsequently leased to TAP, see “—Strategic Partnerships, Alliances and Commercial Agreements—TAP.” As a result, as of December 31, 2016, our operating fleet, which is the fleet we operate, totaled 123 aircraft, consisting of 74 Embraer E-Jets, 39, ATR aircraft five next-generation Airbus A320neos and five Airbus A330s.

Products and Services

Our principal product is the scheduled air transportation of customers, which generates passenger ticket and non-ticket revenue. In addition, we generate revenue through our wholly-owned TudoAzul loyalty program, our cargo transportation operations, and our travel and tourism operations.

Scheduled Air Transportation

We target business travelers by offering convenient and frequent service to numerous destinations, 34 of which we served exclusively as of December 31, 2016. We also target leisure travelers with our extensive route network and our segmented pricing model, offering low fares for advance purchases. In connection with our scheduled air transportation services, we generate passenger ticket revenue and other revenue, such as passenger related ancillary revenue, cargo revenue through our Azul Cargo business, and the sale of travel packages, through our Azul Viagens business.

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Passenger Revenue

We believe our extensive network and our range of product offerings allow us to attract high-yield business travelers, who we believe make up the largest component of our ticket revenue and customers. According to ABRACORP, we held a 29% share in terms of Brazilian business-focused travel agency revenue and our average business-focused travel agency ticket price was 21% and 22% higher than those of Gol and LATAM, respectively, in 2016. By comparison, we held a disproportionately smaller market share in terms of total domestic passengers transported, as measured by RPKs at 17%, during the same period, according to ANAC, which demonstrates our competitive strength in the corporate market segment. We attribute this to our network connectivity, which provides business passengers with several connection options allowing them to more easily and conveniently reach their destinations, as well as to the fact that we are the only player in certain markets that are attractive to business travelers. Leisure travelers, by contrast, are typically more price sensitive than business travelers, but tend to be more flexible regarding flight schedules.

Passenger revenue also includes revenue derived from the sale of TudoAzul points to third parties. For more information, see “— TudoAzul Loyalty Program.”

Passenger revenue was R$5,786.8 million in 2016, R$5,575.3 million in 2015 and R$5,129.6 million in 2014, representing 86.8%, 89.1% and 88.4% of our total operating revenue, respectively.

Other Revenue

In addition to generating passenger revenue derived from the sale of tickets and TudoAzul points, we generate other revenue including ancillary revenue and revenue from our cargo transportation and travel and tourism operations. We generate ancillary revenue by charging fees for certain services, such as cancellation fees, change fees, no-show fees, call center booking fees, online booking fees and by selling travel insurance. We accommodate extra baggage at an additional cost, depending on the weight of the baggage. We also offer upgrades to our premium “Espaço Azul” seats that feature additional legroom in our domestic flights and to our “Economy Xtra,” “SkySofas” and business class seats available on our international flights serviced with Airbus A330 aircraft. Our “Economy Xtra” cabin has an additional three inches of legroom in a 2-4-2 configuration and our “SkySofas” are an innovative feature consisting of up to five rows of four economy seats with a footrest that can be raised to create a flat, sofa like, flexible space for families to sleep together more comfortably.

We also leverage our extensive route network and our strategic location at Viracopos airport, the second largest cargo airport in Brazil, according to ANAC, by offering cargo services. Our frequent point-to-point service, high reliability and on-time performance provide a significant value proposition for our cargo services. Our strategy of using spare capacity in our aircraft to carry express cargo and smaller packages further increases our efficiency. We expect our cargo business to expand as a result of our international expansion and the introduction of next-generation Airbus A320neos to our fleet, which have larger cargo capacity. We offer cargo transportation services to over 3,000 locations and we have 147 cargo stores across Brazil that offer our cargo transportation services. We transport cargo by air and hire independent third parties to transport and deliver cargo to its final destination by ground transportation. While we are liable to our customers for proper cargo delivery, our agreements with such independent third parties provide for our right of recourse against them if any casualties occur during the ground transportation.

Through our travel and tourism operations, Azul Viagens , we offer travel services, which combine airfare, ground transportation and lodging options. The travel packages we offer are either pre-built or flexible and customized and can be purchased through our website or, as of December 31, 2016, at one of the 1,350 travel agencies that offer our travel products or at one of our 31 free-standing stores.

Other revenue was R$883.1 million in 2016, R$682.5 million in 2015 and R$673.4 million in 2014, representing 13.2%, 10.9% and 11.6% of our total operating revenue, respectively.

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Route Network

We offer flights to every region in Brazil and to select international destinations. The map below shows the destinations and routes we served as of December 31, 2016.

LOGO

As of December 31, 2016, we served 101 destinations, including 96 cities across every region in Brazil, the largest number of destinations offered by a Brazilian airline. Our main hub is at Viracopos airport, located in the state of São Paulo, approximately 90 kilometers (56 miles) from the city of São Paulo. From Viracopos airport, we provided non-stop service to 52 Brazilian cities accounting for 97% of 159 daily departures from Viracopos airport, as of December 31, 2016. In April 2016, we transferred all of our operations at Viracopos airport to a new terminal, which is six times larger than the prior terminal and has a capacity of 25 million passengers per year, thus giving us significant space to expand our operations and serve Viracopos airport’s catchment area.

Our second largest hub is located at Belo Horizonte’s main airport, where we served 40 destinations and had a 63% share of that airport’s 134 daily departures as of December 31, 2016. This hub serves Belo Horizonte, which is the capital city of Minas Gerais, the third wealthiest state in Brazil, according to IBGE.

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We also recently built a regional hub in Recife, which serves 24 non-stop destinations, including a non-stop international flight to Orlando. We had a 46% share of Recife’s airport’s 75 daily departures as of December 31, 2016. Recife is one of the largest cities in the Northeast of Brazil and this regional hub allows us to increase flight connectivity within this region and internationally, making it our closest hub for direct flights to both Europe and the United States.

Our diversified network allows us to connect not only our main hubs but also strategic airports throughout Brazil located in, among other places, São Paulo (Guarulhos and Congonhas airports), Rio de Janeiro (Santos Dumont and Galeão airports), Porto Alegre, Cuiabá, Belém and Manaus.

Domestic Routes

The chart below shows the number of non-stop domestic destinations offered by us and by our competitors at select airports as of December 31, 2016:

Non-stop Domestic Destinations by Airport (December 31, 2016)

LOGO

Source: Innovata.

The table below shows our top ten cities served by average number of departures per day and the estimated population within 100 kilometers as of December 31, 2016.

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	As of December 31, 2016
Airport	Azul Average Number of Departures per Day		Estimated Population		Azul Leadership Position (departures)
Viracopos		151		6,793,996		1
Belo Horizonte (Confins)		85		4,618,899		1
Curitiba		42		3,678,704		1
Rio de Janeiro (Santos Dumont)		42		6,103,049		2
Porto Alegre		35		4,773,546		1
Recife		35		5,243,852		1
São Paulo (Guarulhos)		30		11,504,608		4
Cuiabá		28		921,848		1
Belém		16		2,947,117		2
Goiânia		18		2,851,495		1

Source :

Innovata and Azul (Based on IBGE data)

Our focus on providing a large route network with convenient service has enabled us to become the market leader in 66 cities and 85% of our routes in terms of departures, being the only operating airline in 34 cities and 70% of our routes as of December 31, 2016. By comparison, as of December 31, 2016, Gol and LATAM were leading carriers in 16 and 4 cities in Brazil, respectively.

The chart below shows the amount of cities we serve and the number of cities in which we are a market leader in terms of departures by cities served in comparison with Gol and LATAM, as of December 31, 2016:

LOGO

Source :

Innovata

*Domestic

markets only

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The map below shows the cities in which we are a market leader in terms of departures in comparison with Gol and LATAM, as of December 31, 2016:

LOGO

Our extensive network coverage allows us to offer more itineraries and connections than our competitors, which serve a significantly lower number of destinations. For instance, on the route from Ribeirão Preto to Viracopos, approximately 93% of the passengers connect at Viracopos airport to over 50 destinations served by Azul, including eight destinations where we are the only carrier. Similarly, on flights from Cuiabá (one of our focus-cities, which connects to 18 destinations in Brazil) to Viracopos, approximately 85% of the passengers are connecting passengers heading to more than 50 destinations, including eight destinations served only by us.

We believe our optimized fleet is uniquely tailored to the Brazilian market and to our growth strategy, allowing us to serve cities with different demographics ranging from large capitals to smaller cities throughout Brazil. For more information on our fleet, see “—Fleet.” As a result, we believe we effectively match capacity to demand by offering more convenient and frequent non-stop service than Gol and LATAM, which exclusively fly larger aircraft within Brazil, and we believe are limited to serving only a subset of cities profitably due to infrastructure impediments that do not affect certain of our aircraft. We believe we are effective in adjusting our capacity to meet demand by timing aircraft deliveries and maintenance schedules accordingly. We intend to continue to grow sustainably and profitably by further adding new domestic and international destinations, interconnecting the cities that we already serve and increasing frequency in existing markets.

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International Routes

Our international expansion strategy is based on connecting our strong presence in various cities in Brazil with our current long-haul international destinations of Fort Lauderdale, Orlando, Lisbon and select destinations in South America. For the year ended December 31, 2016, our international revenue represented 8.7% of our total revenue, as compared to 6.5% for the year ended December 31, 2015. We believe our main hub in Viracopos airport, which offers non-stop flights to 55 destinations and is the largest domestic hub in South America in terms of destinations served is uniquely suited to serve our international routes due to our focused domestic route structure, both in terms of passengers and overall connectivity throughout Brazil. Once in Viracopos airport, our international passengers are able to take advantage of our full domestic route structure to connect to every region in Brazil. To enhance our connectivity outside of Brazil, we have entered into code-share and frequent flyer reciprocity agreements with United and TAP, as well as 18 interline and code-share agreements with several other international carriers. In 2017, we intend to enter into a code-share agreement with Hainan. For more information on our code-share arrangements and strategic partnerships, see “—Strategic Partnerships, Alliances and Commercial Agreements.”

From Viracopos airport, we started serving Fort Lauderdale and Orlando in December 2014, and Lisbon in June 2016, with approximately one-third of passengers connecting in Viracopos airport to and from other destinations throughout our network, as of December 31, 2016. Fort Lauderdale and Orlando are two popular vacation destinations among Brazilian tourists due to the various local attractions nearby, thus allowing us to stimulate new demand for our Azul Viagens business. In addition, we believe we are able to stimulate demand from Viracopos airport’s catchment area, as more than 50% of passengers on our international flights originate from this location. For example, our flights to South and Central Florida are a more convenient option for business travelers located in the greater Campinas area, where Viracopos is located, who previously had to drive to Guarulhos airport, located more than 120 kilometers from Campinas. In December 2016, we launched a non-stop flight between Recife and Orlando, offering our customers in the Northeast region of Brazil with convenient access to Florida.

In March 2016, we established a strategic partnership with TAP, further supporting our plans to expand globally. For more information regarding our investment in TAP, see “—Strategic Partnerships, Alliances and Commercial Agreements—TAP.” As a result of this strategic partnership, in June 2016, we successfully launched a non-stop code-share flight between our and TAP’s main hubs, Viracopos and Lisbon, respectively. As of December 31, 2016, TAP served more than 75 destinations, including 10 destinations in Brazil, and was the number one European carrier serving Brazil in terms of number of seats. Our flight to Lisbon enhances our passenger connectivity between Brazil and Europe and allows our business and leisure passengers to take advantage of TAP’s network to access key destinations in Europe. Furthermore, we expect to continue taking advantage of our network connectivity by adding select destinations in South America to be served by our narrow-body aircraft. From Porto Alegre, we currently offer flights to Montevideo and Punta del Este in Uruguay, and from Belém, we currently offer flights to Cayenne, French Guiana, all served by our ATR aircraft. By March 2017, pending approval from ANAC and Argentine and Bolivian aviation authorities, as applicable, we plan to begin offering flights from Belo Horizonte to Buenos Aires, Argentina and from Cuiabá to Santa Cruz de la Sierra, Bolivia.

Customer Service

We believe that a high quality product and exceptional service significantly enhance customer loyalty and brand recognition through word-of-mouth, as satisfied customers communicate their positive experience to others. Based on this principle, we have built a strong Azul company culture focused on customer service that serves as the foundation of a differentiated travel experience. According to surveys we have conducted, as of December 31, 2016, 90% of our customers would recommend or strongly recommend Azul to a friend or relative.

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Crewmembers

Our crewmembers are specifically trained to implement our values in their interactions with our customers, particularly through being service-oriented and taking individual initiatives, focusing on providing customers with a travel experience that we believe is unique among Brazilian airlines. We strive to instill our “customer comes first” and “can do” approach in all our crewmembers, which is reflective of how we manage our business.

Product Features

We endeavor to provide our passengers with a differentiated travel experience focused on convenience and comfort. To serve this goal, we offer customers the following features:

•

a fleet younger than those of our main competitors, Gol and LATAM;

•

passenger seat selection;

•

leather seats;

•

individual entertainment screens with free live television at every seat in all our jets;

•

extensive legroom with a pitch of 30 inches or more;

•

complimentary beverage and snack service on domestic flights;

•

free bus service to certain key airports we serve (including between the city of São Paulo and Viracopos airport); and

•

four-seat “SkySofas”, offering full-length beds in certain economy class cabins.

As of December 31, 2016, our bus shuttle service between São Paulo and Viracopos airport had 135 departures per day across five different bus lines, transporting an average of over 62,000 customers monthly and featuring pre-boarding check-in services at most departure points. Our shuttle service is complimentary, and we believe that the associated cost is justified by increased customer satisfaction, targeted customer base and demand for our services.

On-Time Performance

Our commitment to operating an on-time airline with a high-quality customer experience, which we believe is unique among Brazilian airlines, has resulted in us having the best on-time performance among low cost carriers in the world and the third best on-time performance among all airlines in the world in 2015, according to OAG.

The following table sets forth certain performance-related customer service measures for the periods indicated:


	For the year ended December 31,
	2016		2015		2014
On-Time Performance ⁽¹⁾		88.9%		91.0%		89.7%
Completion Rate ⁽²⁾		99.0%		99.5%		99.3%
Mishandled Bag Rates ⁽³⁾		1.8		1.9		1.8

Source :

OAG and Azul

(1)	Percentage of our scheduled flights that were operated by us and that arrived on time (within 15 minutes).

(2)	Percentage of our scheduled flights that were operated by us, whether or not delayed (i.e., not cancelled).

(3)	Number of bags mishandled per 1,000 passengers.

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Strategic Partnerships, Alliances and Commercial Agreements

General

As part of our plans to expand globally, we have established strategic partnerships that allow us to improve our overall network, expand our international connectivity, offer more attractive benefits to our TudoAzul customers, enhance our brand and build customer loyalty and revenue. These strategic partnerships provide for expanded cooperation through commercial cooperation agreements, code-share and interline arrangements, as well as marketing initiatives, loyalty program reciprocity or benefit sharing, enhanced service levels at airports and equity and debt investments in us by our partners, or by us in our partners.

Our commercial cooperation agreements establish broad frameworks for cooperation in such areas as code-sharing, interlining, marketing, service and aircraft and engine maintenance, among others areas. Interline agreements are entered into among individual airlines to handle passengers traveling on itineraries that require multiple airlines, allowing passengers to utilize a single ticket and to check their baggage through to the passengers’ final destination. Interline agreements differ from code-share arrangements in that code-share arrangements allow airlines to identify a flight with an airline’s code even though the flight is operated by another airline, which enhances marketing and customer recognition.

We have entered into commercial cooperation agreements with United and Hainan, code-share and frequent flyer reciprocity agreements with United and TAP and 18 interline and code-share agreements with several other international carriers, including JetBlue, Etihad Airways, Air Europa, Lufthansa, Copa Airlines, and Aerolíneas Argentinas. We believe these strategic relationships allow us to increase our load factor on flights departing from Brazilian airports operated by our partners and expand our brand exposure internationally for our Brazil-based and international customers. Our code-share agreements with United and TAP allow us to sell flights to virtually all destinations served by both carriers, contributing to the growth of our international operations and offering our passengers additional connectivity beyond Brazil. Furthermore, our relationships with other carriers allow us to expand our cargo operations by offering these services beyond the locations served by our own aircraft.

As a result of these arrangements and relationships, our customers have access to more than 130 additional destinations worldwide. We believe that our strategic relationships with our partner airlines, particularly United, TAP and Hainan, provide our TudoAzul members with a broad range of attractive redemption options and allow us to leverage our TudoAzul program beyond our historical focus on domestic travel. We continue exploring joint ventures and other arrangements with our strategic partners to determine the most effective and beneficial ways to expand our business and increase profitability through these relationships.

United

On June 26, 2015, we entered into an investment agreement with Calfinco, a subsidiary of United, pursuant to which it acquired Class C preferred shares representing a 5%, non-voting economic interest in us. Such Class C preferred shares will be converted on a one-to-one basis into non-voting Class A preferred shares following the consummation of this offering. For more information, see “Principal and Selling Shareholders—United Investment Agreement.” Pursuant to this agreement, United has the right to elect one member of our board of directors so long as it retains at least 50% of the Class C preferred shares it received on the date of its investment or Class A preferred shares resulting from their conversion. United has designated a representative on our board effective as of June 26, 2015. See “Management—Board of Directors.” United is a party to our Fifth Amended and Restated Shareholders’ Agreement, which will be replaced by the Post-IPO Shareholders’ Agreement following the consummation of this offering. This new agreement will continue to provide for United’s right to elect one director, so long as they hold at least 50% of shares resulting from the conversion of Class C preferred shares that were held as of August 3, 2016. For more information, see “Management—Board of Directors” and “Description of Capital Stock—Post-IPO Shareholders’ Agreement.”

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In connection with United’s investment, we also entered into a commercial cooperation agreement with United on June 26, 2015 which governs the expanded cooperation between both of our companies with respect to certain matters, including (i) code-sharing, (ii) loyalty programs, (iii) special terms relating to passengers and cargo, (iv) marketing programs, (v) corporate accounts and sales contracts, (vi) employee interline pass travel, (vii) service levels at specific airports, and (viii) the negotiation of a commercial joint venture between us and United whereby we would share resources with United and split revenue related to specified matters relating to our and their route networks in order to optimize profitability for both us and United. To date, no such joint venture has been established and we and United continue discussing objectives, the type of joint venture, revenue sharing and other matters.

Our alliance with United enhances the reach of our network and creates additional connecting traffic, as both we and United cross sell each other’s flights on our websites. This arrangement provides customers flying on both airlines with a seamless reservations and ticketing process, including boarding pass and baggage check-in to their final destination. United is a principal member of StarAlliance, but Azul currently has no plans to join such alliance.

We expect that our overall relationship with United, including the code-sharing, commercial and other arrangements that are either in place or being discussed by us, will increase international travel by Azul customers to the United States and other international destinations that we do not serve but which are served by United. We also expect that such relationship will increase traffic of United customers to and across Brazil via our network of domestic locations beyond the limited airports served by United in Brazil.

Hainan

In February 2016, we announced we were entering into an investment agreement with Hainan pursuant to which Hainan agreed to invest US$450 million in us in exchange for a 24% economic interest in us. Due to the time needed to obtain Chinese governmental approval, Hainan’s investment was made in stages, with the initial amount made in the form of a €120 million loan to us, a portion of which was used by us to acquire TAP bonds, see “—TAP” below. In August 2016, following receipt of all Chinese governmental approvals, Hainan converted its loan into equity in accordance with its terms and completed its aggregate US$450 million investment in us, acquiring Class D preferred shares representing an aggregate 24%, non-voting economic interest in us. As a result of this investment, Hainan became our single largest preferred equity shareholder. The Class D preferred shares held by Hainan will be converted on a one-to-one basis into non-voting Class A preferred shares following the consummation of this offering on the same terms as the conversion of United’s Class C preferred shares. For more information, see “Principal and Selling Shareholders—Hainan Investment Agreement.”

Pursuant to the investment agreement with Hainan, Hainan has the right to elect three members of our board of directors, all of which were elected in October 2016. Hainan is a party to our Fifth Amended and Restated Shareholders’ Agreement, which will be replaced by the Post-IPO Shareholders’ Agreement following the consummation of this offering. This new agreement will continue to provide for Hainan’s right to elect three directors, so long as Hainan holds at least a 20% economic interest in us and owns the largest percentage of economic interest in us, taking account of TRIP’s former shareholders as a single shareholding block. For more information, see “Management—Board of Directors”. Hainan also has an interest described below with respect to our TAP bonds. See “—TAP” below.

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In connection with the Hainan investment agreement, we also entered into a commercial cooperation agreement with Hainan on March 11, 2016, which governs the expanded cooperation between both of our companies with respect to certain matters, including (i) code-sharing, (ii) loyalty programs, (iii) joint sales contracts and marketing programs and (iv) recognition of elite member benefits. As part of our fleet optimization efforts, on May 24, 2016, we transferred our aircraft orders with respect to two (out of five previously existing) future deliveries of Airbus A350s to certain Hainan affiliates. Furthermore, we are currently engaged in discussions with Hainan for a 2017 expected code-share agreement that we believe will expand our connectivity between Brazil and China. In addition, in October 2016, Hainan announced flights between China and Lisbon where we have a relationship with TAP and we believe the Hainan relationship will help us maximize our overall global network opportunities by allowing us to offer our international travelers new routes and thus capitalize on the growing passenger traffic between Brazil, Europe and China.

TAP

TAP is the national carrier of Portugal and is a leading carrier between Europe and Brazil. We have had a long relationship with TAP since our inception, with TAP affiliates in Brazil providing all of our heavy maintenance for our Embraer jets (excluding engine maintenance), representing approximately 16.7% of our total maintenance costs, as of December 31, 2016.

TAP was wholly-owned and operated by the Portuguese government until June 2015, when it was privatized and an initial controlling 61% voting stake was sold to Atlantic Gateway, SPGS, Lda., or Atlantic Gateway, an entity jointly owned by a European investor and our principal shareholder David Neeleman, who became a TAP board member. The remaining TAP interest was retained by the Portuguese government, which held a 34% voting stake, and by then existing TAP employees, which held a 5% voting stake. These original arrangements were approved by the Portuguese Civil Aviation Agency on December 23, 2016.

Following these original privatization arrangements, and subsequent to an election in Portugal that resulted in a change in the Portuguese administration, the Portuguese government decided to renegotiate the original arrangements, and in February 2016, Atlantic Gateway agreed to reduce its TAP ownership to 45%, with the employees retaining their 5% interest, and the Portuguese government increasing its ownership to 50%. These additional arrangements remain subject to final approval by the Portuguese Civil Aviation Agency and are expected to be finalized in the beginning of 2017.

In connection with the TAP privatization process, we invested €90 million in 7.5% bonds due March 2026, secured by an interest in TAP’s loyalty program, convertible at our option into newly issued TAP equity securities without any further payment by us. Under the terms of the TAP bonds, if and when they are converted, the shares to be issued will represent 6% of TAP’s total share capital and voting equity securities on a fully diluted basis, but will be entitled to enhanced economic rights, subject to customary anti-dilution provisions, to receive up to 41.25% of any TAP dividends when, as and if declared, as well as any other distributions by TAP, which would make Azul TAP’s largest equity holder by economic value. As of the date hereof, we have not made any decision to exercise the right to convert the TAP bonds held by us into TAP shares. The TAP bonds are subject to certain redemption rights by TAP if the TAP bonds are not yet converted, upon the earlier of (1) an IPO of TAP or (2) four years from issuance provided that TAP is in compliance with certain financial covenants set forth in the indenture. We have also provided Hainan with an interest in the economic value of any TAP shares we obtain. See “Related Party Transactions—Strategic Partnership with TAP.”

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In addition to our investment in TAP bonds, our relationship with TAP consists of (i) a code-share agreement providing for five weekly flights between Viracopos airport and Lisbon as a means of furthering Brazilian travel to Portugal and elsewhere in Europe via destinations served by TAP as well as into China via Hainan’s expected Lisbon-China service, (ii) further cooperation between TAP and Azul in maintenance, cargo and other areas and (iii) subleasing, for a period of six years, 15 aircraft to TAP and redelivering two aircraft that the lessor subsequently leased to TAP during the nine months ended December 31, 2016, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of the fiscal year ended December 31, 2016 to the fiscal year ended December 31, 2015—Operating income (loss)”, consisting of two Airbus A330s, nine E-Jets and six ATRs, as part of our fleet optimization strategies. We have no other formal strategic partnership or other operating agreements with TAP but are exploring other agreements and arrangements with TAP as a means of further connecting TAP and its widespread European operations with our Brazilian customers, including possible expansion of routes from Europe to Asia as a result of Hainan’s pending service to Lisbon. We are also discussing the possibility of establishing a joint venture with TAP in order to jointly explore flights between Brazil and Portugal. We plan to define the scope of this joint venture and file our proposal with CADE during the first half of 2017. We believe that such cooperation with TAP has the potential for significant synergies primarily through the joint marketing and sales of tickets and cargo for our flights as well as TAP’s flights between Brazil and Portugal.

Revenue Management

Our revenue management model is focused on effective pricing and yield management, which are closely linked to our route planning, and our sales and distribution methods.

The fares and the number of seats we offer at each fare are determined by our internally developed, proprietary, proactive yield management system and are based on a continuous process of analysis and forecasting. Past booking history, load factors, seasonality, the effects of competition and current booking trends are used to forecast demand. Current fares and knowledge of upcoming events at destinations that will affect traffic volumes are also included in our forecasting model to arrive at optimal seat allocations for our fares on specific routes. We use a combination of approaches, taking into account yields and flight load factors, depending on the characteristics of the markets served, to design a strategy to achieve the maximum revenue by balancing the average fare charged against the corresponding effect on our load factors.

Our model of fare segmentation seeks to maximize revenue per seat through dynamic inventory adjustment depending on demand. By increasing price segmentation, we are able to ensure that we continue to attract and retain high-yield business traffic including last minute seat availability for late booking business travelers, which is integral to our revenue management, as well as leisure travelers who usually pay lower fares for tickets purchased in advance.

Utilizing the appropriate aircraft for a specific market enables us to better match capacity to demand. As a result, we believe we are able to enter new markets, cater to underserved destinations with high growth potential and provide greater flight frequency than our main competitors. With this model, we optimize revenue through dynamic fare segmentation, targeting both business travelers, who appreciate the convenience of our frequent non-stop service, and cost conscious leisure travelers, many of whom are first-time or low-frequency flyers, and for whom we offer low fares to stimulate air travel and encourage advance purchases.

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TudoAzul Loyalty Program

Our wholly-owned loyalty program TudoAzul , which was launched in May 2009, aims to enhance customer loyalty and brand recognition. TudoAzul had 7.0 million members as of December 31, 2016, has been the fastest growing loyalty program in terms of members among the three largest programs in Brazil for the past three years according to information publicly available on the websites of Smiles and Multiplus, the loyalty programs of Gol and LATAM, respectively. TudoAzul members earn at least two points and up to five points per each real spent in tickets on Azul. Upon registration through our website or call center, new program members are awarded 500 bonus points. Redemptions of points for one-way tickets start at 5,000 points and go up for more expensive flights. TudoAzul also offers a points plus cash option, in which tickets can be purchased using a combination of cash and TudoAzul points. Periodically, as a promotional tool, we may offer awards for fewer than 5,000 points. We believe that with a system that awards at least as many points as reais spent, customers perceive they are also receiving a higher reward for their purchases. At the same time, we believe that the variable amount of points required to redeem awards gives us flexibility in exercising discretion over the costs we incur in relation to these redemptions.

We offer last-seat availability to TudoAzul members and have significant flexibility to price redemptions in a way that is competitive with other loyalty programs, thus helping to maximize TudoAzul ’s attractiveness. We actively manage the price of our redemptions, offering very competitive fares in points when seat availability is high and optimizing margins in peak, high-demand flights. We have also developed an exclusive, proprietary pricing system, which provides ample flexibility to price redemptions within a given flight. This allows us to sell seats using several combinations of points and money. It also allows us to customize pricing using a number of different factors, such as a member’s elite tier, membership in Clube TudoAzul , and age (allowing us to offer lower prices to infants and children). We are confident that this proprietary system offers more flexibility than those of our main competitors, therefore allowing us to create promotions, stimulate cross-sell of other TudoAzul products, and more accurately price redemptions to maximize profitability.

Each TudoAzul point expires after two years. Frequent flyers achieve “ TudoAzul Topázio ” (Topaz) status when they accumulate 4,000 qualifying points, “TudoAzul Safira” (Sapphire) status once they accumulate 8,000 qualifying points and “ TudoAzul Diamante ” (Diamond) status once they accumulate 20,000 qualifying points during a given calendar year. Topázio, Safira or Diamante status is valid during the rest of the year of qualification and the entire following year, and provides the following benefits, among others: bonus points, check-in privileges at major airports like Viracopos, Santos Dumont, Confins, Brasília and others, priority boarding, higher baggage allowances, and dedicated telephone and e-mail services.

Since the program’s inception, TudoAzul members have generally demonstrated a willingness to pay higher average fares than those paid by non-members. We believe this is in part because of high customer satisfaction, increased passenger loyalty and because many of our business travelers, who frequently purchase more expensive, last-minute tickets, are typically also TudoAzul members.

Our current TudoAzul business partners, which offer TudoAzul members options to accrue and redeem points, include financial institutions (including American Express, Itaú, Santander, Livelo (Banco do Brasil’s and Bradesco’s loyalty joint venture), Caixa, and HSBC), retailers (including Apple, Walmart and Fast Shop) and travel partners (including Hertz, Avis and Booking.com).

In September 2014, we also launched an Azul-branded credit card in partnership with Banco Itaucard S.A. In addition, in December 2015, we launched Clube TudoAzul , an innovative subscription-based product through which members pay a fixed recurring amount per month in exchange for TudoAzul points, access to promotions and other benefits. We also offer members the ability to buy points to complete the amount required for a reward, or pay a fee to renew expired points or transfer points to a different member’s account. Finally, we believe that our international flights and strategic partnerships with international carriers, including United and TAP, provide our TudoAzul members with a broad range of attractive redemption options.

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To maximize the value creation potential of TudoAzul , we have been managing the program through a separate, dedicated team since mid-2015. On a standalone basis, TudoAzul ’s gross billings totaled R$680.0 million for the year ended December 31, 2016. Given the number of exclusive destinations we operate, our network strength, the expected growth of passenger air travel, credit card penetration and usage and member loyalty in Brazil, we believe that TudoAzul is a key strategic asset for us. We plan to continue investing in TudoAzul ’s expansion and evaluating opportunities to unlock value for this strategic asset.

A sample of the key operating statistics demonstrating TudoAzul’s growth are set forth below:


	As of and for the year ended December 31,
	2016		2015		2014
Gross billings (in millions of reais )		680.0		524.6		395.3
Total members (in millions)		7.0		5.8		4.5
Total partners		77		62		33
Total points sold (in billions)		27.4		23.3		17.2

Marketing

We strive to achieve the highest marketing impact at the lowest cost through efficient and effective marketing and advertising strategies. Our marketing and advertising strategies are consistent with our low cost operating model. We believe we have been successful in building a strong brand by focusing on innovative marketing and advertising techniques rather than traditional marketing tools, such as print ads. Our marketing and advertising techniques focus on social networking tools (Facebook, Twitter, and YouTube), email, websites, mobile marketing, and generating word-of-mouth recognition of our service, including through our TudoAzul loyalty program and our visibly branded complimentary bus service between São Paulo and Viracopos airport. Our marketing and advertising strategies also involve sales and promotion campaigns with our travel partners. In addition, we increase our visibility and brand recognition by featuring Azul advertisements on the individual entertainment screens at every seat in all of our E-jets, which feature free live television on domestic flights, and by offering our onboard customers our Azul magazine (which is also a source of revenue, mainly from paid advertisements), snacks branded with our logo, Coca Cola soft drinks and seasonal free premium beer happy hours. We also build our brand by offering our business travelers with our VIP lounge in Viracopos airport. Additionally, we engage in marketing by maintaining planes in our livery painted with recognizable symbols, like the Brazilian flag, and symbols supporting important social causes, like breast cancer awareness, a social cause that we have supported through our corporate social responsibility platform since our foundation. We also place logos of key partners on our planes to generate additional revenue, such as Sky TV and Coca Cola. Furthermore, we engage in guerilla marketing campaigns (which consist of marketing activities conducted in public places, such as the airports and the aircraft that we operate) to enhance our brand recognition and provide promotions directed at our customers.

Awards

The strength of our brand has been recognized in a number of recent awards:

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Named “ Best Airline in Brazil ” in 2016 by Melhores Destinos, the largest web portal of airline fare promotions and loyalty programs in Brazil;

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Named “ Best Low Cost Carrier in South America ” in 2016 for the sixth consecutive year by Skytrax, an aviation research organization;

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Named “ Best Staff in South America ” in 2016 by Skytrax;

•

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Recognized as the “ Third Most On-Time Airline in the World ” by OAG in 2015;

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Recognized as the “ Most On-Time Low Cost Carrier in the World ” by OAG in 2015;

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Named “ Best Low Cost Carrier In The World ” in 2012 by CAPA, an independent aviation research organization;

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Named one of the “ 50 Most Innovative Companies in The World ” and “ Most Innovative Company in Brazil ” in 2011 by Fast Company, a business magazine; and

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Named one of the “ 50 Hottest Brands In The World ” in 2010 by Ad Age, a leading marketing news source.

In addition, as a result of our strong brand awareness and focus on customer service, our TudoAzul loyalty program had 7.0 million members as of December 31, 2016 and has been recognized with the following awards:

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Named “ Best Loyalty Program in Brazil in 2016” according to a survey of 25,000 readers of Melhores Destinos; and

•

Sales and Distribution

We currently sell our products through four primary distribution channels: (i) our website, (ii) our call center, (iii) 101 airport stations, (iv) 31 Azul Viagens free-standing stores, and (v) third parties such as travel agents, including through their websites. Direct internet bookings by our customers represent our lowest cost distribution channel. Approximately 87% of all sales were generated by online channels in 2016, which create significant cost savings for us. We intend to continue working to increase sales through online channels, in particular sales through our website, as these sales are more cost-efficient and involve lower distribution costs than sales through travel agencies. In conjunction with Navitaire, a provider of host reservation services and other ancillary services, including data center implementation services, network configuration and design services, we developed a direct connection to travel agencies using online portals that bypass expensive distribution through GDS, resulting in a considerably lower indirect distribution cost. This allows travel agencies to use common internet programming schemes, which have almost fixed low costs that do not vary by sales, to develop their front end, mobile and internet applications with a direct connection to our reservation system. In connection with sales booked through travel agents, we pay incentive commissions to travel agents who attain our sales targets rather than upfront commissions. We maintain a high-quality call center, staffed solely with our crewmembers, as we believe that having a high-quality call center is crucial to our culture focused on customer service. We charge a fee for reservations made through our call center to offset its operating costs.

Fleet

As of December 31, 2016, our contractual fleet totaled 139 aircraft. As part of our fleet optimization efforts, in 2016, we leveraged our strategic partnerships by subleasing 15 aircraft to TAP and redelivering two aircraft that the lessor subsequently leased to TAP. As a result, as of December 31, 2016, our operating fleet totaled 123 aircraft, comprising of 74 Embraer E-jets, 39 ATR aircraft, five next-generation Airbus A320neos, and five Airbus A330s.

Our fleet has an average age of 4.8 years, which is significantly younger than the average of 8.0 years of our main competitor. We believe operating a young fleet leads to better reliability, greater fuel-efficiency and lower maintenance costs. Our modern Embraer E-Jets seat up to 118 customers, our next-generation Airbus A320neos accommodate up to 174 passengers and our fuel-efficient ATR aircraft seat up to 70 customers, while the aircraft used by our two principal competitors in Brazil have between 144 and 220 seats. As a result, the average trip cost for our fleet of R$23,993 as of September 30, 2016 was 29% lower than that of larger Boeing 737-800 jets flown by Gol.

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In addition to leveraging the strength of our domestic network and maximizing the growth potential of our loyalty program and cargo operations, in December 2016, we began adding next-generation Airbus A320neo aircraft to our fleet with lower seat and trip costs to serve longer-haul leisure and peak hour focus-city to focus-city service. For example, on long-haul flights such as a flight between Viracopos and Recife, the trip cost flying a next-generation Airbus A320neo is approximately 4% higher than the trip cost of an E-195. However, as the next-generation Airbus A320neo has 56 more seats than the E-195, its CASK is approximately 30% lower. As a result, by adding next-generation aircraft to our fleet, we expect to maintain market-leading trip costs and to reduce our CASK, both in absolute terms and relative to our main competitors.

The following tables set forth the composition of (i) our contractual fleet, which consists of aircraft that are contractually leased or owned by us and includes 15 aircraft subleased to TAP and one aircraft that is not in service, and (ii) our operating fleet, which consists of aircraft that are being operated by us, including spare aircraft, for the periods indicated.


Total Contractual Fleet	Number of seats		As of December 31,
Total Contractual Fleet	Number of seats		2016		2015		2014
Embraer aircraft
E-190		106		17		22		22
E-195		118		64		66		59
E-175		86		0		0		5
ATR aircraft
ATR 72		68-70		46		56		53
ATR 42		46-48		0		1		8
Airbus aircraft
A320neo		174		5		0		0
A330		242-272		7		7		6

Total Contractual Fleet				139		152		153


Total Operating Fleet	Number of seats		As of December 31,
Total Operating Fleet	Number of seats		2016		2015		2014
Embraer aircraft
E-190		106		10		22		22
E-195		118		64		66		59
ATR aircraft
ATR 72		68-70		39		49		48
ATR 42		46-48		0		0		4
Airbus aircraft				5		7		5
A320neo		174		5		0		0
A330		242-272		5		7		5

Total Operating Fleet				123		144		138

Of the 139 aircraft that comprised our contractual fleet as of December 31, 2016, 39 were owned or held under finance leases or debt-financing and 100 were financed under operating leases of up to 12 years. Our finance leased aircraft and debt-financed aircraft were financed through credit facilities with different creditors, of which 17.4% was denominated in reais and 82.6% was denominated in U.S. dollars as of December 31, 2016.

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Embraer

We are the first and the only airline in Brazil to operate Embraer E-Jets. We believe that our successful launch of the Embraer E-Jets in the Brazilian market was due in part to the significant experience of most of our senior management team, who were trained in operating and maintaining E-Jet aircraft in the United States. We believe this experience provides us with a significant advantage over any competitor that may seek to reproduce our model. In addition, our decision to purchase Brazilian-made Embraer aircraft has enabled us to access competitive local aircraft financing in reais from BNDES, Brazil’s national development bank, at rates below Brazil’s CDI Rate overnight deposit rate.

We have a strong and close partnership with Embraer, which is headquartered in São José dos Campos, approximately 100 km from our headquarters in Barueri, São Paulo and approximately 150 km from our main hub at Viracopos airport. Our Embraer E-Jets have a two-by-two cabin layout with no middle seats, and our aircraft are configured to offer standard seats with 31 inches of legroom or premium seats called “Espaço Azul” with a pitch of 34 inches of legroom. Our over-wing exit seats (four per aircraft) offer a spacious 39 inches of legroom. Embraer E-Jets are fuel-efficient, with fuel consumption averaging approximately 20% less than a Boeing 737 series, according to Embraer, and thus offer significantly lower trip costs than larger narrow-body aircraft. Embraer E-Jets feature state-of the-art fly-by-wire technology, which increases operating safety while reducing pilot workload and fuel consumption.

We currently have 33 firm orders and 20 purchase options of next-generation Embraer E-Jets which are expected to replace older generation aircraft and enable us to serve high-density markets at a lower CASK compared to current generation aircraft, with deliveries expected to start in 2020.

The new generation E2s, compared to the current generation of Embraer E-Jets are expected to have 14 additional seats, accommodate up to 132 passengers and 23% lower fuel consumption per seat compared to current generation aircraft, as well as lower emissions, noise and maintenance costs, allowing us to maintain lower trip costs while reducing CASK.

ATR

We are the largest ATR operator in the world, according to ATR. ATR is the world’s largest manufacturer of 50-to-70-seat turboprop aircraft. ATR turboprop aircraft provide significantly lower operating costs than jets, with fuel consumption averaging between 25% to 40% less than a comparably-sized jet. The ATR 72-600 is the newest member of the ATR family known for its high efficiency, dispatch reliability and low fuel burn. It features a new glass cockpit, communications and flight management system. Like Embraer E-Jets, ATR aircraft have a two-by-two layout with no middle seats, and our aircraft are configured to offer 30 inches of legroom, which is comparable to our E-Jets. We began operating ATR aircraft in March 2011 for two strategic purposes: to serve short-haul direct routes between smaller cities where jet aircraft would be less profitable, and to feed customer traffic from secondary markets into our existing network.

We currently have eight firm ATR orders to be delivered between 2019 and 2012.

Airbus

We began operating the Airbus A330 with 242 to 272 seats in December 2014 and currently serve Fort Lauderdale, Orlando and Lisbon with this aircraft. According to Airbus, the A330 delivers better economics than competing aircraft and meets higher environmental standards and provides greater passenger comfort.

As part of our strategy to maintain a young and efficient fleet, we expect to add up to 63 next-generation Airbus 320neos to our fleet between late 2016 and 2023. The next-generation Airbus A320neo replaces the A320 family, featuring a new engine option and other improvements such as aerodynamic refinements, large curved winglets (sharklets), weight savings, and a rearranged cabin that accommodates up to 174 passengers with larger luggage spaces, and an improved air purification system. Our next-generation Airbus 320neos will be equipped with CFM International LEAP-1A engines and are expected to have 15% less fuel consumption and less noise production compared to the A320 series, as well as an increase in range of approximately 500 nautical miles.

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The following table shows the historical and expected growth of our operating fleet from December 31, 2010 through December 31, 2020:


	2012		2013		2014		2015		2016		2017 ⁽¹⁾		2018 ⁽¹⁾		2019 ⁽¹⁾		2020 ⁽¹⁾
Embraer E-Jets		69		78		81		88		74		69		69		69		69
ATRs		49		55		52		49		39		35		35		38		40

A320neo family		—		—		—		—		5		10		17		25		35

A330		—		—		5		7		5		7		7		7		7

Total operating fleet		118		133		138		144		123		121		128		139		151

(1)	Expected changes assuming full completion of firm orders.

Fuel

Fuel costs are our largest operating expense. Fuel accounted for 24.7%, 29.8% and 36.2% of our total operating costs for the years ended December 31, 2016, 2015, and 2014, respectively.

Aircraft fuel prices are composed of a variable and a fixed component. The variable component is set by the refinery and reflects international price fluctuations for oil and the real /U.S. dollar exchange rate. This variable component is re-set monthly in the Brazilian market, as opposed to daily in North America and Europe. The fixed component is a spread charged by the supplier and is usually a fixed cost per liter during the term of the contract.

We purchase fuel from a number of distributors in Brazil, principally from BR Distribuidora, a subsidiary of Petrobras, Air BP Brasil Ltda. and Raízen Combustíveis Ltda., all companies authorized by the National Petroleum Agency ( Agência Nacional do Petróleo , or ANP) to market products derived from oil for aviation throughout Brazil, with whom we have agreements to exclusively purchase all of our jet fuel needs in certain locations set forth in the agreements. Our agreement with BR Distribuidora sets forth that we have the obligation to exclusively purchase jet fuel from BR Distribuidora in the event BR Distribuidora installs new supply points in airports where we operate, provided that we have not already entered into a jet fuel supply agreement with another provider. Our agreements with BR Distribuidora, Air BP Brasil Ltda. Raízen Combustíveis Ltda. are in effect until May 2019, December 2018 and December 2018, respectively. For our international flights departing from outside of Brazil, we purchase fuel from local providers.

International oil prices, which are denominated in U.S. dollars, are volatile and cannot be predicted with any degree of certainty as they are subject to many global and geopolitical factors. For example, oil prices experienced substantial variances beginning in 2009 and through December 2016. Airlines often use WTI crude or heating oil future contracts to protect their exposure to jet fuel prices. In order to protect us against volatile oil prices, we have entered into derivative future contracts in the past and may do so from time to time. We also have the possibility of negotiating customized hedging products with fuel distributors, with the purpose of locking in the cost of the jet fuel we will consume in the future, and protect ourselves against any exchange rate risk.

Moreover, building on our operations team’s significant experience with the E-Jet aircraft, we operate an active fuel conservation program involving reducing taxi times, taxiing using a single engine, and managing the aircraft’s load balance, angle of attack and cruising airspeed for optimal fuel-efficiency.

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The following chart summarizes our fuel consumption and our fuel costs for the periods indicated.


	For the Year Ended December 31,
	2016		2015		2014
Liters consumed (in thousands)		880,941		906,778		789,150
Aircraft fuel (R$ in thousands)		1,560,223		1,917,606		1,955,036
Average price per liter (R$)		1.77		2.11		2.48
Percent increase (decrease) in price per liter		(16.06)%		(14.92)%		4.64%
Percent of operating expenses		24.7%		29.8%		36.2%

Airports and Other Facilities and Properties

Airports

Most of Brazil’s public airports are currently managed by INFRAERO, an airport operator wholly-owned by the Brazilian government. Brazil’s airline industry has grown significantly over the past years and, as a result, some of Brazil’s airports face significant capacity constraints.

Airlines and service providers may lease areas within federal, state or municipal airports, such as hangars and check-in counters, subject to concessions or authorizations granted by the authority that operates the airport—which may be INFRAERO, the state, the municipality or a private concession holder, as the case may be. No public bid is required for leases of spaces within airports, although INFRAERO typically conducts processes similar to a public bidding process if there is more than one applicant. In other cases, the use may be granted by a simple authorization or permission issued by the authority that operates the airport. In the case of airports operated by private entities, the use of concession areas is subject to a commercial agreement between the airline and the airport operator.

With respect to our international facilities, we have entered into lease agreements or other occupancy agreements directly with the applicable local airport authority on varying terms dependent on prevailing practice at each airport. It is customary in the airline industry to have agreements that automatically renew. Our terminal passenger service facilities of ticket counters, gate space, operations support area and baggage service offices generally have agreement terms ranging from less than one year to five years. These agreements can contain provisions for periodic adjustments of rental rates, landing fees and other charges applicable under the type of lease and the extension of the concession term. Under these agreements, we are responsible for the maintenance, insurance, utilities and certain other facility-related expenses and services.

In 2012, the Brazilian government granted concessions for the operation of Viracopos airport, Guarulhos airport and Brasília airport. All of these three airports have been receiving capital investments to expand infrastructure, including the renovation and construction of new passenger terminals, as well as aircraft parking areas. In 2013, concessions were also granted for the operation of Confins airport, in Belo Horizonte, and Galeão airport, in Rio de Janeiro. In September 2016, the Brazilian government confirmed a new concession program for the operation of airports in Porto Alegre, Salvador, Florianópolis and Fortaleza in the first half of 2017, with further discussions currently being held to expand this list to comprise of at least ten additional airports located in either state capitals or cities of regional relevance (principally, the airports in Curitiba, Recife, Belém, Vitória, Goiãnia, Cuiabá, Manaus, Maceió, São Luís and Foz do Iguaçu).

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Following the concession for the operation of Viracopos airport, our largest hub, in February 2012, a series of new investments for Viracopos airport have been made by Aeroportos Brasil , a private consortium that won the bid to operate Viracopos airport. In April 2016, Aeroportos Brasil transferred all operations to a new passenger terminal, which is approximately six times larger than the old terminal. Total investments at Viracopos airport totaled approximately R$3.0 billion between 2012 and 2016 and another R$6.5 billion is expected to be invested by 2042. According to Aeroportos Brasil , Viracopos airport is expected to reach 80 million passengers per year by 2030, which would make it the largest airport in Latin America in terms of number of passengers served. We believe this exemplifies Viracopos’ status as a major airport for the city of São Paulo due to its strategic proximity to the city and its capacity for expansion.

Our second largest hub is Confins airport, the main airport in Belo Horizonte, which concession was granted to private operators in 2013. According to the winning bid proposal, construction plans for Confins airport include a new passenger terminal, a new runway and 14 additional boarding bridges. We are the leading carrier at Confins airport with a 63% share of total departures to 40 destinations as of December 31, 2016.

In July of 2014, ANAC enacted a resolution establishing new procedures to allocate slots in airports operating at full capacity. Through such allocation, we received 26 new slots at Congonhas airport. In November 2014, we started operating 13 daily flights from Congonhas airport to some of our most profitable markets including Belo Horizonte, Porto Alegre, and Curitiba, leveraging the connectivity we have in these cities and expanding our flights available to São Paulo passengers.

We built a regional hub in Recife to increase flight connectivity within the Northeast region of Brazil. Recife has the largest GDP of Brazil’s Northeast region, according to IBGE, and is our closest Latin American hub for direct flights to both Europe and the United States. Our Recife regional hub serves 24 non-stop destinations, including a non-stop international flight to Orlando, and we had a 46% share of Recife airport’s 75 daily departures as of December 31, 2016. Our diversified network allows us to connect not only our main hubs but also strategic airports throughout Brazil, located in, among other places, São Paulo (Guarulhos and Congonhas airports), Rio de Janeiro (Santos Dumont and Galeão airports), Porto Alegre, Cuiabá and Manaus.

Other Facilities and Properties

Our primary corporate offices and headquarters are located in the city of Barueri, state of São Paulo, where we lease 7,119 square meters under two lease agreements that expire in July 2017 and February 2018. We also entered into a lease agreement for a warehouse and office complex in Fort Lauderdale, United States.

We hold concessions for three hangars at our ATR full capability maintenance center in Belo Horizonte, where we perform airframe heavy checks, line maintenance, painting and interior refurbishment of our ATR aircraft. We also own one hangar in Manaus and Cuiabá for E-Jets and ATR line maintenance. In addition, we expect to build a full capability maintenance center for our E-Jets and Airbus at Viracopos airport by the end of 2018. Our training facility for pilot and cabin crew education, UniAzul , has 71,000 square feet and four simulator bays and is located less than a mile away from Viracopos airport, our main hub. This facility provides training services both for our own crewmembers, including pilots, and for third parties on a commercial basis. At UniAzul we train all of our crewmembers, including pilots, flight attendants and maintenance technicians. As part of our extensive training program at UniAzul we operate two E-Jet flight simulators, one ATR flight simulator and one A320 flight simulator, all of them with full flight capacity, a technology we believe none of our main competitors has. We also provide training and grant access to our onsite flight simulators to third-parties, including TAP, Embraer and the Brazilian Air Force. We have plans to expand the training programs offered at UniAzul through partnerships with technical schools and universities.

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Competition

Domestic

The two largest airlines in Brazil are Gol and LATAM in terms of RPK share. Both Gol and LATAM operate similar hub-and-spoke networks, which require that passengers on many of their routes connect through the cities of São Paulo, Rio de Janeiro or Brasília. We face competition mainly from Gol and LATAM and to a lesser extent from Avianca Brasil. The principal competitive factors on these routes that are served by more than one airline are: fare pricing, total price, flight schedules, aircraft type, passenger amenities, number of routes served from a city, customer service, on-time performance, safety record and reputation, code-sharing relationships, and frequent flyer programs and redemption opportunities.

As a result of our innovative business model, which is based on stimulating demand in underserved markets, we believe we are less susceptible to the effects of fare competition involving our main competitors, which fly from the airports in the city of São Paulo. As of December 31, 2016, 24% and 15% of our domestic network overlapped with that of Gol and LATAM, respectively, while Gol’s and LATAM’s networks had an overlap of more than 80% with each other. In Viracopos airport, our primary hub, only two out of 52 domestic destinations faced direct competition from Gol or LATAM as of December 31, 2016. While Gol, LATAM or any other airline may enter the markets we currently serve exclusively or which we hold a large market share, we believe that our extensive connectivity allows us to avoid competition in numerous of the markets we serve, in particular from our competitors operating larger aircraft such as Gol and LATAM as it is more difficult to profitably serve new markets with larger aircraft. See “—Route Network.”

Before we started our operations, Gol and LATAM controlled over 90% of the Brazilian airline market in terms of RPK share. From 2008 to 2015, the Brazilian airline market has grown significantly, partially because of (i) our entry into the market, which stimulated demand, and (ii) the organic growth of the market, with more individuals using airline transportation services. As a result, despite the fact that Gol and LATAM lost market share following our entry into the market, the number of passengers transported by both airlines increased in that time period. As of December 31, 2016, we had a 17.0% market share of domestic RPKs, according to ANAC.

The following table provides details with respect to the competition faced on our top routes, based on weekly frequency as of December 31, 2016.


	At December 31, 2016
	Flights per Day
	Azul		Gol		LATAM
Viracopos—Rio de Janeiro		19		2		—
Viracopos—Belo Horizonte		13		—		—
Viracopos—Curitiba		9		—		—
Viracopos—Porto Alegre		9		—		—
Belo Horizonte—Rio de Janeiro		8		6		4
Belo Horizonte—Guarulhos		6		5		4
Belo Horizonte—Vitória		6		—		—
Viracopos—Brasília		5		—		3
Viracopos—Cuiabá		5		—		—
Viracopos—São Jose do Rio Preto		5		—		—

Source: Innovata

In addition to other airlines, our competitors also include companies catering to other forms of transportation, principally bus services. We believe that many of our fares are competitive with the cost of road travel on many of our routes, in particular the discounted fares we offer based on our yield management system for advance purchases.

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The barriers to entering the domestic market are relatively low, and we may in the future face competition from potential new market participants on any of our routes.

International

We currently are the only carrier in Viracopos airport that offers non-stop service to the United States and Europe. As we expand our international services to select international destinations, our pool of competitors may increase and we may face competition from Brazilian, American, South American and other foreign airlines that are already established in the international market and that participate in strategic alliances and code-share arrangements. In addition, non-Brazilian airlines may decide to enter or increase their schedules in the market for routes between Brazil and other international destinations, which would also drive up competition.

In 2010, ANAC approved regulations regarding international fares for flights departing from Brazil to the United States and Europe, which gradually removes the previous minimum fares. In 2010, ANAC approved the continuity of bilateral agreements providing for open skies policies with other South American countries, as well as a new open skies policy with the United States. In March 2011, Brazil also signed an open skies agreement with Europe. Although the open skies policies with the United States and Europe were initially expected to come into force in 2015 and 2014, respectively, both policies still lack the necessary approvals from the Brazilian executive branch in order to be considered and ratified by the Brazilian National Congress. These new regulations should increase the number of passengers in South America and may enable the expansion of our international services. On the other hand, we may face further competition on this expanded South American market.

Maintenance

Safety is our core value. Aircraft maintenance, repair and overhaul are critical to the safety and comfort of our customers and the optimization of our fleet utilization. Our maintenance policies and procedures are regulated by FAA, EASA and ANAC requirements, and our aircraft maintenance programs are approved by ANAC and are based on manufacturers’ maintenance planning documents and recommendations. We employ our own experienced qualified technicians to perform line maintenance services rather than relying on third-party service providers. All technicians are certified by ANAC and meet stringent qualification requirements. Our maintenance technicians undergo extensive initial and ongoing training provided by UniAzul and by our aircraft and engine manufacturers to ensure the safety and continued airworthiness of our aircraft. Our training programs are all approved by ANAC.

We have developed a technical operations organization structure and a continuous analysis and surveillance system, or CASS, aimed at achieving the highest level of safety, airworthiness, customer-worthiness, dependability, quality and cost efficiencies of our aircraft fleet. With this in mind, we have established an engineering and quality assurance department that oversees the compliance of all airworthiness requirements, and provides oversight of all maintenance activities in accordance with ANAC regulations and our CASS. Our engineering technical services set the standards and specifications for maintaining our aircraft and engines, monitor the performance reliability of the aircraft systems, engine and components, perform root cause analyses of defects, and forecast long and short maintenance activities. Our engineering and quality assurance crewmembers are trained and qualified in technical and airworthiness management with relevant aircraft type training and certification.

Aircraft maintenance and repair consists of routine and non-routine maintenance work and is divided into two general categories: line maintenance and base maintenance.

Line maintenance consists of routine, scheduled daily and weekly maintenance checks on our aircraft, including pre-flight, daily and overnight checks, any diagnostics and routine repairs and any unscheduled items on an as needed basis. All of our line maintenance is currently performed by our own experienced and certified technicians, primarily in Viracopos, Porto Alegre and Belo Horizonte, in addition to other airports we serve.

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Base maintenance consists of more complex tasks that cannot be accomplished during an overnight visit and require well equipped facilities, such as hangers. Base maintenance checks are performed following a pre-scheduled agenda and work scope for major checks. The scheduled interval for such major checks is set forth in the ANAC Approved Maintenance Program, and is based on the number of hours flown, landings and/or calendar time. Base airframe maintenance checks (which do not cover engine performance and overhaul shop visits) may normally take from one week to one month to be accomplished, depending on the manpower requirements of the work package, and typically are required approximately every 18 months. Engine performance and overhaul shop visits are performed approximately every three years.

We currently perform all base airframe maintenance checks for our ATR aircraft at our full capability maintenance facility in Belo Horizonte and outsource certain base airframe maintenance checks for our E-Jets and Airbus A330s to TAP Manutenção e Engenharia Brasil S.A., an FAA, EASA and ANAC certified maintenance, repair and overhaul provider in Brazil. We plan to outsource the base airframe maintenance checks on our next-generation Airbus A320 aircraft fleet to a qualified FAA, EASA and ANAC certified maintenance provider through a competitive bidding process.

Our strategy is to outsource all engine repair, performance restoration and overhaul shop visit maintenance to qualified third parties. As such, we have entered into the following long-term flight hour agreements with the following parties; such agreements require us to make monthly payments (except as noted for Pratt & Whitney) based on utilization and, in turn, these agreements transfer certain risks to the third party provider:

General Electric, or GE, the manufacturer of the CF34 engines installed on our E-Jet aircraft fleet—A power-by-the-hour agreement expiring in 2023 which provides for comprehensive engine repair, performance restoration, overhaul, engine condition monitoring and diagnostics management of the CF34 engine fleet. Under this agreement, GE has equipped its GE Celma plant to perform our engine maintenance in Petrópolis near Rio de Janeiro since September 2012, resulting in a significant reduction in turnaround time and engine spares inventory, and avoiding the cost of shipping engines to the United States for maintenance.

Rolls-Royce, the manufacturer of the Trent 700 engines installed on our A330 wide-body aircraft fleet—A power-by-the-hour agreement (Total Care) expiring in 2023 which provides for comprehensive engine repair, performance restoration, overhaul, engine condition monitoring and diagnostics management of the Trent 700 engine fleet.

Pratt & Whitney Canada, manufacturer of the PW127 engines installed on our ATR 72-600 aircraft fleet—A time and material contract capped at a certain amount which covers the repair and overhaul of the PW 127 engine fleet with the maintenance work being accomplished at Pratt & Whitney approved partnership facilities in Brazil.

CFM International, the manufacturer of the Leap 1A engines installed on our next-generation Airbus A320neo aircraft fleet—A power-by-the-hour twelve year agreement covering the repair, performance restoration, overhaul, engine conditioning monitoring and diagnostics management of the Leap 1A engine fleet.

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To support the maintenance of our aircraft, we have entered into component flight hour services program agreements with various industry leading specialists in the supply, exchange, repair, and lease of commercial aircraft repairable spares. These programs provide us with comprehensive inventory solutions for component repair, on-site inventory and access to spare parts exchange pools for our ATR, E-Jets, A320 and A330 aircraft fleets. Such programs allow us to optimize our component maintenance costs, improve our cash flow forecasting and achieve the high standards of component reliability required to maximize our aircraft availability. These agreements require us to make monthly payments based on flight hours, and in turn, the agreements transfer certain risks related to the supply and repair of component parts to the third-party service provider.

We have entered into the following long-term component flight hour agreements with the following parties:

ATR—An agreement expiring in 2018 which covers the component repair, on-site inventory and access to a spare parts exchange pool for our ATR72-600 aircraft fleet.

Embraer—An agreement expiring in 2022 which covers the component repair, on-site inventory and access to a spare parts exchange pool for our E-Jet aircraft fleet.

Airbus–An agreement expiring in 2028 which covers the component repair, on-site inventory and access to a spare parts exchange pool for our A320 aircraft fleet.

Lufthansa-An agreement expiring in 2019 and covers the component repair, on-site inventory and access to a spare parts exchange pool for our A330 aircraft fleet.

Safety and Quality

We are committed to the safety and security of our customers and crewmembers and are certified by the IATA Operational Safety Audit (IOSA), an internationally recognized quality and safety evaluation system designed to assess the operational management and control systems of an airline. We maintain an Operational Safety Team, divided into four departments: (i) Prevention (ii) Investigation, (iii) Operational Quality, and (iv) Security and Crisis Management and Humanitarian Assistance. All of our safety and quality team members have significant international experience in the airline industry and some of them have previously worked at international airlines and Embraer, which provides them not only with knowledge of airline safety and quality systems, but also familiarity with the fleet we operate.

The Prevention and Investigation departments are responsible for managing safety programs as conducting the Safety Report (voluntary and mandatory), the Human Factors, the Flight Data Monitoring (FDM/FOQA) and LOSA (Line Oriented Safety Audit), which maximizes reactive and proactive actions to achieve high levels of safety. All of our aircraft are included in the Maintenance Operations Quality Assurance System, a troubleshooting and health programs that monitors performance and aircraft engine trends. This department follows all activities related to the Safety Management System, or SMS, including the SMS standards established by ANAC, which follows the highest recognized safety standards in the world. Brazil is ranked in Category 1 in flight safety standards by the International Civil Aviation Organization, which is the same classification held by the United States and Canada. See “—Regulation.”

The Operational Quality department conducts audits and inspections in all operational areas in accordance with a Quality Management System. These stringent standards and requirements are key to assuring the very highest levels of safety and quality throughout the operational areas.

The Crisis Management and Humanitarian Assistance department trains and maintain a Special Assistance Team, composed of volunteers that are trained for emergency situations. This department also conducts regular drills, trainings and relevant media training along with our Communications Office.

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The Security department focuses on the protection of aviation operations against acts of unlawful interference in compliance with TSA and ANAC security protocols and is also responsible for the security of executives and VIP customers, as well as physical and electronic security at administrative and operational facilities.

We are the first airline in Brazil certified to use dual head-up displays (HUDs), an advanced display of flight, navigation or other information superimposed upon the pilot’s forward field of view, which is currently installed in most of our jets. In addition to this advanced safety feature, the majority of our fleet is equipped with electronic flight bags, an electronic information management device that helps flight crew perform flight management tasks safely. We believe we are the only airline in Brazil with onsite access to flight simulators with full flight capability. We maintain our aircraft in strict accordance with manufacturer specifications and all applicable safety regulations, perform routine daily line maintenance, and are part of the Embraer Aircraft Integrity Monitoring Program, which provides close monitoring of malfunction trends in systems and components. We also strive to comply with or exceed all health and safety standards. In pursuing these goals, we maintain an active aviation safety program, which all our personnel are expected to participate in and take an active role in the identification, reduction and elimination of hazards.

Our ongoing focus on safety and quality are reflected in the training of our crewmembers, who are provided with the appropriate tools and equipment required to perform their job functions in a safe and efficient manner. Safety in the workplace targets several areas of our operations, including flight operations, maintenance, dispatch, and station operations.

Employees

We believe that the quality of our employees, whom we refer to as crewmembers, impacts our success and growth potential. We believe we have created a strong service-oriented company culture, which is built around our values of safety, consideration, integrity, passion, innovation and excellence. We are dedicated to carefully select, train and maintain a highly productive workforce of considerate, passionate and friendly people who serve our customers and provide them with what we believe is the best flying experience possible. We reinforce our culture by providing an extensive orientation program for new crewmembers and instill in them the importance of customer service and the need to remain productive and cost efficient. Our crewmembers are empowered to not only meet our customers’ needs and say “yes” to a customer, but to also listen to our customers and solve problems.

We communicate regularly with all of our crewmembers, keeping them informed about events at our offices and soliciting feedback for ways to improve teamwork and their work environment. We conduct an annual crewmember survey and provide training for our leadership that focuses on crewmember engagement and empowerment. In addition, each of our executives adopts a city and is responsible for meeting with crewmembers on a periodic basis. Our executives are also expected to interact with our customers when traveling to obtain feedback and suggestions about the Azul experience.

We aspire to be the best customer service company in Brazil and, as a result, we believe our crewmembers are more likely to recommend us as a place to work to a friend or relative. We have good relations with our crewmembers and we have never experienced labor strikes or work stoppages.

We are focused on increasing the efficiency and productivity of our crewmembers. As of September 30, 2016, we had 85 FTEs per aircraft, compared with 112 for Gol. The following table sets forth the number of our crewmembers per category and the number of FTEs per aircraft at the end of the periods indicated:

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	At December 31,
Crewmembers	2016		2015		2014
Pilots		1,525		1,560		1,524
Flight attendants		2,150		2,161		2,097
Airport personnel		2,752		2,798		2,841
Maintenance personnel		1,724		1,790		1,764
Call center personnel		862		876		984
Others		1,298		1,348		1,291

Total		10,311		10,533		10,501

End-of-period FTEs per aircraft		85		76		76

We provide extensive training for our crewmembers that emphasizes the importance of safety. In compliance with Brazilian and international IATA safety standards, we provide training to our pilots, flight attendants, maintenance technicians, managers and administrators and customer service (airport and call center) crewmembers. We have implemented employee accountability initiatives both at the time of hiring and on an ongoing basis in order to maintain the quality of our crew and customer service. We currently operate four flight simulators, have an extensive training program at UniAzul , our training facility adjacent to Viracopos airport (see “—Airports and Other Facilities and Properties—Other Facilities and Properties” and “—Safety and Quality”).

A national union represents all airline employees in Brazil. However, we do not have a direct collective bargaining agreement with any labor unions. Binding negotiations in respect of cost of living, wage and salary increases are conducted annually between the national union and an association representing all of Brazil’s airlines. Work conditions and maximum work hours are regulated by government legislation and are not the subject of labor negotiations. In addition, we have no seniority pay escalation. Since our FTEs per aircraft is lower than that of our main competitor, any wage increases have a lower impact on us, thus making labor costs less significant to our operations. As a result, we believe our results of operations are less affected by labor costs than those of our main competitor.

Our compensation strategy is competitive and meant to retain talented and motivated crewmembers and align the interests of our crewmembers with our own. Salaries, wages and benefits paid to our crewmembers, include, among others, health care, dental care, child care reimbursement, life insurance, funeral assistance, psychosocial assistance under our Anjo Azul program, school aid (granted to expatriate executive officers only), housing allowance (granted to expatriate executive officers only), salary-deduction loans, bonuses, pension plans, transportation tickets, food allowances and meal vouchers. We believe that we have a cost advantage compared to industry peers in salaries, wages and benefits expenses due to high employee productivity measured by the average number of employees per aircraft. We also benefit from generally lower labor costs in Brazil, when compared to other countries, which is somewhat offset by lower productivity due to government requirements over employee labor conditions and taxes on payroll.

To motivate our crewmembers and align their interests with our results of operations, we provide a leadership incentive plan based on the achievement of pre-defined company performance targets ( Programa de Recompensa ). We also have established a stock option plan for our leadership that vests over a four-year period. See “Management—Stock Option and Restricted Stock Plans.”

Insurance

We maintain insurance policies as required by law and the terms of our aircraft leasing agreements. Our insurance coverage for third party and passenger liability is consistent with general airline industry standards in Brazil and we insure our aircraft against physical loss and damage on an “all risks” basis. We maintain all mandatory insurances coverage for each of our aircraft and additional insurances coverage required by lessors, although liability for war and associated acts, including terrorism, is covered by the Brazilian government. No assurance can be given, however, that the amount of insurance we carry will be sufficient to protect us from material loss. For additional information on our insurance coverage, see Note 30 to our audited consolidated financial statements.

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Corporate Social Responsibility and Environmental Initiatives

Since inception, we have sponsored several social and environmental initiatives.

We have been engaged in promoting breast cancer awareness since 2010. In addition to educating our crewmembers and local communities about breast cancer, we also have three aircraft painted in pink, the official color of the program, our crewmembers wear pink uniforms during the month of October, which is breast cancer awareness month, and we often utilize our onboard magazine to promote awareness on this cause.

We also have a Corporate Volunteer Program with approximately 1,000 currently volunteering crewmembers which is mostly engaged in social and environmental projects in Brazil. We currently engage in social projects with 12 partner organizations, including Operation Smile, an international nonprofit medical service organization providing cleft lip and palate repair surgeries to children worldwide; and Noisinho da Silva, a Brazilian non-profit organization advocating for the inclusion of disabled children in society. Through Operation Smile, in September 2016, our crewmembers flew 50 health professionals and approximately one ton of medical equipment to the state of Pará to perform approximately 50 cleft lip and palate surgeries on children. In addition to these surgeries, over 70 children who had undergone corrective surgery during our 2015 mission had reevaluation exams. In 2015 and 2016, we partnered with the non-profit organization Vaga Lume to assist communities along the Amazon River by collecting food, preparing meals, reading to children and teenagers in the community, and offering library maintenance training to regional volunteers.

In 2012, we participated in a biofuel research and development study led by Embraer, Boeing and FAPESP and completed a demonstration flight using bio kerosene during the United Nations Rio+20 conference. We also have an in-flight recycling program, and all proceeds derived from this program are invested in social causes.

Intellectual Property

We have registered or applied for registration of approximately 110 trademarks with the INPI including, among others, the trademarks “VOE AZUL,” “TUDO AZUL,” “AZUL LINHAS AÉREAS BRASILEIRAS,” “AZUL FLEX,” “AZUL PROMO,” “AZUL CARGO DOC,” and “AZUL CARGO EXPRESS.” Except for “VOE AZUL,” which has had its registration process suspended by the INPI, the other trademarks have been granted.

We have also registered several domain names with NIC.br, Brazil’s internet domain name registry, and other domain registrars, including, among others, “voeazul.com.br”, “flyazul.com” and “tudoazul.com”.

We operate software products under licenses from our vendors, including Oracle, Trax, Sabre, Navitaire, Amadeus and Comarch. Under our agreements with Embraer, ATR and Airbus we use their knowledge and proprietary information to maintain our aircraft.

Legal Proceedings

We are subject to a number of proceedings in the Brazilian judicial and administrative court systems, almost all of which relate to civil and labor law claims. We believe these proceedings are normal and incidental to the operation of a business in Brazil. We recognize provisions when (i) we have a present obligation as a result of a past event, (ii) it is probable that an outflow of resources will be required to settle the obligation, and (iii) a reliable estimate can be made of the amount of the obligation. In addition, due to IFRS accounting rules for business combinations, we are also required to record a provision for contingent liabilities originated in TRIP and which are assessed as possible loss. The assessment of the likelihood of loss includes analysis of available evidence, the hierarchy of laws, available case law, recent court rulings and their relevance in the legal system and assessment of internal and external legal counsel.

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As of December 31, 2016, we are party to approximately 6,500 civil claims of various types, in which the aggregate amount claimed is approximately R$188.3 million. We have provisioned a total of R$48.8 million in respect of these civil claims. In addition, we are party to 2,159 legal proceedings relating to labor law issues of various types, for which the aggregate amount claimed is approximately R$182.3 million. We have provisioned a total of R$22.3 million in respect of these labor law proceedings.

We are subject to five tax claims related to taxes of approximately R$20.7 million allegedly payable on imports of aircraft, flight simulators and aircraft parts. We believe, on the advice of counsel, that the chance of loss with respect to these proceedings is remote and have therefore not recorded any provisions in this regard. Additionally, we have provisioned a total of R$5.2 million with respect to four tax claims, which represent probable losses.

We are the defendant in a tax foreclosure filed by the Brazilian federal government to collect air navigation fees relating to the period from January 2014 to March 2014, in the total amount of R$79.1 million. We posted a judicial bond to cover such debts and have filed its defense, which is still pending judgment. Our attorneys consider that losses with respect to this proceeding are not probable and we have therefore not recorded any provisions in this regard.

On August 8, 2016, we filed an annulment action together with LATAM requesting the annulment of a decision issued by CADE imposing a fine of R$9.7 million to both LATAM and us because of the late merger filing by the parties notifying the existence of a code-share agreement between LATAM and TRIP in effect from 2004 until 2013. We have posted a judicial bond in the amount of R$7.7 million to guarantee our payment of this fine in the event of a decision that is adverse to us.

We believe that the outcome of the proceedings to which currently we are a party will not, individually or in the aggregate, have a material adverse effect on our financial position, results of operations or cash flows.

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MANAGEMEN T

Pursuant to our bylaws and Brazilian corporate law, we are managed by a board of directors ( Conselho de Administração ) and a board of executive officers ( Diretoria ). In addition, our bylaws also provide for the establishment of a non-permanent fiscal council ( Conselho Fiscal ), a permanent audit committee ( Comitê de Auditoria ), compensation committee ( Comitê de Remuneração ) and corporate governance committee ( Comitê de Governança ). We are also subject to certain rules related to our management pursuant to the regulations of Level 2 segment of BM&FBOVESPA, as described further below.

Board of Directors

Our board of directors is responsible for, among other things, establishing our overall strategy and general business policies, supervising management, electing and removing our executive officers, and appointing our independent auditors. Our bylaws determine that our board of directors shall be composed of five to 14 members.

The members of our board of directors are elected at a shareholders’ meeting in accordance with the terms and conditions of our bylaws, Brazilian corporate law, Fifth Amended and Restated Shareholders’ Agreement, dated August 3, 2016, entered into by and among holders of our common shares and preferred shares, and the regulations of the Level 2 segment of BM&FBOVESPA. The members of our board of directors are elected for terms of two consecutive years and can be re-elected and removed at any time by our shareholders at a shareholders’ meeting. In addition, pursuant to our bylaws, the chairman of the board of directors will be appointed by our shareholders at a general shareholders’ meeting.

Pursuant to Brazilian corporate law, holders of preferred shares (with no voting rights or restricted voting rights) representing at least 10% of the total capital stock have the right to elect one member to the board of directors, except if the bylaws of the company already provide the right of holders of preferred shares to elect one member of the board of directors. Pursuant to our bylaws, holders of our preferred shares have the right to elect two members to the board of directors in a separate voting process. In addition, minority shareholders whose interest in our common shares represent a minimum of 15% of our total voting capital stock have the right to elect one director in a separate voting process.

Pursuant to the Fifth Amended and Restated Shareholders’ Agreement,

•

as long as the Investors holding Class A preferred shares hold (i) equity securities that entitle them to the right to receive at least 40% of proceeds in the event of a liquidation, they will have the right to appoint two directors; and (ii) equity securities that entitle them to the right to receive at least 20% of proceeds in the event of a liquidation, they will have the right to appoint one director;

•

as long as TRIP’s former shareholders hold (i) more than 20% of our common shares, they will have the right to appoint three directors among them as a single shareholding block; (ii) between 10% and 20% of our common shares, they will have the right to appoint two directors; and (iii) between 5% and 10% of our common shares, they will have the right to appoint one director;

•

as long as Calfinco holds at least 50% of the Class C preferred shares that were held by Calfinco as of August 3, 2016, Calfinco will have the right to appoint one director;

•

as long as Hainan holds (i) at least 20% of the economic interest in the Company and owns the largest percentage of economic interest in the Company, taking account of TRIP’s former shareholders as a single shareholding block, Hainan will have the right to appoint three directors; (ii) at least a 10% economic interest in the Company, Hainan will have the right to appoint two directors; and (iii) between 5% and 10% of the economic interest in the Company, Hainan will have the right to appoint one director; and

•

the remaining directors must be appointed by David Neeleman, provided that at least two directors must be independent, according to the regulations of the Level 2 segment of BM&FBOVESPA and the CVM rules of independence, and the majority of the directors must be Brazilian citizens, to the extent required by applicable Brazilian law or governmental authorities.

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Currently, our board of directors is composed of 13 members, elected in accordance with the Fifth Amended and Restated Shareholders’ Agreement, two of whom were appointed by the Investors holding Class A preferred shares, three of whom were appointed by TRIP’s former shareholders, one of whom was appointed by Calfinco, three of whom were appointed by Hainan, and four of whom were appointed by David Neeleman. Eleven members of our board of directors are independent members, according to the regulations of the Level 2 segment of BM&FBOVESPA and the CVM rules of independence. On October 21, 2016, ten of the members of our board of directors were re-elected and three were newly appointed.

Upon the effectiveness of this offering, our Fifth Amended and Restated Shareholders’ Agreement will be replaced by the Post-IPO Shareholders’ Agreement. The election of our board of directors will remain the same. For more information on the election of our board of directors, see “Description of Capital Stock—Post-IPO Shareholders’ Agreement” and “Description of Capital Stock—Voting Rights.”

Under our bylaws and in conformity with regulations of the Level 2 segment of BM&FBOVESPA, at least 20% of the members of our board of directors must be independent, and must be expressly identified as so at the time of election. Pursuant to Brazilian corporate law, members of our board of directors who are also shareholders of the company may not vote in any shareholders’ meetings or vote in any decision regarding any transaction in which there is a conflict of interest with such member.

The Level 2 segment of BM&FBOVESPA rules also require that all members of our board of directors execute a management compliance statement as a prerequisite for service on the board. Consistent with this statement, our directors are personally liable for our compliance with the terms of the Level 2 segment of BM&FBOVESPA Participation Agreement, including the Market Arbitration Chamber Rules ( Câmara de Arbitragem do Mercado ) and the Level 2 rules. For more information, see “Market Information—Corporate Governance Practices and the Level 2 segment of BM&FBOVESPA.”

All decisions made by our board of directors are made by majority vote of those members present at the relevant meeting. Pursuant to our bylaws, our board of directors is required to meet at least once each quarter, and whenever corporate interests require such meeting.

Commencing in 2017, we intend to pay our board of directors aggregate compensation of approximately US$1.4 million, excluding stock options. The lowest compensation to be received by a member of our board of directors in 2017 is expected to be US$75,000 and the highest compensation to be received by a member of our board of directors in 2017 is expected to be US$259,747.

The table below sets forth the name, title, election date, expiration date of the term of office, and the date of birth of each of the current members of our board of directors:


Name	Title	Election Date ⁽¹⁾	Mandate Term	Date of Birth
David Neeleman	Chairman	October 21, 2016	October 21, 2018	October 16, 1959
José Mario Caprioli dos Santos	Member	October 21, 2016	October 21, 2018	July 7, 1971
Sérgio Eraldo de Salles Pinto	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	September 24, 1964
Carolyn Luther Trabuco	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	April 15, 1969
Gelson Pizzirani	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	July 18, 1951
Renan Chieppe	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	April 6, 1962
Decio Luiz Chieppe	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	May 14, 1960
John Ray Gebo	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	May 19,1970
Henri Courpron	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	March 2, 1963
Michael Lazarus	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	May 20, 1955
Haoming Xie	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	September 15, 1974
Neng Li	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	October 21, 1980
Stewart Smith	Independent Member ⁽²⁾	October 21, 2016	October 21, 2018	December 4, 1946

(1)	Refers to date of most recent election.

(2)	Independent according to the regulations of the Level 2 segment of BM&FBOVESPA and the CVM rules of independence.

The business address of each member of our board of the directors is Edifício Jatobá, 8 ^th floor, Castelo Branco Office Park, Avenida Marcos Penteado de Ulhôa Rodrigues, 939, Tamboré, Barueri, São Paulo, SP 06460-040, Brazil.

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The following discussion contains summary biographical information relating to each of the members of our board of directors:

David Neeleman , a dual Brazilian and U.S. citizen, is the Chairman of our board of directors and our Chief Executive Officer and has served in these positions since he founded Azul in January 2008. Prior to Azul, Mr. Neeleman founded JetBlue, where he held the position of Chief Executive Officer from 1998 to 2007 and Chairman of the board of directors from 2002 to 2008. Mr. Neeleman’s career in the airline industry began in 1984 when he co-founded Morris Air. As president of Morris Air, he implemented the industry’s first electronic ticketing system and pioneered a home reservationist system that is now the foundation of JetBlue’s call center. Mr. Neeleman sold Morris Air in and took the electronic ticketing to Open Skies. He sold Open Skies to Hewlett Packard in 1999. Mr. Neeleman was also co-founder of WestJet Airlines and served as a member of its board of directors from 1996 to 1999. Mr. Neeleman is also part of a consortium that initially acquired a controlling interest in TAP through TAP’s privatization in 2015 and is a member of the board of directors of TAP.

José Mario Caprioli dos Santos has been a member of our board of directors since August 15, 2012. Mr. Caprioli was also our Chief Operating Officer from August 15, 2012 to February 18, 2014, when he became our Institutional Relations Officer. Mr. Caprioli was the founder of TRIP, where he served as the Chief Executive Officer from 1998 until February 2013. He is also the Chairman of the Brazilian Airlines Association (ABEAR). Mr. Caprioli holds a bachelor’s degree in business administration from Pontifícia Universidade Católica de Campinas. He also attended a specialization course on public transportation at Universidade de Campinas and a capital markets program at Columbia University.

Sérgio Eraldo de Salles Pinto has been a member of our board of directors since March 10, 2008. He is the Chief Executive Officer of the Bozano Group. Mr. Salles is also a current board member of Embraer, Mercatto Investimentos, Trapezus Asset Management, BR Investimentos, Ouro Preto Óleo e Gás and Netpoints. In addition to holding these positions, Mr. Salles served as Executive Director of Banco Meridional and was Chairman of Bozano Simonsen Securities of London. Mr. Salles holds a bachelor’s degree in economics and electrical engineering from Universidade de Brasília, a master’s degree in economics from Fundação Getúlio Vargas do Rio de Janeiro, and a master’s degree in business administration from Pontifícia Universidade Católica do Rio de Janeiro.

Carolyn Luther Trabuco has been a member of our board of directors since March 10, 2008. Ms. Trabuco is a member of the investment team at Manatuck Hill Partners. She was a Senior Vice President at Astenbeck Capital Management LLC and Phibro Trading LLC from 2009 until 2014, where she was responsible for global oil and gas equity analysis. Prior to joining Phibro, Ms. Trabuco worked at Pequot Capital Management as a senior equity research analyst focused on the global resources sector and the Latin America region from 2002 until 2009. She has worked in the financial services industry for over 20 years and has been involved with Azul since its formation in 2008. Ms. Trabuco holds a bachelor’s degree in art history from Georgetown University.

Gelson Pizzirani has been a member of our board of directors since April 30, 2012. Mr. Pizzirani was a VP of Revenue Management and Fleet Planning at LATAM from 2002 to 2007. Before joining LATAM, he held several management positions with different IT companies. Mr. Pizzirani holds a bachelor’s degree in mathematics from the Universidade do Santo André and a master’s degree in strategic management and information technology from Fundação Getúlio Vargas.

Renan Chieppe has been a member of our board of directors since August 15, 2012 and General Executive Officer of Grupo Águia Branca’s passenger transportation unit since 1994. Mr. Chieppe joined Grupo Águia Branca in 1980. He is also currently the president of the Brazilian Association of Passenger Ground Transportation Providers ( Associação Brasileira das Empresas de Transporte Terrestre de Passageiros — ABRATI ) and a member of the board of directors of VIX Logística. Mr. Chieppe also served as chairman of the board of TRIP from 2008 to 2012. In 2001, he was elected president of the Espírito Santo State Passenger Transportation Trade Association ( Sindicato de Transportes de Passageiros do Estado do Espírito Santo ), a position he held for two consecutive terms. Mr. Chieppe holds a degree in business administration from Faculdades Integradas Espírito-Santenses.

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Decio Luiz Chieppe has been a member of our board of directors since August 15, 2012. He is also an Executive Officer for Administration and Finance at Grupo Águia Branca and a member of the board of directors of Vix Logistica S.A. During his career, Mr. Chieppe has held leadership positions at all Grupo Águia Branca companies, including as an executive officer for finance and administration from 1993 through the present day and as the chief executive officer of certain Grupo Águia Branca companies from 1978 to 1993. Mr. Chieppe holds a degree in business administration from the Universidade Federal do Espírito Santo and an executive master’s degree in business administration in finance from IBMEC, a private Brazilian university. He also completed an executive skills, tools and competencies program (STC), at the J.L. Kellogg Graduate School of Management.

John Ray Gebo has been a member of our board of directors since January 28, 2016. Mr. Gebo is Senior Vice President of Alliances for United and Vice Chairman of the board of directors of the Alliant Credit Union. Mr. Gebo joined United in 2000 and has held several positions of increasing responsibility including Senior Vice President of Financial Planning and Analysis, Managing Director of Revenue Divisions Finance, Managing Director of Corporate Financial Planning, and Head of Investor Relations. Prior to joining United, Mr. Gebo worked at General Motors Corporation in manufacturing engineering. Mr. Gebo currently serves on the board of directors of Copa Holdings, S.A. He received his bachelor’s degree in mechanical engineering from the University of Texas and his master’s degree in business administration from the University of Michigan.

Henri Courpron has been a member of our board of directors since May 5, 2015. Mr. Courpron is currently the Chairman and Co-Founder of Plane View Partners, a strategic advisory firm for aviation and aerospace management and investments. Mr. Courpron is a member of the board of directors of TAP. He was the CEO of International Lease Finance Corporation (ILFC), one of the largest aircraft financing firms in the world, and President of the Aerospace Division of Seabury Aviation & Aerospace, an advisory and investment banking firm in New York focused on the aviation industry. Prior to that, Henri served a 20-year career with Airbus where he reached the position of Executive Vice President, Procurement at Airbus headquarters in Toulouse, France and held a number of other executive positions, including President and Chief Executive Officer of Airbus, North America. Mr. Courpron earned his degree in Computer Science from Ecole Nationale Supérieure d’Electrotechnique d’Electronique d’Informatique et d’Hydraulique (ENSEEIHT) in Toulouse, where he specialized in artificial intelligence.

Michael Lazarus has been a member of our board of directors since February 20, 2013. Mr. Lazarus co-founded Weston Presidio, a private equity firm focused on growth companies, in 1991 and currently serves as one of its Managing Partners. Mr. Lazarus is also a founding partner of Main Post Partners, a San Francisco based growth equity fund. Prior to the formation of Weston Presidio, he served as Managing Director and Director of the Private Placement Department of Montgomery Securities. He was previously the founding Chairman of JetBlue and served on the board of directors for the airline as well as on the boards of directors for Restoration Hardware, Morris Air, Guitar Center, Fender Musical Instrument Corp., Integro, Jimmy John’s LLC, and numerous privately held companies. Michael graduated with a bachelor’s degree in accounting from Grove City College and he is a certified public accountant in the United States.

Haoming Xie has been a member of our board of directors since October 21, 2016. Mr. Xie joined HNA Group in 1995 and has held positions of Chief Engineer of Maintenance Engineering Department, Officer Director of Security Management of HNA Group and President of Hainan Airlines. Mr. Xie graduated from Nanjing University of Aeronautics and Astronautics and majored in Aircraft Environment Control System. Mr. Xie has a multi-year experience in operations and management of civil aviation, and currently acts as Chief Operating Officer of HNA Tourism Group, Co. Ltd.

Neng Li has been a member of our board of directors since October 21, 2016. Mr. Li is the Chief Supervisor of HNA Group (International) Company Limited. Mr. Li Joined HNA in 2005 and has held several management positions in business development and international business management roles. He also participated in the management of Africa World Airlines as its Vice President and represented HNA in dealing with Africa affairs from 2011 to 2013. In 2013, Mr. Li joined HNA International and focused on HNA’s oversea investment activities. Mr. Li holds a Bachelor’s Degree in Finance from the University of Macau.

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Stewart Gordon Smith has been a member of our board of directors since October 21, 2016. Mr. Smith is Chairman of Bravia Capital since inception in 2002 with involvement in strategic decision making and sitting on the Investment Committee. Prior to joining Bravia Capital, Mr. Smith was Executive Director in DNB Bank ASA London Branch from 1984 to 2001 as Head of Aviation, Structured Financing and Equipment Leasing. Before this he was a Director of Nordic Bank until 1983 specializing in M&A work, asset financing and leasing, In 2001 and 2002 he was acting CFO of Aerospace Technologies, Inc. and over the years he has served as a Non-Executive Director of many companies engaged in aviation, transportation and related financial services. Mr. Smith holds a BA in Accounting and Finance from University of Manchester.

Board of Executive Officers

The members of our board of executive officers are our legal representatives. They are primarily responsible for the day-to-day management of our business and for implementing the general policies and directives established by our board of directors. Our board of directors is responsible for establishing the roles of each executive officer.

Pursuant to Brazilian corporate law, each member of our board of executive officers must reside and have domicile in Brazil. In addition, up to, at most, one third of the members of our board of directors may hold a position on our board of executive officers.

According to our bylaws, our board of executive officers is composed of two to seven members, who serve for two-year terms and may be reelected. Our bylaws set forth that our board of executive officers must be composed of (i) one chief executive officer; (ii) one chief financial officer, (iii) one institutional relations officer and (iv) up to four additional officers with or without specific designation. In addition, our bylaws establish that one officer must be designated the investment relations officer. Officers may serve in more than one capacity at the same time.

Our executive officers can be removed by our board of directors at any time. Pursuant to the regulations of the Level 2 segment of BM&FBOVESPA, each executive officer must, prior to taking office, sign an instrument of consent ( Termo de Anuência dos Administradores ).

Our investor relations department is located in the city of Barueri, state of São Paulo. John Rodgerson, who is also our Chief Financial Officer, was elected our Investors Relations Officer at the board of directors meeting held on March 1, 2013. The telephone number of our investor relations department is +55 (11) 4831-2880, the fax number is +55 (11) 4134-9890 and its e-mail is invest@voeazul.com.br.

The table below indicates the name, title, date of birth and date of election of each of the current members of our board of executive officers:


Name	Title	Election Date	Mandate Term	Date of Birth
David Neeleman	Chief Executive Officer	January 17, 2013	January 15, 2017	October 16, 1959
José Mario Caprioli dos Santos	Institutional Relations Officer	February 18, 2014	January 15, 2017	July 11, 1971
John Rodgerson	Chief Financial Officer Investor Relations Officer	January 17, 2013	January 15, 2017	June 11, 1976
Abhi Manoj Shah	Chief Revenue Officer	September 5, 2014	January 15, 2017	September 27, 1978
Antonoaldo Grangeon Trancoso Neves	Administrative Officer	October 20, 2014	January 15, 2017	March 05, 1975

The following discussion contains summary biographical information relating to each of the members of our board of executive officers:

David Neeleman is our Chief Executive Officer. For a summary of Mr. Neeleman’s business experience and other biographical information, see “—Board of Directors” above.

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José Mario Caprioli dos Santos is our Institutional Relations Officer. For a summary of Mr. Caprioli’s business experience and other biographical information, see “—Board of Directors” above.

John Rodgerson is our Chief Financial Officer and Investor Relations Officer. Prior to joining Azul, Mr. Rodgerson served as the Director of Planning and Financial Analysis at JetBlue from 2003 to 2008. Before JetBlue, he worked for IBM Global Services from 2001 to 2003. Mr. Rodgerson holds a bachelor’s degree in finance from Brigham Young University.

Abhi Manoj Shah is our Chief Revenue Officer and one of the founding members of Azul. Prior to joining Azul in 2008, Mr. Shah worked at JetBlue from 2004 to 2008 and at the Boeing Company from 2000 to 2004. Mr. Shah holds a bachelor’s degree in aerospace engineering from the University of Texas and a master’s degree in aerospace engineering from the University of Washington.

Antonoaldo Grangeon Trancoso Neves is the President of Azul Linhas. He is also a member of the board of directors of Anima Educação. Prior to joining Azul in early 2014, Mr. Neves served as a Partner at McKinsey, where he led the integration process of the businesses of Azul and TRIP, and has more than ten years of experience in aviation and infrastructure projects in both the private and government sectors. He was appointed by BNDES and the Civil Aviation Authority Secretary as a board member of INFRAERO from 2011 to 2012. Antonoaldo also held the position of corporate director at Cyrela, a leading real estate company in Brazil, and the position of engineer at Odebrecht, a Brazilian construction company. Antonoaldo holds an MBA from Darden Graduate School of Business Administration, a master’s degree in finance from Pontíficia Universidade Católica do Rio de Janeiro, and a bachelor’s of science degree in civil engineering from Escola Politécnica da Universidade de São Paulo.

Fiscal Council

Pursuant to Brazilian corporate law, a fiscal council is a corporate body independent from a company’s management and independent auditors. A fiscal council may be either permanent or non-permanent. Although we have not elected any fiscal council members as of the date of this prospectus, we currently have a non-permanent fiscal council as required by law, which may be installed at any time at the request of shareholders, as described below. If installed, the primary responsibilities of our fiscal council would include monitoring management activities, reviewing our financial statements each quarter, and reporting its findings to our shareholders.

The fiscal council, if installed, will be composed of five members who are residents of Brazil and their respective alternates. Under Brazilian corporate law, a non-permanent fiscal council may be installed at the request of shareholders representing at least (i) 10% of the outstanding common shares or (ii) 5% of the preferred shares and, once installed, the fiscal council will serve until the first annual shareholders’ meeting following its establishment. Pursuant to CVM rules, listed corporations with outstanding capital stock valued at more than R$150 million, such as us, may reduce these percentages to (i) 2% of the outstanding common shares or (ii) 1% of the preferred shares. In addition, each group of preferred shareholders (irrespective the percentage of shares held) and minority shareholders representing a minimum of 10% of or outstanding common shares is entitled to elect one fiscal council member and the corresponding alternate by a separate vote. In this case, our controlling shareholders may elect the same number of council members as the minority shareholders (common and preferred), plus one. The fiscal council may not include members of our board of directors or our board of executive officers, employees of controlled companies or any company from within our economic group, or relatives of our managers. Brazilian corporate law requires each fiscal council member to receive as compensation an amount equal to at least 10% of the average individual annual salary of executive officers, excluding benefits and other allowances, or profit-sharing arrangements. Fiscal council members are further required to comply with the rules of the Level 2 segment of BM&FBOVESPA.

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Compensation Committee

Our compensation committee is composed of three members who are elected by our board of directors two of which shall be independent members of the board of directors, according to the regulations of the Level 2 segment of BM&FBOVESPA and the CVM rules of independence. Our compensation committee’s principal responsibilities include: (i) reviewing corporate goals, (ii) evaluating certain executive compensation arrangements as well as the performance of key executives, and (iii) recommending compensation, incentive-compensation and stock option and restricted stock plans to the board of executive officers. The current members of our compensation committee are David Neeleman, Sérgio Eraldo de Salles Pinto and Carolyn Luther Trabuco, all of whom are directors of our company. Their mandates are for an unlimited duration, until the board of directors replaces them. As a foreign private issuer, we are not required to comply with the SEC rules applicable to compensation committees. For more information, see “Principal Differences between Brazilian and U.S. Corporate Governance Practices.”

Audit Committee

Our audit committee is composed of three members who are elected by our board of directors. The members shall be appointed for a two-year term of office, being permitted reelection, with a limit of ten consecutive years in office. Upon reaching the ten consecutive year limit, members will become eligible to serve on this committee again after three years from the end of his last term of office. The audit committee is responsible for: (i) advising our board of directors regarding the selection of independent auditors, (ii) reviewing the scope of the audit and other services provided by our independent auditors, (iii) evaluating and monitoring related party transactions and (iv) evaluating our internal controls, among other things. The members of our audit committee are Gelson Pizzirani, Decio Luiz Chieppe and Sérgio Eraldo de Salles Pinto (coordinator). Sérgio Eraldo de Salles Pinto and Gelson Pizzirani are independent members of the audit committee under applicable SEC and NYSE rules. Within one year following the completion of this global offering, we expect that all members of our audit committee will either satisfy the independence requirements of the SEC and NYSE applicable to audit committees of foreign private issuers or will qualify for an exemption under applicable rules, with the Rule 10A-3 exemption. At least one member of the audit committee will be an audit committee “financial expert” within the meaning of the rules adopted by the SEC relating to the disclosure of financial experts on audit committees in periodic filings pursuant to the Exchange Act.

Corporate Governance Committee

Our corporate governance committee was created on December 23, 2013 and is composed of three members who are elected by our board of directors. At least two members of the corporate governance committee shall be independent members of the board of directors, according to the regulations of the Level 2 segment of BM&FBOVESPA and the CVM rules of independence. The members of our corporate governance committee are David Neeleman, Michael Lazarus (coordinator) and Gelson Pizzirani. Our corporate governance committee’s principal responsibilities include: (i) recommending to the board of directors a set of corporate governance guidelines applicable to us and supervising its enforcement, (ii) reviewing and approving our code of conduct on an annual basis, (iii) reviewing and expressing its opinion about potential conflicts of interest among members of the board of directors and us, and (iv) expressing an opinion about (a) the sale or transfer of our fixed assets in amounts, in reais , equivalent to or higher than US$10.0 million, converted by the PTAX-800 rate of the day of the transaction, whenever such transactions are outside the ordinary course of business of a company operating in the same industry wherein we operate; (b) any transaction between our shareholders, officers or related parties, their respective spouses, ascendants, relatives up to the third degree, its controlling entities, or persons under common control, on the one side, and us or our subsidiaries, on the other side, whenever such transactions are outside the ordinary course of business of a company operating in the same industry wherein we operate; and (c) contracting any financial obligation not provided for in our annual plan or budget or our subsidiaries’, whose amount, in reais , is higher than US$200.0 million, converted by the PTAX-800 rate of the day of the transaction.

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Common Shares Held Directly or Indirectly by our Directors and Executive Officers

As of the date of this prospectus, David Neeleman, who is the chairman of our board of directors and our CEO, holds directly and indirectly 311,203,319 of our common shares, representing 67% of the common shares of our capital stock, José Mario Caprioli dos Santos, one of our directors and Institutional Relations Officer, indirectly holds 17,835,538 of our common shares, representing 3.01% of our capital stock. Decio Luiz Chieppe and Renan Chieppe, our directors, indirectly hold 27,700,447 of our common shares, representing 4.68% of our capital stock.

Management Compensation

Our executive officers are entitled to compensation consisting of a fixed and variable component. The monthly fixed compensation paid to our management is based on market practices and surveys prepared by an independent consulting firm. Such amounts are subject to annual adjustment. The variable component consists of bonus, stock and restricted stock options, as further described below.

Short-term variable compensation is based on targets that, if reached, entitle the officer to an annual bonus based on his or her individual performance. The targets are established at the beginning of the year based on our strategic plan. The main performance indicators considered for purposes of variable compensation are operating efficiency, financial performance, customer satisfaction, fuel efficiency, cost per ASK and the satisfaction of our crewmembers. For managers, half of the short-term variable compensation is based on our performance, and the other half is based on the individual’s performance. For officers, 75% of the short-term variable compensation is based on our performance, and 25% is based on the individual’s performance. On the other hand, our long-term variable compensation involves the grant of stock and restricted stock options. In addition, our officers receive benefits in line with market practices.

Only the independent members of our board of directors, according to the regulations of the Level 2 segment of BM&FBOVESPA and the CVM rules of independence, receive compensation for their service through either a monthly fixed amount or a fixed amount per meeting attended.

Certain of our executives receive additional benefits, such as an allowance package for school fees and housing for our expatriate executive officers. Under this package, Azul Linhas has given a guarantee of rent and other payments under three lease agreements for family housing in Brazil. In addition, our directors, officers and non-statutory officers are entitled to free airline tickets for their immediate family.

The aggregate compensation paid to our directors, executive officers and officers in the year ended December 31, 2016 was R$34.6 million, excluding stock options.

Stock Option and Restricted Stock Plans

We have stock option and restricted stock plans for key personnel, including our officers, certain managers and other key crewmembers. Beneficiaries of the plans receive options to purchase preferred shares and/or restricted units, allowing them to participate in the long-term achievements of our company through share ownership, with the aim of stimulating alignment with and commitment to achieving our corporate strategies and goals. The beneficiaries of our stock option and restricted stock plans are selected by our compensation committee.

On December 11, 2009, we established our first stock option plan, which consists of three programs:

•

The first program was established on December 11, 2009 and terminated on December 31, 2010. The options granted to each beneficiary under this first program vest in 48 equal monthly installments. Once vested, options under this program may only be exercised following either (i) the sale of our company or (ii) the pricing of an initial public offering, such as this global offering. The strike price under this program, after accounting for the stock splits that we carried out subsequent to the date of grant, is R$6.83 per preferred share. On December 11, 2009, the Compensation Committee authorized the issuance of 2,859,200 preferred shares class A options for our officers, executives and key employees.

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•

The second program, which extends to our statutory and non-statutory officers, was established on March 24, 2011. The options granted to each beneficiary under this second program vest in 48 equal monthly installments and authorized the issuance of 824,000 preferred class A options. Once vested, options under this program may only be exercised (i) annually; (ii) upon the sale of our company or (iii) upon the pricing of an initial public offering, such as this global offering. The strike price under this program, after accounting for the stock splits that we carried out subsequent to the date of grant, is R$12.88 per preferred share, which was calculated based on a valuation of our shareholders’ equity at the time. Due to the granting of additional options under this program, the Special Shareholder’s Meeting held on April 27, 2011 approved an amendment to our charter authorizing a capital increase and a limit of 3,683,200 Class A preferred shares.

•

The third program was established on April 5, 2011, authorizing the issuance of 342,800 Class A preferred shares which were remaining from the first program. The options granted to each beneficiary under this third program vest in 48 equal monthly installments. Once vested, options under this program may only be exercised following either (i) the sale of our company or (ii) the pricing of an initial public offering, such as this global offering. The strike price under this program, after accounting for the stock splits that we carried out subsequent to the date of grant, is R$12.88 per preferred share, which was calculated based on a valuation of our shareholders’ equity at the time.

As of December 31, 2016, no options have been exercised under this stock option plan.

Following the pricing of this global offering, all stock options that have vested will become exercisable, other than options that are subject to the lock-up restrictions discussed in the section of this prospectus entitled “Underwriters.”

On June 30, 2014, we established our second stock option plan. The options granted to each beneficiary under the second plan vest in four equal annual installments. Once vested, options under this program may only be exercised following either (i) the sale of Azul or (ii) the pricing of an initial public offering, such as this global offering. The strike price under this second stock option plan shall reflect the par value of our preferred shares in this global offering, decreased by a pro rata discount of 0% to 30%, depending on the date of our initial public offering, counted from the beginning of the vesting period, as follows: (i) 0-10% if our initial public offering occurs within 365 days; (ii) 10-20% if our initial public offering occurs from day 366 until day 730; (iii) 20-30% if our initial public offering occurs from day 731 to 1095; and (iv) a flat 30% if our initial public offering occurs from day 1096 until 1460.

There were three programs approved under the second stock option plan:

•

On June 30, 2014, the Compensation Committee approved the first share-based program authorizing 1,084,561 options.

•

On July 1, 2015, the Compensation Committee approved the second share-based program authorizing 313,905 options.

•

On July 1, 2016, the Compensation Committee approved the third share based program authorizing 376,686 options.

As of December 31, 2016, no options have been exercised under this second stock option plan and have a weighted average remaining contractual life of 4.5 years.

We are also in the process of establishing our third stock option plan which we expect will become effective prior to this global offering. We expect that the beneficiaries of our third stock option plan will be our statutory officers, including David Neeleman. The options granted to each beneficiary under the third plan are expected to vest in • equal annual installments. We expect that, once vested, options under this program may be exercised annually from February • to February • only following the pricing of an initial public offering, such as this global offering. The strike price under the third stock option plan is expected to be •. We expect that the third stock option plan will consist of one program:

•

On • , 2017, the Compensation Committee approved the first share-based program authorizing up to 4.5 million options.

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The table below shows, as of the date of this prospectus, the total number of stock options granted to all beneficiaries, and the number of options that have already vested, in each case after accounting for the stock splits carried out subsequent to the date of grant:


Stock Option Plans	Total Number/Amount of Stock Options Granted		Number of Stock Options Vested
First Stock Option Plan
First Program		2,516,400		2,475,438
Second Program		786,000		674,050
Third Program		328,000		290,731
Second Stock Option Plan
First Program		1,084,561		781,867
Second Program		313,905		290,731
Third Program		376,686		85,079
Third Stock Option Plan
First Program		•		•

Restricted Share Units:

On June 30, 2014, we also established our restricted stock units, or RSUs, plan. Under the restricted share units, the participants are granted a fixed monetary amount which will be converted into a quantity of Class A preferred shares equal to the monetary value in the event of an IPO. The restricted stock granted to each beneficiary under the plan vests in four equal annual installments. The beneficiaries shall only become vested in the restricted stocks to the extent that (i) the vesting periods are complied in accordance with the plan; and (ii) one of the following events occur: (a) the sale of Azul; or (b) the pricing of an initial public offering, such as this global offering. At the end of each year of the vesting period, if none of the events listed above occur, we may choose to pay the beneficiaries in cash the portion corresponding to the value of the restricted stocks already vested, at fair value and without any additions.

•

On June 30, 2014, the Compensation Committee approved the grant of R$10.2 million to the beneficiaries under the RSU.

•

On July 1, 2015, the Compensation Committee approved the grant of R$6.2 million to the beneficiaries under the RSU.

•

On July 1, 2016, the Compensation Committee approved the grant of R$7.4 million to the beneficiaries under the RSU.

Upon vesting, one RSU will entitle its beneficiary to one Class A preferred share or, post-conversion of all Class A preferred shares into preferred shares, one preferred share, as applicable. As of the date of this prospectus, no stock options or restricted stock options have been exercised.

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The table below shows, as of December 31, 2016, the total number of RSUs and the number of RSUs that have already vested and the number of RSUs that have been fully paid:


Restricted Stock Unit Plan	Granted		Vested		Paid
	(R$)		(R$)		(R$)
First Program		10,241,076		6,279,353		4,763,038
Second Program		6,180,000		2,814,209		2,327,769
Third Program		7,416,000		1,419,760		0

Directors’ and Officers’ Insurance

Our directors and officers have been covered by liability insurance since our inception. Our current directors’ and officers’ insurance policies, which we entered into on February 10, 2016, are provided by AIG Seguros Brasil S.A. and HDI Gerling Seguros Industriais S.A. These policies cover damages or costs in the event our directors or officers suffer losses as a result of a lawsuit for alleged wrongful misconduct while acting in their capacity as directors or officers. The current policies expire on February 10, 2017 and we plan to renew them on such date. In addition, we have entered into indemnity agreements with two of our directors pursuant to which we agree to indemnify and hold each of them harmless for certain losses arising out of their respective positions as directors excluding any willful misconduct, fraud or gross negligence. See “Related Party Transactions—Arrangements with Directors and Officers.”

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PRINCIPAL AND SELLING SHAREHOLDER S

The tables below show the numbers of shares and percentage ownership held by (i) each person that is a beneficial owner of 5% or more of each class of our shares, (ii) all of our executive officers and directors as a group, (iii) certain other significant shareholders and (iv) all of our other minority shareholders. To the extent that any of our directors or officers participates in the directed share program being effected concurrently with this global offering, or in the Brazilian special allocation program being effected concurrently with the Brazilian offering, the number and percentage of preferred shares that he or she owns will increase. For a discussion of the differences in voting and other rights between our common and preferred shares, see “Description of Capital Stock.”

As of the date of this prospectus, 67% of our outstanding common stock was held by one record holder in the United States and approximately 46% of our outstanding preferred shares were held by 26 record holders in the United States.

The following table shows the beneficial ownership of our capital stock as of the date of this prospectus, before this global offering, excluding any stock options outstanding:


Name	Common Shares		Percentage of Outstanding Common Shares		Total Preferred Shares		Percentage of Outstanding Preferred Shares		Percentage of Total Capital Stock		Economic Interest
David Neeleman ⁽¹⁾		311,203,319		67.00		5,719,201		4.49		53.56		7.39
Chieppe family ⁽²⁾		99,767,245		21.48		14,224,044		11.17		19.26		11.65
Caprioli family ⁽³⁾		53,511,965		11.52		7,755,392		6.09		10.35		6.34
Hainan ⁽⁴⁾		—		—		36,336,255		28.55		6.14		27.22
Bozano Group ⁽⁵⁾		—		—		15,780,193		12.40		2.67		11.82
Weston Presidio ⁽⁶⁾		—		—		11,384,563		8.94		1.92		8.53
Zweig DiMenna ⁽⁷⁾		—		—		8,248,648		6.48		1.39		6.18
TPG Growth ⁽⁸⁾		—		—		9,014,863		7.08		1.53		6.75
Calfinco ⁽⁹⁾		—		—		6,230,407		4.89		1.05		4.67
Azul HoldCo, LLC ⁽¹⁰⁾		—		—		4,819,518		3.79		0.81		3.61
Peterson Partners ⁽¹¹⁾		—		—		5,376,043		4.22		0.91		4.03
Minority Shareholders ^(12)(13)		—		—		2,208,959		1.74		0.37		1.65
Executive officers and directors ⁽¹⁴⁾		—		—		187,547		0.15		0.03		0.14

Total		464,482,529		100.00		127,285,633		100.00		100.00		100.00

(1)

Consists of shares beneficially owned by David Neeleman. The record holders of these shares are David Neeleman and Saleb II Founder 1 LLC. David Neeleman is a resident of Brazil and his address is Av. Marcos Penteado de Ulhôa Rodrigues, 939, 9 ^th floor, Edifício Jatobá, Condomínio Castelo Branco Office Park, Tamboré, Barueri, 06460-040, São Paulo, Brazil. David Neeleman is our Chairman and Chief Executive Officer. The address for Saleb II Founder 1 LLC is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle, Delaware 19801.

(2)

Consists of shares beneficially owned by Renan Chieppe and Decio Luiz Chieppe. The record holders of these shares are Trip Participações S.A., Trip Investimentos Ltda. and Rio Novo Locações Ltda. The Chieppe family will sell shares held through Trip Participações S.A., and Rio Novo Locações Ltda. in this offering, assuming that the underwriters’ option to purchase additional shares is exercised in full. The address for Trip Participações S.A. is Rua José Alexandre Buaiz, 300, 17 e 18 andares, Enseada do Suá, CEP 29050-545, Vitória, Espírito Santo, Brazil. The address for Trip Investimentos Ltda. is Rodovia BR 262, km 5, s/n, CEP 29145-901, Cariacica, Espírito Santo, Brazil. The address for Rio Novo Locações Ltda. is Rodovia BR 262, Km 6,3, Sala 208, 29.157-405, Cariacica, Espírito Santo, Brazil. Renan Chieppe and Decio Luiz Chieppe are residents of Brazil and their address is Rua José Alexandre Buaiz, 300, Ed. Work Center, 18 ^th floor, Enseada do Suá, Vitória, Espírito Santo, Brazil. Renan Chieppe and Decio Luiz Chieppe are members of our board of directors.

(3)

Consists of shares beneficially owned by José Mario Caprioli dos Santos. The record holder of these shares is Trip Participações S.A. and Trip Investimentos Ltda. The address for Trip Participações S.A. is Rua José Alexandre Buaiz, 300, 17 e 18 andares, Enseada do Suá, CEP 29050-545, Vitória, Espírito Santo, Brazil. The address for Trip Investimentos Ltda. is Rodovia BR 262, km 5, s/n, CEP 29145-901, Cariacica, Espírito Santo, Brazil. José Mario Caprioli dos Santos is a resident of Brazil and his address is Av. Marcos Penteado de Ulhôa Rodrigues, 939, 9 ^th floor, Edifício Jatobá, 06460-040, Tamboré Barueri, São Paulo, Brazil. He is our Institutional Relations Officer and a member of our board of directors.

(4)

The record holder of these shares is Hainan Airlines Co., Ltd., which is a subsidiary of HNA Group Co, Ltd. As HNA Group Co, Ltd. is a privately held company, its beneficial owners are not publicly disclosed or known to us. The address for Hainan Airlines Co., Ltd. is Haikou City, Hainan Province, at HNA Plaza, No.7 Guoxing Road, People’s Republic of China.

153

(5)

Consists of shares beneficially owned by Julio Rafael de Aragão Bozano. The record holders of these shares are Cia. Bozano, Kadon Empreendimentos S.A. and Bozano Investments LLC. The address for Cia. Bozano, Bozano Investments LLC and Kadon Empreendimentos S.A. is Rua Visconde de Ouro Preto, 5, 11º andar (parte), Botafogo, 22250-180, Rio de Janeiro, Brazil. Julio Rafael de Aragão Bozano is a resident of Brazil and his address is Rua Visconde de Ouro Preto, 5, 11º andar (parte), Botafogo, 22250-180, Rio de Janeiro, Brazil.

(6)

Represents shares held by WP-New Air, LLC, whose sole member is Weston Presidio V, L.P. Michael P. Lazarus and Michael F. Cronin are the managing members of Weston Presidio Management V, LLC, the general partner of Weston Presidio V, L.P. As a result of the foregoing, Mr. Lazarus and Mr. Cronin share voting and dispositive power with respect to the shares held by WP-New Air, LLC. WP-New Air, LLC’s address is c/o Weston Presidio, One Harbor Drive, Suite 300, Sausalito, California 94965. Mr. Cronin is a resident of the United States and his address is c/o Weston Presidio, 200 Clarendon Street, 50 ^th Floor, Boston, Massachusetts 02116. Mr. Lazarus is a resident of the United States and his address is c/o Weston Presidio, One Harbor Drive, Suite 300, Sausalito, California 94965. Mr. Lazarus is a member of our board of directors.

(7)

Consists of shares beneficially owned by Zweig-DiMenna, with respect to which Joseph A. DiMenna possesses voting and investment power. The record holder of these shares is ZDBR LLC, a limited liability company controlled by Zweig DiMenna. The address for ZDBR LLC is c/o Zweig-DiMenna Associates, Inc., 900 Third Avenue, 31st Floor, New York, New York 10022. Joseph A. DiMenna is a resident of the United States and his address is 900 Third Avenue, New York, New York 10022.

(8)

The record holder of these shares is Star Sabia, LLC, a Delaware limited liability company, whose sole member is TPG STAR, L.P., a Delaware limited partnership, whose general partner is TPG STAR GenPar, L.P., a Delaware limited partnership, whose general partner is TPG STAR GenPar Advisors, LLC, a Delaware limited liability company, whose sole member is TPG Holdings I, L.P., a Delaware limited partnership, whose general partner is TPG Holdings I A, LLC, a Delaware limited liability company, whose sole member is TPG Group Holdings (SBS), L.P., a Delaware limited partnership, whose general partner is TPG Group Holdings (SBS) Advisors, Inc., a Delaware corporation. David Bonderman and James G. Coulter are officers and sole shareholders of TPG Group Holdings (SBS) Advisors, Inc. and therefore share voting and dispositive power with respect to the shares held by Star Sabia, LLC. The address of each of TPG Group Holdings (SBS) Advisors, Inc., Star Sabia, LLC and Messrs. Bonderman and Coulter is c/o TPG Global, LLC, 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102.

(9)	Consists of shares owned beneficially and of record by Calfinco, Inc., a subsidiary of United. The address for Calfinco, Inc. is 233 S. Wacker Dr., Chicago, IL 60606.

(10)

Consists of shares held off the record by Pequot Capital Management, Inc. Pequot Capital Management Inc., an investment manager, is the Managing Member of Azul HoldCo, LLC, and, as a result, Pequot Capital Management Inc. has sole and exclusive voting and dispositive power with respect to the shares held by Azul Holdco, LLC. and has sole and exclusive right to conduct the affairs of Azul HoldCo, LLC. Aryeh Davis is the President and Chief Executive Officer and, as such, has voting and dispositive power with respect to the shares held by Pequot Capital Management, Inc., which in turn, means Mr. Davis has sole and exclusive voting and dispositive power with respect to the shares held by Azul Holdco, LLC. The address for Azul HoldCo, LLC is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle, Delaware 19801.

(11)

Consists of shares beneficially owned by Joel C. Peterson, Daniel S. Peterson and Brandon K. Cope, officers of Peterson Partners, Inc. The record holder of these shares is Maracatu LLC, which is controlled by Peterson Partners IV (A), LLP and Peterson Partners V, LP. The Manager for Peterson Partners IV (A), LLP and Peterson Partners V, LP is Peterson Partners, Inc. The address of Maracatu LLC is 2825 East Cottonwood Parkway, suite 400, Salt Lake City, UT 84121. Each of Joel C. Peterson, Daniel S. Peterson and Brandon K. Cope are residents of the United States. The address of Peterson Partners, Inc., Joel C. Peterson, Daniel S. Peterson and Brandon K. Cope is 2825 E. Cottonwood Pkwy., Suite 400, Salt Lake City, UT 84121.

154

(12)

Other minority shareholders who are Selling Shareholders and that together hold less than 5% of our capital stock and are not otherwise listed on the table above are: (i) Saleb II Founder 13 LLC, whose sole member is Joel Peterson and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 13 LLC (with address at Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle, Delaware 19801) and (ii) Morris Azul, LLC, a Utah limited liability company, controlled and managed by June M. Morris (with address at 4277 Park Terrace Drive, Salt Lake City, Utah 84124, United States), who has voting and dispositive power with respect to the shares held by Morris Azul, LLC.

(13)

Other minority shareholders that are not selling shares in this global offering that together hold less than 5% of our capital stock and are not otherwise listed on the table above are: (i) Saleb II Founder 2 LLC, whose sole member is Gerald Blake Lee and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 2 LLC, (ii) Saleb II Founder 3 LLC, whose sole member is Thomas Eugene Kelly and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 3 LLC, (iii) Saleb II Founder 4 LLC, whose sole member is Tom Anderson and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 4 LLC, (iv) Saleb II Founder 5 LLC, whose sole member is Carol Elizabeth Archer and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 5 LLC, (v) Saleb II Founder 6 LLC, whose sole members are Cindy England and Jeff England and, as such, have voting and dispositive power with respect to the shares held by Saleb II Founder 6 LLC, (vi) Saleb II Founder 7 LLC, whose sole member is Robert Land and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 7 LLC, (vii) Saleb II Founder 8 LLC, whose sole member is Robert Milton and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 8 LLC, (viii) Saleb II Founder 9 LLC, whose sole member is Mark Neeleman and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 9 LLC, (ix) Saleb II Founder 10 LLC, whose sole member is Marlon Yair Ramirez and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 10 LLC, (xi) Saleb II Founder 12 LLC, whose sole member is Maximilian Otto Urbahn and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 12 LLC, (xii) Saleb II Founder 14 LLC, whose sole member is Amir Nasruddin and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 14 LLC, (xiii) Saleb II Founder 15 LLC, whose sole member is Jason Truman Ward and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 15 LLC, (xiv) Saleb II Founder 16 LLC, whose sole member is John Joseph Daly and, as such, has voting and dispositive power with respect to the shares held by Saleb II Founder 16 LLC (all of the individuals mentioned in (i) to (xiv) above have address at Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle, Delaware 19801), (xv) JJL Brazil LLC, a Delaware limited liability company, whose sole member and manager is James J. Liautaud (with address at 2212 Fox Drive, Champaign, Illinois 61820, United States), and, as such, has voting and dispositive power with respect to the shares held by JJL Brazil LLC, (xvi) Gianfranco Beting (with address at Rua Eliseu Visconti, 188, CEP 05683-010, São Paulo, Brazil), (xvii) Miguel Dau (with address at Rua Roberto Dias Lopes, 93, Bloco A, apt. 1001, 22010 110, Rio de Janeiro, Brazil), (xviii) Regis da Silva Brito (with address at Rua Bento Gonçalves, 1902, apt. 401, 95780 000, Montenegro, Rio Grande do Sul, Brazil) and (xix) João Carlos Fernandes (with address at Alameda Rosas, 231, Morada das Flores, Aldeia da Serra, Santana de Parnaĺba, São Paulo, Brazil).

(14)

Consists of shares held by Carolyn Luther Trabuco, Sérgio Eraldo de Salles Pinto, and indirectly by John Rodgerson, the sole member of Saleb II Founder 11 LLC, and, as such, holder of voting and dispositive power with respect to the shares held by Saleb II Founder 11 LLC. However, shares held by David Neeleman, Renan Chieppe, Decio Luiz Chieppe and José Mario Caprioli dos Santos are not being reported as being held by executive officers and directors, as they are being reported as held by David Neeleman, the Chieppe family and the Caprioli family, respectively.

155

The following table shows the beneficial ownership of our capital stock following this global offering, reflecting the following the (i) issuance and sale of • new preferred shares by us, and (ii) the sale by the Selling Shareholders of • existing preferred shares in the underwriters’ option to purchase additional shares that forms part of this global offering, assuming that such option to purchase additional shares is exercised in full and no exercise of any stock options.

Name

Common
Shares

Percentage of
Outstanding
Common Shares

Total
Preferred
Shares

Percentage of
Outstanding
Preferred Shares

Percentage of
Total
Capital Stock

Economic
Interest

David Neeleman ⁽¹⁾

•

Chieppe family ⁽²⁾

•

Caprioli family ⁽³⁾

•

Hainan ⁽⁴⁾

•

Bozano Group ⁽⁵⁾

•

Weston Presidio ⁽⁶⁾

•

Zweig DiMenna ⁽⁷⁾

•

TPG Growth ⁽⁸⁾

•

Calfinco ⁽⁹⁾

•

Azul HoldCo, LLC ⁽¹⁰⁾

•

Peterson Partners ⁽¹¹⁾

•

Minority Shareholders ^(12)(13)

•

Executive officers and directors ⁽¹⁴⁾

•

Total

•

100.00

•

100.00

(1)

(2)

(3)

Consists of shares beneficially owned by José Mario Caprioli dos Santos. The record holder of these shares is Trip Participações S.A. and Trip Investimentos Ltda. The address for Trip Participações S.A. is Rua José Alexandre Buaiz, 300, 17 e 18 andares, Enseada do Suá, CEP 29050-545, Vitória, Espírito Santo, Brazil. The address for Trip Investimentos Ltda. is Rodovia BR 262, km 5, s/n, CEP 29145-901, Cariacica, Espírito Santo, São Paulo, Brazil. José Mario Caprioli dos Santos is a resident of Brazil and his address is Av. Marcos Penteado de Ulhôa Rodrigues, 939, 9th floor, Edifício Jatobá, 06460-040, Tamboré Barueri, São Paulo, Brazil. He is our Institutional Relations Officer and a member of our board of directors.

(4)

(5)

Consists of shares beneficially owned by Julio Rafael de Aragão Bozano. The record holders of these shares are Cia Bozano, Kadon Empreendimentos S.A. and Bozano Investments LLC. The address for Cia Bozano, Bozano Investments LLC and Kadon Empreendimentos S.A. is Rua Visconde de Ouro Preto, 5, 11º andar (parte), Botafogo, 22250-180, Rio de Janeiro, Brazil. Julio Rafael de Aragão Bozano is a resident of Brazil and his address is Rua Visconde de Ouro Preto, 5, 11º andar (parte), Botafogo, 22250-180, Rio de Janeiro, Brazil.

156

(6)

Represents shares held by WP-New Air, LLC, whose sole member is Weston Presidio V, L.P. Michael P. Lazarus and Michael F. Cronin are the managing members of Weston Presidio Management V, LLC, the general partner of Weston Presidio V, L.P. As a result of the foregoing, Mr. Lazarus and Mr. Cronin share voting and dispositive power with respect to the shares held by WP-New Air, LLC. WP-New Air, LLC’s address is c/o Weston Presidio, One Harbor Drive, Suite 300, Sausalito, California 94965. Mr. Cronin is a resident of the United States and his address is c/o Weston Presidio, 200 Clarendon Street, 50th Floor, Boston, Massachusetts 02116. Mr. Lazarus is a resident of the United States and his address is c/o Weston Presidio, One Harbor Drive, Suite 300, Sausalito, California 94965. Mr. Lazarus is a member of our board of directors.

(7)

(8)

(9)	Consists of shares owned beneficially and of record by Calfinco, Inc., a subsidiary of United. The address for Calfinco, Inc. is 233 S. Wacker Dr., Chicago, IL 60606.

(10)

(11)

157

(12)

(13)

(14)

United Investment Agreement

On June 26, 2015, we entered into an investment agreement with United pursuant to which it, acting through a subsidiary, acquired 5,421,896 Class C preferred shares representing a 5%, non-voting economic interest in us. Such Class C preferred shares will be converted on a one-to-one basis into non-voting Class A preferred shares following the consummation of this offering. For more information, see “Principal and Selling Shareholders—United Investment Agreement.” Pursuant to this agreement, United has the right to elect one member of our board of directors so long as it retains at least 50% of the shares it received on the date of its investment or as a result of conversion. United has designated a representative on our board effective as of January 28, 2016. See “Management—Board of Directors.” United is a party to our Fifth Amended and Restated Shareholders’ Agreement, which as a result of the conversion of Class C preferred shares into Class A preferred shares, will be replaced by the Post-IPO Shareholders’ Agreement following the consummation of this offering, and this new agreement will continue to provide for United’s right to elect a single director, as long as they hold at least 50% of the Class C preferred shares that were held as of August 3, 2016. For more information, see “Management—Board of Directors.”

158

Hainan Investment Agreement

On February 5, 2016, we entered into an investment agreement with Hainan Airlines, as amended on June 6, 2016. Pursuant to the Hainan Investment Agreement, Hainan agreed to invest US$450 million in us in exchange for 31,620,950 Class D preferred shares. Due to the time needed to obtain Chinese governmental approval, Hainan’s investment was made in stages, with the initial amount made in the form of a €120 million loan, a portion of which was used by us to acquire TAP bonds. In August 2016, following receipt of all Chinese governmental approvals, Hainan converted its loan into equity in accordance with its terms and completed its aggregate US$450 million investment in us, acquiring Class D preferred shares representing an aggregate 24%, non-voting economic interest in us and becoming our single largest preferred equity shareholder. The Class D preferred shares held by Hainan will be converted on a one-to-one basis into non-voting Class A preferred shares following the consummation of this offering on the same terms as the conversion of United’s Class C preferred shares.

Pursuant to Hainan’s investment agreement, Hainan has the right to elect three members of our board of directors, all of which were elected in October 2016. Hainan is a party to our Fifth Amended and Restated Shareholders’ Agreement, which will be replaced by the Post-IPO Shareholders’ Agreement following the consummation of this offering, and this new agreement will continue to provide for Hainan’s right to elect three directors, as long as they hold at least a 20% economic interest in us and owns the largest percentage of economic interest in us, taking account of TRIP’s former shareholders as a single shareholding block. For more information, see “Management—Board of Directors”. Hainan also has an interest described below with respect to our TAP bonds. See “Business— Strategic Partnerships, Alliances and Commercial Agreements—TAP” below.

Registration Rights Agreement

On August 3, 2016, we entered into a fifth amended and restated registration rights agreement, or the Registration Rights Agreement, with our then principal shareholders that gave them certain rights to register additional preferred shares held by them with the SEC for future sale.

Under the Registration Rights Agreement, at any time commencing six months following this global offering of our shares, shareholders owning a majority of our preferred shares that are not registered under the Securities Act at that time and that are entitled to registration rights thereunder may require us to file a registration statement covering the sale or distribution of the preferred shares owned by them. We must also include in that registration statement any preferred shares owned by any other principal shareholders of our company.

Additionally, once we qualify to use Form F-3 with the SEC, shareholders who own 35% of our preferred shares that are not registered under the Securities Act at that time may require us to file a registration statement on Form F-3 at any time. We must also include in that registration statement any preferred shares owned by any other principal shareholders of our company.

159

RELATED PARTY TRANSACTION S

We currently engage in various transactions with our shareholders and their affiliates. These transactions are conducted at arms’ length, based on terms that reflect the terms that would apply to transactions with third parties.

Loan Agreement with David Neeleman

On September 2, 2016, we entered into an agreement, as lender, with our principal shareholder David Neeleman, as borrower, in the total principal amount of US$2.8 million, which bears interest at LIBOR plus 2.3% per annum and matures in 2019.

Loan Agreement with Bozano

Our operating subsidiary Azul Linhas was party to two financing agreements, dated June 29, 2012 and December 21, 2012, between Azul Linhas, as borrower, and Bozano, one of our shareholders, as lender, in the total principal amount of R$120 million. The loans carried interest at a rate of 10.1% per year. To guarantee payment of these loans, we pledged to Bozano up to R$40 million in receivables generated by sales from our travel agencies using bank payment orders ( boletos bancários ). Azul Linhas assigned to us, on December 23, 2013, R$74.9 million of this debt, and Bozano used the proceeds to increase its investment in our shares through the acquisition of Class B preferred shares in the Private Placement. The debt between us and Azul Linhas resulting from such assignment was later used to increase our participation in Azul Linhas by increasing Azul Linhas’s capital stock. The remaining amount of the Bozano loans was fully paid in March 2014. We repaid Bozano’s Private Placement debt in August 2016 and the Class B preferred shares held by Bozano were consequently redeemed and cancelled.

Post-IPO Shareholders’ Agreement

For a description of our Post-IPO Shareholders’ Agreement, see “Description of Capital Stock—Post-IPO Shareholders’ Agreement.”

Rent Guarantees Given by Azul Linhas

Azul Linhas has guaranteed rent and other payments under three lease agreements for family housing in Brazil used by three of our executive officers.

Arrangements with Directors and Officers

We have entered into indemnity agreements with two of our directors pursuant to which we agree to indemnify and hold each of them harmless for certain losses arising out of their respective positions as directors excluding any willful misconduct, fraud or gross negligence, see “Management –Directors’ and Officers’ Insurance.”

Service Agreements with Águia Branca Participações S.A.

On January 1, 2013, we entered into an agreement with Águia Branca Participações S.A., one of our shareholders, for the sharing of information technology resources during an indefinite period, which was an extension of a similar agreement that TRIP entered into with Águia Branca Participações S.A., and on November 1, 2015, we entered into a services agreement with Águia Branca Participações S.A. for the hosting and use of information technology resources for a 24 month term. The amounts payable under these agreements are based on the services actually rendered. We paid R$31 thousand, R$311 thousand, R$535 thousand and R$1.1 million in connection with these agreements in 2016, 2015, 2014 and 2013, respectively.

160

On March 8, 2016, we also entered into an agreement for the sale of air tickets with Águia Branca Participações S.A. until February 28, 2017. The amounts received during the years ended December 31, 2016 and 2015 were R$54 thousand and R$108 thousand, respectively.

Credit Limit Stipulation and Payment Term Contract with Águia Branca Turismo Ltda.

On May 26, 2014, we entered into a Credit Limit Stipulation and Payment Term Contract with Águia Branca Turismo Ltda., a travel agency and a member of Águia Branca Group (which controls the TRIP shareholders), as borrower, pursuant to which we granted Águia Branca Turismo Ltda. a credit line of R$10,000.00 to purchase for resale tickets for the flights we operate. Such credit line is guaranteed by a promissory note, which does not bear interest, of the same amount payable to us. As of December 31, 2016 and between May 26, 2014 and December 31, 2016, there was no outstanding balance under the credit line.

TRIP Partial Spin-off Followed by Merger into Azul Linhas

On June 25, 2013, we approved a partial spin-off of TRIP and the merger of its net assets into Azul Linhas. The purpose of these transactions, which were effective as of June 1, 2014, was to simplify the management of our operational activities, reduce administrative costs and contribute to operational efficiencies and synergies.

Strategic Partnership with TAP

For a description of our strategic partnership with TAP, see “Business—Strategic Partnerships, Alliances, and Commercial Agreements—TAP.”

Acquisition of TAP Bonds

In March 2016, following the privatization of TAP in 2015 through the initial acquisition of a controlling interest in TAP by Atlantic Gateway, a consortium jointly owned by our principal shareholder David Neeleman and other individuals, we invested €90 million in 7.5% bonds due March 2026 issued by TAP and convertible into TAP shares at our discretion. For more information on this investment and the conversion mechanism of TAP bonds into TAP shares, see “Business—Strategic Partnerships, Alliances and Commercial Agreements—TAP,” “—Put Right” and “—Call Right.”

Put Right

The TAP bonds are subject to an optional put by us through which TAP has the obligation to redeem the TAP bonds held by us at no additional cost, in the event that as a result of the current review of the privatization arrangements by the Portuguese authorities (i) the Portuguese government acquires any or all of the TAP shares held by Atlantic Gateway pursuant to an existing call right other than as contemplated in connection with the final TAP structure described in “Business—Strategic Partnerships, Alliances, and Commercial Agreements—TAP” or (ii) there is a decrease in the equity ownership of TAP by Atlantic Gateway other than as a result of the final TAP structure being reviewed. The TAP bonds (if not fully converted) are also subject to mandatory redemption by TAP at the earlier of (i) any initial public offering of equity securities by TAP or (ii) four years from the date of issuance of the TAP bonds, subject to the satisfaction of certain financial covenants by TAP, in which case TAP would have to pay us face value plus interest accrued until the mandatory redemption date.

161

Call Right

In consideration of Hainan providing us with a loan to acquire the TAP bonds, we granted Hainan a call right over the economic benefits associated with €30 million of the TAP bonds held by us (or the TAP shares obtainable upon any conversion thereof). This call right is exercisable until December 2017 and does not require us to sell or transfer any of the TAP bonds held by us, or any TAP shares obtainable upon conversion of the TAP bonds held by us, but instead affords Hainan the right (but not the obligation) to acquire from us the right to receive the economic benefit of up to €30 million in principal amount of TAP bonds held by us, or any TAP shares received by us upon conversion of such bonds. We would, however, retain legal title and ownership of the TAP bonds and any TAP shares obtained upon any conversion thereof. Prior to any conversion of such TAP bonds by us, we would be obligated to distribute to Hainan all interest, principal, dividends, distributions or other amounts when, as and if received by us in respect of the amount of TAP bonds covered by Hainan’s call right exercise. Following conversion of any TAP bonds, we would be obligated to distribute to Hainan all economic benefits received by us in respect of the amount of TAP shares covered by Hainan’s call rights exercise when, as and if received by us. In the event Hainan wishes to exercise such right, it is required to deliver a notice to us as to the face value amount up to €30 million for which it wishes to acquire the economic benefit, and make a payment to us equal to the par value of such amount of TAP bonds. Hainan has no right to compel us to sell any of the TAP bonds or TAP shares obtainable upon any conversion and we retain the sole and exclusive rights to any matter requiring a vote in respect of such bonds or shares. If we decide to sell any of the TAP bonds or TAP shares for which the economic benefit has been transferred to Hainan following any exercise by Hainan of its call right, we are obligated to pay to Hainan the appropriate share of any proceeds we obtain from any such sale. As of the date hereof, Hainan has not yet exercised its call right described herein.

TAP Board of Directors

Our founder and principal shareholder David Neeleman is a member of the board of directors of TAP. In addition, one of the members of our board of directors, Henri Courpron, is a member of the board of directors of TAP. Furthermore, two of our founding shareholders, Maximilian Otto Urbhan and Robert Milton, are also members of the board of directors of TAP. These two founding shareholders do not have any management participation in us or any of our subsidiaries.

Sublease of Aircraft to TAP

As part of our fleet optimization efforts, in 2016, we leveraged our strategic partnership with TAP by subleasing, at a discount, 15 aircraft to TAP. We also redelivered two aircraft to their lessor, which subsequently leased these aircraft to TAP, see “—Strategic Partnerships, Alliances and Commercial Agreements—TAP” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of the year ended December 31, 2016 to the year ended December 31, 2015—Operating income (loss).” As a result of this sublease transaction, we recorded a provision for the obligation under onerous leases, for an amount of R$126.0 million for the year ended December 31, 2016 as we will receive lease payments from TAP at an amount lower than the amount that we will pay under the original lease agreements. See Note 11(e) to our audited consolidated financial statements, see “Business—Strategic Partnerships, Alliances and Commercial Agreements—TAP”.

Planned Joint Venture with TAP

We are also discussing the possibility of establishing a joint venture with TAP in order to jointly explore flights between Brazil and Portugal. We plan to define the scope of this joint venture and file our proposal with CADE during the first half of 2017.

Strategic Partnership with United

For a description of our strategic partnership with United, see “Business—Strategic Partnerships, Alliances, and Commercial Agreements—United.”

162

Commercial Cooperation Agreement with United

Code-Share Agreement with United

On June 26, 2015, Azul Linhas entered into a Code-Share Agreement with United, the sole shareholder of Calfinco. The Code-share Agreement governs the terms and conditions of code-sharing and interlining arrangements between Azul Linhas and United.

Strategic Partnership with Hainan

For a description of our strategic partnership with Hainan, see “Business—Strategic Partnerships, Alliances, and Commercial Agreements—Hainan.”

Commercial Cooperation Agreement with Hainan

Transfer of Aircraft Orders to Hainan

As part of our fleet optimization efforts, on May 24, 2016, we transferred our order with respect to two (out of five previously existing) future deliveries of Airbus A350s to certain Hainan affiliates, see “—Strategic Partnerships, Alliances and Commercial Agreements—Hainan.”

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DESCRIPTION OF CAPITAL STOC K

The following is a brief summary of certain significant provisions of our bylaws, Brazilian corporate law, and the rules and regulations of the CVM and of the Level 2 segment of BM&FBOVESPA. This discussion does not purport to be complete and is qualified by reference to our bylaws, and of those laws, rules and regulations. For a summary of certain of your rights as a shareholder of a company listed on the Level 2 segment of BM&FBOVESPA, see “—Voting Rights” below.

General

We are incorporated as a Brazilian sociedade por ações under the corporate name Azul S.A. Our headquarters are at Edifício Jatobá, 8 ^th floor, Castelo Branco Office Park, Avenida Marcos Penteado de Ulhôa Rodrigues, 939, Tamboré, Barueri, São Paulo, SP 06460-040, Brazil. We are registered with the Board of Trade of the state of São Paulo under corporate registration number, or NIRE, number 35.300.361.130. We have been registered with the CVM as a publicly held corporation since •, 2017.

Our preferred shares have been listed on the Level 2 segment of BM&FBOVESPA since •, 2017. This listing requires us to comply with the corporate governance and disclosure rules of the Level 2 segment of BM&FBOVESPA as summarized in the “Market Information” section of this prospectus.

Issued Capital Stock

As of the date of this prospectus, our total capital stock was R$1,488,601,336.62, fully paid-in and divided into 591,768,162 shares, all nominative, in book-entry form and without par value, consisting of 464,482,529 common shares and 127,285,633 preferred shares, including preferred shares resulting from the conversion of the Class C preferred shares and Class D preferred shares into Class A preferred shares and the simultaneous renaming of the Class A preferred shares as “preferred shares” on •, 2017, such that our capital is now composed of one single class of preferred shares.

Following this global offering, we will have a total capital of R$•, divided into • shares, of which • will be common shares and • will be preferred shares, see “Capitalization” and “Dilution”.

Treasury Stock

As of the date of this prospectus, we have no shares in treasury.

Corporate Purpose

The corporate purpose of our company, as stated in our bylaws, is as follows:

•

to hold direct equity interest in other companies of any type whose activity is one of more of the following:

•

operating national or international passenger, cargo or postal air transportation services under concessions granted by the competent authorities;

•

operating activities incidental to passenger, cargo, and postal air transportation;

•

carrying out aircraft, engine and other maintenance and repair services, whether for ourselves or for or third parties;

•

providing hangar space for aircraft services;

•

providing ground handling services, catering, and aircraft cleaning services;

•

acquiring or renting aircraft or related assets;

•

development and management of customer loyalty programs, whether for ourselves or for third parties;

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•

sale of awards redemption rights under customer loyalty program;

•

providing tourism and travel services;

•

other activities incidental or related to the foregoing; and

•

holding direct interests in other companies.

Post-IPO Shareholders’ Agreement

General

On May 25, 2012, and as amended from time to time, our principal shareholder entered into an Investment Agreement with TRIP’s former shareholders, referred to herein as the Investment Agreement, which provides TRIP’s former shareholders with certain rights related to the control of our company. On June 26, 2015, the Investment Agreement was amended by the Fourth Amendment to the Investment Agreement to include Calfinco as a party, and on August 3, 2016, the Investment Agreement was amended by the Fifth Amendment to the Investment Agreement to include Hainan as a party. This agreement, as amended, provides that upon the effectiveness of an initial public offering, we and our current shareholders will be obligated in connection therewith to execute an agreed form of Shareholders’ Agreement that is attached to the Investment Agreement, which shall become effective at such time, referred to herein as the Post-IPO Shareholders’ Agreement. Pursuant to the form of Post-IPO Shareholders’ Agreement that has been agreed to by us, our principal shareholder, TRIP’s former shareholders, Calfinco and Hainan, the agreement, once it comes into effect, will remain in effect until the earlier of (i) twenty years as of the date of its execution or (ii) such time as TRIP’s former shareholders together hold less than 5% of our common shares. For purposes of the discussion below, we refer to (i) Mr. Neeleman and TRIP’s former shareholders together as the Principal Common Shareholders and (ii) Calfinco and Hainan together as the Principal Preferred Shareholders. All common shares held by the Principal Common Shareholders at the date of the Post-IPO Shareholders’ Agreement, or which they may acquire in the future, and all Class A preferred shares held by the Principal Preferred Shareholders at the date of the Post-IPO Shareholders’ Agreement, or which they may acquire in the future, are subject to the Post-IPO Shareholders’ Agreement.

Under the Post-IPO Shareholders’ Agreement, for as long as TRIP’s former shareholders collectively hold at least 5% of our common shares, a majority of TRIP’s former shareholders is required in order to approve any changes that, by amending the following provisions of our bylaws, may materially affect the rights of TRIP’s former shareholders:

•

the quorum required for decisions of our board of directors;

•

the powers of our board of directors; and

•

the rules for calling, installing or reducing powers and other provisions regarding the meetings of our board of directors.

Furthermore, under the Post-IPO Shareholders’ Agreement, for as long as TRIP’s former shareholders collectively hold at least 5% of our common shares, changes to our bylaws that change the total number of directors of our board of directors, which must remain composed of 14 members, must necessarily be approved by a majority of TRIP’s former shareholders. However, a majority of TRIP’s former shareholders is not necessary to approve an amendment that increases the size of our board of directors if TRIP’s former shareholders are guaranteed representation proportional to that which they had before such amendment.

Election of Board Members

As a general rule, pursuant to the Post-IPO Shareholders’ Agreement, a person who has a relationship (including as an investor, manager, executive, employee, consultant or representative) with any of our competitors or their subsidiaries may not serve as a member of our board, unless the competitor or its subsidiary is one of our shareholders or an affiliate of a shareholder.

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Election of Board Members by David Neeleman

For so long as TRIP’s former shareholders have the right to elect one or more directors pursuant to the mechanisms described above and subject to Calfinco and Hainan’s right to appoint members of the board of directors, Mr. Neeleman may appoint the remaining members of the board of directors of the Company along with their alternates, and may dismiss or replace any of those members. In the event that the other holders of common shares or preferred shares exercise their right for multiple vote procedure in the election of members of the board of directors, in accordance with Brazilian corporate law, the number of directors elected by such shareholders shall be deducted from the number of directors that Mr. Neeleman has the right to appoint.

Of the board members who may be appointed by Mr. Neeleman, at least two must be independent directors, according to the regulations of the Level 2 segment of BM&FBOVESPA and the CVM rules of independence, and at least one must be nominated by the shareholder who holds the largest number of our preferred shares at the time. If such shareholder is unable to or fails to nominate a director, then the shareholder holding the second largest number of our preferred shares may make the nomination and so on.

Furthermore, Mr. Neeleman, any of his permitted transferees or any company controlled by Mr. Neeleman shall abstain from voting in any resolution and from taking part in any decision related to the conversion of TAP bonds into TAP equity securities.

Election of Board Members by TRIP’s former shareholders

The Post-IPO Shareholders’ Agreement provides that all the Principal Common Shareholders and the Principal Preferred Shareholders must vote in favor of electing directors as follows:

•

so long as TRIP’s former shareholders collectively hold at least 20% of our common shares, they may appoint three directors, along with their alternates, and may dismiss or replace any of those three directors;

•

if TRIP’s former shareholders collectively hold at least 10%, but less than 20% of our common shares, they may appoint two directors, along with their alternates, and may dismiss or replace both of those directors; and

•

if TRIP’s former shareholders collectively hold at least 5%, but less than 10% of our common shares, they may appoint one director, plus an alternate, and may dismiss or replace such director.

Election of Board Members by Calfinco

The Post-IPO Shareholders’ Agreement provides that all the Principal Common Shareholders and the Principal Preferred Shareholders must vote in favor of electing directors as follows:

•

so long as Calfinco holds at least 50% of our Class A preferred shares, Calfinco may appoint one director, along with his or her alternate, and may dismiss or replace this director.

Election of Board Members by Hainan

The Post-IPO Shareholders’ Agreement provides that all the Principal Common Shareholders and the Principal Preferred Shareholders must vote in favor of electing directors as follows:

•

so long as Hainan holds at least a 20% economic interest in the Company and owns the largest percentage economic interest in the Company, taking into account TRIP’s former shareholders as a single shareholding block, Hainan may appoint three directors, along with their alternates, and may dismiss or replace any of those three directors;

•

if Hainan holds at least a 10%, but less than a 20% economic interest in the Company, Hainan may appoint two directors, along with their alternates, and may dismiss or replace both of those directors;

•

if Hainan holds at least a 5%, but less than a 10% economic interest in the Company, Hainan may appoint one director, plus an alternate, and may dismiss or replace such director; and

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•

in any case, no director appointed by Hainan may be a U.S. citizen or resident.

Transfers of Shares

The tag-along right and right of first offer described below do not apply to transfers of common shares to the Principal Preferred Shareholders or to affiliates of the Principal Common Shareholders. In addition, shareholders must, in any event, submit any request for the transfer of shares to ANAC for prior approval.

Tag-Along Rights

If Mr. Neeleman intends to sell any of his common shares to a third party, he must give TRIP’s former shareholders an opportunity (i) to participate in the sale on the same terms and (ii) to sell an equivalent amount of common shares so that the proportion of common shares between Mr. Neeleman and TRIP’s former shareholders remains the same. TRIP’s former shareholders must give Mr. Neeleman the same opportunity if they intend to sell any of their common shares.

Rights of First Offer

If Mr. Neeleman intends to sell any common shares in such a manner that, after such sale, the common shares held by Mr. Neeleman come to represent less than 50% plus one of our common shares, in each subsequent sale of common shares, he must first offer those shares to TRIP’s former shareholders before offering them to any third party. His offer to TRIP’s former shareholders must specify the number of common shares he intends to sell, the intended price per share, the payment conditions and any other relevant conditions. TRIP’s former shareholders may then purchase those shares at or above the specified terms, as described in the Post-IPO Shareholders’ Agreement.

If TRIP’s former shareholders wish to sell any of their common shares, they must first offer those shares to Mr. Neeleman before offering them to any third party. Their offer to Mr. Neeleman must specify the number of common shares they intend to sell, the intended price per share, the payment conditions and any other relevant conditions. Mr. Neeleman may then purchase those shares at or above the specified terms.

If either Mr. Neeleman or TRIP’s former shareholders, as the case may be, decline the right of first offer, the seller may pursue the intended sale to the third party at or above the price originally contemplated.

Termination

The Post-IPO Shareholders’ Agreement will remain in effect until the earlier of twenty years as of the date of its execution or such time as TRIP’s former shareholders together hold less than 5% of our common shares.

Fifth Amended and Restated Shareholders’ Agreement

On August 3, 2016, we entered into a Fifth Amended and Restated Shareholders’ Agreement with the owners of our common shares and preferred shares. Among other things, the Fifth Amended and Restated Shareholders’ Agreement provides for:

(i)

rights of first offer;

(ii)

co-sale rights;

(iii)

rights of first refusal on transfers by minority shareholders; and

(iv)

put rights and certain redemption and conversion rights.

The Fifth Amended and Restated Shareholders’ Agreement shall terminate upon the successful completion of this offering.

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Rights of our Common and Preferred Shares

Each of our common shares entitles the holder to cast one vote at our shareholders’ meetings. Holders of our common shares that are fully paid-in may convert them into preferred shares, at the ratio of 75.0 common shares for 1.0 preferred share pursuant to our by-laws. However, the total number of preferred shares outstanding may never exceed 50% of our total shares.

Our preferred shares are non-voting, except with regard to certain limited matters for as long as we are listed on the Level 2 segment of BM&FBOVESPA, as described below under “—Voting Rights.”

Our preferred shares have the following additional rights as compared to our common shares:

•

the right to participate in a public tender offer for control of Azul, on the same terms and conditions (taking into account the conversion ratio of 75.0 common shares to 1.0 preferred share) as are offered to our controlling shareholder (the minimum price per common or preferred share to be offered for such common or preferred shares shall be at least 75 times the price per share paid for the controlling stake);

•

the right to receive, upon any liquidation of Azul, 75 times the amount of our assets attributed to each common share; and

•

the right to receive dividends 75 times greater than the dividends payable on each common share, as described in the section of this prospectus entitled “Dividend Policy.”

Reimbursement and Right of Withdrawal

Under Brazilian corporate law, both “dissenting shareholders” and shareholders who have no voting rights have the right to withdraw from a company and receive full reimbursement for the value of all their shares in certain circumstances. For purposes of this right of withdrawal, “dissenting shareholders” include shareholders who vote against a specific resolution, as well as those who abstain from voting or fail to appear at the shareholders’ meeting. Shareholders who have no voting rights include holders of our preferred shares.

This right of withdrawal and reimbursement arises if any of the following matters are decided upon at a shareholders’ meeting:

creation of a new class of preferred shares or a disproportional increase in an existing class of preferred shares relative to other classes of shares, unless such action is provided for in or authorized by our bylaws, which is currently not the case;

modification to the preference, privilege or conditions for redemption or amortization granted to one or more classes of preferred shares, or the creation of a new class of preferred shares with greater privileges than the existing classes of preferred shares;

reduction of the mandatory dividend;

consolidation or merger into another company;

participation in a group of companies ( grupo de sociedades ), as defined by Brazilian corporate law;

the transfer of all shares to another company or receipt of shares in another company, in such a way as to make the company whose shares were transferred a wholly-owned subsidiary of the other;

changes to our corporate purpose; or

a spin-off that results in (i) a change in our corporate purpose (unless the spun-off company’s assets and liabilities are transferred to a company that has substantially the same corporate purpose); (ii) a reduction in any mandatory dividend (although in our case, our preferred shares do not carry mandatory dividends); or (iii) any participation in a group of companies.

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In the case of items 1. and 2. above, only holders of the class or type of shares adversely affected may exercise a right of withdrawal.

The right of withdrawal also arises if a spin-off or merger occurs but the new company fails to register as a public stock corporation (and, if applicable, fails to list its shares on the stock exchange) within 120 days of the date of the shareholders’ meeting that approved the spin-off or merger.

In the event that our shareholders approve any resolution for us to:

•

consolidate or merge with another company;

•

transfer all our shares to another company or acquire all the shares of another company; or

•

become part of a group of companies,

then any dissenting shareholder or holder of preferred shares may exercise a right of withdrawal, but only if that shareholder’s class of shares fails to satisfy certain liquidity tests at the time of the shareholders’ meeting approving the merger, acquisition, sale or consolidation.

The right of withdrawal expires 30 days after publication of the minutes of the shareholders’ meeting that approved the relevant event. In addition, any resolution regarding items 1. or 2. above requires ratification by the majority of shareholders holding preferred shares at a special shareholders’ meeting to be held within one year. In such cases, the 30-day deadline begins on the date of publication of the minutes of the special shareholders’ meeting. If we were to believe that the exercise of withdrawal rights would be prejudicial to our financial stability, we would have ten days after the expiration of that 30-day deadline to reconsider the resolution that triggered the withdrawal rights.

Brazilian corporate law provides that in order for any withdrawal rights to be exercised, any shares to be withdrawn and redeemed must have a value greater than the book value per share, calculated by reference to the latest balance sheet approved at a shareholders’ meeting. If more than 60 days have passed since the date of that balance sheet, the shareholders wishing to exercise the withdrawal right may request a new valuation.

The sale of our controlling stake in Azul Linhas to a third party would be considered a change in our corporate purpose, which would give our shareholders withdrawal rights.

Capital Increases and Preemptive Rights

Each of our shareholders has preemptive rights to subscribe for any new shares that increase our capital stock (and any warrants or other securities convertible into new shares) in direct proportion to the equity interest held by them. Preemptive rights may be exercised during the period of up to 30 days following the publication of notice of the capital increase. If the capital increase applies in equal proportion to all existing types and classes of shares, each shareholder’s preemptive rights would apply only to the type and class of shares currently held by such shareholder. If, however, an exercise of preemptive rights would result in a change to the proportional composition of our capital stock, the preemptive rights may be exercised over the types and classes identical to those already held by the shareholders only. The preemptive rights may only extend to any other shares if necessary to ensure the shareholders receive the same proportion of our capital stock as they had prior to the increase in capital. If the shares being issued are of types and classes that are different from the existing shares, each shareholder may exercise preemptive rights (in proportion to the shares currently held) over all the types and classes of shares being issued.

Our bylaws provide that the preemptive rights may be excluded, or the deadline for exercise may be shortened, if we issue shares (or warrants or other securities convertible into new shares) through a public offering or a sale on a stock exchange, or by means of an exchange for shares in a public tender offer or acquisition of control.

In addition, the grant of options to purchase shares under stock option plans does not give rise to preemptive rights.

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Voting Rights

Each of our common shares entitles the holder to cast one vote at our shareholders’ meetings. Our preferred shares have no voting rights, except with regard to the following matters for as long as we are listed on the Level 2 segment of BM&FBOVESPA:

•

any direct conversion, consolidation, spin-off or merger of Azul;

•

approval of any agreement between our company and our controlling shareholder(s) or parties related to the controlling shareholder, to the extent that Brazilian corporate law or our bylaws require that the agreement be submitted to the approval of a general shareholders’ meeting;

•

the valuation of any assets to be contributed to our company in payment for shares issued in a capital increase;

•

the appointment of an expert to ascertain the value our shares in connection with (i) a mandatory tender offer; (ii) a delisting and deregistration transaction; or (iii) any decision to cease to adhere to the requirements of the Level 2 segment of BM&FBOVESPA;

•

any change in, or the revocation of, provisions of our bylaws that results in the violation of certain requirements of the Level 2 segment of BM&FBOVESPA, as summarized in the “Market Information” section of this prospectus;

•

any change in, or the revocation of, provisions of our bylaws that amends or modifies any of the requirements provided for in (i) Paragraph Nine of Article 5 (restricted voting rights attached to preferred shares), (ii) Paragraph Two of Article 12 (compensation of officers), (iii) Paragraphs One and Three of Article 13 (composition of our board of directors), (iv) Paragraph Eight of Article 25 (governance of our audit committee by an independent member and powers of such governing independent member), (v) Article 27 (composition of our compensation committee), (vi) Article 28 (functions of our compensation committee), (vii) Article 29 (composition of our corporate governance committee) and (ix) Article 30 of our bylaws (functions of our corporate governance committee);

•

together with common shareholders, the compensation of our management.

Under Brazilian corporate law, shares with no voting rights or restricted voting rights (which would include our preferred shares) carry unrestricted voting rights in the event the company fails, for three consecutive years, to pay the privileged minimum or fixed dividends to which the shares are entitled, if any. Our preferred shares are not entitled to privileged minimum or fixed dividends and accordingly do not carry unrestricted voting rights if our Company fails to distribute the mandatory dividend (which is applicable to both common and preferred shares).

Brazilian corporate law also provides that any change in the rights of preferred shareholders, or any creation of a class of preferred shares with greater privileges than the existing preferred shares, must be approved by the holders of common shares at a shareholders’ meeting. Any such approval only becomes legally effective once it has been ratified by the majority of shareholders holding preferred shares at a special shareholders’ meeting.

Under Brazilian corporate law, minority holders of our preferred shares (with no voting rights or restricted voting rights) jointly representing at least 10% of our total capital stock have the right to elect one member of our board of directors in a separate voting process. Preferred shareholders have the right to elect two members of our board of directors in a separate voting process, pursuant to our bylaws. In addition, minority shareholders whose holding of our common shares represents at least 15% of our total voting capital stock have the right to elect one director in a separate voting process. Holders of preferred shares and common shares that represent 10% of the total share capital may combine their holdings in order to benefit from these rights.

In addition, Brazilian corporate law provides that the following rights of shareholders may not be altered either in the bylaws or by shareholders’ resolutions:

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•

the right of holders of common shares to vote at general shareholders’ meetings;

•

the right to participate in the distribution of dividends (including interest paid on our capital), and to share in our remaining assets in case of liquidation;

•

the right to subscribe for shares (or securities convertible into shares) in the circumstances summarized above; and

•

the withdrawal rights summarized above.

Rights other than these unalterable rights may be granted or excluded in the bylaws or by shareholders’ resolutions.

Shareholders’ Meetings

Our board of directors has the power to call shareholders’ meetings. Notice of shareholders’ meetings must be published at least three times in the Diário Oficial do Estado de São Paulo , the official newspaper of the state of São Paulo, and in a second newspaper of general circulation (currently Diário Comércio Indústria & Serviços ). Our shareholders’ meetings are held at our headquarters, in the city of Barueri, state of São Paulo. Shareholders attending a shareholders’ meeting must produce proof of their status as shareholders and proof that they hold the shares entitling them to vote.

For a summary of how a holder of ADSs may receive information regarding and attend shareholders’ meetings, see the section of this prospectus entitled “Description of American Depositary Shares.”

Anti-Takeover Provisions

Differently from companies incorporated under the laws of the State of Delaware, the majority of Brazilian publicly-held companies do not employ “poison pill” provisions to prevent hostile takeovers. As most Brazilian companies have clearly identified controlling shareholders, hostile takeovers are rare and thus no developed body of case law addresses the limits on the ability of management to prevent or deter potential hostile bidders. Brazilian corporate law, Level 2 BM&FBOVESPA rules and our by-laws require any party that acquires our control to extend a tender offer for common and preferred shares held by non-controlling shareholders at the same purchase price paid to the controlling shareholder. In addition, any shareholder whose equity interest reaches 30% of our outstanding common shares, or the Relevant Shareholding Level must effect a tender offer for all of our outstanding common shares, preferred shares and instruments convertible to our common shares or preferred shares, under the terms of the Self-Regulatory Code on Mergers and Acquisitions, or the Panel Code, issued by the Takeover Panel Sponsors Association—ACAF, or ACAF, which code we adhere to (see “—Brazilian Takeover Panel (ACAF)”). The price to be offered for our common shares in the tender offer will be the highest price paid for our common shares by the offer or during the twelve months prior to the day when the holder reached the Relevant Shareholding Level, adjusted for certain relevant corporate events such as dividends payments and stock splits. The price to be offered for each of our preferred shares and instruments convertible to our common shares in the tender offer will be a price 75 times higher than the price offered for each of our common shares. For more information on ACAF, see “—Brazilian Takeover Panel (ACAF)”.

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Principal Differences between Brazilian and U.S. Corporate Governance Practices

We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different to the standards applicable to U.S. listed companies. Under the NYSE rules, we are required only

•

to have an audit committee or audit board that meets certain requirements, pursuant to an exemption available to foreign private issuers, as discussed below;

•

to provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules; and

•

to provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies.

A summary of the significant differences between our corporate governance practices and those required of U.S. listed companies is included below.

Majority of Independent Directors

The NYSE rules require that a majority of the board must consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Under the listing standards of Level 2 segment of BM&FBOVESPA, our board of directors must have at least five members, at least 20% of which must be independent. Also, Brazilian corporate law and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While our directors meet the qualification requirements of Brazilian corporate law and the CVM, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence. Brazilian corporate law requires that our directors be elected by our shareholders at a shareholders’ meeting.

Executive Sessions

NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. Brazilian corporate law does not have a similar provision. According to Brazilian corporate law, up to one-third of the members of the board of directors can be elected to officer positions. Our president, David Neeleman, is a member of our board of directors. As a result, the non-management directors on our board do not typically meet in executive session.

Nominating committee, corporate governance committee and compensation committee

NYSE rules require that listed companies have a nominating/corporate governance committee and a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities—although as a company the majority of whose voting shares are held by another group, we would not be required to comply with this rule. The responsibilities of the nominating/corporate governance committee include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. The responsibilities of the compensation committee, in turn, include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board compensation of other executive officers, incentive compensation and equity-based plans.

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We are not required under applicable Brazilian corporate law to have a nominating committee, corporate governance committee and compensation committee. Aggregate compensation for our directors and executive officers is established by our common and preferred shareholders at annual shareholders’ meetings, and our directors at board of directors’ meeting are required to determine the allocation of the aggregate compensation among their members and the officers.

Audit Committee and Audit Committee Additional Requirements

NYSE rules require that listed companies have an audit committee that:

•

is composed of a minimum of three independent directors who are all financially literate;

•

meets the SEC rules regarding audit committees for listed companies;

•

has at least one member who has accounting or financial management expertise, and

•

is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities.

The audit committee is elected by the board of directors.

Within one year following the completion of this global offering, we expect that all members of our audit committee will either satisfy requirements of the SEC and NYSE applicable to U.S. audit committees or will qualify with the Rule 10A-3 exemption.

Shareholder Approval of Equity Compensation Plans

NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans (which may be approved for an undefined period), with limited exceptions. Under Brazilian corporate law, all stock option plans must be submitted for approval by the holders of our common shares. In addition, any issuance of new shares that exceeds our authorized share capital is subject to approval by holders of our common shares at a shareholders’ meeting.

Corporate Governance Guidelines

NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We comply with the corporate governance guidelines under applicable Brazilian law and the Level 2 segment of BM&FBOVESPA. We believe the corporate governance guidelines applicable to us under Brazilian law are consistent with the NYSE guidelines. We have adopted and observe the Policy of Material Fact Disclosure, which deals with the public disclosure of all relevant information as per CVM’s Instruction No. 358 guidelines, and the Policy on Trading of Securities, which requires management to disclose all transactions relating to our securities, and which is required under Level 2 segment of BM&FBOVESPA.

Code of Business Conduct and Ethics

NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Level 2 segment of BM&FBOVESPA has a similar requirement.

We adopted a Code of Ethics in May 2009, which regulates the conduct of our managers in connection with the disclosure and control of financial and accounting information and their access to privileged and non-public information. Our Code of Ethics complies with the requirements of the Sarbanes-Oxley Act of 2002, the NYSE rules and Level 2 segment of BM&FBOVESPA rules.

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Internal Audit Function

NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control.

Our internal auditing department works independently to conduct methodologically structured examinations, analysis, surveys and fact finding to evaluate the integrity, adequacy, effectiveness, efficiency and economy of the information systems processes and internal controls related to our risk management. The internal auditing department reports continually to our board of directors and audit committee and its activities are directly supervised by our audit committee, which acts under our board of directors, and is monitored by our audit and operational risk management superior committee. In carrying out its duties, the internal auditing department has access to all documents, records, systems, locations and people involved with the activities under review.

Brazilian Takeover Panel (ACAF)

On January 21, 2014, we entered into an agreement to adhere to the Panel Code issued by ACAF, a non-statutory non-for-profit entity organized under private law for the purpose of organizing, maintaining and administering the ACAF. Our Company, shareholders, directors, fiscal council members and members of any other entity with technical or consultative functions created by statutory provision will have to respect the principles and rules of the Panel Code and comply with the decisions that may be taken by ACAF under the Panel Code in respect of all tender offers, takeovers, stock takeovers, mergers or spin-offs in connection with a takeover.

The rights of any shareholder who fails to comply with the Panel Code may be suspended pursuant to a decision of the shareholders at the Annual General Meeting, including the right of the non-compliant shareholder to vote.

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DESCRIPTION OF AMERICAN DEPOSITARY SHARE S

American Depositary Shares

Citibank, N.A., as depositary, will register and deliver the ADSs. Each ADS will, as of the date hereof, represent the right to receive one preferred share (which ratio may be changed, as described below) in registered form, deposited with the office of Banco Bradesco S.A. as custodian for the depositary. Each ADS will also represent the right to receive any other securities, cash or other property which may be received on behalf of the owner of the ADSs but not distributed by the depositary to the owners of ADSs because of legal restrictions or practical considerations. The principal executive office of the depositary is located at 388 Greenwich Street, New York, New York 10013.

The preferred shares are to be listed for trading on the Level 2 listing segment of the São Paulo Stock Exchange ( BM&FBOVESPA S.A.—Bolsa de Valores, Mercadorias e Futuros ), or the BM&FBOVESPA, and the ADSs are to be listed for trading on the New York Stock Exchange.

The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, or DTC, pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto.

We will not treat ADS holders as our shareholders and accordingly, you, as an ADS holder, will not have shareholder rights. Brazilian law governs shareholder rights. The depositary, the custodian and their respective nominees will be the holders of the preferred shares underlying your ADSs. As a holder of ADSs, you will have ADS holder rights. A deposit agreement among us, the depositary, you, as an ADS holder, and the beneficial owners of ADSs sets out ADS holder and beneficial owner rights as well as the rights and obligations of the depositary. The laws of the State of New York govern the deposit agreement and the ADSs.

The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of American Depositary Receipt. For directions on how to obtain copies of those documents, see “ Where You Can Find Additional Information .”

Holding the ADSs

How will you hold your ADSs?

You may hold ADSs (a) by having an American Depositary Receipt, or ADR, which is a certificate evidencing a specific number of ADSs, registered in your name or through your broker or other financial institution, or (b) by holding ADSs in DRS. If you hold ADSs directly, you are an ADS holder. This description assumes you hold your ADSs directly, by means of an ADR registered in your name. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

Dividends and Other Distributions

How will you receive dividends and other distributions on the shares?

The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on preferred shares or other deposited securities, after deducting its fees and expenses and any taxes and government charges. You will receive these distributions in proportion to the number of preferred shares your ADSs represent as of the record date (which will be as close as practicable to the record date for our preferred shares) set by the depositary with respect to the ADSs.

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Cash. The depositary will convert or cause to be converted any cash dividend or other cash distribution we pay on the preferred shares or any net proceeds from the sale of any preferred shares, rights, securities or other entitlements under the terms of the deposit agreement into U.S. dollars, if it can do so on a practicable basis and can transfer such U.S. dollars to the United States and will distribute the amount thus received. If such conversions or transfers are not practical or lawful or if any government approval or license is needed and cannot be obtained, the deposit agreement allows the depositary to either distribute the foreign currency only to those ADS holders to whom it is possible to do so, or hold or cause the custodian to hold the foreign currency for the account of the ADS holders who have not been paid and such funds will be held for the respective accounts of the ADS holders. The depositary will not invest the foreign currency and will not be liable for any interest for the respective accounts of the ADS holders.

Before making a distribution, any taxes or other governmental charges, together with fees and expenses of the depositary, will be deducted. See “Taxation.” If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution.

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Shares . For any preferred shares we distribute as a dividend or free distribution, either (1) the depositary will distribute additional ADSs representing the right to receive such preferred shares or (2) existing ADSs as of the applicable record date will represent rights and interests in the additional preferred shares distributed, to the extent reasonably practicable and permissible under law, in either case, net of applicable fees, charges and expenses incurred by the depositary and taxes and/or other governmental charges. The depositary will only distribute whole ADSs. It will try to sell preferred shares which would require it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with cash. The depositary may sell a portion of the distributed preferred shares sufficient to pay its fees and expenses in connection with that distribution. There can be no assurance that you will be given the opportunity to receive distributions under the same terms and conditions as the holders of preferred shares.

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Elective Distributions in Cash or Shares . If we offer holders of our preferred shares the option to receive dividends in either cash or shares, the depositary, after consultation with us and having received timely notice from us as described in the deposit agreement of such elective distribution by us, and if we have indicated that we wish to make such elective distribution available to you, has discretion to determine to what extent such elective distribution is lawful and reasonably practicable, and thus, whether it can be made available to you as a holder of the ADSs. The depositary will not make such elective distribution to you until we first timely instruct the depositary to make such elective distribution available to you and furnish it with satisfactory evidence that it is lawful to do so. The depositary could decide it is not lawful or reasonably practicable to make such elective distribution available to you. In such case, the depositary shall, on the basis of the same determination as is made in respect of the preferred shares for which no election is made, distribute either cash in the same way as it does in a cash distribution, or additional ADSs representing the right to receive preferred shares in the same way as it does in a share distribution. The depositary will not be obligated to make available to you a method to receive the elective dividend in preferred shares rather than in ADSs. There can be no assurance that you will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of preferred shares.

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Rights to Purchase Additional Shares. If we offer holders of our preferred shares any rights to subscribe for additional shares, the depositary shall, having received timely notice as described in the deposit agreement of such distribution by us, consult with us, and determine whether it is lawful and reasonably practicable to make these rights available to you. The depositary will not make rights available to you unless we first instruct the depositary to make such rights available to you and furnish the depositary with satisfactory evidence that it is lawful and reasonably practicable to do so, and such other documentation as is provided in the deposit agreement. If it is not lawful and reasonably practicable to make the rights available but it is lawful and reasonably practicable to sell the rights, the depositary will attempt to sell the rights and distribute the net proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

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If the depositary makes rights available to you, it will establish procedures to distribute such rights and enable you to exercise the rights upon your payment of applicable fees, charges and expenses incurred by the depositary and taxes and/or other governmental charges. The depositary shall not be obliged to make available to you a method to exercise such rights to subscribe for preferred shares (rather than ADSs).

U.S. securities laws may restrict transfers and cancellation of the ADSs represented by shares purchased upon exercise of rights. For example, you may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADSs described in this section except for changes needed to put the necessary restrictions in place.

There can be no assurance that you will be given rights on the same terms and conditions as the holders of preferred shares or be able to exercise such rights.

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Other Distributions. Subject to receipt of timely notice and satisfactory documents by the depositary, as described in the deposit agreement, from us with our request to make any such distribution available to you, and provided the depositary has determined such distribution is lawful and reasonably practicable and in accordance with the terms of the deposit agreement, the depositary will distribute to you anything else we distribute on deposited securities by any means it may deem practicable, upon your payment of applicable fees, charges and expenses incurred by the depositary and taxes and/or other governmental charges. The depositary may attempt to sell all or a portion of the distributed property sufficient to pay its fees and expenses in connection with that distribution. If any of the conditions above are not met, the depositary will attempt to sell, or cause to be sold, what we distributed and distribute the net proceeds in the same way as it does with cash; or, if it is unable to sell such property, the depositary may dispose of such property in any way it deems reasonably practicable under the circumstances for nominal or no consideration, such that you may have no rights to or arising from such property.

The depositary is not responsible if it is unlawful or impracticable to make a distribution available to any ADS holders. We have no obligation to register ADSs, preferred shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, preferred shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our preferred shares or any value for them if we or the depositary determine that it is not lawful or not practicable for us or the depositary to make them available to you. The depositary will hold any cash amounts or property it is unable to distribute in a non-interest bearing account for the benefit of the applicable holders and beneficial owners of ADSs until a distribution can be effected or such amounts and property that the depositary holds must be escheated as unclaimed property in accordance with the laws of the relevant states of the United States.

Deposit, Withdrawal and Cancellation

Which shares shall be accepted for deposit?

No preferred shares shall be accepted for deposit unless accompanied by confirmation or such additional evidence, if any is required by the depositary, that is reasonably satisfactory to the depositary and the custodian that all conditions to such deposit have been satisfied by the person depositing such preferred shares under the laws and regulations of Brazil and any necessary approval has been granted by the CVM, the Central Bank or any governmental body in Brazil, if any, which is then performing the function of the regulator of currency exchange.

The depositary shall not be required to accept for deposit or maintain on deposit with the custodian (a) any fractional preferred shares or fractional deposited securities, or (b) any number of preferred shares or deposited securities which, upon application of the ratio of ADSs to deposited securities, would give rise to fractional ADSs.

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How are ADSs issued?

The depositary will deliver ADSs if you or your broker deposits preferred shares or evidence of rights to receive preferred shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, and upon presentation of the applicable deposit certification, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons entitled thereto. Your ability to deposit shares and receive ADSs may be limited by U.S. and Brazilian legal considerations applicable at the time of deposit.

How do ADS holders cancel an ADS?

You may present (or provide appropriate instructions to your broker to present) your ADSs to the depositary for cancellation and then receive the corresponding number of underlying preferred shares at the custodian’s offices. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the preferred shares and any other deposited securities underlying the ADSs to you or a person you designate. The depositary may ask you to provide documents as the depositary may deem appropriate before it will cancel your ADSs and deliver the underlying preferred shares and any other property.

How do ADS holders interchange between Certificated ADSs and Uncertificated ADSs?

You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send you a statement confirming that you are the owner of uncertificated ADSs. Alternatively, upon receipt by the depositary of a proper instruction from a holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to you an ADR evidencing those ADSs.

Voting Rights

How do you vote?

If certain conditions in the deposit agreement are satisfied as further described below, you may instruct the depositary to vote the preferred shares or other deposited securities underlying your ADSs at any meeting at which holders of preferred shares or other deposited securities are entitled to vote pursuant to any applicable law, the provisions of our bylaws and other constitutive documents, and the provisions of or governing the deposited securities. Otherwise, you could exercise your right to vote directly if you withdraw the preferred shares. However, you may not know about the meeting sufficiently enough in advance to withdraw the preferred shares. Our preferred shares have limited voting rights. See “Description of Capital Stock—Voting Rights.”

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Upon timely notice from us by regular, ordinary mail delivery, or by electronic transmission, as described in the deposit agreement, the depositary will notify you of the upcoming meeting at which you are entitled to vote pursuant to any applicable law, the provisions of our bylaws and other constitutive documents, and the provisions of or governing the deposited securities, and arrange to deliver our voting materials to you. The materials will include or reproduce (a) such notice of meeting or solicitation of consents or proxies; (b) a statement that the ADS holders at the close of business on the ADS record date will be entitled, subject to any applicable law, the provisions of our bylaws and other constitutive documents, and the provisions of or governing the deposited securities (which provisions, if any, shall be summarized in pertinent part by us), to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the preferred shares or other deposited securities represented by such holder’s ADSs; and (c) a brief statement as to the manner in which such instructions may be given. Voting instructions may be given only in respect of a number of ADSs representing an integral number of preferred shares or other deposited securities. For instructions to be valid, the depositary must receive them in writing on or before the date specified by the depositary in its notice to ADS holders. The depositary will endeavor, insofar as practicable and permitted under applicable law, the provisions of the deposit agreement, our bylaws and the provisions of or governing the deposited securities, to vote or cause the custodian to vote the preferred shares or other deposited securities (in person or by proxy) as you instruct. The depositary will only vote or attempt to vote as you instruct provided that if the depositary timely receives voting instructions from you that fail to specify the manner in which deposited securities are to be voted, you will be deemed to have instructed the depositary to vote in favor of the items in the voting instructions. Preferred shares or other deposited securities represented by ADSs for which no specific voting instructions are received by the depositary from the ADS holder shall not be voted except as provided below. Without limiting any of the foregoing, to the extent the depositary does not receive voting instructions from ADS holders, the depositary will take such actions as are necessary, upon our written request and subject to applicable law and the terms of the deposited securities, to cause the amount of shares represented by ADSs of those ADS holders to be counted for the purpose of satisfying applicable quorum requirements.

If (i) we make a timely request to the depositary as contemplated above and (ii) no timely voting instructions are received by the depositary from you with respect to the deposited securities represented by your ADSs on or before the date established by the depositary for such purpose, the depositary shall deem you to have instructed the depositary to give a discretionary proxy to a person designated by our board of directors with respect to such deposited securities and the depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of the deposit agreement, our bylaws and the provisions of the deposited securities, to give or cause the custodian to give a discretionary proxy to a person designated by our board of directors to vote such deposited securities; provided, however, that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which our board of directors informs the depositary that (x) the we do not wish such proxy given, (y) substantial opposition exists or (z) such matter materially and adversely affects the rights of holders of preferred shares.

We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the preferred shares underlying your ADSs. In addition, there can be no assurance that you will be given the opportunity to vote or cause the custodian to vote on the same terms and conditions as the holders of our preferred shares.

The depositary and its agents are not liable for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and you may have no recourse if the preferred shares underlying your ADSs are not voted as you request.

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Compliance with Regulations

Information Requests

Each ADS holder and beneficial owner shall (a) provide such information as we or the depositary may request pursuant to law, including, without limitation, relevant Brazilian law, any applicable law of the United States of America, the rules and requirements of BM&FBOVESPA, our bylaws and other constitutive documents, any resolutions of our board of directors adopted pursuant to such bylaws, the requirements of any markets or exchanges upon which the preferred shares, ADSs or ADRs are listed or traded, or to any requirements of any electronic book-entry system by which the ADSs or ADRs may be transferred, regarding the capacity in which they own or owned ADSs, the identity of any other persons then or previously interested in such ADSs and the nature of such interest, and any other applicable matters, and (b) be bound by and subject to applicable provisions of the laws of Brazil, our bylaws and other constitutive documents, and the requirements of any markets or exchanges upon which the ADSs or preferred shares are listed or traded, or pursuant to any requirements of any electronic book-entry system by which the ADSs or preferred shares may be transferred, to the same extent as if such ADS holder or beneficial owner held preferred shares directly, in each case irrespective of whether or not they are ADS holders or beneficial owners at the time such request is made.

Disclosure of Interests

Each ADS holder and beneficial owner shall comply with our requests pursuant to Brazilian law, the rules and requirements of the CVM and BM&FBOVESPA, and any other stock exchange on which the preferred shares are, or will be, registered, traded or listed or our bylaws and other constitutive documents, which requests are made to provide information, inter alia, as to the capacity in which such ADS holder or beneficial owner owns ADS and regarding the identity of any other person interested in such ADS and the nature of such interest and various other matters, whether or not they are ADS holders or beneficial owners at the time of such requests.

Delivery of Information to the CVM, the Central Bank and BM&FBOVESPA

We will comply with Brazil’s Monetary Council Resolution No. 4,373, dated as of September 29, 2013, and will furnish to the CVM, the Central Bank and the BM&FBOVESPA, whenever required, information or documents related to the approved ADR program, the deposited securities and distributions thereon. The depositary and the custodian may release such information or documents and any other information as required by local regulation, law or regulatory body request.

Ownership Restrictions

We may restrict transfers of the preferred shares where such transfer might result in ownership of preferred shares exceeding limits imposed by applicable laws or our bylaws. We may also restrict, in such manner as we deem appropriate, transfers of the ADSs where such transfer may result in the total number of preferred shares represented by the ADSs owned by a single ADS holder or beneficial owner of ADSs to exceed any such limits. We may, in our sole discretion but subject to applicable law, instruct the depositary to take action with respect to the ownership interest of any ADS holder or beneficial owner of ADSs in excess of the limits set forth in the preceding sentence, including, but not limited to, the imposition of restrictions on the transfer of ADSs, the removal or limitation of voting rights or mandatory sale or disposition on behalf of an ADS holder or beneficial owner of ADSs of the preferred shares represented by the ADSs of such holder or beneficial owner in excess of such limitations, if and to the extent such disposition is permitted by applicable law and our bylaws. Notwithstanding the foregoing, neither we nor the depositary shall be obligated to ensure compliance with the foregoing ownership restrictions.

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Reporting Obligations and Regulatory Approvals

Applicable laws and regulations, including those of the Central Bank, the CVM, the BM&FBOVESPA and the Level 2 listing segment may require ADS holders and beneficial owners of preferred shares, including the ADS holders and beneficial owners of ADSs, to satisfy reporting requirements and obtain regulatory approvals in certain circumstances. ADS holders and beneficial owners of ADSs are solely responsible for complying with such reporting requirements and obtaining such approvals, and pursuant to the deposit agreement, such holders and beneficial owners agree to make such determinations, file such reports, and obtain such approvals to the extent and in the form required by applicable laws and regulations as in effect from time to time and neither the depositary, the custodian nor we, nor any of their or our respective agents or affiliates shall be required to take any actions on behalf of such holders or beneficial owners to determine or satisfy such reporting requirements or obtain such regulatory approvals under applicable laws and regulations.

Fees and Expenses

As an ADS holder, you will be required to pay the following service fees to the depositary and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs):


Service		Fees

Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property		Up to US$0.05 per ADS issued

Cancellation of ADSs, including in the case of termination of the deposit agreement		Up to US$0.05 per ADS cancelled

Distribution of cash dividends or other cash distributions		Up to US$0.05 per ADS held

Distribution of ADSs pursuant to share dividends, free share distributions or exercise of rights		Up to US$0.05 per ADS held

Distribution of securities other than ADSs or rights to purchase ADSs		Up to US$0.05 per ADS held

Depositary operation and maintenance services		Up to US$0.05 per ADS held

As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) such as:

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Fees for the transfer and registration of preferred shares charged by the registrar and transfer agent for the preferred shares in Brazil (i.e., upon deposit and withdrawal of preferred shares).

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Expenses incurred for converting foreign currency into U.S. dollars.

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Expenses for cable, telex, electronic and fax transmissions and for delivery of securities.

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Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., when preferred shares are deposited or withdrawn from deposit).

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Fees and expenses incurred in connection with the delivery or servicing of preferred shares on deposit.

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Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable to preferred shares, deposited securities, ADSs and ADRs.

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Any applicable fees and penalties thereon.

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The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.

The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.

Until the applicable depositary fees and expenses are paid, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. The depositary may sell preferred shares or other depositary property held with respect to your ADSs and use the proceeds to satisfy your obligations to pay its fees and expenses.

Certain of the depositary fees and charges (such as the depositary services fee) may become payable shortly after the closing of the ADS offering. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of such changes. The depositary may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary agree from time to time.

Payment of Taxes

You will be responsible for any taxes or other governmental charges payable, or which become payable, on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register or transfer your ADSs or allow you to withdraw the deposited securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any net proceeds, or send to you any property, remaining after it has paid the taxes. You agree to indemnify us, the depositary, the custodian and each of our and their respective agents, directors, employees and affiliates for, and hold each of them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from any tax benefit obtained for you. Your obligations under this paragraph shall survive any transfer of ADSs, any surrender of ADSs and withdrawal of deposited securities or the termination of the deposit agreement.

The depositary may refuse to issue ADSs, to deliver, transfer, split and combine ADSs or to release securities on deposit until all taxes and charges are paid by you. The depositary and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary and to the custodian proof of taxpayer status and residence and such other information as the depositary and the custodian may require to fulfill legal obligations.

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Each ADS holder will be responsible for the payment and/or reimbursement of any and all taxes effectively paid or incurred by us, the Depositary or the Custodian (including as a result of the execution of any symbolic foreign exchange transaction ( operação simbólica de câmbio )) related to or as a result of a deposit of preferred shares and/or withdrawal or sale of deposited property by such ADS holder. Each ADS holder will be responsible for the reporting of any false or misleading information, or the failure to report required information relating to foreign exchange transactions to the custodian or the Central Bank, as the case may be, in connection with deposits or withdrawals of deposited securities.

If we change the nominal or par value of, split-up, cancel, consolidate or otherwise reclassify any of the deposited securities, or if we recapitalize, reorganize, merge, consolidate or sell our assets, any property which shall be received by the depositary or the custodian in exchange for, or in conversion of, or replacement of, or otherwise in respect of, the deposited securities shall, to the extent permitted by law, be treated as new deposited property under the deposit agreement, and the ADSs shall, subject to the provisions of the deposit agreement, any ADR(s) evidencing such ADSs and applicable law, represent the right to receive such additional or replacement deposited property. In connection with the foregoing, we may (i) issue and deliver additional ADSs as in the case of a stock dividend on the preferred shares, (ii) amend the deposit agreement and the applicable ADR(s), (iii) amend the applicable registration statement(s) in respect of the ADSs, (iv) call for the surrender of outstanding ADRs to be exchanged for new ADRs, and (v) take such other actions as are appropriate to reflect the transaction with respect to the ADSs.

Amendment and Termination

How may the deposit agreement be amended?

We may agree with the depositary to amend the deposit agreement and the form of ADR without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, including expenses incurred in connection with foreign exchange control regulations and other charges specifically payable by ADS holders under the deposit agreement, or materially prejudices a substantial existing right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. The depositary will not consider to be materially prejudicial to your substantial rights any modification or supplement that are reasonably necessary for the ADSs to be registered under U.S. laws, in each case without imposing or increasing the fees and charges you are required to pay. In addition, the depositary may not be able to provide you with prior notice of any modifications or supplements that are required to accommodate compliance with applicable provisions of law. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.

How may the deposit agreement be terminated?

We have the right to direct the depositary to terminate the deposit agreement. Similarly, the depositary may in certain circumstances on its own initiative terminate the deposit agreement. In such cases, the depositary must notify you at least 30 days before termination.

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After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights and other property and deliver preferred shares and other deposited securities upon cancellation of ADSs after payment of any fees, charges, taxes or other governmental charges. At any time after the date of termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement, for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and has no liability for interest. After such sale, the depositary’s only obligations will be to account for the money and other cash. After termination, we shall be discharged from all obligations under the deposit agreement except for our obligations to the depositary and the custodian thereunder. The obligations of ADS holders and beneficial owners of ADSs outstanding as of the effective date of any termination shall survive such effective date of termination and shall be discharged only when the applicable ADSs are presented to the depositary for cancellation under the terms of the deposit agreement and the ADS holders have satisfied any and all of their obligations thereunder (including, but not limited to, any payment and/or reimbursement obligations which relate to prior to the effective date of termination but which payment and/or reimbursement is claimed after such effective date of termination).

Books of Depositary

The depositary will maintain ADS holder records at its depositary office. You may inspect such records at such office at all reasonable times but solely for the purpose of communicating with other holders in the interest of business matters relating to the Company, the ADRs and the deposit agreement.

The depositary will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADRs.

These facilities may be closed at any time or from time to time, when such action is deemed necessary or advisable by the depositary in connection with the performance of its duties under the deposit agreement or at our reasonable request, to the extent not prohibited by law.

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Limitations on Obligations and Liability

Limits on our Obligations and the Obligations of the Depositary and the Custodian; Limits on Liability to Holders of ADSs

The deposit agreement expressly limits our obligations and the obligations of the depositary and the custodian. It also limits our liability and the liability of the depositary and the custodian. We, the depositary and the custodian:

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are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;

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are not liable if any of us or our respective controlling persons or agents are prevented or forbidden from, or subjected to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit agreement and any ADR, by reason of any provision of any present or future law or regulation of the United States or any state thereof, Brazil or any other country, or of any other governmental authority or regulatory authority or stock exchange, or on account of the possible criminal or civil penalties or restraint, or by reason of any provision, present or future, of our bylaws or other constituent documents or any provision of or governing any deposited securities, or by reason of any act of God or war or other circumstances beyond its control (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, revolutions, rebellions, explosions and computer failure);

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are not obligated to perform any act that is inconsistent with the terms of the deposit agreement;

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are not liable by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in our bylaws or other constituent documents or provisions of or governing deposited securities;

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disclaim any liability for any action or inaction of any of us or our respective controlling persons or agents in reliance upon the advice of or information from legal counsel, accountants, any person presenting preferred shares for deposit, any holder of ADSs or authorized representatives thereof, or any other person believed by any of us in good faith to be competent to give such advice or information;

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are not liable for any indirect, special, consequential or punitive damages for any breach of the terms of the deposit agreement;

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disclaim any liability for inability of any holder to benefit from any distribution, offering, right or other benefit made available to holders of deposited securities but not made available to holders of ADSs;

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may rely upon any documents we believe in good faith to be genuine and to have been signed or presented by the proper party;

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are not obligated to appear in, prosecute or defend any action with respect to deposited property or the ADSs, except under the circumstances set forth in the deposit agreement; and

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are not liable for any action or failure to act by any ADS holder relating to the ADS holder’s obligations under any applicable Brazilian law or regulation relating to foreign investment in Brazil in respect of a withdrawal or sale of deposited securities, including, without limitation, any failure to comply with a requirement to register such investment pursuant to the terms of any applicable Brazilian law or regulation prior to such withdrawal or any failure to report foreign exchange transactions to the Central Bank, as the case may be.

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The depositary and any of its agents also disclaim any liability (i) with respect to Brazil’s system of share registration and custody, including any liability in respect of the unavailability of deposited securities (or any distribution in respect thereof), (ii) for any failure to carry out any instructions to vote, the manner in which any vote is cast or the effect of any vote or failure to determine that any distribution or action may be lawful or reasonably practicable or for allowing any rights to lapse in accordance with the provisions of the deposit agreement, (iii) the failure or timeliness of any notice from us, the content of any information submitted to it by us for distribution to you or for any inaccuracy of any translation thereof, (iv) any investment risk associated with the acquisition of an interest in the deposited securities, the validity or worth of the deposited securities, the credit-worthiness of any third party, (v) for any tax consequences that may result from ownership of ADSs, preferred shares or deposited securities, or (vi) for any acts or omissions made by a successor depositary.

In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.

Requirements for Depositary Actions

Before the depositary will issue, deliver or register a transfer of an ADS, make a distribution on an ADS, or permit withdrawal of preferred shares, the depositary may require:

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payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any preferred shares or other deposited securities and payment of the applicable fees, expenses and charges of the depositary;

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satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

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compliance with (A) any laws or governmental regulations relating to the execution and delivery of ADRs or ADSs or to the withdrawal or delivery of deposited securities and (B) regulations it may establish, from time to time, consistent with the deposit agreement and applicable laws, including presentation of transfer documents.

The depositary may refuse to issue and deliver ADSs or register transfers of ADSs generally when the register of the depositary or our transfer books are closed or at any time if the depositary or we determine that it is necessary or advisable to do so.

Your Right to Receive the Shares Underlying Your ADSs

You have the right to cancel your ADSs and withdraw the underlying preferred shares at any time except:

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when temporary delays arise because: (1) the depositary has closed its transfer books or we have closed our transfer books; (2) the transfer of preferred shares is blocked to permit voting at a shareholders’ meeting; or (3) we are paying a dividend on our preferred shares;

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when you owe money to pay fees, taxes and similar charges;

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when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of preferred shares or other deposited securities; or

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other circumstances specifically contemplated by Section I.A.(l) of the General Instructions to Form F-6 (as such General Instructions may be amended from time to time).

This right of withdrawal may not be limited by any other provision of the deposit agreement.

The depositary shall not knowingly accept for deposit under the deposit agreement any preferred shares or other deposited securities required to be registered under the provisions of the Securities Act, unless a registration statement is in effect as to such preferred shares.

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Pre-release of ADSs

The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying preferred shares. This is called a pre-release of the ADSs. The depositary may also deliver preferred shares upon cancellation of pre-released ADSs (even if the ADSs are cancelled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying preferred shares are delivered to the depositary. The depositary may receive ADSs instead of preferred shares to close out a pre-release. The depositary may pre-release ADSs only under the following conditions: (1) before or at the time of the pre-release, the person or entity to whom the pre-release is being made (a) represents to the depositary in writing that at the time of the pre-release transaction it or its customer owns the preferred shares or ADSs that are to be delivered by it under such pre-release transaction, (b) agrees to indicate the depositary as owner of such preferred shares or ADSs in its records and to hold such preferred shares or ADSs in trust for the depositary until such preferred shares or ADSs are delivered to the depositary or the custodian, (c) unconditionally guarantees to deliver such preferred shares or ADSs to the depositary or the custodian, as the case may be, and (d) agrees to any additional restrictions or requirements that the depositary deems appropriate; (2) at all times the pre-release is fully collateralized with cash, United States government securities or other collateral that the depositary considers appropriate; and (3) the depositary must be able to close out the pre-release on not more than five business days’ notice. Each pre-release is subject to further indemnities and credit regulations as the depositary considers appropriate. In addition, the depositary will normally limit the number of ADSs that may be outstanding at any time as a result of pre-release to 30% of the aggregate number of ADSs then outstanding, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so.

Direct Registration System

In the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto. Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of an ADS holder, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register such transfer.

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MARKET INFORMATIO N

Prior to this global offering, there has been no public market for our preferred shares, including in the form of ADSs. Among the factors considered in determining the offering price were the result of the bookbuilding process, our record of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity capital markets in Brazil and the United States, including current market valuations of publicly traded companies considered comparable to our company. Our preferred shares, including in the form of ADSs, will constitute a new class of securities with no established trading market. Therefore, we cannot assure you that an active trading market will develop for our preferred shares, including in the form of ADSs, or that our preferred shares, including in the form of ADSs, will trade in the public market subsequent to the offering at or above the initial public offering price. Each ADS will represent one preferred share. We have applied to list the ADSs for trading on the NYSE under the symbol “AZUL4” and the preferred shares for trading on the BM&FBOVESPA under the symbol “AZUL4”. Trading of the ADSs on the New York Stock Exchange is expected to commence on the day following the date of the final prospectus related to this global offering; trading of the preferred shares is expected to commence on the BM&FBOVESPA on the second day following the date of the final prospectus related to this global offering.

See “Risk Factors—Risks Relating to the Global Offering and Our Preferred Shares, including in the Form of ADSs,” “Management,” “Description of Capital Stock” and “Description of American Depositary Shares.”

Regulation of Brazilian Capital Markets

Pursuant to Brazilian Securities Law and Brazilian corporate law, the Brazilian capital market is regulated and supervised by the CMN, which has general authority over the stock exchanges and capital markets. The CMN regulates and supervises the activities of the CVM and has, among other powers, licensing authority over brokerage firms and also regulates foreign investment and foreign exchange transactions, according to the provisions of the Brazilian Securities Law and Law No. 4,595, dated December 31, 1964, as amended. These laws and other rules and regulations together set the requirements for disclosure of information applying to issuers of securities listed on stock exchanges, the criminal penalties for insider trading and price manipulation, the protection of minority shareholders, licensing procedures, supervision of brokerage firms, and governance of the Brazilian stock exchanges.

Pursuant to Brazilian corporate law, a company may be publicly-held and listed or privately-held and unlisted. All publicly-held companies are registered with the CVM and are subject to periodic reporting requirements and disclosure of material events. A company registered with the CVM is authorized to trade its securities on the BM&FBOVESPA or on the Brazilian over-the-counter market. Shares listed on the BM&FBOVESPA may not be simultaneously traded on Brazilian over-the-counter markets. Trading on the over-the-counter market implies direct off-stock exchange trades between investors through a financial institution registered with the CVM. No special application, other than registration with the CVM (and for organized over-the-counter markets, with the relevant over-the-counter market), is necessary for securities of a publicly-held company to be traded on the over-the-counter market. Listing on the BM&FBOVESPA requires a company to apply for registration with the BM&FBOVESPA and the CVM.

The Brazilian over-the-counter market consists of direct trades between individuals in which a financial institution registered with the CVM serves as intermediary.

The trading of securities on the BM&FBOVESPA may be suspended under certain circumstances, including as a result of the disclosure of material information. Trading may also be suspended at the request of the BM&FBOVESPA or the CVM if there is any evidence that a company has provided inadequate information regarding a material fact or has provided inadequate responses to inquiries by the CVM or the stock exchange, among other reasons.

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Trading on the BM&FBOVESPA

BM&FBOVESPA trading sessions are conducted from 10:00 a.m. to 5:00 p.m., or from 11:00 a.m. to 6:00 p.m. (during daylight savings time in Brazil), in an automated system known as PUMA Trading System. The BM&FBOVESPA also permits trading from 5:45 p.m. to 7:00 p.m., or from 6:45 p.m. to 7:30 p.m. during daylight savings time in Brazil, in an online system known as “after market,” which is connected to traditional and online brokers. “After market” trading is subject to regulatory limits on price volatility and on the volume of preferred shares transacted by online brokers.

Sales of preferred shares on the BM&FBOVESPA are settled within three business days after the trading date. Generally, the seller is expected to deliver the preferred shares to the BM&FBOVESPA on the third business day after the trading date. Delivery and payment of the preferred shares are made through the facilities of the Central Depository BM&FBOVESPA ( Central Depositária BM&FBOVESPA ).

For a more efficient control of volatility of the BOVESPA Index, the BM&FBOVESPA has adopted a circuit breaker system that suspends trading for 30 minutes to one hour if the BOVESPA Index falls below 10% and 15%, respectively, compared with the level at the close of trading on the preceding trading session. If the BOVESPA Index falls below 20%, the BM&FBOVESPA may suspend trading for a period of time to be defined by it at the time of such event.

Corporate Governance Practices and the Level 2 Segment of BM&FBOVESPA

In 2000, the BM&FBOVESPA introduced three special listing segments, known as Level 1, Level 2 and the Novo Mercado , aiming at fostering a secondary market for securities issued by Brazilian companies with securities listed on the BM&FBOVESPA by prompting such companies to follow good practices of corporate governance. The listing segments were designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by applicable Brazilian law. Our securities will be listed on the Level 2 segment of BM&FBOVESPA. The main elements of this segment are described below:

To become a Level 2 segment of BM&FBOVESPA company, in addition to the obligations imposed by applicable law, an issuer must comply with the following rules: (1) ensure that shares of the issuer representing at least 25% of its total capital are effectively available for trading; (2) adopt offering procedures that favor widespread ownership of shares whenever making a public offering, including (a) guaranteed access to all prospective investors, or (b) the allocation of at least 10% of the total offer to individuals or non-institutional investors; (3) comply with additional quarterly disclosure standards, such as disclosing related party transactions to the same level as required by the accounting standards used in the preparation of annual financial statements; (4) follow stricter disclosure policies with respect to transactions made by controlling shareholders, members of its board of directors, its executive officers and, if applicable, members of its fiscal council (conselho fiscal) and other technical or consulting committees involving securities issued by the issuer; (5) submit any existing shareholders’ agreement and stock option plans to the BM&FBOVESPA; (6) make a schedule of corporate events available to shareholders; (7) grant tag-along rights for all shareholders in connection with a transfer of control of the company offering the same price paid per share of controlling block for each common share and preferred share; (8) grant voting rights to holders of preferred shares, at least in connection with the following matters: (a) transformation, merger, consolidation or spin-off of the Company; (b) execution of any agreement between the Company and its controlling shareholder, acting directly or through any third party, in the event such agreement must be approved by a shareholders’ meeting, as provided by law or in the bylaws of the Company; (c) valuation of assets to be contributed to the capital stock of the Company in a capital increase; (d) appointment of the valuation company or institution that will determine the economic value of the Company; and (e) amendments or exclusions of bylaw provisions which eliminate or modify any of the matters above; (9) have a board of directors consisting of at least five members out of which a minimum of 20% of the directors must be independent and limit the term of all members to two years, reelection permitted; (10) not name the same individual from being both chairman of the

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board and the president, chief executive officer or other principal executive, observing the exceptions provided on corporate governance Level 2 segment of BM&FBOVESPA listing regulation; (11) translate into English its annual and quarterly consolidated and unconsolidated financial statements; (12) if it elects to delist from the Level 2 segment of BM&FBOVESPA, conduct a tender offer by the company’s controlling shareholder (the minimum price of the shares to be offered will be the economic interest determined by an independent specialized firm with requisite experience); (13) adhere exclusively to the Market Arbitration Chamber for resolution of disputes between the company and its investors relating to or derived from the enforceability, validity, applicability, interpretation, breach and its effects, of the provisions of the Brazilian corporate law, the Company’s bylaws, the rules published by the CMN, the Central Bank, the CVM, and other rules applicable to the Brazilian capital markets in general, including the Level 2 rules, the Level 2 listing agreement, the Level 2 sanctions regulation and the rules of the Market Arbitration Chamber of the BM&FBOVESPA; and (14) adopt and publish a code of conduct that establishes the principles and values that guide the company.

In addition, as a result of CMN Resolution No. 3,792, dated as of September 24, 2009, as amended, shares issued by companies that adopt differentiated corporate practices, such as those whose securities are admitted for trading in the special segment of the Novo Mercado or whose listing classification is Level 1 or Level 2 in accordance with the regulations of the BM&FBOVESPA, may have a larger participation in the investment portfolio of private pension funds. As a result, companies that adopt differentiated corporate practices are an important and attractive investment for private pension funds, which are large investors in the Brazilian capital markets.

Investment in Our Preferred Shares By Non-residents Outside Brazil

Resolution No. 4,373

Investors residing outside Brazil are authorized to purchase, inter alia , equity instruments, including our preferred shares, on the BM&FBOVESPA, provided that they comply with the registration requirements set forth in CMN Resolution No. 4,373, and CVM Instruction No. 560.

With certain limited exceptions, and subject to the registration requirements set forth in CMN Resolution No. 4,373 and CVM Instruction No. 560, CMN Resolution No. 4,373 investors are permitted to carry out any type of transaction in the Brazilian financial capital markets involving a security traded on a Brazilian stock, future or organized over-the-counter, or OTC, market. Investments and remittances outside Brazil of gains, dividends, profits or other payments related to our shares are made through the foreign exchange market.

In order to become a CMN Resolution No. 4,373 investor, an investor residing outside Brazil must:

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appoint one or more representatives in Brazil, which must be a financial institution duly authorized by the Central Bank, with powers to receive service of process related to any action regarding financial and capital market legislation, among others;

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obtain a taxpayer identification number from the Brazilian tax authorities;

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appoint one or more authorized custodians in Brazil for the investments, which custodian must be duly authorized by the CVM; and

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through its representative, register itself as a foreign investor with the CVM and register its investment with the Central Bank.

Securities and other financial assets held by foreign investors pursuant to CMN Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM, as the case may be. In addition, securities trading by foreign investors is generally restricted to transactions involving securities listed on the Brazilian stock exchanges or traded in organized OTC markets licensed by the CVM.

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In addition, an investor operating under the provisions of CMN Resolution No. 4,373 must be registered with the Brazilian tax authorities pursuant to its Regulatory Instruction No. 1,634, dated as of May 6, 2016. This registration process is undertaken by the investor’s legal representative in Brazil.

Law No. 4,131

Alternatively, foreign investors may also invest directly in Brazilian companies (e.g., through the establishment of a branch or a foreign company) under Law No. 4,131, as amended, and may sell their shares in both public and private transactions. However, these investors are currently subject to a less favorable tax treatment on gains than foreign investors that invest in Brazil under CMN Resolution No. 4,373.

A direct foreign investor under Law No. 4,131 must:

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obtain a taxpayer identification number from the Brazilian tax authorities;

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appoint a tax representative in Brazil; and

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appoint a representative in Brazil for service of process with respect to suits based on Brazilian corporate law.

The Brazilian government decreased the rate of the Tax on Foreign Exchange Transactions ( Imposto sobre Operações de Crédito, Câmbio e Seguro, ou relativas a Títulos ou Valores Mobiliários ), or IOF/Exchange Tax, the tax related to certain foreign investments in Brazilian financial and capital markets, including investments made pursuant to CMN Resolution No. 4,373, from 6% to 0%. Currently, currency exchange transactions carried out by CMN Resolution No. 4,373 investors are subject to IOF/Exchange Tax at a rate of (i) 0%, in the case of variable income transactions carried out on the Brazilian stock, futures and commodities exchanges, and acquisitions of shares of Brazilian publicly-held companies through public offerings or subscription of shares related to capital contributions, provided that the issuing company has registered its shares for trading on the stock exchange, and (ii) 0%, in the case of the outflow of funds from Brazil related to these types of investments, including payments of dividends and interest on shareholders’ equity and the repatriation of funds invested in the Brazilian market.

The IOF/Exchange Tax applies upon the conversion of foreign currency into Brazilian reais for purposes related to equity or debt investments by foreign investors in the Brazilian stock exchanges or the OTC market, private investment funds, Brazilian treasury notes and other fixed income securities. The Brazilian government is permitted to increase the rate of the IOF/Exchange Tax at any time, up to 25% of the amount of the foreign exchange transaction. However, any rate increase will only apply to transactions carried out after the rate increase and will not apply retroactively. For more information, see “Taxation—Brazilian Tax Considerations—Income Tax—Tax on Foreign Exchange and Financial Transactions.”

Uncertainty over whether the Brazilian government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and heightened volatility in the Brazilian capital markets and securities issued abroad by Brazilian companies. This uncertainty and other future events affecting the Brazilian economy and the actions of the Brazilian government may adversely affect us and the price of our preferred shares, including in the form of ADSs.

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DIVIDEND POLIC Y

Amounts Available for Distribution

According to Brazilian corporate law and our bylaws, our board of directors makes a recommendation to the annual shareholders’ meeting regarding the allocation of our net income for the preceding fiscal year, and the shareholders’ meeting decides upon the allocation. Under Brazilian corporate law, our board of directors may also approve intermediary dividend distributions.

Brazilian corporate law defines “net income” as the results for the fiscal year after deducting accrued losses, the provisions for income and social contribution taxes for that year and any amounts allocated to profit sharing payments to employees and management. Management is only entitled to any profit sharing payment, however, after the shareholders are paid the mandatory dividend referred to below.

Reserve Accounts

Companies incorporated under Brazilian law generally have two main reserve accounts: a profit reserve account and a capital reserve account.

Profit Reserves

Profit reserves consist of a legal reserve, statutory reserve, contingency reserve, retained profit reserve and unrealized profit reserve, as described below.

The combined balance of our profit reserve accounts (other than the contingency reserve and the unrealized profits reserve) may not exceed our capital stock. If the balance does exceed capital stock, the shareholders’ meeting must decide whether to use the excess to pay in subscribed but unpaid capital, to increase our share capital, or to pay dividends.

Legal Reserve

Brazilian corporate law requires us to maintain a legal reserve to which we must allocate 5.0% of our net income for each fiscal year until the aggregate amount of the reserve equals 20.0% of our capital stock. However, we are not required to make any allocations to our legal reserve in a year in which the legal reserve, when added to our other established capital reserves, exceeds 30.0% of our capital stock. The amounts allocated to the legal reserve must be approved by our shareholders in a shareholders’ meeting, and may only be used to increase our capital stock or to offset losses. Therefore, they are not available for the payment of dividends.

Statutory Reserve

Brazilian corporate law allows us to allocate a portion of our net profits to discretionary reserve accounts established in accordance with our bylaws. As of December 31, 2016, we did not have a statutory reserve. If we establish these accounts, the bylaws must indicate the purpose, allotment criteria and maximum amount of the reserve. However, we may not allocate profits to these discretionary reserve accounts if this would affect the payment of the minimum mandatory dividend.

Contingency Reserve

Brazilian corporate law allows us to allocate a percentage of our net income to a contingency reserve for anticipated losses that are deemed probable in future years, if the amount of the losses can be estimated. Any amount so allocated must be reversed in the fiscal year in which any expected loss fails to occur as projected, or charged against in the event that the expected loss occurs. The amounts to be allocated to this reserve must be approved by our shareholders. As of December 31, 2016, our contingency reserve was zero.

Retained Profit Reserve

Brazilian corporate law allows us to retain a portion of our net income, by a decision of our shareholders, provided that the retention is included in a capital expenditure budget that has been previously approved. The allocation of funds to this reserve cannot jeopardize the payment of the minimum mandatory dividends. As of December 31, 2016, our retained profit reserve was zero.

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Unrealized Profit Reserve

Under Brazilian corporate law, the amount by which the mandatory dividend exceeds the “realized” net income in a given year may be allocated to an unrealized profit reserve account, and the mandatory dividends may be limited to the “realized” portion of the net income. Brazilian corporate law defines “realized” net income as the amount by which net income exceeds the sum of (i) our net positive results, if any, from the equity method of accounting and (ii) the profits, gains or income that will be received by us after the end of the next fiscal year. The unrealized profit reserve can only be used to pay mandatory dividends. Profits recorded in the unrealized profit reserve, if realized and not absorbed by losses in subsequent years, must be added to the next mandatory dividend distributed after the realization. As of December 31, 2016, our unrealized profit reserve was zero.

Capital Reserves

Our capital reserve consists of the premium reserve, tax incentives, and investment subsidies. Under Brazilian corporate law, capital reserves may only be used (i) to absorb losses that exceed retained earnings and profit reserves, (ii) to fund redemptions, refunds or repurchases of shares, (iii) to redeem founder shares, and (iv) to increase our share capital. As of December 31, 2016, we had R$1.3 billion allocated to the capital reserve account.

Payment of Dividends and Interest on Shareholders’ Equity

Brazilian corporate law requires the bylaws of a Brazilian company to specify a minimum percentage of available profits to be allocated to the annual distribution of dividends, known as mandatory dividends. The mandatory dividend must be paid to shareholders either as dividends or as interest on shareholders’ equity. The basis of the mandatory dividend is a percentage of income, adjusted according to Article 202 of Brazilian corporate law. Under our bylaws, we must distribute every year at least 0.1% of our adjusted net income from the previous fiscal year as a dividend. This requirement does not, however, constitute a fixed or minimum dividend on preferred shares that would give rise to voting rights for holders of preferred shares if our company failed to pay the dividend for three consecutive years, all as described under “Description of Capital Stock.”

Brazilian corporate law allows a company to suspend distribution of mandatory dividends if the board of directors advises the annual shareholders’ meeting that the distribution would not be advisable given the company’s financial condition. The fiscal council, if one is in place, must review any suspension of the mandatory dividend, and management must submit a report to the CVM setting forth the reasons for the suspension of dividends. Net income that is not distributed due to a suspension is allocated to a separate reserve account and, if not absorbed by subsequent losses, must be distributed as dividends as soon as the financial condition of the company permits.

Dividends

Brazilian corporate law and our bylaws require us to hold an annual shareholders’ meeting by the fourth month following the closing of each fiscal year, in which, among other matters, shareholders must decide upon the distribution of annual dividends. The calculation of annual dividends is based on our consolidated, audited consolidated financial statements for the immediately preceding fiscal year.

Each holder of shares at the time a dividend is declared is entitled to receive dividends. In our case, holders of preferred shares have the right to receive dividends that are 75 times greater than the dividends attributed to each common share. Under Brazilian corporate law, dividends are generally required to be paid within 60 days from the date on which the dividend is declared, unless the shareholders’ resolution establishes another payment date. The dividend must be paid at the latest before the end of the year in which it is declared.

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Shareholders have three years from the date of payment to claim their dividends or interest on shareholders’ equity, after which the unclaimed dividends or interest revert to us.

Distributions of Interest on Shareholders’ Equity

Brazilian corporations are permitted to pay interest on equity capital to shareholders and to treat those payments as a deductible expense for purposes of calculating Brazilian corporate income tax and social contribution tax. The interest is calculated based on the TJLP, as set by the Central Bank from time to time, and cannot exceed the greater of 50% of net income (after deduction of the social contribution tax on net income, and without taking account of the distribution being made and any income tax deduction) for the period in relation to which the payment is made, or 50% of retained profits and profit reserves as of the date of the beginning of the period in respect of which the payment is made. The payment of interest on equity capital represents an alternative form of dividend payment to shareholders. The amount distributed to shareholders as interest on equity capital, net of any income tax, may be included as part of the mandatory dividend distribution. Brazilian corporate law requires us to pay shareholders an amount sufficient to ensure that the net amount they receive in respect of interest on equity capital, after payment of the applicable withholding tax, plus the amount of declared dividends, is at least equivalent to the mandatory dividend amount.

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TAXATIO N

The following summary contains a description of certain Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of preferred shares, including in the form of ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase preferred shares, including in the form of ADSs. The summary is based upon the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to change.

Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. Holders (as defined below) of preferred shares, including in the form of ADSs. Prospective holders of preferred shares, including in the form of ADSs, should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of preferred shares, including in the form of ADSs, in their particular circumstances.

Brazilian Tax Considerations

The following discussion summarizes the main Brazilian tax consequences of the acquisition, ownership and disposition of preferred shares or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation, or a “Non-Resident Holder.” This discussion is based on Brazilian law as currently in effect, which is subject to change, possibly with retroactive effect, and to differing interpretations. Any change in such law may change the consequences described below.

The tax consequences described below do not take into account the effects of any tax treaties or reciprocity of tax treatment entered into by Brazil and other countries. The discussion also does not address any tax consequences under the tax laws of any state or locality of Brazil.

The description below is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, exchange, ownership and disposition of our preferred shares or ADSs. Prospective purchases are advised to consult their own tax advisors with respect to an investment in our preferred shares or ADSs in light of their particular investment circumstances.

Income Tax

Dividends

Historically, dividends paid by a Brazilian company, such as ourselves, including dividends paid to a Non-Resident Holder, have not been subject to withholding income tax in Brazil, to the extent that such amounts are related to profits generated as of January 1, 1996. Dividends paid from profits generated prior to January 1, 1996 may be subject to Brazilian withholding income tax at varying rates, according to the tax legislation applicable to each corresponding year.

Law No. 11,638, dated December 28, 2007, significantly altered Brazilian corporate law in order to align the Brazilian general accepted accounting principles, or Brazilian GAAP, more closely with IFRS accounting standards. However, Law No. 11,941, dated May 27, 2009, introduced the Transitory Tax Regime, or RTT, in order to render neutral, from a tax perspective, all the changes provided by Law 11,638. Under the RTT, for tax purposes, legal entities should observe the accounting methods and criteria as they were on December 31, 2007. Law No. 12,973, dated May 13, 2014, as amended, abolished the RTT and approved new rules aimed at permanently aligning the Brazilian tax system with IFRS as of January 1, 2015, including with respect to dividend distributions. For the 2014 fiscal year, taxpayers were entitled to elect to adopt the new rules or to continue adopting the RTT.

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Under the RTT, there was controversy over how tax authorities would view certain situations, including whether dividends should be calculated in accordance with IFRS standards or the old Brazilian GAAP. It was debatable whether any dividend distributions made in accordance with IFRS standards in excess of the amount that could have been distributed had the profits been ascertained based on the old Brazilian GAAP would be subject to taxation in Brazil. In view of such controversy, Law No. 12,973/14 expressly stated that dividends calculated in accordance with IFRS standards based on profits ascertained between January 1, 2008 and December 31, 2013 would not be subject to taxation.

Notwithstanding the provisions of Law No. 12,973/14, Brazilian tax authorities issued Normative Ruling No. 1,492, dated September 17, 2014, which provided that dividend distributions supported by IFRS profits ascertained in 2014 that exceeded the amount resulting from the adoption of the old Brazilian GAAP would be: (i) subject to withholding income tax based on progressive rates (0% to 27.5%) if paid to Brazilian individuals; (ii) added to the tax base of the corporate tax (IRPJ/CSL) of the beneficiary if paid to Brazilian companies; (iii) be subject to WHT at a 15% rate if paid to non-residents; or (iv) subject to WHT at a 25% rate if paid to non-residents that are based in blacklisted tax haven jurisdictions. However, this rule would only apply to taxpayers that have not elected to account for the effects of Law No. 12,973/14 (i.e., taxation based on IFRS standards) for the 2014 fiscal year.

Despite our belief that the tax exemption on dividends applies to dividends distributed by Brazilian companies out of profits ascertained in accordance with IFRS principles, if the provisions of Normative Ruling No. 1,492/14 are applicable, dividends ascertained in fiscal year 2014 based on IFRS that exceed the amount that would result from the adoption of the old Brazilian GAAP, for that calendar year, could be subject to withholding income tax, even if it were distributed in 2017 or later, at a rate of 15% or, if the Non-Resident Holder is domiciled in a Low or Nil Tax Jurisdiction (as defined below), 25%. For dividends paid out from profits ascertained in 2015 going forward, there are no such issues and dividends will be exempt, provided that they are distributed pursuant to Brazilian corporate law.

Interest Attributable to Shareholders’ Equity

Law No. 9,249, dated December 26, 1995, as amended, allows a Brazilian corporation, such as ourselves, to make distributions to shareholders of interest on net equity and treat those payments as a deductible expense for purposes of calculating Brazilian corporate income tax and social contribution on net profits, both of which are taxes levied on our profits, as far as the limits described below are observed. These distributions may be paid in cash. For tax purposes, this interest on net equity is limited to the daily pro rata variation of the TJLP (long-term interest rate), as determined by the Central Bank from time to time, and the amount of the deduction may not exceed the greater of:

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50.0% of the net profits (after the social contribution on net profits and before taking into account the provision for corporate income tax and the amounts attributable to shareholders as interest on shareholders’ equity) related to the period in respect of which the payment is made; and

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50.0% of the sum of retained profits and profit reserves as of the date of the beginning of the period in respect of which the payment is made.

Payment of interest on shareholders’ equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15.0%, or 25.0% in case of a resident of a Low or Nil Tax Jurisdiction (as defined below) or where applicable local laws impose restrictions on the disclosure of the shareholding composition or the ownership of investments or the ultimate beneficiary of the income derived from transactions carried out and attributable to a non-Resident Holder. These payments may be included, at their net value, as part of any mandatory dividend. The distribution of interest on shareholders’ equity may be determined by our board of directors. To the extent payment of interest on shareholders’ equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable Brazilian withholding income tax, plus the amount of declared dividends is at least equal to the mandatory dividend.

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On September 30, 2015, the Brazilian federal government enacted Provisional Measure No. 694 in an attempt to increase the withholding income tax on interest on shareholders’ equity from 15% to 18%. In addition, such provisional measure provided that the deductibility of interest on shareholders’ equity should be limited to the lower amount of either (i) the TJLP or (ii) 5% of shareholders’ equity. However, since Provisional Measure No. 694 was not converted into law by the Brazilian Senate within the relevant legal term, it did not produce any effects and was nullified. We cannot assure you that the Brazilian federal government will not try to increase the withholding income tax on interest on shareholders’ equity in the future.

Low or Nil Tax Jurisdictions

According to Law No 9,430, dated December 27, 1996, as amended, Tax Favorable Jurisdiction is a country or location that (i) does not impose taxation on income, (ii) imposes income tax at a rate lower than 20%, or (3) imposes restrictions on the disclosure of shareholding composition or investment ownership.

Additionally, on June 24, 2008, Law No. 11,727 introduced the concept of “privileged tax regime,” which is defined as a tax regime that (i) does not tax income or taxes it at a maximum rate lower than 20%; (ii) grants tax benefits to non-resident entities or individuals (a) without the requirement to carry out substantial economic activity in the country or dependency or (b) contingent to the non-exercise of substantial economic activity in the country or dependency; (iii) does not tax or that taxes income generated abroad at a maximum rate of lower than 20%; or (iv) does not provide access to information related to shareholding composition, ownership of assets and rights or economic transactions carried out.

On November 28, 2014, the Brazilian tax authorities issued Ordinance No. 488, which decreased these minimum thresholds from 20% to 17% for specific cases. Under Ordinance No. 488, the 17% threshold applies only to countries and regimes aligned with international standards of fiscal transparency, in accordance with rules to be established by the Brazilian tax authorities.

We consider that the best interpretation of Law No. 11,727/08 that the new concept of “privileged tax regime” would be applicable solely for purposes of transfer pricing and thin capitalization rules. However, we are unable to ascertain whether or not the privileged tax regime concept will be extended to the concept of Low or Nil Tax Jurisdiction, though the Brazilian tax authorities appear to agree with our position, in view of the provisions of introduced by Normative Ruling No. 1,037, dated as of June 4, 2010, as amended, which presents two different lists (Low or Nil Tax Jurisdictions—taking into account the non-transparency rules—and privileged tax regimes).

Notwithstanding the above, we recommend that you consult your own tax advisors regarding the consequences of the implementation of Law No. 11,727, Normative Ruling No. 1,037 and of any related Brazilian tax law or regulation concerning Low or Nil Tax Jurisdictions or “privileged tax regimes.”

Taxation of Gains

According to Article 26 of Law No. 10,833, dated December 29, 2003, as amended, gains related to the sale or disposition of assets located in Brazil, such as our common shares, by a Non-Resident Holder, are subject to withholding income tax in Brazil, regardless of whether the sale or disposition is made by a Non-Resident Holder to another non-resident of Brazil or to a Brazilian resident.

As a general rule, capital gains realized as a result of a sale or disposition of common shares are equal to the positive difference between the amount realized on the sale or disposition and the respective acquisition costs of the common shares.

There is a controversy regarding the currency that should be considered for purposes of determining the capital gain realized by a Non-Resident Holder on a sale or disposition of shares in Brazil, more specifically, if such capital gain is to be determined in foreign or in local currency.

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Under Brazilian law, income tax on such gains can vary depending on the domicile of the Non-Resident Holder, the type of registration of the investment by the Non-Resident Holder with the Central Bank and how the disposition is carried out, as described below.

Currently, capital gains realized by Non-Resident Holders on a sale or disposition of shares carried out on the Brazilian stock exchange (including the organized over-the-counter market) are:

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exempt from income tax when realized by a Non-Resident Holder that (1) has registered its investment in Brazil with the Central Bank under the rules of Resolution 4,373/14 of the Brazilian Monetary Council, or a 4,373 Holder, and (2) is not resident or domiciled in a Low or Nil Tax Jurisdiction;

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subject to income tax at a rate of 15% in the case of gains realized by (A) a Non-Resident Holder that (1) is not a 4,373 Holder and (2) is not resident or domiciled in a Low or Nil Tax Jurisdiction ; or (B) a Non- Resident Holder that (1) is a 4,373 Holder, and (2) is resident or domiciled a Low or Nil Tax Jurisdiction; or

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subject to income tax at a rate of up to 25% in the case of gains realized by a Non-Resident Holder that (1) is not a 4,373 holder, and (2) is resident or domiciled in a Low or Nil Tax Jurisdiction.

A withholding income tax of 0.005% will apply and can be offset against the eventual income tax due on the capital gain. Such withholding does not apply to a 4,373 Holder that is not resident or domiciled in a Low or Nil Tax Jurisdiction.

Any capital gains realized on the disposition of shares that are not carried out on the Brazilian stock exchange are:

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subject to income tax at progressive rates that vary from 15% to 22.5%, as further detailed below, when realized by a Non-Resident Holder that is not resident or domiciled in a Low or Nil Tax Jurisdiction; and

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subject to income tax at a rate of up to 25% when realized by a Non-Resident Holder that is resident or domiciled in a Low or Nil Tax Jurisdiction.

In the cases above, if the capital gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with the intermediation of a financial institution the withholding income tax of 0.005% will apply and can be later offset against any income tax due on the capital gains.

In the case of redemption of shares or capital reduction by a Brazilian corporation, such as ourselves, the positive difference between the amount effectively received by the Non-Resident Holder and the corresponding acquisition cost is treated, for tax purposes, as capital gains derived from sale or exchange of shares that is not carried out on a Brazilian stock exchange market, and is therefore subject to income tax at the rate of 15% or up to 25%, in case of beneficiaries resident or domiciled in a Low or Nil Tax Jurisdiction.

On September 22, 2015, the Brazilian federal government enacted Provisional Measure No. 692/2015, converted into Law No. 13,259, of March 16, 2016, or Law No. 13,259/16, which introduced a regime based on the application of progressive tax rates for income taxation on capital gains recognized by Brazilian individuals on the disposition of assets in general. Under Law No. 13,259/16, effective as from January 1, 2017, the income tax rates on capital gains recognized by Brazilian individuals, which also applies to a Non-Resident Holder, would be: (i) 15% for the part of the gain that does not exceed R$5 million, (ii) 17.5% for the part of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the part of the gain that exceeds R$10 million but does not exceed R$30 million and (iv) 22.5% for the part of the gain that exceeds R$30 million.

As a general rule, the increased capital gains taxation regime should apply to transactions conducted outside of the Brazilian stock exchange or the organized OTC market. Also, as a general rule, a foreign investor who is a resident of or has a domicile in a Low or Nil Tax Jurisdiction would be subject to income tax at a rate of up to 25%, as mentioned above. However, although debatable, if the Non-Resident Holder is a 4,373 Holder, it is possible to sustain that the income tax should not apply at progressive rates. Furthermore, as a general rule, gains recognized by a Non-Resident Holder in transactions executed on the Brazilian stock exchange or the organized OTC market should not be subject to the increased capital gains taxation under Law No. 13,259.

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In the case of a redemption of shares or a capital reduction by a Brazilian corporation, such as ourselves, the positive difference between the amount received by a Non-Resident Holder and the acquisition cost of the shares redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market and is therefore subject to income tax at the progressive rates, or the 25% flat rate mentioned above, as the case may be. However, although debatable, if the Non-Resident Holder is a 4,373 Holder, it is possible to sustain that the income tax should not apply at progressive rates.

Any exercise of preemptive rights relating to shares or ADSs will not be subject to Brazilian withholding income tax. Gains realized by a Non-Resident Holder on the disposition of preemptive rights will be subject to Brazilian income tax according to the same rules applicable to disposition of shares or ADSs.

There can be no assurance that the current favorable tax treatment of Resolution 4,373 Holders will continue in the future.

Sales of ADSs

Arguably, the gains realized by a Non-Resident Holder on the disposition of ADSs to another non-Brazilian resident are not subject to Brazilian tax, based on the argument that the ADSs would not constitute assets located in Brazil for purposes of Law No. 10,833/03. However, we cannot assure you how Brazilian courts would interpret the definition of assets located in Brazil in connection with the taxation of gains realized by a Non-Resident Holder on the disposition of ADSs to another non-Brazilian resident. As a result, gains on a disposition of ADSs by a Non-Resident Holder to Brazilian resident, or even to a Non-Resident Holder in the event that courts determine that the ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil according to the rules described above.

Gains on the exchange of ADSs for shares

Non-Resident Holders may exchange ADSs for the underlying shares, sell the shares on a Brazilian stock exchange and remit abroad the proceeds of the sale. As a general rule, the exchange of ADSs for shares is not subject to income taxation in Brazil.

Upon receipt of the underlying shares in exchange for ADSs, Non-Resident Holders may also elect to register with the Central Bank the U.S. dollar value of such shares as a foreign portfolio investment under No. 4,373/14, which will entitle them to the tax treatment referred above on the future sale of the shares.

Alternatively, the Non-Resident Holder is also entitled to register with the Central Bank the U.S. dollar value of such shares as a foreign direct investment under Law 4,131/62, in which case the respective sale would be subject to the tax treatment applicable to transactions carried out of by a Non-Resident Holder that is not a 4,373 Holder.

Gains on the exchange of shares for ADSs

The deposit of shares in exchange for the ADSs by a Non-Resident Holder may be subject to Brazilian withholding income tax on capital gains if the acquisition cost is lower than the shares price verified on the exchange date. The capital gains ascertained by the Non-Resident Holder, in this case, should be subject to taxation at rates that vary from 15% to 22.5%, depending on the amount of the gain, as referred to above; or at 25% if realized by a Non-Resident Holder that is resident or domiciled in a Low or Nil Tax Jurisdiction. In certain circumstances, there may be arguments to sustain the position that such taxation is not applicable to 4,373 Holders that are not resident or domiciled in a Low or Nil Tax Jurisdiction.

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Tax on Foreign Exchange and Financial Transactions

Foreign Exchange Transactions

Brazilian law imposes an IOF/Exchange Tax, due on the conversion of Brazilian currency into foreign currency (e.g., for purposes of paying dividends and interest) and the conversion of foreign currency into Brazilian currency. Currently, for most exchange transactions, the rate of IOF/Exchange Tax is 0.38%.

Effective as of December 1, 2011, IOF/Exchange Tax at a rate of 0% applies to foreign exchange transactions entered into in connection with the inflow of proceeds to Brazil for investments made by a foreign investor (including a Non-Resident Holder) in (1) variable income transactions carried out on the Brazilian stock, futures and commodities exchanges, and (2) the acquisitions of shares of Brazilian publicly-held companies in public offerings or subscription of shares related to capital contributions, provided that the company has registered its shares for trading with the stock exchange. As of June 5, 2013, this beneficial tax treatment was extended to all investments made under the rules of CMN Resolution 4,373/14 in the Brazilian financial and capital markets, including the investment in common shares. The IOF/Exchange Tax at a rate of 0% also applies for the outflow of funds from Brazil related to these types of investments, including payments of dividends and interest on shareholders’ equity and the repatriation of funds invested in the Brazilian market.

However, any increase in rates may only apply to future foreign exchange transactions. Furthermore, the IOF/Exchange is currently levied at a 0% rate on the withdrawal of ADSs into shares. Nonetheless, the Brazilian government is permitted to increase the rate at any time to a maximum of 25%, but only in relation to future transactions.

Tax on Transactions involving Bonds and Securities

Brazilian law imposes a Tax on Transactions Involving Bonds and Securities, or “IOF/Bonds”, on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange. The rate of IOF/Bond Tax applicable to transactions involving the transfer of shares traded on the Brazilian stock exchange with the purpose of the issuance of depositary receipts to be traded outside Brazil is currently zero, although the Brazilian government may increase such rate at any time up to 1.5% of the transaction amount per day, but only in respect of future transactions.

On December 24, 2013, the Brazilian government reduced the IOF/Bonds Tax to zero for transactions involving the deposit of shares which are issued by a Brazilian company admitted to trade on the Brazilian stock exchange with the specific purpose of enabling the issuance of depositary receipts traded outside Brazil. Any increase in this rate may only apply to future transactions.

Other Brazilian Taxes

There are no Brazilian federal inheritance, gift or succession taxes applicable on the ownership, transfer or disposition of shares by individuals or entities not domiciled in Brazil. Gift and inheritance taxes, however, may be levied by some states in Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled in Brazil or in the relevant state to individuals or entities that are resident or domiciled within such state in Brazil There are no Brazilian stamp, issue, registration, or similar taxes payable by holders of shares, or shares comprised of shares.

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Material U.S. Federal Income Tax Consequences

The following discussion is a general discussion of the material U.S. federal income tax consequences relating to the acquisition, ownership and disposition of preferred shares, including in the form of ADSs. This discussion deals only with U.S. Holders (as defined below) that purchase the preferred shares, including in the form of ADSs, for cash pursuant to this prospectus and that hold preferred shares, including in the form of ADSs, as capital assets (generally, property held for investment). This discussion does not purport to address all of the tax considerations that may be relevant to U.S. Holders based upon their particular circumstances and may not apply to certain types of investors subject to special treatment under the U.S. federal income tax laws (such as banks or other financial institutions, insurance companies, regulated investment companies, real estate investment trusts, partnerships or other pass-through entities for U.S. federal income tax purposes or investors in such entities, investors liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, tax-exempt organizations, dealers in securities or currencies, investors that hold preferred shares, including in the form of ADSs, as part of a straddle or hedging, constructive sale, integrated or conversion transactions for U.S. federal income tax purposes, a person that actually or constructively owns 10% or more of the total combined voting power in our stock, traders in securities that have elected the mark-to-market method of accounting for their securities, or persons whose functional currency is not the U.S. dollar).

The discussion is based on the U.S. Internal Revenue Code of 1986, as amended through the date hereof, or the Code, its legislative history, existing and proposed U.S. Treasury regulations thereunder, published rulings and court decisions, all as of the date hereof and all subject to change at any time, perhaps with retroactive effect.

No assurance can be given that the Internal Revenue Service, or the IRS, will agree with the views expressed in this discussion, or that a court will not sustain any challenge by the IRS in the event of litigation. This discussion does not include any description of the tax laws of any state, local, municipal or non-U.S. government that may be applicable to a particular investor and does not consider the Medicare tax on net investment income or any aspects of U.S. federal tax law other than income taxation.

As used herein, the term “U.S. Holder” means a beneficial owner of a preferred share, including in the form of an ADS, that is, for U.S. federal income tax purposes: (a) an individual who is a citizen or resident of the United States; (b) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (d) a trust (i) if a court within the United States can exercise primary supervision over its administration, and one or more U.S. persons have the authority to control all of the substantial decisions of that trust or (ii) that was in existence on August 20, 1996, and validly elected under applicable U.S. Treasury regulations to continue to be treated as a domestic trust. If a partnership or an entity or an arrangement that is treated as a partnership for U.S. federal income tax purposes holds preferred shares, including in the form of ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. Partners in partnerships that hold preferred shares, including in the form of ADSs, are encouraged to consult their tax advisors.

Except where specifically described below, this discussion assumes that we are not a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes. See the discussion under “—Passive Foreign Investment Company Considerations” below.

The discussion below assumes that the representations contained in the ADS deposit agreement are true and that the obligations in the ADS deposit agreement and any related agreements will be complied with in accordance with their terms. In general, for U.S. federal income tax purposes, U.S. Holders who own ADSs will be treated as the beneficial owners of the preferred shares represented by those ADSs. Accordingly, the surrender of ADSs in exchange for preferred shares (or vice versa) will not result in the realization of gain or loss for U.S. federal income tax purposes. The rest of this discussion assumes that a holder of an ADS will be treated for U.S. federal income tax purposes as directly holding the underlying preferred shares. The U.S. Treasury Department has expressed concern that depositaries for ADRs, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. Holders of such receipts or shares. These actions would also be inconsistent with claiming the reduced rate for “qualified dividend income” described below. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Brazilian withholding taxes and availability of the reduced rate for qualified dividend income could be affected by future actions that may be taken by the depositary and the U.S. Treasury Department.

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EACH PERSON CONSIDERING THE ACQUISITION OF PREFERRED SHARES, INCLUDING IN THE FORM OF ADSs, IS ENCOURAGED TO CONSULT ITS OWN INDEPENDENT TAX ADVISOR REGARDING THE SPECIFIC U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSIDERATIONS OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE PREFERRED SHARES, INCLUDING IN THE FORM OF ADSs.

Taxation of Dividends and Other Distributions

Subject to the PFIC rules discussed below, distributions of cash or property with respect to preferred shares, including in the form of ADSs, (including any distributions paid in the form of interest attributable to stockholders’ equity for Brazilian tax purposes and the amount of any Brazilian taxes withheld on any such distribution, if any) will constitute ordinary dividend income to the extent of our current and accumulated earnings and profits (as determined for U.S. federal income tax purposes). Dividends generally will be includible in a U.S. Holder’s gross income on the day on which the dividends are received by the depositary in the case of a holder of ADSs, or by the U.S. Holder in the case of a holder of preferred shares, not in the form of ADSs. Any distributions in excess of such earnings and profits will constitute a nontaxable return of capital and reduce a U.S. Holder’s tax basis in such preferred shares or ADSs. To the extent such distributions exceed a U.S. Holder’s tax basis in its preferred shares or ADSs, such excess will constitute capital gain and generally will be treated as described below under “—Sale or Other Taxable Disposition of Preferred Shares, Including in the Form of ADSs.” Because we do not intend to maintain calculations of our earnings and profits on the basis of U.S. federal income tax principles, U.S. Holders should expect that any distribution paid generally will be reported to them as a dividend. Dividends on preferred shares, including in the form of ADSs will not be eligible for the dividends received deduction allowed to U.S. corporations.

A U.S. Holder may be entitled, subject to a number of complex limitations and conditions (including a minimum holding period requirement), to claim a U.S. foreign tax credit in respect of any Brazilian income taxes withheld on dividends received in respect of the preferred shares, including those in the form of ADSs. A U.S. Holder who does not elect to claim a credit for any foreign income taxes paid during the taxable year may instead claim a deduction in respect of such income taxes provided the U.S. Holder elects to deduct (rather than credit) all foreign income taxes for that year. Dividends received in respect of preferred shares, including in the form of ADSs, generally will be treated as foreign-source income, subject to various classifications and other limitations and generally will be treated as passive category income for most U.S. Holders for purposes of the foreign tax credit limitation. However, for any period we are treated as a “United States-owned foreign corporation,” a portion of any dividends paid by us during such period may be treated as U.S. source solely for purposes of the foreign tax credit. We would be treated as a United States-owned foreign corporation if 50% or more of the total value or total voting power of our shares is owned, directly, indirectly or by attribution, by United States persons. To the extent any portion of our dividends is treated as U.S.-source income pursuant to this rule, the ability of a U.S. Holder to claim a foreign tax credit for any Brazilian withholding taxes payable in respect of our dividends may be limited. The rules relating to computing foreign tax credits or deducting foreign taxes are extremely complex, and U.S. Holders are encouraged to consult their own tax advisors regarding the availability of foreign tax credits under their particular circumstances.

Dividends paid in reais (including the amount of any Brazilian taxes withheld therefrom, if any) will be includible in a U.S. Holder’s gross income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the reais are received by the depositary, in the case of a holder of ADSs, or by the U.S. Holder in the case of a holder of preferred shares not in the form of ADSs, regardless of whether the dividends are converted into U.S. dollars. If the reais are converted to U.S. dollars on the date of such receipt, a U.S. Holder generally will not recognize a foreign currency gain or loss. However, if the U.S. Holder converts the reais into U.S. dollars on a later date, the U.S. Holder must include in gross income any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (i) the U.S. dollar value of the amount included in income when the dividend was received and (ii) the amount received on the conversion of the reais into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is includible in a U.S. Holder’s gross income to the date such payment is converted into U.S. dollars will be foreign currency gain or loss and will be treated as ordinary income or loss. Such gain or loss generally will be treated as income from sources within the United States. U.S. Holders are encouraged to consult their own independent tax advisors regarding the treatment of foreign currency gain or loss, if any, on any reais received that are converted into U.S. dollars on a date subsequent to receipt by the depositary or the U.S. Holder, as the case may be.

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Distributions treated as dividends that are received by a non-corporate U.S. Holder (including an individual) from “qualified foreign corporations” generally qualify for a reduced maximum tax rate so long as certain holding period and other requirements are met. Dividends paid on preferred shares, including in the form of ADSs, should qualify for the reduced rate if we are treated as a “qualified foreign corporation.” For this purpose, a qualified foreign corporation means any foreign corporation provided that: (i) the corporation was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a PFIC (as discussed below), (ii) certain holding period requirements are met and (iii) either (A) the corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for the purposes of the qualified dividend rules or (B) the stock with respect to which such dividend was paid is readily tradable on an established securities market in the United States. The ADSs should be considered to be readily tradable on an established securities market in the United States if they are listed on the NYSE, as is expected. Based on existing guidance, it is not entirely clear whether dividends received with respect to the preferred shares not represented by ADSs will be treated as qualified dividend income because the preferred shares are not themselves listed on a U.S. exchange. U.S. Holders are encouraged to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to the preferred shares, including in the form of ADSs.

Sale or Other Taxable Disposition of Preferred Shares, Including in the Form of ADSs

Subject to the PFIC rules discussed below, upon the sale or other taxable disposition of preferred shares, including in the form of ADSs, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized on the sale or other taxable disposition and such U.S. Holder’s tax basis in such preferred shares or ADSs. The amount realized on a sale or other taxable disposition of preferred shares, including in the form of ADSs, generally will be equal to the amount of cash or the fair market value of any other property received. The initial tax basis of a U.S. Holder’s preferred shares that are not held in the form of ADSs will be the U.S. dollar value of the reais denominated purchase price determined on the date of purchase. Gain or loss recognized by a U.S. Holder on such sale or other taxable disposition generally will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the preferred shares, including those in the form of ADSs, have been held for more than one year. Certain non-corporate U.S. Holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deduction of a capital loss is subject to limitations for U.S. federal income tax purposes.

If Brazilian income tax is withheld on the sale or other taxable disposition of preferred shares, including in the form of ADSs, the amount realized by a U.S. Holder will include the gross amount of the proceeds of that sale or other taxable disposition before deduction of the Brazilian income tax. Capital gain or loss, if any, recognized by a U.S. Holder on the sale or other taxable disposition of preferred shares, including in the form of ADSs, generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. Consequently, in the case of a gain from the disposition of a preferred share, including in the form of an ADS, that is subject to Brazilian income tax, the U.S. Holder may not be able to benefit from the foreign tax credit for that Brazilian income tax (i.e., because the gain from the disposition would be U.S. source), unless the U.S. Holder can apply the credit against U.S. federal income tax payable on other income from foreign sources. Alternatively, the U.S. Holder may take a deduction for the Brazilian income tax, provided that the U.S. Holder elects to deduct all foreign taxes paid or accrued for the taxable year. The rules governing foreign tax credits are complex and a U.S. Holder is encouraged to consult its own tax advisor regarding the availability of foreign tax credits under its particular circumstances.

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Passive Foreign Investment Company Considerations

Special U.S. federal income tax rules apply to U.S. persons owning shares of a PFIC. A non-U.S. corporation generally will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries, either:

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at least 75% of its gross income is passive income; or

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at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.

For this purpose, passive income generally includes, among other things, dividends, interest, rents, royalties, gains from the disposition of passive assets (other than gains from the disposition of property that is inventory) and gains from commodities and securities transactions. In addition, if the non-U.S. corporation owns, directly or indirectly, at least 25%, by value, of the shares of another corporation, it will be treated as if it holds directly its proportionate share of the assets and receives directly its proportionate share of the income of such other corporation.

The determination as to whether a non-U.S. corporation is a PFIC is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, the composition of the income and assets of the non-U.S. corporation from time to time and the nature of the activities performed by such non-U.S. corporation. Based on current estimates of our gross income and gross assets, the nature of our business and our current business plans (all of which are subject to change), we do not expect to be classified as a PFIC for our 2016 taxable year and our current taxable year (although the determination cannot be made until the end of such taxable year), and we intend to continue our operations in such a manner that we do not expect to be classified as a PFIC in the foreseeable future. There can be no assurance in this regard, because the PFIC determination is made annually and is based on the portion of our assets and income that is characterized as passive under the PFIC rules.

If we are or become a PFIC for any taxable year during which a U.S. Holder holds preferred shares, including in the form of ADSs, the U.S. Holder will be subject to special tax rules with respect to any “excess distributions” that the U.S. Holder receives and any gain realized from a sale or other disposition of the preferred shares, including those in the form of ADSs, unless the U.S. Holder makes a “mark-to-market” election or a “qualified electing fund,” or QEF, election, as discussed below. Distributions received by a U.S. Holder in a taxable year that are greater than 125% of the average annual distributions received by the U.S. Holder during the shorter of the three preceding taxable years or the U.S. Holder’s holding period for the preferred shares, including those in the form of ADSs, will be treated as excess distributions. Under these special tax rules:

•

the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the preferred shares, including those in the form of ADSs;

•

the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income; and

•

the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the preferred shares, including those in the form of ADSs, cannot be treated as capital, even if a U.S. Holder holds the preferred shares or ADSs as capital assets. If we were a PFIC, certain subsidiaries and other entities in which we have a direct or indirect interest may also be PFICs, or Lower-tier PFICs. Under attribution rules, U.S. Holders would be deemed to own their proportionate shares of Lower-tier PFICs and would be subject to U.S. federal income tax according to the rules described above on (i) certain distributions by a Lower-tier PFIC and (ii) a disposition of shares of a Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even though such U.S. Holder had not received the proceeds of those distributions or dispositions.

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If we are a PFIC, a U.S. Holder may avoid taxation under the rules described above by making a QEF election to include such U.S. Holder’s share of our income on a current basis, provided that we furnish such U.S. Holder annually with certain tax information. If we conclude that we should be treated as a PFIC for any taxable year, we intend to notify each U.S. Holder of such conclusion. However, there can be no guarantee that we will be willing or able to provide the information needed by any U.S. Holder to make a QEF election with respect to the preferred shares, including in the form of ADSs.

If a U.S. Holder makes a QEF election, such U.S. Holder will generally be taxable currently on its pro rata share of our ordinary earnings and net capital gains (at ordinary income and capital gain rates, respectively) for each taxable year during which we are treated as a PFIC, regardless of whether or not such U.S. Holder receives distributions, so that the U.S. Holder may recognize taxable income without the corresponding receipt of cash from us with which to pay the resulting tax obligation. The basis in the preferred shares, including those in the form of ADSs, held by such U.S. Holder will be increased to reflect taxed but undistributed income. Distributions of income that were previously taxed will result in a corresponding reduction of tax basis in the preferred shares, including those in the form of ADSs, and will not be taxed again as distributions to the U.S. Holder.

Alternatively, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election with respect to such stock (but not for the shares of any Lower-tier PFIC) to elect out of the tax treatment discussed above. A U.S. Holder electing the mark-to-market regime generally would compute gain or loss at the end of each taxable year as if the preferred shares, including those in the form of ADSs, had been sold at fair market value. Any gain recognized by the U.S. Holder under mark-to-market treatment, or on an actual sale, would be treated as ordinary income, and the U.S. Holder would be allowed an ordinary deduction for any decrease in the value of its preferred shares, including those in the form of ADSs, as of the end of any taxable year, and for any loss recognized on an actual sale, but only to the extent, in each case, of previously included mark-to-market income not offset by previously deducted decreases in value. Any loss on an actual sale of preferred shares, including those in the form of ADSs, would be a capital loss to the extent in excess of previously included mark-to-market income not offset by previously deducted decreases in value. A U.S. Holder’s tax basis in preferred shares, including those in the form of ADSs, will be adjusted to reflect any such income or loss amounts included in gross income. If a U.S. Holder makes such an election, the tax rules that apply to distributions by corporations that are not PFICs would apply to distributions by us, except that the reduced rate discussed above under “—Taxation of Dividends and Other Distributions” would not apply.

The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. A non-U.S. securities exchange constitutes a qualified exchange if it is regulated or supervised by a governmental authority of the country in which the securities exchange is located and meets certain trading listing, financial disclosure and other requirements set forth in the U.S. Treasury regulations. The NYSE is a qualified exchange. We expect that the ADSs will be listed on the NYSE and, consequently, if the ADSs are regularly traded, the mark-to-market election would be available to a U.S. Holder of ADSs if we were treated as a PFIC. Our preferred shares are listed on the BM&FBOVESPA. It is unclear, however, whether the BM&FBOVESPA would meet the requirements for a “qualified exchange.” As mentioned above, however, the mark-to-market election will not be available for Lower-tier PFICs, so U.S. Holders would remain subject to the interest charge and other rules described above with respect to Lower-tier PFICs.

A U.S. Holder who owns preferred shares, including in the form of ADSs, during any taxable year that we are treated as a PFIC generally would be required to file IRS Form 8621. U.S. Holders are encouraged to consult their own tax advisors regarding the application of the PFIC rules to the preferred shares, including those in the form of ADSs, the availability and advisability of making a mark-to-market election to avoid the adverse tax consequences of the PFIC rules should we be considered a PFIC for any taxable year and the application of the reporting requirements on IRS Form 8621 to their particular situation.

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U.S. Information Reporting and Backup Withholding

Dividend payments with respect to preferred shares, including in the form of ADSs, and proceeds from the sale, exchange or redemption of preferred shares, including in the form of ADSs, may be subject to information reporting to the IRS and possible U.S. backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding and establishes such exempt status. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund in a timely manner with the IRS and furnishing any required information. U.S. Holders are encouraged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

In addition, U.S. Holders should be aware that additional reporting requirements apply (including a requirement to file IRS Form 8938, Statement of Specified Foreign Assets) with respect to the holding of certain foreign financial assets, including stock of foreign issuers which is not held in an account maintained by certain financial institutions, if the aggregate value of all of such assets exceeds US$50,000 at the end of the taxable year or US$75,000 at any time during the taxable year. The thresholds are higher for individuals living outside of the United States and married couples filing jointly. U.S. Holders are encouraged to consult their own tax advisors regarding the application of the information reporting rules to preferred shares, including in the form of ADSs, and the application of these additional reporting requirements for foreign financial assets to their particular situations.

PROSPECTIVE INVESTORS ARE ENCOURAGED TO CONSULT THEIR OWN INDEPENDENT TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF PREFERRED SHARES, INCLUDING IN THE FORM OF ADSs.

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ERISA CONSIDERATION S

The Employee Retirement Income Security Act of 1974, as amended, or ERISA, imposes certain requirements on employee benefit plans subject to Title I of ERISA and on entities that are deemed under ERISA to hold the assets of such plans, or ERISA Plans, and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA Plan’s investments be made in accordance with the documents governing the ERISA Plan.

Section 406 of ERISA and Section 4975 of the Code, prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts and Keogh plans, or an entity deemed under ERISA to hold the assets of such plans (together with ERISA Plans, Plans)) and certain persons (referred to as “parties in interest” under ERISA or “disqualified persons” under Section 4975 of the Code) having certain relationships to such Plans, unless a statutory or administrative prohibited transaction exemption is applicable to the transaction. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code.

Any Plan fiduciary that proposes to cause a Plan to purchase the ADSs should consult with its counsel and other advisors regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such purchase will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA or the Code.

Non-U.S. plans (as described in Section 4(b)(4) of ERISA), governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA), while not subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to other federal, state, local or non-U.S. laws or regulations that are substantially similar to the foregoing provisions of ERISA and the Code, or Similar Law. Fiduciaries of any such plans should consult with their counsel and other advisors before purchasing the ADSs to determine whether the purchase may result in any violation of any Similar Law, and the need for and the availability of, any exemptive relief under any such Similar Law.

Each purchaser of preferred shares, including the ADSs shall be deemed to represent, warrant and agree that for so long as it holds any preferred shares or ADSs (or any interest in any preferred share or ADS) (i) either (A) it is not and is not acting on behalf of a (1) Plan or (2) a non-U.S., governmental or church plan subject to Similar Laws; or (B) its purchase of the preferred share or ADSs (or any interest therein) will not constitute or result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Code and is otherwise permissible under all applicable Similar Laws; and (ii) it will not sell or otherwise transfer the preferred shares or ADSs or any interest therein otherwise than to a purchaser or transferee that is not deemed to make these same representations, warranties and agreements with respect to its purchase of such preferred shares or ADSs.

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UNDERWRITERS (CONFLICTS OF INTEREST)

The global offering consists of (i) an international offering of our preferred shares, offered directly or in the form of ADSs, in the United States and elsewhere outside of Brazil and (ii) a Brazilian offering of our preferred shares, within Brazil. Each ADS represents one of our preferred shares.

Offering of ADSs

We, the Selling Shareholders and the international underwriters named below will enter into an international underwriting and placement agreement with respect to the preferred shares, including in the form of ADSs, being offered in the international offering. Under the terms and subject to the conditions of the international underwriting and placement agreement, each international underwriter, for whom Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Itau BBA USA Securities, Inc. are acting as Representatives, has severally agreed to purchase, and we and the Selling Shareholders have agreed to sell to them, severally, the numbers of ADSs set forth in the following table. The Selling Shareholders and any broker-dealers that act in connection with the sale of our preferred shares in the form of ADSs may be deemed to be “underwriters” within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by such broker-dealers and any profit on the resale of shares sold by them while acting as principals may be deemed to be underwriting discounts or commissions under the Securities Act.


International Underwriters		Number of ADSs
Citigroup Global Markets Inc.		•
Deutsche Bank Securities Inc.		•
Itau BBA USA Securities, Inc.		•
Banco do Brasil Securities LLC		•
Bradesco Securities Inc.		•
J.P. Morgan Securities LLC		•
Raymond James & Associates, Inc.		•
Santander Investment Securities Inc.		•

Total		•

The international underwriters are committed to take and pay for all of the ADSs offered by us and the Selling Shareholders if they purchase any ADSs. The international underwriting agreement also provides that if an international underwriter were to default, the purchase commitments of non-defaulting international underwriters may also be increased or the international offering may be terminated. However, the international underwriters are not required to take or pay for the ADSs covered by the option of the international underwriters described below.

Brazilian offering and placement of preferred shares

We and the Selling Shareholders will also enter into a Brazilian underwriting agreement with Banco Itaú BBA S.A., Citigroup Global Markets Brasil, Corretora de Câmbio, Títulos e Valores Mobiliários S.A., Deutsche Bank S.A. – Banco Alemão, BB – Banco de Investimento S.A., Banco Bradesco BBI S.A., Banco J.P. Morgan S.A. and Banco Santander (Brasil) S.A., and, as intervening party, the BM&FBOVESPA, providing for the concurrent offer and sale of preferred shares in a public offering in Brazil to institutional and retail investors, by way of a separate Brazilian prospectus in Portuguese, including a Formulário de Referência . Each of the international offering and the Brazilian offering is conditioned on the closing of the other.

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The Brazilian underwriting agreement and the international underwriting and placement agreement provide that the obligation of the underwriters to place the preferred shares is subject to, among other conditions, the delivery of (i) certain legal opinions by our, the Selling Shareholders’ and the underwriters’ legal counsel in Brazil and in the United States and (ii) comfort letters from our independent auditors.

Pursuant to the terms of the international underwriting and placement agreement, the international underwriters will act as placement agents on behalf of the Brazilian underwriters identified below with respect to the offering of preferred shares sold to investors located outside Brazil. The Brazilian underwriters will sell preferred shares to investors located within Brazil and, through the international underwriters in their capacity as placement agents, to other U.S. and international investors that are authorized to invest in Brazilian securities under the requirements established by the CMN and CVM. The Brazilian underwriting agreement provides that, subject to certain exceptions, if the preferred shares covered by such agreement are subscribed, but not fully paid for on the settlement date, the Brazilian underwriters are obligated, severally and not jointly, to pay-in those shares on a firm commitment basis, on the proportion and up to the individual limit of commitment undertaken by each Brazilian underwriter under the Brazilian underwriting agreement, as described in the following table:


Brazilian Underwriters		Number of Preferred shares
Banco Itaú BBA S.A.		•
Citigroup Global Markets Brasil, Corretora de Câmbio, Títulos e Valores Mobiliários S.A.		•
Deutsche Bank S.A. – Banco Alemão		•
BB – Banco de Investimento S.A.		•
Banco Bradesco BBI S.A.		•
Banco J.P. Morgan S.A.		•
Banco Santander (Brasil) S.A.		•

Total		•

Option

The Selling Shareholders are granting the international underwriters an option, exercisable upon the mutual agreement of the international underwriters and upon prior written notice from • to the other international underwriters, us and the Selling Shareholders, at any time for a period of 30 days from, and including, the first day of trading of the preferred shares on the BM&FBOVESPA, to purchase up to • additional preferred shares, in the form of ADSs, minus the number of preferred shares sold by the Selling Shareholders pursuant to the Brazilian underwriters’ option referred to below, at the initial public offering price less the underwriting discount and the amount per preferred share of any dividends declared by us and payable on the preferred shares sold by us but not on the preferred shares sold by the Selling Shareholders, solely to cover options to purchase additional shares, if any, provided that the decision to over-allocate the preferred shares (including in the form of ADSs) is made jointly by the international underwriters and the Brazilian underwriters. If any such ADSs are purchased with this option, the international underwriters will purchase ADSs in approximately the same proportion as shown in the International Underwriters table above. If any additional ADSs are purchased with this option, the international underwriters will offer the additional ADSs on the same terms as those ADSs that are being offered pursuant to the international offering. If the option is not exercised in full, the additional ADSs, purchased from each of the Selling Shareholders, respectively, shall be in proportion to the maximum number of additional ADSs to be sold by each of the Selling Shareholders, respectively, as set forth in the international underwriting and placement agreement.

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The Selling Shareholders have also granted the Brazilian underwriters an option, exercisable upon the mutual agreement of the Brazilian underwriters and upon prior written notice from • to the other Brazilian underwriters, us and the Selling Shareholders at any time for a period of 30 days from and including, the first day of trading of the preferred shares on the BM&FBOVESPA, to place up to an additional • preferred shares, minus the number of preferred shares in the form of ADSs sold pursuant to the international underwriters’ option, solely to cover options to purchase additional shares, if any, provided that the decision to over-allocate the preferred shares (including in the form of ADSs) is made jointly by the international underwriters and the Brazilian underwriters. If any such preferred shares are purchased with this option, the Brazilian underwriters will purchase the preferred shares in approximately the same proportion as shown in the table above. If any additional preferred shares are purchased with this option, the Brazilian underwriters will offer the additional preferred shares on the same terms as those preferred shares that are being offered pursuant to the Brazilian offering.

Underwriting Discounts and Commissions

The international underwriters and Brazilian underwriters propose to offer the ADSs and the preferred shares, as the case may be, directly to the public at the offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of US$• per ADS and R$• per preferred share. Any such dealers may resell ADSs or preferred shares, as the case may be, to certain other brokers or dealers at a discount of up to US$• per ADS and R$• per preferred share from the offering price. After the initial public offering, the offering price and other selling terms may be changed. The offering of the ADSs and the preferred shares, as the case may be, by the international underwriters and the Brazilian underwriters is subject to receipt and acceptance and subject to the international underwriters and Brazilian underwriters’ right to reject any order in whole or in part.

The underwriting fee in connection with the offering of ADSs is equal to the public offering price per ADS less the amount paid by the international underwriters to us and the Selling Shareholders. The underwriting fee is US$• per ADS. The following table shows the per ADS and total underwriting discounts and commissions to be paid to the international underwriters in the international offering, assuming no exercise and full exercise of the international underwriters’ option to purchase additional ADSs.


	No Exercise	Full Exercise
Per ADS	US$	US$

Total	US$	US$

The underwriting fee in connection with the offering of preferred shares is equal to the public offering price per preferred share less the amount paid by the Brazilian underwriters to us and the Selling Shareholders. The underwriting fee is R$• per preferred share. The following table shows the per preferred share and total underwriting discounts and commissions to be paid to the Brazilian underwriters (in the Brazilian offering and with respect to the placement of the preferred shares), assuming no exercise and full exercise of the Brazilian underwriters’ option to purchase additional preferred shares.


	No Exercise	Full Exercise
Per Preferred Share	R$	R$

Total	R$	R$

We estimate that the total expenses of the global offering, including taxes, registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately US$•, which includes an amount not to exceed US$• to reimburse the underwriters for their out-of-pocket expenses incurred in connection with this global offering.

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A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters, or selling group members, if any, participating in the global offering. The Representatives may agree to allocate a number of ADSs to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the Representatives to international underwriters and selling group members that may take Internet distributions on the same basis as other allocations.

No Sale of Similar Securities

We have agreed that we will not and will cause our directors and officers not to, (1) issue, offer, pledge, deposit, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the Securities and Exchange Commission or similar Brazilian regulatory authority a registration statement under the Securities Act or Brazilian corporate law, as the case may be, relating to, any of our preferred shares or ADSs or any securities representing or convertible into or exchangeable or exercisable for such securities (including, without limitation, our common shares convertible into preferred shares or such other securities which may be deemed to be beneficially owned by us, any of our directors or officers, in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any issue, offer, sale, pledge, deposit, contract, disposition, filing, or (2) enter into any swap or other agreement that transfers all or a portion of the economic consequences associated with the ownership of our preferred shares or ADSs or any such other securities (regardless of whether any of these transactions in (1) or (2) are to be settled by the delivery of preferred shares or ADSs or such other securities, in cash or otherwise), for a period of 180 days after the date of this prospectus. These restrictions do not apply: (A) to preferred shares and ADSs to be sold in the global offering; (B) to preferred shares we issue upon the exercise of options granted under company stock plans that are in existence as of the date of this prospectus and described herein; (C) transfers of our preferred shares by our directors and officers as bona fide gifts; (D) in connection with the market maker activities, or (E) the loan of a certain number of preferred shares, in order to allow the stabilization of the preferred shares as provided in the Brazilian stabilization agreement, provided that in the case of any transfer pursuant to (C), each donee shall enter into a lock-up agreement in the form of this paragraph and no filing by any party under the Exchange Act or other public announcement shall be required or voluntarily made in connection therewith (other than a Form 5 filing after the 180-day period expires).

In addition, the Selling Shareholders, all of our directors and executive officers and holders of at least 1.0% of our common shares and/or 1.0% of our economic interest, have entered into lock-up agreements with the international underwriters prior to the commencement of the international offering pursuant to which each of these persons or entities, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of the Representatives: (i) offer, pledge, deposit, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any of our preferred shares or ADSs or any securities representing or convertible into or exercisable or exchangeable for such securities (including, without limitation our common shares convertible into preferred shares or any preferred shares or such other securities which may be deemed to be beneficially owned by such Selling Shareholders, directors and executive officers in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge, deposit, contract or disposition, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our preferred shares or ADSs or such other securities (regardless of whether any of these transactions in (i) or (ii) are to be settled by the delivery of preferred shares or ADSs or such other securities, in cash or otherwise), or (iii) make any demand for or exercise any right with respect to the registration of any of our preferred shares or ADSs or any security convertible into or exercisable or exchangeable for our preferred shares or ADSs (including our common shares convertible into preferred shares). These restrictions do not apply: (A) to preferred shares (including in the form of ADSs) to be sold or placed in the international offering, (B) to preferred shares to be sold in the Brazilian offering pursuant to the Brazilian underwriting agreement, (C) to transfers of our preferred shares or ADSs as bona fide gifts, (D) distributions of securities to partners members or stockholders of such Selling Shareholder, director or executive officer, (E) in connection with market maker activities, (F) the loan of a certain number of preferred shares, in order to allow the stabilization of the preferred shares as provided in the Brazilian stabilization agreement, (G) transfers of

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preferred shares to the subsidiaries, affiliates, investment fund or any other entity controlled or managed by, or under common control or management by such Selling Shareholder, director or officer, (H) transfer of preferred shares or ADSs from David Neeleman to his spouse, siblings, parents or lineal descendants or to Saleb II Founder 1 LLC or from Saleb II Founder 1 LLC to David Neeleman or his spouse, siblings, parents or lineal descendants, or (I) any transfer pursuant to a bona fide third party tender offer, merger, consolidation or similar transaction made to all holders of our preferred shares and ADSs involving a change of control of Azul, provided that in the case of any transfer or distribution pursuant to (C), (D), (G), (H) or (I) each donee, distributee or transferee shall enter into a lock-up agreement in the form of this paragraph and, except with respect to transfers or distributions pursuant to (I), no filing by any party under the Exchange Act or other public announcement shall be required or voluntarily made in connection therewith (other than a Form 5 filing after the 180-day period expires). The Representatives in their discretion, may release the preferred shares, ADSs, and other securities subject to the lock-up agreements described above in whole or in part at any time.

Notwithstanding the foregoing, if (i) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs or (ii) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless the Representatives waive, in writing, such extension; provided, however, that if none of the underwriters publishes or distributes a research report or makes a public appearance concerning us within three days after any such release of earnings or announcement of material news or material event, the extension of the restricted period will be only until the later of (i) the last day of the initial restricted period and (ii) the third trading day after such event.

Additionally, pursuant to the regulations of the Level 2 segment of BM&FBOVESPA, our controlling shareholders and our directors and executive officers may not sell and/or offer to sell any common or preferred shares of our company or derivatives of such securities which we or they hold immediately after this global offering, for six months as of the effectiveness of the Level 2 Listing Agreement after the publication in Brazil of the announcement of commencement of this global offering. Following this six-month period, we, the Selling Shareholders and our directors and executive officers may not, for an additional six-month period, sell and/or offer to sell more than 40% of the securities that each of we or they hold immediately after this global offering.

The lock-up restrictions established in the regulations of the Level 2 segment of BM&FBOVESPA will not apply (i) when prior to entering the Level 2 segment of BM&FBOVESPA, shares issued by the entrant Company had been trading on BM&FBOVESPA or on the organized over-the-counter market managed by BM&FBOVESPA, provided however in the latter case the company shall have already performed a public offering; (ii) in case of a share loan in order to allow the shares to be sold in the Brazilian offering to start trading in BM&FBOVESPA in anticipation, subject to prior consent from BM&FBOVESPA; (iii) with respect to shares transferred under an assignment or share loan transaction aiming the performance of the activity of market maker registered with BM&FBOVESPA, limited to shares representing 15% of the total number of shares subject to the lock-up restriction; (iv) with respect to shares transferred under a private transaction, provided in this event that the purchaser will be subject to the same lock-up restrictions for the remainder of the lock-up period; and (v) when shares are sold in tender offers.

Directed Share Program

At our request, the underwriters have reserved up to 5% of the ADSs being offered in this global offering (assuming no exercise of the option to purchase additional shares) for sale at the initial public offering price to persons who are our directors, officers or employees, or who are otherwise associated with us through a directed share program. The number of ADSs available for sale to the general public will be reduced by the number of ADSs purchased by participants in the program. Any ADSs not purchased will be offered by the underwriters to the general public on the same basis as all other preferred shares and ADSs offered.

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Brazilian Retail Offering and Special Allocation Program

Between 10% and 20% of the preferred shares offered in the global offering will be offered on a priority basis to non-institutional investors. Our and Azul Linhas’ directors, officers and employees will have priority to purchase up to 50% of these preferred shares on •, 2017 in amounts starting at R$1,000. These reserved preferred shares account for an aggregate of aproximately •% of the preferred shares offered in the global offering. The preferred shares allocated to this group may not be purchased by other investors unless there is not enough demand.

Indemnification

We and the Selling Shareholders have agreed to indemnify the several international underwriters and the Brazilian underwriters and each of the directors and officers and any person who controls such underwriter, against certain liabilities, including liabilities under the Securities Act. Pursuant to the international underwriting and placement agreement, if we are unable to provide the indemnification as required thereunder, we have agreed to contribute to payments the underwriters and each of the directors and officers and any person who controls such underwriter may be required to make in respect of the international offering of our preferred shares.

Listing

We have applied to have the ADSs approved for listing/quotation on the NYSE under the symbol “•.” We have also applied to list our preferred shares on the Level 2 segment of BM&FBOVESPA, under the symbol “AZUL4”. The ISIN number for our preferred shares is •.

Price Stabilization and Short Positions

In connection with the international offering, the international underwriters, through Citigroup Global Markets Inc. acting as the international stabilization agent, may engage in stabilizing transactions, which involves making bids for, purchasing and selling preferred shares or ADSs in the open market for the purpose of preventing or retarding a decline in the market price of the ADSs or preferred shares while this global offering is in progress. These stabilizing transactions may include making short sales of the preferred shares, including in the form of ADSs, which involves the sale by the international underwriters of a greater number of preferred shares than the number of preferred shares in the form of ADSs than they are required to purchase in this global offering, and purchasing preferred shares, including in the form of ADSs, on the open market to cover positions created by short sales. Short sales may be “covered” shorts, which are short positions in an amount not greater than international underwriters’ option to purchase additional ADSs referred to above, or may be “naked” shorts, which are short positions in excess of that amount. The international underwriters may close out any covered short position either by exercising their option to purchase additional ADSs, in whole or in part, or by purchasing preferred shares, including in the form of ADSs, in the open market. In making this determination, the international underwriters will consider, among other things, the price of preferred shares available for purchase in the open market compared to the price at which the international underwriters may purchase ADSs through the option. A naked short position is more likely to be created if the international underwriters are concerned that there may be downward pressure on the price of the preferred shares or the ADSs in the open market that could adversely affect investors who purchase in the international offering. To the extent that the international underwriters create a naked short position, they will purchase preferred shares, including in the form if ADSs in the open market to cover the position.

The international underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the ADSs and preferred shares, including the imposition of penalty bids. This means that if the international underwriters purchase preferred shares, including in the form of ADSs, in the open market in stabilizing transactions or to cover short sales, they may be required to sell those ADSs as part of the international offering or to repay the underwriting discount received by them.

These activities may have the effect of raising or maintaining the market price of our preferred shares or the ADSs or preventing or retarding a decline in the market price of our preferred shares and the ADSs, and, as a result, the price of our preferred shares and the ADSs may be higher than the price that otherwise might exist in the open market. If the international underwriters commence these activities, they may discontinue them at any time. The international underwriters may carry out these transactions on the NYSE, in the over-the-counter market or otherwise.

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In connection with the Brazilian offering, the Brazilian underwriters, through Citigroup Global Markets Brasil, Corretora de Câmbio, Títulos e Valores Mobiliários S.A. acting as the Brazilian stabilization agent, may engage in transactions on the BM&FBOVESPA that stabilize, maintain or otherwise affect the price of the preferred shares. In addition, it may bid for, and purchase, preferred shares in the open market to cover short positions or stabilize the price of our preferred shares. These stabilizing transactions may have the effect of raising or maintaining the market price of our preferred shares or preventing or retarding a decline in the market price of our preferred shares. As a result, the price of our preferred shares may be higher than the price that might otherwise exist in the absence of these transactions. These transactions, if commenced, may be discontinued at any time. Reports on stabilization activities may be carried out for the period of 30 days from and including, the first day of trading of the preferred shares on the BM&FBOVESPA. A stabilization activities agreement, in the form approved by the CVM and the BM&FBOVESPA, has been executed simultaneously with the execution of the Brazilian underwriting agreement.

Prior to this global offering, there has been no public market for our ADSs or preferred shares. The public offering price will be determined by negotiations between us, the international underwriters and Brazilian underwriters. In determining the public offering price, we and the international and Brazilian underwriters expect to consider a number of factors including:

•

the information set forth in this prospectus and otherwise available to the international underwriters and Brazilian underwriters;

•

our prospects and the history and prospects for the industry in which we compete;

•

an assessment of our management;

•

our prospects for future earnings;

•

the general condition of the capital markets at the time of this global offering;

•

the recent market prices of, and demand for, publicly traded securities of generally comparable companies; and

•

other factors deemed relevant by the international underwriters and Brazilian underwriters.

Neither we nor the international and Brazilian underwriters can assure investors that an active trading market will develop for our ADSs or preferred shares, or that such ADSs or preferred shares will trade in the public market at or above the public offering price.

Other Relationships

The international underwriters and their respective affiliates (including the Brazilian underwriters) are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the international underwriters and their affiliates (including certain Brazilian underwriters) have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us (including aircraft financing) and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions.

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In March 2016, Citibank S.A., an affiliate of Citigroup Global Markets, Inc., through Citibank N.A., also an affiliate of Citigroup Global Markets, Inc., provided a US$39.5 million Brazilian real -indexed loan to Azul Linhas. As of February 6, 2017, the outstanding amount on that loan was US$30 million. Additionally, Citibank S.A. issued a series of standby letters of credit on behalf of us from December 2015 through October 2016, mostly relating to maintenance reserve deposits, which have been renewed and modified from time to time. As of February 6, 2017, the aggregate notional amount under those standby letters of credit then in effect was approximately US$48.2 million. In May 2016, Citibank S.A. entered into a fuel hedge derivative agreement with Azul Linhas, the aggregate notional amount of which, as of February 6, 2017, was approximately US$40.0 million. Finally, as of February 6, 2017, Citibank N.A. had a credit card exposure to Azul Linhas with a maximum limit of US$150,000.

Deutsche Bank SpA and Deutsche Bank AG, affiliates of Deutsche Bank S.A.—Banco Alemão and Deutsche Bank Securities Inc., entered into a series of aircraft financing agreements with Blue Turbo 1 Finance Limited, an affiliate of Azul Linhas, from October 2011 through July 2012, in an aggregate notional amount of US$82.5 million. As of February 6, 2017, an aggregate amount of US$56.0 million remained outstanding under those agreements. Additionally, Deutsche Bank S.A.—Banco Alemão issued a series of standby letters of credit on behalf of Azul Linhas from June 2015 through November 2015 relating to aircraft maintenance reserve deposits, which have been renewed and modified from time to time. As of February 6, 2017, the aggregate notional amount under those standby letters of credit that remained in effect was US$43.7 million.

As of February 6, 2017, entities affiliated with Itaú BBA S.A. (all such entities comprising the “Itaú Group”) provided cash management services to us and our affiliates amounting to approximately R$3 million per month. In addition, entities within the Itaú Group provided accounts payable management services to us and our affiliates amounting to approximately R$600 million through the Itaú Group’s SISPAG payment system. As of February 6, 2017, entities within the Itaú Group held approximately R$103 million in total aggregate amount of debentures due 2019 issued by Azul Linhas on September 19, 2014 bearing interest at 127% of the CDI Rate. Banco Itaucard S.A., a member of the Itaú Group, has offered a co-branded credit card together with TudoAzul since September 2014. As of February 6, 2017, Bozano, one of the Selling Shareholders, possessed a brokerage account at Itaú Corretora de Valores S.A. Itaú BBA S.A. and we currently have a master derivatives agreement as well as a supply chain financing agreement in place pursuant to which we may mutually agree to enter into certain derivatives transactions and reverse factoring transactions, respectively, from time to time. Finally, we and the following individuals and entities affiliated with us have bank accounts held at Banco Itaú: ATS Viagens e Turismo Ltda., Gianfranco Beting, João Carlos Fernandes and Regis da Silva Brito. As of February 6, 2017, no significant debt was outstanding by the Itaú Group to us or any of our affiliates.

As of January 26, 2017, approximately R$32.4 million remained outstanding under various credit transactions between Azul Linhas and Banco do Brasil S.A., the parent entity of Banco do Brasil Securities LLC and BB-Banco de Investimento S.A., including R$254.0 million in non-recourse credit card receivables transactions, R$113.4 million in equipment financing, US$7.14 million in export financing, as well as other credit transactions. In addition, as of the date of this prospectus, Banco do Brasil S.A. held R$530.25 million in outstanding principal amount of non-convertible debentures due 2019 issued by Azul Linhas. Banco do Brasil S.A. has been informed that part of the proceeds of this offering will be used to make the first amortization payment under the non-convertible debentures due 2019 issued by Azul Linhas. Banco do Brasil S.A. has been informed that part of the proceeds of this offering will be used to make the first amortization payment under the non-convertible debentures due 2019 issued by Azul Linhas.

As of February 6, 2017, Banco Bradesco S.A., the parent entity of Banco Bradesco BBI S.A. and Bradesco Securities, Inc., held approximately R$350 million in outstanding principal amount of debentures due 2019. The amount of R$150 million outstanding matures in December 2019 and pays interest of CDI Rate plus 2.85%. The amount of R$200 million matures in September 2019 and pays interest of 127% of CDI Rate. In addition, Banco Bradesco S.A. is the manager of our private pension plan, which had approximately R$100 million in assets as of February 6, 2017, with average monthly inflows of approximately R$2 million. Banco Bradesco S.A. also manages our portfolio of American Express cards receivables, which had R$120 million in assets as of February 6, 2017.

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Bradesco Asset Management S.A. DTVM, an affiliate of Banco Bradesco BBI S.A. and Bradesco Securities, Inc., manages a private investment fund wholly-owned by Grupo Águia Branca, parent company of Rio Novo Locações Ltda., a Selling Shareholder, which had average monthly inflows of approximately R$1.5 million and shareholders’ equity of approximately R$264 million as of September 30, 2016.

TRIP Participações S.A. is a Selling Shareholder in the offering, and Bradesco S.A. has contracted a loan in the initial amount of R$50 million (actual value of R$73 million), which matures in June 2020. TRIP Participações S.A. agreed to pay interest at CDI Rate plus 3.5% and principal in monthly installments. The loan has been renegotiated and the last renegotiation took place in 2015. This loan was used to acquire Total Linhas Aéreas S.A., and is endorsed by Águia Branca Group.

As of the date of this prospectus, J.P. Morgan and its affiliates did not have any transactional relationship with us and our affiliates other than through its role as an underwriter in this global offering.

As of the date of this prospectus, Raymond James and its affiliates did not have any transactional relationship with us and our affiliates other than through its role as an underwriter in this global offering.

Banco Santander S.A., the parent entity of Santander Investment Securities Inc., and/or its affiliates entered into a series of aircraft related financing agreements with Blue Turbo 1 Finance Limited, an affiliate of us, starting in October 2011 and maturing through July 2024, and leasing agreements with Aviación Antares, also an affiliate of us, starting in June 2010 and maturing through September 2022. As of January 16, 2017, the aggregate notional amount outstanding under the financing agreements was US$2.8 million and the aggregate notional amount outstanding under the leasing agreements was US$198.0 million. In addition, Banco Santander S.A. issued a series of guarantees on behalf of us starting from June 2016 and expiring in December 2017, totaling US$34.0 million in aggregate notional amount. As of January 16, 2017, the aggregate notional amount under these guarantees that remained in effect was US$34.0 million. Banco Santander S.A. also entered into a swap agreement with us on August 20, 2010, terminating on July 21, 2022. As of January 16, 2017, the aggregate notional amount under this swap agreement that remained in effect was US$5.6 million.

As described in “Use of Proceeds,” a portion of the net proceeds of the offering will be used to repay R$333 million of our indebtedness, including certain indebtedness held by the international underwriters, the Brazilian underwriters and/or their affiliates. However, except as described below under “Underwriters (Conflicts of Interest)—Conflicts of Interest,” such repayments will not result in any international underwriter, Brazilian underwriter or their respective affiliates receiving at least 5% of the net offering proceeds.

The international underwriters and/or their affiliates (including the Brazilian underwriters) may enter into derivative transactions in connection with our preferred shares or ADSs, acting at the order and for the account of their clients. The international underwriters and/or their affiliates (including the Brazilian underwriters) may also purchase some of our preferred shares or ADSs offered hereby to hedge their risk exposure in connection with these transactions. Such transactions may have an effect on demand, price or other terms of the offering without, however, creating an artificial demand during the offering. The international underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

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Conflicts of Interest

Other than with respect to the registration of this offering with the CVM and the SEC, no action has been or will be taken in any country or jurisdiction by us, the Selling Shareholders or the underwriters that would permit a public offering of the preferred shares, or possession or distribution of any offering material in relation thereto, in any country or jurisdiction where action for that purpose is required.

Selling Restrictions

The preferred shares, including in the form of ADSs, offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any preferred shares or ADSs offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State no offer of the preferred shares or ADSs which are the subject of the offering contemplated by this prospectus will be made to the public in that Relevant Member State other than:

(a)

to any legal entity which is a qualified investor as defined in the Prospectus Directive;

(b)

to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the Representatives, on behalf of the international underwriters and the Brazilian underwriters; or

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(c)

in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of the preferred shares or ADSs shall require the Issuer, the international underwriters or the Brazilian underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an “offer of preferred shares or ADSs to the public” in relation to any preferred shares or ADSs in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the preferred shares or ADSs to be offered so as to enable an investor to decide to purchase or subscribe for the preferred shares or ADSs, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State.

United Kingdom

This communication is only directed at persons who (i) are outside the United Kingdom or (ii) are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) are persons falling within Article 49(2)(a) to (e) of the Order (all such persons together being referred to as “relevant persons”). This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this communication.

France

This prospectus has not been prepared, and is not distributed, in the context of a public offering of financial securities in France within the meaning of Article L. 411-1 of the French Code monétaire et financier . Consequently, no preferred shares, including in the form of ADSs, have been offered or sold or will be offered or sold, directly or indirectly, to the public in France, and any other offering material relating to the preferred shares, including in the form of ADSs, may not be, and will not be distributed or caused to be distributed to the public in France or used in connection with any offer to the public in France.

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Such offers, sales and distributions of preferred shares, including in the form of ADSs, will be made only to Permitted Investors, consisting of (i) persons licensed to provide the investment service of portfolio management for the account of third parties, and (ii) qualified investors ( investisseurs qualifiés ) acting for their own account, all as defined in, and in accordance with, Articles L. 411-2, D. 411-1, D. 744-1 D. 754-1, and D. 764-1 of the French Code monétaire et financier and applicable regulations thereunder.

Prospective investors, including Permitted Investors, are informed that (i) this prospectus has not been and will not be submitted to the clearance of the French Financial Market Authority (“AMF”), (ii) in compliance with articles L. 411-1, D. 411-1, D. 744-1, D. 754-1, and D. 764-1 of the French Code monétaire et financier, any qualified investor subscribing to the preferred shares, including in the form of ADSs, should be acting for their own account, and (iii) the direct or indirect distribution or sale to the public of the preferred shares, including in the form of ADSs, acquired by them may only be made in compliance with Articles L. 411-1, L. 411-2, L. 412-1, and L. 621-8 through L. 621-8-3 of the French Code monétaire et financier .

Germany

The preferred shares, including in the form of ADSs, will not be offered, sold or publicly promoted or advertised in the Federal Republic of Germany other than in compliance with the German Securities Prospectus Act ( Wertpapierprospektgesetz ) as of June 22, 2005, effective as of July 1, 2005, as amended, or any other laws and regulations applicable in the Federal Republic of Germany governing the issue, offering and sale of securities. No securities prospectus ( Wertpapierprospeckt ) within the meaning of the German Securities Prospectus Act has been or will be filed with the Financial Supervisory Authority of the Federal Republic of Germany or otherwise published in Germany and no public offer of the preferred shares, including in the form of ADS, will be permitted in Germany. No offer, sale or delivery of the preferred shares, including in the form of ADSs, or distribution of copies of any document relating to the preferred shares, including in the form of ADSs, will be made in Germany except: (a) to qualified investors, as defined in Section 2 no. 6 of the German Securities Prospectus Act; or (b) in any other circumstances where an express exemption from compliance with the public offer restrictions applies, as provided under Section 3(2) of the German Securities Prospectus Act.

Ireland

Ireland has implemented the EU Prospectus Directive, and the section of this prospectus entitled “Underwriters – Selling Restrictions – Member States of the European Economic Area” is applicable, in addition to the provisions that follow.

The preferred shares, including in the form of ADSs, will not be offered, sold, placed or underwritten in Ireland:

•

except in circumstances which do not require the publication of a prospectus pursuant to Article 3(2) of the EU Prospectus Directive;

•

otherwise than in compliance with the provisions of the Irish Companies Act 2014 (as amended);

•

otherwise than in compliance with the provisions of the European Communities (Markets in Financial Instruments) Regulations 2007 (S.I. No. 60 of 2007) (as amended), and in accordance with any codes or rules of conduct and any conditions or requirements, or any other enactment, imposed or approved by the Central Bank of Ireland with respect to anything done by them in relation to the preferred shares, including in the form of ADSs; and

•

otherwise than in compliance with the provisions of the Market Abuse Regulation (Regulation (EU) No 596/2014 as amended), the Irish European Union (Market Abuse) Regulations 2016 (as from time to time amended) and any rules or guidance issued by the Central Bank of Ireland from time to time under Section 1370 of the Irish Companies Act 2014 (as amended).

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Italy

Italy has implemented the EU Prospectus Directive, and the section of this prospectus entitled “Underwriters – Selling Restrictions – Member States of the European Economic Area” is applicable, in addition to the provisions that follow.

The offering of the preferred shares, including in the form of ADSs, has not been registered pursuant to Italian securities legislation and, accordingly, no preferred shares, including in the form of ADSs, may be offered, sold or delivered, nor may copies of this prospectus or any other document relating to the preferred shares, including in the form of ADSs, be distributed in the Republic of Italy except: (a) to qualified investors ( investitori qualificati ) (“Qualified Investors”), as defined under Article 34-ter, paragraph 1, letter b), of CONSOB Regulation No. 11971 of 14 May 1999, as amended (“Regulation 11971/1999”); or (b) in circumstances which are exempted from the rules on offers of securities to be made to the public pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998 (“Financial Services Act”) and Article 34-ter, first paragraph, of Regulation 11971/1999.

Any offer, sale or delivery of the preferred shares, including in the form of ADSs, in the Republic of Italy or distribution of copies of this prospectus or any other document relating to the preferred shares, including in the form of ADSs, in the Republic of Italy under (a) and (b) above must be: (i) made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29 October 2007 and Legislative Decree No. 385 of 1 September 1993, as amended; and (ii) in compliance with any other applicable laws and regulations.

Investors should also note that, in accordance with Article 100-bis of the Financial Services Act, where no exemption under (b) above applies, the subsequent distribution of the preferred shares, including in the form of ADSs, on the secondary market in the Republic of Italy must be made in compliance with the rules on offers of securities to be made to the public provided under the Financial Services Act and the Regulation 11971/1999. Failure to comply with such rules may result, inter alia, in the sale of such preferred shares, including in the form of ADSs, being declared null and void and in the liability of the intermediary transferring the preferred shares, including in the form of ADSs, for any damages suffered by the investors.

Netherlands

The Netherlands has implemented the EU Prospectus Directive, and the section of this prospectus entitled “Underwriters – Selling Restrictions – Member States of the European Economic Area” is applicable, in addition to the provisions that follow.

Any offers to non-qualified investors in accordance with the EU Prospectus Directive must include exemption wording and a logo as required by Article 5:20(5) of the Dutch Act on Financial Supervision ( Wet op het financieel toezicht ). On a strict interpretation of the law, failure to use the logo (or to comply with the strict rules about its use) may result in the relevant limb of the private placement exemption being unable to be relied upon.

Spain

Spain has implemented the EU Prospectus Directive, and the section of this prospectus entitled “Underwriters – Selling Restrictions – Member States of the European Economic Area” is applicable, in addition to the provisions that follow.

Neither the preferred shares, including in the form of ADSs, nor the prospectus, have been approved or registered with the Spanish Securities Markets Commission ( Comision Nacional del Mercado de Valores ). Accordingly, the preferred shares, including in the form of ADSs, may not be offered or sold in Spain, except in circumstances which do not constitute a public offering of securities within the meaning of article 35 of the Spanish Securities Market Law of 28 July 1988 ( Ley 24/1988, de 28 de julio, del Mercado de Valores ), as amended and restated, and supplemental rules enacted thereunder.

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Switzerland

This prospectus, as well as any other material relating to the preferred shares, including in the form of ADSs, which are the subject of the international offering contemplated by this prospectus, do not constitute a public offering prospectus, as that term is understood pursuant to Article 652a and Article 1156 of the Swiss Federal Code of Obligations. The preferred shares, including in the form of ADSs, will not be listed on the SIX Swiss Exchange and, therefore, the documents relating to the preferred shares, including in the form of ADSs, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of the SIX Swiss Exchange.

This prospectus is being communicated in Switzerland to a small number of selected investors only. Each copy of this prospectus is addressed to a specifically named recipient and may not be passed on to third parties. The preferred shares, including in the form of ADSs, are not being offered to the public in Switzerland, and neither this prospectus, nor any other offering materials relating to the preferred shares, including in the form of ADSs, may be distributed in connection with any such public offering.

Norway

Norway has implemented the EU Prospectus Directive, and the section of this prospectus entitled “Underwriters – Selling Restrictions – Member States of the European Economic Area” is applicable.

Sweden

Sweden has implemented the EU Prospectus Directive, and the section of this prospectus entitled “Underwriters – Selling Restrictions – Member States of the European Economic Area” is applicable, provided that notwithstanding any other provision in this prospectus, the preferred shares, including in the form of ADSs, may not be, directly or indirectly, offered for subscription or purchase and invitations to subscribe for or buy the preferred shares, including in the form of ADSs, may not be issued and no drafts or final documents in relation to any such offer may be distributed, except in circumstances that will not result in a requirement to prepare a prospectus pursuant to the provisions of the Swedish Financial Instruments Trading Act ( Sw. (lag (1991:980) om handel med finansiella instrument )).

Australia

This prospectus is not a product disclosure statement or a prospectus under the Corporations Act 2001 (Cth) (“Corporations Act”).

Accordingly, the preferred shares, including in the form of ADSs, may not be offered, issued, sold or distributed in Australia by the underwriters, or any other person, under the prospectus other than by way of or pursuant to an offer or invitation that does not need disclosure to investors under Part 6D.2 or Part 7.9 of the Corporations Act, whether by reason of the investor being a ‘wholesale client’ (as defined in section 761G of the Corporations Act and applicable regulation) or otherwise.

This prospectus does not constitute or involve a recommendation to acquire, an offer or invitation for issue or sale, an offer or invitation to arrange the issue or sale, or an issue or sale, of preferred shares, including in the form of ADSs, to a ‘retail client’ (as defined in section 761G of the Corporations Act and applicable regulations) in Australia.

China

This prospectus does not constitute a public offer of the preferred shares, including in the form of ADSs, whether by sale or subscription, in the People’s Republic of China (“China”). The preferred shares, including in the form of ADSs, are not being offered or sold directly or indirectly in China to or for the benefit of, legal or natural persons of China.

Further, no legal or natural persons of China may directly or indirectly purchase any of the preferred shares, including in the form of ADSs or any beneficial interest therein without obtaining all prior governmental approvals that are required in China, whether statutorily or otherwise. Persons who come into possession of this prospectus are required by the Company and its representatives to observe these restrictions.

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Hong Kong

This prospectus has not been reviewed or approved by or registered with any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice. No person may offer or sell in Hong Kong, by means of any document, any preferred shares, including in the form of ADSs, other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer or invitation to the public within the meaning thereof. No person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the preferred shares, including in the form of ADSs, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to preferred shares, including in the form of ADSs, which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder or to any persons in the circumstances referred to in paragraph (ii) above.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the preferred shares, including in the form of ADSs, may not be circulated or distributed, nor may the preferred shares, including in the form of ADSs, be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than:

(i)

to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”);

(ii)

to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA; or

(iii)

otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the preferred shares, including in the form of ADSs, are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

(a)

a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

(b)

a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the preferred shares, including in the form of ADSs, pursuant to an offer made under Section 275 of the SFA except:

(1)

to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person where the transfer arises from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

(2)

where no consideration is or will be given for the transfer;

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(3)

where the transfer is by operation of law;

(4)

as specified in Section 276(7) of the SFA; or

(5)

as specified in Regulation 32 of the Securities and Futures (Offers of Investments)(Shares and Debentures) Regulations 2005 of Singapore.

Qatar

The preferred shares, including in the form of ADSs, are only being offered to a limited number of investors who are willing and able to conduct an independent investigation of the risks involved in an investment in such preferred shares, including in the form of ADSs. The prospectus does not constitute an offer to the public and is for the use only of the named addressee and should not be given or shown to any other person (other than employees, agents or consultants in connection with the addressee’s consideration thereof). No transaction will be concluded in the jurisdiction of Qatar.

United Arab Emirates

FOR UNITED ARAB EMIRATES RESIDENTS ONLY

This prospectus, and the information contained herein, does not constitute, and is not intended to constitute, a public offer of securities in the United Arab Emirates and accordingly should not be construed as such. The preferred shares, including in the form of ADSs, are only being offered to a limited number of sophisticated investors in the United Arab Emirates (a) who are willing and able to conduct an independent investigation of the risks involved in an investment in such preferred shares, including in the form of ADSs, and (b) upon their specific request. The preferred shares, including in the form of ADSs, have not been approved by or licensed or registered with the United Arab Emirates Central Bank, the Emirates Securities and Commodities Authority or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This prospectus is for the use of the named addressee only and should not be given or shown to any other person (other than employees, agents or consultants in connection with the addressee’s consideration thereof). No transaction will be concluded in the jurisdiction of the United Arab Emirates.

Canada

Notice to Prospective Investors in Canada

The preferred shares, including in the form of ADSs, may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the preferred shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

223

Argentina

This prospectus includes a private invitation to invest in preferred shares, including in the form of ADSs. It is addressed only to you on an individual, exclusive, and confidential basis, and its unauthorized copying, disclosure, or transfer by any means whatsoever is absolutely and strictly forbidden. Neither the Company nor any underwriter will provide copies of this prospectus, nor provide any kind of advice or clarification, nor accept any offer or commitment to purchase the preferred shares, including in the form of ADSs, to or from persons other than the intended recipient. The offer herein contained is not a public offering, and as such it is not and will not be registered with, or authorised by, the applicable enforcement authority. The information contained herein has been compiled by the Company, who assumes the sole responsibility for the accuracy of the data herein disclosed.

Colombia

This prospectus does not constitute a public offer in the Republic of Colombia. The offer of the preferred shares, including in the form of ADSs, is addressed to less than one hundred specifically identified investors. The preferred shares, including in the form of ADSs, may not be promoted or marketed in Colombia or to Colombian residents, unless such promotion and marketing is made in compliance with Decree 2555 of 2010 and other applicable rules and regulations related to the promotion of foreign securities in Colombia.

The distribution of this prospectus and the offering of preferred shares, including in the form of ADSs, may be restricted in certain jurisdictions. The information contained in this prospectus is for general guidance only, and it is the responsibility of any person or persons in possession of this prospectus and wishing to make application for preferred shares, including in the form of ADSs, to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Prospective applicants for preferred shares, including in the form of ADSs, should inform themselves of any applicable legal requirements, exchange control regulations and applicable taxes in the countries of their respective citizenship, residence or domicile.

Mexico

The preferred shares, including in the form of ADSs, have not been and will not be registered in Mexico with the National Registry of Securities, maintained by the Mexican National Banking Commission and, as a result, may not be offered or sold publicly in Mexico. The Company and any underwriter or purchaser may offer and sell the preferred shares, including in the form of ADSs, in Mexico, to Institutional and Accredited Investors, on a private placement basis, pursuant to Article 8 of the Mexican Securities Market Law. Specific requirements apply in relation to any marketing materials relating to such an offer or sale to Institutional and Accredited Investors, on a private placement basis.

Peru

The preferred shares, including in the form of ADSs, have not been registered before the Superintendency of the Securities Market ( Superintendencia del Mercado de Valores ) (“SMV”) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This prospectus is only for the exclusive use of institutional investors in Peru and is not for public distribution.

224

Chile

ESTA OFERTA PRIVADA SE INICIA EL DÍA • Y SE ACOGE A LAS DISPOSICIONES DE LA NORMA DE CARÁCTER GENERAL Nº 336 DE LA SUPERINTENDENCIA DE VALORES Y SEGUROS.

ESTA OFERTA VERSA SOBRE VALORES NO INSCRITOS EN EL REGISTRO DE VALORES O EN EL REGISTRO DE VALORES EXTRANJEROS QUE LLEVA LA SUPERINTENDENCIA DE VALORES Y SEGUROS, POR LO QUE TALES VALORES NO ESTÁN SUJETOS A LA FISCALIZACIÓN DE ÉSTA.

POR TRATAR DE VALORES NO INSCRITOS NO EXISTE LA OBLIGACIÓN POR PARTE DEL EMISOR DE ENTREGAR EN CHILE INFORMACIÓN PÚBLICA RESPECTO DE LOS VALORES SOBRE LOS QUE VERSA ESTA OFERTA.

ESTOS VALORES NO PODRÁN SER OBJETO DE OFERTA PÚBLICA MIENTRAS NO SEAN INSCRITOS EN EL REGISTRO DE VALORES CORRESPONDIENTE

This private offer commences on • and it avails itself of the General Regulation No. 336 of the Superintendence of Securities and Insurance.

This offer relates to securities not registered with the Securities Registry or the Registry of Foreign Securities of the Superintendence of Securities and Insurance, and therefore such shares are not subject to oversight by the latter.

Being unregistered securities, there is no obligation on the issuer to provide public information in Chile regarding such securities.

These securities may not be subject to a public offer until they are registered in the corresponding Securities Registry.

225

EXPENSES OF THE GLOBAL OFFERIN G

We estimate that our expenses in connection with the international offering, other than underwriting discounts and commissions, will be as follows:


Expenses	Amount (in U.S. dollars)
Securities and Exchange Commission registration fee	US$	•
NYSE listing fee	US$	•
Financial Industry Regulatory Authority filing fee	US$	•
Printing and engraving expenses	US$	•
Legal fees and expenses	US$	•
Accounting fees and expenses	US$	•
Miscellaneous costs	US$	•

Total	US$	•

All amounts in the table are estimated except the Securities and Exchange Commission registration fee, the NYSE listing fee and the Financial Industry Regulatory Authority (FINRA) filing fee. The depositary has agreed to pay some of these expenses on our behalf, subject to the closing of the international offering. • will pay a total of • in respect of underwriting discounts and commissions and certain expenses of the offering, assuming full exercise of the over allotment option.

226

VALIDITY OF SECURITIE S

The validity of the ADSs and certain matters of U.S. law will be passed upon for us by Shearman & Sterling LLP, New York, New York. The validity of the preferred shares and other matters governed by Brazilian law will be passed upon for us by Pinheiro Neto Advogados, São Paulo, Brazil. The underwriters have been represented by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, and Lefosse Advogados, São Paulo, Brazil.

227

EXPERT S

The consolidated financial statements of Azul as of December 31, 2016, 2015 and 2014, and for each of the three years in the period ended December 31, 2016, appearing in this prospectus and related registration statement have been audited by Ernst & Young Auditores Independentes S.S., independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

228

WHERE YOU CAN FIND MORE INFORMATIO N

We have filed with the SEC a registration statement (including amendments and exhibits to the registration statement) on Form F-1 under the Securities Act. This prospectus, which is part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information, we refer you to the registration statement and the exhibits and schedules filed as part of the registration statement. If a document has been filed as an exhibit to the registration statement, we refer you to the copy of the document that has been filed. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit. Each statement regarding a contract, agreement or other document is qualified in its entirety by reference to the actual document.

Upon completion of this global offering we will be subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers. Accordingly, we will be required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy the reports and other information to be filed with the SEC at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of the materials may be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at http: //www.sec.gov, from which you can electronically access the registration statement and its materials.

As a foreign private issuer, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act. For example, we are not required to prepare and issue quarterly reports. However, we will be required to file annual reports on Form 20-F within the time period required by the SEC, which is currently four months from December 31, the end of our fiscal year. As a foreign private issuer, we are exempt from Exchange Act rules regarding proxy statements and short-swing profits.

We will provide the depositary with annual reports in English, which will include a review of operations and annual audited consolidated financial statements prepared in accordance with IFRS.

You may request a copy of our SEC filings, at no cost, by contacting us at our headquarters at Edifício Jatobá, 8 ^th floor, Castelo Branco Office Park, Avenida Marcos Penteado de Ulhôa Rodrigues, 939, Tamboré, Barueri, São Paulo, Brazil, or by phone at the number +55 (11) 4831-2880, Attention: Investor Relations Department.

229

ENFORCEABILITY OF CIVIL LIABILITIE S

We are incorporated under the laws of Brazil. Substantially all of our directors and officers and certain of the experts named herein are non-U.S. residents, and all or a significant portion of the assets of those persons may be, and the most significant portion of our assets are, located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon those persons or to enforce against them or against us in U.S. courts judgments predicated upon civil liability provisions of the U.S. federal or state securities laws.

One of our subsidiaries, Canela Investments LLC, is a limited liability company incorporated under Delaware law. Canela Investments LLC is the parent company of nine aircraft operating companies, each of which is also incorporated in Delaware, that finance and operate a total of 13 of our aircraft. Judgments against us could be enforced against these U.S. assets.

A judgment obtained outside Brazil against us, the Selling Shareholders, our directors and officers, or the experts named in this prospectus, would be enforceable in Brazil, without reconsideration of the merits, upon confirmation of that judgment by the Brazilian Superior Court of Justice. That confirmation will occur if the foreign judgment (i) complies with all formalities required for enforcement under the laws of the jurisdiction where it was rendered; (ii) is issued by a court of competent jurisdiction after proper service of process on the parties and such service either complies with Brazilian law, if made in Brazil, or, after sufficient evidence of the parties’ absence from Brazil, as required by applicable law; (iii) is final and thus, not subject to appeal; (iv) is apostilled by the appropriate authority of the state rendering such foreign judgment in accordance with the Hague Convention of October 5, 1961 Abolishing the Requirement of Legalization for Foreign Public Documents, or the Apostille Convention, or, if the rendering state is not a signatory to the Apostille Convention, is duly authenticated by the appropriate Brazilian consulate; (v) does not violate a final and unappealable decision issued by a Brazilian court; (vi) is translated into Portuguese by a certified translator in Brazil, unless an exemption is provided by an international treaty to which Brazil is a signatory; and (vii) is not contrary to Brazilian national sovereignty, public policy or public morality.

In addition, a plaintiff, whether Brazilian or non-Brazilian, that resides outside Brazil during the course of litigation in Brazil must provide a bond to guarantee court costs and legal fees if the plaintiff owns no real property in Brazil that could secure payment, unless an exemption is provided by an international treaty to which Brazil is a signatory. This bond must be sufficient to satisfy the payment of court fees and defendant attorney’s fees, as determined by the Brazilian judge, except in the case of the enforcement of foreign judgments that have been duly confirmed by the Brazilian Superior Tribunal de Justiça . Notwithstanding the foregoing, we cannot assure you that confirmation of any judgment will be obtained, or that the process described above can be conducted in a timely manner.

Furthermore, to become a Level 2 segment of BM&FBOVESPA company, we have adhered exclusively to the Market Arbitration Chamber of the BM&FBOVESPA for resolution of disputes between us and our investors relating to or derived from the enforceability, validity, applicability, interpretation, breach and its effects, of the provisions of the Brazilian corporate law, the Company’s bylaws, the rules published by the CMN, the Central Bank, the CVM, and other rules applicable to the Brazilian capital markets in general, including the Level 2 rules, the Level 2 listing agreement, the Level 2 sanctions regulation and the rules of the Market Arbitration Chamber of the BM&FBOVESPA. Therefore, any disputes among our shareholders and holders of ADSs, and disputes between us and our shareholders and holders of ADSs, will be submitted to the Market Arbitration Chamber of the BM&FBOVESPA. As a result, a court in the United States could require that a claim brought by a holder of ADSs predicated upon the U.S. securities laws be submitted to arbitration in accordance with our bylaws. In that event, a purchaser of ADSs would be effectively precluded from pursuing remedies under the U.S. securities laws in the U.S. courts. However, a court in the United States could allow claims predicated upon the U.S. securities laws brought by holders who purchased ADSs on the NYSE to be submitted to U.S. courts.

We have appointed National Corporate Research, Ltd. as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

230

INDEX TO FINANCIAL STATEMENTS


	Page no.
Audited Consolidated Financial Statements of Azul S.A.
Report of Independent Registered Public Accounting Firm		F-4
Consolidated Statement of Financial Position as of December 31, 2016, 2015 and 2014		F-5
Consolidated Statement of Operations for the Years Ended December 31, 2016, 2015 and 2014		F-7
Consolidated Statement of Other Comprehensive Loss for the Years Ended December 31, 2016, 2015 and 2014		F-8
Consolidated Statement of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014		F-9
Consolidated Statement of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014		F-10
Notes to Consolidated Financial Statements		F-11

F-1

Consolidated Financial Statements

Azul S.A.

December 31, 2016, 2015 and 2014

with Report of Independent Registered Public Accounting Firm

F-2

Consolidated financial statements

December 31, 2016, 2015 and 2014

Contents



Report of independent registered public accounting firm			F-4
Consolidated financial statements
Consolidated statement of financial position			F-5
Consolidated statement of operations			F-7
Consolidated statement of other comprehensive loss			F-8
Consolidated statement of changes in equity			F-9
Consolidated statement of cash flows			F-10
Notes to consolidated financial statements			F-11

F-3

Report of independent registered public accounting firm

To the Board of Directors and Shareholders of

Azul S.A.

We have audited the accompanying consolidated statements of financial position of Azul S.A. (“Company”) and subsidiaries as of December 31, 2016, 2015 and 2014, and the related consolidated statements of operations, other comprehensive loss, changes in equity and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Azul S.A. and its subsidiaries at December 31, 2016, 2015 and 2014 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (“IASB”).

/s/ ERNST & YOUNG

Auditores Independentes S.S.

São Paulo, Brazil

February 6, 2017

F-4

Azul S.A.

Consolidated statement of financial position

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais)


	As of December 31,
	2016		2015		2014
Assets
Current assets
Cash and cash equivalents (Note 5)		549,164		636,505		388,959
Short-term investments (Note 6)		331,210		29,853		499,831
Restricted investments (Note 7)		53,406		80,714		16,727
Trade and other receivables, net (Note 8)		673,275		650,408		654,086
Inventories (Note 9)		107,102		92,446		88,097
Taxes recoverable		44,488		42,591		32,489
Derivative financial instruments (Note 21)		17,638		41,039		32,231
Prepaid expenses (Note 10)		97,501		107,271		84,172
Other current assets		36,542		174,277		28,355

Total current assets		1,910,326		1,855,104		1,824,947
Non-current assets
Related parties (Note 11)		9,180		—		—
Long-term investments (Note 1)		753,200		—		—
Restricted investments (Note 7)		108,630		10,739		50,736
Security deposits and maintenance reserves (Note 12)		1,078,005		1,215,709		774,387
Derivative financial instruments (Note 21)		4,132		—		—
Prepaid expenses (Note 10)		6,907		113,128		66,197
Other non-current assets		147,433		168,188		134,680
Property and equipment (Note 13)		3,439,980		3,552,994		2,497,613
Intangible assets (Note 14)		942,616		923,302		890,639

Total non-current assets		6,490,083		5,984,060		4,414,252
Total assets		8,400,409		7,839,164		6,239,199

F-5

Azul S.A.

Consolidated statement of financial position

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais)


	As of December 31,
	2016			2015			2014
Liabilities and equity
Current liabilities
Loans and financing (Note 16)		985,238			1,249,303			567,607
Accounts payable		1,034,317			1,052,121			881,809
Air traffic liability (Note 17)		949,360			877,850			831,679
Salaries, wages and benefits		186,474			158,087			170,606
Insurance premiums payable		24,264			32,033			27,805
Taxes payable		64,830			95,936			83,446
Federal tax installment payment program		6,468			6,362			8,316
Derivative financial instruments (Note 21)		211,128			228,896			12,333
Financial liabilities at fair value through profit and loss (Note 22)		44,655			330,901			269,892
Other current liabilities		110,909			28,336			—

Total current liabilities		3,617,643			4,059,825			2,853,493
Non-current liabilities
Loans and financing (Note 16)		3,049,257			3,561,642			2,691,577
Derivative financial instruments (Note 21)		20,223			53,195			41,324
Deferred income taxes (Note 15)		181,462			46,197			50,083
Federal tax installment payment program		75,560			82,171			88,532
Provision for tax, civil and labor risk (Note 29)		76,353			81,775			67,494
Provision for return of aircrafts and engines (Note 18)		—			57,739			30,201
Other non-current liabilities		377,924			288,789			—

Total non-current liabilities		3,780,779			4,171,508			2,969,211
Equity
Issued capital (Note 19)		1,488,601			479,423			474,001
Capital reserve		1,290,966			838,658			521,255
Other comprehensive loss (Note 19)		(33,785	)		(92,769	)		(36,185	)
Accumulated losses		(1,743,795	)		(1,617,481	)		(542,576	)

		1,001,987			(392,169	)		416,495
Total liabilities and equity		8,400,409			7,839,164			6,239,199

The accompanying notes are an integral part of these financial statements.

F-6

Azul S.A.

Consolidated statement of operations

Year ended December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except loss per share)


	For the year ended December 31,
	2016			2015			2014
Operating revenue (Note 24)
Passenger revenue		5,786,809			5,575,344			5,129,613
Other revenue		883,082			682,522			673,440

Total revenue		6,669,891			6,257,866			5,803,053
Operating expenses
Aircraft fuel		(1,560,223	)		(1,917,606	)		(1,955,036	)
Salaries, wages and benefits		(1,091,871	)		(1,042,119	)		(991,449	)
Aircraft and other rent		(1,160,912	)		(1,171,325	)		(689,055	)
Landing fees		(442,692	)		(382,610	)		(314,402	)
Traffic and customer servicing		(327,289	)		(307,926	)		(240,783	)
Sales and marketing		(276,203	)		(258,214	)		(239,359	)
Maintenance materials and repairs		(708,739	)		(643,897	)		(353,339	)
Depreciation and amortization		(301,201	)		(217,983	)		(197,755	)
Other operating expenses, net (Note 26)		(456,475	)		(483,773	)		(420,949	)

		(6,325,605	)		(6,425,453	)		(5,402,127	)

Operating income (loss)		344,286			(167,587	)		400,926
Financial result (Note 25)
Financial income		51,067			43,178			41,518
Financial expense		(731,200	)		(685,919	)		(460,049	)
Derivative financial instruments, net		10,800			(82,792	)		4,245
Foreign currency exchange, net		179,668			(184,305	)		(74,104	)

		(489,665	)		(909,838	)		(488,390	)
Result from related party transactions, net (Note 11e)		163,045			—			—

Net income (loss) before income tax and social contribution		17,666			(1,077,425	)		(87,464	)
Income tax and social contribution (Note 15)		8,731			(1,366	)		(4,368	)
Deferred income tax and social contribution (Note 15)		(152,711	)		3,886			26,792

Net loss for the year		(126,314	)		(1,074,905	)		(65,040	)

Basic and diluted net loss per common share—R$ (Note 20)		(0.01	)		(0.14	)		(0.01	)
Basic and diluted net loss per preferred share—R$ (Note 20)		(1.10	)		(10.84	)		(0.69	)

The accompanying notes are an integral part of these financial statements.

F-7

Azul S.A.

Consolidated statement of other comprehensive loss

Year ended December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais)


	For the year ended December 31,
	2016			2015			2014
Net loss for the year		(126,314	)		(1,074,905	)		(65,040	)
Other comprehensive loss to be reclassified to profit or loss in subsequent periods:
Changes in fair value of cash flow hedges, net of tax		58,984			(56,584	)		(1,162	)

Total comprehensive loss for the year		(67,330	)		(1,131,489	)		(66,202	)

The accompanying notes are an integral part of these financial statements.

F-8

Azul S.A.

Consolidated statements of changes in equity

Year ended December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais)


	Issued capital		Capital reserve			Cash flow hedge reserve			Accumulated losses			Total
January 01, 2014		473,969		514,903			(35,023	)		(477,536	)		476,313
Profit for the period		—		—			—			(65,040	)		(65,040	)
Other comprehensive loss		—		—			(1,162	)		—			(1,162	)

Total comprehensive loss		—		—			(1,162	)		(65,040	)		(66,202	)
Issued capital		32		—			—			—			32
Share-based payment		—		6,352			—			—			6,352

December 31, 2014		474,001		521,255			(36,185	)		(542,576	)		416,495
Profit for the period		—		—			—			(1,074,905	)		(1,074,905	)
Other comprehensive loss		—		—			(56,584	)		—			(56,584	)

Total comprehensive loss		—		—			(56,584	)		(1,074,905	)		(1,131,489	)
Issued capital (Note 1 and 19)		5,422		307,567			—			—			312,989
Share-based payment (Note 28)		—		9,836			—			—			9,836

December 31, 2015		479,423		838,658			(92,769	)		(1,617,481	)		(392,169	)
Profit for the period		—		—			—			(126,314	)		(126,314	)
Other comprehensive loss		—		—			58,984			—			58,984

Total comprehensive loss		—		—			58,984			(126,314	)		(67,330	)
Issued capital (Note 1 and 19)		985,174		487,934			—			—			1,473,108
Share issued cost		—		(21,501	)		—			—			(21,501	)
Capitalization of reserve (Note 19)		24,004		(24,004	)		—			—			—
Share-based payment (Note 28)		—		9,879			—			—			9,879

December 31, 2016		1,488,601		1,290,966			(33,785	)		(1,743,795	)		1,001,987

The accompanying notes are an integral part of these financial statements.

F-9

Azul S.A.

Consolidated statement of cash flows

Year ended December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais)


	For the year ended December 31,
	2016			2015			2014
Cash flows from operating activities
Net loss for the year		(126,314	)		(1,074,905	)		(65,040	)
Adjustments to reconcile net loss to cash flows provided by (used in) operating activities
Depreciation and amortization (Note 13 and 14)		301,201			217,983			197,755
Write-off of fixed assets and intangibles (Note 13 and 14)		63,425			34,831			48,866
Results from derivative financial instruments		41,119			158,402			(42,228	)
Share-based payment expenses		9,879			9,836			6,352
Exchange (gain) and losses on assets and liabilities denominated in foreign currency		(527,724	)		328,383			166,526
Interest (income) and expenses on assets and liabilities		300,634			299,198			230,046
Deferred income tax and social contribution		135,265			(3,886	)		(26,792	)
Allowance for doubtful accounts (Note 8)		(2,729	)		3,048			191
Provision for tax, civil and labor risks (Note 29)		53,688			60,116			28,268
Provision for obsolescence (Note 9)		2,894			(1,317	)		1,792
Provision for return of aircrafts and engines (Note 18)		(53,270	)		10,729			7,252
Profit on sale of property and equipment		(119,586	)		(80,326	)		(15,509	)
Changes in operating assets and liabilities
Trade and other receivables, net		(20,138	)		630			(220,277	)
Inventories		(17,550	)		(3,033	)		(4,918	)
Security deposits and maintenance reserves		(68,927	)		(59,994	)		(182,595	)
Prepaid expenses		34,958			(70,030	)		(52,444	)
Recoverable taxes		(1,897	)		(10,102	)		(29,372	)
Other assets		183,212			(179,430	)		(4,673	)
Accounts payable		(17,804	)		170,312			187,815
Salaries, wages and employee benefits		28,387			(12,519	)		13,248
Insurance premiums payable		(7,769	)		4,228			3,375
Taxes payable		(31,106	)		12,490			(10,696	)
Federal installment payment program		(6,505	)		(8,315	)		96,848
Air traffic liability		71,510			46,171			219,938
Provision taxes, civil and labor risks (Note 29)		(59,110	)		(45,835	)		(35,189	)
Other liabilities		171,708			109,366			—
Interest paid		(342,773	)		(287,068	)		(221,007	)

Net cash (used) provided by operating activities		(5,322	)		(371,037	)		297,532

Cash flows from investing activities
Short-term investment
Acquisition of short-term investments		(679,029	)		(515,219	)		(1,439,165	)
Disposal of short-term investments		377,272			994,687			1,062,208
Long-term investment
Acquisition of long-term investments from related party (Note 1)		(360,769	)		—			—
Acquisition of long-term investments		(1,093	)		—			—
Restricted investments		(70,583	)		(23,990	)		90,020
Proceeds from sale of property and equipment		531,963			248,384			33,239
Acquisition of property and equipment and intangibles (Note 13 and 14)		(442,110	)		(1,246,368	)		(447,776	)

Net cash used in investing activities		(644,349	)		(542,506	)		(701,474	)

Cash flows from financing activities
Debentures
Proceeds		146,633			196,604			1,087,293
Repayment		(150,001	)		(50,000	)		(475,000	)
Loans and financing
Proceeds		833,011			1,194,027			641,113
Repayment		(1,399,084	)		(1,026,892	)		(1,080,807	)
Redemption of preferred shares (Note 16)		(310,656	)		—			—
Proceeds from issue of share capital, net of share issued cost (Note 1 and 19)		1,451,607			312,989			32
Loan to shareholder (Note 11)		(9,180	)		—			—
Sales and leaseback		—			534,361			73,987

Net cash provided by financing activities		562,330			1,161,089			246,618

Net (decrease) increase in cash and cash equivalents		(87,341	)		247,546			(157,324	)
Cash and cash equivalents at the beginning of the year		636,505			388,959			546,283

Cash and cash equivalents at the end of the year		549,164			636,505			388,959

The accompanying notes are an integral part of these financial statements.

F-10

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

1.	Operations

Azul S.A. (“Azul”) is a corporation headquartered at Av. Marcos Penteado de Ulhôa Rodrigues, 939, in the city of Barueri, in the state of São Paulo, Brazil. Azul was incorporated on January 3, 2008 and is a holding company for providers of airline passenger and cargo services. Azul and its subsidiaries are collectively referred to as the “Company”.

Azul Linhas Aéreas Brasileiras S.A.L (“ALAB”), a 100% owned subsidiary incorporated on January 3, 2008, has operated passenger and cargo air transportation in Brazil since beginning operations on December 15, 2008. Canela Investments LLC (“Canela”), a 100% owned special purpose entity, headquartered in the state of Delaware, United States of America, was incorporated on February 28, 2008, to acquire aircraft outside of Brazil and lease them to ALAB.

The consolidated financial statements are comprised of the individual financial statements of the entities as presented below:


			% equity interest
Entities	Main activities	Country of incorporation	December 31, 2016			December 31, 2015			December 31, 2014
Azul Linhas Aéreas Brasileiras S.A. (ALAB)	Airline operations	Brazil		100.0	%		100.0	%		100.0	%
Azul Finance LLC (a)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
Azul Finance 2 LLC (a)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
Azul Services LLC (a)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
Blue Sabiá LLC (a)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
ATS Viagens e Turismo Ltda. (a)	Package holidays	Brazil		99.9	%		—			—
Azul SOL LLC (a)	Aircraft financing	United States		100.0	%		—			—
Tudo Azul S.A.	Loyalty programs	Brazil		100.0	%		100.0	%		100.0	%
Fundo Garoupa (b)	Exclusive investment fund	Brazil		100.0	%		100.0	%		100.0	%
Fundo Safira (a)	Exclusive investment fund	Brazil		100.0	%		100.0	%		100.0	%
Fundo Azzurra (a)	Exclusive investment fund	Brazil		100.0	%		100.0	%		100.0	%
Canela Investments LLC (Canela)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
Canela 336 LLC (c)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
Canela 407 LLC (c)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
Canela 429 LLC (c)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
Canela Turbo One LLC (c)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
Canela Turbo Two LLC (c)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%
Canela Turbo Three LLC (c)	Aircraft financing	United States		100.0	%		100.0	%		100.0	%

(a)

Azul’s investments are held indirectly through ALAB.

(b)

Azul’s investment is held 1% directly and 99% through ALAB.

(c)

Azul’s investments are held indirectly through Canela.

F-11

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Strategic Global Partners

United Airlines Inc.

On June 26, 2015, the Company and United Airlines Inc. through its wholly owned subsidiary CALFINCO Inc. (collectively, “United”) entered into an investment agreement under which United acquired 5,421,896 class C preferred shares of Azul, for an amount of US$100,000 thousand (R$312,989 as of June 26, 2015). The Company’s alliance with United has enhanced the reach of its networks and created additional connecting traffic, as both the Company and United began selling each other’s flights on its websites through a code-share agreement. This code-share agreement also provides customers flying on both airlines with a seamless reservations and ticketing process, including boarding pass and baggage check-in to their final destination.

Hainan Airlines Co. Ltd.

On February 5, 2016, the Company entered into an Investment Agreement with Hainan Airlines Co. Ltd (“HNA”), under which HNA committed to make a contribution for a total amount of US$450,000 thousand (equivalent to R$1,753,875 on February 5, 2016). The Investment Agreement consists of the following:

Subordinated Loan

A subordinated loan convertible to class D preferred shares of Azul, for a total amount of US$150,000 thousand (equivalent to R$584,625 on February 5, 2016). The loan had maturity of 181 days, on which date it is automatically converted into class D preferred shares of Azul. If upon maturity the loan is not repaid in full or converted into class D preferred shares of Azul, the loan will commence accruing interest at the lesser of 14.25% per annum or the maximum rate permitted under applicable law. As per the initial contract the proceeds of the loan were to be used for the acquisition of convertible bonds issued by TAP—Transportes Aéreos Portugueses SGPS S.A. (“TAP”) for an amount up to €120,000 thousand.

On March 14, 2016, the Company received US$99,936 thousand (equivalent to R$360,769 on March 14, 2016) from HNA and on the same date the Company acquired €90,000 thousand (equivalent to R$360,769 on the same date) in Series A convertible bonds issued by TAP. On September 28, 2016, the loan balance of US$99,936 was converted into 7,022,381 class D preferred shares, for an amount of R$324,792 (Note 19).

On June 2, 2016, the Company received the remaining amount of US$50,064 thousand (equivalent to R$172.448 on the same date) from HNA, which was immediately capitalized for the subscription of 3,517,936 class E preferred shares of Azul. On August 3, 2016, the class E preferred shares were converted into class D preferred shares of Azul (Note 19).

F-12

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Under the terms of the agreement, HNA has the option to acquire the economic benefits of TAP Convertible Bonds. The notional value of the option is €30,000 thousand, maturing on December 2, 2017, and the fair value of this option is recognized as a financial liability (Note 21).

ii.

Capital Contribution

A capital contribution of US$300,000 thousand (equivalent to R$975,868 on February 5, 2016), for the subscription of class D preferred shares of Azul, subject to regulatory approvals from the People’s Republic of China authorities.

On August 3, 2016, the Company received the contribution from HNA for an amount of US$300,000 thousand. Such amount was used for (i) the subscription of 21,080,633 class D preferred shares of Azul, amounting to R$487,934 and (ii) R$487,934 allocated to the “Capital reserve” account (Note 19).

iii.

TAP Convertible Bonds

As mentioned in b) i. above, on March 14, 2016, the Company acquired series A convertible bonds issued by TAP (the “TAP Convertible Bonds”) for an amount of €90,000 thousand. The TAP Convertible Bonds are convertible, in whole or in part at, the option of Azul into new shares representing the share capital of TAP benefiting from enhanced preferential economic rights (the “TAP Shares”). Upon full conversion, the TAP Shares will represent 6.0% of the total and voting capital of TAP, with the right to receive dividends or other distributions corresponding to 41.25% of distributable profits of TAP. The option is exercisable starting in July, 2016. The TAP Convertible Bonds mature 10 years from their issuance and bear interest at an annual rate of 3.75% until June 20, 2016 and at rate of 7.5% thereafter. Accrued interest remain unpaid until the earlier of the maturity date or early redemption of the bonds.

TAP has the right to early redeem the TAP Convertible Bonds if not yet converted and upon the earlier of (i) occurrence of an IPO, or (ii) 4 years from issuance of the TAP Convertible Bonds provided that TAP should be in compliance with certain financial covenants. The TAP Convertible Bonds will be redeemed at their principal amount together with the accrued unpaid interest.

The TAP Convertible Bonds, as well as the option to convert them into TAP Shares, were classified as a single financial asset recorded at fair value through profit or loss, classified in “Long term investments”.

F-13

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

2.	Basis of preparation of financial statements

The consolidated financial statements of the Company for the years ended December 31, 2016, 2015 and 2014, were authorized for issuance by the executive board of directors on February 06 , 2017.

The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and in Brazilian Reais, which is the functional currency of the Company.

The financial statements were prepared using the historical cost basis, except for certain financial instruments, which are measured at fair value.

The Company has adopted all standards and interpretations issued by the IASB and the IFRS Interpretations Committee that were in effect on December 31, 2016.

3.	Significant accounting policies

3.1.

Basis for consolidation

The consolidated financial statements comprise the financial statements of the Azul and its subsidiaries as at December 31, 2016. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only if the Company has:

•

Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)

•

Exposure, or rights, to variable returns from its involvement with the investee, and

•

The ability to use its power over the investee to affect its returns.

The Company re-assesses whether or not it controls an investee when facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when assets, liabilities, income and expenses of a subsidiary acquired during the year are included in the statement of comprehensive loss from the date the Company gains control, and ceases on the date the Company loses control of the subsidiary.

When necessary, adjustments are made to the financial statements of subsidiaries to align their accounting policies with those of the Company. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Company are eliminated in full on consolidation.

F-14

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

3.2.

Cash and cash equivalents

Cash and cash equivalents are held in order to meet short-term cash commitments and not for investment or other purposes. The Company considers as cash equivalents deposits or instruments, which are readily convertible into a known cash amount and subject to an insignificant risk of change in value. The Company considers as cash equivalents, instruments with original maturities of less than three months.

3.3.

Financial instruments—initial recognition and subsequent measurement

Financial assets

Initial recognition and measurement

Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, investments held to maturity, financial assets available for sale, or derivatives designated as hedging instruments. The Company determines the classification of its financial assets upon initial recognition when it becomes party to the contractual provisions of the instrument.

Financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, except in the case of financial assets recorded at fair value through profit or loss.

The financial assets of the Company include cash and cash equivalent, short-term investments, restricted investments, loans and trade and other receivables, as well as derivative financial instruments.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of short-term sale. This category includes derivative financial instruments entered into by the Company that do not meet the criteria for hedge accounting as defined by IAS 39, short-term investments and restricted investments.

Financial assets at fair value through profit or loss are presented on the statement of financial position at fair value, with corresponding gains or losses recognized in the statements of operations.

F-15

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The Company classifies financial assets at fair value through profit or loss, because they intend to trade them in the short term. Reclassification to loans and receivables, available for sale or held to maturity depends on the nature of the asset. Financial assets designated at fair value through profit or loss using the fair value option at the moment of presentation cannot be reclassified after initial recognition.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, these financial assets are recorded at amortized cost using the effective interest method, less impairment losses. The amortized cost is calculated taking into account any discount or premium on acquisition and fees or costs incurred. The amortization of the effective interest method is recorded as financial income in the statements of operations. Impairment losses are recognized as financial expenses in the statements of operations.

Derecognition

Financial assets, or where appropriate, part of a financial asset or part of a group of similar financial assets, are derecognized when:

•

The rights to receive cash flows from the assets have expired; or

•

The Company has transferred their rights to receive cash flows of the assets and (a) the Company has substantially transferred all the risks and benefits of the assets, or (b) the Company has not transferred or retained substantially all the risks and benefits related to the assets, but has transferred control of the assets.

When the Company has transferred their rights to receive cash flows from assets and has not transferred or retained substantially all the risks and rewards relating to an asset, that asset is recognized to the extent of the continuing involvement of the Company. In this situation, the Company also recognizes an associated liability.

The transferred assets and associated liabilities are measured based on the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee on the assets transferred is measured by the original book value of the assets or the maximum payment that may be required from the Company, whichever is lower.

ii)

Impairment of financial assets

At every statement of financial position date, the Company assesses if there is any objective evidence of impairment of financial assets or groups of financial assets.

F-16

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

A financial asset or group of financial assets is considered impaired, if there is objective evidence of a lack of recoverability as the result of one or more events that occurred after initial recognition (“loss event”) and when this event has an impact on future estimated cash flows of a financial asset that can be reasonably estimated.

Evidence of impairment loss may include an indication that counterparties are experiencing significant financial difficulty, late payments, defaults, bankruptcy or a likelihood that these entities will file for bankruptcy or other types of financial reorganization.

iii)

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and borrowing, or as derivatives classified as hedge instruments, as appropriate. The Company determines the classification of its financial liabilities upon initial recognition.

Financial liabilities are initially recognized at fair value less, in the case of loans, financing, and debentures, directly related transaction costs.

Financial liabilities of the Company include accounts payable and other accounts payable, loans and financing, debentures and derivative financial instruments.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification, as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of short term settlement. This category includes derivative financial instruments contracted by the Company that do not meet the criteria for hedge accounting as defined by IAS 39.

Gains and losses in liabilities held for trading are recognized in the statements of operations.

F-17

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Loans and borrowings (including debentures)

After initial recognition, interest-bearing loans, financing and debentures are subsequently measured at amortized cost, using the effective interest rate method. Gains and losses are recognized in the statement of operations when the liabilities are derecognized as well as through the effective interest rate amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included as finance expenses in the statement of operations.

Derecognition

A financial liability is derecognized when the obligation under the liability is discharged, cancelled, or expires.

When an existing financial liability is replaced by another from the same lender with substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability, with the difference in the corresponding book values recognized in the statements of operations.

iv)

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liability simultaneously.

Fair value of financial instruments

The fair value of financial instruments actively traded in organized financial markets is determined based on prices quoted in the market at close of business at the statement of financial position date, not including the deduction of transaction costs.

The fair value of financial instruments for which there is no active market is determined using valuation techniques. These techniques can include use of recent market transactions, references to the current fair value of other similar instruments, analysis of discounted cash flows, or other valuation models.

An analysis of the fair value of financial instruments and more details about how they are calculated is described in Note 21.

F-18

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

3.4.

Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement

The Company uses derivative financial instruments, such as currency forward contracts options, forward contracts, and interest rate swaps to hedge its foreign currency risks and interest rate risk as well as the commodity price risk. Derivative financial instruments are recognized initially at fair value on the date when the derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are presented as financial assets when the instrument’s fair value is positive and as financial liabilities when fair value is negative.

Commodity contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale or usage requirements are held at cost.

Any gains or losses from changes in the fair value of derivatives during the year are recorded directly in the statements of operations for the period, except for the effective portion of cash flow hedges that are recognized directly in other comprehensive loss. These gains or losses are then recorded in the statements of operations when the hedge item affects the statements of operations.

The following classifications are used for hedge accounting purposes:

•

Fair value hedge when hedging against exposure to changes in fair value of recognized assets or liabilities, or an unrecognized firm commitment.

•

Cash flow hedge when providing protection against changes in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly ‘probable forecast transaction which may affect the income or foreign currency risk in an unrecognized firm commitment.

On inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting, as well as the Company’s objective and risk management strategy for undertaking the hedge. The documentation includes identification of the hedge instrument, the item or transaction being hedged, the nature of the risk being hedged, the nature of the risks excluded by the hedge, a prospective statement of the effectiveness of the hedge relationship and how the Company will assess the effectiveness of the changes in the hedging instruments fair value in offsetting the exposure to changes in the fair value of the item being hedged or cash flows attributable to the risk being hedged. It is expected that these hedges are highly effective in offsetting any changes in fair value or cash flows, and they are continually assessed to determine whether they actually have been highly effective over all the reporting periods for which they were designated.

F-19

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Hedges that meet the criteria for hedge accounting are accounted for as follows:

Fair value hedge

The gain or loss resulting from changes in fair value of a hedge instrument (for derivative hedge instrument) or the foreign exchange component of its carrying amount measured in accordance with IAS 21 (for non-derivative hedge instrument) is recognized in the statements of operations. The gain or loss from the hedge item attributable to the hedged risk should adjust the carrying amount of the hedged item and is also recognized in the statements of operations.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in the statement of operations.

When an unrecognized firm sales commitment is designated as a hedged item in a hedge relationship, the change in fair value of the firm sales commitment attributable to the hedge risk is recognized as a financial asset or as a financial liability, with the recognition of a corresponding gain or loss in the statements of operations. The accumulated balance in the statement of financial position resulting from successive changes in fair value of the firm sales commitment attributable to the hedged risk will be transferred to the balance of the hedged item upon its recognition (recognition of balance of accounts payable or accounts receivable).

The Company holds interest rate swaps to hedge against its exposure to changes in fair value of some of its aircraft financing (Note 21).

Cash flow hedge

The effective portion of a gain or loss from the hedge instrument is recognized directly in other comprehensive loss while any ineffective portion of the hedge is recognized immediately in financial income (expenses).

The amounts recorded in other comprehensive loss are transferred to the statement of operations when the hedged transaction affects, profit or loss for example when the financial income or expense being hedged is recognized or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recorded as other comprehensive loss are transferred to initial carrying amount of the non-financial assets or liability.

If the occurrence of the forecast transaction or firm commitment is no longer likely, the amounts previously recognized in other comprehensive loss are transferred to the statement of operations. If the hedge instrument expires or is sold, terminated, exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in comprehensive loss remains deferred in other comprehensive loss until the forecast transaction or firm commitment affects profit or loss.

F-20

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The Company uses swap contracts to hedge against its exposure to the risk of changes in interest rates related to its operating lease transactions.

Current and non-current classification

Derivative instruments that are not classified as effective hedge instruments are classified as current, non-current or segregated into current or non-current portions based on the underlying contractual cash flows.

•

When the Company expects to maintain a derivative as an economic hedge (and do not apply hedge accounting) for a period exceeding 12 months after the statement of financial position date, the derivative is classified as non-current (or segregated into current and non-current portions), consistent with the classification of the underlying item.

•

Embedded derivatives that are not closely related to the host contract are classified in a manner consistent with the cash flows of the host contract.

•

Derivative instruments that are designated as and are effective hedge instruments are classified consistently with the classification of the underlying hedged item. The derivative instrument is segregated into current and non-current portion only if a reliable allocation can be made.

3.5.

Inventories

Inventories consist of aircraft maintenance parts and uniforms. Inventories are valued at cost or net realizable value, whichever is lower, net of any provision for obsolescence.

3.6.

Taxes

Income tax and social contribution

Current tax assets and liabilities are measured at the expected amount recoverable from or payable. Tax rates and tax laws used to calculate the amounts are those in force or substantially in force at the statement of financial position dates in the countries where the Company operates and generates taxable profit.

Current income tax and social contribution relating to equity items are recognized directly in equity. The Company assesses on a regular basis the tax status of situations in which tax law requires interpretation and records provisions if appropriate.

F-21

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Deferred taxes

Deferred tax is provided using the liability method on temporary differences between the tax base of assets and liabilities and their book values for financial reporting purposes at the reporting time.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

•

When the deferred tax liability arises from initial recognition of goodwill or assets or liabilities in a transaction that is not a business combination and, does not affect either accounting profit nor taxable profit or loss;

•

On the temporary differences related to investments in subsidiaries, when the timing of reversal of the temporary differences can be controlled and it is probable that the temporary differences will not be reversed in the foreseable future.

•

When the deferred tax assets related to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, on the transaction date, does not affect either the accounting profit or taxable profit or loss; and

•

On deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will be reversed in the near future and taxable profit will be available so that the temporary differences may be used.

The book value of the deferred tax assets is reviewed on each statement of financial position date and written off to the extent that it is no longer probable that taxable profits will be available to allow that all or part of the deferred taxes assets will be used. Unrecognized deferred tax assets are reassessed on each statement of financial position date and are recognized to the extent that it becomes probable that future taxable profit will allow that the deferred tax assets be recovered.

Deferred tax assets and liabilities are measured at tax rates that are expected to be applicable in the year that the assets will be realized or the liability settled, based on tax rates (and tax law) enacted or substantially enacted on each statement of financial position date. The enacted statutory rate for the years ended December 31, 2016, 2015 and 2014 was 25% for income tax and 9% for social contribution.

Deferred taxes relating to items recognized directly in other comprehensive loss or net equity are also recognized in other comprehensive loss or net equity and not in the statement of operations.

F-22

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Sales taxes

Revenue, expenses and assets are recognized net of sales taxes, except:

•

When sales taxes levied on the purchase of goods or services are not recoverable with the tax authorities, in which case the sales tax is recognized as part of acquisition cost of assets or expense item as applicable; and

•

Receivables and payables are presented including the sales tax amount.

The net balance of sales taxes, recoverable or payable, is included as part of receivables or payables on the statement of financial position.

The revenue from sales of services is subject to the following taxes and contributions in Brazil:

•

State value added tax on services—ICMS—levied on air cargo operations, at rates ranging from 4% to 19%.

•

Federal Contribution for Social Security Financing (COFINS) levied on passenger transport at the rate of 3% and at 7.6% on remaining revenues.

•

Federal Social Integration Program (PIS): levied on passenger transport at the rate of 0.65%, and at 1.65% on remaining revenues.

•

Social Security Contribution (INSS): On January 1, 2013, the Federal Government through the “MP 540/12”, converted into law n. 12.546/11 determined that the INSS contribution must be substituted by a Provisional Contribution on Gross Revenues (CPRB) calculated, at a monthly rate of 1%. On December 01, 2015, this rate changed to 1.5%. Until December 31, 2012 this contribution was calculated based on payroll disbursements. Accordingly, since January 1, 2013, the Company is presenting the CPRB charge as a reduction of the gross revenue.

These taxes are recorded as deductions from passenger and cargo transport and other revenues in the statements of operations.

3.7.

Foreign currency transactions

The consolidated financial statements are presented in Brazilian reais (R$), which is the Company’s functional currency.

F-23

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Transactions in foreign currencies are initially translated into Brazilian reais using the exchange rates prevailing at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the exchange rates prevailing at the statement of financial position date.

Non-monetary items denominated in foreign currency at historical cost basis are translated into the functional currency using the exchange rates on the dates of original transactions. Non-monetary items denominated in foreign currency measured at fair value are translated using the exchange rates prevailing on the date of determination of fair value.

Differences arising on settlement or transaction of monetary items are recognized in the statement of operations. Changes in fair value of the hedging instruments are recorded using the accounting treatment described in note 3.4. “Derivative financial instruments and hedge accounting”.

3.8.

Property and equipment

Assets included in property and equipment are stated at acquisition or construction cost including interest and other financial charges, net of accumulated depreciation and accumulated impairment losses, if any. Pre-payments for aircraft under construction, including interest and finance charges incurred during the manufacturing period of the aircraft and leasehold improvements, are also recorded in property and equipment.

The Company receives credits from manufacturers on acquisition of certain aircraft and engines that may be used for the payment of maintenance services. These credits are recorded as a reduction of the cost of acquisition of the related aircraft and engines and against other accounts receivable. These amounts are then charged to expense or recorded as an asset, when the credits are used to purchase additional goods or services. In the case of operating leases, these credits are deferred and recorded as a reduction of operating lease expenses on a straight line basis during the term of the respective agreement.

Owned aircraft are recorded at cost of acquisition and are subject to impairment testing, if there are impairment indicators. Aircraft equipment, rotables and tools including reparable spare parts with useful lives that exceed one year are recorded as property, plan and equipment at cost of acquisition.

Aircraft lease agreements are accounted for as either operating or finance leases (note 3.12).

F-24

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:


Leasehold improvements		5 years
Computer equipment and peripherals		5 years
Aircraft		12 years
Engines		12 years
Heavy maintenance		3 years
Tools		10 years
Vehicles		5 years
Furniture and fixtures		10 years
Aircraft equipment		10 years
Simulators		12 years

The net book value and useful life of assets and the depreciation methods are reviewed at the end of each year and adjusted prospectively, if necessary.

The Company considers that its aircraft have three major components; airframe, engines and heavy maintenance. The Company allocated a maintenance cost component to engines as a portion of the total aircraft cost at the moment of acquisition. This component is depreciated over its useful life, which is the period extending up to the next heavy maintenance or the remaining useful life of the engines, whatever is shorter.

The Company has a maintenance contract for its engines that covers all significant maintenance activity. The Company has a “power-by-the-hour” type contract, which establishes the rate for maintenance per hour flown, which will be paid in accordance with the total hours flown when maintenance occurs.

Repairs and routine maintenance are expensed in the period in which they are incurred. Significant maintenance costs are capitalized when it is likely that they will result in future economic benefits that exceed the originally assessed performance target for existing assets of the Company. Capitalized maintenance cost is depreciated over the period of time from when they were capitalized through the next scheduled significant maintenance. Heavy maintenance on aircraft held under operating lease is expensed as incurred, and it is recorded in the “maintenance material and repair” line items.

Depreciation expense of major capitalized maintenance expenses is recorded in “Depreciation and amortization” in the consolidated statement of operations.

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in income.

F-25

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

3.9.

Business Combinations

The Company accounts for business combinations using the acquisition method. The cost of an acquisition is measured as the sum of the consideration transferred, based on its fair value on the acquisition date. Costs directly attributable to the acquisition are expensed as incurred. The assets acquired and liabilities assumed are measured at fair value, classified and allocated according to the contractual terms, economic circumstances and relevant conditions on the acquisition date. Goodwill is measured as the excess of the consideration transferred over the fair value of net assets acquired. If the consideration transferred is smaller than the fair value of net assets acquired, the difference is recognized as a gain on bargain purchase in the statement of operations. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the years ended December 31, 2016, 2015 and 2014, the Company has not completed any business combination transaction.

3.10.

Intangible assets

Separately acquired intangible assets are measured at cost on initial recognition. After initial recognition, intangible assets are stated at cost, less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets are not capitalized.

The useful life of intangible assets is assessed as definite or indefinite.

Intangible assets with definite useful lives are amortized over their estimated useful lives and tested for impairment, whenever there is an indication of any loss in the economic value of the assets. The period and method of amortization for intangible assets with definite lives are reviewed at least at the end of each fiscal year or when there are indicators of impairment. Changes in estimated useful lives or expected consumption of future economic benefits embodied in the assets are considered to modify the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization of intangible assets with definite lives is recognized in the statements of operations in the expense category consistent with the use of intangible assets (Note 14).

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment at each year-end or whenever there is an indicator that their carrying amount cannot be recovered. The assessment is reviewed annually to determine whether the indefinite useful life continues to be supportable. If not, the change in useful life from the indefinite to definite is made on a prospective basis.

Gains and losses resulting from the disposal of intangible assets are measured as the difference between the net disposal proceeds and the book value of assets, and are recognized in the statements of operations.

F-26

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

In connection with the acquisition of Tudo Azul (former TRIP), the Company identified airport operating licenses as having indefinite useful lives. The fair value of Pampulha, Santos Dumont and Fernando de Noronha airports operating licenses were recognized at fair value at the acquisition date. Fair value of operating licenses was based on estimated discounted future cash flows. Operating licenses are considered to have indefinite useful lives due to several factors, including requirements for necessary permits to operate within Brazil and limited landing rights availability in Brazil’s most important airports regarding traffic volume.

3.11.

Impairment of non-financial assets

The Company performs an annual review for impairment indicators in order to assess events or changes in economic, technological, or operating conditions which may indicate that an asset is not recoverable. If any, those indicators are identified when performing the annual impairment testing and the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s (CGU) fair value less cost to sell and its value in use. When the carrying amount of intangibles exceed its recoverable amount, an impairment charge is recorded and the asset is written down to its recoverable amount.

The Company operates as a single CGU.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.

The following assets have specific characteristics for impairment testing:

Goodwill

Goodwill is tested for impairment annually or when circumstances indicate that the carrying value may not be recoverable.

F-27

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Impairment is determined for goodwill by assessing the recoverable amount of the single CGU taking the Company as a whole. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

Intangible assets

Intangible assets with indefinite useful lives are tested for impairment annually at the CGU level, and when circumstances indicate that the carrying value may be impaired.

3.12.

Leases

A lease is classified at the inception date as a finance lease or an operating lease. The leases of property and equipment in which the Company substantially hold the risks and rewards incidental to ownership are classified as finance leases. Finance leases are capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance expenses in the statement of operations.

The present value of the minimum lease payments, is calculated using the implicit interest rate when it is clearly identified in the lease agreement.

The leased assets are depreciated over the remaining economic useful life of the leased assets or the contractual term, whenever there is no reasonable certainty that the Company will obtain ownership of the property at the end of the contractual term, whichever is shorter.

An operating lease is a lease other than a finance lease. Operating lease payments (including direct costs and incentives received from the lessor of each contract) are recognized as an operating expense on a straight-line basis over the lease term.

A sale and leaseback transaction involves the sale of an asset and leasing back the same asset.

Gains or losses related to sale-leaseback transactions classified as an operating leases upon the sale are immediately recognized as other (expense) income when it is clear that the transaction was at fair value. If the sale price is below fair value any gain or loss is recognized immediately, except if a loss is compensated by future lease payments at below market price, in which case, it is deferred and amortized in proportion to the lease payments over the contractual lease term.

F-28

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Gains or losses related to sale-leaseback transactions classified in financial lease, upon the sale, is deferred and amortized over the lease term.

Sublease is an operation in which the Company has an original lease of a particular asset that is transferred to a third party generating a new lease under conditions that may be the same or different from the original lease. The original contract lease expense is recognized in the statement of operations under “Aircraft and other rent” and the income from the sublease under “Other revenues”.

In certain circumstances, such as market conditions in which the contracts were negotiated, it may occur that the amount of rental expense paid is higher from the rental income received in the sublease agreement. For contracts in which this situation is identified, the Company records a provision for onerous contracts in accordance with IAS 37—“Provisions, Contingent Liabilities and Contingent Assets”.

3.13.

Security deposits and maintenance reserves

Security deposits

Security deposits are guarantee deposits held as collateral related to aircraft lease contracts paid to lessors at the inception of the lease agreement that will be refunded to the Company when the aircraft is returned to the lessor at the end of the lease agreement. Security deposits are denominated in U.S. Dollars and do not bear interest.

Maintenance reserves

Maintenance reserves refer to payments made in US dollar to the lessor to be used in future aircraft and engine maintenance work. These deposits are used for the payment of maintenance work performed, and might be reimbursed to the Company after termination of the contracts. Certain lease agreements establish that the existing deposits, in excess of maintenance costs are not refundable. Such excess occur when the amounts previously used in maintenance services are lower than the amounts deposited. Any excess amounts retained by the lessor upon the lease contract termination date, which are not considered material, are recognized as additional aircraft lease expense. Management performs regular reviews of the recovery of maintenance deposits and believes that the values reflected in the consolidated statement of financial position are recoverable. The exchange rate differences on deposits for maintenance reserves net of maintenance costs, are recognized as financial result. Payments related to maintenance that the Company does not expect to perform are recognized when paid as additional rental expense. Some of the aircraft lease agreements do not require maintenance reserve deposits.

F-29

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

3.14.

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation, as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. When the Company expect that the value of a provision will be reimbursed, in whole or in part, as for example under an insurance contract, the reimbursement is recognized as a separate asset but only when reimbursement is virtually certain. The expense relating to any provision is presented in the statements of operations, net of any reimbursement.

The Company is party in other judicial and administrative proceedings. Provisions are set up for all legal claims related to lawsuits for which it is probable that an outflow of funds will be required to settle the legal claims obligation and a reasonable estimate can be made. The assessment of probability of loss includes assessing the available evidence, the hierarchy of laws, the most recent court decision and their relevance in the legal system, as well as the assessment of legal counsel.

Lease contracts determine in what conditions the Company must return the leased aircraft to the lessor. The Company estimates a provision based on the projected future costs to be incurred to return the asset in an acceptable condition as contractually required, taking into consideration the current fleet and long term maintenance plans.

3.15.

Employee benefits

Executive bonus

The Company records a provision for executive bonus, which payment is contingent to meeting predefined goals and it is recorded in the statement of operations under Salaries, wages and benefits.

ii)

Share-based payment

The Company offered its executives share-based payments, to be settled with the Company shares, where the Company receives services provided by these professionals in consideration for share options and restricted stock units.

The cost of equity settled awards with employees is measured based on the fair value as of the grant date. In order to determine the fair value of share options, the Company uses the Black-Scholes option pricing model (Note 28).

The cost of equity settled awards is recognized together with a corresponding increase in equity, over the period in which performance and/or service conditions are fulfilled, ending on the date the employee acquires the full right to the award (vesting date). The cumulative expense for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and management’s best estimate of the number of equity instruments that will be vested. The expense or credit in the statement of the operations for the period is recorded in “Salaries, wage and benefits” and represents the change in the accumulated expense recognized in the period.

F-30

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

No expense is recognized for awards that do not vest, except for awards in which vesting is subject to a market or non-vesting condition. These are treated as vested, regardless of whether the market conditions are met or not, provided that all the other exercise conditions are met.

When the terms of an equity settled award are modified, the minimum expense is that, that would have been recognized had the terms not been modified. An additional expense is recognized for any modification that increases the total fair value of the share based payment transaction or those otherwise benefits the employee, as measured at the date of modification.

When an equity settled award is canceled, it is treated as having vested on the cancellation date and any expense not recognized for the award is immediately recognized. This includes any award in which the non-vesting conditions within the control of the Company or the counterparty are not met. However, if a new plan replaces the plan canceled and designated as a replacement award on the date of grant, the canceled plan and the new plan are treated as if they were a modification to the original plan, as described in the previous paragraph.

The cost of cash-settled transactions is measured initially at fair value at the grant date. This fair value is expensed over the service period with the recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to, and including the settlement date, with changes in fair value recognized in the statement of the operations for the period in ‘Salaries, wage and benefits’.

3.16.

Revenue recognition

Flight revenue is recognized upon effective rendering of the transport service. Tickets sold and not used, corresponding to advanced ticket sales (air traffic liability) are recorded in current liabilities. Tickets expire in one year. The Company recognizes revenue for tickets sold upon the departure of the related scheduled flight and for tickets sold that are expected to expire unused (brakeage). The Company estimates the value of future refunds and exchanges, net of forfeitures for all unused tickets once the flight date has already passed. These estimates are based on historical data and experience from past events. The estimated future refunds and exchanges included in the account of advance ticket sales are compared monthly to actual refunds and exchange activities in order to monitor if the estimated amount of future refunds and exchanges is reasonable (Note 17).

F-31

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Other service revenues relate to ticket change fees, excess luggage, cargo transportation, Espaço Azul fee, charter and other services, which are recognized when services are rendered.

3.17.

“Tudo Azul” Program

Under the “Tudo Azul” program customers accrue points based on the amount spent on tickets flown. The amount of points earned depends on Tudo Azul membership status, market, flight, day-of-week, advance purchase, booking class and other factors, including promotional campaigns. The Company recognizes revenue on points that are estimated to expire unused. Points expire in 2 years after the date earned.

Upon the sale of a ticket, the Company recognizes a portion of the ticket sales as revenue when the transportation service occurs, as described in 3.16 above, and defers a portion corresponding to the points earned under the Tudo Azul Program, in accordance with IFRIC 13, Customer Loyalty Programs.

The Company determines the estimated selling price of the air transportation and points as if each element is sold on a separate basis. The total consideration from each ticket sale is then allocated to each of these elements individually on a pro rata basis. The Company’s estimated selling price of points is based on the price the Company sells points to third parties, such as credit card companies.

The Company also sells points of the Tudo Azul loyalty program to third parties. The related revenue is deferred and recognized as passenger revenue when points are redeemed and the related transportation service occurs. The fair value of a point is estimated on an annual basis using the average points redeemed and the estimated value of purchased tickets with the same or similar restrictions as frequent flyers awards.

The Company recognizes revenue for points sold and awarded that will never be redeemed by program members. The Company estimates such amounts annually based upon the latest available information regarding redemption and expiration patterns.

Points awarded or sold and not used are recorded in “Air traffic liability” (Note 17).

The Company entered into transaction with a Brazilian Bank for advertisement of the Co-branded creditcard. At December 31, 2016, revenues related to the Co-branded credit card was in the amount of R$1,500 (December 31, 2015 – R$1,200 and December 31, 2014 – R$0).

3.18.

Segment information

IFRS 8 requires that operations are identified by segment based on internal reports that are regularity reviewed by the Company´s chief operating decision maker to allocate funds to segments and assess their performance.

F-32

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The operations of the Company consist of air transportation services in Brazil. The Company’s management allocates funds based on the consolidated results. The main assets generating revenue of the Company are its aircraft, from which revenue is generated in Brazil. Other revenues are basically derived from cargo operations, interest on installment sales, excess luggage, penalties for cancellation of tickets, and all items are directly attributed to air transport services.

Based on how the Company manages its business and the way in which fund allocation decisions are taken, the Company has only one operating segment for financial reporting purposes.

3.19.

New and amended standards and interpretations

The Company applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2016. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The nature and the effect of these changes are disclosed below. Although these new standards and amendments applied for the first time in 2016, they did not have a material impact on the annual consolidated financial statements of the Company. The nature and the impact of each new standard or amendment is described below:

Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests

The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business, must apply the relevant IFRS 3 Business Combinations principles for business combination accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation if joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party.

The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are applied prospectively. These amendments do not have any impact on the Company as there has been no interest acquired in a joint operation during the period.

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation

The amendments clarify the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is a part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are applied prospectively and do not have any impact on the Company, given that it has not used a revenue-based method to depreciate its non-current assets.

F-33

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Annual Improvements 2012-2014 Cycle

These improvements include:

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Assets (or disposal groups) are generally disposed of either through sale or distribution to the owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment is applied prospectively.

IFRS 7 Financial Instruments: Disclosures

(i)

Servicing contracts

The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures need not be provided for any period beginning before the annual period in which the entity first applies the amendments.

(ii)

Applicability of the amendments to IFRS 7 to condensed interim financial statements

The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment is applied retrospectively and do not have any impact on the Company.

F-34

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

IAS 19 Employee Benefits

The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment is applied prospectively.

IAS 34 Interim Financial Reporting

The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively.

These amendments do not have any impact on the Company.

Amendments to IAS 1 Disclosure Initiative

The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify:

•

The materiality requirements in IAS 1

•

That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated

•

That entities have flexibility as to the order in which they present the notes to financial statements

•

That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments do not have any impact on the Company.

3.20

Standards issued but not yet effective

IFRS 9—Financial instruments

In July 2014, the IASB issued the final version of IFRS 9—Financial Instruments, which superseded IAS 39—Financial Instruments: Recognition and Measurement and earlier versions of IFRS 9. IFRS 9 brings together all three aspects of accounting for financial instruments of a project: classification and measurement, impairment loss and hedge accounting.

F-35

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

IFRS 9 is effective for annual periods beginning on or after January 1, 2018, and early adoption is permitted. Except for hedge accounting, retrospective application is required, but comparative information is not required. For hedge accounting, the requirements are generally applied prospectively, with few exceptions.

The Company plans to adopt the new standard on its effective date. In the course of 2016, the Company conducted an impact assessment for the three aspects of IFRS9. This preliminary assessment is based on the information currently available and may be subject to change on the basis of further detailed analysis or additional information that is appropriate and disclosable, and which is available to the Company in the future.

The Company does not expect a significant impact on the financial statements.

IFRS 15 - Revenue from Contracts with Customers

IFRS 15, issued in May 2014, establishes a new constant five-step model, which will be applied to revenues from customer contracts. Under IFRS 15, revenues are recognized in an amount that reflects the consideration to which an entity expects to be entitled in exchange for the transfer of goods or services to a customer. The new revenue standard will replace all current revenue recognition requirements under IFRS.

Full retrospective adoption or modified retrospective adoption is required for annual periods beginning on or after January 1, 2018. The Company plans to adopt the new standard on the effective date of its entry into force, using the full retrospective adoption method. In the course of 2016, the Company performed a preliminary assessment of IFRS 15, which is subject to change due to more detailed analysis in progress.

The components identified by the Company until December 31, 2016 are detailed as follows:

Revenue from passenger transport

Air transport services provided by the Company are not expected to suffer major impacts from the new standard. Passenger revenues are recognized after the effective provision of the transportation service, which characterizes satisfaction of the performance obligation with the customer.

We understand that the only performance obligation related to air transportation is the transportation service itself. We will further address the cases in which the customer is also use the Tudo Azul loyalty program and the procedures that we considering to recognize this revenue.

Other revenues

The Company provides several additional services that are perform simultaneously to the passenger transportation service. Therefore, IFRS 15 brings us the need to evaluate the services promised under contracts with our customers and identify the different performance obligations, as well as, to combine two or more contracts with the same customer if they meet similar objectives. We understand that it will be necessary to combine the contracts for additional services with the air transport services contracts, which would result in changes in the period and classification of those revenues.

F-36

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The following is a brief description of the Company’s main ancillary revenues and possible implications:

•

Flight cancelation and refund fees

Fees charged to passengers for processing of the refund. The amount charged is different for each fare class.

Prospective effects: The recognition of this revenue occurs at the time of processing the refund. We consider this to be in line with the new standard.

•

No show fee

Fees charged for non-attendance on the set date of the flight.

Prospective effects: This revenue is recognized at the time of the air transportation service was scheduled to be provided. We consider this to be in line with the new standard.

•

Excess baggage fee

Amounts charged to customers for the additional weight of checked baggage on the flight.

Prospective effects: This revenue is recognized at the time of check-in and in most cases is on the same day of providing the air transportation service. For amounts acquired in advance the date of the air transport service we performed an analysis and concluded that the amounts involved are immaterial.

•

Espaço Azul fee

Amounts charged to customers for the acquisition of additional space between the seats on the aircraft.

Prospective effects: The Espaço Azul fee can be purchased at the same time a customer purchases their air ticket, however, historically we have observed that the great majority of this revenue comes from purchases made on the same date flight. The Company will evaluate in more detail whether it will be necessary to change the timing of this recognition.

•

Change of tariffs fee

Fees charged to the passenger for processing the flight change previously acquired.

Prospective effects: Payment of this fee will occur on a date defined by the customer, we understand that this value should be recognized on the date of the flight.

Loyalty Program

Upon the acquisition of an air-ticket, each member of the Company’s loyalty program (TudoAzul) is expected to earn points and to redeem them in the future in exchange for goods or services. As a results, we believe that points earned represent a separate performance obligation (component) of air transportation, and therefore, part of the price of this transaction should be allocated according to IFRS 15. We believe this segregation is currently performed when we record the points earned according to their fair value – the market value in which points are sold, i.e., the individual sale price. Revenue is recognized once the service is rendered (air transportation through TudoAzul points redemption).

F-37

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Points can be accumulated through the airline and through partners:

Airline Points – Active TudoAzul members receive points when they use the Company’s transportation services. In this format, points are priced at their fair value, based on market prices of airfares offered by travel agencies with high volumes of transactions, and revenue is recognized once air transportation service are rendered.

Partner Points – Points are accumulated through the purchase of TudoAzul points from commercial partners, which offer this benefit to their clients. In this format, points are priced according to each contract established with our partners and revenue is recognized once air transportation services are rendered.

Based on the above, the Company already has an effective control of its contracts and respective contractual amounts, which are invoiced to partners on a monthly basis. We believe that the only related obligation is the transfer of points. To prevent any impact related to the new rule, we have hired a specialized consulting firm, starting in February-March timeframe, to assist us in the revision of such contracts and assess any potential impact.

c.1)

Co-branded

According to IFRS 15 different components of performance obligation need to be segregated and allocated to the service rendered at the agreed upon price for each transaction. According to our analysis, we believe that co-branded revenue is already recorded on a segregated basis in compliance with the new rule.

We have identified revenue derived from points redemption and revenue from marketing/publicity related to right of usage of our brand.

Cargo Revenue

The Company offers a variety of cargo Transportation modes, domestically and internationally, to a large customer base. As such, the Company will perform an individual analysis of each contract in accordance to IFRS 15. The Company estimates that there will be no significant impact on the adoption of this new rule, given its performance obligation depends solely on the transportation of cargo, and its correspondent revenue is recognized upon completion of service (delivery of merchandise), which characterizes the completion of the obligation performance. In addition, we do not have a concentration of clients related to our cargo services, and as a result, this revenue cannot be classified as leasing.

Interline Revenue

Interline agreements allow us to reserve seats on flights operated by other Airlines. As a result, we can combine flights with partner airlines to several destinations through a single ticket. Each airline maintains its flight code and their netwoks complement each other by offering more flight options to their customers.

F-38

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

In this type of agreement our performance obligation is to provide direct service (principal) or indirect service through a partner airline (agent). As a result, if the Company is the principal in the contract, revenue is recognized based on the gross amount it is entitled to related to the service rendered. If the Company is the agent, revenue is recognized by the net amount it is entitle to receive by performing the service as an agent. The Company currently accounts for these transactions according to the new rule, separating revenue derived from principal and agent roles.

In summary, we don’t believe that interline revenue will be impacted once IFRS 15 comes into effect.

Presentation and Disclosure requirements

IFRS 15 requires for a more detailed disclosure of information. The new requirements are mostly related to the segregation of revenue derived from contracts with clients from different categories, and must include a description of the nature, amount, time and uncertainty of the cash flow impact related to economic factors. The Company is evaluating the impact this new rule will have in our individual and consolidated financial statements in order to comply with IFRS 15. According to our analysts, we believe that this new rule will lead to the restatement of accounting line items under “other revenue” to “passenger revenue”, and that a more detailed disclosure of revenue by type will be required, compared to the disclosure we use today.

Prognosis

We believe that by mid-2017 we will be able measure the effective accounting impact of the new rule and will have the necessary elements become compliant. In addition, we would like to emphasize that we have hired a consulting firm to support us with the evaluation of existing contracts, and with the preparation of the necessary elements to be disclosed in our financial statements.

IFRS 16—Leases

IFRS 16 was issued in January 2016 and replaces IAS—17 Leasing operations, IFRIC 4—Determining whether an agreement contains a lease, SIC—15—Operating leases (Incentives) and SIC—27 – Evaluating the Substance of Transactions in the Legal Form of a Lease.

F-39

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single model in the balance sheet, similar to accounting for finance leases under IAS 17. The standard includes two exemptions of recognition for lessees—Leases of ‘low-value’ assets (e.g. personal computers) and short-term leases (i.e. lease terms of 12 months or less).

At the commencement date of a lease, the lessee shall recognize a lease payment liability (i.e. a lease liability) and an asset that represents the right to use the underlying asset during the lease term (that is, the ‘right-of-use’ asset).

Lessees should also reassess the lease liability upon the occurrence of certain events, for example a change in the lease term, or in future lease payments as a result of changing an index or rate used to determine such payments. In general, the lessee will recognize the value of the reassessment of the lease liability as an adjustment to the right-of-use asset.

Based on our preliminary analysis, the impact of IFRS 16 will be on existing lease agreements for aircraft and spare engines, classified by IAS 17 as operating leases. As of December 31, 2016, the Company has 100 aircraft and 16 engines classified as operating leases.

IFRS 16 is effective for annual periods beginning on or after January 1, 2019.

F-40

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

4.	Significant accounting judgments, assumptions and estimates

Judgments

The preparation of consolidated financial statements of the Company requires management to make judgments and estimates and adopt assumptions that affect the reports amounts of revenue, expenses, assets, liabilities and disclosures of contingent liabilities at the date of the financial statements. Uncertainty relating to these assumptions and estimates could lead to amounts that require a significant adjustment to the book value of assets or liabilities affected in future periods.

In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the consolidated financial statements:

Lease classification

The Company has assessed the classification of leases between finance and operating based on the terms and conditions of each arrangement. A lease agreement is classified as a finance lease when significant risk and rewards of the ownership of the aircraft are transferred; otherwise the contract is accounted for as an operating lease.

Estimates and assumptions

The main assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, involving a significant risk of causing a material adjustment of the book value of assets and liabilities within the next financial year are discussed below:

Breakage

The Company recognizes revenue from tickets sold that are expected to expire unused based on historical data and experience. Estimating expected breakage requires management to make judgment, among other things, the extent to which historical experience is an indication of the customer behavior. Annually, or more frequently as the experience data suggests, management reassesses the historical data and makes required improvements.

Impairment of non-financial assets

An impairment loss exists when the book value of assets or cash-generating unit exceeds its recoverable amount, which is the higher of fair value less sales costs and value in use. The calculation of fair value less sales costs is based on information available of transaction for sale of similar assets or market price less additional costs for disposing of assets. The calculation of value in use is based on the discounted cash flow model.

F-41

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Cash flows are derived from the budget for the next five years and do not include reorganization activities to which the Company have not yet been committed or significant future investments that will improve the basis of assets of the cash-generating unit subject matter of test. The recoverable amount is sensitive to the discount rate used in the method of discounted cash flow and expected future cash receipts and growth rate used for extrapolation.

Transactions with share-based payments

The Company measures the cost of transactions settled with its own shares with employees based on the fair value of such shares at the grant date or at each reporting date, as applicable. The Company must estimate at each reporting date the quantity of awards expected to be vested considering performance and non-market vesting conditions. Estimating the fair value of share-based payments requires determining the most appropriate assessment model for the grant of shares, which depends on the terms and conditions of the grant. This also requires determining the inputs used in the valuation models, including the option’s expected life, volatility, dividend income, and related assumptions. The assumptions and models used to estimate the fair value of share-based payments are disclosed in Note 28.

Taxes

There are uncertainties regarding the interpretation of complex tax regulations, the amount, and the time of future taxable profit. Given the long term nature and complexity of existing contractual instruments, differences between actual results, and the assumptions made, on future changes in these assumptions could require future adjustments in revenue and tax expenses already recorded. The Company recorded provisions based on reasonable estimates for possible consequences of audits by tax authorities of the respective jurisdictions in which they operate.

The value of such provisions is based on several factors such as experience of previous tax audits and differing interpretations of tax regulations by the taxpaying entity and the tax authority in charge. Such differences of interpretation may arise in a wide variety of subjects depending on prevailing conditions.

Deferred tax assets are recognized for all loss carryfowards to the extent that it is probable that there will be taxable profit available to allow the use of such losses. Significant judgment is required to determine the value of deferred tax assets that can be recognized based on the approximate term and level of future taxable profits together with future tax planning strategies.

Currently the Company is generating loss carryforwards due to the fact that it is in early stages of operations. Income tax and social contribution loss carryforwards do not expire and cannot be used to offset taxable profit of a Company other than from those that originated them. Tax loss carryforwards can be used to offset taxable income up to a limit of 30% each fiscal year.

F-42

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Provisions for tax, civil and labor risks

The Company recognizes provisions for civil and labor suits. The assessment of probability of loss includes assessing the available evidence and jurisprudence, the hierarchy of laws and most recent court decisions, and their relevance in the legal system, or the assessment of independent counsels. Provisions are reviewed and adjusted to take into account changes in circumstances such as the applicable limitation period, findings of tax inspections and additional exposures identified based on new issues or decisions of courts (Note 29).

Fair value of financial instruments

When the fair value of assets and liabilities presented in the statement of financial position cannot be obtained in an active market it is determined using valuation techniques, including the discounted cash flow model. The data for these methods is based on those prevailing in the market, when possible. However, when it is not feasible, a certain level of judgment is required to establish fair value. Judgment includes considerations on the data used, for example, liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the fair value of the financial instruments.

“Tudo Azul” Program—Loyalty Plan

As described in Note 3.17, the Company accounts for “ TudoAzul ” loyalty program using the deferred revenue method. Under the deferred revenue method, the Company accounts for awarded points as a separately identifiable component of the sales transactions in which they are granted and recognizes the fair value of all outstanding points as of the issuance date, regardless of how they originated. The fair value of the points is deferred until they are redeemed for an award (Note 17).

Provision for return of aircraft and engines

For aircraft under operating leases, the Company is contractually required to return the equipment at a predefined level of operational capability. The Company recognizes a provision based on the aircraft and engines return costs, as set forth in the lease agreement.

The aircraft return cost provision is estimated based on expenditures incurred in aircraft reconfiguration (interior and exterior), licensing and technical certification, painting etc., according to return terms.

The engine’s return cost provision is estimated based on evaluation and minimum contractual conditions of the equipment that should be returned to the lessor, considering not only the historical costs incurred, but also the equipment conditions at the time of evaluation.

F-43

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Determination of useful life and significant components of property and equipment

The Company believes that important aircraft parts need to be separated, including engines and their respective scheduled heavy maintenance. These parts are depreciated in accordance with the useful lives defined in the fleet renovation plan and the maintenance schedule.

5.	Cash and cash equivalents

Cash and cash equivalents are comprised of the following:

December 31,

2016

2015

2014

Cash and bank deposits

156,915

141,891

69,442

Cash equivalents

Bank Deposit Certificate—CDB

392,249

494,614

319,517

549,164

636,505

388,959

The balances of cash and bank deposits represent amounts deposited in checking accounts with Brazilian banks.

The CDB investments are indexed to the Brazilian Interbank Deposit Certificate (“CDI”) and are repayable on demand.

6.	Short term investments

Investments are comprised of:


	December 31,
	2016		2015		2014
Other short-term investments		193,782		338		13,185
Investment funds		137,428		29,515		486,646

		331,210		29,853		499,831

Investment funds is comprised of Brazilian government bonds and bank notes, denominated in Reais, with financial institutions (deposit certificates) and debentures issued by B and BB+ risk rated companies bearing an accumulated average interest rate of 100% of CDI—Interbank Deposit Certificate rate. Brazilian government bonds are comprised of National Treasury Bills (“LTN”), National Financial Bills (“LFT”) and National Treasury Notes (“NTN”).

F-44

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

7.	Restricted investments

Restricted financial investments are comprised of deposits to guarantee some of our loans (FINEM to purchase aircraft, engines and equipment) required by certain financial institutions, which were invested in floating rate CDBs—Bank Certificate Deposits and DI – Investments linked to the Interbank Deposit interest rate. The return on these investments varies from 98.0% to 101.5% of the CDI rate.

8.	Trade and other receivables, net


	December 31,
	2016			2015			2014
Credit cards		457,719			470,986			440,851
Travel agencies		73,143			85,410			70,898
Other receivables		147,752			102,080			147,357
Allowance for doubtful accounts		(5,339	)		(8,068	)		(5,020	)

		673,275			650,408			654,086

Accounts receivable from credit card companies will be received in installments of up to twelve months. Installment receivables which are due more than 60 days amounted to R$353,907 at December 31, 2016 (December 31, 2015—R$343,175 and December 31, 2014—R$353,907). Average days-sales-outstanding was 32 days for the year ended December 31, 2016 (December 31, 2015—32 days and December 31, 2014—35 days). Generally, interest is charged on sales receivable in installments with more than ten months.

The Company enters into factoring transactions with banks or credit card management companies, in order to obtain funds for working capital. In 2016, the Company factored accounts receivable from credit cards with a face value of R$4,717,376 (December 31, 2015—R$3,928,393 and December 31, 2014—R$3,208,931), and received a net amount of R$4,619,707 (December 31, 2015—R$3,855,057 and December 31, 2014—R$3,163,209). The discount interest costs are recognized in financial expenses. Because these receivables are from credit card companies and present a low credit risk, we were able to sell these receivables without any risk to the Company in the event of default by the costumers. As such, the accounts receivable were derecognized in full and the discount interest cost recognized in the statement of operations for an amount of R$97,669 for the year ended December 31, 2016 (December 31, 2015—R$73,336 and December 31, 2014—R$45,722).

During the year ended December 31, 2015 the Company factored accounts receivable from travel agencies with a face value of R$129,274 (December 31, 2014—R$85,957) and received a net amount of R$128,398 (December 31, 2014—R$85,468). The discount interest costs are recognized in financial expenses. In the event of non-payment by the agencies, the risk remains with the Company, as such as of December 31, 2015, the amount of R$41,300 was recognized in “Loans and financing” and the related accounts receivable (December 31, 2014 – R$0).

For the year ended December 31, 2016 the Company did not enter into this type of transaction.

F-45

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The changes in the allowance for doubtful accounts are as follows:


	December 31,
	2016			2015			2014
Balance at the beginning of the year		8,068			5,020			4,829
Increases		1,554			4,250			2,111
Reversals		(4,283	)		(1,202	)		(1,920	)

Balance at the end of the year		5,339			8,068			5,020

Accounts receivable not yet due amounted to R$668,623 as of December 31, 2016. Amounts up to 90 days overdue totaled R$4,652 as of December 31, 2016. The amounts for more than 90 days overdue totaled R$5,339, which have been fully provided for.

9.	Inventories


	December 31,
	2016			2015			2014
Parts and maintenance materials		123,089			105,686			102,475
Uniforms		2,906			2,759			2,938
Allowance for obsolescence		(18,893	)		(15,999	)		(17,316	)

		107,102			92,446			88,097

10.

Prepaid expenses


	December 31,
	2016		2015		2014
Insurance premium		23,955		29,973		26,438
Aircraft and engine leases		37,887		149,028		98,473
Other		42,566		41,398		25,458

		104,408		220,399		150,369
Non-current		6,907		113,128		66,197

Current		97,501		107,271		84,172

Aircraft and engine lease prepayments are comprised of costs of aircraft lease agreements that are expensed on a straight line basis over the lease term. During 2016 the Company amended certain terms of aircraft lease agreements previously classified as operating leases that resulted in the classification of such agreements to finance leases and therefore reclassified to “Property and equipment” prepayment balances of R$75,536 on the lease agreements of six aircraft that were previously classified as operational leases.

F-46

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

11.

Related parties

Compensation of key management personnel

Key management personnel include board of director members, officers and executive committee members. The compensation paid or payable to officers and directors services is as follows:


	December 31,
	2016		2015		2014
Salaries and wages		28,335		27,124		27,007
Bonus		6,225		6,105		10,210

		34,560		33,229		37,217

The executives of the Company participate in the Company’s share-based compensation and restricted share units plans (Note 28). At December 31, 2016, executives of the Company had approximately 3,320,712 (December 31, 2015—2,982,937 and December 31, 2014—2,443,564) vested options. The compensation expense recognized for the year ended December 31, 2016 was R$11,633 (for the year ended December 31, 2015—R$6,462 and for the year ended December 31, 2014—R$8,749).

Guarantees granted

The Company granted guarantees for some property rental agreements entered into by three of its executive officers, the amounts involved are not material.

Rendering of services

The Company entered into an agreement with Águia Branca Participações S/A, the former parent company of Tudo Azul (former TRIP), and current shareholder of the Company, for the rendering of the sharing of information technology resources during an indefinite period. The amounts to be paid under this agreement are based on the services actually rendered, which, for the year ended December 31, 2016 was R$31 (for the year ended December 31, 2015—R$311 and for the year ended December 31, 2014—R$535) and also entered into an agreement for the sale of air tickets. The amount received during the year ended December 31, 2016 was R$54 (December 31, 2015 – R$108 and December 31, 2014—R$0).

Loan agreement

On September 2, 2016 the Company entered into a loan agreement with a shareholder in the amount of US$2,790 thousand (December 31, 2016—R$9,180). This agreement bears interest at a rate of Libor plus 2.3% p.a. and matures in 2019.

F-47

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Transactions with TAP

During the year ended December 31, 2016, the Company entered into certain transactions with TAP as described below:

Aircraft sublease

In March 2016, the Company subleased fifteen aircraft to its related party TAP. For these subleases, the Company recognized in the consolidated statement of operations for the year ended December 31, 2016 (i) R$76,953 in “Other revenue”, representing the amount received from TAP, and (ii) R$93,390 in “Aircraft and other rents”, representing the amount of the rental payments that the Company paid to lessors according to the related lease agreements.

In addition, seven of the fifteen leases had been executed at a time when the market rates for regional aircraft were higher than when the related seven subleases were executed. As a result, although the Company believes that the rates in these seven subleases represented approximate market rates at the time of their execution, the Company will receive from TAP an amount lower than the amount that the Company has to pay under the related leases. This difference considering the total term of sublease contracts discounted to its net present value was R$126,006 and recorded as a provision for the obligations under onerous leases, as required by IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, representing the amount of the future unavoidable costs under the leases. Such amount was recorded in the “result from related party transaction, net” line item in the statement of operations as of December 31 2016, because it represents the loss realized between a related party and the Company.

ii.

TAP Convertible Bonds

As explained in Note 1 b) iii., on March 14, 2016, the Company acquired the TAP Convertible Bonds. Such bonds have been classified in the “Long term investments” line item in the statement of financial position as of December 31, 2016. Changes in the fair value of the TAP Convertible Bonds and Call-option are also recorded in the “Result from related party transactions, net”, line item in the consolidated statement of operations, which for the year ended December 31, 2016, was a gain of R$289,051 net of HNA´s option on the TAP Convertible Bonds of R$154,361 (Note 21).

12.

Security deposits and maintenance reserves


	December 31,
	2016		2015		2014
Security deposits		219,772		298,618		233,309
Maintenance reserve deposits		858,233		917,091		541,078

		1,078,005		1,215,709		774,387

Security deposits and maintenance reserves deposits are denominated in US dollars and adjusted for foreign exchange changes. Security deposits are related to aircraft lease contracts and will be refunded to the Company when the aircraft is returned at the end of the lease agreement.

F-48

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Our master lease agreements provide that we pay maintenance reserves to aircraft lessors to be held as collateral in advance of the performance of major maintenance activities. Maintenance reserves are reimbursable to us upon completion of the maintenance event in an amount equal to the lesser of (1) the amount of the maintenance reserve held by the lessor associated with the specific maintenance event or (2) the qualifying costs related to the specific maintenance event. Substantially all of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, and are used solely to collateralize the lessor for maintenance.

At the lease inception and at each statement of financial position date, we assess whether the maintenance reserve payments required by the master lease agreements are expected to be recovered through the performance of qualifying maintenance on the leased assets. Maintenance deposits expected to be recovered from lessors are reflected in security deposits and maintenance reserves in the accompanying statements of operations. We assess recoverability of amounts currently on deposit with a lessor, by comparing them to the amounts that are expected to be reimbursed at the time of the next maintenance event, and amounts not recoverable are considered maintenance costs.

As of December 31, 2016 maintenance reserves deposits are likely to be refunded as they are lower than the expected cost of the related next maintenance event that the reserves are intended to collateralize. During the year ended December 31, 2016 the Company recognized a write-off of R$4,037 (December 31, 2015—R$9,915 and December 31, 2014—R$7,819) for maintenance reserve deposits that are not likely to be reimbursed in relation to aircraft that went through their last maintenance event prior to their return.

During the year ended December 31, 2016 the Company replaced some of its security deposits and maintenance reserves deposits for bank guarantees, and was refunded an amount of R$21,120 and R$62,615, respectively.

Presented below are the changes in the security deposits and maintenance reserves balance:


	Maintenance reserves deposits			Security deposits			Total
Balance at December 31, 2013		352,936			148,395			501,331

Additions		148,963			80,768			229,731
Write-offs		(7,819	)		—			(7,819	)
Refunds/returns		(15,725	)		(23,592	)		(39,317	)
Foreign exchanges variations		62,723			27,738			90,461

Balance at December 31, 2014		541,078			233,309			774,387
Additions		273,688			60,509			334,197
Write-offs		(9,915	)		—			(9,915	)
Refunds/returns		(152,232	)		(97,572	)		(249,804	)
Foreign exchanges variations		264,472			102,372			366,844

Balance at December 31, 2015		917,091			298,618			1,215,709
Additions		298,327			60,282			358,609
Refunds from sublease (*)		—			(28,813	)		(28,813	)
Write-offs		(4,037	)		(7,461	)		(11,498	)
Refunds/returns		(199,655	)		(61,215	)		(260,870	)
Foreign exchanges variations		(153,493	)		(41,639	)		(195,132	)

Balance at December 31, 2016		858,233			219,772			1,078,005

(*)

refers to the amount received from TAP in relation to security deposits of subleased aircraft.

F-49

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

13.

Property and equipment

Property and equipment are mainly comprised of “aircraft and engines” and aircraft equipment. “Aircraft and engines” refers to owned aircraft and capitalized heavy maintenance related to the owned aircraft.

During the year ended December 31, 2016, the Company entered into sale and leaseback transactions on owned aircraft. The carrying value of the aircraft at the transaction date was R$313,678 and the sales price was R$365,599. All aircraft were subsequently leased back by the Company under operating lease agreements. The gain associated with the sale and leaseback transactions of R$51,921 was recognized in “Other operating expenses, net”.

During the year ended December 31, 2016, the Company sold some of its owned aircraft for an amount of R$303,680. The carrying value of the aircraft at the transactions date was R$248,956. The gain associated with the sale transactions of R$54,724 was recognized in “Other operating expenses, net”.

During the year ended December 31, 2016, the Company sold some of its owned engines for an amount of R$53,729. The carrying value of the engines at the transactions date was R$37,724. The gain associated with the sale transactions of R$16,005 was recognized in “Other operating expenses, net”.

During the year ended December 31, 2016, the Company amended certain terms of aircraft lease agreements previously classified as operating leases that resulted in the classification of such agreements to finance leases. The financial statement impact was an increase of R$449,800 in “aircraft and engines” with a corresponding entry to “loans and financing”.

During the year ended December 31, 2015, the Company entered into sale and leaseback transactions. Some of these aircraft were owned by the Company and acquired with the Company’s own resources, others had been held under finance leases which were cancelled as part of the transactions. The carrying value of the aircraft at the transaction date was R$679,854 and the sales price was R$967,938. All aircraft were subsequently leased back by Company under finance and operating leases.

For the year ended December 31, 2015, the gain associated with the sale and leaseback transactions which resulted in finance leases amounted to R$212,805 which was recorded in “Other liabilities” and will be recognized in income over the lease term of 82 months average. The gain associated with the sale and leaseback transactions which resulted in operating leases recognized in income amounted to R$75,279 (December 31, 2014—R$23,378) and was recognized as a credit in “Other operating expenses, net”.

F-50

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Breakdown

December 31,

2016

2015

2014

Cost

Accumulated
depreciation

Net
amount

Leasehold improvements

97,324

(29,928

)

67,396

41,298

37,973

Equipment and facilities

95,220

(54,228

)

40,992

38,571

34,391

Vehicles

2,559

(2,381

)

178

368

657

Furniture and fixtures

15,722

(7,129

)

8,593

9,074

9,030

Aircraft equipment

740,900

(193,294

)

547,606

460,958

356,298

Aircraft and engines

3,016,934

(390,471

)

2,626,463

2,907,438

1,979,944

Advance payments for acquisition of aircrafts

100,446

—

100,446

77,254

63,339

Construction in progress

48,306

—

48,306

18,033

15,981

4,117,411

(677,431

)

3,439,980

3,552,994

2,497,613

Changes in property and equipment balances are as follows


	Cost
	December 31, 2014		December 31, 2015		Acquisitions		Disposals/ Write- offs			Transfers			December 31, 2016
Leasehold improvements		48,591		61,306		34,748		(32	)		1,302			97,324
Equipment and facilities		67,670		81,740		13,552		(72	)		—			95,220
Vehicles		2,624		2,624		—		(65	)		—			2,559
Furniture and fixtures		13,316		14,714		1,009		(1	)		—			15,722
Aircraft equipment		451,963		599,598		154,751		(13,449	)		—			740,900
Aircraft and engines		2,530,246		3,305,789		547,023		(835,878	)		—			3,016,934
Advance payments for acquisition of aircrafts		63,339		77,254		53,692		(30,500	)		—			100,446
Construction in progress		15,981		18,033		34,920		(3,345	)		(1,302	)		48,306

		3,193,730		4,161,058		839,695		(883,342	)		—			4,117,411

F-51

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)


				Accumulated depreciation
	December 31, 2014			December 31, 2015			Depreciation for the year			Disposals/ Write- offs		Transfers		December 31, 2016
Leasehold improvements		(10,618	)		(20,008	)		(9,920	)		—		—		(29,928	)
Equipment and facilities		(33,279	)		(43,169	)		(11,091	)		32		—		(54,228	)
Vehicles		(1,967	)		(2,256	)		(185	)		60		—		(2,381	)
Furniture and fixtures		(4,286	)		(5,640	)		(1,489	)		—		—		(7,129	)
Aircraft equipment		(95,665	)		(138,640	)		(58,384	)		3,730		—		(193,294	)
Aircraft and engines		(550,302	)		(398,351	)		(183,140	)		191,020		—		(390,471	)

		(696,117	)		(608,064	)		(264,209	)		194,842		—		(677,431	)

For owned aircraft, we employ the deferral method that consists in the capitalization of heavy maintenance cost. Under this method, the cost of major maintenance is capitalized and amortized as a component of depreciation and amortization expense until the next major maintenance event. Heavy maintenance on aircraft held under operating lease is expensed as incurred, and it is recorded in the “maintenance material and repair” line items.

The next major maintenance event is estimated based on the average removal times suggested by the manufacturer, and may change based on changes in aircraft utilization and changes in suggested manufacturer maintenance intervals. In addition, these assumptions can be affected by unplanned incidents that could damage a major component to a level that would require a major maintenance event prior to a scheduled maintenance event.

The amortization of deferred maintenance expenses over major maintenance expenditures and the maintenance expenses incurred for the year ended December, 31, 2016, 2015 and 2014, both representing total maintenance expenses for the period, are presented as follows:


	December 31,
	2016			2015			2014
Amortization of capitalized maintenance costs		(51,462	)		(32,191	)		(43,850	)
Maintenance materials and repairs		(708,739	)		(643,897	)		(353,339	)

		(760,201	)		(676,088	)		(397,189	)

As of December 31, 2016, the Company performed an impairment analysis. No impairment of property and equipment was recognized as a result of such impairment analysis.

14.

Intangible assets

Breakdown

December 31,

2016

2015

2014

Cost

Accumulated
amortization

Net
amount

Goodwill (i)

753,502

—

753,502

753,502

Airport operating licenses (ii)

82,196

—

82,196

82,196

Software

201,607

(94,689

)

106,918

87,604

54,941

1,037,305

(94,689

)

942,616

923,302

890,639

F-52

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Changes in intangible assets balances are as follows :


	Costs
	December 31, 2014		December 31, 2015		Acquisitions		Disposals/ Written-off			Transfers		December 31, 2016
Goodwill (i)		753,502		753,502		—		—			—		753,502
Airport operating licenses (ii)		82,196		82,196		—		—			—		82,196
Software		92,636		145,301		56,308		(2	)		—		201,607

		928,334		980,999		56,308		(2	)		—		1,037,305


	Accumulated amortization
	December 31, 2014			December 31, 2015			Amortization for the year			Disposals/ Written-off		Transfers		December 31, 2016
Software		(37,695	)		(57,697	)		(36,992	)		—		—		(94,689	)

		(37,695	)		(57,697	)		(36,992	)		—		—		(94,689	)

(i)

Refers to goodwill recorded in the acquisition of Tudo Azul (former TRIP) in 2012. The amount of R$753,502 represents the excess of the consideration transferred over the fair value of the net assets acquired and liabilities assumed.

(ii)

As part of the purchase price allocation of Tudo Azul (former TRIP) acquisition, the Company recognized a separate intangible asset for the airport operating licenses. These intangible assets were deemed to have an indefinite life.

Impairment of goodwill and Airport operating licenses

Goodwill of acquisition of Tudo Azul (former TRIP)

The Company performed its annual impairment tests in December 2016, 2015 and 2014. The Company assessed that the most appropriate method for estimating the recoverable amount of the Company’s single CGU is by using the income approach through the discounted cash flows method.

The assumptions used in the impairment tests of goodwill and other intangible assets are consistent with the Company’s operating plans and internal projections over a five years period, and after five years an assumed growth rate in perpetuity is used. These assumptions are both reviewed and approved by Management.

The Company took into consideration the following assumptions:

•

Percentage of revenue growth from the tickets sale aligned to the Company’s business plan;

•

Projections of operating costs consider the expected growth of operations and macroeconomic variables;

•

Investment needs aligned to the Company’s business plan;

•

The discount rate used for projected cash flows was 16.3% per year;

•

The range of annual growth rate (terminal) used by the company was 2.4% to 4.4%.

F-53

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The Company also considered forecasted market variables such as GDP (source: Central Bank of Brazil), the U.S. Dollar to Brazilian reais exchange rate (source: Central Bank of Brazil), the price of a barrel of kerosene (source: National Brazilian Petroleum Agency—ANP) and interest rates (source: Bloomberg).

The result of the impairment test, which includes a sensitivity analysis of the main variables,

showed that the estimated recoverable amount is higher than carrying value of net assets allocated to the cash generating unit, and therefore no impairment was detected as of December 31, 2016.

15.

Income tax and social contribution

Income tax and social contribution


	Year ended December 31,
	2016			2015			2014
Income/(loss) before income tax and social contribution		17,666			(1,077,425	)		(87,464	)
Combined tax rate		34%			34%			34%

Income tax and social contribution statutory rate		(6,006	)		366,325			29,738
Adjustments to calculate the effective tax rate:
Taxable profit on foreign subsidiaries		(14,096	)		(1,730	)		(12,237	)
Exchange differences on foreign subsidiaries		91,014			(75,003	)		(24,317	)
Unrecorded deferred tax assets on tax loss carryforward and on temporary differences (*)		(212,958	)		(280,261	)		23,130
Permanent differences		(2,491	)		(4,056	)		6,692
Other		557			(2,755	)		(582	)

		(143,980	)		2,520			22,424

Current income tax and social contribution		8,731			(1,366	)		(4,368	)
Deferred income tax and social contribution		(152,711	)		3,886			26,792

		(143,980	)		2,520			22,424

(*)

Relates to deferred tax assets not recorded on tax loss carryforward and on temporary differences e.g.: deferred tax assets on tax loss carryforwards recorded in subsidiaries, allowances/provisions, finance lease operations, depreciation of aircraft and engines and fair value adjustments derived from business combinations.

F-54

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Breakdown of deferred income tax and social contribution


	December 31,
	2016			2015			2014
Deferred tax liabilities
On temporary differences
Provision for returns of aircraft and engines		—			19,529			10,166
Provision for tax, civil and labor risks		20,579			28,781			25,370
Deferred revenue of Tudo Azul program		(67,617	)		(26,068	)		(10,665	)
Aircraft lease expense		(201,120	)		(52,558	)		(77,692	)
Provision for navigation fees (legal claim)		—			—			61,635
Depreciation of aircraft and engines		79,422			41,767			20,440
Exchange rate		(105,428	)		(133,943	)		(38,210	)
Deferred gain related to aircraft sold		59,307			67,863			—
Cash flow hedge		17,445			—			—
Fair value of TAP convertible bonds		(92,708	)		—			—
Provision for onerous contract		39,322			—			—
Financial Instruments		1,220			49,499			(9,268	)
Others		30,208			(1,371	)		(9,915	)

Deferred tax liabilities		(219,370	)		(6,501	)		(28,139	)
On business combination
Deferred income tax on fair value of aircraft		(459	)		(8,799	)		(7,104	)
Deferred income tax on fair value of slots		(27,947	)		(27,947	)		(27,947	)
Other deferred income taxes on business combination fair value adjustment		(5,846	)		(9,451	)		(15,032	)

Deferred tax liabilities		(34,252	)		(46,197	)		(50,083	)
Total deferred tax liabilities		(253,622	)		(52,698	)		(78,222	)
Deferred tax assets recognized		72,160			6,501			28,139

Total		(181,462	)		(46,197	)		(50,083	)

The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.

As of December 31, 2016, 2015 and 2014, the Company has tax losses that are available indefinitely for offsetting against future taxable profits, as follows:

December 31,

2016

2015

2014

Income tax loss carryforwards

563,612

410,723

220,181

Social contribution negative base tax carryforwards

202,900

147,860

79,265

Deferred tax assets have not been recognized in respect of these losses as there is no evidence of recoverability in the near future, except for R$72,160 in relation to the limit, prescribed by the tax law, of 30% of the deferred tax liability balance as of December 31, 2016.

F-55

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

16.

Loans and financing


	December 31,
	2016		2015		2014
Loans		2,848,285		3,628,289		2,239,745
Debentures		1,186,210		1,182,656		1,019,439

		4,034,495		4,810,945		3,259,184
Non-current		3,049,257		3,561,642		2,691,577

Current		985,238		1,249,303		567,607

F-56

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

16.1.

Loans

Guarantees

Interest

Repayment method

Final
maturity

December 31,
2016

December 31,
2015

December 31,
2014

In foreign currency—US$

Purchase of aircraft

Chattel mortgage

LIBOR plus “spread” of 1.75% to 4.92% p.a.

Monthly, quarterly and semi-annual repayment

03/2025

518,826

979,113

947,757

Finance lease

Chattel mortgage

LIBOR plus spread of 2.05% to 5.50% p.a.

Monthly, quarterly and semi-annual repayment

12/2027

1,250,721

1,291,770

11,287

Working capital

Receivables of Azul and cash collateral

LIBOR plus fixed interest of 2.72% to 7.80% p.a.

Monthly, quarterly, semi-annual and bullet payment

12/2018

351,182

321,197

279,462

FINIMP

Letter of Credit

5.4% p.a.

Bullet payment

11/2017

22,982

27,819

19,115

Others

Chattel mortgage

LIBOR plus “spread” of 7.25% p.a.

Monthly and quarterly repayment

—

10,404

In local currency—R$

Purchase of aircraft (FINEM, FINAME)

Investments and chattel mortgage of aircraft

Fixed of 2.50% to 6.50% p.a.

Monthly repayment

05/2025

372,535

659,315

767,487

Working capital

Receivables of Azul

5.0% fixed p.a to 135% of CDI

Monthly, monthly repayment after grace period of 20 months, semi-annual and quarterly payments

07/2021

320,026

295,979

204,233

Finance lease

Chattel mortgage

CDI plus fixed spread of 3.87% p.a.

Semi-annual repayment

04/2019

12,013

11,796

—

Others

None

—

41,300

—

Total in R$

2,848,285

3,628,289

2,239,745

Current liabilities

740,696

1,106,317

535,311

Non-current liabilities

2,107,589

2,521,972

1,704,434

F-57

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The long term debt matures as follows


	December 31,
	2016		2015		2014
2016		—		—		424,407
2017		—		407,721		225,664
2018		629,644		377,311		210,384
2019		337,657		372,463		201,448
2020		330,894		365,454		321,265
2021		263,793		281,222		160,633
After 2021		545,601		717,801		160,633

		2,107,589		2,521,972		1,704,434

The following assets were given as guarantees to secure the financing agreements

December 31,

2016

2015

2014

Property and equipment (carrying value) used as collateral

2,626,463

2,907,438

1,979,944

16.2.

Debentures


	December 31,
	2016		2015		2014
Current		244,542		142,986		32,296
Non-current		941,668		1,039,670		987,143

		1,186,210		1,182,656		1,019,439

16.2.1.

Fifth issue

In the Extraordinary Shareholders’ Meeting held on September 15, 2014, the Company approved the fifth public issue of unsecured common debentures.

F-58

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

On September 19, 2014, the Company completed the offering of 100,000 debentures single series, for a total principal amount of R$1,000,000. The debentures mature on September 19, 2019, with principal payments in five semi-annual installments, the first maturing on September 19, 2017, and interest is paid semi-annually starting on March 19, 2015.

The debentures bear an interest rate of 127% of CDI per year. At December 31, 2016, the effective interest rate was 14.2% per year and outstanding balance was R$1,038,285.

16.2.2.

Seventh issue

In the Extraordinary Shareholders’ Meeting held on December 1, 2016, the Company approved the seventh public issue of unsecured common debentures.

On December 19, 2016, the Company completed the offering of 15,000 debentures single series, for a total principal amount of R$150,000. The debentures mature on December 19, 2018, with principal payments in quarterly installments, the first maturing on June 19, 2017, and interest paid quarterly starting on March 19, 2017. Credit card receivables were used to guarantee the debentures. In 2016, the Company early redeemed the remaining balance of the sixth issue for an amount of R$58,791.

The debentures bear an interest rate of CDI + 2,85% per year. At December 31 ^st , 2016, the effective interest rate was 13.9% per year and outstanding balance was R$147,925.

The maturity schedule of outstanding debentures is as follows:


	December 31,
	2016		2015		2014
2017		—		245,815		193,143
2018		470,377		396,489		396,571
2019		471,291		397,366		397,429

		941,668		1,039,670		987,143

F-59

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

16.3.

Finance leases

Future minimum lease payments under finance leases together with the present value of minimum lease payments are as follows:


	December 31,
	2016			2015			2014
2016		—			210,725			2,598
2017		222,344			207,920			2,584
2018		199,851			197,174			2,735
2019		198,767			196,114			2,892
2020		205,317			203,351			2,003
2021		152,596			130,266			—
After 2021		331,789			381,872			—

Total minimum lease payments		1,310,664			1,527,422			12,812
Less finance charges		(47,930	)		(223,856	)		(1,525	)

Present value of minimum lease payments		1,262,734			1,303,566			11,287
Less short-term portion		214,191			179,827			2,295

Long-term portion		1,048,543			1,123,739			8,992

Lease agreements under which the Company has substantially all the risks and rewards of ownership, were classified as finance leases. Finance leases were capitalized on lease inception at present value of the minimum lease payments.

16.4

Covenants

As of December 31, 2016 the Company had an outstanding balance of R$1,687,530 in “loans and financing” subject to financial covenants related to leverage and debt coverage ratios.

The main covenants relate to the 5 ^th issuance of debentures with Banco do Brasil S/A bank, which are calculated measured annually. The ratios measured for these covenants are: (i) adjusted debt coverage ratio (ICSD) equal or higher to 1.0; and (ii) leverage ratio equal or lower than 6.0. As of December 31, 2016 the Company was in compliance with all the covenants related to this debenture.

As of December 31, 2016, ALAB obtained a waiver for not complying with the equity and leverage Covenants in relation to the lease agreements of ten ATR aircraft, financed by Deutsche Bank and Santander, with export credit financing support from Sace and Coface.

ALAB has restrictive covenants in some of its financing agreements. On December 31, 2016, ALAB reached all the minimum standards established by all financing agreements except for one aircraft financing agreements, and therefore the Company reclassified the amount of R$95,411 from long term to short term debt as prescribed by IAS 1—Presentation of Financial Statements. The Company obtained the waiver in January, 2017.

F-60

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

17.

Air traffic liability

Air traffic liability is comprised of the following:


	December 31,
	2016		2015		2014
Advance ticket sales		640,474		638,492		560,762
Tudo Azul program		308,886		239,358		270,917

		949,360		877,850		831,679

18.

Provision for return of aircraft and engines

On June 1, 2016, the Company changed its estimate of the provision for the return of aircraft and engines, in accordance with IAS 8—Accounting Policies, Changes in Accounting Estimates and Errors, as the Company believes that return costs are more reliably estimated with more precise information, closer to the return date, as more information on the history of usage of the aircraft and the condition in which it is expected to be returned becomes available. Therefore, the Company currently recognizes the provision for return of aircraft and engines after the aircraft undergoes the last heavy maintenance before its scheduled return, i.e., during the last operating cycle after heavy maintenance. Management will keep monitoring and consistently estimating the provision for returns of aircraft and engines. As a result, on June 30, 2016 the Company adjusted its provision and reversed an amount of R$57,739 which was recorded in the “Aircraft and other rent” line item in the statement of operations.

19.

Equity

a) Issued capital and authorized shares, all registered and without par value


	Company’s capital is—R$			Common shares		Class “A” preferred share		Class “B” preferred share		Class “C” preferred share		Class “D” preferred share
At December 31, 2016		1,488,601			464,482,529		90,242,787		—		5,421,896		31,620,950
At December 31, 2015		503,427	(*)		464,482,529		90,242,787		2,400,388		5,421,896		—
At December 31, 2014		498,005	(*)		464,482,529		90,242,787		2,400,388		—		—

(*)

The class B preferred shares were recorded as “Financial liabilities at fair value through profit and loss”

Each common share entitles its holder to 1 (one) vote in the General Shareholders’ Meeting. Preferred shares of any class are not entitled to vote.

F-61

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Classes “A”, “C” and “D” preferred shares have: i) priority of reimbursement of capital upon liquidation; ii) the right to be included in a public offering of the Company for a purchase of shares upon transfer of the Company´s control for the same conditions as the common shareholders and for a price per share equivalent to seventy-five (75) times the price per share paid to the controlling shareholder; iii) in case of the Company’s liquidation, the right to receive amounts equivalent to seventy-five (75) times the price per common share upon splitting of the remaining assets among the shareholders; and iv) the right to receive dividends in an amount equivalent to seventy-five (75) times the price paid per common share.

The changes in issued capital are as follows:


	Total number common and preferred shares			Issued Capital R$
At December 31, 2013		554,116,903			473,969
Issued capital		3,008,801			32

At December 31, 2014		557,125,704			474,001
Issued capital (Note 1 a)		5,421,896			5,422

At December 31, 2015		562,547,600			479,423

Issued capital (Note 1 b)		31,620,950			985,174
Redemption of preferred shares recorded as financial liabilities		(2,400,388	)		—
Capitalization of reserve		—			24,004

At December 31, 2016		591,768,162			1,488,601

Issued capital (Note 1)

As explained in Note 1, the Company issued class D preferred shares to HNA.

Redemption of class B preferred shares and capitalization of reserve

During 2016, the Company redeemed 2,400,388 class B preferred shares, all without par value that were recorded as “Financial liabilities at fair value through profit and loss”. In addition, the Company capitalized reserves in the amount of R$24,004 from “Capital reserve” to “Issued Capital”.

F-62

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

b)	Capital reserve

b.1)

Share-based payments:

The share-based payment reserve is used to recognize the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their compensation. For the year ended December 31, 2016, the Company recognized compensation expense for an amount of R$9,879 (December 31, 2015—R$9,836 and December 31, 2014—R$6,352) in “Salaries, wages and benefits”.

b.2)

The Company recognized the amount in excess of par value of the shares issued to HNA in capital reserves in the total amount of R$487,934. See Note 1 b) ii.

Dividends

According to the by-laws of the Company, unless the right is waived by all shareholders, the shareholders are guaranteed a minimum mandatory dividend equal to 0.1% of net income of the Company after the deduction of legal reserve, contingency reserves, and the adjustment prescribed by Law No. 6,404/76 (Brazilian Corporate Law).

Interest paid on equity, which is deductible for income tax purposes, may be deducted from the minimum mandatory dividends to the extent that it has been paid or credited. Interest paid on equity is treated as dividend payments for accounting purposes.

Dividends are subject to approval by the Annual Shareholders Meeting.

The Company has not distributed dividends for the years ended December 31, 2016, 2015 and 2014.

F-63

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

d)	Other comprehensive loss

Changes in fair value of derivative instruments designated as cash flow hedges are recognized in other comprehensive loss, net of tax effects, for an amounts of R$33,785, R$92,769 and R$36,185 as of December 31, 2016, 2015 and 2014 (net of R$17,445, R$0 and R$0 tax effect) respectively.

20.

Loss per share

Basic earnings or loss per common share, are calculated by dividing net income (loss) attributable to the equity holders of Azul by the weighted average number of common shares outstanding during the year, including the conversion of the weighted average number of preferred shares outstanding during the year into common shares.

Diluted earnings or loss per common share, are calculated by dividing the net income (loss) attributable to the equity holders of Azul, by the weighted average number of common shares outstanding during the year, including the conversion of the weighted average number of preferred shares outstanding during the year into common shares, plus the weighted average number of common shares that would be issued on conversion of all the dilutive potential common shares into common shares.

Basic earnings or loss per preferred share, are calculated by dividing net income (loss) attributable to the equity holders of Azul by the weighted average number of preferred shares outstanding during the year, including the conversion of the weighted average number of common shares outstanding during the year into preferred shares.

Diluted earnings or loss per preferred share, are calculated by dividing the net income (loss) attributable to the equity holders of Azul, by the weighted average number of preferred shares outstanding during the year, including the conversion of the weighted average number of common shares outstanding during the year into preferred shares, plus the weighted average number of preferred shares that would be issued on conversion of all the dilutive potential preferred shares into preferred shares.

F-64

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The following table shows the calculation of income or loss per common and preferred share in thousands, except for values per share:


	December 31,
	2016			2015			2014
Numerator
Net loss for the year		(126,314	)		(1,074,905	)		(65,040	)
Denominator
Weighted average number of common shares		464,482,529			464,482,529			464,482,529
Weighted average number of preferred shares		108,315,235			92,985,740			87,767,458
75 preferred shares (*)		75.0			75.0			75.0
Weighted average number of preferred equivalent shares (*)		114.508.335			99,178,840			93,960,558
Weighted average number of common equivalent shares (**)		8,588,125,154			7,438,413,029			7,047,041,879
Basic and diluted net loss per common share		(0.01	)		(0.14	)		(0.01	)
Basic and diluted net loss per preferred share		(1.10	)		(10.84	)		(0.69	)

(*)

Refers to a participation in the total equity value of the Company, calculated as if all 464,482,529 common shares outstanding had been converted into 6,193,100 preferred shares at the conversion ratio of 75 common shares to 1.0 preferred share.

(**)

Refers to a participation in the total equity value of the Company, calculated as if the weighted average preferred shares outstanding had been converted into common shares at the conversion ratio of 75 common shares to 1.0 preferred share.

21.

Financial instruments

The Company has the following financial instruments:


			Book value						Fair value
			December 31,						December 31,
	Level		2016		2015		2014		2016		2015		2014
Assets:
Cash and cash equivalents		1		549,164		636,505		388,959		549,164		636,505		388,959
Short-term investments		1		331,210		29,853		499,831		331,210		29,853		499,831
Long term investments (Note 1)		3		753,200		—		—		753,200		—		—
Trade and other receivables		1		673,275		650,408		654,086		673,275		650,408		654,086
Restricted investments (*)		1		162,036		91,453		67,463		162,036		91,453		67,463
Derivative financial instruments (*)		2		21,770		41,039		32,231		21,770		41,039		32,231
Liabilities:
Loans and financing () (*)		1		4,034,495		4,810,945		3,259,184		4,065,778		4,739,191		3,231,294
Accounts payable		1		1,034,317		1,052,121		881,809		1,034,317		1,052,121		881,809
Financial liabilities at fair value through profit and loss (Note 22) (***)		2		44,655		330,901		269,892		44,655		330,901		269,892
Derivative financial instruments (*)		2/3		231,351		282,091		53,657		231,351		282,091		53,657

(*)

Includes current and non-current.

(**)

Includes the effect of fair value hedge in the amount of loss of R$13,177 (December 31, 2015 – loss of R$7,528 and December 31, 2014 – gain of R$17,480).

(***)

Refers to a private placement of preferred shares class B (See Note 22).

F-65

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The carrying value of cash and cash equivalents, short and long-term investments, restricted investments, trade and other receivables and accounts payable approximate their fair value largely due to the short-term maturity of these instruments.

Derivative financial instruments


	December 31,
	2016					2015					2014
	Assets		Liabilities			Assets		Liabilities			Assets		Liabilities
Cash flow hedge
Interest rate swap contract and heating oil forward contracts		—		(51,306	)		—		(107,439	)		—		(36,185	)
Fair value hedge
Interest rate swap contract		4,523		(17,700	)		38,771		(46,299	)		29,317		(11,837	)
Derivatives not designated as hedge
HNA option on TAP economic interest (Note 1)		—		(154,361	)		—		—			—		—
Interest rate swap contract		17,247		—			—		—			—		—
Forward foreign currency contract		—		(5,882	)		2,268		(3,292	)		2,914		—
Heating oil forward contracts		—		(2,102	)		—		(125,061	)		—		—
Foreign currency options		—		—			—		—			—		(5,635	)

		21,770		(231,351	)		41,039		(282,091	)		32,231		(53,657	)

The maturity of the derivative financial instruments held by the Company is as follows:

December 31, 2016

Immediate

Until 6
months

7 to 12
months

1 to 5
years

Up to 5
years

Total

Assets from derivative transactions

796

8,180

8,662

10,414

(6,282

)

21,770

Liabilities from derivative transactions

(14,865

)

(22,259

)

(174,004

)

(17,461

)

(2,762

)

(231,351

)

Total derivative financial instruments

(14,069

)

(14,079

)

(165,342

)

(7,047

)

(9,044

)

(209,581

)

Cash flow hedge

As of December 31, 2016, 2015 and 2014, the Company had interest rate swaps designated as cash flow hedges to hedge against the effect of changes in the interest rate on a portion of the payments of operating leases and loans denominated in foreign currency in the next 12 months.

The Company has average NDF contracts on the over-the-counter (OTC) Market with 1 different counterpart on the local market indexed to the Heating Oil forward contract traded in NYMEX. These contracts are traded in monthly tranches and provide partial coverage to the Company´s 2016 and 2017 fuel exposure.

F-66

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

On October 1 ^st , 2015, the Company decided to withdraw protection from fuel cost risks and no longer designates its heating oil forward contracts as cash flow hedges. In accordance with IAS 39 when the designation as hedge is revoked the cumulative gain or loss that has been recognized in other comprehensive loss in the period when the hedge was effective should remain in equity until the forecast transaction occurs.

That is, the cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive loss should be reclassified from equity to profit or loss in the same period(s) during which the hedged forecast cash flows (or asset acquired or liability assumed) affect profit or loss. During the year ended December 31, 2016, the net amount of R$26,710 loss was reclassified from equity to profit and loss related to the settlement of the hedged forecast cash flows of jet fuel acquisition.

The remaining heating oil forecast transactions that did not occur through December 31, 2016, which fair value amounts R$29,579 remains in other comprehensive loss and will be charged to profit or loss in the occurrence of the forecasted transaction.

The positions were:

December 31, 2016

Notional
amount

Asset
position

Liability
position

Fair
value

Cash flow hedge:

Loans and financing

90,138

LIBOR

Fixed rate

(21,727

)

Heating Oil

183,193

—

(29,579

)

273,331

(51,306

)


December 31, 2015	Notional amount		Asset position		Liability position		Fair value
Cash flow hedge:
Operating leases		101,180		LIBOR		Fixed rate		(34,202	)
Loans and financing		39,095		LIBOR		Fixed rate		(2,635	)
Heating Oil		571,004		—		—		(70,602	)

		711,279						(107,439	)


December 31, 2014	Notional amount		Asset position		Liability position		Fair value
Cash flow hedge:
Operating leases		109,834		LIBOR		Fixed rate		(27,979	)
Loans and financing		101,636		LIBOR		Fixed rate		(8,206	)

		211,470						(36,185	)

The essential terms of the swap contracts were agreed to be fully aligned with the terms of the hedged loans. Considering all transactions were deemed effective, the fair value changes on cash flow hedge were recorded in other comprehensive loss against derivative financial instruments in liabilities or assets.

F-67

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Changes in other comprehensive loss (cash flow hedge reserve) are detailed below:


	December 31,
	2016			2015			2014
Balance at the beginning of the period		(92,769	)		(36,185	)		(35,023	)
Transactions settled during the period		60,627			23,210			(9,028	)
Realization of deferral discontinued hedge		23,021			(23,021	)		—
Transactions during the period		—			79,310			—
Fair value adjustment		(42,109	)		(136,083	)		7,866

Balance at the end of the period		(51,230	)		(92,769	)		(36,185	)

Cumulative gains and losses related to heating oil forward contracts that are no longer designated as cash flow hedges and that have been recognized in other comprehensive loss in the period when the hedge was effective remain in equity until the forecast transactions occur. The realization of deferral discontinued hedge occurred during the year ended December 31, 2016, amounted of R$49,731.

Fair value hedge

As of December 31, 2016 the Company had fixed to floating interest rate swap contracts with a notional amount of R$599,856 (December 31, 2015—R$674,556 and December 31, 2014—R$697,835). These contracts entitle the Company to receive fixed interest rates and pay floating interest based on CDI.

Adjustment to fair value of these contracts resulted in the recognition of an unrealized loss of R$13,177 (December 31, 2015 – loss of R$7,528 and December 31, 2014 – gain of R$17,480) which was recorded as financial expenses. The impact on the statement of operations was offset by a positive adjustment on the debt hedged. There was no ineffectiveness during the year ended December 31, 2016.

Derivatives not designated as hedge accounting

The Company is exposed to the risk of changes in the U.S. dollars, and therefore entered into currency forward contracts, options and foreign currency swaps. These currency forward contracts are not designated as cash flow hedges, fair value hedges, or net investment hedges, and are related to the currency exposure for a period of less than 12 months.

Long term investments

The Company has issued an option for HNA amounting to €30,000 thousand to purchase up to 33% of the economic benefits of the TAP Convertible Bonds. The option expires on December 2, 2017 and its fair value amounts to R$154,361 as of December 31, 2016, recognized as a derivative financial instruments in liabilities. More details see note 1 b.

F-68

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

ii)

Interest rate swap contract

As of December 31, 2016 the Company had CDI interest rate swap contracts with a notional amount of R$291,181 (December 31, 2015 and 2014—R$0). Changes in fair value of these instruments resulted in the recognition of an unrealized gain of R$17,247 (December 31, 2015 and 2014—R$0).

iii)

Heating oil forward contracts

As of December 31, 2016 the Company also had average NDF contracts on over-the-counter (OTC) Market with 2 different counterparts on the local market indexed to the Heating Oil forward contract traded in NYMEX, traded on monthly tranches, with a notional value of R$183,193 (December 31, 2015—R$571,004 and December 31, 2014—R$0). The fair value of these instruments amounted to R$2,102 (December 31, 2015—R$125,061 and December 31, 2014—R$0).

iv)

Forward foreign currency contract

As of December 31, 2016, the Company had US$ 80,000 thousand (December 31, 2015—US$75,000 thousand and December 31, 2014—US$65,000 thousand) of notional value in forward foreign currency options, with rate of R$3,2686 per US$1.00.The fair value adjustment of these contracts resulted in the recognition of an unrealized gain of R$ 5,882 thousand (December 31, 2015—R$2,268 and December 31, 2014—R$2,914), which is recorded in derivative financial instruments, net in the statement of operation against current liabilities.

Fair value of financial instruments

The Company applies the following hierarchy to determine the fair value of financial instruments:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: other techniques for which all data that have significant effect on the fair value recorded are observable, directly or indirectly;

Level 3: techniques that use data that have significant effect on fair value recorded that are not based on observable market data.

Assets measured at fair value

December 31,
2016

Level 1

Level 2

Level 3

Financial assets at fair value

Short-term investments (a)

384,616

—

Long-term investments (c)

753,200

1,105

—

752,095

Interest rate swap contract—fair value hedge option (b)

4,523

—

4,523

—

Interest rate swap contract- not designated as hedge

17,247

—

17,247

—

F-69

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Liabilities measured at fair value

December 31,
2016

Level 1

Level 2

Level 3

Financial liabilities at fair value

Financial liabilities at fair value through profit or loss

(44,655

)

—

(44,655

)

—

Interest rate swap contract—cash flow hedge

(21,727

)

—

(21,727

)

—

Interest rate swap contract—fair value hedge (b)

(17,700

)

—

(17,700

)

—

HNA option TAP economic interest (d)

(154,361

)

—

(154,361

)

Interest rate swap contract- not designated as hedge

(5,882

)

—

(5,882

)

—

Heating oil forward contracts

(31,681

)

—

(31,681

)

—


Assets measured at fair value	December 31, 2015		Level 1		Level 2		Level 3
Financial assets at fair value
Short-term investments (a)		110,567		110,567		—		—
Forward foreign currency contract		2,268		—		2,268		—
Interest rate swap contract—fair value hedge (b)		38,771		—		38,771		—


Liabilities measured at fair value	December 31, 2015			Level 1		Level 2			Level 3
Financial liabilities at fair value
Financial liabilities at fair value through profit or loss		(330,901	)		—		(330,901	)		—
Forward foreign currency contract		(3,292	)		—		(3,292	)		—
Interest rate swap contract—cash flow hedge		(36,837	)		—		(36,837	)		—
Interest rate swap contract—fair value hedge (b)		(46,299	)		—		(46,299	)		—
Heating oil forward contracts		(195,663	)		—		(195,663	)		—


Assets measured at fair value	December 31, 2014		Level 1		Level 2		Level 3
Financial assets at fair value
Short term investments (a)		516,558		516,558		—		—
Forward foreign currency contract		2,914		—		2,914		—
Interest rate swap contract—fair value option (b)		29,317		—		29,317		—


Liabilities measured at fair value	December 31, 2014			Level 1		Level 2			Level 3
Financial liabilities at fair value
Financial liabilities at fair value through profit or loss		(269,892	)		—		(269,892	)		—
Interest rate swap contract—cash flow hedge		(36,185	)		—		(36,185	)		—
Foreign currency and interest rate swap		(5,635	)		—		(5,635	)		—
Interest rate swap contract—fair value option (b)		(11,837	)		—		(11,837	)		—

(a)

Includes short-term investments and restricted investments.

(b)

Portion of the balances consist of loans from FINAME PSI, and standard FINAME presented at their value adjusted by the hedged risk, applying fair value hedge accounting rules.

(c)

The Company calculated the fair value of the call option based on a valuation for TAP and binomial model considering the term of option, discount rate and the market volatility of publicly traded comparable airlines, calculated on a 2 years average. The resulting amount of the binomial model calculated in Euros was converted into Reais using the period-end exchange rate. See Note 1

(d)

The Company calculated the fair value of the put option by using the 12 months Libor rate as the coupon for the bond and applying it for the remaining time of the option.

F-70

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Level 3 financial assets reconciliation

Changes in the fair value of the TAP Convertible Bonds is detailed below:


	December 31,
	2016
Balance at the beginning of the year		—
TAP Convertible Bonds		309,456
Interest accrual		15,570
Fair value adjustment		(41,264	)
Fair value of call-option		468,333

Balance at the end of the year		752,095

22.

Financial liabilities at fair value through profit and loss

Private placement

On December, 23, 2013 the Company concluded a private placement of class B preferred shares in the amount of R$239,411 with mandatory conversion into equity in the event of an IPO , which is classified as short-term debt. The fair value of this financial instrument is recorded in “Financial liabilities at fair value through profit and loss” and was designated as financial liabilities at fair value through profit or loss. If the IPO is not completed by December, 2016, the Company is committed to redeem the class B preferred shares for their nominal amount plus 72.5%.

Part of this private placement was paid during 2016, however one investor entered into an agreement with the Company whereby their shares were redeemed but payment was postponed to 2017, and the amount due was fixed.

As of December 31, 2016 the fair value of the outstanding balance amounted to R$44,655.

F-71

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

23.

Financial risk management objectives and policies

The main financial liabilities of the Company, other than derivatives, are loans, debentures and accounts payable. The main purpose of these financial liabilities is to finance operations as well as finance the acquisition of aircraft. The Company has trade accounts receivable, demand deposits and other accounts receivable that result directly from its operations. The Company also has investments available for trading and contracts derivative transactions such as currency forwards and swaps in order to reduce the exposure to foreign exchange fluctuations.

The Company’s senior management supervises the management of market, credit and liquidity risks. All activities with derivatives for risk management purposes are carried out by experts with skills, experience and appropriate supervision. It is the Company´s policy not to enter in to derivatives transactions for speculative purposes.

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments exposed to market risk include loans payable, deposits, financial instruments measured at fair value through profit or loss and derivative financial instruments.

a.1)

Interest rate risk

Interest rate risk is the risk that the fair value of future results of a financial instrument fluctuates due to changes in market interest rates. The exposure of the Company to the risk of changes in market interest rates refers primarily to long-term obligations subject to variable interest rates.

The Company manages interest rate risk by monitoring the future projections of interest rates on its loans, financing and debentures as well as on its operating leases. To mitigate this risk, the Company has used derivative instruments aimed at minimizing any negative impact of variations in interest rates.

Sensitivity to interest rates

The table below shows the sensitivity to possible changes in interest rates, keeping all other variables constant in the Company’s income before taxes, that are impacted by loans payable subject to variable interest rates. For the sensitivity analysis, the Company utilized the following assumptions:

•

LIBOR based debt: weighted average interest rate of 4.3% p.a.

•

CDI based debt: weighted average interest rate of 14.0% p.a.

F-72

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

We estimated the impact on profit and loss and equity for the year ended December 31, 2016 resulting from variation of 25% and 50% on the weighted average rates, as shown below:

25%

-25%

50%

-50%

Interest expense

67,945

(67,945

)

135,890

(135,890

)

a.2)

Currency risk

Currency risk is the risk that the fair value of future dollar denominated commitments vary according to the fluctuation of the foreign exchange rate. The exposure of the Company to changes in exchange rates relates primarily to the U.S dollar denominated loans and financing, net of investments in the U.S. dollar, and also to operating expenses originated in U.S. dollar. The Company is also exposed to changes in the exchange rate of the Euro through its investment in the TAP Convertible Bonds (Note 1).

The Company manages its currency risk by using derivative financial instruments seeking to hedge up to twelve months of its projected non-operational activities.

The Company continuously monitors the net exposure in foreign currency and, when deemed appropriate, enters into arrangements to hedge the projected non-operating cash flow for up to 12 months to minimize its exposure. As of December 31, 2016 the Company had entered into NDF contracts of US$80,000 thousand to protect itself from currency fluctuations.

The Company’s foreign exchange exposure is shown below:


	Exposure to U.S. dollar									Exposure to Euro
	December 31,									December 31,
	2016			2015			2014			2016			2015		2014
Assets
Cash and cash equivalents and short-term Investments		144,633			73,979			64,775			—			—		—
Security deposits and maintenance reserves		1,061,086			1,179,251			762,445			—			—		—
Long-term investments (Note 1)		—			—			—			752,095			—		—
Financial instruments		322,313			—			—			—			—		—
Other assets		91,056			317,792			94,516			—			—		—

Total assets		1,619,088			1,571,022			921,736			752,095			—		—

Liabilities
Accounts payable		(96,204	)		(186,652	)		(114,196	)		—			—		—
Loans and financing		(2,143,711	)		(2,619,899	)		(1,268,025	)		—			—		—
Other liabilities		(96,710	)		(31,845	)		—			—			—		—
Purchase of TAP Convertible Bonds option issued (Note 21)		—			—			—			(154,361	)		—		—

Total liabilities		(2,336,625	)		(2,838,396	)		(1,382,221	)		(154,361	)		—		—

Derivatives (NDF)—notional		260,728			292,860			172,653			—			—		—

Net exposure		(456,809	)		(974,514	)		(287,832	)		597,734			—		—

F-73

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Sensitivity to exchange rates

At December 31, 2016, the Company used the closing exchange rate of R$3.2591/US$1.00 and R$3.4384/EUR1.00. We present below a sensitivity analysis considering a variation of 25% and 50% over the existing rates:


Exposure in US$	25% R$4.0739/US$		-25% R$2.4443/US$		50% R$4.8887/US$		-50% R$1.6296/US$
Effect on exchange rate variation		(235,188)		235,188		(470,377)		470,377


Exposure in EUR	25% R$4.2980/EUR		-25% R$2.5788/EUR		50% R$5.1576/EUR		-50% R$1.7192/EUR
Effect on exchange rate variation		149,434		(149,434)		298,867		(298,867)

a.3)

Risks related to variations in prices of aircraft fuel

The volatility of prices of aircraft fuel is one of the most significant financial risks for airlines. The company’s fuel price risk management aims to balance the airline exposure to its market peers, so that the airline is neither overly affected by a sudden increase in prices nor is unable to capitalize on a substantial fall in fuel prices. The Company manages the risk related to fuel price volatility either through forward looking fixed-price contracts directly with a supplier, or derivative contracts negotiated with banks. The company may use derivative contracts for oil or its sub products.

Fuel price sensitivity

The table below sets out the sensitivity of the Company’s fuel hedges to substantial changes in the oil markets, maintaining all other variables constant.

The analysis considers a change in oil prices, in Reais, relative to the market average for the current period and projects the impact on the Company’s financial instruments, stemming from a variation of 25% and 50% in the oil prices, as follows:

Change in Oil prices in Reais

25%

-25%

50%

-50%

Impact on fuel hedges

5,751

(69,114

)

43,183

(106,546

)

a.4)

Risk related to changes in the fair value of TAP Convertible Bonds

As explained in Note 1, since the TAP Convertible Bonds contain a conversion option into shares of TAP, the Company is exposed to changes in the fair value of TAP. Changes in the fair value of TAP, whose shares are not publicly traded, may impact the fair value of the TAP Convertible Bonds.

The acquisition of the TAP Convertible Bonds is part of the commercial strategy of the Company of creating synergies between the Company and TAP by having the option to become a direct shareholder of TAP in case the stock price of TAP increases and is economically interesting to convert the debt into the TAP shares.

F-74

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

In additional, the Company has granted an option for HNA to purchase up to 33% of the economic benefits of the TAP Convertible Bonds. Through this option the Company has partially transferred the benefits of increases in the fair value of the TAP Convertible Bonds over the exercise price of the option while retaining the risks of decreases in such fair value below the exercise price.

Credit risk

Credit risk is inherent in operating and financial activities of the Company, mainly represented under the headings of: trade receivables, cash and cash equivalents, including bank deposits. The credit risk of the “trade receivables” is comprised of amounts payable by the major credit card companies, and also trade receivables from travel agencies, and sales payable in installments. The Company usually assesses the corresponding risks of financial instruments and diversifies the exposure.

Financial instruments are held with counterparties that are rated at least A in the assessment made by S&P and Fitch, or, mostly, are hired in futures and commodities stock exchange, which substantially mitigates the credit risk. The TAP Convertible Bonds are secured by liens over certain intangible assets.

Liquidity risk

Liquidity risk takes on two distinct forms: market and cash flow liquidity risk. The first is related to current market prices and varies in accordance with the type of asset and the markets where they are traded. Cash flow liquidity risk, however, is related to difficulties in meeting the contracted operating obligations at the agreed dates.

As a way of managing the liquidity risk, the Company invests its funds in liquid assets (governmental bonds, CDBs, and investment funds with daily liquidity), and the Cash Management Policy establishes that the Company’s and its subsidiaries’ weighted average debt maturity should be higher than the weighted average maturity of the investment portfolio.

The schedule of financial liabilities held by the Company is as follows:

December 31, 2016

Immediate

Until 6
months

7 to 12
months

1 to 5
years

Up to 5
years

Total

Loans and financing

219,298

290,425

475,515

2,503,656

545,601

4,034,495

Accounts payable

658,498

206,551

169,268

—

1,034,317

Salaries, wages and benefits

78,571

39,061

68,842

—

186,474

Taxes payable and Refis

65,369

2,695

3,234

25,873

49,687

146,858

Liabilities from derivative transaction

14,865

22,259

174,004

17,461

2,762

231,351

Provisions

—

72,681

3,672

76,353

Other liabilities

108,353

54,344

17,132

262,477

115,446

557,752

1,144,954

615,335

907,995

2,882,148

717,168

6,267,600

F-75

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Capital management

The Company’s assets may be financed through equity or third-party financing. If the Company opts for equity capital it may use funds from contributions by shareholders or through selling its equity instruments.

The use of third-party financing is an option to be considered mainly when the Company believes that the cost would be less than the return generated by an acquired asset. It is important to ensure that the Company maintains an optimized capital structure, provides financial solidity while providing for the viability of its business plan. It is important to mention that as a capital-intensive industry with considerable investment in assets with a high aggregated value, it is natural for companies in the aviation sector to report a high degree of leverage.

The Company manages capital through leverage ratios, which is defined by the Company as net debt divided by the sum of net debt and total equity. Management seeks to maintain this ratio at levels equal to or lower than industry levels. Management includes in the net debt the loans and financing (includes debentures) less cash and cash equivalents, restricted cash, short and long-term investments and current and noncurrent restricted investments.

The Company’s capital structure is comprised of its net indebtedness defined as total loans and financing (includes debentures) and operating leases net of cash and cash equivalents, restricted cash, short and long-term investments and current and noncurrent restricted investments. Capital is defined as equity and net indebtedness.

The Company is not subject to any externally imposed capital requirements. The Company defines total capital as total net equity and net debt as detailed below:


	December 31,
	2016			2015			2014
Equity		1,001,987			(392,169	)		416,495

Cash and cash equivalents		(549,164	)		(636,505	)		(388,959	)
Short-term investments		(331,210	)		(29,853	)		(499,831	)
Long-term investments		(753,200	)		—			—
Restricted financial investments (*)		(162,036	)		(91,453	)		(67,463	)
Financial liabilities at fair value through profit and loss		44,655			330,901			269,892
Loans and financing (*)		4,034,495			4,810,945			3,259,184

Net debt		2,283,540			4,384,035			2,572,823

Total capital		3,285,527			3,991,866			2,989,318

(*)

Includes current and non current.

F-76

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

24.

Operating revenue


	Year ended December 31,
	2016			2015			2014
Revenue
Passenger revenue		6,062,887			5,824,521			5,367,337
Other revenue		958,022			756,374			736,946

Gross revenue		7,020,909			6,580,895			6,104,283
Taxes levied on
Passenger revenue		(276,078	)		(249,177	)		(237,724	)
Other revenue		(74,940	)		(73,852	)		(63,506	)

Total taxes		(351,018	)		(323,029	)		(301,230	)

Net revenue		6,669,891			6,257,866			5,803,053

25.

Financial result


	Year ended December 31,
	2016			2015			2014
Financial income
Interest on short-term investments		37,591			40,666			36,945
Other		13,476			2,512			4,573

		51,067			43,178			41,518
Financial expenses
Interest on loans		(399,873	)		(378,346	)		(313,057	)
Interest on factoring credit card and travel agencies receivables		(97,684	)		(72,614	)		(51,198	)
Interest on other operations (*)		(115,587	)		(186,298	)		(28,628	)
Other		(118,056	)		(48,661	)		(67,166	)

		(731,200	)		(685,919	)		(460,049	)
Derivative financial instruments, net		10,800			(82,792	)		4,245

Foreign exchange result, net		179,668			(184,305	)		(74,104	)

Net financial expenses		(489,665	)		(909,838	)		(488,390	)

(*)

Of which R$131,870 for the year ended December 31, 2015 related to costs to roll back positions in aircraft fuel supply contracts

26.

Other operating expenses, net


	Year ended December 31,
	2016			2015		2014
Accommodation and meals		164,633			184,271		165,006
IT services		145,698			113,762		82,314
Professional services		45,588			67,678		39,645
Taxes, civil and labor risks		42,537			41,277		21,147
Aircraft insurance		25,294			30,317		19,553
Flights interrupted		35,822			29,106		29,340
Others (*)		(3,097	)		17,362		63,944

		456,475			483,773		420,949

(*)

The “Others” balance is pulverized. For 2016 the gain with the sale and leaseback transactions was recognized in “Other operating expenses, net” (Note 13).

F-77

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

27.

Commitments

Operating leases

The Company has obligations arising from its operating lease agreements, denominated in US dollars, for aircraft and engines, totaling 100 aircraft at December 31, 2016 (December 31, 2015 – 106 and December 31, 2014—107) and 16 engines (December 31, 2015 – 18 and December 31, 2014—15). The lease terms range from 60 to 144 months for Embraer, ATR and Airbus. Bank guarantees or cash deposits were used to guarantee payments under these agreements. Operating lease agreements require that the Company make periodic lease payments and do not include aircraft purchase options at the end of the agreements. These payments are denominated in U.S. dollars and are generally subject to interest at the LIBOR rate.

The future minimum payments of non-cancellable operating leases for aircraft and engines are presented below:


	December 31,
	2016		2015		2014
Up to one year		1,139,347		1,312,067		846,599
From one to five years		4,235,115		4,920,203		3,125,236
More than five years		2,646,863		3,545,625		2,658,172

		8,021,325		9,777,895		6,630,007

For the year ended December 31, 2016 lease expense amounted to R$1,144,369 (December 31, 2015—R$1,073,643 and December 31, 2014—R$596,394). The total amount paid for the year ended December 30, 2016 was R$1,117,945 (December 31, 2015 was R$1,130,174 and December 31, 2014—R$632,807).

The operating lease agreements do not have covenant restrictions.

Commitments for future acquisition of aircraft

The Company has contracts for the acquisition of 73 aircraft (December 31, 2015 – 68 and December 31, 2014 – 51), under which the following future advance payments will be made:


	December 31,
	2016		2015		2014
Up to one year		—		—		999,832
More than one year up to five years		11,595,205		4,627,280		2,586,706
More than five years		3,649,817		17,346,375		8,885,940

		15,245,022		21,973,655		12,472,478

F-78

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

28.

Share-based option plan

28.1.

Equity-settled awards

28.1.1.

First share option plan

The first share option plan (“First Option Plan”) of the Company was approved on a Shareholders’ Meeting held on December 11, 2009. The plan has a term of 10 years, and no option may be granted after this period. Exercise conditions of options issued under the First Option Plan require in addition to a service period of 4 years the occurrence of an initial public offering (IPO) of the shares of the Company.

On December 11th, 2009, the Compensation Committee authorized the issuance of 2,859,200 preferred shares class A options for officers, executives, and key Company employees as part of the first share-based program, under the First Option Plan.

On March 24, 2011, the Compensation Committee approved the second share-based program under the First Option Plan, authorizing the issuance of 824,000 preferred shares class A options. The option exercise price of the second program was defined based on an appraisal made by the Company, using the free cash flow discounted to present value method.

Due to the granting of additional options arising from the second program, the Special Shareholders’ Meeting held on April 27, 2011 approved an amendment to the Company’s charter authorizing a capital increase of up to 3,683,200 preferred shares class A and also approved the change of item 4.1 of the First Option Plan for the total number of shares subject matter of the options granted not to exceed a total of 3,683,200 preferred shares class A.

Subsequently, in a meeting held on April 5, 2011, the Compensation Committee approved the third option program, authorizing the issuance of 342,800 preferred shares class A options remaining from the first program. The exercise price of the options granted in the third program is R$12.88.

F-79

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The following table presents changes in the quantity of share options outstanding and the weighted average exercise price:


	First Option Plan		Weighted average exercise price
Balance at December 31, 2014		3,630,400	R$	9.30
Granted		—		—

Balance at December 31, 2015		3,630,400	R$	9.30
Granted		—		—

Balance at December 31, 2016		3,630,400	R$	9.30

At December 31, 2016, no options have been exercised.

28.1.2.

Second share option plan

The second share option plan (the “Second Option Plan”) was approved during a Shareholders’ Meeting held on June 30, 2014.

Exercise conditions of options issued under the Second Option Plan require in addition to a service period of 4 years the occurrence of an initial public offering (IPO) of the shares of the Company. The options have an 8-year life. The exercise price is computed by multiplying the price per share of the Preferred Class A shares in the IPO by a discount of between 0% and 30%. The percentage of discount increases based on the time elapsed between the grant-date of the options and the IPO.

On June 30, 2014 the Compensation Committee approved the first share-based program authorizing 1,084,561 options under the Second Option Plan.

On July 01, 2015 the Compensation Committee approved the second share-based program authorizing 313,905 options under the Second Option Plan.

On July 01, 2016 the Compensation Committee approved the third share-based program authorizing 376,686 options under the Second Option Plan.

The following table presents changes in the number of share options outstanding. For all options the exercise price is 97.5% of the IPO price per share of Preferred Class A Shares.

F-80

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)


	Second Option Plan
Balance at December 31, 2014		1,084,561
Granted		313,905

Balance at December 31, 2015		1,398,466
Granted		376,686

Balance at December 31, 2016		1,775,152

At December 31, 2016, no options have been exercised and have a weighted average remaining contractual life of 4.9 years.

28.1.3.

Information about the fair value of share options and expense

The grant-date fair value of share options has been measured using the Black-Scholes model applying the inputs mentioned below. For determining the grant-date fair value of the options issued under the Second Option Plan we considered that at grant-date the best estimate was that an IPO would be concluded before the first anniversary of the grant-date.


	First Option Plan						Second Option Plan
	1 ^st program		2 ^nd program		3 ^rd program		1 ^st program		2 ^nd program		3 ^rd program
Total options authorized		2,859,200		824,000		342,800		1,084,561		313,905		376,686
Total options granted		2,516,400		786,000		328,000		1,084,561		313,905		376,686
Total options vested		2,476,640		674,050		290,731		781,867		160,465		85,079
Option exercise price		R$6.83		R$12.88		R$12.88		R$38.29		R$29.02		R$29.00
Option fair value as of grant date		R$3.85		R$8.32		R$8.32		R$22.01		R$21.64		R$20.28
Estimated volatility of the share price		47.67%		54.77%		54.77%		40.59%		40.59%		43.07%
Expected dividend		1.10%		1.10%		1.10%		1.10%		1.10%		1.10%
Risk-free rate of return		8.75%		12.00%		12.00%		12.46%		15.69%		12.21%
Maximum life of the option		10 years		10 years		10 years		8 years		8 years		8 years
Expected term considered for valuation		7 years		7 years		7 years		4.5 years		4.5 years		4.5 years

Expected volatility has been calculated based on historical volatility of airline shares listed on stock exchanges in Brazil and Latin America.

Share-based compensation expensed recognized in the statement of operations during the year ended December 31, 2016 with respect to the share options amounted to R$9,879 (December 31, 2015 – R$9,836 and December 31, 2014 – R$6,352).

F-81

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

28.2.

Cash-settled awards—restricted share units

The Shareholders’ Meeting held on June 30, 2014 approved a restricted share units plan (the “RSU”). Under the terms of the RSU participants are granted a fixed monetary amount (in Reais) which will be settled in a quantity of Preferred Class A shares determined by dividing the monetary amount by the price per share (undiscounted) of the Preferred Class A shares in an IPO. Exercise conditions of RSUs require in addition to a service period of 4 years the occurrence of an IPO of the shares of the Company for the RSUs to become exercisable. The RSU does not have an unlimited life. RSUs fully vest on the occurrence of a change in control irrespective of whether an IPO already took place or not. If an IPO or change in control has not taken place the Company may settle the portion of the RSUs for which the service period was completed in cash at the 1st, 2nd, 3rd and 4th anniversary of the grant date.

On June 30, 2014 the Compensation Committee approved the grant of R$10,241 to the beneficiaries under the RSU.

On July 01, 2015 the Compensation Committee approved the grant of R$6,180 to the beneficiaries under the RSU.

On July 01, 2016 the Compensation Committee approved the grant of R$7,416 to the beneficiaries under the RSU.

The fair value of the award is determined at each statement of financial position date as the monetary amount of the award in reais discounted from the earliest date at which the Company can settle the amount in cash using the current risk-free interest rate. The risk-free interest rate considered was 11.0%. The liability recorded at December 31, 2016 is R$5,311 (December 31, 2015—R$4,849 and December 31, 2014—R$2,030) and is presented in the consolidated statement of financial position under “Salaries, wage and benefits”.

Share-based compensation expensed recognized in the statement of operations during the year ended December 31, 2016 with respect to the RSU amounted to R$5,238 (December 31, 2015—R$ R$4,950 and December 31, 2014—R$2,800).

29.

Provision for taxes, civil and labor risks

The Company is party to certain labor, civil and tax lawsuits for which appeals have been filed. Based on the Company’s external and internal legal counsels’ opinion, Management believes that the recorded provisions are sufficient to cover probable losses. In addition, the Company has made judicial deposits when required by court. These provisions are as follows:


	December 31,
	2016		2015		2014
Taxes		5,246		7,972		8,258
Civil		48,784		54,357		49,659
Labor		22,323		19,446		9,577

		76,353		81,775		67,494

F-82

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

Changes in these provisions are as follows:


	Total
At December 31, 2013		74,415
Provisions recognized		42,913
Transfers (*)		(8,958	)
Reversal of provision (**)		(5,687	)
Utilized provisions		(35,189	)

At December 31, 2014		67,494
Provisions recognized		60,116
Utilized provisions		(45,835	)

At December 31, 2015		81,775
Provisions recognized		53,688
Utilized provisions		(59,110	)

At December 31, 2016		76,353

(*)

Refers to tax proceedings that were settled and transferred to Refis – Brazilian Amnesty of debts program, reducing interest and payable in installments.

(**)

Refers to reversal due to payment settled through Refis.

The Company’s management, together with its legal counsel, analyzes the proceedings on a case-by-case basis and records the amount of the provision for labor, civil and tax risk based on the probable cash disbursement for the related proceedings.

Tax proceedings: among other tax proceedings the Company is arguing in court the non-levy of tax on goods and services (“ICMS”) related to the import of aircraft, engines, and flight simulators under leases that do not contain an option to purchase. These lease agreements involve lessors domiciled abroad. In the opinion of the Company´s management, the agreements expressly commit the Company to the return of the property to the lessor. Based on the Company´s assessment, management does not believe these transactions are subject to taxation.

The estimated aggregate value of pending judicial disputes related to non-levy of ICMS on imports above-mentioned is R$20,661 at December 31, 2016 (December 31, 2015—R$109,386 and December 31, 2014—R$109,386) not including penalties or charges. The decrease in the balance of these proceedings over time is due to the period of prescription of these cases. The Company, based on the assessment of its legal counsel, believes that the chance of loss is remote, and therefore, no provision was recorded for such amounts.

The Company has tax proceedings related to additional charge of 1% of COFINS on imports of aircraft and engines, in accordance with the provisions of Law 10,865 / 04, the application of COFINS at a zero rate for imports of aircraft and parts and parts. Management believes that the chances of loss is possible and therefore no provision was recorded for such amounts.

F-83

Azul S.A.

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014

(In thousands of Brazilian reais, except when otherwise indicated)

The total amount of claims for tax proceedings which according to management represent losses that are reasonably possible but not probable is R$41,777 at December 31, 2016 (December 31, 2015—R$32,667 and December 31, 2014—R$8,515), for which no provision was recorded.

Civil lawsuits: the Company is party to various types of civil lawsuits, for compensation claims in relation to flight delays, cancellations of flights, luggage and damage loss, and others.

The total amount of claims for civil lawsuits which according to management represent losses that are reasonably possible but not probable is R$8,489 at December 31, 2016 (December 31, 2015—R$6,474 and December 31, 2014—R$5,506), for which no provision was recorded. None of the lawsuits are individually material.

Labor lawsuits: the Company is party to various types of labor lawsuits, related to overtime, additional remuneration for undertaking hazardous activities and safety related payments and others.

The total amount of claims for labor lawsuits which according to management represent losses that are reasonably possible but not probable is R$45,547 at December 31, 2016 (December 31, 2015—R$18,457 and December 31, 2014—R$8,633), for which no provision was recorded. None of the lawsuits are individually material.

30.

Insurance

The Company is advised by insurance consultants in the market in order to establish coverage compatible with its size and operations. As of December 31, 2016, the Company has the following insurance policies in place:


Type	Insured amounts
Fire—property and equipment		36,916
Civil liabilities		4,986,423

F-84

Preferred shares including preferred shares in the form of American depositary shares

LOGO


	Global Coordinators
Citigroup	Deutsche Bank Securities			Itaú BBA


Banco do Brasil Securities LLC	Bradesco BBI	JPMorgan	Raymond James	Santander

Through and including •, 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this global offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 6.

Indemnification of Directors and Officers

Under Brazilian Law, any provision, whether contained in the bylaws of a company or in any agreement, exempting any officer or director against any liability which by law or otherwise would attach to them in respect of negligence, misfeasance, breach of duty or trust, is void. A company may, however, indemnify an officer or director against any liability incurred by them in defending any proceedings, whether criminal or civil, in which a judgment is given in their favor. We have entered into indemnity agreements with two of our independent directors pursuant to which we agree to indemnify and hold each of them harmless for certain losses arising out of their respective positions as directors excluding any willful misconduct, fraud or severe negligence.

Item 7.

Recent Sales of Unregistered Securities

None.

Item 8.

Exhibits

(a)

The following documents are filed as part of this registration statement:

The exhibit index attached hereto is incorporated herein by reference.

(b)

Financial Statement Schedules

No financial statement schedules are provided because the information called for is not applicable or is shown in the financial statements or notes thereto.

Item 9.

Undertakings

The undersigned Registrant hereby undertakes that:

(1)

For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.

(2)

For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3)

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(4)

The Registrant will provide to the Underwriters at the closing specified in the Underwriting Agreement ADSs and Preferred Shares in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended (the “Securities Act”), the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, Brazil, on this 6th day of February, 2017.


Azul S.A.

		/s/ David Gary Neeleman
		David Gary Neeleman
		Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Neeleman their attorney-in-fact, with the power of substitution, for them in any and all capacities, to sign any amendment or post-effective amendment to this registration statement on Form F-1, including, without limitation, any additional registration statement filed pursuant to Rule 462 under the Securities Act with respect hereto and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities of Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.


Signature	Title	Date

/s/ David Gary Neeleman	Chief Executive Officer	February 6, 2017
David Gary Neeleman

/s/ John Peter Rodgerson	Chief Financial Officer	February 6, 2017
John Peter Rodgerson

/s/ Mariana Cambiaghi Lourenço	Controller	February 6, 2017
Mariana Cambiaghi Lourenço

/s/ Jose Mario Caprioli dos Santos	Director	February 6, 2017
Jose Mario Caprioli dos Santos

/s/ Sérgio Eraldo de Salles Pinto	Director	February 6, 2017
Sérgio Eraldo de Salles Pinto

/s/ Carolyn Luther Trabuco	Director	February 6, 2017
Carolyn Luther Trabuco

/s/ Gelson Pizzirani	Director	February 6, 2017
Gelson Pizzirani

/s/ Renan Chieppe	Director	February 6, 2017
Renan Chieppe

/s/ Decio Luiz Chieppe	Director	February 6, 2017
Decio Luiz Chieppe

/s/ Michael Lazarus	Director	February 6, 2017
Michael Lazarus

/s/ John Ray Gebo	Director	November 25, 2016
John Ray Gebo

/s/ Henri Courpron	Director	February 6, 2017
Henri Courpron

/s/ Haoming Xie	Director	February 6, 2017
Haoming Xie

/s/ Neng Li	Director	February 6, 2017
Neng Li

/s/ Stewart Gordon Smith	Director	February 5, 2017
Stewart Gordon Smith

/s/ Colleen A. De Vries	Authorized U.S. Representative	February 6, 2017
Colleen A. De Vries SVP on behalf of National Corporate Research, Ltd.

EXHIBIT INDEX


Exhibit Number		Exhibit



1.1*		Form of Underwriting Agreement

3.1*		By-laws of the Registrant Estatuto Social (English Translation)

4.1		Form of Deposit Agreement among the Registrant, Citibank N.A., as depositary, and the Holders from time to time of American Depositary Shares issued there under, including the form of American Depositary Receipts

4.2		Fifth Amended and Restated Shareholders Agreement, dated as of August 3, 2016, among Azul S.A. and the signatories thereunder.

4.3		Fifth Amended and Restated Registration Rights Agreement, dated as of August 3, 2016, among Azul S.A. and the signatories thereunder.

4.4		Form of Shareholders’ Agreement among TRIP Participações S.A., TRIP Investimentos Ltda., Rio Novo Locações Ltda., Calfinco Inc., Hainan Airlines Co., Ltd. and David Gary Neeleman and as intervening and consenting party, Azul S.A.

5.1*		Form of Opinion of Pinheiro Neto Advogados, Brazilian legal counsel of the Registrant, as to the legality of the preferred shares

10.1*†		Purchase Agreement COM0041-08, dated as of March 11, 2008, between Embraer – Empresa Brasileira de Aeronáutica S.A. and Canela Investments LLC, including Amendment No. 1, dated as of April 30, 2008; Amendment No. 2, dated as of July 31, 2008; Amendment No. 3, dated as of October 21, 2008; Amendment No. 4, dated as of August 31, 2008; Amendment No. 5, dated as of November 25, 2008; Amendment No. 6, dated as of December 12, 2008; Amendment No. 7, dated as of December 23, 2008, Amendment No. 8; dated as of March 12, 2009; Amendment No. 9, dated as of October 30, 2009; Amendment No. 10, dated as of December 21, 2009; Amendment No. 11, dated as of October 26, 2010; Amendment No. 12, dated as of September 30, 2011, Amendment No. 13; dated as of November 9, 2011; Amendment No. 14, dated as of December 1, 2011; Amendment No. 15, dated as of January 20, 2012; Amendment No. 16, dated as of May 2, 2012; Amendment No. 17, dated as of July 11, 2012; Amendment No. 18, dated as of December 28, 2012; Amendment No. 19, dated as of April 9, 2013, Amendment No. 20; dated as of May 29, 2013; Amendment No. 21, dated as of June 26, 2013; Amendment No. 22, dated as of March 13, 2014; Amendment No. 23, dated as of April 1, 2014, Amendment No. 24; dated as of April 29, 2014; Amendment No. 25, dated as of May 23, 2014; Amendment No. 26, dated as of July 30, 2014; and Amendment No. 27, dated as of September 24, 2015.

10.2*†		Sale and Purchase Contract, dated as of December 14, 2010, between Avions de Transport Régional and Canela Investments LLC, including the Amendment No. 1, dated as of December 22, 2011; and Amendment No. 2, dated as of December 4, 2012.

10.3*†		Global Maintenance Agreement, dated as of March 9, 2015, between Azul Linhas Aéreas Brasileiras S.A. and Avions de Transport Régional, G.I.E., including Amendment No. 1, dated as of January 6, 2016.

10.4*†		General Terms Agreement No. 1-1190636254, dated as of September 25, 2008, between GE Engine Services Distribution, LLC and Canela Investments, LLC.


Exhibit Number		Exhibit


10.5*†		OnPoint Overhaul Engine Services Agreement, dated as of September 25, 2009, between GE Engine Services, Inc., GE CELMA Ltda. and Azul Linhas Aéreas Brasileiras S.A., including Amendment No. 1, dated as of May, 2010; Amendment No. 2, dated as of September 25, 2009; Amendment No. 3, dated as of August 13, 2010; Amendment No. 4, dated as of September 22, 2010; Amendment No. 5, dated as of November 10, 2010; Amendment No. 6, dated as of January 31, 2011; Amendment No. 7, dated as of October 19, 2011; Amendment No. 8, dated as of May 15, 2012; Amendment No. 9, dated as of December 15, 2012; Amendment No. 10, dated as of March 28, 2013; Amendment No. 11, dated as of June 13, 2013; Amendment No. 12, dated as of June 13, 2013; Amendment No. 13, dated as of September 17, 2013; Amendment No. 14, dated as of December 30, 2014; Amendment No. 15, dated as of December 30, 2014; Amendment No. 16, dated as of January 31, 2011; Amendment No. 17, dated as of December 18, 2015, between GE Engine Services, Inc., GE CELMA Ltda., Azul S.A., Azul Linhas Aéreas Brasileiras S.A. and TRIP Linhas Aéreas S.A.; and Amendment No. 18, dated as of May 18, 2016.

10.6*†		Contract for Sale and Other Covenants, dated as of May 25, 2016, between Petrobras Distribuidora S.A. and Azul Linhas Aéreas Brasileiras S.A.

10.7*†		First Amendment to the Investment Agreement, dated as of August 15, 2012, between Azul S.A., Trip Participações S.A., Trip Investimentos Ltda. and Rio Novo Locações Ltda. (including the restated version of the Investment Agreement as Exhibit I); the Second Amendment to the Investment Agreement, dated as of December 27, 2013; the Third Amendment to the Investment Agreement, dated as of October 22, 2014; the Fourth Amendment to the Investment Agreement, dated as of June 26, 2015, between Azul S.A., Trip Participações S.A., Trip Investimentos Ltda., Rio Novo Locações Ltda. and Calfinco, Inc.; and the Fifth Amendment to the Investment Agreement, dated as of August 3, 2016, between Azul S.A., Trip Participações S.A., Trip Investimentos Ltda., Rio Novo Locações Ltda., Calfinco, Inc. and Hainan Airlines Co. Ltd.

10.8*†		General Terms Agreement No. 1-4207092154, dated as of January 13, 2016, between CFM International Inc. and Azul Linhas Aéreas Brasileiras S.A.

10.9*†		A320 NEO Purchase Agreement, dated as of October 24, 2014, between Airbus S.A.S. and Azul Finance LLC., including Amendment No. 1 to the A320 NEO Purchase Agreement, dated as of December 21, 2015.

10.10*†		Purchase Agreement COM0384-14, dated as of December 30, 2014, between Embraer – Empresa Brasileira de Aeronáutica S.A. and Azul Finance 2 LLC., including Amendment No. 1, dated as of September 4, 2015; Amendment No. 2, dated as of March 2, 2016; and Amendment No. 3, dated as of March 31, 2016.

21.1		Subsidiaries of the Registrant

23.1		Consent of Ernst & Young Auditores Independentes S. S.

23.2*		Consent of Pinheiro Neto Advogados, Brazilian legal counsel of the Registrant (included in Exhibit 5.1)

24.1		Powers of Attorney (included on signature page to the Registration Statement)

(*) To be filed by amendment.

† Portions of the exhibit will be omitted pursuant to the request for confidential treatment.

Exhibit 4.1

DEPOSIT AGREEMENT

by and among

AZUL S.A.

CITIBANK, N.A.,

as Depositary,

and

THE HOLDERS AND BENEFICIAL OWNERS OF

AMERICAN DEPOSITARY SHARES

ISSUED HEREUNDER

Dated as of [date] , 2017

TABLE OF CONTENTS


ARTICLE I DEFINITIONS					1
Section 1.1 “ADS Record Date”					1
Section 1.2 “Affiliate”					1
Section 1.3 “American Depositary Receipt(s)”, “ADR(s)” and “Receipt(s)”					1
Section 1.4 “American Depositary Share(s)” and “ADS(s)”					2
Section 1.5 “Applicant”					2
Section 1.6 “Beneficial Owner”					2
Section 1.7 “BM&FBOVESPA”					2
Section 1.8 “Brazil”					2
Section 1.9 “Business Day”					2
Section 1.10 “CBLC”					2
Section 1.11 “Certificated ADS(s)”					2
Section 1.12 “Central Bank”					2
Section 1.13 “Commission”					2
Section 1.14 “Company”					3
Section 1.15 “Custodian”					3
Section 1.16 “CVM”					3
Section 1.17 “Deliver” and “Delivery”					3
Section 1.18 “Deposit Agreement”					3
Section 1.19 “Depositary”					3
Section 1.20 “Deposited Property”					3
Section 1.21 “Deposited Securities”					3
Section 1.22 “Dollars” and “$”					3
Section 1.23 “DTC”					3
Section 1.24 “DTC Participant”					3
Section 1.25 “Estatuto Social”					3
Section 1.26 “Exchange Act”					3
Section 1.27 “Foreign Currency”					4
Section 1.28 “Full Entitlement ADR(s)”, “Full Entitlement ADS(s)” and “Full Entitlement Share(s)”					4
Section 1.29 “Holder(s)”					4
Section 1.30 “Losses”					4
Section 1.31 “Partial Entitlement ADR(s)”, “Partial Entitlement ADS(s)” and “Partial Entitlement Share(s)”					4
Section 1.32 “Pre-Release Transaction”					4
Section 1.33 “Principal Office”					4
Section 1.34 “Reais”, “Real”, “R$” or “BRL”					4
Section 1.35 “Registrar”					4
Section 1.36 “Restricted Securities”					4
Section 1.37 “Restricted ADR(s)”, “Restricted ADS(s)” and “Restricted Shares”					4
Section 1.38 “Securities Act”					4
Section 1.39 “Share Registrar”					4
Section 1.40 “Shares”					4
Section 1.41 “Uncertificated ADS(s)”					5
Section 1.42 “United States” and “U.S.”					5
ARTICLE II APPOINTMENT OF DEPOSITARY; FORM OF RECEIPTS; DEPOSIT OF SHARES; EXECUTION AND DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS					5
Section 2.1 Appointment of Depositary.					5
Section 2.2 Form and Transferability of ADSs.					5
Section 2.3 Deposit of Shares.					6
Section 2.4 Registration and Safekeeping of Deposited Securities.					7
Section 2.5 Issuance of ADSs.					7
Section 2.6 Transfer, Combination and Split-up of ADRs.					7
Section 2.7 Surrender of ADSs and Withdrawal of Deposited Securities.					8
Section 2.8 Limitations on Execution and Delivery, Transfer, etc. of ADSs; Suspension of Delivery, Transfer, etc.					9
Section 2.9 Lost ADRs, etc.					9
Section 2.10 Cancellation and Destruction of Surrendered ADRs; Maintenance of Records.					9


Section 2.11 Escheatment.					9
Section 2.12 Partial Entitlement ADSs.					10
Section 2.13 Certificated/Uncertificated ADSs.					11
Section 2.14 Restricted ADSs.					12
ARTICLE III CERTAIN OBLIGATIONS OF HOLDERS AND BENEFICIAL OWNERS OF ADSs					13
Section 3.1 Proofs, Certificates and Other Information.					13
Section 3.2 Liability for Taxes and Other Charges.					13
Section 3.3 Representations and Warranties on Deposit of Shares.					13
Section 3.4 Compliance with Information Requests.					14
Section 3.5 Ownership Restrictions.					14
Section 3.6 Reporting Obligations and Regulatory Approvals.					14
Section 3.7 Delivery of Information to the CVM, the Central Bank and the BM&FBOVESPA.					14
ARTICLE IV THE DEPOSITED SECURITIES					15
Section 4.1 Cash Distributions.					15
Section 4.2 Distribution in Shares.					15
Section 4.3 Elective Distributions in Cash or Shares.					16
Section 4.4 Distribution of Rights to Purchase Additional ADSs.					16
Section 4.5 Distributions Other Than Cash, Shares or Rights to Purchase Shares.					17
Section 4.6 Distributions with Respect to Deposited Securities in Bearer Form.					18
Section 4.7 Redemption.					18
Section 4.8 Conversion of Foreign Currency.					19
Section 4.9 Fixing of ADS Record Date.					19
Section 4.10 Voting of Deposited Securities.					20
Section 4.11 Changes Affecting Deposited Securities.					21
Section 4.12 Available Information.					21
Section 4.13 Reports.					21
Section 4.14 List of Holders.					21
Section 4.15 Taxation.					22
ARTICLE V THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY					23
Section 5.1 Maintenance of Office and Transfer Books by the Registrar.					23
Section 5.2 Exoneration.					23
Section 5.3 Standard of Care.					24
Section 5.4 Resignation and Removal of the Depositary; Appointment of Successor Depositary.					24
Section 5.5 The Custodian.					25
Section 5.6 Notices and Reports.					25
Section 5.7 Issuance of Additional Shares, ADSs etc.					26
Section 5.8 Indemnification.					26
Section 5.9 ADS Fees and Charges.					27
Section 5.10 Pre-Release Transactions.					28
Section 5.11 Restricted Securities Owners.					28
ARTICLE VI AMENDMENT AND TERMINATION					29
Section 6.1 Amendment/Supplement.					29
Section 6.2 Termination.					29
ARTICLE VII MISCELLANEOUS					30
Section 7.1 Counterparts.					30
Section 7.2 No Third-Party Beneficiaries.					30
Section 7.3 Severability.					30
Section 7.4 Holders and Beneficial Owners as Parties; Binding Effect.					30
Section 7.5 Notices.					31
Section 7.6 Governing Law and Jurisdiction.					31
Section 7.7 Assignment.					32
Section 7.8 Compliance with U.S. Securities Laws.					32
Section 7.9 Brazilian Law References.					32
Section 7.10 Titles and References.					33
Section 7.11 Amendment and Restatement.					33

DEPOSIT AGREEMENT

DEPOSIT AGREEMENT , dated as of , 20 , by and among (i) Azul S.A., a sociedade por ações organized under the laws of the Federative Republic of Brazil, and its successors (the “Company”), (ii) CITIBANK, N.A., a national banking association organized under the laws of the United States of America acting in its capacity as depositary, and any successor depositary hereunder (the “Depositary”), and (iii) all Holders and Beneficial Owners of American Depositary Shares issued hereunder (all such capitalized terms as hereinafter defined).

WITNESSETH THAT:

WHEREAS , the Company desires to establish with the Depositary an ADR facility to provide inter alia for the deposit of the Shares (as hereinafter defined) and the creation of American Depositary Shares representing the Shares so deposited and for the execution and Delivery of American Depositary Receipts (as hereinafter defined) evidencing such American Depositary Shares;

WHEREAS , the Depositary is willing to act as the Depositary for such ADR facility upon the terms set forth in the Deposit Agreement (as hereinafter defined);

WHEREAS , any American Depositary Receipts issued pursuant to the terms of the Deposit Agreement are to be substantially in the form of Exhibit A attached hereto, with appropriate insertions, modifications and omissions, as hereinafter provided in the Deposit Agreement; and

WHEREAS , the shareholders of the Company have duly approved the establishment of an ADR facility upon the terms set forth in the Deposit Agreement, the execution and delivery of the Deposit Agreement on behalf of the Company, and the actions of the Company and the transactions contemplated herein.

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

All capitalized terms used, but not otherwise defined, herein shall have the meanings set forth below, unless otherwise clearly indicated:

Section 1.1 “ ADS Record Date ” shall have the meaning given to such term in Section 4.9.

Section 1.2 “ Affiliate ” shall have the meaning assigned to such term by the Commission (as hereinafter defined) under Regulation C promulgated under the Securities Act (as hereinafter defined), or under any successor regulation thereto.

Section 1.3 “ American Depositary Receipt(s) ”, “ ADR(s) ” and “ Receipt(s) ” shall mean the certificate(s) issued by the Depositary to evidence the American Depositary Shares issued under the terms of the Deposit Agreement in the form of Certificated ADS(s) (as hereinafter defined), as such ADRs may be amended from time to time in accordance with the provisions of the Deposit Agreement. An ADR may evidence any number of ADSs and may, in the case of ADSs held through a central depository such as DTC, be in the form of a “Balance Certificate.”

Section 1.4 “ American Depositary Share(s) ” and “ ADS(s) ” shall mean the rights and interests in the Deposited Property (as hereinafter defined) granted to the Holders and Beneficial Owners pursuant to the terms and conditions of the Deposit Agreement and, if issued as Certificated ADS(s) (as hereinafter defined), the ADR(s) issued to evidence such ADSs. ADS(s) may be issued under the terms of the Deposit Agreement in the form of (a) Certificated ADS(s) (as hereinafter defined), in which case the ADS(s) are evidenced by ADR(s), or (b) Uncertificated ADS(s) (as hereinafter defined), in which case the ADS(s) are not evidenced by ADR(s) but are reflected on the direct registration system maintained by the Depositary for such purposes under the terms of Section 2.13. Unless otherwise specified in the Deposit Agreement or in any ADR, or unless the context otherwise requires, any reference to ADS(s) shall include Certificated ADS(s) and Uncertificated ADS(s), individually or collectively, as the context may require. Each ADS shall represent the right to receive, and to exercise the beneficial ownership interests in, the number of Shares specified in the form of ADR attached hereto as Exhibit A (as amended from time to time) that are on deposit with the Depositary and/or the Custodian, subject, in each case, to the terms and conditions of the Deposit Agreement and the applicable ADR (if issued as a Certificated ADS), until there shall occur a distribution upon Deposited Securities referred to in Section 4.2 or a change in Deposited Securities referred to in Section 4.11 with respect to which additional ADSs are not issued, and thereafter each ADS shall represent the right to receive, and to exercise the beneficial ownership interests in, the applicable Deposited Property on deposit with the Depositary and the Custodian determined in accordance with the terms of such Sections, subject, in each case, to the terms and conditions of the Deposit Agreement and the applicable ADR (if issued as a Certificated ADS). In addition, the ADS(s)-to-Share(s) ratio is subject to amendment as provided in Articles IV and VI of the Deposit Agreement (which may give rise to Depositary fees).

Section 1.5 “ Applicant ” shall have the meaning given to such term in Section 5.10.

Section 1.6 “ Beneficial Owner ” shall mean, as to any ADS, any person or entity having a beneficial interest deriving from the ownership of such ADS. Notwithstanding anything else contained in the Deposit Agreement, any ADR(s) or any other instruments or agreements relating to the ADSs and the corresponding Deposited Property, the Depositary, the Custodian and their respective nominees are intended to be, and shall at all times during the term of the Deposit Agreement be, the record holders only of the Deposited Property represented by the ADSs for the benefit of the Holders and Beneficial Owners of the corresponding ADSs. The Depositary, on its own behalf and on behalf of the Custodian and their respective nominees, disclaims any beneficial ownership interest in the Deposited Property held on behalf of the Holders and Beneficial Owners of ADSs. The beneficial ownership interests in the Deposited Property are intended to be, and shall at all times during the term of the Deposit Agreement continue to be, vested in the Beneficial Owners of the ADSs representing the Deposited Property. The beneficial ownership interests in the Deposited Property shall, unless otherwise agreed by the Depositary, be exercisable by the Beneficial Owners of the ADSs only through the Holders of such ADSs, by the Holders of the ADSs (on behalf of the applicable Beneficial Owners) only through the Depositary, and by the Depositary (on behalf of the Holders and Beneficial Owners of the corresponding ADSs) directly, or indirectly through the Custodian or their respective nominees, in each case upon the terms of the Deposit Agreement and, if applicable, the terms of the ADR(s) evidencing the ADSs. A Beneficial Owner of ADSs may or may not be the Holder of such ADSs. A Beneficial Owner shall be able to exercise any right or receive any benefit hereunder solely through the person who is the Holder of the ADSs owned by such Beneficial Owner. Unless otherwise identified to the Depositary, a Holder shall be deemed to be the Beneficial Owner of all the ADSs registered in his/her/its name. The manner in which a Beneficial Owner owns ADSs (e.g., in a brokerage account vs. as registered holder) may affect the rights and obligations of, and the manner in which services are made available to, Beneficial Owners pursuant to the terms of the Deposit Agreement.

Section 1.7 “ BM&FBOVESPA ” shall mean the São Paulo Stock Exchange ( BM&FBOVESPA S.A. – Bolsa de Valores Mercadorias e Futuros ).

Section 1.8 “ Brazil ” shall mean the Federative Republic of Brazil.

Section 1.9 “ Business Day ” shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the Borough of Manhattan, The City of New York are authorized or obligated by law or executive order to close.

Section 1.10 “ CBLC ” shall mean the Brazilian Clearing and Depository Corporation ( Companhia Brasileira de Liquidação e Custódia ), which provides the book-entry settlement system for securities traded in BM&FBOVESPA, or any successor entity thereto.

Section 1.11 “ Certificated ADS(s) ” shall have the meaning set forth in Section 2.13.

Section 1.12 “ Central Bank ” shall mean the Banco Central do Brasil or any successor governmental agency in Brazil.

Section 1.13 “ Commission ” shall mean the Securities and Exchange Commission of the United States or any successor governmental agency thereto in the United States.

Section 1.14 “ Company ” shall mean Azul S.A., a sociedade por ações incorporated and existing under the laws of Brazil, and its successors.

Section 1.15 “ Custodian ” shall mean (i) as of the date hereof, Banco Bradesco S.A., having its principal office at 4010-0 DEP de Ações e Custódia, Cidade de Deus, Vila Yara, S/N Prédio Amarelo 2 Andar, Osasco – SP Brazil – CEP: 06029-900, as the custodian of Deposited Property for the purposes of the Deposit Agreement, (ii) Citibank, N.A., acting as custodian of Deposited Property pursuant to the Deposit Agreement, and (iii) any other entity that may be appointed by the Depositary pursuant to the terms of Section 5.5 as successor, substitute or additional custodian hereunder. The term “Custodian” shall mean any Custodian individually or all Custodians collectively, as the context requires.

Section 1.16 “ CVM ” shall mean the Comissão de Valores Mobiliários , the Brazilian National Securities Commission, or any successor governmental agency in Brazil.

Section 1.17 “ Deliver ” and “ Delivery ” shall mean (x) when used in respect of Shares and other Deposited Securities , either (i) the physical delivery of the certificate(s) representing such securities, or (ii) the book-entry transfer and recordation of such securities on the books of the Share Registrar (as hereinafter defined) or in the book-entry settlement of CBLC, and (y) when used in respect of ADSs , either (i) the physical delivery of ADR(s) evidencing the ADSs, or (ii) the book-entry transfer and recordation of ADSs on the books of the Depositary or any book-entry settlement system in which the ADSs are settlement-eligible.

Section 1.18 “ Deposit Agreement ” shall mean this Deposit Agreement and all exhibits hereto, as the same may from time to time be amended and supplemented from time to time in accordance with the terms of the Deposit Agreement.

Section 1.19 “ Depositary ” shall mean Citibank, N.A., a national banking association organized under the laws of the United States, in its capacity as depositary under the terms of the Deposit Agreement, and any successor depositary hereunder.

Section 1.20 “ Deposited Property ” shall mean the Deposited Securities and any cash and other property held on deposit by the Depositary and the Custodian in respect of the ADSs under the terms of the Deposit Agreement, subject, in the case of cash, to the provisions of Section 4.8. All Deposited Property shall be held by the Custodian, the Depositary and their respective nominees for the benefit of the Holders and Beneficial Owners of the ADSs representing the Deposited Property. The Deposited Property is not intended to, and shall not, constitute proprietary assets of the Depositary, the Custodian or their nominees. Beneficial ownership in the Deposited Property is intended to be, and shall at all times during the term of the Deposit Agreement continue to be, vested in the Beneficial Owners of the ADSs representing the Deposited Property. Notwithstanding the foregoing, the collateral delivered in connection with Pre-Release Transactions described in Section 5.10 shall not constitute Deposited Property.

Section 1.21 “ Deposited Securities ” shall mean the Shares and any other securities held on deposit by the Custodian from time to time in respect of the ADSs under the Deposit Agreement and constituting Deposited Property.

Section 1.22 “ Dollars ” and “ $ ” shall refer to the lawful currency of the United States.

Section 1.23 “ DTC ” shall mean The Depository Trust Company, a national clearinghouse and the central book-entry settlement system for securities traded in the United States and, as such, the custodian for the securities of DTC Participants (as hereinafter defined) maintained in DTC, and any successor thereto.

Section 1.24 “ DTC Participant ” shall mean any financial institution (or any nominee of such institution) having one or more participant accounts with DTC for receiving, holding and delivering the securities and cash held in DTC. A DTC Participant may or may not be a Beneficial Owner. If a DTC Participant is not the Beneficial Owner of the ADSs credited to its account at DTC, or of the ADSs in respect of which the DTC Participant is otherwise acting, such DTC Participant shall be deemed, for all purposes hereunder, to have all requisite authority to act on behalf of the Beneficial Owner(s) of the ADSs credited to its account at DTC or in respect of which the DTC Participant is so acting.

Section 1.25 “ Estatuto Social ” shall mean the bylaws and other constitutive documents of the Company, as amended from time to time.

Section 1.26 “ Exchange Act ” shall mean the United States Securities Exchange Act of 1934, as amended from time to time.

Section 1.27 “ Foreign Currency ” shall mean any currency other than Dollars.

Section 1.28 “ Full Entitlement ADR(s) ”, “ Full Entitlement ADS(s) ” and “ Full Entitlement Share(s) ” shall have the respective meanings set forth in Section 2.12.

Section 1.29 “ Holder(s) ” shall mean the person(s) in whose name the ADSs are registered on the books of the Depositary (or the Registrar, if any) maintained for such purpose. A Holder may or may not be a Beneficial Owner. If a Holder is not the Beneficial Owner of the ADS(s) registered in its name, such person shall be deemed, for all purposes hereunder, to have all requisite authority to act on behalf of the Beneficial Owners of the ADSs registered in its name. The manner in which a Holder holds ADSs (e.g., in certificated vs. uncertificated form) may affect the rights and obligations of, and the manner in which the services are made available to, Holders pursuant to the terms of the Deposit Agreement.

Section 1.30 “ Losses ” shall mean any direct loss, liability, tax, charge or expense of any kind whatsoever (including, but not limited to, the reasonable fees and expenses of counsel).

Section 1.31 “ Partial Entitlement ADR(s) ”, “ Partial Entitlement ADS(s) ” and “ Partial Entitlement Share(s) ” shall have the respective meanings set forth in Section 2.12.

Section 1.32 “ Pre-Release Transaction ” shall have the meaning set forth in Section 5.10.

Section 1.33 “ Principal Office ” shall mean, when used with respect to the Depositary, the principal office of the Depositary at which at any particular time its depositary receipts business shall be administered, which, at the date of the Deposit Agreement, is located at 388 Greenwich Street, New York, New York 10013, U.S.A.

Section 1.34 “ Reais ”, “ Real ”, “ R$ ” or “ BRL ” shall refer to the lawful currency of Brazil.

Section 1.35 “ Registrar ” shall mean the Depositary or any bank or trust company having an office in the Borough of Manhattan, The City of New York, which shall be appointed by the Depositary to register issuances, transfers and cancellations of ADSs as herein provided, and shall include any co-registrar appointed by the Depositary for such purposes. Registrars (other than the Depositary) may be removed and substitutes appointed by the Depositary. Each Registrar (other than the Depositary) appointed pursuant to the Deposit Agreement shall be required to give notice in writing to the Depositary accepting such appointment and agreeing to be bound by the applicable terms of the Deposit Agreement.

Section 1.36 “ Restricted Securities ” shall mean Shares, Deposited Securities or ADSs which (i) have been acquired directly or indirectly from the Company or any of its Affiliates in a transaction or chain of transactions not involving any public offering and are subject to resale limitations under the Securities Act or the rules issued thereunder, or (ii) are held by an executive officer or director (or persons performing similar functions) or other Affiliate of the Company, or (iii) are subject to other restrictions on sale or deposit under the laws of the United States, Brazil, or under a shareholders’ agreement or the Estatuto Social of the Company or under the regulations of an applicable securities exchange unless, in each case, such Shares, Deposited Securities or ADSs are being transferred or sold to persons other than an Affiliate of the Company in a transaction (a) covered by an effective resale registration statement, or (b) exempt from the registration requirements of the Securities Act (as hereinafter defined), and the Shares, Deposited Securities or ADSs are not, when held by such person(s), Restricted Securities.

Section 1.37 “ Restricted ADR(s) ”, “ Restricted ADS(s) ” and “ Restricted Shares ” shall have the respective meanings set forth in Section 2.14.

Section 1.38 “ Securities Act ” shall mean the United States Securities Act of 1933, as amended from time to time.

Section 1.39 “ Share Registrar ” shall mean Banco Bradesco S.A. or any other institution organized under the laws of Brazil appointed by the Company to carry out the duties of registrar for the Shares, and any successor thereto.

Section 1.40 “ Shares ” shall mean the Company’s preferred shares, without par value, validly issued and outstanding and fully paid and may, if the Depositary so agrees after consultation with the Company, include evidence of the right to receive Shares; provided that in no event shall Shares include evidence of the right to receive Shares with respect to which the full purchase price has not been paid or Shares as to which preemptive rights have theretofore not been validly waived or exercised; provided further , however , that , if there shall occur any change in par or nominal value, split-up, consolidation, reclassification, exchange, conversion or any other event described in Section 4.11 in respect of the Shares of the Company, the term “Shares” shall thereafter, to the maximum extent permitted by law, represent the successor securities resulting from such event.

Section 1.41 “ Uncertificated ADS(s) ” shall have the meaning set forth in Section 2.13.

Section 1.42 “ United States ” and “ U.S. ” shall have the meaning assigned to it in Regulation S as promulgated by the Commission under the Securities Act.

ARTICLE II

APPOINTMENT OF DEPOSITARY; FORM OF RECEIPTS; DEPOSIT OF SHARES; EXECUTION AND DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS

Section 2.1 Appointment of Depositary . The Company hereby appoints the Depositary as depositary for the Deposited Property and hereby authorizes and directs the Depositary to act in accordance with the terms and conditions set forth in the Deposit Agreement and the applicable ADRs. Each Holder and each Beneficial Owner, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms and conditions of the Deposit Agreement shall be deemed for all purposes to (a) be a party to and bound by the terms of the Deposit Agreement and the applicable ADR(s), and (b) appoint the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the Deposit Agreement and the applicable ADR(s), to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the Deposit Agreement and the applicable ADR(s), the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof.

Section 2.2 Form and Transferability of ADSs .

(a) Form . Certificated ADSs shall be evidenced by definitive ADRs which shall be engraved, printed, lithographed or produced in such other manner as may be agreed upon by the Company and the Depositary. ADRs may be issued under the Deposit Agreement in denominations of any whole number of ADSs. The ADRs shall be substantially in the form set forth in Exhibit A to the Deposit Agreement, with any appropriate insertions, modifications and omissions, in each case as otherwise contemplated in the Deposit Agreement or required by law. ADRs shall be (i) dated, (ii) signed by the manual or facsimile signature of a duly authorized signatory of the Depositary, (iii) countersigned by the manual or facsimile signature of a duly authorized signatory of the Registrar, and (iv) registered in the books maintained by the Registrar for the registration of issuances and transfers of ADSs. No ADR and no Certificated ADS evidenced thereby shall be entitled to any benefits under the Deposit Agreement or be valid or enforceable for any purpose against the Depositary or the Company, unless such ADR shall have been so dated, signed, countersigned and registered. ADRs bearing the facsimile signature of a duly authorized signatory of the Depositary or the Registrar, who at the time of signature was a duly authorized signatory of the Depositary or the Registrar, as the case may be, shall bind the Depositary, notwithstanding the fact that such signatory has ceased to be so authorized prior to the Delivery of such ADR by the Depositary. The ADRs shall bear a CUSIP number that is different from any CUSIP number that was, is or may be assigned to any depositary receipts previously or subsequently issued pursuant to any other arrangement between the Depositary (or any other depositary) and the Company and which are not ADRs outstanding hereunder.

(b) Legends . The ADRs may be endorsed with, or have incorporated in the text thereof, such legends or recitals not inconsistent with the provisions of the Deposit Agreement as may be (i) necessary to enable the Depositary and the Company to perform their respective obligations hereunder, (ii) required to comply with any applicable laws or regulations, or with the rules and regulations of any securities exchange or market upon which ADSs may be traded, listed or quoted, or to conform with any usage with respect thereto, (iii) necessary to indicate any special limitations or restrictions to which any particular ADRs or ADSs are subject by reason of the date of issuance of the Deposited Securities or otherwise, or (iv) required by any book-entry system in which the ADSs are held. Holders and Beneficial Owners shall be deemed, for all purposes, to have notice of, and to be bound by, the terms and conditions of the legends set forth, in the case of Holders, on the ADR registered in the name of the applicable Holders or, in the case of Beneficial Owners, on the ADR representing the ADSs owned by such Beneficial Owners.

(c) Title . Subject to the limitations contained herein and in the ADR, title to an ADR (and to each Certificated ADS evidenced thereby) shall be transferable upon the same terms as a certificated security under the laws of the State of New York, provided that, in the case of Certificated ADSs, such ADR has been properly endorsed or is accompanied by proper instruments of transfer. Notwithstanding any notice to the contrary, the Depositary and the Company may deem and treat the Holder of an ADS (that is, the person in whose name an ADS is registered on the books of the Depositary) as the absolute owner thereof for all purposes. Neither the Depositary nor the Company shall have any obligation nor be subject to any liability under the Deposit Agreement or any ADR to any holder or any Beneficial Owner unless, in the case of a holder of ADSs, such holder is the Holder registered on the books of the Depositary or, in the case of a Beneficial Owner, such Beneficial Owner, or the Beneficial Owner’s representative, is the Holder registered on the books of the Depositary.

(d) Book-Entry Systems . The Depositary shall make arrangements for the acceptance of the ADSs into DTC. All ADSs held through DTC will be registered in the name of the nominee for DTC (currently “Cede & Co.”). As such, the nominee for DTC will be the only “Holder” of all ADSs held through DTC. Unless issued by the Depositary as Uncertificated ADSs, the ADSs registered in the name of Cede & Co. will be evidenced by one or more ADR(s) in the form of a “Balance Certificate,” which will provide that it represents the aggregate number of ADSs from time to time indicated in the records of the Depositary as being issued hereunder and that the aggregate number of ADSs represented thereby may from time to time be increased or decreased by making adjustments on such records of the Depositary and of DTC or its nominee as hereinafter provided. Citibank, N.A. (or such other entity as is appointed by DTC or its nominee) may hold the “Balance Certificate” as custodian for DTC. Each Beneficial Owner of ADSs held through DTC must rely upon the procedures of DTC and the DTC Participants to exercise or be entitled to any rights attributable to such ADSs. The DTC Participants shall for all purposes be deemed to have all requisite power and authority to act on behalf of the Beneficial Owners of the ADSs held in the DTC Participants’ respective accounts in DTC and the Depositary shall for all purposes be authorized to rely upon any instructions and information given to it by DTC Participants. So long as ADSs are held through DTC or unless otherwise required by law, ownership of beneficial interests in the ADSs registered in the name of the nominee for DTC will be shown on, and transfers of such ownership will be effected only through, records maintained by (i) DTC or its nominee (with respect to the interests of DTC Participants), or (ii) DTC Participants or their nominees (with respect to the interests of clients of DTC Participants).

Section 2.3 Deposit of Shares . Subject to the terms and conditions of the Deposit Agreement and applicable law, Shares or evidence of rights to receive Shares (other than Restricted Securities) may be deposited by any person (including the Depositary in its individual capacity but subject, however, in the case of the Company or any Affiliate of the Company, to Section 5.7) at any time, whether or not the transfer books of the Company or the Share Registrar, if any, are closed, by Delivery of the Shares to the Custodian. Every deposit of Shares shall be accompanied by the following: (A) (i) in the case of Shares represented by certificates issued in registered form , appropriate instruments of transfer or endorsement, in a form satisfactory to the Custodian, (ii) in the case of Shares represented by certificates in bearer form , the requisite coupons and talons pertaining thereto, and (iii) in the case of Shares delivered by book-entry transfer and recordation , confirmation of such book-entry transfer and recordation in the books of the Share Registrar or of the CBLC, as applicable, to the Custodian or that irrevocable instructions have been given to cause such Shares to be so transferred and recorded, (B) such certifications and payments (including, without limitation, the Depositary’s fees and related charges) and evidence of such payments (including, without limitation, stamping or otherwise marking such Shares by way of receipt) as may be required by the Depositary or the Custodian in accordance with the provisions of the Deposit Agreement and applicable law, (C) if the Depositary so requires, a written order directing the Depositary to issue and deliver to, or upon the written order of, the person(s) stated in such order the number of ADSs representing the Shares so deposited, (D) evidence satisfactory to the Depositary (which may be an opinion of counsel) that all necessary approvals have been granted by, or there has been compliance with the rules and regulations of, any applicable governmental agency in Brazil, and (E) if the Depositary so requires, (i) an agreement, assignment or instrument satisfactory to the Depositary or the Custodian which provides for the prompt transfer by any person in whose name the Shares are or have been recorded to the Custodian of any distribution, or right to subscribe for additional Shares or to receive other property in respect of any such deposited Shares or, in lieu thereof, such indemnity or other agreement as shall be satisfactory to the Depositary or the Custodian and (ii) if the Shares are registered in the name of the person on whose behalf they are presented for deposit, a proxy or proxies entitling the Custodian to exercise voting rights in respect of the Shares for any and all purposes until the Shares so deposited are registered in the name of the Depositary, the Custodian or any nominee.

Without limiting any other provision of the Deposit Agreement, the Depositary shall instruct the Custodian not to, and the Depositary shall not knowingly, accept for deposit (a) any Restricted Securities except as contemplated by Section 2.14 nor (b) any fractional Shares or fractional Deposited Securities nor (c) a number of Shares or Deposited Securities which upon application of the ADS to Shares ratio would give rise to fractional ADSs. No Shares shall be accepted for deposit unless accompanied by evidence, if any is required by the Depositary, that is reasonably satisfactory to the Depositary or the Custodian that all conditions to such deposit have been satisfied by the person depositing such Shares under the laws and regulations of Brazil and any necessary approval has been granted by the CVM, the Central Bank or any applicable governmental body in Brazil, if any. The Depositary may issue ADSs against evidence of rights to receive Shares from the Company, any agent of the Company or any custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares. Such evidence of rights shall consist of written blanket or specific guarantees of ownership of Shares furnished by the Company or any such custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares.

Without limitation of the foregoing, the Depositary shall not knowingly accept for deposit under the Deposit Agreement (A) any Shares or other securities required to be registered under the provisions of the Securities Act, unless (i) a registration statement is in effect as to such Shares or other securities or (ii) the deposit is made upon terms contemplated in Section 2.14, or (B) any Shares or other securities the deposit of which would violate any provisions of the Estatuto Social of the Company. For purposes of the foregoing sentence, the Depositary shall be entitled to rely upon representations and warranties made or deemed made pursuant to the Deposit Agreement and shall not be required to make any further investigation. The Depositary will comply with written instructions of the Company (received by the Depositary reasonably in advance) not to accept for deposit hereunder any Shares identified in such instructions at such times and under such circumstances as may reasonably be specified in such instructions in order to facilitate the Company’s compliance with the securities laws of the United States.

Section 2.4 Registration and Safekeeping of Deposited Securities . The Depositary shall instruct the Custodian upon each Delivery of registered Shares being deposited hereunder with the Custodian (or other Deposited Securities pursuant to Article IV hereof), together with the other documents above specified, to present such Shares, together with the appropriate instrument(s) of transfer or endorsement, duly stamped, to the Share Registrar for transfer and registration of the Shares (as soon as transfer and registration can be accomplished and at the expense of the person for whom the deposit is made) in the name of the Depositary, the Custodian or a nominee of either. Deposited Securities shall be held by the Depositary, or by a Custodian for the account and to the order of the Depositary or a nominee of the Depositary, in each case, on behalf of the Holders and Beneficial Owners, at such place(s) as the Depositary or the Custodian shall determine. Notwithstanding anything else contained in the Deposit Agreement, any ADR(s), or any other instruments or agreements relating to the ADSs and the corresponding Deposited Property, the registration of the Deposited Securities in the name of the Depositary, the Custodian or any of their respective nominees, shall, to the maximum extent permitted by applicable law, vest in the Depositary, the Custodian or the applicable nominee the record ownership in the applicable Deposited Securities with the beneficial ownership rights and interests in such Deposited Securities being at all times vested with the Beneficial Owners of the ADSs representing the Deposited Securities. Notwithstanding the foregoing, the Depositary, the Custodian and the applicable nominee shall at all times be entitled to exercise the beneficial ownership rights in all Deposited Property, in each case only on behalf of the Holders and Beneficial Owners of the ADSs representing the Deposited Property, upon the terms set forth in the Deposit Agreement and, if applicable, the ADR(s) representing the ADSs. The Depositary, the Custodian and their respective nominees shall for all purposes be deemed to have all requisite power and authority to act in respect of Deposited Property on behalf of the Holders and Beneficial Owners of ADSs representing the Deposited Property, and upon making payments to, or acting upon instructions from, or information provided by, the Depositary, the Custodian or their respective nominees all persons shall be authorized to rely upon such power and authority.

Section 2.5 Issuance of ADSs. The Depositary has made arrangements with the Custodian for the Custodian to confirm to the Depositary upon receipt of a deposit of Shares (i) that a deposit of Shares has been made pursuant to Section 2.3, (ii) that such Deposited Securities have been recorded in the name of the Depositary, the Custodian or a nominee of either on the shareholders’ register maintained by or on behalf of the Company by the Share Registrar on the books of the CBLC, (iii) that all required documents have been received, and (iv) the person(s) to whom or upon whose order ADSs are deliverable in respect thereof and the number of ADSs to be so delivered. Such notification may be made by letter, cable, telex, SWIFT message or, at the risk and expense of the person making the deposit, by facsimile or other means of electronic transmission. Upon receiving such notice from the Custodian, the Depositary, subject to the terms and conditions of the Deposit Agreement and applicable law, shall issue the ADSs representing the Shares so deposited to or upon the order of the person(s) named in the notice delivered to the Depositary and, if applicable, shall execute and deliver at its Principal Office Receipt(s) registered in the name(s) requested by such person(s) and evidencing the aggregate number of ADSs to which such person(s) are entitled, but, in each case, only upon payment to the Depositary of the charges of the Depositary for accepting a deposit of Shares and issuing ADSs (as set forth in Section 5.9 and Exhibit B hereto) and all taxes and governmental charges and fees payable in connection with such deposit and the transfer of the Shares and the issuance of the ADS(s). The Depositary shall only issue ADSs in whole numbers and deliver, if applicable, ADR(s) evidencing whole numbers of ADSs. Nothing herein shall prohibit any Pre-Release Transaction upon the terms set forth in the Deposit Agreement.

Section 2.6 Transfer, Combination and Split-up of ADRs .

(a) Transfer . The Registrar shall register the transfer of ADRs (and of the ADSs represented thereby) on the books maintained for such purpose and the Depositary shall (x) cancel such ADRs and execute new ADRs evidencing the same aggregate number of ADSs as those evidenced by the ADRs canceled by the Depositary, (y) cause the Registrar to countersign such new ADRs and (z) Deliver such new ADRs to or upon the order of the person entitled thereto, if each of the following conditions has been satisfied: (i) the ADRs have been duly Delivered by the Holder (or by a duly authorized attorney of the Holder) to the Depositary at its Principal Office for the purpose of effecting a transfer thereof, (ii) the surrendered ADRs have been properly endorsed or are accompanied by proper instruments of transfer (including signature guarantees in accordance with standard securities industry practice), (iii) the surrendered ADRs have been duly stamped (if required by the laws of the State of New York or of the United States), and (iv) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 and Exhibit B hereto) have been paid, subject, however, in each case , to the terms and conditions of the applicable ADRs, of the Deposit Agreement and of applicable law, in each case as in effect at the time thereof.

(b) Combination & Split-Up . The Registrar shall register the split-up or combination of ADRs (and of the ADSs represented thereby) on the books maintained for such purpose and the Depositary shall (x) cancel such ADRs and execute new ADRs for the number of ADSs requested, but in the aggregate not exceeding the number of ADSs evidenced by the ADRs canceled by the Depositary, (y) cause the Registrar to countersign such new ADRs and (z) Deliver such new ADRs to or upon the order of the Holder thereof, if each of the following conditions has been satisfied: (i) the ADRs have been duly Delivered by the Holder (or by a duly authorized attorney of the Holder) to the Depositary at its Principal Office for the purpose of effecting a split-up or combination thereof, and (ii) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 and Exhibit B hereto) have been paid, subject, however, in each case , to the terms and conditions of the applicable ADRs, of the Deposit Agreement and of applicable law, in each case as in effect at the time thereof.

Section 2.7 Surrender of ADSs and Withdrawal of Deposited Securities . The Holder of ADSs shall be entitled to Delivery (at the Custodian’s designated office) of the Deposited Securities at the time represented by the ADSs upon satisfaction of each of the following conditions: (i) the Holder (or a duly authorized attorney of the Holder) has duly Delivered ADSs to the Depositary at its Principal Office (and if applicable, the ADRs evidencing such ADSs) for the purpose of withdrawal of the Deposited Securities represented thereby, (ii) if applicable and so required by the Depositary, the ADRs Delivered to the Depositary for such purpose have been properly endorsed in blank or are accompanied by proper instruments of transfer in blank (including signature guarantees in accordance with standard securities industry practice), (iii) if so required by the Depositary, the Holder of the ADSs has executed and delivered to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be Delivered to or upon the written order of the person(s) designated in such order, and (iv) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 and Exhibit B ) have been paid, subject, however, in each case , to the terms and conditions of the ADRs evidencing the surrendered ADSs, of the Deposit Agreement, of the Company’s Estatuto Social and of any applicable laws and the rules of CBLC, and to any provisions of or governing the Deposited Securities , in each case as in effect at the time thereof.

Upon satisfaction of each of the conditions specified above, the Depositary (i) shall cancel the ADSs Delivered to it (and, if applicable, the ADR(s) evidencing the ADSs so Delivered), (ii) shall direct the Registrar to record the cancellation of the ADSs so Delivered on the books maintained for such purpose, and (iii) shall direct the Custodian to Deliver, or cause the Delivery of, in each case, without unreasonable delay, the Deposited Securities represented by the ADSs so canceled together with any certificate or other document of title for the Deposited Securities, or evidence of the electronic transfer thereof (if available), as the case may be, to or upon the written order of the person(s) designated in the order delivered to the Depositary for such purpose, subject however, in each case, to the terms and conditions of the Deposit Agreement, of the ADRs evidencing the ADSs so canceled, of the Estatuto Social of the Company, of any applicable laws and of the rules of the CBLC, and to the terms and conditions of or governing the Deposited Securities, in each case as in effect at the time thereof.

The Depositary shall not accept for surrender ADSs representing less than one (1) Share. In the case of Delivery to it of ADSs representing a number other than a whole number of Shares, the Depositary shall cause ownership of the appropriate whole number of Shares to be Delivered in accordance with the terms hereof, and shall, at the discretion of the Depositary, either (i) return to the person surrendering such ADSs the number of ADSs representing any remaining fractional Share, or (ii) sell or cause to be sold the fractional Share represented by the ADSs so surrendered and remit the proceeds of such sale (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes withheld) to the person surrendering the ADSs.

Notwithstanding anything else contained in any ADR or the Deposit Agreement, the Depositary may make delivery at the Principal Office of the Depositary of Deposited Property consisting of (i) any cash dividends or cash distributions, or (ii) any proceeds from the sale of any non-cash distributions, which are at the time held by the Depositary in respect of the Deposited Securities represented by the ADSs surrendered for cancellation and withdrawal. At the request, risk and expense of any Holder so surrendering ADSs, and for the account of such Holder, the Depositary shall direct the Custodian to forward (to the extent permitted by law) any Deposited Property (other than Deposited Securities) held by the Custodian in respect of such ADSs to the Depositary for delivery at the Principal Office of the Depositary. Such direction shall be given by letter or, at the request, risk and expense of such Holder, by cable, telex, electronic or facsimile transmission.

Section 2.8 Limitations on Execution and Delivery, Transfer, etc. of ADSs; Suspension of Delivery, Transfer, etc .

(a) Additional Requirements . As a condition precedent to the execution and Delivery, the registration of issuance, transfer, split-up, combination or surrender, of any ADS, the delivery of any distribution thereon, or the withdrawal of any Deposited Property, the Depositary or the Custodian may require (i) payment from the depositor of Shares or presenter of ADSs or of an ADR of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees and charges of the Depositary as provided in Section 5.9 and Exhibit B , (ii) the production of proof satisfactory to it as to the identity and genuineness of any signature or any other matter contemplated by Section 3.1, and (iii) compliance with (A) any laws or governmental regulations relating to the execution and Delivery of ADRs or ADSs or to the withdrawal of Deposited Securities and (B) such reasonable regulations as the Depositary and the Company may establish consistent with the provisions of the representative ADR, if applicable, the Deposit Agreement and applicable law.

(b) Additional Limitations . The issuance of ADSs against deposits of Shares generally or against deposits of particular Shares may be suspended, or the deposit of particular Shares may be refused, or the registration of transfer of ADSs in particular instances may be refused, or the registration of transfers of ADSs generally may be suspended, during any period when the transfer books of the Company, the Depositary, a Registrar or the Share Registrar are closed or if any such action is deemed necessary or advisable by the Depositary or the Company, in good faith, at any time or from time to time because of any requirement of law or regulation, any government or governmental body or commission or any securities exchange on which the ADSs or Shares are listed, or under any provision of the Deposit Agreement or the representative ADR(s), if applicable, or under any provision of, or governing, the Deposited Securities, or because of a meeting of the Board of Directors or shareholders of the Company or for any other reason, subject, in all cases, to Section 7.8.

(c) Regulatory Restrictions . Notwithstanding any provision of the Deposit Agreement or any ADR(s) to the contrary, Holders are entitled to surrender outstanding ADSs to withdraw the Deposited Securities associated herewith at any time subject only to (i) temporary delays caused by closing the transfer books of the Depositary or the Company or the deposit of Shares in connection with voting at a shareholders’ meeting or the payment of dividends, (ii) the payment of fees, taxes and similar charges, (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the ADSs or to the withdrawal of the Deposited Securities, and (iv) other circumstances specifically contemplated by Instruction I.A.(l) of the General Instructions to Form F-6 (as such General Instructions may be amended from time to time).

Section 2.9 Lost ADRs, etc . In case any ADR shall be mutilated, destroyed, lost, or stolen, the Depositary shall execute and deliver a new ADR of like tenor at the expense of the Holder (a) in the case of a mutilated ADR , in exchange of and substitution for such mutilated ADR upon cancellation thereof, or (b) in the case of a destroyed, lost or stolen ADR , in lieu of and in substitution for such destroyed, lost, or stolen ADR, after the Holder thereof (i) has submitted to the Depositary a written request for such exchange and substitution before the Depositary has notice that the ADR has been acquired by a bona fide purchaser, (ii) has provided such security or indemnity (including an indemnity bond) as may be required by the Depositary to save it and any of its agents harmless, and (iii) has satisfied any other reasonable requirements imposed by the Depositary, including, without limitation, evidence satisfactory to the Depositary of such destruction, loss or theft of such ADR, the authenticity thereof and the Holder’s ownership thereof.

Section 2.10 Cancellation and Destruction of Surrendered ADRs; Maintenance of Records . All ADRs surrendered to the Depositary shall be canceled by the Depositary. Canceled ADRs shall not be entitled to any benefits under the Deposit Agreement or be valid or enforceable against the Depositary for any purpose. The Depositary is authorized to destroy ADRs so canceled, provided the Depositary maintains a record of all destroyed ADRs. Any ADSs held in book-entry form ( e.g. , through accounts at DTC) shall be deemed canceled when the Depositary causes the number of ADSs evidenced by the Balance Certificate to be reduced by the number of ADSs surrendered (without the need to physically destroy the Balance Certificate).

Section 2.11 Escheatment . In the event any unclaimed property relating to the ADSs, for any reason, is in the possession of Depositary and has not been claimed by the Holder thereof or cannot be delivered to the Holder thereof through usual channels, the Depositary shall, upon expiration of any applicable statutory period relating to abandoned property laws, escheat such unclaimed property to the relevant authorities in accordance with the laws of each of the relevant States of the United States.

Section 2.12 Partial Entitlement ADSs . In the event any Shares are deposited which (i) entitle the holders thereof to receive a per-share distribution or other entitlement in an amount different from the Shares then on deposit or (ii) are not fully fungible (including, without limitation, as to settlement or trading) with the Shares then on deposit (the Shares then on deposit collectively, “ Full Entitlement Shares ” and the Shares with different entitlement, “ Partial Entitlement Shares ”), the Depositary shall (i) cause the Custodian to hold Partial Entitlement Shares separate and distinct from Full Entitlement Shares, and (ii) subject to the terms of the Deposit Agreement, issue ADSs representing Partial Entitlement Shares which are separate and distinct from the ADSs representing Full Entitlement Shares, by means of separate CUSIP numbering and legending (if necessary) and, if applicable, by issuing ADRs evidencing such ADSs with applicable notations thereon (“ Partial Entitlement ADSs/ADRs ” and “ Full Entitlement ADSs/ADRs ”, respectively). If and when Partial Entitlement Shares become Full Entitlement Shares, the Depositary shall (a) give notice thereof to Holders of Partial Entitlement ADSs and give Holders of Partial Entitlement ADRs the opportunity to exchange such Partial Entitlement ADRs for Full Entitlement ADRs, (b) cause the Custodian to transfer the Partial Entitlement Shares into the account of the Full Entitlement Shares, and (c) take such actions as are necessary to remove the distinctions between (i) the Partial Entitlement ADRs and ADSs, on the one hand, and (ii) the Full Entitlement ADRs and ADSs on the other. Holders and Beneficial Owners of Partial Entitlement ADSs shall only be entitled to the entitlements of Partial Entitlement Shares. Holders and Beneficial Owners of Full Entitlement ADSs shall be entitled only to the entitlements of Full Entitlement Shares. All provisions and conditions of the Deposit Agreement shall apply to Partial Entitlement ADRs and ADSs to the same extent as Full Entitlement ADRs and ADSs, except as contemplated by this Section 2.12. The Depositary is authorized to take any and all other actions as may be necessary (including, without limitation, making the necessary notations on ADRs) to give effect to the terms of this Section 2.12. The Company agrees to give timely written notice to the Depositary if any Shares issued or to be issued are Partial Entitlement Shares and shall assist the Depositary with the establishment of procedures enabling the identification of Partial Entitlement Shares upon Delivery to the Custodian.

Section 2.13 Certificated/Uncertificated ADSs . Notwithstanding any other provision of the Deposit Agreement, the Depositary may, at any time and from time to time, issue ADSs that are not evidenced by ADRs (such ADSs, the “ Uncertificated ADS(s) ” and the ADS(s) evidenced by ADR(s), the “ Certificated ADS(s) ”). When issuing and maintaining Uncertificated ADS(s) under the Deposit Agreement, the Depositary shall at all times be subject to (i) the standards applicable to registrars and transfer agents maintaining direct registration systems for equity securities in New York and issuing uncertificated securities under New York law, and (ii) the terms of New York law applicable to uncertificated equity securities. Uncertificated ADSs shall not be represented by any instruments but shall be evidenced by registration in the books of the Depositary maintained for such purpose. Holders of Uncertificated ADSs, that are not subject to any registered pledges, liens, restrictions or adverse claims of which the Depositary has notice at such time, shall at all times have the right to exchange the Uncertificated ADS(s) for Certificated ADS(s) of the same type and class, subject in each case to (x) applicable laws and any rules and regulations the Depositary may have established in respect of the Uncertificated ADSs, and (y) the continued availability of Certificated ADSs in the U.S. Holders of Certificated ADSs shall, if the Depositary maintains a direct registration system for the ADSs, have the right to exchange the Certificated ADSs for Uncertificated ADSs upon (i) the due surrender of the Certificated ADS(s) to the Depositary for such purpose and (ii) the presentation of a written request to that effect to the Depositary, subject in each case to (a) all liens and restrictions noted on the ADR evidencing the Certificated ADS(s) and all adverse claims of which the Depositary then has notice, (b) the terms of the Deposit Agreement and the rules and regulations that the Depositary may establish for such purposes hereunder, (c) applicable law, and (d) payment of the Depositary fees and expenses applicable to such exchange of Certificated ADS(s) for Uncertificated ADS(s). Uncertificated ADSs shall in all material respects be identical to Certificated ADS(s) of the same type and class, except that (i) no ADR(s) shall be, or shall need to be, issued to evidence Uncertificated ADS(s), (ii) Uncertificated ADS(s) shall, subject to the terms of the Deposit Agreement, be transferable upon the same terms and conditions as uncertificated securities under New York law, (iii) the ownership of Uncertificated ADS(s) shall be recorded on the books of the Depositary maintained for such purpose and evidence of such ownership shall be reflected in periodic statements provided by the Depositary to the Holder(s) in accordance with applicable New York law, (iv) the Depositary may from time to time, upon notice to the Holders of Uncertificated ADSs affected thereby, establish rules and regulations, and amend or supplement existing rules and regulations, as may be deemed reasonably necessary to maintain Uncertificated ADS(s) on behalf of Holders, provided that (a) such rules and regulations do not conflict with the terms of the Deposit Agreement and applicable law, and (b) the terms of such rules and regulations are readily available to Holders upon request, (v) the Uncertificated ADS(s) shall not be entitled to any benefits under the Deposit Agreement or be valid or enforceable for any purpose against the Depositary or the Company unless such Uncertificated ADS(s) is/are registered on the books of the Depositary maintained for such purpose, (vi) the Depositary may, in connection with any deposit of Shares resulting in the issuance of Uncertificated ADSs and with any transfer, pledge, release and cancellation of Uncertificated ADSs, require the prior receipt of such documentation as the Depositary may deem reasonably appropriate, and (vii) upon termination of the Deposit Agreement, the Depositary shall not require Holders of Uncertificated ADSs to affirmatively instruct the Depositary before remitting proceeds from the sale of the Deposited Property represented by such Holders’ Uncertificated ADSs under the terms of Section 6.2 of the Deposit Agreement. When issuing ADSs under the terms of the Deposit Agreement, including, without limitation, issuances pursuant to Sections 2.5, 4.2, 4.3, 4.4, 4.5 and 4.11, the Depositary may in its discretion determine to issue Uncertificated ADSs rather than Certificated ADSs, unless otherwise specifically instructed by the applicable Holder to issue Certificated ADSs. All provisions and conditions of the Deposit Agreement shall apply to Uncertificated ADSs to the same extent as to Certificated ADSs, except as contemplated by this Section 2.13. The Depositary is authorized and directed to take any and all actions and establish any and all procedures deemed reasonably necessary to give effect to the terms of this Section 2.13. Any references in the Deposit Agreement or any ADR(s) to the terms “American Depositary Share(s)” or “ADS(s)” shall, unless the context otherwise requires, include Certificated ADS(s) and Uncertificated ADS(s). Except as set forth in this Section 2.13 and except as required by applicable law, the Uncertificated ADSs shall be treated as ADSs issued and outstanding under the terms of the Deposit Agreement. In the event that, in determining the rights and obligations of parties hereto with respect to any Uncertificated ADSs, any conflict arises between (a) the terms of the Deposit Agreement (other than this Section 2.13) and (b) the terms of this Section 2.13, the terms and conditions set forth in this Section 2.13 shall be controlling and shall govern the rights and obligations of the parties to the Deposit Agreement pertaining to the Uncertificated ADSs.

Section 2.14 Restricted ADSs . The Depositary shall, at the request and expense of the Company, establish procedures enabling the deposit hereunder of Shares that are Restricted Securities in order to enable the holder of such Shares to hold its ownership interests in such Restricted Securities in the form of ADSs issued under the terms hereof (such Shares, “ Restricted Shares ”). Upon receipt of a written request from the Company to accept Restricted Shares for deposit hereunder, the Depositary agrees to establish procedures permitting the deposit of such Restricted Shares and the issuance of ADSs representing the right to receive, subject to the terms of the Deposit Agreement and the applicable ADR (if issued as a Certificated ADS), such deposited Restricted Shares (such ADSs, the “ Restricted ADSs ,” and the ADRs evidencing such Restricted ADSs, the “ Restricted ADRs ”). Notwithstanding anything contained in this Section 2.14, the Depositary and the Company may, to the extent not prohibited by law, agree to issue the Restricted ADSs in uncertificated form (“ Uncertificated Restricted ADSs ”) upon such terms and conditions as the Company and the Depositary may deem necessary and appropriate. The Company shall assist the Depositary in the establishment of such procedures and agrees that it shall take all steps necessary and satisfactory to the Depositary to ensure that the establishment of such procedures does not violate the provisions of the Securities Act or any other applicable laws. The depositors of such Restricted Shares and the Holders of the Restricted ADSs may be required prior to the deposit of such Restricted Shares, the transfer of the Restricted ADRs and Restricted ADSs or the withdrawal of the Restricted Shares represented by Restricted ADSs to provide such written certifications or agreements as the Depositary or the Company may require. The Company shall provide to the Depositary in writing the legend(s) to be affixed to the Restricted ADRs (if the Restricted ADSs are to be issued as Certificated ADSs ) , or to be included in the statements issued from time to time to Holders of Uncertificated ADSs (if issued as Uncertificated Restricted ADSs), which legends shall (i) be in a form reasonably satisfactory to the Depositary and (ii) contain the specific circumstances under which the Restricted ADSs, and, if applicable, the Restricted ADRs evidencing the Restricted ADSs, may be transferred or the Restricted Shares withdrawn. The Restricted ADSs issued upon the deposit of Restricted Shares shall be separately identified on the books of the Depositary and the Restricted Shares so deposited shall, to the extent required by law, be held separate and distinct from the other Deposited Securities held hereunder. The Restricted Shares and the Restricted ADSs shall not be eligible for Pre-Release Transactions. The Restricted ADSs shall not be eligible for inclusion in any book-entry settlement system, including, without limitation, DTC, and shall not in any way be fungible with the ADSs issued under the terms hereof that are not Restricted ADSs. The Restricted ADSs, and, if applicable, the Restricted ADRs evidencing the Restricted ADSs, shall be transferable only by the Holder thereof upon delivery to the Depositary of (i) all documentation otherwise contemplated by the Deposit Agreement and (ii) an opinion of counsel satisfactory to the Depositary setting forth, inter alia , the conditions upon which the Restricted ADSs presented, and, if applicable, the Restricted ADRs evidencing the Restricted ADSs, are transferable by the Holder thereof under applicable securities laws and the transfer restrictions contained in the legend applicable to the Restricted ADSs presented for transfer. Except as set forth in this Section 2.14 and except as required by applicable law, the Restricted ADSs and the Restricted ADRs evidencing Restricted ADSs shall be treated as ADSs and ADRs issued and outstanding under the terms of the Deposit Agreement. In the event that, in determining the rights and obligations of parties hereto with respect to any Restricted ADSs, any conflict arises between (a) the terms of the Deposit Agreement (other than this Section 2.14) and (b) the terms of (i) this Section 2.14 or (ii) the applicable Restricted ADR, the terms and conditions set forth in this Section 2.14 and of the Restricted ADR shall be controlling and shall govern the rights and obligations of the parties to the Deposit Agreement pertaining to the deposited Restricted Shares, the Restricted ADSs and Restricted ADRs.

If the Restricted ADRs, the Restricted ADSs and the Restricted Shares cease to be Restricted Securities, the Depositary, upon receipt of (x) an opinion of counsel satisfactory to the Depositary setting forth, inter alia , that the Restricted ADRs, the Restricted ADSs and the Restricted Shares are not as of such time Restricted Securities, and (y) instructions from the Company to remove the restrictions applicable to the Restricted ADRs, the Restricted ADSs and the Restricted Shares, shall (i) eliminate the distinctions and separations that may have been established between the applicable Restricted Shares held on deposit under this Section 2.14 and the other Shares held on deposit under the terms of the Deposit Agreement that are not Restricted Shares, (ii) treat the newly unrestricted ADRs and ADSs on the same terms as, and fully fungible with, the other ADRs and ADSs issued and outstanding under the terms of the Deposit Agreement that are not Restricted ADRs or Restricted ADSs, and (iii) take all actions necessary to remove any distinctions, limitations and restrictions previously existing under this Section 2.14 between the applicable Restricted ADRs and Restricted ADSs, respectively, on the one hand, and the other ADRs and ADSs that are not Restricted ADRs or Restricted ADSs, respectively, on the other hand, including, without limitation, by making the newly-unrestricted ADSs eligible for Pre-Release Transactions and for inclusion in the applicable book-entry settlement systems.

ARTICLE III

CERTAIN OBLIGATIONS OF HOLDERS AND BENEFICIAL OWNERS OF ADSs

Section 3.1 Proofs, Certificates and Other Information . Any person presenting Shares for deposit, any Holder and any Beneficial Owner may be required, and every Holder and Beneficial Owner agrees, from time to time to provide to the Depositary and the Custodian such proof of citizenship or residence, taxpayer status, payment of all applicable taxes or other governmental charges, exchange control approval, legal or beneficial ownership of ADSs and Deposited Property, compliance with applicable laws, the terms of the Deposit Agreement or the ADR(s) evidencing the ADSs and the provisions of, or governing, the Deposited Property, to execute such certifications and to make such representations and warranties, and to provide such other information and documentation (or, in the case of Shares in registered form presented for deposit, such information relating to the registration on the books of the Company or of the Share Registrar) as the Depositary or the Custodian may deem necessary or proper or as the Company may reasonably require by written request to the Depositary consistent with its obligations under the Deposit Agreement and the applicable ADR(s). The Depositary and the Registrar, as applicable, may withhold the execution or Delivery or registration of transfer of any ADR or ADS or the distribution or sale of any dividend or distribution of rights or of the proceeds thereof or, to the extent not limited by the terms of Section 7.8, the delivery of any Deposited Property until such proof or other information is filed or such certifications are executed, or such representations and warranties are made, or such other documentation or information provided, in each case to the Depositary’s, the Registrar’s and the Company’s satisfaction. The Depositary shall provide the Company, in a timely manner, with copies or originals if necessary and appropriate of (i) any such proofs of citizenship or residence, taxpayer status, or exchange control approval or copies of written representations and warranties which it receives from Holders and Beneficial Owners, and (ii) any other information or documents which the Company may reasonably request and which the Depositary shall request and receive from any Holder or Beneficial Owner or any person presenting Shares for deposit or ADSs for cancellation, transfer or withdrawal. Nothing herein shall obligate the Depositary to (i) obtain any information for the Company if not provided by the Holders or Beneficial Owners, or (ii) verify or vouch for the accuracy of the information so provided by the Holders or Beneficial Owners.

Section 3.2 Liability for Taxes and Other Charges . Any tax or other governmental charge payable by the Custodian or by the Depositary with respect to any Deposited Property, ADSs or ADRs shall be payable by the Holders and Beneficial Owners to the Depositary. The Company, the Custodian and/or the Depositary may withhold or deduct from any distributions made in respect of Deposited Property, and may sell for the account of a Holder and/or Beneficial Owner any or all of the Deposited Property and apply such distributions and sale proceeds in payment of, any taxes (including applicable interest and penalties) or charges that are or may be payable by Holders or Beneficial Owners in respect of the ADSs, Deposited Property and ADRs, the Holder and the Beneficial Owner remaining liable for any deficiency. The Custodian may refuse the deposit of Shares and the Depositary may refuse to issue ADSs, deliver ADRs, register the transfer of ADSs, register the split-up or combination of ADRs and (subject to Section 7.8) the withdrawal of Deposited Property until payment in full of such tax, charge, penalty or interest is received. Every Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian, and any of their agents, officers, directors, employees and Affiliates for, and to hold each of them harmless from, any claims with respect to taxes or additions to tax (in each case, including applicable interest and penalties thereon) arising out of any refund of taxes, reduced rate of withholding at source or from any tax benefit obtained for or by such Holder and/or Beneficial Owner. The obligations of Holders and Beneficial Owners under this Section 3.2 shall survive any transfer of ADSs, any cancellation of ADSs and withdrawal of Deposited Securities, and the termination of the Deposit Agreement.

Section 3.3 Representations and Warranties on Deposit of Shares . Each person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares and the certificates therefor are duly authorized, validly issued, fully paid, non-assessable and legally obtained by such person, (ii) all preemptive (and similar) rights, if any, with respect to such Shares have been validly waived or exercised, (iii) the person making such deposit is duly authorized so to do, (iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, (v) the Shares presented for deposit are not, and the ADSs issuable upon such deposit will not be, Restricted Securities (except as contemplated in Section 2.14), and (vi) the Shares presented for deposit have not been stripped of any rights or entitlements. Such representations and warranties shall survive the deposit and withdrawal of Shares, the issuance and cancellation of ADSs in respect thereof and the transfer of such ADSs. If any such representations or warranties are false in any way, the Company and the Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof.

Section 3.4 Compliance with Information Requests . Notwithstanding any other provision of the Deposit Agreement or any ADR(s), each Holder and Beneficial Owner agrees to comply with requests from the Company pursuant to applicable law, the rules and requirements of the CVM and/or the BM&FBOVESPA, and any other stock exchange on which the Shares or ADSs are, or will be, registered, traded or listed or the Estatuto Social of the Company, which are made to provide information, inter alia , as to the capacity in which such Holder or Beneficial Owner owns ADSs (and Shares as the case may be) and regarding the identity of any other person(s) interested in such ADSs and the nature of such interest and various other matters, whether or not they are Holders and/or Beneficial Owners at the time of such request. The Depositary agrees to use its reasonable efforts to forward, upon the request of the Company and at the Company’s expense, any such request from the Company to the Holders and to forward to the Company any such responses to such requests received by the Depositary.

Section 3.5 Ownership Restrictions . Notwithstanding any other provision in the Deposit Agreement or any ADR, the Company may restrict transfers of the Shares where such transfer might result in ownership of Shares exceeding limits imposed by applicable law or the Estatuto Social of the Company. The Company may also restrict, in such manner as it deems appropriate, transfers of the ADSs where such transfer may result in the total number of Shares represented by the ADSs owned by a single Holder or Beneficial Owner to exceed any such limits. The Company may, in its sole discretion but subject to applicable law, instruct the Depositary to take action with respect to the ownership interest of any Holder or Beneficial Owner in excess of the limits set forth in the preceding sentence, including, but not limited to, the imposition of restrictions on the transfer of ADSs, the removal or limitation of voting rights or mandatory sale or disposition on behalf of a Holder or Beneficial Owner of the Shares represented by the ADSs held by such Holder or Beneficial Owner in excess of such limitations, if and to the extent such disposition is permitted by applicable law and the Estatuto Social of the Company. Nothing herein shall be interpreted as obligating the Depositary or the Company to ensure compliance with the ownership restrictions described in this Section 3.5.

Section 3.6 Reporting Obligations and Regulatory Approvals . Applicable laws and regulations, including those of the Central Bank, the CVM and the BM&FBOVESPA, may require holders and beneficial owners of Shares, including the Holders and Beneficial Owners of ADSs, to comply with certain disclosure and trading standards (as of the date of this Deposit Agreement, mainly provided for in CVM Ruling no. 358/02), to satisfy reporting requirements and to obtain regulatory approvals in certain circumstances. Holders and Beneficial Owners of ADSs are solely responsible for determining and complying with such reporting requirements and obtaining such approvals. Each Holder and each Beneficial Owner hereby agrees to make such determination, file such reports, and obtain such approvals to the extent and in the form required by applicable laws and regulations as in effect from time to time. Neither the Depositary, the Custodian, the Company or any of their respective agents or affiliates shall be required to take any actions whatsoever on behalf of Holders or Beneficial Owners to determine or satisfy such reporting requirements or obtain such regulatory approvals under applicable laws and regulations.

Section 3.7 Delivery of Information to the CVM, the Central Bank and the BM&FBOVESPA . The Company shall comply with Brazil’s Monetary Council Resolution No. 4,373, dated as of September 29, 2013, and shall furnish to the CVM, the Central Bank and the BM&FBOVESPA, whenever required, information or documents related to the approved ADR program, the Deposited Securities and distributions thereon. The Company hereby authorizes each of the Depositary and the Custodian to release such information or documents and any other information as required by local regulation, law or regulatory body request.

ARTICLE IV

THE DEPOSITED SECURITIES

Section 4.1 Cash Distributions . Whenever the Company intends to make a distribution of a cash dividend or other cash distribution in respect of any Deposited Securities, the Company shall give notice thereof to the Depositary at least twenty (20) days prior to the proposed distribution specifying, inter alia , the record date applicable for determining the holders of Deposited Securities entitled to receive such distribution. Upon the timely receipt of such notice, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.9. Upon receipt of confirmation of the receipt of (x) any cash dividend or other cash distribution on any Deposited Securities, or (y) proceeds from the sale of any Deposited Property held in respect of the ADSs under the terms hereof, the Depositary will (i) if at the time of receipt thereof any amounts received in a Foreign Currency can, in the judgment of the Depositary (pursuant to Section 4.8), be converted on a practicable basis into Dollars transferable to the United States, promptly convert or cause to be converted such cash dividend, distribution or proceeds into Dollars (on the terms described in Section 4.8), (ii) if applicable and unless previously established, establish the ADS Record Date upon the terms described in Section 4.9, and (iii) distribute promptly the amount thus received (net of (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes withheld) to the Holders entitled thereto as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date. The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Holder a fraction of one cent, and any balance not so distributed shall be held by the Depositary (without liability for interest thereon) and shall be added to and become part of the next sum received by the Depositary for distribution to Holders of ADSs outstanding at the time of the next distribution. If the Company, the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities, or from any cash proceeds from the sales of Deposited Property, an amount on account of taxes, duties or other governmental charges, the amount distributed to Holders on the ADSs shall be reduced accordingly. Such withheld amounts shall be forwarded by the Company, the Custodian or the Depositary to the relevant governmental authority. Evidence of payment thereof by the Company shall be forwarded by the Company to the Depositary upon request. The Depositary will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the applicable Holders and Beneficial Owners of ADSs until the distribution can be effected or the funds that the Depositary holds must be escheated as unclaimed property in accordance with the laws of the relevant states of the United States. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in this Section 4.1, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in this Section 4.1, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in this Section 4.1 where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.

Section 4.2 Distribution in Shares . Whenever the Company intends to make a distribution that consists of a dividend in, or free distribution of, Shares, the Company shall give notice thereof to the Depositary at least twenty (20) days prior to the proposed distribution, specifying, inter alia , the record date applicable to holders of Deposited Securities entitled to receive such distribution. Upon the timely receipt of such notice from the Company, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.9. Upon receipt of confirmation from the Custodian of the receipt of the Shares so distributed by the Company, the Depositary shall either (i) subject to Section 5.9, distribute to the Holders as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date, additional ADSs, which represent in the aggregate the number of Shares received as such dividend, or free distribution, subject to the other terms of the Deposit Agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes), or (ii) if additional ADSs are not so distributed, take all actions necessary so that each ADS issued and outstanding after the ADS Record Date shall, to the extent permissible by law, thenceforth also represent rights and interests in the additional integral number of Shares distributed upon the Deposited Securities represented thereby (net of (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes). In lieu of Delivering fractional ADSs, the Depositary shall sell the number of Shares or ADSs, as the case may be, represented by the aggregate of such fractions and distribute the net proceeds upon the terms described in Section 4.1. In the event that the Depositary determines that any distribution in property (including Shares) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, or, if the Company in the fulfillment of its obligation under Section 5.7, has furnished an opinion of U.S. counsel determining that Shares must be registered under the Securities Act or other laws in order to be distributed to Holders (and no such registration statement has been declared effective), the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable, and the Depositary shall distribute the net proceeds of any such sale (after deduction of (a) taxes and (b) fees and charges of, and expenses incurred by, the Depositary) to Holders entitled thereto upon the terms described in Section 4.1. The Depositary shall hold and/or distribute any unsold balance of such property in accordance with the provisions of the Deposit Agreement. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in this Section 4.2, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in this Section 4.2, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in this Section 4.2 where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.

Section 4.3 Elective Distributions in Cash or Shares . Whenever the Company intends to make a distribution payable at the election of the holders of Deposited Securities in cash or in additional Shares, the Company shall give notice thereof to the Depositary at least forty five (45) days prior to the proposed distribution specifying, inter alia , the record date applicable to holders of Deposited Securities entitled to receive such elective distribution and whether or not it wishes such elective distribution to be made available to Holders of ADSs. Upon the timely receipt of a notice indicating that the Company wishes such elective distribution to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such elective distribution available to the Holders of ADSs. The Depositary shall make such elective distribution available to Holders only if (i) the Company shall have timely requested that the elective distribution be made available to Holders, (ii) the Depositary shall have determined that such distribution is reasonably practicable and (iii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7. If the above conditions are not satisfied or if the Company requests such elective distribution not to be made available to Holders of ADSs, the Depositary shall establish the ADS Record Date on the terms described in Section 4.9 and, to the extent permitted by law, distribute to the Holders, on the basis of the same determination as is made in Brazil in respect of the Shares for which no election is made, either (x) cash upon the terms described in Section 4.1 or (y) additional ADSs representing such additional Shares upon the terms described in Section 4.2. If the above conditions are satisfied, the Depositary shall establish an ADS Record Date on the terms described in Section 4.9 and establish procedures to enable Holders to elect the receipt of the proposed distribution in cash or in additional ADSs. The Company shall assist the Depositary in establishing such procedures to the extent necessary. If a Holder elects to receive the proposed distribution (x) in cash, the distribution shall be made upon the terms described in Section 4.1, or (y) in ADSs, the distribution shall be made upon the terms described in Section 4.2. Nothing herein shall obligate the Depositary to make available to Holders a method to receive the elective distribution in Shares (rather than ADSs). There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in this Section 4.3, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in this Section 4.3, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in this Section 4.3 where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.

Section 4.4 Distribution of Rights to Purchase Additional ADSs .

(a) Distribution to Holders of ADSs . Whenever the Company intends to distribute to the holders of the Deposited Securities rights to subscribe for additional Shares, the Company shall give notice thereof to the Depositary at least forty five (45) days prior to the proposed distribution specifying, inter alia , the record date applicable to holders of Deposited Securities entitled to receive such distribution and whether or not it wishes such rights to be made available to Holders of ADSs. Upon the timely receipt of a notice indicating that the Company wishes such rights to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such rights available to the Holders. The Depositary shall make such rights available to Holders if (i) the Company shall have timely requested that such rights be made available to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7, and (iii) the Depositary shall have determined that such distribution of rights is lawful and reasonably practicable. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in this Section 4.4(a), the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in this Section 4.4(a), and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in this Section 4.4(a) where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein. In the event any of the conditions set forth above are not satisfied or if the Company requests that the rights not be made available to Holders of ADSs, the Depositary shall proceed with the sale of the rights as contemplated in Section 4.4(b) below. In the event all conditions set forth above are satisfied, the Depositary shall establish the ADS Record Date (upon the terms described in Section 4.9) and establish procedures to (x) distribute rights to purchase additional ADSs (by means of warrants or otherwise), (y) enable the Holders to exercise such rights (upon payment of the subscription price and of the applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes), and (z) deliver ADSs upon the valid exercise of such rights. The Company shall assist the Depositary to the extent necessary in establishing such procedures. Nothing herein shall obligate the Depositary to make available to the Holders a method to exercise rights to subscribe for Shares (rather than ADSs).

(b) Sale of Rights . If (i) the Company does not timely request the Depositary to make the rights available to Holders or requests that the rights not be made available to Holders, (ii) the Depositary fails to receive satisfactory documentation within the terms of Section 5.7, or determines it is not lawful or reasonably practicable to make the rights available to Holders, or (iii) any rights made available are not exercised and appear to be about to lapse, the Depositary shall determine, after consultation with the Company to the extent practicable, whether it is lawful and reasonably practicable to sell such rights, in a riskless principal capacity, at such place and upon such terms (including public or private sale) as it may deem practicable. The Company shall assist the Depositary to the extent necessary to determine such legality and practicability. The Depositary shall, upon such sale, convert and distribute proceeds of such sale (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) upon the terms set forth in Section 4.1.

(c) Lapse of Rights . If the Depositary is unable to make any rights available to Holders upon the terms described in Section 4.4(a) or to arrange for the sale of the rights upon the terms described in Section 4.4(b), the Depositary shall allow such rights to lapse.

The Depositary shall not be liable for (i) any failure to accurately determine whether it may be lawful or practicable to make such rights available to Holders in general or any Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or exercise, or (iii) the content of any materials forwarded to the Holders on behalf of the Company in connection with the rights distribution.

Notwithstanding anything to the contrary in this Section 4.4, if registration (under the Securities Act or any other applicable law) of the rights or the securities to which any rights relate may be required in order for the Company to offer such rights or such securities to Holders and to sell the securities represented by such rights, the Depositary will not distribute such rights to the Holders (i) unless and until a registration statement under the Securities Act (or other applicable law) covering such offering is in effect or (ii) unless the Company furnishes the Depositary opinion(s) of counsel for the Company in the United States and counsel to the Company in any other applicable country in which rights would be distributed, in each case reasonably satisfactory to the Depositary, to the effect that the offering and sale of such securities to Holders and Beneficial Owners are exempt from, or do not require registration under, the provisions of the Securities Act or any other applicable laws.

In the event that the Company, the Depositary or the Custodian shall be required to withhold and does withhold from any distribution of Deposited Property (including rights) an amount on account of taxes or other governmental charges, the amount distributed to the Holders of ADSs shall be reduced accordingly. In the event that the Depositary determines that any distribution of Deposited Property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, the Depositary may dispose of all or a portion of such Deposited Property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable to pay any such taxes or charges.

There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to receive or exercise rights on the same terms and conditions as the holders of Shares or be able to exercise such rights. Nothing herein shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights.

Section 4.5 Distributions Other Than Cash, Shares or Rights to Purchase Shares .

(a) Whenever the Company intends to distribute to the holders of Deposited Securities property other than cash, Shares or rights to purchase additional Shares, the Company shall give notice thereof to the Depositary at least thirty (30) days prior to the proposed distribution and shall indicate whether or not it wishes such distribution to be made to Holders of ADSs. Upon receipt of a notice indicating that the Company wishes such distribution to be made to Holders of ADSs, the Depositary shall consult with the Company, and the Company shall assist the Depositary, to determine whether such distribution to Holders is lawful and reasonably practicable. The Depositary shall not make such distribution unless (i) the Company shall have requested the Depositary to make such distribution to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7, and (iii) the Depositary shall have determined that such distribution is lawful and reasonably practicable.

(b) Upon receipt of satisfactory documentation and the request of the Company to distribute property to Holders of ADSs and after making the requisite determinations set forth in (a) above, the Depositary shall distribute the property so received to the Holders of record, as of the ADS Record Date, in proportion to the number of ADSs held by such Holders respectively and in such manner as the Depositary may deem practicable for accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and charges of, and expenses incurred by, the Depositary, and (ii) net of any taxes withheld. The Depositary may dispose of all or a portion of the property so distributed and deposited, in such amounts and in such manner (including public or private sale) as the Depositary may deem practicable or necessary to satisfy any taxes (including applicable interest and penalties) or other governmental charges applicable to the distribution.

(c) If (i) the Company does not request the Depositary to make such distribution to Holders or requests the Depositary not to make such distribution to Holders, (ii) the Depositary does not receive satisfactory documentation within the terms of Section 5.7, or (iii) the Depositary determines that all or a portion of such distribution is not reasonably practicable, the Depositary shall sell or cause such property to be sold in a public or private sale, at such place or places and upon such terms as it may deem practicable and shall (i) cause the proceeds of such sale, if any, to be converted into Dollars and (ii) distribute the proceeds of such conversion received by the Depositary (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) to the Holders as of the ADS Record Date upon the terms of Section 4.1. If the Depositary is unable to sell such property, the Depositary may dispose of such property for the account of the Holders in any way it deems reasonably practicable under the circumstances.

(d) Neither the Depositary nor the Company shall be liable for (i) any failure to accurately determine whether it is lawful or practicable to make the property described in this Section 4.5 available to Holders in general or any Holders in particular, nor (ii) any loss incurred in connection with the sale or disposal of such property.

Section 4.6 Distributions with Respect to Deposited Securities in Bearer Form . Subject to the terms of this Article IV, distributions in respect of Deposited Securities that are held by the Depositary or the Custodian in bearer form shall be made to the Depositary for the account of the respective Holders of ADS(s) with respect to which any such distribution is made upon due presentation by the Depositary or the Custodian to the Company of any relevant coupons, talons, or certificates. The Company shall promptly notify the Depositary of such distributions. The Depositary or the Custodian shall promptly present such coupons, talons or certificates, as the case may be, in connection with any such distribution.

Section 4.7 Redemption . If the Company intends to exercise any right of redemption in respect of any of the Deposited Securities, the Company shall give notice thereof to the Depositary, as is reasonably practicable having regard to all applicable regulatory and other requirements to which the Company is subject from time to time, at least thirty (30) days prior to the intended date of redemption which notice shall set forth the particulars of the proposed redemption. Upon timely receipt of (i) such notice and (ii) satisfactory documentation given by the Company to the Depositary within the terms of Section 5.7, and only if the Company and the Depositary shall have determined that such proposed redemption is practicable, the Depositary shall provide to each Holder a notice setting forth the intended exercise by the Company of the redemption rights and any other particulars set forth in the Company’s notice to the Depositary. The Depositary shall instruct the Custodian to present to the Company the Deposited Securities in respect of which redemption rights are being exercised against payment of the applicable redemption price. Upon receipt of confirmation from the Custodian that the redemption has taken place and that funds representing the redemption price have been received, the Depositary shall convert, transfer, and distribute the proceeds (net of applicable (a) fees and charges of, and the expenses incurred by, the Depositary, and (b) taxes), retire ADSs and cancel ADRs, if applicable, upon Delivery of such ADSs by Holders thereof and the terms set forth in Sections 4.1 and 6.2. If less than all outstanding Deposited Securities are redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as may be determined by the Depositary, after consultation with the Company to the extent practicable. The redemption price per ADS shall be the dollar equivalent of the per share amount received by the Depositary (adjusted to reflect the ADS(s)-to-Share(s) ratio) upon the redemption of the Deposited Securities represented by ADSs (subject to the terms of Section 4.8 and the applicable fees and charges of, and expenses incurred by, the Depositary, and taxes) multiplied by the number of Deposited Securities represented by each ADS redeemed.

Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary thirty (30) days’ prior notice of the proposed redemption provided for in this Section 4.7, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in this Section 4.7, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in this Section 4.7 where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.

Section 4.8 Conversion of Foreign Currency . Whenever the Depositary or the Custodian shall receive Foreign Currency, by way of dividends or other distributions or the net proceeds from the sale of Deposited Property, which in the judgment of the Depositary can at such time be converted on a practicable basis, by sale or in any other manner that it may determine in accordance with applicable law, into Dollars transferable to the United States and distributable to the Holders entitled thereto, the Depositary shall convert or cause to be converted, by sale or in any other manner that it may determine, such Foreign Currency into Dollars, and shall distribute such Dollars (net of any applicable fees, any reasonable and customary expenses incurred in such conversion and any expenses incurred on behalf of the Holders in complying with currency exchange control or other governmental requirements) in accordance with the terms of the applicable sections of the Deposit Agreement. If the Depositary shall have distributed warrants or other instruments that entitle the holders thereof to such Dollars, the Depositary shall distribute such Dollars to the holders of such warrants and/or instruments upon surrender thereof for cancellation, in either case without liability for interest thereon. Such distribution may be made upon an averaged or other practicable basis without regard to any distinctions among Holders on account of any application of exchange restrictions or otherwise.

If such conversion or distribution generally or with regard to a particular Holder can be effected only with the approval or license of any government or agency thereof, the Depositary shall have authority to file such application for approval or license, if any, as it may deem desirable. In no event, however, shall the Depositary be obligated to make such a filing.

If at any time the Depositary shall determine that in its judgment the conversion of any Foreign Currency and the transfer and distribution of proceeds of such conversion received by the Depositary is not practicable or lawful, or if any approval or license of any governmental authority or agency thereof that is required for such conversion, transfer and distribution is denied or, in the opinion of the Depositary, not obtainable at a reasonable cost or within a reasonable period, the Depositary may, in its discretion but subject to applicable laws and regulations, (i) make such conversion and distribution in Dollars to the Holders for whom such conversion, transfer and distribution is lawful and practicable, (ii) distribute the Foreign Currency (or an appropriate document evidencing the right to receive such Foreign Currency) to Holders for whom this is lawful and practicable, or (iii) hold (or cause the Custodian to hold) such Foreign Currency (without liability for interest thereon) for the respective accounts of the Holders entitled to receive the same.

Section 4.9 Fixing of ADS Record Date . Whenever the Depositary shall receive notice of the fixing of a record date by the Company for the determination of holders of Deposited Securities entitled to receive any distribution (whether in cash, Shares, rights, or other distribution), or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each ADS, or whenever the Depositary shall receive notice of any meeting of, or solicitation of consents or proxies of, holders of Shares or other Deposited Securities, or whenever the Depositary shall find it necessary or convenient in connection with the giving of any notice, solicitation of any consent or any other matter, the Depositary shall fix the record date (the “ ADS Record Date ”) for the determination of the Holders of ADS(s) who shall be entitled to receive such distribution, to give instructions for the exercise of voting rights at any such meeting, to give or withhold such consent, to receive such notice or solicitation or to otherwise take action, or to exercise the rights of Holders with respect to such changed number of Shares represented by each ADS. The Depositary shall make reasonable efforts to establish the ADS Record Date as closely as practicable to the applicable record date for the Deposited Securities (if any) set by the Company in Brazil and shall not announce the establishment of any ADS Record Date prior to the relevant corporate action having been made public by the Company (if such corporate action affects the Deposited Securities). Subject to applicable law and the provisions of Section 4.1 through 4.8 and to the other terms and conditions of the Deposit Agreement, only the Holders of ADSs at the close of business in New York on such ADS Record Date shall be entitled to receive such distribution, to give such voting instructions, to receive such notice or solicitation, or otherwise take action.

Section 4.10 Voting of Deposited Securities . As soon as practicable after receipt of notice of any meeting at which the holders of Deposited Securities are entitled to vote, or of solicitation of consents or proxies from holders of Deposited Securities, the Depositary shall fix the ADS Record Date in respect of such meeting or solicitation of consent or proxy in accordance with Section 4.9. The Depositary shall, if requested by the Company in writing in a timely manner (the Depositary having no obligation to take any further action if the request shall not have been received by the Depositary at least thirty (30) days prior to the date of such vote or meeting), at the Company’s expense and provided no U.S. legal prohibitions exist, distribute to Holders as of the ADS Record Date: (a) such notice of meeting or solicitation of consent or proxy, (b) a statement that the Holders at the close of business on the ADS Record Date will be entitled, subject to any applicable law, the provisions of the Deposit Agreement, the Estatuto Social of the Company and the provisions of or governing the Deposited Securities (which provisions, if any, shall be summarized in pertinent part by the Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by such Holder’s ADSs, and (c) a brief statement as to the manner in which such voting instructions may be given.

Notwithstanding anything contained in the Deposit Agreement or any ADR, the Depositary may, to the extent not prohibited by law or regulations, or by the requirements of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the Depositary in connection with any meeting of, or solicitation of consents or proxies from, holders of Deposited Securities, distribute to the Holders a notice that provides Holders with, or otherwise publicizes to Holders, instructions on how to retrieve such materials or receive such materials upon request (e.g., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials).

Voting instructions may be given only in respect of a number of ADSs representing an integral number of Deposited Securities. Upon the timely receipt from a Holder of ADSs as of the ADS Record Date of voting instructions in the manner specified by the Depositary, the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of the Deposit Agreement, Estatuto Social of the Company and the provisions of the Deposited Securities, to vote, or cause the Custodian to vote, the Deposited Securities (in person or by proxy) represented by such Holder’s ADSs in accordance with such voting instructions.

Deposited Securities represented by ADSs for which no timely voting instructions are received by the Depositary from the Holder shall not be voted (except as otherwise contemplated herein). Neither the Depositary nor the Custodian shall under any circumstances exercise any discretion as to voting and neither the Depositary nor the Custodian shall vote, attempt to exercise the right to vote, or in any way make use of, for purposes of establishing a quorum or otherwise, the Deposited Securities represented by ADSs, except pursuant to and in accordance with the voting instructions timely received from Holders or as otherwise contemplated herein. If the Depositary timely receives voting instructions from a Holder which fail to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs, the Depositary will deem such Holder (unless otherwise specified in the notice distributed to Holders) to have instructed the Depositary to vote in favor of the items set forth in such voting instructions.

If (i) the Company made a timely request to the Depositary as contemplated by the second sentence of this Section 4.10 and (ii) no timely voting instructions are received by the Depositary from a Holder with respect to the Deposited Securities represented by such Holder’s ADSs on or before the date established by the Depositary for such purpose, the Depositary shall deem such Holder to have instructed the Depositary to give a discretionary proxy to a person designated by the Board of Directors of the Company with respect to such Deposited Securities and the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of the Deposit Agreement, Estatuto Social of the Company and the provisions of the Deposited Securities, to give or cause the Custodian to give a discretionary proxy to a person designated by the Board of Directors of the Company to vote such Deposited Securities; provided, however, that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which the Board of Directors of the Company informs the Depositary that (x) the Company does not wish such proxy given, (y) substantial opposition exists or (z) such matter materially and adversely affects the rights of holders of Shares.

Notwithstanding anything else contained herein, the Depositary shall, if so requested in writing by the Company, represent all Deposited Securities (whether or not voting instructions have been received in respect of such Deposited Securities from Holders as of the ADS Record Date) for the sole purpose of establishing quorum at a meeting of shareholders.

Notwithstanding anything else contained in the Deposit Agreement or any ADR, the Depositary shall not have any obligation to take any action with respect to any meeting, or solicitation of consents or proxies, of holders of Deposited Securities if the taking of such action would violate U.S. or Brazilian laws. The Company agrees to take any and all actions reasonably necessary to enable Holders and Beneficial Owners to exercise the voting rights accruing to the Deposited Securities and to deliver to the Depositary an opinion of U.S. or Brazilian counsel, as applicable, addressing any actions requested to be taken if so requested by the Depositary.

There can be no assurance that Holders generally or any Holder in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner.

Section 4.11 Changes Affecting Deposited Securities . Upon any change in nominal or par value, split-up, cancellation, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger, consolidation or sale of assets affecting the Company or to which it is a party, any property which shall be received by the Depositary or the Custodian in exchange for, or in conversion of, or replacement of, or otherwise in respect of, such Deposited Securities shall, to the extent permitted by law, be treated as new Deposited Property under the Deposit Agreement, and the ADSs shall, subject to the provisions of the Deposit Agreement, any ADR(s) evidencing such ADSs and applicable law, represent the right to receive such additional or replacement Deposited Property. In giving effect to such change, split-up, cancellation, consolidation or other reclassification of Deposited Securities, recapitalization, reorganization, merger, consolidation or sale of assets, the Depositary may, with the Company’s approval, and shall, if the Company shall so request, subject to the terms of the Deposit Agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the Depositary, and (b) taxes) and receipt of an opinion of counsel to the Company satisfactory to the Depositary that such actions are not in violation of any applicable laws or regulations, (i) issue and deliver additional ADSs as in the case of a stock dividend on the Shares, (ii) amend the Deposit Agreement and the applicable ADRs, (iii) amend the applicable Registration Statement(s) on Form F-6 as filed with the Commission in respect of the ADSs, (iv) call for the surrender of outstanding ADRs to be exchanged for new ADRs, and (v) take such other actions as are appropriate to reflect the transaction with respect to the ADSs. The Company agrees to, jointly with the Depositary, amend the Registration Statement on Form F-6 as filed with the Commission to permit the issuance of such new form of ADRs. Notwithstanding the foregoing, in the event that any Deposited Property so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall, if the Company requests, subject to receipt of an opinion of Company’s counsel satisfactory to the Depositary that such action is not in violation of any applicable laws or regulations, sell such Deposited Property at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) for the account of the Holders otherwise entitled to such Deposited Property upon an averaged or other practicable basis without regard to any distinctions among such Holders and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to Section 4.1. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or practicable to make such Deposited Property available to Holders in general or to any Holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the purchaser of such Deposited Property.

Section 4.12 Available Information . The Company is subject to the periodic reporting requirements of the Exchange Act and, accordingly, is required to file or furnish certain reports with the Commission. These reports can be retrieved from the Commission’s website ( www.sec.gov ) and can be inspected and copied at the public reference facilities maintained by the Commission located (as of the date of the Deposit Agreement) at 100 F Street, N.E., Washington D.C. 20549.

Section 4.13 Reports . The Depositary shall make available for inspection by Holders at its Principal Office any reports and communications, including any proxy soliciting materials, received from the Company which are both (a) received by the Depositary, the Custodian, or the nominee of either of them as the holder of the Deposited Property and (b) made generally available to the holders of such Deposited Property by the Company. The Depositary shall also provide or make available to Holders copies of such reports when furnished by the Company pursuant to Section 5.6.

Section 4.14 List of Holders . Promptly upon written request by the Company, the Depositary shall furnish to it a list, as of a recent date, of the names, addresses and holdings of ADSs of all Holders.

Section 4.15 Taxation . The Depositary will, and will instruct the Custodian to, forward to the Company or its agents such information from its records as the Company may reasonably request to enable the Company or its agents to file the necessary tax reports with governmental authorities or agencies. The Depositary, the Custodian or the Company and its agents may file such reports as are necessary to reduce or eliminate applicable taxes on dividends and on other distributions in respect of Deposited Property under applicable tax treaties or laws for the Holders and Beneficial Owners. In accordance with instructions from the Company and to the extent practicable, the Depositary or the Custodian will take reasonable administrative actions to obtain tax refunds, reduced withholding of tax at source on dividends and other benefits under applicable tax treaties or laws with respect to dividends and other distributions on the Deposited Property. As a condition to receiving such benefits, Holders and Beneficial Owners of ADSs may be required from time to time, and in a timely manner, to file such proof of taxpayer status, residence and beneficial ownership (as applicable), to execute such certificates and to make such representations and warranties, or to provide any other information or documents, as the Depositary or the Custodian may deem necessary or proper to fulfill the Depositary’s or the Custodian’s obligations under applicable law. The Depositary and the Company shall have no obligation or liability to any person if any Holder or Beneficial Owner fails to provide such information or if such information does not reach the relevant tax authorities in time for any Holder or Beneficial Owner to obtain the benefits of any tax treatment. The Holders and Beneficial Owners shall indemnify the Depositary, the Company, the Custodian and any of their respective directors, employees, agents and Affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes or additions to tax (in each case, including applicable penalties or interest thereon) arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained.

If the Company (or any of its agents) withholds from any distribution any amount on account of taxes or governmental charges, or pays any other tax in respect of such distribution ( e.g. , stamp duty tax, capital gains or other similar tax), the Company shall (and shall cause such agent to) remit promptly to the Depositary information about such taxes or governmental charges withheld or paid, and, if so requested, the tax receipt (or other proof of payment to the applicable governmental authority) therefor, in each case, in a form satisfactory to the Depositary. The Depositary shall, to the extent required by U.S. law, report to Holders any taxes withheld by it or the Custodian, and, if such information is provided to it by the Company, any taxes withheld by the Company. The Depositary and the Custodian shall not be required to provide the Holders with any evidence of the remittance by the Company (or its agents) of any taxes withheld, or of the payment of taxes by the Company, except to the extent the evidence is provided by the Company to the Depositary or the Custodian, as applicable. Neither the Depositary nor the Custodian shall be liable for the failure by any Holder or Beneficial Owner to obtain the benefits of credits on the basis of non-U.S. tax paid against such Holder’s or Beneficial Owner’s income tax liability.

The Depositary is under no obligation to provide the Holders and Beneficial Owners with any information about the tax status of the Company. The Depositary shall not incur any liability for any tax consequences that may be incurred by Holders and Beneficial Owners on account of their ownership of the ADSs, including without limitation, tax consequences resulting from the Company (or any of its subsidiaries) being treated as a “Passive Foreign Investment Company” (in each case as defined in the U.S. Internal Revenue Code and the regulations issued thereunder) or otherwise.

ARTICLE V

THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY

Section 5.1 Maintenance of Office and Transfer Books by the Registrar . Until termination of the Deposit Agreement in accordance with its terms, the Registrar shall maintain in the Borough of Manhattan, the City of New York, an office and facilities for the issuance and Delivery of ADSs, the acceptance for surrender of ADS(s) for the purpose of withdrawal of Deposited Securities, the registration of issuances, cancellations, transfers, combinations and split-ups of ADS(s) and, if applicable, to countersign ADRs evidencing the ADSs so issued, transferred, combined or split-up, in each case in accordance with the provisions of the Deposit Agreement.

The Registrar shall keep books for the registration of ADSs which at all reasonable times shall be open for inspection by the Company and by the Holders of such ADSs, provided that such inspection shall not be, to the Registrar’s knowledge, for the purpose of communicating with Holders of such ADSs in the interest of a business or object other than the business of the Company or other than a matter related to the Deposit Agreement or the ADSs.

The Registrar may close the transfer books with respect to the ADSs, at any time or from time to time, when deemed necessary or advisable by it in good faith in connection with the performance of its duties hereunder, or at the reasonable written request of the Company subject, in all cases, to Section 7.8.

If any ADSs are listed on one or more stock exchanges or automated quotation systems in the United States, the Depositary shall act as Registrar or appoint a Registrar or one or more co-registrars for registration of issuances, cancellations, transfers, combinations and split-ups of ADSs and, if applicable, to countersign ADRs evidencing the ADSs so issued, transferred, combined or split-up, in accordance with any requirements of such exchanges or systems. Such Registrar or co-registrars may be removed and a substitute or substitutes appointed by the Depositary.

Section 5.2 Exoneration . Notwithstanding anything contained in the Deposit Agreement or any ADR, neither the Depositary nor the Company shall be obligated to do or perform any act which is inconsistent with the provisions of the Deposit Agreement or incur any liability (i) if the Depositary or the Company or their respective controlling persons or agents shall be prevented or forbidden from, or delayed in, doing or performing any act or thing required by the terms of the Deposit Agreement, by reason of any provision of any present or future law or regulation of the United States or any State thereof, Brazil or any other country, or of any other governmental authority or regulatory authority or stock exchange, or on account of potential criminal or civil penalties or restraint, or by reason of any provision, present or future, of the Estatuto Social of the Company or any provision of or governing any Deposited Securities, or by reason of any act of God or war or other circumstances beyond its control (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, acts of terrorism, revolutions, rebellions, explosions and computer failure), (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement or in the Estatuto Social of the Company or provisions of or governing Deposited Securities, (iii) for any action or inaction in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorized representative thereof, or any other person believed by it in good faith to be competent to give such advice or information, (iv) for the inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Holders of ADSs, or (v) for any consequential or punitive damages (including lost profits) for any breach of the terms of the Deposit Agreement.

The Depositary, its controlling persons, its agents, any Custodian and the Company, its controlling persons and its agents may rely and shall be protected in acting upon any written notice, request, opinion or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.

No disclaimer of liability under the Securities Act is intended by any provision of the Deposit Agreement.

Section 5.3 Standard of Care . The Company and the Depositary and their respective directors, officers, Affiliates, employees and agents assume no obligation and shall not be subject to any liability under the Deposit Agreement or any ADRs to any Holder(s) or Beneficial Owner(s), except that the Company and the Depositary agree to perform their respective obligations specifically set forth in the Deposit Agreement or the applicable ADRs without negligence or bad faith.

Without limitation of the foregoing, neither the Depositary, nor the Company, nor any of their respective controlling persons, directors, officers, Affiliates, employees or agents, shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Property or in respect of the ADSs, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required (and no Custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the Custodian being solely to the Depositary).

The Depositary and its agents shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any vote is cast or the effect of any vote, provided that any such action or omission is in good faith and without negligence and in accordance with the terms of the Deposit Agreement. The Depositary shall not incur any liability for any failure to accurately determine that any distribution or action may be lawful or reasonably practicable, for the content of any information submitted to it by the Company for distribution to the Holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Property, for the validity or worth of the Deposited Property or for any tax consequences that may result from the ownership of ADSs, Shares or other Deposited Property, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the Deposit Agreement, for the failure or timeliness of any notice from the Company, or for any action of or failure to act by, or any information provided or not provided by, DTC or any DTC Participant.

None of the Company, the Depositary or the Custodian shall be liable for any action or failure to act by any Holder relating to the Holder’s obligations under any applicable Brazilian law or regulation relating to foreign investment in Brazil in respect of a withdrawal or sale of Deposited Securities, including, without limitation, any failure to comply with a requirement to register such investment pursuant to the terms of any applicable Brazilian law or regulation prior to such withdrawal or any failure to report foreign exchange transactions to the Central Bank, as the case may be. Without limiting the provisions hereof, each Holder will be responsible for the payment and/or reimbursement of any and all taxes effectively paid or incurred by the Company, the Depositary or the Custodian (including as a result of the execution of any symbolic foreign exchange transaction ( operação simbólica de câmbio )) related to or as a result of a deposit of Shares and/or withdrawal or sale of Deposited Property by such Holder. Each Holder will be responsible for the reporting of any false or misleading information, or the failure to report required information, relating to foreign exchange transactions to the Custodian or the Central Bank, as the case may be, in connection with deposits or withdrawals of Deposited Securities.

The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without negligence or bad faith while it acted as Depositary.

The Depositary shall not be liable for any acts or omissions made by a predecessor depositary whether in connection with an act or omission of the Depositary or in connection with any matter arising wholly prior to the appointment of the Depositary or after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without negligence or bad faith while it acted as Depositary.

Section 5.4 Resignation and Removal of the Depositary; Appointment of Successor Depositary . The Depositary may at any time resign as Depositary hereunder by written notice of resignation delivered to the Company, such resignation to be effective on the earlier of (i) the 90th day after delivery thereof to the Company (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2), or (ii) the appointment by the Company of a successor depositary and its acceptance of such appointment as hereinafter provided.

The Depositary may at any time be removed by the Company by written notice of such removal, which removal shall be effective on the later of (i) the 90th day after delivery thereof to the Depositary (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2), or (ii) the appointment by the Company of a successor depositary and its acceptance of such appointment as hereinafter provided.

In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its commercially reasonable efforts to appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, the City of New York. Every successor depositary shall be required by the Company to execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed (except as required by applicable law), shall become fully vested with all the rights, powers, duties and obligations of its predecessor (other than as contemplated in Sections 5.8 and 5.9). The predecessor depositary, upon payment of all sums due to it and on the written request of the Company, shall, (i) execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder (other than as contemplated in Sections 5.8 and 5.9), (ii) duly assign, transfer and deliver all of the Depositary’s right, title and interest to the Deposited Property to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding ADSs and such other information relating to ADSs and Holders thereof as the successor may reasonably request. Any such successor depositary shall promptly provide notice of its appointment to such Holders.

Any entity into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act.

Section 5.5 The Custodian . The Depositary has initially appointed Banco Bradesco S.A. as Custodian for the purpose of the Deposit Agreement. The Custodian or its successors in acting hereunder shall be subject at all times and in all respects to the direction of the Depositary for the Deposited Property for which the Custodian acts as custodian and shall be responsible solely to it. If any Custodian resigns or is discharged from its duties hereunder with respect to any Deposited Property and no other Custodian has previously been appointed hereunder, the Depositary shall promptly appoint a substitute custodian. The Depositary shall require such resigning or discharged Custodian to Deliver, or cause the Delivery of, the Deposited Property held by it, together with all such records maintained by it as Custodian with respect to such Deposited Property as the Depositary may request, to the Custodian designated by the Depositary. Whenever the Depositary determines, in its discretion, that it is appropriate to do so, it may appoint an additional custodian with respect to any Deposited Property, or discharge the Custodian with respect to any Deposited Property and appoint a substitute custodian, which shall thereafter be Custodian hereunder with respect to the Deposited Property. Immediately upon any such change, the Depositary shall give notice thereof in writing to all Holders of ADSs, each other Custodian and the Company. The Depositary agrees that at no time shall there be more than one Custodian acting in connection with the Deposit Agreement unless permitted by Brazilian law.

Citibank, N.A. may at any time act as Custodian of the Deposited Property pursuant to the Deposit Agreement, in which case any reference to Custodian shall mean Citibank, N.A. solely in its capacity as Custodian pursuant to the Deposit Agreement. Notwithstanding anything contained in the Deposit Agreement or any ADR, the Depositary shall not be obligated to give notice to the Company, any Holders of ADSs or any other Custodian of its acting as Custodian pursuant to the Deposit Agreement.

Upon the appointment of any successor depositary, any Custodian then acting hereunder shall, unless otherwise instructed by the Depositary, continue to be the Custodian of the Deposited Property without any further act or writing, and shall be subject to the direction of the successor depositary. The successor depositary so appointed shall, nevertheless, on the written request of any Custodian, execute and deliver to such Custodian all such instruments as may be proper to give to such Custodian full and complete power and authority to act on the direction of such successor depositary.

Section 5.6 Notices and Reports . On or before the first date on which the Company gives notice, by publication or otherwise, of any meeting of holders of Shares or other Deposited Securities, or of any adjourned meeting of such holders, or of the taking of any action by such holders other than at a meeting, or of the taking of any action in respect of any cash or other distributions or the offering of any rights in respect of Deposited Securities, the Company shall transmit to the Depositary and the Custodian a copy of the notice thereof in the English language but otherwise in the form given or to be given to holders of Shares or other Deposited Securities. The Company shall also furnish to the Custodian and the Depositary a summary, in English, of any applicable provisions or proposed provisions of the Estatuto Social of the Company that may be relevant or pertain to such notice of meeting or be the subject of a vote thereat.

The Company will also transmit to the Depositary (a) an English language version of the other notices, reports and communications which are made generally available by the Company to holders of its Shares or other Deposited Securities and (b) the English language versions of the Company’s annual and semi-annual reports prepared in accordance with the applicable requirements of the Commission. The Depositary shall arrange, at the request of the Company and at the Company’s expense, to provide copies thereof to all Holders or make such notices, reports and other communications available to all Holders on a basis similar to that for holders of Shares or other Deposited Securities or on such other basis as the Company may advise the Depositary or as may be required by any applicable law, regulation or stock exchange requirement. The Company has delivered to the Depositary and the Custodian a copy of the Company’s Estatuto Social along with the provisions of or governing the Shares and any other Deposited Securities issued by the Company in connection with such Shares, and promptly upon any amendment thereto or change therein, the Company shall deliver to the Depositary and the Custodian a copy of such amendment thereto or change therein. The Depositary may rely upon such copy for all purposes of the Deposit Agreement.

The Depositary will, at the expense of the Company, make available a copy of any such notices, reports or communications issued by the Company and delivered to the Depositary for inspection by the Holders of the ADSs at the Depositary’s Principal Office, at the office of the Custodian and at any other designated transfer office.

Section 5.7 Issuance of Additional Shares, ADSs etc . The Company agrees that in the event it or any of its Affiliates proposes (i) an issuance, sale or distribution of additional Shares, (ii) an offering of rights to subscribe for Shares or other Deposited Securities, (iii) an issuance or assumption of securities convertible into or exchangeable for Shares, (iv) an issuance of rights to subscribe for securities convertible into or exchangeable for Shares, (v) an elective dividend of cash or Shares, (vi) a redemption of Deposited Securities, (vii) a meeting of holders of Deposited Securities, or solicitation of consents or proxies, relating to any reclassification of securities, merger or consolidation or transfer of assets, (viii) any assumption, reclassification, recapitalization, reorganization, merger, consolidation or sale of assets which affects the Deposited Securities, or (ix) a distribution of securities other than Shares, it will obtain U.S. legal advice and take all steps necessary to ensure that the application of the proposed transaction to Holders and Beneficial Owners does not violate the registration provisions of the Securities Act, or any other applicable laws (including, without limitation, the Investment Company Act of 1940, as amended, the Exchange Act and the securities laws of the states of the U.S.). In support of the foregoing, the Company will furnish to the Depositary (a) a written opinion of U.S. counsel (reasonably satisfactory to the Depositary) stating whether such transaction (1) requires a registration statement under the Securities Act to be in effect or (2) is exempt from the registration requirements of the Securities Act and (b) an opinion of Brazil counsel stating that (1) making the transaction available to Holders and Beneficial Owners does not violate the laws or regulations of Brazil and (2) all requisite regulatory consents and approvals have been obtained in Brazil. If the filing of a registration statement is required, the Depositary shall not have any obligation to proceed with the transaction unless it shall have received evidence reasonably satisfactory to it that such registration statement has been declared effective. If, being advised by counsel, the Company determines that a transaction is required to be registered under the Securities Act, the Company will either (i) register such transaction to the extent necessary, (ii) alter the terms of the transaction to avoid the registration requirements of the Securities Act or (iii) direct the Depositary to take specific measures, in each case as contemplated in the Deposit Agreement, to prevent such transaction from violating the registration requirements of the Securities Act. The Company agrees with the Depositary that neither the Company nor any of its Affiliates will at any time (i) deposit any Shares or other Deposited Securities, either upon original issuance or upon a sale of Shares or other Deposited Securities previously issued and reacquired by the Company or by any such Affiliate, or (ii) issue additional Shares, rights to subscribe for such Shares, securities convertible into or exchangeable for Shares or rights to subscribe for such securities or distribute securities other than Shares, unless such transaction and the securities issuable in such transaction do not violate the registration provisions of the Securities Act, or any other applicable laws (including, without limitation, the Investment Company Act of 1940, as amended, the Exchange Act and the securities laws of the states of the U.S.).

Notwithstanding anything else contained in the Deposit Agreement, nothing in the Deposit Agreement shall be deemed to obligate the Company to file any registration statement in respect of any proposed transaction.

Section 5.8 Indemnification . The Depositary agrees to indemnify the Company and its directors, officers, employees, agents and Affiliates against, and hold each of them harmless from, any Losses which may arise out of acts performed or omitted by the Depositary under the terms hereof due to the negligence or bad faith of the Depositary.

The Company agrees to indemnify the Depositary, the Custodian and any of their respective directors, officers, employees, agents and Affiliates against, and hold each of them harmless from any Losses that may arise (a) out of, or in connection with, any offer, issuance, sale, resale, transfer, deposit or withdrawal of ADRs, ADSs, the Shares, or other Deposited Securities, as the case may be, (b) out of, or as a result of, any offering documents in respect thereof or (c) out of acts performed or omitted, including, but not limited to, any delivery by the Depositary on behalf of the Company of information regarding the Company, in connection with the Deposit Agreement, any ancillary or supplemental agreement entered into between the Company and the Depositary, the ADRs, the ADSs, the Shares, or any Deposited Property, in any such case (i) by the Depositary, the Custodian or any of their respective directors, officers, employees, agents and Affiliates, except to the extent such Losses are due to the negligence or bad faith of any of them, or (ii) by the Company or any of its directors, officers, employees, agents and Affiliates.

The indemnities provided by the Company in the preceding paragraph shall not apply to the Depositary with respect to any Losses arising out of information relating to the Depositary previously furnished in writing by the Depositary to the Company expressly for use in any registration statement, prospectus or preliminary prospectus or any other offering documents relating to the ADRs, ADSs, or any Deposited Securities. The indemnities provided by the Company in the preceding paragraph shall not apply to the Custodian with respect to any Losses arising out of information relating to the Custodian previously furnished in writing by the Custodian to the Company expressly for use in any registration statement, prospectus or preliminary prospectus or any other offering documents relating to the ADRs, ADSs, or any Deposited Securities.

The obligations set forth in this Section shall survive the termination of the Deposit Agreement and the succession or substitution of any party hereto.

Any person seeking indemnification hereunder (an “indemnified person”) shall notify the person from whom it is seeking indemnification (the “indemnifying person”) of the commencement of any indemnifiable action or claim promptly after such indemnified person becomes aware of such commencement (provided that the failure to make such notification shall not affect such indemnified person’s rights to seek indemnification except to the extent the indemnifying person is materially prejudiced by such failure) and shall consult in good faith with the indemnifying person as to the conduct of the defense of such action or claim that may give rise to an indemnity hereunder, which defense shall be reasonable in the circumstances. No indemnified person shall compromise or settle any action or claim that may give rise to an indemnity hereunder without the consent of the indemnifying person, which consent shall not be unreasonably withheld.

Section 5.9 ADS Fees and Charges . The Company, the Holders, the Beneficial Owners, and persons receiving ADSs upon issuance or whose ADSs are being cancelled shall be required to pay the ADS fees and charges identified as payable by them respectively in the ADS fee schedule attached hereto as Exhibit B . All ADS fees and charges so payable may be deducted from distributions or must be remitted to the Depositary, or its designee, and may, at any time and from time to time, be changed by agreement between the Depositary and the Company, but, in the case of ADS fees and charges payable by Holders and Beneficial Owners, only in the manner contemplated in Section 6.1. The Depositary shall provide, without charge, a copy of its latest ADS fee schedule to anyone upon request.

ADS fees and charges payable upon (i) the issuance of ADSs and (ii) the cancellation of ADSs will be payable by the person to whom the ADSs are so issued by the Depositary (in the case of ADS issuances) and by the person whose ADSs are being cancelled (in the case of ADS cancellations). In the case of ADSs issued by the Depositary into DTC or presented to the Depositary via DTC, the ADS issuance and cancellation fees and charges will be payable by the DTC Participant(s) receiving the ADSs from the Depositary or the DTC Participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the Beneficial Owner(s) and will be charged by the DTC Participant(s) to the account(s) of the applicable Beneficial Owner(s) in accordance with the procedures and practices of the DTC Participant(s) as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are payable by Holders as of the applicable ADS Record Date established by the Depositary. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, the applicable Holders as of the ADS Record Date established by the Depositary will be invoiced for the amount of the ADS fees and charges and such ADS fees may be deducted from distributions made to Holders. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC Participants in accordance with the procedures and practices prescribed by DTC from time to time and the DTC Participants in turn charge the amount of such ADS fees and charges to the Beneficial Owners for whom they hold ADSs.

The Depositary may reimburse the Company for certain expenses incurred by the Company in respect of the ADR program established pursuant to the Deposit Agreement, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as the Company and the Depositary agree from time to time. The Company shall pay to the Depositary such fees and charges, and reimburse the Depositary for such out-of-pocket expenses, as the Depositary and the Company may agree from time to time. Responsibility for payment of such fees, charges and reimbursements may from time to time be changed by agreement between the Company and the Depositary. Unless otherwise agreed, the Depositary shall present its statement for such fees, charges and reimbursements to the Company once every three months. The charges and expenses of the Custodian are for the sole account of the Depositary.

The obligations of Holders and Beneficial Owners to pay ADS fees and charges shall survive the termination of the Deposit Agreement. As to any Depositary, upon the resignation or removal of such Depositary as described in Section 5.4, the right to collect ADS fees and charges shall extend for those ADS fees and charges incurred prior to the effectiveness of such resignation or removal.

Section 5.10 Pre-Release Transactions . Subject to the further terms and provisions of this Section 5.10, the Depositary, its Affiliates and their agents, on their own behalf, may own and deal in any class of securities of the Company and its Affiliates and in ADSs. In its capacity as Depositary, the Depositary shall not lend Shares or ADSs; provided, however, that the Depositary may (i) issue ADSs prior to the receipt of Shares pursuant to Section 2.3 and (ii) deliver Shares prior to the receipt of ADSs for withdrawal of Deposited Securities pursuant to Section 2.7, including ADSs which were issued under (i) above but for which Shares may not have been received (each such transaction a “ Pre-Release Transaction ”). The Depositary may receive ADSs in lieu of Shares under (i) above and receive Shares in lieu of ADSs under (ii) above. Each such Pre-Release Transaction will be (a) subject to a written agreement whereby the person or entity (the “ Applicant ”) to whom ADSs or Shares are to be delivered (w) represents that at the time of the Pre-Release Transaction the Applicant or its customer owns the Shares or ADSs that are to be delivered by the Applicant under such Pre-Release Transaction, (x) agrees to indicate the Depositary as owner of such Shares or ADSs in its records and to hold such Shares or ADSs in trust for the Depositary until such Shares or ADSs are delivered to the Depositary or the Custodian, (y) unconditionally guarantees to deliver to the Depositary or the Custodian, as applicable, such Shares or ADSs, and (z) agrees to any additional restrictions or requirements that the Depositary deems appropriate, (b) at all times fully collateralized with cash, U.S. government securities or such other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five (5) Business Days’ notice and (d) subject to such further indemnities and credit regulations as the Depositary deems appropriate. The Depositary will normally limit the number of ADSs and Shares involved in such Pre-Release Transactions at any one time to thirty percent (30%) of the ADSs outstanding (without giving effect to ADSs outstanding under (i) above), provided, however, that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate.

The Depositary may also set limits with respect to the number of ADSs and Shares involved in Pre-Release Transactions with any one person on a case-by-case basis as it deems appropriate. The Depositary may retain for its own account any compensation received by it in conjunction with the foregoing. Collateral provided pursuant to (b) above, but not the earnings thereon, shall be held for the benefit of the Holders (other than the Applicant).

Section 5.11 Restricted Securities Owners . The Company agrees to advise in writing each of the persons or entities who, to the knowledge of the Company, holds Restricted Securities that such Restricted Securities are ineligible for deposit hereunder (except under the circumstances contemplated in Section 2.14) and, to the extent practicable, shall require each of such persons to represent in writing that such person will not deposit Restricted Securities hereunder (except under the circumstances contemplated in Section 2.14).

ARTICLE VI

AMENDMENT AND TERMINATION

Section 6.1 Amendment/Supplement . Subject to the terms and conditions of this Section 6.1 and applicable law, the ADRs outstanding at any time, the provisions of the Deposit Agreement and the form of ADR attached hereto and to be issued under the terms hereof may at any time and from time to time be amended or supplemented by written agreement between the Company and the Depositary in any respect which they may deem necessary or desirable without the prior written consent of the Holders or Beneficial Owners. Any amendment or supplement which shall impose or increase any fees or charges (other than charges in connection with foreign exchange control regulations, and taxes and other governmental charges, delivery and other such expenses), or which shall otherwise materially prejudice any substantial existing right of Holders or Beneficial Owners, shall not, however, become effective as to outstanding ADSs until the expiration of thirty (30) days after notice of such amendment or supplement shall have been given to the Holders of outstanding ADSs. Notice of any amendment to the Deposit Agreement or any ADR shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided , however , that, in each such case, the notice given to the Holders identifies a means for Holders and Beneficial Owners to retrieve or receive the text of such amendment ( e.g. , upon retrieval from the Commission’s, the Depositary’s or the Company’s website or upon request from the Depositary). The parties hereto agree that any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act or (b) the ADSs to be settled solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to materially prejudice any substantial rights of Holders or Beneficial Owners. Every Holder and Beneficial Owner at the time any amendment or supplement so becomes effective shall be deemed, by continuing to hold such ADSs, to consent and agree to such amendment or supplement and to be bound by the Deposit Agreement and the ADR, if applicable, as amended or supplemented thereby. In no event shall any amendment or supplement impair the right of the Holder to surrender such ADS and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require an amendment of, or supplement to, the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and any ADRs at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement and any ADRs in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, rules or regulations.

Section 6.2 Termination . The Depositary shall, at any time at the written direction of the Company, terminate the Deposit Agreement by distributing notice of such termination to the Holders of all ADSs then outstanding at least thirty (30) days prior to the date fixed in such notice for such termination. If ninety (90) days shall have expired after (i) the Depositary shall have delivered to the Company a written notice of its election to resign, or (ii) the Company shall have delivered to the Depositary a written notice of the removal of the Depositary, and, in either case, a successor depositary shall not have been appointed and accepted its appointment as provided in Section 5.4 of the Deposit Agreement, the Depositary may terminate the Deposit Agreement by distributing notice of such termination to the Holders of all ADSs then outstanding at least thirty (30) days prior to the date fixed in such notice for such termination. The date so fixed for termination of the Deposit Agreement in any termination notice so distributed by the Depositary to the Holders of ADSs is referred to as the “ Termination Date ”. Until the Termination Date, the Depositary shall continue to perform all of its obligations under the Deposit Agreement, and the Holders and Beneficial Owners will be entitled to all of their rights under the Deposit Agreement.

If any ADSs shall remain outstanding after the Termination Date, the Registrar and the Depositary shall not, after the Termination Date, have any obligation to perform any further acts under the Deposit Agreement, except that the Depositary shall, subject, in each case, to the terms and conditions of the Deposit Agreement, continue to (i) collect dividends and other distributions pertaining to Deposited Securities, (ii) sell Deposited Property received in respect of Deposited Securities, (iii) deliver Deposited Securities, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any other Deposited Property, in exchange for ADSs surrendered to the Depositary (after deducting, or charging, as the case may be, in each case, the fees and charges of, and expenses incurred by, the Depositary, and all applicable taxes or governmental charges for the account of the Holders and Beneficial Owners, in each case upon the terms set forth in Section 5.9 of the Deposit Agreement), and (iv) take such actions as may be required under applicable law in connection with its role as Depositary under the Deposit Agreement.

At any time after the Termination Date, the Depositary may sell the Deposited Property then held under the Deposit Agreement and shall after such sale hold un-invested the net proceeds of such sale, together with any other cash then held by it under the Deposit Agreement, in an un-segregated account and without liability for interest, for the pro rata benefit of the Holders whose ADSs have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement except (i) to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case, the fees and charges of, and expenses incurred by, the Depositary, and all applicable taxes or governmental charges for the account of the Holders and Beneficial Owners, in each case upon the terms set forth in Section 5.9 of the Deposit Agreement), and (ii) as may be required at law in connection with the termination of the Deposit Agreement. After the Termination Date, the Company shall be discharged from all obligations under the Deposit Agreement, except for its obligations to the Depositary under Sections 5.8, 5.9 and 7.6 of the Deposit Agreement. The obligations under the terms of the Deposit Agreement of Holders and Beneficial Owners of ADSs outstanding as of the Termination Date shall survive the Termination Date and shall be discharged only when the applicable ADSs are presented by their Holders to the Depositary for cancellation under the terms of the Deposit Agreement (except as specifically provided in the Deposit Agreement).

Notwithstanding anything contained in the Deposit Agreement or any ADR, in connection with the termination of the Deposit Agreement, the Depositary may, independently and without the need for any action by the Company, make available to Holders of ADSs a means to withdraw the Deposited Securities represented by their ADSs and to direct the deposit of such Deposited Securities into an unsponsored American depositary shares program established by the Depositary, upon such terms and conditions as the Depositary may deem reasonably appropriate, subject however, in each case, to satisfaction of the applicable registration requirements by the unsponsored American depositary shares program under the Securities Act, and to receipt by the Depositary of payment of the applicable fees and charges of, and reimbursement of the applicable expenses incurred by, the Depositary.

ARTICLE VII

MISCELLANEOUS

Section 7.1 Counterparts . The Deposit Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of such counterparts together shall constitute one and the same agreement. An executed counterpart of the Deposit Agreement delivered by fax or other means of electronic transmission shall be deemed to be an original and shall be as effective for all purposes as delivery of a manually executed counterpart. Copies of the Deposit Agreement shall be maintained with the Depositary and shall be open to inspection by any Holder during business hours.

Section 7.2 No Third-Party Beneficiaries . The Deposit Agreement is for the exclusive benefit of the parties hereto (and their successors) and shall not be deemed to give any legal or equitable right, remedy or claim whatsoever to any other person, except to the extent specifically set forth in the Deposit Agreement. Nothing in the Deposit Agreement shall be deemed to give rise to a partnership or joint venture among the parties nor establish a fiduciary or similar relationship among the parties. The parties hereto acknowledge and agree that (i) the Depositary and its Affiliates may at any time have multiple banking relationships with the Company and its Affiliates, (ii) the Depositary and its Affiliates may be engaged at any time in transactions in which parties adverse to the Company or the Holders or Beneficial Owners may have interests and (iii) nothing contained in the Deposit Agreement shall (a) preclude the Depositary or any of its Affiliates from engaging in such transactions or establishing or maintaining such relationships, and (b) obligate the Depositary or any of its Affiliates to disclose such transactions or relationships or to account for any profit made or payment received in such transactions or relationships.

Section 7.3 Severability . In case any one or more of the provisions contained in the Deposit Agreement or in the ADRs should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby.

Section 7.4 Holders and Beneficial Owners as Parties; Binding Effect . The Holders and Beneficial Owners from time to time of ADSs issued hereunder shall be parties to the Deposit Agreement and shall be bound by all of the terms and conditions hereof and of any ADR evidencing their ADSs by acceptance thereof or any beneficial interest therein.

Section 7.5 Notices . Any and all notices to be given to the Company shall be deemed to have been duly given if personally delivered or sent by mail, air courier or cable, telex, facsimile transmission or electronic transmission, confirmed by letter personally delivered or sent by mail or air courier, addressed to Azul S.A., Edifício Jatobá, 8 ^th floor, Castelo Branco Office Park, Avenida Marcos Penteado de Ulhôa Rodrigues, 939, Tamboré, Barueri, São Paulo, São Paulo, Brazil, 06460-040, Attention : Mr. David Neeleman, Chief Executive Officer, or to any other address which the Company may specify in writing to the Depositary.

Any and all notices to be given to the Depositary shall be deemed to have been duly given if personally delivered or sent by mail, air courier or cable, telex, facsimile transmission or electronic transmission, confirmed by letter personally delivered or sent by mail or air courier, addressed to Citibank, N.A., 388 Greenwich Street, New York, New York 10013, U.S.A., Attention : Depositary Receipts Department, or to any other address which the Depositary may specify in writing to the Company.

Any and all notices to be given to any Holder shall be deemed to have been duly given (a) if personally delivered or sent by mail or cable, telex or facsimile transmission, confirmed by letter, addressed to such Holder at the address of such Holder as it appears on the books of the Depositary or, if such Holder shall have filed with the Depositary a request that notices intended for such Holder be mailed to some other address, at the address specified in such request, or (b) if a Holder shall have designated such means of notification as an acceptable means of notification under the terms of the Deposit Agreement, by means of electronic messaging addressed for delivery to the e-mail address designated by the Holder for such purpose. Notice to Holders shall be deemed to be notice to Beneficial Owners for all purposes of the Deposit Agreement. Failure to notify a Holder or any defect in the notification to a Holder shall not affect the sufficiency of notification to other Holders or to the Beneficial Owners of ADSs held by such other Holders.

Delivery of a notice sent by mail, air courier or cable, telex or facsimile transmission shall be deemed to be effective at the time when a duly addressed letter containing the same (or a confirmation thereof in the case of a cable, telex or facsimile transmission) is deposited, postage prepaid, in a post-office letter box or delivered to an air courier service, without regard for the actual receipt or time of actual receipt thereof by a Holder. The Depositary or the Company may, however, act upon any cable, telex or facsimile transmission received by it from any Holder, the Custodian, the Depositary, or the Company, notwithstanding that such cable, telex or facsimile transmission shall not be subsequently confirmed by letter.

Delivery of a notice by means of electronic messaging shall be deemed to be effective at the time of the initiation of the transmission by the sender (as shown on the sender’s records), notwithstanding that the intended recipient retrieves the message at a later date, fails to retrieve such message, or fails to receive such notice on account of its failure to maintain the designated e-mail address, its failure to designate a substitute e-mail address or for any other reason.

Section 7.6 Governing Law and Jurisdiction . The Deposit Agreement and the ADRs shall be interpreted in accordance with, and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by, the laws of the State of New York without reference to the principles of choice of law thereof. Notwithstanding anything contained in the Deposit Agreement, any ADR or any present or future provisions of the laws of the State of New York, the rights of holders of Shares and of any other Deposited Securities and the obligations and duties of the Company in respect of the holders of Shares and other Deposited Securities, as such, shall be governed by the laws of Brazil (or, if applicable, such other laws as may govern the Deposited Securities).

Except as set forth in the following paragraph of this Section 7.6, the Company and the Depositary agree that the federal or state courts in the City of New York shall have jurisdiction to hear and determine any suit, action or proceeding and to settle any dispute between them that may arise out of or in connection with the Deposit Agreement and, for such purposes, each irrevocably submits to the non-exclusive jurisdiction of such courts. The Company hereby irrevocably designates, appoints and empowers National Corporate Research, Ltd. (the “ Process Agent ”) now at 10 East 40th Street, 10th Floor, New York, NY 10016 as its authorized agent to receive and accept for and on its behalf, and on behalf of its properties, assets and revenues, service by mail of any and all legal process, summons, notices and documents that may be served in any suit, action or proceeding brought against the Company in any federal or state court as described in the preceding sentence or in the next paragraph of this Section 7.6. If for any reason the Process Agent shall cease to be available to act as such, the Company agrees to designate a new agent in New York on the terms and for the purposes of this Section 7.6 reasonably satisfactory to the Depositary. The Company further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any suit, action or proceeding against the Company, by service by mail of a copy thereof upon the Process Agent (whether or not the appointment of such Process Agent shall for any reason prove to be ineffective or such Process Agent shall fail to accept or acknowledge such service), with a copy mailed to the Company by registered or certified air mail, postage prepaid, to its address provided in Section 7.5. The Company agrees that the failure of the Process Agent to give any notice of such service to it shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon.

Notwithstanding the foregoing, the Depositary and the Company unconditionally agree that in the event that a Holder or Beneficial Owner brings a suit, action or proceeding against (a) the Company, (b) the Depositary in its capacity as Depositary under the Deposit Agreement or (c) against both the Company and the Depositary, in any such case, in any state or federal court of the United States, and the Depositary or the Company have any claim, for indemnification or otherwise, against each other arising out of the subject matter of such suit, action or proceeding, then the Company and the Depositary may pursue such claim against each other in the state or federal court in the United States in which such suit, action, or proceeding is pending and, for such purposes, the Company and the Depositary irrevocably submit to the non-exclusive jurisdiction of such courts. The Company agrees that service of process upon the Process Agent in the manner set forth in the preceding paragraph shall be effective service upon it for any suit, action or proceeding brought against it as described in this paragraph.

The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any actions, suits or proceedings brought in any court as provided in this Section 7.6, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, and agrees not to plead or claim, any right of immunity from legal action, suit or proceeding, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution or judgment, from execution of judgment, or from any other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, and consents to such relief and enforcement against it, its assets and its revenues in any jurisdiction, in each case with respect to any matter arising out of, or in connection with, the Deposit Agreement, any ADR or the Deposited Property.

EACH OF THE PARTIES TO THE DEPOSIT AGREEMENT (INCLUDING, WITHOUT LIMITATION, EACH HOLDER AND BENEFICIAL OWNER) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING AGAINST THE COMPANY AND/OR THE DEPOSITARY ARISING OUT OF, OR RELATING TO, THE DEPOSIT AGREEMENT, ANY ADR AND ANY TRANSACTIONS CONTEMPLATED THEREIN (WHETHER BASED ON CONTRACT, TORT, COMMON LAW OR OTHERWISE).

No disclaimer of liability under the Securities Act is intended by any provision of the Deposit Agreement. The provisions of this Section 7.6 shall survive any termination of the Deposit Agreement, in whole or in part.

Section 7.7 Assignment . Subject to the provisions of Section 5.4, the Deposit Agreement may not be assigned by either the Company or the Depositary.

Section 7.8 Compliance with U.S. Securities Laws . Notwithstanding anything in the Deposit Agreement to the contrary, the withdrawal or Delivery of Deposited Securities will not be suspended by the Company or the Depositary except as would be permitted by Instruction I.A.(1) of the General Instructions to Form F-6 Registration Statement, as amended from time to time, under the Securities Act.

Section 7.9 Brazilian Law References . Any summary of Brazilian laws and regulations and of the terms of the Company’s Estatuto Social set forth in the Deposit Agreement have been provided by the Company solely for the convenience of Holders, Beneficial Owners and the Depositary. While such summaries are believed by the Company to be accurate as of the date of the Deposit Agreement, (i) they are summaries and as such may not include all aspects of the materials summarized applicable to a Holder or Beneficial Owner, and (ii) these laws and regulations and the Company’s Estatuto Social may change after the date of the Deposit Agreement. Neither the Depositary nor the Company has any obligation under the terms of the Deposit Agreement to update any such summaries.

Section 7.10 Titles and References .

(a) Deposit Agreement . All references in the Deposit Agreement to exhibits, articles, sections, subsections, and other subdivisions refer to the exhibits, articles, sections, subsections and other subdivisions of the Deposit Agreement unless expressly provided otherwise. The words “the Deposit Agreement”, “herein”, “hereof”, “hereby”, “hereunder”, and words of similar import refer to the Deposit Agreement as a whole as in effect at the relevant time between the Company, the Depositary and the Holders and Beneficial Owners of ADSs and not to any particular subdivision unless expressly so limited. Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa unless the context otherwise requires. Titles to sections of the Deposit Agreement are included for convenience only and shall be disregarded in construing the language contained in the Deposit Agreement. References to “applicable laws and regulations” shall refer to laws and regulations applicable to ADRs, ADSs or Deposited Property as in effect at the relevant time of determination, unless otherwise required by law or regulation.

(b) ADRs . All references in any ADR(s) to paragraphs, exhibits, articles, sections, subsections, and other subdivisions refer to the paragraphs, exhibits, articles, sections, subsections and other subdivisions of the ADR(s) in question unless expressly provided otherwise. The words “the Receipt”, “the ADR”, “herein”, “hereof”, “hereby”, “hereunder”, and words of similar import used in any ADR refer to the ADR as a whole and as in effect at the relevant time, and not to any particular subdivision unless expressly so limited. Pronouns in masculine, feminine and neuter gender in any ADR shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa unless the context otherwise requires. Titles to paragraphs of any ADR are included for convenience only and shall be disregarded in construing the language contained in the ADR. References to “applicable laws and regulations” shall refer to laws and regulations applicable to ADRs, ADSs or Deposited Property as in effect at the relevant time of determination, unless otherwise required by law or regulation.

Section 7.11 Amendment and Restatement . The Depositary shall arrange to have new ADRs printed that reflect the form of ADR attached to the Deposit Agreement. All ADRs issued hereunder after the date hereof, whether upon the deposit of Shares or other Deposited Securities or upon the transfer, combination or split-up of existing ADRs, shall be substantially in the form of the specimen ADR attached as Exhibit A hereto. However, American depositary receipts issued prior to the date hereof under the terms of the Original Deposit Agreement and outstanding as of the date hereof, which do not reflect the form of ADR attached hereto as Exhibit A , do not need to be called in for exchange and may remain outstanding until such time as the Holders thereof choose to surrender them for any reason under the Deposit Agreement. The Depositary is authorized and directed to take any and all actions deemed necessary to effect the foregoing.

[ Signature Page Immediately Follows ]

IN WITNESS WHEREOF, AZUL S.A. and CITIBANK, N.A. have duly executed the Deposit Agreement as of the day and year first above set forth and all Holders and Beneficial Owners shall become parties hereto upon acceptance by them of ADSs issued in accordance with the terms hereof, or upon acquisition of any beneficial interest therein.


AZUL S.A.

By:
		Name: Title:


CITIBANK, N.A.

By:
		Name: Title:

EXHIBIT A

[FORM OF ADR]


Number				CUSIP NUMBER: 05501U 106
				ISIN NUMBER: US05501U1060


				American Depositary Shares (each American Depositary Share representing the right to receive one (1) fully paid preferred share of Azul S.A.)

AMERICAN DEPOSITARY RECEIPT

for

AMERICAN DEPOSITARY SHARES

representing

DEPOSITED PREFERRED SHARES

Azul S.A.

(Incorporated under the laws of the Federative Republic of Brazil)

CITIBANK, N.A., a national banking association organized and existing under the laws of the United States of America, as depositary (the “Depositary”), hereby certifies that is the owner of American Depositary Shares (hereinafter “ADS”) representing deposited preferred shares without par value, including evidence of rights to receive such preferred shares (the “Shares”), of Azul S.A., a sociedade por ações organized under the laws of the Federative Republic of Brazil (the “Company”). As of the date of issuance of this ADR, each ADS represents the right to receive one (1) Share deposited under the Deposit Agreement (as hereinafter defined) with the Custodian, which at the date of issuance of this ADR is Banco Bradesco S.A. (the “Custodian”). The ADS(s)-to-Share(s) ratio is subject to amendment as provided in Articles IV and VI of the Deposit Agreement. The Depositary’s Principal Office is located at 388 Greenwich Street, New York, New York 10013, U.S.A.

(1) The Deposit Agreement . This American Depositary Receipt is one of an issue of American Depositary Receipts (“ADRs”), all issued and to be issued upon the terms and conditions set forth in the Deposit Agreement, dated as of [date] , 2017 (as amended and supplemented from time to time, the “Deposit Agreement”), by and among the Company, the Depositary, and all Holders and Beneficial Owners from time to time of ADSs issued thereunder, each of whom by accepting an ADS agrees to become a party thereto and becomes bound by all the terms and conditions thereof. The Deposit Agreement sets forth the rights and obligations of Holders and Beneficial Owners of ADSs and the rights and duties of the Depositary in respect of the Shares deposited thereunder and any and all other Deposited Property (as defined in the Deposit Agreement) from time to time received and held on deposit in respect of the ADSs. Copies of the Deposit Agreement are on file at the Principal Office of the Depositary and with the Custodian. Each Holder and each Beneficial Owner, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms and conditions of the Deposit Agreement shall be deemed for all purposes to (a) be a party to and bound by the terms of the Deposit Agreement and the applicable ADR(s), and (b) appoint the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the Deposit Agreement and the applicable ADR(s), to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the Deposit Agreement and the applicable ADR(s), the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof.

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The statements made on the face and reverse of this ADR are summaries of certain provisions of the Deposit Agreement and the Estatuto Social of the Company (as in effect on the date of the Deposit Agreement) and are qualified by and subject to the detailed provisions of the Deposit Agreement and the Estatuto Social , to which reference is hereby made.

All capitalized terms used, but not otherwise defined herein shall have the meanings ascribed thereto in the Deposit Agreement.

The Depositary makes no representation or warranty as to the validity or worth of the Deposited Property. The Depositary has made arrangements for the acceptance of the ADSs into DTC. Each Beneficial Owner of ADSs held through DTC must rely on the procedures of DTC and the DTC Participants to exercise and be entitled to any rights attributable to such ADSs. The Depositary may issue Uncertificated ADSs subject, however, to the terms and conditions of Section 2.13 of the Deposit Agreement.

(2) Surrender of ADSs and Withdrawal of Deposited Securities . The Holder of this ADR (and of the ADSs evidenced hereby) shall be entitled to Delivery (at the Custodian’s designated office) of the Deposited Securities at the time represented by the ADSs evidenced hereby upon satisfaction of each of the following conditions: (i) the Holder (or a duly authorized attorney of the Holder) has duly Delivered to the Depositary at its Principal Office the ADSs evidenced hereby (and, if applicable, this ADR) for the purpose of withdrawal of the Deposited Securities represented thereby, (ii) if applicable and so required by the Depositary, this ADR Delivered to the Depositary for such purpose has been properly endorsed in blank or is accompanied by proper instruments of transfer in blank (including signature guarantees in accordance with standard securities industry practice), (iii) if so required by the Depositary, the Holder of the ADSs has executed and delivered to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be Delivered to or upon the written order of the person(s) designated in such order, and (iv) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 of, and Exhibit B to, the Deposit Agreement) have been paid, subject, however, in each case , to the terms and conditions of this ADR evidencing the surrendered ADSs, of the Deposit Agreement, of the Estatuto Social , of any applicable laws and the rules of CBLC, and to any provisions of or governing the Deposited Securities, in each case as in effect at the time thereof.

Upon satisfaction of each of the conditions specified above, the Depositary (i) shall cancel the ADSs Delivered to it (and, if applicable, this ADR(s) evidencing the ADSs so Delivered), (ii) shall direct the Registrar to record the cancellation of the ADSs so Delivered on the books maintained for such purpose, and (iii) shall direct the Custodian to Deliver, or cause the Delivery of, in each case, without unreasonable delay, the Deposited Securities represented by the ADSs so canceled together with any certificate or other document of title for the Deposited Securities, or evidence of the electronic transfer thereof (if available), as the case may be, to or upon the written order of the person(s) designated in the order delivered to the Depositary for such purpose, subject however, in each case , to the terms and conditions of the Deposit Agreement, of this ADR evidencing the ADS so canceled, of the Estatuto Social of the Company, of any applicable laws and of the rules of the CBLC, and to the terms and conditions of or governing the Deposited Securities, in each case as in effect at the time thereof.

Notwithstanding anything else contained in this ADR or the Deposit Agreement, the Depositary may make delivery at the Principal Office of the Depositary of Deposited Property consisting of (i) any cash dividends or cash distributions, or (ii) any proceeds from the sale of any non-cash distributions, which are at the time held by the Depositary in respect of the Deposited Securities represented by the ADSs surrendered for cancellation and withdrawal. At the request, risk and expense of any Holder so surrendering ADSs represented by this ADR, and for the account of such Holder, the Depositary shall direct the Custodian to forward (to the extent permitted by law) any Deposited Property (other than Deposited Securities) held by the Custodian in respect of such ADSs to the Depositary for delivery at the Principal Office of the Depositary. Such direction shall be given by letter or, at the request, risk and expense of such Holder, by cable, telex, electronic or facsimile transmission.

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(3) Transfer, Combination and Split-up of ADRs . The Registrar shall register the transfer of this ADR (and of the ADSs represented hereby) on the books maintained for such purpose and the Depositary shall (x) cancel this ADR and execute new ADRs evidencing the same aggregate number of ADSs as those evidenced by this ADR when canceled by the Depositary, (y) cause the Registrar to countersign such new ADRs, and (z) Deliver such new ADRs to or upon the order of the person entitled thereto, if each of the following conditions has been satisfied: (i) this ADR has been duly Delivered by the Holder (or by a duly authorized attorney of the Holder) to the Depositary at its Principal Office for the purpose of effecting a transfer thereof, (ii) this surrendered ADR has been properly endorsed or is accompanied by proper instruments of transfer (including signature guarantees in accordance with standard securities industry practice), (iii) this surrendered ADR has been duly stamped (if required by the laws of the State of New York or of the United States), and (iv) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 of, and Exhibit B to, the Deposit Agreement) have been paid, subject, however, in each case , to the terms and conditions of this ADR, of the Deposit Agreement and of applicable law, in each case as in effect at the time thereof.

The Registrar shall register the split-up or combination of this ADR (and of the ADSs represented hereby) on the books maintained for such purpose and the Depositary shall (x) cancel this ADR and execute new ADRs for the number of ADSs requested, but in the aggregate not exceeding the number of ADSs evidenced by this ADR (canceled), (y) cause the Registrar to countersign such new ADRs, and (z) Deliver such new ADRs to or upon the order of the Holder thereof, if each of the following conditions has been satisfied: (i) this ADR has been duly Delivered by the Holder (or by a duly authorized attorney of the Holder) to the Depositary at its Principal Office for the purpose of effecting a split-up or combination hereof, and (ii) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 of, and Exhibit B to, the Deposit Agreement) have been paid, subject, however, in each case , to the terms and conditions of this ADR, of the Deposit Agreement and of applicable law, in each case as in effect at the time thereof.

(4) Pre-Conditions to Registration, Transfer, Etc . As a condition precedent to the execution and Delivery, the registration of issuance, transfer, split-up, combination or surrender, of any ADS, the delivery of any distribution thereon, or the withdrawal of any Deposited Property, the Depositary or the Custodian may require (i) payment from the depositor of Shares or presenter of ADSs or of this ADR of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees and charges of the Depositary as provided in Section 5.9 and Exhibit B to the Deposit Agreement and in this ADR, (ii) the production of proof satisfactory to it as to the identity and genuineness of any signature or any other matter contemplated by Section 3.1 of the Deposit Agreement, and (iii) compliance with (A) any laws or governmental regulations relating to the execution and Delivery of this ADR or ADSs or to the withdrawal of Deposited Securities and (B) such reasonable regulations as the Depositary and the Company may establish consistent with the provisions of this ADR, the Deposit Agreement and applicable law.

The issuance of ADSs against deposits of Shares generally or against deposits of particular Shares may be suspended, or the deposit of particular Shares may be refused, or the registration of transfer of ADSs in particular instances may be refused, or the registration of transfer of ADSs generally may be suspended, during any period when the transfer books of the Company, the Depositary, a Registrar or the Share Registrar are closed or if any such action is deemed necessary or advisable by the Depositary or the Company, in good faith, at any time or from time to time because of any requirement of law or regulation, any government or governmental body or commission or any securities exchange on which the Shares or ADSs are listed, or under any provision of the Deposit Agreement or this ADR, or under any provision of, or governing, the Deposited Securities, or any a meeting of the Board of Directors or shareholders of the Company or for any other reason, subject, in all cases to paragraph (26) of this ADR. Notwithstanding any provision of the Deposit Agreement or this ADR to the contrary, Holders are entitled to surrender outstanding ADSs to withdraw the Deposited Securities associated therewith at any time subject only to (i) temporary delays caused by closing the transfer books of the Depositary or the Company or the deposit of Shares in connection with voting at a shareholders’ meeting or the payment of dividends, (ii) the payment of fees, taxes and similar charges, (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the ADSs or to the withdrawal of the Deposited Securities, and (iv) other circumstances specifically contemplated by Instruction I.A.(l) of the General Instructions to Form F-6 (as such General Instructions may be amended from time to time).

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(5) Compliance With Information Requests . Notwithstanding any other provision of the Deposit Agreement or this ADR, each Holder and Beneficial Owner of the ADSs represented hereby agrees to comply with requests from the Company pursuant to applicable law, the rules and requirements of the CVM and/or the BM&FBOVESPA, and any other stock exchange on which the Shares or ADSs are, or will be, registered, traded or listed or the Estatuto Social of the Company, which are made to provide information, inter alia , as to the capacity in which such Holder or Beneficial Owner owns ADSs (and Shares as the case may be) and regarding the identity of any other person(s) interested in such ADSs (and Shares as the case may be) and the nature of such interest and various other matters, whether or not they are Holders and/or Beneficial Owners at the time of such request. The Depositary agrees to use its reasonable efforts to forward, upon the request of the Company and at the Company’s expense, any such request from the Company to the Holders and to forward to the Company any such responses to such requests received by the Depositary.

(6) Ownership Restrictions . Notwithstanding any other provision of this ADR or of the Deposit Agreement, the Company may restrict transfers of the Shares where such transfer might result in ownership of Shares exceeding limits imposed by applicable law or the Estatuto Social of the Company. The Company may also restrict, in such manner as it deems appropriate, transfers of the ADSs where such transfer may result in the total number of Shares represented by the ADSs owned by a single Holder or Beneficial Owner to exceed any such limits. The Company may, in its sole discretion but subject to applicable law, instruct the Depositary to take action with respect to the ownership interest of any Holder or Beneficial Owner in excess of the limits set forth in the preceding sentence, including but not limited to, the imposition of restrictions on the transfer of ADSs, the removal or limitation of voting rights or the mandatory sale or disposition on behalf of a Holder or Beneficial Owner of the Shares represented by the ADSs held by such Holder or Beneficial Owner in excess of such limitations, if and to the extent such disposition is permitted by applicable law and the Estatuto Social of the Company. Nothing herein or in the Deposit Agreement shall be interpreted as obligating the Depositary or the Company to ensure compliance with the ownership restrictions described herein or in Section 3.5 of the Deposit Agreement.

(7) Reporting Obligations and Regulatory Approvals . Applicable laws and regulations, including those of the Central Bank, the CVM and the BM&FBOVESPA, may require holders and beneficial owners of Shares, including the Holders and Beneficial Owners of ADSs, to comply with certain disclosure and trading standards (as of the date of this Deposit Agreement, mainly provided for in CVM Ruling no. 358/02), to satisfy reporting requirements and to obtain regulatory approvals in certain circumstances. Holders and Beneficial Owners of ADSs are solely responsible for determining and complying with such reporting requirements and for obtaining such approvals. Each Holder and each Beneficial Owner hereby agrees to make such determination, file such reports, and obtain such approvals to the extent and in the form required by applicable laws and regulations as in effect from time to time. Neither the Depositary, the Custodian, the Company or any of their respective agents or affiliates shall be required to take any actions whatsoever on behalf of Holders or Beneficial Owners to determine or satisfy such reporting requirements or obtain such regulatory approvals under applicable laws and regulations.

(8) Delivery of Information to the CVM, the Central Bank and the BM&FBOVESPA . The Company shall comply with Brazil’s Monetary Council Resolution No. 4,373, dated as of September 29, 2013, and shall furnish to the CVM, the Central Bank and the BM&FBOVESPA, whenever required, information or documents related to the approved ADR program, the Deposited Securities and distributions thereon. The Company hereby authorizes each of the Depositary and the Custodian to release such information or documents and any other information as required by local regulation, law or regulatory body request.

(9) Liability for Taxes and Other Charges . Any tax or other governmental charge payable by the Custodian or by the Depositary with respect to any Deposited Property, ADSs or this ADR shall be payable by the Holders and Beneficial Owners to the Depositary. The Company, the Custodian and/or the Depositary may withhold or deduct from any distributions made in respect of Deposited Property and may sell for the account of a Holder and/or Beneficial Owner any or all of the Deposited Property and apply such distributions and sale proceeds in payment of any taxes (including applicable interest and penalties) or charges that are or may be payable by Holders or Beneficial Owners in respect of the ADSs, Deposited Property and this ADR, the Holder and the Beneficial Owner hereof remaining liable for any deficiency. The Custodian may refuse the deposit of Shares and the Depositary may refuse to issue ADSs, deliver ADRs, register the transfer of ADSs, register the split-up or combination of ADRs and (subject to paragraph (26) of this ADR) the withdrawal of Deposited Property until payment in full of such tax, charge, penalty or interest is received.

Every Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian, and any of their agents, officers, directors, employees and Affiliates for, and to hold each of them harmless from, any claims with respect to taxes or additions to tax (in each case, including applicable interest and penalties thereon) arising out of any refund of taxes, reduced rate of withholding at source or from any tax benefit obtained for or by such Holder and/or Beneficial Owner. The obligations of Holders and Beneficial Owners under Section 3.2 of the Deposit Agreement shall survive any transfer of ADSs, any cancellation of ADSs and withdrawal of Deposited Securities, and the termination of the Deposit Agreement.

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(10) Representations and Warranties of Depositors . Each person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares and the certificates therefor are duly authorized, validly issued, fully paid and non-assessable and were legally obtained by such person, (ii) all preemptive (and similar) rights, if any, with respect to such Shares have been validly waived or exercised, (iii) the person making such deposit is duly authorized so to do, (iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, (v) the Shares presented for deposit are not, and the ADSs issuable upon such deposit will not be, Restricted Securities (except as contemplated in Section 2.14 of the Deposit Agreement), and (vi) the Shares presented for deposit have not been stripped of any rights or entitlements. Such representations and warranties shall survive the deposit and withdrawal of Shares, the issuance and cancellation of ADSs in respect thereof and the transfer of such ADSs. If any such representations or warranties are false in any way, the Company and the Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof.

(11) Filing Proofs, Certificates and Other Information . Any person presenting Shares for deposit, any Holder and any Beneficial Owner may be required, and every Holder and Beneficial Owner agrees, from time to time to provide to the Depositary and the Custodian such proof of citizenship or residence, taxpayer status, payment of all applicable taxes or other governmental charges, exchange control approval, legal or beneficial ownership of ADSs and Deposited Property, compliance with applicable laws, the terms of the Deposit Agreement or this ADR evidencing the ADSs and the provisions of, or governing, the Deposited Property, to execute such certifications and to make such representations and warranties, and to provide such other information and documentation (or, in the case of Shares in registered form presented for deposit, such information relating to the registration on the books of the Company or of the Share Registrar) as the Depositary or the Custodian may deem necessary or proper or as the Company may reasonably require by written request to the Depositary consistent with its obligations under the Deposit Agreement and this ADR. The Depositary and the Registrar, as applicable, may withhold the execution or Delivery or registration of transfer of any ADR or ADS or the distribution or sale of any dividend or distribution of rights or of the proceeds thereof or, to the extent not limited by paragraph (26) of this ADR, the delivery of any Deposited Property until such proof or other information is filed or such certifications are executed, or such representations and warranties are made or such other documentation or information are provided, in each case to the Depositary’s, the Registrar’s and the Company’s satisfaction. Nothing herein shall obligate the Depositary to (i) obtain any information for the Company if not provided by the Holders or Beneficial Owners or (ii) verify or vouch for the accuracy of the information so provided by the Holders or Beneficial Owners.

(12) ADS Fees and Charges . The following ADS fees are payable under the terms of the Deposit Agreement:

(i)

ADS Issuance Fee : by any person to whom the ADSs are issued ( e.g. , an issuance of ADSs upon a deposit of Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason), excluding ADS issuances described in paragraph (iv) below, a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) issued;

(ii)

ADS Cancellation Fee : by any person whose ADSs are being cancelled ( e.g. , a cancellation of ADSs for delivery of Deposited Property, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason), a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) cancelled;

(iii)

Cash Distribution Fee : by any Holder of ADSs, a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) held for the distribution of cash dividends or other cash distributions ( e.g. , upon sale of rights and other entitlements);

(iv)

Stock Distribution/Rights Exercise Fee : by any Holder of ADS(s), a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) held for (a) the distribution of stock dividends or other free stock distributions or (b) the exercise of rights to purchase additional ADSs;

(v)

Other Distribution Fee : by any Holder of ADS(s), a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) held for the distribution of securities other than ADSs or rights to purchase additional ADSs ( e.g. , spin-off shares); and

(vi)

Depositary Services Fee : by any Holder of ADS(s), a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the Depositary.

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In addition, Holders, Beneficial Owners, persons receiving ADSs upon issuance, and persons whose ADSs are being cancelled will be responsible for the payment of the following ADS charges under the terms of the Deposit Agreement:

(a)

taxes (including applicable interest and penalties) and other governmental charges;

(b)

such registration fees as may from time to time be in effect for the registration of Shares or other Deposited Securities on the share register and applicable to transfers of Shares or other Deposited Securities to or from the name of the Custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively;

(c)

such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the person depositing Shares or withdrawing Deposited Securities or of the Holders and Beneficial Owners of ADSs;

(d)

the expenses and charges incurred by the Depositary in the conversion of Foreign Currency;

(e)

such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Shares, Deposited Securities, ADSs and ADRs; and

(f)

the fees and expenses incurred by the Depositary, the Custodian, or any nominee in connection with the delivery or servicing of Deposited Property.

All ADS fees and charges may, at any time and from time to time, be changed by agreement between the Depositary and the Company but, in the case of ADS fees and charges payable by Holders and Beneficial Owners, only in the manner contemplated by paragraph (24) of this ADR and as contemplated in the Deposit Agreement. The Depositary shall provide, without charge, a copy of its latest ADS fee schedule to anyone upon request.

ADS fees and charges payable upon (i) the issuance of ADSs and (ii) the cancellation of ADSs will be payable by the person to whom the ADSs are so issued by the Depositary (in the case of ADS issuances) and by the person whose ADSs are being cancelled (in the case of ADS cancellations). In the case of ADSs issued by the Depositary into DTC or presented to the Depositary via DTC, the ADS issuance and cancellation fees and charges will be payable by the DTC Participant(s) receiving the ADSs from the Depositary or the DTC Participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the Beneficial Owner(s) and will be charged by the DTC Participant(s) to the account(s) of the applicable Beneficial Owner(s) in accordance with the procedures and practices of the DTC Participant(s) as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are payable by Holders as of the applicable ADS Record Date established by the Depositary. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, the applicable Holders as of the ADS Record Date established by the Depositary will be invoiced for the amount of the ADS fees and charges and such ADS fees may be deducted from distributions made to Holders. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC and may be charged to the DTC Participants in accordance with the procedures and practices prescribed by DTC from time to time and the DTC Participants in turn charge the amount of such ADS fees and charges to the Beneficial Owners for whom they hold ADSs.

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The obligations of Holders and Beneficial Owners to pay ADS fees and charges shall survive the termination of the Deposit Agreement. As to any Depositary, upon the resignation or removal of such Depositary as described in Section 5.4 of the Deposit Agreement, the right to collect ADS fees and charges shall extend for those ADS fees and charges incurred prior to the effectiveness of such resignation or removal.

(13) Title to ADRs . Subject to the limitations contained in the Deposit Agreement and in this ADR, it is a condition of this ADR, and every successive Holder and Beneficial Owner of this ADR by accepting or holding the same consents and agrees, that title to this ADR (and to each Certificated ADS evidenced hereby) shall be transferable by delivery of the ADR upon the same terms as a certificated security under the laws of the State of New York, provided that, in the case of Certificated ADSs, this ADR has been properly endorsed or is accompanied by proper instruments of transfer. Notwithstanding any notice to the contrary, the Depositary and the Company may deem and treat the Holder of this ADR (that is, the person in whose name this ADR is registered on the books of the Depositary) as the absolute owner thereof for all purposes. Neither the Depositary nor the Company shall have any obligation nor be subject to any liability under the Deposit Agreement or this ADR to any holder of this ADR or any Beneficial Owner unless, in the case of a holder of ADSs, such holder is the Holder of this ADR registered on the books of the Depositary or, in the case of a Beneficial Owner, such Beneficial Owner, or the Beneficial Owner’s representative, is the Holder registered on the books of the Depositary.

(14) Validity of ADR . The Holder(s) of this ADR (and the ADSs represented hereby) shall not be entitled to any benefits under the Deposit Agreement or be valid or enforceable for any purpose against the Depositary or the Company unless this ADR has been (i) dated, (ii) signed by the manual or facsimile signature of a duly authorized signatory of the Depositary, (iii) countersigned by the manual or facsimile signature of a duly authorized signatory of the Registrar, and (iv) registered in the books maintained by the Registrar for the registration of issuances and transfers of ADRs. An ADR bearing the facsimile signature of a duly authorized signatory of the Depositary or the Registrar, who at the time of signature was a duly authorized signatory of the Depositary or the Registrar, as the case may be, shall bind the Depositary, notwithstanding the fact that such signatory has ceased to be so authorized prior to the Delivery of such ADR by the Depositary.

(15) Available Information; Reports; Inspection of Transfer Books . The Company is subject to the periodic reporting requirements of the Exchange Act and, accordingly, is required to file or furnish certain reports with the Commission. These reports can be retrieved from the Commission’s website ( www.sec.gov ) and can be inspected and copied at the public reference facilities maintained by the Commission located (as of the date of the Deposit Agreement) at 100 F Street, N.E., Washington D.C. 20549. The Depositary shall make available for inspection by Holders at its Principal Office any reports and communications, including any proxy soliciting materials, received from the Company which are both (a) received by the Depositary, the Custodian, or the nominee of either of them as the holder of the Deposited Property and (b) made generally available to the holders of such Deposited Property by the Company.

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Dated:

The address of the Principal Office of the Depositary is 388 Greenwich Street, New York, New York 10013, U.S.A.

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[FORM OF REVERSE OF ADR]

SUMMARY OF CERTAIN ADDITIONAL PROVISIONS

OF THE DEPOSIT AGREEMENT

(16) Dividends and Distributions in Cash, Shares, etc . (a) Cash Distributions : Whenever the Company intends to make a distribution of a cash dividend or other cash distribution in respect of any Deposited Securities, the Company shall give notice thereof to the Depositary at least twenty (20) days prior to the proposed distribution specifying, inter alia , the record date applicable for determining the holders of Deposited Securities entitled to receive such distribution. Upon the timely receipt of such notice, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.9 of the Deposit Agreement. Upon receipt of confirmation of receipt of (x) any cash dividend or other cash distribution on any Deposited Securities, or (y) proceeds from the sale of any Deposited Property held in respect of the ADSs under the terms of the Deposit Agreement, the Depositary will (i) if at the time of receipt thereof any amounts received in a Foreign Currency can in the judgment of the Depositary (pursuant to Section 4.8 of the Deposit Agreement), be converted on a practicable basis into Dollars transferable to the United States, promptly convert or cause to be converted such cash dividend, distribution or proceeds into Dollars (on the terms described in Section 4.8 of the Deposit Agreement), (ii) if applicable and unless previously established, establish the ADS Record Date upon the terms described in Section 4.9 of the Deposit Agreement, and (iii) distribute promptly the amount thus received (net of (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes withheld) to the Holders entitled thereto as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date. The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Holder a fraction of one cent, and any balance not so distributed shall be held by the Depositary (without liability for interest thereon) and shall be added to and become part of the next sum received by the Depositary for distribution to Holders of ADSs outstanding at the time of the next distribution. If the Company, the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities, or from any cash proceeds from the sales of Deposited Property, an amount on account of taxes, duties or other governmental charges, the amount distributed to Holders on the ADSs shall be reduced accordingly. Such withheld amounts shall be forwarded by the Company, the Custodian or the Depositary to the relevant governmental authority. Evidence of payment thereof by the Company shall be forwarded by the Company to the Depositary upon request. The Depositary will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the applicable Holders and Beneficial Owners of ADSs until the distribution can be effected or the funds that the Depositary holds must be escheated as unclaimed property in accordance with the laws of the relevant states of the United States. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for above, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in Section 4.1 of the Deposit Agreement, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in Section 4.1 of the Deposit Agreement where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.

(b) Share Distributions : Whenever the Company intends to make a distribution that consists of a dividend in, or free distribution of, Shares, the Company shall give notice thereof to the Depositary at least twenty (20) days prior to the proposed distribution, specifying, inter alia , the record date applicable to holders of Deposited Securities entitled to receive such distribution. Upon the timely receipt of such notice from the Company, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.9 of the Deposit Agreement. Upon receipt of confirmation from the Custodian of the receipt of the Shares so distributed by the Company, the Depositary shall either (i) subject to Section 5.9 of the Deposit Agreement, distribute to the Holders as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date, additional ADSs, which represent in the aggregate the number of Shares received as such dividend, or free distribution, subject to the terms of the Deposit Agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes), or (ii) if additional ADSs are not so distributed, take all actions necessary so that each ADS issued and outstanding after the ADS Record Date shall, to the extent permissible by law, thenceforth also represent rights and interests in the additional integral number of Shares distributed upon the Deposited Securities represented thereby (net of (a) the applicable fees and charges of, and expenses incurred by, the Depositary, and (b) taxes). In lieu of Delivering fractional ADSs, the Depositary shall sell the number of Shares or ADSs, as the case may be, represented by the aggregate of such fractions and distribute the net proceeds upon the terms described in Section 4.1 of the Deposit Agreement.

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In the event that the Depositary determines that any distribution in property (including Shares) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, or, if the Company in the fulfillment of its obligation under Section 5.7 of the Deposit Agreement, has furnished an opinion of U.S. counsel determining that Shares must be registered under the Securities Act or other laws in order to be distributed to Holders (and no such registration statement has been declared effective), the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable, and the Depositary shall distribute the net proceeds of any such sale (after deduction of (a) taxes and (b) fees and charges of, and expenses incurred by, the Depositary) to Holders entitled thereto upon the terms described in Section 4.1 of the Deposit Agreement. The Depositary shall hold and/or distribute any unsold balance of such property in accordance with the provisions of the Deposit Agreement. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for above, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in Section 4.2 of the Deposit Agreement, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in Section 4.2 of the Deposit Agreement where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.

(c) Elective Distributions in Cash or Shares : Whenever the Company intends to make a distribution payable at the election of the holders of Deposited Securities in cash or in additional Shares, the Company shall give notice thereof to the Depositary at least forty five (45) days prior to the proposed distribution specifying, inter alia , the record date applicable to holders of Deposited Securities entitled to receive such elective distribution and whether or not it wishes such elective distribution to be made available to Holders of ADSs. Upon the timely receipt of a notice indicating that the Company wishes such elective distribution to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such elective distribution available to the Holders of ADSs. The Depositary shall make such elective distribution available to Holders only if (i) the Company shall have timely requested that the elective distribution be made available to Holders, (ii) the Depositary shall have determined that such distribution is reasonably practicable and (iii) the Depositary shall have received satisfactory documentation within the terms of the Deposit Agreement. If the above conditions are not satisfied or if the Company requests such elective distribution not to be made available to Holders of ADSs, the Depositary shall establish the ADS Record Date on the terms described in Section 4.9 of the Deposit Agreement and, to the extent permitted by law, distribute to the Holders, on the basis of the same determination as is made in Brazil in respect of the Shares for which no election is made, either (x) cash upon the terms described in Section 4.1 of the Deposit Agreement or (y) additional ADSs representing such additional Shares upon the terms described in Section 4.2 of the Deposit Agreement. If the above conditions are satisfied, the Depositary shall, subject to the terms and conditions of the Deposit Agreement, establish the ADS Record Date according to paragraph (17) of this ADR and establish procedures to enable the Holder hereof to elect the receipt of the proposed distribution in cash or in additional ADSs. The Company shall assist the Depositary in establishing such procedures to the extent necessary. If a Holder elects to receive the proposed distribution (x) in cash, the distribution shall be made upon the terms described in Section 4.1 of the Deposit Agreement, or (y) in ADSs, the distribution shall be made upon the terms described in Section 4.2 of the Deposit Agreement. Nothing herein or in the Deposit Agreement shall obligate the Depositary to make available to the Holder hereof a method to receive the elective distribution in Shares (rather than ADSs). There can be no assurance that the Holder hereof will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for above, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in Section 4.3 of the Deposit Agreement, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in Section 4.3 of the Deposit Agreement where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.

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(d) Distribution of Rights to Purchase Additional ADSs : Whenever the Company intends to distribute to the holders of the Deposited Securities rights to subscribe for additional Shares, the Company shall give notice thereof to the Depositary at least forty five (45) days prior to the proposed distribution specifying, inter alia , the record date applicable to holders of Deposited Securities entitled to receive such distribution and whether or not it wishes such rights to be made available to Holders of ADSs. Upon the timely receipt of a notice indicating that the Company wishes such rights to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such rights available to the Holders. The Depositary shall make such rights available to any Holders if (i) the Company shall have timely requested that such rights be made available to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7 of the Deposit Agreement, and (iii) the Depositary shall have determined that such distribution of rights is lawful and reasonably practicable. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for above, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in Section 4.4(a) of the Deposit Agreement, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in Section 4.4(a) of the Deposit Agreement where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein. In the event any of the conditions set forth above are not satisfied or if the Company requests that the rights not be made available to Holders of ADSs, the Depositary shall proceed with the sale of the rights as described below. In the event all conditions set forth above are satisfied, the Depositary shall establish the ADS Record Date (upon the terms described in Section 4.9 of the Deposit Agreement) and establish procedures to (x) distribute rights to purchase additional ADSs (by means of warrants or otherwise), (y) enable the Holders to exercise such rights (upon payment of the subscription price and of the applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes), and (z) deliver ADSs upon the valid exercise of such rights. The Company shall assist the Depositary to the extent necessary in establishing such procedures. Nothing herein or in the Deposit Agreement shall obligate the Depositary to make available to the Holders a method to exercise rights to subscribe for Shares (rather than ADSs). If (i) the Company does not timely request the Depositary to make the rights available to Holders or requests that the rights not be made available to Holders, (ii) the Depositary fails to receive satisfactory documentation within the terms of Section 5.7 of the Deposit Agreement or determines it is not lawful or reasonably practicable to make the rights available to Holders, or (iii) any rights made available are not exercised and appear to be about to lapse, the Depositary shall determine, after consultation with the Company to the extent practicable, whether it is lawful and reasonably practicable to sell such rights, in a riskless principal capacity, at such place and upon such terms (including public or private sale) as it may deem practicable. The Company shall assist the Depositary to the extent necessary to determine such legality and practicability. The Depositary shall, upon such sale, convert and distribute proceeds of such sale (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) upon the terms hereof and of Section 4.1 of the Deposit Agreement. If the Depositary is unable to make any rights available to Holders upon the terms described in Section 4.4(a) of the Deposit Agreement or to arrange for the sale of the rights upon the terms described in Section 4.4(b) of the Deposit Agreement, the Depositary shall allow such rights to lapse. The Depositary shall not be liable for (i) any failure to accurately determine whether it may be lawful or practicable to make such rights available to Holders in general or any Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale or exercise, or (iii) the content of any materials forwarded to the Holders of ADSs on behalf of the Company in connection with the rights distribution.

Notwithstanding anything herein or in the Deposit Agreement to the contrary, if registration (under the Securities Act or any other applicable law) of the rights or the securities to which any rights relate may be required in order for the Company to offer such rights or such securities to Holders and to sell the securities represented by such rights, the Depositary will not distribute such rights to the Holders (i) unless and until a registration statement under the Securities Act (or other applicable law) covering such offering is in effect or (ii) unless the Company furnishes the Depositary opinion(s) of counsel for the Company in the United States and counsel to the Company in any other applicable country in which rights would be distributed, in each case reasonably satisfactory to the Depositary, to the effect that the offering and sale of such securities to Holders and Beneficial Owners are exempt from, or do not require registration under, the provisions of the Securities Act or any other applicable laws. In the event that the Company, the Depositary or the Custodian shall be required to withhold and does withhold from any distribution of Deposited Property (including rights) an amount on account of taxes or other governmental charges, the amount distributed to the Holders of ADSs shall be reduced accordingly. In the event that the Depositary determines that any distribution of Deposited Property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, the Depositary may dispose of all or a portion of such Deposited Property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable to pay any such taxes or charges.

There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to receive or exercise rights on the same terms and conditions as the holders of Shares or be able to exercise such rights. Nothing herein or in the Deposit Agreement shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights.

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(e) Distributions other than Cash, Shares or Rights to Purchase Shares : Whenever the Company intends to distribute to the holders of Deposited Securities property other than cash, Shares or rights to purchase additional Shares, the Company shall give notice thereof to the Depositary at least thirty (30) days prior to the proposed distribution and shall indicate whether or not it wishes such distribution to be made to Holders of ADSs. Upon receipt of a notice indicating that the Company wishes such distribution to be made to Holders of ADSs, the Depositary shall consult with the Company, and the Company shall assist the Depositary, to determine whether such distribution to Holders is lawful and reasonably practicable. The Depositary shall not make such distribution unless (i) the Company shall have requested the Depositary to make such distribution to Holders, (ii) the Depositary shall have received the documentation contemplated in the Deposit Agreement, and (iii) the Depositary shall have determined that such distribution is lawful and reasonably practicable. Upon receipt of satisfactory documentation and the request of the Company to distribute property to Holders of ADSs and after making the requisite determinations set forth above, the Depositary shall distribute the property so received to the Holders of record, as of the ADS Record Date, in proportion to the number of ADSs held by such Holders respectively and in such manner as the Depositary may deem practicable for accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and charges of, and expenses incurred by, the Depositary, and (ii) net of any taxes withheld. The Depositary may dispose of all or a portion of the property so distributed and deposited, in such amounts and in such manner (including public or private sale) as the Depositary may deem practicable or necessary to satisfy any taxes (including applicable interest and penalties) or other governmental charges applicable to the distribution.

If (i) the Company does not request the Depositary to make such distribution to Holders or requests the Depositary not to make such distribution to Holders, (ii) the Depositary does not receive satisfactory documentation within the terms of Section 5.7 of the Deposit Agreement, or (iii) the Depositary determines that all or a portion of such distribution is not reasonably practicable, the Depositary shall sell or cause such property to be sold in a public or private sale, at such place or places and upon such terms as it may deem practicable and shall (i) cause the proceeds of such sale, if any, to be converted into Dollars and (ii) distribute the proceeds of such conversion received by the Depositary (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) to the Holders as of the ADS Record Date upon the terms hereof and of the Deposit Agreement. If the Depositary is unable to sell such property, the Depositary may dispose of such property for the account of the Holders in any way it deems reasonably practicable under the circumstances.

Neither the Depositary nor the Company shall be liable for (i) any failure to accurately determine whether it is lawful or practicable to make the property described in Section 4.5 of the Deposit Agreement available to Holders in general or any Holders in particular, nor (ii) any loss incurred in connection with the sale or disposal of such property.

(17) Redemption . If the Company intends to exercise any right of redemption in respect of any of the Deposited Securities, the Company shall give notice thereof to the Depositary, as is reasonably practicable having regard to all applicable regulatory and other requirements to which the Company is subject from time to time, at least thirty (30) days prior to the intended date of redemption which notice shall set forth the particulars of the proposed redemption. Upon timely receipt of (i) such notice and (ii) satisfactory documentation given by the Company to the Depositary within the terms of Section 5.7 of the Deposit Agreement, and only if the Company and the Depositary shall have determined that such proposed redemption is practicable, the Depositary shall provide to each Holder a notice setting forth the intended exercise by the Company of the redemption rights and any other particulars set forth in the Company’s notice to the Depositary. The Depositary shall instruct the Custodian to present to the Company the Deposited Securities in respect of which redemption rights are being exercised against payment of the applicable redemption price. Upon receipt of confirmation from the Custodian that the redemption has taken place and that funds representing the redemption price have been received, the Depositary shall convert, transfer, and distribute the proceeds (net of applicable (a) fees and charges of, and the expenses incurred by, the Depositary, and (b) taxes), retire ADSs and cancel ADRs, if applicable, upon Delivery of such ADSs by Holders thereof and the terms set forth in Sections 4.1 and 6.2 of the Deposit Agreement. If less than all outstanding Deposited Securities are redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as may be determined by the Depositary, after consultation with the Company to the extent practicable. The redemption price per ADS shall be the dollar equivalent of the per share amount received by the Depositary (adjusted to reflect the ADS(s)-to-Share(s) ratio) upon the redemption of the Deposited Securities represented by ADSs (subject to the terms of Section 4.8 of the Deposit Agreement and the applicable fees and charges of, and expenses incurred by, the Depositary, and taxes) multiplied by the number of Deposited Securities represented by each ADS redeemed. Notwithstanding anything contained in this Deposit Agreement to the contrary, in the event the Company fails to give the Depositary thirty (30) days’ prior notice of the proposed redemption provided for above, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in Section 4.7 of the Deposit Agreement, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in Section 4.7 of the Deposit Agreement where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.

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(18) Fixing of ADS Record Date . Whenever the Depositary shall receive notice of the fixing of a record date by the Company for the determination of holders of Deposited Securities entitled to receive any distribution (whether in cash, Shares, rights or other distribution), or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each ADS, or whenever the Depositary shall receive notice of any meeting of, or solicitation of consents or proxies of, holders of Shares or other Deposited Securities, or whenever the Depositary shall find it necessary or convenient in connection with the giving of any notice, solicitation of any consent or any other matter, the Depositary shall fix the record date (the “ ADS Record Date ”) for the determination of the Holders of ADS(s) who shall be entitled to receive such distribution, to give instructions for the exercise of voting rights at any such meeting, to give or withhold such consent, to receive such notice or solicitation or to otherwise take action, or to exercise the rights of Holders with respect to such changed number of Shares represented by each ADS. The Depositary shall make reasonable efforts to establish the ADS Record Date as closely as practicable to the applicable record date for the Deposited Securities (if any) set by the Company in Brazil and shall not announce the establishment of any ADS Record Date prior to the relevant corporate action having been made public by the Company (if such corporate action affects the Deposited Securities). Subject to applicable law, the terms and conditions of this ADR and Sections 4.1 through 4.8 of the Deposit Agreement, only the Holders of ADSs at the close of business in New York on such ADS Record Date shall be entitled to receive such distribution, to give such voting instructions, to receive such notice or solicitation, or otherwise take action.

(19) Voting of Deposited Securities . As soon as practicable after receipt of notice of any meeting at which the holders of Deposited Securities are entitled to vote or of solicitation of consents or proxies from holders of Deposited Securities, the Depositary shall fix the ADS Record Date in respect of such meeting or solicitation of consent or proxy in accordance with Section 4.9 of the Deposit Agreement. The Depositary shall, if requested by the Company in writing in a timely manner (the Depositary having no obligation to take any further action if the request shall not have been received by the Depositary at least thirty (30) days prior to the date of such vote or meeting), at the Company’s expense and provided no U.S. legal prohibitions exist, distribute to Holders as of the ADS Record Date: (a) such notice of meeting or solicitation of consent or proxy, (b) a statement that the Holders at the close of business on the ADS Record Date will be entitled, subject to any applicable law, the provisions of the Deposit Agreement, the Estatuto Social of the Company and the provisions of or governing the Deposited Securities (which provisions, if any, shall be summarized in pertinent part by the Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by such Holder’s ADSs and (c) a brief statement as to the manner in which such voting instructions may be given.

Deposited Securities represented by ADSs for which no timely voting instructions are received by the Depositary from the Holder shall not be voted (except as otherwise contemplated herein). Neither the Depositary nor the Custodian shall under any circumstances exercise any discretion as to voting and neither the Depositary nor the Custodian shall vote, attempt to exercise the right to vote, or in any way make use of, for purposes of establishing a quorum or otherwise, the Deposited Securities represented by ADSs, except pursuant to and in accordance with the voting instructions timely received from Holders or as otherwise contemplated in the Deposit Agreement or herein. If the Depositary timely receives voting instructions from a Holder which fail to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs, the Depositary will deem such Holder (unless otherwise specified in the notice distributed to Holders) to have instructed the Depositary to vote in favor of the items set forth in such voting instructions.

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If (i) the Company made a timely request to the Depositary as contemplated by the second sentence of Section 4.10 of the Deposit Agreement and (ii) no timely voting instructions are received by the Depositary from the Holder of this ADR with respect to the Deposited Securities represented by the ADSs evidenced by this ADR on or before the date established by the Depositary for such purpose, the Depositary shall deem such Holder to have instructed the Depositary to give a discretionary proxy to a person designated by the Board of Directors of the Company with respect to such Deposited Securities and the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of the Deposit Agreement, Estatuto Social of the Company and the provisions of the Deposited Securities, to give or cause the Custodian to give a discretionary proxy to a person designated by the Board of Directors of the Company to vote such Deposited Securities; provided, however, that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which the Board of Directors of the Company informs the Depositary that (x) the Company does not wish such proxy given, (y) substantial opposition exists or (z) such matter materially and adversely affects the rights of holders of Shares.

Notwithstanding anything else contained in the Deposit Agreement or this ADR, the Depositary shall not have any obligation to take any action with respect to any meeting, or solicitation of consents or proxies, of holders of Deposited Securities if the taking of such action would violate U.S. or Brazilian laws. The Company agrees to take any and all actions reasonably necessary to enable Holders and Beneficial Owners to exercise the voting rights accruing to the Deposited Securities and to deliver to the Depositary an opinion of U.S. or Brazilian counsel, as applicable, addressing any actions requested to be taken if so requested by the Depositary. There can be no assurance that Holders generally or any Holder in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner.

(20) Changes Affecting Deposited Securities . Upon any change in nominal or par value, split-up, cancellation, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger, consolidation or sale of assets affecting the Company or to which it is a party, any property which shall be received by the Depositary or the Custodian in exchange for, or in conversion of, or replacement of, or otherwise in respect of, such Deposited Securities shall, to the extent permitted by law, be treated as new Deposited Property under the Deposit Agreement, and this ADR shall, subject to the provisions of the Deposit Agreement, this ADR and applicable law, represent the right to receive such additional or replacement Deposited Property. In giving effect to such change, split-up, cancellation, consolidation or other reclassification of Deposited Securities, recapitalization, reorganization, merger, consolidation or sale of assets, the Depositary may, with the Company’s approval, and shall, if the Company shall so request, subject to the terms of the Deposit Agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the Depositary, and (b) taxes) and receipt of an opinion of counsel to the Company satisfactory to the Depositary that such actions are not in violation of any applicable laws or regulations, (i) issue and deliver additional ADSs as in the case of a stock dividend on the Shares, (ii) amend the Deposit Agreement and the applicable ADRs, (iii) amend the applicable Registration Statement(s) on Form F-6 as filed with the Commission in respect of the ADSs, (iv) call for the surrender of outstanding ADRs to be exchanged for new ADRs, and (v) take such other actions as are appropriate to reflect the transaction with respect to the ADSs. The Company agrees to, jointly with the Depositary, amend the Registration Statement on Form F-6 as filed with the Commission to permit the issuance of such new form of ADRs. Notwithstanding the foregoing, in the event that any Deposited Property so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall, if the Company requests, subject to receipt of an opinion of Company’s counsel satisfactory to the Depositary that such action is not in violation of any applicable laws or regulations, sell such Deposited Property at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) for the account of the Holders otherwise entitled to such Deposited Property upon an averaged or other practicable basis without regard to any distinctions among such Holders and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to Section 4.1 of the Deposit Agreement. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or practicable to make such Deposited Property available to Holders in general or to any Holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the purchaser of such Deposited Property.

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(21) Exoneration . Notwithstanding anything contained in the Deposit Agreement or herein, neither the Depositary nor the Company shall be obligated to do or perform any act which is inconsistent with the provisions of the Deposit Agreement or incur any liability (i) if the Depositary or the Company or their respective controlling persons or agents shall be prevented or forbidden from, or delayed in, doing or performing any act or thing required by the terms of the Deposit Agreement and this ADR, by reason of any provision of any present or future law or regulation of the United States or any State thereof, Brazil or any other country, or of any other governmental authority or regulatory authority or stock exchange, or on account of potential criminal or civil penalties or restraint, or by reason of any provision, present or future, of the Estatuto Social of the Company or any provision of or governing any Deposited Securities, or by reason of any act of God or war or other circumstances beyond its control (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, acts of terrorism, revolutions, rebellions, explosions and computer failure), (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement or in the Estatuto Social of the Company or provisions of or governing Deposited Securities, (iii) for any action or inaction in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorized representative thereof, or any other person believed by it in good faith to be competent to give such advice or information, (iv) for the inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Holders of ADSs, or (v) for any consequential or punitive damages (including lost profits) for any breach of the terms of the Deposit Agreement. The Depositary, its controlling persons, its agents, any Custodian and the Company, its controlling persons and its agents may rely and shall be protected in acting upon any written notice, request, opinion or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. No disclaimer of liability under the Securities Act is intended by any provision of the Deposit Agreement or this ADR.

(22) Standard of Care . The Company and the Depositary and their respective directors, officers, Affiliates, employees and agents assume no obligation and shall not be subject to any liability under the Deposit Agreement or this ADR to any Holder(s) or Beneficial Owner(s), except that the Company and the Depositary agree to perform their respective obligations specifically set forth in the Deposit Agreement or this ADR without negligence or bad faith. Without limitation of the foregoing, neither the Depositary, nor the Company, nor any of their respective controlling persons, directors, officers, Affiliates, employees or agents, shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Property or in respect of the ADSs, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required (and no Custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the Custodian being solely to the Depositary).

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(23) Resignation and Removal of the Depositary; Appointment of Successor Depositary . The Depositary may at any time resign as Depositary under the Deposit Agreement by written notice of resignation delivered to the Company, such resignation to be effective on the earlier of (i) the 90th day after delivery thereof to the Company (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2 of the Deposit Agreement), or (ii) the appointment by the Company of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement. The Depositary may at any time be removed by the Company by written notice of such removal, which removal shall be effective on the later of (i) the 90th day after delivery thereof to the Depositary (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2 of the Deposit Agreement), or (ii) the appointment by the Company of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement. In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its commercially reasonable efforts to appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, the City of New York. Every successor depositary shall be required by the Company to execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed (except as required by applicable law), shall become fully vested with all the rights, powers, duties and obligations of its predecessor (other than as contemplated in Sections 5.8 and 5.9 of the Deposit Agreement). The predecessor depositary, upon payment of all sums due to it and on the written request of the Company, shall, (i) execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder (other than as contemplated in Sections 5.8 and 5.9 of the Deposit Agreement), (ii) duly assign, transfer and deliver all of the Depositary’s right, title and interest to the Deposited Property to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding ADSs and such other information relating to ADSs and Holders thereof as the successor may reasonably request. Any such successor depositary shall promptly provide notice of its appointment to such Holders. Any entity into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act.

(24) Amendment/Supplement . Subject to the terms and conditions of this paragraph (24), the Deposit Agreement and applicable law, this ADR and any provisions of the Deposit Agreement may at any time and from time to time be amended or supplemented by written agreement between the Company and the Depositary in any respect which they may deem necessary or desirable without the prior written consent of the Holders or Beneficial Owners. Any amendment or supplement which shall impose or increase any fees or charges (other than charges in connection with foreign exchange control regulations, and taxes and other governmental charges, delivery and other such expenses), or which shall otherwise materially prejudice any substantial existing right of Holders or Beneficial Owners, shall not, however, become effective as to outstanding ADSs until the expiration of thirty (30) days after notice of such amendment or supplement shall have been given to the Holders of outstanding ADSs. Notice of any amendment to the Deposit Agreement or any ADR shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided , however , that, in each such case, the notice given to the Holders identifies a means for Holders and Beneficial Owners to retrieve or receive the text of such amendment ( e.g. , upon retrieval from the Commission’s, the Depositary’s or the Company’s website or upon request from the Depositary). The parties hereto agree that any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act or (b) the ADSs to be settled solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to materially prejudice any substantial rights of Holders or Beneficial Owners. Every Holder and Beneficial Owner at the time any amendment or supplement so becomes effective shall be deemed, by continuing to hold such ADSs, to consent and agree to such amendment or supplement and to be bound by the Deposit Agreement and this ADR as amended or supplemented thereby. In no event shall any amendment or supplement impair the right of the Holder to surrender such ADS and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require an amendment of, or supplement to, the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and this ADR at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement and this ADR in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, rules or regulations.

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(25) Termination . The Depositary shall, at any time at the written direction of the Company, terminate the Deposit Agreement by distributing notice of such termination to the Holders of all ADSs then outstanding at least thirty (30) days prior to the date fixed in such notice for such termination. If ninety (90) days shall have expired after (i) the Depositary shall have delivered to the Company a written notice of its election to resign, or (ii) the Company shall have delivered to the Depositary a written notice of the removal of the Depositary, and, in either case, a successor depositary shall not have been appointed and accepted its appointment as provided in Section 5.4 of the Deposit Agreement, the Depositary may terminate the Deposit Agreement by distributing notice of such termination to the Holders of all ADSs then outstanding at least thirty (30) days prior to the date fixed in such notice for such termination. The date so fixed for termination of the Deposit Agreement in any termination notice so distributed by the Depositary to the Holders of ADSs is referred to as the “ Termination Date ”. Until the Termination Date, the Depositary shall continue to perform all of its obligations under the Deposit Agreement, and the Holders and Beneficial Owners will be entitled to all of their rights under the Deposit Agreement. If any ADSs shall remain outstanding after the Termination Date, the Registrar and the Depositary shall not, after the Termination Date, have any obligation to perform any further acts under the Deposit Agreement, except that the Depositary shall, subject, in each case, to the terms and conditions of the Deposit Agreement, continue to (i) collect dividends and other distributions pertaining to Deposited Securities, (ii) sell Deposited Property received in respect of Deposited Securities, (iii) deliver Deposited Securities, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any other Deposited Property, in exchange for ADSs surrendered to the Depositary (after deducting, or charging, as the case may be, in each case, the fees and charges of, and expenses incurred by, the Depositary, and all applicable taxes or governmental charges for the account of the Holders and Beneficial Owners, in each case upon the terms set forth in Section 5.9 of the Deposit Agreement), and (iv) take such actions as may be required under applicable law in connection with its role as Depositary under the Deposit Agreement. At any time after the Termination Date, the Depositary may sell the Deposited Property then held under the Deposit Agreement and shall after such sale hold un-invested the net proceeds of such sale, together with any other cash then held by it under the Deposit Agreement, in an un-segregated account and without liability for interest, for the pro rata benefit of the Holders whose ADSs have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement except (i) to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case, the fees and charges of, and expenses incurred by, the Depositary, and all applicable taxes or governmental charges for the account of the Holders and Beneficial Owners, in each case upon the terms set forth in Section 5.9 of the Deposit Agreement), and (ii) as may be required at law in connection with the termination of the Deposit Agreement. After the Termination Date, the Company shall be discharged from all obligations under the Deposit Agreement, except for its obligations to the Depositary under Sections 5.8, 5.9 and 7.6 of the Deposit Agreement. The obligations under the terms of the Deposit Agreement of Holders and Beneficial Owners of ADSs outstanding as of the Termination Date shall survive the Termination Date and shall be discharged only when the applicable ADSs are presented by their Holders to the Depositary for cancellation under the terms of the Deposit Agreement (except as specifically provided in the Deposit Agreement).

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(26) Compliance with U.S. Securities Laws . Notwithstanding any provisions in this ADR or the Deposit Agreement to the contrary, the withdrawal or Delivery of Deposited Securities will not be suspended by the Company or the Depositary except as would be permitted by Instruction I.A.(1) of the General Instructions to Form F-6 Registration Statement, as amended from time to time, under the Securities Act.

(27) Certain Rights of the Depositary; Limitations . Subject to the further terms and provisions of this paragraph (27), the Depositary, its Affiliates and their agents, on their own behalf, may own and deal in any class of securities of the Company and its Affiliates and in ADSs. The Depositary may issue ADSs against evidence of rights to receive Shares from the Company, any agent of the Company or any custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares. Such evidence of rights shall consist of written blanket or specific guarantees of ownership of Shares. In its capacity as Depositary, the Depositary shall not lend Shares or ADSs; provided , however , that the Depositary may (i) issue ADSs prior to the receipt of Shares pursuant to Section 2.3 of the Deposit Agreement and (ii) deliver Shares prior to the receipt of ADSs for withdrawal of Deposited Securities pursuant to Section 2.7 of the Deposit Agreement, including ADSs which were issued under (i) above but for which Shares may not have been received (each such transaction a “ Pre-Release Transaction ”). The Depositary may receive ADSs in lieu of Shares under (i) above and receive Shares in lieu of ADSs under (ii) above. Each such Pre-Release Transaction will be (a) subject to a written agreement whereby the person or entity (the “ Applicant ”) to whom ADSs or Shares are to be delivered (w) represents that at the time of the Pre-Release Transaction the Applicant or its customer owns the Shares or ADSs that are to be delivered by the Applicant under such Pre-Release Transaction, (x) agrees to indicate the Depositary as owner of such Shares or ADSs in its records and to hold such Shares or ADSs in trust for the Depositary until such Shares or ADSs are delivered to the Depositary or the Custodian, (y) unconditionally guarantees to deliver to the Depositary or the Custodian, as applicable, such Shares or ADSs and (z) agrees to any additional restrictions or requirements that the Depositary deems appropriate, (b) at all times fully collateralized with cash, U.S. government securities or such other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five (5) Business Days’ notice and (d) subject to such further indemnities and credit regulations as the Depositary deems appropriate. The Depositary will normally limit the number of ADSs and Shares involved in such Pre-Release Transactions at any one time to thirty percent (30%) of the ADSs outstanding (without giving effect to ADSs outstanding under (i) above), provided , however , that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate. The Depositary may also set limits with respect to the number of ADSs and Shares involved in Pre-Release Transactions with any one person on a case-by-case basis as it deems appropriate. The Depositary may retain for its own account any compensation received by it in conjunction with the foregoing. Collateral provided pursuant to (b) above, but not the earnings thereon, shall be held for the benefit of the Holders (other than the Applicant).

(28) Governing Law / Waiver of Jury Trial . The Deposit Agreement and the ADRs shall be interpreted in accordance with, and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by, the laws of the State of New York without reference to the principles of choice of law thereof. Notwithstanding anything contained in the Deposit Agreement, any ADR or any present or future provisions of the laws of the State of New York, the rights of holders of Shares and of any other Deposited Securities and the obligations and duties of the Company in respect of the holders of Shares and other Deposited Securities, as such, shall be governed by the laws of Brazil (or, if applicable, such other laws as may govern the Deposited Securities).

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(ASSIGNMENT AND TRANSFER SIGNATURE LINES)

FOR VALUE RECEIVED, the undersigned Holder hereby sell(s), assign(s) and transfer(s) unto whose taxpayer identification number is and whose address including postal zip code is , the within ADR and all rights thereunder, hereby irrevocably constituting and appointing attorney-in-fact to transfer said ADR on the books of the Depositary with full power of substitution in the premises.


Dated:	Name:
		By:
		Title:
	NOTICE: The signature of the Holder to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatsoever.
	If the endorsement be executed by an attorney, executor, administrator, trustee or guardian, the person executing the endorsement must give his/her full title in such capacity and proper evidence of authority to act in such capacity, if not on file with the Depositary, must be forwarded with this ADR.
SIGNATURE GUARANTEED
	All endorsements or assignments of ADRs must be guaranteed by a member of a Medallion Signature Program approved by the Securities Transfer Association, Inc.
	Legends

The ADRs issued in respect of Partial Entitlement American Depositary Shares shall bear the following legend on the face of the ADR: “This ADR evidences ADSs representing ‘partial entitlement’ Shares of Azul S.A. and as such do not entitle the holders thereof to the same per-share entitlement as other Shares (which are ‘full entitlement’ Shares) issued and outstanding at such time. The ADSs represented by this ADR shall entitle holders to distributions and entitlements identical to other ADSs when the Shares represented by such ADSs become ‘full entitlement’ Shares.”

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EXHIBIT B

FEE SCHEDULE

ADS FEES AND RELATED CHARGES

All capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the Deposit Agreement.

I. ADS Fees

The following ADS fees are payable under the terms of the Deposit Agreement:


Service	Rate	By Whom Paid

(1) Issuance of ADSs ( e.g. , an issuance upon a deposit of Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason), excluding issuances as a result of distributions described in paragraph (4) below.	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) issued.	Person receiving ADSs.

(2) Cancellation of ADSs ( e.g. , a cancellation of ADSs for Delivery of deposited Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason).	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) cancelled.	Person whose ADSs are being cancelled.

(3) Distribution of cash dividends or other cash distributions ( e.g. , upon a sale of rights and other entitlements).	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held.	Person to whom the distribution is made.

(4) Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) an exercise of rights to purchase additional ADSs.	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held.	Person to whom the distribution is made.

(5) Distribution of securities other than ADSs or rights to purchase additional ADSs ( e.g. , spin-off shares).	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held.	Person to whom the distribution is made.
6) ADS Services.	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the Depositary.	Person holding ADSs on the applicable record date(s) established by the Depositary.

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II. Charges

The Company, Holders, Beneficial Owners, persons receiving ADSs upon issuance and persons whose ADSs are being cancelled shall be responsible for the following ADS charges under the terms of the Deposit Agreement:

(i)	taxes (including applicable interest and penalties) and other governmental charges;

(ii)

(iii)

(iv)	the expenses and charges incurred by the Depositary in the conversion of Foreign Currency;

(v)	such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Shares, Deposited Securities, ADSs and ADRs; and

(vi)	the fees and expenses incurred by the Depositary, the Custodian, or any nominee in connection with the servicing or delivery of Deposited Property.

B-2

Exhibit 4.2

FIFTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

dated as of August 3, 2016

among

AZUL S.A.

and

THE SHAREHOLDERS NAMED HEREIN

Table of Contents


	Page
ARTICLE I DEFINED TERMS; RULES OF CONSTRUCTION		1
SECTION 1.1 DEFINED TERMS		1
SECTION 1.2 INDEX OF OTHER DEFINED TERMS		8
SECTION 1.3 RULES OF CONSTRUCTION		9
ARTICLE II TRANSFERS OF SHARES		9
SECTION 2.1 GENERAL; PROHIBITION ON TRANSFERS		9
SECTION 2.2 RIGHT OF FIRST OFFER FOR THE SHAREHOLDERS		10
SECTION 2.3 CO-SALE RIGHTS BY THE SHAREHOLDERS		11
SECTION 2.4 RIGHT OF FIRST REFUSAL ON TRANSFERS BY MINORITY SHAREHOLDERS		11
SECTION 2.5 CALL RIGHT FOR EQUITY SECURITIES OF CERTAIN SHAREHOLDERS		12
SECTION 2.6 DRAG-ALONG RIGHTS OF THE REQUISITE HOLDERS		12
ARTICLE III ISSUANCES OF SECURITIES; PREEMPTIVE RIGHTS		13
SECTION 3.1 ISSUANCES OF SECURITIES		13
SECTION 3.2 PREEMPTIVE RIGHTS		13
ARTICLE IV LIQUIDATION		14
SECTION 4.1 DISTRIBUTIONS ON LIQUIDATION		14
SECTION 4.2 PAYMENT TO INDIRECT OWNERS UPON LIQUIDATION		14
ARTICLE V PUT RIGHT; REDEMPTION RIGHT; CONVERSION RIGHT		15
SECTION 5.1 PUT RIGHT		15
SECTION 5.2 PUT VALUE		16
SECTION 5.3 PAYMENT TO INDIRECT OWNERS UPON EXERCISE OF PUT RIGHT		16
SECTION 5.4 CALFINCO REDEMPTION OPTION		17
SECTION 5.5 CALFINCO CONVERSION EVENT		18
SECTION 5.6 HNA REDEMPTION OPTION		19
SECTION 5.7 HNA CONVERSION EVENT		20
ARTICLE VI AGREEMENTS OF THE SHAREHOLDERS		21
SECTION 6.1 BOARD OF DIRECTORS, APPROVAL RIGHTS; OBSERVER RIGHT		21
SECTION 6.2 MEETINGS		23
SECTION 6.3 APPROVAL BY THE REQUISITE HOLDERS		23
SECTION 6.4 APPROVAL BY THE HOLDERS OF COMMON SHARES		25
SECTION 6.5 APPROVAL BY THE HOLDERS OF FOUNDER PREFERRED SHARES		25
SECTION 6.6 APPROVAL BY THE HOLDERS OF CALFINCO PREFERRED SHARES		25
SECTION 6.7 APPROVAL BY THE HOLDERS OF HNA PREFERRED SHARES		25
SECTION 6.8 APPROVAL BY THE BOARD OF DIRECTORS		25
SECTION 6.9 PARTICIPATION IN CERTAIN HIRING AND FIRING DECISIONS		26
SECTION 6.10 EQUITY INCENTIVE PLAN		26
SECTION 6.11 DEATH OF DAVID NEELEMAN		26
SECTION 6.12 CONFIDENTIALITY		26
SECTION 6.13 CONFLICT WITH BY-LAWS		27
ARTICLE VII COVENANTS OF THE COMPANY		27
SECTION 7.1 FINANCIAL STATEMENTS		27
SECTION 7.2 INSPECTION		28
SECTION 7.3 ANNUAL BUSINESS PLAN		28
SECTION 7.4 D&O INSURANCE		28
SECTION 7.5 KEY PERSON INSURANCE		28
SECTION 7.6 PURPOSE OF SUBSIDIARIES		28


ARTICLE VIII RECLASSIFICATION; LEGENDS			29
SECTION 8.1 RECLASSIFICATION			29
SECTION 8.2 LEGENDS			29
SECTION 8.3 REGISTERED SHARES REGISTRATION BOOK			29
ARTICLE IX DURATION; TERMINATION			30
ARTICLE X EFFECTIVENESS			30
SECTION 10.1 EFFECTIVENESS			30
ARTICLE XI MISCELLANEOUS			30
SECTION 11.1 NOTICES			30
SECTION 11.2 ASSIGNMENT			31
SECTION 11.3 ENTIRE AGREEMENT			31
SECTION 11.4 MODIFICATIONS, AMENDMENTS AND WAIVERS			32
SECTION 11.5 COUNTERPARTS			32
SECTION 11.6 GOVERNING LAW			32
SECTION 11.7 ARBITRATION			32
SECTION 11.8 SEVERABILITY			34
SECTION 11.9 NO PRESUMPTION			34
SECTION 11.10 NO THIRD PARTY BENEFICIARY			34
SECTION 11.11 NON-RECOURSE			34
SECTION 11.12 SPECIFIC PERFORMANCE			34
SECTION 11.13 BUSINESS DAYS			35
SECTION 11.14 CURRENCY MATTERS			35
SECTION 11.15 PORTUGUESE TRANSLATION			35

EXHIBITS


Exhibit A	-	Form of Joinder Agreement
Exhibit B	-	Form of Spousal Consent

FIFTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

This Fifth Amended and Restated Shareholders Agreement dated as of August 3, 2016 (this “Agreement” ) is among Azul S.A., a Brazilian corporation ( sociedade anônima ) (the “Company” ), and each of the Company’s shareholders holding common shares, preferred shares Class A, preferred shares Class C and preferred shares Class D (the “Shareholders” ). Capitalized terms used but not defined elsewhere herein have the meanings assigned to them in Section 1.1.

On February 5, 2016, the Company entered into an Investment Agreement (the “HNA Investment Agreement” ) with Hainan Airlines Co., Ltd. a limited company organized and existing under the laws of the People’s Republic of China, with its headquarters in Haikou City, Hainan Province, with Chinese Company Registration No. 460000400002151, represented herein in accordance with its by-laws (“ HNA ”), pursuant to which, among other things, HNA upon the issuance to it of Equity Securities represented by preferred shares Class D pursuant to the HNA Investment Agreement became a shareholder of the Company. As set forth in Article X, this Agreement shall only be effective upon the issuance to HNA of Equity Securities pursuant to the HNA Investment Agreement. At all times prior to the issuance to HNA of Equity Securities pursuant to the HNA Investment Agreement, the Fourth Amended and Restated Shareholders Agreement, dated June 26, 2015, as it may be amended from time to time (the “Fourth Amended and Restated Shareholders Agreement” ), shall be in full force and effect.

The Company and the Shareholders desire to promote their mutual interests by amending and restating the Fourth Amended and Restated Shareholders Agreement (with such amendment and restatement to be effective upon the consummation of the closing of the transactions contemplated by the HNA Investment Agreement as contemplated by Article X) in order to, among other things, impose certain limitations on the transfer of the Equity Securities now owned by them and that may be acquired by any Shareholder at any time or from time to time after the date of this Agreement, whether by subscription or grant directly from the Company, by purchase from a third party, or pursuant to the exercise of any option, all upon the terms and conditions set forth below.

The Company and the Shareholders desire to cause each Person who shall from time to time after such date become a holder of the Equity Securities to execute and deliver a Joinder Agreement, thereby becoming a party to this Agreement as a Shareholder.

In consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

A RTICLE I

DEFINED TERMS; RULES OF CONSTRUCTION

Section 1.1 D EFINED T ERM s . Capitalized terms used and not otherwise defined in this Agreement have the meanings ascribed to them below:

“ADS” means an American Depositary Share, which shall be evidenced by an American Depositary Receipt.

“Adverse Tax Law Changes” means changes to U.S. or Brazilian tax laws that would result in adverse tax consequences to the Company or any of its Subsidiaries or the relevant LLC in connection with any purchase by the Company of the membership interests of a LLC pursuant to Section 4.2(a) or Section 5.3(a).

“Affiliate” of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where “control” means the possession, directly or indirectly through one or more intermediaries, of the ownership of more than 50% of the voting stock of a Person, or the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise.

“Board” means the Company’s board of directors.

“BR$” means the lawful currency of Brazil.

“Brazilian GAAP” means generally accepted accounting principles in Brazil.

“Business” means operation of an airline (including, without limitation, the provision of air transportation of passengers, cargo and mail, the ownership and leasing of aircraft and other assets relating thereto and the marketing of such airline) and all activities that are in any way in connection therewith or in any way related or incidental thereto.

“Business Day” means any day that is not a Saturday, Sunday, legal holiday or other day on which banks are authorized or required to be closed in Hong Kong, PRC, Beijing, PRC, New York, NY, USA, São Paulo, SP, Brazil or Barueri, SP, Brazil.

“By-laws” means the Company’s by-laws, as amended from time to time.

“ Calfinco ” means the shareholder Calfinco Inc., a company incorporated under the laws of Delaware, United States of America, having its principal place of business at 233 S. Wacker Dr., Chicago, Illinois 60606.

“ Calfinco Investment Agreement ” means the Investment Agreement, dated as of June 26, 2015, by and between Calfinco, the Company and the other parties thereto.

“ Calfinco Preferred Shares ” means the Class C Preferred Shares held by Calfinco.

“ Class A Preferred Shares ” means the Company’s preferred shares Class A.

“ Class B Preferred Shares ” means the Company’s preferred shares Class B.

“ Class C Preferred Shares ” means the Company’s preferred shares Class C.

“ Class D Preferred Shares ” means the Company’s preferred shares Class D.

“Common Shares” means the Company’s common shares.

“Converted Preferred Shares” means the Company’s preferred shares into which Class B Preferred Shares, Class C Preferred Shares and Class D Preferred Shares will convert upon consummation of an IPO in accordance with the By-laws.

“Corporation Law” means Brazilian Law no. 6,404 of December 15, 1976, as amended from time to time.

“Equity Securities” means: (a) the Common Shares and the Preferred Shares; and (b) all securities that may now or at any time in the future be exercisable or exchangeable for, or convertible into, Common Shares and Preferred Shares.

“Family” , as applied to any individual, means: (a) the Relatives of such individual; and (b) the estate of such individual.

“Founder Preferred Shares” means the Class A Preferred Shares held by the Founders.

“Founders” means: (a) David Neeleman, Gianfranco Zioni Beting, Regis Da Silva Brito, Gerald B. Lee, Thomas Eugene Kelly, Tom Anderson, Carol Elizabeth Archer, Cindy England, Robert C. Land, Robert Milton, Mark Neeleman, Marlon Ramirez, John Rodgerson, Maximilian Urbahn, Joel Peterson, John Daly, Amir Nasruddin, Jason Ward, Miguel Dau and João Carlos Fernandes; (b) any LLC that is wholly-owned by any of the foregoing individuals; and (c) any Permitted Transferee of any of the foregoing Persons.

“Freely Tradeable Securities” means securities that have been registered under the Securities Act or may be re-sold without restriction under Rule 144 under the Securities Act.

“Governmental Authority” means any U.S., Brazilian, Chinese or other government or political subdivision or quasi-governmental authority thereof, whether on a federal, national, state, provincial, municipal or local level and whether executive, legislative or judicial in nature, including any agency, entity, body, authority, board, bureau, commission, court, tribunal, department, commission or other instrumentality thereof and, if relevant or appropriate, in any other country.

“HNA Preferred Shares” means the Class D Preferred Shares held by HNA.

“HSR Act” means the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Independent Director” means a director who (a) other than in connection with his or her service as a director of the Company or his or her ownership of Equity Securities, has no relationship with the Company or TRIP or either of their Affiliates; (b)(i) is not a controlling shareholder of the Company or TRIP or a Relative of the Controlling Shareholder of the Company or TRIP up to the second degree of the director, or (ii) is not and has not been, in the last three years, an employee of any company or entity related to the controlling shareholder of the Company or TRIP (except for persons related to public schools and/or research institutions); (c) has not been, in the last three years, an employee or officer of the Company, TRIP or either of their Affiliates, or an employee or officer of the controlling shareholder of the Company or any entity controlled by the Company or TRIP; (d) is not a supplier or buyer, whether direct or indirect, of the services and/or products of either the Company or TRIP to an extent that is reasonably expected to jeopardize the independence thereof; (e) is not an employee, officer or director of any company or entity that offers or demands services and/or products to/from the Company or TRIP; (f) is not the Relative of any officer or director of the Company or TRIP; and (g) does not receive any other compensation from the Company or TRIP, other than that related to his or her service as a director of the Company and for revenues arising out of Equity Securities owned by such director).

“Investment Agreement” means the Investment Agreement, dated as of May 25, 2012, by and between the TRIP Shareholders (as defined therein), the Company and the other parties thereto.

“Investor Preferred Shares” means the Class A Preferred Shares held by the Investors.

“Investors” means Star Sabia LLC, WP-New Air LLC, Azul HolCo, LLC, Maracatu LLC , GIF Mercury LLC, GIF- II Fundo de Investimentos em Participações, ZDBR LLC, Kadon Empreendimentos S.A., Bozano Holdings Ltd., JJL Brazil LLC and Morris Azul, LLC.

“IPO” means a firm commitment underwritten public offering of new preferred shares pursuant to a Prospectus of Distribution under Instrução no. 400/03 of the Brazilian Securities Commission (Comissão de Valores Mobiliários – CVM) and article 19 of Federal Law no. 6,385/76, lead-managed by an underwriter of international standing, for listing on the São Paulo stock exchange (BM&FBOVESPA) (with a concurrent offering of ADSs representing shares of new preferred shares on the NASDAQ Stock Market or The New York Stock Exchange).

“Joinder Agreement” means the Joinder Agreement attached to this Agreement as Exhibit A .

“Lien” means a lien, pledge, security interest, charge, encumbrance, defect in title, mortgage, deed of trust, right of others, claim, burden, title retention agreement, lease, sublease, license, occupancy agreement ( usufruto ), easement ( servidão ), covenant, condition, encroachment ( esbulho possessório ), voting trust agreement, interest, option, right of first offer, negotiation or refusal, proxy, or other restrictions, adverse claims or limitations of any nature whatsoever, including but not limited to such Liens as may arise under any contract.

“Liquidation” means a Sale of the Company or the liquidation, dissolution or winding up of the Company, in each case prior to the consummation of a Qualified IPO.

“LLC” means a limited liability company organized under the laws of one of the states of the United States that: (a) was formed solely for the purpose of holding Preferred Shares; (b) has no liabilities or obligations other than under the Transaction Documents to which it is a party and de minimis ongoing expenses related to the existence of such limited liability company ( e.g. , franchise taxes); and (c) is treated as a partnership or disregarded entity for U.S. federal, state, and local income tax purposes.

“Mandatory Dividends” means the minimum dividends that are required under Brazilian law to be paid on each class of the Company’s shares (as set forth in the By-laws in an amount equal to the lowest amount of the Company’s annual profits permitted to be paid in order to avoid the statutory payment of higher dividends under Brazilian law).

“Material Subsidiary” means: (a) the Person that holds the airline operating certificate used for the Company to conduct its business; and (b) any other Subsidiary of the Company if the total assets of such Subsidiary exceed 10% of the Company’s consolidated total assets as of the end of the Company’s most recently completed fiscal year; provided , however , that in no event shall a Material Subsidiary have less than US$2,000,000 in assets.

“Minority Shareholder” means any shareholder other than the Shareholders or the Permitted Transferees of the TRIP Shareholders.

“Neeleman Employment Agreement” means the Employment Agreement, dated as of March 10, 2008 between David Neeleman and the Company, as amended from time to time.

“Permitted Affiliate Transfer” means: (a) any Transfer by a Shareholder of Equity Securities to any one or more of its Affiliates; provided , however , that, in the case of this clause (a), in the event that the transferor is David Neeleman or an entity controlled by David Neeleman, the transferor retains the sole power to direct the voting and disposition of any Equity Securities transferred to such Affiliate; and (b) in the case of a Transfer from an individual or an entity controlled by an individual, any Transfer to a member of the Family of such individual, or a trust or other entity for the sole benefit of a member of the Family of such individual; provided , however , that, in the case of a Transfer from David Neeleman or an entity controlled by David Neeleman, the transferor retains the sole power to direct the voting and disposition of any Equity Securities transferred to such member of the Family of such transferor, such trust or such other entity.

“Permitted Transfer” means: (a) a Permitted Affiliate Transfer; (b) in the case of David Neeleman or an LLC owned by David Neeleman, the Transfer of: (i) in the aggregate after March 10, 2008, no more than 52,500 Preferred Shares; (ii) in the aggregate after March 10, 2008, no more than 1,925 Founder Preferred Shares and 38,500 Common Shares in the aggregate to one or more officers of the Company; and (iii) in the aggregate after March 10, 2008, no more than 1,300 Founder Preferred Shares and 25,900 Common Shares in the aggregate to up to three other Founders; (c) any fiduciary Transfer of one Common Share or Preferred Share to an individual designated as a member of the Board by any Shareholder and any Transfer of one Common Share or Preferred Share by such an individual back to such Shareholder or a transferee of such Shareholder; and (d) in the case of HNA, a pledge of all or part of its Equity Securities, provided that such pledge is not granted to the benefit of a company, or any Affiliate of a company, engaged in providing air transport services.

“Permitted Transferee” means a Person who acquires Equity Securities in a Permitted Transfer.

“Person” shall be construed as broadly as possible and shall include an individual, a partnership (including a limited liability partnership), a corporation (including, without limitation, a sociedade anônima ), an association, a fund, a joint stock company, a limited liability company, a trust, a joint venture, a firm, an unincorporated association, a Governmental Authority or any other entity.

“Preferred Shares” means the Class A Preferred Shares, the Class C Preferred Shares and the Class D Preferred Shares.

“Pro Rata Share” of any Shareholder in relation to any one or more other Shareholders (such one or more other Shareholders, the “Reference Shareholders” ) means the amount, expressed as a percentage, of the proceeds to which such Shareholder is entitled in a Liquidation relative to the aggregate proceeds to which such Shareholder, together with the Reference Shareholders, are entitled in such Liquidation.

“PTAX Exchange Rate” means, as of any date, the average of the buy and sell rate for US$ published by the Central Bank of Brazil on the Business Day in Brazil immediately preceding such date through the SISBACEN data system under rate PTAX 800, option 5 – L— Taxas para Contabilidade .

“Put Right” means the right of the Requisite Holders to require the Company to purchase all Preferred Shares owned by such Requisite Holders and each of the holders of Preferred Shares and Common Shares, including the TRIP Shareholders (and Permitted Transferees of the TRIP Shareholders) in accordance with Article V.

“Qualified IPO” means a firm commitment underwritten public offering of new preferred shares pursuant to a Prospectus of Distribution under Instrução no. 400/03 of the Brazilian Securities Commission (Comissão de Valores Mobiliários – CVM) and article 19 of Federal Law no. 6,385/76, lead-managed by an underwriter of international standing, for listing on the São Paulo stock exchange (BM&FBOVESPA) (with a concurrent offering of ADSs representing shares of new preferred shares on the NASDAQ Stock Market or The New York Stock Exchange) at a public offering price of at least US$480 per share resulting in aggregate gross proceeds to the Company and/or selling shareholders in excess of US$150,000,000 (or its equivalent in BR$ at the time of receipt by the Company and/or such selling shareholders).

“Registration Rights Agreement” means the Fifth Amended and Restated Registration Rights Agreement, dated as of the date of this Agreement, among the Company and the Persons named therein as “Shareholders.”

“Relative” of an individual means such individual’s children (by birth or adoption), parents, spouse and siblings, as well as the children of such siblings.

“Representative” of a Person shall be construed broadly and shall include such Person’s members, managers, partners, officers, directors, employees, agents, counsel, accountants and other representatives.

“Requisite Holders” means, at any time, the holders of a majority of the Investor Preferred Shares, Calfinco Preferred Shares and HNA Preferred Shares, taken together, outstanding at such time.

“Sale of the Company” means: (a) a merger, consolidation, amalgamation, acquisition, change of control, reorganization or consolidation of the Company in which the Shareholders and their respective Affiliates immediately prior to such transaction or series of transactions do not own a majority of the voting power of the surviving entity or the right to receive a majority of the proceeds in a Liquidation; (b) a sale of equity interests in the Company or other transaction or series of transactions in which the Shareholders and their respective Affiliates immediately prior to such transaction or series of transactions do not own a majority of the voting power of the surviving entity or the right to receive a majority of the proceeds in a Liquidation; and (c) a sale of all or substantially all of the Company’s assets to one or more Persons that are not direct or indirect wholly owned Subsidiaries of the Company or Shareholders or Affiliates of the Shareholders.

“Securities Act” means the Securities Act of 1933, as amended.

“Share Register” means the Company’s share register (livro de registro de ações nominativas).

“Share Transfer Register” means the Company’s share transfer register ( livro de registro de transferência de ações ).

“Spousal Consent” means the Spousal Consent attached to this Agreement as Exhibit B .

“Subsidiary” of any Person means an Affiliate controlled by such Person, either directly or through one or more intermediaries.

“TAP” means TAP – Transportes Aéreos Portugueses, SGPS, S.A.

“TAP Bonds” means the convertible bonds to be issued by TAP in the amount of EUR€120,000,000.00.

“Third Party Purchaser” means a Person that is not an Affiliate of the Company or the applicable Initiating Shareholder (in the case of Transfer pursuant to Section 2.3) who does not anywhere in the world directly or indirectly engage or participate in, or render services to (whether as owner, operator, member, shareholder, manager, consultant, strategic partner, employee or otherwise), an airline headquartered in Brazil.

“Transaction Documents” means this Agreement, the Registration Rights Agreement and the Investment Agreement.

“Transfer” means any direct or indirect sale, assignment, gift, conveyance, transfer or other disposition or any pledge, hypothecation or other encumbrance, either voluntarily or involuntarily, with or without consideration, including but not limited to, fiduciary disposition (“ alienação fiduciária ”), usufruct (“ usufruto ”), fidei commissum (“ fideicomisso ”) or donation (“ doação ”). For the purposes of this Agreement, it is understood and agreed that the issuance or sale of an ownership interest in a Person who directly or indirectly owns Equity Securities shall (other than in the case of the issuance or sale of interests in an investment fund that indirectly owns Equity Securities that constitute less than 10% of the assets of such investment fund) be deemed an indirect Transfer by such Person of such Equity Securities.

“Trigger Event” means, prior to the consummation of a Qualified IPO:

(a) with respect to any required redemption of the Investor Preferred Shares pursuant to Article V, the first to occur of: (i) the date that the Company has notified the Investors of the rejection by the Company of the due exercise of the Put Right in accordance with Article V; (ii) the date the Company notifies the holders of the Investor Preferred Shares that the Company is otherwise unable or unwilling to fulfill its obligations upon the due exercise of the Put Right in accordance with Article V, including because of an actual or purported shortfall in funds legally available therefor; (iii) any failure by the Company, during the period following its receipt of a Put Notice, to use its reasonable efforts to fulfill its obligations in connection with the due exercise of the Put Right in accordance with Article V; or (iv) one day after the Put Value is required to be paid to the Investors if the Company fails for any reason to repurchase the outstanding shares of Investor Preferred Shares that were put to the Company;

(b) the failure by the Company to perform or observe Section 3.2, 6.3(j), 7.2, 7.4 or 7.5 of this Agreement that remains uncured for more than 30 days (or, in the case of Section 6.3(j), 90 days) after the Company shall receive written notice of such failure from the Requisite Holders;

(c) the failure by the Company or any of its Subsidiaries to make payments when due (which failure is continued beyond the cure period contained in the documents governing such payments or which has not been waived by the lender) that results in the acceleration of indebtedness for borrowed money which aggregates in excess of US$3,000,000 (or an equivalent amount of BR$ at such time);

(d) the failure of David Neeleman to serve as a senior officer or Chairman of the Board of the Company as a result of a voluntary termination by him or an involuntary termination, other than as a result of his death or Disability (as defined in the Neeleman Employment Agreement); or

(e) the final non-appealable termination of the concession agreement to operate regular air transportation services within six months after the date it shall have been signed by the Company (or a Subsidiary of the Company, as applicable) and the Civil Aviation National Agency ( Agência Nacional de Aviação Civil—ANAC ) due to the failure by the Company (or a Subsidiary of the Company, as applicable) to begin operations.

“TRIP Shareholders” means TRIP Participações S.A., Trip Investimentos Ltda. and Rio Novo Locações Ltda.

“United” means United Airlines, Inc., a corporation organized under the laws of the State of Delaware, United States of America, having its principal place of business at 233 South Wacker Dr, Chicago, IL 60606.

“United States” or “U.S.” means the United States of America.

“US$” means the lawful currency of the United States.

“US GAAP” means generally accepted accounting principles in the United States.

“Voting Failure” means, following the death of David Neeleman, the failure of the Equity Securities owned by David Neeleman that are entitled to vote and the Equity Securities owned by any Person controlled by David Neeleman that are entitled to vote to be voted in accordance with the first sentence of Section 6.11, which such failure is not cured within 90 days after the Requisite Holders shall have given the executor or administrator (as the case may be) of David Neeleman’s estate and the Company written notice of such failure.

“Weston Presidio” means Weston Presidio V, L.P.

Section 1.2 I NDEX O F O THER D EFINED T ERMS ¹ . The following terms are defined in the Sections of the Agreement indicated:


Term		Section
Agreed Sworn Translation		11.15(a)
Agreement		Preamble
Calfinco Commercial Cooperation Agreement		5.4(c)
Calfinco Notice of Breach		5.4(a)
Calfinco Redeemed Shares		5.4(a)
Calfinco Redemption Notice		5.4(a)
Calfinco Redemption Option		5.4(a)
Calfinco Significant Event		5.4(c)
Class C Conversion Notice		5.5(c)
Class C Conversion Ratio		5.5(b)
Class D Conversion Notice		5.7(c)
Class D Conversion Ratio		5.7(b)
Company		Preamble
Company Sale Notice		2.6(a)
Confidential Information		6.12
Co-Sale Notice		2.3(a)
Equity Incentive Plans		6.10(a)
Fair Market Value		5.2(b)
First Offer Notice		2.2(a)
First Offer Period		2.2(b)
Fourth Amended and Restated Shareholders Agreement		Recitals
HNA		Preamble
HNA Commercial Cooperation Agreement		5.6(c)
HNA Investment Agreement		Recitals
HNA Notice of Breach		5.6(a)
HNA Redeemed Shares		5.6(a)
HNA Redemption Notice		5.6(a)
HNA Redemption Option		5.6(a)
HNA Significant Event		5.6(c)
ICC Rules		11.7(a)
Initiating Shareholder		2.2(a)
Mandatory Calfinco Conversion		5.5(a)
Mandatory HNA Conversion		5.7(a)
Neeleman Designee		6.1(a)(v)
Offered Securities		2.2(a)
Other Shareholders		2.2(a)
Party-Appointed Arbitrator		11.7(b)
Put Election Date		5.1(a)
Put Notice		5.1(a)
Put Value		5.2(a)
Reference Shareholders		1.1
ROFR Exercise Notice		2.4(b)
ROFR Exercise Period		2.4(b)
ROFR Securities		2.4(a)
Shareholders		Preamble
Tag-Along Notice		2.3(b)
Third Party Offer		2.4(a)
Tribunal		11.7(b)

¹	NTD: Section to be revised accordingly once the parties have a final version.

Section 1.3 R ULES O F C ONSTRUCTION . The term “this Agreement” means this shareholders agreement together with all schedules and exhibits hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. The use in this Agreement of the term “including” means “including, without limitation.” The words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to sections, schedules and exhibits mean the sections of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the section and paragraph headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require or permit. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. Unless expressly provided otherwise, the measure of a period of one month or year for purposes of this Agreement shall be that date of the following month or year corresponding to the starting date; provided that if no corresponding date exists, the measure shall be that date of the following month or year corresponding to the next day following the starting date. For example, one month following February 18 is March 18, and one month following March 31 is May 1.

A RTICLE II

TRANSFERS OF SHARES

Section 2.1 G ENERAL ; P ROHIBITION O N T RANSFERS .

(a) Prior to the consummation of a Qualified IPO, no Shareholder may Transfer any right, title or interest in any or all of its Equity Securities, except that:

(i) a Shareholder may Transfer all or part of its Equity Securities in a Permitted Transfer;

(ii) after March 10, 2013: (A) any Shareholder may Transfer all or part of its Equity Securities pursuant to Section 2.2 or 2.3; and (B) a Minority Shareholder may Transfer all or part of its Equity Securities pursuant to Section 2.4 or 2.5;

(iii) a Shareholder may Transfer all of its Equity Securities pursuant to Section 2.6;

(iv) a Shareholder may Transfer all or part of its Equity Securities to the Company to the extent such Transfer is not otherwise prohibited pursuant to this Agreement; and

(v) a Shareholder may Transfer all or part of its Equity Securities with the prior written consent of the Requisite Holders, the holders of a majority of the Calfinco Preferred Shares, the holders of a majority of the HNA Preferred Shares, the holders of a majority of the outstanding Common Shares and the holders of a majority of the outstanding Founder Preferred Shares.

(b) Any Transfer of Equity Securities permitted by Section 2.1(a)(i) or 2.1(a)(ii) shall not be effective unless and until the transferee thereof shall sign a Joinder Agreement and, if required by applicable law (as determined by the Company), shall cause one or more Spousal Consents to be signed by the individuals requested by the Company; provided , however , that no such Transfer shall release the transferor of its obligations under this Agreement.

(c) Notwithstanding anything in Section 2.1(a) to the contrary, no Shareholder may Transfer any right, title or interest in any or all of its Equity Securities if such Transfer would result in or be reasonably likely to result in a violation of any aspect of the provision of the Brazilian Aviation Code (law no. 7.565/86) that requires a specified percentage of the capital stock of scheduled air service companies to be owned by Brazilian citizens.

Section 2.2 R IGHT O F F IRST O FFER F OR T HE S HAREHOLDERS .

(a) The Shareholders and the Permitted Transferees of the TRIP Shareholders (an “Initiating Shareholder” ) may Transfer its Equity Securities (the “Offered Securities” ) only if such Initiating Shareholder first offers to the other Shareholders and the Permitted Transferees of the TRIP Shareholders (collectively, the “Other Shareholders” ) (as applicable) the right to purchase all such Offered Securities pursuant to a written notice (the “First Offer Notice” ).

(b) In the event the Other Shareholders do not, individually or collectively, offer to purchase all of the Offered Securities on terms that are acceptable to the Initiating Shareholder within 30 days after the First Offer Notice is given (the “First Offer Period” ), then, subject to Section 2.3, the Initiating Shareholder shall have the right, for a period of 90 days after expiration of the First Offer Period, to sell the Offered Securities to a Third Party Purchaser on terms that are more favorable to the Initiating Shareholder than the highest price for which any one or more Other Shareholder(s) shall have offered to purchase all of the Offered Securities from the Initiating Shareholder in writing during the First Offer Period; provided , however , that, for the purposes of this clause (b), in the event that the price offered by a Third Party Purchaser is at least 95% of the highest price offered by any Other Shareholder to the Initiating Shareholder during the First Offer Period, then the terms of sale offered to the Initiating Shareholder by such Third Party Purchaser shall not, solely by virtue of the price offered by such Third Party Purchaser, be deemed not to be “more favorable” to the Initiating Shareholder than those offered by any Other Shareholder; provided further , however , that, in the event that the Other Shareholders shall not have offered in writing to acquire all of the Offered Securities from the Initiating Shareholder during the First Offer Period, the Initiating Shareholder shall, subject to Section 2.3, have the right, for a period of 90 days after expiration of the First Offer Period, to sell the Offered Securities to a Third Party Purchaser on any terms. In any event, the consideration to be paid by such Third Party Purchaser may consist only of cash and Freely Tradeable Securities.

(c) In the event that more than one Other Shareholder shall offer to purchase, collectively, all or more than all of the Offered Securities on terms acceptable to the Initiating Holder, such Other Shareholders shall have the right to purchase the Offered Securities from the Initiating Shareholder in proportion to their respective Pro Rata Shares (or in such other proportion as they shall otherwise agree).

(d) Notwithstanding anything to the contrary set forth herein, in no event shall any Shareholder, including the Initiating Shareholder, be permitted to make any Transfer of Equity Securities under this Section 2.2 at any time: (i) following the exercise by the holders of Investor Preferred Shares of any remedies hereunder in respect of the occurrence of a Trigger Event, including, without limitation, the exercise by such holders of any rights under Section 2.6 in respect of such Trigger Event; or (ii) during which the Company is engaged in a Qualified IPO process.

Section 2.3 Co-Sale Rights By The Shareholders .

(a) At least 20 days prior to the consummation of any Transfer to a Third Party Purchaser after expiration of the First Offer Period as provided in Section 2.2, the Initiating Shareholder shall deliver a written notice (the “Co-Sale Notice” ) to each of the Other Shareholders offering the Other Shareholders the option to participate as sellers in such proposed Transfer. Such Co-Sale Notice shall identify the Third Party Purchaser and specify in reasonable detail the terms and conditions of the Transfer, including the price to be paid.

(b) Each Other Shareholder may, within 20 days of the giving of the Co-Sale Notice, give written notice (a “Tag-Along Notice” ) to the Initiating Shareholder stating that such Other Shareholder wishes to participate in such proposed Transfer and specifying the number and type of Equity Securities such Other Shareholder desires to include in such proposed Transfer. Each Other Shareholder shall be entitled to receive its Pro Rata Share of the aggregate consideration paid by the Third Party Purchaser to all of the Other Shareholders participating in such proposed Transfer. In any event, the consideration to be paid by such Third Party Purchaser shall consist only of cash and Freely Tradeable Securities, and to the extent such consideration consists of Freely Tradeable Securities, the fair market value of such consideration shall be the average closing price of such Freely Tradeable Securities on the last three trading days before the consummation of the Transfer to the Third Party Purchaser.

(c) If none of the Other Shareholders gives the Initiating Shareholder a timely Tag-Along Notice with respect to the Transfer proposed in the Co-Sale Notice, the Initiating Shareholder may thereafter Transfer the Equity Securities specified in the Co-Sale Notice on the same terms and conditions set forth in the Co-Sale Notice. If one or more of the Other Shareholders gives the Initiating Shareholder a timely Tag-Along Notice, then the Initiating Shareholder shall use all reasonable efforts to cause the Third Party Purchaser to agree to acquire all Equity Securities identified in all Tag-Along Notices that are timely given to the Initiating Shareholder, upon the same terms and conditions as applicable to the Initiating Shareholder’s Equity Securities (including, without limitation, with respect to price and form of payment). If the Third Party Purchaser is unwilling or unable to acquire all Equity Securities proposed to be included in such sale upon such terms, then the Initiating Shareholder may elect either (i) to cancel such proposed Transfer (including any securities to be sold by the Initiating Shareholder in connection therewith) or (ii) to allocate the maximum number of Equity Securities that the Third Party Purchaser is willing to purchase among the Initiating Shareholder and the Other Shareholders giving timely Tag-Along Notices in proportion to their respective Pro Rata Shares.

(d) Notwithstanding anything to the contrary set forth herein, in no event shall any Shareholder, including the Initiating Shareholder, be permitted to make any Transfer of Equity Securities under this Section 2.3 at any time: (i) following the exercise by the holders of Investor Preferred Shares of any remedies hereunder in respect of the occurrence of a Trigger Event, including, without limitation, the exercise by such holders of any rights under Section 2.6 in respect of such Trigger Event; or (ii) during which the Company is engaged in a Qualified IPO process.

Section 2.4 R IGHT O F F IRST R EFUSAL O N T RANSFERS B Y M INORITY S HAREHOLDERS .

(a) In the event that after March 10, 2013, a Minority Shareholder receives and desires to accept an arm’s length written offer (a “Third Party Offer” ) from a Third Party Purchaser to purchase some or all of its Equity Securities for cash (such Equity Securities, the “ROFR Securities” ), such Minority Shareholder shall promptly provide a copy thereof to the Company.

(b) The Company shall have the right to purchase from such Minority Shareholder all but not less than all of the ROFR Securities proposed to be sold pursuant to the Third Party Offer on the same terms and conditions as those contained therein (including, without limitation, with respect to price and form of payment). The Company may exercise such option by giving written notice (an “ROFR Exercise Notice” ) to such Minority Shareholder within 45 days after receipt of a copy of the Third Party Offer (the “ROFR Exercise Period” ).

(c) If the Company shall elect to purchase all of the ROFR Securities proposed to be sold pursuant to the Third Party Offer, the closing of any purchase and sale thereof shall occur at the location specified in the ROFR Exercise Notice on the date and at the time specified therein (or at such other place, date and time mutually agreed upon by the Company and such Minority Shareholder). At the closing of any such purchase and sale, such Minority Shareholder shall Transfer the ROFR Securities to the Company by delivering one or more certificates representing the ROFR Securities or by executing the relevant transfer term ( termo de transferência ) in the Share Transfer Register in order to perfect such Transfer of the Equity Securities by such Minority Shareholder, in each instance free and clear of all Liens (other than Liens (x) in respect of accrued taxes not yet payable, (y) arising under the Transaction Documents and (z) created under or applicable securities laws), and delivery of such certificates of authority, consents to transfer and other instruments or evidences of good title to the ROFR Securities as may be reasonably requested by the Company.

(d) If the Company shall fail to deliver a ROFR Exercise Notice during the ROFR Exercise (or if, at any time during the ROFR Exercise Period, the Company shall notify such Minority Shareholder that the Company will not deliver a ROFR Exercise Notice during the ROFR Exercise Period), such Minority Shareholder shall be free, for a period of 45 days following expiration of the ROFR Exercise Period (or, if applicable, for 45 days after such Minority Shareholder’s receipt of a notice that the Company will not deliver a ROFR Exercise Notice during the ROFR Exercise Period) to sell the ROFR Securities identified in the Third Party Offer to the Third Party Purchaser on the terms and subject to the conditions set forth therein. Any sale of Equity Securities to a different Person than the Third Party Purchaser identified in the Third Party Offer and any sale of Equity Securities that is not at the same price or is on other terms or subject to other conditions that are different from those described in the Third Party Offer, shall require such Minority Shareholder to deliver a copy of the new terms and conditions of such sale to the Company and will recommence the provisions of this Section 2.4.

Section 2.5 C ALL R IGHT F OR E QUITY S ECURITIES O F C ERTAIN S HAREHOLDERS . Subject to Section 6.3(e), the Company shall have the right to purchase Equity Securities from any Shareholder upon termination of such Shareholder’s employment with the Company or any of its Subsidiaries to the extent (if any) set forth in any written agreement between the Company and such Shareholder.

Section 2.6 D RAG -A LONG R IGHTS O F T HE R EQUISITE H OLDERS .

(a) At any time after the occurrence of a Voting Failure or a Trigger Event, the Requisite Holders shall have the right (but not the obligation) to initiate a Sale of the Company and to require each other Shareholder to participate in a Sale of the Company on the same terms and conditions as the Requisite Holders, except that each Shareholder would be entitled to be paid its Pro Rata Share of the aggregate consideration paid to the Shareholders in such Sale of the Company (it is understood and agreed that the Requisite Holders may exercise such right only if, subject to the proviso to this sentence, they require each other Shareholder to participate in such Sale of the Company and thereby cause the sale of 100% of the equity of the Company); provided , however , that, notwithstanding the foregoing, (i) the Requisite Holders and any such other Shareholder that is an employee or management member of the Company may agree to permit such Shareholder to “rollover” all or a portion of such Shareholder’s Equity Securities into equity interests in the acquiring or surviving Person in such Sale of the Company. and (ii) if the Sale of the Company occurs within three (3) years of August 3, 2016, the aggregate cash proceeds received by HNA shall be at least equal to the amount paid by HNA for each of the HNA Preferred Shares to be sold by HNA in such Sale of the Company, accreted in an amount necessary to produce a 15% annual internal rate of return for the time period from August 3, 2016, to the date of the closing of the Sale of the Company. The Requisite Holders shall give the Company and each other Shareholder written notice of such determination not less than 45 days prior to the proposed date of the Sale of the Company (a “Company Sale Notice” ). To the extent such consideration does not consist solely of cash, the fair market value of such consideration shall be determined in good faith by the Board (it is understood and agreed that, subject to the proviso to the first sentence of this Section 2.6(a), the proportion of cash to non-cash consideration paid to each Shareholder shall be the same).

(b) In any Sale of the Company under this Section 2.6, each Shareholder:

(i) shall, severally and not jointly, make the same representations, warranties and covenants, and provide the same indemnities, regarding the Company and its subsidiaries and their respective assets, liabilities and business as those made by the Requisite Holders;

(ii) shall ( mutatis mutandis ), severally and not jointly, make the same representations, warranties and covenants, and provide the same indemnities, regarding itself as the representations, warranties and covenants made, and indemnities provided by the Requisite Holders regarding themselves; and

(iii) shall in no event be liable for more than the consideration received by such Shareholder in such Sale of the Company.

(c) In any Sale of the Company under this Section 2.6, the Company and each Shareholder shall take all commercially reasonable action in its power necessary to cause the consummation of such Sale of the Company, including, without limitation, obtaining all consents and approvals reasonably necessary, desirable or appropriate for such Shareholder to consummate such Sale of the Company. Without limitation of the foregoing, each Shareholder agrees to vote its Equity Securities in favor of any Sale of the Company under this Section 2.6 in which the Requisite Holders have determined to participate or otherwise effect and waive all appraisal and dissenters’ or similar rights that are applicable to such Sale of the Company.

A RTICLE III

ISSUANCES OF SECURITIES; PREEMPTIVE RIGHTS

Section 3.1 I SSUANCES O F S ECURITIES . Prior to the consummation of a Qualified IPO, the Company shall not issue any Equity Securities unless the Person to whom such Equity Securities are issued shall sign a Joinder Agreement or shall be a Shareholder as of the date of this Agreement. Any such Person (other than a Person who is a Shareholder as of the date of this Agreement) to whom such Equity Securities are issued shall be deemed a Minority Shareholder hereunder, and shall have the same rights and obligations provided for the Minority Shareholders herein, unless otherwise agreed to by the Requisite Holders and the holders of a majority of the then outstanding Common Shares.

S ECTION 3.2 P REEMPTIVE R IGHTS .

(a) The Company shall observe the preemptive rights of Shareholders who own shares of the Company’s capital stock under the Corporation Law. Each such Shareholder shall have a right of oversubscription such that if any other Shareholder does not subscribe for its pro rata portion of any Equity Securities in any issuance, all of the Shareholders who have subscribed for their pro rata portion of such Equity Securities shall, among themselves, have the right to purchase up to the balance of the unsubscribed Equity Securities ( sobras ) on a pro rata basis (based on the number of Equity Securities held by each such oversubscriber at the time the issuance of such Equity Securities commenced for purposes of the Corporation Law) unless they shall otherwise agree among themselves.

(b) The preemptive rights for subscription of Equity Securities issued by the Company in accordance with the Corporation Law may be assigned by any Shareholder to any Affiliate who is then a Shareholder or who shall sign a Joinder Agreement but cannot be assigned to any other Person that is not a Shareholder or an Affiliate thereof.

A RTICLE IV

LIQUIDATION

Section 4.1 D ISTRIBUTIONS O N L IQUIDATION . In the event of a Liquidation prior to the consummation of a Qualified IPO:

(a) first, (x) the holders of Investor Preferred Shares, Calfinco Preferred Shares and HNA Preferred Shares shall be entitled to be paid out of the assets of the Company legally available for distribution (i) an amount equal to US$160 for each Preferred Share held by an Investor, Calfinco, HNA or a TRIP Shareholder or any Permitted Transferee of a TRIP Shareholder, or (ii) an amount in reais equal to the purchase price or option exercise price, as applicable, paid by such holder to the Company on the date of such purchase or exercise in respect of the issuance of such Preferred Share, in the case of a Preferred Share held by a holder other than an Investor, Calfinco, HNA, a TRIP Shareholder or a Permitted Transferee of a TRIP Shareholder; and (y) the holders of HNA Preferred Shares shall be entitled to be paid out of the assets of the Company legally available for distribution in the amount in US$ equivalent to the difference, if positive, between the amount paid by HNA for the HNA Preferred Shares and the amount received by HNA in accordance with item (i) above; provided , however , that in the event the assets of the Company shall be insufficient to make payment in full of such amounts to all holders of such Preferred Shares, then such assets shall be distributed among the holders of such Preferred Shares at the time outstanding ratably in proportion to the full amounts to which they would otherwise be respectively entitled;

(b) second, the holders of Founder Preferred Shares shall be entitled to be paid out of the assets of the Company legally available for distribution an amount equal to US$310 for each Founder Preferred Share held by each such holder; provided , however , that in the event the assets of the Company shall be insufficient to make payment in full of such amounts to all holders of Founder Preferred Shares, then such assets shall be distributed among the holders of Founder Preferred Shares at the time outstanding ratably in proportion to the full amounts to which they would otherwise be respectively entitled; and

(c) third, all remaining assets of the Company legally available for distribution shall be paid to the holders of Common Shares and Preferred Shares such that the amount paid in respect of each Preferred Share shall equal 75 times the amount paid in respect of each Common Share;

provided , however , that in the event of a Liquidation referred to in clauses (a) or (b) of the definition of Sale of the Company, the holders of Common Shares and Preferred Shares shall only be entitled to receive the foregoing to the extent their Common Shares and/or Preferred Shares (as applicable) are actually sold to a third party in such Sale of the Company.

S ECTION 4.2 P AYMENT T O I NDIRECT O WNERS U PON L IQUIDATION .

(a) Instead of the obligation to pay a Shareholder amounts due to it upon Liquidation (other than a Sale of the Company) in accordance with Section 4.1, a Shareholders that is an LLC shall, if there are no Adverse Tax Law Changes (including any such changes which would adversely affect a subsequent liquidation of the Investor) between March 10, 2008, and the date such amount is required to be paid in accordance with Section 4.1 and such payment is not otherwise prohibited under Brazilian law, have the right to require the Company to cause such amount (reduced by any liabilities of the Shareholder) to instead be paid to the member(s) of such Shareholder through the purchase of all (but not less than all) of the membership interests of such Shareholder at the same time such amount is required to be paid pursuant to Section 4.1 in any Liquidation that is not a Sale of the Company. Such Shareholder may exercise such right by giving the Company written notice thereof not less than ten Business Days before such payment is required to be made (it is understood and agreed that the Company shall give the applicable Shareholders written notice of the date such payment is required to be made).

(b) The obligation of the Company to cause the purchase of the membership interest in a Shareholder pursuant to Section 4.2(a) shall not be required in the event that at the time such purchase is required to made by the Company such Shareholder has any liabilities or obligations other than under the Transaction Documents to which it is a party and de minimis ongoing expenses related to the existence of such LLC ( e.g. , franchise taxes) and shall be subject to the receipt by the Company of evidence reasonably satisfactory to it that such Shareholder: (i) was formed solely for the purpose of holding Preferred Shares; and (ii) has no liabilities or obligations other than under the Transaction Documents to which it is a party and de minimis ongoing expenses related to the existence of such LLC ( e.g. , franchise taxes). Additionally, the Company shall only be required to pay for such membership interests against receipt of an instrument in form and substance reasonably satisfactory to the Company evidencing the transfer of good and marketable title to such membership interests to the Company, free and clear of all Liens (other than Liens (x) in respect of accrued taxes not yet payable (but any such taxes shall be paid by the owner of such Shareholder when due an payable) and (y) created under or applicable securities laws) and such certificates of authority, consents to transfer and other instruments or evidences of good title to such membership interests (and evidence that such LLC owns its Investor Preferred Shares free and clear of all such Liens, other than Liens (x) in respect of accrued taxes not yet payable and (y) created under or applicable securities laws) as may be reasonably requested by the Company.

A RTICLE V

PUT RIGHT; REDEMPTION RIGHT; CONVERSION RIGHT

Section 5.1 P UT R IGHT .

(a) Except to the extent prohibited by Brazilian law (in which case a Trigger Event under clause (a)(ii) of the definition thereof shall be deemed to have occurred), at any time after March 10, 2013, or, except to the extent prohibited by Brazilian law, at any time following the occurrence of a Trigger Event, the Requisite Holders shall have the right (but not the obligation) to put, and require each of the other Shareholders (and Permitted Transferee of each TRIP Shareholder) to put, all of their Preferred Shares to the Company (or, at the Company’s option, a wholly-owned Subsidiary of the Company) at the same time as the Requisite Holders; provided , however , that the Requisite Holders shall not have any rights under this Section 5.1 after the consummation of a Qualified IPO. In the event that the Requisite Holders elect to exercise the Put Right in accordance with this Article V, the Requisite Holders shall give the Company and each other Shareholder (and Permitted Transferee of each TRIP Shareholder) who owns Preferred Shares written notice of such election (a “Put Notice” ) of such requirement not less than 90 days nor more than 120 days prior to the date on which the Preferred Shares are to be put to the Company (such date, the “Put Election Date” ).

(b) In the event that the Requisite Holders elect to exercise the Put Right in accordance with this Article V, each Shareholder (and Permitted Transferee of each TRIP Shareholder) who owns Preferred Shares shall take, all actions in its power necessary to cause its Preferred Shares to be put to the Company (or, at the Company’s option, a wholly-owned Subsidiary of the Company) on the Put Election Date (or, if later, promptly following the determination of the Put Value and the expiration or termination of any applicable waiting period under the HSR Act or any other anti-competition or similar law).

(c) On the Put Election Date (or, if later, promptly following the determination of the Put Value and the expiration or termination of any applicable waiting period under the HSR Act or any other anti-competition or similar law), the Company shall (or, if applicable, shall cause its wholly-owned Subsidiary to) pay to each Shareholder (and Permitted Transferee of each TRIP Shareholder) who owns Preferred Shares the portion of the Put Value to which such Shareholder (and Permitted Transferee of each TRIP Shareholder) is entitled (determined in accordance with Section 5.1(d) below) by delivering one or more certificates representing such Equity Securities or by executing the relevant transfer term ( termo de transferência ) in the Share Transfer Register in order to perfect such Transfer to the Company, in each instance free and clear of all Liens (other than (x) Liens in respect of accrued taxes not yet payable and (y) restrictions on transfer under applicable securities laws), and delivery of such certificates of authority, consents to transfer and other instruments or evidences of good title to such Preferred Shares by such Shareholder (or Permitted Transferee of a TRIP Shareholder, as the case may be) as may be reasonably requested by the Company.

(d) In the event that the Requisite Holders exercise the Put Right in accordance with this Article V, each Shareholder (and Permitted Transferee of each TRIP Shareholder) who owns Preferred Shares shall be entitled to receive a portion of the Put Value (expressed as a percentage) determined by dividing the number of Preferred Shares owned by such Shareholder (or Permitted Transferee of such TRIP Shareholder, as the case may be) by the aggregate number of Preferred Shares being repurchased by the Company (or its wholly-owned Subsidiary) in connection with the Put Right.

S ECTION 5.2 P UT V ALUE .

(a) “Put Value” means the greater of: (i) the gross proceeds (in United States Dollars) received by the Company for all Preferred Shares issued to the Shareholders (plus any declared and unpaid dividends on such Preferred Shares); and (ii) the Fair Market Value (in US$) of such Preferred Shares.

(b) “Fair Market Value” means the fair market value of the Preferred Shares, as agreed to by the Company and the Requisite Holders, or if such agreement does not occur within 60 days after the Company shall receive the Put Notice, the value determined, without discount for minority, illiquidity or other matters, by the average of the values determined by two internationally recognized investment banks with expertise in aviation (one selected by the Company and one by the Requisite Holders on behalf of the Shareholders) or, in the event the two values are more than 15% apart, by a third investment bank selected by the first two (which will be required to select one of the valuations determined by the first two investment banks). The Company, on the one hand, and the Shareholders, on the other hand, would each pay the fees of the investment bank selected by them, and they would split the fees of the third investment bank, if any (each Investor would pay a portion of such fees and expenses equal to the percentage obtained by dividing the number of Preferred Shares owned by such Investor by the aggregate number of Preferred Shares owned by all Shareholders).

S ECTION 5.3 P AYMENT T O I NDIRECT O WNERS U PON E XERCISE O F P UT R IGHT .

(a) Instead of the obligation to pay a Shareholder the portion of the Put Value to which it is entitled pursuant to Section 5.1(d), a Shareholder that is an LLC shall, if there are no Adverse Tax Law Changes (including any such changes which would adversely affect a subsequent liquidation of the Shareholder) between March 10, 2008, and the date such amount is required to be paid pursuant to Section 5.1(c) and such payment is not otherwise prohibited pursuant to Brazilian law, have the right to require the Company to cause such portion of the Put Value (reduced by any liabilities of the Shareholder) to instead be paid to the member(s) of such Shareholder through the purchase of all (but not less than all) of the membership interests of such Shareholder at the same time such amount is required to be paid pursuant to Section 5.1(c). Such Shareholder may exercise such right by giving the Company written notice thereof not less than ten Business Days before such amount is required to be paid pursuant to Section 5.1(c).

(b) The obligation of the Company to cause the purchase of the membership interest in a Shareholder pursuant to Section 5.3(a) shall not be required in the event that at the time the Put Value is required to be paid by the Company such Shareholder has any liabilities or obligations other than under the Transaction Documents to which it is a party and de minimis ongoing expenses related to the existence of such LLC ( e.g. , franchise taxes) and shall be subject to the receipt by the Company of evidence reasonably satisfactory to it that such Shareholder: (i) was formed solely for the purpose of holding Preferred Shares; and (ii) has no liabilities or obligations other than under the Transaction Documents to which it is a party and de minimis ongoing expenses related to the existence of such LLC ( e.g. , franchise taxes). Additionally, the Company shall only be required to pay for such membership interests against receipt of an instrument in form and substance reasonably satisfactory to the Company evidencing the transfer of good and marketable title to such membership interests to the Company, free and clear of all Liens (other than Liens (x) in respect of accrued taxes not yet payable (but any such taxes shall be paid by the owner of such Existing Shareholder when due an payable) and (y) created under or applicable securities laws) and such certificates of authority, consents to transfer and other instruments or evidences of good title to such membership interests (and evidence that such LLC owns its Investor Preferred Shares free and clear of all Liens, other than Liens (x) in respect of accrued taxes not yet payable and (y) created under or applicable securities laws) as may be reasonably requested by the Company.

Section 5.4 C ALFINCO R EDEMPTION O PTION .

(a) Calfinco Redemption Option . The Shareholders acknowledge that the Company’s entry into the Calfinco Commercial Cooperation Agreement, as defined below, is a material inducement to the Investment (as defined in the Calfinco Investment Agreement) by Calfinco, and the occurrence of a Calfinco Significant Event would cause irreparable harm to Calfinco and United. Therefore, if (x) United or Calfinco notifies the Company in writing of the occurrence of a Calfinco Significant Event (the “ Calfinco Notice of Breach ”) and (y) an IPO shall not have been consummated at such time, then Calfinco shall have the option (the “ Calfinco Redemption Option ”), exercisable by Calfinco providing written notice of such election to the Company (the “ Calfinco Redemption Notice ”), to require the Company to redeem for cash, all of the Class C Preferred Shares held by Calfinco for a total price in Brazilian reais equivalent to US$100,000,000, according to the average conversion rate published by the Brazilian Central Bank (PTAX800 – 5) for the 10 Business Days prior to the conversion. Calfinco shall have the right to deliver a Redemption Notice in respect of a Calfinco Significant Event at any time until the 90 ^th day following the date of the Notice of Breach relating to such Calfinco Significant Event. The Class C Preferred Shares redeemed pursuant to this Section 5.4 are referred to as “ Calfinco Redeemed Shares .”

(b) Closing of Calfinco Redemption Option . The closing of the Calfinco Redemption Option for the Calfinco Redeemed Shares shall take place as soon as reasonably practicable, and in no event later than 60 days, after the Company’s receipt of the Calfinco Redemption Notice, at the principal office of the Company, or at such other time and location as the parties to such transaction may mutually determine. At the closing of the Calfinco Redemption Option, Calfinco will deliver to the Company all appropriate documentation evidencing the transfer of the Calfinco Redeemed Shares consistent with market requirements.

(c) Definitions . For purposes of this Section 5.4, the term “ Calfinco Significant Event ” means (x) a Significant Breach (as defined in the Commercial Cooperation Agreement entered into as of June 26, 2015, by and between United and the Company’s subsidiary Azul Linhas Aereas Brasileiras S.A. (the “ Calfinco Commercial Cooperation Agreement ”)); or (y) the failure of the Effective Date (as such term is defined in the Calfinco Commercial Cooperation Agreement) to occur on or prior to June 27, 2016.

Section 5.5 C ALFINCO C ONVERSION E VENT .

(a) Mandatory Calfinco Conversion . No later than one Business Day before the publication of the first notice to the market ( Aviso ao Mercado ) of an IPO, all the Calfinco Preferred Shares will be automatically and mandatorily converted into a number of fully paid Class A Preferred Shares, calculated by multiplying (i) the number of Calfinco Preferred Shares to be converted by (ii) the Class C Conversion Ratio (as defined below in Section 5.5(b)), which conversion will be on the terms, and subject to the conditions, set forth in this Section 5.5 (the “ Mandatory Calfinco Conversion ”). If the IPO shall fail to be consummated for any reason, the Shareholders agree to convene both a general and a special shareholders’ meeting of the Company and at such meetings vote their respective shares of capital stock to approve the conversion of the newly issued Converted Preferred Shares held by Calfinco back into Class C Preferred Shares. As a result, in case this conversion occurs, Calfinco will continue to be entitled to its original rights as stated in the By-laws and in this Agreement.

(b) Class C Conversion Ratio . Each Calfinco Preferred Share will initially be convertible into one Converted Preferred Share, subject to the adjustments set forth in this Section 5.5 (as same may be adjusted from time to time, the “ Class C Conversion Ratio ”).

(c) Optional Conversion . At any time prior to a Mandatory Calfinco Conversion, Calfinco will have the option to convert all of the Calfinco Preferred Shares into a number of fully paid Class A Preferred Shares, calculated by multiplying (i) the number of Calfinco Preferred Shares to be converted by (ii) the Class C Conversion Ratio, which conversion will be on the terms, and subject to the conditions, set forth in this Section 5.5. Calfinco will give written notice to the Company of the conversion of the Calfinco Preferred Shares (the “ Class C Conversion Notice ”). The Company will, as soon as practicable thereafter, issue and deliver to Calfinco evidence of ownership of the number of Class A Preferred Shares (reasonably satisfactory to Calfinco) to which Calfinco is entitled. Such conversion will be deemed to have been made immediately upon the Company’s receipt of the Class C Conversion Notice, and Calfinco will be treated for all purposes as the record holder of such Class A Preferred Shares on such date.

(d) Adjustment for Splits and Combinations . If the Company at any time or from time to time after the date hereof effects a split or other subdivision of the outstanding Class A Preferred Shares, the Class C Conversion Ratio then in effect immediately before that subdivision will be proportionately increased, and conversely, if the Company at any time or from time to time after the date hereof combines the outstanding Class A Preferred Shares into a smaller number of Class A Preferred Shares, the Class C Conversion Ratio in effect immediately before the combination will be proportionately decreased to give effect to any such split, subdivision or combination.

(e) Adjustment for Reclassification, Exchange and Substitution . In the event that at any time or from time to time after the date hereof, the Converted Preferred Shares issuable upon the conversion of the Calfinco Preferred Shares is changed into the same or a different number of shares of any class or classes, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of Class A Preferred Shares or Class A Preferred Share distribution provided for elsewhere in clause (d) above), then and in any such event Calfinco will convert such Calfinco Preferred Shares into the kind and amount of shares and other securities and property receivable upon such recapitalization, reclassification or other change, by holders of the maximum number of Converted Preferred Shares into which such Calfinco Preferred Shares could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein.

(f) Reorganizations, Mergers, Consolidations or Sales of Assets . If at any time or from time to time after the hereof there is a capital reorganization of the Class A Preferred Shares (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 5.5) or a merger or consolidation of the Company with or into another entity, or the sale of all or substantially all of the Company’s properties and assets to any other Person, in each case other than in connection with a liquidity event, then, as a part of such reorganization, merger, consolidation or sale, provision will be made so that Calfinco will thereafter be entitled to receive the number of Converted Preferred Shares, shares of stock or other securities or property to which Calfinco, upon conversion of the Calfinco Preferred Shares, would have been entitled to receive on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustment will be made in the application of the provisions of this Section 5.5 with respect to the rights of Calfinco after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 5.5 (including adjustment of the Class C Conversion Ratio then in effect and the number of Converted Preferred Shares into which the Calfinco Preferred Shares may be converted) will be applicable after that event and be as nearly equivalent as may be practicable.

(g) Certificate of Adjustment . Upon the occurrence of each adjustment or readjustment of the Class C Conversion Ratio pursuant to this Section 5.5, the Company will promptly compute such adjustment or readjustment in accordance with the terms hereof and will prepare and furnish to Calfinco a certificate setting forth such adjustment or readjustment and showing in detail the basis of such adjustment or readjustment. The Company will, upon the written request at any time of Calfinco furnish or cause to be furnished to Calfinco a certificate setting forth (a) such adjustments and readjustments, (b) the Class C Conversion Ratio in effect at the time, and (c) the number of Converted Preferred Shares which at the time would be received upon the conversion of the Calfinco Preferred Shares.

(h) No Fractional Shares . No fractional Converted Preferred Share shall be issued upon conversion of the Calfinco Preferred Shares. In lieu of any fractional shares to which Calfinco would otherwise be entitled, the Company shall make a cash payment in United States dollars to Calfinco in an amount equal to such fraction multiplied by the then-effective Class C Conversion Ratio.

Section 5.6 HNA R EDEMPTION O PTION .

(a) HNA Redemption Option . The Shareholders acknowledge that the Company’s entry into the HNA Commercial Cooperation Agreement, as defined below, is a material inducement to the Investment (as defined in the HNA Investment Agreement) by HNA, and the occurrence of an HNA Significant Event would cause irreparable harm to HNA. Therefore, if (x) HNA notifies the Company in writing of the occurrence of an HNA Significant Event (the “ HNA Notice of Breach ”) and (y) an IPO shall not have been consummated at such time, then HNA shall have the option (the “ HNA Redemption Option ”), exercisable by HNA providing written notice of such election to the Company (the “ HNA Redemption Notice ”), to require the Company to redeem for cash, all of the Class D Preferred Shares held by HNA for a total price in Brazilian reais equivalent to US$450,000,000, according to the average conversion rate published by the Brazilian Central Bank (PTAX800 – 5) for the 10 business days prior to the conversion. HNA shall have the right to deliver an HNA Redemption Notice in respect of an HNA Significant Event at any time until the 90 ^th day following the date of the HNA Notice of Breach relating to such HNA Significant Event. The Class D Preferred Shares redeemed pursuant to this Section 5.6 are referred to as “HNA Redeemed Shares.”

(b) Closing of HNA Redemption Option . The closing of the HNA Redemption Option for the HNA Redeemed Shares shall take place as soon as reasonably practicable, and in no event later than 60 days, after the Company’s receipt of the HNA Redemption Notice, at the principal office of the Company, or at such other time and location as the parties to such transaction may mutually determine. At the closing of the HNA Redemption Option, HNA will deliver to the Company all appropriate documentation evidencing the transfer of the HNA Redeemed Shares consistent with market requirements.

(c) Definitions . For purposes of this Section 5.6, the term “ HNA Significant Event ” means any breach by Azul of Section D of the Commercial Cooperation Agreement entered into as of August 3, 2016, by and between HNA and the Company’s subsidiary Azul Linhas Aereas Brasileiras S.A. (the “ HNA Commercial Cooperation Agreement ”).

Section 5.7 HNA C ONVERSION E VENT .

(a) Mandatory HNA Conversion . No later than one Business Day before the publication of the first notice to the market ( Aviso ao Mercado ) of an IPO, all the HNA Preferred Shares will be automatically and mandatorily converted into a number of fully paid Class A Preferred Shares, calculated by multiplying (i) the number of HNA Preferred Shares to be converted by (ii) the Class D Conversion Ratio (as defined below in Section 5.7(b)), which conversion will be on the terms, and subject to the conditions, set forth in this Section 5.7 (the “ Mandatory HNA Conversion ”). If the IPO shall fail to be consummated for any reason, the Shareholders agree to convene both a general and a special shareholders’ meeting of the Company and at such meetings vote their respective shares of capital stock to approve the conversion of the newly issued Converted Preferred Shares held by HNA back into HNA Preferred Shares. As a result, in case this conversion occurs, HNA will continue to be entitled to its original rights as stated in the By-laws and in this Agreement.

(b) Class D Conversion Ratio . Each HNA Preferred Share will initially be convertible into one Converted Preferred Share, subject to the adjustments set forth in this Section 5.7 (as same may be adjusted from time to time, the “ Class D Conversion Ratio ”).

(c) Optional Conversion . At any time prior to a Mandatory HNA Conversion, HNA will have the option to convert all of the HNA Preferred Shares into a number of fully paid Class A Preferred Shares, calculated by multiplying (i) the number of HNA Preferred Shares to be converted by (ii) the Class D Conversion Ratio, which conversion will be on the terms, and subject to the conditions, set forth in this Section 5.7. HNA will give written notice to the Company of the conversion of the HNA Preferred Shares (the “ Class D Conversion Notice ”). The Company will, as soon as practicable thereafter, issue and deliver to HNA evidence of ownership of the number of Class A Preferred Shares (reasonably satisfactory to HNA) to which HNA is entitled. Such conversion will be deemed to have been made immediately upon the Company’s receipt of the Class D Conversion Notice, and HNA will be treated for all purposes as the record holder of such Class A Preferred Shares on such date.

(d) Adjustment for Splits and Combinations . If the Company at any time or from time to time after the date hereof effects a split or other subdivision of the outstanding Class A Preferred Shares, the Class D Conversion Ratio then in effect immediately before that subdivision will be proportionately increased, and conversely, if the Company at any time or from time to time after the date hereof combines the outstanding Class A Preferred Shares into a smaller number of Class A Preferred Shares, the Class D Conversion Ratio in effect immediately before the combination will be proportionately decreased to give effect to any such split, subdivision or combination.

(e) Adjustment for Reclassification, Exchange and Substitution . In the event that at any time or from time to time after the date hereof, the Converted Preferred Shares issuable upon the conversion of the HNA Preferred Shares is changed into the same or a different number of shares of any class or classes, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of Class A Preferred Shares or Class A Preferred Share distribution provided for elsewhere in clause (d) above), then and in any such event HNA will convert such HNA Preferred Shares into the kind and amount of shares and other securities and property receivable upon such recapitalization, reclassification or other change, by holders of the maximum number of Converted Preferred Shares into which such HNA Preferred Shares could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein.

(f) Reorganizations, Mergers, Consolidations or Sales of Assets . If at any time or from time to time after the hereof there is a capital reorganization of the Class A Preferred Shares (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 5.7) or a merger or consolidation of the Company with or into another entity, or the sale of all or substantially all of the Company’s properties and assets to any other Person, in each case other than in connection with a liquidity event, then, as a part of such reorganization, merger, consolidation or sale, provision will be made so that HNA will thereafter be entitled to receive the number of Converted Preferred Shares, shares of stock or other securities or property to which HNA, upon conversion of the HNA Preferred Shares, would have been entitled to receive on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustment will be made in the application of the provisions of this Section 5.7 with respect to the rights of HNA after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 5.7 (including adjustment of the Class D Conversion Ratio then in effect and the number of Converted Preferred Shares into which the HNA Preferred Shares may be converted) will be applicable after that event and be as nearly equivalent as may be practicable.

(g) Adjustment due to Class B Preferred Shares Conversion . In case of conversion of Class B Preferred Shares into Converted Preferred Shares, the Class D Conversion Ratio shall be adjusted in order to neutralize any dilution effects to HNA due to the conversion of Class B Preferred Shares into Converted Preferred Shares.

(h) Certificate of Adjustment . Upon the occurrence of each adjustment or readjustment of the Class D Conversion Ratio pursuant to this Section 5.7, the Company will promptly compute such adjustment or readjustment in accordance with the terms hereof and will prepare and furnish to HNA a certificate setting forth such adjustment or readjustment and showing in detail the basis of such adjustment or readjustment. The Company will, upon the written request at any time of HNA furnish or cause to be furnished to HNA a certificate setting forth (a) such adjustments and readjustments, (b) the Class D Conversion Ratio in effect at the time, and (c) the number of Converted Preferred Shares which at the time would be received upon the conversion of the HNA Preferred Shares.

(i) No Fractional Shares . No fractional Converted Preferred Share shall be issued upon conversion of the HNA Preferred Shares. In lieu of any fractional shares to which HNA would otherwise be entitled, the Company shall make a cash payment in United States dollars to HNA in an amount equal to such fraction multiplied by the then-effective Class D Conversion Ratio.

A RTICLE VI

AGREEMENTS OF THE SHAREHOLDERS

Section 6.1 B OARD O F D IRECTORS , A PPROVAL R IGHTS ; O BSERVER R IGHT .

(a) Each Shareholder hereby covenants and agrees to vote all of its Equity Securities that are entitled to vote to cause:

(i) Subject to clauses (ii) through (vi) below, the Board to consist of no more than fourteen and no less than five directors, as determined (x) by David Neeleman, or (y) in accordance with Section 6.11;

(ii) the holders of Investor Preferred Shares (other than the TRIP Shareholders and their Permitted Transferees) to designate two directors to the Board (and, in the event permitted by applicable law, each Material Subsidiary of the Company that shall have a board of directors; it being understood and agreed that nothing herein shall require any Subsidiary of the Company to have a board of directors) for so long as they own Equity Securities that entitle them the right to receive, pursuant to Section 4.1, at least 40% of proceeds in a Liquidation and one director for so long as they own Equity Securities that entitle them to receive, pursuant to Section 4.1, at least 20% of the proceeds in a Liquidation (each Investor agrees that (x) in the event that the holders of Investor Shares (other than the TRIP Shareholders and their Permitted Transferees) are entitled to designate two directors pursuant to this clause (ii), then the Investor who, together with its Affiliates, owns the largest number of Investor Preferred Shares (other than the TRIP Shareholders and their Permitted Transferees) and the Investor (other than the TRIP Shareholders and their Permitted Transferees) who, together with its Affiliates, owns the second largest number of Investor Preferred Shares shall each be entitled to designate one of such directors, and (y) in the event that the holders of Investor Shares (other than the TRIP Shareholders and their Permitted Transferees) are entitled to designate only one director pursuant to this clause (ii), then the Investor who, together with its affiliates, owns the largest number of Investor Preferred Shares (other than the TRIP Shareholders and their Permitted Transferees) shall be entitled to designate such director);

(iii) the holders of a majority of the Common Shares owned by the TRIP Shareholders to designate three directors to the Board for so long as they own more than 20% of the Common Shares, two directors for so long as they own at least 10%, and no more than 20%, of the Common Shares and one director for so long as they own at least 5% and less than 10% of the Common Shares;

(iv) Calfinco to designate one director to the Board for so long as it, together with its Permitted Transferees, own at least 50% of the Calfinco Preferred Shares that Calfinco owns as of the date of this Agreement (or the equivalent number of Converted Preferred Shares into which Calfinco Preferred Shares are convertible);

(v) HNA to designate (a) three (3) directors for so long as HNA, together with its Permitted Transferees, (i) has at least a 20% economic interest in the Company and (ii) owns the largest percentage of economic interest in the Company, taking account of the TRIP Shareholders as a single shareholding block; (b) two (2) directors for so long as HNA has at least a 10% economic interest in the Company; and (c) one (1) director for so long as HNA has less than a 10% but at least a 5% economic interest in the Company. In any case, no director appointed by HNA may be a United States citizen or resident; and

(vi) David Neeleman (or, following his death, the three individuals designated in accordance with Section 6.11) to elect the remaining directors to the Board (each, a “Neeleman Designee” ); provided , however , that (x) a majority of the individuals elected by David Neeleman (or the three individuals designated in accordance with Section 6.11) shall be Brazilian citizens to the extent that any applicable Brazilian law or Governmental Authority requires a majority of the Board to consist of Brazilian citizens, and (y) two of the Neeleman Designees shall be Independent Directors.

For the avoidance of doubt, it is understood and agreed that for so long as one or more Shareholders is entitled to designate one or more directors pursuant to clauses (ii) through (v) or this Section 6.1(a), the other Shareholders may not remove such director or directors without the prior written consent of the Shareholder(s) entitled to designate such director or directors.

(b) The holders of Equity Securities entitled to vote shall vote such Equity Securities: (i) to remove any director whose removal is required by the Shareholder with the right to designate such director pursuant to Section 6.1(a); and (ii) for the election of a new director that a Shareholder is entitled to designate pursuant to Section 6.1(a) in order to fill any vacancy created by the removal, resignation or death of such a director. Vacancies on the Board shall be filled promptly (but in any event within 30 days of the date of such vacancy) or immediately before the first action to be taken by the Board after the date such vacancy is created.

(c) For so long as an Affiliate of Weston Presidio is an Investor who owns at least 50% of the Investor Preferred Shares owned by it on the date of this Agreement, Weston Presidio shall have right to send one representative to attend all meetings of the Board solely in a non-voting observer capacity; provided , however , that the Company may exclude any such observer from any meeting or portion thereof when attendance by such observer could adversely affect the attorney-client privilege between the Company and its counsel. The Company will furnish to any such observer copies of all notices, minutes, consents and other materials that it generally makes available to its directors. Any such observer may participate in discussions of matters under consideration by the Board but will not be entitled to vote on any matter presented to the Board; provided , however , that if the Company proposes to take any action by written consent in lieu of a meeting of the Board the form of such written consent shall be forwarded to such observer at the same time as the members of the Board. The foregoing right of such observer shall be conditioned on such observer’s agreement to hold in confidence and trust all information he or she is provided.

(d) For the purposes of this Agreement, the qualifying shares held by a director shall be deemed to be the property of the Shareholder who appointed such director.

(e) The Company shall pay the directors the minimum compensation required by the Brazilian Board of Trade for their service as directors, except for the Independent Directors, who shall be paid in accordance with market practice in Brazil for companies that are similarly situated to the Company.

(f) Any Shareholder with the right to designate a director pursuant to Section 6.1(a) shall cause each director who is not a Brazilian citizen and is so designated by such Shareholder to execute and deliver to the Company an appropriate power of attorney so that service of process can be received on behalf of such director.

Section 6.2 M EETINGS .

(a) The Company shall hold meetings of the Board at least once every quarter.

(b) The Company shall reimburse each director for his or her reasonable and documented out-of-pocket expenses incurred in connection with the attendance of meetings of the Board or the performance of his or her other duties as a director.

Section 6.3 A PPROVAL B Y T HE R EQUISITE H OLDERS . Prior to the consummation of a Qualified IPO, the prior written approval of the Requisite Holders shall be required for the following:

(a) any authorization or issuance of shares of any class of shares of the Company or any Material Subsidiary that is directly or indirectly wholly-owned by the Company or that has a majority of its voting securities directly or indirectly owned by the Company (and, if such Material Subsidiary is governed by a board of directors (or a similar body with a different name), the Company (or a Subsidiary of the Company) either appoints a majority of its directors or has the right to appoint a majority of its directors), but excluding: (i) “qualifying shares” issued to any director; (ii) any shares issued by a Material Subsidiary to the Company or a wholly-owned Subsidiary of the Company; (iii) options to subscribe for 71,480 Investor Preferred Shares that would be reserved for employees (and any Investor Preferred Shares issued upon exercise of such options); and (iv) any shares of preferred shares issued in a Qualified IPO;

(b) any amendment to the organizational or governing documents (including the by-laws (other than any amendment to the By-laws to change the location of the Company’s head office), articles of association and (other than with respect to this Agreement) shareholders agreement, as applicable) of the Company or any Material Subsidiary or any alteration (by merger, consolidation or otherwise) of the terms, rights or preferences of the Preferred Shares;

(c) (i) any Sale of the Company, (ii) any sale of the stock or all or substantially all of the assets of a Material Subsidiary or (iii) any merger, consolidation, acquisition or similar transaction involving the Company or any Material Subsidiary that is not of the type incurred by airlines in the ordinary course, except in each instance referred to in clauses (ii) and (iii) for acquisitions (other than acquisitions of some or all of the equity of any Person or all or substantially all of the assets of any Person) and dispositions of assets or stock of no more than US$15,000,000 in the aggregate per year; provided , however , that the prior written consent of the Requisite Holders required for any acquisition of some or all of the equity of any Person or all or substantially all of the assets of any Person pursuant to this Section 6.3(c) shall, for so long as GIF Mercury LLC or one of its Permitted Transferees is a Shareholder, include the prior written approval of GIF Mercury LLC or one of its Permitted Transferees, as applicable (it is understood and agreed that nothing in this Section 6.3(c) will require the prior written consent of any of Person in connection with the formation by the Company of a direct or indirect Subsidiary and the acquisition of the equity of such a Subsidiary); provided further , however , that if the Sale of the Company involves the sale or disposal of HNA Preferred Shares by any means and occurs within three (3) years of August 3, 2016, the aggregate cash proceeds received by HNA shall be at least equal to the amount paid by HNA for each of the HNA Preferred Shares to be sold by HNA in such Sale of the Company, accreted in an amount necessary to produce a 15% annual internal rate of return for the time period from August 3, 2016, to the date of the closing of the Sale of the Company.

David Neeleman, any of his Permitted Transferees or any company controlled by David Neeleman shall abstain from voting in any resolution and from taking part in any decision related to the conversion of the TAP Bonds into TAP equity securities.

(d) a Liquidation (other than a Sale of the Company) or the liquidation or dissolution of any Material Subsidiary;

(e) (i) the declaration or payment of a dividend or distribution on any of the Company’s securities (other than Mandatory Dividends) or (ii) the redemption or the repurchase of any securities of the Company, other than (x) the Preferred Shares pursuant to Section 5.1 or Section 5.4 and (y) Common Shares and Preferred Shares from employees of the Company upon termination of their employment at cost (or, if at fair market value, for no more than US$1,000,000 per year, in the aggregate for all such redemptions and repurchases);

(f) (i) any amendment or modification to the Neeleman Employment Agreement or any termination by the Company of David Neeleman’s employment thereunder and (ii) other than under the Neeleman Employment Agreement or any other employment agreement approved by the Board, any transaction or business arrangement with any shareholder or affiliate or family member or any other legal entity in which shareholder of the Company owns any of the outstanding equity unless such transaction is of the type incurred by airlines in the ordinary course and does not exceed US$500,000;

(g) the incurrence or guarantee of any indebtedness for borrowed money (other than any such incurrence or guarantee of indebtedness of the type incurred by airlines in the ordinary course, including for financing of aircraft, aircraft engines, spare parts or facilities) in excess of US$10,000,000;

(h) any change to the maximum or minimum number of directors on the Board, as set forth in Section 6.1(a)(i);

(i) any transaction that would result in a Subsidiary of the Company becoming a Material Subsidiary of the Company if, prior to such transaction, such Subsidiary had taken any action or been involved in any transaction that would have required the prior written approval of the Requisite Holders under this Section 6.3 if such Subsidiary had, at such prior time, been a Material Subsidiary; or

(j) the Company or any of its Subsidiaries to engage in any business other than the Business.

In the event that the Company seeks the prior written approval of the Requisite Holders under this Section 6.3 with respect to any of the matters set forth above, the Company shall give written notice thereof to each of the holders of Investor Preferred Shares. In the event that the Requisite Holders shall provide the Company with any such prior written approval in accordance with this Section 6.3, the Company shall give each Investor prompt written notice of the Company’s receipt of such approval.

Section 6.4 A PPROVAL B Y T HE H OLDERS O F C OMMON S HARES . Prior to consummation of a Qualified IPO, the approval of the holders of a majority of the outstanding Common Shares shall be required for any alteration of the terms of the Common Shares.

Section 6.5 A PPROVAL B Y T HE H OLDERS O F F OUNDER P REFERRED S HARES . Prior to consummation of a Qualified IPO, the approval of the holders of a majority of the outstanding Founder Preferred Shares shall be required for any alteration of the terms of the Founder Preferred Shares.

Section 6.6 A PPROVAL B Y T HE H OLDERS O F C ALFINCO P REFERRED S HARES . Prior to consummation of a Qualified IPO, the approval of Calfinco shall be required for any alteration of the terms of the Calfinco Preferred Shares, except for the conversion of Calfinco Preferred Shares into Converted Preferred Shares, as described in Section 5.5.

Section 6.7 A PPROVAL B Y T HE H OLDERS O F HNA P REFERRED S HARES . Prior to consummation of a Qualified IPO, the approval of HNA shall be required for any alteration of the terms of the HNA Preferred Shares, except for the conversion of the HNA Preferred Shares into of the Class A Preferred Shares, as described in Section 5.7, or any modifications to any of the other rights granted exclusively to HNA or to the holders of HNA Preferred Shares under this Agreement. In addition, (i) the approval of HNA shall be required for any modification to the Company’s rights or obligations under the TAP Bonds (or Equity Securities into which the TAP Bonds are convertible); and (ii) HNA shall have the right to receive information with respect to the TAP Bonds, including the financial statements of TAP.

Section 6.8 A PPROVAL B Y T HE B OARD O F D IRECTORS . The approval of the Board (including, prior to the consummation of a Qualified IPO, the affirmative vote of at least one of the director(s) designated by the holders of the Investor Preferred Shares pursuant to Section 6.1(a) above) shall be required to approve the following, unless contained in the business plan approved by the Board as contemplated by Section 7.3:

(a) other than with respect to the incurrence or guarantee of indebtedness that the Company is permitted to incur pursuant to Section 6.3(g), any transaction (or series of related transactions) of the Company or any of its Material Subsidiaries involving payments to or by the Company or such Material Subsidiary in excess of US$10,000,000;

(b) any employee stock option or other equity plan other than the Equity Incentive Plans or any material amendments or modifications to the Equity Incentive Plans;

(c) the compensation of the chief executive officer, if any, president or chief financial officer in excess of more than US$500,000 per year;

(d) any transaction between the Company and/or any of its Subsidiaries, on the one hand, and any Affiliate of the Company (other than the Company’s Subsidiaries), on the other hand, except for any transaction expressly contemplated by this Agreement (including pursuant to Article II, Article III or Article V); and

(e) management compensation policies and programs applicable to the Company and any of its Subsidiaries.

Section 6.9 P ARTICIPATION I N C ERTAIN H IRING A ND F IRING D ECISIONS . Prior to the consummation of a Qualified IPO, the Board will permit one individual designated by each Investor and one individual designated by Calfinco to actively participate in the hiring or decision to fire the Company’s chief executive officer, if any, president or chief financial officer.

Section 6.10 E QUITY I NCENTIVE P LAN .

(a) Each Shareholder hereby covenants and agrees to vote all of its Equity Securities that are entitled to vote to approve an option and/or restricted share plans (the “Equity Incentive Plans” ) providing for the grant to the employees of the Company and its Subsidiaries of options and/or restricted share to subscribe for no more than 8,309,355 Class A Preferred Shares (inclusive of all grants made pursuant to the Equity Incentive Plans prior to the date hereof).

(b) Notwithstanding the provisions of Section 6.10(a) above, without the prior written approval of the Requisite Holders: (i) all options granted under the Equity Incentive Plans shall be subject to monthly vesting in equal installments over 4 years subject to acceleration of vesting in the event of a Sale of the Company, and if the Company’s Compensation Committee determines in its sole discretion, in the event of termination of employment without Cause or for Good Reason (as such terms are defined in the applicable Stock Option Agreement or Restricted Share Agreement pursuant to which such options and/or restricted shares were granted); and (ii) the Company shall have a repurchase option on any unvested and vested shares issued pursuant to the Equity Incentive Plans at the greater of cost and fair market value, as determined in good faith by the Board.

Section 6.11 D EATH O F D AVID N EELEMAN . In the event of David Neeleman’s death, all of the Equity Securities owned by David Neeleman that are entitled to vote and all of the Equity Securities owned by any Person controlled by David Neeleman that are entitled to vote shall be voted by majority vote of the following three individuals: (a) an individual who is a member of David Neeleman’s Family (as specified in clauses (a), (b) or (c) in the definition thereof) and is designated by David Neeleman from time to time prior to his death (in the absence of a subsequent designation by David Neeleman, such member of his Family shall be Daniel Neeleman); (b) Regis Da Silva Brito or, in the event that such individual cannot at any time serve in such capacity, by an individual identified by David Neeleman (or, after his death, by the individual identified in the preceding clause (a)) and reasonably acceptable to the Requisite Holders; and (c) one individual selected from time to time by the Requisite Holders after David Neeleman’s death. David Neeleman hereby agrees that the certificate of incorporation, bylaws or shareholders agreement (or comparable organizational documents with different names) of any entity controlled by him that owns any Equity Securities shall include a provision that provides for such Equity Securities to be voted in accordance with the immediately preceding sentence following his death.

Section 6.12 C ONFIDENTIALITY . From and after the date of this Agreement, each Shareholder shall maintain the confidentiality of, and shall not use for the benefit of itself or others, any confidential information concerning the Company, its Subsidiaries and their respective businesses (the “Confidential Information” ), except that a Shareholder may disclose Confidential Information:

(a) to its Affiliates and Representatives (and, in the event that one or more of the Affiliates of an Shareholder is a limited partnership or limited liability company, to the limited partners and members of its Affiliates) but only to those Affiliates, Representatives and (if applicable) limited partners of such Shareholder who have been informed of the obligations of such Shareholder under this Agreement and have agreed to be subject to this Section 6.12 (and such Shareholder shall, in any event, be liable for the breach by any such Affiliate, Representative or limited partner of this Section 6.12);

(b) to the extent required by applicable law, legal process or stock exchange rules or by any Governmental Authority; provided , however , that in the event such Shareholder or any of its Representatives is so required to disclose any Confidential Information: (i) such Shareholder shall, to the extent practicable, give the Company prompt prior written notice of such requirement so that the Company may take any steps it deems appropriate in order to challenge such requirement (and if the Company takes any such steps, such Shareholder will, to the extent practicable and legal, provide such cooperation as the Company shall reasonably request); and (ii) in the event the Company does not take any such steps or is unable to challenge such requirement successfully, such Shareholder or its Representative, as the case may be, may disclose only that portion of the Confidential Information that it is required by applicable law, legal process or stock exchange rules or by any Governmental Authority to be disclosed, and such Shareholder shall use reasonable best efforts to obtain, to the extent practicable, assurance that confidential treatment will be afforded to such Confidential Information;

(c) that is or becomes generally available to such Shareholder on a non-confidential basis from a source that, to the knowledge of such Shareholder after reasonable inquiry, is entitled to disclose it;

(d) that at the time of disclosure is generally available to and known by the public (other than as a result of the breach of this Agreement by such Shareholder);

(e) in connection with the preservation, exercise and/or enforcement of any of such Shareholder’s rights or remedies under this Agreement, the other Transaction Documents, the Calfinco Investment Agreement and the HNA Investment Agreement; or

(f) in connection with any contemplated transfer of Equity Securities held by such Shareholder pursuant to Section 2.2 (so long as the recipient of such information agrees pursuant to a written instrument in form and substance reasonably satisfactory to the Company to keep such information confidential on terms substantially similar to those set forth in this Section 6.12).

Section 6.13 C ONFLICT W ITH B Y -L AWS . In the event the provisions of this Agreement shall conflict with, or modify the provisions of the By-laws, then, as among the Shareholders, this Agreement shall control and the Shareholders, to the extent permitted by law, shall take any required action to amend the By-laws in order to remove such conflict.

A RTICLE VII

COVENANTS OF THE COMPANY

Section 7.1 F INANCIAL S TATEMENTS .

(a) Within 90 days after the end of each fiscal year (or, if later, promptly after the Company’s financial statements are required to be approved under Brazilian law), the Company shall furnish to (i) each Investor; (ii) the Trip Shareholders; (iii) Calfinco; and (iv) HNA the Company’s audited consolidated balance sheet as of the end of such year, together with the Company’s audited consolidated statements of operations, shareholders’ equity and cash flows for such year (such financial statements shall be audited by an outside independent accounting firm of recognized national standing in Brazil).

(b) Within 45 days after the end of each fiscal quarter, the Company shall furnish to (i) each Investor; (ii) the TRIP Shareholders; (iii) Calfinco; and (iv) HNA the Company’s unaudited consolidated balance sheet as of the end of such period, together with the Company’s unaudited consolidated statements of operations and cash flows for such period.

(c) Within 30 days after the end of each calendar month, the Company shall furnish to (i) each Investor; (ii) the TRIP Shareholders; (iii) Calfinco; and (iv) HNA that requests such information the Company’s unaudited consolidated balance sheet as of the end of such period, together with the Company’s consolidated statements of operations and cash flows for such period.

(d) The accounting, auditing and preparation of the Company’s financial statements and other corporate documents shall observe both the Brazilian GAAP and the US GAAP and all audit reports of the Company shall be made in accordance with Brazilian GAAP and US GAAP.

Section 7.2 I NSPECTION . The Company shall, upon reasonable prior notice, permit authorized representatives of (i) each Investor; (ii) the TRIP Shareholders; (iii) Calfinco; and (iv) HNA to visit and inspect any of the properties of the Company including its books of account (and to make copies thereof and take extracts therefrom), and to discuss the affairs, finances and accounts of the Company with its officers, administrative employees and independent auditors, all as often as may be reasonably requested but only during normal business hours and without interfering with the performance of the Company’s regular activities.

Section 7.3 A NNUAL B USINESS P LAN . The officers of the Company shall prepare annually (prior to the commencement of each fiscal year of the Company) a written business plan for the Company, which business plan shall include as attachments line-item operating and capital expenditure budgets for the coming fiscal year, and target ranges for compensation of executive officers. Such business plan shall be submitted to the Board for approval at least thirty 30 days prior to the commencement of such fiscal year.

Section 7.4 D&O I NSURANCE . The Company shall purchase, within a reasonable period following the execution of this Agreement, and maintain for such periods as the Board shall in good faith determine (provided, that, such insurance must be maintained at least for so long as any director designated pursuant to Section 6.1(a)(ii) or 6.1(a)(iv) is a member of the Board), at its expense, insurance in an amount determined in good faith by the Board to be appropriate, on behalf of any person who is or was a director or officer of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including any direct or indirect subsidiary of the Company, against any expense, liability or loss asserted against such Person and incurred by such Person in any such capacity, or arising out of such Person’s status as such, subject to customary exclusions.

Section 7.5 K EY P ERSON I NSURANCE . The Company shall purchase, within a reasonable period following the execution of this Agreement, a key person life insurance policy on David Neeleman in the amount of US$5,000,000 and will use commercially reasonable efforts to cause such insurance policy to be maintained until such time as the Board, including the directors designated by the holders of Investor Preferred Shares, determines that such insurance should be discontinued. The key person policy shall name the Company as loss payee, and the policy shall not be cancelable by the Company without prior approval of the Board, including the directors designated by the holders of Investor Preferred Shares.

Section 7.6 P URPOSE O F S UBSIDIARIES . The Company shall, within a reasonable period following its acquisition or formation of any additional Subsidiaries, cause the by-laws (or other organizational document with a different name) of both of such Subsidiaries to include a limitation in their by-laws (or other organizational document with a different name) on their authority to conduct business that is no broader than the “corporate purpose” contained in Article IV of the By-laws.

ARTICLE VIII

RECLASSIFICATION; LEGENDS

Section 8.1 R ECLASSIFICATION . In the event that any Equity Securities should, as a result of a stock split or stock dividend or combination of shares or any other change or exchange for other securities by reclassification, reorganization, redesignation, merger, consolidation, recapitalization, split-up, spinoff, partial or complete liquidation, sale of assets, distribution to shareholders, combination of shares or otherwise, be increased or decreased or changed into or exchanged for a different number or kind of shares of capital stock or other securities of the Company or of another corporation or other entity: (a) the number of Equity Securities held by the Shareholders shall be appropriately and proportionately adjusted to reflect such action and the terms and provisions of this Agreement shall apply to all of the capital stock of any class of the Company now owned or that may be issued hereafter to the Shareholders in consequence of any event; and (b) each reference in this Agreement to a specific number of Equity Securities or an amount per Equity Security in United States Dollars (or some other currency) shall be appropriately and proportionately adjusted to reflect such action.

Section 8.2 L EGENDS . So long as any Equity Securities are subject to the provisions of this Agreement, the records in the Share Register and any certificates representing any such Equity Securities shall bear legends in substantially the following form:

THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR (ii) AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. ANY TRANSFER PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE SHALL BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH TRANSFER.

THESE SHARES ARE SUBJECT TO THE TERMS OF THE FIFTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF AUGUST 3, 2016, AND AS AMENDED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME, AMONG THE ISSUER HEREOF AND CERTAIN OTHER PERSONS, A TRUE AND CORRECT COPY OF WHICH, AS IT MAY BE IN EFFECT FROM TIME TO TIME, IS ON FILE AT THE ISSUER’S HEADQUARTERS. UPON WRITTEN REQUEST TO THE ISSUER, A COPY THEREOF WILL BE MAILED OR OTHERWISE PROVIDED WITHOUT CHARGE.

Section 8.3 R EGISTERED S HARES R EGISTRATION B OOK . This Agreement, as amended from time to time, shall be filed, under the terms and for the purposes of article 118 of the Corporation Law, at the headquarters of the Company, and any restrictions on the transfer of Equity Securities and on the voting rights relating thereto shall be recorded in the Share Register and in the share certificates representing the Equity Securities, if issued.

A RTICLE IX

DURATION; TERMINATION

The provisions of this Agreement shall terminate upon the first to occur of: (a) a Liquidation; (b) the approval of such termination by (i) the Company and (ii) the Requisite Holders, the holders of a majority of the outstanding Founder Preferred Shares and the holders of a majority of the Common Shares; (c) the consummation of a Sale of the Company; (d) the consummation of a Qualified IPO; and (e) March 10, 2028; provided , however , that in the event of a termination of this Agreement pursuant to this clause (e) (but not pursuant to any other provision of this Article IX), the terms and provisions of Section 4.1 (Distributions on Liquidation) shall remain in full force and effect.

A RTICLE X

EFFECTIVENESS

Section 10.1 E FFECTIVENESS . This Agreement shall only be effective upon the issuance to HNA of HNA Preferred Shares pursuant to the HNA Investment Agreement. At all times prior to the consummation of such issuance thereunder, the Fourth Amended and Restated Shareholders Agreement, as it may be amended from time to time, shall be in full force and effect.

A RTICLE XI

MISCELLANEOUS

Section 11.1 N OTICES . All notices or other communications required or permitted hereunder shall be given in writing and given by certified or registered mail, return receipt requested, nationally recognized overnight delivery service, such as Federal Express, facsimile or e-mail (or like transmission) with confirmation of transmission by the transmitting equipment or personal delivery against receipt to the party to whom it is given, in each case, at such party’s address, facsimile number or e-mail address set forth below or such other address, facsimile number or e-mail address as such party may hereafter specify by notice to the other parties hereto given in accordance herewith. Any such notice or other communication shall be deemed to have been given as of the date so personally delivered or transmitted by facsimile (or, if delivered or transmitted after normal business hours, on the next Business Day) or e-mail or like transmission, on the next Business Day when sent by overnight delivery services or five days after the date so mailed if by certified or registered mail:

If to the Company, to:

Azul S.A.

Av. Marcos Penteado de Ulhoa Rodrigues, 939,

9 ^th floor, Ed. Jatobá,

Barueri 06460-040 SP

Brazil

Fax No.: (55 11) 4134-9890

E-mail Address: renato.covelo@voeazul.com.br

Attention: Renato Covelo

If to an Investor, to its address on a signature page hereto.

If to Calfinco, to:

CALFINCO Inc.

233 S. Wacker Dr.

Chicago, Illinois 60606, United States

Fax No.: +1 (872) 825-3321

E-mail Address: gerry.laderman@united.com

Attention: Gerald Laderman

with a copy to (which shall not constitute notice):

CALFINCO Inc.

233 S. Wacker Dr.

Chicago, Illinois 60606, United States

Fax No.: +1 (872) 825-0309

E-mail Address: thomas.bolling@united.com

Attention: Thomas N. Bolling

If to HNA, to:

Hainan Airlines Co., Ltd.

HNA Plaza, No. 7 Guoxing Road

Haikou City, Hainan Province China

Attn: Zhao Ke

Facsimile: +86 898 68875300

E-mail: ke-zhao3@hnair.com

Section 11.2 A SSIGNMENT . This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs (in the case of any individual), successors and permitted assigns; provided, however, that no Shareholder may assign this Agreement or any of its rights, interests or obligations hereunder, except as expressly permitted herein and that David Neeleman may assign his right to elect directors pursuant to Section 6.1(a)(v). Any purported assignment or delegation in violation of this Agreement shall be null and void ab initio.

Section 11.3 E NTIRE A GREEMENT . This Agreement, the other Transaction Documents and the HNA Investment Agreement (including the Schedules and Exhibits hereto and thereto) embodies the entire agreement and understandings of the parties and their respective Affiliates with respect to the transactions contemplated hereby and merges in, supersedes and cancels all prior written or oral commitments, arrangements or understandings with respect thereto, including the Commitment Letter dated November 12, 2015 (including the Annexes thereto). There are no restrictions, agreements, promises, warranties, covenants or undertakings with respect to the transactions contemplated hereby other than those expressly set forth in this Agreement, the other Transaction Documents and the HNA Investment Agreement.

Section 11.4 M ODIFICATIONS , A MENDMENTS A ND W AIVERS . This Agreement may not be modified or amended except by an instrument or instruments in writing that expressly states that it is modifying or amending this Agreement and that is signed by the Company, the Requisite Holders, the holders of a majority of the then outstanding Founder Preferred Shares and the holders of a majority of the then outstanding Common Shares; provided , however , that any such modification or amendment shall not be effective against a holder of Investor Preferred Shares, the Calfinco Preferred Shares, the HNA Preferred Shares, Founder Preferred Shares or Common Shares (as the case may be) without such holder’s prior written consent with respect to any modification or amendment to this Agreement that would have the effect of treating such holder disproportionately adverse in relation to other holders of Preferred Shares or Common Shares (as the case may be). Any party hereto may (or the Requisite Holders, the holders of a majority of the then-outstanding Founder Preferred Shares and the holders of a majority of the then-outstanding Common Shares on behalf of any Shareholder may), only by an instrument in writing that expressly states that it is waiving compliance with this Agreement, waive compliance by any other party or parties hereto with any term or provision hereof on the part of such other party or parties hereto to be performed or complied with. No failure or delay of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor will any single or partial exercise of any right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The waiver by any party hereto of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach. The rights and remedies of the parties hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have hereunder.

Section 11.5 C OUNTERPARTS . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original, and will become effective when one or more counterparts have been signed by a party and delivered to the other parties. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 11.5, provided that receipt of copies of such counterparts is confirmed. This Agreement shall be effective when signed by the Persons required to effect an amendment to the Fourth Amended and Restated Shareholders Agreement pursuant to Section 11.4 thereof.

Section 11.6 G OVERNING L AW . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF BRAZIL WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES THAT WOULD DEFER TO THE LAW OF ANOTHER JURISDICTION.

Section 11.7 A RBITRATION .

(a) Except as set forth in Section 11.7(l) and (m), each Shareholder and the Company agree that all disputes between or among any of them or any of their respective Affiliates arising out of or in connection with this Agreement, or any further agreements resulting herefrom, will be finally resolved exclusively by arbitration under the Rules of Arbitration of the International Chamber of Commerce (“ ICC Rules ”) as in effect on the date of commencement of the arbitration by the provisions herein. All disputes concerning or relating to arbitrability of a dispute under this Agreement or the jurisdiction of the arbitrators shall be resolved in the first instance by the arbitrators.

(b) The arbitration shall be conducted by a panel of three arbitrators (the “Tribunal” ). Each party to the arbitration shall select a single arbitrator (each, a “Party-Appointed Arbitrator” ). The claimant will select its Party-Appointed Arbitrator in its request for arbitration and the respondent will select its Party-Appointed Arbitrator in its answer. The Party-Appointed Arbitrators will attempt to agree on a chairman. If, within 30 days after the confirmation of the last Party-Appointed Arbitrator, they have not agreed on a chairman, then the chairman will be appointed by the International Court of Arbitration of the International Chamber of Commerce. If any party to the arbitration shall fail to select its Party-Appointed Arbitrator as provided above, the International Court of Arbitration of the International Chamber of Commerce will appoint such Party-Appointed Arbitrator. All three arbitrators will be neutral and independent of the parties to the Arbitration and their respective Affiliates. There shall be no ex parte communications with the arbitrators after the first organizational meeting.

(c) In the event a dispute involves more than two parties, the parties shall attempt to align themselves into two sides ( i.e. , claimant and respondent), and each side shall appoint one of the Party-Appointed Arbitrators as if there were only two parties to the dispute. If such alignment and appointment shall not have taken place within 30 days after submission of the answer, the International Chamber of Commerce shall appoint all three arbitrators.

(d) Prior to commencing arbitration, a party shall deliver notice of the applicable dispute to the other parties and the parties shall meet and discuss possible resolution of such dispute. Within 30 days of delivery of notice of a dispute, representatives of the parties to the arbitration shall meet and attempt to negotiate a resolution. Any dispute remaining after notice and the expiration of such 30-day period will be finally resolved in the manner set forth in Section 11.7(a).

(e) The confidentiality of all proceedings shall be strictly maintained, as shall the confidentiality of any documents, deposition testimony or other information exchanged in connection with the arbitral proceedings (except if disclosure of such proceedings and information may be required by application laws, rules or regulations, including, but not limited to, in any judicial proceeding brought to enforce these arbitration provisions or any award rendered hereunder).

(f) The arbitrators are authorized to consolidate multiple disputes between the parties to this Agreement where efficient and appropriate.

(g) The arbitral proceedings and all documents delivered to or by the arbitrators shall be conducted in English.

(h) The place of arbitration shall be New York, New York.

(i) The Tribunal shall render findings of fact and conclusions of law and a written award setting forth the basis and reasons for any decision rendered. The decision of the Tribunal will be final and may not be appealed.

(j) The costs and expenses of the arbitration shall be borne equally by the parties to the arbitration. In addition, the parties hereby acknowledge and confirm that each party shall bear all of its own costs in connection with all disputes arising in connection with this Agreement and the transactions contemplated hereby and all further agreements resulting herefrom, and which are being settled by the International Chamber of Commerce, in its entirety, irrespective of the outcome of the arbitral proceedings.

(k) The Tribunal will not act as amiables compositeurs or ex aequo et bono .

(l) No party to this Agreement shall be precluded from applying for specific performance or injunctive relief (including, without limitation, a temporary restraining order) hereunder before any court or court of competent jurisdiction instead of the arbitration provisions of this Section 11.7.

(m) Judgment on the arbitral award may be entered by any court or courts of competent jurisdiction including, but not limited to, any court that has jurisdiction over any of the parties or any of their assets.

(n) To the extent it has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself, or its property, the Company and each Shareholder, on behalf of itself and its Affiliates, hereby irrevocably waives such immunity in respect of its obligations with respect to this Agreement.

(o) No party to this Agreement is permitted to bring an arbitration on a class action basis.

Section 11.8 S EVERABILITY . To the fullest extent that they may effectively do so under applicable law, the parties hereto hereby waive any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. Such parties further agree that any provision of this Agreement which, notwithstanding the preceding sentence, is rendered or held invalid, illegal or unenforceable in any respect in any jurisdiction shall be ineffective, but such ineffectiveness shall be limited as follows: (a) if such provision is rendered or held invalid, illegal or unenforceable in such jurisdiction only as to a particular Person or Persons or under any particular circumstance or circumstances, such provision shall be ineffective, but only in such jurisdiction and only with respect to such particular Person or Persons or under such particular circumstance or circumstances, as the case may be; (b) without limitation of clause (a), such provision shall in any event be ineffective only as to such jurisdiction and only to the extent of such invalidity, illegality or unenforceability, and such invalidity, illegality or unenforceability in such jurisdiction shall not render invalid, illegal or unenforceable such provision in any other jurisdiction; and (c) without limitation of clause (a) or (b), such ineffectiveness shall not render invalid, illegal or unenforceable this Agreement or any of the remaining provisions hereof.

Section 11.9 N O P RESUMPTION . With regard to each and every term and condition of this Agreement, the parties hereto understand and agree that the same have or has been mutually negotiated, prepared and drafted, and if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any agreement or instrument subject hereto, no consideration shall be given to the issue of which party hereto actually prepared, drafted or requested any term or condition of this Agreement or any agreement or instrument subject hereto.

Section 11.10 N O T HIRD P ARTY B ENEFICIARY . This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

Section 11.11 N ON -R ECOURSE . No past, present or future director, officer, employee, incorporator, member, partner, stockholder, Affiliate, agent, attorney, consultant, representative or principal of the Company or any Affiliate of the Company shall have any liability for any liabilities of Company under this Agreement or for any claim based on, in respect of, or by reason of, the transactions contemplated hereby or thereby.

Section 11.12 S PECIFIC P ERFORMANCE . Each of the parties hereto acknowledges that the others would not have an adequate remedy at law for money damages in the event that any of the covenants or agreements set forth in this Agreement were not performed in accordance with its terms and therefore, each of the parties agrees that the others shall be entitled to specific performance and injunctive relief (including, without limitation, a temporary restraining order) in accordance with Section 11.7(l) and other equitable relief that may be awarded by the Tribunal in addition to any other remedy to which it may be entitled hereunder (without the necessity of proving the inadequacy as a remedy of money damages or the posting of a bond).

Section 11.13 B USINESS D AYS . If any date provided for in this Agreement shall fall on a day that is not a Business Day, the date provided for shall be deemed to refer to the next Business Day.

Section 11.14 C URRENCY M ATTERS . Except as otherwise expressly provided herein, all BR$ amounts to be translated to US$ under this Agreement, and all US$ amounts to be translated to BR$ under this Agreement, as of any date, shall be translated at the PTAX Exchange Rate.

Section 11.15 P ORTUGUESE T RANSLATION .

(a) This Agreement has been negotiated and executed in the English language. To prevent the possibility of having different and, eventually, conflicting translations of this Agreement into Portuguese, the parties to this Agreement unconditionally and irrevocably agree that only one translation of this Agreement (the “Agreed Sworn Translation” ) shall be prepared, exist and be used by the parties for any purposes or in any situation in which the submission of a translation of this Agreement into Portuguese language is required under Brazilian law, including, without limitation, for the (i) filling of this Agreement in the Company’s headquarters, (ii) presentation or filing, if required, of this Agreement with any Governmental Authority in Brazil, such as ANAC, CADE or any Brazilian court having jurisdiction, as provided pursuant to the terms hereof.

(b) The parties to this Agreement hereby irrevocably agree that the Agreed Sworn Translation shall be prepared by Mr. Manoel Reverendo Vidal Neto. Any of the parties to this Agreement shall have the right to, upon presentation of a manifest error, disagree with the contents of the Agreed Sworn Translation prepared by Mr. Manoel Reverendo Vidal Neto, within five Business Days after receipt thereof. In this event, if the Agreed Sworn Translation is not corrected within five Business Days thereafter, any party to this Agreement shall have the right to request that a second, final and binding sworn translation into Portuguese of this Agreement is prepared by Mr. Antônio Ernesto Pasqualin and that the translation prepared by Mr. Manoel Reverendo Vidal Neto is destroyed and disregarded for all purposes. The Portuguese sworn translation prepared by Mr. Antônio Ernesto Pasqualin shall immediately, without the necessity of any act by any of the parties hereto, become the Agreed Sworn Translation and be final and binding upon the parties.

(c) The absence of an objection by any of the parties to this Agreement with respect to the contents of Mr. Manoel Reverendo Vidal Neto’s translation within such five Business Days shall be considered as an irrevocable approval thereof.

(d) The parties to this Agreement further agree that until such date when the Agreed Sworn Translation is available, no other translation of this Agreement into Portuguese shall be used by the parties, for any reason; provided , however , that the provisions of this Section 11.15 shall not prevent any party from obtaining another sworn translation to enforce any of its rights under this Agreement in the event of a default by any other party hereto. In such case, the parties shall substitute such translation for the Agreed Sworn Translation as soon as it is available.

[The next page is the signature page]

The parties have executed and delivered this Shareholders Agreement as of the date first written above.


AZUL S.A.

By:		/s/ David Neeleman
Name:		David Neeleman
Title:		Chief Executive Officer


WP – NEW AIR, LLC

By:		/s/ Michael P. Lazarus
Name:		Michael P. Lazarus
Title:		Authorized Signatory
Address: c/o Weston Presidio One Ferry Building, Suite 350 San Francisco, CA 94111-4226 Fax No.: (415) 398-0770 E-mail Address: tmrozek@westonpresidio.com Attention: Therese Mrozek


AZUL HOLDCO LLC

By:		/s/ Aryeh Davis
Name:		Aryeh Davis
Title:		Authorized Signature
Address: Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: E-mail Address: aryeh@pequotcap.com Attention: Aryeh Davis

[Shareholder Signature Page to Shareholders Agreement]

S-1


MARACATU, LLC

By:		/s/ Peterson Partners, Inc.
Its:		Manager

By:		/s/ Eric Noble
Name:		Eric Noble
Title:		CFO & Authorized Signatory
Address: 2825 East Cottonwood Parkway, Suite 400 Salt Lake City, UT 84121 Fax No.: (801) 365-0181 E-mail Address: dan@petersonpartnerslp.com Attention: Daniel Peterson


GIF MERCURY LLC

By:	/s/ Marcos Pinto	/s/ Marcelo Hudik F. de Albuquerque

Name:	Marcos Pinto	Marcelo Hudik F. de Albuquerque
Title:	Manager	Manager
Address: Gif Gestão de Investimentos e Participações Ltda. Rua Dias Ferreira 190, 4 andar, Leblon 22431-050, Rio de Janeiro, RJ, Brasil E-mail: malbuquerque@gaveainvest.com.br Attention: Marcelo Albuquerque with a copy to: Gif Gestão de Investimentos e Participações Ltda. Rua Dias Ferreira 190, 4 andar, Leblon 22431-050, Rio de Janeiro, RJ, Brasil Attention: Luiz Henrique Fraga

[Shareholder Signature Page to Shareholders Agreement]

S-2


GIF II FUNDO DE INVESTIMENTO EM PARTICIPAÇÕES

By:	/s/ Marcos Pinto	/s/ Marcelo Hudik F. de Albuquerque

Name:	Marcos Pinto	Marcelo Hudik F. de Albuquerque
Title:	Manager	Manager
Address: Gif Gestão de Investimentos e Participações Ltda. Rua Dias Ferreira 190, 4 andar, Leblon 22431-050, Rio de Janeiro, RJ, Brasil E-mail: malbuquerque@gaveainvest.com.br Attention: Marcelo Albuquerque with a copy to: Gif Gestão de Investimentos e Participações Ltda. Rua Dias Ferreira 190, 4 andar, Leblon 22431-050, Rio de Janeiro, RJ, Brasil Attention: Luiz Henrique Fraga


ZDBR LLC

By:		/s/ Kevin Cannon
Name:		Kevin Cannon
Title:		CFO of Manager
Address: c/o Zweig-DiMenna Associates, Inc. 900 Third Avenue, 31st Floor New York, NY 10022 Fax No.: (212) 451-1450 E-mail Address: KCannon@zweig-dimenna.com Attention: Kevin Cannon

[Shareholder Signature Page to Shareholders Agreement]

S-3


KADON EMPREENDIMENTOS S.A.

By:		/s/ Lucianne Nigri Finkelstain
Name:		Lucianne Nigri Finkelstain
Title:		Director

By:		/s/ Oswaldo Prado Sanches
Name:		Oswaldo Prado Sanches
Title:		Director
Address: Rua Visconde de Ouro Preto n°5-11 andar Botafogo – Rio de Janeiro, RJ Brasil CEP: 22250-180 Fax No.: (55) (21) 3237-9129 E-mail Address: eraldo@bozano.com.br lnigri@bozano.com.br


Bozano Investments LLC

By:		/s/ Lucianne Nigri Finkelstain
Name:		Lucianne Nigri Finkelstain
Title:		Director

By:		/s/ Oswaldo Prado Sanches
Name:		Oswaldo Prado Sanches
Title:		Director
Address: Rua Visconde de Ouro Preto n°5-11 andar Botafogo – Rio de Janeiro, RJ Brasil CEP: 22250-180 Fax No.: (55) (21) 3237-9129 E-mail Address: eraldo@bozano.com.br lnigri@bozano.com.br

[Shareholder Signature Page to Shareholders Agreement]

S-4



By:		/s/ David Neeleman
		David Neeleman
Address: Alameda Surubiju, n 2.010/2.050, parte, Bloco A, Alphaville, Centro Industrial e Empresarial, Barueri, SP Fax No.: (5511) 4134-9890 Attention: David Neeleman



By:		/s/ John Peter Rodgerson
		John Peter Rodgerson
Attorney in Fact GIANFRANCO ZIONI BETING Address: Rua Eliseu Visconti 188 – Morumbi Fax No.: (5511) 3758-9076 Attention: Gianfranco Zioni Beting



By:		/s/ Regis da Silva Brito
		Regis da Silva Brito
Address: Rua Bento Gonçalves, 1902, apto 401, CEP 95780 000, Montenegro-RS Attention: Regis Da Silva Brito

[Shareholder Signature Page to Shareholders Agreement]

S-5


SALEB II FOUNDER 1 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager
Address: Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: David Neeleman


SALEB II FOUNDER 2 LLC

By:		/s/ Gerald Blake Lee
Name:		Gerald Blake Lee
Title:		Member
Address: Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: Gerald B. Lee

[Shareholder Signature Page to Shareholders Agreement]

S-6


SALEB II FOUNDER 3 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager
Address: Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: Thomas Eugene Kelly


SALEB II FOUNDER 4 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager
Address: Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (206) 361-7290 Attention: Tom Anderson


SALEB II FOUNDER5 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager
Address: Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (718) 709-3600 Attention: Carol Elizabeth Archer

[Shareholder Signature Page to Shareholders Agreement]

S-7


SALEB II FOUNDER 6 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (801) 770-3090 Attention: Cindy England


SALEB II FOUNDER 7 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (301) 279-9728 Attention: Robert Land


SALEB II FOUNDER 8 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (44) 1428-685965 Attention: Robert Milton

[Shareholder Signature Page to Shareholders Agreement]

S-8


SALEB II FOUNDER 9 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (801) 363-4968 Attention: Mark Neeleman


SALEB II FOUNDER 10 LLC

By:		/s/ Marlon Ramirez
Name:		Marlon Ramirez
Title:		Director


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (801) 990-3097 Attention: Marlon Ramirez


SALEB II FOUNDER 11 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: John Rodgerson

[Shareholder Signature Page to Shareholders Agreement]

S-9


SALEB II FOUNDER 12 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (203) 966-2740 Attention: Maximilian Urbahn


SALEB II FOUNDER 13 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (801) 365-0181 Attention: Joel Peterson


SALEB II FOUNDER 14 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: Amir Nasruddin

[Shareholder Signature Page to Shareholders Agreement]

S-10


SALEB II FOUNDER 15 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: Jason Ward


SALEB II FOUNDER 16 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: John Daly

[Shareholder Signature Page to Shareholders Agreement]

S-11


JJL BRAZIL, LLC

By:		/s/ James J. Liautaudn
Name:		James J. Liautaud
Title:		Manager
Address: 2212 Fox Drive Champaign, IL 61820 Fax No.: (217) 359-2956 E-mail Address: Attention: Nic Mueth


MORRIS AZUL, LLC

By:		/s/ June M. Morris
Name:		June M. Morris
Title:		Manager
Address: 4277 Park Terrace Drive Salt Lake City, UT 84124 Fax No.: (801) 273-7734 E-mail Address: Attention: June M. Morris G. Mitchell Morris

/s/ Miguel Dau

MIGUEL DAU


Address:

Rua Barão de Ipanema, 130/C01 Copacaba Rio de Janeiro / RJ. 22050-032 Brasil Att. Miguel Dau

[Shareholder Signature Page to Shareholders Agreement]

S-12

/s/ John Rodgerson

John Rodgerson

Attorney in fact

João Carlos Fernandes


Address:

Alameda Rosas, 231 Norada das Flores Aldeia da Serra, Santana do Parnaiba São Paulo Fax No.: Attention: João Carlos Fernandes


STAR SABIA LLC

By:		/s/ Clive Bode
Name:		Clive Bode
Title:		Vice President


Address:

c/o TPG Capital, L.P. 301 Commerce Street, Suite 3300 Fort Worth, TX 76102 Fax No.: (817) 871-4001 Attention: General Counsel

/s/ Carolyn Trabuco

Carolyn Trabuco


Address:

500 Nyala Farm Road, Westport, Connecticut 06824 Fax No.: Attention: John Rodgerson

[Shareholder Signature Page to Shareholders Agreement]

S-13

/s/ Sergio Eraldo Sales Pinto

Sergio Eraldo Sales Pinto


Address:

Rua Visconde de Ouro Preto n°5-11 andar Botafogo—Rio de Janeiro, RJ Brasil CEP: 22250-180 Fax No.: (55) (21) 3237-9129 E-mail Address: eraldo@bozano.com.br


TRIP PARTICIPAÇÕES S.A.

By:	/s/ Renan Chieppe	By:	/s/ Decio Luiz Chieppe
Name:	Renan Chieppe	Name:	Decio Luiz Chieppe
Title:	Director	Title:	Director
Address: Rodovia BR 262, Km 05, Campo Grande, CEP 29.145-901 Cidade de Cariacica, Estado do Espírito Santo, Brasil E-mail Address: RicardoV@aguiabranca.com.br


TRIP INVESTIMENTOS LTDA.

By:	/s/ Renan Chieppe	By:	/s/ José Mario Caprioli dos Santos
Name:	Renan Chieppe	Name:	José Mario Caprioli dos Santos
Title:	Director	Title:	Director
Address: Avenida Cambacicas, nº. 1200, Parque Imperador, Condomínio Flex Buildings, Módulo 2, CEP 13097-104 Campinas, São Paulo, Brasil E-mail Address: RicardoV@aguiabranca.com.br


RIO NOVO LOCAÇÕES LTDA.

By:	/s/ Decio Luiz Chieppe	By:	/s/ Luiz Wagner Chieppe
Name:	Decio Luiz Chieppe	Name:	Luiz Wagner Chieppe
Title:	Director	Title:	Director
Address: Rodovia BR 262, Km 6,3, Sala 208, CEP 29.157-405 Cidade de Cariacica, Estado do Espírito Santo, Brasil E-mail Address: RicardoV@aguiabranca.com.br

[Shareholder Signature Page to Shareholders Agreement]

S-14


CALFINCO Inc.

By:		/s/ Gerald Laderman
Name:		Gerald Laderman
Title:		Treasurer


HAINAN AIRLINES CO., LTD.

By:		/s/ Xin Di
Name:		Xin Di
Title:		Chairman

[Shareholder Signature Page to Shareholders Agreement]

S-15

EXHIBIT A

FORM OF JOINDER AGREEMENT

Reference is made to the Fifth Amended and Restated Shareholders Agreement (the “Shareholders Agreement” ) dated as of [—]among Azul S.A., a Brazilian corporation ( sociedade anônima ) f/k/a Saleb II Participações S.A. (the “Company” ), and the Company’s shareholders party thereto, as amended from time to time. Capitalized terms used but not defined herein have the meanings assigned to them in the Shareholders Agreement.

1. The undersigned hereby agrees to become a party to, and be bound by, the Shareholders Agreement as a[n] “[ [Minority] Shareholder.”

2. The undersigned represents and warrants as follows:

2.1 O RGANIZATION . If the undersigned is an entity, the undersigned is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite limited liability company (or other) power and authority, and has all Permits (as defined in the Subscription Agreement) required, to own, lease and operate its assets and properties and to carry on its business as presently conducted and as presently proposed to be conducted.

2.2 A UTHORIZATION , E XECUTION , E NFORCEABILITY A ND N O C ONFLICTS . If the undersigned is an entity, the undersigned has all requisite limited liability company (or other) power and authority to execute, deliver and perform its obligations under the this Joinder and the Shareholders Agreement and to consummate the transactions contemplated hereby and thereby. If the undersigned is an individual, the undersigned has all requisite capacity to execute, deliver and perform its obligations under this Joinder and the Shareholders Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the undersigned of this Joinder, and the performance by the undersigned of its obligations under this Joinder and the Shareholders Agreement, have been duly and validly authorized by all requisite action on the part of the undersigned and its member(s). This Joinder has been duly executed and delivered by the undersigned. This Joinder and the Shareholders Agreement constitute a valid and binding obligation of such Investor enforceable against it in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity (regardless of whether in equity or at law).

2.3 N ON -C ONTRAVENTION . The execution and delivery by the undersigned of this Joinder, the performance by the undersigned of his or its obligations hereunder and under the Shareholders Agreement and the consummation by the undersigned of the transactions contemplated hereby and thereby do not and will not: (a) if the undersigned is an entity, violate any provision of the certificate of formation or limited liability company agreement (or comparable organizational documents with different names) of the undersigned; (b) require on the part of the undersigned any notice, registration or filing with, or any Permit, or other authorization of, or any exemption by, any Governmental Authority (as defined in the Subscription Agreement); (c) in any material respect, result in a violation or breach of, constitute a default under, result in the acceleration of, give rise to any right to accelerate, terminate, modify or cancel, or require any notice, consent, authorization, approval or waiver under, or result in any other adverse consequence under, any contract to which the undersigned is a party or by which the undersigned or any of his, her or its assets or properties is bound; (d) violate or breach the terms of or cause any default under any law applicable to the undersigned or any of his, her or its properties or assets; or (e) with the passage of time, the giving of notice or both, have any of the effects described in clauses (a) through (d) of this Section 2.3.

A-1

2.4 I NVESTMENT R EPRESENTATIONS .

(a) The undersigned is acquiring the Equity Securities for its own account, for investment and not with a view to the distribution thereof in violation of the Securities Act or other applicable securities laws.

(b) The undersigned understands that (i) such Equity Securities have not been, and will not (except to the extent contemplated by the Registration Rights Agreement) be, registered under the Securities Act or applicable state securities laws by reason of their issuance by the Company in a transaction exempt from the registration requirements of the Securities Act and applicable state securities laws and (ii) such Equity Securities must be held by the undersigned indefinitely unless a subsequent disposition thereof is registered under the Securities Act and other applicable securities laws or is exempt from registration.

(c) The undersigned further understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to the undersigned) promulgated under the Securities Act depends on the satisfaction of various conditions, and that, if applicable, Rule 144 may only afford the basis for sales of securities only in limited amounts.

(d) The undersigned is an “accredited investor” (as defined in Rule 501(a) of Regulation D promulgated under the Securities Act). The Company has made available to the undersigned or his, her or its representatives all agreements, documents, records and books that the undersigned has requested relating to an investment in the Company. The undersigned has had an opportunity to ask questions of, and receive answers from, a person or persons acting on behalf of the Company, concerning the terms and conditions of this investment, and answers have been provided to all of such questions to the full satisfaction of the undersigned. The undersigned has such knowledge and experience in financial and business matters that he, she or it is capable of evaluating the risks and merits of this investment and is capable of losing his, her or its entire investment.


[TRANSFEREE]

By:
Name:
[Title:]

A-2

EXHIBIT B

FORM OF SPOUSAL CONSENT

Reference is made to the Fifth Amended and Restated Shareholders Agreement (the “Shareholders Agreement”) dated as of [—], 2015 among Azul S.A., a Brazilian corporation (sociedade anônima) f/k/a Saleb II Participações S.A. (the “Company”), and each of the Company’s shareholders party thereto, as amended from time to time. Capitalized terms used but not defined herein have the meanings assigned to them in the Shareholders Agreement.

The undersigned hereby agrees as follows:

1. I have read and hereby consent to and approve the Shareholders Agreement and the transactions contemplated thereby.

2. I agree to be bound by the provisions of the Shareholders Agreement insofar as I may have any rights thereunder or any rights in and to any of the Equity Securities including in each case rights under the community property or similar laws relating to marital property in effect in the state or other jurisdiction of my residence as of the date hereof.

Dated:




		Name:

B-1

Exhibit 4.3

FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

dated as of August 3, 2016

among

AZUL S.A.

And

THE SHAREHOLDERS NAMED HEREIN

TABLE OF CONTENTS


		Page
Section 1.	Defined Terms; Rules of Construction		2
	1.1 Defined Terms		2
	1.2 Rules of Construction		6
Section 2.	Demand Registration		7
Section 3.	Registrations on Form F-3 or Form S-3		8
Section 4.	Piggyback Registration		9
Section 5.	Holdback Agreement; Coordinated Transfers		10
	5.1 Holdback		10
	5.2 Sales in Certain Underwritten Offerings		10
Section 6.	Preparation and Filing		10
Section 7.	Expenses		13
Section 8.	Indemnification		13
Section 9.	Underwriting Agreement		15
Section 10.	Suspension		16
Section 11.	Information by Holder		16
Section 12.	Rule 144 Reporting		17
Section 13.	Termination		17
Section 14.	Miscellaneous		17
	14.1 Notices		17
	14.2 Assignment		18
	14.3 Entire Agreement		18
	14.4 Modifications, Amendments and Waivers		18
	14.5 Counterparts		18
	14.6 Governing Law		19
	14.7 Submission to Jurisdiction; Waiver of Jury Trial		19
	14.8 Severability		20
	14.9 No Presumption		20
	14.10 No Third Party Beneficiary		20
	14.11 Non-Recourse		20
	14.12 Specific Performance		20
	14.13 Business Days		20
	14.14 Electronic Execution		21
	14.15 Captions		21

Exhibit 4.3

FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

This Fifth Amended and Restated Registration Rights Agreement dated as of August 3, 2016 (this “ Agreement ”), is by and among Azul S.A., a Brazilian corporation (sociedade anônima) (the “ Company ”), and each of the Company’s shareholders identified on a signature page hereto (collectively, the “ Shareholders ”). Capitalized terms used but not defined elsewhere herein have the meanings assigned to them in Section 1.1.

WHEREAS, the Class A Shareholders (as defined below), the Class B Shareholders (as defined below) and the Class C Shareholder (as defined below) have entered into a Fourth Amended and Restated Registration Rights Agreement dated as of June 26, 2015, under which they were granted registration rights in connection with their preferred shares of the Company (the “ Fourth Amended and Restated Registration Rights Agreement ”).

WHEREAS, the Class D Shareholder (as defined below) desires to acquire Class D Preferred Shares (as defined below) and the Company desires to issue Class D Preferred Shares to the Class D Shareholder on the date hereof, in a transaction being completed solely in Brazil and not involving a public offering in Brazil, under Brazilian Federal Law No. 6,385 and Rule (“ Instrução ”) No. 400, issued by the Brazilian Securities Commission ( Comissão de Valores Mobiliários ) on December 29, 2003, as amended (the “ Investment ”).

WHEREAS, the Class B Shareholders have the right under the By-laws (as defined below) to convert their Class B Preferred Shares into Class A Preferred Shares (or such other class of preferred shares of the Company into which the Class A Preferred Shares may be converted or reclassified and that will be subject to a Qualified IPO (as defined below)).

WHEREAS, the Class C Shareholder has the right under the By-laws (as defined below) to convert its Class C Preferred Shares into Class A Preferred Shares (or such other class of preferred shares of the Company into which the Class A Preferred Shares may be converted or reclassified and that will be subject to a Qualified IPO (as defined below)).

WHEREAS, the Class D Shareholder has the right under the By-laws (as defined below) to convert its Class D Preferred Shares into Class A Preferred Shares (or such other class of preferred shares of the Company into which the Class A Preferred Shares may be converted or reclassified and that will be subject to a Qualified IPO (as defined below)).

WHEREAS, upon the consummation of a Qualified IPO the Class B Shareholders Agreement (as defined below) and the Fifth Amended and Restated Shareholders Agreement (as defined below) together with each other shareholders or similar agreement among the Company and the holders of its preferred securities, other than this Agreement, will terminate.

WHEREAS, the Class B Shareholders, the Class C Shareholder and the Class D Shareholder are entitled to the benefits of this Agreement only with respect to the Class A Preferred Shares received by them upon conversion of their Class B Preferred Shares, Class C Preferred Shares or Class D Preferred Shares, respectively, pursuant to the By-laws and/or upon exercise of any Warrant, as applicable.

WHEREAS, the Company and the Shareholders deem it to be in their respective best interests to amend and restate the Fourth Amended and Restated Registration Rights Agreement in order to set forth the rights of the Shareholders in connection with public offerings and sales of the New Preferred Shares (as defined below) and the New Preferred Shares are the only shares of the Company’s capital stock subject to this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

Section 1. D EFINED T ERMS ; R ULES OF C ONSTRUCTION

1.1 D EFINED T ERMS . Capitalized terms used and not otherwise defined in this Agreement have the meanings ascribed to them below:

“ ADS ” means an American Depositary Share, which shall be evidenced by an American Depositary Receipt.

“ Affiliate ” of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where “control” means the possession, directly or indirectly through one or more intermediaries, of the ownership of more than 50% of the voting stock of a Person, or the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise.

“ Agreement ” has the meaning set forth in the preamble hereof.

“ Business Day ” means any day that is not a Saturday, Sunday, legal holiday or other day on which banks are authorized or required to be closed in New York, NY, USA; São Paulo, SP, Brazil; Barueri, SP, Brazil; or Hong Kong, PRC.

“ By-laws ” means the Company’s by-laws to be approved at a general shareholders’ meeting in the form attached as Exhibit A to the Investment Agreement (as defined below).

“ Class A Preferred Shares ” (i) those certain shares of the class of preferred stock of the Company existing before the date of this Agreement, as set forth on Schedule II to the Subscription Agreement; (ii) those certain shares, if any, into which the Class B Preferred Shares (as defined below) may hereafter mandatorily convert pursuant to the By-laws and in accordance with the terms and conditions of the Subscription Agreement (as defined below); (iii) those certain shares of the class of preferred stock of the Company resulting from the exercise of any Warrant; (iv) those certain shares, if any, into which the Class C Preferred Shares (as defined below) may hereafter mandatorily convert pursuant to the By-laws and in accordance with the terms and conditions of the Fifth Amended and Restated Shareholders Agreement; and (v) those certain shares, if any, into which the Class D Preferred Shares (as defined below) may hereafter mandatorily convert pursuant to the By-laws and in accordance with the terms and conditions of the Fifth Amended and Restated Shareholders Agreement.

“ Class A Shareholders ” means the holders of Class A Preferred Shares identified on the signature pages hereto.

“ Class B Preferred Shares ” means the shares of the class of preferred stock of the Company that were issued, subscribed and paid-in under the Subscription Agreement dated as of December 23, 2013, in connection with the Private Placement and that are automatically and mandatorily convertible into Class A Preferred Shares.

“ Class B Shareholders ” means the holders of Class B Preferred Shares identified on the signature pages hereto.

“ Class B Shareholders Agreement ” means the Class B Shareholders Agreement dated December 23, 2013, among the Company, the Class A Shareholders, the Class B Shareholders and the Common Shareholders (as defined therein).

“Class C Investment ” means the investment in Class C Preferred Shares by the Class C Shareholder pursuant to the Class C Investment Agreement.

“Class C Investment Agreement ” means the Investment Agreement dated as of June 26, 2015, among the Company, the Class C Shareholder and United Airlines, Inc.

“ Class C Preferred Shares ” means the shares of the class of preferred stock of the Company that were issued, subscribed and paid-in under the Class C Investment Agreement dated as of June 26, 2015, in connection with the Class C Investment and that are automatically and mandatorily convertible into Class A Preferred Shares.

“ Class C Shareholder ” means the holder of Class C Preferred Shares identified on the signature page hereto.

“ Class D Preferred Shares ” means newly issued shares of the class of preferred stock of the Company that are being issued, subscribed and paid-in under the Investment Agreement dated as of the date hereof in connection with the Investment and that are automatically and mandatorily convertible into Class A Preferred Shares.

“ Class D Shareholder ” means the holder of Class D Preferred Shares identified on the signature page hereto.

“ Company ” has the meaning set forth in the preamble hereof.

“ Delay/Suspension Period ” has the meaning set forth in Section 10 hereof.

“ Demand Notice ” has the meaning set forth in Section 2(a) hereof.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“Fifth Amended and Restated Shareholders Agreement” means the Fifth Amended and Restated Shareholders Agreement dated as of the date of this Agreement among the Company, the Class A Shareholders, the Class C Shareholder, the Class D Shareholder and the Company’s shareholders holding Common Shares (as defined therein).

“ Form F-3 ” means such form under the Securities Act as in effect on the date of this Agreement or any successor registration form under the Securities Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC in a similar or comparable manner.

“ Form S-3 ” means such form under the Securities Act as in effect on the date of this Agreement or any successor registration form under the Securities Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC in a similar or comparable manner.

“ Fourth Amended and Restated Registration Rights Agreement ” has the meaning set forth in the preamble hereof.

“ F-3/S-3 Notice ” has the meaning set forth in Section 3(a) hereof.

“ Governmental Authority ” means any United States, Brazilian, PRC or other government or political subdivision or quasi-governmental authority thereof, whether on a federal, national, state, provincial, municipal or local level and whether executive, legislative or judicial in nature, including any agency, entity, body, authority, board, bureau, commission, court, tribunal, department, commission or other instrumentality thereof and, if relevant or appropriate, in any other country or other jurisdiction.

“ Investment ” has the meaning set forth in the preamble hereof.

“ Investment Agreement ” means the Investment Agreement dated as of the date hereof between the Company and the Class D Shareholder.

“ Majority of Shareholders ” means those Shareholders who hold in the aggregate in excess of 50% of the New Preferred Shares held by all of the Shareholders.

“ Material Transaction ” means any material transaction in which the Company or any of its subsidiaries proposes to engage or is engaged, including a material purchase or sale of assets or securities, financing, merger, consolidation, tender offer or any other material transaction that would require disclosure pursuant to the Exchange Act, and with respect to which the board of directors of the Company reasonably has determined in good faith that compliance with this Agreement may reasonably be expected to either materially interfere with the Company’s or such subsidiary’s ability to consummate such transaction in a timely fashion or require the Company to disclose material, non-public information prior to such time as it would otherwise be required to be disclosed.

“New Preferred Shares” means the Company’s Class A Preferred Shares held by the Class A Shareholders, the newly issued Class A Preferred Shares into which the Class B Preferred Shares held by the Class B Shareholders will be automatically converted in the event of a Qualified IPO, the newly issued Class A Preferred Shares resulting from the exercise of any Warrant by the Class B Shareholders, the newly issued Class A Preferred Shares into which the Class C Preferred Shares held by the Class C Shareholder will be automatically converted in the event of a Qualified IPO, the newly issued Class A Preferred Shares into which the Class C Preferred Shares held by the Class C Shareholder will be converted at the option of the Class C Shareholder, the newly issued Class A Preferred Shares into which the Class D Preferred Shares held by the Class D Shareholder will be automatically converted in the event of a Qualified IPO and the newly issued Class A Preferred Shares into which the Class D Preferred Shares held by the Class D Shareholder will be converted at the option of the Class D Shareholder.

“ Other Shares ” means with respect to a particular registration statement, any of the preferred shares that are to be included in such registration statement that are not Primary Shares or Registrable Shares.

“ Person ” shall be construed as broadly as possible and shall include an individual, a partnership (including a limited liability partnership), a corporation (including, without limitation, a sociedade anônima), an association, a fund, a joint stock company, a limited liability company, a trust, a joint venture, a firm, an unincorporated association, a Governmental Authority or any other entity.

“ PRC ” means the People’s Republic of China.

“ Primary Shares ” means, with respect to a particular registration statement, any of the preferred shares to be issued by the Company in a registered offering pursuant to such registration statement.

“ Private Placement ” means the private placement of Class B Preferred Shares and Warrants to the Class B Shareholders on December 23, 2013.

“ Prospectus ” means the prospectus included in a Registration Statement filed with the SEC, including any prospectus subject to completion, and any such prospectus as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Shares and, in each case, by all other amendments and supplements to such prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.

“ Qualified IPO ” means a firm commitment underwritten initial public offering of preferred shares or ADSs representing preferred shares or any other equity interests of the Company under the Brazilian Federal Law No. 6,385/76 and under Securities Act, lead-managed by an underwriter of international standing, for listing on the BM&FBOVESPA and/or on The New York Stock Exchange.

“Registrable Shares” means, at any time, and with respect to any Shareholder, the New Preferred Shares held by such Shareholder; provided , however , that such New Preferred Shares shall cease to be Registrable Shares: (a) when ADSs representing such Registrable Shares have been registered under the Securities Act, the Registration Statement in connection therewith has been declared effective and the Registrable Shares have been disposed of pursuant to and in the manner described in such effective Registration Statement; (b) when such Registrable Shares are no longer owned by such Shareholder or the transferee of all the Registrable Shares owned by such Shareholder; or (c) three years after the date on which such Shareholder may first sell such Registrable Shares under Rule 144 (but not Rule 144A) without any volume limitations.

“ Registration Date ” means the date the first registration statement pursuant to which the Company shall have initially registered preferred shares or ADSs representing preferred shares or any other equity interests of the Company under the Securities Act for sale to the public shall have been declared effective.

“ Registration Statement ” means any registration statement of the Company that registers any of the Registrable Shares or ADSs representing such Registrable Shares for resale under the Securities Act, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

“ Restricted Period ” has the meaning set forth in Section 5.1 hereof.

“ Rule 144 ” means Rule 144 promulgated under the Securities Act or any successor rule thereto.

“ SEC ” means the United States Securities and Exchange Commission.

“ Securities Act ” the United States Securities Act of 1933, as amended.

“ Shareholders ” has the meaning set forth in the preamble hereof.

“ Shareholders’ Counsel ” has the meaning set forth in Section 6(a)(ii) hereof.

“ Subscription Agreement ” means the Subscription Agreement dated December 23, 2013, among the Company and the Class B Shareholders.

“ Transaction Documents ” means this Agreement and the other agreements, instruments and documents contemplated hereby and thereby, including each exhibit hereto and thereto.

“ US$ ” means the lawful currency of the United States of America.

“ Warrant ” means each warrant issued to the Class B Shareholders in the Private Placement representing the right to receive a number of Class A Preferred Shares.

1.2 R ULES OF C ONSTRUCTION . The term “this Agreement ” means this registration rights agreement together with all schedules and exhibits hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. The use in this Agreement of the term “including” means “including, without limitation.” The words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to sections, schedules and exhibits mean the sections of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the section and paragraph headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the terms or provisions of this Agreement. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. Unless expressly provided otherwise, the measure of a period of one month or year for purposes of this Agreement shall be that date of the following month or year corresponding to the starting date, provided that if no corresponding date exists, the measure shall be that date of the following month or year corresponding to the next day following the starting date. For example, one month following February 18 is March 18, and one month following March 31 is May 1.

Section 2. D EMAND R EGISTRATION .

(a) At any time after the six month anniversary of the Registration Date: (i) Shareholders owning a majority of the then outstanding Registrable Shares may on two occasions give the Company written notice (a “Demand Notice ” ) requiring the Company to file a Registration Statement covering the sale or distribution of, at such Shareholders’ option, either (A) ADSs representing the Registrable Shares owned by such Shareholders, or (B) in the event that the Company shall have previously registered under the Securities Act the sale to the public of preferred shares, the Registrable Shares owned by such Shareholders, in either case, that are identified in the Demand Notice in accordance with any reasonable and lawful method of distribution selected by them; and (ii) the Company shall within 10 days after receipt of such Demand Notice give written notice to the other Shareholders of their right to include in such Registration Statement any Registrable Shares owned by them (or ADSs representing any Registrable Shares owned by them, as applicable) that such Shareholders shall request the Company to include therein by written notice given to the Company no more than 20 days after receipt of such notice from the Company. The Company shall thereafter use its commercially reasonable efforts to effect the registration of the Registrable Shares (and/or ADSs representing any Registrable Shares owned by them, as applicable) identified by the Shareholders in the preceding clauses (i) and (ii) as soon as practicable, but in any event within 90 days from receipt of the Demand Notice. If the method of distributing the offering is an underwritten public offering, the Company may designate the managing underwriter for such offering, subject to the approval of the Shareholders holding a majority of the Registrable Shares referred to in the Demand Notice (such approval not to be unreasonably withheld).

(b) The Company shall not be obligated to use its commercially reasonable efforts to file and cause to become effective: (i) more than two Registration Statements initiated pursuant to Section 2(a); or (ii) any Registration Statement pursuant to Section 2(a) during any period in which any other registration statement (other than on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto) pursuant to which New Preferred Shares or ADSs representing New Preferred Shares are to be or were sold under the Securities Act (A) has been filed and not withdrawn or has been declared effective within the prior 180 days and (B) in connection with any such registration statement that has not been declared effective, the Company is in good faith using commercially reasonable efforts to cause such registration statement to become effective.

(c) With respect to any registration pursuant to Section 2(a), the Company may include in such registration any Primary Shares or Other Shares (or any ADSs representing Primary Shares or Other Shares); provided , however, that if the managing underwriter advises the Company that the inclusion of all Registrable Shares, Primary Shares and Other Shares (and/or ADSs representing all Registrable Shares, Primary Shares and Other Shares) proposed to be included in such registration would interfere with the successful marketing (including pricing) of all such securities, then the number of Registrable Shares, Primary Shares and Other Shares (and/or ADSs representing Registrable Shares, Primary Shares and Other Shares) proposed to be included in such registration shall be included in the following order:

(i) first, the Registrable Shares (and/or ADSs representing Registrable Shares, as applicable) held by the Shareholders requesting that their Registrable Shares (or ADSs representing Registrable Shares, as applicable) be included in such registration pursuant to Section 2(a), pro rata based upon the number of Registrable Shares (or ADSs representing Registrable Shares, as applicable) owned by each such Shareholder at the time of such registration; provided, however , that the number of Registrable Shares (or ADSs representing Registrable Shares) held by the Shareholders to be included in such underwriting shall not be reduced unless all Primary Shares and Other Shares (and/or ADSs representing Primary Shares and Other Shares, as applicable) are first entirely excluded from the underwriting;

(ii) second, the Primary Shares; and

(iii) third, the Other Shares;

provided , however , that, a registration shall not be counted as “effected” for the purposes of this Section 2 and shall not count as a registration initiated pursuant to this Section 2 for purposes of Section 2(b)(i) above, if, as a result of an exercise of the underwriter’s cutback provisions in this clause (c), fewer than one-half of the total number of Registrable Shares or ADSs representing Registrable Shares, as applicable, that the Shareholders have requested to be included in such registration statement are actually included.

(d) A requested registration under this Section 2 may be rescinded prior to such registration being declared effective by the SEC by written notice to the Company from those Shareholders who initiated the request; provided , however, that such rescinded registration shall not count as a registration initiated pursuant to this Section 2 for purposes of Section 2(b)(i) above if the Company shall have been reimbursed ( pro rata by the Shareholders requesting registration or in such other proportion as they may agree) for all reasonable and documented out-of-pocket expenses incurred by the Company in connection with such rescinded registration; provided , further , however , that if, at the time of such rescission, the Shareholders who initiated the request shall have learned of an event that is, or is reasonably likely to result in, a material adverse change in the Company’s business, financial condition or results of operations from that known to such Shareholders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information then the Shareholders shall not be required to reimburse the Company for any out-of-pocket expenses incurred by the Company in connection with such rescinded registration and such rescinded registration shall not count as a registration initiated pursuant to this Section 2 for purposes of clause (i) of subsection (b).

Section 3. R EGISTRATIONS ON F ORM F-3 OR F ORM S-3 .

(a) Subject to Section 3(c), at such time as the Company shall have qualified for the use of Form F-3 or Form S-3 promulgated under the Securities Act or any successor form thereto: (i) Shareholders owning at least 35% of the then outstanding Registrable Shares may from time to time give the Company written notice (an “F-3/S-3 Notice” ) requiring the Company to file a Registration Statement on Forms F-3 or Form S-3 covering the sale or distribution of, at such Shareholders’ option, either (A) ADSs representing the Registrable Shares owned by such Shareholders, or (B) in the event that the Company shall have previously registered under the Securities Act the sale to the public of any New Preferred Shares, the Registrable Shares owned by such Shareholders, in either case that are identified in the F-3/S-3 Notice in accordance with any reasonable and lawful method of distribution selected by them (other than an underwritten or similar offering); and (ii) the Company shall within 10 days after receipt of such F-3/S-3 Notice give written notice to the other Shareholders of their right to include in such Registration Statement any Registrable Shares (or ADSs representing any Registrable Shares) owned by them that such Shareholders shall request the Company to include therein by written notice given to the Company no more than 20 days after receipt of such notice from the Company. The Company shall thereafter use its commercially reasonable efforts to effect the registration of such Registrable Shares (and/or ADSs representing such Registrable Shares) identified by the Shareholders in the preceding clauses (i) and (ii) as soon as practicable but in any event within 60 days from receipt of the F-3/S-3 Notice.

(b) The Company shall be obligated to use its commercially reasonable efforts to effect pursuant to Section 3(a) any registration under the Securities Act except that the Company shall not be obligated to effect any such registration initiated pursuant to Section 3(a) if: (i) the Company shall reasonably conclude that the anticipated gross offering price of all Registrable Shares (and/or ADSs representing all Registrable Shares) to be included therein would be less than US$25,000,000; (ii) such registration is requested within six months after a registered offering of the Company under the Securities Act in which any of the Shareholders were given the opportunity to participate and all of the Shareholders that shall have elected to participate in such registered offering were permitted to include, without cutback, more than 50% of the Registrable Shares so elected to be included therein by such Shareholders; or (iii) the Company shall have effected one or more Registration Statements on Form S-3 pursuant to this Section 3 during the preceding six-month period.

(c) A requested registration under this Section 3 may be rescinded prior to such registration being declared effective by the SEC by written notice to the Company from those Shareholders who initiated the request; provided , however, that such rescinded registration shall not count as a registration initiated pursuant to this Section 3 for purposes of subsection (b) if the Company shall have been reimbursed ( pro rata by the Shareholders requesting registration or in such other proportion as they may agree) for all reasonable and documented out-of-pocket expenses incurred by the Company in connection with such rescinded registration; provided , further , however , that if, at the time of such rescission, the Shareholders who initiated the request shall have learned of an event that is, or is reasonably likely to result in, a material adverse change in the Company’s business, financial condition or results of operations from that known to such Shareholders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information then the Shareholders shall not be required to reimburse the Company for any out-of-pocket expenses incurred by the Company in connection with such rescinded registration and such rescinded registration shall not count as a registration initiated pursuant to this Section 3 for purposes of subsection (b).

Section 4. P IGGYBACK R EGISTRATION . If the Company at any time proposes, for any reason, to register any Primary Shares or Other Shares (or ADSs representing Primary Shares or Other Shares) under the Securities Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto), it shall promptly give written notice to each Shareholder of its intention so to register such Primary Shares or Other Shares (or such ADSs) and, upon the written request, given within 20 days after delivery of any such notice by the Company, of any such Shareholder to include in such registration Registrable Shares (and/or ADSs representing such Registrable Shares) owned by such Shareholder (which request shall specify the number of the Registrable Shares (and/or ADSs) proposed to be included in such registration), the Company shall use its commercially reasonable efforts to cause all such Registrable Shares (and ADSs) to be included in such registration on the same terms and conditions as the securities otherwise being sold in such registration; provided, however, that if such registration is an underwritten offering and the managing underwriter advises the Company that the inclusion of all Primary Shares, Registrable Shares and Other Shares (or ADSs representing such Primary Shares, Registrable Shares and Other Shares) proposed to be included in such registration would interfere with the successful marketing (including pricing) of the preferred shares (and/or ADSs representing such preferred shares) proposed to be registered by the Company, then the number of Primary Shares, Registrable Shares and Other Shares (and ADSs representing the foregoing) proposed to be included in such registration shall be included in the following order:

(a) first, Primary Shares (or ADSs representing Primary Shares);

(b) second, Registrable Shares (or ADSs representing Registrable Shares) held by the Shareholders requesting that Registrable Shares (or ADSs representing Registrable Shares) be included in such registration, pro rata based upon the number of Registrable Shares owned by each such Shareholder at the time of such registration; and

(c) third, Other Shares (or ADSs representing such Other Shares) held by shareholders requesting that Other Shares (or ADSs representing such Other Shares) be included in such registration, pro rata based on the number of Other Shares owned by each such shareholder at the time of such registration of Other Shares (or among such shareholders in such other proportion as they shall otherwise agree).

Section 5. H OLDBACK A GREEMENT ; C OORDINATED T RANSFERS .

5.1 H OLDBACK . If the Company at any time shall register New Preferred Shares and/or ADSs representing New Preferred Shares under the Securities Act in an underwritten offering, the Shareholders shall not sell, make any short sale of, grant any option for the purchase of, or otherwise dispose of any Registrable Shares (other than those Registrable Shares included in such registration pursuant to Sections 2, 3 or 4) without the prior written consent of the managing underwriters of such offering for a period (the “ Restricted Period ”) as shall be determined by the managing underwriters, which period cannot begin more than 7 days prior to the effectiveness of such registration and cannot last more than 90 days (180 days in the case of the Company’s Qualified IPO) after the effective date of such registration; provided, however, that the foregoing restrictions shall not apply with respect to any Shareholder, (a) in the event the managing underwriters in such offering shall agree, any shares of the capital stock of the Company purchased or otherwise acquired by such Shareholder in the open market following the initial public offering of the Company and (b) other than in the Company’s Qualified IPO, any registration in which, as a result of the underwriter cutback provisions of Section 2 and 4, such Shareholder was either excluded from the registration entirely or was only permitted to include in such registration less than 25% of the Registrable Shares or less than 25% of the ADSs representing such Registrable Shares, as applicable, requested by such Shareholder to be included therein. The foregoing provisions of this Section 5 shall only be applicable to the Shareholders if all officers, directors and selling shareholders of the Company enter into similar agreements. Neither the Company nor the underwriters in respect of such underwritten offering shall grant any discretionary waiver or termination of the restrictions of any or all of such agreements unless such waiver or termination shall apply, on a pro rata basis, to the New Preferred Shares held by the Shareholders.

5.2 S ALES IN C ERTAIN U NDERWRITTEN O FFERINGS . If at any time during the first year after expiration of the Restricted Period following the Company’s Qualified IPO any Shareholder shall sell any Registrable Shares (or ADSs representing Registrable Shares, as applicable) in any registered underwritten offering under the Securities Act, then the Shareholders shall each have a right to sell Registrable Shares (or ADSs representing Registrable Shares, as applicable) in such underwritten transaction in the same proportion as the number of Registrable Shares then owned by such Shareholder bears to the number of Registrable Shares then owned by all of Shareholders who desire to participate in such underwritten transaction (or in such other proportion as they shall otherwise agree).

Section 6. P REPARATION AND F ILING .

(a) If and whenever the Company is under an obligation pursuant to the provisions of this Agreement to use its commercially reasonable efforts to effect the registration of Registrable Shares or ADSs representing any Registrable Shares, the Company shall, as expeditiously as practicable:

(i) prepare and file with the SEC a Registration Statement that registers such Registrable Shares or ADSs representing such Registrable Shares and use its commercially reasonable efforts to cause such Registration Statement (or any post- effective amendment thereto) to become effective as promptly as practicable, and remain effective for a period of 120 days or until the distribution contemplated in such Registration Statement of all of such Registrable Shares (or such ADSs) have been completed (if earlier); provided , however , that: (A) such 120 day period shall be extended for a period of time equal to the period a Shareholder refrains, at the request of an underwriter of the Company, from selling any securities included in such registration; and (B) in the case of any registration of Registrable Shares or ADSs representing Registrable Shares on Form F-3 or Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such 120 day period shall be extended for up to 180 days, if necessary, to keep the registration statement effective until all such Registrable Shares are sold;

(ii) furnish, at least three Business Days before filing, final drafts of a Registration Statement that registers Registrable Shares (or ADSs representing such Registrable Shares), a Prospectus relating thereto and any amendments or supplements relating to such Registration Statement or Prospectus, to one counsel selected by a Majority of Shareholders (the “ Shareholders’ Counsel ”) copies of all such documents proposed to be filed (it being understood that such three Business Day period need not apply to successive drafts of the same document proposed to be filed so long as such successive drafts are supplied to such counsel in advance of the proposed filing by a period of time that is customary and reasonable under the circumstances), and not file any Registration Statement or amendment or supplement thereto that contains information relating to an investor in any of the Company’s securities in a form to which such investor reasonably objects in writing by the end of such period;

(iii) prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the lesser of the period required pursuant to clause (i) of this subsection (a) or until all of the Registrable Shares (or ADSs representing such Registrable Shares) have been disposed of (if earlier) and to comply with the provisions of the Securities Act with respect to the sale or other disposition of such Registrable Shares (or such ADSs);

(iv) notify the Shareholders’ Counsel promptly in writing (A) of any comments by the SEC with respect to such Registration Statement or Prospectus, or any request by the SEC for the amending or supplementing thereof or for additional information with respect thereto, (B) of the effectiveness of such Registration Statement or Prospectus or any amendment or supplement thereto and the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or Prospectus or any amendment or supplement thereto or the initiation of any proceedings for that purpose and (C) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Shares (or ADSs representing such Registrable Shares) for sale in any jurisdiction or the initiation or threatening of any proceeding for such purposes;

(v) use its commercially reasonable efforts to register or qualify, or obtain exemption from the registration or qualification requirements for, Registrable Shares (or ADSs representing such Registrable Shares) under such other securities or blue sky laws of such jurisdictions as any seller of the Registrable Shares (or ADSs representing such Registrable Shares) reasonably requests and take any and all other measures and do all other things which may be reasonably necessary or advisable to enable such seller of the Registrable Shares (or ADSs representing Registrable Shares) to consummate the disposition thereof in such jurisdictions; provided , however , that the Company will not be required to qualify generally to do business, subject itself to general taxation or consent to general service of process in any jurisdiction where it would not otherwise be required so to do but for this clause (v);

(vi) use its commercially reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Shares (or ADSs representing Registrable Shares) for sale in any jurisdiction and, if such an order or suspension is issued, use its commercially reasonable best efforts to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Shareholders of the issuance of any such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose;

(vii) furnish without charge to each seller of the Registrable Shares (or ADSs representing such Registrable Shares) such number of copies of a summary Prospectus or other Prospectus, including a preliminary Prospectus, in conformity with the requirements of the Securities Act, and such other documents as such seller of the Registrable Shares (or ADSs representing Registrable Shares) may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares (or ADSs representing such Registrable Shares);

(viii) notify on a timely basis each seller of the Registrable Shares (or ADSs representing such Registrable Shares) at any time when a Prospectus relating to the Registrable Shares (or ADSs representing such Registrable Shares) is required to be delivered under the Securities Act within the appropriate period mentioned in clause (i) of this subsection (a) of the happening of any event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, promptly prepare and file a supplement or amendment to such Prospectus as may be necessary so that, as supplemented or amended, such Prospectus shall cease to include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made;

(ix) make available for inspection by any seller of the Registrable Shares (or ADSs representing such Registrable Shares), any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other representative retained by any such seller or underwriter, all pertinent financial, business and other records and documents as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or other representative in connection with such Registration Statement; provided , however , that the obligation of the Company to make such records and information available to any such seller or underwriter or any attorneys, accountants or other representatives of any such seller or underwriter shall be subject to the receipt by the Company of a confidentiality agreement from such seller or underwriter, as the case may be, in form and substance reasonably satisfactory to the Company;

(x) use its commercially reasonable efforts to obtain from its independent certified public accountants a “comfort” letter in customary form and covering such matters of the type customarily covered by comfort letters;

(xi) use its commercially reasonable efforts to obtain, from its counsel, an opinion or opinions in customary form;

(xii) obtain the approval of all Governmental Authorities and self-regulatory bodies as may be necessary to effect the registration of the Registrable Shares and consummate the disposition of such Registrable Securities pursuant to the Registration Statement;

(xiii) provide a transfer agent and registrar for all Registrable Shares or ADSs representing such Registrable Shares registered pursuant to this Agreement and request the registrar to provide a CUSIP number for all such Registrable Shares or ADSs representing such Registrable Shares, in each case not later than the effective date of such registration;

(xiv) list the Registrable Shares (or ADSs representing such Registrable Shares) on any United States national securities exchange on which any New Preferred Shares or ADSs representing New Preferred Shares are listed;

(xv) notify each Shareholder, promptly after the Company receives notice thereof, of the time when such Registration Statement has been declared effective or a supplement to any Prospectus forming a part of such Registration Statement has been filed;

(xvi) after such Registration Statement becomes effective, notify each Shareholder of any request by the SEC that the Company amend or supplement such registration statement or prospectus; and

(xvii) otherwise use its commercially reasonable efforts to take all other steps necessary to effect the registration of the Registrable Shares (or ADSs representing such Registrable Shares) contemplated hereby.

(b) Each holder of Registrable Shares that sells Registrable Shares (or ADSs representing the Registrable Shares) pursuant to a registration under this Agreement agrees that during such time as such seller may be engaged in a distribution of the Registrable Shares (or such ADSs), such seller shall comply with Regulation M promulgated under the Exchange Act and pursuant thereto it shall, among other things: (i) distribute the Registrable Shares (or ADSs representing the Registrable Shares) under the Registration Statement solely in the manner described in the Registration Statement covering such Registrable Shares (or ADSs); and (ii) cease distribution of the Registrable Shares (or ADSs representing such Registrable Shares) pursuant to such Registration Statement upon receipt of written notice from the Company that the Prospectus covering the Registrable Shares (or ADSs representing the Registrable Shares) contains any untrue statement of a material fact or omits a material fact required to be stated therein or necessary to make the statements therein not misleading.

Section 7. E XPENSES . All expenses incurred by the Company in complying with Section 6, including, without limitation, all registration and filing fees (including all expenses incident to filing with the National Association of Securities Dealers, Inc.), fees and expenses of complying with securities and blue sky laws, printing expenses, fees and expenses of the Company’s counsel and accountants and fees, shall be paid by the Company. All expenses incurred by any Shareholder in connection with any sale of Registrable Shares (or ADSs representing Registrable Shares) under this Agreement, including, without limitation, such Shareholder’s pro rata share of all fees and expenses of Shareholders’ Counsel and the out-of-pocket expenses incurred by the Company for which the Shareholders are responsible, if any, pursuant to Sections 2(d) and 3(c), shall be paid by such Shareholder, except that the Company shall pay up to US$35,000 of the reasonable fees and expenses of Shareholders’ Counsel in three offerings pursuant to Section 2, 3 or 4.

Section 8. I NDEMNIFICATION .

(a) In connection with any registration of Registrable Shares (or ADSs representing any Registrable Shares) under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless the seller of such Registrable Shares (or ADSs), and each other Person, if any, who controls such seller and each officer, director, partner and member of any of the foregoing Persons, against any losses, claims, damages or liabilities, joint or several, to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement under which Registrable Shares (or ADSs representing such Registrable Shares) were registered, any preliminary Prospectus or final Prospectus contained therein, any amendment or supplement thereto, any free writing prospectus or any document incident to registration or qualification of Registrable Shares (or ADSs representing any Registrable Shares), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any Prospectus, necessary to make the statements therein in light of the circumstances under which they were made not misleading, or any violation by the Company of the Securities Act or state securities or blue sky laws applicable to the Company and relating to action or inaction required of the Company in connection with such registration or qualification under such state securities or blue sky laws, and the Company shall promptly reimburse such sellers, such controlling Persons and such officers, directors, partners and members for any reasonable legal or other expenses incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the Company shall not be liable to any such Person to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Statement, preliminary Prospectus, amendment, supplement, free writing prospectus or document incident to registration or qualification of any Registrable Shares (or ADSs representing Registrable Shares) in reliance upon and in conformity with written information furnished to the Company by such Person, or a Person duly acting on its behalf, specifically for use in the preparation thereof; provided , further , however , that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any untrue statement, allegedly untrue statement, omission or alleged omission made in any preliminary Prospectus but eliminated or remedied in the final Prospectus (filed pursuant to Rule 424 of the Securities Act), such indemnity agreement shall not inure to the benefit of any indemnified party from whom the Person asserting any loss, claim, damage, liability or expense purchased Registrable Shares (or ADSs representing the Registrable Shares) which are the subject thereof, if a copy of such final Prospectus had been timely made available to such Indemnified Person and such final Prospectus was not delivered to such Person with or prior to the written confirmation of the sale of Registrable Shares (or ADSs representing such Registrable Shares) to such Person.

(b) In connection with any registration of Registrable Shares (or ADSs representing Registrable Shares) under the Securities Act pursuant to this Agreement, each seller of Registrable Shares (or ADSs representing Registrable Shares) shall, severally and not jointly, indemnify and hold harmless the Company, each other seller of Registrable Shares (or ADSs representing Registrable Shares) under such registration, each Person who controls any of the foregoing Persons within the meaning of the Securities Act and each officer, director, partner and member of any of the foregoing Persons, against any losses, claims, damages or liabilities to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement under which Registrable Shares (or ADSs representing such Registrable Shares) were registered, any preliminary Prospectus or final Prospectus contained therein, any amendment or supplement thereto, any free writing prospectus or any document incident to registration or qualification of any Registrable Shares (or ADSs representing Registrable Shares), if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company by such seller or a Person duly acting on its behalf specifically for use in connection with the preparation of such Registration Statement, preliminary Prospectus, final Prospectus, amendment or supplement; provided , however , that the maximum amount of liability in respect of such indemnification shall be limited, in the case of each seller of Registrable Shares (or ADSs representing Registrable Shares), to an amount equal to the net proceeds actually received by such seller from the sale of Registrable Shares (or ADSs representing Registrable Shares) effected pursuant to such registration.

(c) Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in the preceding paragraphs of this Section 8, such indemnified party will, if a claim in respect thereof is made against an indemnifying party, give written notice to the latter of the commencement of such action; provided , however , that an indemnified party’s failure to give such notice in a timely manner shall only relieve the indemnification obligations of an indemnifying party to the extent such indemnifying party is prejudiced or harmed by such failure. In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party (it is understood and agreed that Shearman & Sterling LLP is reasonably acceptable to the Shareholders provided that a non-waivable conflict shall not then exist with respect to Shearman & Sterling LLP and such indemnified party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided , however , that if any indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified party that conflict with those available to the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party and such indemnifying party shall reimburse such indemnified party and any Person controlling such indemnified party for that portion of the reasonably incurred fees and expenses of any one lead counsel ( plus one local counsel) retained by the indemnified party in connection with the matters covered by the indemnity agreement provided in this Section 8. If the defense is assumed by the indemnifying party, the indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected by the indemnified party without its prior written consent; provided , however , that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the indemnified party, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such action, claim or proceeding.

(d) If, other than for the reason set forth in the proviso to the first sentence in Section 8(c), the indemnification provided for in this Section 8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage or liability referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other hand in connection with the statements or omissions which resulted in such loss, claim, damage or liability as well as any other relevant equitable considerations; provided , however , that the maximum amount of liability in respect of such contribution shall be limited, in the case of each seller of Registrable Shares (or ADSs representing Registrable Shares), to an amount equal to the net proceeds actually received by such seller from the sale of Registrable Shares (or ADSs representing Registrable Shares) effected pursuant to such registration. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Further, no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

S ECTION 9. U NDERWRITING A GREEMENT .

(a) Notwithstanding the provisions of Sections 5, 6 and 8, to the extent that the Shareholders selling Registrable Shares (or ADSs representing Registrable Shares) in a proposed registration shall enter into an underwriting or similar agreement, which agreement contains provisions covering one or more issues addressed in such Sections of this Agreement (it is understood and agreed that, for purposes of this clause (a), any indemnification provisions in any such underwriting or similar agreement that does not provide for the indemnification by the Company of a seller of Registrable Shares (or ADSs representing Registrable Shares) and other Persons or the indemnification by the seller of Registrable Shares (or ADSs representing Registrable Shares) of the Company and other Persons shall not supersede Section 8(a) or 8(b) above), the provisions contained in such Sections of this Agreement addressing such issue or issues shall be of no force or effect with respect to such registration, but this provision shall not apply to the Company if the Company is not a party to the underwriting or similar agreement.

(b) If any registration pursuant to Sections 2 or 3 is requested to be an underwritten offering, the Company shall negotiate in good faith to enter into a reasonable and customary underwriting agreement with the underwriters thereof. The Company shall be entitled to receive indemnities from lead institutions, underwriters, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement and to the extent customary given their role in such distribution.

(c) No Shareholder may participate in any registration hereunder that is underwritten unless such Shareholder agrees to (i) sell Registrable Shares (or ADSs representing such Shareholder’s Registrable Shares) proposed to be included therein on the basis provided in any underwriting arrangements acceptable to the Company and the Majority of Shareholders and (ii) as expeditiously as possible, notify the Company of the occurrence of any event concerning such Shareholder as a result of which the Prospectus relating to such registration contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

Section 10. S USPENSION . Anything contained in this Agreement to the contrary notwithstanding, the Company may by notice in writing to each holder of Registrable Shares (or ADSs representing Registrable Shares) to which a Prospectus relates, delay, for up to 90 days (the “ Delay/Suspension Period ”), the filing or the effectiveness of any Registration Statement filed (or to be filed) under Section 2, 3 or 4 or require such holder to suspend, for up to the Delay/Suspension Period the use of any Prospectus included in a Registration Statement filed under Sections 2, 3 or 4 if at the time of such delay or suspension: (a) the Company is engaged in, or proposes to engage in, a Material Transaction; or (b) the Company’s board of directors determines that the disclosure required to be included in such Registration Statement could be materially detrimental to the Company or its then current business plans; provided, however, that: (i) the Company may not invoke this right more than once in any 12 month period; and (ii) the Company shall not register any securities for its own account or that of any other security holder during any such Delay/Suspension Period. The period during which such registration must remain effective shall be extended by a period equal to the Delay/Suspension Period. The Company may (but shall not be obligated to) withdraw the effectiveness of any Registration Statement subject to this provision.

Section 11. I NFORMATION BY H OLDER . Each holder of Registrable Shares (or ADSs representing Registrable Shares) to be included in any registration shall furnish to the Company and the managing underwriter such written information regarding such holder and the distribution proposed by such holder as the Company or the managing underwriter may reasonably request in writing at least four Business Days prior to the first anticipated filing date of a Registration Statement and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. It is understood and agreed that the obligations of the Company under Sections 2, 3 and 4 with respect to any particular holder are conditioned on the timely provisions of the foregoing information by each such holder and, without limitation of the foregoing, will be conditioned on compliance by each such holder with the following:

(a) each such holder will, and will cause its Affiliates to, cooperate with the Company as reasonably requested by the Company in connection with the preparation of the applicable registration statement, and for so long as the Company is obligated to keep such registration statement effective, such holder will and will cause its Affiliates to, provide to the Company, in writing and in a timely manner, for use in such registration statement (and expressly identified in writing as such), all information reasonably requested by the Company regarding itself and its Affiliates and such other information as may reasonably be requested by the Company or required by applicable law to enable the Company to prepare such registration statement and the related prospectus covering the Registrable Shares (or ADSs representing the Registrable Shares) owned by such holder and to maintain the currency and effectiveness thereof;

(b) each such holder shall, and it shall cause its Affiliates to, supply to the Company, its representatives and agents in a timely manner any information regarding itself and its Affiliates as the Company, its representatives or agents may be reasonably requested to provide in connection with the offering or other distribution of Registrable Shares (or ADSs representing Registrable Shares) by such holder; and

(c) on receipt of written notice from the Company upon the occurrence of any of the events specified in Section 10, or that requires the suspension by such holder and its Affiliates of the distribution of any Registrable Shares (or ADSs representing the Registrable Shares) owned by such holder pursuant to applicable law, then such holder shall, and it shall cause its Affiliates to, cease offering or distributing such Registrable Shares (or ADSs representing the Registrable Shares) owned by such holder until the offering and distribution of Registrable Shares (or ADSs representing the Registrable Shares) owned by such holder may recommence in accordance with the terms hereof and applicable law.

Section 12. R ULE 144 R EPORTING . From and after the Registration Date or such earlier date as a registration statement filed by the Company pursuant to the Exchange Act relating to any class of the Company’s securities shall have become effective, the Company shall comply with the public information reporting requirements of the SEC that are conditions to the availability of Rule 144 for the sale of Registrable Shares (or ADSs representing the Registrable Shares). The Company shall cooperate with each Shareholder in supplying such information as may be necessary for such Shareholder to complete and file any information reporting forms presently or hereafter required by the SEC as a condition to the availability of Rule 144. From and after the Registration Date, the Company shall furnish to any Shareholder, so long as the Shareholder owns any Registrable Shares, forthwith upon request (a) to the extent accurate, a written statement by the Company that it has complied with the “current public information” requirements under clause (c) of Rule 144 (at any time after 90 days after Registration Date); (b) a copy of the most recent annual or quarterly report of the Company and other reports and documents filed by the Company after the date of such annual report; and (c) such other information as may be reasonably requested in availing any Shareholder of any SEC rule or regulation that permits the selling of any such securities without registration under the Securities Act.

Section 13. T ERMINATION . This Agreement shall terminate and be of no further force or effect when there shall not be any Registrable Shares; provided, however, that Sections 7 and 8 shall survive the termination of this Agreement.

Section 14. M ISCELLANEOUS .

14.1 N OTICES . All notices or other communications required or permitted hereunder shall be given in writing and given by certified or registered mail, return receipt requested, nationally recognized overnight delivery service, such as Federal Express, facsimile or e-mail (or like transmission) with confirmation of transmission by the transmitting equipment or personal delivery against receipt to the party to whom it is given, in each case, at such party’s address, facsimile number or e-mail address set forth below or such other address, facsimile number or e-mail address as such party may hereafter specify by notice to the other parties hereto given in accordance herewith. Any such notice or other communication shall be deemed to have been given as of the date so personally delivered or transmitted by facsimile (or, if delivered or transmitted after normal business hours, on the next Business Day) or e-mail or like transmission, on the next Business Day when sent by overnight delivery services or five days after the date so mailed if by certified or registered mail:

if to the Company, to:

Azul S.A.

Edifício Jatobá, 8 ^th floor

Avenida Marcos Penteado de Ulhôa Rodrigues, 939

Tamboré, Barueri, SP, Brazil 06460-040

Attention: Renato Covelo

E-mail Address: renato.covelo@voeazul.com.br

Telephone: +55 11 4134-9882

Facsimile: +55 11 4134-9890

with a copy to:

Shearman & Sterling LLP

599 Lexington Avenue

New York, NY 10022, U.S.A.

Attention: Stuart K. Fleischmann

E-mail Address: sfleischmann@shearman.com

Telephone: +1 (212) 848-7527

Facsimile: +1 (646) 848-7527

and a copy to:

Pinheiro Neto

Rua Hungria, 1100

01455-906—São Paulo—Brasil

Attention: Vânia Marques Ribeiro Moyano

E-mail address: vmoyano@pn.com.br

Facsimile:(+5511) 3247-8600

If to a Shareholder, to its address on a signature page hereto or, if none, in the books of the Company.

14.2 A SSIGNMENT . Except as otherwise expressly provided herein, this Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs (in the case of any individual), successors and permitted assigns; provided , however , that neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any Shareholder without the prior written consent of the Company; provided , further , however , that, notwithstanding the provisions of the foregoing proviso, to the extent that any Shareholder transfers any securities of the Company to any transferee in a transaction that does not violate the Class B Shareholders Agreement or the Fifth Amended and Restated Shareholders Agreement and is otherwise permissible under applicable law, such Shareholder may transfer and assign, without the prior written consent of the Company, any of its rights, interests or obligations hereunder with respect to any such securities hereunder to such transferee. Any purported assignment or delegation in violation of this Agreement shall be null and void ab initio .

14.3 E NTIRE A GREEMENT . This Agreement embodies the entire agreement and understanding of the parties and their respective Affiliates with respect to the transactions contemplated hereby and supersedes and cancels all prior written or oral commitments, arrangements or understandings with respect thereto. There are no restrictions, agreements, promises, warranties, covenants or undertakings with respect to the transactions contemplated hereby other than those expressly set forth in this Agreement.

14.4 M ODIFICATIONS , A MENDMENTS AND W AIVERS . This Agreement may not be modified or amended except by an instrument or instruments in writing that expressly states that it is modifying or amending this Agreement and that is signed by the Company and the holders of a majority of the New Preferred Shares owned by the Shareholders at the time of such modification or amendment. Any party hereto (or the holders of a majority of the New Preferred Shares then owned by the Shareholders) may, only by an instrument in writing that expressly states that it is waiving compliance with this Agreement, waive compliance by any other party or parties hereto with any term or provision hereof on the part of such other party or parties hereto to be performed or complied with. Notwithstanding the foregoing, the terms and conditions of this Agreement as they apply to any investor in any of the Company’s securities or related parties may not be modified or amended in any manner that is materially adverse to such investor without the prior written consent of such investor. No failure or delay of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor will any single or partial exercise of any right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The waiver by any party hereto of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach. The rights and remedies of the parties hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have hereunder.

14.5 C OUNTERPARTS . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original, and will become effective when one or more counterparts have been signed by a party and delivered to the other parties. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 14.5, provided that receipt of copies of such counterparts is confirmed.

14.6 G OVERNING L AW . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK THAT APPLY TO CONTRACTS MADE AND PERFORMED ENTIRELY IN SUCH STATE.

14.7 S UBMISSION TO J URISDICTION ; W AIVER OF J URY T RIAL . Each party to this Agreement, for itself and its Affiliates, hereby irrevocably and unconditionally:

(a) (i) agrees that any suit, action or proceeding instituted against it by any other party with respect to this Agreement may be instituted, and that any suit, action or proceeding by it against any other party with respect to this Agreement shall be instituted, only in the courts of the State of New York, located in New York County or the U.S. District Court for the Southern District of New York (and appellate courts from any of the foregoing) as the party instituting such suit, action or proceeding may in its sole discretion elect, (ii) consents and submits, for itself and its property, to the jurisdiction of such courts for the purpose of any such suit, action or proceeding instituted against it by any other party and (iii) agrees that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law;

(b) agrees that service of all writs, process and summonses in any suit, action or proceeding pursuant to Section 14.7(a) may be effected by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Company or the applicable Shareholder, as the case may be, at the addresses for notices pursuant to Section 14.1 (with copies to such other Persons as specified therein); provided , however , that: (i) the Company agrees that the documents which start any proceedings and any other documents required to be served in relation to those proceedings may be served on it by being delivered to National Corporate Research, Ltd. or, if different, its registered office for the time being, and if such Person is not or ceases to be effectively appointed to accept service of process on behalf of the Company, the Company shall, appoint a further person in New York to accept service of process on its behalf and, failing such appointment within 30 days, the Shareholders jointly shall be entitled to appoint such a person by written notice addressed to the Company and delivered to the Company; provided , however , that a copy of any such documents shall in each instance be delivered to Shearman & Sterling LLP at its address and fax number set forth in Section 14.1; and (ii) nothing contained in this Section 14.7 shall affect the right of the Company or any Shareholder to serve process in any other manner permitted by law;

(c) (i) waives any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any court specified in Section 14.7(a), (ii) waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum and (iii) agrees not to plead or claim either of the foregoing;

(d) WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY; and

(e) to the extent it has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself, or its property, hereby irrevocably waives such immunity in respect of its obligations with respect to this Agreement.

14.8 S EVERABILITY . To the fullest extent permissible under applicable law, the parties hereto hereby waive any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. Such parties further agree that any provision of this Agreement which, notwithstanding the preceding sentence, is rendered or held invalid, illegal or unenforceable in any respect in any jurisdiction shall be ineffective, but such ineffectiveness shall be limited as follows: (a) if such provision is rendered or held invalid, illegal or unenforceable in such jurisdiction only as to a particular Person or Persons or under any particular circumstance or circumstances, such provision shall be ineffective, but only in such jurisdiction and only with respect to such particular Person or Persons or under such particular circumstance or circumstances, as the case may be; (b) without limitation of clause (a), such provision shall in any event be ineffective only as to such jurisdiction and only to the extent of such invalidity, illegality or unenforceability, and such invalidity, illegality or unenforceability in such jurisdiction shall not render invalid, illegal or unenforceable such provision in any other jurisdiction; and (c) without limitation of clause (a) or (b), such ineffectiveness shall not render invalid, illegal or unenforceable this Agreement or any of the remaining provisions hereof.

14.9 N O P RESUMPTION . With regard to each and every term and condition of this Agreement, the parties hereto understand and agree that the same have or has been mutually negotiated, prepared and drafted, and if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any agreement or instrument subject hereto, no consideration shall be given to the issue of which party hereto actually prepared, drafted or requested any term or condition of this Agreement or any agreement or instrument subject hereto.

14.10 N O T HIRD P ARTY B ENEFICIARY . Except for the Persons indemnified pursuant to Section 8(a) or 8(b), this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, except that any nominee holding Class A Preferred Shares, Class B Preferred Shares, Class C Preferred Shares or Class D Preferred Shares beneficially for an investor may enforce this Agreement as if it were the Class A Shareholder, the Class B Shareholder, the Class C Shareholder or the Class D Shareholder, as applicable, provided , however , that (i) the name of any such nominee shall be previously disclosed to the Company in writing, and (ii) such nominee will have no investment discretion with respect to the Class A Preferred Shares, Class B Preferred Shares, Class C Preferred Shares or Class D Preferred Shares and such investor will remain the beneficial owner of the Class A Preferred Shares, Class B Preferred Shares, Class C Preferred Shares or Class D Preferred Shares for all purposes.

14.11 N ON -R ECOURSE . No past, present or future director, officer, employee, incorporator, member, manager, partner, shareholder, Affiliate, agent, attorney, consultant, representative or principal of the Company or any Affiliate of the Company shall have any liability for any liabilities of the Company under this Agreement or for any claim based on, in respect of, or by reason of, the transactions contemplated hereby.

14.12 S PECIFIC P ERFORMANCE . Each of the parties hereto acknowledges that the others would not have an adequate remedy at law for money damages in the event that any of the covenants or agreements set forth in this Agreement were not performed in accordance with its terms and therefore, each of the parties agrees that the others shall be entitled to specific performance, injunctive and other equitable relief in addition to any other remedy to which it may be entitled at law or in equity (without the necessity of proving the inadequacy as a remedy of money damages or the posting of a bond).

14.13 B USINESS D AYS . If any date provided for in this Agreement shall fall on a day that is not a Business Day, the date provided for shall be deemed to refer to the next Business Day.

14.14 E LECTRONIC E XECUTION . Delivery of an executed counterpart of a signature page of this Agreement and any other Transaction Document by telecopy or electronic format (including pdf) shall be effective as delivery of a manually executed counterpart of this Agreement or other Transaction Document.

14.15 C APTIONS . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement, and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

The next page is the signature page

The parties have executed and delivered this Fifth Amended and Restated Registration Rights Agreement as of the date first written above.


AZUL S.A.

By:		/s/ John Peter Rodgerson
Name:		John Peter Rodgerson
Title:		Attorney in Fact

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


HAINAN AIRLINES CO., LTD.

By:		/s/ Xin Di
Name:		Xin Di
Title:		Chairman


Address:

HNA Plaza, No. 7 Guoxing Road Haikou City, Hainan Province, China Email: ke-zhao3@hnair.com Fax number: +86 898 68875300

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


CALFINCO INC.

By:		/s/ Gerald Laderman
Name:		Gerald Laderman
Title:		Treasurer


Address:

233 S. Wacker Dr. Chicago, Illinois 60606 United States of America Email: gerry.laderman@united.com Fax number: 872-825-0309

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


FIDELITY MT. VERNON STREET TRUST: FIDELITY GROWTH COMPANY FUND

By:		/s/ Colm Hogan
Name:		Colm Hogan
Title:		Authorized Signatory


Address:

Ball & Co C/o Citibank N.A/Custody IC&D Lock Box P.O Box 7247-7057 Philadelphia, P.A 19170-7057 Account #: 206681 Email: fidelity.tpacd@citi.com Fax number: 813-604-1415

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


FIDELITY SECURITIES FUND: FIDELITY BLUE CHIP GROWTH FUND

By:		/s/ Colm Hogan
Name:		Colm Hogan
Title:		Authorized Signatory


Address:

Ball & Co C/o Citibank N.A/Custody IC&D Lock Box P.O Box 7247-7057 Philadelphia, P.A 19170-7057 Account #:849453 Email: fidelity.tpacd@citi.com Fax number: 813-604-1415

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


WP — NEW AIR, LLC

By:		/s/ Michael P. Lazarus
Name:		Michael P. Lazarus
Title:		Authorized Signatory


Address:

c/o Weston Presidio One Ferry Building, Suite 350 San Francisco, CA 94111-4226 Fax No.: (415) 398-0770 E-mail Address: tmrozek@westonpresidio.com Attention: Therese Mrozek

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


AZUL HOLDCO LLC

By:		/s/ Aryeh Davis
Name:		Aryeh Davis
Title:		Authorized Signatory


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: E-mail Address: aryeh@pequotcap.com Attention: Aryeh Davis

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


MARACATU, LLC

By:		Peterson Partners, Inc.
Its:		Manager
		/s/ Eric Noble
Name:		Eric Noble
Title:		CFO & Authorized Signatory


Address:

2825 East Cottonwood Parkway, Suite 400 Salt Lake City, UT 84121 Fax No.: (801) 365-0181 E-mail Address: dan@petersonpartnerslp.com Attention: Daniel Peterson

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


GIF MERCURY LLC

By:		/s/ Marcos Pinto
Name:		Marcos Pinto
Title:		Manager




By:		/s/ Marcelo Hudik F. de Albuquerque
Name:		Marcelo Hudik F. de Albuquerque
Title:		Manager


Address:

Gávea Investimentos Ltda. Av. Ataulfo de Paiva, nº 1.100, 7º andar, Leblon 22440-035, Rio de Janeiro, RJ, Brasil E-mail: malbuquerque@gaveainvest.com.br Attention: Marcelo Albuquerque with a copy to: Gávea Investimentos Ltda. Av. Ataulfo de Paiva, nº 1.100, 7º andar, Leblon 22440-035, Rio de Janeiro, RJ, Brasil Attention: Luiz Henrique Fraga

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


GIF II FUNDO DE INVESTIMENTO EM PARTICIPAÇÕES

By:		/s/ Marcos Pinto
Name:		Marcos Pinto
Title:		Manager



By:		/s/ Marcelo Hudik F. de Albuquerque
Name:		Marcelo Hudik F. de Albuquerque
Title:		Manager


Address:

Gávea Investimentos Ltda. Av. Ataulfo de Paiva, nº 1.100, 7º andar, Leblon 22440-035, Rio de Janeiro, RJ, Brasil E-mail: malbuquerque@gaveainvest.com.br Attention: Marcelo Albuquerque


with a copy to:

Gávea Investimentos Ltda. Av. Ataulfo de Paiva, nº 1.100, 7º andar, Leblon 22440-035, Rio de Janeiro, RJ, Brasil Attention: Luiz Henrique Fraga

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


ZDBR LLC

By:		/s/ Kevin Cannon
Name:		Kevin Cannon
Title:		CEO of Manager


Address:

c/o Zweig-DiMenna Associates, Inc. 900 Third Avenue, 31st Floor New York, NY 10022 Fax No.: (212) 451-1450 E-mail Address: KCannon@zweig-dimenna.com Attention: Kevin Cannon

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


CIA BOZANO

By:		/s/ Lucianne Nigri Finkelsztam
Name:		Lucianne Nigri Finkelsztam
Title:		Diretora




By:		/s/ Oswaldo Prado Sanches
Name:		Oswaldo Prado Sanches
Title:		Diretor Executivo


Address:

Rua Visconde de Ouro Preto nº 5 – 11 andar Botafogo – Rio de Janeiro, RJ Brasil CEP: 22250-180 Fax No.: (55) (21) 3237-9129

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


KADON EMPREENDIMENTOS S.A.

By:		/s/ Lucianne Nigri Finkelsztam
Name:		Lucianne Nigri Finkelsztam
Title:		Director



By:		/s/ Oswaldo Prado Sanches
Name:		Oswaldo Prado Sanches
Title:		Director


Address:

Rua Visconde de Ouro Preto nº 5 – 11 andar Botafogo – Rio de Janeiro, RJ Brasil CEP: 22250-180 Fax No.: (55) (21) 3237-9129 E-mail Address: eraldo@bozano.com.br lnigri@bozano.com.br


BOZANO INVESTMENTS LLC

By:		/s/ Lucianne Nigri Finkelsztam
Name:		Lucianne Nigri Finkelsztam
Title:		Director



By:		/s/ Oswaldo Prado Sanches
Name:		Oswaldo Prado Sanches
Title:		Director


Address:

Rua Visconde de Ouro Preto nº 5 – 11 andar Botafogo – Rio de Janeiro, RJ Brasil CEP: 22250-180 Fax No.: (55) (21) 3237-9129 E-mail Address: eraldo@bozano.com.br lnigri@bozano.com.br

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]

/s/ David Neeleman

DAVID NEELEMAN


Address:

Alameda Surubiju, nº 2.010/2.050, parte, Bloco A, Alphaville, Centro Industrial e Empresarial, Barueri, SP Fax No.: (5511) 4134-9890 Attention: David Neeleman

/s/ John Peter Rodgerson

Attorney in Fact

GIANFRANCO ZIONI BETING


Address:

Rua Eliseu Visconti 188—Morumbi Fax No.: (5511) 3758-9076 Attention: Gianfranco Zioni Beting

/s/ Regis da Silva Brito

REGIS DA SILVA BRITO


Address:

Rua Olinda Muller 1686 Taquara—RS Fax No.: (51) 3541-5490 Attention: Regis Da Silva Brito

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


SALEB II FOUNDER 1 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: David Neeleman


SALEB II FOUNDER 2 LLC

By:		/s/ Gerald Blake Lee
Name:		Gerald Blake Lee
Title:		Member


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: Gerald B. Lee

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


SALEB II FOUNDER 3 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: Thomas Eugene Kelly


SALEB II FOUNDER 4 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (206) 361-7290 Attention: Tom Anderson

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


SALEB II FOUNDER 5 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (718) 709-3600 Attention: Carol Elizabeth Archer


SALEB II FOUNDER 6 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.:(801) 770-3090 Attention: Cindy England

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


SALEB II FOUNDER 7 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (301) 279-9728 Attention: Robert Land


SALEB II FOUNDER 8 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (44) 1428-685965 Attention: Robert Milton

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


SALEB II FOUNDER 9 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (801) 363-4968 Attention: Mark Neeleman


SALEB II FOUNDER 10 LLC

By:		/s/ Marlon Y. Ramirez
Name:		Marlon Y. Ramirez
Title:		Director


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (801) 990-3097 Attention: Marlon Ramirez

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


SALEB II FOUNDER 11 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: John Rodgerson


SALEB II FOUNDER 12 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (203) 966-2740 Attention: Maximilian Urbahn

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


SALEB II FOUNDER 13 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (801) 365-0181 Attention: Joel Peterson


SALEB II FOUNDER 14 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: Amir Nasruddin

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


SALEB II FOUNDER 15 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: Jason Ward


SALEB II FOUNDER 16 LLC

By:		/s/ John Rodgerson
Name:		John Rodgerson
Title:		Manager


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: John Daly

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


JJL BRAZIL, LLC

By:		/s/ James J. Liamtand
Name:		James J. Liamtand
Title:		Manager


Address:

2212 Fox Drive Champaign, IL 61820 Fax No.: (217) 359-2956 E-mail Address: Attention: Nic Mueth

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


MORRIS AZUL, LLC

By:		/s/ June M. Morris
Name:		June M. Morris
Title:		Manager


Address:

4277 Park Terrace Drive Salt Lake City, UT 84124 Fax No.: (801) 273-7734 E-mail Address: Attention: June M. Morris G. Mitchell Morris

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]

/s/ Miguel Dau

Miguel Dau


Address:

Corporation Trust Center 1209 Orange Street Wilmington, New Castle Delaware 19801 Fax No.: (11) 4134-9890 Attention: Miguel Dau

/s/ John Peter Rodgerson

Attorney in Fact

João Carlos Fernandes


Address:

Alameda Rosas, 231 Norada das Flores Aldeia da Serra, Santana do Parnaiba São Paulo Fax No.: Attention: João Carlos Fernandes

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


STAR SABIA LLC

By:		/s/ Clive Bode
Name:		Clive Bode
Title:		Vice President


Address:

c/o TPG Capital, L.P. 301 Commerce Street, Suite 3300 Fort Worth, TX 76102 Fax No.: (817) 871-4001 Attention: General Counsel

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]

/s/ Carolyn Trabuco

Carolyn Trabuco


Address:

500 Nyala Farm Road, Westport, Connecticut 06824 Attention: John Rodgerson

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]

/s/ Sergio Eraldo Sales Pinto

Sergio Eraldo Sales Pinto


Address:

Rua Visconde de Ouro Preto nº 5 – 11 andar Botafogo – Rio de Janeiro, RJ Brasil CEP: 22250-180 Fax No.: (55) (21) 3237-9129 E-mail Address: eraldo@bozano.com.br

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]


TRIP PARTICIPAÇÕES S.A.

By:	/s/ Renan Chieppe	By:	/s/ Decio Luiz Chieppe
Name:	Renan Chieppe	Name:	Decio Luiz Chieppe
Title:	Director	Title:	Director

Address:

Rodovia BR 262, Km 05, Campo Grande, CEP 29145-901

Cidade de Cariacica, Estado do Espírito Santo, Brasil

E-mail address: ricardov@aguiabranca.com.br


TRIP INVESTIMENTOS LTDA.

By:	/s/ Renan Chieppe	By:	/s/ José Mario Capriolli dos Santos
Name:	Renan Chieppe	Name:	José Mario Capriolli dos Santos
Title:	Director	Title:	Director

Address:

Rodovia BR 262, Km 05, Campo Grande, CEP 29145-901

Cidade de Cariacica, Estado do Espírito Santo, Brasil

E-mail address: ricardov@aguiabranca.com.br


RIO NOVO LOCAÇÕES LTDA.

By:	/s/ Decio Luiz Chieppe	By:	/s/ Luiz Wagner Chieppe
Name:	Decio Luiz Chieppe	Name:	Luiz Wagner Chieppe
Title:	Director	Title:	Director

Address:

Rodovia BR 262, Km 05, Campo Grande, CEP 29145-901

Cidade de Cariacica, Estado do Espírito Santo, Brasil

E-mail address: ricardov@aguiabranca.com.br

[Shareholder Signature Page to Fifth Amended and Restated Registration Rights Agreement]

Exhibit 4.4

Form Of Shareholders’ Agreement

by and among

TRIP P ARTICIPAÇÕES S.A.,

TRIP I NVESTIMENTOS L TDA .,

R IO N OVO L OCAÇÕES L TDA .,

CALFINCO I NC .

H AINAN A IRLINES C O ., L TD .

and

D AVID G ARY N EELEMAN

and as intervening and consenting party,

AZUL S.A.

D ATED [—], 2016

Shareholders’ Agreement

This Shareholders Agreement (“ Agreement ”) is entered into by and among the following parties:

By and among,

(a) TRIP P ARTICIPAÇÕES S.A ., a corporation, with head office in the City of Cariacica, State of Espirito Santo, at Rodovia BR 262, Km 05, Campo Grande, CEP 29.145-901, registered as taxpayer under CNPJ/MF No. 09.229.532/0001-70, herein represented by its undersigned legal representatives (“ TRIP Participações ”);

(b) TRIP I NVESTIMENTOS L TDA . , a limited liability company, with head office in the City of Cariacica, State of Espírito Santo, at Rodovia BR 262, Km 05, Campo Grande, CEP 29145-901, registered as taxpayer under CNPJ/MF No. 15.300.240/0001-89, herein represented by its undersigned legal representatives (“ TRIP Investimentos ”);

(c) R IO N OVO L OCAÇÕES L TDA ., a limited liability company with head office in the City of Cariacica, State of Espirito Santo, at Rodovia BR 262, Km 6,3, Sala 208,, CEP 29.157-405, registered as taxpayer under CNPJ/MF No. 04.373.710/0001-18, herein represented by its undersigned legal representatives (“ Rio Novo ” and, together with TRIP Participações and TRIP Investimentos, the “ TRIP’s Shareholders ”);

(d) CALFINCO, I NC . (“ Calfinco ”), a corporation organized under the laws of the State of Delaware, United States of America, having its principal place of business at 233 South Wacker Dr, Chicago, IL 60606;

(e) H AINAN A IRLINES C O ., L TD ., a limited company organized and existing under the laws of the People’s Republic of China, with its headquarters in the Haikou City, Hainan Province, at HNA Plaza, No. 7 Guoxing Road, with the Chinese Company Registration No. 460000400002151, herein represented by its undersigned legal representatives (“ HNA ”); and

(f) D AVID G ARY N EELEMAN , Brazilian, married, bearer of RG no. 53.031.273-6 SSP/SP, registered in the CPF/MF under no. 744573731-68, undersigned (“ Neeleman ” and, together with TRIP’s Shareholders, Calfinco and HNA, “ Shareholders ” or “ Parties ” and each individually a “ Shareholder ” or “ Party ” as appropriate); and

And in the capacity of intervening and consenting party,

(f) AZUL S.A. , a corporation with head office in the City of Barueri, State of São Paulo, at Av. Marcos Penteado de Ulhoa Rodrigues, 939, 8 ^th floor, Condominio Castelo Branco Office Park, Tamboré, Barueri, São Paulo, 06460-060, registered as taxpayer under CNPJ/MF No. 09.305.9994/0001-29, herein represented by its undersigned legal representatives (the “ Company ”),

Preamble

W HEREAS on May 25 2012, the TRIP’s Shareholders and Neeleman, among other parties, entered into an Investment Agreement (“ Investment Agreement ”) through which they have established the general process of incorporation of the totality of shares issued by TRIP Linhas Aéreas S.A. (“TRIP”) into the Company, with the subsequent subscription of new shares issued by the Company by the Shareholders of TRIP, with no extinction of TRIP, pursuant to terms of Article 252 of Federal Law No. 6,404 dated December 15, 1976 (as amended from time to time, “ Corporations Law ”) (“ Merger of Shares ”).

W HEREAS Calfinco and the Company entered into an Investment Agreement, dated as of June 26, 2015 (the “ Calfinco Investment Agreement ”), pursuant to which the Company agreed to issue and Calfinco agreed to subscribe for Class C Preferred Shares which were subsequently mandatorily converted into Class A Preferred Shares in connection with the IPO (as defined below) of the Company.

W HEREAS HNA and the Company entered into an Investment Agreement, dated as of [-], 2016 (the “ HNA Investment Agreement ”), pursuant to which the Company agreed to issue and HNA agreed to subscribe for Class D Preferred Shares which were subsequently converted into Class A Preferred Shares.

W HEREAS the Merger of Shares was effectually executed and formalized as of [-] 2012, and after several adjustment operations in the exchange ratio of shares of the Company, pursuant to the terms of the Investment Agreement, as well as the conversion of several classes of preferred and common shares previously intended for a single class of common and preferred shares, to those currently existing, the Shareholders have become, on this date, holders of the following proportion of Shares of the Company:


Shareholder	Common Shares	Percentage of Common Shares (%)	Preferred Shares	Percentage of Preferred Shares (%)
Neeleman	[—]	[—]	[—]	[—]
TRIP Participações	[—]	[—]	[—]	[—]
TRIP Investimentos	[—]	[—]	[—]	[—]
Rio Novo	[—]	[—]	[—]	[—]
Calfinco	[—]	[—]	[—]	[—]
HNA	[—]	[—]	[—]	[—]

TOTAL	[—]	100%	[—]	[—]

W HEREAS the Company held on [-] its Initial Public Offering of Shares (“ IPO ”), and pursuant to section 4.5 of the Investment Agreement, the Parties have assumed the reciprocal obligation to enter into this Agreement for the purpose of assigning each of TRIP’s Shareholders, Calfinco and HNA certain and specific rights, to take effect only after the completion of the IPO,

N OW , T HEREFORE , the Shareholders, pursuant to and for the purposes and effects of Article 118 of the Corporations Law, agree to enter into this Agreement, which shall bind the Company, and shall be governed by the following clauses and conditions:

S ECTION I

D EFINED T ERMS AND I NTERPRETATION

1.1	For the purposes of this Agreement:

(a) headings and titles shall not limit or affect in any way the interpretation of the text, serving only for convenience and reference;

(b) the terms “include”, “including” and similar shall be interpreted as if they were accompanied by the phrase “without limitation”;

(c) capitalized terms shall be interpreted and shall have the meaning set forth throughout this Agreement, and shall equally apply to the singular and plural, masculine and feminine;

(d) references to any documents or instruments include all of its addendums, restatements, consolidations and amendments, except as otherwise expressly provided;

(e) references to legal provisions shall be interpreted as references to such provisions as altered, extended, consolidated or restated, or as their application is changed from time to time by other norms, and shall include any provisions from which they originate (with or without amendments) and any decisions, regulations, instruments or other legal norms subordinated thereto;

(f) except as otherwise provided, references to Chapters, Sections, Subsections, Items and Exhibits refer to chapters, sections, subsections, items and exhibits attached to this Agreement.

For the purposes of this Agreement:

(a) “ Affiliate ” shall mean, (a) in connection to a legal entity, (i) any individual or other entity holding, directly or indirectly, control of such entity, (ii) any entity Controlled, directly or indirectly, by such person, or (iii) any entity directly or indirectly under common Control of such person; and (b) in connection to an individual, (i) his direct descendent provided he/she is Brazilian, (ii) any entity that, directly or indirectly, is Controlled by the referred individual, the individual’s spouse, ascendants, descendants or direct relatives up to the second degree.

(b) “ Bylaws ” means the bylaws of the Company;

(c) “ Class A Preferred Shares ” means the Class A preferred shares issued by the Company prior to or in connection with an initial public offering;

(d) “ Class B Preferred Shares ” means the Class B preferred shares issued by the Company and converted into Class A Preferred Shares pursuant to the Bylaws;

(e) “ Class C Preferred Shares ” means the Class C preferred shares issued by the Company and converted into Class A Preferred Shares pursuant to the Bylaws;

(f) “ Class D Preferred Shares ” means the Class D preferred shares issued by the Company and converted into Class A Preferred Shares pursuant to the Bylaws;

(g) “ Common Shares ” means the common shares issued by the Company;

(h) “ Control ” means, subject to the legal definition of control set forth under Article 116 of the Corporations Law: (a) the power to elect a majority of officers and to determine and carry out the policies and management of the entity in question, alone or together with other individuals involved in a shareholders agreement or similar voting agreement or under common control, or (b) the direct or indirect ownership of at least fifty percent (50%) plus one (1) share / quota of total voting capital of the entity in question. Terms derived from Control, such as “Controlled”, “Controller” and “under common Control” shall have a meaning analogous to Control.

(i) “ Independent Director ” shall mean the Director that (a) has no connection to the Company and its Affiliates; (b) is not a controlling shareholder, a minority shareholder, spouse or relative up to the second degree of the director, and is not, nor has been, for the three (3) preceding years, an employee of any company or entity related to the controlling shareholder or to the minority shareholder (except for those persons connected to public schools and/or research institutions); (c) has not been, for the last three (3) years, an employee or officer of the Company and its Affiliates, or an employee or officer of the controlling shareholder, the minority shareholder or any entity Controlled by the Company; (d) is not a supplier or buyer, directly or indirectly, of the Company’s services and/or products, to the extent that such may undermine the foregoing’s independence; (e) is not an employee, officer or director of any company or entity that offers or demands services and/or products from/to the Company; (f) is not the spouse or relative up to the second degree of any officer or director of the Company; and (g) does not receive any remuneration from the Company, other than that connected to the position of director (except for income resulting from interest rights in the share capital).

(j) “ Preferred Shares ” means the preferred shares issued by the Company;

(k) “ Subsidiary ” means, in connection to the Company, the companies in which the Company exercises Control;

S ECTION II

B OUND S HARES AND E XERCISE OF V OTING R IGHTS

2.1 All Common Shares held by Shareholders (“ Bound Common Shares ”) and all Preferred Shares held by Shareholders shall be bound to this Agreement.

2.2 The Shareholders are bound to exercise their voting right pertaining to the Shares at the General Meetings of the Company in order to comply with terms and conditions hereof.

S ECTION III

B YLAWS

3.1 In case of conflict or inconsistency between this Agreement and the Bylaws of the Company, this Agreement shall supersede, and the Shareholders shall, at the first General Meeting of the Company to be held after the identification of the conflict, which shall be called and conducted within thirty (30) days following the identification of the referred conflict, alter the wording of the Bylaws in order to eliminate the identified conflict. In the event that such occurs, any Shareholder may call a General Meeting for such purpose.

S ECTION IV

C ORPORATE G OVERNANCE

4.1 Composition of the Board of Directors . The Company shall be managed by the Board of Directors and by the Management. The Board of Directors of the Company shall consist of a maximum of fourteen (14) members and their respective alternates, at least three of them qualified as Independent Directors, with a unified term of two (2) years, elected by the General Meeting of the Company, reelection to be allowed. The Directors shall hold office until the election and investiture of their alternates, except in case of resignation during the term of office.

4.2	Appointment of Directors by TRIP’s Shareholders .

(a) As long as TRIP’s Shareholders hold, together, at least twenty percent (20%) of the Bound Common Shares, TRIP’s Shareholders shall have the prerogative to: (i) appoint three (3) members of the Board of Directors of the Company and their respective alternates; (ii) appoint any successors of the members appointed in subparagraph (i) above; and (iii) remove from the Board of Directors of the Company any member that TRIP’s Shareholders have appointed in accordance with subparagraphs (i) and (ii) above.

(b) If TRIP’s Shareholders hold, together, at least ten percent (10%) of the Bound Common Shares, but less than twenty percent (20%), TRIP’s Shareholders shall have the prerogative to: (i) appoint two (2) members of the Board of Directors of the Company and their respective alternates; (ii) appoint any successors of the members appointed in subparagraph (i) above; and (iii) remove from the Board of Directors of the Company any member that TRIP’s Shareholders have appointed in accordance with subparagraphs (i) and (ii) above.

(c) If TRIP’s Shareholders hold, together, at least five percent (5%) of the Bound Common Shares, but less than ten percent (10%), TRIP’s Shareholders shall have the prerogative to: (i) appoint one (1) member of the Board of Directors of the Company and its respective alternate; (ii) appoint any successors of the member appointed in subparagraph (i) above; and (iii) remove from the Board of Directors of the Company any member that TRIP’s Shareholders have appointed in accordance with subparagraphs (i) and (ii) above.

4.2.1 The persons appointed by TRIP’s Shareholders to hold office on the Board of Directors of the Company, pursuant to the terms of Section 4.2 above, will not necessarily need, as a condition of their office, to qualify as Independent Directors.

4.2.2 Neeleman may remove the members of the Board of Directors appointed by TRIP’s Shareholders, if, after being nominated, these directors present a conflict of interest with the Company and upon notice submitted by Neeleman to TRIP’s Shareholders. TRIP’s Shareholders shall upon the receipt of such notification, appoint a new director. Nevertheless, Neeleman shall not exercise this prerogative while the three directors appointed by TRIP’s Shareholders are Mr. Décio Luiz Chieppe, Renan Chieppe or José Mário Caprioli dos Santos.

4.3 Appointment of Director by Calfinco . As long as Calfinco holds at least fifty percent (50%) of the equivalent number of Preferred Shares into which the Class C Preferred Shares were converted as of June [•], 2015, Calfinco shall have the prerogative to (a) appoint one (1) member to the Board of Directors, (b) appoint any successors of the member appointed in subparagraph (a) above; and (c) remove from the Board of Directors of the Company any member appointed in accordance with subparagraphs (a) and (b) above.

4.4	Appointment of Directors by HNA .

(a) As long as HNA holds at least a twenty percent (20%) economic interest in the Company and HNA owns the largest percentage economic interest in the Company, taking into account TRIP’s Shareholders as a single shareholding block, HNA shall have the prerogative to: (i) appoint three (3) members of the Board of Directors of the Company and their respective alternates; (ii) appoint any successors of the members appointed in subparagraph (i) above; and (iii) remove from the Board of Directors of the Company any member that HNA has appointed in accordance with subparagraphs (i) and (ii) above.

(b) If HNA holds at least a ten percent (10%) economic interest in the Company, but less than a twenty percent (20%) economic interest in the Company, HNA shall have the prerogative to: (i) appoint two (2) members of the Board of Directors of the Company and their respective alternates; (ii) appoint any successors of the members appointed in subparagraph (i) above; and (iii) remove from the Board of Directors of the Company any member that HNA has appointed in accordance with subparagraphs (i) and (ii) above.

(c) If HNA holds at least a five percent (5%) economic interest in the Company, but less than a ten percent (10%) economic interest in the Company, HNA shall have the prerogative to: (i) appoint one (1) member of the Board of Directors of the Company and its respective alternate; (ii) appoint any successors of the member appointed in subparagraph (i) above; and (iii) remove from the Board of Directors of the Company any member that HNA has appointed in accordance with subparagraphs (i) and (ii) above. In any case, no director appointed by HNA may be a U.S. citizen or resident.

4.5 Appointment of Directors by Neeleman . Subject to Sections 4.3, 4.4 and 4.5.2, while TRIP’s Shareholders still have the right to appoint one or more directors according to Section 4.2 above, Neeleman has the prerogative to (a) appoint the remaining members of the Board of Directors of the Company and their respective alternates; (b) appoint any successors of the members appointed in subparagraph (a) above; and (c) remove from the Board of Directors of the Company any members appointed in accordance with subparagraphs (a) and (b) above

4.5.1 In the event that the other holders of Common Shares or Preferred Shares exercise their right pursuant to Article 141 of the Corporations Law, it is agreed that the number of directors elected by such shareholders shall be deducted from the number of directors to which Neeleman has the right to appoint pursuant to Section 4.5 above.

4.5.2 Among the members of the Board of Directors appointed by Neeleman, pursuant to terms of Section 4.5 above, (a) at least two (2) shall qualify as Independent Directors; and (b) at least one shall be appointed to Neeleman by the shareholder holding the largest number of Preferred Shares (“ Largest Shareholder of Preferred Shares ”). In the event the Largest Shareholder of Preferred Shares, for any reason, does not appoint a member to the Board of Directors of the Company in accordance with this Section 4.5.2, Neeleman shall request that the shareholder holding the second largest number of Preferred Shares (“ Second Largest Shareholder of Preferred Shares ”) appoints a member to the Board of Directors of the Company. In the event, the Second Largest Shareholder of Preferred Shares fails to appoint for any reason a member to the Board of Directors of the Company, Neeleman shall request that the shareholder holding the third largest number of Preferred Shares appoint a member of the Board of Directors of the Company, consecutively, until a holder of Preferred Shares (excluding Neeleman) appoints a member of the Board of Directors.

4.6 Resolutions of the General Meeting . Except for matters for which the holders of Preferred Shares hold the right to vote, in accordance with the Bylaws, all other decisions of General Meetings of the Company shall be made by the affirmative vote of holders of at least the majority of Common Shares.

4.6.1 Notwithstanding the provisions of Section 4.5 above, as long as TRIP’s Shareholders hold, together, at least five percent (5%) of the Common Shares, any changes to the Bylaws of the Company that, by amending the items listed below, may materially affect the rights of TRIP’s Shareholders, shall necessarily be approved by a majority of TRIP’s Shareholders:

(a) the quorum required for decisions of the Board of Directors;

(b) the powers of the Board of Directors of the Company; or

(c) the rules for calling, installing or reducing powers and other provisions regarding the meetings of the Board of Directors.

4.6.2 Notwithstanding Section 4.5 above, as long as TRIP’s Shareholders hold at least five percent (5%) of the Bound Common Shares, any changes to the Bylaws of the Company that change the total number of directors of the Company’s Board of Directors, which must remain composed of fourteen (14) members, must necessarily be approved by a majority of TRIP’s Shareholders.

4.6.2.1 The Section above shall not apply in the case of an increase in the number of directors of the Company where TRIP’s Shareholders’ representation on the Board is maintained in the same proportion.

4.7 Shareholders are obligated to vote with their Shares in order to elect the members that are to join the Board of Directors, in accordance with the provisions of Sections 4.2, 4.3, 4.4 and 4.5 above.

4.8 No individual bound (including as an investor, manager, officer, employee, consultant or representative) to any competitor of the Company and/or its subsidiaries may be elected to join the Board of Directors of the Company, except for the case of an individual bound (including as an investor, manager, officer, employee, consultant or representative) to a Shareholder or any of its Affiliates.

4.9 Conversion of TAP Bonds . David Neeleman, any of his Permitted Transferees or any company controlled by David Neeleman shall abstain from voting in any resolution and from taking part in any decision related to the conversion of the TAP Bonds into TAP equity securities.

S ECTION V

T RANSFER OF S HARES

5.1 TRIP’s Shareholders’ Tag-Along Right . In the event that Neeleman intends to transfer a portion of the Bound Shares, he shall notify TRIP’s Shareholders. When TRIP’s Shareholders receive a notification sent by Neeleman stating his intention to transfer a portion of his Bound Common Shares (“ Transfer of Neeleman’s Shares ”) to a third party, the Notified TRIP’s Shareholders (“ Notified TRIP’s Shareholders ”) shall have the right to require that the Transfer of Neeleman’s Shares, object of the notice, also comprises a percentage of Bound Common Shares of their ownership equivalent to the result of the division of (a) the number of Bound Common Shares to be transferred by Neeleman; by (b) the total number of Bound Common Shares held by Neeleman at the moment immediately prior to the referred transaction, under the same conditions under which Neeleman intends to transfer his Bound Common Shares (the “ TRIP’s Shareholders’ Tag-Along Right ”).

5.2 Neeleman’s Tag-Along Right . In the event that TRIP’s Shareholders intend to transfer a portion of the Bound Shares, they shall notify Neeleman. When Neeleman receives a notice sent by any of the TRIP’s Shareholders of their intent to transfer a portion of the Bound Common Shares held by any of TRIP’s Shareholders (“ Transfer of TRIP’s Shareholders’ Shares ”) to a third party (“ Notified Neeleman ”), Notified Neeleman shall have the right to require that the transfer of the TRIP’s Shareholders’ Shares, object of the notification, also comprises a percentage of Bound Common Shares of his ownership equivalent to the result of the division of (a) the number of Bound Common Shares to be Transferred by any of the TRIP’s Shareholders; by (b) the total number of Bound Common Shares held by TRIP’s Shareholders at the moment immediately prior to the referred transaction, under the same conditions under which any of TRIP’s Shareholder intend to transfer their Bound Common Shares (the “ Neeleman’s Tag-Along Right ”).

5.3 Transfer of Shares . If either Neeleman or TRIP’s Shareholders (the “ Offered Shareholder ”), as the case may be, have chosen to exercise their Tag-Along Right, the other shareholder (the “ Offering Shareholder ”) may not validly complete any transfer unless the third party buyer acquires from the Offered Shareholder, concurrently, the Bound Common Shares pursuant to the exercise of the referred right, under the same terms and conditions under which the buyer has agreed to acquire the Offered Shares, pursuant to Sections 5.1 and 5.2 above. In the event that the Offered Shareholder fails to agree to enter into the definitive agreements under the same terms and conditions of the definitive agreements negotiated by the Offering Shareholder, the Offering Shareholder shall be free to complete the Transfer.

5.4 Term for Closing . Whether or not the Tag-Along Right has been exercised by the Offered Shareholder according to the terms above, the Offering Shareholder shall proceed with the transfer of the Offered Shares, and such transfer must be completed, preferably, within a period of one hundred twenty (120) days from the receipt of the notices set forth in Sections 5.1 and 5.2. After such period, if the transfer of the Offered Shares to the third party has not been completed and the Offering Shareholder still intends to Transfer Shares, the Offering Shareholder shall again follow the procedure set forth in Sections 5.1 and 5.2 above.

5.5 TRIP’s Shareholders’ Right of First Offer . In the event that Neeleman intends to dispose of his Bound Common Shares in such manner that, after such disposal or transfer, the Common Shares held by Neeleman come to represent less than fifty percent (50%) plus one (1) Common Shares issued by Azul Holding, in each subsequent disposal or transfer of Common Shares (the “ Neeleman’s Offered Shares ”) Neeleman shall, primarily, before making any offer to any third party, inform and notify TRIP’s Shareholders in writing of such intention, specifying the terms and conditions under which he intends to transfer the Neeleman’s Offered Shares, including the number of the Neeleman’s Offered Shares, the respective price per share, the payment terms and other relevant conditions of the desired transfer (the “ Neeleman’s Transfer Notice ”).

5.6 TRIP’s Shareholders shall have a right of first offer to acquire the Offered Shares on terms equal or superior to those specified by Neeleman and contained in the Neeleman’s Transfer Notice (the “ TRIP’s Shareholders’ Right of First Offer ”), whereby TRIP’s Shareholders shall send a written notice to Neeleman (the “ TRIP’s Shareholders’ Response Notice ”) within sixty (60) days of receipt of the Neeleman’s Transfer Notice, informing whether they will exercise their TRIP’s Shareholders’ Right of First Offer; the absence of such response to be interpreted as lack of interest in exercising such right.

5.7 The TRIP’s Shareholders’ Response Notice shall be firm, irrevocable and irreversible. During the period of sixty (60) days of receipt by Neeleman of the TRIP’s Shareholders’ Response Notice, TRIP’s Shareholders shall buy and Neeleman shall sell the Neeleman’s Offered Shares, which shall be free and clear of any liens, encumbrances or options, under the terms offered, binding the parties, as of now, to perform all acts and execute all documents necessary to formalize the referred transaction (the “ Closing of TRIP’s Shareholders’ Right of First Offer ”).

5.8 If (a) TRIP’s Shareholders waive their TRIP’s Shareholders’ Right of First Offer, (b) TRIP’s Shareholders fail to deliver a TRIP’s Shareholders’ Response Notice in accordance with the terms set forth in Section 5.6 above, or (c) the Closing of the TRIP’s Shareholders’ Right of First Offer fails to comply with the terms of Section 5.7 above, Neeleman shall be free to transfer the Neeleman’s Offered Shares to third parties, provided that at a price per share superior to that specified and under conditions equal to or better than those contained in the TRIP’s Shareholders’ Response Notice, and compliant with the TRIP’s Shareholders’ Tag-Along Right. The consummation of the acts necessary to implement the purchase and sale of the Neeleman’s Offered Shares and their transfer to the referred third party shall be conducted within one hundred twenty (120) days from the expiration of the period of sixty (60) days set forth in Section 5.6 above. After such period, if Neeleman still intends to transfer Common Shares, he shall again observe the procedure set forth in this Section V.

5.9 Neeleman’s Right of First Offer . In the event that TRIP’s Shareholders intend to dispose of any of their Bound Common Shares (the “ TRIP’s Shareholders’ Offered Shares ”) TRIP’s Shareholders shall, primarily, before making any offer to any third party, inform and notify Neeleman in writing of such intention, specifying the terms and conditions under which they intend to transfer the TRIP’s Shareholders’ Offered Shares, including the number of Offered Shares, the respective price per share, the payment terms and other relevant conditions of the desired transfer (the “ TRIP’s Shareholders’ Transfer Notice ”).

5.10 Neeleman shall have a right of first offer to acquire the TRIP’s Shareholders’ Offered Shares on terms equal or superior to those specified by TRIP’s Shareholders and contained in the TRIP’s Shareholders’ Transfer Notice (the “ Neeleman’s Right of First Offer ”), whereby Neeleman shall send a written notice to TRIP’s Shareholders (the “ Neeleman’s Response Notice ”) within sixty (60) days of receipt of the TRIP’s Shareholders’ Transfer Notice, informing whether he will exercise his Neeleman’s Right of First Offer; the absence of such response to be interpreted as lack of interest in exercising such right.

5.11 The Neeleman’s Response Notice shall be firm, irrevocable and irreversible. During the period of sixty (60) days of receipt by TRIP’s Shareholders of the Neeleman’s Response Notice, Neeleman shall buy and TRIP’s Shareholders shall sell the TRIP’s Shareholders’ Offered Shares, which shall be free and clear of any liens, encumbrances or options, under the terms offered, binding the parties, as of now, to perform all acts and execute all documents necessary to formalize the referred transaction (the “ Closing of Neeleman’s Right of First Offer ”).

5.12 If (a) Neeleman waives his Neeleman’s Right of First Offer, (b) Neeleman fails to deliver a Neeleman’s Response Notice in accordance with the terms set forth in Section 5.10 above, or (c) the Closing of Neeleman’s Right of First Offer fails to comply with the terms of Section 5.11 above, TRIP’s Shareholders shall be free to transfer the TRIP’s Shareholders’ Offered Shares to third parties, provided that at a price per share superior to that specified and under conditions equal to or better than those contained in the Neeleman’s Response Notice, and compliant with the Neeleman’s Tag-Along Right. The consummation of the acts necessary to implement the purchase and sale of the TRIP’s Shareholders’ Offered Shares and their transfer to the referred third party shall be conducted within one hundred twenty (120) days from the expiration of the period of sixty (60) days set forth in Section 5.10 above. After such period, if TRIP’s Shareholders still intend to transfer Common Shares, they shall again observe the procedure set forth in this Section V.

5.13 Permitted Transfers; ANAC . The exercise of the Tag-Along Right, the TRIP’s Shareholders’ Right of First Offer and the Neeleman’s Right of First Offer shall not apply when the Transfer of the Bound Common Shares held by Neeleman or TRIP’s Shareholders, as applicable, is made to any of their Affiliates. Neeleman and TRIP’s Shareholders shall observe, in any event, the need to submit any request for transfer of Shares to ANAC for prior approval.

S ECTION VI

S PECIFIC P ERFORMANCE

6.1 Subject to the provisions of this Section VI, the Parties recognize that the attribution of losses and damages, although due and calculated in accordance with applicable law, shall not constitute sufficient remedy for the breach of obligations hereunder, and any Shareholder may judicially require specific compliance with the defaulted obligation through court appointment, according to Article 118 of the Corporations Law, as well as Articles 461, 461-A, 466-A to 466-C, 632 et seq., 642 et seq. and 646 et seq. of the Brazilian Civil Procedure Code. This Agreement, signed by two (2) witnesses, constitutes an extrajudicial instrument on the basis of which execution proceedings may be started for all purposes and effects of Article 585, paragraph II of the Brazilian Civil Procedure Code.

S ECTION VII

G OVERNING L AW AND A RBITRATION

7.1 Governing Law . This Agreement shall be interpreted and governed in accordance with the laws of the Federative Republic of Brazil.

7.2 Conflict Resolution . With the exception of disputes relating to obligations to pay which include judicial enforcement proceedings and that which may require, at the outset, specific execution, all other disputes arising from or connected to this Agreement and its schedules, among others, which pertain to its validity, effectiveness, violation, interpretation, expiration, termination and its consequences, shall be resolved by arbitration, pursuant to Law No. 9,307/96, as amended, upon the conditions that follow.

7.2.1 The dispute shall be submitted to the International Chamber of Commerce (“ Arbitration Center ”) in accordance with its regulation (“ Regulation ”), effective as of the date of the request for initiation of arbitration. The arbitration shall be conducted in Portuguese; provided , however , that if Calfinco or HNA are parties to the dispute, the arbitration shall be conducted in English.

7.2.2 The arbitration shall be based in the City of São Paulo, State of São Paulo, where the arbitral decision shall be granted, and the arbitrators are not authorized to rule based on equity, except for the settlement of the attorneys’ fees mentioned in Section 7.2.4 below.

7.2.3 The arbitration court (“ Arbitration Court ”) shall comprise three arbitrators registered in the Brazilian Bar Association, where the applicant(s), on one hand, shall appoint one arbitrator, and the defendant, on the other, appoint a second arbitrator, which, by common agreement, appoint the third arbitrator who shall act as President of the Arbitration Court. If either party fails to appoint an arbitrator and/or two (2) arbitrators appointed by the Parties fail to appoint the third arbitrator within thirty (30) days from the date set forth for such action, the President of the Arbitration Center shall be responsible for appointing the third arbitrator in the manner set forth in its Regulation.

7.2.4 The Parties agree that the Party upon which the adverse decision is imposed shall pay the fees and expenses incurred with the arbitrators and the Arbitration Center, if otherwise not established in the arbitration decision. The Parties shall bear the costs and fees of their respective attorneys.

7.2.5 Each Party remains entitled to propose in the competent common judgment the legal measures aimed at obtaining precautionary approvals for protection or safeguarding of rights or as preparation prior to the establishment of the Arbitration Court, such action not to be construed as a waiver of arbitration. For the exercise of court protections, the Parties elect the jurisdiction of the City of São Paulo, State of São Paulo, judicial district of the capital, expressly waiving any other, as privileged as it may be. After the initiation of the Arbitration Court, such measures shall be directed to the Arbitration Court.

7.2.6 The decisions of the arbitration shall be final and binding, not requiring court approval nor admitting any appeal against the same, except for requests for correction and clarification before the Arbitration Court, pursuant to art. 30 of Law No. 9,307/96 and possible annulment action pursuant to art. 32 of Law No. 9,307/96. According to article 475-P of the Brazilian Civil Procedure Code, the execution of the judgment shall take place in the judicial district it was processed (the City of São Paulo, State of São Paulo, pursuant to Section 7.2.2 above), the execution creditor being able to legally opt for the location where assets subject to expropriation are located or at the primary residence of the execution debtor. Each Party shall use its best efforts to ensure the expeditious and efficient completion of the arbitration procedures.

7.2.7 Regardless of the nature of the dispute to be settled through arbitration, all Parties shall participate in it, either as a party (when the dispute directly involves it as claimant or counterclaimant), or as an interested third party (when it may be, in any way, directly or indirectly affected by decisions to be made in the course or at the end of the procedure). Likewise, the award shall be final and binding on all Parties, regardless of eventual refusal by any Party to participate in the arbitration procedure, either as a party or an interested third party.

7.2.8 The arbitration shall be completed within the term of six (6) months, which may be extended upon justification by the Arbitration Court.

7.2.9 The arbitration shall be confidential.

S ECTION VIII

G ENERAL P ROVISIONS

8.1 Entire Agreement . This Agreement represents the entire understanding of the Parties regarding the subject matter and supersedes all prior agreements, discussions and understandings with respect to the provisions hereof, subject to the terms of the Investment Agreement.

8.2 Irrevocability and Irreversibility . The obligations herein are assumed by the Parties irrevocably and irreversibly.

8.3 Successors . This Agreement binds not only the Parties but also their successors and permitted assigns, in any capacity, including, without limitation, in cases of merger and incorporation (including of shares) or spin-off of the Shareholders and the Company.

8.4 Assignment . This Agreement and/or all rights, remedies, obligations or liabilities hereunder, by reason hereof, shall not be subject to assignment, transfer or subrogation, in whole or in part, by any of the Shareholders, without the prior consent in writing by the other Shareholder.

8.5 Severability . In the event that any Chapter, Section, Subsection, Item, Exhibit, term or provision hereof is declared invalid or unenforceable pursuant to law, such invalidity or unenforceability shall not affect any other Chapters, Sections, Subsections, Items, Exhibits, terms or provisions hereof, all of which shall remain in full force and effect. Upon determining which term or provision hereof is void or unenforceable, the Parties shall negotiate in good faith to amend this Agreement so as to cause it to reflect, as much as possible, the real intention of the Parties, in a mutually acceptable form, so that the transaction contemplated herein is consummated as originally set forth, to the greatest possible extent.

8.6 Waiver . No omission or delay by either Party in the exercise of its rights, powers or privileges specified herein shall be deemed a waiver, nor shall any single or partial exercise specified herein prevent other or future exercises set forth herein, nor the exercise of other rights, powers or privileges. The rights and remedies specified herein shall be cumulative and non exclusive of any right or remedy provided by law.

8.7 Novation . Any concession or tolerance of any Shareholder regarding (a) non-compliance or partial compliance by the other Party, with any obligation pertaining hereto, (b) absence of requirement of compliance with a specific obligation, or, (c) the admission of compliance with an obligation in a different manner from that provided herein, shall be considered mere liberality and shall not constitute, tacitly or implicitly, novation, enforceable precedent, tacit amendment of its terms, waiver of rights, redemption of obligations or right acquired by the other Shareholder.

8.8 Amendments . Any provision hereof may be amended or waived provided that such amendment or waiver is made in writing and signed by all Parties.

8.9 Terms . All terms set forth herein shall be measured as provided in Article 184 of the Code of Civil Procedure, i.e., excluding the day of beginning and including the maturity date. All terms set forth herein that expire on Saturdays, Sundays or holidays in the city of São Paulo, state of São Paulo, and the city of Vitória, state of Espírito Santo, shall be automatically extended to the following business day.

8.10 Filing in the Headquarters of the Company . This Agreement shall be filed at the Company’s headquarters, and the obligations and encumbrances resulting herefrom shall be recorded in accordance with Section 8.11 below, at the corresponding records, including, among others, in the Registered Shares Register of the Company (or before the financial institution responsible for the bookkeeping of Shares, including the declaration of equity ownership), in accordance with and for the purposes of Article 118, heading, and paragraph 1 of the Corporations Law.

8.11 Annotation . The Company shall ensure that a label with the text below is annotated on the relevant pages of its Registered Shares Register (or at the financial institution responsible for the bookkeeping of Shares, including the declaration of equity ownership) and on any other records or certificates representing Shares under this Agreement:

“THE TOTALITY OF SHARES HELD BY TRIP PARTICIPAÇÕES S.A., TRIP INVESTIMENTOS LTDA., RIO NOVO LOCAÇÕES LTDA. AND DAVID GARY NEELEMAN ARE SUBJECT TO THE NORMS AND RESTRICTIONS SET FORTH IN THE SHAREHOLDERS AGREEMENT DATED [-], THE COPY OF WHICH IS AVAILABLE AT THE HEAD OFFICE OF THE COMPANY.”

8.12 Notices . Except as otherwise expressly provided herein, all notices or communications to be sent by any Party to the other Parties shall be in writing and shall be considered validly received when delivered personally, by certified mail, with return receipt, or by courier service; or by means of registry offices or courts; upon their receipt at the addresses listed below, or at other addresses (including email addresses) or facsimile numbers as the Parties may provide each other through a notice in accordance with this Agreement:

(a) to the Company:

Address: Av. Marcos Penteado de Ulhoa Rodrigues, 939, 8th floor, Condominio Castelo Branco Office Park, Tamboré, Barueri, 06460-060

E-mail: john.rodgerson@voeazul.com.br

Fax: (11) 4134-9800

To: John Rodgerson

(b) to Trip Participações S.A.:

Address: Rod. BR 262, km. 5, Campo Grande, Cariacica/ES

E-mail: renanc@aguiabranca.com.br

Fax: (27) 2125-6301

To: Renan Chieppe

Address: Rod. BR 262, km. 5, Campo Grande, Cariacica/ES

E-mail: josemario@voeazul.com.br

Fax: (27) 2125-6301

To: José Mário Caprioli dos Santos

(d) to Rio Novo Locações Ltda.:

Address: Rod. BR 262, km. 6.3, sala 208, Campo Grande, Cariacica/ES

E-mail: decio@aguiabranca.com.br

Fax: (27) 2125-6304

To: Décio Luiz Chieppe

(e) to CALFINCO Inc.

Address: 233 S. Wacker Dr., Chicago, Illinois 60606, U.S.A.

E-mail: gerry.laderman@united.com

Fax: +1 (872) 825-3321

To: Gerald Laderman

with a copy to (which shall not constitute notice):

Address: 233 S. Wacker Dr., Chicago, Illinois 60606, U.S.A.

E-mail: thomas.bolling@united.com

Fax: +1 (872) 825-0309

To: Thomas N. Bolling

(f) to Hainan Airlines Co., Ltd.

Address: HNA Plaza, No. 7 Guoxing Road, Haikou City, Hainan Province, China

E-mail: ke-zhao3@hnair.com

Fax: +86 (898) 68875300

To: Zhao Ke

with a copy to (which shall not constitute notice):

Address: One South Dearborn Chicago, IL 60603

E-mail: pjha@sidley.com

Fax: +1 (312) 853-4161

To: Pran Jha

(g) to David Gary Neeleman:

Address: Av. Marcos Penteado de Ulhoa Rodrigues, 939, 8th floor, Condominio Castelo Branco Office Park, Tamboré, Barueri, 06460-060

E-mail: john.rodgerson@voeazul.com.br

Fax: (11) 4134-9800

To: John Rodgerson

8.12.1 The Parties undertake to maintain, throughout the term of this Agreement, the data referred to in this Section 8.12 correct, sufficient, accurate and updated. Any alteration must be preceded by prior notice in writing to the other Parties, pursuant to terms hereof.

8.13 Validity . This Agreement shall enter into force on the date of signature and shall remain valid and in force (a) for a period of twenty (20) years; or (b) until the date when TRIP’s Shareholders hold less than five percent (5%) of Common Shares, whichever occurs first.

In witness whereof, the Parties sign this Agreement in five (5) counterparts of equal form and content, before two (2) witnesses.

São Paulo, [—].

(The remainder of this page intentionally left blank)

(Signature page of the Shareholders Agreement)


TRIP Participações S.A.


Name:		Name:
Position:		Position:


TRIP INVESTIMENTOS LTDA.


Name:		Name:
Position:		Position:


RIO NOVO LOCAÇÕES LTDA.


Name:		Name:
Position:		Position:


CALFINCO, Inc.


Name:		Name:
Position:		Position:


HAINAN AIRLINES Co., LTD.


Name:		Name:
Position:		Position:


DAVID GARY NEELEMAN




AZUL S.A.


Name:
Position:


Witnesses:


Name:		Name:
RG:		RG:

Exhibit 21.1

Subsidiaries of Azul S.A.


1.		Azul Linhas Aéreas Brasileiras S.A. (Brazil)
2.		Tudo Azul S.A. (Brazil)
3.		ATS Viagens e Turismo Ltda. (Brazil)
4.		Canela Investments LLC (Delaware, USA)
5.		Azul Finance LLC (Delaware, USA)
6.		Azul Finance 2 LLC (Delaware, USA)
7.		Blue Sabiá LLC (Delaware, USA)
8.		Azul SOL LLC (Delaware, USA)

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated February 6, 2017, in the Registration Statement on Form F-1 and related Prospectus of Azul S.A. dated February 6, 2017.

/s / ERNST & YOUNG

Auditores Independentes S.S.

São Paulo, Brazil

February 6, 2017