Brazil airline Azul could bid for Avianca Brasil's assets after all

SAO PAULO, May 2 (Reuters) - Brazilian airline Azul SA has registered to participate in a bankruptcy auction for the assets of struggling carrier Avianca Brasil scheduled for next week, potentially walking back a previous decision not to participate.

The airline confirmed through a representative that they had registered, although he said no decision had been made whether to actually place a bid. The bankruptcy auction is set for Tuesday.

Avianca Brasil filed for bankruptcy in December and will auction some of its most coveted airport slots, which grant airlines the right to operate flights out of crowded airports.

Brazilian newspaper Valor Economico first reported Azul's registration earlier on Thursday.

Avianca Brasil, which is the country's fourth largest airline, has been so strapped for cash in recent months it has been kept afloat by loans from its competitors, who sought to keep the airline alive until the auction. If Avianca Brasil ceased operations before the auction, it would also lose its slots.

Its fleet has been dwarfed from a high of 60 planes late last year to fewer than 10 in late April.

The auction has caused much tension among Brazil's top 3 airlines, including Azul.

An initial plan would have had Azul take over the majority of Avianca Brasil's airport slots in Sao Paulo and Rio de Janeiro. But a few weeks later, its bigger competitors, LATAM Airlines Group and Gol Linhas Aereas Inteligentes struck a deal with Avianca Brasil's largest creditor, U.S. hedge fund Elliott Management, to create a new plan that would divide up some of those slots among themselves instead.

The shakeup was ill received by Azul, which has loaned Avianca Brasil 51 million reais ($12.86 million) and said in court papers filed on Thursday that the struggling carrier had already defaulted on repaying that debt. This week, Azul said it would leave Brazil aviation industry group Abear, where it was a member along with LATAM and Gol.

LATAM and Gol have also loaned Avianca Brasil tens of millions of dollars and have pledged to bid at least $70 million each at the Tuesday auction.

Avianca Brasil is separate from the better-known Avianca Holdings, which is based in Colombia and is not going through bankruptcy proceedings. ($1 = 3.9665 reais) (Reporting by Marcelo Rochabrun Editing by James Dalgleish)