What happened

Shares of Brazilian airline Azul (AZUL -4.66%) got caught up in a wave of pessimism surrounding its home country's handling of the pandemic, with the stock down nearly 9% for the week as of Friday morning trading.

So what

Airline stocks, and Latin American airlines in particular, were hit hard by COVID-19, but Azul has proven itself to be one of the healthiest in the region. The company is attempting to move on from the pandemic, plotting a bid for the Brazilian operations of bankrupt LATAM Airlines Group.

A plane landing on a lit-up tarmac at night.

Image source: Getty Images.

But the upside for even the best-run airlines is limited as long as the pandemic is running rampant, and Brazil continues to struggle with COVID-19. The country recorded 36,000 new cases and nearly 1,000 deaths in one 24-hour period this week, and Brazil's president is a vaccine skeptic.

The lack of a quick recovery in Brazil arguably gives Azul a leg up in its effort to buy the LATAM assets, as the bankrupt company will find it harder to come up with a competing restructuring plan without clear signs of revenue growth in the region. But Azul's core business is likely to struggle if travel demand takes a hit. That risk that is driving investors to the sidelines.

Now what

Azul shares remain in a holding pattern. The stock has nearly doubled off of its early pandemic low, but is still down significantly compared to where it traded prior to the health crisis.

AZUL Chart

AZUL data by YCharts.

There is real promise in this business, and Azul has the balance sheet to fly through this turbulence. But after a number of false starts it is now apparent the stock is not going to be able to gain altitude as quickly as investors had hoped. With the pandemic still a major issue throughout Latin America, we could be well into 2022 before there is a real turnaround.

For those who can ride out this rough patch, Azul looks like one of the better investment opportunities in international aviation. Just be advised that the headwinds the airline currently faces are not likely to subside anytime soon.