(Adds denial from Avianca Brasil)
By Marcelo Rochabrun
SAO PAULO, Jan 11 (Reuters) - Aircastle is set to repossess 10 jets from Avianca Brasil, the country's No. 4 airline, after a bankruptcy hearing on Monday, a source familiar with the matter said, potentially disrupting flights for thousands of passengers.
The 10 Airbus A320 planes represent 20 percent of Avianca Brasil's current fleet, according to data provided by Brazil's aviation regulator, raising doubts about the carrier's ability to fly its full flight schedule if the aircraft are seized.
And it could lose more planes in the future. GE Capital Aviation Services and an affiliate are seeking to repossess 12 Airbus A320s from Avianca Brasil, according to James Luton, a GE spokesman.
Aircastle, as well as GE Capital Aviation and its affiliate, lease aircraft to Avianca Brasil, whose whole fleet of 46 aircraft is leased from other companies.
After initially declining comment, Avianca Brasil issued a statement denying what it called "the speculative content" of Reuters' story but did not deny any specific statements. The airline added that it is "completely focused" on keeping operations going as normal and that it had transported more than 1 million passengers on 9,000 flights since Dec. 1.
When the airline filed for bankruptcy protection last month, the airline discussed the possible loss of 14 planes, which it said would affect 77,000 passengers over a three-week period.
Avianca Brasil filed for bankruptcy last month after years of mounting losses and late aircraft payments.
Bankruptcy filings, while providing protection from creditors, do not cover leases.
Between the end of 2016 and September 2018, Avianca Brasil's liabilities to aircraft lessors quintupled to 415 million reais ($112 million), according to the carrier's financial statements.
A Brazilian bankruptcy judge stayed a decision that would have allowed Aircastle to repossess the planes last month. That stay expires on Monday.
Since the stay was issued, the source said, Avianca Brasil has not made any proposal to Aircastle that would have allowed the carrier to keep the planes. Avianca Brasil owes Aircastle more than $30 million, the source added.
The source did not want to be named because it was not allowed to discuss the issue publicly.
The stakes are also high for Aircastle, as Avianca Brasil is its largest single customer, representing some 7 percent of its net book value, according to the lessor's financial disclosures.
Avianca Brasil is separate from the better-known Avianca Holdings SA, which is based in Colombia. But they share the same owner, a family company owned in part by Bolivian-born airline entrepreneur German Efromovich.
United Continental Holdings gave the family company a $500 million loan last November.
Neither party has revealed why the loan was needed, but Efromovich has been sued for failure to repay his debts in the United States and Brazil in recent years. ($1 = 3.7138 reais) (Reporting by Marcelo Rochabrun Editing by Phil Berlowitz)