Gol Gains as Brazil Lets Foreigners Hold Bigger Airline Stakes

  • Government measure will help battered local air carriers
  • Gol surges on speculation that Delta may increase stake

Gol Linhas Aereas Inteligentes SA, Brazil’s biggest airline by market share, rallied on speculation that a foreign company will come in to help rescue the troubled carrier after the government made it easier for outsiders to buy stakes.

President Dilma Rousseff signed a provisional measure allowing foreign companies to own as much as 49 percent of a Brazilian airline, up from 20 percent now. The move triggered bets that Delta Air Lines Inc., which already owns 16 percent of Gol’s preferred shares, could increase its stake.

Brazil is seeking to lure investments to local airlines that are struggling as the worst recession since at least 1901 pares demand for air travel, especially from higher-paying business travelers. Carriers, whose fuel and plane-leasing costs are usually set in dollars, also took a hit after the real depreciated 33 percent last year.

"Because the Brazilian currency weakened so much in recent months, investment in Brazil seems much more attractive for foreigners," Rafael Ohmachi, an analyst at brokerage Guide Investimentos, said in a phone interview from Sao Paulo. "This measure came at the perfect time."

Gol shares gained 18 percent to 2.65 reais at 1 p.m. in Sao Paulo, its highest price since Dec. 21 on a closing basis.

Gol previously surged the most on record on Feb. 1 when news surfaced that the government was planning the limit increase. The measure takes effect Wednesday and is valid for as many as 120 days. During that time, both the lower house and the Senate would need to approve it to turn it into law.

In addition to owning a stake, Atlanta-based Delta also served as a guarantor for a $300 million term loan for Gol in September. Delta said in an e-mail that it "respects the initiatives under consideration by the Brazilian government” and declined to comment further.

Deal Likelier

“Although Delta Airlines can’t take over Gol, we think this provisional measure increases the likelihood of a new deal between the two airlines,” Bradesco BBI analysts wrote in a note to clients. “Delta’s new CEO, Edward H. Bastian, was the key person in Delta Airlines’ international expansion through equity investments. Bastian is a member of Gol’s board of directors.”

Brazil’s biggest airlines, including Gol, Latam Airlines Group SA and Azul Linhas Aereas Inteligentes SA, are set to cut their domestic capacity by 7 percent this year, canceling aircraft orders, returning planes to lessors and cutting routes, according to Brazil airline industry group Abear.

Most political parties support the measure, and the government has created a task force to study additional steps to help airlines, interim Civil Aviation Minister Guilherme Walder Mora Ramalho said in an interview on Feb. 29.

“Measures such as increasing the limit of foreign ownership open the possibility of new business,” Ramalho said in a press conference Wednesday after the measure was announced. “I have no doubt that will happen. There’s a lot of room for aviation growth in Brazil.”

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