Gol Sees Business Getting Worse After Posting Record Loss

  • Weaker demand, shrinking Brazil economy hurt airline's results
  • Gol says takeoffs and seats to fall as much as 18% this year

Gol Linhas Aereas Inteligentes SA reported a fourth-quarter loss and predicted that business will get worse this year amid declining demand and a shrinking Brazilian economy.

The net loss was 1.18 billion reais ($324 million), the airline said in a statement Tuesday after the close of trading in Sao Paulo. Fourth-quarter net revenue totaled 2.65 billion reais against analyst estimates of 2.66 billion reais. The company posted a record annual loss of 4.46 billion reais.

Brazil’s largest carrier by market share said the results reflect the nation’s economic condition and forecast that its takeoffs and total seats would both decline between 15 percent and 18 percent this year. Gol, like its peers, was hit by a 3.8 percent contraction in Brazil’s economy and 33 percent drop in the country’s currency against the U.S. dollar last year. Airlines have been particularly hurt by weak demand among business travelers, who typically generate the most-profitable fares.

Returning Aircraft

Gol returned five leased aircraft in the first quarter and plans to reduce its fleet by another 20 planes by the end of the year, Chief Executive Officer Paulo Sergio Kakinoff said on a conference call. Gol is working with SkyWorks Capital to help renegotiate aircraft leases, Kakinoff said.

“We believe that positive feedback from global aircraft leasing companies allowed the company to release 2016 traffic guidance with aggressive reductions in available seats per kilometer and seat capacity,” wrote Bradesco BBI analysts Victor Mizusaki and Leandro Fontanesi. “This process will help by raising cash to enhance the liquidity position via aircraft sales and reduction of restricted cash and optimizing the aircraft fleet.”

Gol dropped 7 percent to 3.04 reais at 3:45 p.m. in Sao Paulo and was the worst-performing stock in the BM&FBovespa Small Cap Index. The company’s bonds due 2020 fell as much as 6.75 cents on the dollar, trading at 38 cents.

Standard & Poor’s this week downgraded Gol to CCC-, nine levels below investment grade, saying the company’s capital structure will become unsustainable amid difficult market conditions and that the airline probably will need to renegotiate some of its debt. Last month, Moody’s cut Gol to Caa1. Fitch also cut the carrier, lowering the rating to CCC and saying Gol is at risk of default in the next 12 to 24 months.

Net Debt

Gol had cash of 2.3 billion reais at the end of December, equivalent to 23.5 percent of annual net revenue, and net debt of 7 billion reais, the company said. The airline on Monday said it had hired U.S.-based investment bank PJT Partners Inc. in part for advice on strengthening the airline’s debt profile.

The company has 1.5 billion reais in payments coming due in 2016, including debt service, leasing payments and bank loan service, and is working with PJT to make the company viable in the medium to long term, Chief Financial Officer Edmar Lopes said on the call.

PJT will focus on the U.S. dollar-denominated debt without guarantees, Lopes said. A conversion of debt into equity or a potential merger are not being discussed at this point, he said. The company’s focus is to renegotiate all its contracts to limit and eventually stop burning cash.

“In the short term, the company doesn’t run the risk of becoming insolvent,” CEO Kakinoff said. “But if nothing was made, inertia would consume the company’s liquidity.”

The airline’s domestic demand as measured by revenue per kilometer dropped 8.3 percent in the fourth quarter. Domestic capacity, or available seats per kilometer, fell 3.7 percent. Brazilian carriers are expected to cut domestic capacity 7 percent this year, according to industry group Abear.

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