Gol Advances as S&P Affirms Rating on Cash Flow: Sao Paulo Mover

Gol Linhas Aereas Inteligentes SA, Brazil’s biggest airline, rose the most in two weeks after Standard & Poor’s took it off review for a possible credit rating cut, saying cash flow will gradually improve this year.

Shares gained 5.2 percent to 6.46 reais at the close of trading in Sao Paulo, the biggest one-day climb since June 25. It was the best performer on the Ibovespa stock benchmark, which dropped 0.3 percent.

S&P, which in August 2012 put Gol’s credit grade under review for a possible reduction, affirmed the rating at B, five levels below investment grade, according to a statement distributed after the close of trading July 5. The move comes as Gol is reducing domestic flights and cutting costs after posting losses in seven of the past eight quarters.

“We believe domestic demand fundamentals remain positive over the longer term, including favorable demographics and improving income and employment levels in Brazil,” S&P analysts led by Rafaela Vitoria wrote in the report. Improvements the company is making should help lower the Sao Paulo-based airline’s net-debt ratio to about 9 times earnings before interest, taxes, depreciation and amortization this year, and

5.5 times in 2014, the analysts wrote.

Gol said on June 24 that it plans to cut domestic flights by as much as 9 percent in 2013 to meet this year’s target for an operating margin ranging from 1 percent to 3 percent. The airline is expected to post Ebitda of 639.4 million reais ($282.4 million) this year, according to the average estimate of 10 analysts surveyed by Bloomberg, after a loss of 386 million reais in 2012.

The air carrier’s shares have declined 50 percent this year while the Ibovespa dropped 26 percent.