Gol Surges on Speculation Delta Could Increase Its Stake

  • Brazil reportedly weighs allowing 100% foreign ownership
  • Airline's shares advance most since 2004 public offering

Gol Linhas Aereas Inteligentes SA surged the most since it went public following a report that the federal government may allow more foreign investment in Brazilian airlines.

A possible change in regulation “would be very welcome and would open Gol’s doors for Delta,” said Luis Gustavo Pereira, an analyst at Guide Investimentos Corretora. “Besides Delta, other companies could be interested.” he said.

The government is considering whether to allow foreign investors to own as much as 100 percent of Brazilian airlines, the Valor Economico newspaper reported Monday, without saying how it obtained the information. Brazil currently limits foreign ownership to 20 percent.

Atlanta-based Delta Air Lines Inc. holds 16 percent of Gol’s preferred shares and served as a guarantor for a $300 million term-loan for Gol in September.

Gol’s shares jumped 50 percent to 2.30 reais at the close Monday in Sao Paulo, marking their sharpest one-day advance since an initial public offering in 2004. It was the fifth consecutive daily gain and left the stock down 8.7 percent this year.

‘Expand Opportunities’

“If approved, the increase in foreign ownership will expand opportunities for the country’s airlines, benefiting also its clients,” Gol said by e-mail. Delta declined to comment.

Gol said in December that it would freeze hiring, renegotiate contracts, cut capacity and postpone the addition of some new jets as the recession hurt demand for air travel. The company also faced a sharp increase in costs as Brazil’s real lost 33 percent of its value against the dollar last year.

Revenue per passenger increased 2.3 percent in the fourth quarter as the company cut capacity to cope with Brazil’s recession, Gol said in a statement Monday. The carrier, which flew the most passengers in Brazil last year, cut domestic capacity 4 percent in the quarter while demand fell 8 percent.

“This improvement helps, but we know it is not enough to take us where we want to go as a company,” Chief Financial Officer Edmar Lopes said in a conference call with analysts. More than half of Gol’s costs, such as for fuel and maintenance, are linked to the dollar, while 86.1 percent of the company’s revenue is generated in reais, the company said in September.

Gol gained from the real’s strengthening against the dollar last week, as well as from the possibility of more foreign investment, said Rafael Ohmachi, another analyst at Guide Investimentos.

If Delta could increase its stake in Gol, “investors would be more confident in a possible recovery,” he said.

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