Brazil's Gol Hires PJT to Help Evaluate Options for Its Debt

  • Shares rise on signs airline may renegotiate obligations
  • Stronger real also benefits country's largest airline

Gol Linhas Aereas SA, Brazil’s largest airline by market share, hired PJT Partners Inc. to advise on how to strengthen the carrier’s capital structure, liquidity and debt profile.

The move is part of Gol’s effort to contend with 9.49 billion reais ($2.6 billion) in debt. Last week the airline said that it hired Skyworks Capital to renegotiate aircraft leases. Gol in December announced plans to freeze hiring, renegotiate contracts, cut capacity and postpone the addition of some new jets, as Brazil’s worst recession in more than a century hurt air travel.

Domestic demand for flights fell 3 percent in February, a seventh consecutive drop, industry group Abear said last week. Business flights, which typically generate the highest fares, were the most affected as companies cut travel costs. Latin America’s largest economy is expected to contract 3.66 percent this year after shrinking 3.8 percent last year, according to a recent survey of economists.

PJT, a U.S.-based investment bank, is advising Gol “in connection with its U.S. dollar denominated unsecured bonds,” the company said in a statement Monday. The move is “aimed at optimizing the company’s route network, pushing back its aircraft delivery schedule and re-sizing its capacity in order to adjust its flight offerings to current levels of demand.” The airline is scheduled to release fourth-quarter results on Tuesday.

Debt Maturity

“PJT’s efforts are critical before the market gets to a real concern about a default on the next debt maturity, which could be a few months from now,” said David Tawil, co-founder of New York-based Maglan Capital LP. “Even if PJT is successful in some of its endeavors, the macro environment seems too challenging” to make much of a difference to the airline.

Gol shares rose 7.7 percent to 3.35 reais at 11:36 a.m. in Sao Paulo. The stock gained 23 percent this year through Thursday, recovering part of last year’s 83 percent drop. The government also raised the limit on foreign airline ownership to 49 percent from 20 percent in February, raising speculation that the troubled airline may attract a foreign capital injection.

“There’s good news for Gol stocks today as it’s willing to shore up its debt,” said Rafael Ohmachi, an analyst at Guide Investimentos. “The appreciation of the real is helping to boost the company too, because it means a relief in term of dollar-linked debt and costs.”

The Brazilian real has gained about 9.1 percent against the dollar since the beginning of the year, the best performance among major currencies tracked by Bloomberg. That helps Gol, which has more than 60 percent of its costs -- such as leases, aircraft maintenance and debt service -- linked to the U.S. dollar. More than 86 percent of its revenue is generated in local currency.

Gol declined further comment in an e-mail from a press officer.

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