Brazil’s Gol airline in serious trouble
BOND investors aren’t waiting around to see if Brazil’s second-biggest airline can withstand the nation’s economic slump and the plunge in its currency. Gol Linhas Aereas has seen its $325 million (R5.44 billion) of notes due in 2022 plummet 62 percent in the past year to 35 cents on the dollar, data compiled by Bloomberg show.
While Gol has enough cash to cover its debt obligations and cash burn this year, the São Paulobased company is facing ballooning losses as Brazil’s deepest recession in a century throttles demand for air travel in the carrier’s biggest market.
The Brazilian real’s 33 percent tumble against the dollar in the past year also is making it more expensive for Gol to service its debt, 87 percent of which is denominated in foreign currencies.
Markets fear a default
“Investors are flying out the door as numbers are bad and markets fear a default ahead,” said Carlos Gribel, the head of fixed income at Andbanc Brokerage in Miami. Gol had $770m in cash as of December, which Gribel said meant the company had the wherewithal to stay current on its debt.
Gol’s press office declined to comment on the bond prices and investor concern the company might halt debt payments. Gol, which gets about 86 percent of its revenue from Brazil, said on November 12 that it lost a record 2.1 billion reais (R8.68bn) in the third quarter. Things have only gotten worse for Latin America’s biggest economy since. Analysts surveyed by the central bank predict Brazil’s gross domestic product will shrink 2.99 percent in 2016 after contracting 3.73 percent last year. That would be the worst two-year recession since 1901.
To bolster its cash hoard, Gol has extended the maturity of its debt, delayed deliveries of new jets and froze hiring.
UBS analyst Rogerio Araujo said in a January 5 report that Gol would require another capitalisation by the first half of 2017. He estimates the airline burns 340 million reais per quarter. “Gol’s operations currently look unsustainable,” Araujo wrote. – Bloomberg