Brazil’s GOL is open to more mergers and acquisitions

GOL Linhas Aéreas Inteligentes (G3, Sao Paulo Congonhas) is poised to take further advantage of a developing trend of mergers and acquisitions (M&A) following its purchase of Brazilian domestic carrier MAP Linhas Aéreas (7M, Manaus) as well as American Airlines’ investment in the Brazilian budget carrier.

This was the sentiment expressed by GOL President and Chief Executive Officer Paulo Kakinoff during a recent earnings call on the airline’s fourth quarter of 2021 results.

Asked if the current fuel price volatility was adding urgency to M&A conversations in the South American market, Kakinoff said: “Everybody is looking for additional synergies, cooperations, there might be some M&A opportunities. We have prepared ourselves to play a major role in the trend – if it happens.”

He believed there was plenty of scope for cooperation ranging from codeshares to full mergers. “[There are] plenty of synergies and cooperations being developed, and there are now some, I mean, possibilities that we can envision; nothing concrete, but I believe that the market is moving towards this direction. It might involve GOL or other competitors, but I believe that this is a kind of trend which is about to happen worldwide.”

GOL acquired MAP from VoePass Linhas Aéreas (2Z, Ribeirão Preto) for BRL27.8 million reals (USD5.6 million) in June 2021. The deal was approved by the Brazilian competition watchdog (Conselho Administrativo de Defesa Econômica – CADE) on December 30, 2021.

GOL’s liquidity will be enhanced with the recently finalised investment agreement with American Airlines, which will inject USD200 million in new equity into the Brazilian airline for a 5.2% share in the company. The transaction is subject to regulatory and government approvals, the first of which was granted by CADE this week. “It’s in the antitrust approval process, which is expected to occur in the short term, after which we would affect the BRL1 billion (USD202 million) capital increase. And then, on top of that, do a preemptive rights offering,” disclosed Chief Financial Officer Richard Lark.

GOL reported the best quarter since the outbreak of COVID-19, citing as reasons “a relentless focus on cost and the creation of a flexible and dynamic operation, reaching 36% adjusted EBITDA margin”. “We achieved the fourth consecutive quarter of growing yields, now exceeding pre-pandemic levels,” Kakinoff said. “Our disciplined capacity management has protected liquidity and positioned GOL for enduring profitably.”

Available liquidity remained stable at BRL3.7 billion (USD749 million) at the end of the fourth quarter of 2021, considering BRL1.2 billion of debt refinancing announced last October. Short-term debt totalled BRL635 million (USD128 million) at the end of 2021, the lowest level in four years.

GOL finished 2021 with a fleet of 135 aircraft and was accelerating the transition from B737-800s to B737 MAX to further drive cost efficiencies, Kakinoff said.

“We expect a reduction of around 8% in our unit cost, and the equity created with the fleet transformation and its respective financial plan should be around BRL4 billion (USD810 million) at incremental present value. As a result of this acceleration, we expect better predictability in meeting the aircraft return schedule,” he explained.

Kakinoff said the company was matching the returns of the B737-800s with the intake of the B737 MAXs and planned to end 2022 with more than forty of the type in the fleet. According to the ch-aviation fleets advanced module, GOL has eighty-nine B737-800s and twenty-one B737-700s in the fleet. It expects delivery of seven B737 MAXs, seventy-one B737-8s, and twenty-five B737-10s.

Meanwhile, domestic travel in Brazil had recovered 77% in December 2021 compared to the same month in 2019, and the airline expected more recovery within the first half of 2022. The budget carrier has resumed all its domestic shuttle services and has returned to some international routes, including Montevideo, Uruguay; Punta Cana, Dominican Republic; Cancún, Mexico; Buenos Aires Aeroparque, Argentina; and Paramaribo Int’l, Suriname. Flights to Florida, USA, were to follow in May 2022. The carrier reported signs of recovery in the corporate sector which made about 50% of its market in 2019. Flight frequencies had increased by 22%. Forward bookings in March, April and May 2022 were in line with those for the same period in 2019.

“We’re putting the pandemic management behind us, which has mainly been focused on two directives. One: making sure that we emerge from the pandemic, which will be the second half of this year, with the unit cost equal to or lower than our unit cost when we came in. That’s locked in. We had to make sure that cash inflows and cash outflows matched – assets and liabilities. And we did that,” Lark concluded.