Summary
- GOL Airlines is considering filing for bankruptcy as a result of high leasing costs and debts owed to lessors totaling $4.112 billion.
- The airline faces financial difficulties in the subsequent two weeks, as GOL cannot generate enough revenue to retire its debt.
- GOL looks at LATAM’s successful emergence from US bankruptcy court as a possible template for its financial troubles.
The orange and white Brazilian airline GOL has been facing financial headwinds of getting most of its fleet on lease and high leasing costs. It has now got to the purpose that GOL is considering bankruptcy. This news broke from the Brazilian newspaper and Reuters previously few days.
Finding an ending to financial troubles
A January 14 Julio Wiziack financial news column in , translated by Google into English, is reporting that GOL Linhas Aéreas Inteligentes, or GOL for brief, is considering steering for US bankruptcy court to provide it the flexibility to restructure funds if debt management talks collapse. GOL has a fleet of 141 aircraft and, based on ch-aviation’s database, 136 are leased.
In response to Wiziack, the 25 lessors are owed R$20 billion ($4.112 billion US dollars), with R$3 billion (almost $616.8 million US dollars) due in the subsequent 12 months. GOL cannot generate enough revenue to retire that debt even while operating within the black with a profit and plenty of headlines proclaiming its operational successes. Finally, based on Wiziack’s reporting, the situation will turn critical in the subsequent two weeks, and a deal will have to be found between GOL, financial creditors, aircraft lessors, and investors.
Photo: renatopmeireles | Shutterstock
Going through Brazilian court just isn’t preferable as, based on Wiziack,
“Lessors prefer to barter within the USA because, based on them, a judicial recovery in Brazil only allows them to know the way it begins, never the way it ends.”
Moreover, Brazilian regulatory policies should not helping to maintain airline costs down. For example, Brazilian fuel costs are 40% higher.
Photo: Stefan Lambauer | Shutterstock
Moreover, as Azul Linhas Aéreas (AD) CEO John Rodgerson on the Skift Aviation Forum in December 2022, airlines in Brazil face regular litigation and overregulation that drives costs and keeps low-cost carriers out of the Brazilian market. An airline operating with a lot regulatory overhead cannot generate as much profit as one without.
LATAM shows the best way
For GOL, searching for a US bankruptcy court versus a Brazilian financial recovery judicial process is more advantageous. One could argue that GOL leaders are how LATAM fared coming out of bankruptcy.
LATAM Leaves Chapter 11 US Bankruptcy Protection After 29 Months
The three Latin American airlines that filed for Chapter 11 in 2020 have emerged successfully.
LATAM was able, after 29 months of US Chapter 11 bankruptcy, to emerge with over $2.2 billion of liquidity and roughly $3.6 billion less debt on its balance sheet (similar to a 35% debt reduction from 2020). Granted, the essential early lockdowns to fight an airborne COVID-19 pandemic and lack of governmental financial aid forced LATAM out of business.
Financial market and GOL Airlines’ response to Wiziack’s column
Reuters reported on January 15 after the column that GOL shares fell 8.8%, essentially the most significant loss on the Brazilian trade index Bovespa (.BVSP), which was nearly flat overall. Reuters also confirmed Wiziack’s reporting that there are final negotiations to preclude GOL from filing for bankruptcy. Reuters also secured this GOL airline statement,
“Gol is in discussions with its financial stakeholders about options that will provide greater financial flexibility, including additional capital to finance operations.”
Bottom line
GOL is in a difficult place, but again, having an airline with 136 jetliners out of 141 total leased, plus an airline operating with a profit against a litigious environment with high regulation, results in financial stresses. Nonetheless, South American powerhouse airline LATAM was in a position to use US bankruptcy court to reinvent itself.
What do you’re thinking that is next for GOL? Please share with civility within the comments.