Brazilian airline Gol was the worst performing stock on the country’s benchmark index on Tuesday, dropping at one point as much as 13%, on reports that it is considering filing for Chapter 11 bankruptcy in the United States within a month.
The airline has retained Seabury Capital to assist in restructuring its debt and equity arrangements. An out of court restructuring, however, is seen as “increasingly inviable.”
American Airlines invested $200 million for a 5.2% ownership stake in the carrier, cementing a partnership that they hurriedly put together after Delta snatched a pending joint venture with much larger LATAM out from under them. (Delta was forced to walk away from their own Gol partnership to do the LATAM deal.) The two airlines offer reciprocal frequent flyer benefits in addition to codesharing on each others’ flights.
This isn’t the first time that Gol has been in trouble. For instance, Delta had to guarantee $300 million in financing for the carrier and held its frequent flyer program as collateral. Even after Gol moved on partner with American, Delta had to help reorganize that debt.
Prior to the pandemic, American also wrote down the value of its $200 million investment in China Southern, a partnership that never blossomed and appeared to simply react to Delta buying a stake in China Eastern. Their stake is likely worth even less today.
(HT: Jonathan W)
@Gary I love how you take turns bashing AA and DL. (Deservingly so.) Time to take on United!
DWT,
UA has not done equity investments to the degree that AA has but certainly not to the degree DL has.
These types of investments are risky.
DL stuck it out w/ AeroMexico and Latam through their restructurings and AA can do the same with Gol. The strategic implications of not having partners is too great. DL/Latam will pick up some revenue but AA already has a strong position and can still maintain a lead. Latin America is just further behind other parts of the world in restructuring its airlines.
Ironic that it’s a ground up LCC in distress vs a legacy carrier during otherwise good growth times for leisure travel. Like easyjet being in distress.
Is it variable rate debt that’s the issue?
Brazil has relatively high air fares with little competition between the 3 dominant carriers.
GOL took over the domestic routes from the VARIG bankruptcy, but never came close to the quality of that airline.’
GOL has always branded itself as a LCC and the other airlines competitors changed their business practice to match, so that Brazil only has LCC service within the country.
Brazil’s decision to reimpose hard-to-get visa requirements on US and other travelers is going to impact fees into GOL. I flew GRU-IGU on GOL a few years ago, but I wouldn’t try to visit Brazil now. Lula doesn’t want American tourists.
Unexpected that it’s a ground up LCC in trouble versus a heritage transporter during in any case great development times for recreation travel. Like easyjet being in trouble.
Is it variable rate obligation that is the issue?
Is AA becoming the Americas version of Etihad?
brteacher, hard-to-get visa to Brazil??! Is a f*****g e-visa for USD 80 valid for 10 years.
Meanwhile, the US charges 185 dollars for brazilians to renew a visa, making you wait almost two years even if you had travelled to US (and back) 20 times in ten years. Also, you have to go in person to an US Embassy or Consulate, in humiliating conditions.
In a continental country like Brazil, a person from Manaus, for example, has to fly to Brasilia or Sao Paulo to get a visa, a trip that is sometimes more expensive than going to Miami.
The truth is that it is not reciprocity if Brazil charges less than half for a visa that is obtained online in a few days. Reciprocity would mean humiliating Americans like the US does with Brazilians. Which I don’t agree with, of course.
Ricardo, You are totally 100% right, and not only let you go there and Denied the Visa and it is a non refundable fee, my friend lost twice us$ 185 for been denied
If we observe the exchange of investors in failing airlines around the world, we get the impression of specific obscure moments that make no sense for those who live outside of aviation, especially those outside the USA, as it is necessary to transform their profits from the local currency to the US Dollar, in order to pay off its operating debts. Someone profits from this and it’s certainly not the airline consumer, they will know the reasons for all this!
Not necessarily a bad thing here. LATAM’s (Delta partner) successful emergence from US bankruptcy court is a possible template for GOL’s financial troubles.
While American is pulling out from SCL and EZE, leaving the westcoast no choice but do business elsewhere. Who wants to fly all the way to Miami and NY to go anywhere in SA.
Ridiculous and foolis. Latam Delta is slowly taking AA market.
I’m one of them, being an South American EP its not worth it anymore for who have to fky deep south often.