The markets have reacted negatively this Monday (15) following the news that Brazil’s GOL Linhas Aéreas, one of the country’s three major airlines, would be considering Chapter 11 bankruptcy proceedings in the United States.
As of 17h02 today, Gol’s preferential shares in the São Paulo Stock Exchange (GOLL4) were traded at BRL6.83, a drop of
Its shares in the New York Stock Exchange, meanwhile, had a lighter drop of 3.46%, trading at USD3.07 (one ADS share in New York is equivalent to two preferential shares in Brazil).
As reported by Aviacionline and Aeroin earlier today, citing Folha de São Paulo’s original scoop, GOL Linhas Aéreas is negotiating the debts that were incurred during the pandemic and worsened by the problems related to Boeing, its main supplier. However, the talks have only just begun and are proving difficult, given the number of stakeholders involved, from lessors, investors, banks and other types of creditors.
According to the editor of Folha de São Paulo, Julio Wiziack, the company is considering filing for Chapter 11 reorganization in the United States.
This was the same path adopted by LATAM, which opted for Chapter 11 instead of filing for reorganization in Brazil and Chile, where its main headquarters are located. Because both companies, like Azul, are listed on the NYSE and registered in the US, they have this legal option.
Today, GOL’s debt is around R$20 billion reais (~USD 4.1 billion), of which R$3 billion would be due by the end of the year and the company has no more guarantees to present in possible refinancing and renegotiations, since a large part of the assets were placed with the Abra Group, which also controls Avianca Colombia, which also went through the same process in the USA.
If Chapter 11 is put in place, all debts up to the time of entry into Judicial Recovery will be frozen, giving the company more cash flow and leaving it with only current and day-to-day obligations.
LATAM emerged stronger after going through Chapter 11 and is now the least indebted of the «big three» in Brazil, but it also had to make staff cuts, return aircraft and reorganize.
While the history of Latin airlines resorting to the American process is positive, that of the Brazilian one is grim: Avianca Brasil (Oceanair), Itapemirim, Varig and Vasp have all succumbed to Judicial Recovery (RJ) in Brazil, which for many is confusing and there is no certainty as to what decisions will be taken.
It’s worth noting, however, that all these airlines were being run in a very poor and even amateurish way for several years and with the consent of the owners, which is why they went into RJ.
Besides LATAM, Azul has passed through a private debt restructuring in 2023, ultimately reaching a deal with creditors that improved the company’s liquidity, its debt maturity profile and gave it an improved position through 2027.
The three majors in the country do have positive operating margins. What hampers Azul and GOL in particular, since the latter is yet to make its post-COVID capital restructuring, are their heavy debt structures.
