GOL Linhas Aereas announced today that it has fully repaid the $ 300 million loan it took out in 2015, plus accrued interest. US airline Delta Air Lines guaranteed the loan. Last week, some financial analysts pointed out that low-cost Brazilian corporations may not pay for it, forcing Delta to do it.
GOL’s liquidity has taken a hit
The most important asset for airlines at the moment is liquidity. Amid the pandemic, freight forwarders need to save as much money as possible. We’ve seen the steps some companies around the world are taking to reduce their cash burn.
Some airlines, like GOL, burn half a million dollars a day. Others, like Delta, were spending up to $ 100 million a day in the middle of the second quarter.
However, GOL’s reserves are not infinite. In the second quarter results, the company said:
“GOL has maintained a strong liquidity position […] closed the quarter with R $ 3.3 billion in cash and receivables. “ It had over $ 600 million in liquidity.
Now, after paying the loan, GOL closed August with around R $ 2.1 billion (US $ 391 million) of liquidity in the form of cash and accounts receivable. The company added that its total liquidity, including deposits and unencumbered assets, is R $ 5.7 (over $ 1 billion).
Still, paying the loan will put a strain on GOL’s finances.
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What will happen to GOL now?
When GOL signed the $ 300 million loan, the aviation industry was different. First and foremost, GOL had a deep connection with Delta Air Lines, which is why the US carrier agreed to guarantee the loan. Since then, Delta has left GOL and signed a new joint venture agreement with LATAM Airlines Group, and the COVID-19 pandemic came.
The Brazilian airline could not imagine that 2020 would be an unprecedented crisis hit the world. Now the airline has tries to raise liquidity while regaining demand in Brazil.
On a positive note, GOL claims it has no more long-term debt that is about to expire. It said
“We have no significant debt maturities until 2024” stated Richard Lark, CFO of GOL. “This reflects the company’s commitment to strengthening its balance sheet over the past four years.”
What’s wrong with Brazilian aviation?
Overall, Brazilian aviation has tried to recover from the current coronavirus pandemic. In July, the International Air Transport Association (IATA) announced that domestic RPKs in Brazil were 77.7% lower than a year ago. That amount was a slight increase from an 84.9% decrease in June. The country’s occupancy rate was 75.2%, the largest share among the markets examined by the IATA. The organization said
“The country’s higher load factor compared to other markets reflects a slower recovery in capacity amid airline bankruptcies in the region rather than an improvement in passenger demand.”
Meanwhile, The Brazilian government increased its airline rescue package two weeks ago. The Brazilian Civil Aviation Authority (ANAC) claims the aviation industry recovered slightly from April to July.
Demand fell 95% in April, but recovered to -81% by July. While these percentages are far from ideal, they show a small optimistic recovery in Brazil. In addition, Brazilian airlines are working on a big boost in the near future. Azul started its regional airline Azul Conecta; LATAM Brazil has signed its codeshare agreement with azul; the bus company Itapirim is planning its new airline, Ita Linhas AreasTo fly in 2021.
What do you think of the latest developments at GOL? Let us know in the comments.
