Professional Aviation Publications
Airport Business Daily
Airport Business Daily
Peanuts! Low Cost Airline News arrow Fitch affirms GOL's IDRs; revises outlook to positive; upgrades unsecured debt to 'B+'

Fitch affirms GOL's IDRs; revises outlook to positive; upgrades unsecured debt to 'B+'


Tags :South America, GOL Transportes Aeros


Fitch affirms GOL's IDRs; revises outlook to positive; upgrades unsecured debt to 'B+'
Fitch Ratings has affirmed Gol Linhas Aereas Inteligentes S.A.'s (GOL) ratings as follows:

--Foreign and Local Currency long-term Issuer Default Ratings (IDRs) at 'B+';

--Long-term National Rating at 'BBB(bra)'.

The Rating Outlooks for the Foreign and Local Currency long-term IDRs and the Long-term National Ratings have been revised to Positive from Negative.

Fitch also has upgraded the ratings of GOL's perpetual notes (USD200 million) and senior notes (USD200 million) to 'B+/RR4' from 'B/RR5'.

GOL's ratings reflect the company's significant market share position in the Brazilian airline sector, its comfortable liquidity position and high leverage. GOL's current ratings contemplate Fitch's expectation that the company will maintain a competitive cost structure vis-a-vis the global industry and its significant market share position in the Brazilian airline sector. The ratings also incorporate the company's exposure to fuel cost volatility and other industry-related risks, such as revenue volatility, high correlation with the domestic economy, high operating leverage and competitive threats.

The Positive Outlook reflects improvements on GOL's credit metrics as well as the more benign business environment. Fitch expects GOL, Brazil's second largest airline with a 42% domestic market share, to benefit from stronger domestic demand for domestic air travel in the business and leisure segments following the recovery in Brazil's economy. Another factor in the Positive Outlook is the company's ability to dramatically restore its liquidity position in a relative short period of time, and the reduction in the company's net leverage, which was quite high at the beginning of the year. The Positive Outlook incorporates Fitch's expectations that the company will continue lowering its net leverage, which remains high, maintaining a strong cash position.

The upgrade of the company's unsecured debt to 'B+/RR4' from 'B/RR5' reflects better recovery prospects for GOL's subordinated debt resulting from the company's improved profitability.

Improving Business Environment:

The domestic demand has shown increasing traffic volume during the first nine months of the year, while the international demand decreased during the same period. In the third quarter of 2009 (3Q'09) and the first nine months of 2009, domestic flight demand in Brazil, measured by revenue passenger kilometers (domestic RPK) increased by 25.7% and 10.5%, respectively, over the third quarter (3Q'08) and the first nine months of 2008. Demand for international traffic fell by 2.5% and 4.6%, respectively, during the same periods. One of the factors behind the domestic market recovery is the increasing number of business travelers resulting from Brazil's improved economic environment. The decline in the international market demand reflects the impact of the global financial crisis, GOL's decision to reduce its international flights, and the swine flu outbreak affecting international routes in South America.

Fitch considers that GOL should benefit from improving volume traffic in the domestic segment given its strong market position in the most important Brazil's domestic airports. Since VRG's (formally known as Varig) acquisition, the company has been the carrier with the most flights at the busiest airports in Brazil: Congonhas (Sao Paulo), Santos Dumont and Galeao (Rio de Janeiro), Juscelino Kubitschek (Brasilia), and Confins (Belo Horizonte). The company holds a participation of about 50% of the departures from these airports, which are among the most profitable routes in the domestic market, with higher yields achieved mostly from travelers in the business segment.

Better Operational Results:

The company has delivered positive operating performance in the last two quarters driven by positive trend in the domestic demand and lower operating expenses, mostly driven by lower fuel costs. As a result, the company's EBITDAR for the last 12 month period ended in September 2009 was BRL1.2 billion, a healthy 77% increase over the company's EBITDAR during 2008 (BRL 681.5 million). EBITDAR margin was 20.2% by the end of September 2009, compared to 10.6% by the end of December 2008. The company's load factors in the domestic market continued on a positive trend, reaching 67.2% during 3Q'09, significantly higher than the comparable figure for 3Q'08 (58%). However, the more competitive scenario during 3Q'09 negatively impacted the company's yield per passenger kilometers, averaging BRL18.92 cents versus BRL27.09 cents for 3Q'08 The lower yields during 3Q'09 was the consequence of a more competitive scenario, when airlines successfully reverted decreasing load factor. During the fourth quarter of 2009, the company expects to see a recovery in its yields, with the implementation of tariffs increase already under way.

The company continues showing improvements on its cost structure mostly due to lower fuel costs, but also from synergy gains resulting from the GOL/VRG merger. The company's total operating expenses for 3Q'09 were BR1.4 billion, a reduction of 17% when compared with 3Q'08. The main drivers explaining the company's lower operating expenses during 3Q'09 were fuel cost, sales and marketing expenses; as well as maintenance expenses, which decreased 35.2%, 47.5%; and 23%, respectively, over 3Q'08. Fuel costs represented 34.7% of total operating expenses during the 3Q'09; compared to 44.4% during 3Q'08. Despite an increase of 3% of Available Seat Kilometers (ASK) during 3Q'09, operating expenses excluding fuel expenses decreased by 2.6% to BR912.1 million, when compared to 3Q'08.

Strong Liquidity:

Fitch considers the company has dramatically improved its liquidity during the last quarters due to its continued efforts and steps taken to achieve specific cash targets of BR800 million (13% of revenues) and BR1.2 billion (19% of revenues) by the end of 2009 and 2010. The company ended 3Q'09 with a cash position of BR662 million, 68% higher that the company's cash position by the end of 1Q'09 (BR396 million). Steps taken by GOL included a capital increase of BRL203.5 million and the issuance of BRL400 million in local debentures due in 2011. The company also raised BRL255 million, of which it had received BRL150 million as of Sept. 30, 2009, through the advance sale of miles to Bradesco and Banco do Brasil.

GOL continues to pursue a strong capital structure. During the first week of October 2009, the company completed an equity offering which generated net proceeds of BR602 million. Considering the net proceeds of the recent offering, the company's cash position would be around BR1.2 billion (21% of revenues).

Leverage Remains High:

Fitch views as a positive the company's ability to reduce its leverage during the last quarters, however, it still remains high. Fitch expects to see further improvement in the coming quarters. During the LTM ended Sept. 30, 2009, GOL generated BRL1.2 billion of EBITDAR, an improvement from BRL474 million during the comparable period in 2008. GOL's total debt adjusted for operating leases was BRL8.1 billion at the end of September 2009, while its cash and marketable securities balance was BRL646 million. These figures result in an adjusted net debt-to-EBITDAR ration of 6.2 times (x) for the LTM, which favorably compares with the company's net leverage by the end of December 2008 of 11.0x.

GOL's on-balance sheet debt totals BRL3 billion. It primarily consists of BRL1.8 billion of secured debt and financial leases, BRL341 million in PDP loans, and BRL684 million in local public debentures and perpetual bonds. Lease expense for the LTM were BRL728 million, resulting in an off-balance-sheet debt adjustment made by Fitch of BRL5 billion.

(c) Centre for Asia Pacific Aviation. Date posted: 26-Nov-09

 

Other GOL Transportes Aeros News

Back

Peanuts! Feature Airline - Virgin Blue