Fixed Income Analysis /

Gol Linhas Aereas Inteligentes: Positive trend in Q1 despite BRL depreciation

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    6 May 2019
    Published by

    GOL Linhas Aéreas Inteligentes, S.A. (GOLLBZ) reported positive Q1 19 operational results that would have translated into a positive financial performance overall, had it not been for the negative effects of the BRL depreciation in the quarter. We reiterate our Buy recommendation on the GOL family of bonds. 

    The company reported growth in: 

    1. average fares (BRL339 from BRL335 in Q1 18). 
    2. number of revenue passengers (8,949 from 8,362 in Q1 18).
    3. total seats (11,150 from 10,800 in Q1 18). 

    Another boost came from a reduction in the price of Gulf Coast jet fuel, which averaged US$0.49/litre in Q1 19 compared with US$0.50/litre in Q1 18. These metrics resulted in sales increasing to BRL3.21bn in Q1 19, compared with BRL2.96bn in Q1 18. However, when translated into US$, net revenue in Q1 19 was US$853mn, c7.0% lower than the US$914mn in Q1 18. This is because the average exchange rate was BRL3.7656/US$ in Q1 19 (versus BRL3.2425/US$ a year ago),

    Similarly, EBITDA and EBITDAR in Q1 19 were BRL912mn and BRL952mn, respectively versus BRL888mn and BRL824mn, respectively in Q1 18. But in US$ terms, EBITDA and EBITDAR were also negatively impacted by the currency fluctuation and came in at US$242mn and US$253mn, respectively (versus US$274mn and US$254mn in Q1 18). EBITDA and EBITDAR were also negatively impacted by BRL fluctuation on maintenance, landing fees and international services costs and the elimination of the federal income tax relief (which increased the payroll tax rate to 20.0% from 0.0%). In addition, reimbursements and accommodation costs from the grounding of the company’s MAX-8 fleet also negatively affected the overall results. Still, considering all the headwinds, we believe that GOL showed substantial resilience and the ability to partially mitigate cost increases with higher volumes and prices.

    The company’s balance sheet showed stability with cash of US$570mn at end-Q1 19, compared with US$337mn at end-2018 and US$545mn in Q1 18. Total debt, however, was US$1.88bn in Q1 19, compared with US$1.83bn in 2018 – despite GOL’s payment of cBRL148mn for its seventh issue of debentures. 

    GOL’s operating leases amounted to US$1.61bn in Q1 19, lower than the US$1.84bn at end-2018. As a result, even with lower EBITDA and EBITDAR in US$ and the slight increase in total debt, leverage (as measured by total debt plus leases-to-EBITDAR) was 4.07x in Q1 19, compared with 4.28x in 2018.

    In Q1 19, GOL also highlighted the positive outlook for the industry and its business, and revised upwards its 2019 and 2020 guidance.

    In sum, we believe that with the Brazilian real showing signs of stabilising, the company’s continued efforts to reduce costs, the positive outlook for the Brazilian airline industry and the returns that the GOL family of bonds offer, our Buy recommendation is justified.