GOL LINHAS AÉREAS INTELIGENTES S.A.
Fitch Ratings has affirmed
Fitch has also affirmed
Gol's Outlook revision is driven by the challenging environment the company faces to restore its operating cash flow generation as fuel costs remain material headwinds, as well as its ongoing refinancing risks in the short to medium term.
GOL's solid market position in the Brazilian domestic market, strong relationship with suppliers, adequate fleet, competitive cost structure and its relatively balanced capital structure once cash flow stabilizes are also factored into the ratings. Fitch expects a continued recovery of passenger traffic and solid yields in the Brazilian domestic market, which should support more meaningful deleveraging by 2023. Fitch considers rating headroom to be limited. Deviation from expectations of demand recovery or higher than expected fuel prices over the next few quarters are negative for the ratings, particularly in light of Gol's upcoming international capital market refinancing in 2024.
Key Rating Drivers
High Refinancing Risks: As of
Some Operating Cash Flow Improvement: GOL's weaker than expected operating performance during 2022 largely reflects the spike in fuel prices, which was partially offset by the substantial increase in yields. During 1Q22 and 2Q22, GOL's average fuel price rose 60% and 80%, while yields increased 45% and 66%. The yield management strategy has been supported by pent-up demand following the pandemic and a strong rebound in corporate traffic demand, which is less price sensitive than the other categories. Brazilian domestic market demand has rebounded strongly, with the passenger traffic during January to
GOL's FCF is also affected by higher lease payments due to deferrals during the pandemic and a fleet modernization plan that implies higher gross capex disbursements. Fitch estimates GOL's cash flow from operations will be slightly neutral during 2022 and
Limited Financial Flexibility: GOL's poor liquidity position is a concern, per Fitch's criteria, because it continues to highly rely on its ability to access the credit market to meet its debt rollover needs and to fund negative FCF generation. The company has other sources of liquidity such as investments, accounts receivables, security and maintenance deposits. As of
Conservative Growth and Capacity Management: GOL's ability to adjust its fleet capacity to the new demand level has minimized cash flow burn but also helped it maintain relatively stable financial debt levels compared to pre-pandemic levels. During 2Q22 the company received three 737-MAX aircraft, increasing the share of this model to 24% of the total fleet (it expects to end the year with 32%), which should favor its cost structure. Fitch expects GOL's adjusted EBITDA to reach around
Good Market Position: GOL has a leading business position in the Brazilian airline domestic market, which Fitch views as sustainable over the medium term, with a market share of around 32% as measured by RPK in 2021. As this is the company's key market, GOL's operating results are highly correlated to the Brazilian economy. Due to this limited geographic diversification, the company's FX exposure is high. GOL typically generates about 85% of its revenues in Brazilian reals, while around 60% of its total costs and 87% of its total debt are denominated in
Fitch has not incorporated into GOL's rating any new developments related to the creation of ABRA, the holding company recently created to hold the shares of
Derivation Summary
GOL's 'B-' rating reflects its solid market position and capital structure that will benefit from a recovery of domestic air travel demand in
GOL has a weaker market position relative to global peers given its limited geographic diversification. However, its important regional market position in
Key Assumptions
For 2022, Fitch's base case includes a decrease in GOL's domestic RPK by 10%-15% compared with 2019 and a 5% increase by 2023;
WTI oil prices remaining around
Load factors around 80% during 2022 and 2023;
Capex of
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that GOL would be considered a going concern in bankruptcy and that the company would be reorganized rather than liquidated. Fitch has assumed a 10% administrative claim.
Going-Concern Approach: GOL's going-concern EBITDA is based on an average of 2015-2019 EBITDA that reflects a scenario of intense volatility in the airline industry in
Fitch applies a waterfall analysis to the post-default enterprise value (EV) based on the relative claims of the debt in the capital structure. The agency's debt waterfall assumptions take into account the company's total debt at
RATING SENSITIVITIES
Developments that may, individually or collectively, lead to positive rating action/upgrade:
Continued solid rebound of the Brazilian domestic air traffic;
Net leverage ratio below 5.0x by 2023;
FCF generation above Fitch's base case expectations;
Maintenance of adequate liquidity with no major refinancing risks in the next 18-24 months.
Developments that may, individually or collectively, lead to negative rating action/downgrade:
Weaker than expect traffic volume rebound during 2022 and 2023 along with competitive pressures leading to yields deterioration;
Failure to reduce cash burn during 2H22 leading to increased pressure on liquidity;
Deterioration in GOL's liquidity profile or signs of financial flexibility deterioration.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Weak Cash Position: As of
Issuer Profile
GOL is a leading Brazilian airline, with around 32% market share in the domestic market, per revenue per RPK in 2021. As of YE 2022, GOL's fleet included 144 Boeing 737 aircraft, with 110 NGs and 34 MAXs.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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