GOL Expects To Receive Warning Over Coronavirus Survival

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Underscoring the perilous state of commercial aviation in South America, GOL has warned financial regulators its ability to weather the 2020 financial storm is in doubt. In a regulatory filing this week, GOL says its auditors may issue a formal warning suggesting Brazil’s biggest domestic carrier may not be around in 12 months’ time.

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Auditors have questioned GOL’s ability to withstand the travel downturn. Photo: Leandro Ciuffo via Flickr

GOL says it has enough cash to keep going for a year

Last week, GOL said it was improving its cash reserves and had enough funds to keep the airline flying for 12 months. GOL said it had approximately US$670 million in total liquidity at the end of May. GOL said this would keep the airline going for another year.

However, The New York Times reported last week that GOL was also trying to delay a US$300 million debt repayment due in August. GOL was said to be in talks with Delta Air Lines about the deferral. GOL has denied this was the case.

“As a pioneer of the low-cost model in South America, GOL has had the lowest operating costs, on a CASK basis, of any Brazilian airline since it was founded”, said GOL’s CEO, Paulo Kakinoff.

“Combined with our flexible fleet management model, which enables us to adjust capacity faster, and our 12 months of cash-on-hand, we are confident in GOL’s continued ability to not only overcome the crisis but thrive.”

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GOL says it has enough cash to keep going for another twelve months. Photo: Rafael Luiz Canossa via Flickr

GOL’s auditors are not so optimistic

But auditors don’t share Paulo Kakinoff’s optimism. Reuters is reporting that GOL’s auditors have questioned whether the airline will still be flying in twelve months.

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That’s caused GOL to lodge an official notice of the warning with the Securities and Exchange Commission (SEC). This is a legal requirement called a “going concern warning.” The filing serves to notify the market that auditors think the business is at risk of defaulting or even folding.

The filing comes as two of GOL’s key local competitors, Avianca and LATAM, have filed for bankruptcy protection.

Usually, GOL commands a healthy 38% share of Brazil’s domestic aviation market. But, like airlines everywhere, GOL has been walloped by the travel downturn. In May, the airline was running at just 7% of its capacity compared to the year before. By the end of June, GOL hopes to increase its capacity to 20% of the previous year’s levels. Currently, there are 27 aircraft operating.

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Auditors don’t share the CEO’s optimism about GOL’s future. Photo: Carlos Daniel Dobelli via Flickr

Aircraft get returned to owners as Brazil faces a perfect storm

The airline is also trimming its fleet. Eleven Boeing 737-800 aircraft have been sent back to their lessors. Another seven will go back to their lessors this quarter. If need be, GOL is prepared to send another 80 jets back to their lessors over the next year. The airline has also capped delivery of Boeing 737 MAXs over the next two years to 47 aircraft.

Despite Paulo Lalinoff’s upbeat tone, GOL’s auditors aren’t the only people with concerns about the airline’s future. Brazil is in the middle of a health emergency, and there is no relief on the short term horizon. It will impact on domestic travel demand for the foreseeable future.  Meanwhile, the airline is laboring under $3.2 billion worth of debt, far exceeding its cash reserves. Further financial losses are expected. It’s not a rosy scenario for the airline.

GOL also told the SEC that its auditors had raised concerns regarding internal control of financial reporting. Subsequently, there will be a delay to the airline’s 2019 annual report as the issue is resolved.

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