Gol Airline Seeks Closer Ties to American and United After Split With Delta

(Bloomberg) -- Gol Linhas Aereas Inteligentes SA, Brazil’s largest airline, is holding talks about expanding ties with American Airlines Group Inc. and United Airlines Holdings Inc. after parting ways with longtime U.S. partner Delta Air Lines Inc.

The carriers are discussing whether to establish codeshare deals, which enable airlines to book passengers on each other’s flights, Gol Chief Financial Officer Richard Lark said Tuesday. That would be a step up from Gol’s existing interline agreements with American and United, which allow airlines to handle passengers on trips that involve multiple carriers.

“We are in discussions with both United and American about converting those interlines into codeshares, and we may have both of those as codeshare partners,” Lark said in an interview at Bloomberg’s New York headquarters. An agreement could be reached with one or both of the U.S. airlines “over the next couple of months,” he said.

Gol is eyeing deeper ties with American and United after Delta said in September that it would sell its stake in the Brazilian airline and buy 20% of Latam Airlines Group SA. An expanded relationship with Gol would be especially beneficial to American, which was left without a South American partner after its proposed partnership with Latam ran into legal trouble and prompted the Chilean company to join forces with Delta.

United already has a partnership with Azul SA, the third-largest domestic airline in Brazil after Gol and Latam. United holds an 8% stake in Azul and is is also in talks to form a joint venture with Avianca Holdings SA and Copa Holdings SA.

American said it didn’t have “anything to confirm at this time.” United declined to comment.

Delta has not indicated when or how it intends to sell its Gol stock, Lark said. The U.S. carrier owns a 9% stake, according to Gol. The Sao Paulo-based company isn’t discussing deals in which American or United would take equity stakes in Gol, he said.

“The company doesn’t have a need today for any financing from that source,” Lark said.

Gol’s fleet is made up entirely of Boeing Co. 737 jets, and the airline has been hurt by the March grounding of the planemaker’s Max models following two deadly crashes. Gol expects the U.S. Federal Aviation Administration to clear the aircraft to fly next month with Brazilian regulators following suit soon afterward, Lark said. Gol anticipates returning the planes to service in January, he said.

That’s a more optimistic outlook than at American, United and the Max’s largest operator, Southwest Airlines Co., which have all removed the model from their flight schedules through early March. Even after the FAA lifts the flying ban, regulators would still need to sign off on updated training materials for pilots in January, Boeing said last week.

Pickle Fork

Gol has also taken some older 737 NG models out of service after regulators ordered inspections of the so-called pickle fork, part of the structure that helps attach the wings.

The company’s fleet has been more affected than average by the pickle-fork issue, in part because of conditions at Brazilian airports that include shorter runaways and a different type of asphalt, Lark said. Gol leased the aircraft from third parties and not from Boeing, which customizes planes for specific conditions.

Those factors, combined with Gol’s operational model of intensive use of the planes, led to 11 jets being taken out of service, Lark said. About 9% of Gol’s fleet of 125 aircraft has been affected by the pickle-fork inspections, according to the company. Boeing said last week that less than 5% of NG planes subject to initial inspections had cracks.

Looking ahead to 2020, Lark is bullish on both oil prices and the Brazilian real, both of which figure prominently into the company’s business outlook.

‘Signs of Life’

Gol sees a barrel of West Texas Intermediate crude fetching a price in the high $60s next year, with Brent, a global benchmark, in the low $70s.

Lark said he expects the Brazilian currency, which fell 7.8% against the dollar this year through Wednesday, to hold steady or appreciate over the next six to 12 months. By the end of next year, Lark said the real could potentially be in the range of 3.6 to the dollar. That would be a much stronger level than the median analyst estimate compiled by Bloomberg, which is about 4 reais to the dollar.

Gol is already seeing an uptick in travel as Brazil’s economy continues to recover from a deep slump in 2015 and 2016.

“The business customer has been the main driver over the last couple of years in terms of the consumption of air travel and absorbed a lot of the fare increases,” Lark said. But in September, Gol started “to see signs of life in the Brazilian consumer, the non-business traveler, the leisure traveler in a variety of sectors, including ours.”

--With assistance from Mary Schlangenstein and Justin Bachman.

To contact the reporters on this story: Richard Richtmyer in New York at rrichtmyer@bloomberg.net;Jessica Summers in New York at jsummers24@bloomberg.net;Fabiola Moura in Sao Paulo at fdemoura@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Richard Richtmyer

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