American Air to Invest $200 Million in Expanded Gol Venture

American Airlines Group Inc. signed a letter of intent to invest $200 million in Gol Linhas Aereas Inteligentes SA for a 5.2% stake in the Brazilian carrier under a three-year deal that would expand commercial cooperation, establish an exclusive codeshare and link loyalty programs.

The two will work together in areas including purchasing, sales tools and systems integration as allowed by regulatory and other limits, American said in a statement Wednesday. In exchange for its investment, the U.S. carrier will get 22.2 million in newly issued Gol preferred shares that trade in Sao Paulo and the right to name a director to the Brazilian airline’s board. American will be the third-largest holder of the preferred shares.

American is paying the equivalent of 47.03 reais per share, a 144% premium over Tuesday’s closing price. A spokesperson for American declined to comment further on the deal terms.

Gol shares traded in New York rose 3.8% to at 3:16 p.m., while American rose less than 1%.

“Investors are likely to view today’s news as a major positive for Gol,” Josh Milberg, a Morgan Stanley analyst, said in a report Wednesday. “It is a substantial show of confidence by American in Gol’s future.”

The investment “suggests that the U.S. carrier could be a source of additional financial support for Gol if needed in the future,” he said. 

The agreement builds on an initial marketing, or codeshare, established in 2020 after a previous South American partner was snatched away from American by Delta Air Lines Inc. It will allow customers to travel to more than 30 cities served by American in the U.S. and over 20 new destinations served by Gol in South America. The expanded relationship follows American’s agreement to buy a stake in JetSmart Airlines SpA, a privately held, low-cost carrier based in Chile.  

“We believe that this will bolster Gol’s presence in international markets, accelerate our long-term growth and maximize value for our shareholders,” Gol Chief Executive Officer Paulo Kakinoff said in a statement. “It adds to our confidence in the company’s growth as the economy reopens and travel demand increases.”

The Allied Pilots Association, representing American aviators, criticized the agreement for focusing on growth at international partners instead of in the carrier’s own flying.

Pandemic Rebound

Gol was expecting to report total liquidity of 4.2 billion reais ($799 million) in the fourth quarter as it recovers from the decline in travel during the coronavirus pandemic. That may now jump to about 5.2 billion reais, Bradesco BBI analyst Victor Mizusaki estimates.

This “should be enough to overcome the Covid-19 pandemic,” he wrote in a report, reiterating a neutral rating for the stock but increasing his price target to 27 reais from 26.

Other holders of Gol’s preferred shares, including those traded as American depositary receipts, will be able to exercise preemptive rights to subscribe for a portion of the newly issued shares, it said in the statement. 

Early next year, American’s AAdvantage and Gol’s SMILES loyalty program members will gain access to benefits such as priority check-in, security and boarding, lounge access and a larger checked bag allowance. 

The letter of intent must be finalized and receive regulatory and other approvals.  

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