Delta Air Lines will invest $100 million in Brazilian budget airline Gol Linhas Aereas to give the company a financial boost against its Latin American rivals. The carriers agreed to a deal in which Delta will buy Gol’s American depository receipts and acquire shares for 22 reais each, equivalent to 47% more than the closing price of shares early last week.
This will boost Gol’s capital by up to 280 million reais, or $160 million.
On news of the deal, Gol shares went up as much as 9% in Sao Paulo trading, before closing the day 3.6% up on 15.50 reais. Delta stocks rose 1.1% to $8.56 late in New York.
Delta, the world’s second largest airline, will take a 3% stake in the Brazilian carrier and will also have a seat on the board, providing it holds onto at least 50% of its shares.
In August, the US company also bought a $65 million stake in Mexico’s flag carrier airline Aeromexico as it looks to boost its presence in Latin America.
Delta and Gol will use each others booking codes on flights, which will enable passengers to book their trips with either carrier, as well as earning frequent flyer miles with both companies’ loyalty programs.
Gol will also transfer the lease of a pair of parked Boeing 767 jets to Delta, which will save the Brazilian carrier around 50 million reais per year.
Good Timing For Gol
The deal gets Gol out of a difficult spot after enduring a challenging 2011. In October, the company announced a 844 million reais ($482 million) net loss as it continued to drop market share to rival TAM. Share prices of Gol have fallen around 40% so far this year.
While Brazil’s two main carriers have not specified market share objectives, a major investor of TAM said in November that the company should have overtaken Gol some time ago.
TAM expects to finalize the buyout of Chile’s main carrier LAN Airlines in the first quarter of next year, which will bring a significant boost to its international activities.
The two have been jostling aggressively for control, leading to overcrowded airports and a decrease in demand for air travel. This, coupled with rising fuel costs, has seen a drop off in growth in Brazil’s air traffic industry.
For the month of November, Delta’s air traffic decreased 1.9% on capacity down 4.1% compared to the same period last year. Domestic passenger load factor, or average occupancy for given routes, rose 3.2 points to 83.5%, with domestic traffic increasing 1.4% on capacity down 2.6% on last year.
Key Statistics – Global Airline Industry (source: MarketLine)
- The global airlines industry is expected to reach a value of $532 billion through 2014, a rise of almost 40% from 2009.
- The volume of the global airlines industry is expected to top 2.55 billion passengers through 2014, a rise of over 27% from 2009.
- The domestic travel segment is the largest market in the global airlines industry, making up over 68% of the total volume.
- The Americas represents almost 50% of the global airlines industry value.