The Varig acquisition is hitting GOL profits. Will the company be able to return to profitability this year or face further problems?
BY CHRONICLE STAFF
When GOL Linhas Aereas Inteligentes SA - the second-largest Brazilian ailrline - posted a first quarter loss of 3.5 million reais (US$2 million) after revenues of 1.6 billion reais, its CEO Constantino de Oliveira Júnior may have been reminded about the old joke from British mogul and part-time airline executive Richard Branson: How do become a millionaire? Easy. You start out being a billionaire and then you buy an airline.
Brazil is booming, with record GDP growth and foreign direct investment. The aviation sector in general is also growing strongkly. Yet, low-cost carrier Gol is losing money. Whats up with that? The short answer: Varig. Gol acquired Varig, Brazils bankrupt flag carrier, in April last year for $320 million.
"The only reason GOL is loosing money is because the holding company reports include Varig which is the big money loser - GOL itself is still profitable," points out Robert Booth, chairman of U.S.-based consultancy AvGroup. Adds Securities analyst Ray Neidl: "The Varig integration still is negatively affecting earnings." Stephen Trent, director for Latin America Infrastructure/Aerospace & Transportation at Citi Investment Research, goes even further: "The Varig acquisition was a mistake," he says.
De Oliveira Júnior and other executives declined to be interviewed for this story, citing "travel schedules." Ironically, the refusal to talk to Latin Business Chronicle comes as the company issued a statement where de Oliveira Junior boasted that GOL "remains committed to transparency and equality among all shareholders and the public."
There are still plenty of questions in the market about what GOL actually wants to do with Varig. Will they keep the two brands or merge them into one...