Gol To Get Cash Injection, Trim Routes

Brazilian airline Gol said it will get a cash injection of up to BRR1 billion reais (USD$251 million) and announced cuts to its routes and aircraft fleet in an effort to trim costs amid weak demand.

Takeoffs and landings will be cut by 6 percent this year while service to seven cities is being ended, Gol said in a securities filing. It will also return five aircraft to leasing companies and cut the schedule of planned deliveries of aircraft by end 2017 to 1 from 15.

The cuts come as Brazil's airline industry is suffering from a recession and a decline in the value of Brazil's real that has driven up the cost of dollar-denominated debt, aircraft leases and jet fuel.

Gol said earlier this month that domestic demand fell 8 percent in the fourth quarter compared with the same period a year earlier.

SERVICE REDUCTIONS

The service reductions include the end of operations to Miami, Orlando, Caracas and Aruba, which were made earlier in February. It will also cease operations in the Brazilian cities of Bauru, Altamira and Imperatriz in the coming days.

Passengers with tickets to those destinations will be accommodated on other carriers or have their fares fully refunded, Gol said.

The cash injection will start with a BRR376 million real early purchase of frequent-flyer award tickets as soon as contracts are signed, Gol said. The rest can be applied in tranches up to June 30, 2017 as needed.

Gol will pay interest on the money equivalent to 132 percent of Brazil's CDI overnight interbank rate, it said. At current CDI rates, the interest would be 18.7 percent a year.

Gol trimmed capacity in the second half of 2015 due to weaker demand following a similar move by LATAM Airlines' TAM, Gol's biggest rival.

Gol and TAM are the most exposed to an expected reduction in air travel to Latin America due to the Zika virus, ratings agency Moody's Investor's Service said earlier this month.