Delta To Invest USD$100 Mln In Brazil's Gol

December 9, 2011

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Delta Air Lines will invest USD$100 million in Brazil's Gol to increase access to Latin America's largest air travel market and give the Brazilian carrier much-needed capital to fight rivals.

The airlines signed a binding agreement for Delta to acquire preferred shares for BRR22 reais each through the purchase of American depositary shares, Gol said in a regulatory filing.

That is a 47 percent premium over Tuesday's closing price.

Delta's stake will come as part of a capital increase of BRR280 million reais for Gol, which is offering subscription rights to other shareholders.

Gol agreed to appoint a Delta representative to its board as long as the US company retains a minimum 50 percent of the acquired shares. Delta agreed not to sell the stake within the next 12 months or to add to it without Gol's consent.

The strategic partnership comes at a tricky time for Gol, which booked a net loss of BRR844 million reais for the first nine months of the year. It is fighting for market share with larger rival TAM after snatching first place in Brazil for the first time this year.

Neither airline acknowledges an explicit market share target, but a controlling shareholder for TAM said last month that the company should have been faster to fight Gol in the domestic market, making it clear the battle is still on.

Their rivalry has complicated a slowdown in air traffic growth due to congested airports and cooling overall consumption. At the same time, fuel costs are rising.

TAM is counting on reinforcement next year from the completion of a takeover by Chile's LAN Airlines in the first quarter, boosting its international reach and bringing an aggressive partner into the boardroom.

The long-term commercial accord between Gol and Delta calls for expanded codeshare agreements and shared cost savings. Delta will also acquire contracts to lease two Boeing 767 aircraft plus spare parts from Gol.