Bumpy Landing for Brazil’s Gol

Moody’s has downgraded all debt ratings of Brazilian airline Gol to B1 from Ba3 and all ratings were placed under review for possible further downgrade. The action comes after the airline’s announcement of cuts in its fleet and eliminating dividend payments. The rating downgrade reflects continued deterioration in the financial strength of Gol and prospects for a further decline in the financial metrics barring significant improvement in the company’s cost structure, the agency says. Although the company has eliminated most international routes of its troubled subsidiary Varig, Gol’s unit costs have increased due to challenges of realigning its operations. “Gol has several planned initiatives to increase revenues by increasing sales to customers through its installment-purchase plan and increasing cargo and ancillary revenues,” Moody’s says. “However, these efforts to boost sales are unlikely to offset incremental costs, primarily fuel related,” the agency adds. Without a decline in fuel costs, these actions may not be sufficient to allow the company to improve levels of profitability and cashflow generation to levels consistent with the B1 rating, Moody’s states.