This is How Latam Airlines, Azul Could Benefit from Gol’s Chapter 11 Bankruptcy

The Brazilian airline that filed for protection in the US is bracing itself for greater challenges than were faced by Latam, according to experts

Photo: Victor Moriyama/Bloomberg
February 01, 2024 | 02:37 PM

Sao Paulo — Gol Linhas Aéreas’ (GOLL4) recent Chapter 11 bankruptcy protection filing in United States has highlighted the airline’ increasing struggles to renegotiate its debt. As the company’s crisis grows amid uncertainty over a final outcome, particularly in reaching agreements with aircraft leasing firms, Gol’s competitors will be looking to snap up a greater market share, analysts say.

While Gol has stated its intention to continue with its operations as usual, the crisis may impact passenger demand due to concerns about flight cancellations and potential disputes with leasing companies, as experts consulted by Bloomberg Línea pointed out.

Citi transport industry analyst Stephen Trent pointed out that Latam (LTM) has much more of a route overlap with Gol in the Brazilian market than Azul (AZUL4).

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Hypothetically, if Gol were removed from many of these routes and Latam became the sole operator on high-demand routes, antitrust authorities would likely want to see at least one other airline providing services on those routes,” said Trent in an interview with Bloomberg Línea. “This implies that Azul may have expansion opportunities.”


Trent cautioned that it is still unclear how Gol’s bankruptcy announcement might affect passenger perception. “Azul and Latam may see some repercussions in the shape of demand due to this event,” he said.

According to data from the National Civil Aviation Agency (ANAC), Latam led the Brazilian market in 2023 with a 37.8% share, followed by Gol (33.3%) and Azul (28.4%).

Ilan Arbetman, an analyst at Ativa Investimentos, highlighted restrictions on Gol’s ability to increase flight offerings organically, given the substantial cash outlay required to ground aircraft. “When we look at Gol’s balance sheet, with current levels of liquidity and leverage, the company needs to be even more efficient.”


Arbetman and Trent emphasized that Latam has approximately a 65% route overlap with Gol, a view similar to Citi’s Trent. “At least initially, it seems that Latam would benefit more from this situation. I see positives for Azul, but the overlap is much smaller.”

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BB Investimentos analyst Luan Calimério believes Gol can minimize the impact of the recovery process, judging by the conditions offered by Chapter 11. “Overall, there is greater preservation of essential assets for the company’s activities (in Gol’s case, aircraft), which would maintain flight availability and a higher probability of generating cash for a future exit from the process,” he evaluated.

Gol vs. Latam in Chapter 11

The main challenge for Gol in advancing successfully through its Chapter 11 bankruptcy process in the United States will be dealing with aircraft leasing companies. Gol has reported a debt of approximately R$ 9.8 billion with 25 leasing companies under US jurisdiction. “The soap opera will be long,” Arbetman commented.

By the end of the third quarter, the declared gross debt on Gol’s balance sheet was R$ 19.5 billion. Arbetman and Trent noted that Gol likely sought other sources of capital before opting for a Chapter 11. “But the filing indicates that the company tried an agreement with lessors and got nowhere,” Trent said.


According to the Citi analyst based in New York, there is an additional challenge for the Brazilian company’s recovery process: many investors struggle to understand Abra, the holding company created at the end of 2022 to control Gol and the Colombian Avianca.

Trent drew parallels with Latam’s Chapter 11 process between 2020 and 2022, where Delta Airlines and Qatar Airways stood out to the market. “If we look at Delta and Qatar, the advantages [conferred by the shareholder base] are very easy to visualize. In the case of Abra, it’s a bit more challenging to understand.”

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I would say that people don’t understand Abra, which is one of the risks for Gol entering this process,” Trent stated. “There may be a lack of trust between lessors and Gol, and the lack of understanding about Abra probably doesn’t help,” he added.


Gol’s Chapter 11 process was filed with a US$950 million financing commitment from Abra creditor groups under the “debtor-in-possession” (DIP) model, designed for companies in bankruptcy. This model was authorized by Judge Martin Glenn, responsible for the case in U.S. courts, with reservations about the cost. He deemed the financing “incredibly expensive” and required Gol and its creditors to include provisions allowing his court, the Department of Justice’s bankruptcy control agency, or creditors a significant review of the fees to be paid.

“I’m not going to sign a blank check for all the lawyers and professionals who benefit from a very expensive DIP loan,” Judge Glenn said, as reported by Bloomberg News.

Arbetman mentioned that some Gol indicators, such as current liquidity, remain low, which may make creditors less patient compared to the Chilean group’s process. At least from a stock market perspective, the indication has been that the market, in general, has decided not to give the benefit of the doubt for now: the shares have accumulated a 68% decline this year.

On its last day as part of the Ibovespa on Tuesday (30), Gol’s shares closed the session with a 26.97% drop, traded at R$ 2.87. The exclusion of the airline from all B3 indices occurred due to the U.S. bankruptcy process.


Process Expectations

The Citi analyst pointed out other factors that differentiate Gol’s process from that faced by the Chilean group. “Latam had a good long-term outlook, with Delta and Qatar behind it, while also having a strong presence in Chile, Colombia, and other countries, along with a cargo operation in Miami. It’s a much more complex ‘animal’ compared to Gol,” Trent said.

According to aviation law specialist Felipe Bonsenso, the timeline for completing Gol’s Chapter 11 process depends heavily on negotiations with creditors, but overall, the track record of airline recoveries in the United States is positive.

It’s a safer jurisdiction, with solid precedents and a history of airline recoveries. All major companies in the sector have gone through this process, and creditors are accustomed to it,” Bonsenso told Bloomberg Línea.


He noted, however, that Gol’s process occurs in a different context than Latam’s. “It’s an opportunity for Gol to adjust its operations, a chance for recovery. But the moment now is different; the context is no longer a pandemic.”

The specialist stated that Gol’s Chapter 11 filing says a lot about the aviation sector in Brazil. “The government itself recognizes that airlines are in difficulty. There are very strict rules in a market with a high cost of fuel and thousands of passenger lawsuits in court. Numerous expenses are in dollars, but revenue is in real. The equation is challenging.”

  • With information from Bloomberg News.