Parting Shot: Gol CFO Richard Lark
January 18, 2018 | Aaron Weinman, Peter Agra
After its return to the cross-border bond market in December, Brazilian airline Gol is ready to move on from a restructuring and introduce a new fleet of aircraft, says Richard Lark.
Debt Capital Markets Corporate & Sovereign Strategy Debenture Comment & Opinion Brazil
We have just completed an 18-month restructuring process and the bond market opened for us over the last couple of months. Near the end of 2017, we were in the last cycle in terms of getting deals done.
In a pre-election year, you always try to avoid that May-to-September period. So really our bond issue is a combination of factors. We monitored the market and based on the feedback from bondholders and our investor base, we decided this was the right time to pull the trigger.
In the new year, we are preparing our capital structure to introduce a fleet of brand new aircraft — the Boeing 737 MAX 8. We will start receiving the first batch in July. They will replace some of our old fleet and add capacity. We are going to gradually introduce them over the next 10 years and this is very strategic to us.
There is a substantial cost reduction compared to our current fleet, roughly 15% less in operating costs and fuel savings. As we introduce these aircraft, it will also mean about a 3% to 4% cost reduction annually. It will also increase our revenue productivity. So, overall, it is a substantial impact on our operating margin.
The new aircraft have a longer range, or flight time, which allows us to grow our international network into other markets in South America, Central America, the Caribbean and South Florida.
About half of the order will be financed in the lessor, or the sale-and-leaseback, market. The other half we plan on completing with a mix of commercial bank loans with guarantees from the Export-Import Bank of the United States and some Japanese leases known as JALCOs. We might also explore some EETCs [enhanced equipment trust certificates].
These mechanisms, such as EETCs, JALCO leases or EXIM-backed loans, will finance around 85% of the new aircraft, but we will finance the other 15% with our own cash. That is where we can use these unsecured bond deals and our own resources.
For our return to the bond market, we proposed two trades for investors. First, we announced a tender offer for any-or-all of our 2022 notes. Although there was less than $300 million, they were the largest in our curve. We performed a fully-fledged marketing effort, targeting existing bondholders and new investors.
We wanted to take advantage of market conditions and shore up our cash balances. We also wanted to concentrate our bond liquidities into one indexed eligible benchmark-sized tranche. We believe this transaction is going to be a great vehicle for investors to participate in the deleveraging story we expect to deliver over the next 12-to-18 months. LF
Richard Lark is the CFO at Brazilian low-cost airline Gol Linhas Aereas.* Gol printed $500 million in new 2025 bonds in December with a 7% coupon to yield 7.25%. This article is an edited transcript of his comments in an interview with Peter Agra and Aaron Weinman.