GOL Linhas Aereas SA
) has received the green signal from its board to proceed with its
exclusive strategic partnership with European giant Air France-KLM
SA. GOL expects to expand its operations between Brazil and Europe
on the back of this deal.
The approval came after the board sanctioned a capital increase
of up to R$ 185.8 million ($82.9 million), of which R$ 116.0
million ($52.0 million) will be subscribed to by Air-France KLM,
while the current shareholders will have the first right to the
rest of the new shares. GOL will sell 6.78 million new preference
shares at R$27.40 ($12.31) per share.
In Feb 2014, GOL announced the deal for the first time, which
entails an investment of $100 million from Air France-KLM. The
European carrier will get a 1.5% stake in GOL for its
aforementioned $52.0 million investment. The remaining $48 million
will be invested as part of commercial agreements and bonus based
on cost savings.
Earlier this month, GOL received the nod from Brazilian
antitrust regulator CADE (Conselho Administrativo de Defesa
Economica) to go ahead with the strategic partnership.
The alliance includes increased code share, joint sales
activities and enhanced offerings through GOL's frequent flyer
program, which will allow the company to extend its service in
Europe, while Air France-KLM will benefit by boosting its presence
in Brazil. The agreement will allow both companies to augment their
service to 318 destinations across 115 countries.
It is worth noting in this regard that GOL already has a code
sharing agreement with
Delta Airlines Inc.
), whereby the two carriers are able to maximize the connecting
routes in the Brazil-United States passage. The current code share
agreement allows Delta to access 23 destinations in Brazil while
GOL customers can operate in 5 markets that Delta currently
Brazil is set to host the 2014 football world cup followed by
the 2016 summer Olympics - two of the biggest sporting
extravaganzas. This year the country is expected to get around
600,000 international visitors in addition to 3 million domestic
fans in the course of the soccer tournament, which presents a big
opportunity for passenger carriers like GOL.
The partnership will strengthen GOL's position in Europe - one
of the most popular destinations for people from Brazil. On the
other hand, Air France-KLM will also leverage from the tie-up as
Europe is likely to bring in strong air traffic to Brazil as the
football world cup draws near, thus driving growth. However,
persistent weakness in the Brazilian economy, a depreciating Real
and surging operating costs remain some of the potent headwinds for
GOL currently carries a Zacks Rank #3 (Hold). Better-ranked
stocks within this sector include
Southwest Airlines Co.
American Airlines Group Inc.
). Both stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
SOUTHWEST AIR (LUV): Free Stock Analysis Report
GOL LINHAS-ADR (GOL): Free Stock Analysis
DELTA AIR LINES (DAL): Free Stock Analysis
AMER AIRLINES (AAL): Free Stock Analysis Report
To read this article on Zacks.com click here.