Airline Gol Bounces Back to Beat Latin American Bond Peers

(Bloomberg) -- It’s a sure sign that an end is in sight to the global pandemic when an airline is leading gains among Latin American bonds this quarter.

Debt from Gol Linhas Aereas Inteligentes SA has bounced back from the brink of disaster when the coronavirus froze air travel earlier this year, following faster-than-expected vaccine developments and a gradual rise in traffic.

The Brazilian carrier’s commitment to cut costs and meet loan payments puts it in a good position for an eventual comeback in tourism, said Soummo Mukherjee, a senior credit analyst at Lucror Analytics in Florida. The airline said this month that it had enough liquidity to meet obligations and that it expected international flights to resume in March next year and corporate travel to start to return in the second quarter.

“It seems like they are going to be able to manage a recovery,” said Mukherjee. “Yes, the company’s still burning cash, but the recovery in overall traffic data month-over-month has been improving.”

Gol’s notes maturing in 2025 have risen 48 cents on the dollar from a mid-March low to trade near 83.1 cents, their highest since before Covid-19 was declared a pandemic. The notes are the best performers this quarter in a Bloomberg Barclays index of Latin American dollar bonds.

Vaccine Support

The outlook for a safe, effective and available vaccine as early as the turn of the year is offering support to the broader industry. Brazilian airline Azul SA’s notes due in 2024 are also trading near their highest since early March amid optimism that the company’s strong cash position will help boost its business recovery. Bonds in the Mexican carrier Grupo Aeromexico SAB de CV were the best performing in Mexico last week, with the 2025 notes rising 2.8 cents on the dollar to 25 cents.

“We have been skeptical of Latin American airlines throughout Covid-19, but see the breakthrough in clinical trials for a vaccine as the key catalyst in turning more positive,” said Citigroup Global Market strategists Eric Ollom, Donato Guarino and Ayoti Mittra in a note last week.

Demand for Gol’s domestic flights rose 34% in October from the month before, according to preliminary air traffic data from the company. The company did not comment.

Citi recommended investors snap up the airline’s 2025 notes with a price target of 93 cents on the dollar.

“Much can still go wrong, as a full recovery is not expected until 2022 in the sector, but we add risk by going long Brazil’s Gol on the news as well as an improvement in earnings,” the strategists wrote.

By Sydney Maki