Air France-KLM to buy stake in Brazil’s Gol

20.02.2014 By: Financial Times

Air France-KLM is to buy a stake in Brazil’s second-largest airline to improve its long-haul business as the flag carrier struggles with continued weakness in Europe and looks to branch out further into emerging markets.

The Franco-Dutch carrier said it would invest $100m in Gol Linhas Aéreas Inteligentes and take a 1.5 per cent equity stake, also increasing the number of flights and routes to Latin America later this year.

“With this deal we will lead the race in Latin America, where we expect strong growth in the coming years,” said Alexandre de Juniac, chief executive, in an interview with the Financial Times, adding that growth in Europe would remain sluggish.

He said it was a good idea to strengthen the company’s presence in Brazil ahead of the World Cup later this year and the Olympics in 2016, which is expected to lead to a rise in passenger traffic.

The group on Thursday reported a move into profit for the full year 2013, as painful cost-cutting measures have helped the passenger business make a profit of €174m, compared with a loss of €260m in 2012.

The rebound came as Air France-KLM reduced staff costs – its number one expense – by 5.7 per cent in the fourth quarter compared with last year as a result of its “Transform 2015” restructuring plan, which includes 7,900 job cuts.

Mr de Juniac hailed the results as a sign that the restructuring was bearing fruit. “The transform plan is perfectly on track in terms of cost reduction, in terms of schedule, and the plan is delivering exactly the result we were expecting,” he said.

Air France-KLM has, along with other national flag carriers, been struggling for years amid a weak economic environment, legacy costs and tough competition on short-haul flights from easyJet and Ryanair.

After a successful 2004 merger between two flag carriers – Air France and KLM of the Netherlands – the group was hit by the fallout from the eurozone debt crisis and in 2011 slumped to a €809m net loss.

Earnings before interest, tax, depreciation and amortisation for the full year rose from €1.39bn in 2012 to €1.86bn, while revenue was roughly flat at €25.5bn, hit slightly by the strength of the euro against emerging market currencies.

Net losses widened to €1.83bn, with profits hit by a tax charge and disposal costs.

Business at the cargo operations contracted, with revenue down 8 per cent at €2.82bn and an operating loss of €202m.

“We are still in restructuring mode with the cargo business, and the market is not significantly improving. International trade is still weak and we are continuing to shrink,” he said.

Mr de Juniac added that he was still willing to invest more money into Alitalia, the struggling Italian carrier, if it was willing to promise a wide ranging restructuring of its debt and operations.

Air France-KLM refused to participate in a €300m capital raising by Alitalia in December after failing to secure promises over restructuring. The subsequent share increase reduced its stake in Alitalia from 25 per cent to 7 per cent.

Alitalia has since entered into talks with Abu Dhabi-based carrier Etihad Airways over a potential investment.