Delta On Hook For $300M In Loans Made To Gol

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Delta Air Lines investments in airlines are turning sour, and it looks like it may have to repay $300M loan on behalf of its former partner.

GOL

Due date is coming next week on a $300 million private loan made to Gol that is guaranteed by Delta in case of its previous Brazilian partner is unable to come up with the payment.

Here’s an excerpt from Reuters:

Delta Air Lines (DAL.N) is facing a fresh Latin American headache as a Monday deadline nears for former Brazilian partner Gol Linhas Aereas Inteligentes (GOLL4.SA) to repay a $300 million loan that the U.S. carrier guaranteed.

If Gol fails to repay – which ratings agencies say is looking more likely – Delta would have to honor the debt on Gol’s behalf, honoring the five-year-old agreement. But just like Gol, the Atlanta-based carrier, which said in July it was burning $27 million a day here has little cash to spare due to the coronavirus pandemic.

If Gol fails to make the payment and Delta is forced to step in, Delta will have the option of seizing the Brazilian airline’s stake in its publicly traded loyalty program, Smiles Fidelidade (SMLS3.SA), which secured the loan.

Conclusion

Delta here is following Etihad’s footsteps that ended up losing billions with its “Equity Alliance” that turned to an alliance of mostly bankrupt airlines with some ceasing operations altogether such as Airberlin and Jet Airways.

Delta is about to lose or ends considerably diluted with its investments into LATAM, which replaced Gol as its partner in South Amerca, and Aeromexico – two airlines that are going through bankruptcy reorganizations, and now this mess with Gol, which already has repartnered with AA.

Gol certainly doesn’t want to lose its loyalty program – Smiles that has very little strategic value to Delta beyond perhaps able to sell it to a third party to recoup some cash (Aimia?).

The airline has also indicated that it won’t participate in the current Virgin Atlantic bailout, of which it owns 49%. It has given the airline fee and other payment deferrals, however.

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