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Gol sticks by 737 Max in fleet upgrade

Brazilian carrier Gol continues to see the Max playing a key role in its fleet transformation plan, even as it plans for some of its 2019 orders to slip into 2020 as Max remain grounded around the world.

In its second quarter earnings statement, the low cost airline said that “a portion” of its 2019 Max deliveries are expected to move to next year due to the grounding. The airline counts seven Boeing 737 8 Max aircraft in its fleet, which have been out of operation since March as carriers await regulatory approval to fly the type again.

“We don’t have an update to our contractual delivery schedule with Boeing at this point, which shows 17 remaining deliveries for this year,” chief financial officer Richard Lark told investors during the earnings call today. “But we are prepared in the event that the majority of these shift to 2020. We’ve been working through the delivery delays.”

The Max has been the cornerstone of the Brazilian carrier’s fleet transformation strategy. At the end of the second quarter, it counted 129 firm orders for Max aircraft, including 99 737-8s and 30 737 Max 10s. The all-Boeing carrier ended the second quarter with 127 Boeing 737s, including the seven grounded 737-8s, 96 Boeing 737-800s and 24 Boeing 737-700s.

“We remain committed to the 737 Max as a core element of our long-term fleet,” chief executive Paulo Kakinoff told investors. He noted that based on Boeing’s latest guidance, the airline is assuming that the Max will return to service during the fourth quarter. He said the carrier added five leased Boeing 737-800s during the quarter and delayed the return of three 737NGs and could add more if needed.

While some carriers have calculated the impact of the Max on their operations so far, Lark tells Cirium that the Max groundings have not had a material impact yet on Gol’s financials.

However, the airline expects to consume about 1% more jet fuel in the third quarter than previously budgeted due to operating 737NGs rather than Max jets, Lark said.

Another inconvenience of the groundings is the carrier has to make a technical stop in the Dominican Republic on flights operating to Miami and Orlando because 737NGs do not have the same range as 737 Max jets. “Up until now it’s been a little bit of a headache, but going forward it could be more significant” if there are prolonged delays, Lark says of the stopover issue.

“We’re at the beginning of our curve on the Max, so I think for us we didn’t really have a lot of exposure when the grounding actually happened, and so we were able to be ahead of the curve and already make the changes,” Lark says.

For the quarter ending 30 June, Gol reported a net loss of R120.8 million ($31 million), or R194.6 million after minority interest. It also noted that it posted its highest second-quarter net revenues ever, totaling R$3.1 billion. This marks an increase of 33.4% compared with the same period a year earlier.

The airline cited better pricing, strong demand and capacity management as key themes in the second quarter, which is traditionally a low travel period in Brazil according to Kakinoff. The results also reflect a truck drivers’ strike in the country. Capacity, measured in available seat kilometers (ASKs), rose 6.5% year-over-year.

The carrier’s net operating revenue per available seat mile (RASK) increased 25.3% year-over-year to 27.63 centavos.

Gol’s cost per available seat kilometer (CASK) rose 13.6% in the quarter, largely due to increasing jet fuel prices.

Other factors included the depreciation of the Real, payroll tax changes, the costs of having additional aircraft in the fleet and increases in landing and navigation fees. It expects its third-quarter CASK to rise 11-13% compared with the same period a year earlier.

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