Dallas, Texas 07/13/2015 (Financialstrend) – Delta Air Lines, Inc. (NYSE:DAL) is to spend $56 million to increase its stake in Brazil’s Gol Linhas Aereas Inteligentes SA. The discount career is currently struggling with ongoing weaknesses that has forced it to issue more shares in pursuit of the much needed working capital. Gol Linhas is planning for a $146million capital increase that it plans to raise from its two controlling shareholders.
Seat on the Board
Bloomberg reports that Delta Air Lines, Inc. (NYSE:DAL) is also on course to guarantee a term loan of about $300 million from third party lenders. Gol’s balance sheet should receive a boost after its biggest shareholder reiterated plans to invest up to $90 million in the company. Gol Linhas currently has a cash balance of about $1.1 billion.
Delta Air Lines latest investment will see it get one seat on the board as its stakes in the company soars to 2.9%. The investment should be a big uplift for Gol which has not generated any profits since 2011 as Brazil plummets into recession, an effect that has seen the stock tumble by as much as 60% this year alone
Impact of Brazil Economy Slowdown
Gol Linhas is not the only airline feeling the effects of a slowdown in the Brazilian economy. A number of the country’s airlines are seeking to raise capital as their balance sheet come under pressure. Azul Linhas Aereas Brasileiras SA, Brazil’s third-largest airline, has already received backing from United Continental Holdings Inc (NYSE:UAL) that has shown willingness to invest $100 million for a 5% stake.
The investment by Delta Air Lines, Inc. (NYSE:DAL) should strengthen the strategic alliance already in place as Gol moves to improves its financial position. The two airlines have been enjoined in a working relationship having reached a code-sharing agreement after Delta invested $100 million for a 3% stake in 2011.