Gol outlines expected synergies from WebJet acquisition

Washington DC
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Brazil's Gol expects to enjoy annual synergies of 100 million Reais ($63.7 million) roughly two years after completing its proposed acquisition of fellow low cost carrier WebJet.

Gol revealed its acquisition of WebJet on 8 July as part of a strategy to strengthen its position in Brazil's fast growing domestic market. The acquisition price is 96 million Reais, with Gol assuming 215 million Reais of WebJet's debt and gaining the roughly 56 million Reais in cash WebJet had on its balance sheet in 2010, which was roughly 7.4% of the carrier's net trailing 12 months revenue.

Gol expects 60 million Reais in synergies from aligning corporate functions including scale of negotiations with suppliers, process standardisation and an increase in international distribution channels, said the carrier during an 11 July earnings call to discuss the purchase.

The remaining 40 million Reais in expected synergies is being derived from introducing phased maintenance on all aircraft, optimising spare parts stock for CFM engines powering both carrier's fleets and a higher utilisation of Gol's maintenance centre in Belo Horizonte. WebJet currently outsources its heavy maintenance.

Carrier CFO Leonardo Porciúncula Gomes Pereira said the synergies should start about two years after the acquisition is complete, and stated Gol is "also considering synergies" from the gradual renewal of WebJet's 24 Boeing 737-300s. "Well need some time to complete that," he explained.

Gol CEO Constantino de Oliveira Júnior said the acquisition would allow Gol to offer a higher amount of frequencies and allow Gol to increase its presence at the country's main airports.

de Oliveira Júnior mentioned Sao Paulo Guarulhos specifically in his comments, noting the purchase bolsters Gol's presence at the airport.

Post acquisition, Gol will strengthen its leading presence at Confins airport in Belo Horizonte, Brasilia, Salgado Filho in Porto Alegre and Galeão in Rio de Janeiro.

Additionally, Gol's WebJet purchase allows Gol to capture leading carrier status at downtown Santos Dumont airport in Rio De Janeiro, whose access was enlarged by Brazilian authorities in March 2009.

de Oliveira Júnior stressed it is "really tough to predict" how long the process of gaining approval from Brazil's competition regulator CADE will take, noting the proposed acquisition is not as complex as Gol's 2007 purchase of Varig successor VRG. "In this case it is two companies operating under the same concept," he stated, adding the combined company "expects to maintain very competitive fares and stimulate the market".

From that perspective, said de Oliveira Júnior, the larger carrier will "bring more reliable service and a higher number of frequencies between the most important destinations". However, he also stated that Gol has no intention of reducing fares through its WebJet buy "to be the leader in terms of market share or something like that".

de Oliveira Júnior expressed confidence of getting approval of Gol's acquisition of WebJet, stressing Gol would add value to the WebJet product with fares that should stimulate the market and compete with prices charged by bus companies.

If the acquisition is completed, Gol will be poised to become the domestic market leader in Brazil in terms of passengers carried. Combined Gol and WebJet carried roughly 32.8 million Brazilian domestic passengers in 2010, surpassing TAM's total of 29.2 million.