Boeing 737 MAX Grounding Means Higher Fuel Costs for Brazil's Gol

By Nina Trentmann 

Brazil's Gol Linhas Aéreas Inteligentes SA expects higher fuel costs as the grounding of Boeing Co.'s 737 MAX forces the airline to rely on less efficient aircraft.

The São Paulo-based company expects to spend 1% more on fuel in the third quarter than planned and 2% more in the fourth quarter, Chief Financial Officer Richard F. Lark said.

"That's a significant number," Mr. Lark said.

Fuel accounts for about 35% of costs at Gol, he said. The airline, which offers domestic connections in Brazil and in other Latin American countries, spent 976.2 million Brazilian reais ($238.15 million) on fuel in the second quarter, up more than 23% from 792.7 million reais in the previous-year period.

The MAX has been a centerpiece of Gol's strategy to improve efficiency, reduce fuel costs and to expand its range of destinations. The company's operating fleet -- set to hit 137 by the end of the year -- is to consist solely of MAX planes in about 10 years' time, Mr. Lark said.

Gol had seven Boeing 737 MAX airplanes at the end of the second quarter, all of which have been out of service since March following a decision by regulators to ground the plane while they investigate two deadly crashes.

The airline had 129 outstanding orders for MAX jets at the end of June, including 17 that were scheduled to be delivered in the second half of this year, Mr. Lark said.

The airline has leased Boeing 737 NG aircraft to replace the grounded MAX planes, but those consume about 15% more fuel than the MAX, Gol said in its second-quarter earnings release.

"All airlines using the 737 MAX have this issue," said Stephen Trent, an analyst at Citigroup Inc. "The 737 MAX burns less fuel compared to other aircraft within the same category."

Ryanair Holdings PLC, Europe's biggest budget airline and the region's largest 737 MAX customer, said in May that profit would be dented this year by the plane's grounding.

Boeing has been working on updates to the MAX's flight-control computers and a faulty automated stall-prevention system that is blamed for the crashes that took 346 lives. The aircraft maker has said it expects the MAX to return to service early in the fourth quarter. But government and union officials have indicated that the regulatory approval process could push the plane's return into the holiday season.

Airlines, Boeing suppliers and other companies have for months struggled to soften the blow of the grounding of the 737 MAX. But the lack of visibility into when the ban could be lifted is complicating that effort.

American Airlines Group Inc. and United Airlines Holdings Inc. have said they would remove the MAX from their schedules until December, while Southwest Airlines Co. and Air Canada haven't scheduled any MAX flights until next year.

Mr. Lark is optimistic that the MAX will be airborne this year. "Is there a possibility that this thing goes longer? I guess," he said. "But it is unlikely."

Should the grounding extend past November, Gol might have to change its fleet plan. It already had to adjust the route for its flights to Miami to allow for refueling in the Dominican Republic, given that the range of its replacement aircraft is lower, Mr. Lark said.

Gol has suspended some of the deposits it usually pays to Boeing for plane orders and expects to receive some MAX planes next year, Mr. Lark said. The company hasn't discussed potential compensation with the aircraft manufacturer yet, he said. "We will talk to them once [the grounding] is resolved," he said.

Write to Nina Trentmann at [e-mail]

(END) Dow Jones Newswires

September 06, 2019 05:44 ET (09:44 GMT)

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