Moody's lowers Gol Linhas

Moody's Investors Service said it lowered to B1 from Ba3 the corporate family rating and senior ratings for Gol Linhas Aereas Inteligentes SA and Gol Finance as well as VRG Linhas Aereas SA's R$500 million senior unsecured notes to B1 from Ba3 and the national scale rating to Baa2.br from A3.br.

The outlook is stable.

The downgrade reflects the view that the longer-than-expected pressure on yields, combined with an unexpected increase in a number of operating costs will result in a significant erosion of Gol's earnings and cash flow, according to the agency.

The B1 rating reflects the favorable macro economic conditions in Brazil which continue to enhance the upward social mobility of the country and the attractiveness of air travel, the company's position as the second largest domestic carrier with strong market positions and the company's historically strong cost discipline, Moody's said.

The rating also considers the ongoing pressure on system wide yields, which have been on a decline since 2004 as new entrants such as Azul and Webjet have grown share using aggressive pricing and the associated decline on Gol's market share, the agency said.

The rating also considers that Gol's low fare business model makes it difficult to absorb the negative impact of higher fuel prices, and the volatile nature of the industry, the agency noted.

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