Big News in Brazilian Aviation: Good News for Gol

Mar.29.07 | About: GOL Linhas (GOL)

Two big pieces of news that impact Gol (NYSE:GOL) in a positive way hit my screen after I bought shares on Monday... a very rare case indeed of good purchase timing by me.

The first, rumors are now swirling (according to a Brazilian news columnist) that Gol is on the verge of buying Varig and keeping the nameplate for its international flights - though others, including regional competitor LAN (NYSE:LFL), are also likely to be interested. You can see the machine translated summary here or the original in Portuguese at the Veja Magazine site.

A more recent summary is available from the AP. This could be very big for Gol, as Varig comes with a brand name and some very valuable international flight and airport "slots," but of course we'll have to see what it would cost and what its plans would be before judging the prospects. I'd trust GOL management to add more international flights, though I suspect it would continue to focus on the short haul international flights that it has already been expanding throughout Latin America.

And the second, I noted in my article that I thought the real reason for the GOL/TAM (NYSE:TAM) price war was the tough situation in civilian air travel right now, rife with delays and cancellations due to structural problems (not either company's fault). And I said I thought the cure for this would have to be a significant upgrade to the infrastructure, especially the air traffic control syste, but that the timing would depend on political will.

Now, at almost the same time I was typing that, President Lula exhibited a little bit of that political will. He met with aviation heads (the air traffic control system in Brazil is still controlled by the military) and later announced, according to the AP, that he wanted a "deadline, day and hour to announce that there are no more problems in Brazilian airports."

Fixing the Brazilian air traffic infrastructure sooner rather than later would be fantastic news for GOL (and TAM). Buying Varig may or may not be good, depending on the details. I'm still happy that I picked up more shares earlier this week.

Disclosure: Author owns share of GOL.