August 16, 2016 / 2:12 PM / 2 years ago

UPDATE 1-Brazil's Gol sees operating profit covering debt costs, shares rally

(Adds outlook, comments from executive, market reaction)

By Brad Haynes

RIO DE JANEIRO, Aug 16 (Reuters) - Brazilian airline Gol Linhas Aereas expects operating profit this year to cover debt payments, marking a turning point for the debt-burdened company after the country’s stronger currency helped it post a second-quarter net profit.

Gol issued a new forecast on Tuesday for earnings before interest payments and taxes this year equal to between 4 percent and 6 percent of revenue.

Chief Executive Paulo Kakinoff told journalists that would be enough to service its debts.

Shares of Gol jumped 5 percent in Sao Paulo trading to their highest in 13 months.

The stronger outlook follows years of net losses and growing debts as a severe recession, coupled with the nation’s currency hitting an all-time low last year, battered the profitability of Brazilian airlines.

Gol’s fuel, aircraft leasing and debt costs are denominated overwhelmingly in dollars, while it makes most of its revenue in Brazilian reais. The company’s mounting debt burden led it to negotiate a debt swap this year that was poorly received by bondholders, about 20 percent of whom participated.

Rival airline Azul also signaled on Tuesday it had turned a corner, as chairman and controlling owner David Neeleman told newspaper Valor Economico that he expected an operating profit this year and net profit in 2017. Azul representatives confirmed the contents of the interview.

Gol trimmed its fleet by seven Boeing aircraft in the first half of the year and plans to shed another 15 planes by the end of the year, resizing the company due to weak demand amid Brazil’s worst economic downturn in generations.

The airline on Tuesday also posted a net profit of 309.5 million reais ($97 million) in the second quarter, following a loss of 354.9 million reais a year earlier.

A roughly 10 percent rally in Brazil’s currency in the quarter helped to cut fuel costs by 28 percent from a year ago and reduced Gol’s debt load by around 778.8 million reais in local terms.

$1 = 3.16 Brazilian reais Reporting by Brad Haynes; Additional reporting by Reese Ewing in Sao Paulo; Editing by W Simon

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