This should have been Gol Linhas Aereas Inteligentes SA’s time.

Brazil’s biggest airline succeeded in narrowing losses after cutting flights and eliminating jobs. And now, it was going to get an unexpected windfall: a historic collapse in oil that would drastically reduce fuel costs.

But Gol wasn’t that lucky.

Instead of reaping the benefits of lower crude prices, the real’s 22 percent plunge against the dollar over the past six months is swelling the airline’s overseas debt.

Gol gets 87 percent of its revenue in reais, while over 75 percent of its obligations are in foreign currencies. Concern the airline will struggle to pay its dollar debt has caused yields on its bonds to soar more than 3 percentage points since they were sold in September to a high of 11.8 percent.

“They have a massive imbalance,” Carlos Gribel, the head of fixed income at Andbanc Brokerage, said by telephone from Miami. “Any move in the dollar, like the one we’ve seen recently, has a direct impact.”

Real Sinks

Eduardo Masson, director of investor relations at Gol, said the decline of the bonds is mostly related to investors shunning Brazilian assets.

“It’s because of economic activity, the currency moves and the higher risk aversion towards Brazil,” he said by telephone from Sao Paulo. “Gol has never been in a stronger position credit-wise.”

Chief Financial Officer Edmar Lopes cited rising dollar- related costs in November when he said that the company’s loss in the third quarter widened by 24 percent from the second quarter to 245 million reais ($85 million).

In a February presentation, Gol said it saw no gains from a 3 percent drop in average fuel prices last quarter, partially because the dollar appreciated 12 percent against the real in that span. Gol should start reaping benefits from cheaper oil in the first quarter of 2015, according to Masson, as hedges expire and because the pricing of airline fuel in Brazil has a delay of about 45 days from moves in crude.

The company hedges about a third of its exposure to oil and currency over a six-month period, he said. Gol estimates fuel accounts for 40 percent of its costs.

The real has plunged as analysts surveyed by the Brazilian central bank forecast the first recession since 2009 for Latin America’s largest economy.

The airline’s $325 million of bonds due in 2022 now yield double the average of industry peers and are on the verge of being distressed at 9.7 percentage points more than similar- maturity Treasuries, according to Bank of America Corp. data compiled by Bloomberg.

“Earning in reais and buying a dollarized commodity is a tough business these days,” Wilbur Matthews, the chief executive officer of Vaquero Global Investment LP, said by telephone from San Antonio. “The dollar is weighing on them more than anything.”

–With assistance from Christiana Sciaudone and Filipe Pacheco in Sao Paulo.

This article was written by Julia Leite from Bloomberg and was legally licensed through the NewsCred publisher network.

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Photo Credit: A Gol aircraft. Andrew Sieber / Flickr