Fitch Assigns GOL Airlines 'BB'.

NEW YORK -- Fitch has assigned a rating of 'BB' to GOL Linhas Aereas Inteligentes S.A.'s (GOL) outstanding US$200 million 8.75% perpetual bond. In addition, Fitch has assigned a National Scale Rating of 'AA-(bra)'- Rating Outlook Stable, a Local Currency Issuer Default Rating (IDR) of 'BB+'- Rating Outlook Stable, and a Foreign Currency IDR of 'BB-' - Rating Outlook Positive.

GOL's ratings reflect its position as the leading low cost, low fare airline in South America. The company's low cost structure allows it to offer low fares, which has been attractive to air travelers, and has enabled GOL to help grow the market as well as rapidly increase its market share and load factors since it launched operations in January 2001. GOL's strategy of operating a single aircraft type combined with its highly integrated route network has allowed the company to maintain high asset utilization rates and achieve one of the lowest cost structures in the industry, while continuing to grow its profitability. The company's operates a modern and fuel-efficient fleet with lease expiration dates timed to the delivery schedule of its firm purchase order for 67 737-800NG aircraft, which provides flexibility in capacity management. GOL's financial profile is sound and credit metrics are expected to remain stable over the medium term.

GOL's competitive advantages and solid profitability are underpinned by its business model, which utilizes a single fleet type of Boeing 737s and a multi-stop route system that allows it to operate with a very low cost structure. The company's highly integrated route network of short-to-medium haul flight segments, 700 km on average, allows the fleet to operate in the a highly fuel efficient manner given the range of the fleet. Operating a modern, single fleet type reduces costs by lowering spare parts inventory, aircraft down time and pilot, mechanics and crew training.

The route and yield management system allows the company to offer low fares, which in turn have attracted new, price sensitive travelers that have increased load factors to more than 73.5% in 2005, as well as allowing the company to serve cities that otherwise would not be economically viable; currently, more than 50% of the GOL's passengers pass through or connect in route to their final destination. The highly integrated nature of the route network reduces connection times and increases aircraft utilization. GOL's aircraft average 11 segments and 14 block hours per day. These factors have resulted in one of the industries' lowest break-even load factors of 52.3%.

GOL's business strategy has proven successful. Over the last five years, revenue have dramatically grown to approximately R$2.7 billion in 2005 from R$230 million in its first year of operation in 2001. At the same time, market share has grown to 27.3% from 4.7% over the same period. GOL's dramatic growth has come at the expense of other higher cost market participants, including now defunct VASP, and financially troubled Varig. The company has also benefited from the economic recovery in Brazil and the Brazilian market as the demand for flights increased by approximately 35% between 2003 and 2005.

Profitability has also improved due to the company's low cost sales distribution. The company sells more than 80% of its tickets over the internet and approximately 30% directly to customers, which significantly lowers GDS costs and sales commissions. Since 2001, selling expenses have dropped to 12.5% in 2005 from 15.3% of revenues. GOL became profitable in 2002 and since that time, operating and net profit margins rapidly improved and averaged approximately 26% and 19%, respectively, over the last two years; net profit has improved to R$513 million in 2005 from R$35 million in 2002.

GOL operates in a small but growing market, which is dominated by three carriers, TAM, GOL and Varig. Recent industry growth has been helped by a recovery in the economy as well as the introduction of the low cost carrier concept with the introduction of GOL, helped to stimulate market demand in a country with relatively low disposable income and high price sensitivity. GOL estimates 8 million passengers in Brazil currently use air travel compared with a potential market of more than 20 million. Since 2003, the industry has undergone strong modifications with the exit of VASP and the rise of other new companies, i.e., TAM and GOL. Following the economic downturn during 2002-03, the Brazilian government now more closely monitors and controls system capacity by only granting new landing slots at each airport in the country based on supply and demand.

GOL's balance sheet and leverage are solid for the rating category. At December 2005, the majority of the company's debt obligations were lease-related resulting in a total adjusted debt of US$829 million. Leverage as measured by total adjusted debt to EBITDAR was 2.2 times (x) at year end 2005. Liquidity is solid with US$420.2 million of cash and short term investments and approximately $185 million of dollar equivalent revolving credit lines at March 31, 2006. On-balance-sheet debt totaled only US$248 million after adjusting for the perpetual bond placed in April 2006.

Over the next few years, on balance sheet debt is expected to grow dramatically as GOL pursues its ambitious five year capital expenditure program of approximately US$2.4 billion. The company has a firm aircraft purchase order for the acquisition of 67 Boeing 737-NG800 with scheduled deliveries between 2006 and 2012, and an option for an additional 34 over the same period. More than 85% of the aircraft expenditure is expected to be financed with low cost EXIM guaranteed debt. The capex program is expected to modestly pressure credit protection measures with total adjusted debt to EBITDAR ranging between 2.5-3.5x over the next few years. Over the same period, EBITDAR to interest expense plus lease expense is expected to range between 3.0x-4.0x. Credit protection measures are expected to remain solid for the rating category.

The new aircraft will increase available seats by about 18% on average per year and support the expansion of GOL's domestic operations as well as incorporation of new international routes within South America. By the 2010, the fleet is expected to reach 88 aircraft excluding additional option increases, a net addition of 56 aircraft and a net fleet increase of 41; 53 are expected to be owned and 35 are expected to be leased. The purchase of the aircraft will also allow the company to decrease the average age of its fleet as well as lower fuel and maintenance costs associated with these newer, more efficient aircraft. All of GOL's existing aircraft leases expire over the next five years, which provides the company with substantial flexibility to adjust capacity as they take deliveries of the new purchased aircraft. Over the five year period, GOL is expecting to allow 14 aircraft leases expire while renewing the remainder of the leases.

GOL faces industry-related risks, including revenue volatility, high operating leverage, fuel price volatility and competitive threats. The competitive environment for passenger operations has become gradually more challenging as strong traffic has driven competitors to add capacity, which could potentially pressure operations.

GOL is a low cost, low fare airline operating in South America that provides frequent service on routes connecting Brazil's major cities and South American cities. The company operates 47 single class Boeing 737 aircraft with an average age of 8.7 years. For the first quarter ending March 31, 2006, GOL had a Brazilian market share of 28.8%, a load factor of 69.3%, and a break-even load factor of 52.3%. In 2005, revenues totaled US$1.1 billion and net income was US$219.3 million.

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