Gol Linhas Aereas Inteligentes SA (GOL) 2015 Q4 法說會逐字稿

(interpreted) Good afternoon and thanks for waiting. Welcome to the conference call of GOL Linhas Aereas Inteligentes regarding the earnings of the fourth quarter 2015.

Today with us are Paulo Kakinoff, CEO; Edmar Lopes, VP of Finance and Investor Relations; and Eduardo Masson, CFO and IRO. We would like to inform you that this event is being recorded. (Operator Instructions)

This event is also being simultaneously webcast on the Company's website, www.voegol.com.br/ri. In there, you will also find the respective presentation. Slide selections will be controlled by the participants. The replay of this event will be available soon after its closing.

We would like to remind you that webcast participants can ask questions to GOL Linhas Aereas on the website. They will be answered after the end of the conference by the IR department.

Before going on, we would like to let you know that any statements made during this conference call relative to GOL's business outlook, projections, operating, and financial goals are based on beliefs and assumptions of the Company management and rely on information currently available. Forward-looking statements are not a guarantee of performance, since they involve risks, uncertainties, and assumptions, and refer to events that are in the future and, therefore, depend on circumstances that may or may not occur.

Investors and analysts should understand that general conditions, industry conditions, and other operating factors may affect the future results of GOL and lead to results that will materially different from those in such forward-looking statements.

We'll now turn the call over to Mr. Kakinoff that will start the presentation. Please, Mr. Kakinoff.

(interpreted) Hello. Good morning, everyone. Thanks for joining us in this conference call for the earnings of the fourth quarter 2015.

Exceptionally in this conference call we are going to have our event with simultaneous translation, so as we can in a single forum, and also equally to all participants, release our results for 2015 as well as information of previous releases, including projections for 2016 and the hiring of the consulting companies we already released. We believe that due to the sensitivity of the information, it would be timely to have a single forum with a single message for the whole -- for the participants. So we're going to start our representation on slide number 3.

The year of 2015 was marked by a drop in the Brazilian GDP of 3.8%, the most significant in the last 25 years. Indeed, it will be the first time that we will have two years in a row with negative results in GDP, two consecutive years of recession since the beginning of the 1990s. In the period, we also saw the inflation peaking, recording 10.7%, and the devaluation of the Brazilian real compared to the dollar by 42%, which impacts more than 50% of our costs and expenses and approximately 85% of company debt.

About the dollar, it's important to highlight that the currency last year varied from BRL2.66 to the peak of BRL4.24, which accounts for a variation of approximately 60% within a single year. This volatility poses additional challenges and still remains. These macroeconomic factors interrupted the pathway followed by GOL since 2012 which in 2015 expected the third consecutive year of the Company's recovery and consequent generation of cash and return to shareholders.

In the following item, we show the reduction of corporate passengers transporting in the Company in the comparison year against year. Since mid 2015, however, we are observing that month after month the volume is going up. Still [shy] but still impacted the average rates practice in the fourth quarter this year.

The capacity of our companies in Brazil had a drop of 4% compared to the fourth quarter 2014. This is the first quarter with systemic reduction in the supply of the industry since mid-1990s. This movement, led by us, will remain in 2016 as we announced.

We are going to adjust our supply in the interval from 15% to 18% in the year in the volume of takeoffs and, consequently, in the volume of seats available. And we believe the industry will keep the space of adjustment, which is imperative to response to the scenario of strong economic restructuring we are in. We are going to talk more about this topic further on.

Fuel prices in the year was BRL2.13 per liter, which accounts for a drop of 14.8% compared to 2014. This reduction was significantly lower than what we saw in the international oil market in which drops -- had a 50% reduction year against year. This exception happened in Brazil because of the price of diesel in our country, which is indexed in dollar.

In the third -- since the third quarter 2015, we also saw deterioration of economic metrics with consequent restriction of capital markets to Brazilian companies and resulting investment downgrading by the three main rating agencies in the world.

On the same slide, number 3, on the right we highlight GOL's operating performance in the quarter with maintenance of our strategy, executed focus and discipline. In the first item we show an increase of more than 17% in ancillary revenues, which already accounts 12.2% in total sales, with a record level in our country. The highlights here is the commercialization of the GOL+ Comfort seats, sales onboard, and the performance with cargo.

Another important item in the period, maintenance of our leadership in the transportation of passengers into domestic markets. We have a greater advantage compared to our main competitor with a difference of 3.6 million passengers transported extra according to ANAC data. This shows the preference of passengers because of our punctuality and operating efficiency and comfort.

Going to the next item, we kept the first place in sales also for corporate clients with almost 32% of the passenger markets of those passengers that are flying on business according to data from the Brazilian Association of Corporate Traveling, Abracorp. We also, for the third year in a row, got -- as leaders of punctuality in domestic flights, which is a very important sector for the choice of an air company.

On slide 4 in 2015, as mentioned, GOL and Brazilian air sector faced one of the most adverse periods in the last decade resulting from the combination of the country's economic moment and the significant restriction in corporate demand and currency devaluation. Despite the adverse scenario, GOL revenues kept to the same levels of last year. In the quarter, we had a drop of 2.8% compared to the same period last year. In the annual comparison, the reduction was 2.9% reaching total revenues of BRL9.8 billion.

Having the high exchange volatility as the main cause we had operational loss, EBIT, in the period of BRL95.3 million with negative margin of 3.6%, a drop of BRL266 million compared to the fourth quarter 2014. In the year, the operational loss was BRL183 million with negative margin of 1.9%, retraction of BRL688 million compared to 2014 or 7 percentage points of drop in our EBIT margin.

We think that our revenue levels was stable. The total of the corrosion of the operating results happened because of an increase of costs, especially those expenses that are in dollars.

EBITDAR, [in turn], recorded BRL398 million with margin of 15% in the quarter. Year to date, the indicator accounted for BRL1.3 billion and margin of 13.7%, a drop of 4.3 percentage points compared to 2014.

On the next slide, slide number 5, we graphically show the results of Brazilian real's devaluation without cash effect and of the Venezuelan bolivar against the dollar which also had a direct impact on GOL's net results. The exchange effect and adjustment on the income tax line, together, accounted for 70% of our net revenues in the fourth quarter 2015 and 72% in the whole of the year, leading to an annual loss of BRL4.4 billion. And remember that the cash effect is about BRL1.3 billion there.

On slide number 6, as a reflex of the flight plan in practice since 2012, we show the evolution in those productivity and efficiency. Next, human resources; GOL also has continuous evolutions and really drove demand measured by RPK compared to the number of employees by 13% since 2015 -- 2012. As fuels -- rates of consumption of fuel per RPK have an evolution of 11% in the last four years.

And in this item I highlight talking about fuel in liters, with no impact of the drop of price of fuels, so I'm talking about a gain of efficiency here.

Talking about consumer fuel per RPK.

Operational wise, as you can see on slide 7, in the year of 2015 we're stable in the volume of domestic supply in the year, compared to the growth of 1% in the industry. Demand grew by 1% and occupancy rates was basically stable compared to 2014 at a level of 78%. Showing even in a more clear way our protagonism in capacity that's so important in moments of economic pressure, we show you in slide number 8. Along with the last four years and annualized for the months of January and February 2016, GOL reduced approximately 14% of its supply in the domestic market and was followed by its main competitor.

Together, we are responsible for approximately 14 billion ASKs less in the system, a phenomenon that has been bringing more rationality for the industry. However, it's not the same effect produced by other competitors in our industry as you can see to the right of the slide.

On the next slide, slide number 9, we showed that GOL kept its leadership in the number of passengers carried in the Brazilian markets with even a little increase according to data of ANAC. We reached more than 35 million clients a year. Our difference compared to the main competitors went from 3.5 million to 3.6 million passengers in the period, almost an additional month of sales. The difference for the third place is [15] million passengers, almost 85% more in the number of passengers.

As mentioned on slide 10, we show that GOL kept leadership in its share in corporate sales against 2014 and maintenance of this leadership is the fruit of our [continuity] in enhancing the experience of the clients. It's important to notice the retraction of 6.4% in the amount of total tickets in the segment between the years of 2015 and 2014, a reflex of the economic retraction and reduction of production activity in Brazil as well as commercial activities.

Going to slide 11, we show a clear result of the effort of all our (inaudible) teams to consolidate as the most punctual company in Brazil. We enhanced our leadership in punctuality in 2015. According to official data available, we reached 94.4% of our flights with take offs on time, a level compared to the best practices in the world market.

This number is also an extension of our previous performance and places us in an even more consolidated manner in the perception of passengers in Brazil as the most punctual air company in the country.

On slide 12, just to complement the presentation of the Company's positioning, in terms of products and services, I would like to highlight that our passengers on international flights can have exclusive advantage that will make all the moments they have in -- during the trip different. This from check-in to disembark we are talking about more pleasant experience with comfort throughout the process. Benefits for the (inaudible) have priority in check-ins, hot meals, desserts, and other items.

I would like to remind you, as announced in 2015, we are going to have access to WiFi and complete entertainment during the flight period. All these measures together aim at keeping our performance and having linear growth in our flight. And also on the basic average tickets that are charged as we are more and more attracting corporate clients, as well as leisure clients, and want to have a differentiated experience that can be offered without really changing our cost structure, because we are using the same aircraft configurations that we have in the domestic market.

Now going to the most relevant part of our presentation of our earnings, talking about our financial and economic performance, I would like to turn the call to Edmar that is going to make the first comments on the topic. And later on we are going to come back to close the presentation. Edmar, please?

(interpreted) Well, thank you very much for joining us in this call today. Good afternoon; almost lunchtime already.

Well, before starting, I would like to mention something. In the presentation of this quarter and end of the year, we brought some different information. I'm going to place emphasis on them so as to contextualize what is happening in the Company in the scenario where the exchange rate is changing so relevantly. And also, talking a bit about the consultants that were hired recently and that were part of the releases of the Company. This is something that we are going to comment on on the next slide.

We are going to start on slide number 14, where we talk about our operating highlights. What is important here is that even with oil prices down in the international market because of the exchange variation, this decrease was not reflected internally in Brazil. We continued to be pressured in terms of costs.

Additionally, as our CEO already mentioned, in Brazil, we are having the worst recession of the last 30 years, which led the Company to have pressure not only in terms of revenues, but also expenses. And I'm going to talk about that further on.

On page 15, we talk about the financial highlights and this is very clear. When we talk about our net results of the year, we see a deterioration of BRL700 million compared to BRL300 million in revenue and BRL400 million on our cost made because of the reasons I mentioned before.

Highlighted here in the bottom part of our slide, we show that out of the BRL4.3 billion of losses a year, BRL2.3 billion are related to the exchange variation and here including also the currency in Venezuela, and BRL900 million in terms of taxes. We have already written off part of it in September and we have an additional write-off in the end of the year. And this is related to the short-term PCC and extension of credit.

In our belief, this is a possibility that is ruled out, so we have the write-off leading to the loss of BRL4.3 billion.

With that I'd like to go to page 16 and say that this tight fuel prices being a bit slower; we see that expenses in dollar are still above 50%. And here, if you take a look at the aircraft lease, we went from 8% in 2014 to 14% this year, which fully justifies the hiring of Skyworks company to address this line and bring lessors to be part, together with all stakeholders, of this process of restructuring that we are promoting in the Company. And that started in the second half of last year.

In terms of costs, I would like you to please turn to page 17, where we show the evolution of our ex-fuel. I've already talked about fuels line by line. The highlight here is the following.

We have been really engaging efforts to renegotiate contracts along the last month at all levels. Also, this has provided the Company, but indeed what happens is that we do have mandatory increases or increases related to the macro external environment that really we have very little movement to make. So the highlights to the left show you that almost 80% of the increase of costs that we had was led to three factors that are outside our control: again, exchange rate, salaries, and the increase of the fees that was promoted by the government last year.

So with all our efforts, 80% of ex-fuel costs are related to mandatory movement outside our control. On page 18, we bring you our traditional position CASK ex-fuel compared to our competitors. Here I would like to highlight page 19, talking about leverage and rating.

Recently, S&P, following the other two rating agencies, transformed GOL's rating to CCC. In the past years, as of 2013, we saw a deterioration of company credit. As you can see, basically driven by leverage.

Here the exchange rate also has a relevant role and this is what this chart shows. Today, we have a gross debt of BRL9.3 billion approximately -- of approximate $2 billion, almost BRL8 billion, and this is the major issue that we have to address right now because the debt in Brazilian reals is stable around the period. As our CEO mentioned, the issue of the increase of interest rates in Brazil to 7%, 8% to 14%, 15%, does have an impact on revenues, but the main point here is the exchange variation around the last month.

And if we go to page 20, we bring you additional information that we had before. We also included financial leasing here, so we are talking about obligations of BRL1.5 billion for 2016. The first quarter is almost over, so we are 100% on time with our obligations.

But with this level of exchange rate, this is an even more challenging scenario for the Company because, as you can see, to the left we have a cash position above BRL2 billion. But the geography of the cash changes in the period because of the credit restriction in Brazil and throughout the world. And this is what is being shown to you.

So if we look at all that we see a pressure in terms of leasing expenses, but we also see a pressure in terms of financial expenses associated to the nominal increase of our debt in Brazilian real. With that, looking at the Company, we decided to hire advisory services, Skyworks, to address the issues that are important to us. We are just starting our work.

As you can see on slide 21, the months of April and a bit further on we are going to conduct studies, assessments. We will start to contact third parties and as soon as we have news, we'll come back to the markets to give you information.

Before getting back to Kakinoff, I would like to go to slide 22 just to give you a summary of what happens in terms of this deterioration that we've talked about. Brazil demands and macro economy and how this affected GOL.

It's very clear that we do have a liquidity pressure that we did not have before. Free cash is a strong indicator of ours and it is deteriorated. There was deterioration along the fourth quarter 2015. When we look into 2015, because the exchange rate impacted the generation of cash, there was a relevant impact because our CapEx and expenses are influenced by the exchange rates. So we have negative results that were greater than any other year in our recent history.

Ratings already reflect the deterioration of credit in the Company. Added to the comments that Kakinoff made, a restriction of credit in the capital market for a company like GOL. This is close to now and this leads the Company to have some kind of needs to change its capital structure and this is what we are starting now based on the hiring of services that we had.

With that, I'm going to turn the call back to Kakinoff to talk about projections and our final message.

(interpreted) So going to slide 24, we show our projections of 2015. All the metrics were between the areas presented, except for QAV; that was about 1% or $0.02 difference, very small.

On slide 25, we talk about our schedule for 2016 and we are confirming our guidance. As we said yesterday in the material fact, the new projection of capacity of GOL includes a variation in our total ASK in the year of 2016 between minus 5% and minus 8% compared to the previous year. This is necessary due to the new network that is going to be in operation as of 1 May 2016 with a reduction in the domestic market and international routes.

When we take a look of projections in numbers of takeoffs, this is between minus 15% and minus 18%, which consequently means a decrease of seats at the same level. The difference in the reduction of number of seats in ASK is because of the increase of the average route that the new network will bring us.

Going to slide 16 (sic -- 26), in line with what we announced in the past, I would like to highlight our response in a nutshell to all the challenges that are being a real storm for the industry in Brazil. As I already talked about seats and network, I'm going to talk about other items.

First, we have the anticipated sale of tickets through Smiles in the amount of BRL1 billion. This transaction will be in tranches and with subject to terms and conditions, but the first has already been dispersed in the first quarter of 2016, the amount of BRL376 million. This is part of our restructuring plan, including the reduction of our capacity, number of aircraft operated as we already released when we announced this transaction with Smiles.

As Edmar mentioned, we hired the financial advice of PJT and an advice for the review of our contract with Skyworks. These companies are part of a project to help us optimize our capital structure and review the obligation of our crafts today. So basically, we are restructuring the financial structure of the Company.

This project, together with others that are ongoing since 2015, and that involve all GOL stakeholders, will promote a plan to reverse current results and resume a positive free cash flow. The discipline in conducting this plan with all stakeholders is something that can indeed make the Company reach its objectives in the future.

On slide 27, we show in a nutshell, again in a summary; in a way, I believe, it's quite emblematic of the deterioration of the Company's financial structure and capital that occurred in recent years compared to its operating performance. Operational wise, the Company has been able to keep its level of revenues even in a scenario that is adverse with retraction and a (inaudible) on wheels.

But in terms of costs related to dollar and financial expenses, the max exchange devaluation puts the Company in a very adverse scenario that is completely different from the trajectory of recovery the Company was performing since 2012. It's important to mention that in two years the EBIT results went from minus 11% to 5% positive in 2014.

The Company also has free cash flow that was even at the point. This recovery project that for the year of 2015 projected a relatively large operational profit so that we would have positive profit was completely hurt by the exchange devaluation and the Brazilian economic politic scenario.

Again, if we think of the exchange variation of 47%, this led year against year to an increase of 57% in the level of bank debt, 35% in increase of financial leasing, and compared to 2012 this was an increase of BRL1 billion. The financial debt went from BRL6 billion to BRL9.3 billion, growth of 50% in a single year and financial expenses, also year on year, went from BRL508 million to BRL1.46 billion, double -- or 58% more than 2014, double than what we had in the year of 2013.

It is clear that the combination of these two factors, the difficulty to recover our results in an adverse market in a restricted, if not closed, market of credit and access to capital. In addition to all the financial obligations that the Company has, really require an extensive restructuring of our Company with the participation of all our stakeholders.

The level of liquidity that the Company has today, even still within our strategic parameters of at least 25% over the net revenues of the last 12 months is not enough to guarantee in the long term the sustainability of our current business model. The extreme volatility of the market at the moment enables different projections. If we think of the exchange rate in the last three months, we had a fluctuation that varies from BRL3.70 to BRL4.15, so different scenarios give us different protections in terms of how long our cash would last if we didn't have any restructuring actions.

And these actions haven't started now. This plan is now in its third phase. The first phase was the investment of the majority shareholder and the main minority shareholder there with $160 million of injection of capital. From the second to third quarter last year, a complete redesign of our operational metric, reduction of company costs, binding of -- reviewing all our supply contracts. All that made the Company to reach the lowest level of CapEx historically when we compare it in dollar and strong currency.

So, operationally speaking, the Company will hardly have an EBIT margin that is enough to neutralize our cash burn, unless we restructured our financial structure significantly.

Well, with that, we go to the final slide of our presentation, slide 28, that summarizes the six main fronts of our plan. First, capacity and network, a decrease of our supply by 15% to 18%, the participation of our stakeholders in this restructuring plan, the adequacy of our fleet, and the restructuring of our capital structure to keep our liquidity. So these are the main work fronts of our multiparty comprehensive plan.

Well, I would like to thank you very much for joining us in this first part of the presentation and now we are going to open for the Q&A.

Questions in Portuguese are going to be simultaneously translated into English, as we are doing with the whole of the conference. And questions in English are going to be translated by us and then we are going to provide the answer in Portuguese as well.

(interpreted) Well, thank you. We will now start the Q&A session. (Operator Instructions) Victor Mizusaki, Bradesco BBI.

(interpreted) Hello. Good afternoon. I have two questions.

The first is that in the end of the year, GOL announced an intention to sell or return five aircraft. I would like to know what the status of this operation is and if you received any cash from this aircraft in the first quarter 2016.

Looking into your guidance, thinking of reduction of the number of seats and takeoffs, how many aircraft do you expect to return along the year of 2016? And if possible, thinking about 2017, if you see GOL working with block hours around 13%, compared to the level of 11% in the fourth quarter.

(interpreted) Well, Victor, good afternoon. I did not get the end of your question. You said 11%, what is that?

(interpreted) Well, given the reduction of your fleet, the size of fleet, because of optimization, if we could expect an increase of block hours in 2017.

(interpreted) Okay. So today with the new fleet, we have exceeding 20 aircraft in our numbers. We are working with the market and this is part of the discussion to be advised by Skyworks. We are working with managers to find a solution of the succeeding 20 aircraft.

As it was released, we already sold five aircraft, of our own aircraft, and we have 20 others to be addressed along the year. And this is part of the negotiation that we are conducting with the Company management, because of the increase of what we call metal, that is the number of hours used by the aircraft. This increase may vary from 40 minutes to one hour additional area -- hour of use of this aircraft.

(interpreted) Okay. And the sale of the five aircraft in the first quarter, did you have any cash coming in?

(interpreted) This is Edmar. Yes, we did, and this is going to be reflected in the numbers of the first quarter. Because of sensitive market information, we are not going to disclose the number now, but they will appear in our financial statements for the first quarter of 2015 -- 2016.

(interpreted) Okay. And I have a question about the advisors that you hired. PJT is focusing on external brands or is it also going to address your debt with Delta?

(interpreted) Well, this is a very good question. We talked in the material specifically about the debt overseas without any kind of collateral and this is what they are going to address. They are not going to address any other debt that have some kind of collateral, so Delta is one case.

We also have aircraft debt with the (inaudible) Bank in the United States, so we are going to handle debt differently according to the nature of the debt. And I would like to reinforce, even using your question, this issue about Brazilian banks that hold debentures, Bradesco and Banco do Brasil have always supported us in previous movements so at some point we are going to sit down with them and see whatever is possible to do. But right now we're just starting to conduct the work, and if there is any news, we are going to be releasing them to the market.

But basically, as Kakinoff mentioned, we are going to work with all stakeholders of the Company on this effort to really restructure our Company.

(interpreted) Evercore.

(technical difficulty)

(interpreted) Are you listening to us, Duane? Hello, Duane, can you hear us?

Okay, let's move on to another question and then we'll come back to Duane. Okay?

(interpreted) (Operator Instructions) Sara Delfim, Bank of America.

(interpreted) Thanks for taking. Hello, Kaki, Edmar. I have two questions. In line with the first question, talking about your fleet with less 20 aircraft, possibly, which is almost 15% of your total fleet, could you quantify or give us any color in terms of what this can mean for savings in 2016 and 2017?

And a second question is you have been working quite hard and you did have a list to talk about the redesign of your company, the deal with Smiles, the hiring of advisors. So what is next? What is the next focus of the Company and what type of negotiations are you discussing to continue the restructuring project?

(interpreted) Hi, Sara. This 20 aircrafts are for the year of 2016. Of course, we are still not making projections for 2017 or 2018 with regards to our fleet. What preventively we did was the extension of new aircraft.

We are not going to receive any aircraft until mid-2018. The savings of those reductions cannot be quantified yet, because they will be a result of the negotiations that we are going to start with the managers of these aircraft. We have returned conditions and -- or maybe even redirect these aircraft to other markets and these negotiations are going to tell what kind of savings we are going to have.

Unfortunately, right now we cannot give you any color about the savings to be obtained in the future. Of course, they tend to be relevant for the Company.

(interpreted) You're talking about material gains?

(interpreted) Oh, yes.

(interpreted) As for our future focus, the total of the management is to focus on the six strengths I mentioned, to continue to improve in our operational indicators. They are very relevant. They enable us to increase our revenues, attract more passengers, and even have higher value clients.

This is very important. We have this comprehensive restructuring plan. We are reviewing our financial structure. We are negotiating with suppliers, so I would say that these are the most important fronts.

The execution of the whole of the plan will indeed place the Company in a much better position in the mid and long term. And this is our full dedication right now.

(interpreted) Okay. Thank you very much.

(interpreted) (inaudible), [TDC].

(technical difficulty)

(interpreted) Ladies and gentlemen that are taking part in the English conference, for some reason we are not being able to get your questions, so I would suggest the following. Could you please send us an email with your questions to our IR team? And then we are going to read your questions and answer them during this conference call.

So if you cannot ask your questions in the call, just write them down on an email. We are going to read them and answer them. I don't know why we are not being able to contact you to take your questions from the English line.

We are going to go back to the Portuguese questions and try and wait for your questions in written. Thank you.

(interpreted) (inaudible), Deutsche Bank.

Hi, can you hear me?

(interpreted) Yes, go on.

Okay. Good afternoon. So my first question is, can you explain the sizable gap between the 5% to 8% ASK reduction and the 15% to 18% reduction in departures and seats? Does that reflect your decision to meaningfully downsize some of your short-haul in smaller markets? And I have another question after that.

(interpreted) So the first question, you're talking about the difference between the 5% and 8% and the 15% and 18%?

Yes.

(interpreted) This is basically because we have a longer average route of about 100 kilometers and that is a result of the elimination of shorter flights from our network of flights.

You did have a second question, right?

(interpreted) Renato Salomone, Itau BBA.

(interpreted) Good afternoon. In the call of your third quarter you talked about the operational leasing in dollar had reached a new level and average expense with leasing in the fourth quarter had an increase of 12% year on year and 30% quarter on quarter. I understand that there is room to improve this line. This is the scope of Skyworks, but why did you have such a high increase in the fourth quarter?

(interpreted) This is Edmar speaking. This line has as a regular fact the monthly leasing. Eventually what happened in the fourth quarter was the following: you have an overload due to the return of aircraft that are not flying or even the collection of fines and penalties because of delays in the return. So if you pay attention to this line you know that it was quite pressured by the dollar and there were some peaks because of the nature of operation I mentioned that's happened along the fourth quarter.

Indeed, we see a higher level in this line. Went from 7%, 8% of the total cost of the Company to 13%, 14% in 2016. We are going to work together with Skyworks to analyze what is going to happen with that. It's still very early to say, but we are going to address it.

(interpreted) Okay. Thank you very much. Another item that had a strong difference is suppliers. We know that in the first quarter of the year this is something that tends to go up. Is this going to happen this year or do you think that somehow you anticipate or advance to the fourth quarter?

(interpreted) Yes, you're right. Basically we advance some of it on -- in the fourth quarter. When you look further on, you see a lower level of activity in March, [alike] to another important issue that is starting to show as of May, which is a smaller network of -- a smaller fleet.

(interpreted) Okay. Thank you very much.

(interpreted) I'm going to read three questions that I received in English that were forwarded directed to me and I'm going to answer the questions.

The first is how much in dollars and how much in Brazilian real the Company has in assets that are not working as collateral. The second is, in addition to aircraft, what other type of fixed costs the Company is trying to reduce. And the third question is whether the Company is asking for some kind of negotiation of contract because of labor issues.

Well, the first question, basically what we have in terms of assets are aircraft that are working as collateral in our debt. Today we have an excess guarantee of about $250 million.

The second, with regard to costs that are being reduced or that are being focused to be reduced, I had talked about that along the 2015 year. We -- once to reduce as many services as possible, we are talking about catering services, engine services, ramp services, any kind of service you can think of, and leasing. Now we are working with Skyworks. It is just part of the work that we already started back in 2015 and that will continue in 2016.

In terms of labor issues, it is very important to say that labor laws in Brazil are different from labor laws in the US. We have an annual review of contracts. This already happened in the turn of 2015 to 2016 and we had a collective agreement that generated an impact on salaries of up to 11% nominal increase and slightly lower economic impact, because we have a scaling differently from the US.

We don't have major flexibility. Quite the contrary, we have to practice market salaries and we have been increasing productivity which is related to our restructuring plan. But that's about it.

(interpreted) Before we get to questions in Portuguese, we are going to tell our English audience that we are going to answer all the questions in Portuguese first and then we are going to go back to English, because then I think it's going to be a bit more structured. So let's take all the questions in Portuguese first and then we'll go to the English ones, okay?

(interpreted) Leandro Fontanesi, Bradesco BBI.

(interpreted) Good afternoon. Well, my first question is about your debt of $300 million with Delta. Could you convert that into equity?

And the second question is what do you want to do after you have the restructuring of your fleet? If you could, I don't know, re-buy bonds or something like that.

(interpreted) Well, hello. Good afternoon. First about equity. I'm going to talk an even more encompassing manner, Delta and other shareholders. We do not want to have any transactions involving equity right now, much less conversions.

And, second, the possibilities related to an increase in liquidity are much more connected to a defensive movement, a maintenance of the minimum levels necessary for the Company to be able to move on, rather than using these amounts for repurchase or buyback programs. Anyway, we are working together with our advisors to see what the most efficient model would be in terms of our capital structure, and whenever we have something defined we are going to get back to you.

(interpreted) Can I ask you another question quite quickly about the decreasing capacity that you mentioned? You said that you have a structure of costs almost more than 50% in dollars. We had a bit of devaluation of the dollar now compared to the real. Do you think you could have an uptake now?

(interpreted) Well, even if you think of this level of 360, 370, the cost structure and our indebtedness is significantly high compared to previous years. Of course, it is better than (inaudible), but it's still far from being ideally -- a deal or eliminates the need for a capital restructuring.

(interpreted) Okay. Thank you very much.

(interpreted) And just to add to the answer, Leandro, reducing our fleet has much more to do with an estimated drop in demand than reducing costs. We already have our estimates and if we think of what the Company can do for the future. We know there is a reduction of demand and because of the demand that is reduced, we are thinking of reducing our fleet.

(interpreted) Okay, I understood that. Thank you very much.

(interpreted) Bruno Amorim, Santander.

(interpreted) Good afternoon. I have a question talking about a decrease in capacity. It is a substantial decrease. I think that you are cutting routes where the route is not as good, but also your dilution of costs can be a bit affected as well. So your CASK can be a bit higher. The net effect in your margin, should it be positive or negative, at least for now?

And the second question, I know that you're not supposed to give guidance for 2016 or to talk about the first quarter, but because of a deterioration in the macro scenario quarter after quarter, are you seeing a better ratio between demand and price for this year?

(interpreted) Well, a change in our fleet and decrease of our fleet, of course, was aimed at having better margin. We have to have actions that are able to neutralize the adverse scenario in Brazil, so we are focusing on reducing Company costs in all fronts. And basically, as I mentioned, we are reviewing our company contracts.

For us, it is much more difficult now to have any kind of prediction about the effect of the new fleet size because the most unclear aspect now is revenues. The economic scenario and the projection of a reduced demand does not enable us to be assertive about our RASK. Generally, we are going to disclose our guidance projections for economic results, not in this call when we're talking about the previous year, but in the call of the first quarter of the year.

That is probably going to take place within 40, 45 days and we hope that until then we will be able to be a bit more assertive in terms of projection of results that the new fleet size will offer us. But for now, conceptually, the cut aims at improving our margins, but what we see in terms of future demand does not really encourage or enable us to tell you that indeed we are going to significantly improve our results. Okay?

(interpreted) Okay. Thank you very much.

(interpreted) (inaudible)

(interpreted) Hello. Good afternoon. You mentioned in the beginning of this call that in this financial restructuring all stakeholders should be part of. Are you including shareholders?

(interpreted) Well, thanks for your questions. Shareholders are the first to take part in it. When we designed the restructuring, the first that contributed were the shareholders.

More specifically, the majority shareholder, Constantino, and Delta, together with an injection of $150 million in the Company. All the other shareholders were called and some also contributed at relevant levels, so they were the first to contribute to our restructuring.

(interpreted) So I see that Bloomberg had a headline that you are saying that you have no plans to convert any debt in equity. I would like to understand if that's what you meant or if you're talking specifically about your debt with VARIG, but the expectation is that in this restructuring shareholders are not going to be impacted. Is that what you are saying?

(interpreted) They were the first to be impacted in the first plan. and what you are saying that now there is no projection of conversion into equity or new capitalization from the current shareholders of the Company.

(interpreted) This is Edmar speaking; I will add something. For us it's very clear that we have different packages to be addressed in different ways, so we have PJT working on non-securitized debt in the United States. We have debt with collateral also in the US that are going to be addressed in a different way so that we have -- with Delta as the guarantor.

And we have the domestic debt that the Company generally addresses itself because of a good relationship with creditors. So if we isolate each one of debts, we see that there is a clear strategy and the strategy in terms of equity is what we mentioned.

(interpreted) Okay, I understood. And just one more question. When you look into the size of your debt and you imagine this restructuring, what level of debt would you be comfortable with after the restructuring process?

(interpreted) It's too early to tell, because we are just starting our work, so this is a question that we'll have to ask every day from today on. But as Kakinoff mentioned, we have an additional challenge, which is exchange volatility, that will clearly influence this indicator. So I will ask some patience from you so that we can really advance a bit with our plans and further on we will be able to announce you more precise numbers.

(interpreted) Okay. Thank you very much.

(interpreted) Alexandre Falcao, HSBC.

(interpreted) Okay, the first question Kakinoff is going to answer about consolidation in the industry and the second question is regarding to Boeing.

Well, what happened is that Boeing, as a supplier of GOL, has been a partner since we started and it has been already taking part in the plan by means of making the schedule of delivered a bit more flexible. As we said, we had 15 aircraft to be delivered between 2016 and 2017. They are going to be delivered later on.

And all other commitments and contract arrangements; we are discussing with them the possibility in terms of deliveries. Right now we do not have anything to announce, but in the past, Boeing has always been present in any relevant moment of the Company. And, clearly, Boeing is an important part of this restructuring. It is an important stakeholder and I am sure they are going to contribute significantly to it.

As for a consolidation, I'm going to go back to our previous positioning. We believe that the region will have consolidation movement, but right now we are not combating any discussions to this end. Okay?

(interpreted) Stephen Trent, Citi.

Good afternoon, everybody. Can you hear me?

(interpreted) Yes, loud and clear.

Great. Well, thank you very much, gentlemen. Appreciate the time. Just two from me.

As you look at the fleet reduction and the potential increase in block hour utilization, any color as to whether you'll have to increase the number of A checks and B checks that you do per aircraft? That's the first question.

(interpreted) Hi, Stephen. Following the dynamic agreed, my question was the following, if we have any change in our checks, A checks and B checks projections. And C checks as well, which are the regular checks of our aircraft.

In mid last year, the companies, together with Boeing decided to change its maintenance program to a block program. We are in the final phase of implementation of this model, which brings us a new dynamic to the market and also a different schedule in our regular checks.

Of course, the dynamics aims at keeping the same high level of security and safety in our operation. However, with the reduction of operating costs, which can only be calculated at the end of our transition program, which should be by June this year. Totaling approximately 15 months of work to change from one model to the other.

(interpreted) (inaudible)

(Operator Instructions) [Carlos Shore], (inaudible).

(interpreted) Good afternoon, everyone. I've got a question from Matthew Roberts, Raymond James.

(interpreted) For the question number one is the following: what is the cash burn every month and how much can be reduced after the advisors initiative? The second already answered by Kakinoff, which is what is the potential consolidation in the region in terms of consolidation of the industry? And the third question is about any needs of additional legal movements on our side.

I'm going to start talking about the cash -- our cash burn. It depends -- about $2 million to $4 million every day. It depends on whether it's high season, low season; if it's a better or worse performance.

And in terms of expectations to reduce the cash burn, again it's too early to tell, because as we mentioned earlier on, we are still starting the whole assessment of the process. So we have to wait for the work to be developed, wait for the contact with our stakeholders to get back to the market, and to tell you about projections. It's too early to tell right now.

As for consolidations, we already talked about that. And the third question talks about eventual legal recoveries, Chapter 11, what kind of movements we could have there.

Basically, the restructuring plan aims at avoiding any need for Chapter 11 or legal recoveries. This is the plan. We really are confident that this is going to work. If we didn't follow the restructuring plan, I am sure this would be the next step for the Company, but we don't believe this is going to happen because we are really confident that all stakeholders are going to be involved and we are going to succeed.

Before closing, we have a last question from Duane and the question is -- write in two questions. Really one saying that if the increase we had in the fourth quarter was structural or if there was any one-off event. And second, what the Company means with we are looking into alternatives for our non-securitized foreign debts.

I'm going to start with the second one. The answer is we are looking into alternatives for non-securitized foreign debt. Being very specific, we have bonds issued in the United States without collateral. This is why we hired the advisors and PJT started working with us a few days ago. And further on, if there is any development we are going to come to the market and announce them.

As for costs, what happened in the fourth quarter, we already mentioned. Basically there was a very strong impact of the exchange rate. Also, because of the movement of aircraft in the high season and also a reflection of an increase in inflation in Brazil, as I mentioned, an increase in tariffs in the last quarter, air tariffs in Brazil, which will have a reflex along 2016.

But basically when we talk about the cost structure of the Company, I'm going to repeat myself. We are working very hard in different fronts, but this is an extremely challenging scenario. The Brazilian inflation is double digit. The exchange rate is really pressure our results and the real to devaluate more than 40% if you compare year on year.

So with that, I think that somehow we're able to answer all the questions that came up in English. We are now closing the Q&A session. We are going to turn the call back for Mr. Paulo Kakinoff for his final considerations.

(interpreted) I would like to thank you very much for your attention; wish you an excellent afternoon. And again, remember that if you have any further questions, please do contact our IR team; that we are here for you. Thank you very much.

(interpreted) GOL's conference call is now closed. We thank you very much for joining us and wish you a good afternoon.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.