Gol Linhas Aereas Inteligentes SA (GOL) 2016 Q2 法說會逐字稿

Good morning, everyone, and thank you for waiting. Welcome to the GOL Airlines Second Quarter of 2016 Results Conference Call. With us here today, we have Paulo Kakinoff, CEO; Richard Lark, CFO and IR Officer.

This event is being recorded and all participants will be in a listen-only mode during the Company's presentation. After GOL remarks, there will be a question-and-answer session. At that time, further instructions will be given. (Operator Instructions)

This event is also being broadcast live via webcast and maybe accessed through GOL website at www.voegol.com.br/ir where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via the webcast may post their questions on our website. They will be answered by the IR team after the conference is finished.

Before proceeding, let me mention that forward-looking statements are based on the beliefs and the assumptions of GOL management and on information currently available to the Company. They involve risks, uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors and the analysts should understand that conditions related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now, I will turn the conference over to Paulo Kakinoff. Mr. Paulo, you may begin your presentation.

Good morning, everyone. Paulo Kakinoff here. Thank you for joining us via teleconference to GOL's corporate headquarters at Sao Paulo's Congonhas airport. Today, we will discuss the Company's 2016 second quarter results.

Please turn to page 3 of today's presentation. GOL Airlines is Brazil's largest air transportation group, with annual revenues in excess of BRL10 billion, allocated among the three primary businesses: passenger transportation, cargo transportation and our coalition loyalty program. GOL is Brazil's largest airline in terms of passengers transported and is Latin America's largest low-cost carrier, operating over 860 daily flights to 65 destinations, including 13 international destinations in South America and the Caribbean. GOL currently sells tickets for its flight in over 40 countries around the world. With BRL4.4 billion in gross passenger revenues in the first half of 2016, GOL is the [third largest seller on the Brazilian Internet].

Gollog is our cargo transportation business serving more than 3,000 Brazilian municipalities and, through partners, 90 international destinations in 47 countries. In the first half of 2016, this business provided a BRL154 million, or 3% of our total gross revenues in the period. Smiles is one of the largest coalition loyalty programs in Latin America, with over 11 million members, allowing clients to accumulate miles and redeem tickets for more than 700 locations worldwide. Smiles earned BRL772 million of gross revenues in the first half of 2016.

As you can see in the table, in addition to these businesses, other ancillary revenues contributed BRL453 million in gross revenues, or 9% of total in the period. Combined with Gollog and Smiles, our total non-passenger transportation gross revenues in the first half of 2016 were BRL1.4 billion, or 27% of the total. Our 2016 first half consolidated net income was around BRL1 billion and the Company's total consolidated cash balance was approximately BRL1.4 billion at June 30.

Moving now to the next slide, I will provide you a brief update on our comprehensive restructuring plan. As shown on Slide 4, in mid-2015, we initiated specific actions to happily right-size our operations to match Brazil's shrinking economy and combat the negative impact on the airline industry caused by significantly devalued Brazilian currency. Such actions were proactively designed to address our capacity and leverage the current environment -- actually, leverage to the current environment, which has been pretty challenged.

In May, during our first quarter 2016 teleconference, we updated you on the restructuring plan initiatives in progress at that point in time. We reported that during 2015, we completed approximately BRL1.8 billion of new liquidity initiatives, primarily from shareholders or with shareholder support. During 2016 to-date, GOL has: one, completed an agreement with its partner Boeing, (inaudible) aircraft deliveries and the return of pre-delivered deposits; two: freed up Smiles shares pledged in collateral for the term loan guaranteed by Delta Air Lines; three: received the second installment of BRL600 million from Smiles related to advance payments for future ticket sales with the outstanding balance of BRL400 million expected to be received in the fourth quarter of this year; four: concluded an exchange of GOL's US dollar unsecured debt achieving a reduction of $102 million or BRL327 million and generating annual interest savings of $9.3 million; and number five: obtained covenant waivers from the debenture holders for the first half of 2016, as well as extending the maturity of BRL225 million from 2016 and 2017 to 2019.

Also during 2016, GOL renegotiated 10 aircraft under finance leases and successfully reduced fleet size from 144 737 aircraft at year end of 2015 to 137 currently in our fleet. An additional five 737s will be returned by year-end, right-sizing our fleet to a total of 122 aircraft.

GOL's adjusted net debt has been reduced from a peak of 11 times of EBITDA at the end of 2015 to 7.6 times at June 30, 2016. We have more work to do to reduce leverage. And on slide 14, we will you review this in a more detail way.

We also continued improving the allocation of our talents and recently announced some changes at the Board of Directors and the Senior Management Team. Richard stepped out of his Board seat to contribute more decisively to our value creation efforts, recapitalization process and profitable growth, and Edmar is following closely with Richard during his transition. Our fleet reduction has been the key to permit the matching of our seat (inaudible) current demand, as is demonstrated on the next slide, slide number 5.

Here you can see how GOL has driven the capacity rationalization in the Brazilian airline industry. Having said that, although GOL has provided leadership in reducing capacity, industry profitability has been negatively impacted by the capacity growth of two players, one of which has not reduced capacity and the other has even added capacity during the downturn in the market. In the left block in this slide, you see the 10.6% reduction in GOL's number of seats available in the domestic market since January 2015. This represents a 2.3 percentage point reduction in excess of the second player and a 5.1 percentage point reduction in excess of the industry average. GOL's capacity reduction will continue in the second half of 2016 within the range of a 15% to 18% reduction in the volume of seats. We are fully committed to resize GOL and prioritize our profitability. By getting capacity at that level and reducing the fleet from the year-end 144 737s to next December 122 737s, we likely have implemented the strongest and fastest restructuring in an airline of that size. Our domestic RPKs reduced by 8.4% in the semester and 1.8 percentage points below the industry reduction in demand. And to June this year, GOL's total load factor fell by 1.6 percentage points, reaching 75.2%. In the domestic market, the reduction was 1.8 percentage points to 76.7% and the load factor in the international market was 69.3%, an increase of 1.1 percentage points compared to the same period in 2015.

Please move to the next slide. On Slide 6, we highlight some of our additional achievements in the second quarter of this year. Our brand new flight network was launched on May 1, bringing much more convenience to GOL's customers. Right here at Sao Paulo's Congonhas domestic airport, serving customers in Brazil's largest market, we are now the leader in number of destinations served at 33, have the largest seat availability to North and Northeast Brazil, and have an improved schedule to Brazil's key business markets.

At the Guarulhos International Airport, Brazil's main international gateway, GOL has now it's highest diversity of destinations, serving 32 domestic and eight international destinations. In Rio de Janeiro, the second largest Brazilian market, we are now the most comprehensive flight network for the domestic and international passengers. Through our partners, Air France-KLM and Delta, GOL offers the largest number of destinations departing from Rio, with eight international and 25 domestic. Our Rio hub connections now provide better options to both the South and North of Brazil.

Moving to the center of the slide, according to ABRACORP, GOL maintained its leadership of corporate sales in number of tickets issued in the first half of 2016. And finally on the right of the slide, we are happy to share that in recognition of our internal process and commitment to high quality standards, we have received the certification of the US Federation -- Federal Aviation Administration, the FAA, to perform heavy C-Check at GOL's Aircraft Maintenance Center in Confins. This means that we will be able to provide lease return checks and maintenance services to our fleets, generating cost savings. In the future, we will be able to provide maintenance services to all the operators.

I will now turn the presentation over to Richard, who will review our second quarter results.

Thanks, Kaki, and good morning to you all. In the next few slides, I'll go over the second quarter 2016 results, highlighting the main characteristics and drivers for the period.

Please flip to slide number 8. The 2Q16 macro environment in Brazil was dominated by high levels of risk and uncertainty as the market awaited the resolution of the current political crisis and the Brazilian real, on average, ended up worth 14.1% less versus 2Q15. Demand for air travel, as measured by revenue passenger kilometers or RPKs, decreased for the 11th consecutive month, and demand from corporate customers decreased. To cope, the Brazilian domestic airline market reduced ASK supply by 8.4% during the period. Not all was negative in the macro environment as jet fuel in reais reached its lowest level in five years as evidenced by the 17.3% decrease versus 2Q15.

In the second quarter of 2016, GOL's airline operations reduced capacity by 9.3% to 10.8 billion, ASKs achieved a load factor of 75.2%, and increased passenger revenues per seat kilometer or PRASK by 6.9%, permitting total RASK improvement of 8.1% in the quarter. The 21% reduction in takeoff volumes and 21% reduction in available seats were made possible by the fleet right-sizing that Kaki reviewed in the first part of our presentation. The 11.7 percentage point reduction in available seats above the 6.9% in [ASK] reduction is primarily due to the increase in stage length, which is part of the new route network fully implemented in May 2016.

GOL's constant focus on improving revenue management helped drive a yield increase of 9.2% over the second quarter of 2015. In the six-month period ending June 30, 2016, yield was up 13.8% and PRASK increased 12.3%. At BRL0.21, total operating cost per seat kilometer or CASK increased 4.7% over the same quarter of 2015. The CASK, excluding fuel, decreased 18% in the quarter-over-quarter -- sorry, increased 18% in the quarter-over-quarter comparison. Despite the increase in operating cost per seat kilometer, the increase in RASK permitted a reduction in the losses from operations to BRL0.016, representing an improvement of 24% when compared to the same period in 2015.

Please turn to slide number 9. In the quarter, consolidated CASK ex-fuel was BRL0.155, an increase of 18% in the quarter-over-quarter comparison. The increase in CASK was primarily driven by the following: A, BRL0.006 or 29.3% increase in aircraft lease expenses per ASK, driven by the 14.1% devaluation in Brazilian real and increase in the number of aircraft under operating lease contracts from 97 aircraft in 2Q15 to 102 aircraft in 2Q16; B, BRL0.005 or 25.4% increase in servicing expenses related to the growth in Smiles products and tickets acquired from peer airlines, which will generate future revenues for GOL; C, BRL0.004 or 36.9% increase in maintenance expenses due to the Brazilian real devaluation and higher number of engines repaired during the quarter; and D, a BRL0.002 or 7.1% increase in salaries expenses due to an 11% increase in wages from the collective bargaining agreement.

Fuel in the quarter was BRL1.83 per liter, representing a 17.3% decline when compared to the second of 2015 and was the lowest level since the first quarter of 2011. However, the reduction in Brazilian fuel prices were significantly lower than international fuel prices as jet fuel prices in Brazil are [intact] to the US dollar. It's worth noting that GOL decreased by 10% the number of liters consumed per RPK comparing the LTM period ending 2Q16 versus the LTM period ending 2Q13 as a result of initiatives to improve operating efficiency.

To review non-passenger transportation revenues, please flip to slide number 10. GOL's Smiles subsidiary closed the second quarter of 2016 with net revenues of BRL349.8 million, an increase of 27% over to 2Q15. Operating income was BRL128.1 million, representing an operating margin of 36.6%, 2.9 percentage points higher than the same period in 2015. Net income in the second quarter of 2016 was BRL123.6 million, representing a net margin of 35.3%. The quarter's result at Smiles reflect BRL10.2 billion of redeemed miles, a 7.9% increase over 2Q15; 11.6 billion miles accrued, excluding GOL, a 3.6% increase over 2Q15; 316 million of billings, excluding GOL, which was a 10.3% increase over 2Q15. In 2Q16, cargo revenues were BRL59 million, and other revenues were BRL239 million. Cargo revenues increase in the semester by 2.1% and remained stable at BRL330 million in the last 12-month period despite the reduction in ASKs. GOL recently initiated operations in a new cargo terminal in Manaus. In other revenues, we highlight that today 100% of our fleet is configured with the Gol Plus Comfort seats, which are producing additional revenues; and in 2Q16, GOL surpassed [20,000 onboard] products sold per day.

Moving to Slide 11, we show the period comparisons for the summary income statement items. Net revenue in the quarter decreased BRL42.3 million to BRL2.1 billion, primarily due to the 14% decrease in seat availability. Total net revenue increased BRL165.6 million in the first half of 2016 compared to the same period in 2015. Year-to-date revenues reached BRL4.8 billion, representing an improvement of 3.6% compared to the first semester of 2015. 2Q16 operating loss was BRL171.4 million, an improvement of 31.7% in comparison with the second quarter of 2015. First half 2016 EBIT reached BRL265.8 million, representing a margin of 5.5%, an evolution of 7.6 percentage points over the same period of the previous year.

In the recent quarter, GOL incurred BRL21.8 million of expenses related to the return of aircraft under finance leases. The operating loss before interest and taxes, excluding the BRL21.8 million of non-recurring items, was BRL149.6 million, representing a negative 7.2% margin and representing a 5.1 percentage point increase over the second quarter of 2015. Year-to-date, recurring EBIT margin, excluding the non-recurring effects, was 1.6% versus a negative 2.5% in first half 2015. Recurring EBITDAR was BRL247 million in the quarter, representing an 11.8% EBITDA margin.

In terms of cash flow generated from our business operations, before financing flows, GOL generated approximately BRL466 million of cash flow in the quarter, excluding the BRL307 million increase in accounts receivable and the release of BRL374 million in restricted cash. You can find detail on these cash flow numbers in the cash flow statement in audited financial statements.

Moving now to slide number 12, second quarter results were positively impacted by BRL779 million net exchange rate variation due to the Brazilian real appreciation of the US dollar during the quarter. The exchange rate variation was the key factor determining the BRL309.5 million net incomes in the quarter. Exchange rate variation was BRL1.5 billion year-to-date, driving the net income of BRL1.1 billion in the first half of 2016.

Moving now to Slide 13, pro forma for the conclusion of the exchange offer, total debt decreased by approximately BRL1.2 billion in the second quarter, the US dollar unsecured debt exchange achieved $102 million reduction, representing BRL327 million; of which $28 million or BRL90 million reduced amounts due in 2017. Also, GOL [affected BRL248 million] in bank amortizations and finance leasing amortizations and derived an additional BRL667 million from exchange rate variation on US dollar denominated obligations.

Additionally, BRL225 million of debentures maturities were rescheduled from 2016, 2017 to 2019. On the left side of the page, you can see that the consolidated cash balance of BRL1.4 billion was composed of BRL595 million of free cash, BRL409 million of cash in the balance sheet of our Smiles subsidiary, and BRL361 million of restricted cash. In addition to this total cash balance, GOL finished the quarter with BRL763 million realized in accounts receivable, which was an increase of BRL300 million when compared to December 2015. Adding this amount to the BRL1.4 billion in cash balance, GOL finished the quarter with approximately BRL2.2 billion of total liquidity.

To conclude our review, please move to Slide 14. On Slide 14, we present a comparison of the last four quarters leverage statistics. As you can see in the chart, GOLD's total debt at June 30, 2016 decreased by BRL1.3 billion when compared to the end of 2015. When all the initiatives and the restructuring plan are completed, the total debt reduction is expected to reach approximately BRL3.8 billion, deriving mainly from the following: A, BRL327 million reduction in US dollar unsecured debt; B: a $1.2 billion -- sorry, BRL1.2 billion reduction in aircraft operating leases; C, BRL600 million reduction in aircraft finance leases on aircraft still to be returned; D, BRL40 million in bank debt amortizations and amortizations on finance leased aircraft already returned; and E, a BRL1.3 billion reduction in US dollar denominated debt obligations deriving from the exchange rate effects I previously described. Company projections for the next 12 to 24 months indicate gross adjusted leverage of between 6 times to 6.5 times.

Now, I will turn our presentation back to Kaki, who will present our guidance for the full year.

Thanks Rich. Please turn to Slide 16. GOL is reaffirming its capacity projection for 2016, which includes a total supply reduction of 5% to 8%, and a total seat and volume of departures reduction between 15% to 18%. Although, we still have a high level of uncertainty regarding the time required to solve the current political and economic crisis, we are resuming guidance for operating income, and we are expecting an operating margin between 4% to 6% for the full-year 2016. The EBIT margin guidance considers the full year average Brazilian real to US dollar exchange rate of between [$3.50 and $3.90] and average Brazilian jet fuel prices between BRL1.90 and BRL2.30.

I will now take your questions.

Thank you. The floor is now open for question. (Operator Instructions) Michael Linenberg, Deutsche Bank.

Michael Linenberg, Deutsche Bank.

Good morning, everybody, and welcome back Rich. You talked about what the operating cash flow was before financing, you threw up some numbers on cash flow for the quarter. Can you just tell us what the daily burn rate was in the June quarter and how that is trending into the September quarter? And I realize that your June quarter seasonally is your most challenging quarter, so we shouldn't -- I would anticipate that, that number has improved. So if you could give us some color on that that would be great. Thank you.

We're not providing information on the daily company cash burn rate per se either second quarter or third quarter, but what I can say is that -- one of the points I was trying to make there is that we saw some comments on the cash flow. In Q2, the cash flow was positive. One of the big differences, I think, from the past is that in the last quarter, GOL stopped factoring receivables, which effectively took -- consumed BRL300 million in the cash flow. So you kind of need to add that back and then as well need to make some other adjustments there for the restricted cash. And so the cash for the Q2, if you will, -- operating cash from operations was around BRL500 million. It's not necessarily indicative, obviously, of the cash flow just generated at the EBIT line. So, I would kind of provide that as an indication of what the number is. Having said that, the Company is more or less operating, on average, at a breakeven level in terms of cash flows at this point on the operating side.

Okay, helpful. And then, just the second question and this is either to you or Kaki, just how things are trending? I mean, we know that the June quarter is seasonally the most challenging quarter for GOL; as we've moved into the third quarter, how do trends look? And I realize there is an Olympic effect, which can be good and it can also be bad since we typically see a falloff in business travel. So, I know it would be quite difficult to actually try to isolate the Olympic impact, but may be sort of trends current and maybe how bookings look beyond Olympics as we move into sort of the latter part of the year. Any color on that would be great. Thank you very much.

Hi, Michael. Kakinoff here. Actually -- you know how hard is to tell -- to give you any color on July or August figures, because then I would necessarily tell you what's going on for the quarter and that would be a kind of guidance, but what I can tell is that the Olympic Games does affect basically the Rio de Janeiro destination, is not a systemic impact on the network like the World Cup was. So, independently of the Olympic Games, I can remind you all that the second half of the year used to be quite stronger than the first half regarding the revenues and consequently the profits and margins. So, we have built our other guidance considering that for the second half of this year we would have a normal seasonality in comparison to the past years. This is the maximal output I can give you from your question without harming our commitment to not give any kind of unofficial guidance. I hope you can understand it.

Yes, I appreciated that. That's helpful. Thanks Kaki. Thanks everyone.

Thank you.

Savi Syth, Raymond James.

Good morning. This is Matt on for Savi, actually. First question is for Richard. So, Richard, this is a little bit of a different environment when were previously with GOL, so what attracted you to really take this position at this time and what will be your biggest focus in the next 6 months to 12 months?

Sure. [But later] you can explain me what's different, but when you look at the key variables affecting GOL exchange rates were fuel, it's a very -- it's been a very similar environment to 2003, for example. But we'll go right to the point. I mean, a couple of issues. Obviously, I've been with GOL since 2003 in a variety of capacities, as I worked for five years as CFO; and then since then, I worked in the Board, heavily involved in a variety of committees and in many projects also with Edmar and Kaki and so on and so. But thanks for your comments. In total specifically, we have -- as kaki mentioned, we have a lot of work on capital structure, which is going to take a period of time over this year and next year. Part of it is reacting to what has happened in the downdraft, which has affected not only Brazil but the entire world, but specifically in Brazil given the volatility here over the last four months with exchange rate and other factors competitively.

So one major, major area obviously which is where, obviously, I have been spending most of my time now and in the near future is on capital structure and so on. But in addition to that, working with Kaki and the team on core profitability across the Board and a variety of initiatives that we are -- that many are already in progress and some of which yet will be implemented next year. But I would say, over the next couple of quarters, I hope that that will become more evident. As we kind of make the shift from this major restructuring plan that has been happening -- the Company has been doing since the middle of last year and is in its final steps to kind of the next phase, which is kind of a rebuilding of -- a final rebuilding of capital structure and profitability and ultimately other issues which would help GOL competitively in the region. So that's what I have to comment on that at this point. I think, it's a little bit too early for me to be more specific on that and I think part of that also will be evident as we, third quarter, fourth quarter, get into more details of our projects at the Company for next year.

Pablo Zaldivar, GBM.

Hello, good morning. Thank you for taking my question. I have a couple. The first one, how much should we expect in saving from the in-house C-Checks that were recently approved by the FAA?

Hi, Pablo. It's Kakinoff here. Unfortunately, we cannot give you any figure in advance, but those checks are quite expensive and the transit, I mean to move the airlines out -- the aircraft, sorry, outside Brazil is also equally expensive. So, we believe that could be significant but we cannot tell you any figure in advance.

Okay. And the second one is regarding your fleet. In the press release, you mentioned that you're in the final stage of returning 15 aircraft, so we should expect that to happen in the following quarter? And the other one, are you expecting to sell any aircraft on their financial leases during the year?

We have -- so the remaining movements are supposed to happen during the third and fourth quarter. And we have two aircraft, among this 15, those will be sold. So, this is 13 operating leases and two aircraft to be sold.

Okay, perfect. Thank you very much.

Thank you.

Steven Trent, Citi.

Good morning, gentlemen, and thanks for taking my questions. And I'll, like Mike Linenberg, welcome back Richard. It's been a long time. Just a couple of questions from me, if I may. The first is, I appreciate your comments about the competitive situation, as you see, one of those two kind of smaller competitors are about to add Airbus narrow bodies into the system. What are you seeing in terms of the potential for tighter fares coming from those players? That's my first question.

Hi, Steven. It's Kakinoff. Actually the market -- the competitive environment is still tough. We also believe that the reduction in industry's capacity will benefit us all. Bottom line, if you consider the reduction already announced by some of our competitors and added to GOL's, the total offer in Brazil should be down 8% to 10% in comparison to last year. That is a quite important movement. GOL itself is cutting between 15% to 18% of our seats available. I do not know whether, maybe you can tell us whether such a strong reduction happened before in an airline without going through a Chapter 11. That's a quite important achievement which, I believe, we will play in favor of the whole system, combined with other competitors' capacity reduction.

This 20% reduction in metal (inaudible) aircraft that's happened over the last year or so, which is in its final phase. I mean, those aircraft already negotiated some (technical difficulty) end of the year, and that's kind of without parallel in the airline sector and that's in excess of compared to what other competitors have done here in Brazil. So GOL is very, very well prepared to meet this massive reduction in demand for air travel. I mean, we're kind of a little bit ahead of the curve, one step ahead of everybody else in terms of the work that has to be done to get to this point, and that's already done. So, we're in a pretty good position to deal with whatever competitive pressures may come beginning of next year. Obviously, we're going right now into the stronger part of the year [in sort of the] demand, third quarter, fourth quarter, but to the extent that there's pressure there, we feel kind of we're in the driver's seat in terms of -- we're already done our reduction. And if you see into the data, GOL's kind of led the market in its right-sizing and readjusting. So we're -- we feel pretty good about that we've taken the defensive measures to deal with the question of balancing capacity with demand, especially in this environment of negative GDP growth and negative industry growth, which is also unparalleled in many markets around the world, but we think we're in a pretty good position to deal with that.

Before handing back to you, I will kindly request our teleconference operator to not drop the line after the first answer or question, do not change to another person, because I just got the impression that some of our colleagues would have more than one question to be asked. I don't know whether this is your case, Steven, but please tell us.

No. Thank you very much. I kind of appreciate that, and thank you Richard. I did have some other quick ones, if I may. The second is, if you could refresh my memory, I didn't totally catch all of the numbers, but you said 13 operating leases and two financial leases to go back by the end of this year. And those are already confirmed or is there still -- are there still some aircraft in final negotiation? And just one more question after that.

Okay. So, I will try to help us all to understand the figures on the same page. We had -- in December 2015, we had 144 aircraft. Now, we have 137. And by the end of this year, we will be 122. So, the gap between the current 137 and the future 122 is 15; and among this 15, two of these aircraft are to be sold and the remaining 13 will be early -- [they're contracts] will be earlier terminated. So, it means that by announcing this 122, we are at the final phase of having this paper signed, the contract terminated so far. So that's, I'd say, for sure despite of the fact that the paper work -- some of the paper work is still to be done.

Okay, great.

Sorry, you had another question, Steve?

Yes. I'm sorry, just really quickly and I'll let someone else ask a question. Just a follow-up on Mike Linenberg's question, I think you guys said you did receivables factoring in the past and you're no longer doing that. What's the idea behind discontinuing that just out of curiosity?

Well, part of it was done in the past as a necessity for a variety of reasons, operationally as well as in terms of issues related to rating and so on. And operationally, there's been less of a need to do that because that has a cost of roughly -- an annual rate roughly 16% a year, this interest discount that goes in there. And so in the recent quarter, the Company stopped doing that. But I think the right way to look at those receivables, when the Company has access to those accounts receivables, if the Company wanted to put BRL250 million on the balance sheet tomorrow, it could do that, but there's a financial cost to do that. And for interest expense reduction and cash flow improvement, we're using that more sparingly going forward. So keep an eye on the receivable account as well when you look at liquidity because that's really a near to cash asset.

Matt, Raymond James.

Hey guys, thanks for the follow-up as well as the other remarks earlier. Just a quick one here, can you provide your gross CapEx for 2017 and 2018? And also given your cash flow levels, do you have the ability to take that aircraft count lower? And that's it. Thank you all.

In terms of the CapEx amounts for the next year, it's really de minimis amount, because the main CapEx relates to the PDPs and we're getting returns of that. So, there's really no aircraft CapEx to -- coming up [here in] 2016, 2017, that's all been eliminated from the cash flow needs. The key point though is, one of the key components of the restructuring component that was done especially with the help of Boeing. So until 2018, we don't have any significant CapEx needs. Sorry, the second part of your question was what?

Given your cash flow levels, do you have the ability to take that aircraft count lower where they desire to at all?

The objective on the aircraft was not -- was designed to match supply with demand. We've have already done that. So there's no need to do anymore.

Bruno Amorim, Santander.

Hi, good morning all. So, I have two questions. The first one on RASK, I'd like, for you if possible, to tell us what was the impact from the implementation of the new network on RASK and also, how does it compare to the potential negative impact on CASK of -- as a result of a lower fixed cost dilution?

And second, it's a follow-up question on CapEx. You had a negative CapEx in the first half of the year. Is it fair to say that in the second half, the trend is for CapEx to remain negative? Thank you very much.

Let me just take the CapEx question first. We were just talking about that, just to explain it again. The reason for the negative CapEx was the return of the PDP deposits because the main CapEx, which the Company has is the PDP component of the aircraft deliveries, new aircraft from Boeing. Two points, the aircraft deliveries were rescheduled, and it was a return of those PDPs, that's already done. So there's no significant positive or negative CapEx going forward for the next couple of quarters. On RASK, I'll let Kaki answer your RASK question.

Certainly, [the network has work] in favor of the RASK, because we are offering more destinations from Congonhas, which is a business traveler airport mainly. So, in order to also compensate the CASK dilution, we have already in longer stage length mainly due to the new network from Congonhas. So, this effect in the medium and long-term should be more than enough to overcompensate the movement once Congonhas can be considered as a sort of premium airport and this is basically the most important movement that we have implemented through the new network.

And as the new network came in on the beginning of May, you've seen the quarter-over-quarter comparison, the 14% increase in stage length. So that's really reflective on what Kaki was saying, I mean that 14% increase in stage length, which has the impact both on the revenues as well as the costs.

Yes. Please correct me if I'm wrong, but these higher stage lengths should also have a positive impact on CASK, right? So in other words, maybe I'll change a little bit my question, was the cutting in capacity EBIT positive? Should we see, of course, on top of seasonality better margins in third quarter vis-a-vis first and second quarter?

Yes.

Apples to apples, because the stage length increase is in excess of the overall capacity reduction. So there is a structural benefit there, which we expect will -- assuming yields and load factors behave positively, will have positive impact on operating margin.

This concludes today's question-and-answer session. I would like to invite Mr. Paulo Kakinoff to proceed with his closing remarks. Please go ahead, sir.

Sorry, please turn to slide number 18. We are confident that initiatives and execution will deliver the required cash flow savings and debt reductions, and consequently stronger balance sheet. Our team of eagles is working hard to improve the network and complete fleet restructuring in order to reduce costs and capture efficiency gains even further.

This concludes today's presentation regarding the second quarter 2016 results. And we would like to remember that we are fully available to answer any further questions that could appear along the day. So, have you all a very nice day. Thank you very much.

That concludes GOL Airlines' conference call for today. Thank you very much for your participation, and have a nice day.