Gol Linhas Aereas Inteligentes SA (GOL) 2019 Q1 法說會逐字稿

Good day, and welcome to the GOL Airlines First Quarter 2019 Results Conference Call. This call is being recorded. (Operator Instructions) This event is also being broadcast live via webcast and may be accessed through the GOL website at www.voegol.com.br/ir and the MZ IQ platform at www.mziq.com. Those following the presentation via the webcast may post their questions on the platform, and their questions will either be answered by the management during this call or by GOL, the Investor Relations team after the conference is finished.

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

At this time, I would now like turn the conference over to Paulo Kakinoff. Please go ahead.

Good morning, ladies and gentlemen, and welcome to GOL Airlines' conference call. I am Paulo Kakinoff, Chief Executive Officer; and I am joined by Richard Lark, our Chief Financial Officer.

Good morning. Good to be with you today.

This morning, we released our first quarter figures. Also, we made available on GOL's Investor Relations website 3 videos with the results presentation, financial review and brief Q&A.

We improved our operating indicators. In the quarter, GOL's RPKs increased by 6.4% from BRL 10 billion in 2018 to BRL 10.6 billion this quarter, driven by a 7% increase in the number of transported passengers. Increased demand allowed GOL to optimize yields through dynamic revenue management. Average yield per passenger increased by 1.9% quarter-over-quarter, reaching $0.286. Supply increased 5%, driven by a 3.2% increase in seats and increase in average stage length. This indicator includes the impact of the grounding of 7 MAX 8 on March 11.

The average load factor was 81.5%, an increase of 1.1 percentage point compared to the same period in 2018. We continue to drive strong revenue growth. The combination of higher demand and optimized pricing resulted in net revenue of BRL 3.2 billion, an increase of 8.3%. Net RASK was $0.246, an increase of 3.2%. Net PRASK increased 3.3%, reaching $0.333. Average fares increased by 1.3% from BRL 335 to BRL 339.

GOL's 2019 guidance is for net revenues of approximately BRL 13 billion. GOL's current network serves higher yield routes and is the leader in the domestic market with a market share of 36%. The company is also a leader in the corporate customer segment with the largest market share of business traffic in Brazil.

Regarding the temporary grounding of MAX 8 aircraft, we emphasize that since the beginning of the operations with the MAX 8 in June 2018, we have operated nearly 3,000 flights totaling over 12,700 hours, offering absolute safety for our customers. Boeing is executing a comprehensive and multidisciplinary strategy for the MAX 8 update, and soon, our customers will be able to benefit again from all the technology and comfort offered by this modern aircraft. Since March 11, the company's operating flights from our international hubs in Brazil and Fortaleza to United States with 737 NG aircraft.

With that, I am going to hand you over to Rich, who is going to take us through some additional highlights.

Thanks, Kaki. First, we would like to comment about GOL's cost environment.

Total CASK ex nonrecurring in the first quarter was $0.204, 4.7% higher. CASK ex fuel, excluding nonrecurring, increased 3.2% mainly due to the 16.2% appreciation of the U.S. dollar against the Brazilian real; the end of the payroll tax relief tightly program; higher depreciation due to higher capitalized maintenance on aircraft components including engines; and a fleet increase of 7 new aircraft, 4 net; in addition to higher passenger expenses resulted from the grounding of the MAX 8 fleet.

GOL remains the cost leader in South America for the 18th consecutive year. Our margins remain solid. The combination of better pricing, higher demand and execution of the fleet renewal plan permitted GOL's recurring operating income to reach BRL 546 million, with recurring EBIT margin of 17% in the first quarter of 2019. Recurring EBITDA was BRL 952 million, and recurring EBITDA margin reached nearly 30%. GOL's 2019 guidance is for an EBITDA margin of approximately 28%.

The second point to highlight is our cash flow management. The combination of our operating cash flow generation of BRL 254 million in the period and higher cash liquidity improved the company's financial flexibility. Total liquidity, including cash, financial investments, restricted cash and accounts receivable was BRL 3.5 billion at March 31, 2019.

Lastly, we would like to share the continued success of GOL's liability management. The net debt, excluding perpetual bonds, to last-12-months EBITDA ratio was 3.3x at the end of March 2019. We continue to focus on the improvement of our capital structure, including the amortization of BRL 140 million of the company's seventh issuance of debentures and the tender offer for 15% of the 2022 senior notes.

We also carried out an innovative issuance of exchangeable senior notes totaling BRL 300 million in the quarter convertible into GOL shares at an 85% premium over the stock price on the date of issuance. This issuance bears an interest rate of 3.75% per year, reducing GOL's average cost of debt by 50 basis points.

These transactions represented additional deleveraging of the balance sheet and even better matching of operating cash flow generation with amortization of liabilities. The liability management reduced the company's cost of debt and improved its credit metrics. Currently, the average interest rate is 7.7% for local currency debt. And for dollar-denominated debt, the average interest rate is now at 6.3% compared to 6.8% in the fourth quarter of 2018.

GOL has maintained its commitment to financial discipline, managing the effects of Brazilian currency through its efficient capacity management and dynamic yield management. For 2019, we expect GOL's domestic capacity growth to be between 3% to 4% and international to be between 35% to 40%. Nonfuel CASK is expected to be around $0.14. We have projected EBITDA and EBIT margins in 2019 at around 28% and 18%, respectively. Leverage, measured as net debt, excluding perpetual debt, over EBITDA for 2019 should be 2.9x, reflecting our commitment to reduce leverage on the company's balance sheet.

Now I would like a return to Kakinoff.

Thanks, Rich. In summary, we are working hard to maximize our results this quarter. Our commitment to continuous improvement in results has proven the strategy effectiveness of offering a differentiated and high-quality product while relentlessly focusing on cost efficiency. We remain focused in offering the best experience in air transportation, with exclusive services to customers on new and modern aircraft that connect our main markets with the most convenient schedules. We are committed to highly disciplined capacity management and prudent management of the balance sheet and liquidity, maintaining cost leadership and continuing as the preferred airline for customers while driving sustainable margins and returns for shareholders.

And to conclude, we are optimistic for 2019 with the continuous improvement of the Brazilian economy and the aviation sector in the country.

Now I would like to initiate the Q&A session.

(Operator Instructions) And our first question today comes from Duane Pfennigwerth with Evercore ISI.

Rich or Kakinoff, can you update us on the auction process for Avianca Brasil, what that looks like as of today? Is May 7 still a good date? And any thoughts on what you're actually going to be bidding on?

Actually, what we know is pretty much the official figures. The auction is scheduled to happen by Tuesday next week. And we are now noticing that Avianca has performed flights at 4 different airports. And they had been able to actually keep the company operating with current 6 -- 5 to 6 planes that they have available. GOL is committed to this auction, as previously informed. So we are supposed to offer a minimum (inaudible) offer for at least one of the UPIs. So this is what we got so far.

And maybe more detail than you're willing to get into, but can you speak to what the UPI that you're interested in covers? Is it a specific part of their network? Or is it sort of a blind allotment divided by 6?

Yes, you're right. We wouldn't like to give any kind of disclosure at this moment because that's part of our strategy to the auction. And you know this is an auction for real and nothing artificially built to determine one single winner. Therefore, we are participating in this auction as we would in any other normal auction, and we cannot, due to the situation, give you any kind of disclosure which could jeopardize our strategy to [that rate], okay?

And then just to my follow-up. Maybe, Rich, as you think about the June quarter, what you're seeing in demand and bookings trends and as we think about comping the trucker strike last year, any color you can provide into the June quarter on the revenue environment would be appreciated.

Yes. Sure, you're right. Remembering last year in mid-May, we had a collapse of the demand curve because of a nationwide trucking strike, which hurts the year-over-year comps. And the way I would characterize that, we're seeing very strong bookings. And that's also reflecting in yields. And we expect to see something on the order of 15% year-over-year increase in the revenues for the second quarter. Obviously, there's both the volume effect and the yield effect in there. A big chunk of that is coming out of the yield side of the equation because your load factors are at peak levels. So that's what we're kind of seeing at this point. That's also what motivated us to upgrade our guidance for the year for about BRL 100 million from the BRL 12.9 billion to the BRL 13 billion.

And our next question comes from Dan Mackenzie with Buckingham Research.

Couple of questions here. On the revised outlook. Just a couple of clarifying questions. Does the revenue and growth outlook include upside from Avianca Brasil's assets at this point and/or the structural reorganization of Smiles?

Yes, Dan. Nothing from potential acquisition, specifically, meaning nothing from us increasing our assets. But overall, in terms of the market, we are now with the, I'd say, the more definitive nature of the situation. The company has basically significantly wound down over the past couple of weeks. So that component with Avianca Brasil had the largest overlap with GOL's operations. That component is in our forecast, for sure. Part of -- so part of that is in the forecast, and then the other component really relates to sourcing and overall demand.

And on the -- in terms of Smiles incorporation, no. As you saw in our guidance, the budget for the minority interest is still outstanding in our 2019 guidance. It's still being excluded from bottom-line net income.

Yes, understood. Okay. And then so I guess just a couple more questions here. First, just the MAX grounding. How are you thinking about the impact for the full year cost just given the revised CASK ex fuel forecast? And then just on -- tied to the last question here, your comment about Avianca, I'm just curious to what extent there was revenue pressure in the first quarter tied to Avianca, perhaps pricing for cash?

Yes, I'll do those questions, Dan. Right now, based on what we know now with the MAX, there would be an impact of around BRL 40 million in our forecast for this year. That's up to today, meaning with what we've done currently with the grounding, assuming that Boeing's forecast bear fruit, which is during the month of May, there would be the ungrounding and then the MAXes will be flying again in the second half of the year. In our first quarter numbers, we had around BRL 10 million of costs that related to the MAX grounding, specifically.

In your second question as well, I think this is relevant. We did see in the month of March was some very intense price discounting coming out of Avianca as they were in that specific mode. And so that impacted yields negatively in the quarter because of the March effect. January, February was actually pretty solid. And then in March, we saw that effect. And also remembering that the company operates in the main Shell markets with a big overlap with us. And so we were seeing a bit of that especially in the last 15 days of March and in the first 15 days of April.

And our next question comes from Savi Syth with Raymond James.

Just on the -- just a follow-up on the kind of MAX grounding. Just wondering, if this does last into kind of the winter holiday season, what optionality you have. If you look at the kind of U.S. Airlines, they seem to kind of imply it's during the peak season having a kind of a bigger percentage impact than their fleets would imply? I'm just kind of wondering if maybe GOL has some flexibility to kind of limit that impact if this does go into the peak demand period?

Savi, it's Kakinoff here. Yes, we could have an additional impact, but that is, in comparison to any other airline, a major airline in the world suffering by the 737 MAX grounding, much lower. This is because we were operating only one route that was exclusively operated by 737 MAX, which was -- that was in the United States. Now we are performing the same route with NG with one stopover, Dominican Republic, for refueling. And that would be the single route, basically, affected by not having the 737 available in July, which is the Brazilian high season.

We can redesign our network in July to further reduce lower profitable routes and reallocate some of our NGs to compensate the lack of 737 MAX with -- or towards more demanding/profitable routes than we would normally do. So basically, we could reaccommodate it. Possibly have an additional impact than we are perceiving today but nothing that would dramatically change the July's results.

Savi, I would just add to that. In terms of the fleet plan and what we have currently, in terms of the flexibility that you're asking about, the 8 MAXes that we had in the fleet plan, 7 from last year and then we grounded the additional 1 we would have already received this year, those are fully covered by NGs, which -- there's 4 NGs that we are not returning. So they're not going out of the fleet this year based on that. And then also, 4 NGs where we recalendarized the maintenance schedule. So within the existing fleet, we're able to source capacity from 8 NGs that were either going out or going to grounded for maintenance to cover those 8 MAXes currently that are not flying.

And then as of July, we start to receive roughly 1 to 2 aircraft per month off the MAX order. So on the plan A, we're receiving those aircraft. And as Kaki and I was saying, to the extent that we're not receiving those aircraft as of July, we would then have to make some further adjustments in the fleet plan.

So think about it in those 2 parts. The first part, which is the current MAXes that we have, they have already been covered by the flexibility we have with NGs. And the second part would be the future MAXes to be delivered, which start in July, we would then have to cover those with alternative measures.

So Savi, just to add another topic. In parallel, we could also get access to temporary leasing contracts in order to fulfill unexpected high demand to be present in the market over the following 2 to 3 months. So I think we are also structuring ourselves to get access to some temporary leasing contracts, which could -- not necessarily to compensate the MAX effect, but if we continue to see the current demand, which is pretty high, we could also afford to get 4, 5, 6 additional planes for temporary contracts, such as 1 year or 1.5, which would also make us able to absorb a more benign market than we are -- than we had forecasted before. And pretty much comparable to what we are seeing exactly today. So I mean our demand is pretty high, and we can have that additional resource in place.

Yes, we're preparing for this excess demand scenario. In fact, as you know, coincidently, simultaneously with all this, we have the situation of Jet in India. And that has resulted in the availability of NGs, which are the exact aircraft that we fly. And so we have that as a potential source of some short-term leases for NGs if we need them to cover any delays in MAX deliveries in the second half of this year, which is possible.

And even if the MAX is back and the market will continue to be as strong as it is today. We could have -- on top of the MAX being back to the game by the end of May, beginning of June, we could also decide on -- upon bringing some additional planes to compensate with additional demand.

And I think that answers my follow-up. But just to clarify, so if you do get these kind of Avianca Brasil routes, is that kind of how you would plan to address that additional flying that you will have? And is that reflected in the guidance or not?

No, I think that they are too -- at the moment, you have too many moving parts. And I think that the good answer -- or the positive side is that all those moving parts are positively supposed to deliver additional demand, additional results. And from the current landscape, I think that the alternatives are only positive to the scenario that you had previously [built]. Avianca might be another positive layer on top of everything that we had discussed right now. But we are not considering all those things. And definitely, they are not reflected completely into our current guidance.

And our next question comes from Stephen Trent with Citi.

I actually just had 1 or 2 follow-ups to what Savi and some of the other guys have asked. But first off, when we think about the Avianca Brasil slots, have you guys heard any credible interest from any foreign carrier? And even looking at those slots, is it maybe naïvely kind of seems to me it is too small a footprint to then be encircled by 3 big domestic airlines? But any credible foreign interest that you've heard of by chance?

We have heard -- actually, we have heard some, I would say, [curious things], hanging from Uber, who would be interested in this, up to a new entrepreneur from...

Yes, we heard had a couple of days ago that Uber was...

Yes. Uber. These things should tell you, Trent, that there are several speculations but nothing -- up until now, nothing material, nothing concrete.

Okay. Very helpful. Yes, that's pretty amazing. I was also just wondering when we think about these recent announcements with regulations. I mean, one, kind of reducing the state taxation on jet fuel, kerosene and, two, this issue about checked bags. One, any color with respect to where else you might be able to expand with this jet-fuel-kerosene tax reduced? I think you mentioned São Paulo, and I'm not sure if you're able to give us any further detail. And on this checked bag thing, assuming it gets rolled back, I mean, isn't that just going to go into higher fares anyway?

Steve, actually, I -- it's really hard to believe that the government would step back on the baggage, do you think, because that would be at least a kind of contradiction in comparison to what the Brazilian civil authorities have put in place so far in order to open the -- open up the Brazilian markets to be -- to have a regulatory structure quite comparable to the most developed markets in the world. And even this government is -- publically said [free libero]. So that movement coming from -- are quite a punctual situation in the Congress. I don't think that will be accepted by the government.

Honestly, I don't believe that the baggage fee will change mainly because, as you know, that the same government is pushing the same Congress very, very strongly to get the flying capital lift being approved. So those are 2 opposite decisions. I mean, do you have with the market open for foreign capital and, at the same time, stepping back with the baggage fee or so.

I guess that Richard would like also to answer.

On the fuel, yes. I mean the state of São Paulo was a pioneer in reducing the fuel tax in exchange for airlines adding additional development, bringing passengers from other parts of Brazil into state of São Paulo, generate tourism and additional tax revenues for the state. The expectation is that other states will follow, or there's nothing specific that we see happening in the near term. But the expectation is that there are conversations about some other states pursuing some similar development objectives with lowering of fuel taxes.

But São Paulo was the big nut, obviously, for the country and for us. It's about 30% of our revenues, the flights in and out of São Paulo. And previous this initiative by the São Paulo state government, it had the highest jet fuel tax. And so we were actually doing tankering and other measures so that we're reducing our actual fuel consumption on the overall network down to about 23% of the total. And so for us, the São Paulo piece was significant on its own merit. But I think there are discussions that we could potentially see some other states follow with that type of initiative but nothing specific at this point.

And our next question comes from Michael Linenberg with Deutsche Bank.

This is actually Matt on for Mike. A few questions on the warrant offering. What drove the decision to bring warrants to market? Could you give us a rundown on the mechanics of the transaction? And how would you characterize the balance sheet benefit?

Yes, I think, Matt, you're referring to the warrants offering that is being done this week. Is that correct?

Yes.

Yes, that's only being done. In the month of March, we issued a convertible bond. And in Brazil, preemptive rights are an obligation. And so we're doing that offering of warrants to basically satisfy the preemptive rights obligation. Our work in the context of the convert is that the offshore company that issued the convertible bond is basically subscribing those warrants such that in the future, if those investors who hold that bond want to convert into the underlying equity, going through ADRs all the way down to the local PN shares, those shares would already be effectively issued through this warrant structure. And concurrent with that, we're also offering that warrant to any investor in our current shareholder base that would want to take up those preemptive rights on that warrant.

But the motivation for that -- of the warrants, specifically, is not capital raising. The capital raising was already done with the combination of the original issue and the greenshoe where we raised $345 million on the convertible bond, which is convertible into GOL ADRs. And then those ADRs through the warrant issue will also be fungible with an equivalent amount of shares in the local PN shares. So the reason for that warrant offering, it's just kind of the last leg of the complex convertible bond offering that we did in March.

Say the second part of your question, yes?

Just as a quick follow-up. Have you seen any share shift in the Brazil loyalty market? I know some of your competitors in the past have called out taking a bigger slice of the pie in the loyalty market.

Well, I would say a couple of factors there. Because of -- we have 2 competitors currently that have had a reduced focus. LATAM just finished a couple of weeks ago their take-in of Multiplus. And obviously, Avianca has, with its restructuring, has been unfocused. That has provided an opportunity in the current market. There has been some market-share shifts currently from those airline companies into our loyalty program. We've also seen Azul being more aggressive with their program. And also the banks, because in addition to the airline programs, they also compete directly with many of the commercial banks here in Brazil. So on the volume side, that's what -- kind of what we're seeing.

On the margin side, we are seeing more competition on pricing across the board, especially as the airlines are starting to use the loyalty program more as a marketing tool as opposed to having an isolated business focused on maximizing the profitability of the (inaudible). But I think we're -- it feels a bit like we're in a bit of an inflection point now.

Also, generally, what we see is the 2 businesses, the airline passenger business and the loyalty program business, tend to be countercyclical when you talk about margins. We're kind of on year 3 or so now of our secular growth phase where the demand from paying passengers isn't increasing. And kind of the opposite of that or, if you will, the one minus portion of that is the cost of goods sold of the loyalty program. And so we're in a bit of an inflection point right now and kind of transitioning from what the market has looked like over the last 5 or 6 years to what it would like over the next 5 or 6 years. And we do expect that to be a frontier of increased competition, especially as the industry structure in Brazil consolidates and reformulates. And the airlines strategically are reformulating how they're using their loyalty businesses to drive loyalty and growth and compete and so on.

And our next question comes from Barbara Halberstadt with Bank of America.

I jumped in a little bit later so I'm not sure if you already answered it. So my apologies. Just wanted to have an update on Smiles corporate organization, if there is any deadline in the short term to come up with a final structure. Just if you could give us some color on that, it would be great.

Yes, Barbara. As we disclosed in December, we're in discussions with the special independent committee that was constituted by the Smiles Board. And as soon as we have any news from that negotiation, we both, us as well as our Smiles, would be disclosing that to the market. We don't have any news at this particular moment.

And no deadline? I mean it's -- no target end of the year or the next quarter?

So there's no pressure on the independent committee in terms of the amount of time that they have to analyze the transaction. And we're in -- currently in the middle of those discussions.

And our next question comes from Josh Milberg with Morgan Stanley.

My first question relates to the big drop-off in your maintenance cost seen in the period. And I was just hoping you could comment on what drove the change in the capitalization level and also what we could expect for this line going forward.

No, I think part of that just relates to the shift in the fleet, Josh. There's no big drop-off per se. We did -- I'm trying to think specifically at what you are referring to there but...

I'm referring to -- sorry, Rich. I'm referring to the near 60% decline in year-over-year in your maintenance materials and repairs line.

Yes, nothing specific. I can maybe get back to you off-line on that, and see that nothing specific. As you know, we in 2016, '17 and '18 were peak -- were kind of peaking maintenance expenses for us as it relates to the engine overhauls. This year, we go into a transition towards a more normalized level where in 2 years we hope to be back down to around the BRL 350 million to BRL 400 million a year run rate from this roughly BRL 600 million to BRL 650 million run rate that we've been at as we've kind of peaked on the engine overhauls. And every time we do these engine overhauls, we basically get 7 years of useful life to the next maintenance event.

Also, we have -- on quarterly basis, there can be variances based on what we're doing specifically as it relates to the seasonality and so on. So in the quarter-over-quarter comparison, we did have some lower maintenance events in the first quarter related to our utilization and our seasonality having less in maintenance. But nothing specific that would be kind of a structural change other than just kind of this year we're shifting down to a lower level. But I'll take a look at that and see if there's anything else, and I'll get back to you off-line on it.

Okay, fair enough. And one thing you guys have highlighted in the lease was a higher capitalization of rotables and components repairs.

Well, yes. We do capitalize the -- a portion of the maintenance there that goes -- and then it's basically depreciated over a 5- to 7-year period. There was a slight increase in that in the first quarter of this year based on the nature of the maintenance cost, maybe about a BRL 30 million to BRL 40 million of additional capitalization there that perhaps was in the previous quarter. Like I said, I'll just have to look into the micro detail on that, and I'll tell you if there is a better way to look at the apples-to-apples comparison.

Okay. I got it. And then you already covered a lot of ground, obviously, on the MAX. But I was hoping you could just touch on the issue of potential compensation from Boeing for the grounding. Is that something on which you can say anything at this stage?

I can tell you that we are -- we have this kind of situation predicted in our contract. We cannot give you the disclosure on how specifically this would evolve, but I can tell you that we have no major concerns regarding the necessity of having some kind of compensation being provided by Boeing.

And our next question comes from Petr Grishchenko with Barclays.

Some of them already answered, so I guess I want to switch gears to your outlook for '19 and '20. I assume your guidance on fuel prices takes into account the fact that about, what, 60% of your fuel consumption is hedged at, I think, $60. So first, is this Brent or WTI? I'm just curious. And then I'm looking into '20, and it seems like costs is only marginally higher, and there are no hedges. So I'm just wondering how to think about that.

No, that's not the case. I mean we're about 30% hedged for 2020 also in the low 60s. Those are WTI prices. We generally go out 2 to 3 years and work on hedging. We just provided for reference there how much we have hedged for 2018. But if you look in our financial statements, you can also see what we have for 2020. We also have about a 10% hedge in 2021. Basically, how we do, specifically here at GOL goal, hedging is taking advantage of the forward curve, backwardation and credit capacity to create value and putting on hedging well in advance. And so, for example, these hedges that we have now for this year, 2019, we basically put them on the middle of last year and then topped up a little bit in December when prices came down.

But having said that, that fuel-price-per-liter guidance we're giving you there is not a hedge price. That's indicative of what we expect our price to be primarily from the suppliers here in Brazil. We don't -- we're not forecasting gains or losses on hedges because that will depend on how that rolls forward on a quarterly basis. For example, the mark-to-market to date today on our hedge position is about BRL 100 million. If we were to unwind all those hedges and put the cash in the bank, we would have about BRL 100 million. But we don't do it that way. We'll basically -- we will manage the positions if the volatilities get too far off course up or down. And we'll also take advantage of the market as well to manage our downside position and buy back the puts in the costs as [colors]. But basically, that hedge position that's there, if for example, things stay where they are from now to the end of the year, over the next 3 quarters, we would, to the end of December, we would realize around BRL 100 million of -- being if things stayed where they are, stable. And that would be a slight reduction to our overall fuel expenses.

But that fuel price guidance in there, which was revised up a bit, is based on our forecast year for oil prices and what we think the Petrobras price does here locally is. And that guidance we give there, which is probably some of the more detailed guidance you get out of any company maybe anywhere, is really just to help those who are projecting to develop their own projections. I mean that guidance is developed by a lot of questions that we get asked repeatedly. And all the data we're providing there is pretty much everything that the market would need to estimate our results. it also allows us to be able to talk about results because if we wouldn't be providing this level of guidance, we'd be providing selective disclosure in individual conversations.

And so there's a lot of reasons why we give that level of detail. It's not so that people can speculate against or bet against our internal estimates on oil prices or exchange rates. We don't want to get into that. So what we're providing there is how much we think we're going to be consuming and how much we're going to -- think we're going to be paying in terms of the price per liter on average.

Obviously, there's a lot of volatility there. We have a specific view on oil as well. But that's also so that analysts and investors, you can also kind of put in your own assumptions there on the fuel price if you want to do some simulation. And so that -- I think that kind of gives you a lot of information to kind of help you think about that in terms of how we're managing it.

That's very helpful. Another I wanted to follow up on, your comments on the fleet commitments. And given IFRS 16 implementation, I'm just curious of your thought process in evaluating operating versus financial leases going forward. Do you think it changes the math a little bit for you or not?

Change in the math meaning what, the situation of the MAX?

Well, given your evaluation of whether you're going to enter operating or financial leases for the new aircraft and given the changes in that accounting?

No, I see. Given the IFRS, the new accounting. No. No, that doesn't change that. Our decision on how we finance the fleet is an economic decision and a risk management decision. In our first order with Boeing, we did 80 aircraft out of the factory. We did half-and-half, half mortgage finance leases and half sale-leasebacks. The philosophy there being if you need to adjust your capacity, it's a little bit easier to adjust your operating lease capacity than your finance lease capacity if you need to adjust up or down quicker. Having said that, in this -- in our next cycle, which is now our second order with Boeing, our plan is to do 60% mortgage finance leases and 40% of sale-leaseback over the next 8 years or so. Our economics are better as a company on the finance leasing mechanism because the cost there are lower. But that's traded off against the flexibility component with having operating leases which allows us to kind of upsize and downsize quicker than the finance lease.

Going forward, I mean our 2018, '19 and most of our '20 deliveries have already been done on a sale-leaseback format. Starting in 2021 and '22, '23, we'll be focusing more on the finance lease format, which will be divided among a variety of export credit facilities and other things which we're working on now. And I expect end of this year, beginning of next year, we'll be announcing -- giving some more visibility on what we're doing on the finance lease component.

But it's not driven by the accounting. All -- obviously, all of the aircraft today, we are treating as a finance lease with -- whether it's an operating lease or a finance lease. And they effectively go in there at the real economic cost of those leases. That's what you're seeing on the balance sheet today in terms of debt as well as the interest expense. That's a more accurate representation of what our actual leverages are at our actual financing cost.

I do expect though, over the next couple of quarters, it's going to be interesting for us, interesting for me, to see kind of how the market reevaluates benchmarking and companies and GOL as well because it does change a little bit how the operating leverage and the financial leverage is presented. And so it is going to be interesting to me to see how that evolves and how the market looks at that.

If you haven't already, if you have some time later, in the third video that we posted on the site this morning, the Q&A video, in the first part of that, we put 2 benchmarking slides in there. But you're looking at the 2018 data, but it -- we put 2 benchmarking slides in there of GOL versus the global peers and the Latin peers. That gap, that is going to tend to, I think, magnify going forward, meaning given that GOL is a high-efficiency airline with a high-value product, that will start to show a little bit more clearly in the accounting now, which is a separate issue than what you're asking. But obviously, given that our biggest asset is the fleet and our primary liability, if not our only liability, is secured and unsecured financing related to the aircraft acquisition that we do at the holding-company level, it has various interesting implications for how you look at asset turnover, profitability as well as leverage. And some people that look at airlines like to look at the 2 platforms and things like that.

And so the new accounting tends to make us look a little bit more attractive on the return-on-capital and return-on-equity perspective than the old accounting did. And so just the kind of -- for us airline nerds who like to look at this stuff, it's going to be, I think, more interesting over the next couple of quarters to see how we kind of dialogue about this.

(Operator Instructions) And our next question is a follow-up from Savi Syth with Raymond James.

I kind of have a 3-part question on nonrecurring expenses. Just first, what was that in -- that was in 1Q? Two, were there any kind of gains on sales? And kind of what do we assume, not much the rest of the year, given kind of the MAX situation? And then the third one, a little bit of a -- and I'm guessing you might not be able to answer too well, but with Avianca Brasil, if you do get kind of get any of those assets, should we kind of think of some nonrecurring expenses related to any tickets sold that you might be taking responsibility for? And how should we think about that impact?

Yes, that's a future question, right, the -- okay. Well, there's an answer to that. But on your first question. We've just been providing information on the nonrecurring. You guys can use whatever data you want. We're just giving you the data so you can get a good estimate of what the underlying operating profitability is and then what the other costs are as we've been doing this major fleet renewal. In the first quarter, we had around BRL 40 million of nonrecurring expenses. About BRL 20 million, about half of that amount, was related to the return of one -- aircraft return. We basically returned one aircraft in the quarter and had some other expenses related to a second aircraft that is almost ready to be returned, an NG aircraft. We had around BRL 10 million of expenses related to reaccommodation, food and some other costs related to the grounding of the MAX aircraft we did. And there was about BRL 10 million of other expenses there. We did an offering in the Q1, a fundraising where we had some additional expenses. So that's pretty granular detail. It's not a big number. This was just BRL 40 million that we just pulled out of that to give you a better visibility on that.

There is no significant NG sales planned currently. And that was our plan starting the year. We accelerated many of our 2009 -- '19 expectations on NG sales into those 13 aircraft that we sold in the fourth quarter of last year. And so we started this year not planning to have any major NG sales programmed unless we were to get an opportunity. So this is before the MAX grounding. Obviously, having said that, currently, where we are right now, we are delaying the redeliveries of 4 NGs, and we've recalendarized the maintenance of 4 NGs this year. And so that's actually going to have an economic positive effect for us because we generally can spend as much as $2 million for every NG that we have to return out of the fleet, so we're not going to be having those expenses this year. And we're also going to see potentially some slightly lower maintenance expenses in the second half as we recalendarize the maintenance on those NGs, those 8 NGs that we're going to have flying as opposed to either going out of the fleet or in maintenance.

On the MAX deliveries this year, those were done in the sale-leaseback format. And so those aircraft, anytime we do those kind of sale-leasebacks, they have a small gain. So we haven't really -- we received one MAX this year. And so we have no sale-leaseback gains on the received MAXes. To the extent we have the schedule normalizing the second half of the year and we're receiving those MAXes off of our Boeing order under sale-leasebacks, we would recognize some gains related to that. But that is not in our forecast at this point in time.

And then on your final question. The way that the restructuring plan was approved for Avianca Brasil. In the [etchetal], the document that the creditors approve. If we acquire one of the UPIs, we assume a commitment for up to $20 million of air traffic liability, which would be our maximum assumption of any type of liability there because these are isolated productive units, which means they're bankruptcy remote. And so -- but as you know, the way that air traffic liability works is it can be absorbed into your existing operations, on your existing capacity with a small marginal cost. And currently, Avianca Brasil's operations are significantly reduced and have wound down substantially. And we have already been over the last 4 weeks or so, together with other airlines in Brazil as part of what we normally do, transporting Avianca passengers. I think to date, we've probably transported about...

13,000; 14,000.

13,000; 14,000 passengers of Bianca. So we're really kind of chipping away into the air traffic liability that they have there. But the answer would be a maximum liability of $20 million if we were to acquire a company in the auction process.

This is the final call for questions. (Operator Instructions) .

And this concludes today's question-and-answer session.

I would like to invite Mr. Kakinoff to proceed with his closing remarks. Please go ahead, sir.

Okay, ladies and gentlemen, I hope you've found our presentation and the Q&A session helpful. Our Investor Relations team is available to speak with you as needed. Thank you very much, and have a nice day.

This concludes the GOL airlines conference call for today. Thank you very much for your participation, and have a nice day.