Gol Linhas Aereas Inteligentes SA (GOL) 2020 Q4 法說會逐字稿

Welcome to the GOL Airlines Fourth Quarter 2020 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 MZiQ platform at www.mziq.com. (Operator Instructions)

Before proceeding, let me mention that the forward-looking statements are based on the beliefs and assumptions of GOL's management and on information currently available to the company. They involve risks and uncertainties because they relate to 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 will hand the call over to Mr. Paulo Kakinoff. Please begin, sir.

Good morning, ladies and gentlemen, and welcome to GOL Airlines earnings call. I am Paulo Kakinoff, Chief Executive Officer; and I am joined by Richard Lark, our Chief Financial Officer. Today morning, we released our fourth quarter figures. Also, we made available, on GOL's Investor Relations website, 3 videos with the results presentation, financial review and preliminary Q&A. We hope everyone has watched them as we will now only make a few brief considerations and then move to your questions.

On January 15, 2021, GOL completed its 20th anniversary. During these 2 decades of continuous innovation, the company has transformed the history of commercial aviation in Brazil and democratized high-quality air travel. This journey has made us the leader in Brazilian domestic market for the fifth consecutive year with a market share of 38%. A simple, human and intelligent airline committed to efficiency.

The fourth quarter '20 reflects MAX's returned to service and the concentrated growth in the number of passengers transported in the domestic market. That, in December, accounted for 100% of GOL's network operations. In the quarter, consolidated gross sales reached approximately BRL 2.5 billion, an increase of 44% in relation to third quarter '20.

The company's daily sales in fourth quarter exceeded BRL 27 million, With additional flights during the month of December, passenger revenue increased 96% over the third quarter '20. In the 12 months, net revenue reached BRL 6.4 billion, a reduction of 54% compared to 2019. In 2020, GOL was the only Brazilian company to be included in a select list of 13 global airlines that received the Stage 1 certification of the IR Environmental Assessment IEnvA, which is validation that the company has developed a consistent environmental policy and is fulfilling its responsibilities. GOL has been recently recognized by the MSCI in its ESG rating score card as one of the most sustainable and carbon efficient airlines in the world, reaching carbon emissions rates up to 20% below its industry peers.

With that, I'm going to hand you over to Richard, who is going to take us through some additional highlights.

Thanks, Kaki. During 2020, GOL's management fully honored its commitments to the global capital markets, including the amortization of its 2022 senior notes, $78 million in the first quarter of 2020, and its term will be its main short-term debt in the amount of $300 million in the third quarter of 2020.

Even during this very challenging year, we kept our liability management discipline. We have addressed all the relevant financial obligations provided for in our cash flow. We ended 2020 by significantly reducing our short-term debt balance and strengthened our solid partnerships with the main providers of working capital.

In December 2020, the company also obtained an important validation of the capital markets through the issuance of senior secured notes due 2026 in the amount of $200 million with a coupon of 8% per year. We have no significant capital markets maturities until 2024. This is a reflection of GOL's commitment to strengthening its balance sheet over the past 5 years.

During the quarter, the company achieved cash flow generation of BRL 3 million per day and a liquidity position of BRL 2.6 billion through its effective management of working capital with matching of inflows and outflows, which has been the key driver to maintaining liquidity. The cost per available seat kilometer CASK was BRL 0.2644, a nominal increase of 25% compared to the same period last year, but a 4% decrease when excluding the exchange rate variation during the same period.

In the quarter, the costs strictly related to operated flights, adjusted CASK corresponded to BRL 0.2006. This represents a 4.9% nominal decline and a 27.4% decline when excluding the exchange rate variation compared to the fourth quarter of 2019, and demonstrates the company's continued focus on readjusting its unit cost structure to an even more efficient baseline when compared to pre pandemic levels.

GOL has converted the main fixed payroll and leasing costs into variable costs. In addition, the return to service of MAX aircraft will enhance efficiency, with a reduction of about 15% in fuel consumption, more flexibility to operate on both short- and long-haul routes and an increase in autonomy compared to the 737 NG family and 16% lower carbon emissions.

The following metrics demonstrate efficient capacity and pricing management with the company's permanent focus on sustaining revenue levels, even with the reduction in the volume of corporate passengers. One, an average yield per passenger of BRL 0.2755, a reduction of 17% compared to the fourth quarter of '19, mainly due to the reconfiguration of the company's network concentrating and distributing operations in its hubs and consequently increasing stage length; two, average load factor of 81.1%, which was a reduction of 0.4 percentage points compared to the fourth quarter of '19 due to prudent supply management, adding capacity based on demand indicators with the help of our advanced data analytics tools; and on-time departures of 92.5%, which was an increase of 6.3 percentage points according to Infraero and data provided by the main airports.

Adjusted EBIT was BRL 347 million, corresponding to a margin of 18%, which demonstrates the reestablishment of the operating margins necessary to support growth in operations and our continued search for balancing supply and demand and yields that allow sustainability. Adjusted EBITDA margin was 30% in the fourth quarter of '20. And in 2020, reached 39%, a growth of 7.2 percentage points year-over-year.

GOL ended December with a total fleet of 127 B737s and 93 aircraft operating in its network, which was an increase of 22 aircraft compared to the end of September 2020. In the fourth quarter of 2020, despite the challenging operating environment, daily flights doubled to approximately 400 when compared to the third quarter of '20 to serve 177 markets, representing 54% of the daily flights performed in the fourth quarter of 2019.

Now I would like to return to Kakinoff.

Thanks, Rich. After months of continuous recovery, we are seeing a contraction in travel demand due to a rising number of COVID-19 cases in Brazil, combined with extended international travel restrictions, the beginning of low season and customers waiting to get vaccinated.

In relation to January, the company recorded a 28% reduction in the level of sales during February. Now in March, the company is implementing an even greater reduction and operate approximately 250 flights per day, placing its operations at approximately 40% of March 2020. We believe that the current market conditions, while difficult, are temporary and that demand will continue to recover as the vaccine rollout progresses in Brazil.

GOL is prepared to react quickly in adapting each air network with the flexibility to face fluctuations in demand in the coming months. GOL will continue to be recognized for having the most adaptable and flexible business model, prioritizing the safety of customers and employees with the best team and the lowest cost in Brazilian aviation. Now I would like to initiate the Q&A session. Thank you.

(Operator Instructions) And our first question will come from Dan McKenzie with Seaport Global.

I guess a couple of questions here, a few questions. Lots of cost savings initiatives last year that obviously are helping from a working capital perspective. And I'm just wondering if you can elaborate a little bit on what the relief drivers were that came into play in the fourth quarter and how they're going to continue to come into play in 2021? And it seems like the cash outcome in the quarter is different than what we're seeing in the income statement. And so I'm just thinking that there is these -- these initiatives are coming in nicely. I'm just wondering if you can elaborate a little bit more on those.

Sure, Dan. A couple of things. Obviously, one is the pure cost component, the other is the working capital deployment. As you know, we've been managing the company through the pandemic. We've got a simultaneous focus on unit cost and working capital, the financial equilibrium. So I'll kind of answer it in that respect.

One, we had about -- at about BRL 150 million in the fourth quarter, we had about -- and some of this was work we had done in the Q3 that went into the Q4, but about -- just one second, Dan, I got to fix the phone here, hold on one second.

Sorry. I was like 4 general categories. One was renegotiation of operating liabilities. Second was leasing. Third was payroll. And fourth was related to working capital debt across the board. That would come on the working capital equation. And then one of the components also in the fourth quarter related to how we were managing -- matching the operations inflows and outflows. Those are kind of the -- meaning, matching our capacity to the actual demand we're identifying in our operations. So those are kind of the general categories that produced that positive operating cash that you see with the fourth quarter, okay?

Now I think it's a little bit more important to maybe link your question to the Q1, the same categories exist for us and the same levels in terms of size that would be there. But in Q1, on a relative basis in those categories that I described to you around BRL 150 million of sources on working capital come out of renegotiation of operating liabilities, a similar amount on the leasing side of the equation from Q4 to Q1, which is keeping those same levels that for us was a source of around BRL 150 million of savings, if you will.

From a cash flow perspective, obviously, some of that impacts costs. On the payroll, which is the third category I mentioned, about BRL 50 million or so, which comes from keeping the same level that we had, I think, at Q4 based on our negotiations with the labor force. And then on the working capital financing side of the equation, a little over BRL 800 million in terms of what we roll from maturities in the Q1 into the Q -- into the future quarters. And part of the reason I answer it that way is that this is like an ongoing management that we've been doing in this pandemic, which is working to match the cash outflows with the cash inflows. And a big source of it is on the working capital side of the equation in these categories, operating liabilities, leasing, payroll and then working capital, which has allowed us to and maintain the levels of liquidity and cash burn that we're seeing.

On the cost side, specifically, we're reporting good numbers, excluding the grounded portion of our operating assets so that you can see what the unit cost would be without the inefficiencies of the aircraft on the ground into the pandemic, and we've kind of provided that information in there. But when I think I prefer to answer the question that way in terms of the focus on unit cost. But the sources, if you will, the savings, the cash flow savings or cost savings, if you want to define it that way, are those categories. Hope that's helpful.

Yes. No, that's great. I appreciate it. Just maybe a couple more questions here. One, with respect to the corporate reorganization of Smiles, I wonder if you can just elaborate a little bit on the steps from here and whether GOL could start a competing loyalty program from scratch. I think American did that once it's spun off Sabre. Or are there other steps you could take to shift economics just given the current crisis?

And then I'll just throw out a second question here, and this might actually be for Eduardo. Just wanted -- just wondering about the demographics of those people that are traveling and how that demand demographic has evolved. Any perspective on that would be great. And just I guess, bigger picture, we've got a new health minister in Brazil. And whether there is the political appetite there to take the steps needed to really curb the pandemic so the economy can open back up more fully. So a lot in there but...

It's Kakinoff -- oh sorry. Sorry, please go ahead.

No, I'm just saying a lot there, but whatever you can share would be great.

Sure. It's Kakinoff here. Actually, let me try to answer issue and as the questions in the same sequence. So firstly, regarding the Smiles and the corporate reorganization. I hope you understand that I wouldn't like to raise any kind of speculations before the next shareholder meeting. It is scheduled to happen on March 24 next week. And then have 30 days, the Smiles holders will have 30 days to decide which option they will chose closing. Then further -- it's going to take a further 30 days after that. So at the moment, we are not willing to further speculate on any other alternative, but having the shareholders signing on the current proposals. And then depending on the final result, then we could discuss other possible actions, okay? So the second is related -- did I answer to your question?

I appreciate it.

Yes. So the second is related to demographic. Let me tell you specifically in -- on 2 different dimensions. Firstly is geography. Geographically, there are 3 important aspects that should be highlighted. The mix of demand by point of region of the travel hasn't changed much during the pandemic. The Southeast region remains the start of about at 50% of all passengers marginally oscillating in the last quarters.

The frustration of passengers who started air travel at the North region has grown over the quarters. So looking into a 2-year series, the demand originating from the South region has decreased in spite being its participation in the overall demand. Because this is mainly because the south region has a larger portion of business drivers than the other ones and this is specifically the segment most affected by the crisis.

The destination mix substantially changed in the last year. The Northeast region, which has a huge leisure potential, grew as a destination. And that's possibly a new trend, which is going to stay, going to remain even after the COVID. I would dare say that the Brazilians are finally discovering more the countryside and our natural attractive lever destinations. And that might create a new source of traffic, specifically having the Brazilians traveling more broadly within the country.

And finally, the corporate market, the shadow markets, mainly the lost sales in the demand composition. The same happened to South and Southeast markets, which are now a little before -- for being more corporate markets. So that's an overview, didn't change that much during the pandemic. I believe that we're going to have more leisure travelers to the Northeast region when this pandemic is over as a new -- or not new, but more sustainable and substantial market. And the corporate level, we will recover or will resume only after we will have this pandemic over.

We believe -- we strongly to believe that there are 2 milestones ahead of us with regards to the pandemic development. Firstly is to achieve the population above 65 years being completely vaccinated. And it's reasonable to expect that this effect will happen by the end of the second quarter, considering the current vaccination schedule, which has been officially shared with the public by the Brazilian Health Minister.

That would drop significantly the number of cases and deaths. And that also could emulate the same pattern that we experienced third quarter last year when the average -- the daily average of casualties dropped around 60% from its peak. And this is what we do expect to achieve when the population above 60 years, 65 years would be immunized. That would represent a drop from the current 2,000-something casualties per day to something around 1,000 or even below. Those are all obscene numbers, and that's the right word to that. 2 casualties would be already obscene, but considering what we have learned in the first phase of this pandemic, there is a negative correlation between the number of deaths in the last cases and the air travel demand. So I believe that by the end of the second quarter, we would see a more consistent demand recovery that we are seeing at the moment.

And the second milestone would be when the 60-plus percent of the population would be immunized. That would bring us the combination of the so-called herd immunization with the most exposed part of the population being protected. And that could drive us to the end of the pandemic -- not the end of the disease. I mean, the COVID-19 is here to stay for years, likely, like any other virus. But the pandemic has a good chance to be over in Brazil by the end of the third quarter. We are all engaged and involved in such kind of construction.

And the third question you raised was related to -- please remind me, I'm sorry. The Health Minister, the new Health Minister. That -- we do expect that considering the circumstances and the urgency for new measures that we are going to have a new set of actions being taken to be more effective in combining the COVID development at the moment. I don't believe in a serious disruption in comparison to what we have done so far, politically speaking. But I think that the need -- the level of -- sorry, level of urgency has raised a lot around the last weeks. And personally, I do expect that we are going to have some good news ahead of us likely or -- such as putting ahead some of the vaccines already scheduled to be delivered by the beginning of the fourth quarter and having more efficient public campaigns, incentivizing people to follow the protocols and this kind of stuff, okay?

The next question will come from Mike Linenberg with Deutsche Bank.

Yes. Rich, Kaki. I wanted to -- Rich, I just want to go back on the liability management. In the investor update, you provide sort of a guide there where the liquidity is going from BRL 2.6 billion to BRL 1.9 billion. We know that the cash burn is BRL 3 million a day, so call that BRL 100 million. In the release, you do go on to say several important initiatives are relevant to ensure that the company maintains its liquidity at the end of Q1.

And with Dan, you did mention, it looked like the 4 different buckets. And it like -- I think it was BRL 150 million, BRL 150 million, another BRL 50 million. And then I think you're going to push off BRL 800 million, maybe on the working cap side. I'm not sure if I heard those numbers right, which then it doesn't totally add.

And I'm just curious if you also have just regular debt coming due, number one, sort of part 1. Part 2 is, are you also anticipating an additional transaction to get you to that BRL 1.9 billion. Does something else have to happen in addition to the 4 pillars that you identified?

Sure. No, thanks for the question. That's -- I'll just kind of maybe add in there and get a free ride on -- we get some questions from the, what we call it, the platform, the Internet. Sometimes when I give a little bit longer answer, it's only because I got a question from the screen that's right in front of me now, and I try to answer the question of that person together.

And so I can complement that, I've had a question that says, it seems that the debt maturing this year, including leases, exceeds the company's cash balance. Are you planning to refinance that?

So obviously, we don't pay lease -- we don't pay operating expenses from cash balance. We don't pay leases from cash balance. We pay leases from operations. Maybe that wasn't exactly your question, but just that -- how this works is we're a flow company, right? Airline is a flow company. Inflows, outflows in a capital structure that we have. Everything we have in terms of capital structure at GOL is to support the long-term assets. And we have no significant capital structure maturities until 2024. So just kind of put that on the side for folks that are looking at the balance sheet and looking at the IFRS 16 accounting of leases. I mean, those are all operating leases at our company.

Yes, and that book is specifically -- we have been managing our relationships and contracts with the leasing company, keeping them at a minimum level that matches, as much as possible, with operations. As you know, when we did our negotiations in the second and third quarter of last year, we put a big -- a portion of those into -- transferred a portion of those fixed costs into variable costs, which also include a portion of those aircraft in -- part of our air contracts, where we pay a little portion of fixed cost and a variable cost. And so that component is dealt with.

It's important to remember that, that portion, in other words, all of the aircraft leasing is treated as on balance sheet debt. And then a portion of that is the short-term component I just kind of -- put the capital markets debts on the side. We have no significant maturities until 2024. We're staying current on interest. In terms of the lease debt, been able to match that with the level of operating inflows. Let's put that on the side also, to the heart of your -- now the way our company has worked, our airline, we've -- since the beginning of this pandemic, avoided schizophrenic capital raising and done our best to preserve our noncash current assets, which are things that you see on the balance sheet, like restricted cash, deposits, kind of those things on the upper left hand side of the balance sheet. It also includes our hedging activities, legal deposits. And so we continue to manage the company in that way, releasing restricted cash and deposits when we need so.

Now within the -- and those will finance a part of the overall need, number one. And secondly is what we do in terms of receivables, receivables management, factoring, things like that, those balances have come down. But you do see in those numbers there receivables balance, and we factor -- sales have ramped down significantly in the short term, put a lot of pressure on that. And finally, is other -- all of those are really on the upper left-hand side of the balance sheet.

Now then we have sources of new funds that come on the upper right-hand side of the balance sheet outside of what we already have. And yes, we have been able to -- at this company, at our company, we never lost credit from our commercial banking relationships. And we've been able to, when needed, have short-term credit coming in there when we have a deficit from a working capital perspective.

And so if you look at this Q1, and this scenario is going to expand into the Q2, we've been able to finance this operating deficit with freeing up with noncash current assets. And then we also are able to, where that is not sufficient in terms of a timing perspective, meaning that we can't unlock a restricted cash, unlock a noncash current asset, takes a little bit longer, we've been able to finance that gap with short-term credit facilities. And that -- you'll continue to see that going forward. The liquidity that you're seeing now and that we're reporting, the last time you saw that here in the recent cycle was August. And when we get down to that level of BRL 1.9 billion, BRL 1.8 billion, that's really kind of like the absolute minimum for us. And we've been -- we got caught, I would say, we did a good job all the way up until around January 15 of being one step ahead of the game on the pandemic in terms of data analytics and saying where the demand was. And then I think we, like, many other countries around the world, airline markets, at least in terms of what we see around South America, Latin America, it was a surprise in the last 15 days of January, the demand collapsed because of this case of COVID.

We immediately, at the end of January, used our primary tool, which was capacity, right? Because all this depends on us having capacity properly [balanced with] demand. And so we did that work at the end of January. Obviously, there was -- there's a phase in, in February. But pretty much by the end of February, we had done what we needed to do under capacity. And you now have seen publicly, and I know you look at the capacity and the systems religiously every day. You've seen the ramp down in capacity.

But that work was done last 15 days of January and first 15 days of February. Now what you saw competitively, you saw the other companies with -- I don't know, a 4 to 6-week lag pretty much follows suit on that. And pretty much everybody's kind of fallen into the same category as -- I think we've had an advantage of having advanced data analytics investment done years ago, where we see it immediately. And so for us, it was a really December was the eye of the hurricane and we had to deal with another 3 or 4 months of the second leg of the hurricane here.

Now overall, we'll be operating at this level of liquidity in the short term, there's a little bit of season -- normal seasonality in there that you would have, but it's hard to kind of troubling that out. We can see kind of March, April be the worst month -- a portion of our capacity would ramp down anyway. But it's hard to extrapolate the effects right now because of everything that's mixed in here.

But -- and as we said, the key chunks that's missing -- that had been missing was the large corporate piece. But what happened in the Q1, about mid-January, is we lost something that we had was a significant portion of the high-value, being [part of our] traffic. And that -- and so a little bit with the fact he was mentioning, it's a combination of we had restrictions come back in and a little bit, the vaccine is around the corner, so people are sort of waiting.

But we -- in the 12 months of this pandemic, this is the most restricted we have been here. And also speaking from the perspective of the city of São Paulo, which is about 15%, 17% of Brazilian GDP, in the state of São Paulo, which is about 30% GDP, the economic engine of Brazil, this is the most restricted we've been in terms of movement and activity, let's say, mobility-wise. Having said that, the economic activity is much higher than it was when we first had these restrictions. And so there's a little bit of that. There's a little bit of latent momentum that's happening here. Just the restrictions are different. I mean we have curfew now from 8 p.m. until 5 p.m. and so at 7:30, everybody runs home. But they're already set up to do the work and stuff.

But that significantly impacted this kind of high-end VFR component because beaches and hotels are effectively closed. And so that client base that we had, we had to deal with it during -- into Q1, it eroded a bit of our liquidity probably versus what we had planned coming into the year probably to the tune of something along the order of, say, BRL 300 million or so, maybe a little bit more versus where we expected. And so we're a little bit lower that amount right now. But we had -- a lot of these deals that we had kind of locked in, we have loosened them up a little bit in December and January. And we just got to clamp down on them again back to where we had already sort of negotiated and set it. And that's what I'm saying on the fixed cost with aircraft, with labor.

And then on the -- going back to the question that related to the -- when you look at debt maturities. Like I said, we don't have any capital markets maturities. We don't have any -- what we have is really more commercial finance maturities. And those, we're constantly matching those with expectations on future cash flow. And so those -- we'll continue to roll those over, even though from an accounting perspective, you report those based on -- usually report those based on what you have specifically on a contract.

So for example, in that maturity stack that you see for Q1, there's about BRL 300 million on the -- on a local debenture we have with 2 banks. That gets rolled out into the future, [with some] other commercial finance banks. So all those commercial finance banks, I think we've been explaining this ad nauseam during this pandemic, how the commercial client exports at our company, and we continue to do that. Those aren't -- we don't have to call it a trustee or a double ECT trustee or a bond trustee. We don't have any of those kind of structural impediments to do that.

But at the end of the day, it's about how effective we continue to be managing working capital. We do not have visibility on -- we did not have visibility and continue not have visibility on when the large corporates are coming back. And now we lost a portion of the short-term booking curve, which is this -- that -- we kind of think it was around 15% to 20% of our VFR traffic, which was doing this traveling based on the mobility and the lack of restrictions.

This was across the region. I mean, we saw it with many of our counterparts, at least in South America, and I think even Mexico, this kind of 15% backstep affected everybody on a relative basis. But if you'll get Brazil right now and you compare it with all the major domestic airline markets around the world, it's the worst right now in terms of this fact. In fact, we're like almost 100% negatively correlated with like what's going on in the U.S. in terms of the ramp-up in domestic traffic. Our experience tells us that we're probably about 60 to 90 days behind what you're seeing happening in the U.S.. I can't say March, where you are is going to be May, where we are because May, where you are might end up going backwards, right? And so with this biological phenomenon that's happening at the end of the day, very few authorities seem to have a real grip on stuff here.

But the only the final point I would mention, and this is a key point, because everything I was talking up till now allows me to answer a lot of questions on the work capital side. In terms of business, the major sources of new funds, like I said, we did not do -- we did not burn up all of our -- we have not got any external funding from the government here. Like in the U.S., what's the number, something like $40 billion has been pumped into the airlines. I don't know what your kind of numbers there, but it's mind boggling for us here. We have not gotten that.

And so -- but -- so we had to be very careful about preserving our tools to access responsible capital. You saw in December, we created a secured financing structure. We deposited $900 million of lateral in there and -- which gives us up to $500 million, $600 million of financing capacity. We did a 5.5 year deal, 8% coupon, and we did $200 million. And so we've got capacity in there of at least $300 million. And one of the things that's important us through this pandemic, which all of our partners appreciate is we've been current on interest in all of our let's say, a couple of markets debts.

And so we did have -- in those capital markets deals generally are semiannual interest payment. So we paid around BRL 300 million of interest in January. We're so 100% in compliance with the best -- what I consider the best ESG metrics you can have is if you're not in default or in a Chapter 11, right? Even though that's -- people on ESG are looking at more of the things like carbon emissions. But we've kept in compliance with capital markets, and that's allowed us to keep our capital market access. Obviously, with us, we don't have the luxury of permanent capital market access. And so we have to have windows, which are a combination of when the market is favorable, the global market is favorable, and those windows of having our quarterly results disclosed. And so that's kind of a little bit long winded way of saying that we've got at least $300 million of financing capacity in the new secured mechanism that we have created. That's probably our go-to mechanism in the short term.

If we need to put some additional cash on the balance sheet, as you know, Michael, the 2 rules of capital markets activity when you're a CFO of an airline is always remember that an airline always needs more cash. And two, go to the market when the market wants you to go to market. And those are the rules of the guru.

Those deals that we announced -- the guy's retired and he would always call me up and is like, how come you're not raising more capital now and you're always thinking it's going to get better to raise capital? But we're more mature in that respect. We have those tools available. And that's what I mentioned, the other tools we have. We have mature unsecured securities to trade and have continued to trade decently in the market. We get a lot of reverse inquiries on if we want to do taps on our unsecured bonds and unsecured convert. And our answer to that is, well, right now, we have an even better vehicle, which is a secured vehicle with interesting collateral and (inaudible) So if we need to, we can go to that.

But of course, we have to be careful and pick our moments because we don't have incidents. Like if we run out of those things, we can't call up our friends in Washington, D.C. and ask them to send us $15 billion. That's not going to happen. So we've had to survive. But I think it's also meant that we've -- in an indirect way, we've created a lot of value here with our existing stakeholders across the capital structure, both bond holders and we preserved our latent credit quality. We haven't blown up the right side of our balance sheet.

For example, if you compare our end of year 2020 balance sheet with our end of year 2019 balance sheet, you actually see a slight reduction in current liabilities. You see a slight reduction in air traffic liability and you see a lengthening of our long-term debt. In other words, if you just look at the right side of the balance sheet and forget about the left side, the right side of our balance sheet is better than it was at prepandemic. But of course, what has happened is we lost about half of our current assets that were destroyed by the pandemic. I say current assets, I mean, the effects of loss of revenues and receivables.

But -- and so we've been trying to preserve the right side, so when then the left side of the balance sheet fills up again, and we think that's going to be at some point in the second half of this year, you're going to see a company that looks a lot like it looked like in the second half of '19. And then also on a unit cost basis, I was saying in the previous question, that the other kind of guiding directive that we had here is to do everything we can to preserve our unit cost advantage so that we come back on the other side of this, we look a lot like we looked at the end of 2019.

Obviously, we have a couple of very tough months to get through here. We're not -- we're trained airline operators. We're not trained scientists in the field of epidemiology or how this is going to be managed. So we're using the same information you guys have in terms of managing and reacting to this pandemic and the virus. As Kaki mentioned, we are now -- we're probably like 2 months behind where you guys are in terms of the vaccine rollout, but we're starting to get momentum now. I mean, there's momentum.

If you walk around the street around here, you've got, what do you call it, temporary or makeshift vaccine -- vaccination centers set up on the street. And so that infrastructure is starting, but that's against what has happened here over the last month or so where hospitals have gone to full capacity utilization. If that was not the case, we probably would have not had the restrictions coming back in.

But because the hospital infrastructure is not sufficient to support what's happening now with the second wave, the governments came in and -- putting these restrictions to try to help slow down that curve without saying, if you remember back when this thing started, 15 days to flatten the curve, right? And here we are a year later with the highest curve we've had.

So I mean, that's how I would answer that. I mean if you have some other questions on that, just shoot us an email, we can go into the details on that. I'd just like to maybe move to the next question.

Yes. No, I would just add, just putting words to numbers, it seems, and to Kaki's point about we get to September in Brazil and things are on the up and up. The BRL 1.9 billion in the March quarter of liquidity, that's your low point, right? Because you get to June 30th, and you should be selling July, August, September. And people should actually feel better because the numbers are better.

And I think that's the point is that the BRL 1.9 billion is the low point, just based on everything you and Kaki have said. Again, that's a reasonable conclusion there, but like you said, anything can happen. So that's kind of how I'm coming out on it based on what you've been able to do and how you've been able to manage.

Just to emphasize what we -- just to emphasize, a little further what we have both said. We could consider the high likelihood that July would be much stronger than we are foreseeing right now, assuming, as I said before, that the population above 60 years will be ready immunized. And the fourth quarter milestone I have mentioned would be a kind of trigger to resume faster the business drivers. So we are sticking to this plan.

The next question will come from Duane Pfennigwerth with Evercore ISI.

I wanted to ask you just a couple of questions on network development. And I understand this is a bit of a weird time right now. I mean, the good news, bad news is you're very experienced with cycles. This is not your first rodeo in Brazil. You figured out how to find relative competitive strengths in the past. But I just wanted to ask, as you look at the competitive landscape holistically, what are you seeing? Is it logical? Is it rational? And maybe in that answer, could you comment on slot waivers? Are they still in effect, et cetera?

Duane, at the moment, I believe that we might be facing a kind of phenomenon that happened exactly by the beginning of the pandemic in Brazil. So some of the players reacting faster or either reacting faster or seeing in the radar what's really going on a little bit earlier than the others. Definitely, there is, at the moment, a reduction in demand caused by the increase in the COVID case -- the number of the COVID cases in Brazil. And that is affecting the short term quite significantly. And that's why we have been so, I'd say, rational about the near-term capacity being deployed.

And I can tell you that this is exactly the same behavior noticed among the competition. So I believe that there is still, if I could say so, a lack of rationality in the market at the moment. But I believe it's going to be fixed in 1 or 2 weeks considering the current demand weakness. Anyhow, we are not depending on it. I mean we took over measures in order to -- as we always need to manage our own performance quite independently of what is been decided by our competitors, but I couldn't tell you that at the moment, 100% of the market is rational because it's not. This is what we have seen so far.

Yes, we haven't -- we didn't go the route of having did financing like some of those guys. All the other guys have their own financing. So we're managing it differently. Generally, we -- for now, 5 years now, we've been the leader, at least, Brazil, domestically on setting the tone, literally since May of 2016. That's when the things looked over and GOL's been the leader and everybody's been a follower. That has generally been the case, and it varies across the board in terms of lead lag.

I mean, part of what Kaki was saying is that we recognized, really quickly, in January that -- what was happening. And at the end of January, we started the process of ramping down our capacity. And I think other folks took somewhere between 1 and 2 months to come up with that. And I think that's part of it is our -- and it's how we manage the business on a day-to-day basis. Part of it is the investment that we made in data analytics, which allows us to have maybe a little bit better handle on that component there. Does that answer your question, Duane?

Yes, that's helpful. And then just if you comment something we should know, but what is the status on slot waivers? How long before those need to be kind of extended?

Sorry, as we have mentioned, before I forget, actually, we are under a formal waiver until the end of September. So I mean, the IATA summer season is given at this. And we have already engaged in new conversations with the Brazilian authorities because considering the pandemic pattern, it might be that we all will need a further season waiver to be applied. So this is our expectation, which is going to be the waiver is starting -- I'm sorry, the season is starting next October.

I mean, the IATA winter season. So we are now addressing this discussion towards the Brazilian TV airline authority. And I hope that we're going to have something related to that.

Okay. Let's just -- we're going to -- just so we get -- try to get through all the questions in fairness to everyone, and we're going to move to the next question. But just before that, I'm going to slip in a question that we got from one of our big investors that asked, your release said that you were able to get a good portion of leases empowered by the Arab agreements. You feel that you continue to have these favorable agreements as travel recovery in developed markets potentially outpaces recovery in Brazil, especially with rising cases and a slower vaccine rollout.

The short answer is yes. The -- responding a little bit on the micro question, but maybe drill down a little bit. I mean, the -- we can keep our minimum payment, which can be up to about a 70% reduction and continue to extend that if we have a slow recovery. Also, given potential new taxation on leases, GOL can get some grace in March and April to preserve payments. Power-by-the-hour is on about half of our contracts. The other half are deferral related. In that situation, deferrals would be extended, and our lessors are supportive and understand the situation. We continue to work on that with them. That ends up working out to be that we would, in that worser scenario, we end up saying no more than about 50% of our lease payments according to our agreement.

And also goes into one of the previous questions as well when folks look at the on-balance sheet accounting of the short-term lease payments versus what would actually happen. When you look at that number, if we needed to, the number could be half of what that short-term liability is on the balance sheet. Which is, if I remember correctly, it's not how we manage the business in terms of looking at the on-balance sheet the next 12 months lease payable, but the difference there would be about BRL 1 billion of cash savings during fiscal 2021.

Now we can go to the next question. We have another 3 questions, people in the queue here. We'll try to get through them to the top of the hour, where we need to switch to our Portuguese call. As everybody knows, we do these things in both English and Portuguese.

The next question will come from Savi Syth with Raymond James.

I was probably 2 couple of quick questions. First, Kaki, to your -- in your response to Dan. You talked about kind of the phases of recovery. I'm just kind of wondering what your corporate clients are telling you in terms of what they need to see to get comfortable returning to kind of business travel?

Yes, Savi, that is split in 3 different groups. I mean, 20% -- sorry, went through our -- of the business struggles, never stopped at flying even during the pandemic. So those are the faithful workers, the health system, this kind of business attention travel. And this is, I would say, the base level, which never changed. The second group, another 1/3 is made of large corporate that those are under human resources policies that are blocking them of flying. So I believe this is the group that we will firstly resume when the pandemic will be either under control or desirably over.

And then you have another portion, maybe 1/3, which, I believe, 2/3 of this 1/3 possibly will take much longer or maybe even not come back. Those are the travelers that we will replace the business over by the business travel by one of the new technologies, such as video conference and this kind of stuff. So I believe that when I say that we will have from the third quarter on, more business sellers resuming their habits, I believe that we will have on top of the current 1/3 who are still traveling, we would be -- another 1/3, maybe 40 percentage points on top of the 30% still fly. Did I answer through the question?

That was perfect. That's very clear, Kaki. And then Rich, real quickly, just on the fuel hedging front. What's in place for 2021? And are you doing anything more than -- I'm guessing not, but just curious on a quick update on the hedging.

Well, sure. We continue to do a pretty good job of dealing with that. It's been less important. Our normal objectives are related to margin management and basically permitting enough time to adjust yields to pass on cost increases. That's been pretty much irrelevant during this pandemic.

We came into the first quarter with about a 50% hedge ratio for 2021 and 20% hedge ratio for 2022 in the low 50s, if you will. And what we did during the Q1 is we -- when we hit our view triggers in the low 60s on oil, that's kind of what I was saying. I think it was in the first question that those gains, if you will, are, if you will, a non-cash current asset. And so I think during this pandemic, if you go from the beginning of the pandemic until now, we probably had probably close to somewhere between BRL 400 million and BRL 500 million of cash inflows because of gains on our fuel hedge position.

It's not really much of a hedge against given the demand dynamic here and the inability to do yield management period. But once yield management comes back on, you'll expect to see that. But it's a little bit lower than those hedge ratios as I mentioned. It's not relevant for us right now in case of how we're managing the business. And we actually, in our view, is things have overshadowed a little bit now. So we're not going to be putting on any new hedges at this level right now in terms of our fundamental view on that.

And so I'm going to move to -- before I move to the next question, I'm going to fit in one more of the questions we're getting from the -- on the platform here, just to kind of be efficient with the time. And the question was basically to what you attribute the drop in your total liquidity from the end of Q4 to the end -- to what you're expecting for the end of Q1 in your perspectives.

The answer to that would be -- our accounts receivable dropped about BRL 200 million over the course of the first quarter here of 2021. We finished 2000 -- the December, we finished with around BRL 700 million in accounts receivable, and now we have about BRL 500 million. That's related to the drops in the forward booking curve. And this is a temporary effect. We had around BRL 1 billion a month on average throughout the year of accounts receivables prepandemic. That balance right now is about BRL 500 million, as I said, in Q4. That was around BRL 700 million. Now if we had the same level of receivables with the forward booking, today, we would have a liquidity of about BRL 2.2 billion to BRL 2.3 billion. So hopefully, I answered that.

So now let's go -- we can squeeze in 1 more question here, and it looks like I'm not going to be able to get the last question, Matt, but you can -- we can set up a call later. We can move to the last question here, operator.

The next question will come from Rogério Araújo with UBS.

Richard, I have a couple here. One is on the debt amortization that is expected for the first Q '21. It's about BRL 900 million. So my question is, is the BRL 3 million per day cash burn expected for the first Q? Does it include this BRL 900 million debt amortization? And also how does the company intended to finance that amortization? That's the first one.

Rogério, did you just -- have you been on for the whole call? Or did you just join now?

I'm here for the whole call.

Okay, I already answered this question. I mean, none of those are...

Can you be more specific then, please, Richard? Can you please be more specific how you're going to finance that? I heard you saying a bunch of a bunch of options you had. But can you be more specific then, please?

Yes. Again, okay. Yes because we got -- we have to respect everybody's time here, and we can also go into the math with you offline. But basically, contractually, we have those maturities, but the majority of those are commercial finance, which are with specific counterparties, and we basically roll those over. And so we don't have -- majority of those maturities, we don't have as cash outflows from an amortization perspective. What we have is interest expense maintenance. So that's basically it.

I can go into the details with you off-line so we can get to that. But there's -- as I mentioned, there's BRL 300 million of debentures in there. And then there's about another BRL 400 million or so of commercial finance that it's -- as I mentioned, during this pandemic, every single quarter and every single quarter, we get the same question. We're constantly working to match those cash outflows with cash inflows. And staying current on interest to preserve our credit access. And so that's about BRL 700 million of those numbers you mentioned are in that category. And then the rest -- the gap there is just how we manage working capital. But if you need more than that, we can talk offline. You said you have other question?

Yes. Thank you, Richard. And next question is regarding yields. So with the current FX depreciation and the oil price expansion, what kind of yields does the company need to be profitable in terms of like can you say the amount of expansion in yields necessary versus '19 levels or something like that for the company to be as profitable as before, also considering all the efficiencies that you have implemented in -- during this crisis?

Yes. I mean if you saw in the Q4, those levels -- because again, remember I always mentioned before, we've got 2 main ways of managing the company during this pandemic. One is, well, on the unit cost side, and second is on the equilibrium side. That -- if you look at the adjusted profitability in the Q4, EBITDA margin, EBIT margin, those are the levels that we had prepandemic in terms of profitability. Excluding the aircraft on the ground, which is that piece of assets that we're keeping so that we have -- as opposed to returning those assets, which we could, if we wanted to, returning those and then contracting those back, we don't think it's necessary. So those aircraft that we have today on the ground are going to be necessary on the other side of this dynamic, which we believe is going to be in the second half of this year. And so the Q4 numbers that you saw on an adjusted basis, excluding the grounded portion of the fleet, is -- that's the level of profitability that we need and that's the level of profitability that we had prepandemic. So that's latent in our structure right now.

There is a little bit of inefficiency there in terms of aircraft utilization. We're not near we want to be on that. But I think that's the best indicator of how we've been managing our company.

Another way of saying it for you is based on the current dynamic right now, with the current level of operating cost cash, which is being affected by the pandemic comparing, let's say, fourth quarter -- on the fourth quarter 2020, we have that EBIT -- the yield would be BRL 0.28. And so use that however you want to use it. Because I know you do a lot of work on the yield side of the equation, and you're looking at things like that.

And so on a recurring basis, that BRL 0.28 yield compared to a BRL 0.21 cast gives us that very nice positive EBIT. But if you take a total basis, which includes all the aircraft on the ground inefficiency, that's breakeven, 28, minus 28 is 0. And so that's kind of how we manage the business to the Q4. And so on a fully loaded basis, we had that breakeven in the Q4.

But on a current basis, which we've been trying to give you guys this data in the release, it's a lot of work for us to kind of give you that accurately so that you can use that. Because it would be very difficult for you to come up with that on your own. So I gave you that positive EBIT of about BRL 0.07 per ASK. And if you look at our competitors, they're not even close to matching between yield and unit cost. And that's how we've been managing our company. I'm not saying that the other guys are -- they're managing it for whatever other objectives we've had. But we've got 2 primary directives during this pandemic. One is to make sure that we keep our unit cost advantage and that when we come out of this, we have a unit cost that is equal to or lower than where we came in and then proper matching of assets liabilities are to pandemic.

The yield component, and this is important, right? I mean, today, the yield is pretty much given to us, the demand is given to us. We don't have the normal tool of yield management in the traditional sense. It really doesn't exist today. We don't have the ability to either stimulate or repress demand today just because of where demand is and the capacity.

And in fact, I think I saw your report, and you were highlighting the overcapacity. I mean, if you look at it on a fully loaded basis, yes, with the grounded aircraft versus the current demand -- demands that we have today, obviously, there's overcapacity. It's going to depend on how people manage those aircraft on the ground.

You see what we've been doing. I mean, last year, we returned 13 aircraft and received 3 aircraft. As we're transforming to MAXs. We're the only company that you cover that returned aircraft last year. And we have the ability to do that, and we have the continued ability to do that. And we've given you some insights on what we're thinking about for this year as well, where we're going to -- we're planning on returning another 9 aircraft. And then that, hopefully, will be replaced by MAXes coming in as we get back on our fleet transformation.

And that's the key to the unit cost. Because again, it's like, for us, we start with the unit cost. The yield generally, we're trying to optimize it given the demand that we're giving. And normally, in a normal environment, we have a pretty good ability to do yield management with our large corporate and managing it through the acute seasonality that we have here in Brazil.

But right now, anyone that tells you, at least in our market here, that they're doing yield management, either doesn't know what they're talking about or they're selling you bill of goods. Because we do not have the ability to stimulate demand with fares. And also, the demand set that's there today is not necessarily being suppressed if we increase fares. So keep that in mind. That probably continues for at least a couple of months until we get back on track here with normal yield management.

And so with that, we're going to have to move to the closing remarks, operator. We had 1 or 2 more people in the queue, but we know you guys, and so please shoot us an e-mail or we'll follow-up back with you later today to see if we can help you with any additional questions. So with that, we go to closing remarks. Operator, please.

This concludes today's question-and-answer session. I would like to invite management to proceed with closing remarks. Please go ahead.

Thank you all very much for your questions. I hope this session was helpful to you all. And please do not hesitate to get in contact with us in case you need any further clarification. Thank you very much.

This concludes the GOL Airlines conference call for today. Thank you very much for your participation, and have a nice day. You may now disconnect.