LATAM Airlines Group SA (LTM) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. And thank you for waiting. At this time, we would like to welcome everyone to TAM's fourth quarter 2008 earnings conference call. We would like to inform you that this call and the slides are being broadcast on the internet at the Company's website, www.tam.com/ri, and that a presentation is available to download at the investor information section. Also, this event is being recorded. And all participants will be in a listen-only mode during the Company's presentation. After the Company's remarks are completed, there will be a question and answer session. At that time, further instructions will be given.

(Operator Instructions)

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of TAM management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic condition, industry conditions, and other operating factors could also affect the future results of TAM and could cause results to differ materially from those expressed in such forward-looking statements. I would now like to turn the conference over to Mr. David Barioni Neto, CEO. Mr. Barioni, you may begin your conference.

Hello and good morning, everyone. On slide number three, the improvement in our operation results is definitely our great highlight of the quarter. We posted an 18% EBITDAR margin, reaching BRL522 million in the fourth quarter of 2008. Our EBIT was BRL327 million, resulting in an increase from 4% up to 11% on the margin over net revenues. We also maintained the leadership of market share in both domestic and international markets.

Regarding operational efficiency, we flew 12.2 hours per aircraft per day in the quarter. Considering only the operation -- operating fleet, I mean -- excluding spares and aircraft in maintenance, we posted a daily utilization of 13.2 hours per aircraft. Our total average load factor for the quarter was 68.3%. On slide number four, we received three new Airbus A319 and four A320 into our narrow-body fleet and also three Airbus A330 and three Boeing 777s into our wide-body fleet. We started nonstop flights to New York from Rio de Janeiro and to Orlando from Sao Paulo.

Our share buyback program covered up to 601,900 shares bought back. We announced our interest into the Star Alliance, the largest global alliance in commercial aviation. Also, we start our code-share operations with Air Canada, being able to offer more comfort and easiness to our clients when choosing their flights. We received a new EASA certification.

And now our MRO business unit is able to perform all major scheduled maintenance service on aircraft models A319, 320, 21, 330, and [Foca 100] registered in any country of the European community. We have also launched our new Investor Relations website. And all of you are invited to visit and try the new search tools, which will provide a better experience for all. I would now like to involve our -- invite our CFO, Mr. Libano Miranda Barroso, to comment our results in the quarter. Please, Libano?

Thank you. Good morning to all. On slide number five, first of all, I would like to mention that all values regarding the fourth quarter results are according to the North American accounting principles, the US GAAP. We recorded a 29% increase in total gross revenues, reaching BRL3 billion in the period. In the domestic market, we presented a 21% growth composed by a 6% increase in our domestic demand combined with an increase in the used to be -- that will be commented on the next slide.

In international market, revenues increased 48% due to the raise in demand of 27% made possible by the fleet increase, allowing the beginning of several new routes. We also had a 24% increase in cargo revenues due to higher availability of cargo [as paid] for sale, especially in the international operation. To complement our revenue, we had a 35% increase in other gross revenue, mainly due to the increase on loyalty program revenues.

On slide number six, our total RASK increased 8% year over year. Our scheduled domestic yield increased 11%, offset by a load factor decrease resulting in roughly 2% scheduled domestic RASK increase compared to the fourth quarter of 2007. Our scheduled international yield presented a 4% decrease in dollars. The load factor increased roughly two percentage points, which combined with a depreciation of the real versus dollar in 32% resulted in an increase in the scheduled international RASK in reals of 30%.

The main reason for the decrease in dollars was the inauguration of new international flights, which are usually launched with promotional fairs. Our focus was to keep similar to the Rio de Janeiro market. So after the flight to Miami in September, we launched a nonstop flight from Rio to New York in November. The other new international long-haul route that we launched was between Sao Paulo and Orlando. On slide number seven, we can observe the increase in the spread between RASK and CASK, which corresponds to the operating margin to BRL2.15 due to the RASK increase already mentioned and a slight reduction in the CASK BRL17.06. The CASK excluding fuel reduced 11% in the period.

On slide number eight, we have our financial result breakdown. Two items that we need to highlight are, first, the impact of BRL815 million from FX variation on our liabilities related to [61] (inaudible) financial lease. It can represent a gain or loss in the future depending on the appreciation or depreciation of the real against the dollar. Secondly, we have the noncash impact of our unrealized hedge instruments that need to be marked to market and represented BRL919 million in the quarter. The MTM from all of our future fuel hedge positions had its main impact in the fourth quarter.

On a simplified example, if the WTI value and the FX variation remain at the same level since the end of 2008 throughout the whole year of 2009, we wouldn't have an impact from these hedge positions in our P&L. However, the balance sheet would be impacted during the year with a cash outflow at a contract maturity.

Slide number nine, as we mentioned before, our EBITDAR margin represented 18% over the net revenues. And the EBIT margin reached 11%, the highest margin for the year. Due to the negative financial impact, commented in the previous slide, we posted a net loss of BRL1.123 billion, representing a negative margin of 38% and a loss per share of BRL7.46 in the fourth quarter of 2008.

Moving to the slide number ten, we ended the quarter with a cash position of BRL1.914 billion. Our total debt reached BRL7.928 billion due to the reclassification of finance lease contracts. Slide number 11, we present now our 2008 guidance regionally released at the end of 2007 and which remained the same throughout the year. The domestic markets grew 10.2% from January to September '08. But the market average reduced 0.3% in the fourth quarter, although our growth remained steady at 6.4% in the same period. The market growth the full year was 7.4%.

We maintain the market share leadership in both markets with an average of 50% in the domestic and 75% in the international market among the Brazilian companies. We delivered the capacity growth guidance of 14% in the domestic market but missed the international growth of 40%, reaching only 31%, mainly due to the late receiving of the 777s, the Boeing 777s, and the decision to reduce one 767.

Our total load factor, including both markets, was 71%, above the guidance. Our CASK, excluding fuel, reduced 4.8% according to the Brazilian accounting rules and lost 6,404, effective when we released our guidance. We didn't achieve the 7% reduction mainly due to the real depreciation of 32%. As of the international market, we overdelivered the commitment with the market, launching five new routes, New York and Miami via Rio, Sao Paulo-Lima, Sao Paulo-Orlando, and Brasilia-Buenos Aires.

On slide number 12, as of these results released, we will adopt the law 11,638 that we'll convert the Brazilian accounting rules to the international standard, the IFRS. In the slide, we present our results according to the three accounting practices that you can observe. It's important to mention that the main difference that impacts some regards the leasing treatment related to the leasing treatment. Now also according to the Brazilian rule, we will need to reclassify 64 aircraft as financial lease. And associated liability will impact -- will be impacted by FX variation, similarly to what we see in the US GAAP.

In the table, we have also demonstrated our EPS and our adjusted EPS, calculated without considering the noncash items on the financial results to point out that we would have posted earnings per share in all cases. On slide 13, now talking about 2009, we revised our previous guidance due to the new macroeconomic outlook. We now believe the domestic market will grow between 1% and 5%, remembering that it grew 5.1% until February. And we have a view that for the first quarter, this will be higher than 4%. The reduction in the market growth impacted our estimates regarding the overall load factor that now should be approximately 67%.

Regarding the other items, we still have the same perspectives -- maintenance of market share leadership domestic market capacity growth of 8% and international of 20%, and the launching of one new international frequency or destination. On slide 14, we understand that in this scenario the cash preservation is crucial -- cash scheme. So we renegotiated our hedge position in order to defer the cash burn, which was concentrated in the first half of 2009 and settled most of the contracts in a period with expectation to have lower volatility and strike price likely to be closer to our operations.

The impact from the renegotiation is a reduction in the cash outflow of $48 million in the first quarter and roughly $130 million in the full year of 2009, assuming a WTI price of $40 per barrel. On slide number 15, you can see our positions per quarter after the renegotiation. Now it's easier for the investor to see our exposure. Considering the full portfolio on March 31st until the first quarter of 2011, we are covered with 25% of the projected consumption and an average strike price of $111 per barrel.

On slide number 16, our expectation is that in 2009, despite the hedge adjustments, we will pay less for fuel than in 2008. In a sensitive analysis, assuming three scenarios for the price of WTI in 2009 of $30, $45, and $60 per barrel, we calculated which would be the WTI equivalent for TAM, meaning the effective price we would pay considering the hedge adjustments.

For such calculations, we considered 34% of the consumption should be bought at hedge price and 66% at market price. In none of these scenarios, we would pay higher than in 2008. For instance, for the scenario of $60 per barrel, we would pay a WTI equivalent of $77. Assuming $45, this would be $67; and $30, $57. So we prefer and we are supporting the decline on [spot] price for oil.

On the slide number 17, this slide shows that already in the preliminary first quarter '09 numbers, even with the high concentration of 52% of volume hedges, we can verify that effectively we continue to pay less than in 2008. The $82 per barrel of our WTI equivalent in the first quarter '09 is lower than that of all quarters during 2008. And it's even -- it's higher only from the market price of third quarter '08, when there was a rupture in the market conditions. I will pass the floor back now to David Barioni, our CEO.

Okay. On slide number 18, we believe that we are prepared to face a more difficult macroeconomic scenario because we have a dedicated and compromised team with focus on cost reduction and commitment to serve. We do not have any financial needs since we already have precommitments for our lease and financing for the predelivered payments for aircraft to be delivered until the end of 2010. We do not need financing for working capital and don't have any short-term debt mature.

We're focused on the cash control. So we are reducing all capital expenditures not related to the fleet. We are working hard in all kind of cost reduction. And we are renegotiating our hedge positions in order to postpone the cash outflow. We keep improving our services. And our efforts have been recognized by the passengers. We considered results in the net promoter scores survey that we frequently conduct. We went from a minus four score in February 2007 up to 26 in February 2009.

Our capacity growth is disciplined. We will have a marginal increase of three aircraft in 2009 fleet. And it's important to mention that we may reduce the flown hours per aircraft in order to adequate to a new demand scenario. On slide number 19, seeking further cost reductions, we became more a fleet in the domestic market as in all the Airbus A320 family aircraft. We substitute all MD11s by new Boeing 777 [300 ERs]. Our total fleet ended 2008 with an average age of only 5.5 years. We intend to end 2009 with 139 aircraft, remembering that we already have a brief financial commitment for the aircraft to be received this year -- 132 aircraft, I mean, 132.

I will pass the floor back -- okay, to slide number 20 right now, our strategy is based on providing a superior quality product with a more attractive value price relation to our customers. To do so, we are always working and focusing on excellence, excellence in service, working with a commitment to serve and offering always a differentiated product to our passengers. We understand the recognition from indicators such as net promoter score survey, mentioned by myself on slide number 19.

Excellence in technical operational -- focusing at all times on safety, maintaining quality in operations with punctuality and regularity, achieving, for example, smooth operations during the December holidays. Excellence in maintenance -- in management, I mean -- with better and more motivated people in a culture of high performance, efficiency, and controlled costs, where strongly commitment with our team development and we introduced several measures in this direction.

As a methodology of competitiveness and leadership, a plan of improvement and succession strategies for all leaders, we launched in 2008 the TAM sustainability program. We've included a huge campaign to consolidate and develop initiatives regarding to this sustainability concept among our 24,000 employees. Jointly, these three points reflect a strategy that we believe will give us higher competitive advantage. And we also sustain our leadership in both domestic and international markets with profitability. Thank you very much.

(Operator Instructions)

Your first question comes from the line of Duane Pfennigwerth with Raymond James.

Thanks for taking the question. Just regarding your capacity growth plans, I'm wondering in light of what appears to be weaker revenue trends and you're sticking with your previous capacity growth guidance, what do you need to see and what are you watchful for to actually revise your capacity growth plans downward this year?

Hello. Morning. In 2009, we're prepared to fly less if you want. We have the ability to decrease the flight hours that we are performing on a daily basis. About 2010, we're studying and seeing the numbers very carefully. And yes, there is a possibility to reduce the fleet plan from the 137 planes that we have planned up to 2010 to decrease between 132 that we're going to have in 2009 up to 137 or less in 2010. We are following very carefully the numbers of the market. And we are prepared to reduce the flight hours and the size of the fleet into 2010.

In terms of 2009, when would you make a decision? And what do you need to see to actually pull back on your growth?

Hi, Dwayne. It's Libano. What Barioni mentioned what we have been doing is carefully measuring all the lead indicators. For the first quarter, we had, despite all the crisis signals, we had again nice quarter for the market. We had a view that the market on the first quarter boasted a growth domestic market year over year around 4%, higher than 4%.

And what we are doing now is, up to the first quarter results release, which probably will be on the second week of May, we will be prepared to disclose if we will reduce and what is the magnitude for the reduction in ASKs for 2009. Once again, as Barioni mentioned, 2009 is just ASK reduction by flown hours. And for 2010, we have both flown hours and flexibility to reduce the number of aircraft. But in, we believe, by the middle of May, we will be able to confirm that.

Okay. That's helpful. I had one more little question on the cost side. And then Jim has a question. Just regarding your CASM ex-fuel under US GAAP down 11% and both rent and depreciation down on an absolute basis, I guess that's surprising, given depreciation in the real. Can you talk about what's going on, on those lines? And as we think about 2009, this year, how should we think about your CASM ex-fuel decline? Previously, you've provided guidance there. Thanks.

Okay. Especially, the decline is related -- we have impact last year in late 2007. At that time, we had many provisions related to the discontinuation of F100. We discontinued the fleet. And we had write-offs in many items related to stock, spare parts, (inaudible) and everything. So we discontinued this.

That's why this represented an important decrease on the figures. But as a trend, you can assume that '09 [similar] to '08, the CASK in dollars will reduce significantly. But in reals, there will be an increase, especially because of the FX increase, the depreciation of the real against dollar. But we are working hard to reduce costs for the Company in all fronts.

Thank you. And I think Jim has a question.

Yes, David and Libano, good morning. This is Jim Parker. Just a question on two rather small but aggressively growing airlines, [Zool] and Webjet -- I'd like to know what your strategy is for competing with these two airlines. And I guess recently, Santos Dumont was opened up to some other markets [capinosed] by with the Zool starting that you get some slots as well. How -- what is the strategy that you're using to compete with these two airlines?

Hello, Jim. David. Good morning. Nice to see you again. Well, Jim, TAM is a well-prepared airline to compete in Santos Dumont because we have 21 A319 aircraft all certified to operate in Santos Dumont with crew members very well trained to do that. And so there's no problem for us to start flying. And matter of fact, we're going to start our flights in Santos Dumont in April 19th. And so we are completely and full prepared to start operations in Santos Dumont and compete with Zool or any other airline. This is it.

Okay. Thank you.

Thank you, Jim. Good to see you.

Your next question comes from the line of Mike Linenberg with Bank of America-Merrill Lynch.

Yes, hey, good afternoon. Two questions -- just when we look at your yield performance in the December quarter, I think your yields were up 12%. How much of that was maybe benefited from the moves in currency? And then can you give us a sense now that we're really all the way through the March quarter, the type of yield trends that we're seeing into 2009?

Hi, Mike. Libano. Hi. You are right that part of the impact on the fourth quarter on yields are related to FX on the international portion. But also, we have an important increase on the domestic market, as you saw. We had an increase 11% on the domestic that wasn't related to FX. But we had the 26% increase in international in reals but a decline in 4.2% in US dollars. So yes, in international revenues, we had an impact of FX, positive impact.

That's why now in the first quarter, when you look year over year, the yields on the domestic market are roughly 1% above year over year on the domestic. And international, they are something like 10% below year over year in dollar terms, but closer to 20% higher in real terms. So this trend in our view is to have a kind of recovery on international use because of the real depreciation.

I'll take the [part for] your question to comment about future load factors. On the first quarter, we have an average load factor on the domestic market of 64%. And international, we had an average load factor on international closer to 72%, so system-wide 67%. Looking ahead on the second quarter just with a disclaimer that usually second quarter is the weaker quarter of the year, but we have a view that probably load factor on the domestic market will be between 60% to 65% and international 65% to 70%, which in our view is sustainable for maintaining yields on a sound level.

Okay. That's actually -- that's very helpful. Thanks for the all the insight. Thank you.

Your next question comes from the line of Nick Sebrell with Morgan Stanley.

Hi, gentlemen. First one has to do with cost cutting and the CASK ex-fuel in local terms. You said that you think you might increase a little bit the CASK. Can you give us an idea about how much it might go up assuming the FX stays about where it is right now, say 2.30? And then if you could talk about cost cutting and where you think you might be in additional efficiencies going forward. That's the first question. And then the second question is general on international competition. Are you seeing international airlines add frequencies or change capacity or be more or less competitive on fares? Thanks.

Nick, this is Libano. I'll answer the first, Barioni on the second. On the first related to costs, we are -- because we had this real depreciation against dollar, it's very challenging to have CASK reduction in reals because all the -- you know that 50%, close to 50%, of our cost base is at -- let's talk about ex-fuel.

It's related -- 50% related to dollar denominated. That's why it's difficult to beat the CASK in reals. But in dollar, we are not guiding in -- we don't have a guidance for CASK this year. But we can guide the trend to reduce closer to low double digits or high single digits in dollar terms. But that will be an impact growth in CASK in reals on the similar amount that's on a positive way, so reduction in dollars and increase in reals and where we are working to reduce.

As you saw in the presentation, we have probably one of the youngest fleets in the world, 5.5 years. So it's very efficient, fuel efficient, maintenance efficient, crew efficient. And we are improving even better. We're setting a standard, improving process to reduce even more the costs on the operational side, how to operate with lean ways, less turnaround time, less -- more efficiency on crew (inaudible), and many other things.

On the administrative side, we are renegotiating all purchase agreements, IT agreements, other. And what we are doing specially on the commercial side is we will try to implement this year the same scheme that we implemented for the domestic market by not paying any more commissions to travel agents. On the Brazilian market, we are not paying commissions since the last year the travel agents. We made a win-win situation with them. They are now charging directly a fee to final customers. We negotiated the same way on international. This will enable them to better (inaudible) their service on a more transparent way and for our side to better manage our commercial costs.

Nick, Barioni. Would you please repeat the second part of your question, please?

It was about international competition, whether you're seeing any changes in capacity from the international players that compete with you in the long haul and regional as well and whether you're seeing them increase or decrease competition in fares.

Well, Nick, we are not feeling the increase in capacity talking about the long-haul flights. I think that is not a right time for everyone to increase capacity in (inaudible). And if we are feeling the possibility to decrease fares, not yet. We will have in the horizon some possibility from the Brazilian government to cancel the floor of the airfares. And we do not have a reliable study right now to [sign] if we're going to have a decrease in fares or not. But talking about the number of flights -- I mean, the capacity -- I'm not sure about that. I think that this year is not going to be a good year to increase fare in any direction.

Thank you.

(Operator Instructions)

Your next question comes from the line of Jamie Baker with J.P. Morgan.

Hi. Good afternoon. This is actually Scott Tan for Jamie. For the 8% RASK improvement in the quarter, can you give us a feel for how the month progressed? Was December much different than October?

Hi. Libano. Yes, the fourth -- usually, in a seasonal way, the fourth quarter is the stronger for the year. The third is the second best. The first quarter is the third. And the weaker is the second. So we have a seasonal effect. The fourth quarter was the stronger in the year.

Right. But was December different just from a monthly basis?

Could you elaborate a little bit more?

Yes, we're just trying to get a feel for how the month progressed for your 8% RASK improvement in the fourth quarter.

In between -- within the quarter?

Right. Right.

Okay. What we have is October and November are heavily concentrated in business activities. And December, we start the mix -- on the second half of the month, we start a mix with leisure. And leisure is always lower. Yields are lower than business activities. So that's why October and November are higher than December, October and November on the same -- at the same level -- December, lower use due to more mix of leisure passengers.

Great. Great. Thanks. And then can I also ask for your cash and marketable securities on your balance sheet, can you remind us what portion of that is restricted cash, if any?

By December 31st, we didn't have any restricted cash.

Your next question comes from the line of Steve Trent with Citi.

Yes, good day, gentlemen. Just two questions from me. On the first off at Congonhas Airport, we understand that [Hantanal] is going through certain proceedings and there might be some slots available for some of the other carriers. And what are your thoughts on that? And then my second question -- several quarters ago, you guys had mentioned that down the road you might consider spinning off cargo and some of your ancillary businesses. And I'm just wondering if -- what your updated thoughts on that are.

Hi, Steve. Libano. On the first question, we are following closer this Hantanal thing because, as you know, they are on the Brazilian Chapter 11. And we have some receivables out of there. So we are following closer this. They must present their plan, recovery plan, in I believe in a month to see if this recover will be back on -- resuming of operation or selling assets. So as of today, we don't have any news more than what I am telling you now. On the second question, could you repeat this, the second one?

Certainly, Libano. Several quarters ago, I guess -- I mean, this may have been almost a year and a half ago, in all fairness -- you'd mentioned at the time that eventually TAM might consider spinning off the cargo business and some of the ancillary businesses. And I'm wondering what your updated thoughts are on this subject.

Okay, Steven. Exactly, we name it this [unlocking] value. And we are maintaining all the steps for that. The cargo, we don't have a view to spin off cargo because, in our company, cargo is embedded in the Company because we use just the belly of the aircraft. We don't run -- we don't have cargo aircraft.

But for sure with the MRO, the maintenance, repair, and overall, and the loyalty program, what we have been doing is, since January now '09, we are managing them separately as business units. And we have separate P&Ls, separate on our managerial system. We are following them as a potential spin-off company. And we are maintaining all these procedures to carve out this when we decide it for.

But we don't have a timeline for that. This will depend on market conditions, especially on potential market transactions. But what we are doing is we are managing, running them separately with dedicated teams, dedicated resource. We maintain this business plan. And we are confident that when markets resume activities, we'll be on a very different position to grab the opportunities.

Hello, Steve. Barioni. (spoken in foreign language)

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(Operator Instructions)

Your next question comes from the line of [Estella Levochi] with J.P. Morgan.

Hi, guys. Good afternoon. I have a very simple question. On the page 17 of your release, there is a breakdown of financial debt. And one of this breakdown includes lease payable. I understand that those are financial leases. And those are not cash disbursements, right? This is just the final maturity of this lease. Could you please just clarify to me a little bit? Thank you.

Yes, you are right. This is just what we are doing. This is showing the capitalized lease. And this is the total outstanding in future for 12 years ahead of us.

So this -- let's say this 2009, the BRL680 million that is -- it's showing us a maturity. This is not actually a cash disbursement. It's just that these leasings are no longer be there after 2009, right?

For -- just a minute, please. Yes, you're right. This is the outstanding to be payable this year for the year in terms of payments for lease.

Okay. So this is actually the cash, the cash lease disbursed.

Yes, closer to that, a minimum difference in terms of accounting, but yes.

Okay. Okay. Perfect. Thank you.

Your next question is a follow-up question from the line of Nick Sebrell with Morgan Stanley.

Hi, guys. Apologies. I had to step away for a second. Has anybody asked about the hedge outlook? I mean, your new hedge plan is interesting. Obviously, you're saving some cash burn in the first quarter in 2009 overall, actually quite a bit. But what is your logic going forward? What's the new policy? How do you expect to change or add if at all leasing contract -- excuse me, hedge contracts during 2009? Have you changed your policy at all? And then second question is -- if it hasn't been asked; otherwise, I'll go to the transcript. Just tell me. What's the progress of Star Alliance process? And if you could maybe mention just briefly if that adds any cost or will have an effect to your CASK.

We didn't change our policy, remembering that our policy is to maintain from 3 to 24 months a minimum of 30% and a maximum of 80% covered. So as you see on the -- as was shown, we are with 2009 with a coverage of 34% of exposure and with 2010 22%, a little bit below. Other thing that we are not -- we didn't have to follow this as written in stone because other things that we have to look is the market conditions.

And since August last year, we didn't enter a new position because of -- since that the future curve had been on a [constant run rate]. It means that futures are quite higher than the spot market. And we just enter in positions on degradation, when the curve is on degradation. So we didn't change the policy. We are okay with this hedging position. We are -- we are not entering on new positions.

Star Alliance, we have a view -- we announced our interest in October '07. We have up to the end of the first quarter 2010 to enter. But we are working hard to have a [cutover] by the end of this year on the fourth quarter of this year. So we are doing our at most all efforts to get there. And beyond this, we'll be able to grab, to collect, at least $60 million in extra revenues. And probably, there will be a reduction in costs beyond this entrance, the cutover date.

But you -- I mean, there are more back office systems and things required because of the Star Alliance membership, right? Is there an ongoing cost associated with that?

No, it's more than offset by new technology. And what we are doing is we are replacing legacy systems in the Company. Their systems, standard systems, well run and well tested with other Star Alliance companies. So this will be more than beneficial, offset all the cost related.

And the systems that you're installing, are you capitalizing that expense? Or is it going through operating expense?

Part of them we are capitalizing. And all that we will add for revenue we are capitalizing. Whether there are improvements or better design, we are expanding them. But we are doing both.

Okay. Great. Thank you.

(Operator Instructions)

Your next question comes from the line of [Matthew Pack] with [Paxton].

Hi. I'm just tuning in. So forgive me if you've already answered this question. But have you contemplated buying back any of your outstanding bonds, given their low dollar price in the market right now?

Hi. It's a good question. We analyzed this. We have been analyzing this on a daily basis since many months ago. But at the end, we have more -- it's a matter of cash discipline for us not to buyback these bonds, despite this is an attractive short-term arbitrage. We can reduce the debt and make a short-term revenue for debt income.

But at the end, it's more important for us to maintain, retain, and to allocate our cash position to our operation instead of making short-term gains in treasury. So we are not buying back the bonds. On our share purchase, we are just buying back minimally enough to serve our stock option plan. So we have a decision that cash scheme. And we are maintaining cash for the operations of the Company.

And is there a minimum amount of cash that you'd like to keep on the balance sheet? Is there a target that you have in mind?

We don't have this as a kind of target. But we prefer -- and we have been doing this from the last three years -- to have always a comfortable cash position because we believe this is very important, especially in cycles, in downturns. And we will do our best to maintain a comfortable cash position in the Company.

And in terms of your outlook for cash generation in 2009, do you have an outlook in terms of how much free cash flow you may be able to generate or what the free cash flow burn may be?

We never guide on financials. But the trend is that we have -- we are working to have a better -- we will try to have a better spread between RASK and CASK. And this means cash generation. And we reduced a lot the CapEx. So the trend is to have positive cash generation and to be able to serve this CapEx but without committing with a figure.

Thank you.

Your next question comes from the line of [Sam Sheehan] with Oranda Capital.

Hi. If you decide at some point in the future that you need to slow or cut capacity growth and Gol decides not to slow capacity growth, how do you think about the tradeoff between profitability and market share?

We're always thinking every single point. But keep in mind that our main goal is to keep profitability. We don't think that's to be a leader of the market on any cost. So the major goal in our company is profitability.

Okay. Thanks.

Your next question comes from the line of [Alessandro Arland] with Bank of America.

Yes, hi. Thanks for the call. Just a very quick question in terms of your balance sheet -- on marketable securities, you have around BRL1 billion in local currency instruments, BRL727 million in government securities. And then you have an account here for BRL238 million in private securities. Could you give some more color on what type of securities these are?

Okay. These are with -- these are CDs from banks, especially in a small portion of these are local bonds for Brazilian companies. The majority, more than 90%, is related to local banks [deposit] certificates.

Thank you. And then on your foreign currency stock of BRL644 million, any hedge fund or shares or any type of non-money market securities that you have in holdings?

We don't have any kind of income. We don't have shares on our portfolio. We just have fixed incomes. And all securities that we have are marketable. So we have value for them. And we have a policy, a very restrictive policy, with a maximum value at risk. And all securities are -- we have a minimal threshold in terms of investment grade. And we have a very disciplined policy for that. We don't have any kind of position, selling position, leveraged position. So it's very conservative.

Okay. Just a last question -- on the income statement, you have a loss in marketable securities of BRL191 million for 2008. Is number correct? Am I reading this wrong?

You are right. This is more marked to market for securities with fixed -- they have fixed rates. And we have marked to market in them. They represented a loss on the fourth quarter.

Okay. Thank you very much.

Thank you.

Thank you.

Ladies and gentlemen, this concludes the question and answer session. At this time, I would like to turn the floor back to Mr. Barioni for closing remarks.

Ladies and gentlemen, one more time, thank you very much on behalf of TAM. I would like to thank you. And we hope to see you in the next webcast. Thank you, again. Bye, bye.

Thank you. This does conclude today's presentation. You may disconnect your line at this time. And have a nice day.