Q3 2019 Earnings Call
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Before proceeding well be much in the forward looking statements based on the beliefs and assumptions of girls manager and information currently available to the company.
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Investors and analysts should understand that a bunch of one or two macroeconomic conditions industry as other factors could cause results to differ materially from those expressed in such forward looking statements.
I, just sorry, I will hand, you over to Mr. Paulo, Kakinoff placement, good morning, ladies and gentlemen, and they'll come to go lives conference call I'm, probably kick it off Chief Executive Officer, and Chinese by weaker like our Chief Financial Officer warning, It's my pleasure to be with you all today.
This morning, we released our fourth quarter figures also you made available on goals Investor Relations website, <unk> <unk> Eastern results presentation financial review and the preliminary 2008, Yeah babies to report Bad News was the good thing well sector quiet, which the company reported operating income.
As well, which had record netback, reflecting goes capeci leadership and financial discipline.
As you its business.
The best way to work off our team has been the main driver of always superior results. Once again, we moved a little bit leading indicators that being a bit that's a good to have another application you agree to 12.8% globally 11.21, bunion driven by a 15% school you did.
They loved the just the passengers while available seats kilometer ASCII milk was 7.6%.
Strong bessinger done that and then that global management enabled go to offset the increase in operating unit cost the company achieved.
Yeah, there's just a passenger off 31.5 cents up real and increased 14.8% year over year average goes back to Bob. It's 2.9 per Se I think is up 3.8 percentage points compared to fourth quarter 2018 at all times as long as all 91.2% in this quarter. According.
Yes, Hi, Adam and data from major airports, we continue to drive a strong revenue growth. That's revenue was 2.7 billion, we eyes, the highest ever records by the company.
An increase of 20.3% year over year.
Oh, good 9.8 million customers in the quarter, 50% well over fourth quarter 2018, Weve Lifepoint, you mean that you did I'm asking I could 11.4% growth and 0.6, neither international market.
48.6% year over year.
That's revenue billable six kilometer last well spend 70.6 to seven cents.
An increase of 19.2% versus same period up last year.
That's passenger revenue per available seat lot of that that was 26.2 jobs sands, 820.4% well over 30 quieter father AJ.
That's revenue guidance for 2019 is approximately 13.7 billion guys.
I had the U.S dollars bad fakes ability to accommodates an increase of demand for our passenger transportation services and to manage the next delays and the recent than planned by Dennis requirements on some of our attitudes.
The fourth quarter, we added five needed buying 77, eight hundreds to the C and we schedule. There we believe we all for all the entries.
We are working with yes section of the Max was destined servicing all the network in December 2019, and in parallel we executed a plan to cold water cut backs to needs. What it does you know so no high travel season of January and February and suddenly seven aircraft to conclude I like to expand another.
Thank you to all of volatile. Please I'm very pleased with solid company results, we shouldn't this quarter I dropped off all the team who did an amazing job of minimizing the impact of Max delays that I'm going to hand, you over to reach who's going to take is through some additional highlights exactly.
I'd like to begin by also having my thanks to all of our terrific employees for their commitment and hard work.
Now, we'd like to comment about goals cost environment unit costs based on the cost per available see kilometer cask, excluding nonrecurring expenses increased by 520% of 21.3 cents a well in the third quarter 2018 to 22.5 cents <unk>.
During 2019, mainly due to higher personnel expenses higher passenger costs and higher depreciation.
Fuel cost per S.K. decreased 6.7% consequence of a reduction of fuel taxes, partially offset by additional fuel consumption due to the Max Italy.
Cask ex fuel, excluding nonrecurring expenses increased by 14.2% due to a number of factors one a 37.3% increase and depreciation due. The addition of six net aircraft in the fleet and a reduction of appreciable life of capitalized engine maintenance and large components.
And 18.4% increase in personnel expenses, mainly due to an increase in the federal payroll tax rate the 20%.
A 3.6% cost of living investment.
And the hiring and training of 723, new employees due to the expansive operations new routes and new basis.
Finally increases in passenger costs service provider.
Sales and marketing and landing fees.
Well has the lowest cost and its markets goals 2019, Nonfuel CASM guidance is approximately 14.5 cents.
Our margins remain solid.
Due to strong cost control and yield management the company achieved a positive operating results for the 13th consecutive quarter.
Third quarter 2000, IP demand and it will go to achieve an EBIT margin of 18.6% in the quarter the highest since 2006.
Operating income EBIT was 692 million rise in the quarter.
451 million higher year over year.
EBITDA margin was 30.7% an increase of 11.8 percentage points.
For 2000, Nike EBIT margin EBITDA margin guidance is approximately 17% and 29% respectively last thing I'd like to show the continued success of our balance sheet strengthening.
Go reported operating cash flow generation of 1.1 billion rise in the quarter.
Total liquidity was 4 billion realize 370 million higher in comparison to June Thirtyth, 2019, and 1 billion realize higher than a year ago.
Goals affected 998 million rise of debt repayments in 2019.
The U.S. dollar appreciated 4% end of period against the Brazilian real, causing a net exchange rate and monetary variation losses of 623 million realize.
At that excluded perpetual Banca LTM EBITDA was 2.9 times as of September Thirtyth 2018, slightly better versus June Thirtyth, 2019, which was 3.1 cost.
Now, we'd like to return to kick it off.
Thanks, Rich separately our results this quarter reflect the new competitive levels that you the by recapping our commitment to be continues improvement will result has proven to be spread suggests it given is offering a differentiated and high quality, probably while aggressively focusing on cost efficiency.
We remain committed and often get bass experiencing air transportation needs. This business services to customers on new and modern aircraft that come after our meeting like it's the most covantas gallons.
Our focus on prudent management of the balance sheet and degree maintaining cost leadership ankle Jerry as the preferred alive for our customers, while writing sustainable margins and returns for shareholders that you could we remain optimistic for the last quarter. After falling magazine. This scenario if demand the globally.
Yes Asian industry, the coffee and now we've gone kids get baskins.
Now I'd like to initiate the journey session.
Thank you.
<unk> is now open for questions.
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So what we pull for questions.
Today's first question comes from Duane Pfennigwerth.
I am sorry. Please go ahead.
Hey, thanks.
Just curious there were some media reports that the was was in Brazil. This week.
Did goal have an opportunity to to speak with them.
And did you get any insights into how they are thinking about.
Returned to service timing not not Boeing but the <unk> specifically.
Yes Duane.
Yes they.
We had the.
The annual healthcare conference in ER.
Latin American airline Association conference in Brazil. This week lot of conversation people ought to be industry players, but nothing different than.
The guidance that we also received similar doors Super Bowl languages.
No an expectation that.
During the month of.
December .
Work there wouldn't be finalized so you have no.
No new information from that specifically.
You know goal.
And then Theres enernoc participate in the various committees.
That are dealing with.
The airlines in the regulators know very very actively involved in.
In the.
In the in the process and you know our understanding also that the Mac.
Sure so very closely involved with the process and what the advanced knowing.
Yes, there would be.
A very short.
Lead time.
Between a decision by the FDA and the.
And.
What the an act is doing specifically.
Okay. Appreciate appreciate that color and then I'm.
Just just following up the dolton announcements.
With what Tam can you characterize the level of interest.
That you're getting from other global Airlines and what are the attributes of of an ideal partner for goal from here.
Hi, Good morning, setting up here are we are now backlog to all their lesion always flattish or two was to not be loans to any kind of alliance and make the most or all assets you know that'd be a holding at the moment at 80% of the bid.
Mike If you had a huge a capability to shoot to feed partners and also.
June to trust Fortune.
That's thinkers Ivy Bridge you.
As Bill International airports, maybe guardians and got ill and therefore, all their behavior.
Well no one is to review the traditional.
Or do we can they stretches or just you hey, codeshare either could share or eat your line is the largest possible number all partners, which you address.
He said.
Sizable opportunity.
Which is ahead of us I mean, if you consider already north American Gen rigs coming to the do.
And those substantially crude codeshare because.
We could easily.
Double the number off of seats available.
In both ways to be specific customers after backing out because you didn't buy Cody I'd code sharing or eat aligning with that I disease.
These kinds of <unk> or placebo Ritchie.
He's on the table at the moment that is why do we are analyzing.
Thank you and then just just for a follow up there you know looking back over the years are there any product changes or onboard service changes that you pursued as a result of your prior release I don't want to see forced into but what are their product attributes that you.
Now have the flexibility to change going forward.
Taking the questions.
Actually you had that you actually achieved before I mean, we were solely deciding on any of the probably been services every time I mean, we are determined internally or refining.
Oh the.
As soon as for it for position and you could expect mine or.
Improvements because the basic broadly that seems to be the most effective and possibly the most of success.
If you analyze already market penetration in both.
A.
Larger segments I mean.
Eager and the business travelers we are leading.
The market, which you can see their goods advantage in comparison to the second.
Competitor.
And we have.
He practical terms do I like to different airlines.
We do the same airplane I mean, we are all three.
Well, that's the vast economy lies experiences for domestic airline.
Are you didnt comparing ourselves to all there.
International carriers.
And at the same found that there has been able to last year. Given example to sell a Rollins <unk> 20 million tickets and to answer we share a $50. So I mean, the product and services.
I know there between the desired balance between or low fares and and high value customers attractiveness.
Okay. Thank you.
Thank you.
Question today comes from Michael Linenberg Deutsche Bank, Sir Please go ahead.
Yeah, Hey, rich cocky, so I saw the release out there where you indicated that you know the Delta agreement was less than a percent of your revenue like you know is that winds down.
What are we going to see you know he is he going to show up in revenue is there anything on the cost side I I know that relationship went beyond revenue like you should we as we as we think about over the next quarter or too.
You know how does that show up if at all maybe maybe maybe it's de Minimis stay intact.
Hi, Michael we unfortunately, we flagged this partnership that live hi are isolated believes that both companies learn from each other there were several interactions and and we kooij.
Also contribute.
The the same amount of knowledge that they had contributing for us.
As I mentioned before Delta had a really small penetration has a small penetration into the market. This before it.
Hi, good three main and main players.
And we were heading this gives you the agreement with GAAP. So.
There are only one alternative.
Not by exclusively operating you were stuff that we choose to have a partners.
Actually that the data are bigger and larger so considering the revenue aspects it can only be.
More meaningful shoot you all their company in case that we would I know you until I know codeshare with these two potential partners.
At the bus side.
There was no either negative obliviously effect by record Jeremy will that be more we grew the Greek yogurt and Andrew asked features.
You see muted by his numbers you can try the United States are naturally we are you wouldn't be enhancing our big enough scales and therefore.
As I did you got to you.
The cost.
Cost dilute the additional would be higher so that should be direct costs or we got a structure. There is nothing specific they have a wish it it would like to I was going to say that it is one of the as you know one of our our big cash flow items.
As we've been doing the overall for the agents as Dan Overhauls and yard that business, you know as Dr. contract.
And so we are you have some more flexibility there.
Pricing theater turns that's 10 years, we've had a lot of investment in that component you've also seen that shopping directly in our results for the depreciation.
Component, we still have another multi year to year and a half phasing out.
Oh, a lot of the engine overhauls, but another thing I would and maybe kind of complementing the last question.
Over the last.
Couple of years goals made a lot of investment in the product and the service, which has been part of the key and becoming.
The leader in the corporate market, but that also applies to the product we're offering to our international culture Interline partners and and so that was develops I'm not work with any airline that would value having the premium.
Domestic service.
Yes business class passenger applying down from Bob.
Well you are in New York This Oh, and you want to connect on to no could achieve out of the what each airport.
You can you know traveling in the gold copper class you have a differentiated boarding.
So you know that investment that we had made that this company has made in the products.
You know was not only.
Available.
For the you know, what you're saying the 0.3% of our passengers that we're coming off the Delta aircraft. They were also applying to the almost 6% of art. The passengers on our network that are coming from you know these almost 90 Codeshare and Interline study I think that's relevant for a partner where they want to have.
Oh the local.
The local premium.
The last mile.
Bridge slide in Brazil's you know, it's an hour in 10 minutes it so.
That product that you know that's an attribute me after the product, which makes it makes us in addition to the network, which is the key attribute what makes us very attractive too.
Any.
Partners, they want to plug into our for network in in Brazil.
I know that's that's helpful. Rich and then just on a on a second I know.
Dwayne brought up given the fact that there was a meeting on it you know in Brazil earlier in the weekend, we had a lot of announcements from some some some somebody the regulators and <unk>.
The aviation authority in Brazil.
You know things like you know talking about the 100% foreign ownership and the reduction in a fuel tax which is obviously, helping you I.
I also believe there was something out about you know the government talking about doing away with.
The international passenger tax I think anytime sites within the region to Brazil in year, one and you know as it plays out over the next few years. It will include longer haul sites like Judy you last so curious about you know additional take that tax how much does it help someone like like goal.
And is that he is that in your your guidance for 2020 do you have some of those tax benefits flowing through and driving that better PNM. If you could just done you know any commentary around that since a lot said this week the degree thank you.
Hi, Michael Yeah that could be back.
But if you shoot you all their passenger flow considering that we are.
<unk>.
Specifically for international travelers are international network, we are generally more leisure travelers, then and business. So they are more price sensitive and $18 a tax reduction.
It would be.
ER meaningful to that so we are not considering that you were not when she did that this year for sure, but rather we are talking about before grainy any guidance that we have already disclosure today. These effects is already beauty.
Okay. That's that's actually very helpful, but it does sound like it it could even be more stimulated and then we realized that maybe there seems to suggest that there, but that's good to know that yet.
Great. Thanks, everybody.
Thank you.
Question today comes from Dan Mckenzie of Buckingham Research. Please go ahead.
Hey, Thanks, Good morning, guys. A couple of housecleaning questions here first the fourth quarter cask ex fuel outlook of up 4% to 6% I'm just wondering what the exact spaces that you are using from the fourth quarter of 2018.
And then the second one you know, but slightly reduced EBIT margin outlook for the full year I'm, just sort of 18 clarify that a little bit is that just simply a function of reduced ancillary revenue higher margin ancillary revenue is it perhaps higher depreciation or is it less gross or or something else Im just where do you can.
Hi, you get a sort of the bigger drivers by now.
Sure Yes, the first question again he.
The number yes because were.
Thank you happy and maybe just even before that we we'd be providing the where relevant providing the.
Quarter for the previous year 2018, and they are for 60 methodology and so you'll see that the table in the release and also the comparisons and it's in the quarter release, our versus a pro forma 2018 for.
For a 16 talked a lot of work to do but it's all apples to apples, but the.
You are asking for the.
The but not the recurring.
Ex fuel task.
For a is that if I understood. The question recurring ex fuel cask.
In the comparison.
For fourth quarter 2018 wouldn't be 15.17 so.
The reference there if you.
So that's the number that that's that's that's referencing.
The other question on the.
As you saw it actually are our EBITDA is.
Our EBITDA.
Guidance, if you will.
It's a performing a little bit better than expected, Andy we put the EBIT to be operating margin guidance down a little bit there's really no to a couple of reasons. There one is that.
As we highlighted.
There is.
This year there was some changes in some of the estimates of the depreciable life.
On capitalized maintenance and so those are those the depreciation numbers went up a bit.
I see no impact on EBITDA.
And a Ah Ah and impact on the depreciation number which is going up.
In addition to the accounting is going to change there's two kind of sub impacts one is that a chunk of that depreciation is is dollarized because there is dollarize assets. So the higher FX also has the indirect effect of increasing a little bit the depreciation.
And.
As you know into year. We recently you know right now since beginning of October and what kind of run into the beginning of December we're doing unplanned maintenance on some of our older Oh geez.
Due to the maintenance on a couple of work, which has been widely Wiley disclosed those unplanned maintenance.
Yeah, a portion of that also goes into a indirectly it with some of the.
Capitalize components of that made me so there's lots of little bit of pressure there because of that issue on depreciation, but the main effect was the change in the.
Depreciable life and then there's there's two sub effects of the dollar you know the higher the weaker.
Are there the stronger dollar and then a little bit the.
Unplanned maintenance on the.
On the pickle fourq on some of the older.
Seven three settings.
But as you see is happening now you know not just with us with southwest and quite honestly at some other airlines and so those.
Changed our increased depreciation in the Q3 as some of those effects as well as they're gonna have a little bit higher we in the into Q4. This year and also next year as you saw kind of across the board you know 2019 and 20.
We took the EBITDA guidance that we provide you guys up by a point.
But in 2019, we took the EBIT guidance down by point and we kept the 2020 flat.
It's dilutive that is it's the effects I just described to you.
Yep understood. Okay. That's helpful and with respect to the Pickle for you know I did see the higher cost called out in the release I'm not sure. If there's a revenue loss that you'd want to coupled with that as well, but you know just with respect to my second question here you know I'm thinking the return of them actually drive a nice cask X tailwind next.
Here.
Yet that doesn't seem to be embedded in that 2020 cost outlook and so I'm just from where you sit today.
You look at the you know kind of the guidance for next year, you know what the bigger cost pressures are that that might be offsetting some of the goodness that you're getting from bringing the max back or if perhaps just there's some conservatism next year in that and that outlook just from where you sit today.
Yeah, we guided people for the revenue actually is already consider as you all the.
2019 guide this revenue wise it has been minimize it by O rig keep it going into Q and has a block five aircraft what fine and also further increase the.
It looks back to us. So we were more affected email program due to the short period of time to inform and re accommodate our customers, which meets all their fair curves being.
Affected mainly considering good yeah sure arch fewer prior to that barter sales that was the most to affect the portion off for all their revenue curve because he had to react promoted or pass or it is my shortly.
In our.
Flights so from November on and this is basically nothing like because reconciliation to have the fleet then she fleet for the operational.
Above the check on the week of December .
In November we had more fine to properly Ria come of age the passengers add to the booking curve was not so a defense. It as we had a beginning outflow for here. So I would say that considering that the today show that hurts the potential here.
Oh, we were able to mitigate it's a very low level. It shows how will you near inch days this business model lease because to any other line.
Find itself.
<unk> Jupiter two I know there without adding a percent less airplane scene in the needs fleet.
Then it was planted and then it was predicted and basically go through that.
We dogs no no lives and not affecting that's against come to the L. yourselves.
He wants to be one off the bat examples on how well. This is it means views business model is regarding done.
If we need to any desk ex you you can imagine that he has been the.
Conservative almost at the scene, which there's the Max a I mean you can.
Assuming a disease outerwear gravitt's at this moment that the Max might be and grounded by deferred to the December . We are also considering that the view is not fully reintroduce those planes.
In integration and then we can.
Yeah.
So fast upsides on bubble up what has been already disclosure.
Bye.
Are you speeding up the.
The market wouldn't you be action closest disease, some pain, which it cannot be oh.
I don't see there as as.
Definitive yeah, because that the Max situation that you just you somehow unclear.
Yeah, that's a very confident let's go back he was saying because there's been a lot going on this year obviously.
You know last year, we had the trucking strike you guys saw with that with the trucking strike. We only had 12 quite canceled flights during that period of time, where our competitors each had over 500.
And you know that's been a part of the goal operating model.
For a variety of reasons gives it you know flexibility to deal with.
A lot of different types of a disruption sale this year.
We had the you know the capacity shock of obviously going out of the market. We had these significant delays on the deliveries of the Max's and then we've had the unplanned maintenance on some of the old and geez, it's been an enormous amount of aircraft.
If you read plan this year, but let me just maybe I'll highlight a couple of effects for you.
Which are in this no other revenue side, it's it's it's pretty difficult to kind of estimate what the net effect of all these things that Ben.
You know because of the power of the capacity shock.
But clearly you know the Max delays, which have much greater revenue productivity.
Then our current fleet.
And as we got to the high season here with the unplanned maintenance on the.
On the older Angies and what we got to do to we supply nodes and we can you kind of highlighted this if you go to the a video presentation, which on the website, we put a slide in there which kind of shows how we dealt with this resourcing this year.
100%, we had less you know we weren't optimizing revenues given what we had to do.
There are you know with all these issues, having said that you know we're delivering.
What we promised.
Pretty much across the board in terms of revenues costs and margins and profitability.
It's like getting better, especially on the cash flow and de leveraging and so.
We get there are good you know there's a lot of complexity on that one of the revenue side. So.
Definitely there has been a revenue impact, but it would be it would be highly complex to.
Specifically specified at this point in fine we also need to wait till we get on the other side of the Max and the Pickle Fourq and then when the dust settles.
We can provide some clear visibility on what we may or may not lost on that in terms of Oh revenues now on a cost side.
A couple of things, especially as a as it relates to the exact same issues and.
As we can talk about 2020.
You know we this year, we would have given our our fleet plan on the Max.
Well, we expected to have an operation already in the second half of machine. It was really a second half of this year starting in July with the bulk of our orders would start to come in.
Yeah that would have already provided us a 3% to 5%.
Low or no ceteris paribus lower unit cost.
We didn't get back.
This year.
Going to catch up next year. So we the plan is to be back by the end of next year to at least 32 Max's at the end of next year and if we.
So we're definitely going to have the benefit of that which you know in our calculations with probably a little bit an excessive that 5% potentially once we get back to the clarity on the Max deliveries, that's kind of one point overall, there's some additional components as well just as you compare 2009.
18 to 21 is that the significant reduction that we had any ice I see I see it and that's a jet fuel tax love the full year effective that next year. This year. It was just a half your effect is it really kicked in in the second half another component.
They can affect this is that this year. We've continued to have very strong demand out of business.
And we built up close to a 40% market share in that market.
During the second and third quarter to this year and well get the full effect of that next year and so that.
I will also be something that has a a slight difference from 2019 to 20.
Another point you know, we still have 11, Angie owned LNG aircraft in the in our portfolio, which have around which at least $100 million of off balance sheet equity.
If we didn't have the situation with the with the Max and these other issues. This year. We would have continued to our monetization plan of those aircraft are and so we postponed that will help you know we plan to reinitiate that at some point.
Next year.
And then finally as what I was mentioning previously and the question on depreciation.
You know we had some additional so higher if you will depreciation costs this year.
On and geez because of the Max situation and so there's been a variety of affects this year some of which we've we've highlighted as nonrecurring, but there's a bulk of these that.
They're not not not nonrecurring because they're part of the the general operations of the business that we have today, but many of them will either you know reduce or be optimize next year as we get back on track of transforming the fleet.
And it's like I, just wanted maybe highlight some of those points in.
Cover kind of all the ground that can be you know.
Backing our revenues are not just this year, but also next year and also the impact on the 2020.
Cask overall, not just the cats ex fuel, but also on the.
On the fuel side of equation and also as we highlighted additional point right now we're consuming.
You know, having a higher consumption of on the volume side of that fuel because we're operating in geez versus plan in new Abaxis and that will also come in a next year, but I think a lot better clarity and all these things.
Probably in a in January of next year and so when we discuss Q4, most like when we did discuss Q4 at the end of February .
We'll be able to give you guys know better or specificity on all of these thanks as it relates to.
2028, Whiting a lot of guidance there are lot of details to help people understand how we're thinking about managing the business its guidance. Its definition its guidance. It's what we're thinking about its not conservative it's not a growth of it it's the guidance and so that's that's what we're working towards I mean, as we have better clarity on.
A variety of these uncertainties right now we'll be able to.
You know maybe answer some give some more clarity granularity on what's going on with both the unit revenues every unit costs as we transition, but its kaki mentioned right now there is still some uncertainty about when exactly we're gonna have I'll get back on track with the the fleet transformation and so it seems we have that that's going to be a trigger for us too.
Who.
I assume some more definitive positions on a lot of these questions were getting.
Not just today, but you know for for a couple of months. However, we're going to keep getting them for another couple of months I suspect.
Understood. Thanks, so much for the comprehensive answer.
Our next question today comes from Savi sense of Raymond James. Please go ahead.
Hi.
At the time.
Cocky you had mentioned.
You can't prepared.
Accordingly, you know the fleet flexibility.
That being in the high season, it's probably not much of an issue, but it sounded like you should be able to get the Max that grounded up in the air pretty quickly I know some of the U.S. carriers had talked about kind of one to two months to get them Radian backup wondering if you could talk a little bit about once you get the recertification how quickly the Max.
That's on site can come back on and how many Nox can you get delivered from Boeing how many can you indicate a in at any given month.
If billings and I didn't deliver.
I certainly think really for the question a actually we are either because due under the or on Google. They the rules he would choose.
And that ANAC has already.
Politically position itself, saying that the word a act in accordance with the assay. So we'd expect that kind of seem attendance we lease.
Uhhuh agencies that are more light at the same time, so I don't predict any kind of books disturbance in that process was EFI say that the the plane is a large again brought it nevertheless, or do we have done chewed guarantee.
All right, we've got drew up all although revenue.
Opportunities along the high season news to Recompose, all were you talked to a we'd beauty other fleets availability by bringing a more end use to operational and used trailer fleet. So oh, we heavy now for the high seas.
And all you see explains John in terms of Yep.
You know that traditional you we are sending Dan.
Oh.
Well from four to choose seeks plans every year during the European Summer and now. This year. We are also have into benefit of these loans less important to shoot and bringing.
These airplanes at the same leaves a cost assemblies rates that you were a asking them to operate a during the busy in high season also we have lease.
Some border.
Five schork them a these aircraft, but then I mean, one to two years and there through these movements. We are now a foot catching our high season without the need well the seven to seven next be operational or again east abuse would happen.
Then we can further enhance all their operational performance and also address opportunities to two like like additional flights or or new.
Frequencies on of the most imagine demented Rouge during their high season, but the guidance that you have already.
Ladies well before the 19 engine for them to any does not depend on the Max we've done a longer busy and high season, we took that actually now that you have wide that any postponement and isn't growing you process on different Romney fibrosis, we would.
Yeah, Joe for the wise, where all there could be good results and just the company looks like you said.
It's the Max's on grounded.
Prior to or during the high season, you know call it.
Several January February .
We can we can take we have.
Waves of normally we very nice season, we have a lot of extra flights, we put into certain places in our network or extra frequencies, but those flights, especially in from kind of mid December until mid February .
Troubles late this year, probably at the end of February so take advantage of the Brazilian summer season, where you've got a lot of traffic, especially intensively on a on Friday through Monday going to the the beaches in other places on the weekends and so we can.
Easily put those into the network in generate some additional revenues taking advantage of the Brazilian high season, if if for some reason that would go beyond the Brazilian high season in other words, where we go beyond February .
As you know during the March April May low cheese, and we are the way we do our for our network management. During the course of your intra year, we very our capacity.
Down around 10% and so what what 12 to 14 aircraft on the ground in maintenance roughly in the second quarter anyway.
And so it's that extends you know we would then be.
Putting them axis flying.
During the low season, and then taking a you know another.
12 to 14 aircraft that are service anyway for activity and maintenance and so that's got to said we covered that gap.
The bridge us through our high season, and it would be some upside there if the Max's.
Is freed up to be producing revenues sooner.
But through the tools, we use for example, as Kaki mentioned the subleasing till we have.
Several lease winter lease tools, we have we covered our risk on that.
To be able to satisfy.
Demand, which is as you've been following you know across the board in Brazil, not just in our sector now, but in other stick as well and starting to pick up.
From an economic perspective, and and that will provide some pretty buoyant.
Demand for air travel here over the next couple of watch.
That's helpful. Thanks Ann.
And your in Canada, and the 2020 outlet tenants can I mentioned that warranty revenue is now being a bit softer what's driving that.
Well the couple of things we wanted to I think we you know.
The shouldn't be news and I think it was probably a year ago that as demand for.
Our air travelers are picking up.
And you know given a.
Good rational capacity management.
You know there is a counter cyclical component.
In different components of the businesses just because of how it works once a derivative of the other.
And so that's one and many other component that we highlighted.
As well a couple of quarters ago was the expectation of increasing competition I would say increasing non price.
Competition or resulting from the ER, we integration and merger of.
The various loyalty program activities that with hand has.
As they finalize their process I think it was in Oh, sorry, I'm going to second quarter. That's basically you know happening now in terms of higher competition.
In that space.
As well as.
Higher demand.
From a.
You know you can see it reflected in the load factors on not just are not just goal, but the sector as a whole it's a combination of those factors.
Craig a little bit that trade off but that's that's a normal part of that business I mean, weve no smiles just celebrated its 25th year anniversary.
Even with that business since 2007, so you know 12 years now.
And you know that business also has.
Additive and ants and cyclical aspects.
Which is you know the symbiotic nature of those different businesses that we that we have.
On a separate it you know carved out.
Standalone basis, you see the effects of that which effectively as you know the cost of goods sold of our loyalty program.
Increases in this part of the cycle.
And on the on the cost side of that business. If you will which is consolidated on our results because you know what's cost for one is revenue for the other.
But then on the revenue side, you know there's higher competition.
In the in the point space.
To that and that has had a already started to have.
And in fact in the.
In the margin, but this is something I think that you highlighted over.
Over a year ago in terms of what we expected.
From a group perspectives and.
Yeah, it seems to be role it's happening along the lines.
And timing that that that we expected and so in that so that our business our consolidated results.
We're seeing those effects as well in our consolidated results versus previous expectation. So there's a slight adjustment there.
In the expectations of the revenues that are generated from that ancillary revenue non passenger revenue now also some adjustments on the minority interest as well.
In the and the expectations over the next couple of quarters.
Oh, sorry, sorry about my bad.
Just on just a housekeeping question last one I have ads on the Nonreoccurring that you called out on me and not a in the operating income the 78.9 million could you provide a little clarity on what's included in that.
Yeah, maybe there's a variety of items in there and we're not.
You know where does separating things out there that are really onetime effects.
Not related to.
Disruptions right specifically.
But there is you know there's there's some effects there related to the Max a there's also some effects there related to some investments you're talking about six we've made a and and consulting and.
Other projects to deal with things that are really not at the airline operating level the more at the.
Holding company level and then there is a chunk there that it relates to.
The <unk> return of aircraft, which generally ends up being provisions when we make decisions on returning aircraft.
No specific basis on a it we're maintaining provisions on those but as we've been changing around a lot you actually turn dates because of the Mac situation and because of the downplaying infineon geez or not is created a little bit more or let's say volatility on our ability to get accurate for Vic.
Runs on what we expect on the aircraft for current cost and so all those are in there it's kind of divided.
Among all of those as I was saying before in terms of what specifically related to the Max.
And some of these other ER and the energy issues I think thats something that.
When we get on the other side of the Oh.
Oh, the delays on the Max we can provide some more clarity on on what that ended up costing us a you know from a oh <unk> expense as well as cash flow.
Perspective, but there is obviously there is a little bit of effect. There on you know a into system on you know additional types of expenses that we have on.
Oh, you know on us because of having to reschedule the networking we plan.
You know.
Rescheduled flights takes place out and I work reorganize have to pay a.
Certain cost me, how do we have to do with reimbursing passengers and things like that.
Right. If you know cost there that come in as it relates to.
The overall business that would not have happened.
If we were not reorganizing the maintenance schedule and the aircraft for turned schedule and dealing with the replanting of the fleet this year and even better suited to chart in the in the presentation at the video if you were to do a nobody ended this year it when all the dust settles.
This company will effectively have we schedule.
Intra year over 40 aircraft to deal with the [noise].
Various types of asset the disruptions that we've had to deal with that and so that's equal to about one third of our fleet and so that.
Creates a lot of attrition in all the components of the business and has impacts you know US you know second and secondary and tertiary impacts on a lot of different components Weve also had to spend additional money too.
Two.
Keep chugging along in terms of producing our revenues and and profitability. So it does seem like there is that there is a weight in there that's weighing on that those results. We've tried and tried to separate out some of that which is clearly identifiable.
Because other effects that are in the recurring path.
Which are also related to that and so that's what I say at this point in time, but.
I think when we talk about Q4 at the end of February .
I think we'll be able to provide some more clarity on that in terms of you know what our 2020 unit costs our excluding these.
Effects, which some of which had been excluded as nonrecurring.
Then others, which are you know, creating the attrition on the overall a unit costs.
That's helpful color. Thank you.
Our next question comes from Stephens front of Citi. Please go ahead.
Oh, good day, gentlemen, and thanks very much for taking my question you've already provided some very good comprehensive detail on top line what have you and really appreciate that to you likely already answered my my inquiry, but just the tiny follow up if I may on Dan Mckenzie question from her.
Earlier.
When I think about you know for Q at least heading into Fourq you a year on year on thinking about unit revenue you know clearly you guys mentioned the Max.
And having to rebooked passenger or is that one I think about sort of that.
The year on year normalized year on year trend is there any a stage delaying.
Related inputs I should.
Factor in there.
Hi, Steve.
You are saying just.
In general on Q4 or specific a specific item.
Yeah, just broadly speaking on Q4, when I think about a you know recognizing that there is a great deal of noise with with an X. I'm you know how did you guys highlighted how should I think about a you know to the extent you're allowed to tell me you know what I should consider you know if I'm not from a stage length adjusted.
Excuse me average stage length adjustments it kind of year on year I saw you were launching now you know third international flight for example to the West.
Oh, sorry, you're asking specifically on stage length is that what you said okay. Yes.
But that would be that would be around 1100 a.
1100 kilometers for the Q4.
That would be the expected or stage like a whole lot of change on that versus expectations, you know where it slowed down significantly the.
Rollout of the international destinations because of the delays on the Mac delivered.
And so, especially in the routes where.
It was specifically required the Max for that mission, such as Miami Orlando, We are rolling out still as you saw a shorter haul destinations such as Lima.
In Brazil, and Orlando from an house and you know, we're doing our kind of whom flight, but so that yeah that that expansion, there, which will have an impact on the cost.
I was saying that that will get caught up as soon as we have the.
The Max is working again, so the southern access we have grounded.
You know the missions that they can be deployed on art, specifically right to these longer all markets, a which you know he said our in our in our planning can happen as early as the Q1 of of next year, but not before so that that's not going to be expanding.
Until that that point in time.
That's very helpful Rich and just one other final very quick question.
It seems kind of once again at least can news flow that.
Element to the government seems to continue trying to entice a foreign carriers to align service, but it really seems like nobody is buying with.
I mean, I cite some competition consumer and other laws Pat.
You know a foreigner couldn't find onerous is my view on that reasonable or are you hearing anything differently in terms of.
What the competition landscape, so how antibody.
Oh hi.
Kick off here. The rock is now open I mean, there are several newsroom overseas like this.
And you probably know evolution remembered as.
Go always supports the did Ah deferring capital East the market, which was funded that food.
Showing that we happen to appreciation for the competition that new feared <unk> <unk> inc. or to compete.
And I can tell at the moment whether.
Some of his rumor is Ruby Tuesday to be to eat concrete movement the might be.
I think that we are well prepared for any kind of competition. They have mentioned too many times the low cost carriers and when you compare already too and I got you have this is a data available.
Uh huh.
You know pack, if you're going to compare all that great guys with the international benchmarks yeah.
The mall room that you'll have somebody else KMI to bridge, you and I per age a at a lower level, which is set of how to affecting our business model. So they could be done there as a level of marketing.
And just kind of subject that competing exactly.
In the same for that and the same as Vitamix I don't think that sustainably E.
No other competitor could reach a produced a much lower cost than ours, it's though so I mean that might be more.
Harmful to sum up all those come back down to ourselves.
Oh, it's very helpful jockey <unk> I will leave it there thanks very much.
Thank you.
And our next question today comes from Reserve a Roadshow Oh, Yes. Please go ahead.
Hi, Richard I cannot thanks for a day opportunity a couple of questions. Here first if you could provide an update on the industry deployment from Boa and also the other players in upcoming events and what does you. What does go expect in terms of competitive environment in upcoming quarters and also second.
Question, a follow up on Delta.
And it relates to shoot though if I if I'm not mistaken there was also some relationships on the managed instrument.
And could you give some color on how that Britain work at.
Actually it was also it also had some working capital related to say, especially payables.
On on that mansions depend not to use ticket you could provide more color on how they were many working on how could this change now and that's my that's my question. Thank you.
Oh, Yeah, you're thinking about a florida questions Ah regarding capacity I leave that the industry will continue to behave.
Who are rational.
We have skew that some fee then cleared coming from any one specific layer, which is which is a zoo.
We know that they are.
Using some of the fleet, but also yeah.
Or a portion of these capacity being added by Dan reach.
He's not so clear.
The motivated the motivation behind it but.
And overall perspective.
Considering assuming that the Brazilian economy next year, who did use EGD p. between 2% to 3% growth I think that Oh, they capacity projections that we have.
To access.
Based on Oh. The brands are also a day compressors, saying that was our Oh I think that the industry. We will have a a nod to health year with regards to shoot the and answer it.
Rationality.
At work I mean, we're you know our our Robyn.
Yeah, we we manage our business to try to grow are at or below our sustainable growth rate.
I think that's the key.
To create value for our shareholders, that's what our shareholders want.
And you know were growing at that rate, which you know is right around that was probably a little bit higher than the historical activity, but we have a little bit of repressed demand. It's catching up so it's a kind of our normalized capacity growth rate, what kind of you know around a three times GDP or.
You know run rate GDP growth rate here.
You know, let's say normalize throughout the year from a seasonal.
Perspective, which for US you know is around you know call it 7%.
And the domestic market I think it's important to separate domestic or international because they have different impacts and so you know he the growth Wedo, Brazil over this next part of this cycle should be around that 7%.
Which is you know around the two and a half roughly two and a half times.
We do feel as to city, you get up a little bit more than nine in the short term maybe as much as eight I'm, saying kind of throughout the year next couple of months because of seasonality. You know you know, we're probably going to see no low low teens growth.
Those are the demand numbers that are given to us and you know our job is to match or capacity with that.
I think domestically or if you look at networks in model networks on Brazil is a whole you see similar capacity expansion out of the 10, Brazil.
And jewels about three times that.
And so.
Now the lot of supply demand applies to all of us and so.
Then you'd have to ask if on the demand side, you're a glass half full guy, which I know you are rosario or your glass half empty Guy I mean, if your glass half full guy you know the incremental inventory that's coming into the market.
You know dovetailing with.
Better economic.
Growth.
So I've been hearing some people talk about potentially 4% GDP growth in Brazil next year.
It is possible that then we could have a very nice demand uptick the match that capacity growth with no impact on.
You know the yield environment, but that doesn't happen.
It would have to be something that would.
Paper that you know paper that excess capacity or the capacity growth would have to slow down.
You know I think we're only going to see that in the second quarter of next year.
As you know, we're going to the high season, now, which kind of go through February . So I think second quarter next year will be a attest to that in terms of how.
No each company and the industry and how we'll manage through.
That oh and that'll be a function of you know what the demand environment is in the.
In the second quarter next year, but you know recently and I said recently last couple of weeks last maybe as much as two months. There has been a lot of leading indicators that are showing a pick up in domestic market demand in Brazil, and a lot of sectors retail real estate.
Retail banking things like that I would you guys also looked at and.
Obviously, it's early days on that you know Brazil's also making a lot of progress on say the present governments, making a lot of progress on what they've been promising.
In terms of reforms.
And.
No. So there's there's you know more positive indicators currently then.
Have then maybe in the first half of this year.
But you know our our perspective on that as you know, especially six months out I mean, we're matching our capacity growth with what's going on in demand. It's the largest airline in Brazil or you know were the biggest determinant of that.
No we don't manage our business based on market share with magic based on a sustainable growth self finance growth.
Earnings growth things like that and that's how we're thinking about it at this company.
And that's what I'd say on that on your second question on the on the on the company. What was said previously on the Oh on our maintenance work a large portion of what we've done the maintenance side is done with ER with Delta Tech ops and.
You know one of the effects of the unwinding of our partnership there I will give us much more flexibility to beat out those that business or to other maintenance providers and give us a little bit more flexibility to negotiate better better terms.
And.
But I'll sit there and get the tech ops has been an important partner for us.
On the maintenance of our CFM engines, if I'm not mistaken or you know the last numbers that I looked at on Delta Tech ops, and we're the largest customer of Delta Tech ops in terms of the amount of annual revenues, we generate a for that business.
And.
And ER and so I think I expect that they would continue to be a supplier of ours, but.
We wouldn't necessarily have the same.
Constraints on us vis-a-vis seeking other deals given the large volume of ER business that we Oh, we have ever year out in the market, which is going to continue for the next couple of years. We've also I mean, we're not in the engine maintenance business, but we are also you know.
Turning to invest in our own I mean, its business, which they did focused mostly on airframes.
And.
It's also now providing services to third parties. We are we have clients in our portfolio now including leasing companies that are doing.
Maintenance with us in our area in our 1.6 million square foot maintenance Center and.
In a in a into ethical things airport administered eyes out engines are we still.
I have to a third party or engine maintenance.
At the same time, we're also advancing.
In terms of developing our own stand alone.
M., our old facility, which is already generating revenues.
Yeah were certified by the essay to.
Maintain a variety of aircraft or.
And we're also pursuing that I think I think the way to think about that as you think about goes it wouldn't have more flexibility.
Two.
Maximize the economics, we have on what is you know still our largest capex item for your and so ER and that will you know that will not be present this year.
But could be present in our in our numbers next year.
As as we'll define what we're doing a regarding the unwinding of that a partnership you know in the coming in the coming period.
With a clear thanks very much richer.
Okay.
Ladies and gentlemen, I was a reminder, right to ask a question. Please press Star then one to its next question comes from Petr Grishchenko Our Barclays. Please go ahead.
Hi, good iPhone gentlemen, and thanks for taking my question I mean, obviously a lot of them already answered on so I guess I'll just follow up on they'll come a time partnership sort of Duane theme you evaluated the you know the partnership from running at some point obviously.
It was not very significant but I guess, one could argue that you know delta played a much more important role.
Particularly doing downturn and against the loan maturing next.
Overall I believe it's a good example for that.
So.
You know from the Crescent point I think there's you know much bigger significant for partnership beyond just the Oh, you know percentage of revenue so.
With that is one of them if it's fair to say that you're looking for partner with Weve considering in her new partnership and if so if you can do if any.
Time in anticipation of it'll be critical helpful.
Sure sure Peter but just because there is I understand what do you mean from a credit or perspective what.
What maybe a little bit more this I understand answer the question what do you mean from a credit or perspective.
Well.
During the last recession.
It could we built a provided some support for the company and as I mentioned that 300 million along the day a guarantee a while back is example for that so while you mean.
I too I think you're specifically talking about the term loan where are we raised money from U.S. higher investors.
But at a cost of six and a half a cent per year with the delta.
Co signing where delta got the guarantee of Smile shares and counter guarantee that's for your friends of precisely.
Okay.
If you say you know you see our bonds today are trading at near 6.5% goals unsecured bonds.
And you know those were paying probably about 325 basis points over delta risk and those investors. They are not going investors I mean, we don't even or those are a delta. Those are if you will I agree or if that's a great U.S. investors.
Don't.
That's in goal.
Don't invest in high yield bonds.
They're not really part of our capital structure.
And we pay significant industry or the delta on that and so.
That's why are you know our plan is to.
It Amortizes next year in.
Yes, that's the maturity or its call ballpark February and we've already work to reserve the cash to get ready that.
Does that has a significant negative impact on our earnings.
And.
I don't I don't see why you would do that as a negative.
I think what's your question is is if we would be.
It does that kind of <unk> that's not.
Say that that's not the.
You know that's not what we'd be looking it in a in a commercial.
Pardon or you know credit support that's not what we'd be looking for I think what there's it's back. He was saying is wrong. You know were focused on maximizing our revenues and profitability.
And got the largest networks in Brazil with a lot of.
Let me parity connectivity and synergies with a variety of partners or you see we continue to announce.
Oh chairs and airlines almost every month, we've got close to 90 now and.
So that you know, it's a commercial a issue.
In terms of.
Strategic partners know I mean, we have nothing.
Planned in that respect.
Nor is it.
Does it really play into our.
Strengths in terms of what we can offer.
The potential partners at this point and show.
And I don't think from a.
Creditor perspective, as you are saying.
That would come into the box as a positive in name only in that respect I think you know from our perspective, we would have to be based on specific strategic.
Reasons.
To do that which which can take awhile to developing and take a long term would not be necessarily a short term.
Component as you know that you know that the our space or larger space, which as you know South America.
It is also going through.
But if a reorganization in person how the alliances are communicating with South America, and that's kind of working progress and.
And.
I don't know if you want to talk about anything on that I mean.
I think they separate issues you know the commercial the maintenance.
Well, we might do strategically are really separate issues.
As you're saying we have a network today, which is you know generating over 6% of our revenues from close to 90 co chairs and airlines.
And you know the kids American United We're already working with them on an underlying basis.
For a while and I think we're going to continue to pursue that I think specifically you're referring to win.
There are a lot of ways back in 2015 that.
When gold various possibly we know when the economy attractive.
Contracted three and half percent in 2015, and then ended up contracting another 3% to 5% of 2016.
In the third quarter of 2015, you know goal developed the plan to reduce the size of its a assets if balance sheet and sold nine aircraft returned another 20 to 29 aircraft out of the fleet in a six month period and it needed some short term liquidity.
To do that.
Majority of it came from.
Our controlling shareholder.
Family or and then a small portion of that came out of that from Delta in terms of the equity capital that was put into company back in October of last year, but the main support came out of the controlling shareholder and help as a partner teamed up with a with.
The constantino.
Family and helping out with that.
Indefinitely provided a lot of you know support and their experience of having gone through rightsizing, a while ago not huge value and what was built goal goal is doing in terms of navigating that really tough environment and they provided the <unk>.
Co signing along with our holding company on the on the term loan.
So that was an enormous helped to get liquidity into the company that time and all that liquidity. The equity that came in about a 150 million Bucks a as well as the a 300 our term loan and some other things that was used to kind of get the wheel going to in addition to the nine aircraft gold sold out of its own equity you know that whole POC was you.
It is too.
Downsize the company if you will very early on in the cycle I mean really if you think it it was able to you know very at the beginning of that trough.
We have some other you know companies that we know they didn't do it that are doing it now arguably three years waiting some been make and so that was an enormous help.
They came from a shareholder perspective.
It's very much in a partnership way at that time that that helped a effect that downsizing.
But you know goal today is a.
You know generating.
ER positive Oh, not just operating cash flow net cash flow, but also there's some cash to equity there are as you saw this year up until September .
We'd amortized cost so building rise of debt.
We've got about 4 billion rising cash on the balance sheet. It's all this is kinda within this plan.
To yet as to the appropriate capital structure, which we are at right now.
Which should improve over next couple of years, given the cycle, but im in a bigger picture I think a company today is is very well prepared for.
The next part of this cycle, which is more of a secular growth cycle and then I think L. Three four years from now I think that question, you're asking is perhaps a more and more relevant question in terms of how prepared you know we are in terms of balance sheet and competitivity to deal with what you know will be the next down cycle at some point.
You know four or five six years from now and so on it but at this point in time.
You know we have more reasons to this focus more on operations. They don't inside of our fleet transformation and then potentially let's see we married you may or may not want to do in terms of participating in any.
You know strategic work you know in Brazil, or a larger work you know in the South American.
Region, but that's probably would kinda contextualize that to you in terms of how we're thinking that's kind of how we're thinking about it today.
But the I think there's still or some other some other pieces to.
Of the possible to kind of evolved.
Over the course of next year, I think before it becomes clearer on things like industry structure and.
Competition and things like that so we're not you know we're not running and are you in any external direction. At this point in time, we're just focus on operations on balance sheet on everything that we've been talking about.
I tried to prepare the company the best we can right now for next to take advantage of next year.
In terms of Ah growth fleet transformation international expansion things along those lines.
Great. Thank for a very comprehensive a response and just to follow up on one thing you mentioned you know the maturity on matured and next year did I get it right are you basically a ruling out you shoes like tapping. The you know the bond market other local and international to refinance that or you just what you're saying is.
Just not going to raise that you know and then it makes the first half next year.
I'm just wondering.
Little bit better understand your yeah, well, probably not as good question guys.
Two questions. The Oh, we have the cash resources, if they want it back to start the call ever next year, and do that with cash and affect a.
Not just the a gross that's what it meant that reduction we can get if we want.
So specifically as it relates to the Tourtelot no we would not be raising any we're not be refinancing that no.
Currently as we sit today, we have no plans to be a great and you know doing anything in the.
Fixed income markets next year, either in dollars in yen in euros or in realize Oh, no plans to do that because we have to have use of proceeds to do as much as about raising cash.
We're getting we're going to raise cash increased cash on the balance sheet, you would be through non fixed income mechanisms such as internal cash generation or equity and we don't have any plans to raise equity and so most of our cash building up is going to become for me to operations, having said that I mean.
As an airline you know you're always and it's still hoping airline you know.
My my part of my job is always be looking at ways to reduce the cost to capital improve the balance sheet and so we're always monitoring opportunities I think the convertible bond. We issued this year was an example of that.
Yes, it was an equity transaction.
Well some additional cash on the balance sheet. It was way of monetizing the volatility in our in our stock.
And creating a new source of capital for the company. So that's kind of things always looking at but right now we have no plans.
Specifically, but we have to be always kind of looking at ways to improve our balance sheet strength and financial flexibility. So always looking at things along those lines, but right now no. We have no plans and so the plan of the term loan would be.
You know you know within our policies, which is in terms of what we went in what we want to have in terms of maximum leverage.
ER whacked minimization and liquidity measures.
Everything is going to be done in the context of that and so whatever we do of course is not going to put the company in a constrained liquidity situation.
So you know based on our plans and so on and you can expect that we're going to continue to maintain or improve our credit ratios. Because there's you know we have an objective from out of whack optimization perspective, getting the company back to a couple of B minus.
In the in the near term and so that's going to guide us on how we approach capital structure and how we do.
Well effectively end up being the last major piece of liability management that we've been doing over the last three years wont once we get on the other side of the term loan.
The next fixed maturity in US dollars. This 2025, which is the bonds. We have you know trading outstanding which are trading you know a little over 6.5%.
Market and as you know also we've been you know we're almost finalized with you know it then next year will be finalized with amortizing our Brazilian.
Well debentures who's out there just to comment on that Brazilian interest rates also are at record lows.
Really doesn't exist a a true high yield 60, AECOM capital market.
Unsecured front secured issues in Brazil.
And so it doesn't exist for us the opportunity to.
Links that out our maturities in the local markets or capital markets.
For us for companies like Us in Brazil, Noninvestment grade really only exist the bank market, which are short term maturities you know for us maximum three years. So even though are you know are present in rail borrowing costs today is around 6.5% and realize you know versus around 6% in dollars overall, there's there's not a viable mark.
Good for us to be buying you know long term U.S. dollar denominated aircraft assets finance in a long term or you know market in Brazil market doesn't exist. If it were to develop if the if the Brazilian fixed income capital market work to develop.
Over the next year or two that is something we could potentially look at.
But right now doesn't exist so we're not looking at it.
Got it thank you very much and best of luck there guys.
I don't actually options today comes from Lucas Barbosa of Morgan Stanley . Please go ahead.
Good morning, Kakinoff enriched thanks for taking my question congratulations on the results I just wanted to check King there's any developments on the potential incorporation of smiles and overall corporate restructuring. If if you have any color on timing, but they show structures that will be great. Thank you.
Sure. It was the second part of the question sorry, what structures.
Oh, Yeah, if you have any color on timing or any politician structures that you you were thinking.
On incorporating smiles.
Oh, yeah. Okay. This is related to that okay, well you I mean, our you know our attention is too you know.
Affect the taken of that we're in the process of that.
You know the the smiles board and their governance errors and working on a variety of issues.
I'm over the last couple of months and doesn't really have no news on it today since we have news we would.
We would yeah communicate that but well we're basically at this point.
Kind of in a.
You know holding pattern here you know a waiting.
ER discussions that are happening at the smiles board level, you know, we would like to move forward on that but we have to wait for it for now for some of the.
Discussions that are happening at that level and so I have no.
Nothing to say on that it at this point in time, but guard pensions contains the same the same reasons.
It's very important for the.
Before you know, it's not just a question of.
Cash flow and results optimization, but it's really a question of long term competitivity.
And the you know maintenance and improvement of not just the value of legal product, but also the smiles product.
It's very important that Ah, we move forward on that but as soon as we have any news on that we would communicate that but I don't expect it's going to be in the short term here given what we're waiting on from the it it's miles has to finalize before we can move forward on what we wanted to.
That makes a lot of sense. Thank you very much.
Thank you and waves and gentlemen. This concludes today's question and answer session I'd like to invite Mr. Kakinoff to proceed with his closing remarks. Please go ahead Sir.
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