Q1 2020 Earnings Call
Discuss in detail and I'll see p.m. And SEC filings also during the course of the call. We will discuss non-ifrs performance measures, which should be should not be considered in isolation with that. I'll turn the call over to David David and thanks for joining us for our first quarter 2020 or need to call as always. I want to start by thanking our crew members who are making sacrifices to take care of our customers each other and the company amazingly almost twenty almost 80% of our crew members have elected to take unpaid life to help us all during this unprecedented time. This is an incredible number and I'm very grateful for their support. It really speaks volumes about the amazing culture we have here to school.
Thanks to the team. We have created one of the best airlines in the world. We started this year as the largest airline in Brazil by number of destinations. We are the number one airline with 83% off of our markets where we're number one in eighty-three percent of the markets. We fly one of the most profitable airlines in the world and one of the carriers with the best customer service, it is certainly better started a position of strength and weakness. The founding team that is all has been with the company since the beginning have a CFO that I made the president and that is very rare would be Tuesday or foes at the company in Times Like These Times Like These is very important. I would also like to take this opportunity opportunity to reaffirm the management teams and Mike.
And Michael spoke to his old long-term. There's nothing more important to me than his whole such a great company what gives us all the greatest strength is the flexibility of its own but you can see on slide for we have anywhere from a 99 seater Caravans all the way up to 214 Cedar 321 in our domestic Fleet, which gives us enormous amount of possibilities we go forward 30 times. I've been certain demand. The best thing to do is to bring the demand in at the lowest possible trip cost. This is exactly what we are doing as long as we rebuild the network step by step as the man recovers. We have more options to create to recreate our Network than other airlines that have a larger single time.
Hobby is building the schedules on a weekly basis which allows him to constantly test the man swap out aircraft at different times. So if we can only issue with the man, we fly an APR if he feels if he can fill an Embraer will find it very if you can fly with the 3:20 or 3:21, we can fly that this is why I'm not been able to grow are essential Network since April and continue to look for opportunities to keep to keep it going. We are currently serving 38 destinations with 115 daily flights and the revenue-generating is enough to cover all of our variable cost of not high as well as fortunate to count on the support as many stakeholders including crew members aircraft manufacturers and lessors Banks suppliers and Brazilian government. We have developed a recovery plan that includes the contribution from all of our stakeholders and I'm confident that we will come out of this crisis stronger dead.
And with that I'll pass over to Jonathan would give you more details about first quarter results and our response to the prices.
Thanks, David. I would also like to thank all of our crewmembers our customers partners and suppliers and everyone who's contributing to the protect azules long-term success. I'll give you a brief overview or a first-quarter results and then we will focus on the initiatives taken the response to the crisis our revenues in the first quarter grew 10% year-over-year driven by strong passenger demand in January and February and a 12% growth. Incapaz. Azul came into this crisis strong with a stage stage length adjusted unit Revenue expansion in the first quarter even with a significant increase of capacity.
in addition our cargo
Business delivered another strong quarter of results with revenues up 41% year-over-year cargo continues to be a strategic business unit for Azul. And we see a lot of potential for cargo and Brazil especially in e-commerce. We recently adapted several passenger aircraft into cargo planes to be used during the crisis. As you know, what the implementation of travel restrictions and social distancing measures starred in the second half of March the Brazilian economy came to a standstill leading to a sharp drop in passenger demand. Our results were further impacted by the 18% depreciation of the Brazilian real as a result. We recorded money bit of a hundred and seventy million Heights representing a margin of 6.2% normalizing for currency and covid-19. Our ebitda margin would have been 14.9%
As you can see on slide 6 we ended the quarter with significant sources of liquidity. It unencumbered assets totaling over 6.7 billion. We have a strong balance sheet with no respect cash. We also have our loyalty program to assume to residual which can sell points in advance and is wholly owned and unencumbered the value of your investment tap decreased to 936 million do to covid-19. This amount includes the face value and accrued interest of the bond of approximately 700 million. The bond is guaranteed by tap who's expected to receive support from the Portuguese government. It's also secured by Taps loyalty program. We will have the ability to convert this into Cash.
Moving on to slide eight we moved quickly and aggressively to reduce our costs and improve our liquidity while taking care of our customers and crew members since the onset of the pandemic we reach we reacted quickly took a short-term adjustments to our Network by cutting capacity by 50% in the second half of March on March 26th, as well as the first airline in Brazil to implement an essential are network reducing. It's 950 daily wage workers to only seventy since then we've been carefully monitoring their demand recoveries to gradually increase our Network and schedules. It's important to highlight that we will only operate flies that generate enough Revenue to cover cost. This is why having a flexible Fleet with the aircraft that have lower trip costs is key in the current environment moving on to slide 9 are quick reaction to reduce capacity contributed to a significant reduction in variable costs, which represents approximately 60% of our operating expenses. In addition. We implemented several initiatives to reduce fixed costs including in over fifty percent wage.
In payroll in the second quarter deferral of all aircraft lease payments suspension of new aircraft deliveries PDP payments and capex Investments through the implementation of these initiatives. We suggest the reduced our cash outflows.
Moving on to slide 10. Our immediate response was has mainly been focused on preserving our financial liquidity to work through the crisis. We ended march with a cash position of 2.2 billion in April our cash price went up and we expect to end the second quarter with approximately two billion in cash. We expect to have a net cash burn of only three to four million reais a day in May and June in addition. We have no PDP payments or or aircraft capex commitments do in 2020. We have no significant debt repayment do this year.
moving on to slide 12
We've addressed the immediate cash needs and how and now have developed a recovery plan to continue to engage all stakeholders including crew members lessors aircraft manufacturers suppliers and government authorities to maintain the liquidity required to confront this crisis and optimize the airline's for the future. This plan is based on conservative assumptions. We used to have the capacity to fly one thousand flights a day in December, but we're planning for only four hundred to be conservative in December.
As you can see on slide 13 our plan is focused on several additional measures. We're looking at all payroll initiatives to adjust our fixed cost to the new demand environment. We're holding comprehensive renegotiations with both stores to allow us to pay up as we increase our flight schedule. We're also seeking support from aircraft manufacturers and all OEM yesterday. We announced the deferral of 59 8 deliveries to twenty twenty four and Beyond we have a great relationship with Embraer and are very excited about the E2. Unfortunately. We had to push back our plans to take on more of these planes until the economy recovers wage to highlight that we also have 51 aircrafts naturally exiting our Fleet before these etudes will arrive this is excluding any potential subleases to law and Breeze which still have signed contracts to the Exempted the market size changes post covid-19 be prepared.
As mentioned before we we are no strangers to the short-term challenges and remain confident in our long-term targets. We entered this crisis as one of the strongest airlines in the world are fast response allowed to build cash reserves for over one year were also taken conservative approach to man recovery and have it developed a plan to ensure a positive cash position in the long-term and and finally are flexible Fleetwood us a trip cost advantage that no other airline in the region has with that David Alex and I will take any of your questions.
Ladies and gentlemen, thank you. You're not begin the question-and-answer session. If you have a question, please press the star key followed by one on your touch tone phone. Now. If you would like to remove yourself from the questioning queue, press the start you for those following the call your webcast. You may post your questions on the platform and they'll be answered during this call or by the investor relations team after the conference.
Our first question comes from savings Raymond James.
Hey, good afternoon. If I can ask just a little bit more clarity on the fleet plans. I think you were expecting about maybe sixty eighty two hundred twenty by the end of 2023. And does this name? Can you only have kind of four more coming or just a little Clarity on that and and then just to clarify was the 51 aircraft that leads over the next few years. Is that you want?
No.
So sorry just just quickly. So we have there's four built Embraer aircraft that we're working through there. They're they're going to a lessor and we're working through that with them. First of all, what we found out is the greatest asset that anybody can have in this crisis is an airline that can actually pay their bills. Right? And so the asset values don't exist anymore. Not for a 737-8321 or anything. And so that's what everybody wants is for Airlines to be healthy that can that can continue to pay. So what we've decided to do was stop the incoming flow of aircraft and that was the big important step that we took and so all aircraft that haven't been built yet will not come in and then allow us to take down the fleet as we go forward over the next couple of years, the 51 aircraft that we mentioned is the natural redelivery that we have not sure that gets accelerated with lot and Breeze but but a lot of people have questioned is a lot and breathe still on and you know, they still have commitments with us. They will stay still take it. But every airline in the world is currently suffering. So we wanted to give a birth
Assumption on that and so the 51 aircraft that are leaving are several different aircraft types. We have seals. We have a 3:30 seals leaving. We have a ones leaving with a TRS leaving. We have 737 cargo planes leaving in that same. And so you'll so what we've done is no new aircraft coming in, you know from now until 2024 to give us the Headroom in case the the market is small town in a post covid-19.
Yeah, absolutely. I mean, I think that the the aircraft manufacturers would certainly like to deliver aircraft sooner and we're working through plans with them. You know, I was probably one of the thing that seems really important a lot of the issues that would be taking the initial etudes were coming through less source. And so the lessors were actually very happy because it reduces their capex in the short-term and their financing risks associated with financing aircraft as well. And so we're looking for support in a step up plan for our leases that having the lessors taking a little bit of that burden off of them is great. And and the the great thing is that we did this with no penalties and so Embraer it's in the best interest to have a healthy Azul that will be able to take our full order in the future. And so we helped the lessors we helped we helped ourselves in that process and and having that lessors healthier is actually helps us as we look for their support as we move forward.
Makes sense and and just on that same topic. Last question is just how are you thinking about it? Then? I know you get some color on twenty-twenty. What would that look like in 2021?
I think it will be very much dependent on the recovery. If we you know, if we have excess aircraft, we can stagger them and we can manage so that we do not have to incur any heavy maintenance checks and we can fly the aircraft that have available time without kind of tripping up any any big maintenances milestones and then if we're flying all of the aircraft that's a good problem to have right and then we'll have the ability to perform those maintenance checks and we'll have the cap export but you know, assuming the conservative scenario of demand recovery that we have assumed you can assume no capex, you know for the foreseeable future.
Helpful. Thank you.
Thanks Abi.
Our next question comes from George Morgan Stanley.
Hey everyone. Thank you for the call and the questions I wanted to first ask about your cash flow when we have spoken to Alex around mid-april. I think you were indicating a monthly cash burn a 150 to 200 and but the the new guidance and fly the number that's considerably below that I know that there are a lot of parts but just wanted to better understand the specific variables behave the Improvement if I've got the numbers right know. Hey Josh, I think you do. But yeah, we have seen an improvement from what we originally assumed and there are a lot of moving Parts like you said, I mean one thing that's encouraging is that you know, when we say that we're flying, you know flights that cover their marginal cost. We're actually seeing it covers, you know, it's not break even right. There is a a good cushion there, you know between the variable cost of the flights and the revenue that we are getting right and that's why you're also seeing you know,
A significant increase from the number of flights that we flew in April the number of flights that were flying in may obviously it's still you know, a long way to go until we get back to be almost a thousand flights used to fly, but that's part of it and we're also finding, you know, a lot of cash sources that we're working through, you know, and you know, some of these are Under negotiation some of these jobs we conservatively conservatively assume that we wouldn't be able to get but we were able to execute on them. So for example, you know kind of replacing cash collateral for insurance, so, you know some of these initiatives, you know, which are outside of our control originally we didn't assume that we were able going to be able to tap them to be conservative but we have been able to execute upon them and also, you know, like John said it's in our suppliers and lessors best interest to support a zoo in this. Because the way for them to Max. Yep.
Is there payout is for us to get to the other side right and have a healthy cash generating Airline after this crisis. That's the best way that's the way that they will be doing the you know the best choice for themselves and that's what we've been seeing that over time. We've been able to get the stakeholders to support us, you know in a stronger way that we originally expect.
Okay, and the part of that in talking about your stakeholders, it sounded like from your comments that you're a little further along in your agreements with lessors than you were a month ago. I think you suck and that that your payments would would move in tandem with with you know, you're you're putting back the capacity, but can you talk a little bit more about that?
Yeah, that's the contract think the conversations with the lessors are being very positive and again, very collaborative because you know, it's the intersection what's best residual and and best for the insurance right where it's not a sort of a zero-sum game here if everybody helps a little get to a cash-generating position. Everybody will benefit so that's the concert. We don't, you know want to commit to something that we can't deliver and also the lessors know that it's not you know constructive for us to just promised them to pay them something that we're not able to pay the best way for us to pay the source is to pay them as we start generating cash by operating right? So that's the natural profile of what the payment should look life because anything that deviates from that it's just not realistic right? And so we're still talking the most of our resource we have agreements with some of them as well.
You believe that.
With the tone of the conversation that we're having with the you know, the the sharing of our plan the conservatism of our cash recover of our demand recovery plan. This is all kind of coalescing around with the management management recovery plan that we mentioned which kind of aligns all stakeholders interests and you know get his contributions from all of our stakeholders take what whatever stakeholders want to do first is make sure that this plan is Equitable, right the the worst thing I think for less or is for them to pay more of the tab than the other list or but if you're not treating all the source fairly they understand right they you know, it's really the best way for themselves to get the maximum payout possible and same thing among Banks same thing among suppliers same thing off all of our stakeholders, right? It's treating kind of each category equitably and making sure that we get to the other side of this crisis. Hey Josh, I would just add a couple of things, you know sixty days ago, you know Thursday,
Store would call and say Hey, I want to get paid. I want to get paid on to get paid now. They're calling say how we going to help right? And I think it's completely changed the tone. I think the world has grounded Airlines and so, you know, everybody's thoughts are taking ten twelve year risk on Azul. Right? And I think that that's something that they need us to be healthy because their asset has no doesn't have value right now their asset is the airline customers that can pay them. And so I think had we cut deals 60 days ago. We would have done suboptimal deals. And so what we wanted to do is we want to take care of the immediate cash needs and we've done that and now we're going to roll out a comprehensive plan with all of our elders and kind of hey we're going to build it up is I'll be billed to schedule back up. You'll get paid accordingly and we're all in this together, right? We're all we all want to be successful. And so we're going to do that. We're going to work closely with them and there are partners.
Okay, that's that's very helpful color or John and Alex and and and talking about the interests of keeping you guys healthy the government probably has that interest too. And so it just wondering if you could also touch on the status of the vmbs funding obviously, there's been a lot of different reports out there. But one thing that that seems to be the case is that the the BMW may be contemplating a lower amount of funding than it had previously in that they are in fact insisting on a a private Market participation.
I don't know. I think the country is in a in a in a tough spot right now. Right? And so I think that you know, maybe what was previously announced and what they're able to do. Thursday is going to be different but you know, I I will tell you that one of our largest stakeholders is the Brazilian government, you know, we paid 2.5 billion reais last year in taxes, right? And so a healthy Azul is very important when you talk about how many cities we serve, you know, our importance to Embraer our importance kind of a a across-the-board reality is, you know, they don't have as much money as they previously thought right and I and I think that you know, I think they would love to kind of, you know, help fund the industries like you're seeing elsewhere in the world in the in in Europe and other places, but I don't know that they have that I think it's disappointing that the dollar amount is lower. But I think that you know what it brings a lot of clarity to us as to what we need to do. And so I think it's going to make the conversations with all of our stakeholders a lot easier. Hey, we're we're going to get this back. We had one of the best chef.
And in the world we're going to be back there. Everybody's going to
I paid in full let's let's just let's just move forward. I think the good thing about the ban DS deal is this equal right? And so what I get is what goal gets what latam gets and so there's nobody kind of getting it prepped treatment one way or the other nobody's negotiating a better dealer or steel and so look, you know, any money is is, you know, being being any money as well come right now, obviously, you know, because it helps us it helps us across the board. But again, I think we're disappointed that it's not bigger. I think it would but we will do what we need to do to have a strong Airline, you know over the next eighteen months and certainly we'll do everything we need to do to have a strong Airline ten twenty years from now.
Okay much appreciated.
Our next question comes from Matthew with me Wiki Barclays.
Press your line is open.
Rescue remaining opening May proceed. Hi. Sorry about that. I thanks for taking my questions.
Nope. Sorry, man, we can we can't hear you at all.
Sorry. You're breaking up. Maybe it will go to the next question and we'll come back to you mad if we can fix your loan.
Our next question comes from Mike linenberg Dodge Bank.
Yeah, hey, hey, good morning. Everybody couple here. So, you know you've been able to work out a deal with Embraer and and to push those airplanes back a few years. Where where are you with respect to Airbus? I know you mentioned that you were in talks with them as well as the the engine manufacturers on the airplane. How many NEOS were you expected to take? Maybe you know this year next year and you know, what is what is the right number or does it seem like, you know no airplanes for the next few years is the right number.
It's like like obviously know where line for the next few years is the right number, you know, I think getting Em are done and being Brazil's largest domestic carrier in terms of destinations and being you know, how important I am to Embraer is a clear signal that we want to send our bus. It's a negotiation right? And so we have to negotiate I think all oems want to deliver aircraft and no airline in the world wants the aircraft and so, you know, it's it's active negotiation, but we wanted to set the example with Embraer and use that in our in our discussions. We're talking about deferrals. We're not talking about cancellation and I think is as you know, depending on how the conversation goes, you know, it could get to cancellations and I think it's in his best interest to try to keep it keep the portfolio alive and and make sure that it is healthy. So that will be able to take the full complement of birth craft over time. Yeah, and the big aircraft you know number that was coming. Mike were were Embraer. So if you remember yeah, we were kind of halfway done with our Fleet transformation birth.
And we'll have already have over 40 meals. Yeah, a couple of years were going to be primarily replacing ones with the tubes. So on the
There beside we're talking about low single-digits. It's not you know, it's nothing as relevant as what we had on the emperor side. But you know, we also believe and we're pretty close to to an agreement with us as well. So, you know, you can essentially consider that you know, we will not take aircraft that we don't okay. Now that's helpful and then maybe just the question wrong to ABI, you know, it was interesting to see that you are ramping up a little bit May versus April we know in the US it seems like that. The low point was mid-april our summer was that Latin America was maybe a month maybe six weeks behind the US so sort of maybe it's a two-part question one. Have you seen the bottom or did you as you cut off and let them cut and go cut did you realize that opportunistically and because of your Fleet and the fact that like you mentioned you fly all the way down to I guess and Caravans now with the e
You know the to flex acquisition up where their markets there that you realized you could serve and like you said that they would you know cover, you know, the the very fact that it made sense. And so that the additional Services less a function of demand improving and just you being more opportunistic. I'm just really curious about the the ramp the ramp back up and I realize it is modest but it is you know with us about hey Mike. Thanks. Yeah. So in terms of the bottom, I I think that we are well off the bottoms which is which is which is good news. I would say the bottom in terms of a game and was in second and second week of April second and third week of April and we have seen a a bounce back from that wage, which is very good. The the size of the balance is sort of commensurate with how we've been ramping up the demand the network, you know. Yep.
Look at what kind of going face-to-face with what we're seeing in terms of demand and so that is good news in terms of how we are deploying the fleet, you know as David said, you know, it sucks ability. So we are flying today Caravans in markets. We used to fly with etrs before we have eight yards flying in the north for example in cities like Berlin which we supply of embryos hours and we have embryos flying 1820 routes, you know, for example, so we definitely are using I would say to really really powerful tools to bring back the network and the page bility, you know, smaller aircraft feed bigger aircraft were using our multiple Hub structure, you know, obviously Campinas Belo Horizonte and his Goofy and we're recreating the Hub structure that we had and and we're driving a lot of connectivity, you know, if you remember a zoo was always a very connected Airline and now that's even more. Yep.
Important, you know corporate demand is not back yet, especially big corporate demand which tends to be more local and so it's really connecting demand. That's driving.
The bulk of the revenue right now and you know 9400 daily flights on average are inconvenience conference or residency or SE fee, you know of the 59 routes flying only four of them have airport to airport competition and not even on a daily basis. And so it's very much the Azul Network flying very much money within our Hub structure where we are strong and that's allowing us to ramp up because we have the aircraft that we can use to access demand and we see how it goes off. You know, we actually had one route believe it or not. Then we started with uh Caravans, um went to eighty are Now Plenty 321 up in the north actually and so forth and and and what we be able to do is thanks to our crew members are pilots and flight attendants. We we have the ability to roll schedule on a weekly basis including Crews schedules off.
We are planning Revenue system operations and Crew Scheduling upgrading downgrading aircraft. Bye week a launching a cruise new crew schedule every single week and allows you to take opportunities in the network. So we're launching new routes. Actually. Bye week to see what works. We're moving some stuff that doesn't work. So, you know, that's sort of how we're thinking about it obviously unit revenues important. We have to be able to generate a variable cash that's really important and we have to be able to contribute to the network box which we already have the flexibility together with the connectivity is really important and that's allowed us to bring back the network and you know, we'll keep doing this we're discussing this week and early next week. We'll start rolling out, you know, early part of June one thing that's really helping also it's helping and you know makes things a little bit more difficult is dead.
Demand is actually very close in right there are a lot of Brazilians right now that looking for the second half of the year. And so even if you have a flight a new router a new flight out to Smithfield out two to three weeks that's like more than enough time right now, you know, and so that's sort of giving us opportunities to put flights pretty close in to see what works. So I have all of these combinations that about us to bring back to about 118 flights a day on weekdays where we are now and we're currently in the process of evaluating early part of June. It might we've all got a lot of kind of charter flights, you know to repatriate Brazilians. So we actually had our 3:30 was in Rome yesterday picking up Brazilians. We flew to Lima. We have flights going to China to pick up medical equipment. So we're trying to get along. You know, our Fleet is much as we can in in that way as well. Yeah, and also just just to add we've dedicated to 20 aircraft. We've adapted to a 20 aircraft for all cargo operations dead.
With with the boxes on the seats, of course, we have APR Quick Change. We have our two Freighters. So we have almost nine aircraft sort of dedicated to the cargo team and you know, they are making hay while the sun shines so which is also good. Yeah. No, thanks. That's a fantastic answer and I don't think there's any airline in the world that probably has the ability to do crew bids on a weekly weekly basis. So, that that speak to the flexibility just one one quick last one, you know, and this is probably to John and Alex so, you know, the burn now is three to four million per day and I think at the end of the day whether we get to the fourth quarter and revenues down 80% or down 30% obviously we're hoping for the latter the fact is you know, I'm sure that you have to get to Thursday, even you know, no matter what the backdrop is and I'm since my sense is that you know, it's it's it's it's a come hell or high water situation for you where you know at what point can you just walk us? Yep.
through the trajectory
Three of the three to four now and and where do you think you are third-quarter? Fourth-quarter? Maybe early Twenty One. Do you know do we get to that cash break-even point is it is it the fixed-cost basis tied to the the fleet and the fact that you do have a sizeable number of aircraft lease. Does that does it make it more difficult to get to that break even how how are you thinking about the trajectory or at least the age of the trajectory? And thanks for my questions like I'll start and then I'll pass it over to Alex. We will do whatever it takes. Okay. It's that simple right? Do you mind we'll do whatever it takes we're owners of a glass company. We built it from scratch. We will do whatever it takes to get Azul to the other side of this. We have several stakeholders that will do whatever it takes as well because they are long-term partners of azul. Okay, and so long, you know, they they've been extremely flexible on payment terms as of right now and we need to get back to a more healthy economy where we're flying majority of our Fleet, but we will do whatever it takes and so our chairman. Yep.
The most optimistic guys, I know I know but we were having an earnings call telling you were planning for a 40% you know flight schedule in December. Okay. And so, you know, that means that you know pushing out all these e Tuesday, it shows a conservative approach by management. It's not appropriate to be taking new metal when we're asking for our current Partners to step up and help us right. So that was a big signal as well to our current Partners. It's like, oh we're not going to bring new metal in unless you're getting paid 100 cents on a dollar. Right? And so that that's one of the big signals that we wanted to bring to all of our partners all Alex kind of talk through the specific on the dashboard. Yeah. Yep. You're right. I mean it's going to be easier for us to get to Breakeven as the demand comes back. But you know, it's also a question of the variables that we are worth, right, so depending on demand, but also depending on our cash position depending on our cash sources, right? How is the negotiation with the bndes evolving? Yep.
Other sources, you know, the world is not going to be you know, unfinancial forever. There's going to be a point where and even now you're seeing some Airlines, you know, you know tapping the capital markets and there will be a point. We will be able to have the capital markets where we will be interested in accepting the terms of the market is looking for and so all of those external variables are going to determine what I'm going to do and that's how you know, there's John putted we're going to do whatever he takes. And so what we're doing here is we're preparing all these different scenarios, right and obviously kind of preparing for the worse and preparing for the birth means that you know, even if the man doesn't come back, you know, the cash outflow is going to reduce as as required. Right and we'll we'll make sure that the franchise is alive and well for when the recovery starts so, you know, the the the development or the the evolution of this cash flow.
will very much depend on
On what the outside variables will look like and we have a strategy for each one of the sort of scenarios that we're looking at and some of these are you know, like you said to execute and more friendly and you know, we'll we're looking forward to those scenarios and hoping we're going down those roads. But if we're going down the roads of a, you know, more delayed recovery and age, you know, we'll adjust accordingly in like, you know, you'll just just back to what I was saying earlier, you know lessors Banks crew members everybody depends on Azul airports, right the Brazilian wage and and so all these people are going to say, hey, let's let's get through this right? I mean this is not this was not a mismanagement of a business that led us to where we are today. This is something completely out of our control. It's out of Brazil's control. And so we're going to have to get through it. And so, you know, it makes the decisions a lot easier and a lot clearer when when you're take a conservative approach and say hey, this is what we're going to do and we're all United. I mean this month
Has been together for twelve years, right? And so we know each other we we we know what we're capable of and you know, it's it's we're back to old as Billy right? It's a small Airline again. We're going to build it right back up. So we're excited to build it back up we talk about hey, when we put these flights back on we're going to do it differently this way. We're going to be more efficient this time. We're going to make sure we do things better. And so, you know, we're we're going to build this back up and you you'll with Alex is kind of continues to say we have an unbelievably great franchise. Nobody flies to where we fly to nobody has to nobody has a product that we have. Nobody has a crew members. We have nobody has the partners we have that's the greatest asset of all we have the best business in the world and we're going to come back from this. It sucks right now. It sucks for all of us right now. It sucks for every single person on this call right now, but we're going to come back right and we're going to come back we're going to do everything. We we have to come back and so, you know, this is an unbelievable great franchise that was built and and we're proud of it and we're going to see it through
Very good now. Thanks for taking a appreciate it everyone.
our next question comes from
Bob
I think we're having some kind of trouble with the line here.
We're going to open.
Yeah for for Matthew and Pablo. Maybe we'll call you back later.
No. Hello, can you hear me?
Yeah, go ahead.
Oh, okay. Perfect. One question. One question I have is if you guys can help me to reconcile your amortization schedule. I said you have short-term debt for $4 billion reais. However, when I see your amortization table for the next 3 quarters, it's only six million rice. So it is correct to clean that you have like a 3.5. Mm. Oh decision application in the first quarter of the 2021.
Yeah.
I know that's an easy one Pablo March 31st, you know, we have facility with opic on engine maintenance financing that as of March thirty First Choice. The only cousin that we have that is measured on a quarterly basis. So as of March 31st, the you know, we have reached the Covenant but we've received a waiver already. So, you know for Thursday, uh balance sheet purposes, we have to put it in short-term but for practical purposes because we already have the waiver and we have the waiver actually until the end of the year in advance already dead. It's not really a short-term debt anymore.
Oh, okay. That's great and regarding the leveraging your receivables. I remembered that the conversations we have had you already have 1 billion off of that in I'm not sure if that 1 billion is already in the first quarter numbers.
You have any info on that know so, you know, the ability to Leverage receivables is something thats related to the credit markets, right? So it's something we believe will be tab be able to tap into overtime but it's not something that we're looking at right now. What we're doing is advancing receivables, right that is still ongoing. It's still functioning, you know. So again for those on the line that maybe are not familiar with the Brazilian Market we sell and all of you know, every all the businesses here in Brazil sell a lot off in installments in credit card installments and you can either pull those installments forward and get cash today, which is what we're doing or you can let that balance be used as a partial collateral for dead. Right? We've done that in the past. We will be able to do that in the future. But right now we're just advancing the receivables.
Okay, great. And one last question if I may on your cash phone ratio, what is the estimate of lease payments right now?
As of right now today, it's 0 but as we go forward, it will ramp up according to the demand environment and our operation flight schedule as the flight took steps up and steps up.
Okay, great make sense. Thank you very much. Thank you.
Our next question comes from different City.
All right, good morning everybody, and and thanks very much for taking my questions. It shift a few quick ones for me one. I saw you guys provided some wage helpful detail on the Hedge positions, and I guess you very nice kind of a piece of this the fuel hedges for this year. You tell me more relaxed sort of on a on a mid on net what percentage you not have covered for this year just in case I I misread it. Thank you.
Sure, so.
Based on the conservative scheduled that we assume, you know, we're roughly a little bit a little 50% hedged for for this Demand, right? I'll see if this demand kind of changes, you know that number changes, but what's important Steve is that we should not expect any big cash outflows from these Hedges, right? We've been negotiating with our banks and wage made some payments in March and especially in March, but over time, you know, whatever payments we need to make will not impact our short-term cash position month. We will be either rolling those contracts forward or we will be rolling over the payment the settlement of these address.
Okay, very helpful Alex and just another quick one. I think this might be for a I'd be Jeep. I'll be very helpful detail in terms of the connecting traffic is kind of driven the bounce, you know, not corporate demand, but none corporate demand. When do you guys think about the caves of the potential recovery? Is it fair to say that some modicum of corporate demand has to return the four as you might start to think about testing higher fares.
Yeah. Hey Steven. Yeah, I mean look absolutely corporate demand is a big part of all demand in Brazil, especially the big companies like Valley petrobras the bank's money, you know, they are some of the biggest consumers of air travel in Brazil. So one thing that's held corporate travel back is South Paulo is still under quarantine, right which has been extended till May 31st, and we'll have to see kind of how the numbers are and what kind that recovery looks like. So follow is obviously the biggest consumer of air travel in in Brazil. And so that drives a lot of divorce and across the entire net domestic Network in Brazil. So, you know, so yes a corporate is going to be very very important and it's something that we're watching very carefully to measure how we bring back the network. Our commercial teams are continuously talking to our corporate customers are travel agency partners, and you know, we are seeing dead.
You know, some signs are like Fiat, for example, it's bringing it back about 30% of their production and things like that, but we haven't really seen any big signs yet from the banks. For example thought that that the They're bringing back a corporate travel in a big way. The the banks are a big sign, you know Valley things like that. So I think we have to wait for a little bit of South Paulo demand coming back the South Paulo State the interior of Campinas region before we make you know, broader steps in terms of the network, but obviously we're evaluating again. We're trying to find pockets of demand I would say right now the the oil and gas sector is probably overachieving in terms of who's flying and the financial sector may be underachieving in terms of what flying and that's what we'll watch for over the next couple of weeks.
Okay, that's really helpful. I will leave it there the thanks I'll be and I hope all you guys I couldn't help you take it. Thank you.
Our next question comes from Florida.
Hi transferred my question and I was like for for your time just a couple of questions regarding the financial governance. I saw the financial the same and my team that you have to Covenant once regarding to the local local vendors and other one regarding two aircraft financing. The second one is measured quarterly. I would like to double check if you are already asking some waiver because label Dash already pick up to five times and the fact that 5.5 which is the first one and the second one is regarding to the cash burn if it includes the principal payment. Thank you.
Yeah, so on the Covenant side the the one that's measured quarterly. As you mention is the one that we mentioned to Pablo that we already received alone know not only for q1 but also Q2 Q3 and Q4 for the other one. It's the same counterpart that has both the debenture and the aircraft dancing. So it's really just one discussion, you know, it's going to to facilities but one discussion with one counterpart its measured. Annually, we are already in discussions and you know, we may have full confidence that will be able to get away for you know, we've gotten a waiver from this counterpart in the past back in the Brazilian recession 2015 or 16. They're great partners of our thoughts are very confident that we will get a waiver on that but it's only measured at the end of the year on the cash burn like we mentioned with there are no significant wage.
Addres payments this year. The main one that we haven't rolled over yet is also the debenture that expires only in December. So the cash burn includes interest. It does not include principles, but we don't expect there will be a cash outflow related to that principle.
And in Q2, which is the three to four billion cash friend that we mention, you know, there's no principal payment.
Okay. Thank you. Very clear right helpful.
Our next question comes from Victorville.
Hi, I have a 2 questions. The first one we have seen a lot of discussions about the seat configuration given the covid-19. So I'd like to know if you haven't had any kind of discussion with the Brazilian government in order to mitigate these kind of risk and the second question when we we take a look on your numbers, we can check the sub leaves receivables going up the first quarter. So just to double-check if this is related just to a fax or for example top is not paying.
Victor I'll be here. I'll take I'll take the first one regarding the seat configuration. You know, one thing I think the industry is doing very well is communicating a lot with the customer on safety on board right regarding cleanliness masks. All those kinds of things. There's been no discussion and there's been no request for discussion regarding seat configuration page. Well, we don't believe it's on it's on the agenda for the Brazilian industry. Nobody has raised it nobody's asked about it. And I think I think the industry by itself is doing a very good job of communicating that it's safe on board in terms of air quality and cleanliness using masks, you know, all those kinds of things pretty much all the airlines are doing a similar things and I think we need to continue this so that we all make the customer feel, you know confident when they fly. I think it's in everybody's best interest to do so, we are not planning any changes wage.
Proceed configurations. We do not have any limitations on seat configurations right now. We are flying, you know, 118 flights today, you know with with the customer board and all this time. I don't have any reports of customers wanting to get off the plane because they don't want to sit where they are of customers not being confident customer is not comfortable regarding the flying experience. So I think the airlines are doing a good job of communicating. I think we gotta keep doing this but we have no plans or are in office questions about changing anything in regards to see configuration.
you know I I would just add to that as well you know we've got over thirteen thousand seven hundred crew members and you know to date we have 25 cases of covet in our entire company and you know each one of them was hospitalized and so you know we have a very young population a very healthy population that travels and so we've taken great care we're measuring the temperature where everybody's wearing masks and suck think we're we're really looking very closely to ensure that our our crew members and our customers are safe when they travel you know what one your your question reference to tap it's a standstill forever wage with respect to lessors right and so you know we're not paying the lessors in the second quarter so there's no reason for tap-to-pay as well right we're we're kind of united in that there are partner they've halted flying for the time to preserve cash and so it's it's simply that and so you know their obligations remain the same but we've kind of across-the-board have done a standstill and so that's all that that's all that you're seeing there
Our next question comes from Xena William Blair.
Yes, thanks for taking my question just a confirmation on the amount of the deal. So the the recent headlines took about four billion real wage amount refers to all three companies or on to you and our goal. And do you have a very specific deadline to go for it or there is a flexibility around that. Thank you.
you know, so
We haven't decided yet on on you know, we're we have a call today with them to understand better the structure what it means, you know, they they've set aside for billion. They said you know, it's 4 1 1 2 3 months carriers, right? And so I think that that's the total amount if it's divided by 3. Obviously, it's less if it's two Airlines take it it's more and and so but we're we're working through that right? We need to understand it. It's it's kind of a a different structure than what we're used to and but we're we have several questions with them and we need to make sure that you know, if we were to potentially take that and we haven't decided yet whether you know, it gives us the flexibility. We need to rebuild the airline The Way We believe it should be rebuilt. And so we're working through that and I think you know what most likely happen is, you know, most Airlines will get to the next step with them. And you know, this is not something that's quite about 45 days away from any funding and and so, you know kind of getting to the next stage is probably important, but that's that's that's the only thing that we have to say about it Thursday.
That will will give you further Clarity on it as we move forward.
Yes.
Our next question comes from Raymond James.
Hey, thanks for the follow up just clarification on the cash button and just generally on Revenue what you're saying the commentary previously was very helpful. Just wondering if you know as you're going to selling these slides, you know, what level of Revenue you're seeing and if that's mostly kind of people using up vouchers or you're actually getting kind of cash in and you know, what what level is is assumed in that kind of cash. Yeah. Hey, sorry. Yeah, so actually it is it is Cassian. I would say I mean the vast vast majority is Cash in we do obviously are you know have I have a travel credits out there, but I would say that customers really haven't decided yet when and how to use those travel credits. So I guess we're talking this every day and the vast vast majority of the money coming in is new cashen and one thing I'm looking at with regards to this flight is not just sort of the revenue age.
On the flight. Does that cover the variable cost but more importantly does the new cash in cover the cash going out in terms of the operations of these flights and that is even more important right now to make sure that the new real cash coming in with its credit whether it's debit, whether it's cash net of vouchers net of travel credits is able to come back the variable cost and even with netting out sort of, you know, those types of forms that payment the new cash in coming in itself is able to cover the full cost of these operations and that is our goal going forward to to maintain it that way.
A lot of sense. Thank you.
Our next question comes from Michael Lindberg George Banks. Yeah. Hey, thanks just a quick follow-up here. I know just early in the call. You know, John you had mentioned that you know is a potential source of liquidity. I know you've tapped it in in in the past four sort of the advanced mileage sale. What what would be you know, what do you think is the potential capacity there and you know, maybe even sense the timing is that you know, a 2020 type event. Any any any color on that would be great. Thanks. Sure my boss on average about a billion a year from outside the school system, right? So not including the point sold to the airline. So it real cash brought in from Bank from retailers and from customers themselves, right? Cuz that's that's a big part of to those rules business, you know, we have the club which is a monthly subscription plan, which is actually dead.
Very resilient in this situation. We still have you know, a lot of members paying monthly their their dues into two little club and that's great cash coming in the door. So that's up to a page in you know, if we could structure it like let's say in a in a in a very friendly environment, right? I think you could have as much as two billion realized to pull forward from two years. I think Partners would be comfortable with that and there are ways to kind of structure obviously in this environment. We're not talking about anything in this magnitude. I think today if we are in current negotiations to actually bring in as much as two hundred million, those are kind of term sheets that are being exchanged right now, but as the situation improves, I think that's what people are willing to advance giving the situation that we are today how much were flying and also on their side how much their customers are using their credit cards right that affects sort of the demand for points, but as we recover everything
Benefits right everything improves because people will use their credit card more they will get more points. They also get more comfortable on their own economic situation. And also we will have more flights to offer to them which also helps right? So, I think we're sort of in the bottom. I think at today we could get at least a couple of hundred million. I think this could increase as the situation improves very helpful. Thanks Alex.
As a reminder. If you would like to pose a question, please press * 1.
Ladies and gentlemen, this concludes today's question-and-answer session. I would like to invite you to proceed with his closing statements, please go ahead sir.
I'd like to thank all of you for joining us today. We're working hard. We're going to get through this especially with our great crew members on our side are great partners. And so do you have any individual questions? Feel free to follow up with Andre or Alex myself? I appreciate everybody taking the time.
they say
Ladies and gentlemen audio conference for today. Thank you very much for your participation and have a good day.
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