Q2 2020 Gol Linhas Aereas Inteligentes SA Earnings Call

[music].

Welcome to the goal Airlines second quarter 2020 result.

And all participants will be any listen only mode during the company's presentation.

After goals remarks, there will be a question and answer session.

Time further instructions will be given.

Should any participant need assistance during this call. Please press star zero to reach the operator.

This event is also being broadcast live via webcast and may be accessed through the goal website at www Dot Vo G. D O eat coal dot com dot be our slash IR and the M.C.I. Q platform at Www Dot M.C.I. Q Dot com.

Those following the presentation via the webcast may poster questions on the platform and their questions will be either answered by the management during this call or by the goal Investor Relations team. After the conference is finished.

Before proceeding let me mention that forward looking statements are based on the beliefs and assumptions of goals management and on information currently available to the company <unk>.

They involve risks and uncertainties, because they relate to future events and therefore depend on circumstances that may or may not occur.

Bastards in analysts should understand that events related to macroeconomic conditions industry and other factors could also caused results to differ materially from those expressed in such forward looking statements.

At this time I will hand, you over to Mr. Paulo Kakinoff. Please begin.

Good morning, ladies and gentleman I know come true Global Alliance earnings call, Apple <unk>, Chief Executive Officer, and I'm joined by Richard like our Chief Financial Officer. David believes there were a second quarter figures also you made available and goals Investor Relations website TV just with the results presentation.

The natural review and preliminary Q any.

I hope everyone has watched them as we do not only make a few brief comments and then moved to your questions.

Our second quarter results, a reflection office you get back that's cool wheat 19 years, having one Brazil's economy.

Yeah, just petition the industry and our recovery.

Pete the beginning of the crisis, you have talked as management on the told me priorities.

No one.

<unk> health and safety, all four employees and customers, but you preserving that goes financial liquidity as of the older. Tom just crises and three advancing to the resumption. That's got best <unk> attitude matter to the level of demand remaining well position to increase the company's chair domestic market.

We would like to thank our team up where you goals.

Provided their unwavering support for gold and our customers you're working on the street priorities even interface so much of diversity.

What did it tails off the several relationship you have taken can be found on page is chew and sweet <unk> earnings release.

George said keep the blind readiness, we took several measures to decrease cost because everybody.

We reduced our average daily cash expenditures to treat every eyes insect Archibald way, while taking all the necessary majerus to provide our customers he sees and comfortable flight express.

The company maintained a strong liquidity position enabled in part by the broad support from many always stakeholders and <unk>, we have three points feed every eyes in cash and receivables.

Goes financial resilience in this market affirms that there's value of their work we have been doing we strengthened our balance sheet over the last four years, which that I'm going to hand, you over to Richard we go into because to some additional highlights.

Exactly the number of revenue passenger kilometers RPK decreased by 92% compared to the second quarter, writing totaling 773 million RPK.

And we saw an increase of 103% and RPK from April to June intra quarter.

Well that we'll see kilometers S.K. grew 104% within the quarter.

A decrease of 91% compare to 2000.

19 second quarter well transported.

I'm a little over 600000 customers in the quarter, which was a decrease of 92% compare to the second quarter of 2019.

Revenues were 350 million realize a decrease of 89% compared to the second quarter of 2018.

Monthly revenues a began the quarter with a 104 million in the month of April.

And reached 164 million in the month of Jill representing a 57% increase intra quarter within the second quarter of 2020.

Other revenues, which are primarily cargo and loyalty totaled 115 million Riads, which was a reduction of 37% in relation to the second quarter of 2000 Nike.

Revenue for rail, we'll see kilometer RASK was 36.15 cents an increase of 31%.

Passenger revenue per available see kilometer PRASK was 24.5, each sats decreased 6% compared to the second quarter of 2019.

Adjusted EBITDA and adjusted EBIT were 99 million and 20 million rise, respectively and represent a positive contribution as a result of the company's a rational and responsible management of capacity relative to market demand.

Carried out a balanced management of its working capital matching operating inflows and outflows in order to maintain cash at relatively constant levels since the beginning of this crisis.

We just didnt fixed costs outflows, such as personnel expenses and aircraft leases. So they knew level of sales since March the company has.

Negotiated with a primary leasing companies to defer payments and chain contracts to power by the hour, but they're seeing reducing payments to from current values and incorporating a variable component.

Support from our banks working capital debt and short term capex financing maturities were reschedule.

Well sure initiatives have allowed goal to maintain liquidity at a level of 3.3 billion rise with two point Bill and rising cash we're taking every reasonable proportion to preserve our liquidity.

I would like the returned back to tackle X rich.

Demand bought on you need to operate in mid April at less than 5% off or normal traffic. We haven't seen a fall season ended outcome that's too.

Sorry uptick in that seems your body.

The quarter go sales grew at an average rate of 18% per week, yeah committed to cautiously resuming our capacity to meet demand and should go to customers in the second quarter or load factor was 78%.

Well, we were computer it should be recognize it for having the most adaptable and flexible business model prioritizing the C Billboard customers and employees.

Yes team and the lowest cost me a busy ideation, yeah. So proud off or is he does to all the crisis and our calls now that we had both somebody position the company pretty future Bill as opposed to be now I'd like to initiate you any session.

Thank you.

It is now open for questions. If you had a question. Please press star one on your Touchtone phone at this or anytime.

Yes at any point. Your question is answered you may remove yourself into Q by pressing star too.

Watches will be taken in the order. They received we ask that when you pose your question that you pick up your handset to provide optimum sound quality.

Please hold while we poll for questions.

Our first question is from Mike Linenberg with Deutsche Bank. Please go ahead.

Oh, Hey, good morning, Richard Cocky.

I have a question I guess I would like to start on just liquidity and how we think about getting from the ended the June quarter two to the September quarter. You know you did provide total liquidity at September quarter end of 2.9 billion realize it does indicate in the guidance that it is subject to several important initiatives that will be critical.

To get you to that number.

I guess I would point to you know the after quarter.

Three men or announcement to do an advanced sell tickets to smiles. It looked like that that raised 1.2 billion. So presumably that's one of the initiatives that you're referencing can you can you walk us through from end of June to end of September and.

Just also confirm whether or not you know that the ticket agreement with smiles that that that is not in your June quarter number. Thanks.

Yeah, I like that that's not incremental cash that's intra company cash okay. So that doesn't.

It doesn't change total liquidity or those numbers that were reporting in total liquidity or the consolidated total liquidity numbers, okay wait.

Bush includes how we.

Manage you know.

Group, a working capital Yeah, and you know <unk> our liquidity initiatives. Obviously the main liquidity is it's a it's sales which are.

Wrapping up in following our network, which is based on digital analytics, which is identifying where demand is as a as of last week were firmly at a run rate a sales booking rate of around 10 million RASM day.

And so you have you have the network ramp up there, which is obviously the main the main source of liquidity and within the airline operating property, where matching our cash outflows to those cash inflows as you saw in a quarter.

We were a little were around 200 million realize better than we had previously guided yes.

And for the quarter.

And that that relates to the.

A combination of the ramp up on on sales as well as.

What we've been doing on the working capital side.

And so the airline the airline operations, we did we had about two and a half million rise.

Per day average of cash burn for that for the Q2.

We gave you some guidance there on the on the Q on the Q3 in terms of our expected cash burn of around 6 million.

Not as with within our matching of inflows and outflows and those are the first point is that from an internal perspective, we've you know we're matching the inflows and outflows.

In the Q3.

In terms of capital structure, which is really where you're going with that we have a variety of initiate initiatives that are in execution.

I mean doesn't depend on US you know we have a we have.

Alternatives with our banking partners.

On liquidity mechanisms, which include also rescheduling of obligations that we have there.

I have.

<unk>.

Received the.

Final or take a final the approved.

Terms and structure from a potential local Brazilian real.

Venture issue, which would have support a b D S.

And then over the next couple of weeks you know the goal management team is gonna be presenting a their recommendation to our board of directors on how to proceed with that.

And we also have you know based on our under unencumbered assets.

Which primarily or aeronautical assets, which also includes some non credit card receivables.

We have.

Some structured a secured finance.

Alternatives.

So our in execution.

That we can bring Ford for execution, if we need to.

And finally, we don't have flexibility obviously is on our.

Unsecured capital markets bonds in the market.

As.

As.

From an old is on the call would.

No you know weve those the semiannual interest payments were made bolt on the.

On the convert into 25 bonds this month as planned.

So we don't have any plans to.

Is there anything related to our unsecured bonds in the market.

Finally, just to round it out because this obviously relates to.

The larger or larger questions. You know are less stores have been very supportive during the crisis you know we have.

The ongoing almost nearly dialogue with them to arrange for the return of aircraft and.

Continued deferrals.

And we are also converting.

Large chunks to.

Power by the hour.

And that it's a favorable utilization, a which is a real win win for both leasing companies and us as we navigate through this crisis, yeah, we are costly and keeping our cost advantages and so.

There's also no that is the largest.

The largest at if you will forego two thirds of that.

Gold that is the.

Operating lease.

Fleet than we have so that no met and most of our lets us I've been very supportive we're in the final phase of that and so when I mentioned that.

The successful.

Maintenance of our liquidity and the expected cash burn the main variable in there and I'm highlighting is this is the finalization of our.

Negotiations on our fleet, which is 100% operating lease we've got around 50%, 50% of that 60 aircraft is concluded.

Okay, and you know, it's a company the combination of deferrals haircuts power by the hour adds combination of various factors, but we expect over the next 30 to 60 days they will finalize that component, which is a very important component.

Really what I'm more saying, there and that is that.

As you know we have our deal with labor done we have.

All the work we need to deal with our commercial banking and working capital relationships Don.

And for the most part with suppliers.

And the final piece that we're going to be concluding over the next 30 to 60 days will be the.

The the.

The finalization of.

The changes as it relates to our war.

Our aircraft portfolio. So that's really what I'm, saying, there and that is a it's an important component.

Jack the Vince you know, we're going to match our capacity to demand.

On the other side of this.

We made some small adjustments to the fleet plan as you can analyze through some small calibrations around what we're doing there will probably the most important component, which we still require.

No.

Significant support from our various stakeholders is with the.

With the operating this less source that we're working with and so that's really what I'm highlighting there in that comment.

On the critical nature of some work in progress relates specifically to what we need to finalize.

In the short term one aircraft.

Okay. So that's helpful. When I read that I thought that maybe that was more in reference to the BFDS loan, which it sounds like that that seems to be lower hurdle and you're going to get that Don can you just remind us about the magnitude of that potential transaction. Both I guess it was that public private partnership it to be NDS what.

What's the potential proceeds kind of rough estimate of out of what you're anticipating.

Oh, there what's in there what's in that.

Potential financing, its 2 billion or ISO around 400 million hours.

Five years adventure.

Yes, there's still is work that needs to be done from an execution perspective, we have the.

All the due diligence and the restructuring work is all Don.

We do now and they're approved with that also and.

What we need to work on now is the execution of that.

And how we would fit that into our.

Business plan.

The main does mean use of proceeds for that obviously would be either a cash portion.

Slash working capital.

It's a local financing.

That started in March.

Present government and so yes.

With a long period of time.

Pretty much from the beginning we we've said that we thought that.

It would take until the end of June too.

Finalized the initial phase and that that's pretty much what happened when a little bit into July.

There.

But we still have there still is a.

Runway in front of us on that of the of at least a couple of months somebody that's not something it's got to be.

Coming into the cash cushion.

No.

In the next 30 days I think that's at least 60 days off before.

We would.

The in a position to have a funding on that there's still a lot of work to be done, but I think the.

Perhaps the news is that the.

The terms are finalized and.

We can.

Subject to some final points.

Begin working on an execution. So so rich you said 60 days that gets me to 930 I'm not.

I'm not sure if it isn't in your 2.9 billion realize or is it no.

I would.

Not okay. That's that to me is very important because that's it.

I didn't all right, it's not in our business plan today like okay and in our business.

So gold management over the next two weeks or so I'm going to be working on a potentially incorporating that into our business plan.

That's not and that's not our business plan and all that we communicate with the market.

As a flat a reflection of what's in our business plan, we've been pretty clear, but thats since the beginning we've kind of said, it's not in our business plan analyze the goal credit.

Assuming that's not in there.

If it does come in there.

Would it would be a nice increase on top of cash cushion and liquidity apps and allow us to us to finance the.

The ramp up made the main how we view that from a corporate asked perspective, that's basically working capital to help us finance the.

The recovery in the ramp up yes, so what we've been doing well we've been doing we did in the second quarter, which which was preserving liquidity. It was to be able to have the working capital to finance the ramp up.

And so far I.

I would say the ramp up has been a little bit slower than expected, which is a good thing from a financial perspective from a working capital perspective that the main reason why our cash burn in the into Q2 was was better than expected.

We need to.

Liquidity to finance the ramp up because as an airline and as a present airline we episode invested a significant amount of capital.

Into into revenues.

Generally for us.

It's it's between one to two months of revenues would have to be invested in working capital just to just the floor just the transport passengers. So it's a massive working capital investment.

So what we've been doing is preserving that working capital and when we think is in that in the second in the third quarter here, but why the second quarter was about gaining time until the recovery you started again recovery started in.

Very last week of May when we started ramping up that works. So June was kind of our returned to service model.

And.

Where we started ramping up in the network and as I said as of last week, where to about 10 million Raza day of of sales.

And.

And and.

And so Q3 is for us at goal, it's where where the.

These.

Pass or going across in terms of the ramp up in our working capital such that in the Q4.

You know at a rate.

Somewhere between 60, and 80% of last year, so call it 70% on average in the in the Q4 will be if you will the new normal.

[music].

Our supply demand scenario. So the Q3 for US is a bridge.

On re matching of the.

Assets and liabilities re matching of the inflows and outflows operationally and financially to get to this mean normal in the in the Q4, that's how we're managing here a goal obviously its domestic it's Brazil domestic and that's the.

Information set it we're managing here that's the demand set they were managing here.

And so.

But on your specific question in addition to that.

As I said in addition to that.

What you mentioned in terms of the debenture supported by the Bbs.

And in addition to.

What we're doing with.

Our leases.

We are also.

In the final phases of structures that can work with our unencumbered assets.

In that mix we have.

Between half a billion in a billion rise of.

Additional funding that can come in based on unencumbered assets as those structures that we have available.

Which also could potentially be executed over the next.

60 to 90 days, if we if we need to do those obviously one of the problems is that the market right now is not especially for us at the present airline it's not it's not really there.

The private market the capital market, it's not even a question of cost we don't look at that now.

From a cost perspective, we looked at it from an access and from a from a capital and from a de risking.

Perspective, and it's been a pretty bumpy.

The road.

Where.

So Brazil.

There's a certain aversion to Brazil, a certain aversion to airlines and they were kind of in across set of that bucket. We do think that we entered this crisis, which are much better.

Financial position in a more simple balance sheet, which was a byproduct of the business model to work we've been doing over the last couple of years.

All these alternatives we.

In terms of our on balance sheet, we had available prior to coming into this many require require incremental support from goal stakeholders.

And.

The.

The.

The.

I mean, it kind of you know seems to us that the ideal timing.

In the short term is going to be more September than August.

Obviously August is still in front of us, it's still a possibility to potentially.

Do some of these incremental.

Financings and refinancings get some of this relates to some of the liquidity source that we count on his is not necessarily new capital, but its refinancing of existing capital lengthening out the capital structure, which is important for us, but I would say at this point.

As we look at new external funds coming in.

We don't you don't see a high viability for the month of August, but September where we sit right now is looking a little bit looking a little bit better. Okay. Okay. That's they're extremely helpful. Thanks. Thanks for all your commentary.

Your next question is from Saudi Smith with Raymond James. Please go ahead.

So I think your line is open possibly metered on your end.

Thank you.

Good afternoon, everyone I really appreciate the level of transparency and detail, you're providing with investor updates and Justin.

Scenario.

Regarding the adjusted EBIT I am wondering in am I correct basically what that number is telling us is that kind of that level of earnings the slides that are being upgraded our generating and as we think of as you add capacity back is that something we can assume as each as the capacities and it comes back that's the level of earning.

That we can probably.

Module.

No ramp up.

Hi.

Sorry, I was going to say the first answers yet the second answer is no. The we did on that was just we just excluded all the.

Grounded costs from that calculation, but into Q2, we have a lot of season out of Brazil. So they could do for us is already a very low profitability.

So that does not reflect the.

What could be assumed for.

Whatever you're saying kind of like post pandemic profitability I think what you could assume proposed pandemic profitability is where we were.

Seasonally if you look at the quarters of last year, our objective that working on here a goal is to in the Q4.

This year.

Get back to our.

Sorry, our unit cost.

Connectivity and.

And back to the financial equilibrium of the airline operating company at some point in the Q4.

And and.

We are assuming.

Hey.

A yield similar to last year.

And so.

Let's kind of a long way of saying is that we.

Probably wont wont be.

Necessarily for the entire Q4, but on a run rate basis in Q4 objective would be to get back to the.

Same overall profitability that for example, you were looking on a going last year, why do I say that because they're all policy perspective.

That level of profitability is is is what we sought and what we achieved and what we're going to maintain.

Those levels of EBITDA margin and that level of leverage.

Second to that that EBITDA margin.

In the high Twentys low thirtys.

We were at around a 30% EBITDA margin on average through the quarters and then leverage below three times. It was our policy objectives for us.

And.

Well, we're going to be doing is is getting back to that on the cost side because that's the business model and then the leverage side on a run rate basis is going to be higher than that into Q4.

But.

Eventually that would would come back down.

As.

As you know by the Middle Dish next year, we get to more normalized run rate levels, but on the first part of your question what we what we did there as we.

Excluded we as if we were a 30 aircraft airline.

Without the other 90 aircraft on the ground that would've been our profitability, but it's a it's a management calculation.

It wasn't meant to be a predictor of the future.

We did run the business.

As high as operational efficiency as we could obviously that wasn't the objective, but we kept.

Our capacity match with demand load factors near 80 that was all done to minimize the cash outflow was no. Other objective of the other than that and so thats, just what kind of popped out but we just provided that just to give you an idea of how we're managing the business and.

And then two things will happen one is that obviously, we're going to be losing.

Eliminating from the fleet.

Aircraft this year it down to around 102 aircraft in operating aircraft.

By the ended the year and then we had the flexibility also to take out additional aircraft next year and 2020, Twoq, we need to amend and we also have the Max returned to service, we have a lot of flexibility match capacity with demand on the downside.

If you will we kind of we havent natural hedge if the recovery is slower.

Then expected we have a natural hedge to adjust capacity and in our business capacity is costing cash flow and so reducing the aircraft.

Means that we'll be able to keep our unit cost in line, but some of the overall objective. It's all about the unit cost.

In the revenue bucket.

Short term, it's much more leisure and via far.

But given the capacity that's coming out of the market.

[music].

We do expect at a minimum yield and PRASM.

Stability at least 30 ended this year and at the beginning of next year.

And tied to that and your response in mind.

Is it business demand does come back in a meaningful way.

With that cannot.

85% of 29, I think is 30% 2019 in Threeq you at 65% of China.

For Q, what would that low cap look like if you don't get to that.

I'm going to meaningfully.

Hi, savvy in second half year actually it's pretty hard to asset you did is considering that.

Situation is just you pretty fluid you know we cannot have a.

The sharp focus when that.

Business travelers, who really resumed there.

Cold several.

Partner asset sorry, I'll turn that he had before.

And what do you have also demonstrated so far is more or less the cure and level of off you. Its considering that the most of the demand is composed by the for us So I mean.

Yes.

As long as we have only musically only the video for segment getting on board combine it with those.

On the who need to travel at the moment I mean.

How agencies and.

The infrastructure workers, just kind of stuff I believe that there.

They use into revenues view, we stayed at good levels those ones. We have demonstrated the second to acquire therefore I believe this calculation is pretty much use it for you guys have because you can have a better.

Flavor on what's the market I bought at the moment.

And batch personally I believe that.

This is rob as well.

Come back.

In a stronger away from September on that this is really really hard to.

Now at the moment, we cannot have an accurate.

Yes.

If you want to think about it in terms of our business. Our business you know normally about 70% would be of our traffic would be.

Would be.

Job for business purposes, and within that bucket you know.

Any 530 or so percent.

As corporate or think about large corporate.

Large large Brazilian companies.

Transforming their their employees around Brazil.

That's not right now that component and so when that component comes back.

That's a 25 to 30.

35%.

Bucket.

Sales and revenues, it's not there right now and that is what is not going to come back and build there is a more.

Solid reengagement of economic activity.

In the via bar, obviously, theres a lot of autonomous.

Independently.

That's a knee small company business traffic.

Yes.

It's not subject to corporate travel budgets.

It's got he was saying the.

The expectation of that as of September October coming in.

And that's consistent.

With some of that guidance, we've given our network right now we only have.

Pretty good visibility.

Through August and September where we have in our network and we're selling well we're doing very high load factors, which is in an indication of how good we are doing in terms of predicting where the demand is.

But the August capacity being at 30% of 2019 in the September being at 35%.

We've got a pretty good a handle on that and that's it that's coming out of the data analytics as far as the Q4 that is going to depend on.

Corporate travel coming back for us here in domestic Brazil.

The.

The intentions of the.

Of the of the government.

Our aligned with that.

You are in Brazil normally July is the the winter a vacation month.

School vacation for a month and we'd have schools functioning in August normally.

You know here in the southern Hemisphere. It shows that there would be kind of like your july's like your December January winter break and then August would be kind of like February we're not going to have that this year, but schools are expected to reengage in September.

With all the related issues related to that.

And we do see from our relationships with our corporate clients.

An expectation of starting to authorize for.

Employee travel starting in September.

But it seems more heavily weighted to October with our big corporate clients are big corporate clients are the Petrobras is into valleys and the banks in the construction companies in the energy companies and the real estate companies in Brazil.

Right now or not.

Spending.

On sending their employees.

Around Brazil, So we think our network plan that we've articulated here for goal to you guys.

We have a pretty good visibility on after September what's your which reflects the more.

Wait on the via far.

We don't have the visibility on the Q4.

And it's very easy for us to ramp up quickly within a very short period of time generally the booking curve in Brazil is ship is sold normally sold on a 60 to 90 day basis right now for US that's it's being sold around on a 20 day basis. That's a very short term decision as the ramp up is having happening.

Gradually.

[music].

But I would say that you know, we're going to be more or less where we are right now in terms of the the signs in the leading indicators probably until the end of August when we would have visibility on what the government is going to do on back to school and then a corporate.

San others, but we do have we are having this gradually reopening even though some of the quarantines event.

No extended on a on a 400 basis in the short term to gain additional time, but we are here in Brazil here in here in Brazil, especially in the economic.

Engines of Brazil.

You know.

A little bit of a disconnect probably with what you're reading in the media from what I see when I look at that.

The foreign media on where we live and work and our there's a little bit of a disconnect.

We do have you know we have bars, James that restaurants function.

They are functioning with limited hours, but has been the continual gradual reopening.

[music].

Since the end of June on a very controlled basis.

You are seeing spikes.

In terms of cases identified here in there and I won't comment on the on that on the media is a selection though of that.

But we are much more active today than we were last week and the previous waving cetera, and but but I do think it's going to be now as we're not going to have any significant catalyst during the month of August we're more or less going to stay.

More or less in this area and that's why if you saw we made some adjustments on our network plant now we're expecting arias case from July to August to be up just around 10% and then a september of the up around 15% over September.

Whereas we had this big ramp up of over 100% from June to July and so that we don't expect any any big movements in August and September but if.

What has been articulated by the governments.

Happens over the next 60 days.

That could reflect into the large corporates coming back which would be a big ramp up starting in October and that through the ended the year that is the final four normally for us in Brazil is that.

The.

Economically are seasonally.

The next year kind of starts around September and then we have a big rush of economic activity from September all the way until.

Until until December and then that meshes in with in January which is a huge.

Summer travel vacation.

Time.

For us here in the airline business in Brazil, and that generally goes all the way into whenever Carnival is would you choose the February and so seasonality wise.

The worst part of our year is behind us.

So now we now we normally would be ramping up for the push city ended the year, which is our biggest overall piece of time and that seems like it will kind of machine with what's going on with the.

With the the gradual.

Continual gradual easing of restrictions on mobility and things like that.

You know just kind of gradually through the year, and then going back what I'd say before.

On the financial side, that's a good thing because the more kind of.

Measured and gradual the the ramp up is the better for our working capital.

If we had a quick ramp up it will put a lot of strains on our working capital and we probably would need some external financing to try to help manage through that so that's kind of that.

The the line that.

Okay.

That makes sense all right. Thank you bought.

Your next question is from Stephens stick with Bank of America. Please go ahead.

Hi, Thanks for having the call I wanted to follow up a bit on the last question just on the adjusted EBITDA figure what exactly is within the non recurring expenses for the ground lease and as we look towards the recipe or third quarter fourth quarter would those expenses essentially be proportional to the expenses for the grounded.

And the second quarter.

The second part of your question, Yes stuff and I think we'll probably.

We'll break that out for the third quarter also and then in the fourth quarter, we want anymore, because part of what we're doing is were.

Were ridding ourselves of the excess capacity of the aircraft and that and that is going to that's ramping that'll that'll match at the end of the year.

And so on the Q3 also there'll be some transitions on that.

But it's basically all the it's the fixed costs depreciation and other things.

[music].

If you look in the release, we kind of broke out the components that are in there and if you if you needed to weak if you needed that information we could provide that offline I don't want to use up the time on on the call here today for this but I don't think it's going to be that useful to predict anything.

I think the.

The way that to the best way that is constructed is just whatever the operational fleet is going to be.

And then the and then the unit costs related to that but we can but I can provide to that neither offline. If if you have the intellectual curiosity to look at it.

The.

But it's basically all the.

Let me call at the.

Also the the.

The.

The.

<unk> expenses that aren't necessarily to run the operations that basically relates all the aircraft we had roughly 87.

87% of aircraft grounded in the into Q2.

And so there's a let's jump up costs just related to that which are.

Focused on the operation you have any other questions.

Yes. My next question is just on Capex guidance, what are you cutting back on in the third quarter to get down to $30 million.

Well basically it's a combination of postponements deferrals.

We also as you saw we slowed down a little bit.

The aircraft deliveries to save on cash.

But it's our mean Capex item is engine overhauls, which we do have the ability to kind of program those in ship those around.

Eventually as a catch up on that but we can match those better with overall operations.

There is some technology capex that we have.

Suspended as well, but the main part is on the is on the engine overhaul and then finally as you saw as because of our deal with Boeing we eliminated all the PD piece.

And so part of that also relates to that to the PD piece.

Based on our negotiation with Boeing.

Okay, great. Thank you.

Your next question is from Gavin Mckeown with a Monday. Please go ahead.

Hi, guys Hope you can hear me okay.

Yes, I got it.

Hi, Richard April and.

Can I just.

Two quick questions the ones, who curious and.

The total deliberate.

It's.

Impact.

Kind of referred to the somebody but just curious ask the began to get them on directly.

The number case in Brazil continue to ramp.

Pretty strong race and pretty scary venture for pregnant during their face there I'm just wondering how you think about das impacting demand.

Just wanted to follow up probably you referred to an assumption to pay the delta term loans up we've got a 100%.

Going to be the case at this stage.

Yes, just maybe I got it may be just just understanding your question. Your first part of your question was.

The number of Corona virus cases.

In putting some onto Herbert.

Affecting demand yet.

Demand for air travel.

That's how interesting because.

You know the.

It's not the fear of flying that's preventing people to take the planes actually we saw the demand jumping from.

No less than 5000 customers per day to day crew and ready for them.

Level at the same type of that.

The the Cobiz 19 was negatively evolving and I mean did number to of cases were.

Was growing as well as has the same time that demand was resuming deadlines record me. So this is not that depot.

I think he has deep always providing slide because the arts fear of getting.

Contact target and terminated its more the economy.

I mean.

Paralyzed due to the hold those those who are closed.

The company, Dan I, keeping their employees, who work things at home so.

I mean, the expectation is much more.

Related to our day demand is be attached to the golf tournaments decisions related to how fast they view relax that social decency mattress. That's part of the two is what they're doing is managing that.

Managing the increase.

The rate of increase in mobility and restrictions to keep the capacity utilization of the.

Healthcare system.

Below 100% and so a lot of is being very practically driven by that.

And so the the.

The demand.

The demand.

Are you I'm going back to what I think previously right now we don't have corporate demand that we normally have which is not not in the short term because we're just dealing with the demand is there today, which is more via far.

But those decisions.

Also related to just what's going on an economy and a little bit back into the corporate policies on.

When they can.

I will start authorizing their employees to travel again and do business.

The maintenance and make sales and.

Take blueprints around and two meetings now the majority of business activities in Brazil cannot be done through.

The.

The connection to the laptop on the zone.

Connection Thats got to be Don physically.

And.

And then that down at the chain as well.

One of the things that we've thought about as.

It's kind of leading indicator is the.

The bars, and restaurants and shopping and schools functioning.

As providing the basis to allowed that to the the overall business the.

Corporate visit the function and we don't we don't have that right now in its into gradual ramp up but it but it's very much been driven by.

The the health side of equation as it relates to the health system.

Not based on any fear of flying and if you look if you look at how we've been managing I mean, we've been doing 80% load factors with 80% of our sales in a 20 day booking curve.

It's a very short term demand short term decision, which is as the economy is gradually.

Ramping up.

For adding into frequencies for selling them quickly and having very high load factors.

So there's still a huge potential to for us to stimulate the the long advanced period of purchase.

Because right now it's all very short term and we're not cannibalizing.

Future inventory, we're just keeping our activity.

Very.

Very short and so.

And right now there's a relationship of kind of like 11 to one between leisure travel and corporate.

As it seems like massively inverted as it once that comes back we can lengthen out our booking curve.

And when I, when I say that why am I, saying that is the transportation.

And it would just revenues, but the sales component is the booking curve.

While we have up to a years of inventory and the system, where we're selling 20 days inventory.

And yet and so it's a very short term, it's a very short term component and once that happens. We can now in addition to the ramp up on the actual passenger transportation, which you will see based on a mobility.

The longer term planning nature, especially for the corporates will kick in and that would be a large increase in in sales once that happens going back to our same before more gradual that happens to better from working capital perspective.

But that is probably like I was saying before that I think the next step up on that will probably be.

In near to the end of August or September if we have.

Kids back in school again and.

Have kind of finally settled into this.

Call. It 30, 30% to 40% of 2019 as the platform and then we can build on top of that and if corporate is come back in September October.

That most likely is not just going to be for travel on September October it's going to be coupled with a lengthening.

Of the.

The advanced purchases.

Normally we would be pretty solid out as far as 180 days and so then going back to what I would say before then we'll be selling kind of out to February it will be selling out the carnival next year.

Into our booking curve.

Which is receivables and then through factoring cash and things like that and that's why that's why is it seemed like in the fourth quarter.

Is when those things probably may start to match for us.

So the the ramp up in the booking curve and the the Rightsizing of the fleet for something on the order of 100 to 105 operating aircraft and so.

Okay. That's how we're managing the business right now, but this third quarter is still a transition quarter.

Between the between into Q2 and the Q4.

So all giving you is just potential scenarios kakinoff was saying we had this is our scenario for September beyond its not there's not the budget I mean, right now were and we went from kind of managing the business on a daily basis in the Q2 now.

Now our revenues were managing on a weekly basis and everything else, we're managing for the third quarter.

Through the end of the third quarter.

But I do expect bye bye in September we'll be able to go back to a.

Somewhat more normal booking curve with someone more normal.

Let's say plan if you will.

As it relates to the to the reestablishment of corporate travel in Brazil, Eric.

Thanks, and just on the I didn't have one follow up questions. Okay, but just on the Delta term loan part.

Yes, it's something that back to your assumptions that gets paid but there is because we know.

<unk>.

We're focused on preserving liquidity because everything I was describing one option we have this vehicle for amortization.

One option, we have just to make a full amortization of the loan of this long next month, another option is to amend and extend.

For which we would need to support a delta I mean, those are based on our options.

But given has given us at this stage, which were correct me wrong, maybe two weeks ago until an optimization as required currently.

Not really a viable prospects to amend and extend.

This point.

That is that as another option, which is viable yes, but for now for that we would need to support a delta.

Okay, given us sorry to push off given as were two weeks I.

Do you think about support is potentially there.

Yes, that's a viable option to amend and extend the known for that we would need to support a belt.

Okay.

Okay, sorry, pushing hope you almost on the welcome who can I just felt and I think with Mike's original question, which to US some really helpful color there, but if I could ask the question slightly differently. So.

On your measure of liquidity, which already includes restricted cash is better but.

You go from 3.3 billion at the end of the second quarter 2.9 billion onto the guidance depends on quickly and if I, if I see and.

If I most flat the daily cash burn guidance, which obviously again assumes the term loan pay Dan.

Did about a 700 million GAAP. So they go 3.3 billion less the cash burn rate of 1.1 billion through the quarter using your daily cash burn rate.

Let me to 2.2 on your guidance for 2.9 at the end of the third quarter I'm. Just wondering if you can help us understand where the 700 million inflow comes from.

Yes that comes from a combination of there was a little chart, we put in for the.

The presentation, maybe you saw it.

Comes from a combination of refinancings, and new financings, which we can execute easily within that amount.

To match that because our objective we have to match. It in time, we'll have to match it all today and so matching in time.

And.

Through a combination of refinancings and.

And.

And and and then the other component and so that as you think about it from a capital first the capital structure perspective, but then in addition to that.

It relates to what I was.

Mentioning in the first.

Okay, and the previous points, which is basically.

Not cash from revenues cash from sales, which for us our receivables so.

Normally we'd be at a at a steady state on average of something around.

1.2 billion realized.

Sales per month, which would come into our receivables.

And then.

As we need to we have financing mechanisms such as factoring to bring that into cash the do it so as we shift.

Where we are now to lengthening out the.

Booking curve as it relates to increasing capacity in operations.

Filed a logo.

We'll go off to about.

We will be another incremental of about 700 million rise of receivables in time.

And.

In the very short term, probably an increase of around 200 million rats.

Is related to the short term during the Q3.

From Q2 to Q3 increase in operations.

And like what we don't have right now is that visibility on the Q4, but that Q4 you know.

And then potentially be a substantial ramp up in the receivable because that booking curve lengthening out the booking curve I guess, I, which would normally be you know we would be doing especially with corporate is out.

Well it would be about 180 days right now it's 20 days, so as that Lincoln's out as the ramp up.

Season, and as we keep the via far leisure and add in the corporate.

That that significant ramp up on the sale side.

Potentially happen.

In September like so we don't have the right now that's that's probably not in August so that also that would potentially rent.

That would be another 700 million rise in the way that sounds like you're looking at it.

There.

We we went down if you look at it.

The reestablishment of the normality it frees up if you look at the main variation in our liquidity from Q1 to Q2 was a reduction of around 700 million rise of receivables.

We're basically going to be rebuilding that back into our working capital during the third quarter during the third quarter.

On a slower pace as I said, we're at now around 10 million realized that they have revenues were already looking at a 12 million number.

Here in the next.

Next couple of weeks and so it's really really on a on a week by week basis that we're managing the.

The revenue component and rebuilding that receivable.

Very in a very short term booking curve, which as you know 20 days, which is totally abnormal we've got 80, 80% of sales are in that 2020 money. They booking curve. So as that Lincoln's out for us from a working capital management perspective, there's really kind of do things, we have and we have around 700 million rise of.

In terms of obligations and unencumbered assets and other things that we have at our disposal. If you want to use them.

700 million rise of additional financing that we can pull into the system. If we need it and then another 700 million realize a different 700 million rise on the receivable side.

As I say before all of these will come in over the next 60 to 90 days.

We don't.

Those are tools our disposal, it's just that we depend on.

Other counterparties.

Clients and leasing companies AD and banks at markets to be able to.

To do those but those are reflected in the.

Kevin as a page of the slides, but I think it's a page 25 of the of the presentation, we put up on the on the website.

This morning.

And basically shows.

How that liquidity is is going to be reconstructed in the in the third quarter.

Yes.

Thanks, so much.

Your next question is from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Okay.

Hey, thanks.

Wanted to ask you about your adjusted numbers in terms of how we should interpret them you your revenue was down.

Call it 90% into Q, and you're saying you generated positive EBIT and positive EBITDA.

It's hard to understand how your cost base could be that variable. So like what are you trying to say with these adjusted numbers how should investors interpret them.

Well I don't think before doing that.

That's that's at your disposal. If you if you want to use that you could also use the.

Full cost of 830 aircraft company.

With a.

25 aircraft company on revenues its total useless right and so what we did as we backed out all the costs related to the.

So those aircraft that are on the ground.

Big chunk of that is obviously depreciation it goes in the calculation on the on the unit cost, which is not a cash outflow.

But we also have.

Majority of our costs.

Well, let me go back normally we have about.

Yes.

Our goal business model always had a very high operating leverage would say kind of like.

30, 35% six plus and the remaining variable very levered to fuel and very level to variable cost that's being even more intensified.

Going forward. So, yes, we like thinking about going forward we transformed.

Major portion of our fixed costs into variable costs, which I said fixed costs labor and aircrafts and so there is going to be a pretty good matching.

With our costs with revenues going forward at least for the next 18 at 12 18 months.

Both with labor and.

Aircraft now the component that again.

Transform into a variable cost so easy depreciation.

But in the Q2, there that the made the major item is depreciation, but I can do those I can provide offline as opposed to kind of going through the.

The.

The.

The.

The as opposed to going through that kind of the math here, you're asking me what you guys should do with that.

I'd say couple of components one is that.

You know what were we work on here is to match.

Our inflows with outflows.

And the Big challenge on that is what us than our competitors all doing on the fixed cost side of equation, which is labor and.

And airfreight.

With the aircraft with the our breast 16, you have the depreciation so you have to deal with that so I guess you guys also need to look at what what's happened is all are doing.

And how that's going to transfer translated to the actual profitability Friedgen operational aircraft.

If you will be my final point I guess.

What you could do with that would be just to look at it on an operational aircraft basis and determine what those numbers. We provided you can see what our profitability is for the aircraft. They were actually operated so as not phase back in it.

As we paid back like if I think Q4.

I would say probably by mid Q4, we should be back to a.

The new normal on the fleet size, and that's where we're going to get too on the operating profit, but as I say the savvy Q2 is down quarter for us normally and so you can't extrapolate too much for that for say like a Q4 based on the Q on the Q2.

But we have a much I would say also we have a much lower fixed cost component of our cost structure than our competitors.

And so through the ramp okay, we're going to be generally more more results yet.

Okay and then just just maybe another follow up on on Savi I just want to solve these questions, but you know maybe some feet on the street perspective on on consumer behavior changes in Brazil as it relates to the virus.

The more that people take it seriously wear masks social distance.

The more we can be optimistic that the spread will be contained and some normalcy will return so rich or anybody else. Just wondering if you could give us some feet on the street perspective on if people are taking the virus more seriously in Brazil, you know now versus a month or two ago and thanks, thanks for taking the questions.

Hi, there and he has said that's my.

Yes personnel assessment I believe in that.

Mainly did the kind of customer which is use it to speak a plane I mean, you know your transporting every year.

Something around 30 million you fragrance.

[music].

Natural various as I mean, they're 100 and then she could so but if we can see their goals that are flying 15, 20 times a year. We are talking about total market around 30 million people and this is basically.

And he can be social classes in Brazil. So.

I believe that they are much more.

I mean aware of the benefits.

The following David commented the procedures and we had no problem at all in June.

You'll have the passengers.

Okay being 100% live.

[music].

Request like such as wearing masks every time, we have suspended.

The onboard service and we are delivering his next already when the customers are.

Decline.

Leaving the plane.

And this kind of thing and we had no problem at all to shoot.

Q implement those those measures and seamless definitely I mean, most tomorrow, we see that customers are now getting more.

Comfortable in Bukantz slide AD and taking the planes. So I believe there.

Good correlation between that behavior ad.

The demand increase.

I think also going to okay that is that I think also I'd also say like.

Brazil immediately in March I mean this economic.

Segment that fact used talking about dnbi looking very seriously from day one.

I mean this was you know.

March 9th we had goes down here and so Paul.

I think there was a part that maybe it's not that didnt take it seriously that they quoted in the indeed in the C and D segments of the population.

Would you really don't happen to us.

They never quarantine and shutdown I mean, you could go in the month of April you could talk about like feet on the street.

Every day, so all those.

During the quarantine my regimen was tickets actually to the goal in the morning, a compliance and Walker run home and I.

And.

What's your normally couldn't do on the thesis on well you know and.

I was in the month of March you know you cross the the 23rd of names Street here, which is a eight lane highway, which you would be squash too.

A follow up if you tried to cross it normally you could just walk right across it and this is in the month of already in the month of March.

But.

Good morning taxi drive you know so I would go into the back of the taxi with.

All the plastic protection and masks and everything in the Guy would this delstars about you know in the morning use out in the whereas the some follow where you know bars and restaurants and everybody doing stuff. So there was like two different realities and I think part of what you're seeing in the reflection in the.

In the numbers coming out in those two realities I would say that need AB component of Brazil did a really.

Like exemplary job of of Quarantining March April may.

And even so today I mean.

I think culturally in Brazil, there is a much more let's say.

I would I'd describe it.

Following what authority has requested you to do.

Much different than us, which some people kind of took this flag in defiance of what somebody else, we're selling into do we really have that and this relates to what tequila, saying, which is the main consumer that we had has already kind of gone through that and what we also saw in terms of street on.

On the ground in June we saw in I would say in the SMB segments, which is generally the urbanized central pieces economically viable pieces you already saw in the month of June temporary clinics.

Starting testing clinics, starting to slow down because there was set up in March and April to do testing March April may to the testing already in June they were going down in volumes in the a and b areas and also use of hospital beds in the areas, which is not the case into CMV areas, which.

The thing has been working through their since I don't know June or sell right I mean.

Thats into spiking of the cases, which is not really maybe what you guys see on.

On.

On the metal count that's showing up on the right side of the screen on MSNBC and every day I don't know and then is really important to highlight that the I mean did the CNG social classes. The the all eight of the always.

We didnt as to tool follow the authorities, but some of them we simply couldn't I mean, they were requested to buy there im pleased to work where they were leaving in highly.

Concentrated areas I mean very high.

Operational capacity and just kind of stuff. So I mean, do general mood would be to obey and follow the rules, but a considerable portion maybe.

Most of the.

C and D.

Okay and social passes members they were.

Simply not allowed to follow the crude and very high per capita per square feet.

In their homes there.

The.

They can't the.

Sitting in their library on their couch.

So with all their kids is very different reality, and it's a big chunk of the population right. There's.

20 to 40 million people in those conditions, where.

And thats in the numbers. It's you know it's it's.

It's a little bit the reality of of Brazil.

But.

But I'm sensitive that too because I understand you're saying is like we're seeing there is a weird mismatch.

Hi.

Look at what's going on the international media and we're actually seeing on the.

You said.

Boots on the ground.

Here.

Well, just reflecting what cocky isn't was saying also is that.

I would add to that that traveling broad public in Brazil. Overall, this 30 or so million of frequent travelers in Brazil, it's so much more sophisticated.

I would say client base, then probably your average U.S. traveler.

As a smaller it's also relatively higher income proportionally.

And and and so it it has I think it different relationship with the air travel.

And then I think as less maybe it's more influenced by the necessity in that convenience than.

Than other factors, such as fear or things like that.

But this is going back I mean, that's.

Thats.

In the the traveling public today, which is more of a via far well. We don't have yet is the corporate piece and that corporate fees is definitely influenced by.

Some of these other components that you're talking about.

Mobility and and and also.

The.

You know perception of the being safe, we don't expect any any any push back from that as the economy opens we don't expect any pushback on the.

On the emotional side about air travel.

Not being safe important I've just reflects our very different economic.

Reality and these these things cross as well just in terms of the.

The cross what I mean, the segments of Society Cross where.

The segments of the population have different necessity is very easy for the be classes to spend a couple of months importantly, almost an impossibility for the sandy classes.

The to have to be able to so I've done that.

Very low popular part of the population if they don't work they'll eat.

And so it's a very different reality that is reflected in the in the statistics that you are saying.

Okay, alright, thanks for the thoughts good luck.

Thank you.

The next question is from Alex sell cow with HSBC. Please go ahead.

Hi, Thanks for your question.

How much of market share gains do you guys put introduced prediction.

80% capacity getting back.

Im fourth quarter.

We saw reports on last time.

Turning to be probably not reaching agreement.

Our and going after fire people and takeaway capacity is that twinkie to your expectations, meaning that if it's not you see that could be even better than you guys expect and second how closely you guys monitored the roots.

In Brazil, and if they're not performing number from you're going to close them Dol. Thank you.

Hi, actually we have achieved today, a commanding market share and the level all 40% for zero. So.

This is I mean between two to two precision blind to book, what do we usually hat.

And this is something I believe that we could keep so this is.

Entirely based on our outperformance and we're not assuming any specific.

Movements on.

Our competitors. So this is I mean, how how much we believe we can we can keep yeah. We're now if you.

And then we have clothing morning toward every single route I mean from at the moment or up to now we.

Have knowing patients you.

The gas or give up on any of the roots, we have re United cease the meeker reduction that you had implemented in April so.

The new or do you roots, we have resumed.

Sees them are.

So far.

Sustainable and we believe that by the end of the year, we might be.

Operating something around 80% AIDS you have the mask routes that we were operating pre phobic.

The current current run rates aren't necessarily a good predictive of future because of the real distortion you having the mix of.

Traveling clients, but if you take the mix we have today on a run rate basis worried about 50% of the.

Corporate business market Thats traveling we have about a 50% share.

We know that from the data that we look at but that that's obviously with a significantly reduced market and someone inverted where.

The large poured a large portion of large corporates or not are not traveling.

And so.

I don't think Thats a.

I mean any market share its is a pretty useless, but that derives from the network.

All has a network that it's been built over 20 years, but it is the.

Most.

Presence in the main business markets.

With our capacity is flip were the main business market business travelers want to travel and therefore, it's the most linked into GDP and we also have the highest.

He doesn't what Dan it's about a 90% overlap with what Tams Route network.

And you know since it's similar to what we saw and they all Bianca Brazil situation at the end of 2018 beginning of 19.

And that company had around a 90% overlap.

With goal.

And so with what the Tam is doing.

It's probably a big chunk of passengers that normally would have been traveling on Mattel's network that are driving on the goal network because it goes where they want to go.

I don't know if the data to answer your question.

Yes.

Thanks for that and if you can I'm not sure you can disclose that.

That is from China, specifically, meaning.

How much does the some follow real Ralph has to work for you our predictions to work so.

I'm not sure. If you can you don't disclose that that would be just to see how relevant Douglas.

I'm not sure there they understood correctly. Your question that I believe that so I mean, the slides we've seen some fall there really isn't it or would it be sustainable.

I mean.

In in almost every way disease, because we can relocate these laws truth radio other roots in case that we should reduce the number of frequency is between you and all the so I mean, it could meet and 2025.

At each week root beer date.

Any problem that would have de medium level event is that correct not normally I mean, we don't have you know a high portion of our passenger traffic is connecting traffic all around Brazil, It's even higher now you know it would normally if you go pre pandemic, maybe that was like 25, 30% now it's above 30 30 35.

5% connecting traffic.

Very optimize and that's a function of demand.

But you know normally that if you just want to isolate real Sunpower shuttle like 10.

10% or so revenues and so it's a portion of the overall.

Mix I mean is the goal network is pretty diversified.

And.

And so it's not.

In terms of domestic Brazil, it's the economic footprint in Brazil, and we can adjust around.

In the ramp up here. So that's not that's not really a point there.

We're gonna have to jump ill speak if one of the operator, but we have to jump on.

In five minutes two hour.

Portuguese.

Language.

Conference call and so we're going to cut off now.

There are.

There is another couple of people into Q on questions, we're not going to able to go to those now but.

If you guys could just you know to shoot us an email.

All we can talk later.

And so with that.

We are going up.

Wrap up at the wrap up the English language call here.

Thanks, Rich went in ladies and gentleman I hope you found over presentation very helpful and if not.

Does give us a call area for innovative achieve thank you very much of an active.

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

[music].