Q4 2020 Gol Linhas Aereas Inteligentes SA Earnings Call (English)
Welcome to the Golar Airlines fourth quarter, 2000, and 'twenty results Conference call.
This call is being recorded and all participants will be in a listen only mode. During the companys presentation.
After Gold's remarks, there'll be a question and answer session at that time instructions will be given should any participant and need assistance. During this call. Please press star zero to reach the operator.
And is also being broadcast live via webcast and may be accessed through the gold website at www Dot Vogel dotcom thought be our French slash IR and.
And N V IQ platform at Www.
Got EM Z IQ dotcom.
Those following the presentation via the webcast may post their questions on the platform and their questions will either be answered by the management during this call or by the gold 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 golds management.
And on information currently available to the company.
They involve risks and uncertainties, because they relate to future events and therefore depend on circumstances that may or may not occur.
Investors and analysts so understand that events related to macroeconomic conditions industry and other factors could also cause results to differ materially from those expressed in such forward looking statements.
At this time I'll hand, the call over to Mr Paulo, CAC and off please begin sir.
Good morning, ladies and gentlemen, and welcome to Google and lines earnings call I Am Fallbrook I can ask Chief Executive Officer, and I'm joined by Richard Lark, Our Chief Financial Officer to the morning, We released our fourth quarter figures also we made available and goes Investor Relations website reviews at least the results presentation financial review.
And preliminary Q&A, we hope everyone has watched them as we will now only make a few brief considerations and then moved to Europe questions Oh and care.
And I may 15th for 'twenty. One go completed its 20 <unk> anniversary. During these two decades of innovation. The company has some form of day history of commercial aviation and Brazil, and democratize It high quality Air travel and these journey has made us the leader in Brazilian domestic market for the fifth consecutive year leasing and market share of.
88 per cent.
These simple human and I didn't see other kinds of airline committed to EPS.
And fourth quarter 'twenty reflects Max return to service and the call Center and good growth and good number of passengers transported and the domestic market data and December accounted for 100% of Kohl's network operations and the quarter consolidated gross sales reached approximately 2.5 and be in Reais and inquiries are 44% in relation to.
Third quarter 'twenty.
The company's daily sales in fourth quarter exceeded 27 million reais with additional flights during the month of December passenger.
And your revenue increased 96% over the third quarter Twain.
You did 12 months net revenue reached $6 4 billion Reais, a reduction of 54 per cent compared to some false and 19.
For 'twenty go was the only busy and a company to be included in a select list of 13 Global Airlines that received the stage one certification of the IATA environmental assessment and he ever which is validation that the company has developed and the ecosystem and environmental policy and is fulfilling its responsibilities.
<unk> has been recently recognized by the EM Sci and its E.
E S G reading and scorecard as one of the most sustainable and carbo and efficient airlines in the world, reaching cowboy emissions rate up to 20% below its industry peers.
I'm going to hand, you over to Richard who is going to take us through some additional highlights.
Thanks, Kaki during 2020 goals management fully honored its commitment to the global capital markets and cooling the amortization of its 2022 senior notes $70 million and the first quarter of 2000, and 'twenty and its term loan b. Its main short term debt and the amount of $3 million and the third quarter of 2000 and 'twenty.
Even during this very challenging year, we kept our liability management discipline, we have addressed all the relevant financial obligations provided for and our cash flow. We ended 2020 by significantly reducing our short term debt balance.
And strengthened our solid partnerships with the main providers of working capital and.
In December 2020, the company also obtain and important validation of the capital markets through the issuance.
<unk> senior secured notes due 2026, and the amount of $200 million with a coupon of eight per cent per year.
We have no significant capital markets maturities until 2024. This is a reflection of <unk> commitment to strengthening its balance sheet over the past five years.
During the quarter the company achieved cash flow generation of 3 million Reais per day, and the liquidity position of $2 6 billion reais through its effective management of working capital with matching of inflows and outflows, which has been the key driver for maintaining liquidity.
The cost per available seat kilometer cask was 26, one and for four cents.
And nominal increase of 25 per cent compared to the same period last year, but a 4% decrease when excluding the exchange rate variation during the same period.
And the quarter for cost strictly related to operated flights and.
Adjusted Cask corresponded to 20.06 cents and rail.
This represents a 4.9% nominal decline and.
And a 27.4% decline.
When excluding the exchange rate variation compared to the fourth quarter of 2019 and.
And demonstrates the company's continued focus on readjusting its unit cost structure, too and even more efficient baseline when compared to pre pandemic levels.
Glass converted the main fixed payroll and leasing cost into variable costs.
In addition, the return to service of Max aircraft will enhance efficiency with a reduction of about of about 15% and fuel consumption.
More flexibility to operate on both short and long haul routes and.
And an increase and autonomy compared to the 737 and G family.
And 16% lower carbon emissions.
The following metrics demonstrate efficient capacity and pricing management with the company's permanent focus on sustaining revenue levels, even with the reduction and the volume of corporate passengers.
One and average yield per passenger of 27.55 cents and real a reduction of 17% compared to the fourth quarter of 19, mainly due to the reconfiguration of the company's network, concentrating and distributing operations and its hubs and consequently, increasing stage length.
Two.
Average load factor of 81, 1%.
And which was a reduction of 0.4 percentage points compared to the fourth quarter of 19.
Due to prudent supply management.
Adding capacity based on demand indicators.
With the help of our advanced data analytics tools.
And on time departures of 92, 5%, which was an increase of six three percentage points, according to and for Arrow and data provided by the main airports.
Adjusted EBIT was 347 million reais corresponding to a margin of 18%, which demonstrates the reestablishment of the operating margins necessary to support growth and operations.
And our continued search for balancing supply and demand and yields that allow sustainability and.
Adjusted EBITDA margin was 30% and the fourth quarter of 'twenty.
And in 2020 reached 39% or.
A growth of 7.2 percentage points year over year.
Go ended December with a total fleet of 127, B, 737% and 93 aircraft operating and its network, which was an increase of 22 aircrafts compared to the end of September 2020.
In the fourth quarter of 2000 and 'twenty. Despite the challenging operating environment daily flights doubled to approximately 400, when compared to the third quarter of 'twenty to serve 177 markets representing 54 per cent.
All of the daily flights performed in the fourth quarter of 2019.
Now I would like to return to kick it off.
Thanks, Rich and often.
Microsoft continues its recovery, we are seeing a contraction and traveler demand due to rising and the number of COVID-19 cases, and Brazil, combined with extended and international travel restrictions and the beginning of low season and customers waiting for to get vaccinated.
And in relation to Jerry the company recorded and 28 per cent reduction and the level of sales doing February and now in March the companies implementing and even greater reduction and operate at Brooks and what's in the 250 flights per day leasing its operations at approximately 40% of marsh coupon to it.
We believe that the current market conditions, while difficult are temporary and that demand will continue to recover as the vaccine and rollout progresses and Brazil.
We're always prepared to react quickly and adapting each ear and network we used it for.
BT to Facebook tuitions and demand in the coming months.
<unk> continued to be recognized for having the most adaptable and flexible business model for it.
I think the safety of customers and employees, who is the best team and the lowest cost and Brazilian aviation and now I would like to initiate the Q&A session. Thank you.
Thank you.
The floor is now open for questions.
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Please hold while we poll for questions.
And our first question will come from Dan Mckenzie with Seaport Global. Please go ahead.
Oh, Hey, Thanks, Good morning, guys I guess good afternoon for you a couple of questions here a few questions.
You know lots of cost savings initiatives last year, you know that obviously are helping you know from a working capital perspective, and I'm. Just wondering if you can elaborate a little bit on what the relief drivers word that came into play and the fourth quarter and how theyre going to continue to come into play and in 2021, and you know it seems like the E.
The cash.
I'll come and the quarter is is different and you know what we're seeing and the income statement and so I'm just thinking that there is these are these initiatives are coming in nicely and just wonder if you can elaborate a little bit more and those.
Maybe I'll share that.
A couple of things obviously, one is your cost component. The other reason for working capital performance.
As you know, we and managing.
The company through the pandemic.
Simultaneous focus on unit cost and.
Our working capital for financial equilibrium.
And so on.
And sorry.
And.
And that perspective.
One.
And we had about that about 150 and the fourth quarter, we had about.
And so all of this was.
Work, we've done and the Q3.
We went into the Q4.
What about.
Okay.
I just wanted to secondhand I got a fix for phone here hold on.
Sorry.
And for general category as long as well and renegotiation of.
Operating liabilities.
Second one.
Leasing.
And third.
Was payroll.
And for Us was.
And related to working capital assets.
Across the board.
That would come on the.
And the working capital equation and then.
And one other component is also in the fourth quarter.
Related to how we're managing.
Matching the.
And the operations inflows and outflows.
And those are kind of unique.
And matching our capacity to the actual demand.
Identifying and our.
And our operations, but those are the kind of the general categories.
And that produced that.
Positive.
Operating cash that you see with the for US it's fourth quarter now.
I think it's moving more important and.
And maybe make your question and sort of into the Q1.
The same categories exist for us.
And the same levels and terms.
For the size will be there, but and the Q1 on a relative basis.
And those categories that I described to you.
So around $150 million.
For us.
Sources on working capital coming out of renegotiation of operating liabilities.
A similar amount.
On the leasing side of the equation.
From Q4 for Q1, which is keeping those.
Same levels that for <unk>.
This was a source of around.
150 million Reais.
Of savings if you will.
From a cash flow perspective, obviously, some of that and tax cost.
Payroll, which is the third category mentioned.
About.
$50 million per ads or so.
Comes from keeping the same level.
We had Q4.
Based on our and.
Negotiations.
With the Labor Force and then on the on the.
Working capital financing side of the equation.
And a little over 800 million Reais in terms of.
What we roll from maturities and the Q1.
Thank you.
And to the future.
And <unk>.
So I answered it that way is that this is like and ongoing management that we've been doing and this pandemic.
And is working to match the cash outflows with the cash inflows.
And a big source of it is on the working capital side of the equation and these categories operating liabilities leasing payroll and then and.
And then working capital debt.
It has allowed us to and.
And then maintain the levels of liquidity and cash burn per se on the cost side specifically.
We are reporting.
And so the numbers excluding.
And does the grounded portion of our operating assets. So that you can see.
What's the what's the unit cost would be.
Without video.
The inefficiencies of the aircraft on the ground into the.
And to the pandemic.
And we've kind of provided that information is there but.
And I think I'd prefer to answer to the question that way and serves as the focus on.
Unit cost, but the sources. If you will ask if you will the savings for the cash flow savings or cost savings. If you want to define it that way are those all those categories hope that's helpful.
Yeah, No that's great I appreciate it just maybe a couple more questions here one with respect to the corporate reorganization of smiles I Wonder if you can just elaborate a little bit on the steps from here and whether gold could start a competing loyalty program from scratch I think American did that once it spun off.
Labor or are there other steps you could take the shift economics, just given the current crisis.
And then I'll just throw out a second question here and this might actually be for Eduardo just wondering just wondering.
Wondering about the demographics of those people that are traveling and and how that demand demographic has evolved any perspective on that would be great and just I guess bigger picture, we've got a new health Minister and Brazil, and you know whether there is the political appetite there to take the steps needed to really curb the pandemic. So you know the.
And you can open back up more fully.
So a lot and.
Good morning.
I'm, sorry, I'm sorry. Please go ahead and well no I'd, just say and a lot there, but whatever you can share would be great. Thanks.
Okay.
And I hate that Kathy and good morning.
Actually.
And that's exciting.
To answer each one and I'll take questions and Sam two questions. So firstly regarding the smiles and corporate reorganization.
And I hope you understand and I would like to raise any kind of speculation before the next shareholders meeting, which is scheduled to happen.
On March 34 from that next week and.
And then and have 30 days.
It's my hope for those who have 30 days.
Which option.
Dave you choose closing is that and Florida.
And there is going to take a further 30 days after that so.
And at the moment we are.
Not willing to two for you as quickly.
Quick laid on on any audio China achieved that.
Having the shareholders as finding other proposals and.
And then depending on the final result that and we could.
And just because while there.
And all the possible actions, okay. So the second and as it relate D day.
Did I answer to your question.
I appreciate it thanks yeah.
Okay. Okay, Okay, so and the second is related to demographics.
And.
Let me tell you specifically.
On June <unk> branch, and then manage that personally.
Joe.
Geographically there are three important aspects that should be highlighted the mix up demand windup for region of the travel hasnt changed much during the pandemic the southeast region remains.
This is Scott of about 50% for Paul.
Passenger marriage, and insulating and from the last quarter's presentation of passenger as we started to.
Travel and the North region has grown over the quarters.
So looking into the two year series.
Demand and we could even from the South region has decreased from <unk> and east participation and go over.
Other than that.
This is mainly because the solve for even has a larger portion of our business travelers than the other.
The ones and this is specific for the segment most affected.
But it's not a crisis.
Did Easter nation.
And this nation mixed substantially changed in the last year.
And the northeast region, which has a huge leisure for sanction glue and destination and that's possibly a new trend.
And what's going on.
And the mid stage and have remained even.
After the Covid.
And they are saying that the Brazilians.
Finally, this quarter and more the accountant side and.
Natural.
Leisure destinations.
And that might create a new.
<unk>.
Traffic and specifically having.
And more broadly we need a coffee and finally the corporate market.
The shadow market, mainly the loss of sales and the demand and competition at the same happened to solve and southeast Mike.
And now hey, listen before for being more corporate market. So that's an overview.
Changed much during the pandemic I believe that you're going to have more leisure to servers to the northeast region.
And then.
Over as the new.
And that new beds and more.
Sustainable.
And substantial market and.
And the corporate travel will be.
Cohort.
And we will resume only after we will have this pandemic over and we believe we strongly believe that.
There are two milestones ahead of us as we guys two different dead by that and development Firstly is to achieve.
The population.
And 65 years.
And consequently and vaccinated.
And it's reasonable to expect that these effects.
And.
For the second quarter, considering the two introduction nation.
Seattle, which has been officially share.
And with the public by Cvs Health and Easter.
And that and withdraw with significant lead number.
Cases and deaths.
And Thats also could emulate the same thoughts and I believe.
<unk>.
For the quarter last year, when you bet.
Average daily average.
Casualties and.
Drop it.
60 per cent.
Revenue from Heath speak and.
And why do we do expect to achieve flat the population that bold 60 years and 65 years would be.
Unionized.
And that group is ask draw.
From the current two falls in 2017.
And just for day to something a zone windfalls and those even who even below those are all overseen and numbers and that's the way I would do that is to cash it is it would.
Our radio team, but considering what we have learned and the first phase of this pandemic.
They're easing negative correlation between.
Remember that these last cases and.
So I believe that by you and us in second quarter.
George.
C more and <unk>.
Six day.
And the Mad.
Recovery.
We are and we are seeing demolished and and the second milestone.
And B.
Yeah.
60, plus percent of the population would be immunized.
And that would bring us the combination and all the so called third organization with the most exposure.
Barbara for populations being protected and that's good.
Drives us to D and the fantastic and at the end of the disease and immune to COVID-19 and reduce day.
For.
Years likely.
And like any other.
And then it has a good chance to be over and Brazil by <unk>.
And the third quarter.
Paul and engaged.
And for both of them.
And kind of construction.
And deferred question you raised was related to.
Please remind me I'm sorry.
Okay.
Okay.
The other health Minister and the news of the day, New health and safety.
And we do expect that assuming the circumstances.
And the urgency.
For the for new measures that you're gonna have A&P.
And the use of <unk>.
Actions being taken.
She'd be and more effective and.
Combating COVID-19.
For the other things at the moment.
And I don't believe and seniors.
Disruption.
In comparison to watch and we have done and so far politically speaking.
And I think that they've been either.
Sorry for years.
Jesse.
<unk> has raised a large amount of the last weeks and congratulate you and expect that we will.
And a half.
So good news ahead of us likely such as pulling ahead some of the vaccine.
Our revenue scheduled to be built.
<unk> delivered.
By the beginning of the fourth quarter, and having more efficient campaigns and incentivizing people to follow the protocols and this guidance net okay.
Very good thanks for the time you guys.
Thank you.
The next question will come from Mike Lindenberg with Deutsche Bank. Please go ahead.
Yeah, Hey, great.
<unk> cartilage and good afternoon, and I want it and Richard I just wanted to go back on the liability management.
And when the Investor update you can provide sort of a guide there where the liquidity is going from two six to one nine.
And we know that the cash burn is 3 million a day, so call that $100 million.
And the release you do go on to say several important initiatives are relevant to ensure that the company maintains its liquidity at the end of Q Q1, and with Dan and you did you did mention it looked like for different buckets and it.
I think it was $1 50, 150, and another 50, and then I think youre going to push off $800 million, maybe on the working cap side I'm not sure if I heard those numbers right, which then.
It doesn't totally out and I'm just curious if you also have just regular debt coming due number one share.
And part two is are you also anticipating.
And additional transaction could get you to that $1 9 billion does something else have to happen and in addition to the four pillars that you identified.
Sure. Thanks for question and that.
<unk> and <unk>.
I'll just kind of.
And maybe add in there and you can get a free ride on and.
And we get some questions from the.
The coffee platform and internet, sometimes when I give a little bit longer answer.
It's all he says I got a question from the screen and that's right in front of me now and I've tried to answer that.
Question of that person together and.
And so all I can complement that I've got a question and it says it seems that day.
Debt maturing this year, including leases exceeds the companies.
Cash balance for your planning for refinancing.
So obviously, if we don't we don't pay on paid.
Lease operating.
Operating expenses from cash balance, we don't say receipts from.
Our cash balance, we paid and leases from operations.
Maybe that wasn't exactly your question, but.
Hum.
And how it works.
Flow company, right and airlines are flow company inflows and outflows and our capital structure.
We have in terms of capital structure goal.
To support the long term assets and we have no significant capital structural maturities until 2020 for it so just kind of put that on the satellite.
So for folks that are looking at the balance sheet and looking at it the IR for <unk> 16 accounting for leases southern and those are all operating leases at our company and yes.
Yes.
That bucket specifically.
We have been.
Managing our.
Our relationships and contracts with the leasing company.
And keeping them at a minimum level.
That matches as much as possible with operations and.
You know.
When we get our negotiations.
And the second and third quarter of last year.
And of course.
A portion of those.
From a portion of those fixed costs into variable costs, which also include.
A portion of those aircrafts and part of what they are contracts, where you pay and what portion.
Our fixed costs and then.
Total costs and so that that component is dealt with and so.
Important to remember that that portion.
All of the aircraft leasing is treated as on balance sheet, seven and a portion of that is the short term.
Component.
And just kind of put the book of capital markets that's on the side.
We have no significant maturities until 2024% for our non interest in terms of the lease debt.
And the match that with the level of operating inflows, let's put battle and I would also just.
For the heart of your.
No.
The way our company the way our company has worked for airlines.
We've.
So for the interest pandemic avoided schizophrenic capital raising and <unk> done our best to preserve our non cash current assets.
For sure things that you see on the balance sheet like restricted cash.
Deposits.
And I'll kind of those things on the upper left and.
Side of the balance sheet.
And also includes our hedging activities.
And legal deposits.
And so we continue to manage the company and that way.
Releasing restricted cash and deposits when we need sales.
And now.
And the.
And those.
Those all financed.
A part of the <unk>.
Overall.
Okay and.
And secondly.
<unk> is.
What we do in terms of receivables receivables management factory and things like that those balances have come down when you do see and we get numbers there.
Oh well.
<unk> balance and we factor.
<unk> ramped down significantly and the short term, but a lot of pressure on that yes.
Finally as other.
All of those are really on the upper left hand side of the balance sheet now.
And then we have.
Sources of new funds as they come on the upper right hand side of the balance sheet.
Side of what we already have and yes, we have been able to this company and our company and we never lost credit.
From our commercial banking relationships and.
And we've been able to when needed.
Short term credit coming in there when we have a deficit.
Let's talk about working capital perspective, and so if.
If you look at this Q1 and.
And the scenario is going to extend into the Q2.
We've been able to finance this operating deficit.
With.
Freeing up with noncash current assets.
And then.
We also.
Are able to.
That is not sufficient in terms of a timing perspective, meaning that we can unlock our restricted cash unlocked a non cash current asset and it takes.
Takes a little bit longer and we've been able to finance that GAAP with short term credit facilities and that's.
And you'll continue to see that growth for the liquidity that you are seeing now and that were.
Reported.
The last time, you saw that here and the recent cycle was August.
And when we get down to that level.
And 191, eight and it's really kind of like the absolute minimal for us.
Yes.
And and.
Yes.
And then you've got caught I would say no.
We did a good job all the way up until around January 15th for being one step ahead of the ahead of the game on the pandemic concerns and data analytics, and saying where the demand was.
And then I think we like many other countries around the world airline markets at least and tourism.
What we see around South America Latin America.
And it was a surprise.
And the last 60 days of January is a demand collapse because of Covid.
We immediately at the end of January and use our primary total which was capacity right because all of this the fabulous.
Capacity profit margins.
And so we did that work at the end of January obviously, there was a phase and in February.
But pretty much by the end of February we had done what we need to go on for capacity and you've now been seen publicly and I know you look at it.
The capacity is for systems religiously every day and you've seen the ramp down and capacity, but that work was done last 15 days of January 1st and 50 days of February and and what you saw competitively you saw the other companies with.
I don't know us for.
And to six week lag and pretty much follow suit on that and pretty much everybody is kind of falling into the same category.
I think we've had an advantage of having advanced data analytics investments done years ago, where we see and immediately and so for us it was.
And.
December was the highest the hurricane and.
And the deal with another three or four months.
Sure.
The second leg of the Hurricane here now.
Now overall, we will be operating at this level of liquidity.
And the short term, there's a little bit of normal seasonality and now that you would have but its hard to yeah for kind of traveling.
And you can see kind of March April.
Be the worst month for us.
A portion of our capacity would ramp down anyway.
But it's hard to extrapolate the effects right now because of everything and it's mixed in here, but and as we said like the key chunk, that's missing and had been missing was the large corporate fees for what happened.
And the Q1 about mid January.
And we lost something that we had was a significant portion of the high value VFR traffic and.
And so a little bit when in fact, he was mentioning.
It's a combination of.
Yeah.
We had.
Restrictions come back in and a little bit and vaccine is around the corner. So people are sort of waiting for.
And the 12 months of this pandemic. This is the most restricted we have been here.
And also speaking from the perspective of the city of some follow which is about 15 and 17% of Brazilian GDP and the state of Sao Paulo, which is about a third of Brazilian GDP the economic engine on Brazil.
This was the most restricted we plan in terms of movement and activity.
And.
And.
And if let's say mobility and so having said that the economic activity is much higher than it was when we first half these restrictions and so theres a little bit of that Theres, a little bit of late and momentum is happening here and just the the restrictions are different I mean, we have curfews and now from APM till five and.
700, everybody runs off.
But they're already setup to do the work and stuff, but that's significantly impacted.
And it's kind of high and VFR component, because beaches and hotels are effectively.
And so.
Net debt.
Client base that we had we have to deal with it.
Turning to Q1, it eroded a bit of our liquidity probably versus what we had planned from each of you are probably to the tune of something along the order of say 300 million reais or so maybe a little bit more versus what we expected and so we're a little bit lower.
And amount right now but.
But we had a lot of these deals that we had kind of locked in.
We have loosened them up a little bit and December and January and we just kind of clamped down on them again back to where and we had already sort of negotiated and et cetera.
And that's what I'm, saying on a fixed cost with aircraft with labor and then on the.
Just going back to the question.
Debt related to the when you look at.
Debt maturities like I said, we don't have any capital markets maturities, we don't have any.
What we have is really more commercial finance maturities and those were constantly.
Matching those.
With expectations on future cash flow and so long as we can and will continue to roll those over even though from an accounting perspective.
You report those based on usually report those based on what you ask specifically on our contracts and so for example, you know in that.
And that maturity stack that you see for Q1 it was about.
300.
$30 million of eyes on and off.
Turning to <unk> on the on a local debenture, we have with two banks that gets rolled out.
Okay and for the future one other commercial financing and so all of those commercial finance, thanks, and again we've been.
Explain this out nauseam during this pandemic, how the commercial finance sports and our company and we continue to do that.
Those are.
Yeah, we don't have to call, a trustee or WTC trustee or a bond trustees.
And we don't have any of those credit structural impediments.
And to do that for the other day, it's about how effective we continue to be managing working capital.
We do not have visibility on.
We did not have visibility and continue or not that visibility and one of the large corporates and coming back and now we lost.
A portion of the short term booking curve, which is this.
And we kind of think it was around 15% to 20% of our our VFR traffic was which was doing this traveling.
Based on the mobility and the lack of restrictions.
This was across the region I mean, we saw and with many of our counterparts at least in South America, and I think even even Mexico this kind of 15% back.
Back step.
And everybody on a relative basis, but if youll get Brazil right now.
And you compare and all the major domestic airline and markets around the world. It's the worst right now and turn this back.
And we're we're like almost a 100% negatively correlated with like what's going on and the U S and terms of the wrap up.
Domestic traffic.
Experience tells us that we're probably about 60 to 90 days behind and what Youre seeing happening and the U S.
Yeah.
No I can't say more.
And where you are going to be made where we are because maybe where you are.
And might end up going backwards right and so.
This biological.
<unk> phenomenon, that's happening at the end of day.
Good day.
Very few authorities seem to have a day.
Hey.
Hey.
The real grip on subsea.
But the only for the final point I would mention and this is a key point.
And because everything I was talking up to now allows me to answer a lot of questions on net working capital side in terms of.
Major sources of new funds and like I said, we did.
And not do we did not burn up all of our we have not got any external funding for.
From the government here like you ask what's the number something like $40 billion has been pumped into the airlines.
Don't know what the final numbers there, but it is.
Mindboggling for us here.
We have not gotten that and so we have to be very careful about preserving our.
Our tools to access.
Sure.
Responsible capital.
And you saw in December we created this secured financing structure, we are positive about $911.
Model, and there and which gives us up to $600 million of financing capacity within a five and a half year deal, 8% coupon and we did 200 and so we've got capacity and there are at least tournament.
And one of the things and some important through this pandemic, which all of our partners.
Appreciate it and we've been current on interest.
And all of our.
Let's say a couple of markets banks and so we did that.
Capital markets deals generally are semi annual interest payments. So we paid around sort of me and rise of interest in January.
We're still 100% and compliance.
With the best.
What I consider the best ESG metrics you can add.
And this year.
And default or and a chapter 11, and even though.
People want to ask you are looking more on other things like.
Carbon emissions, but we've kept and compliance with capital markets and that's allowed us to keep our local market access and obviously with US we don't have the luxury of permanent capital market access and so we have to have windows, which are combination of when the market is favorable the global market is favorable and those windows of having.
Our quarterly results.
And so.
It's kind of a little bit long way of saying is that we've got.
$3 million of financing capacity and the new secured mechanism.
We have.
Created that's probably arent go to mechanism and the short term if we need to put some additional cash on the balance sheet and as you know Michael the toll roads.
The rules of capital markets activity when you see it from an airline is.
Always remember the airway and always needs more cash and to go to the market when the market and want you to go to market and though.
And if we do.
But and you got it.
Northern you've told me that was the other guidance for higher and you would always ask.
So we obviously how come youre not raising more capital now and Youre always thinking it's going to get better to raise capital.
And one more mature in that respect we have those tools available and that's without mentioned and the other tools. We have we have mature.
Unsecured securities that trade and I've continued to trade decently and the market.
Get a lot of reverse inquiries on if we want to do perhaps on our unsecured bonds and I don't think your convert and our answer to that as well right now we haven't even better vehicle, which is the secured vehicle.
And you're seeing a lateral and interest.
And so if we need to we can go to that and of course, we have to be careful and pick our moment because we don't have incidents like if we run out of those things we can't you know call up.
Our friends in Washington, D C and ask ask them to send those $15 billion, that's not going to happen and so we've had to survive and that's what I think.
It's also meant that we have.
And in it.
And and indirect way and we've created a lot of value here with our existing stakeholders.
Across the capital structure, both bond holders and we preserved our latent credit quality and we havent blown up the right side of our balance sheet. For example, if you compare our.
And of year.
2000, total balance sheet with our end of year 2019 balance sheet, you actually see a slight reduction in current liabilities, you'll see a slight reduction and air traffic liability and you see a lengthening of our long term debt and other words. If you just look at the right side of the balance sheet and forget about the left side.
The right side of our balance sheet is better than it was free.
The pandemic, but of course, what has happened is we lost.
About half of our current assets and were destroyed by the pandemic and I would say.
Current assets I mean, you know the effects of cost of revenues and receivables but.
And so we've been trying to preserve the right side. So within the left side of the balance sheet still is up again, and we think thats going to be at some point and the second half of this year.
And youre going to see a company that looks a lot like it looked like and the second half of 19 and.
And then also on a unit cost basis, I would say in the previous question, but the other kind of guiding directors that we had here is to do everything we can to preserve our unit cost advantage. So that we come back on the other side of this we looked a lot like we look at the end of 2019, obviously, we have a couple of very tough months to get through here.
We're not.
We're trained airline operators were not.
Trained.
Scientists and the field of epidemiology or for how this is going to be matters and so we're using the same information you guys have in terms of.
Managing and reacting to.
This pandemic and the virus as Kaki mentioned, we are now.
We're probably like two months behind where you guys are and in terms of the vaccine rollout and we're starting to get momentum now and there is momentum if you walk around the street around here you've got.
You know what are your thoughts mixture of temporary and make shifts vaccine vaccination centers set up on the street.
And so that that infrastructure is starting.
But that's against what has happened here over the last month, or so where hospitals have gone to full capacity utilization and that was not the case, we probably would have not have the restrictions coming back and.
But because the hospital infrastructure is not sufficient to support what's happening and that was the second way.
The government came in and.
These restrictions to try to help.
Slowed down that curve without saying if you remember.
Back when this thing started 15 days to flatten the curve right from here, where Youll later with the highest score we've had so that's how I'd answer that and then if you have some other questions on that day shoes and email we can go into the details.
On that.
For me the move to the next question for Carlos.
For the fifth credit.
Yeah, No I, just I would just add just.
Putting words to numbers it seems and cocky as point about we get to September and Brazil, and things are on the up and up the one nine and the March quarter of liquidity. That's your low point right because you get to June 30th and you should be selling.
By August September and people should feel better because the numbers are better and I think that's the point is that for 109 is the low point just based on everything you and cocky have said.
Again, that's a reasonable conclusion there but.
Like you said anything can happen. So that's kind of how I am coming out on that.
Based on what <unk> been here and I. Thank you and have you been able to book.
And just anything Michael Jordan emphasize and waterways.
Just to emphasize.
And what do you have well set.
We could consider a day and high.
And.
Likelihood that.
July would be.
Much stronger than we are foreseeing right now assuming as I said before our guidance for the population about six years and we would be already.
And in the deferred and the fourth quarter and milestone and I have mentioned would be the kind of three geared to resume factor day business travelers. So we are sticking to this black.
Very good very good thanks, kaki, thanks rich.
Okay, great. Thank you and thank you.
The next question will come from Duane <unk> with Evercore ISI. Please go ahead.
Okay.
Hey, thanks.
And.
I wanted to ask you just just a couple of questions on our network development and I understand this is a bit of a weird time right now I mean, the good news bad news is youre very experienced with cycles. This is not your first rodeo and Brazil.
You figured out how to find relative competitive strength in the past.
But I just wanted to ask is as you look at the competitive landscape Holistically.
What are you seeing is it logical is it rational.
And maybe and that answer could you comment on slot waivers you know are they still and in fact et cetera.
Hi, Brian.
And I believe that we might be.
Facing and find out.
And that had been effected by the beginning of the pandemic and Brazil. So some of the players reacting faster or either reacting faster or.
Yes.
C.
And the reader.
What's really going on.
A little bit earlier than the others. So definitely there is at the moment a reduction in demand.
Causes by.
The increase and the Covid case and University.
It gives us and Brazil and that is affecting the short term.
And quite significantly and.
That's why we have seen so I'd say rational.
About the.
The near term capacity being deployed and.
And I can tell you that this is exactly the same.
Behavior.
Noticed among.
For the competition. So I believe that there is a few if I could say so and <unk>.
All physician that may change and market and launch, but I believe it is going to be fixed.
And in the one or two weeks considering into two inch day.
Demand weakness.
Anyhow, we are not depending on interest I mean, we took over measures and the other two as we always each day.
Manish.
Our other performance quite independently of watches and Dean.
Decided by other competitors, but I couldnt value of that at the moment the 100 per cent of the markets rational because it's not as will other helps and so forth and.
And we haven't.
And we didn't go to the router and having did financing like some of those guys and all the other guys have their own debt financing and so we have the magic and secondly.
Generally.
For about five years that we've been the leader at least for Brazil domestically on setting the tone.
Literally since May of 2016, that's when the saints lift over it.
Broadband leader and everybody has been a follower that has generally been the case and it varies across the board in terms of the.
The lead lag.
And it's part of what we're saying is that.
We.
Recognize really quickly in January.
What was happening and at the end of January.
<unk> started the process of ramping down our capacity.
And I think other folks book.
Somewhere between one and two months to come up for that and I think thats part of it is our and it's how we manage the business on a day to day basis as part of it is.
The investment that we made and data analytics, which allows us to have.
You know, maybe a little bit better handle on that.
Component there.
And it does that answer your question Brian.
That's helpful. And then just just to be a comment something we should know, but what is the status on slot waivers how long before those need to be kind of extended.
Sorry, and then you have mentioned before I forget.
Forget Josh.
Actually we are and.
And there are.
And who.
A formal waiver and to you and to the end of September So I mean, the yeah.
Yes.
Summer season.
As you can ask the agenda, we have are ready.
Engaged in new conversations.
Sorry, just because considering.
And that makes it.
It might be that.
We all we need.
A further.
Seasonal labor.
To be applied so this is and who is our expectation and we're just going to be.
And delivery starting I'm, sorry, the season and studying next October.
And the IATA winter season, So we are and are addressing.
This discussion towards the resiliency view airline hotel, Richie and I hope that they're going to have something from each day.
Okay.
We're going to just so we get credit to all the questions.
And fairness to everyone and we're going to look for the next question, but just before that and I'm going to slip and a question. We got from one of our big <unk>.
<unk> assets.
Your release says that you were able to get a good portion of leases and power by the hour agreements you feel that you continue to have these favorable agreements as travel recovery and developed markets potentially outpaces recovery in Brazil, especially with rising cases, and a slower vaccine rollout.
The short answer is yes.
The and I was.
There's probably about a little bit on the Michael question, but maybe drill down a little bit I mean.
We can keep our minimum payment.
Which which can be up to about a 70% reduction and continue to extend that if we have a slow recovery.
Also given potential new taxation on leases Volcker and get some grace in March and April to preserve payments.
Power by the hour is on about half of our contracts and the other half for.
Deferral related and that situation deferrals would be extended.
And our lessors are supportive and understand the situation and we continue to work on that.
And with them.
That ends up working out to be that we would and that was the scenario.
No.
We ended up.
And no more than about 50% of our lease payments according to our agreement and <unk>.
Also goes into one of the previous questions as well and folks look at the.
The on balance sheet accounting for short term lease payments for.
What would actually happen.
When you look at that number if we needed to that number could be half of what that short term liabilities on the balance sheet.
Which is.
If I remember correctly and puts them.
And we manage the business and in terms of looking at the on balance sheet next 12 months.
Payable, but the difference there would be about 1 billion reais of cash savings during fiscal 2021. So that we can go. The next question. We got for another three question people and the queue here and we'll try and get thrown for the top of the hour.
What we need to switch to our Portuguese call.
Everybody knows we do these things and in both English and I. Unfortunately, so please next question.
The next question will come from Savi <unk> with Raymond James. Please go ahead.
Hi, good afternoon and are on track.
And two couple of quick questions first package here and your response to Dan you talked about kind of the phases and recovery I'm just kind of wondering what your corporate clients are telling you in terms of what they need to see to get comfortable returning to kind of business travel.
Yes savi.
Thanks for your interest account groups I mean, 20%.
Wind for the business drove is never as profit line.
And even during this pandemic. So those are the essential workers the health systems, and just kind of.
And.
And that's just that's forever and.
This is I would say the base level, we can have never changed the second group.
Uh huh.
Another third is made of.
Large corporates.
And that those are under.
Human resources.
Policies that are blocking down.
And ill flying so I've lived disease. The group that we refer to resume when the pandemic will be either under control or decidedly over and then you have another Porsche Porsche and maybe one third.
And I believe.
Duke words of this one for.
Possibly.
Much longer or maybe even.
And not come back those out and.
And to travelers that and we will replace.
As a business and thereby.
The business travel by.
One of the and use technology, such as video conference and this kind of stuff and I believe that.
When I say that we will have from this.
The third quarter on <unk>.
More business others resuming.
Yeah.
I believe that we have on top of the crew and one third was to traveling.
We would be.
Another for maybe 40 percentage points on top of the 30% is to apply did I answer to the question.
And that was perfect. That's very clear, thanks, Kaki and rich real quickly and just on the fuel hedging front, but what's in place for for 2021 and are you doing anything more than I'm guessing not but just curious from a quick update on the hedging.
For sure we continue to do a pretty good job of dealing with that it's been less importance.
Our normal objectives are related to margin management and <unk>.
Basically permitting and uptime to adjust yields to pass on cost increases and thats been pretty much irrelevant.
I understand.
We came into the first quarter.
And with about a.
50% hedge ratio for 2021, and 20% headwinds for 2022.
In the low fifties.
And you will and what.
We did during the Q1 as we when we hit our view triggers and the low sixties on oil.
And that's kind of what I was saying I think it was and the first question.
Those.
Gains if you will.
And if you will and non cash current assets and so I think during this pandemic as you go from the beginning of the pandemic until now.
And we probably had probably close to somewhere between four and 500 million Reais.
Cash inflows because of gains on our.
Fuel hedge.
<unk>.
It's not really much to hedge against.
Given the demand dynamic here and the inability to the yield management period, but once you have management comes back on.
Do you expect that to say that but it's a little bit lower than those hedge ratio as I mentioned, it's not relevant for us right now because of how we're managing the business.
And.
And we actually and our view is things have overshot a little bit now so we're not going to be putting in and on a new hedges at this level right now.
In terms of our fundamental.
And <unk> view.
On that and so.
I will now move to the affordable and the next question I'm going to fit in one more of the questions we're getting from the.
On the platform here just to kind of be efficient with the time.
And a question was basically.
What do you attribute the drop in your total liquidity from the end of Q4 to the end of what Youre expecting for the end of Q1.
And your and your.
Perspectives.
And.
The answer to that would be.
And our accounts receivable dropped about 200 million reais over the course of the first quarter here of 2021, we finished.
2000 at December we.
We finished with around 700 million rise and accounts receivable and now we have about $500 million that's related to the drop in the forward booking growth.
And this is a temporary effect.
We had around 1 billion Reais a month on average throughout the year of accounts receivables pre pandemic.
That balance right now is about 500 million Reais as I said and and.
And.
And two for that was around $700 million now if we had the same level of receivables with the port booking.
Today, we would have liquidity of about $2 to $2 3 billion.
So hopefully I answered that so now let's go and we can squeeze and one more question here and.
It looks like I'm, not going to be able to get to the last question, Matt, but <unk> got it.
We can set up a call later we.
And we can move and the last question here operator.
The next question will come from Rajeev.
And <unk> with UBS. Please go ahead.
Thanks, very much Richard.
So thanks for the opportunity ahead for a couple here one is one.
One day.
That the amortization that is expected for the first Q 'twenty one it's about $900 million. So my question is.
Is the 3 million per day cash burn and expected for the first Q does it include these $900 million debt amortization and also how the how does the company and to finance debt amortization. That's the first one thank you.
Okay.
To start we have you been on for the whole call or did you just right now.
I'm here for the whole call.
Because you already answered this question I mean and you'll be.
Alright.
And please Richard can you be more specific how youre going to find its net.
And I heard you, saying a bunch of.
Okay.
A bunch of options you had with can you be more specific and then please.
Yeah again.
Hey.
And because we got we have to.
Everybody's time here and we can also go into the math with you offline, but basically contractually we have those maturities and split the majority of those are commercial finance.
Which are with specific counterparties and we basically rolled those over and so we don't have the majority of those maturities. We don't have as cash outflows from and amortization perspective, but we haven't and interest expense maintenance. So that's basically it and I can go into the details with you offline and so we can get to that spot.
So as I mentioned, the 300 million of debentures and their.
And then there's about another $40 million or so.
And as a commercial finance.
It's you know.
As I mentioned during this pandemic every single quarter and every single quarter, we get the same question.
We're constantly working to match those cash outflows with cash inflows and.
And staying current on interest to preserve our credit access and so.
And that's about 700 million rise with those numbers you mentioned are in that category and then the rest. The GAAP. There is just how we how we manage working capital and if you need more than that we can we can talk offline and you said yes.
Yeah.
Yes, Thank you Richard and.
Next question is regarding <unk>, so with the current FX depreciation and the oil price expansion, what kind of yields they.
The company needs to be profitable like can you say the amount of for expansion and yields necessary.
And as 19 levels or something like that for the.
The company to be as profitable as before.
So considering you know other efficiencies that you have implemented and they're doing during this crisis.
Yes, I mean, if you saw in the queue for those levels.
Because again remember it was mentioned before and we've got too many ways for units pandemic wanted Vulned unit cost side and second is on the equilibrium site.
That if you look at the adjusted profitability and the Q4 EBITDA margin EBIT margin.
Those are the levels and we had pre pandemic and terms of profitability.
Excluding the aircraft on the ground, which is net piece of.
Of assets that we're keeping.
So that we have as opposed to returning those assets, which we could if we wanted to.
Returning those and then contract and those back.
And we don't think its necessary. So those aircrafts that we have today and in the ground.
Gonna be necessary on the other side of this pandemic, which you believe is gonna be and the second half of this year and so.
For Q4 numbers that you saw on an adjusted basis, excluding the ground and a portion of the fleet.
And that's the level of profitability that we need and that's the level of profitability that we have we had pre pandemic. So that's latent in our structure right now.
And there is a little bit of inefficiency there in terms of aircraft utilization.
We're not near where we want to be on that but.
I think that's the best indicator of how we've been managing our company.
And you know another way of saying it for you.
Based on the current dynamic right now with the current level of operating cost cash which has some.
Which is.
Which is.
Being affected by.
And being affected by the pandemic.
Compare and I would say fourth quarter.
And on the fourth quarter 2020.
We have that EBIT.
The yield would be 2008.
And so use that.
However, you want to use it because I know you do a lot of work on the yield side of the equation and you're looking at things like that and so.
On a on a recurring basis that 28 cents yield compared to a 21 cash.
And it gives us that.
Very nice positive EBIT, if you'd take a total basis, which includes all the aircraft on the ground and inefficiency that's breakeven.
28, minus 28 zero and so that's kind of how we manage the business for the Q4 and so on a fully loaded basis, we had that breakeven and the in the queue for what on a recurring basis, which we've been trying to give you guys. This data.
And the in the release, there's a lot of work for us to kind of give you that accurately.
And so that you can use that because it would be very difficult for you to come up with that on your own.
And a positive EBIT of about 7%.
For SK and if you look at our competitors they are not even close to matching between yield and and unit costs.
And that's how we've been managing our company and I'm not saying that the other guys are they're managing it for one of our other objectives. We've had but we've got two primary directors. During this pandemic wanted to make sure that we keep our unit cost advantage and that when we come out of this we have a unit costs it is equal to or lower than where we came in.
And then.
Matching of assets and liabilities during the pandemic the yield component and.
And this is important right I mean today the.
Yield is pretty much given to US you know the demand is given to US we don't have.
The normal tool of yield management.
And the traditional central it doesn't exist today, we don't have the ability for either stimulate or repressed demand today.
Today, just because of where demand is and the capacity and in fact, I think I saw your report and you're highly.
Highlighting the overcapacity I mean, if you look at it on a fully loaded basis, yes, with the grounded aircraft versus the current demand.
And demand that we have today, obviously, theres overcapacity and it's going to depend on how people manage those aircraft on the ground and you've seen what we've been doing I mean last year, we returned.
We returned 13 aircraft and and received three aircrafts.
You know as we are.
Transforming to actions we are the only company that you cover that returned aircraft last year and we have the ability to do that and we have the continued ability to do that and we've given you. Some insights on what we're thinking about for this year.
As well, where we're going to we're going to have poor planning on returning another nine aircrafts and then and that hopefully will be replaced by Max is coming and as we get back on our fleet transformation and and that's the key to the unit cost because again its like for US we start with the unit cost.
The yield generally we're trying to optimize it given the demand net we're giving it and normally in a normal environment, we have a pretty good ability to do yield management with a large corporate and matching it through the acute seasonality that we have here in Brazil.
Now anyone that tells you at least and our market here that they're doing yield management, either doesn't know what they're talking about or other selling you'll feel good because we do not have the ability to stimulate demand with fares and also the demand set that's there today is not necessarily.
Being.
Suppressed.
If we increase share so keep that in mind, that's probably continues for at least a couple of months until until we get back on track here with normal.
Yield yield management and so so.
So with that we're going to have to move to.
Two.
And the closing remarks, operator, we had one or two more people and the Q, but we know you guys and so please shoes and email and we'll follow up back with you.
Later today.
And to see if we if we can help you with any additional questions. So without it and we go for closing remarks.
Operator please.
This concludes today's question and answer session I would like to invite management to proceed with closing remarks. Please go ahead.
Thank you all very much for your questions.
And this.
Session was helpful to you all and <unk>.
And these are not hesitate to get in contact with us engaged and need any further clarification. Thank you very much.
This concludes the goal Airlines conference call for today. Thank you very much for your participation and have a nice day you may now disconnect.
And then.
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