Q2 2021 Gol Linhas Aereas Inteligentes SA Earnings Call
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I will now hand, the call over to you Mr Paulo Cocanougher. Please go ahead of that.
Good morning, ladies and gentlemen, welcome to grow Airlines on this call I am probably kicking off the Chief Executive Officer, and I'm joined by Richard Lark, Our Chief Financial Officer.
This morning, we released the second quarter figures also we made.
Made available on the company's Investor Relations website, 3 videos with the results presentation of financial review and the preliminary Q&A.
We hope everyone has watched them as we will now only make a few brief considerations and then move to your questions. The.
The second quarter 2 for 21 was market by 3 relevant themes for goes.
At this time of the rule going forward first the resilience of the Brazilian that sort of in market demand for travelling Brazil is recovering rapidly as a result of the consistent decline in COVID-19 cases and thought that it just seems during the 24th with the reduction of more than 2 per cent per day and new transmissions for as you said in.
Most of the state and with a reduction in the all Brazilian states.
But the government has guaranteed debt of 173 billion of shots will be delivered in the third quarter on increase over day of 143 million doses made available in the first half of 2 for 'twenty 1.
There will be enough vaccines to complete vaccinate the approximate.
<unk> 90 per cent of all Brazilians over 12 years old.
Second goes discipline, the youth management led the company in our containers in the very agile manner.
Reserve the equilibrium between capacity on demand in the second quarter of keeping its load factors and yields high and minimizing cash burn.
The country in the second quarter for volume to anyone go systematically presented the marketing efficiency of superior to its competitors, which reinforces our commitment to balancing the size of the supply route for the predictive demand forecast.
Third gross baths to continuing its sustainable growth.
Based on our expectations.
For the vaccination of rollout in Brazil, we anticipate the business travel will show a sharp recovery as of the first quarter 2020 true when that happens we will increase the gold network to enable higher frequencies in the so Paulo huge value and Brazilian markets restoring those routes to pre pandemic levels.
We will also resume international flights to sell for America, and you ask destinations with discipline and forwarding of the restrictions in compliance with rules of each country with that I'm going to of hand, you over to Richard who is going to take us through some financial highlights.
Thanks Kaki.
A comprehensive financial.
<unk> will review for the quarter was shared with the video presentations. This morning.
We believe you all had a chance to ask system.
In summary goals adjusted EBIT in.
In the second quarter totaled 144 million reais of corresponding to a margin of 14% which shows the restoration of the operating.
Operating margins necessary to support operational growth.
Adjusted EBITDA reached 222 million Reais.
With a margin of 22% reflecting goals successful sustainability efforts in balancing supply and demand.
The net debt ratio, excluding exchangeable notes.
And perpetual bonds to adjusted last 12 month's EBITDA was approximately 10 times on June 30 of 2021, representing the lowest financial leverage among its peers.
Even in an atypical year goal of stands out among.
Few airlines for repaying approximately <unk>.
6 billion Reais in debt since the beginning of 2020.
Due to its disciplined liquidity management and its ability to extract value from current assets.
This strategy enables goal to focus on growing with profitability, leaving the crisis with a lighter and stronger balance sheet compared to its.
The competitors.
The equity issued for the reintegration of the smiles loyalty program together with the capital increase led by the controlling shareholders totaled approximately 1 billion reais in new equity capital during the quarter.
The resumption of the market towards.
Amortization of demand already point to a future of emergence of consolidation opportunities in the airline sector.
The agreement the Gulf signed for the acquisition of map Airlines is in line with this trend and appears as a rational move to strengthen our business model and increase the generation of value for.
For our shareholders.
Now I'd like the return to kick it off.
Thanks, Rich I would like to close by thanking for all of the employees. The team of Eagles, who are leading with care clarity and confidence rezoning successful management throughout the crisis and placing the company in a solid position in resuming.
On its operations.
We reiterate our confidence as we have done over the past months that the company will emerge stronger and even more resilient as markets normalize.
We remain extremely committed and optimistic for the diligent management of our balance sheet and all of our operations throughout the recovery now.
Now I would like to initiate the Q&A session.
Thank you the floor is now open for questions. If you have the question. Please press Star then 1 on your Touchtone bound assets or anytime if at any point. Your question has been answered you may remove yourself from the queue by.
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The first question.
Pricing for Mike Lindenberg with Deutsche Bank. Please go ahead.
Hey, good morning.
Hey, rich just the.
Yeah.
You've provided a lot of detail on the slides about the recovery in demand and the rise of vaccinations in the reduction in transfer.
<unk> comes to rate.
For the second half of the year, though you did scale back the redeployment of of capacity. It is somewhat modest and maybe its nothing more than a recalibration or even maybe acknowledgment that the business travel recovery.
We will not really occur in earnest until the first.
Transmission 2022 is is that what's driving that that moderation of supply for the second half of the year can you provide some color on that thank you.
Yeah.
Hi, Michael Thank you very much for Eric.
Actually.
I could summarize that debt.
For the seizure.
<unk> E slides towards profitability strategy because.
We are pretty confident on the demand recovery has been okay.
On a pretty explicit share.
On the vaccination travelling Brazil took off.
Part of it and gain traction which is happening right now. So every day, we do see the there are more demand about Japan, but also.
The 2 to carefully read what are the current.
The pressure on cost.
We are facing the exchange rate is is the SKU.
The claim against our cost structure, we have the jet fuel prices.
The pretty high so.
We've done on as needed.
We need not only demand.
But we need also a healthy a fair level to be of children, and we will not be part on any.
Market share driven the strength of jazz to to prevail our position I believe that we need to.
Uh huh.
To.
Consider the ink per se.
Our our disc.
Disciplined the way to keep capacity.
The balance it with the demand. So this is basically.
A clear measure.
To recover as soon as possible.
Our.
First of the and therefore, we are.
Cautious about.
How we will deploy our capex and you can't we have translated that into a more modest.
Modest outlook.
Regarding the.
The number of flights a day, we are supposed to operate in the second half of this year and it has.
Some of impacting our revenue outlook. So we are pretty bullish on the demand recovery, we believe that the Brazilian.
Even the <unk>.
We will be successfully develop it.
As it has today, but the industry as a whole.
The needs to recover.
The the margins and therefore, we are.
Meet the Heath more more.
How much of the bus.
First of all that movement then.
The competitors.
Hey, Mike.
In addition edition together.
Because of the yield component in there also because of the slower return of the large corporates.
Which is of much higher yielding cusp.
Customer.
The law.
For us today or not.
Really present in our booking curve, we expected them to start coming back.
The August September.
And in the back.
More strongly in the Q4 and then fully in the Q1, what is the yield component.
In that revenue.
The guidance also the.
Will you initially went out and I think on 1 of the few companies airlines in the World It's actually.
What put guidance back on for the second half of this year.
There was the assumption of a stronger.
And first of the return of the court large corporates, which goes into the yield.
And we have.
We have a quality focus on the revenue it's not just about revenue.
The high quality revenue and.
R R.
Yield growth in the Q2.
And we're just behind.
Return on <unk> was because of this dynamic.
<unk> management.
And so.
So in the Q3 and the Q4.
There is a dynamic happening there where the Q for yields will be much more driven now by.
This narrowing of the large corporate and the Q3 yield.
It is kind of still be more in the VFR leisure category and we are increasing in the Q3.
Leisure routes in the northeast, Brazil with more connections.
It has the lower yield and so the.
The.
The return.
The the adjustment on the volumes also isn't a function of this focus on of high quality yield not just revenue for revenue sake.
That shows up in how we've been managing our yields through.
Through this pandemic versus the market.
More.
We're focused on the.
On the quality and preserving the future revenue and so we're not we're not cannibalizing.
Future revenues.
Create receivables were keeping the booking curve very short.
Which is where the demand is and then when the large corporates come back that booking peripheral lengthen out.
The another way I can say it as well as we're as much as possible of trying to save our future inventory for higher profitability.
And keeping it matched close to our best of fuel and Michael I really really appreciate your question because it gives us the opportunity to better.
Sure.
But our view on how the market is developing the right now from a more.
Holistic.
Point of view.
I think that the company is taking the right decision.
In proceedings, so Hawaii.
Also for <unk> our liquidity.
And in our balance sheet, I mean, translating the head too radical actions.
We are.
We have been able to achieve.
Both important targets I mean.
Keeping liquidity and protecting our balance.
Share period, why are we are amortizing our debt.
And for freely.
Our financial obligations.
<unk>.
It's important to notice that the we are doing debt, having only 60.
The percent of the revenue that we used to GAAP pre pandemic so army.
Ahead of US there are several.
The fortress of our company.
Those could unleash.
The important potentials that we cannot.
<unk>.
Utilize at the moment.
We try to give you. An example, so we are pretty strong on the corporate business the corporate network and at the moment that demand is pretty reduce it and also you know our business model we are we.
Perform the lowest cost in the industry basically because we have the kind of the fleet.
Based upon a high utilization model.
We cannot access debt those benefits considering the current the current market size.
And even though we have.
Being able to keep liquidity.
And to protect the balance sheet. So I mean ahead of us.
Have a more than a promising outlook considering that the demand is of also recover in the corporate leverage we resume.
The.
The.
Travels.
Sometime in the near future, we are not considering the first quarter 2022.
Meanwhile, we will keep.
Our selves discipline.
In the blind et.
Exactly the same strategy, we will not.
The increase.
Increase our capacity over a healthy demand level. This is this is hopefully clear to you as an answer to the aircraft.
Yeah, No that's kaki and rich debt that's.
That's great color. Thanks on that it's obviously very refreshing to hear that you are.
Focused on margin rather than market share get the.
A quick second 1 here on just news out of that American.
Has made an investment of minority investment in jet Smart does that open up.
Any sort of opportunity.
The DS with goal and.
Our carrier that you know.
Has a pretty good footprint in Spanish speaking South America any thoughts on that thank you.
Yeah Michael.
I mean, you know that it has a very strong partnership with American Airlines.
<unk>.
We do believe that that movement as part of the strategy 2.
To enhance their already strong footprint in the region and that might be also.
Promising to all of the partnership considering that.
The stronger the American view of being in the region also the more attractive.
Our offer.
I wouldn't like to speculate on any.
The board.
Further step in our in our partnership.
We do outcome net.
Movement on the American ally on the scene for investing.
In a range.
Thanks, Jackie Thanks rich.
Thank you very much.
The next question comes from Dan Mckenzie with Seaport Global Please go ahead.
Oh, Hey, guys. Thanks for the time here you know, it's kind of a big picture question here.
The goal really does seem like it's going to be of different airline in the snacks cycles. So maybe you could just help us connect the dots on kind of before and after global for versus goal. After so big picture you know what.
The new in this next cycle, we've got the smiles transaction. We've got map, we've got fleet modernization, we've got a relationship with American Airlines.
Lines are switched from sabre to now but from the amateur pardon me and then I think we've got positive GDP in Brazil for the second time in a decade, and so you know for investors.
For 2 collectively overlay you know all of these kind of the new goal on your 2019 results you know what kind of pre tax.
The origin earnings or upside weighted of potentially driven I guess, there's really 1 question.
And I guess, maybe you've unpack some of these for us previously but.
I guess really what I'm getting at is the potential here for better margins better free cash flow as we look ahead 1 of 3 years.
Smart.
Definitely we are as of Q other a stressful situations given by the market circumstances of Covid at this too.
Out of there the demand is is too much below the pandemic.
But.
We cannot.
Just guys our.
Our I would say satisfaction.
Sure.
Bye Bye test team our company.
Through a very challenging period.
And getting out.
Net debt noticing.
The how robust and resilient.
Our business model.
That is.
Pretty clear when you take the consideration do you wait shoes in by our company to do.
Of the COVID-19, so we took the path.
Of the negotiating with average.
A single.
The stakeholder.
Was it to us.
The Mandy to safe to say the lease.
But we successfully came to the.
Well none of us.
Deals with basically every single the stakeholders equally.
Please suppliers the easy the lessors.
Even the customers considering that they were also affected by the network. We mentioned that we were force it to 2 <unk>.
And now that clearly do worse.
Portion of.
The desert crossing ease of use.
<unk> already behind US we see several.
Promising perspectives are ahead of us exactly those once you have mentioned.
In your question.
The company is.
Is like.
Under the worst possible.
The circumstances the worst.
Also the scenario and we are more of them than than the strong I mean, we have.
We didn't lose the opportunity to further enhance our.
Well.
Ask Ted.
The truth is prove successful model being refined already for more than 20 years, you can imagine debt. We are now even the leaner than we were before we have even more efficient processes in places.
We didn't stop.
And the vast team.
The <unk> sorry <unk>.
The further developing our digital platform the the.
The data analytics throughout the structure the fleet renewal.
Yeah.
<unk> you took.
Consideration of a recent past this company went through a tough scenario much earlier than the COVID-19, we've got the Max grounding, we got the Pico for yes.
The constraints.
We face of the Brazilian exchange rate devaluation things can always.
<unk>.
Worse, considering the external factors considering the circumstances, but it's reasonable to believe that.
On the future periods.
Are likely to be much better than the combination of those circumstances I have just mentioned.
Once the company is at the level.
Level debt, we are right now.
And we have a much better.
Future ahead of us most of them.
Many of those external factors I mean that it's just a matter of time to unleash.
The net potential of the company.
Yes.
Now.
In a much better shape.
Not it's not actually share to be.
Pretty of treatments of insane that we definitely are stronger than we were.
Before.
Moving to spend dynamic.
In place.
And the company now.
He didn't capture most of the benefits of having a significant number of new technology planes are available in our operation we are just with.
And 77 maxing out of it at the mall.
You know how fast.
We are about to to renew.
Our fleet and those are.
This is just 1 of the meaningful benefits that we are about to get.
I think we are we are happy.
Due to the.
We have managed to describe this protecting everyone companies jobs employees stakeholders investors.
Our our liquidity.
The pain of our debt obligations.
And.
What we have ahead of us.
The way in the.
The average thing but.
Something not not promising.
This is exactly where we are right now.
Well prepared and well positioned to.
To capture what's a bunch of them and maybe just the complement a couple of things.
Maybe just for like from an asset liability perspective.
Bold pre pandemic post pandemic.
The pre pandemic as you know we spent the better part of the 3 years dealing with the Max issues of the Max grounding.
For more problem loans a lot of.
<unk>.
Pain and suffering.
With the asset side of the equation.
The.
The.
Sorry, just getting through the distractions here in the window outside of our accomplishment here.
Did you close that.
The.
Yeah.
What I was going to say in total post pandemic, that's all behind us and the fact.
As you know we're pivoting here in the next couple of months were for pivoting to.
And acceleration of the fleet transformation from the <unk> for the masses.
And so as we kind.
On a rolling into 2022 will be kind of where we wanted to be.
The 3 years ago.
On asset perspective.
Back with our more normalized activities of the transitioning in.
New aircrafts and transitioning of the okra aircraft the average.
Of the Gulf Fleet.
Kind of creeped up all of the last 3 or 4 years to be about 3 or 4 years higher than we normally would want to have it.
We'll get back.
From an asset perspective, we'll be back reorganized in that perspective, there's a lot of equity value creation.
In that regard on the liability.
Average age.
<unk>.
We will be better than we came into this pandemic.
We emerged.
Merge the 2019 as part of 2020.
Basically.
Staring 2 times leverage.
Down the barrel.
For the.
Last year in the pandemic happened.
But we didn't postpone any of our work on the liability management side of that on the balance sheet side of equation in fact, the intensifying.
Any of the second quarter was a aligned.
On line for US we finalized the take in of the minority interest of smiles.
The.
The liability was eliminated.
At very good economics for us.
Everybody involved.
And we also if you go.
Just on the on the.
On the on the debt side of the equation since the beginning of 2020 of them until now our company has amortized the 6 billion reais of debt.
There's only 1 remaining piece.
In our capital structure.
All of which is pretty much our only short term debt, which will finalize that in the Q3.
So by the time, we can.
Hit the post pandemic.
We not only will have.
Significantly reduced the the debt all of our company.
We'll also have.
We profile of the entire debt, where our next significant.
The debt maturity is 2024 and all of that work continued during the pandemic. So both for an asset for us.
Practice.
We corrected the asset problem, we had which is true.
Stuck for an extra 3 years with.
The Engie generation of the fleet now we're going to go back to accelerating the transition from the energy of the Max's, which has significant cost reductions significant equity value creation.
For.
For our business and the way we do it and then on the liability side of the equation, we're pretty much done now.
Work has been completed.
Theres a final piece to be completed here in the Q3.
But everything pretty much there was according to plan.
So theres a lot of significant there's a lot of latent value creation.
Of that going into the first part of your question that is going to necessarily transform into the pre tax earnings and even post tax earnings. Obviously, you see the the exchange rate variation swings in our and our net results. We've always recommended the kind of put on the side and if you remember.
The conversations we were having back in 2019.
We're focusing everybody on our earnings.
Earnings.
The generation earnings guidance. The fact, there was 1 analyst I think it was the first guy the pumps.
This morning, it was all talking about earnings, which which for me was the sign of relief to finally see cell.
Sell side analysts talking about earnings as opposed to the other issues and Thats the focus that we want.
But in terms of how that would translate into the.
The actual numbers I would kind of point of view to what we were guiding you guys back in 2019 in terms of the parameters of our business in terms of margins.
<unk>.
Growth.
But the short answer I just gave you.
For the long answer the short answer to that question would be.
Our normalized post pandemic pre.
Pre tax.
The margin of around 10%.
The number of that kind of comes out of how we.
We manage this the structured the operating structure and the financial structure of our business.
That's kind of the the.
The spot.
We look for.
<unk>.
And.
And we're in a much better position.
That's what we were kind of guiding you guys in 2019 pre pandemic, we're on a much better position now.
The smiles.
<unk> on its own.
Has the potential to increase those pre tax earnings by 400 million raise of the year and that will be starting to get phased in here in the third quarter that's done already the.
Max the transition to the Max.
Is obviously its phased in over 3 to 5 year period.
But.
On an aircraft the aircraft basis Thats roughly.
15% reduction in cash.
It gets phased in and that's structural and both of those things that I just mentioned, they're just the sight of very few are structural and so the goal after the pandemic.
Make as kaki was saying.
We will structurally be better than the gold prepay debt.
On the volume side of equation, you know structurally in Brazil.
We are a little bit waiting for the large.
The waiting.
Net debt here for the large corporates to come back.
Of the most affected by the dynamic related to the for.
The the pandemic, but structurally Brazil, given our raw material and you mentioned this a little bit on the GDP side of equation on in Brazil.
We're not like.
The us high end services economy on Europe.
Because of the manufacturing economy, we are primarily of raw materials of economy with a little bit of low in manufacturing and that requires and it's a very large country.
Those product development spread off of spread out across a geography of the size of the 48 states.
And so there is.
The huge necessity for air travel to make Brazilian GDP happen and so it will go by the way of Brazilian GDP structurally.
Oil and gas sector agribusiness sector.
Will estate sector infrastructure sector.
All of those sectors are primary large.
Large corporate clients, which right now are traveling with us and so in that springs back that immediately kind of.
Fix is the only kind of if you will balance sheet problem. We have right now which is we're missing about half of 1 billion reais of the accounts receivables.
Those get back on the balance sheet.
Immediately and eventually probably by the Q1 would transfer.
Into an effective an additional 1 billion reais of receivables when we get back to kind of.
Our run rate of.
Call of 1 billion Reais for the month of sales that'll kind of translate into an overall receivables balance of about 1.5 of them right. That's the only kind of piece that's missing from the management of our business right now.
As Scott said, we kind of manage the business over the last almost 18 months without debt.
Using our current other current assets on using the other tools that were available to us and at the same time of operating with 2 pretty simple direct. This 1 was the emerge after the pandemic with the unit cost lower than we entered.
Transport and we've achieved that and number 2.
Keep the financial equilibrium.
To get to get us through this pandemic.
Pre pandemic it was kind of matching if you will revenues of expenses during the pandemic. It was matching cash inflows with the cash outflows, but at the same management, we're doing prepaid.
Enter.
And obviously, we needed a lot of support.
We are also able to use the capital markets too.
To provide some additional long term capital of the controlling shareholder the capital increase I think we're the only.
Airline maybe with the exception of the law is that during this pandemic has done a capital increase.
So all of those things are already done they are behind us.
And so we are a little bit waiting for the large corporates to come back now of which we've articulated about what our view is on that but the work on the balance sheet.
It was pretty much done pre pandemic, we kept the final phases of it during the pandemic the <unk>.
Work on the assets we.
Pandemic weighted for the.
For the Max situation to get resolved that's resolved the network pivoting back to that.
Kind of.
What you guys were used to seeing in the first cycle of goal of all this value and cost reduction we were created creating when we did our first order.
Of.
Of Boeing aircraft, but thanks for that question because I think.
I think thats.
That's definitely where our focus is I think we kind of started our pivot.
In the Q2.
And the effect of the second wave here as Kaki mentioned the.
Sure.
The the vaccination of rollout in Brazil as.
Gaining huge momentum.
You're already seeing the governor of the state of Sao Paulo is already pretty much sticking on he is going to turn off all of restrictions on so Paulo is the economic engine of Brazil on the state of some followers about 1 third of Brazilian GDP. So that's.
Kind of a huge.
<unk> system effect on.
On the country.
Okay.
So we will have the jitters for elections that will start to pop up towards the end of the year, we still have a little bit excess volatility on the currency.
The part of this will be affected by the currency many of the questions that we've been getting on.
Controls a lot of it is explained by currency and oil prices, obviously, we manage those within yields and risk management, but those are obviously determined by the global scenario.
As the world ramps back up this matter I mean, everybody watched the.
Palace comments yesterday, so I won't repeat those but.
On there as you know theres a lot of pieces that are missing in the in the economic system that has to get replenished year for things to get back to normal in Brazil is kind of answer for that because we're a supplier in that dynamic, including higher iron oil prices benefits Brazil.
Currency is always a bit of a question in terms of.
Or is the valor going on I appreciate the weekend, but it seems like all the while the signs are there for a weakening dollar which would also benefit our business, but maybe just kind of what I would wrap around that.
The short answer with 10% pretax margin.
For the long answer is why I, just but thanks for the question.
Understood.
No I appreciate the comprehensive answer.
The second question here is is far simpler just sort of of house cleaning question you know the number.
[noise] of Maxes that are on firm order coming in 2022, I guess is 1 housecleaning question and then <unk>.
Secondly.
You said that the liability management is behind you is there the opportunity.
<unk> to optimize the cost of the liabilities.
I guess you know as you think about the you know the the cap structure of the cost of your debt to the to optimize that as you become more profitable is the or the possibility to lower interest rates with with refinancings.
Thus drive some non operating earnings leverage.
As well over the coming 1 to 3 years.
Yeah on the right side of the balance sheet question that you ask a couple of comments 1 is debt.
We have not deviated from our financial policy targets and so we kind of know what our REIT cost of debt is on a rate cost of equity and we've picked our moments right even though.
The stock goes up and down the bond prices go up and down if you look at the moments, where we've raised the capital they've been at.
Most of the fit in our policy. So we don't we don't.
C of big benefit of doing any refinancing.
I guess on all of the debt we've got now we've got maturities.
'twenty 4 'twenty 5 'twenty 6.
Our convert.
As effectively of 3%.
Coupon for us.
Our 'twenty for maturity of our 25 maturity is effectively of 7% coupon for us.
And the secured deal we did which effectively came in at around 8%.
It's still a reasonable number in there that the 26, which is an 8%.
We've never.
There's been moments flashes in the Pan where we've been kind of looking at Gee, maybe we could do of 6% long term.
Financing.
Coal, but it's always kind of at the at the peak of the market and so you know.
Were in terms of our structural long term liabilities.
And the capital markets.
They make sense I mean, yes, we would always look at.
So activity, we've done bond buybacks over time.
<unk>.
The person out there we've gradually whittle away at that.
Pre pandemic. If you go back to January of last year, we were thinking about just the the PARP actually we're starting to look.
More like.
Debt than equity.
Equity at.
<unk> for kind of just given where Brazilian interest rates when we're thinking about paying it off but if I remember the aircrafts the day.
Main chunk of our liabilities now and going forward of going to be aircraft related secured aircraft financing and all of those all the debt our entire toolbox was available to us in terms of the export credit guarantee facilities, which are effectively.
At that point of the barring for like 85% LTV on those assets and about 4% to 5%.
For here in Dallas, and it's hard to do our cost of the much better on that so most of our activity on the financing side now.
Now on going forward is going to be on unsecured of aircraft financing, which is in the very low single digits.
And on the Brazilian.
The real side of the equation.
There are we just kind of go with the local market rates the only significant.
Local working capital of liability we have.
Today is the is the.
The debenture.
Like I said, which we will.
Net debt generally.
It is of good low rate locally the only thing I didn't mention there was kind of the medium term stuff, which generally relates to the engine overhauls and important financings, which you see on our balance sheet that generally kind of follows market rates of the kind of rollover working capital facilities.
Again, just to kind of understand how we're thinking about it we also have.
Significant collateral available debt, we now have given that we own 100 per cent of our loyalty program, which if we wanted to tap into that the raise some long term money.
The appropriate time.
It could potentially be a source of anywhere from $3 million to $500 million of additional liquidity for us if we needed to do it.
And.
The only question Mark There then I didn't I purposely did not mention it because we don't have any plans to do it is using the <unk>.
The equity instrument that we have goal continues to be the most liquid stocks and Youre of Latin America universe.
We have a strong controlling shareholder.
You saw what he did in the Q2 with the capital increase and so we're very disciplined in unlimited on on what we do on the equity side of the equation I think that would be something we would only consider.
Much of a post pandemic.
In terms of having a fair value for the equity of.
Of the company as you know also now we are a wood look the work we are an independent.
In terms of not having a.
The strategic.
Equity partnership with any strategic partners and so obviously that the debt.
Possibilities also.
Open for us as well as we would think about it but those kind of use of proceeds if it was an equity related use of proceeds.
Theres no liability management for us to do so those would be focused more on growth and investment and for us growth in investment is.
85% is gonna be aircraft related which is going to.
The demand related and what we're doing the plans there so but with that kind of 1 of the shifted back to the your question on the Max's because they said like whenever we're going to be doing there is gonna be linked in the what we're doing in asset acquisition, which is which is effectively match. The Scott and then we are considering to get over the next.
So in months.
I'm kind of between 20 to 30 aircraft.
Uh huh.
I mean, it's likely that of U b.
On a more.
For the.
The half of the range.
Maybe even slightly on both but that's just to give you some.
Some of them.
Like what's the numbers.
Oh that's helpful. Thanks for all the time you guys.
Thank you.
Yeah.
As a reminder, if you have a question press Star then 1 to join the queue. The next question comes from Savi <unk> with Raymond James. Please go ahead.
The <unk>.
Good afternoon.
On the front of mind I'll ask a follow up to kind of Dan.
Dan the question on the on Max delivery cause it.
Like how are you thinking about the engineer returns and what's the typical kind of return cost the cost for energy.
Hi.
Savi actually.
We have been.
For the successful in negotiating dealing of of the lessors.
Are there too.
The 2 cash.
The new planes, replacing all the contracts. So we are the that's 1 of the advantages of.
Really.
The fleet at this moment, so we didnt utilize debt resource pre pandemic and now we have the opportunity to address the.
Necessity to return some of them just 2.
The new contracts the.
The dealt with the with the same glasses they have.
Pretty supportive and also interest in doing so.
The energy has proven again.
The liquidity in the market. So we have demand for our order book and the deals that have been.
Good says.
The discussion.
Ben already negotiated with some less of those are showing that of you not face.
The.
More of.
Additional difficult.
The renewing the fleet, replacing the current energies, but did the new Max those those aircrafts.
I said of actually.
A great plains the have they are demanded by the market and we are.
Also.
Making the most out of the attractive prices that we do have another contract with volume.
At the same time debt the.
The long lasting relationship with most of the lessors.
Bringing to us attractive to replacements.
All of our all of our aircraft the return future aircraft per turn costs already provision in the balance of the accounting rules require you to.
Fully provision all of your aircraft for delivery costs on your balance sheet. So there already.
If you will the already experienced excellent, but thats on a very important installed base.
No no surprises on the whole the Roes.
For us to the returning for us.
That's helpful. I appreciate that and then just as you think about the 20 to 30 Max is coming over the next 18 months are we assuming.
Paths for replacement of half of growth of how should we think about the kind of the net suite a view here.
This is basically.
The way you've seen but the other contracts.
The flexibility to achieve rapidly.
Adjust the number of aircraft in operation.
Following the.
The demand so we could we have protected the hour.
All of our capability to either increase or reduce.
Within the geography of non spirit.
On the size of our fleet.
And those are the tools.
<unk>.
The utilized.
The whenever needed.
2 items to increase.
Okay.
In the very very fast way.
They never of aircraft, we are offering are further reduced income.
That would be you would be facing any kind.
Therefore possible crises I mean for.
Politico economic or.
Whatever.
Good to come because as you know.
It's important to.
To highlight.
Yes, we guided us along the last 20 years to make the business in Brazil.
Is possibly 1 of the most.
Tayo.
The markets.
In the world considering the.
The difference.
Scenarios.
We are facing from time to time do too.
For.
Political of kind of of course circumstances. So.
This is 1 of the most important assets of our business model is the.
How fast the kind of adapt ourselves.
The following the.
For the circumstances.
Okay, I appreciate that and it's on my.
Okay.
If this is the long response, if we can kind of get catch it offline but.
The power by the hour at the.
The setups that are somewhat new I was just wondering.
And what's the economic consideration of flying on aircraft like how do they differ when you have the power by the of our wishes.
Kind of of regular lease I understand with the.
They are you don't have to pay unless you're mostly you don't have to pay out unless you're flying it but does that give you the higher hurdle to actually fly. It I was just kind of curious what the the differences in economic incentives are between the 2 types of leases.
But the.
Overall, we just focus on cash right and so we either.
Do you.
Finance lease or.
A sale lease back or the right the operating leases roll, it's on how thats going to impact our unit costs.
The the in our particular case growth.
Airlines, we use the tool as a way of.
Powered by managing our fleet.
During this pandemic it is always as I mentioned before.
Pre pandemic, we spent about almost almost 3 years with the.
The issue with the masses.
We had accumulated.
The meat demand we had accumulated around.
The 34 aircraft they are on the short term leases.
We're basically buying us time to get to the resolution of the Max problem. The pandemic hit that became out of that became an asset because of the short term nature of those.
For those contracts on that allowed goal.
The negotiated very.
The favorable.
Terms.
Which involved with leasing companies, which of all mark to market power by the hour of deferrals in the.
And the part where they arent calculation and the power by the hour of construct in our case in the case of gold we calculated on average how many aircrafts.
We're going to need at the end of the dependent.
Yeah.
And which was minus we returned around 15 aircrafts. During this pandemic. So we did do of downsizing of 1 of the few airlines and our <unk>.
Market that returned aircraft number 1 number 2 when we calculated how many aircrafts on average we were going to have to keep on the ground.
Kind of it until things normalize post pandemic.
Those of the the aircrafts that we then negotiated the convert into power by the hour for <unk>.
Actually we're paying a very low.
6 monthly cost and we only pay if we fly the aircraft because we also have a very high degree of seasonality here on Brazil.
So we're in a normal year.
We would do say like over over 1000 flights of the peak months of of January and in July and as low of 600 of flights and the low months and so we have a huge seasonality.
Our case, we use the power by the hour of tool.
To be able.
Keep aircraft on the ground without burning cash as opposed to having to return those aircrafts and then resource them on the other side of the pandemic and so we preserved our.
<unk> 2 <unk>.
Rapidly ramp up and followed the NAND here over the next couple.
<unk> 6 <unk>.
The corporate demand comes back on what Im, saying also applies to slight growth right.
No we did not fire any.
The technical people pilots and flight crews, we did of <unk>.
Deal with the unions the transform.
About half of those.
Those fixed costs into variable costs as well the same thing with our fleet effectively reduce our fleet as we transformed the about 50% of it at the variable cost same thing with the labor so that when we when we ramp up we can call back of that labor and we don't have to go on hire pilots of higher aircraft and so for US It was a way of avoiding.
The aircraft returns and extra aircraft returns, which also has the cash outflow as it relates to the returns stagnating that in also.
Uh huh.
Disconnecting employees that we would need back on the other side of it so for us.
All of those tools, where just the way for us the kind of manage this value.
All of the pandemic, it's not something that we you know we normally.
We're doing in our in our company I mean, we did have over the over the 20 years. You know we did sometimes have power by the hour contracts, but it was generally if it were just.
The special situations generally not worth flagging to you know everything we're doing is as always focused on.
The <unk> the cask.
Without much consideration for the cash component during the pandemic, we had the prioritize the cash component.
In the short term and so that's what that's why we in our particular case and so I think the careful.
For airlines use different contracts on that for us It was the way of.
Managing our assets so that we wouldn't have the.
Cut the assets during the pandemic and then pay expensive rates to rehire those assets.
Post pandemic, so that was like 1 of the tools.
Okay.
That's super helpful. Thank you. Thank you Bob.
So when I went on.
We have.
A couple of minutes, we need the switch the Portuguese language for but we have 1 question on the webcast platform, which I'll just.
The 3 here answer it.
I'm wondering if you all which is 1 of our equity partners and your comment on the increase in cask in cask ex fuel in the Q2.
Saracen with the Q1, which is what is the reasons.
Well I mean basically on the on the operating side of the equation.
Q1 for Q2, we had of 5% reduction in stage link.
Which is the function of how we're.
And keeping the network.
And so that obviously, the 5% reduction in the stage length.
Has.
A corresponding lower dilution of.
The overall costs and then there was a slight increase in maintenance expenses.
Manage as it relates to some of the things that we're talking about about.
Preparing.
Aircraft for the ramp up we've been spending money having.
Having expenses to get aircraft ready for growth in Q3, and Q4 as well as.
The transition from the <unk>.
<unk> for the Max's and then on the ex slots.
Well actually than on the field that's on the ex fuel side of equation on the fuel side of the equation for.
Q1 of the Q2, we had about a 20% increase in the average price for.
For jet fuel based on what's going on with international oil prices. So those of the Hain.
The reasons for that.
So with that I think we will finalize the questions and for.
He will just give the closing remarks, so yeah.
Just sort of like to thank you again for your attention and mainly for the great support along with this growth and because the.
The huge attention too.
Every single type of debt you have taken and in all of these.
Even as you are of course to clarify.
Our strategy. So I'd just like to thank you very much for.
For your support and attention so far thank you.
Yes.
This concludes the goal of Airlines conference call for today. Thank you very much for your participation and have a nice day.
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