Gol Linhas Aéreas Inteligentes S.A. (NYSE:GOL) Q2 2023 Earnings Call Transcript

Gol Linhas Aéreas Inteligentes S.A. (NYSE:GOL) Q2 2023 Earnings Call Transcript July 27, 2023

Gol Linhas Aéreas Inteligentes S.A. misses on earnings expectations. Reported EPS is $-0.43 EPS, expectations were $0.11.

Operator: Good morning. Welcome to GOL Airlines Second Quarter 2023 Results Conference Call. This morning, the company made available its results. After GOL’s presentation, we will initiate the Q&A session for analysts and investors when further instructions will be provided. This event is also being broadcasted live via Zoom and may be accessed throughout the company’s website at www.voegol.com.br/ir. We’d like to inform that all participants will only watch the presentation, the event during the presentation, and then participants will also be able to send their questions on the platform, and they will be answered by the management during this conference call or by GOL’s Investor Relations team after the end of the conference call.

[Operator Instructions] Before proceeding, we emphasize that forward-looking statements are based on the beliefs and assumptions of company’s management and on information currently available to GOL. They involve risks and uncertainties, given that they are related to future events, and therefore, depends on circumstances that may or may not occur. Investors and analysts should consider that events related to the macroeconomic conditions, the industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. At this time, I will hand over to Mr. Celso Ferrer. Please, Mr. Ferrer, you may begin.

Celso Ferrer: Good morning, everyone. We appreciate you joining us today. This morning, we posted our second quarter 2023 earnings release and a slide presentation on GOL Investor Relations website. So we will make just a few briefing comments here and shoot straight through your questions. Thanks for the great work of our Team of Eagles, we announced record revenue and operating margin for the second quarter, which is the seasonally the weakest one in the year. We were also recognized as the best airline in South America by APEX Passenger Choice Award 2023, crowning all the efforts of our best professionals in the industry. Also, according to ABRACORP data, the Association of the Corporate Travel Agent, GOL consolidated its leadership in the first half of the year as a leader in the corporate markets, demonstrating that business passengers prefer to fly with us.

All of this reflected the strengthening of our network, both domestic and international and our unique low-cost business model and GOL differentiated brand. This reflects the consistent recovery in demand currently more supported by leisure with a gradual but slower-than-expected recovery in the corporate demand, but which has brought an important contribution to our fare discipline. During the autumn period, we expanded our capacity by 14% over the second quarter 2022 reaching around 91% of our 2019 capacity and even surpassing 100% on selected days, highlighting the growth in Sao Paulo, connecting main largest airports and markets as our position to capture corporate passengers. We also connect new regional destinations with our own Boeing 737 fleet from the capital of Sao Paulo, both airports to Caldas Novas, [indiscernible].

This is the way to provide low cost and available and good fares for everyone in Brazil. In the international market, the company started to grow its flights at a stronger pace now and 73% versus last year, reaching around 63% of its 2019 capacity mainly in new flights from group to South America and from Brazilian to Florida. Between April and June, GOL transported 7 million passengers in more than 55,000 departures. This represents an increase of 20% in both metrics comparing to the second quarter last year. Our total unit revenue per ASK, our RASK grew 12.2% while our PRASK passenger revenue per ASK grew 8.9%, demonstrating the potential that the company has been unlocking in its revenue diversification initiatives. Yield grew by 9.5% in the period, which demonstrated that we have been delivering efficiency and dynamic management of our fares through capacity control.

We maintain our disciplined approach to costs to further drive productivity as showing in our better efficiency and productivity indicators. Excluding the effects of the cargo fleet, our unit cost decreased by 80% comparing to the last year. The unit cost, excluding fuel, remained stable, down approximately 1.5% on the same comparative basis. We kept our unit costs under control, even with a decrease in approximately 5% on an average stage length [ph] due to the growth in the number of departures, especially because we are flying more in shorter routes and also regional markets. The utilization of our operating fleet remain at elevated level of performance reaching approximately 11 hours per day, an increase of 6% comparing to last year, while fuel consumption per hour of operation remain in line in the comparison in the same period.

Our loyalty and cargo business has demonstrated improvements every quarter and made an important contribution to the results for this quarter. Smiles increased its total customer base by 8.3% and reached over BRL 1.2 billion in revenues, another sequential increase versus the previous quarter. The cargo unit, our Gollog record even greater growth, more than doubling its quarterly revenue, mainly due to the contribution of dedicated cargo operations with Mercado Livre, which in this quarter, received the fourth dedicated aircraft from a total of six this year, with a potential to increase up to 12 planes. As a result, our cargo, loyalty and other revenues increased by more than 72% comparing to the previous year, reaching BRL 425 million. We continue to prioritize reliability, profitability and strengthening our balance sheet.

Consumer demand for air travel remains robustic and we are retaining our 2023 outlook for earnings per ADS of approximately $0.20 in net debt over EBITDA rate of around six times. Although we have reduced our projections for the overall capacity for the year, second half will be stronger, and we expect to intensify our efficiency and productivity metrics by reducing the number of non-operating aircraft, and we hope that with our lowest cost structure and commitment of our Team of Eagles to deliver the best customer satisfaction. We will further strength GOL’s competitive advantage in the market. I’m now turning the floor over to Mario, who will present some additional highlights.

Mario Liao: Thanks, Celso, and good morning, everyone. So, I reinforce Celso’s message of consistency in operating results. Our record revenues with margins above 20% on recent quarters. Our strategy is underpinned by a commitment to financial performance with a focus on recovering the free cash flow for our current operations, and we are going to deliver it with a combination of supply recovery with consistent delivery of profitability. Talking about sales, we reached more than BRL 5 billion this quarter, the highest for the second quarter in the GOL’s history and 7.3% above second quarter 2022 when there was a strong recovery in demand after a prolonged period of uncertainties due to the pandemic. Our yield and RASK also established new levels for the period, growing by 9.5% and 12.2%, respectively, reaching R$0.47 and R$0.40 [ph].

With an integrated and proven commercial strategy and the best people in the industry, we have significant opportunities ahead. The operating margin, EBIT and EBITDA margins reached 13% and 22.8%, respectively. Our EBITDA in the quarter was BRL 947 million, totaling BRL 2.1 billion in the first half of the year. The unit cost fuel decreased by approximately 18%, mainly impacted by the reduction in jet fuel prices in the quarter as a combined effect of a more stable oil prices and appreciation of the real exchange rates. This reduction in the cost of fuel was fundamental for reducing our total unit cost by approximately 8%. Since the beginning of the year, GOL has maintained our ex-fuel unit cost under control at levels that are similar to pre-pandemic period and with the resumption of productivity in our fleet, company will reach even lower levels for the second half of 2023.

The company’s operating cash flow was approximately BRL 700 million. CapEx investments amounted to BRL 300 million, mainly to the recovery of investments with spare parts and engine maintenance in this quarter in order to prepare for the high season to the entrance of high season. Cash flow from financing activities, including amortization of financial debt and leases amounted to approximately BRL 670 million in the period. Our leverage in the quarter was 6.7 times using the seven times leases calculation or five times under IFRS 16, a reduction of 1.1 times compared to the end of last quarter and 2.8 times lower than compared to the end of last year, mainly due to the increase in our last 12 months EBITDA. Excluding the facts of the senior secured notes 2028 [ph], that number would be 3.5 times.

We updated our financial forecast for the quarter, highlighting mainly the increase in the EBITDA margin to 25%. We remain focused on balancing our capital structure, bringing consecutive leverage reductions and therefore, an improvement in the company’s risk perception. Now, I turn the floor back to Celso.

Celso Ferrer: Thanks, Mario. Our positive results in the first quarter, combined with greater stability in the economic environment, position us to maintain the pace of delivering consistent results during this second half. We will continue to focus on initiatives that bring us greater diversification of revenue sources and especially on those that enable productivity and official gains to lower our unit cost. We continue to build on our strong foundation we have led over the past years and remain focused on reliability, profitability and strengthen our balance sheet. Throughout the recovery, we made structural changes to enhance our customer travel experience and better position goal for success. We could not do this without our hard work of our Team of Eagles who are responsible for our daily moments of true with our customers. I am incredibly proud of their role and rebuilding the best-performing airline in the region. Operator, you may initiate the Q&A section.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Michael Linenberg from Deutsche Bank. Please Mr. Michael, your microphone is open. Mr. Linenberg, please open up your microphone.

Michael Linenberg: Can you hear me now? Sorry.

Operator: Yes.

Michael Linenberg: Sorry. Good morning, Celso and Mario. I guess one question. I have few questions here. First, can you just speak to on Slide 4, where you do have – on a corporate basis, you have leading share on a revenue basis, but also on a ticket basis. But you do – it looks like you’re selling a lot more tickets than the revenue that you’re getting. And so the question is, why are your corporate yields a little bit lower than your competitors and it may not to front-run the answer, but is it because of the mix, maybe you happen to have more exposure in some sectors that tend to be lower yield, maybe education versus financial services, for example. That would be my first question.

Celso Ferrer: Hey, Michael, it’s Celso speaking, great to speak with you, and thanks for your question. Yes, I mean, this is – we have a different mix of routes and also a different mix of APs. So we have less regional, and we operate in a more competitive environment than some of our players. So we – not only in the corporate but in the overall segments, we tend to be more kind of a low-cost approach, offering more attractive fares, but managing the unit revenues like you saw for the overall revenue basis. Here is – the main explanation is different advanced purchases throughout the segment and the mix of routes.

Michael Linenberg: Very helpful. And then just my second question, on the capacity reduction as you head into the back half of the year, you did mention that it had to do with some efficiency moves or you wanted to reduce non-operating aircraft. Now naturally, it would have some negative impact on your unit costs because of less capacity. But when I think about the reason why you had cut the capacity, it would seem like that, that would be a positive for cost. Is there anything in there about just demand or is it more fine-tuning the network? Thanks for taking my question.

Celso Ferrer: Thank you, Michael. So like I’ve said, we are reducing the overall capacity, and we have – we flew – I mean, we cut a lot of capacity in the first half of the year to adjust on a route basis for the demand we were facing. This is already there. And we also have a second quarter lower than the previous share with the market in our first guidance. So we are reviewing this now. And the reason is, we want to create the right equilibrium and demand and supply. So we are leading the discipline in the market here, and we are going to keep this. So even though we are doing this, we are growing the second half versus first half because second half in Brazil is usually stronger than the first half, and that’s what we are seeing so far from the July and sales from future sales now, but we want to adjust.

I mean there’s still some segments like the corporate that’s not there yet. We have a stronger VFR, a stronger leisure, but we’re still flying with 75% of the passengers that we had in the, let’s say, business travelers overall. So we want to adjust. We want – there’s also an impact of shorter stance lands in our case, that is more concentrated now in the 737 flying regional and some shuttles, which are shorter stance lands. And that – as I said, there is a combination effect that is okay, we are going to have increasing unit revenues, also some increase in unit cost. But in our case, we want to reduce the number of planes that are out of services. So we are trying to address as much as we can. We returned two aircraft this quarter, the second quarter, then we will return more going forward.

So the overall cost for us will be reduced even though we are flying less than what we previously expect. The main driver is to keep the market well disciplined and keep the healthy environment on the fares.

Michael Linenberg: Very good. Thank you.

Celso Ferrer: Thank you. Mike.

Operator: Our next question comes from Daniel McKenzie from Seaport RP. Mr. Daniel, your microphone is open.

Daniel McKenzie: Hey good morning guys. Can you hear me okay?

Celso Ferrer: Yes.

Daniel McKenzie: Okay. Good. Just following up on that point of better margins from here. You’ve kind of laid out some sources of revenue and cost friction. How much of the revenue and cost frictions that exist today go away in 2024? And how should we think about the longer-term margin targets from here? So you touched on lease returns. You touched on the network. It seems like there is a hub relocation. So it seems like there are a lot of ASKs maybe that are not in markets that are mature at this point. Anyway, if you can just elaborate a little bit more – elaborate a little bit further on margin targets as you’re thinking about the company longer term.

Celso Ferrer: Hey Dan, this is Celso and good to speak with you. We are still – I mean in this recovering process from the, let’s say, the worst years we had during the pandemic, we are still managing the ASKs and bringing – and trying to maximize margins as you see and be consistent with our guidance as we go, managing unit revenues as a primarily source of profitability at this point. In our case, we still have idle capacity, and we can still reduce the cost as we deploy more planes and increase utilization. Even though we are increasing step by step, I just said that we achieved 11 hours for a second quarter is not bad, but it’s not what we want. Our model is to fly more than 11 hours. Our aircraft was made to do this.

Our model is to do this. So we expect once we have – we left all this drag still on the corporate demand, and we start to deploy efficiently, more planes, but with more utilization, we expect to further reduce our costs and improve margins. So 2024, for example, we see – and we are – I mean we are doing everything we can to make sure that we have the right number of airplane and quarter-by-quarter, we expect in 2024, we have the right-sized fleet flying more hours and reduce the unit cost. And by then, we expect the unit revenues to stay stable. That’s why we are trying to control and lead all the capacity is clean to keep the healthy environment like I said. So – and with that, margins, of course, will be better.

Mario Liao: Yes. Let me just add one point, Dan. The margins that we’re guiding now for EBITDA for this year that basically leads us to reach the breakeven free cash flow for the current operations. So that is an important collection point from where we were in the last three years of COVID definitely. If you look back on 2018, we have even lower EBITDA generation of BRL 4 billion, and now we’re expecting to be more close to a number that’s going to be $1 billion. We’re going to be delivering something close to 30% of the EBITDA margin. So of course, we are still not there. But definitely, if you look to our consistency in the margins on the last three quarters reaching that particular margins that we have this quarter right now, that’s the number that we produce by still carrying some inefficiencies in our fleet.

That is something that we are very focused to address. So you saw in our results this quarter that we have a higher maintenance activities this quarter. So it’s basically during the low season where we started to invest on spare parts and engine maintains in order to really prepare the fleet or reactivate some of the iron as of the fleet, some inefficient to start to deploy that preserve capacity during the second half of the year. So imagine if we have been already of this innovation right now. So we believe that we could better improve our results and our margins than when we have addressing that. So we are working very disciplined in order to control our costs, our CASK under U.S. dollar that is similar to the pre-COVID levels. And if you look from – compared to last year, we have been continuing to improve our yields year-over-year.

As we start to deploy those capacity has been preserved. Of course, we don’t expect that our revenue is going to be continue to increase in a rolling forward basis, but that scenario to continue to keep the discipline on yields and also to reach better levels of cost control, that’s, of course, going to be leading us to improve our margins, increasing the EBITDA and also reducing the leverage.

Daniel McKenzie: Yes. Perfect. With respect to 2024, can you speak to potential growth just given the moving pieces around lease returns and Boeing delays? How should we think about growth next year?

Celso Ferrer: Hey, Dan, we think about – I mean, we expect to grow next year and especially the piece that we are not growing this year. Basically, what we are trying to manage is the renewal of the fleet in a good pace. What happened is that we had the MAX grounding, then we receive a lot of MAXs at once. So we achieved like 28 claims during the pandemic. And then we stopped to receive MAXs because of the delays. So what we are trying to do from now on is and we are going to start receiving MAXs now in August, the ones that were supposed to be received in the first quarter this year. And then we are going to start to adjust the fleet accordingly per one or sometimes reducing even further the NGs. If we continue at that pace, and we are – our approach is conservative towards the delivers we will be growing next year, especially in international routes.

So we are working now with the whole group, the Abra Group to – especially on international growth in the region that we will, in our case, will sustain an important piece of our future goal.

Daniel McKenzie: Okay. Thanks so much guys.

Operator: Our next question comes from Stephen Trench from Citi. Mr. Stephen, your microphone is open.

Stephen Trench: Good morning gentlemen. Can you hear me okay?

Celso Ferrer: Yes, Stephen, good morning.

Stephen Trench: Okay great. Thank you very much. So just one or two quick ones for me. I definitely appreciate you guys are partnering with American Airlines, you have connections with Avianca through Abra. And just as a start, we’d love to hear about your longer-term plans for international expansion, which maybe go beyond the U.S., South America corridor and, let’s say, Brazil to Colombia, how should we be thinking about sort of the longer-term international opportunities?

Celso Ferrer: Hi Stephen. Thank you for your question. And you’re right. We work – that our model is to keep our fleet as it is on a simple fleet type, and we expand our international routes, leveraging on our partnerships. This is what we are doing with Air France-KLM on the Europe market and what we do with American here, and we are now going to do even more with Avianca. So from where we are starting, we are starting from two airlines that are – they have the same model now the low cost of Avianca is passing through a huge transformation in expanding its network with a super strong hub in Bogota. Most of the growth will come from the integration of those networks, and it’s all about growth. There’s no overlapping today.

So we are studying a lot of opportunities in the region to make sure that we can go and strengthen the footprint that both airlines have, like we have Brasilia, we have Guarulhos [ph]. They have Avianca has Bogota as strong and the Central American market. We’re going to leverage those positions and start to create flights to grow this network. And we are, of course, bringing more customers, integrating the customer base, but also optimizing the fleet. So most of the work is to increase utilization and use, of course, gold plans that today we have on the ground, the new deliveries that will come to be able to allocate those planes in this new market. And the intention is to really operate as a single platform to brands, but with a seamless experience.

And we had the best experience of doing this even with legacy carriers, traditional carriers, like I said before. If you ask the GOL customer today who connects with American on Air France, they see us as like real partners. I think every GOL flight is an American AFKL and Avianca flight. And this is the way we are going to approach the market. And of course, the Americas are the main target right now. There’s no plans at this point to fly to Europe or we want to increase the flights in the region, not necessarily only to Colombia, but also for other countries, not Brazil and Colombia, but new customer base for both airlines with flights from Avianca and flights from GOL will create a robustic offer for customers for – in countries like Peru, Paraguay, Uruguay.

So that’s what we – and also Central America. And this is what we are doing right now. We have a dedicated team now in our, what we call the network stream that is looking for a five-year plan and making sure that we can grow sustainably for strengthening the partnerships.

Stephen Trench: Okay. I appreciate that. And just one very quick follow-up related to that. When we think about the longer-term potential beyond sort of the expansion opportunities that you see. Could you envision with your partners on a longer-term basis, maybe joint procurement of sustainable aviation fuel, for example, initiatives along those lines, do you think there’s a possibility to see that?

Celso Ferrer: Yes. I mean, of course, with the airlines within the Abra Group, we are doing a lot of things together in the procurement, and we are developing also the teams to do this. But with the overall partnerships we have, this is the type of agenda that we want to build. I think on the environment side, on the safety side, there is always cooperation, especially among partners. So that’s an agenda that we are, of course, willing to develop with them.

Stephen Trench: Okay. Very helpful. Thanks for the time.

Celso Ferrer: Thank you. Thank you, Stephen.

Operator: Our next question comes from Bruno Amorim from Goldman Sachs. Please Mr. Bruno, your microphone is open.

Bruno Amorim: Hi, thank you very much. I’d like to follow up on the $1.5 billion financing with Abra. First of all, if I remember correctly, last time we spoke, you guys mentioned you had not withdrawn all the cash available under this financing. So I just wanted to see if you could update us on that, have you withdrawn more cash from that line? And second, I’d like to clarify one term of the agreement. I understand there is a conversion premium on the convertible instrument of 35%, which under certain circumstances could be 15%. Could you clarify, is it a premium over what exactly? Is it the share price at the day of the conversion? Is it the share price over the average of a certain period? Those are my questions. Thank you so much.

Mario Liao: Okay. Hi, Bruno, this is Mario. So just remember that the transaction starts that GOL can issue up to BRL 1.4 billion. That includes up to $450 million cash away for the company, where we have been disciplined in deploying this cash according to the necessities have been basically focusing on reactivating the fleet and essential activities as spare parts acquisition and maintenance activity. So up to the first quarter, as we disclosed, we have issued $140 million out of the $450 million. And this quarter, we have issued additional $50 million. So you can see in the financial statement that the total balance that has been issued so far is around $1.2 billion. So that’s this increase of $50 million compared to the last quarter.

And that basically has been deployed under maintenance activities. So you can see also that increase in the P&L on the maintenance line. There’s basically that’s, the way how we’ll be addressing some of the grounded aircraft and returning some of those back. So that’s basically why that has been increasing the number on this line. And also reverting some of the provisions that we have already recognized in the past. You remember that back in 2021, we also recognized some provisions in the result. So we’re also reverting some of those provisions against the income statement. So that basically what has been utilized so far. So from the $450 million, we still remains something approximately $250 million that has not been yet deployed and is still available for the company, and we are utilizing this cash in such a way that GOL can continue to create value, and generate additional credit.

So that’s the number that we have right now. And sorry, what is your second question again, please?

Bruno Amorim: I just wanted to clarify on term of the convertible instruments in the document, it says there is a conversion premium of 35%, which could eventually become 15%. I just wanted to clarify, is it a premium over what exactly the share price, the day of the conversion or the average share price over certain periods. I just wanted to clarify that.

Mario Liao: Yes. This has not been defined yet. Of course, the company has been working on that, but that’s not exactly time. But the conversion premium is above what is going to be the exercise price of the – at the time that we’re going to be issuing – switching that SSN into ESSN. So when this change from SSN to ESSN will take in effect. So it’s going to be exercise price is going to be a premium over the exercise price. So if you look back on 2018, we already did an exchangeable senior notes at the time with the material of 2024. So it’s going to be the same mechanism, the same dynamic of what we issue so far. But we still don’t have a timing about that so far.

Bruno Amorim: Thank you.

Operator: Our next question comes from Pablo Mendoza from Barclays. Please Mr. Pablo, your microphone’s open.

Pablo Mendoza: Hi thanks for taking my question. Just a quick follow-up on the environment to increase your block hours, you are below 2019, and Celso has mentioned that they aim to return to the 11, 12 hours, how is that progression? And where should we see that happening? That’s my first question. And my second question is a little bit of a follow-up on the first question in terms of deals and – unit revenue environment for next year. Thank you.

Celso Ferrer: Hi, Pablo, we expect to reach this in the fourth quarter, and this is – we were expecting to reach this in the third quarter, and the reason why we are reducing capacity for the year is because we are postponing this so we are adjusting capacity for third quarter, adjusting in the fourth quarter, but in fourth quarter, we will be flying the operating fleet will be at the right level of utilization, which is even better than what we have before, that we have right now, okay? So that’s where we are. And it seems – I mean, you’re asking about the revenue environment next year, which is in Brazil, it’s tough to say, but for the first time after years in the industry, we can see that, I mean, there is rationality in the market.

I mean, the three airlines and we have different challenges, but we don’t see a disruptive movement from anyone at this point. And I think everybody understood the importance of this, and everybody is trying to maximize results and be able to navigate through a very volatile environment. So we show this as an industry, especially in the second quarter last year when the field spike like more than 50% within the quarter and the industry respond very – in a very good speed, and that was the first time I saw. And I have been in the industry here for 20 years now, and that was the first time. And since then, we are assuming that this rational environment will keep that. We do our adjustments. Like I said, we position ourselves as kind of a leading the capacity discipline, we are cutting.

I mean we are adjusting as we go, not necessarily in the overall domestic environment, but in a route basis or on a hub basis, you can see that we changed a lot what we publish as a schedule. And we do this because we – I mean, we – it’s one of our strengths. We have a single fleet type, we can do and we can move quickly and adjust capacity as it goes.

Mario Liao: And Pablo, let me add one thing. So you saw that in the first half of the year, we have been able to keep the leadership in the corporate segment. So that positioning will be very important for us to extract value and with the recovery – or expect to report the corporate sector in the second half of 2023, where we’re going to expect a more stronger rebound given that we start to see some better market indicators and especially what’s been happening in the tax reform that will lead certainly some – the high level of economic uncertainty that Brazil faced until the first half of 2023. So my point is that most of that fare environment has been driven or has been supported right now from the leisure passengers rather than the corporate.

So corporate has been gradually improving, but in a slower pace. So leisure are somehow in terms of the high and the low season, more sensible to prices. So any big change in terms of capacity can cool down this demand. So what we have been doing, especially on what we indicated in the guidance in terms of reducing the capacity in order to improve that daily utilization of block hours per day at the same time, keeping adjusting the network in order to serve better those clients in the corporate routes that’s going to be the key in terms of the future revenue trends going forward. So we need to see how that means to pass is going to be playing after all. But in terms of what we have been doing as a role in the industry by keeping the capacity discipline, that is what we have been showing as update for this quarter.

Pablo Mendoza: Thank you very much.

Operator: Our next question comes from Stephen Trent from Citi. Please Mr. Stephen, your microphones open.

Stephen Trent: Hi there, you guys had already addressed my question, so I can let somebody else ask you. Thanks very much.

Operator: Thank you. Our next question comes from Victor Mizusaki from Bradesco BBI. Please Mr. Victor, your microphones open. [Operator Instructions] Our next question comes from Gabriel Rezende from Itau BBA. Please Mr. Gabriel, your microphones open.

Gabriel Rezende: Hello, good morning. Can you guys hear me.

Celso Ferrer: Yes, Gabriel. Good morning.

Gabriel Rezende: Great. I just have a quick follow-up on Bruno’s question regarding your debt instrument with Abra. So Mario mentioned that you guys withdrew $50 million more this quarter and then you have like $200 million marked with transfer from Abra, given the agreement that we have. How can we think about the pace of this amount being gapped by you guys? I mean can you think about $50 million per quarter. So maybe in early 2024, you might have reached $1.5 billion agreed with Abra something like that? Or could we think about something faster than that? Thanks.

Mario Liao: No, it’s – we don’t have a specific plan that is going to be 50 per quarter or 100 per quarter. So of course, we wanted to keep that available for the company proposals. So as you see in the second quarter is kind of a transition quarter for the high season where we basically focus on investments for maintenance in order to prepare the fleet for the second half of the year, has been particularly a challenging quarter for this – for the quarter, especially because the lack of digital credit, due to the big retail company that entering [indiscernible] from the beginning of the year. So usually, this is the weakest seasonal inquiry where industry needs to fund its operation through that basically from the working capital management.

So – and that scenario that we need to start to invest CapEx for the second half of the year. So we’re now going to be moving to the more strongest as an [indiscernible] for – that’s going to be second half of the year. So we have important initiatives that we wanted to deploy, especially in the Brazilian local credit market. There are some initiatives that we can – if we’re going to be able to execute in the short term, we’re going to be able to better use the current assets that we have in our balance sheet. So for example, receivables that grows along with the sales, that has been increasing. So our focus is to better utilize the foreign assets, and we have some additional borrowing capacity, if we will, to access. So it depends, of course, if we started to get into better margins for the second half of the year, they usually should be positive for operating cash flow and also being able to deploy those initiatives in the local market.

Of course, that cash is going to be preserved, but if this doesn’t happen, we’re probably going to be utilizing in a very rational way. So again, this cash was not just we wanted to use in such a way that we can add some value creation for the company, like negotiations that we can generate additional credit or maybe some gains for the company. So most of the discussions that we are having right now with some of the main stakeholders that, of course, is going to be impacting in terms of the way how we’re going to be deploying this cash. So if you look for the very first quarter, we have something around $100 million of this cash has been deployed net with the initial cost of insurance and then now its $50 million. So we expect that the primary [ph] cash is going to be somehow disciplined in this way.

Gabriel Rezende: Thanks, Mario. That’s very clear. And just another quick follow-up. Can we assume that these senior secured notes will only become exchangeable notes after you reach BRL 1.4 billion? Or can they convert the notes before that?

Mario Liao: We – it depends on – we are working on the timing. So I think most important thing is that GOL detail, so the basis – so the main basis is to issue that the convertibility to ESSN in the past. So when we close the transaction in March 2023, we decided to issue a senior notes first due to the complexity. And in order to focus to provide the cash for GOL without the complexity of converting to ESSN. So we already have the technology and the experience of vision [ph]. As I highlighted back in 2018 with the ESSN 2024. But we didn’t enter into this complexity because in Brazil is mandatory to offer those planes to rights. So the foundation of the company is to have the ESSN, the switch from SSN to ESSN. And that’s going to happen when certain operating conditions will be complied.

So not necessary you need to be only when it has been deployed, when BRL 1.4 could be with the SSN that has been issued so far and then subsequently up to the maturity of 2028, additional conversion can be executed for the remaining piece that is still not be converted. But that is part of the initiatives of the company that has in terms of the leveraging process. But we’re still working on that. And when that happens, we’re going to be properly communicate to the market.

Gabriel Rezende: Great. Thank you very much.

Operator: Our next question comes from Victor Mizusaki [Bradesco BBI]. Please Mr. Victor, your microphone’s open.

Victor Mizusaki: Hi. So I have two questions here. The first one, I found in the press release, you mentioned that the plan is to deliver like 13 aircraft in the second half. So my question is, I mean, how much it will cost and if you can expect any additional cost for grounded aircraft that maybe you can resume the operations in the second half. And the second one is related to your aircraft lease and liabilities. GOL has issued some secured amortizing bonds and we can see that in the second quarter, the company could also raise another BRL 72 million with a sale leaseback. So my question here is if you are working on any kind of negotiations with the recent companies in order to try to provide these payments. Thank you.

Celso Ferrer: Hi, Victor. How are you doing? It’s Celso. What we have in the press release is only the contractual lease. If we don’t do nothing we need to do – to return 13 planes. But of course, this is something that we call the flexibility we may have with the lessors and also adjusting according to the delivers of the MAX. So we will return more planes, but not necessarily the number, which is the contractual rate. What we did in the past three years is sometimes we do early terminations with some lessors, sometimes we extend the plane, it depends on each of lessor, each negotiation is something very unique, and it’s also important to understand what the lessor wants to do with the airplane. So we will, of course, return planes, like I said, but we are trying to adjust the number to the number of deliveries that we’re going to take, which we had a big delay.

And now we’re going to start to take again, delivers, but we are adjusting quarter-by-quarter to make sure that we just return flyable planes if we take a delivery of a brand new plane. And that’s the main tool that we have right now to adjust the capacity on the GOL side. Like I said, the movements we have done so far were very intense to take delivery of almost 30 MAXs during the pandemic and now starting to return some of the NGs, there’s these adjustment at this point that we are trying to adjust and talking to every lessor about this. And to your second question, I mean, I still for question, how much this – those it can cost? This is, I mean, an aircraft return. As you know, it’s going to be between $5 million and $10 million per plane.

This is something that we are already working on. So like we have seen the increase of CapEx is that we had in this quarter, the deployment of the cash from the SSN is basically through our fleet is to buy parts and taking engines from the shops, that’s what we are doing. Most of the planes to return to the fleet, but also like we have seen, we returned some of the planes. So the investment to return or to stay on the fleet are similar, and we are optimizing plane by plane, tail by tail. The aircraft lease liabilities – we are – we have been doing those negotiations with lessors in the last three years. We intensified this last year with the issuance of the senior amortizing notes. As you have been seeing, some of lessors are still increased their position there.

Some early comers are there, but some orders are coming and talking to us. And this is the way we not only this, but also the fleet renewal as a process like you said, to address the liabilities we have with the leasing companies. This is our main focus right now. We want to find a final solution with a lessor because the – what we had is like we have been negotiating but the pandemic took longer than we expected. Now the market is not at the level that we were expecting. So we still have idleness capacity, and this is a continued negotiation with them, and we want to find, like I said, a final solution to address all the liabilities we may have.

Victor Mizusaki: Thank you.

Mario Liao: Before we’re reaching almost the limit of the call, but before I speak to the last participant to make a question, there’s some questions in the webcast platform here that basically are asking to discuss the refinancing strategy for the bonds, the 2024, 2025 2026, so I wanted to clarify this before the next question. So this quarter, there was $26 million of the 2024 ESN that were repurchased. So that reduced the current outstanding balance from the $68 million that was after the recent transaction that was concluded in March. So the initial issuance amount was $425 million, maturing in 2024. That has been reduced to $68 million. So that additional $26 million now has been repurchased. And current outstanding balance now is 42%.

So it’s below 10% of the original issuance amount, and that eliminate the supreme maturity risk that is associated to this bond. So for the 2025 and 2026 bonds and the 2025 is still two years for maturity. So that’s not the company’s top priority for now neither the best uses of the cash. As we mentioned, we are focusing on really put the company back on track in terms of operational and profitability performance. So that results and that delivery of margins that will take the company back to positive operating cash flow generation – positive with free cash flow generation and free cash flow generation that needs to come first. And we’ll allow us to think on the best way to address the other [indiscernible]. So we have several alternatives has been doing in the – since the last years as has been following us for liability manage to deal with this.

And when the timing is appropriate, of course, we’re going to be discussing that topic. But the main priority right now for us is really to bring the company back on track and that can lead us to a better way to address the remaining 2025 and 2026 bonds. So operator, you can ask to do another participant to make probably the final question because of the timing of the call.

Operator: Thank you. Please Mr. Alberto Valerio [UBS], your microphone’s open.

Alberto Valerio: Thank you, Mario. Thank you, Celso for taking my question, the last one. My one would be regarding the operating aircraft and the maintenance. We saw increasing in the level of maintenance per aircraft since the first quarter, a similar level we see in the second quarter. My question is, do you stop to capitalize part of that maintenance that you had as a program in the past? And my second one is what from that ground planes, I think was – trying you still have on your fleet. Thank you very much.

Celso Ferrer: Thank you, Alberto. Thank you for your question. And what you are seeing is basically the maintenance expenses that we cannot capitalize because it related to return of the planes. So especially in this quarter, what we saw is the return. And like I said, the return is an expensive event, and we need to – we cannot capitalize those as [Technical Difficulty] fleet. And we – on the planes that we have on the ground, we still have plenty aircraft in idles. We start to work on those planes. It’s not that they are completely – I mean, we are starting to bring those planes back to maintenance and most of them will be ready to return or – to return to the operations or leave the fleet by the end of the year or first quarter next year.

So we are reducing as we go. And what we want is on the high season to use as much planes as possible. Like I said at the beginning of the call, one of the main synergies that we are expecting with Abra is to launch new routes of some of these separate capacity that we have and jointly with both networks to get added.

Mario Liao: And if you remember, Alberto, back in the second half of the year, we also had lower maintenance activities that reduced the maintenance expenses during the third and the fourth quarter compared to a year-over-year comparison. So most of that advance related to the fleet now has been addressing right now. So as Celso mentioned, this quarter, we have two redeliveries, so that’s basically padded those maintenance lines. And in addition to that, as I mentioned at the beginning of the call, we have some higher volume in terms of spare part acquisition, and this is basically expandable items. They are not subject to capitalization.

Alberto Valerio: Perfect. And I was expecting that the redeliveries was linked to that provision that you made in the fourth quarter of 2021, but you have an extra then that one, is that correct?

Mario Liao: Yes. We – some of the provisions are related to certain aircraft. So we anticipated some of the provisions. And of course, depending on what is going to be the maintenance cost for that can change slightly in terms of what’s been provision in the past. So we have some benefits on this line that you saw that we captured because of those provisions that has been constituted during the second half of the year. And because of the timing, most of the provisions are also impacting this quarter as well.

Alberto Valerio: Fantastic. Thank you very much.

Operator: Thank you. This does conclude today’s question-and-answer session. I would like to invite Mr. Celso to proceed with his closing remarks. Please go ahead, sir.

Celso Ferrer: Thank you all for your participation today. I hope you enjoyed today’s webcast. Our Investor Relations and Communications teams are available to speak with you as necessary. Thank you all, and have a good day.

Operator: Thank you. This concludes GOL Airlines conference call for today. Thank you very much for your participation and wish you a very good day.