Gol Linhas Aereas' (GOL) CEO Paulo Kakinoff on Q4 2015 Results - Earnings Call Transcript

| About: GOL Linhas (GOL)

Gol Linhas Aereas Inteligentes SA (NYSE:GOL)

Q4 2015 Earnings Conference Call

March 30, 2016 12:00 PM ET

Executives

Edmar Lopes - IR

Paulo Kakinoff - CEO

Eduardo Masson - CFO

Analysts

Victor Mizusaki - Bradesco

Sara Delfim - Bank of America

Renato Salomone - Itau BBA

Leandro Fontanesi - Bradesco BBI

Bruno Amorim - Santander

Alexander Volkov - HSBC

Steven French - Citi

Matthew Roberts - Raymond James

Operator

Good afternoon, and thanks for waiting. Welcome to Conference Call of Gol Linhas Aereas Inteligentes’ regarding the Earnings of the Fourth Quarter 2015. Today with us are Paulo Kakinoff, CEO; Edmar Lopes, VP of Financial and Investor Relations; and Eduardo Masson, CFO and IRO. We would like to inform you that this event is being recorded and all participants are in listen only mode during the presentation of call. Later on, we are going to start the Q&A session when further instructions will be provided [Operator Instructions].

This event is also being simultaneously webcast on the Company’s Web site www.voegol.com.br/ir in there you will also find the respective presentation. The slide selections will be controlled by the participants. The replay of this event will be available soon after its closing. We would like to remind that webcast participants can ask questions to go Linhas Aereas [ph] on the Web site. They will be answered after the end of the conference by the IR department.

Before going on, we would like to let you know that certain statements during this conference call relative to GOL’s business outlook, projections, operating and financial goals, are based on beliefs and assumptions of the Company management and rely on information currently available. Forward-looking statements are not a guarantee of performance since they involve risks, uncertainties and assumptions that refer to events that are in the future and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect the future results of GOL and led to results that would materially differ from those in such forward-looking statements.

We will now turn the call over to Mr. Kakinoff, that will start the presentation. Please Mr. Kakinoff?

Paulo Kakinoff

Hello, good morning, everyone. Thanks for joining us in this conference for the earnings of the fourth quarter 2015. Exceptionally in this conference call, we are going to have our event with simultaneous translation. So as we can in a single forum and also equally to all participants release our results for 2015 as well as information of previous releases including projections for 2016 and the hiring of the consulting companies we already released. We believe that due the sensitivity of the information it would be timely to have a single forum with a single message for whole -- for the participants.

So we are going to start the representation on Slide number 3. The year of ’15 was marked by a drop in the Brazilian GDP of 3.8%, the most significant in the last 25 years. Indeed, it will be the first time that we will have two years in a row with negative results in GDP, two consecutive years of recession since the beginning of the 90s. In the period we also saw the inflation peaking volume10.7% and the devaluation of the Brazilian real compared to the dollar by 42% which impacts more than 50% of our cost and expenses and approximately 85% of company debt.

About the dollar it's important to highlight that the currency last year varied from BRL2.66 to the peak of BRL4.24 which accounts for variation of approximately 60% within a single year. This volatility poses additional challenges and still remains. These macro-economic factors interrupted the pathways followed by GOL since 2012, which in 2016 expected the third consecutive year of the company’s recovery and consequent to generation of cash and return to shareholders. In the following item, we showed the reduction of corporate passengers transporting in the company in the comparison year-against-year. Since mid-2015 however we are observing that month-after-month the volume is going up, still strong but still impacted the average rates practice. In the fourth quarter this year the capacity of our companies in Brazil had a drop of 4% compared to the first quarter 2014. This is the first quarter with systemic reduction in the supply of the industry since mid-90s.

This movement led by us will remain in 2016 as we announced. We are going to address our supply in the integral from 15% to 18% in the year and the volume of take offs and consequently in the volume of seats available, and we believe the industry will keep this space of adjustment which is imperative response to the scenario of strong economic retraction we are in, we are going to talk more about this topic further.

Fuel prices in the year was 2.13, diluted which accounts for a drop of 14.8% compared to 14%. This reduction was significantly lower than what we're trying at international oil markets and which drops had 50% reduction year-against-year. This exception happened in Brazil because of the price of diesel in our country which has impacts in dollar.

Since the third quarter 2015, we also saw deterioration of economic metrics with consequent restriction of capital markets to Brazilian companies and Brazil's investment downgrading by the three main rating agencies in the world. On the same Slide number 3, on the right, we highlight GOL’s operating performance in the quarter with maintenance of our strategies executed with focus and discipline.

From the first item we show an increase of more than 17% in ancillary revenues which already accounts 12.2% in total sales with a record level in our countries. The highlights here is the commercialization of the co-plus comfort seats, sales on boards and the performance with cargo, another important item in the period and maintenance of our leadership in the passengers of trans -- in the transporting of passengers in the domestic market. We have a greater advantage compared to our main competitive with a difference of 3.6 million passengers transported extra according to our mapped data. This shows the preference of passengers because of our punctuality and operating efficiency and comfort.

Going to the next item we catch the first place in sales also for corporate clients with almost 32% of the passenger markets of those passengers that are flying business. According to data from the Brazilian Association of Corporate Traveling, ABRACORP. We also for the third year in a row got as leaders of punctuality in domestic flights, which is a very important sector for the choice of an air company.

On Slide 4 in 2015, as mentioned, GOL and Brazilian air sector faced one of the most adverse periods in the last decade. Resulting from the combination of the country's economic movement and the significantly retraction in corporate demand and the currency devaluation. Despite the adverse scenario GOL revenues kept to the same levels of last year. In the quarter we had a drop of 2.8% compared to the same period last year. In the annual comparison the reduction was 2.9% reaching total revenues of BRL9.8 billion.

Having the high exact volatility as the main cost, we had operational loss EBIT in the periods of BRL95.3 million with negative margin up 3.6%. A drop of 266 million compared to the fourth quarter 2014. And the year the operational loss was a 183 million with negative margin of 1.9%, retraction of BRL688 million compared to ’14 or 7 percentage points of drop in our EBITDA margin.

We think that our revenues levels was stable the total of the corrosion of the operating results happened because of an increase of cost, especially those expenses that are in dollars. EBITDAR from firm recorded BRL398 million with margin of 15% in the quarter. Year-to-date, the indicator accounted for BRL1.3 billion and margin of 13.7% a drop of 4.3% this point compare to 2014.

The next slide, Slide number 5, we graphically show the results of Brazilian real devaluation without cash effect and of the Venezuela Bolivar against the dollar which had a direct impact on GOL's net results, the exchange effect and adjustment on the income tax line together accounted for 70% of net revenues in the fourth quarter ’15 and 72% in the whole of the year leading to an annual loss of BRL4.4 billion. And remember the cash effect is about BRL1,300 million.

On Slide number 6, as a reflect of the flight plan in practice since 2012, we show the evolution in GOL's productivity and efficiency, next to human resources, GOL also has continuous evolutions and really draw demand metrics by RPK compared to the number of employees by 13% since 2012. As fuels, the rate of consumption of fuel per RPK have an evaluation of 11% in the last four years, and in this item I highlight, talking about fuel in liters without no impact of the drop of price of fuel. So I am talking about a gain of efficiency here, talking about consumption of fuel per RPK.

Operational wise as you can see on Slide 7, in the year of 2015 we are stable in the volume of domestic supply in the year compared to the growth of 1% in the industry. Demand grew by 1% and occupancy rate was basically stable compared to 2014 at the level of 78%. Showing it in a more clear way our puritanism in capacity is still important in moments of economic pressure, we show Slide number 8, along the last four years and annualized for the months of January and February 2016 GOL reduced approximately 14% of its supply into domestic markets and was followed by its main competitor. Together we are responsible for approximately 14 billion ASKs less in the system, a phenomenon that has been bringing more rationality for the industry. However, it's not the same effect produced by other competitors in our industry as you can see to the right of the slide.

On the next slide, Slide number 9, we show that GOL kept its leadership in the number of passenger carried in Brazilian market with even a little increase according to data of ANAC. We reached more than 35 million clients a year. Our difference compared to the main competitors went from 3.5 million to 3.6 million passengers in the period almost an additional month of sales. The difference for the third place is 15 million passengers, almost 85% more in the number of passengers.

As mentioned on Slide 10, we show that GOL kept leadership in its share in corporate sales against 2014 and maintenance of this leadership is proof of our continuity in enhancing experience of the clients. It's important to notice the retraction of 6.4% in the amount of total tickets in the segment between the years of 2015 and 2014, a reflex of the economic retraction and reduction of production activity in Brazil as well as commercial activities.

Going to Slide 11 we show a clear result of the efforts of all of our GOL's team to consolidate as the most punctual air company in Brazil. We enhanced our leadership in punctuality in 2015. According to official data available we reached 94.4% of our flight with takeoffs on time, a level compared to the best practices in the world market. This number is also an expansion of our previous performance and places us in an even more consolidated manner in the perception of passengers in Brazil as the most punctual air company in the country.

On the Slide 12 just to complement the presentation of the Company's positioning in terms of product and services, I would like to highlight that our passengers on international flights can have exclusive advantage that will make all the moments they have in -- during the trip different. This from check in to disembark, we're talking about more pleasant experience with comforts throughout the process, benefits for the [indiscernible] have priority in check ins, have meals, desserts and other items.

I would like to remind you as announced in 2015, we are going to have access to Wi-Fi and complete curtailments during the flight period. All this measures together aimed at keeping our performance and having linear growth in our flight and also on the basic average tickets that are charged as we are more and more attracting corporate clients as well as basic clients and ones who have a differentiated experience that can offered without really changing our cost structure because we are using the same aircraft configurations that we have in the domestic market.

Now going to the most relevant part of our presentation of our earnings talking about our financial and economic performance I would like to turn the call to Edmar, that is going to make the first comment on the topic and later on we are going to come back to close the presentation. Edmar please.

Edmar Lopes

Well, thank you very much for joining us in this call today, good afternoon. Almost lunch time already. Well before starting I would like to mention something. In the presentation of this quarter and end of the year we brought some different information, I'm going to place emphasis on them. So as to contextualize what is happening in the company in this scenario where the exchange rate is changing so relevantly and also talking a bit about the consultants that were hired recently and that were part of the releases of the company and this is something that we are going to comment on, on the next slide.

So we're going to start on Slide Number 14, where we talk about our operating highlights. What is important here is that even with oil prices down in the international market because of the exchange variation this decrease was not reflected internally in Brazil we continued to be pressured in terms of costs. Additionally as our CEO already mentioned in Brazil we're having the worst recession in the last 30 years which lets the company to have pressure not only in terms of revenues but also expenses and I'm going to talk about that further on.

On Page 15 we talk about the financial highlights and this is very clear, when we talk about our net results of the year we see a deterioration of BRL700 million compared to '14, BRL300 million in revenue and BRL400 million on our cost base because of the reasons I mentioned before. Highlighted here in the bottom part of our office slide we show that our the BRL4.3 billion of losses the year, BRL2.3 billion are related to the exchange variation and here including also the currency in Venezuela and 900 million in terms of taxes. We had already written off part of it in September and we had an additional write off in the end of the year and this is related to the short term PCC and extension of credit. In our belief this is a possibility that is ruled out, so we have the write off leading to the loss of 4.3 billion.

With that I'd like to go to Page 16 and say that despite fuel prices being a bit lower we see that expenses in dollars are still above 50% and here if you take a look at the aircraft lease we went from 8% in 2014 to 14% this year which fully justifies the hiring of Skyworks company to address this line and bring closures to the parts together with all stakeholders of this process of restructuring that we are promoting in the company, and that started in the second half of last year.

In terms of cost I would like you to please turn to Page 17 where we show the evolution of our ex fuel. I've already talked about before line by line. The highlights here is the following. We have been really engaging in efforts to renegotiate contract along the last month at all levels. All services provided to the Company, but indeed what happens is that we do have mandatory increases or increases related to the macro external environment that really we have very little movement to make.

So the highlights to the last show you that almost 80% of increase of costs that we had was led to three factors that are outside our control. Again exchange rate, salaries and the increase of the fees that was promoted by the government last year. So with all those 80% of ex fuel costs are related to mandatory movements outside our control.

On Page 18 we'll bring you our traditional position cash ex fuel compared to our competitors.

And here I would like to highlight Page 19, talking about leverage and rating. Recently S&P following the other two rating agencies, transformed GOL’s rating to CCC. Following the past year as of 2013, we saw a deterioration of company credit, as you can see basically driven by leverage. Here the exchange rate also has a relevant role and this is what this chart shows. Today we have growth of 9.3 billion approximately of approximately $2 billion almost BRL8 billion and this is the major issue that we have to address right now because if that in Brazilian reals is stable along the period as our CEO mentioned the issue of the increase of interest rates in Brazil to 7%-8% to 14%-15%, does have an impact on revenues, but the main point here is the exchange variation along to the last month.

And if we go to Page 20, we bring the additional information that we had before, we also included financial leasing here, so we are talking about obligations of BRL1.5 billion for 2016. The first quarter is almost over, so we are 100% on time with our obligations, but with this level of exchange rate, this is an even more challenging scenario for the company because as you can see to the last we have a cash position above 2 billion. But the geography of the cash changes in the period because of the credit restriction in Brazil and throughout the world. And this is what has been shown to you. So if we look at all that we see a pressure in terms of leasing expenses, but we also see a pressure in terms of financial expenses associated to that increase -- nominal increase of our debt in Brazilian reals.

With that looking at the company, we decided to higher advisory services Skyworks to address this issue suffering potential, so we are just starting our work as you can see on Slide 21, the month of April and a bit further on we are going to compact some of these assessments, where we start to compact third parties and as soon as we have news we will come back to the market to give you information.

Before getting back to Kakinoff, I would like to go to Slide 22, just to give you what's summary of what's happened in terms of the deterioration that we have talked about Brazil, demands and metric economy and how this affected goals. So it is very clear that we do have a liquidity pressure that we did not have before, free cash is a strong indicator of our and it is deteriorated -- that was deterioration along the fourth quarter 2015.

When we look into 2015, because the exchange rate impacted the generation of cash that was a relevant impact because our CapEx and expenses are influenced by the exchange rates. So we had a negative results that were greater than any of the year in our recent history. Rating already reflect a deterioration of credit in the company, as to the comment that Kakinoff made, a restriction of credit in the capital market for a company like GOL. This is closed now and this leads the company to have some kind of needs to change its capital structure and this is what we are starting now based on this hiring of services that we had.

With that I am going to turn the call back to Kakinoff to talk about projections and our final message.

Paulo Kakinoff

So go into Slide 24, we will show our projections of 2015, all the metrics were between the area presented expect for QAV that was about 1% or $0.02 difference, they are small.

On Slide 25, we will talk about our schedule for 2016 and we are confirming our guidance. As we said yesterday in the material effects, the new projection of capacity of GOL includes a variation in our total ASKs in the year of 2016 between minus five and minus eight compared to the previous year. This it's necessary due to the new metrics that is going to be in operation as of the first of May of 2016 with the reduction in the domestic market and international routes. When we take a look our projection in numbers of take-off this is between minus 15 and minus 18, which consequently means a decrease of seats at the same level. The difference in the reduction of number of seats in ASK is because of the increase of the average routes that the new network will bring us.

Going to Slide 16, in line with what we announced in the past I would like to highlight our response in a nutshell to all the challenges that are being really reformed for the industry in Brazil, as I already talked about seats and metrics I am going to talk about other items. First, we have the anticipated sales of tickets to the Smiles in the amount of BRL1 billion. The transaction will be in tranches and with subject to terms and conditions but the first has already been disbursed in the first quarter of ’16 at the amount of BRL376 million. This is part of our restructuring plan including the reduction of our capacity number of aircrafts operated as we already released when we announced this transaction with Smiles.

As Edmar mentioned, we hired the financial advice of PJT and an advice for the review of our contract with Skyworks. These companies are part of our project to help us in optimizing our capital structure and review the obligation of our costs to-date. So basically we are restructuring the financial service structure of the Company. This project together with others that are ongoing since 2015 and that involve all those stakeholders will promote a plan to reverse current results and resume a positive free cash flow. The discipline in conducting this plan with all stakeholders is something that can indeed make the Company reach its objectives in the future.

On Slide 27 we show in a nutshell again and a summary in a way I believe it's quite implemented on the deterioration of the Company’s financial structure and capital that occurred in recent years compared to its operating performance. Operational wise, the Company has been able to keep its level of revenues even in a scenario that is adverse with retraction and a pressure on yields. But in terms of costs related to dollar and the financial expenses the max exchange devaluation puts the Company in a very adverse scenario that is completely different from the trajectory of recovery the Company was performing since 2012.

It's important to mention that in two years the EBIT result went from minus 11 to 5% targeted in 2014. The Company also had free cash flow that was even at the point. Thus recovery projects that for the year 2015 projected a relatively large operational profit so that we would have positive profit was completely hurt by the exchange devaluation and the Brazilian economic politic scenario. Again if we think of the exchange variation of 47% this led year-against-year to an increase of 57% in the level of bank debt, 35% in increase of financial leasing and compared to 2012 this was an increase of BRL1 billion. The financial debt went from BRL6 billion to BRL9.3 billion growth of 50% in a single year and financial expenses also year-on-year went from BRL508 million to BRL1.46 billion, double -- or 58% more than 2014, double than what we had in the year of 2013.

It is clear that the combination of these two factors the difficulty to recover our results in an adverse market in a restricted if not closed market of credit and access to capital. In addition throughout the financial obligations that the Company has really require an extensive restructuring of our company with the participation of all our stakeholders the level of liquidity that the company has today even it's still within our strategic parameters of the piece to 25% over the net revenues of the last 12 months is not enough to guarantee in the long-term the sustainability of our current business model.

The extreme volatility of the market at the moment enables different projections, if we think of the exchange rate in the last three months we had a fluctuation that we have reached from BRL3.70 to BRL4.15. So difference of scenarios give us different projections in terms of how long our cash would left if we didn’t have any restructuring actions and these actions haven’t started now.

This plan is now in its third Phase, the first Phase was the investment of the majority shareholder and the main minority shareholder bill with the 160 million of injection of capital from the second quarter to third quarter last year, a complete redesign of our operational metric reduction of company cost binding up, reviewing all our supply contracts, all of that make the company to reach the lowest level of CapEx historically.

Then we compare it in dollar and strong currencies, so operationally speaking the company will hardly have the mid-margin that is enough to mute -- neutralized our cash burn, unless we restructure our financially structure a significantly.

While with that we go to the final slide of our presentation, Slide 28, that summarizes the six main fronts of our plan. First capacity and network a decrease of our supply by 15% to 18% the participation of our stakeholders in the interesting plan the adequacy of our fleet and the restructuring of our capital to keep our liquidity. So these are the main work fronts of our multi-party comprehensive plan.

I would like to thank you very much for joining us in this first part of the presentation and now we are going to open for the Q&A.

Question-and-Answer Session

Operator

Well, thank you. [Operator Instructions] Victor Mizusaki from Bradesco. I would like to ask a question.

Victor Mizusaki

I have two questions. The first is that in the end of the year GOL announced an intention to sell or return five aircraft. I would like to know what the status of this operation is and if you received any cash from this aircraft in the first quarter 2016? And looking into your guidance, thinking of reduction of the number of seats and take offs. How many aircraft do you expect to referring along the year of 2016 and if possible thinking about 2017, if you see GOL working with our around 13 compared to the level of 11 in the fourth quarter.

Paulo Kakinoff

Well, Victor good afternoon. I did not get the end of your question. You talked 11% was that --?

Victor Mizusaki

Well give the reduction of your fleet, the size of fleet because of optimization if we could expect an increase of logged hours in 2017?

Paulo Kakinoff

So today the new fleets we have exceeding 20 aircrafts in our numbers we are working with the market and this is part of the discussion to be tried by Skyworks we are working with managers to find the solution of those exceeding 20 aircrafts, as it was released we already sold 5 aircraft of our own aircraft and we have 20 others to be addressed along the year and this is part of the negotiation that we're conducting with the Company management. Because of the increase of what we call method, that is the number of ours used by the aircraft and this increase may vary from 40 minutes to 1 hour additional area hour of use of this aircraft.

Victor Mizusaki

Okay and the sale of these 5 aircrafts in the first quarter, did you have any cash coming in?

Edmar Lopes

Yes, we did and this is going to be reflected in the numbers of the first quarter because of sensitive market information we're not going to disclose the number now, but they will appear in our financial statement for the first quarter of 2016.

Victor Mizusaki

Okay and I have a question about the advisors that you hired, PJT is focusing on external bonds or is it also going to address you debt with Delta.

Edmar Lopes

Well, this is a very good question, we talked in the material fact is typically about that overseas without any kind of collateral and this is what they're going to do address, they're not going to address any there debt that have some kind of collateral. So Delta is one case, we also have aircraft that's with the bank in the United States, so we're going to handle that differently according to the nature of the debt and I would like to reinforce even using a question, this issue about Brazilian bank that hold the debentures Bradesco and Banco do Brasil have always supported us in previous movements though at some point we are going to sit down with them and see whatever is possible to do.

But right now we're just starting to conduct the work and if there is any news we're going to be releasing them to the market. But basically as Kakinoff mentioned we're going to work with all stakeholders of the companies on this effort to really restructure our company.

Operator

We have a question in English from Evercore. Please you may go on. Are you listening to us Duane? Hello Duane can you hear us. Okay let's move to another question and then we'll come back to Duane, okay.

Okay for those that are online to ask questions in English if by any chance we cannot contact you, please send you questions online to us in written. Sara Delfim from Bank of America would like to ask a question.

Sara Delfim

I have two questions, in line with the first question talking about your fleet with less 20 aircrafts possibly which is almost 15% of your total fleet, could you quantify or give us any color in terms of what this can mean for savings in 2016 and ’17? And second question is you have been working quite hard and you did have a list to talk about the redesign of your company to deal with Smiles the hiring of advisors. So what is next, what is the next focus of the Company and what type of negotiations are you discussing to continue the restructuring project?

Paulo Kakinoff

The 20 aircrafts for the year 2016 of course we're still not making protections for 2017 or 2018 with regards to our fleet, so what preventively we did was the extension of new aircrafts. We are not going to receive any aircraft until mid-2018. The savings of this reflections cannot be quantified yet, because there will be a result of the negotiations that we are going to start with the managers of these aircrafts.

We have return conditions and maybe even redirect these aircrafts to other markets and these negotiations are going to tell what kind of savings we're going to have. Unfortunately right now we cannot give you any color about the savings to be obtained in the future. Of course they tend to be relevant for the company.

Sara Delfim

We're talking about material gains?

Paulo Kakinoff

Oh yes, as for our future focus the total of the management is the focus on the six fronts I mentioned to continue to improve in our operational indicators they are very relevant, they enable us to increase our revenue, attract more passengers and even have higher value clients, this is very important.

We have this comprehensive restructuring plan. We are reviewing our financial structure we are negotiating with suppliers. So I would say that these are the most important fronts. The execution of the home of the plan will indeed place the company in a much better position in the medium long term and this is our full visitation right now.

Operator

We have a question in English from Rob Kers from TDC would like to ask a question.

Ladies and gentlemen that are taking part in the English conference for some reason we are not being able to get your questions so I would suggest the following. Could you please send us an email with your questions to our IR team and then we're going to read your question and answer them during this conference call.

So if you cannot ask your questions in the call, just write them down on an email, we're going to read them and answer, I don't know why we are not being able to contact you to take your questions from the English line. So we are going to go back to the Portuguese questions and try and wait for your question in written thank you.

We have a question in English, [indiscernible] form Deutsche Bank would like to ask a question.

Unidentified Analyst

Okay. Good afternoon. So my first question is can you explain the sizeable gap between the 5% to 8% ASK reduction and the 15% to 18% reduction departures in seats. Does that reflect a decision to meaningfully downsize on your short haul and flier market and I have another question after that.

Paulo Kakinoff

So the first question, you're talking about the difference between the 5% and 8% and the 15% and 18%.

Unidentified Analyst

Yes.

Paulo Kakinoff

This is basically because we have a longer average route of about a 100 kilometers and that is a result of the elimination of shorter flights from our network of flights.

You did have a second question, right.

Operator

Renato Salomone from Itau BBA would like to ask a question.

Renato Salomone

Good afternoon. In the call of your third quarter you talked about the operational leasing in dollar had reached a new level and average expense with leasing in the fourth quarter had an increase of 12% year on year and 30% quarter on quarter. I understand that there is room to improve this line. This is the scope of Skyworks, but why did you have such a high increase in the fourth quarter?

Edmar Lopes

This line has as a regular effect on the monthly leasing. Eventually what happened in the fourth quarter was the following, you have an overload due to the return of aircrafts that are not flying or even the collection of fines and penalties because delays in the returns. So if you pay attention to this line you will know that it was quite pressured by the dollar and there were some peaks because of the nature of operation, I mentioned. That’s happened along the first quarter. Indeed we see a higher level in this line, went from 7%, 8% to up the total cost of the company to 13%, 14%. In 2016, we are going to work together with Skyworks to analyze what is going to happen with us. It's still very early to say but we are going to address that.

Renato Salomone

Okay. Thank you very much. Another item that had a strong difference is suppliers. We know that in the first quarter of the year this is something that tends to go up. Is this going to happen this year or do you think that somehow you anticipate or advance to the fourth quarter?

Edmar Lopes

Yes, you are right. So basically we advance some of it in the fourth quarter. When you look further on you will see a lower level of activity in March, alike to another important issues that is starting to show as of May which is a smaller network of smaller fleet.

Renato Salomone

Okay thank you very much.

Edmar Lopes

I'm going to read three questions that I received in English that were forwarded directed to me and I'm going to answer the questions.

The first is how much in dollars and how much in Brazilian real the Company has in assets that are not working as collateral?

The second is, in addition to aircraft, what other type of fixed costs the Company is trying to reduce?

And the third question is whether the Company is asking for some kind of negotiation of contract because of labor issues?

Paulo Kakinoff

Well, the first question, basically what we have in terms of assets are aircraft that are working as collateral in our debt. Today we have an excess guarantee of about $250 million.

The second, with regard to costs that are being reduced or that are being focused to be reduced, I had talked about that along the 2015 year. We want to reduce as many services as possible, we are talking about catering services, engine services, ramp services, any kind of service you can think of, and leasing. Now we are working with Skyworks. It is just part of the work that we already started back in 2015 and that will continue in 2016.

In terms of labor issues, it is very important to say that labor laws in Brazil are different from labor laws in the U.S. We have an annual review of contracts. This already happened in the turn of 2015 to 2016 and we had a collective agreement that generated an impact on salaries of up to 11% nominal increase and slightly lower economic impact, because we have a scaling differently from the U.S. We don't have major flexibility. Quite the contrary, we have to practice market salaries and we have been increasing productivity which is related to our restructuring plan. But that's about it.

Edmar Lopes

Before we get to questions in Portuguese, we are going to tell our English audience that we are going to answer all the questions in Portuguese first and then we are going to go back to English, because then I think it's going to be a bit more structured.

So let's take all the questions in Portuguese first and then we'll go to the English ones, okay?

Operator

Leandro Fontanesi from Bradesco BBI, would like to ask the question.

Leandro Fontanesi

Good afternoon. Well, my first question is about your debt of $300 million with Delta. Could you convert that into equity? And the second question is what do you want to do after you have the restructuring of your fleet? If you could, I don't know, re-buy bonds or something like that.

Paulo Kakinoff

Well, hello. Good afternoon. First about equity. I'm going to talk an even more encompassing manner, Delta and other shareholders. We do not want to have any transactions involving equity right now, much less conversions. And, second, the possibilities related to an increase in liquidity are much more connected to a defensive movement, a maintenance of the minimum levels necessary for the Company to be able to move on, rather than using these amounts for repurchase or buyback programs.

Anyway, we are working together with our advisors to see what the most efficient model would be in terms of our capital structure, and whenever we have something defined we are going to get back to you.

Leandro Fontanesi

Can I ask you one other question quite quickly, about the decreasing capacity that you mentioned, you said that you have a structure of costs almost more than 50% in dollars. We had a bit of devaluation of the dollar and now compared to the real. Do you think you could have an uptake now?

Paulo Kakinoff

Well, even if you think of this level of 360-370, the cost structure and our indebtedness is significantly high compared to previous years. Of course it is better than [indiscernible] for 10, but it's still far from being a deal or eliminates the need for a capital restructuring.

Leandro Fontanesi

Okay, thank you very much.

Eduardo Masson

And just to add to the answer, Leandro, reducing our fleet has much more to do with an estimated drop in demand than reducing costs. We already have our estimates and if we think of what the Company can do for the future. We know there is a reduction of demand and because of the demand that is reduced, we are thinking of reducing our fleet.

Operator

Bruno Amorim from Santander would like to ask a question.

Bruno Amorim

I have a question talking about a decrease in capacity. It is a substantial decrease. I think that you are cutting routes where the route is not as good, but also your dilution of costs can be a bit effective as well. So your CASK can be a bit higher. The net effect in your margin, should it be positive or negative, at least for now?

And the second question, I know that you're not supposed to give guidance for 2016 or to talk about the first quarter, but because of a deterioration in the macro scenario quarter-after-quarter, are you seeing a better ratio between demand and price for this year?

Paulo Kakinoff

Well, a change in our fleet and decrease of our fleet, of course, was aimed at having better margin. We have to have actions that are able to neutralize the adverse scenario in Brazil, so we are focusing on reducing Company costs in all fronts. And basically, as I mentioned, we are reviewing our company contracts. For us, it is much more difficult now to have any kind of prediction about the effect of the new fleet size because the most unclear aspect now is revenues. The economic scenario and the projection of a reduced demand does not enable us to be assertive about our RASK.

Generally, we are going to disclose our guidance projections for economic results, not in this call when we're talking about the previous year, but in the call of the first quarter of the year. That is probably going to take place within 40, 45 days and we hope that until then we will be able to be a bit more assertive in terms of projection of results that the new fleet size will offer us. But for now, conceptually, the cut aims at improving our margins, but what we see in terms of future demand does not really encourage or enable us to tell you that indeed we are going to significantly improve our results. Okay?

Operator

Mr. Stephen [ph] would like to ask a question.

Unidentified Analyst

You mentioned in the beginning of this call that in the financial restructuring of all stakeholders should be part of. Are you including shareholders?

Paulo Kakinoff

Shareholders are the first to take part in it, when we design the restructuring the first that contributed were the shareholders more specifically the majority shareholder, Constantino, and Delta, together with an injection of a $115 million in the company, all the other shareholders were called and some also contributed at relevant levels. So they were the first to contribute to our restructuring.

Unidentified Analyst

So I see that Bloomberg had the half line that you are saying that you have no plans to convert any debt in equity. I would like to understand if that's what you meant or if you are talking specifically about your debt with VARIG, but the expectation is that in this restructuring shareholders are not going to be impacted. Is that what's you are saying?

Paulo Kakinoff

They were the first to be impacted in the first plan and what's you are saying that now there is no projection of conversion and into equity or new capitalization from the current shareholders of the company.

Edmar Lopes

This is Edmar speaking I will add something, for us it's very clear that we have different packages to be addressed in different ways. So we have the agency of working on non-securitized debts in the United States we have debts with collaterals also in the U.S. that are going to be addressed in a different way. That we have Delta as the guarantor and we have the domestic debt that the company generally addresses itself because of the good relationship with creditors. So if we isolate each one of the debt, we see that there is a clear strategy and the strategy in terms offer equity as we mentioned.

Unidentified Analyst

Okay I understood and just one more question. When you look into the size of your debt and you imagine this restructuring what the level of debt would you be comfortable with after the restructuring process?

Edmar Lopes

It's too early to say because of we are just starting our work, so this is a question that will have to ask every day from today on, but as Kakinoff mentioned we have an additional challenge which is exchange volatility that will clearly influence this indicator. So I will ask some patience from you so that we can really advance a bit with our plans and further on we will be able to announce you more precise numbers.

Operator

Alexander Volkov from HSBC would like to ask a question. Mr. Volkov you may go on.

Alexander Volkov

Okay the first question Kakinoff is going to answer about consolidation in the industry and the second question in regarding to Boeing.

Paulo Kakinoff

What happened is that Boeing as a supplier of GOL has been a partner since we started and it has been already taking part in the plan by means of making the schedule of deliveries a bit more flexible as we said we had 15 aircraft to be delivered between 2016 and 2017 and they're going to be delivered later on and all others commitments and contracts arrangements we're discussing with them the possibility in terms of deliveries and right now we do not have anything to announce but in the past Boeing has always been present in any relevant movement of the company. And clearly Boeing is an important part of this restructuring. It is an important stakeholder and I am sure they're going to contribute significantly to it.

As for consolidation I'm going to go back to our previous positioning. We believe that the region will have consolidation movement, but right now we are not conducting any discussions to this end, okay.

Operator

One more question in English, Steven French from Citi would like to ask a question.

Steven French

Great, well thank you very much gentlemen I appreciate the time, just two from me. As you look at the fleet reduction and the potential increase in block hour utilization, any color as to whether you'll have to increase the number of A checks and B checks that you do per aircrafts, that's the first question.

Paulo Kakinoff

Hi Steven. Following the dynamic agreed. My question was the following, if we have any change in our checks A checks and B checks projections and C checks as well, which are the regular checks of our aircrafts. In mid last year the company together with Boeing decided to change its maintenance program to a block program.

We are in the final phase of implementation of this model which brings us a new dynamic to the market and also a different schedule in our regular checks. Of course the dynamics aims at keeping the same high level of security and safety in our operation, however with the reduction of operating costs which can only be calculated at the end of our transition program which should be up by June this year, totaling approximately 15 months of work to change from one model to the other.

Operator

Another question in English. Schwartz [ph] from Lemon Bank would like to ask a question. Please you may go on with your question.

Should any of you have any question please try the following.

We have a question in English, Coleen Scwartz from Lemon Bank would like to ask a question. You may go on.

Edmar Lopes

Afternoon everyone I got a question from Matthew Roberts from Raymond James. So the question number one is the following.

Matthew Roberts

What is the cash burn every month and how much can be reduced after the advisors initiatives?

The second already answered by Kakinoff of which is what is the potential for the consolidation and the region in terms of the consolidation of the industry?

And the third question is about any need of additional legal momentum our charts?

Paulo Kakinoff

Well, I am going to start talking about our cash burn, well it depends about $2 million to $4 million every day depends on whether it's high season, low season, if it's a better or worse performance. And in terms of expectations to reduce the cash burn again it's too early to tell, because as we mentioned earlier on we are still starting the whole assessments of the process. So we have to wait for the work to be develop, wait for the compact with our stake holders to get back to the market and to tell you about projection, it's too early to tell right now.

As for consolidations, we already talked about that and the third question talks about eventual legal recoveries, Chapter 11, what kind of movements we could have there. Basically the restructuring plan aims at avoiding any need for a Chapter 11 or legal recovery. This is the plan, we really are confident that this is going to work. If we didn’t follow the restructuring plan, I am sure this would be the next step for the Company. But we don’t believe this is going to happen because we are really confident in that all stakeholders are going to be involved and we are going to succeed.

Edmar Lopes

Before closing we have a last question from Duane [ph] and the question is -- written in two questions, one saying that if the increase we had in the first quarter was structural or if there was any one off event?

And second what the company means with, we are looking into alternatives for non-securitize foreign debt?

I am going start with the second one. The answer is we are looking into alternatives for a non-securitize foreign debt, being very specific we have bonds issued in the United States without collaterals, this is why we hired the advisors and PJT started working with us few days ago and further on if there is any development, we are going to come to the market and announce them.

As for costs, what's happen in the first quarter, we already mentioned. Basically there was a very strong impact of the exchange rates also because of the movement of aircrafts in the high season and also a reflection of an increasing inflation in Brazil as I mentioned an increase in tariffs in the last quarter. Air tariffs in Brazil which will have a reflex along 2016. But basically when we talk about the cost structure of the company, I am going to repeat myself, we are working very hard in different fronts, but this is an extremely challenging scenario, the Brazilian inflation is double digits, the exchange rate has really pressured our results and the real to devaluate more than 40%, if you compare year-on-year.

So with that, I think that somehow we are able to answer all the questions that came up in English.

Operator

We are now closing the Q&A session. We are going to turn the call back for Mr. Paulo Kakinoff for his final considerations.

Paulo Kakinoff

I would like to thank you very much for your attention. Wish you an excellent afternoon and again remember that if you have any further questions please do contact our IR team, that we are here for you. Thank you very much.

Operator

GOL's conference call is now closed. We thank you very much for joining us and wish you a good afternoon.

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