Gol Linhas Aéreas Inteligentes S.A. (GOLL54) Earnings Call Transcript & Summary

Welcome to the GOL Inteligentes Airlines First Quarter 2020 Investor Update Conference Call. This conference call is being recorded. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through the GOL website at www.voegol.com.br/ir and the MZiQ platform at www.mziq.com. Those following the presentation via the webcast may post their questions on the platform. Questions will be answered by the management team during this call or by the GOL investor relations team after the conference is finished. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of GOL's management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that events related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. Today's conference call refers exclusively to the investor update and the impacts of the COVID-19 pandemic. Please note that the information and the investor update is preliminary and unaudited and, therefore, subject to change. The disclosure of GOL's results in the first quarter will take place according to the company's calendar of events on April 30, 2020. At this time, I will hand your conference call over to Mr. Paulo Kakinoff. Please begin.

Good morning, ladies and gentlemen, and welcome to GOL's Airlines investor update call. I am Paulo Kakinoff, Chief Executive Officer; and I am joined by Richard Lark, our Chief Financial Officer.

Good morning. It's my pleasure to be with you today.

This morning, we released our traditional investor update for the first quarter of 2020. Also, we made available on GOL's investor relations website a video with our comments on that document. We hope everyone has watched it as we will now only make a brief introduction, and then we will move to your questions. In view of the unprecedented situation in the industry due to the coronavirus where the social economic environment around us is highly unstable, we have chosen to hold this conference call. We aim to provide additional clarifications and answer some recurring questions among our capital partners, investors, analysts and reporters. I want to thank each and every GOL employee for their motivation and engagement. As a company, we are 60,000 people with a single purpose, to be first for everyone. And at this point, we want to reaffirm that commitment as we provide an essential service to society. In the second half of March, which Brazil as responsibly choosing to self-isolate and avoid travel during this coronavirus pandemic, we readjusted our air network of 750 daily flights to 50 daily essential flights between São Paulo International Airport in Guarulhos and all 26 state capitals in Brazil. We expect to maintain this network until early May. Now I would like to initiate the Q&A session.

[Operator Instructions] And our first question today comes from Duane Pfennigwerth from Evercore ISI.

Maybe just firstly, can you talk a little bit about the flexibility that you have in your cost structure? As you think not like within the week but maybe into the second quarter here, what percent of your costs are fixed in nature? How would you highlight the differences maybe between the degree of the flexibility you have in Brazil versus maybe U.S. carriers? And then secondly, just -- I don't know if you want to get into monthly cash burn rates, but sort of I think the question that most investors have right now is the rate of cash burn relative to the amount of liquidity. So how long theoretically could you sustain a demand shock like this?

David, thank you very much for participating and raising your questions. Let me give you all a more overview on our revenues, fixed and variable expenses. So this company has monthly revenue of between BRL 1.1 billion and BRL 1.3 billion. So if you were to break this revenue down, they are associated to a cost which is also hanging between BRL 1 billion and BRL 1.1 billion per month. Of those BRL 1.1 billion, BRL 600 million is related to the variable payments. So we have fuel, we have landing and navigation fees and all this kind of stuff. We have reduced our network to 10% of what it was before. And automatically, we have also dropped our variable costs down to that same level. So the remaining BRL 500 million we have related to our fixed costs, I would highlight BRL 200 million -- close to BRL 200 million, which is composed by our payroll, a considerable portion of which, specifically 60%, is related to crew payments. And you know that the payment has only 40% of its monthly remuneration attached to a fixed portion. The remaining 60% is pretty variable. So once we are also reducing our operations, automatically, the payroll-related to the crew will -- also have been dramatically reduced. In parallel, we have reduced the remaining employee salary and their journeys by the level of 35%. Every executive has a salary reduction around 40%. We have postponed our variable -- the bonus payment related to 2019, and we have canceled the 2020 bonus program. And we have 5,400 employees out of our payroll in April due to an unpaid leave program. So all these things combined have reduced our payroll amount from the traditional or the average BRL 180 million, BRL 190 million to the current BRL 70 million to BRL 80 million. And it does not include any additional labor flexibilization to be introduced by the government. So it means that we have -- we are operating our company at that level of payroll, so between BRL 70 million to BRL 80 million, and it could be further reduced in case that additional flexibility programs will be announced by the government. Then we have our aircraft leasing. So usually, we are -- it's pretty much dependent on the exchange rate, but it's hanging between BRL 160 million to BRL 200 million a month. We have successfully negotiated with the vast majority of our counterparts, I mean, with the lessors. And we are basically postponing those payments between 90 to 180 days. So those 2 things combined, they are spending for BRL 400 million -- close to BRL 400 million out of the BRL 600 million of our fixed expense. So these are the big highlights on how we have to bring down our fixed costs now, and -- sorry, our total costs and expenses. And now I'm going to hand it over to Richard, who is going to say a little bit more on the cash side.

Thank you. And I'll share those numbers for everybody. I mean this is one of the most frequent questions we've been receiving. A couple of things. One, goal of this company, this management team, as you know, most of us have been working with GOL since its founding, we've -- we're very experienced in navigating shocks. I mean if you just take this last cycle, we successfully managed through the multiyear recession in Brazil, which hit us in 2015 and '16. You saw how we navigated the -- successfully navigated the trucking strike in 2018. So this is another crisis that we're navigating. And so we did -- and as you know, the key here is operations flexibility, fleet flexibility, that's the key, and also having good partners. And so we think we're -- we've got high marks on those scores. We have a very simple operation, one type of aircraft, one type of pilot, one type of mechanic, which makes it probably a little bit easier for us to do this quick adjustment. And as we were walking out yesterday here at Congonhas Airport, tomorrow night, we have a full moon here in São Paulo, which will actually commemorate for us 30 days since we sat down on March 9 and designed the plan that Kakinoff just described, which had the objective of keeping the company -- the operating company, the airline, GLA, at an operating cash flow -- at a cash flow breakeven for 90 days, okay? And I'll give you some more specifics on that. But our objective, obviously, was to create a runway as long as possible, and our runway is longer than 90 days. But we're taking one day at a time here right now. Time is the most valuable resource. And we're focusing on the game that we can play today, and that's how we're managing the business right now. So we do have many, many, many months of runway. I don't think it's very useful to talk about much longer than the next 90 days at this point. And so over the last month, we executed the plan, which was to create the cash. The operational company, the airline, if you will, to operate at a minimum cash burn, if not a cash breakeven. And I say this because, again, we manage our business, as you know, in kind of 3 different silos. We have the airline operating company, which is by far the majority of the revenues and the majority of the EBITDA, and then we have the loyalty program, and then we have the aircraft acquisition and financing business. And they all have different capital structures. And so the key with the airline business is the working capital management or treasury, if you will. And so what Kaki was describing to you in terms of the main areas of focus, on the fixed side, our plan was able to put fixed costs at around BRL 170 million a month for the next 90 days, which is aircraft and people, right, more or less split 50-50 in that category. And then on the variables side, that follows operations. We're operating today at 50 flights a day versus 750 normally. We took 120 fleet -- 120 aircraft out of service during the second half of March. And as such, our variable costs for the next 90 days will be around BRL 80 million a month split between fuel accounts payable and other types of fees in there. And in addition to that, we have a minimal debt service, which is mainly interest expense because we don't have any maturities in the next 90 days. And I'll talk about capital structure separately from the working capital management, and that's around BRL 100 million a month of debt service. And so that will get you to roughly BRL 350 million of cash outflows. And that was designed to match against approximately BRL 350 million of cash inflows on the revenue side for the next -- for month -- for the next 90 days. And so -- but that is not obviously normalized. That involved a lot of postponements, reorganizations and temporary cost reductions. And so we pushed those, at a minimum, out 90 days and some out as far as 180 days. Now moving quickly to capital structure because that is another point, and then I'll finish talking about the risk management because we also get a lot of questions on how we're doing with the oil hedging. On the capital structure side, obviously, most of capital structure -- while the working capital management is designed to support the airline, which is what generates the revenues for all 3 of our businesses, the work -- the capital structure, if you will, the corporate finance department is really focused on managing the capital structure to support the long-term growth. And for us, long-term growth is basically aircraft. That's -- majority of our debt is only there because we have to -- we are debt financing our aircraft acquisitions. And so in that bucket, as I said, we have no maturities in the next 90 days, we did have a maturity. We had BRL 150 million amortization on the Brazilian real denominated debenture. We pushed that out into the last amortization on that debt instrument, which will happen in the first quarter of 2022. And then looking out from now until the end of the year 2020, we have BRL 150 million debenture amortization in September. And then we have about BRL 500 million of, say, operating CapEx/maintenance working capital, roughly BRL 50 million to BRL 60 million a month, of which about half is deals we have for engine overhauls with support of U.S. Eximbank, and the other half is deals we have with Brazilian banks related to other types of operating CapEx. And so with all of those -- we have found support and good partnerships with those counterparties, and we plan to keep working on postponing and reorganizing those maximum possible. Now -- and then we have a -- in the capital structure, we have a $300 million term loan B, which matures in August of this year, which we plan to amortize when due. And that's the term loan that has the cosign from Delta. And so that is in the plan to pay that. We would have done an early redemption on that here in the second quarter as the coal price fell apart at the end of February, and we've been monitoring that. And as you know, we canceled that, the early redemption, and we also canceled the take in of the minority interest in Smiles to preserve cash. And so the sum of those 2 amounts that we have been managing the company in terms of the capital structure, we had been working very hard to have around BRL 3 billion of cash saved away from airline operations to be able to do that liability management. So we entered into this crisis prepared because of those -- that work we had been doing on the capital structure. So you look at our liquidity there, right, you look at our liquidity there that we describe, which was we finished the quarter a little over BRL 4.3 billion of liquidity. BRL 3 billion of that is in these other capital structure components, and about BRL 1.3 billion of that was tied up in airline operations. And so that's how we've been managing this business for a while, and we were prepared to do that. And obviously, we now have to manage the business in a very different way for the next 90 days. Now just to finalize the tripod here. On the risk management side of the equation, how are we managing that? And a couple of points. One is that we have been supporting hedge positions which go out 24 to 36 months. We have hedges out in 2022. We were able to take advantage of a little bit of the environment at the end of February. And obviously, we suspended buying any new fuel hedges once we entered into this plan here. And in 2019, we migrated to -- towards the end of 2019, we migrated to have the majority of our portfolio in caps and call spreads invest in cash, and we probably have about 50% to 60% of the portfolio in those types of instruments and the other 40% in calls collars where we have credit counterparties, and we have to manage both the upside unwinding when we have some extraordinary gains off the curve and the puts on the downside. And as you know, how we've been managing this business over the last years is we've allocated as much as $100 million to invest in hedging in terms of, what we call, working capital for hedging, which you would call margin deposits. And as we experienced the oil downdraft in -- during the month of March, we were fully invested and probably slightly overinvested in terms of what we normally would want to budget for the -- for that activity. And -- but we have, over the last couple of weeks, effectively immunized our portfolio there and, at the same time, adding positive gamma to the overall portfolio with some operations that we've done to kind of, if you will, eliminate any downside risk below the levels we're at right now, okay? And so we won't be much more than $100 million invested in our next 24 to 36 months' oil hedges, and we still have the upside as oil recovers. But as I highlighted in the release, no chance that effectiveness here for Q2, given that we've got 120 aircraft getting a suntan right now. And so just to kind of highlight, so we were being transparent on what we expect on the extraordinary financial expense of about BRL 80 million in the Q1, that's mainly related to what happened towards the end of March. And then in the Q2 right now where oil prices are at these levels, we would expect about BRL 200 million of losses, which are ineffective hedge positions, which were reported in financial income. But that's the way for you to kind of get your hands around what this company is doing on hedging. And when I say this company, we have a very well developed and sophisticated policy and then programs and executions where we actively manage this. We did not accurately predict the Russia-Saudi aggressive negotiations, as did few, I think. But that's how we've been managing it from a credit perspective and from a margin perspective. And so this company does not have any difficulties with that. I realize that was a long answer to your question, Duane. But given that time is the most scarce resource now, I wanted to kind of address together with your questions in terms of the short-term plan and where we are and where we're going and how we got into this and where we see things going based on the frequency of the questions we've been getting across the board. Obviously, what we'll do when we announce our first quarter results -- our audited first quarter results in our earnings call on April 30, I think we'll be able to give a little bit more visibility on where we see things going. The objective of this call is kind of -- was more just to kind of say where we are. And just going back, I mean, we believe we've created enough -- as much runway as we need. There's a lot of different ways to think about that, but I think we have as much runway as we need. We're -- the team here, as you know, it's one team, one company, one geography, and we've had a lot of experience navigating these shocks. And we believe we have a competitive advantage through the operating model, which is based on the single fleet type and the way we operate that here at GOL. So that's what I would say to that. With that, I think we're going to shift to the next question here.

And our next question comes from Mike Linenberg from Deutsche Bank.

I have a couple here. But I guess the first one, maybe if you can just talk about what you anticipate from the government. I can see in your investor update, you do talk about government support and the taxes and fees are going to be suspended for the June quarter. And maybe you can give us a sense of what that actually is since your schedule is so reduced, what that is on a P&L benefit? But I also -- Kaki, you talked about maybe assistance, payroll assistance like what we're seeing in the U.S.? And there was a number floating around in the press, something on the order of about BRL 10 billion possibly earmarked for the Brazilian airline industry. Maybe that's not the right number. Any sort of color that you can give on all of that, that would be great.

Sure. Mike, so we have discussed with the government several flexibilizations related to navigation fees, boarding fees, this kind of stuff, and also the announcement and implementation of the so-called essential network. So that essential network means to go 10% of our traditional operations. So we were flying 750 flights a day, now there are 50. And the good news out of the essential network is that we are close to breakeven in cash related to that essential network operations. So we've brought down our cost to the level of our revenues. It means that by operating this essential network, we are not burning cash. So our cash concerns are related to the fixed costs, and those have been addressed by the actions detailed in the first answer we just gave last minute. So this is good news because we are not bleeding by operating our flights, they are pretty much reduced. But I think that was one of the most effective and precise actions taken by the government, which was allowing us to design and implement a breakeven -- cash breakeven operation. So this is the first part. Related to the Brazilian official bank, the BNDES, credit line informed. What we can tell you so far are exactly the same information officially shared by them. So the intention is to offer a credit line totaling BRL 10 billion to the airline industry in Brazil. So assuming our portion or our relevance in the market, we have considered that BRL 3 billion will be offered to GOL, and they have confirmed that total amount. The main characteristics are the following, I mean, those ones already being either announced or negotiated between us. So this would be 5 years maturity credit line. We would have -- we would start the payments only after the third year, that would be on a scale of 20%, 30% and then 50% by the last year, by the year 5. And we would also have 1-year interest payments relief. So those are the only things already -- or the only moving part being fixed during the last days. What are the 2 open issues to be finally discussed? The interest rate itself and their intention to have that credit line being associated to some warrants, which would convert a portion of the debt into equity based on detail -- on a certain strike price, which none of those 3 items have been already neither dealt or agreed between us, I mean the interest rate, the strike price and the consequent dilution effect it would bring to that construction. So it's too early to tell you whether that line -- that the line will be attractive or not, although the conversations have been pretty promising so far. So we have agreed on a schedule that those lines would be available by beginning of May. This is what has been said by the BNDES, by the bank itself. And therefore, I believe that we have still 2, maybe 3, weeks ahead of us before officially announcing the authorization of those credit lines. But before handing over to Richard, I don't know whether he would like to complement something, but I would just would like to highlight 2 other important aspects. We have eyewitnessed the -- how much and how professional and proactive the Brazilian government have been -- has been, sorry, towards the COVID-19 crisis in the airline segment. So already for 3 weeks, we have held daily meetings with different levels in the government. And they have been fully dedicated to find the best solutions in order to provide to the airlines payment deferrals and credit lines. So therefore, I am also confident that we are going to achieve a quite meaningful support, additional actions being released by the Brazilian government following this credit line dimension that I have just described. So this is one very important thing to be mentioned at the moment. So please...

Yes. Mike, I was just going to say there, I mean, our -- as Kaki said, we've been working really closely with various parties in the government, and they've been great and super proactive and very quick, and including the team at the BNDES, it's staffed by market professionals, very experienced. And the way we are viewing that is, obviously, and I think it's also the way that that they're viewing it, is that we're going to do everything we can to finance ourselves with market solutions to the extent that the commercial banks continue to do their job, which is to provide credit.

This is the conference operator. It appears we may have lost the audio from the speaker line. Can you hear him?

I can hear. I can hear.

Are you saying that you can't hear us? He can hear us, though.

I can hear you guys.

I'll put you on hold here, so I can -- just 1 second. It's funny because -- no, that's fine. You can hear me okay, Mike?

I can hear you fine.

That's fine. It's funny because we were wondering how -- because we've been seeing a lot of these technological problems happening out there in the world. And so -- and we haven't really had any ourselves. It's amazing over the last couple of weeks, I think our business and many businesses in Brazil and probably around the world, the amount of cyber attacks has just exploded, which is really kind of really amazing that people would actually be doing that right now. But I was going to say, to the extent that the commercial banks -- and we generally, on the working capital side, the airline side, we deal with local credit, and which -- a lot of which you guys don't see. A lot of you guys see the long-term capital structure that we use to finance our acquisition of long-term assets, which is matched in currency, and there, we generally do with the capital markets, the leasing companies and sophisticated aeronautical aviation people that understand very well what's going on right now. But on the working capital side, which is really where we consume credit and where we could get hit by if there's liquidity problems, that's really more on the real side of the equation. So I would say, so far, so good on that. We're counting on our partners there, our financial partners, and it's mainly Brazilian banks in that category. And so I think on both sides of the equation, on our side as airline management and on the government side, the development bank, we're both counting on and encouraging the liquidity and the credit market to work. I think the -- by most assessments, the Brazilian government, central bank, treasury prepared the banking system very well for this here in Brazil, perhaps more than other countries in terms of liquidity. So I think Brazil also came into this with ample credit. Doesn't mean that you're not going to see behavior of, say, bank management teams be different. But our attitude has been one of partnership and one of working through the issues and trying to create win-win situations. So I would say, so far, so good. And so I think we -- what I'm saying is that -- and so what we've been doing is trying to work with our private market alternatives up until now. So my point was that where I'm going with this is that from our perspective, from GOL's perspective, we view potential, let's say, liquidity support from the BNDES very positively to the extent that this crisis continues, and we need to prepare for that. But the way we think about that is, at this point, it's more about backstop facility. We're very interested in it, and so we're having conversations and we're working feverishly on it around the clock in kind of like a due diligence process with the various people involved help try to come up with a solution that makes sense. And I think -- and whatever solution would come up, it would apply to everybody, not just us. But our attitude about that has been one of, let's try to finance ourselves with our partners. And I think as long as the commercial banks continue to do their job, I think we'll get through this. And then we would view that as a backstop that to the extent that the health issue continues, inhibiting the economy to work like it's supposed to, then we would -- that we could potentially need that. It's -- we don't manage the business -- we don't manage an airline as based on a stock, right? We manage it based on the flow, and GDP is a flow. And so once we have visibility of getting GDP back and having the flow, then we can make an assessment on how our flows are going to be managed. But we don't have that visibility right now, and so I don't have an answer for you on if we would use it or not. I think the longer this crisis goes on where the economy is stopped, we would potentially need it down the road. But if the economy can get back in gear and if we start to see economic activity, things like commercial activity, bars and restaurants, that kind of activity happening, I think we could give a better assessment on how we -- this company would use it. But I think from a sectoral perspective, it's obviously a very welcome, let's say, comfort in terms of planning in terms of how we can maybe fit that into what we're doing if we end up needing help on the working capital side of the equation because as I was trying to make the point, we've got our capital structure taken care of, right? We've got our long-term capital structure taken care of in terms of assets and liabilities. Where we could need help is on the working capital side of the equation to the extent that the local credit market freezes, right, and -- which will be a liquidity problem, not a credit problem. And as you know, what we like to do is kind of share with you guys how we're thinking and how we're managing the business, but obviously, the complexity of this is enormous. We're operating in a 0 gravity scenario and with very little visibility on the future. And so we've been kind of managing the business focused on playing every day as best as we can and creating win-win situations with our partners, which include the local credit markets, and we're counting on that, just like, I think, Brazil is counting on us as well on some of the issues that Kakinoff described to be available if it's needed for those things.

Rich, is there ever -- because of the fact that you said you would look at that financing from BNDES as a backstop and only if you needed it, but you -- Kaki, you earlier talked about the equity component, the warrants. Is that something that you would probably have to look at sooner rather than later, knowing that if you were at a point where you desperately needed it, your equity value would be at a point where relative to the loan that you were seeking, you'd have to give up maybe a much greater portion of your company than the present? And so is that something where you would actually want to have something ready to go sooner than waiting until you're in a very much a distressed state? I mean I'm just -- I'm curious about your thinkings on how -- thinking how you would plan for that?

Yes. Sure. No, that's a great question. I mean the -- as you know, in the press, the -- and the press has gotten some of these things wrong by taking -- the BNDES was out with numbers about how much financial support they would have. And then the press was -- and then they said, subscription bond, think about that as debt with warrants. It's not exactly a convertible bond, it's more like debt with warrants. And then they took the number of the financial support divided by the current price on the screen and they calculated percentages. I mean that is not responsible reporting, right? It's not helpful. But -- because, as you know, a warrant is priced based on things like Black-Scholes and other factors to also be priced privately. And so I think the instrument that the BNDS has offered is an intelligent one if they are thinking about, let's say, providing money for restructuring, right? Because if the money is going to have to restructure airlines, meaning capital structure, that would make perfect sense to offer a debt plus warrant structure. And then they -- their support could then also participate in the upside of the value created. I think you're seeing these same conversations happen in the U.S. right now, right? No indications that we have that they have any interest in being involved in the governance or the voice of the companies, it's a pure financial support with a fair remuneration for us as Brazilians on the taxpayer side of the equation. Now having said that, you said how do we think about that? Our -- if we had a need, it would be for working capital to -- as we would ramp up to start flying again, that would be our need. So it's really a short-term need. So there is a mismatch from a corporate finance perspective in terms of a debt with warrant structure and short-term working capital on that. And so we would have to figure out a way to match that. That's a challenge. It's not an easy thing to do. But the -- what I was going to say is that in terms of -- again, I'm describing how we're thinking at GOL. I think I can't -- I'm not speaking on behalf of other airlines, not even in the U.S., and -- because our operating model is much more streamlined and simple and much less complex than all of our competitors. And as we emerge on the other side of this, when the engine gets started again, we, GOL, will be a much -- even more domestic operator and an even more corporate business operator. As the leisure will take a while to come back, corporate comes back quicker, that will react very elastically to whatever GDP is. It's not a hard calculation to do. But the leisure part will probably take a while to come back because there's going to be a bit of a setback perhaps on that because of not just the economic component but also the social component that we don't know. But the speed at which that comes back will also dictate how much working capital we would need on the other side of this, and so it is a 2-edged sword here, right? It's not just the working capital you might need to the extent that the shutdown continues, it's also the working capital you would need to ramp back up to provide the service. And so that's all I really can tell you right now about how we're thinking about it. I think from a corporate finance perspective, it's a mismatch, but beggars can't be choosers, right? And we are -- you have to look at it from that perspective. And so I think if we end up needing this financial support, we will figure out a way to use it in the best way possible. Now you were going for the kind of the valuation question. There's no chance that management of this company is going to be pricing an equity instrument based on the -- whatever the stock price is yesterday, today or tomorrow, that isn't happening, okay? At what point would I do that? Again, I don't -- we don't have a visibility, right? We're managing -- so the answer would be, I have no idea at what point I would want to do that. But if I were to adopt the glass half full perspective, for me, that would be in September or maybe sometime between July and September, meaning that I think we'd want to have a, let's say, functioning capital market that's properly -- that's rediscovered prices that is properly pricing things. And everybody now is we're all exchanging ideas and things, and the best the best conclusion I can come to now is that by September, we should have things being priced more normally. And our current thinking, look, my thinking could change tomorrow, but if you ask me as CFO of this company, I think I'm going to arrive in September with a extra 300 basis points on my -- whatever my pre-coronavirus credit spread was. When I go around -- when I get to September, it's going to be that plus 300 bps. So that's my estimation of this based on my own experience, and that's my own opinion. That's not worth very much right now, right, and because I'm not, we're not planning on September. But it's also a way of saying that the way we're approaching this is it's going to be a useful backstop tool to have if we need it. And obviously, we're going to have to do a lot of work to come out with the details that would work on that. But -- and then we're going to have to see how we get through the next couple of months from a working capital perspective. And then we're going to have to see how the ramp-up is happening and what size of the company we're going to have at the end of the year, and then from that, solve for the proper capital structure, right? And solving for the profitable capital structure is also fleet size, right? And we have the flexibility -- as Kaki was saying, we have the flexibility with our fleet to rightsize it to whatever the economy is that we have. And part of the conversation here is that I need to get the -- we need to get the GDP input for the Q3 and the Q4 from whoever is going to give us that. And once we have that GDP input, we can plan the capacity we need. And once you plan the capacity, we can determine what the capital structure is. And with that, we can then say how much debt and equity I need to have. And it may be the case that I need more equity for that situation, and it may be the case that I don't need more equity for that situation. And so that's how we're going to manage this. And so for us, another way I can tell you is that's -- the use of such support, very valuable support, is, in our perspective, probably going to be something that we would determine on the other side of this next 90 days. I think that's how we're approaching it, and I think that's all I can say, Mike. I don't know. The U.S. is a bit different. U.S. is a little bit different given the complexity of their operations. And I think the U.S. approached it differently where everybody had their different requests in there, and there's more of a menu of alternatives. In the U.S., you have the grand structure, which makes a lot of sense for working capital. I mean you can get your grant to pay payroll, which would make perfect sense if we had that in Brazil. Here's a grant to pay your payroll, and if you need help with the long-term capital requirements, here is something else. But that's not what's been offered to us. And so we're working with what's been offered out there. I think in the next couple of weeks, I would imagine that there will probably be some, let's say, more specifics on that, that would go beyond just the speculation you've been seeing out in the press. But that's basically, I think, what we're dealing with here.

And our next question comes from Savi Syth from Raymond James.

Actually, a couple of questions. And first, on the cost side, is there kind of some costs associated with kind of pushing out these payments? I'm just trying to think of as we come out of this on the other side, if we should think about at least maybe in the short term, if your kind of cost structure is going to be a little bit more elevated than kind of heading into this. And then the second question is, I just wanted to get your thoughts on just if the current environment can lend itself to consolidation in the industry and how you think about that.

Yes. Well, the first question is no free lunch will apply. What we've been working with our partners are delays to those moments, if you will, to help our working capital. So on the leasing side of the equation, as Kaki was saying, 90 to 180 days out, there would be a recovery of those delayed payments on behalf of our leasing partners. And for the ones that -- not everybody is cooperating in this. We work with over 20 different leasing companies around the world, right, in various different geographies. And so yes, there's not going to be any free lunch on the leasing. On the -- I mean, I think in our world here, on your second question, the consolidation point, I think one way to think about that is maybe look at the continent of South America, and then it becomes a much more complex equation because each country is going through this situation. And there's a real diversity and gap in the financial health of airlines on a country-by-country basis. And so I think that is -- it's also a little bit early to see how it might pan out on a pan regional, on a continental level. I think it -- and I think at the Brazilian level, I don't think we see a whole lot of room for consolidation. I think what we could see on the other side of this is potentially a smaller market for a period of time, which would have to be a more rational market to facilitate recovery. And we feel like what we've been doing, what we've been working on ever since the creation of GOL is to have the most relevant product for the Brazilian domestic market. And that relevance is probably going to be even more magnified on the other side of this. On the flip side of that, on the international side, that's probably going to be hurt as, potentially, there might be lingering restrictions and more complex rules about international travel. And so we're probably going to be hurt on our international travel expansion plans. As you know, we had a plan over the next couple of years to take the international portion of our business up as high as 25% of the total. And so like I said, we would probably be more domestic, more business focused in our mix. And then that would have a communication, obviously, with the strategies of other companies in Brazil and also, to some extent, with us. Geographically, we communicate from a network -- from a seamless network perspective with other countries like Argentina, Chile, Caribbean and the range of the MAX. And so I think that's all I can tell you at this point.

Yes. And Savi, just a final comment from my side is that a possible positive outcome of that probably will be the lessons learned by some players in the market. I mean now you can see how toxic a overcapacity approach can be. So I think that some of them will suffer more than others basically by finding themselves in a situation where their overcapacity strategy will play against themselves. So I believe this is more -- even more impactful than for a consolidation.

And our next question comes from Rogério Araújo from UBS.

; Before my questions, just confirming a couple of the numbers. So the first is the total cost and expenses in the next 92 days is reducing from BRL 750 million to BRL 350 million. And also the second information is are you derivatives, the limited downside is $100 million. Are the numbers correct?

No. Your first question is correct. Your second is not correct, okay? Because it's not the way it works. What I was saying is that we have around $100 million invested in our next 36 months' oil hedges. What I gave you was a number for the Q2, which could be as much as -- it could be around BRL 200 million of financial expenses based on the hedges that have results that would be reported as ineffective in the Q2. But for example, if you were to freeze out the oil price curve for what it is today and keep it that way for 36 months, then yes, we would lose $100 million over the next 36 months. But we don't have a static program. We're managing that regularly, actively managing our positions. And so I don't know what -- if you look over the last couple of years, we have been between a positive 100 mark-to-market in dollars and a negative 100 mark-to-market in dollars. So it goes both sides of the equation. If oil were -- another way I could say it is that the short end of the curve, as you know, right now, we have very steep contango, if the short end of the curve flips up here based on this new OPEC consortium, that $100 million probably in the next -- if we were to go to, say, $45 by December, that $100 million would probably cut half roughly or maybe like $50 million, $60 million, $70 million. But the way we manage this company, the money we invest in the oil program in margin deposits, that's not an expense, it's a working capital investment. And so then on a quarter-by-quarter basis, what happens is the hedges that were done for that quarter would then be recognized -- if they're effective, they're recognized in operating income. And if they're ineffective, they're recognized in financial income. And the rest goes into the balance sheet account, which you always see there in the footnotes, the other comprehensive income number, which is the OCI. That represents the mark-to-market of the entire portfolio. Because we've been seeing some reporters have been out there saying -- putting these numbers out there that say gold is going to lose, I don't know, BRL 900 million on its hedges. That's not correct, and it's also misinformation.

Okay. Yes, it's very clear. So my couple of very quick questions here. One is nonrecurring expenses of about BRL 160 million in the first Q '20, if you could give us a breakdown of that? And second, if GOL amortizes the bond that is guaranteed by Delta, this is about $300 million in August. So probably GOL will need to access Smiles' cash. Is that a correct interpretation? And are there already conversations about ticket price purchase anticipation, like it was done in the past?

Those are great questions. I think on the nonrecurring of that BRL 160 million you mentioned, about -- I'd say, about 2/3 of that was related to the additional costs we had related to the MAX delays. Because as you know, we've been -- we're putting together capacity with short-term leases and also having much higher fuel consumption. So about 2/3 of that was from the delays on the MAX-es, and then the rest of that was maybe like -- yes, about 70% of it would have been the MAX delays, and then the other 30% was extraordinary costs for aircraft redeliveries. Now on the -- on your second question, we -- in the past and we'll continue to work with the working capital tools we have to manage our working capital across the consolidated entity, and so that can include advanced ticket purchases by Smiles on GOL flights. We manage that normally happens on a monthly basis without just every month Smiles is buying tickets on GOL from an arm's length perspective. But we'll continue to use those tools that we have to the extent we needed to for working capital purposes. But all that relates to working capital, it does not relate to capital structure, okay? And so don't mix the 2. One is in the capital structure box, one is in the working capital box. And so yes, to some extent, the numbers we're reporting to you, and we always discuss it this way, is on a consolidated basis, on a consolidated liquidity basis. And that's how we manage the businesses and the tools that we have to work on an arm's length basis back and forth in the 2-way street between the 2 companies continue to exist. I couldn't tell you today if we would do the advanced purchase, which is the advanced sale, if you will, from the gold side of the equation. I think similar to the answer I gave to Michael, I think we'll probably have better visibility on that in the next 90 days on how we would do that. But to the extent that, that cash will come in from one -- from the left pocket to the right pocket, it's only to finance the airline company operations without which none of our businesses exist. It has nothing to do with capital structure. Nothing to do with capital structure, which is the same thing on the potential backstop support for us on the BNDES side of the equation. They're not going to be providing that money for stock buybacks or debt repurchases or capital structure, that would be for Brazilian airline operations. And so we have to manage our capital structure from other sources, okay? Not from working capital sources. And so does that tool exist? Yes. Could it be used? I think we'll probably know in about 90 days where we are on the other side of this shutdown. And what would it be used for? Airline operating company working capital, if needed.

[Operator Instructions] And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to invite Mr. Kakinoff to proceed with his closing remarks. Please go ahead, sir.

We take great pride in belonging to the largest domestic airline in Brazil, a company that aims every day to be first for everyone. We are taking actions to lead with care, clarity and confidence. Although the immediate future is uncertain, it's important to remember that this pandemic will pass, and we will get through it together. And at the end of this hard process, we believe GOL will be even stronger. So I hope you found our Q&A session helpful. Our investor relations team is available to speak with you as needed. So thank you all very much, and take care.

Ladies and gentlemen, this concludes the GOL Inteligentes Airlines conference call for today. Thank you very much for your participation. Have a nice day.