Executives: Paulo Kakinoff - CEO Richard Lark - CFO &

IR
Analysts: Michael Linenberg - Deutsche Bank Pablo Zaldivar - GBM Steven Track - Citi Bruno Amorim -

Santander
Operator: Good morning, everyone, and thank you for waiting. Welcome to GOL Airlines Second Quarter of 2016 Results Conference Call. With us here today, we have Paulo Kakinoff, CEO; Richard Lark, CFO and IR Officer. This event is being recorded and all participants will be in a listen-only mode during the company’s presentation. After GOL’s remarks, there will be a question-and-answer session.

At that time further instructions will be given. [Operator Instructions] This event is also being broadcast live via webcast and maybe accessed through the GOL website at www.voegol.com.br/ir where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via the webcast may post their questions on our website.

They will be answered by the IR team after the conference is finished. Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of GOL 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 conditions related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr.

Paulo Kakinoff. Mr. Paulo, you may begin your presentation.

Paulo Kakinoff: Good morning everyone, Paulo Kakinoff here. Thank you for joining us via teleconference to GOL corporate headquarters at São Paulo-Congonhas Airport.

Today we will discuss the company's 2016 second quarter results. Please turn to Page 3 of today's presentation. GOL airlines is Brazil's largest air transportation group with annual revenues in excess of BRL7 billion allocated among discrete primary businesses, passenger transportation, cargo transportation and our coalition loyalty. GOL is Brazil's largest airline in terms of passenger transportation and is Latin America's largest low cost carrier operating in over 860 daily flight to 65 destinations including 13 international destinations in South America and the Carribean. GOL currently sells tickets for its flights in over 40 countries around the world with BRL4.4 billion in gross passenger revenues in the first half of 2016, GOL is the third largest seller on the Brazilian internet.

Gollog is our cargo transportation business serving more than 3,000 Brazilian municipalities and through partners 90 international destinations in 47 countries. In the first half of 2016 this business provided a BRL154 million or 3% of our total gross revenues in the period. Smiles is one of the largest coalition loyalty in Latin America with over 11 million members allowing clients to accumulate miles and redeem tickets for more than 700 locations worldwide. Smiles earned BRL772 million of gross revenues in the first half of 2016. As you can see in the table in addition to this businesses other ancillary revenues contributed BRL453 million in gross revenues or 9% of total in the period combined with Gollog and Smiles our total non-passenger transportation gross revenues in the first of 2016 were BRL1.4 billion or 27% of the total.

Our 2016 first half consolidated net income was around BRL1 billion and the company's total consolidated cash balance was approximately BRL1.4 billion at June 30. Moving now to the next slide, I will provide you a brief update on our comprehensive restructuring plan. As shown on the Slide 4. In 2015 we initiated specifications to heavily right size our operations to match Brazil's shrinking economy and combat the negative impact on the airline industry caused by significantly devaluated Brazilian currency. Such actions were proactively designed to address our capacity and leverage in the current environment -- actually leverage to the current environment, which has being pretty challenged.

In May, during our first quarter 2016 teleconference we updated you on the restructuring planned initiatives in progress at that point in time. We reported that during 2016 we completed approximately BRL1.8 billion of new liquidity initiatives primarily from shareholders or with shareholder support. June 2016 to date GOL has, one, completed an agreement with its partner Boeing to [indiscernible] aircraft deliveries and the return of pre-delivered deposits. Two, freed up Smiles shares pledged in collateral for the term loan guaranteed by Delta Airlines. Three, received the second installment of BRL600 million from Smiles related to the payments for future sales with the outstanding balance of BRL400 million expected to be received in the fourth quarter of this year.

Four, concluded an exchange of GOL’s U.S. dollar and secured debt achieving a reduction of $102 million or BRL327 million and generating annual interest savings of $9.3 million. And number five, obtained covenant waivers from the debenture holders for the first half of 2016 as well as extending the maturity of BRL225 million from 2016 and 2017 to 2019. Also during 2016 GOL negotiated 10 aircrafts under finance leases and successfully reduced fleet size from 144 737 aircrafts at year end of 2016 to 137 currently in our fleet. An additional five 737 will be returned by year end rightsizing our fleet to a total of 122 aircraft.

Gross adjusted net debt has been reduced from the peak of 11 times of EBITDA at the end of 2015 to 7.6 times at June 30, 2016. We have more work to do to reduce leverage and on Slide 14 we will review this in a more detailed way. We also continue improving the allocation of our talents and recently announced some changes at the Board of Directors and the senior management team. Richard stepped out of his Board seat to contribute more decisively to our value creation effort, recapitalization process and profitable growth and Edmar is following closely with Richard during his transition. Our fleet reduction has been the key to permit the matching of our [indiscernible] current demand as is demonstrated on the next slide, Slide number 5.

Here you can see how GOL has risen the capacity as an organization in the Brazil airline industry. Having said that, although GOL has provided leadership in reducing capacity industry profitability has been negatively impacted by the capacity grow of two players, one of which has not reduced its capacity and the order has even added capacity during the down turn in the market. In the left block in this slide you see the 10.6% in GOLs number of seats available in the domestic market since January 2015. This represents a 2.3 percentage point reduction in excess of the second player and a 5.1 percentage point reduction in excess of the industry average. Gross capacity reduction will continue in the second half of the 2016 within the range of 15% to 18% reduction in the volume of seats.

We are fairly committed to resize growth and prioritize our profitability. By getting capacity at that level and reducing the fleet from the year end 144 737s to next December 122 737s we likely have implemented the strongest and fastest restructuring in an airline of that size. Our domestic RPKs reduced by 8.4% in the semester and 1.8 percentage points below the industry reduction in demand. And through June this year GOL's total load factor fell by 1.6 percentage points reaching 75.2%. The domestic market reduction was 1.8 percentage points to 76.7% and load factor in the international market was 69.3%, an increase of 1.1 percentage points compared to the same period in 2015.

Please move to the next slide. On Slide 6 we highlight some of our additional achievements in the second quarter of this year. Our brand new flight network was launched on May 1st, bringing much more convenience to GOL's customers. Right here at One year at São Paulo-Congonhas domestic airport serving customers in Brazil's largest market we are now the leader in number of destinations served at 33, have the largest seat availability to North and North East Brazil and have an improved scale to Brazil's key business markets. At the Galeão International airport, Brazil's main international gateway GOL has now its highest diversity of destinations serving 32 domestic and eight international destinations.

In Rio de Janeiro the second largest Brazil market, we are now the most comprehensive flight network for domestic and international passengers. Through our partners Air France, KLM and Delta, GOL offers the largest numbers of destinations departing from Rio with eight international and 25 domestic. Our Rio hub connections now provide better options to both the South and North of Brazil. Moving to the center of the slide according to our records GOL maintains its leadership of corporate sales in number of tickets issued in the first half of 2016, and finally on the right of the slide we are happy to share that in recreation of our internal process and commitment to high quality standards we have received the certification of the U.S. Federation, Federal Aviation Administration, the FAA to perform heavy C-Check at GOL's aircraft maintenance centers in Confins.

This means that we will be able to provide lease return checks and maintenance services to our fleet generating cost savings. In the future we will be able to provide maintenance services to other operators. I will now turn the presentation over to Richard, who'll review our second quarter results.

Richard Lark: Thanks Kaki and good morning to you all. In the next few slides I'll go over the second quarter 2016 results highlighting the main characteristics and drivers for the period.

Please flip to slide number eight. The 2Q '16 macroenvironment in Brazil was dominated by high levels of risk and uncertainty as the market awaited the resolution of the current political crisis and the Brazilian Real on average ended up worth 14.1% less versus 2Q '15. Demand for air travel as measured by revenue passenger kilometers or RPKs decreased for the 11th consecutive month and demand from corporate customers decreased. To cope the Brazilian domestic airline market reduced ASK supply by 8.4% during the period. Not all is negative in the macroenvironment as jet fuel in real reached its lowest level in five years as evidenced by the 17.3% decrease versus 2Q '15.

In the second quarter of 2016 GOL's airline operations reduced capacity by 9.3% to 10.8 billion ASKs, achieved a load factor of 75.2% and increased passenger revenues per seat kilometers or PRASK by 6.9% permitting a total RASK improvement of 8.1% in the quarter. The 21% reduction in takeoff volumes and the 21% reduction in available seats we're made possible by the fleet rightsizing that Kaki reviewed in the first part of our presentation. The 11.7 percentage point reduction in available fleets above the 6.9% ASK reduction is primary due to the increase in stage length which is part of the new route network fully implemented in May 2016. GOL’s constant focus on improving revenue management helps to drive a yield increase of 9.2% over the second quarter of 2015. In the six months period ending June 30, 2016 yield was up 13.8% and PRASK increased 12.3%.

At BRL0.21 total operating cost per seat kilometer or CASK increased 4.7% over the same quarter of 2015. The CASK excluding fuel increased 18% in the quarter-over-quarter comparison. Despite the increase in operating cost per seat kilometer the increase in RASK permitted a reduction in the losses from operations to BRL1.06 representing an improvement of 24% when compared to the same period in 2015. Please turn to Slide 9. In the quarter consolidating CASK ex-fuel was BRL15.05 an increase of 18% in the quarter-over-quarter comparison.

The increase in CASK was primarily driven by the following. A, a BRL0.6 or 29.3% increase in aircraft lease expenses per ASK driven by the 14.1% devaluation in the Brazilian Real and the increase in the number of aircraft under operating lease contracts from 97 aircraft in 2Q ’15 to 102 aircraft since 2Q ’16. B, a BRL0.5 or 25.4% increase in serving expenses related to the growth in Smiles products and tickets acquired from peer airlines, which will generate future revenues for goal. C, a BRL0.4 or 36.9% increase in maintenance expenses due to the Brazilian Real devaluation and higher number of engines prepared during the quarter and D, a BRL0.2 or 7.1% increase in salaries expenses due to an 11% increases in wages from the collective bargaining agreement. Fuel in the quarter was BRL1.83 per liter representing a 17.3% decline when compared to the second quarter of 2015 and was the lowest levels since the first quarter of 2011.

However the reduction in Brazilian fuel prices was significantly lower than international fuel prices. As jet fuel prices in Brazil are indexed [ph] to the U.S. dollar. It is worth noting the GOL decrease by 10% the number of liters consumed pre RPK comparing the LTM period ending 2Q ’16 versus the LTM period ending 2Q ’13 as a result of initiatives to improve operating efficiency. To review non-passenger transportation revenues please look to Slide 10.

GOL’s Smile subsidiary closed the second quarter of 2016 with net revenues of BRL349.8 million, an increase of 27% over 2Q ’15. Operating income was BRL128.1 million representing an operating margin of 36.6%, 2.9 percentage points higher than the same period in 2015. Net income in the second quarter of 2016 was BRL123.6 million, representing a net margin of 35.3%. The quarter results Smile reflect 10.2 billion of redeemed miles, a 7.9% increase over 2Q ’15, 11.6 billion miles accrued excluding GOL, a 3.6% increase over 2Q ’15 and 316 million of excluding GOL which was a 10.3% over 2Q15. In 2Q ’16 cargo revenues were 59 million and other revenues were 239 million.

Cargo revenues increased in the semester by 2.1% and remains stable at 330 million in the last 12 month's period despite the reduction in the ASKs. GOL recently initiated operations in a new cargo terminal in Manaus. In other revenues we highlighted today 100% of our fleet is configured with the GOL plus comfort seats which are producing additional revenues and in 2Q ’16 GOL surpassed 20,000 on board products sold per day. Moving to Slide 11, we showed the period comparisons for the summary income statement items. Net revenue in the quarter decreased BRL42.3 million to BLR2.1 billion primarily due to the 14% decrease in seat availability.

Total net revenue increased to BRL165.6 million in the first half of 2016 compared to the same period in 2015. Year-to-date revenues reached BRL4.8 billion representing an improvement of 3.6% compare to the first semester of 2015. 2Q ’16 operating loss was BRL171.4 million, an improvement of 31.7% in comparison with the second quarter of 2015. First half ’16 EBIT reached BRL265.8 million representing a margin of 5.5% an evolution of 7.6 percentage points over the same periods of the previous year. In the recent quarter GOL incurred BRL21.8 million of expenses related to the return of aircraft under finance leases.

The operating loss before interest and taxes excluding the BRL21.8 million of non-recurring items was BRL149.6 million representing a negative 7.2% margin and representing a 5.1 percentage point increase over the second quarter of 2015. Year-to-date recurring EBIT margin excluding the non-recurring effects was 1.6% versus the negative 2.5% in first half ’15, recurring EBITDAR was BRL247 million in the quarter representing an 11.8% EBITDAR margin. In terms of cash flow generated from our business operations before financing flows GOL generated approximately BRL466 million of cash flow in the quarter excluding the BRL307 million increase in accounts receivable and the release of 374 million in restricted cash. You can find detail on these cash flow numbers in the cash flow statement in the audited financial statement. Moving now to Slide 12.

Second quarter results were positively impacted by BRL779 million net exchange rate variation due to the Brazilian Real appreciation over the U.S. dollar during the quarter. The exchange rate variation was the key factor determining BRL309.5 million net income in the quarter. Exchange rate variation was BRL1.5 billion year-to-date driving the net income of BRL1.1 billion in the first half of 2016. Moving now to Slide 13.

Pro forma for the conclusion of exchange offer total debt decreased by approximately BRL1.2 billion in the second quarter. The U.S. dollar unsecured debt exchange achieved a $102 million reduction representing BRL327 million of which $28 million or BRL90 million reduced amounts due in 2017. Also GOL expected 240 million in bank amortizations and financed leasing amortizations and derived an additional BRL667 million from exchange revaluation on U.S. dollar denominated obligations.

Additionally, 225 million of debentures maturities rescheduled from 2016-17 to 2019. On the left side of the page you can see that the consolidated cash balance of BRL1.4 billion was composed of 595 million of free cash, BRL49 million of cash on the balance sheet of our Smile subsidiary and BRL361 million of restricted cash. In addition to this total cash balance GOL finished the quarter with BRL763 million in accounts receivable which was an increase of BRL300 million when compared to December 2015. Adding this amount to the BRL1.4 billion in cash balance GOL finished the quarter with approximately BRL2.2 billion of total liquidity. To conclude our review please move to Slide 14.

On Slide 14 we present a comparison of the last four quarters leverage statistics. As you can see in the chart GOL's total debt in BRL at June 30th 2016 decreased by BRL1.3 billion when compared to the end of 2015. When all the initiatives in the restructuring plan are completed the total debt reduction is expected to reach approximately BRL3.8 billion deriving mainly from the following. A, our 327 million reduction in US dollar unsecured debt. B, our BRL1.2 billion reduction in aircraft operating leases.

C, BRL600 million in reduction in aircraft finance leases on aircraft still to be returned. D, BRL400 million in bank debt amortization and amortizations on finance leased aircraft already returned. And E, a BRL1.3 billion reduction in U.S. dollar denominated debt obligations deriving from the exchange rate effects I previously described. Company projections for the next 12 to 24 months indicate gross adjusted leverage of between 6 to 6.5 times.

Now I will turn our presentation back to Kaki who will present our guidance for the full year.

Paulo Kakinoff: Thanks Rich. Please turn to Slide 16. GOL is reaffirming its capacity projections for 2016 which includes the total supply reduction of 5% to 8% and a total seat and volume of departures reduction between 15% to 18%. Although we still had a high level of uncertainty regarding the time required to solve the current political and economic crisis we are resuming guidance for operating income and we are expecting an operating margin between 4% to 6% for the full year 2016.

The EBIT margin guidance considers the full year average Brazilian Real to U.S. dollar exchange rate of between 3.60 and 3.90 and average Brazilian jet fuel prices in Real between 1.90 and 2.30. I will now take your questions.

Operator: Thank, the floor is now open for questions. [Operator Instructions] The first question is from Michael Linenberg at Deutsche Bank.

Michael Linenberg : You talked about that the operating cash flow was before financing, you threw up some numbers on cash flow for the quarter. Can you just tell us what the early burn rate was in the June quarter and how that is trending into the September quarter? And as I realized your June quarter seasonally is your most challenging quarter, so we shouldn't -- I would anticipate that that number has improved. So if you could give us some color on that, that'll be great. Thank you.

Richard Lark: We are not providing information on the daily company cash burn rates per say, either second quarter or third quarter.

But what I can say is that, and one of the points I was trying to make there is that we saw some comments on that cash flow, in Q2 the cash flow was positive. One of the big differences I think from the past is that in the last quarter GOL stopped factoring receivables which effectively took -- consumed BRL300 million in the cash flow. So you’ll need to add that back and then as well need to make some other adjustments there for the restricted cash and so the cash for the Q2 if you will, -- operating cash from operations was around BRL500 million which is not necessarily indicative, obviously of the cash flow just generated at the EBIT line. So I would kind of provide that as indication of what the number is. Having said that the company is more or less operating on average at a breakeven level in terms of cash flow to this point on the operating side.

Michael Linenberg: Okay, helpful. And then, just the second question and this is to you or Kaki, just how things are trending? I mean, we know that the June quarter seasonally is the most challenging quarter for GOL, as we’ve moved into the third quarter, one, how do trends look and I realize there is an Olympic effect, which can be good, and it can also be bad since we typically see a falloff in business travel. So I know it would be quite difficult to actually try to isolate the Olympic impact, but may be sort of trends current and maybe how bookings look beyond Olympics as we move into sort of the latter part of the year. Any color on that would be great. Thank you very much.

Paulo Kakinoff: You know how hard it is to tell -- to give you any color on July or August figures because then I would necessarily tell you what's going on for the quarter and that would be a kind of guidance. But what I can tell is that the Olympic Games, those effect basically the Rio de Janeiro destination, it’s not systemic impact on the network like the World Cup was. So independently of the Olympic Game, I can remind you all that the second half of the year used to be quite stronger than the first half regarding revenues and consequently the profits and margin. So we have built our guidance considering that for the second half of this year we would have a normal seasonality in comparison to the past years. This is the maximum output I can give you from your question without harming our commitment to not give any kind of unofficial guidance.

I hope you can understand it.

Operator: The next question is from Savi Syth at Raymond James.

Unidentified Analyst: Good morning, this is Matt [ph] on for Savi actually. Our first question is for Richard, so Richard this is a little bit of a different environment when you were previously with GOL, so what attracted you to really take this position at this time and what would be your biggest focus in the next 6 to 12 months?

Richard Lark: Sure, [indiscernible] you can explain me what's different, but when you look at the key variables effecting GOL exchange rates or fuel, it's a very similar environment to 2003 for example. To go right to the point, I mean couple of issues, I've been with GOL since 2003 in a variety of capacities, plus I worked for five years as CFO and then since then I've been working in the Board, heavily involved in various committees and in many projects also with Edmar and Kaki and so on and so.

But thanks for your comments, specifically we have -- as Kaki mentioned we have a lot of work on capital structure which is going to take a period of time over this year and next year. Part of it is reacting to what is happened in the down draft with has affected not only Brazil but the entire world, but specifically in Brazil given the volatility year over the last 12 months with exchange rate and other factors competitively. So one major area obviously which is where I’ll be spending most of my time now and in the near future is on capital structure and so on. But in addition to that working with Kaki and the team on core profitability across the board in a variety of initiatives that main are already in progress and some of which yet will be implemented next year. But I would say over the next couple of quarters and I hope that that will become more evidenced and as we kind of make this ship from this major restructuring plan that's has been happening over -- that the company has been doing since the middle of last year and is in its final step, to kind of the next phase which is kind of a rebuild, final resolving of capital structure and profitability and ultimately other issues which would help GOL competitively in the region.

So that's what I have to comment on that at this point. I think it's a little bit too early for me to be more specific on that and I think part of that also will be evident as we -- third quarter, fourth quarter get into more details of our projects at the company for next year.

Operator: The next question comes from Pablo Zaldivar at GBM.

Pablo Zaldivar: Hello, good morning, thank you taking my question. I have a couple, the first one.

How much should we expect in savings from the in house C-checks that were recently approved by the FAA.

Paulo Kakinoff: Hi Pablo, its Kakinoff here, unfortunately we cannot give you anything in advance, but you know that those checks are quite expensive and the transit, I mean to move the airlines out -- the aircraft sorry, outside Brazil is also equally expensive. So we believe that could be significant, but we cannot tell you any figure in advance.

Pablo Zaldivar: Okay, and the second one is regarding your fleet, in the press release you mentioned that you're in the final stage of returning 15 aircraft, so we should expect that to happen in the following quarter and the other one, are you expecting to sell any aircraft on the financial leases during the year?

Paulo Kakinoff: We have so, the remaining movement is supposed to happen during the third and fourth quarter and we are, we have two aircraft among these 15 those will be sold. So this is 13 operating leases and two aircraft to be sold.

Operator: The next question is from Steven Track at Citi.

Steven Track: Good morning gentlemen and thanks for taking my questions and I’ll -- Mike Linenberg, welcome back Richard, it's been a long time. Just a couple of questions from me if I may, the first is a I appreciate your comments about the competitive situation as you see one of those two kind of smaller competitors about to add Airbus narrow bodies into the system. What are you seeing in terms of the potential for tighter fares coming from those players, that's my first question?

Paulo Kakinoff: Hi Steven, it's Kakinoff, actually the market is -- the competitive environment is still with us. We also believe that the reductions in the industry's capacity will benefit us all.

Bottom line we still consider the reduction already announced by some of our competitors and added to growth the total offer in Brazil should be down 8% to 10% in comparison to last year. That is quite important movement, GOL itself is currently between 15% to 18% of our seats available. I do not know whether, maybe you can tell us whether such strong reduction happened before in an airline without going to a Chapter 11, that's a quiet important achievements which I believe will play in favor of the whole system combined for the competitors capacity reduction.

Richard Lark: Yes, this is 20% reduction in metal and [indiscernible] in aircraft that’s happened over the last year or so, which is in the final phases I mean those aircraft are already negotiated and some are grounded and they’re going out at the end of the year. So that's kind of without parallel in the airline sector and that's in excess of compared to whatever competitors have done here in Brazil.

So GOL is very-very well prepared to meet this massive reduction in demand for air travel, we’re a little bit ahead of the curve, one step ahead of everybody else in terms of the work that had to be done to get to this point and that's already done. So we’re in a pretty good position to deal with whatever competitors pressures may come beginning of next year. Obviously we’re going right now into the stronger part of the year into the demand, third quarter, fourth quarter but to the extent that there is pressure there we feel kind of we are in the drivers seat in terms of we've already done our reduction and as you see in the data GOL has kind of led the market in its right sizing and readjusting. So we're -- we feel pretty good about that we've taken the defensive measures to deal with the question of balancing capacity with demand, especially in this environment of negative GDP growth and negative industry growth which is also unparalleled in many markets around the world, but we think we’re in a pretty good position to deal with that.

Paulo Kakinoff: Before hanging it back to you, I would kind of request our conference operator to not drop the line after the first answered question and do not change to another person because I just got the impression that some of our colleagues would have more than one question to be asked.

I do not know whether this is your case, Steven, but please tell us.

Steven Track: No. Thank you very much Kakinoff. I appreciate that and thank you Richard I did have some other quick ones, if I may. The second is, if you could refresh my memory I didn’t totally catch all of the numbers, but you said 13 operating leases and two financial leases to go back by the end of this year and those are already confirmed or is there still are their still some aircraft in final negotiations and just one more question after that.

Paulo Kakinoff: Okay, so I would try to help us all to understand the same -- the figures on the same page. We had -- in December ’15 we had 144 aircrafts, now we have 137 and by the end of this year we will be 122. So the gap between the 137 and the future 122 is 15 and among this 15, two of these aircrafts are to be sold and the remaining 13 will be early, they’re contracts would be early terminated. So it means that by announcing these 122 we are at the final phase of having this papers signed their contract terminated and so far. So that's say for sure despite of the fact that their paperwork -- some of the paperwork is still to be done.

[Multiple speakers].

Paulo Kakinoff: You had another question Steve?

Steven Track: Yeah, I’m sorry just really quickly and I’ll someone else ask a question. Just a follow-up on Michael Linenberg's question, I think you guys said you did receivable factor in the past and you no longer doing that, what the idea behind discounting that just out of curiosity?

Richard Lark: Part of that was done in the past as a necessity for a variety of reasons, operationally as well as in terms of issues related to rating and so on and operationally there has been less of a need to do that because that has a cost of roughly -- an annual rate of roughly 16% a year, there is interest discounts that goes in there. And so in the recent quarters the Company stopped doing that. But I think the right way to look at those receivables, when the Company has access to those accounts receivables, if the Company wanted to put BLR250 million on the balance sheet tomorrow it could do that, but there is a financial cost to do that and for interest expense reduction and cash flow improvement we're using that more sparingly going forward.

So keep an eye on those receivable account as well when you look liquidity because that’s really near to cash asset.

Operator: Next question comes from [Indiscernible] at Raymond James.

Unidentified Analyst: Just quick one here, do you have -- can you provide you gross CapEx for 2017 and ’18? And also given your cash flow levels do you have the ability to take that aircraft count lower? And that's it thank you all.

Richard Lark: In term of the CapEx amounts for the next year, it's really de minimis amount because -- the main CapEx released to PDPs and we're getting returns on that, so there is really no aircraft CapEx to -- coming up here in 2016, ’17, that’s all been eliminated from the cash flow needs. The key point though is -- one of the key components of the restructuring component that was done especially with the help of Boeing.

So until 2018 we don’t have any significant CapEx needs. Sorry the second quarter of your question was what?

Unidentified Analyst: Given you cash flow levels, do have the availability to take that aircraft count lower or the desire to at all?

Richard Lark: The objective on the aircraft was not -- was designed to match supply with demand, we've already done that. So there is no need to do anymore.

Operator: The next question is from Bruno Amorim at Santander.

Bruno Amorim: I have two questions the first one on RASK and I like for you if possible to tell us what was the impact from implantation of the new match work on RASK and also how does it compare to potential negative impact on CASK as a result of a lower fixed cost dilution? And second it's a follow-up question on CapEx, you had a negative CapEx in the first half of the year, is it fair to say that in the second half the trend is for CapEx to remain negative? Thank you very much.

Richard Lark: Let me just take the CapEx question first, where were just talking about that, just to explain it again. The reason for the negative CapEx was the return of the PDP deposits because you know the main CapEx which the company has is the PDP component of the aircraft deliveries, new aircraft from Boeing. Two points, the aircraft deliveries were rescheduled and it was the return of those PDPs, that's already done. So there's no significant positive or negative CapEx going forward for the next couple of quarters, on RASK, I'll let Kaki answer your RASK question.

Paulo Kakinoff: This certainly, the implementation of the new network has work in favor of the RASK because we are offering more destinations from Congonhas which is a business travel airport mainly.

So in order to also compensate the CASK dilution we have already in longer stage length mainly due to the new network from Congonhas. So it is a fact in the medium-long term should be more than enough to overcompensate the movement once Congonhas can be considered a sort of premium airport and this is basically the most important movement that we have implemented through the new network.

Richard Lark: As the new network came in on the beginning of May, you've seen a quarter-over-quarter comparison the 14% increase in stage length. So that's really reflective on what Kaki is saying, that's the 40% increase in stage length which has the impact both on the revenues as well as the cost.

Bruno Amorim: Yeah, please correct me if I'm wrong but these higher stage lengths should also have a positive impact on CASK right.

So in other words change a little bit my question was the cutting in capacity EBIT positive? Should we see of course on top of seasonality better margin third quarter vis-à-vis first and second quarter.

Paulo Kakinoff: Yes.

Richard Lark: Yeah, apples to apples, because the stage length increase is in excess of the overall capacity reduction, so there is a structural benefit there which we expect we’ll -- assuming yields and load factors behave positively, would have positive impact on operating margin.

Bruno Amorim: Okay, thank you.

Operator: This concludes today's question and answer session, I would like to invite Mr.

Paulo Kakinoff to proceed with his closing remarks, please go ahead sir.

Paulo Kakinoff: Please turn to Slide number 18, we are confident that the initiatives and execution we delivered require cash flow savings and debt reductions, and consequently stronger balance sheet. Our team of eagles is working hard to improve the network and complete fleet restructuring in order to reduce cost and capture efficiency gains even further. This concludes today's presentation regarding the second quarter '16 results and we will like to remember that we are fully available to answer any further questions that could appear along the day. So have you all a very nice day, thank you very much.

Operator: That concludes GOL Airlines conference call for today, thank you very much for your participation and have a nice day.