Apr 30, 2019
Operator
Good day and welcome to the GOL Airlines First Quarter 2019 Results Conference Call. This call 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 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 and their questions will either be answered by the management during this call or by the GOL, the 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, uncertainties, because they relate to the 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 statement. At this time, I would now like to turn the conference over to Paulo Kakinoff.
Please go ahead.
Paulo Sergio Kakinoff
Good morning, ladies and gentlemen. And welcome to GOL Airlines conference call.
I'm Paulo Kakinoff, Chief Executive Officer; and I'm joined by Richard Lark, our Chief Financial Officer.
Richard Lark
Good morning. Good to be with you today.
Paulo Sergio Kakinoff
This morning, we released our first quarter figures. Also, we made available on GOL's Investors Relations website 3 videos with the results presentation, financial review and brief Q&A.
We improved our operating indicators. In the quarter, GOL's RPKs increased by 6.4%, from R$10 billion in 2018 to R$10.6 billion this quarter, driven by a 7% increase in the number of transported passengers.
Increased demand allowed GOL to optimize yields through dynamic revenue management. Average yield per passenger increased by 1.9% quarter-over-quarter, reaching R$0.286.
Supply increased 5%, driven by 3.2% increase in seats and increase in average stage length. This indicator includes the impact of the grounding of 7 MAX-8 on March 11.
The average load factor was 81.5%, an increase of 1.1 percentage points compared to the same period in 2018. We continue to drive strong revenue growth, the combination of higher demand and optimized pricing resulted in net revenue of R$3.2 billion, an increase of 8.3%.
Net RASK was R$0.246, an increase of 3.2%. Net PRASK increased 3.3%, reaching R$23.3.
Average fare increased by 1.3% from R$335 to R$339. GOL's 2019 guidance is for net revenues of approximately R$13 billion.
GOL's current network serves higher yield routes and is the leader in the domestic market with a market share of 36%. The company is also a leader in the corporate customer segment, with the largest market share of business traffic in Brazil.
Regarding the temporary grounding of MAX-8 aircraft, we emphasize that since the beginning of the operations with the MAX-8 in June 2018, we have operated nearly 3,000 flights, totaling over 12,700 hours, offering absolute safety for our customers. Boeing is executing a comprehensive and multidisciplinary strategy for the MAX-8 update.
And soon, our customers will be able to benefit again from all the technology and comfort offered by this modern aircraft. Since March 11, the company is operating flights from our international hubs in Brasília and Fortaleza to the United States with 77 NG aircrafts.
With that, I'm going to hand you over to Rich, who is going to take us through some additional highlights.
Richard Lark
Thanks, Kaki. First, we would like to comment about GOL's cost environment.
Total CASK ex-non-recurring in the first quarter was R$0.204, 4.7% higher. CASK ex-fuel, excluding non-recurring increased 3.2%, mainly due to the 16.2% appreciation of the U.S.
dollar against the Brazilian real, the end of the payroll tax relief program, higher depreciation due to higher capitalized maintenance on aircraft components including engines, and a fleet increase of 7 new aircraft for net, in addition to higher passenger expenses resulted from the grounding of the MAX-8 fleet. GOL remains the cost leader in South America for the 18th consecutive year.
Our margins remain solid. The combination of better pricing, higher demand and execution of the fleet renewal plan permitted GOL's recurring operating income to reach R$546 million, with recurring EBIT margin of 17% in the first quarter of 2019.
Recurring EBITDA was R$952 million, and recurring EBITDA margin reached nearly 30%. GOL's 2019 guidance is for an EBITDA margin of approximately 28%.
The second point to highlight is our cash flow management, combination of our operating cash flow generation of R$254 million in the period and higher cash liquidity improved the company's financial flexibility. Total liquidity including cash financial investments, restricted cash and accounts receivable was R$3.5 billion at March 31, 2019.
Lastly, we would like to share the continued success of GOL's liability management, the net debt excluding perpetual bonds to last 12 months EBITDA ratio was 3.3 times at the end of March 2019. We continue to be focused on the improvement of our capital structure, including the amortization of R$148 million of the company's 7th issuance of debentures and the tender offer for 15% of the 2022 senior notes.
We also carried out an innovated issuance of Exchangeable Senior Notes totaling $300 million in the quarter, convertible into GOL share at 85% premium over the stock price on the date of issuance. This issuance bears an interest rate of 3.75% per year, reducing GOL's average cost of debt by 50 basis points.
These transactions represented additional deleveraging of the balance sheet and even better matching of operating cash flow generation with amortization of liabilities. The liability management reduce the company's cost of debt and improved its credit metrics.
Currently, the average interest rate is 7.7% for local currency debt. And for dollar denominated debt, the average interest rate is now at 6.3%, compared to 6.8% in the fourth quarter of 2018.
GOL's maintained its commitment to financial discipline, managing the effects of Brazilian currency, through its efficient capacity management and dynamic yield management. For 2019, we expect GOL's domestic capacity growth to be between 3% to 4% and international to be between 35% to 40%.
Non-fuel CASK is expected to be around R$0.14. We have projected EBITDA and EBIT margins in 2019 at around 28% and 18% respectively.
Leverage measured as net debt excluding perpetual debt over EBITDA for 2019 should be 2.9 times, reflecting our commitment to reduce leverage on the company's balance sheet. Now, I'd like to return to Kakinoff.
Paulo Sergio Kakinoff
Thanks, Rich. In summary, we are working hard to maximize our results this quarter.
Our commitment to continuous improvement in results has proven the strategy effectiveness of offering a differentiated and high product while relentlessly focusing on cost efficiency. We remain focused in offering the best experience in air transportation with exclusive services to customers on new and modern aircraft that connect our main market with the most convenient schedules.
We are committed to a highly disciplined capacity management and prudent management of the balance sheet and liquidity, maintaining cost leadership and continuing as the preferred airline for customers, while driving sustainable margins and returns for shareholders. And to conclude, we are optimistic for 2019 with the continuous improvement of the Brazilian economy and the aviation sector in the country.
Now, I would like to initiate the Q&A session.
Operator
We will now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Duane Pfennigwerth with Evercore ISI.
Please go ahead with your question.
Duane Pfennigwerth
Hey, thanks. Rich or Kakinoff, can you update us on the auction process for Avianca Brazil?
What that looks like as of today? Is May 7 still a good date?
And any thoughts on what you're actually going to be bidding on?
Paulo Sergio Kakinoff
Hi, Duane. Good morning.
Actually, what we know is pretty much the official figures. The auction is scheduled to happen by Tuesday next week.
And we are now noticing that Avianca has performed flights at four different airports. And they had been able to actually keep the company operating with the current six - five to six planes that they have available.
GOL is committed to - this auction, as previously informed, so we are supposed to offer a minimum $70 million offer for at least one of the UPI. So this is what we got so far.
Duane Pfennigwerth
Thank you. And maybe more detailed than you're willing to get into, but can you speak to what the UPI that you're interested in covers.
Is it a specific part of their network or is it sort of a blind allotment divided by 6?
Paulo Sergio Kakinoff
Yeah, Duane, you're right, we wouldn't like to give any kind of disclosure at this moment, because that's part of our strategy to the auction. And this is an auction for real and nothing artificial built to determine one single winner.
Therefore, we are participating in this auction as we would in any other normal auction. And we cannot due to the situation give you any kind of disclosure which could jeopardize our strategy to that day.
Okay.
Duane Pfennigwerth
Thanks. And then just for my follow-up, maybe, Rich, as you think about the June quarter, what you're seeing in demand and bookings trends and as we think about comping the trucker strikes last year, any color you could provide into the June quarter on revenue environment would be appreciated.
Richard Lark
Yeah, sure. You're right.
Remembering, last year in mid-May, we had a collapse of the demand curve, because of a nation-wide trucking strike, which hurts the year-over-year comps. The way I would characterize that, we're seeing very strong bookings and that's also reflecting in yields.
And we expect to see something on the order of 15% year-over-year increase in the revenues for the second quarter. Obviously, there is both the volume effect and the yield effect in there.
A big chunk of that is coming out of the yield side of the equation, because load factors are at peak levels. So that's what we're kind of seeing at this point.
That's also what motivated us to upgrade our guidance for the year for about R$100 million from the R$12.9 billion to the R$13 billion.
Duane Pfennigwerth
Okay. Thank you.
Richard Lark
You're welcome.
Operator
And our next question comes from Dan Mckenzie with Buckingham Research. Please go ahead with your question.
Daniel Mckenzie
Oh, yeah. Hey, thanks.
Good morning, guys. Couple of questions here on the revised outlook, just a couple of clarifying questions.
Does the revenue growth outlook include upside from Avianca Brazil's assets at this point and/or the structural reorganization of Smiles?
Richard Lark
Yeah, hi, Dan. Nothing from a potential acquisition, specifically meaning, nothing from us increasing our assets.
But overall, in terms of the market, we are now with the - the more definitive nature of that situation, the company has basically significantly wound down over the past couple of weeks. So that component where Avianca Brazil had the largest overlap with GOL's operations.
That component is in our forecast for sure. So a part of that is in the forecast and then other component really relates to the sourcing and overall demand.
And in terms of the Smiles incorporation, no. The - as you saw on our guidance, the budget for the minority interest is still outstanding in our 2019 guidance.
It's still being excluded from bottom line net income.
Daniel Mckenzie
Yes, understood. Okay.
And then so, I guess, just a couple of more questions here. First just the MAX grounding, how are you thinking about the impact to the full year cost, just given the revised CASK ex-fuel forecast?
And then, just on - tied to the last question here, your comment about Avianca, I'm just curious to what extent there was revenue pressure in the first quarter, pardon me, tied to Avianca, perhaps pricing for cash?
Richard Lark
Yeah, I'll do those questions, Dan. Right now, based on what we know now with the MAX, there would be an impact of around R$40 million in our forecast for this year.
That's up to today, meaning with what we've done currently with the grounding and assuming that Boeing's forecasts bear fruit, which is during the month of May, there would be the un-grounding and then MAXs will be flying again in the second half of the year. In our first quarter numbers, we had around R$10 million of costs that related to the MAX grounding specifically.
And your second question as well I think is relevant. What we did see in the month of March was some very intense price discounting coming out of Avianca as they were in that specific mode.
And so that impacted yields negatively in the quarter because of the March effect. January - February was actually pretty solid.
And then in March we saw that effect. And also, remembering that, that company operates in the main [show] [ph] markets with an overlap with us, so we were seeing a bit of that, especially in the last 15 days of March and the first 15 days of April.
Daniel Mckenzie
Perfect. Thanks, guys.
Operator
And our next question comes from Savi Syth with Raymond James. Please go ahead with your question.
Syth Savanthi
Hey, good afternoon. Just on the - just a follow-up on the kind of the MAX grounding, just wondering if this does last into kind of the winter holiday season.
What optionality you have? If you look at the - in the U.S.
airlines, they seem to kind of imply a - it's during peak season having a kind of a bigger percentage impact than their fleets would imply. And just kind of wondering if maybe GOL has some more flexibility to kind of limit that impact if this does go into the peak demand period.
Paulo Sergio Kakinoff
Hi, Savi. It's Kakinoff here.
Yeah, we could have an additional impact, but that is in comparison to any other airline, a major airline in the world, suffering by the 737 MAX grounding much lower. This is because we were operating only one route that was extensively operated by 737 MAX, which was - that wasn't at this stage.
Now, we are performing the same route with NG, with one stop over Dominican Republic for refueling. And that would be the single route, basically affected by not having the 737 available in July, which is the Brazilian, Brazilian high season.
We can redesign our network in July to further reduce lower profitable routes and reallocate some of our NGs to compensate the lack of 737 MAX with our - towards more demanding/profitable routes than we would normally do. So basically, we could re-accommodate it, possibly have any additional impact than we are perceiving today, but nothing that would dramatically change the July's result.
Syth Savanthi
Understood. That's helpful.
And I just…
Richard Lark
I would - Savi, I'd just add to that. In terms of the fleet plan and what we have currently - in terms of the flexibility that you're asking about, the 8 MAXs that we had in the fleet plan, 7 from last year and that we grounded, and then the additional one we would have already received this year, those are fully covered by NGs, which there are four NGs that we are not returning.
And so they're not going out of the fleet this year based on that. And then, also 4 NGs, where we re-calendarize the maintenance schedule.
So within the existing fleet, we're able to source capacity from 8 NGs that were as it's going out are going to be grounded for maintenance, so cover those 8 MAXs currently that are not flying. And then as of July, we start to receive roughly 1 to 2 aircrafts per month of the MAX order.
So in the plan A, we're receiving those aircrafts. As Kakinof was saying, to the extent that we're not receiving those aircraft as of July, we would then have to make some further adjustments in the fleet plan.
So think about it in those two parts. So first part, which is the current MAXs that we have, they've already been covered by the flexibility we have with the NGs.
And then second part would be the future MAXs to be delivered, which start in July. We would then have to cover those with alternative measures.
Paulo Sergio Kakinoff
So, Savi, just to add another topic, in parallel, we could also get access to temporary leasing contracts in order to fulfill an expected high demand to present in the market over the following 2 to 3 months. So I think we are also restructuring ourselves to get access to some temporary leasing contracts, which could not necessarily to compensated the MAX effect, but if we continue to see the current demand, which is pretty high, we could also afford to get 4, 5, 6 additional planes for temporary contracts, such as 1 year or 1.5 year, which would also make us able to absorb a more benign market than we are - than we had forecasted before.
And it's pretty much comparable to what we are seeing exactly to these - I mean, our demand is pretty high and we can have that additional resource in place.
Richard Lark
Yeah. We are preparing for this excess in that scenario, as you know coincidentally simultaneously with all this - we have the situation of Jet in India and that has resulted in the availability of NGs, which are the exact aircraft that we fly, so we have that as a potential source of some short-term leases for NGs, if we need them to cover any delays in MAX deliveries in the second half of this year, which is possible.
Paulo Sergio Kakinoff
And even if the MAX is back, and then market we will continue to be as strong as it is today, we could have - on top of the MAX begin back to the game by the end of May, beginning of June. We could also decide on upon bringing some additional planes to compensate this additional demand.
Syth Savanthi
And I think that answers my follow up, but just to clarify, say, if you do get this kind of Avianca Brazil route. Is that kind of how you would plan to address that additional flying that you will have been?
Is that reflected in the guidance or not?
Richard Lark
No. I think that there are two.
At the moment, do you have too many moving parts and I think that the good answer or the positive side. Is that all those moving parts are positively supposed to deliver additional demand, additional results, and from the current landscape, I think that the alternatives only positive to the scenario that you had previously as a tribute.
Avianca might be another positive layer on top of everything that had discussed it right now. But we are not considering all those things and definitely they are not reflected completely into our current guidance.
Syth Savanthi
All right. Very helpful.
Thank you.
Operator
And our next question comes from Stephen Trent with Citi. Please go ahead with your question.
Stephen Trent
Good morning, gentlemen, and thanks very much for taking my questions. I actually just had one or two follow ups to what Savi and some of the other guys have asked, but first off when we think about the Avianca Brazil slot, have you guys heard any credible interest from any foreign carrier and even looking at those slots says it may be naively kind of seems to me it is too small of a footprint, then it's going to encircled by three big domestic airlines, but any credible foreign interest that you've heard of by chance?
Paulo Sergio Kakinoff
We have heard - Hi, good morning. Actually we have heard some, I'd say, two of those things.
Hanging from Uber, who is going to be interest and need up to a new entrepreneur for…
Richard Lark
Yeah. We heard a couple of days ago from Uber.
Paulo Sergio Kakinoff
Yeah. Yeah.
Yeah. Uber.
So did you set hat value of brand that there are several speculations, but not mean up to now often material, and often concrete.
Stephen Trent
Okay. That's very helpful.
Yeah, that's pretty amazing. I was also just wondering when we think about this recent announcements with regulations, I mean, one kind of reducing the state taxation on jet fuel kerosene into this issue about checked bags.
One any color with respect to, where else you might be able to expand with this jet fuel kerosene tax reduce I think you mentioned some follow-on, I'm not sure if you're able to give us any further detail. And on this check bag, I think, assuming it gets rolled back, I mean, isn't that just going to go into higher fares anyway?
Paulo Sergio Kakinoff
Hi, Steve. Actually, I - it's really hard to believe that the government would start back on the baggage shifting, because that would be at least a kind of contradiction in comparison to what the presidency with authorities have put in place, so far in order to open up the Brazilian market to be - to have a regulatory structure quite comparable to the most development markets in the world and even this government is typically set pretty liberal.
So that movement coming from a quiet move to all situation in the Congress. I don't think that we would be accepted by the government.
Honestly, I don't believe that the baggage fees will change, mainly because as that the same government is pushing the same congress very, very strongly to get the foreign capital lift being approve it. So those are two opposite decisions, I mean, to have the markets open for our foreign capital and at the same time is stepping back with the baggage to the baggage field or so.
Again as Richard we like also to…
Richard Lark
Yeah. All the people, I mean, there's still some follow was pioneer in reducing the fuel tax and exchange for the airlines adding additional development bringing passengers from other parts of Brazil into São Paulo and generate tourism and additional tax revenues for the state.
The expectation is that other states will follow or there's nothing specific that we see happening in the in the near-term. But the expectation is that there are conversations about some other states pursuing some similar development objectives with lowering of fuel taxes.
But São Paulo was the big - the big not obviously. For the country and for - it for us, we - it's about 30% of our revenues, the flights in and out of it is São Paulo and previous that this initiative by the São Paulo's government has the highest jet fuel taxes.
So we're actually doing anchoring and other measures, I think, we're reducing our actual fuel consumption on the overall network down to about 23% of the total. And so for us, São Paulo piece was significant on its own merits.
But I think, there are discussions that we could potentially see some other states follow with that type of initiative, but nothing specific at this point.
Stephen Trent
Okay. Let me leave it there.
Very helpful. Thanks, guys.
Operator
And our next question comes from Michael Linenberg with Deutsche Bank. Please go ahead with your question.
Unidentified Analyst
Hey, guys, this is actually Matt on for Mike. A few questions on the warrant offering, what drove the decision to bring warrants to market?
Could you give us a rundown on the mechanics the transaction and how would you characterize the balance sheet benefit.
Paulo Sergio Kakinoff
Yeah. I think, Matt, you're referring to the warrants offering that is being done this week is that correct?
Richard Lark
Yeah that's only being done in the month of March, we issued a convertible bond. And in Brazil preemptive rights are an obligation, and so we're doing that offering of warrants to basically satisfy the preemptive rights obligation.
How it works in the context of the convert is that the offshore company that issued the convertible bond is basically subscribing those warrants such that in the future, if those investors who hold that bond want to convert into the underlying equity. Going through ADRs, all the way down to the local PN shares, those shares were already be effectively issue through this warrant structure.
And concurrent with that, we're also offering that warrants to any investor in our current shareholder base that would want to take up those preemptive rights on that warrant. But the motivation for that of the warrants specifically is not a capital raising.
The capital raising was already done. With the combination of the original issue and the green shoe, we raise R$345 million on the convertible bond, which is convertible into GOL ADRs.
And then those ADRs through the warrant issue will also be fungible with an equivalent amount of shares in the local PN share. So the reason for that warrant offering it's just kind of the last leg of the complex convertible bond offering that we did in March.
Unidentified Analyst
Thanks. And just as a follow-up…
Richard Lark
Yeah. Second part of the question.
Yeah.
Unidentified Analyst
Just as a quick follow-up, have you seen a share shift in Brazilian loyalty market, I know, some of your competitors in the past of called out taking a bigger shot slice of the pie in the loyalty market?
Richard Lark
Well, I would say a couple factors there, because of we have two competitors currently that have had a reduced focus. LATAM does finished a couple weeks ago their take in of Multiplus.
And obviously, Avianca has with its restructuring has been on focus that has provided an opportunity in the current market. There has been some market share shift currently from those airline companies into our loyalty program.
We've also seen assume bit being more aggressive with their program and also the banks, because in addition to the airline programs, they also could be directly with many of the commercial banks here in Brazil. So on the volume side that's what kind of what we're seeing.
On the margin side, we are seeing more competition on pricing. Across the board especially as the airlines are starting to use the loyalty program more as a marketing tool as opposed to having an isolated business focused on maximizing the profitability of the standalone any.
But I think, we're feels a bit like we're on a bit of an inflection point now. Also generally what we see is the two businesses the airline passenger business and the loyalty program business tend to be countercyclical, when you talk about margins.
We're kind of on year three or so now of our secular growth phase, where the demand from paying passengers an increasing and kind of the opposite of that, or if you will the one minus portion of that is the cost of goods sold of the loathing program. And so we're in a bit of an inflection point right now kind of transitioning from what the market has looked like over the last five or six years to what it looks like over the next five or six years.
But we do expect that to be frontier of increased competition especially as the interest restructure in Brazil consolidates and reformulates and the airlines strategically are reformulating how they are using their loyalty businesses to drive loyalty and growth and compete and so on.
Unidentified Analyst
Thanks for taking my questions.
Operator
And our next question comes from Barbara Halberstadt with Bank of America. Please go ahead.
Barbara Halberstadt
Hi, thanks for taking the question. I jumped in a little bit later, so I'm not sure if you're already answer it, so my apologies.
Just wanted to have an update on the Smiles corporate organization, if there is any deadline in the short-term to come up with a final structure, just if you could give us some color on that would be great? Thank you.
Richard Lark
Yeah, Barbara. As we disclosed in December, we are in discussions with this special independent committee that was constituted by the Smiles board, and as soon as we have any news from that negotiation, we both, us as well as Smiles would be disclosing that to the market, we don't have any news at this particular moment.
Barbara Halberstadt
No deadline, I mean it's no target end of the year? Or the next quarter?
Richard Lark
So there's no pressure on the independent committee in terms of the amount of time that they have to analyze the transaction and we're currently in the middle of those discussions.
Barbara Halberstadt
Okay. Great.
Thank you.
Operator
And our next question comes from Josh Milberg with Morgan Stanley. Please go ahead with your question.
Josh Milberg
Hi, everyone. Thank you for the call.
My first question relates to the big drop off in your maintenance costs seen in the period. And I was just hoping you could comment on what drove the change in the capitalization level and also what we could expect at this time going forward?
Richard Lark
No. I think, part of that just relates to the shift in the fleet, Josh, as no big drop-off per se.
We did - I'm trying to think specifically of what you're referring to there. But…
Josh Milberg
I'm referring to - sorry, Richard, I am referring to the near 60% decline in year-over-year and They can. You're 60 percent the car in Europe or you're in your maintenance materials and repairs lines?
Richard Lark
Yeah. Nothing specific, I can maybe get back to offline on that and see that nothing specific as you know we in 2016, 2017 and 2018 were peak, we're kind of peaking maintenance expenses for us as it relates to the engine overhauls.
This year we go into a transition towards a more normalized level where in two years, we hope to be back down to around R$350 million to R$400 million a year run rate from this roughly R$600 million to R$650 million run rate that we've been at as we've kind of peaked on the engine overhauls. And every time we do engine overhauls.
So we basically get seven years of useful life to the next maintenance event. Also we have on quarterly basis there can be variances based on what we're doing specifically as early as the seasonality and so on.
So I think in the quarter over quarter comparison we did have some lower maintenance events in the first quarter related to our utilization and higher seasonality having less and maintenance. But nothing specific that would be kind of a structural change other just kind of this year we're shifting down to a lower level.
But, I'll take a look at that and see if there's anything else and I'll get back to offline on that.
Josh Milberg
Okay. Fair enough.
One think you guys had highlighted in the release was higher capitalization of rotables and components repairs.
Richard Lark
Well, we do capitalize the - a portion of the maintenance there. That goes and then it's basically depreciated over five to seven year period.
It was a slight increase in that. In the first quarter of this year based on the nature of the of the maintenance costs maybe about R$30 million to R$40 million of additional capitalization there that perhaps in the previous quarter like so I'll just have to look into the micro detail on that, and I'll tell you - if there is a better way to look at the apples to apples comparison.
Josh Milberg
Okay. Got it.
Thanks for that. And then, you already covered a lot of ground, obviously on the MAX, but I was hoping you could just touch on the issue of potential compensation from Boeing for the grounding.
If that's something on which you can say anything at this stage.
Paulo Sergio Kakinoff
I can tell you that we are - we have this kind of situation, predicted in our contract. We cannot give you the disclosure on how specifically this will evolve.
But I can tell you that we have no major concerns regarding the necessity of having some kind of compensation being provided by Boeing.
Josh Milberg
Okay. Talk enough.
Thanks Richard, and thanks to both of you.
Paulo Sergio Kakinoff
Thank you.
Operator
And our next question comes from Petr Grishchenko with Barclays. Please go ahead with your question.
Petr Grishchenko
Good afternoon, and thanks for taking my questions. Some of those really answered.
So I guess, I want to switch gears to your outlook for 2019 and 2020. I've seen your guidance on the fuel prices takes into account the fact that's about 60% of your fuel consumption is hedged.
And I think, R$60, so first, it is brent or WTI? I'm just curious and then I'm looking into 2020, and it seems like the cost is only marginally higher, and there are no hedges.
So I'm just wondering how to think about that.
Richard Lark
That's not the case, I mean, we're - just I mean, we're about 30% hedged for 2020 also in the low -60s those are WTI prices. We generally go out two to three years and work on hedging.
We just provided for reference there how much we have hedged for 2000 - I think, but if you look in our financial statement you can also see that we have for 2020, we also have about an 10% hedged in 2021. So basically how we do visit your GOL hedging is taking advantage of the forward curve, backwardation and credit capacity to create value in putting on hedging well in advance.
And so for example, these hedges that we have now. For this year 2018, we basically put them on in the middle of last year and then topped up a little bit in December, when prices came down.
And but having said that that fuel price per liter guidance, we're giving you there is not a hedge price that is a - that's indicative of what we expect our price to be. For nearly from the suppliers here in Brazil, we don't - we're not forecasting gains or losses on hedges, because that will depend on how that rolls forward on a quarterly basis, for example, the mark to market to day to day on our heads positions is about R$100 million, if we would unwind all of those hedges and with the cash in the bank, we would have about R$100 million.
But we don't do that, we will basically - we will manage the positions if the volatility is get too far off course up or down, and we'll also take advantage of the market as well to manage our downside positions and by [the fact the puts in the cost of scholars] [ph]. But basically that hedge position that's there if - for example, thinks they where they are from now to the end of the year.
Over the next three quarters, we would - to the end of December we would realize around R$100 million of gain, if things stayed where they are stable. And that would be a slight reduction to our overall fuel expenses.
But that fuel price guidance in there, which was revised up a bit is based on our forecasts here for oil prices and what we think the [Petrobras price to us here] [ph] locally is. And that guidance we give there, which is probably some of the more detailed guidance you get out of any company maybe anywhere is really just to help those who are projecting.
Develop their own projections, I mean, that guidance is developed by a lot of questions that we get asked repeatedly. And all the data, we're providing there is pretty much everything that the market would need to estimate our results.
It also allows us to be able to talk about results, because if we wouldn't be providing this level of guidance, we'd be providing selective disclosure in individual conversations. And so there's a lot of reasons, why we give that level of detail, it's not so that people can speculate against or bet against our internal estimates on oil prices or exchange rates we don't want to get into that.
So we're providing there is, how much we think we're going to be consuming and how much we're going to think we're going to be paying in terms of the price, but we don't average, obviously there's a lot of volatility there. Are - we have a specific view on oil as well, but that's also so that analysts and investors you can also kind of put in your own assumptions there on the fuel price, if you want to do some simulations.
And so that - I think that's kind of gives you a lot of information that can help you think about that in terms of how we're managing.
Petr Grishchenko
That's very helpful. Thank you, Richard.
And another - I wanted to follow up on your comments on the foot commitments. And given IFRS 16 implementation, I'm just curious of your thought process and evaluating operating versus financial leases going forward?
Do you think it changes the math a little bit for you or not?
Richard Lark
Changing the math meaning what the situation of the MAX?
Petr Grishchenko
Well, given, I mean, your evolution whether you're going to answer operating or financial leases for the new aircraft, given the changes and accounting.
Richard Lark
Oh no, I see, given the IFRS, the new accounting. That doesn't change that the - our decision of how we finance the fleet is an economic decision and a risk management decision.
In our first order with Boeing we did 80 aircraft out of the factory. We did half and half - half, the mortgage finance leases and half sale leasebacks.
On the philosophy there being if you need to adjust your capacity it's a little bit easier to adjust your operating lease capacity then your finance lease capacity. If you need to adjust up or down quicker.
Having said that in this - in our next cycle, which is now our second order with Boeing, our plan is to do 60% mortgage finance leases and 40% sell leaseback over the next eight years or so. Our economics are better as a company on the finance leasing mechanism, because the costs there are lower, but that's traded off against the flexibility component with having operating leases, which allows us to kind of upsize or downsize quicker than the financial lease.
Going forward, I mean, our 2018, 2019 and most of our 20 deliveries have already been done in a sale leaseback format. Starting in 2021, 2022, 2023, we'll be focusing more on a financial lease format, which will be divided among a variety of export credit facilities and other things, which are working on now and I expect - end of this year, beginning of next year we'll be announcing giving some more visibility and we're doing on the finance lease component.
But it's not driven by the accounting, all - obviously all the aircraft today are treating as a finance lease with - but that's an operating lease or finance lease. And effectively go in there with the real economic cost of those leases that's what you're seeing on the balance sheet today in terms of that as well as the interest expense that's a more accurate representation of what our actual leverage is in our actual financing costs.
I do expect over the next couple of quarters, it's going to be interesting for us, interesting for me to see it kind of how the market we evaluate benchmarking and companies, and GOL as well, because it does change a little bit how the operating leverage and the financial leverage is presented. So it's going to be interesting to me to see how that involves and how the market looks at that, if you haven't already just sometime later in the - in the third video that we've posted on the site this morning.
The Q&A video in the first part of that we put two benchmarking slides in there, which you're looking at the 2018 data, but it puts two benchmarking slides in there of GOL versus the global peers and the lightening peers. That gap, that is going to tend to, I think, magnify going forward meaning given the GOLs a high efficiency airline with a high value product.
That will start to show a little bit more clearly in the accounting now, which is a separate issue than what you were asking, but obviously given that our biggest asset is the fleet, and our primary liability, if not, our only liability is secured and unsecured financing related to the aircraft acquisition that we do at the holding company level. It has various interesting implications for how you look at asset turnover profitability as well as leverage.
And some people to look at airlines like to look at two platform of things like that and so. The new accounting tends to make us look a little bit more attractive on a return on capital and return on equity perspective than the old accounting date.
And so just the kind of - because airline nerds, who like to look at this stuff, it's going to be, I think, more interesting over the next couple of quarters to see how we kind of dialogue about this.
Petr Grishchenko
Great, thanks a lot. It's very helpful and best of luck to you guys.
Richard Lark
Thanks, Petr.
Operator
[Operator Instructions] And our next question is a follow-up from Savi Syth with Raymond James. Please go ahead.
Ms. Syth, your line is open.
Syth Savanthi
Hey, sorry about that. I have this on mute.
Actually, I have a three-part question on nonrecurring expenses. Just first what was in - that was in 1Q?
Two, were there any kind of gains on sales and kind of do we assume not much the rest of the year given kind of the MAX situation. And then the third one, a little bit of a - I'm guessing, you might not be able to answer too well.
But with Avianca Brazil, if you do kind of get any of those assets, should we kind of think of some nonrecurring expenses related to any tickets sold that you might be taking responsibility for and how should we think about that impact? Thanks.
Richard Lark
Yeah. That's a future question, right.
Okay, well, there is an answer to that. But on your first question, we've just been providing information on the non-recurring.
You guys can use whatever data you want. We're just getting the data, so you can get a good estimate of what the underlying operating profitability is and then what the other costs are, as we have been doing this major fleet renewal.
In the first quarter, we had around R$40 million of non-recurring expenses, about R$20 million, about half of that amount was related to the return of one aircraft return. We basically returned one aircraft in the quarter and had some other expenses related to a second aircraft that is almost ready to be returned, an NG aircraft.
We had around R$10 million of expenses related to re-accommodation, food and some other costs related to the grounding of the MAX aircraft we did. And there's about R$10 million of other expenses there.
We did an offering in the Q1 of fund raising, where we had some additional expenses. So that's pretty granular detail.
It's not a big number. It's just R$40 million that we just pulled out of that to give you a better visibility on that.
There's no significant - there's no significant NG sales planned currently. That was our plan starting this year.
We accelerated many of our 2019 expectations on NG sales into those 13 aircrafts that we sold in the fourth quarter of last year. And so, we started this year not planning to have any major NG sales program, unless we were to get an opportunity.
So this was before the MAX grounding. Obviously, having said that, currently where we are right now, we are delaying the re-deliveries of 4 NGs.
And we've recalendarized the maintenance of 4 NGs this year. And so, that's actually going to have an economic positive effect for us, because we generally can spend as much as $2 million for every NG that we have to return out of the fleet.
So we're not going to be having those expenses this year. And we're also going to see potentially some slightly lower maintenance expenses in the second half as we recalendarize the maintenance on those NGs, those 8 NGs that we're going to have flying as opposed to either going out of the fleet or in maintenance.
On the MAX deliveries this year, those were done in the sale leaseback format. And so, those aircrafts, any time we do those kind of sale leasebacks, they have a small gain.
So we haven't really received one MAX this year. And so, we have no sale leaseback gains on them.
Received MAXs to the extent we have, the schedule normalized in the second half of the year. And we're receiving those MAXs off of our Boeing order under leasebacks, we would recognize some gains related to that, but that is not in our forecast at this point in time.
And then, on your final question, the way that the restructuring plan was approved for Avianca Brazil, in the [edgitile] [ph], the document that the creditors approved, if we acquire one of the UPIs, we would assume a commitment for up to $20 million of air traffic liability, which would be our maximum assumption of any type of liability there, because these are isolated productive units, which means they're bankruptcy [remote] [ph]. And so - but as you know, the way that the air traffic liability works is it can be absorbed into your existing operations, on your existing capacity with a small marginal cost.
And currently, Avianca Brazil's operations are significantly reduced and have wound down substantially. And we have already been over the last four weeks or so, together with the other airlines in Brazil as part of what we normally do, transporting Avianca passengers.
I think today we probably transport about 13,000, 14,000 passengers of Avianca. So we're already kind of chipping away into the air traffic liability that they have there.
But the answer would be, a maximum liability of $20 million, if we were to acquire a company in the auction process.
Syth Savanthi
That's all very helpful. Thank you.
Operator
This is the final call for questions. [Operator Instructions] And this concludes today's question-and-answer session.
I would like to invite Mr. Kakinoff to proceed with his closing remarks.
Please go ahead, sir.
Paulo Sergio Kakinoff
Okay, ladies and gentlemen, I hope you found our presentation and Q&A session helpful. Our Investor Relations team is available to speak with you as needed.
Thank you very much and have a nice day.
Operator
This concludes the GOL Airlines conference call for today. Thank you very much for your participation and have a nice day.