6-K 1 golitr2q17_6k.htm ITR 2Q17 golitr2q17_6k.htm - Generated by SEC Publisher for SEC Filing
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of August, 2017
(Commission File No. 001-32221) ,
 

 
GOL LINHAS AÉREAS INTELIGENTES S.A.
(Exact name of registrant as specified in its charter)
 
GOL INTELLIGENT AIRLINES INC.
(Translation of Registrant's name into English)
 


 
Praça Comandante Linneu Gomes, Portaria 3, Prédio 24
Jd. Aeroporto 
04630-000 São Paulo, São Paulo
Federative Republic of Brazil
(Address of Regristrant's principal executive offices)

 


Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.

Form 20-F ___X___ Form 40-F ______

Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.

Yes ______ No ___X___

If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):

 

 

 

 

 

 

 

 

 

 

Individual and consolidated

Quarterly Information Form (ITR) for the quarter ended June 30, 2017

 

GOL Linhas Aéreas Inteligentes S.A.

June 30, 2017

with Report on review of the

quarterly information

 

 


 

 

Gol Linhas Aéreas Inteligentes S.A.

 

Individual and consolidated quarterly information form (ITR)

June 30, 2017

 

 

Contents

 

Comments on performance

01

Report of the Statutory Audit Committee (CAE)

06

Declaration of the officers on the quarterly information form (ITR)

07

Declaration of the officers on the independent auditors’ review report

08

Report on review of the quarterly information

09
 

Statements of financial position

11

Statements of income

13

Statements of comprehensive income

15

Statements of changes in equity

16

Statements of cash flows

18

Value added statements

20

Notes to the quarterly information form (ITR)

21

 

 

 


 

 

 

Comments on performance

 

“We remain committed to respond to the macroeconomic environment with strong discipline in seat supply, growth in load factor, continuous improvement in customer experience and cost reduction to generate better operating results. Particularly in the second quarter, seasonally the weakest in the year, we achieved good operational results, with recurring EBIT margin evolving significantly 8.8 p.p. over 2Q16”, commented CEO Paulo Kakinoff.

Despite a 3.0% reduction in the total number of ASKs, net revenue for the quarter grew 7.0% to R$2.2 billion, thanks to the rationalization of capacity, sharp yield management and optimization of aircraft utilization.

GOL is proud to be the lowest cost carrier in Brazil for the 16th consecutive year, due to its unique and standardized fleet, generating lower costs with crew, smart management of spare parts and "best-in-class" maintenance, in addition to lean and productive operations with reduced exposure to fixed costs. The new Boeing 737 MAX 8 aircraft, that will begin arriving in the second half 2018, and investments in technology will further strengthen our cost leadership.

We are focused on providing the best flight experience to GOL’s clients. According to ANAC, in the quarter ended June 2017, the Company remained the leader in on-time flights in Brazil with a rate of 96.0% of flights departing on time, that is, more than 55,000 flights in the period.

"The Company recorded a recurring operating income (EBIT) of R$37.3 million in the 2Q17, with an operating margin of 1.7%. This second quarter operating profit has not happened on a recurring basis since 2010," added Richard Lark, GOL's CFO.

In 2Q17, GOL increased aircraft utilization rates while maintaining the lowest cost in the market. The use of aircraft was 11.3block hours per day (an increase of 4.8% over 2Q16). The number of passengers transported in the 2Q17 decreased 1.3% when compared to the 2Q16. GOL's load factor increased by 2.7p.p., to 77.9%, due to the maturity of the new flight network, launched in May 2016, which reflected in a 3.0% reduction in total ASKs for the period.

Operating costs per ASK, excluding fuel and non-recurring expenses, decreased by 2.0% to 15.00 cents (R$). This reduction was driven by the lower aircraft leasing expenses, due to fleet restructuring, and the lower cost with service provision. Fuel costs per available seat kilometer (ASK) increased by 9.7% to 6.03 cents (R$). "Our absolute leadership at low cost is what makes us stand out in the proposal of added value to our investors, which allows us to offer better fares and services to the market, even in a challenging industry environment," added Richard.

In terms of future perspectives, besides maintain elevated levels of productivity and profitability, short-term results will be driven by the implementation of modern technologies and innovations, as detailed in #NOVAGOL campaign. "We are in a new stage of our company. We continue focused on providing our clients the best experience in air travel with unique services: selfie check-in service, new and more modern aircraft with leather seats and Wi-Fi on board, frequent flights in major markets, a system of integrated routes and low fares. All this is made possible by our dedicated team of employees, who are key to our success. By remaining obsessed on our low-cost business model, while continuing to innovate and offer low fares, we will create value to our clients, employees and shareholders", conclude Kakinoff.

                                                                         

 

 

 

1


 

 

Operational and Financial Indicators

 

Traffic data – GOL

2Q17

2Q16

% Var.

6M17

6M16

% Var.

RPK GOL – Total

8,135

8,096

0.5%

17,697

17,593

0.6%

RPK GOL – Domestic

7,302

7,212

1.2%

15,809

15,608

1.3%

RPK GOL – International

833

884

-5.7%

1,888

1,985

-4.9%

ASK GOL – Total

10,447

10,766

-3.0%

22,466

23,028

-2.4%

ASK GOL – Domestic

9,324

9,492

-1.8%

20,014

20,347

-1.6%

ASK GOL – International

1,123

1,274

-11.9%

2,452

2,680

-8.5%

GOL Load Factor – Total

77.9%

75.2%

2.7 p.p

78.8%

76.4%

2.4 p.p

GOL Load Factor - Domestic

78.3%

76.0%

2.3 p.p

79.0%

76.7%

2.3 p.p

GOL Load Factor - International

74.2%

69.3%

4.8 p.p

77.0%

74.1%

2.9 p.p

Operating data

2Q17

2Q16

% Var.

6M17

6M16

% Var.

Average Fare (R$)

259.79

243.57

6.7%

270.37

257.98

4.8%

Revenue Passengers - Pax on board ('000)

7,261

7,353

-1.3%

15,471

16,396

-5.6%

Aircraft Utilization (block hours/day)5

11.3

10.7

4.8%

11.8

10.8

9.5%

Departures

57,883

60,963

-5.1%

121,983

135,162

-9.8%

Total Seats (‘000)

9,680

10,157

-4.7%

20,414

22,527

-9.4%

Average Stage Length (km)

1,061

1,041

1.9%

1,082

1,006

7.5%

Fuel Consumption (mm liters)

311

323

-3.8%

664

696

-4.7%

Full-time Employees (at period end)

15,360

15,280

0.5%

15,360

15,280

0.5%

Average Operating Fleet6

106

114

-7.4%

108

122

-11.5%

On-time Departures

96.0%

94.5%

1.5 p.p

95.3%

94.8%

0.5 p.p

Flight Completion

98.1%

92.8%

5.3 p.p

98.4%

90.7%

7.7 p.p

Passenger Complaints (per 1000 pax)

1.3517

2.3666

-42.9%

1.3913

2.2000

-36.8%

Lost Baggage (per 1000 pax)

2.04

2.20

-7.3%

2.11

2.20

-4.3%

Financial data

2Q17

2Q16

% Var.

6M17

6M16

% Var.

Net YIELD (R$ cents)

23.19

22.12

4.8%

23.64

24.04

-1.7%

Net PRASK (R$ cents)

18.06

16.64

8.5%

18.62

18.37

1.4%

Net RASK (R$ cents)

21.38

19.40

10.2%

21.72

20.85

4.2%

CASK (R$ cents)

21.14

21.00

0.7%

20.48

19.68

4.0%

CASK ex-fuel (R$ cents)

15.11

15.50

-2.5%

14.40

13.83

4.2%

CASK (R$ cents) adjusted4

21.03

20.80

1.1%

20.02

20.51

-2.4%

CASK ex-fuel (R$ cents) adjusted4

15.00

15.30

-2.0%

13.94

14.66

-4.9%

Breakeven Load Factor

77.0%

81.4%

-4.4 p.p

74.3%

72.1%

2.2 p.p

Average Exchange Rate 1

3.2174

3.5076

-8.3%

3.1807

3.7049

-14.1%

End of period Exchange Rate 1

3.3082

3.2098

3.1%

3.3082

3.2098

3.1%

WTI (avg. per barrel. US$) 2

48.15

45.64

5.5%

49.95

39.60

26.1%

Price per liter Fuel (R$) 3

2.03

1.83

10.7%

2.06

1.94

6.2%

Gulf Coast Jet Fuel (avg. per liter. US$)2

0.37

0.34

9.9%

0.38

0.30

27.7%

 

1. Source: Central Bank; 2. Source: Bloomberg; 3. Fuel expenses/liters consumed; 4. Excluding non-recurring results on return of aircraft under finance lease contracts and sale-leaseback transactions; 5. Change on methodology from flight hours to block hours per day between 1Q17 and 2Q17; and 6. Average operating fleet excluding sub-leased aircrafts and those under MRO.

*Certain variation calculations in this report may not match due to rounding.

 

Domestic market – GOL

Domestic supply decreased by 1.8% in the quarter when compared to the 2Q16, due to the new network composition. Domestic demand increased by 1.2% in the 2Q17, resulting in a load factor of 78.3%, an increase of 2.3 p.p. when compared to the 2Q16.

In 6M17, domestic supply reduced 1.6% in comparison to 6M16, while domestic demand was up 1.3% in

 

 

2


 

 

the same period. Load factor increased 2.3 p.p. and achieved 79.0% in 6M17.

GOL transported 6.9 million passengers in the domestic market in the quarter, representing an increase of 0.1%, when compared to the same period in 2016. GOL is the leader in number of transported passengers in Brazil’s domestic aviation market.

International market - GOL

GOL’s international supply decreased 11.9% in the quarter, in comparison to 2Q16, due to the new network composition. In 6M17, GOL showed a decrease of 8.5% when compared to the first half of 2016.

During the quarter, international demand showed a decrease of 5.7% when compared to the 2Q16. For 6M17, the company registered a reduction of 4.9% over 6M16. Load factor achieved 74.2%, 4.8 p.p. up in comparison to second quarter 2016, and increased 2.9 p.p. for the half year ended in June 2017, achieving 77.0%. During the quarter, GOL transported 398 thousand passengers in the international market, 5.0% less than in 2Q16.

 

Volume of departures and Total seats - GOL

The total volume of GOL departures was 57.9 thousand in 2Q17, a 5.1% reduction compared to same period of 2016. This volume totaled 122.0 thousand departures in the first half of 2017, a 9.8% decline compared to the 6M16. The total number of seats available to the market was 9.7 million in the second quarter of 2017, declining 4.7% in relation to the same period of 2016. In 6M17, the number of seats available was 20.4 million, a reduction of 9.4% compared to 6M16.

PRASK, Yield and RASK

Net PRASK increased by 8.5% in the quarter when compared to 2Q16, reaching 18.06 cents (R$), due to higher passenger revenue and 3.0% lower total ASK. In the first half of the year, Net PRASK reached 18.62 cents (R$), an increase of 1.4% compared to 6M16.

Net RASK was 21.38 cents (R$) in 2Q17, 10.2% up over 2Q16. In the 6M17 it was 21.72 cents (R$), an increase of 4.2% in relation to the same period of 2016.

Net yield grew 4.8% in 2Q17 in comparison to 2Q16, reaching 23.19 cents (R$). In 6M17, net yield decreased by 1.7% when compared to 6M16, reaching 23.64 cents (R$).

These indicators improved due to the combination of higher revenue and reduction in total ASK and RPK.

Capex

Capital expenditures for quarter ended June 30, 2017 were R$205.8 million, primarily related to engines. For more details on changes in property, plant and equipment, see Note 15 in the interim financial statements.

Total fleet

Final

2Q17

2Q16

Var.

2Q16

Var.

Boeing 737-NGs

120

139

-19

124

-4

737-800 NG

92

105

-13

96

-4

737-700 NG

28

34

-6

28

0

By rental type

2Q17

2Q16

Var.

1Q16

Var.

Financial Leasing (737-NG)

31

37

-6

31

0

Operating Leasing (373-NG)

89

102

-13

93

-4

 

 

3


 

 

 

At the end of June 2017, out of a total of 120 Boeing 737-NG aircraft, GOL was operating 116 aircraft on its routes. The four remaining aircraft were sub-leased to another airline.

In 2Q16, out of a total of 139 aircraft, GOL was operating 119 aircraft on its routes. Of the 20 remaining aircraft, 11 were in the process of being returned to the lessors and 9 were sub-leased to other airlines.

GOL has 89 aircraft under operating leases and 31 under finance leases. 31 aircraft of the total fleet have a purchase option for when their leasing contracts expire.

The average age of the fleet was 8.8 years at the end of 2Q17. In order to maintain this low average, the Company has 120 firm Boeing 737 MAX acquisition orders for fleet renewal by 2028. The first Boeing 737 MAX aircraft is expected to be received by the Company in July 2018.

Fleet plan

2017

2018

2019

>2019

Total

Operating Fleet (End of Period)

115

121

124

 

 

Aircraft Commitments (R$ million)*

-

-

2,961.8

43,975.4

46,937.2

Pre-Delivery Payments (R$ million)

73.4

487.6

792.5

5,374.4

6,727.9

  * Considers aircraft list price

 

In May the Federal Aviation Administration (FAA) recertificated our Aircraft Maintenance Center (CMA) in Confins, Minas Gerais, and also the Galeão base in Rio de Janeiro-RJ, for Line maintenance. This is an important recognition of the American authority that ensures that our processes, manuals and maintenance training programs are in line with the best practices of the world aviation. With the achievement of the FAA seal, we continue to carry out maintenance procedures with excellence, both in our equipment and in the provision of services to other operators, as well as to our partner Delta.

For this recertification, our employees in Confins inaugurated and certified the Clean Room, a large investment workshop for Maintenance that increases our ability to repair complex parts and components made from composite materials such as flaps and spoilers. We are now authorized to perform these repairs in accordance with FAA standards. Another novelty is that the battery workshop of our Maintenance Center was also certified in this process.

 

 

 

4


 

 

Glossary of industry terms

|        AIRCRAFT LEASING: an agreement through which a company (the lessor), acquires a resource chosen by its client (the lessee) for subsequent rental to the latter for a determined period.

|        AIRCRAFT UTILIZATION: the average number of hours operated per day by the aircraft.

|        AVAILABLE SEAT KILOMETERS (ASK): the aircraft seating capacity multiplied by the number of kilometers flown.

|        AVERAGE STAGE LENGTH: the average number of kilometers flown per flight.

|        BLOCK HOURS: the time an aircraft is in flight plus taxiing time.

|        BREAKEVEN LOAD FACTOR: the passenger load factor that will result in passenger revenues being equal to operating expenses.

|        BRENT: oil produced in the North Sea, traded on the London Stock Exchange and used as a reference in the European and Asian derivatives markets.

|        CHARTER: a flight operated by an airline outside its normal or regular operations.

|        EBITDAR: earnings before interest, taxes, depreciation, amortization and rent. Airlines normally present EBITDAR, since aircraft leasing represents a significant operating expense for their business.

|        LESSOR: the party renting a property or other asset to another party, the lessee.

|        LOAD FACTOR: the percentage of aircraft seating capacity that is actually utilized (calculated by dividing RPK by ASK).

|        LONG-HAUL FLIGHTS: long-distance flights (in GOL’s case, flights of more than four hours’ duration).

|        OPERATING COST PER AVAILABLE SEAT KILOMETER (CASK):operating expenses divided by the total number of available seat kilometers.

|        OPERATING COST PER AVAILABLE SEAT KILOMETER EX-FUEL (CASK EX-FUEL):operating cost divided by the total number of available seat kilometers excluding fuel expenses.

|        OPERATING REVENUE PER AVAILABLE SEAT KILOMETER (RASK): total operating revenue divided by the total number of available seat kilometers.

|        PASSENGER REVENUE PER AVAILABLE SEAT KILOMETER (PRASK): total passenger revenue divided by the total number of available seat kilometers.

|        REVENUE PASSENGERS: the total number of passengers on board who have paid more than 25% of the full flight fare.

|        REVENUE PASSENGER KILOMETERS (RPK): the sum of the products of the number of paying passengers on a given flight and the length of the flight.

|        SALE-LEASEBACK: a financial transaction whereby a resource is sold and then leased back, enabling use of the resource without owning it.

|        SLOT: the right of an aircraft to take off or land at a given airport for a determined period of time.

|        SUB-LEASE: an arrangement whereby a lessor in a rent agreement leases the item rented to a third party.

|        TOTAL CASH: the sum of cash, financial investments and short and long-term restricted cash.

|        WTI Barrel: West Texas Intermediate – the West Texas region, where US oil exploration is concentrated. Serves as a reference for the US petroleum byproduct markets.

|        YieldpEr PASSENGER KILOMETER: the average value paid by a passenger to fly one kilometer.

 

 

5


 

 

Report of the Statutory Audit Committee (CAE)

 

 

The GOL LINHAS AÉREAS INTELIGENTES S.A. Statutory Audit Committee, in compliance with its legal and statutory obligations, has reviewed the quarterly information for the six-month period ended June 30, 2017. On the basis of the procedures we have undertaken, and taking into account the independent auditors’ review report issued by Ernst & Young Auditores Independentes S.S. and the information and explanations we have received during the period, we consider that these documents are fit to be submitted to the consideration of the Board of Directors.

 

 

 

São Paulo, August 8, 2017.

 

 

 

 

Antônio Kandir

Member of the Statutory Audit Committee

 

 

André Jánszky

Member of the Statutory Audit Committee

 

 

 

James Meaney

Member of the Statutory Audit Committee

 

 

6


 

 

Declaration of the officers on the quarterly information form (ITR)

 

 

In compliance with the provisions of CVM Instruction No. 480/09, the Executive Board declares that it has discussed, reviewed and approved the quarterly information for the six-month period ended June 30, 2017.

 

 

 

São Paulo, August 8, 2017.

 

 

 

Paulo S. Kakinoff

President and Chief Executive Officer

 

 

Richard F. Lark Jr.

Executive Vice President and Chief Financial Officer

 

 

7


 

 

Declaration of the officers on the independent auditors’ review report

 

 

In compliance with the provisions of CVM Instruction No. 480/09, the Executive Board declares that it has discussed, reviewed and approved the conclusions expressed in the independent auditor’s report on review of the quarterly information for the six-month period ended June 30, 2017.

 

 

 

São Paulo, August 8, 2017.

 

 

 

Paulo S. Kakinoff

President and Chief Executive Officer

 

 

Richard F. Lark Jr.

Executive Vice President and Chief Financial Officer

 

 

 

8


 

 

 

(A free translation from the original in Portuguese into English)

Report on the review of interim financial information

To
The Shareholders, Board of Directors and Officers
Gol Linhas Aéreas Inteligentes S.A.
São Paulo - SP

Introduction

We have reviewed the accompanying individual and consolidated interim financial information of Gol Linhas Aéreas Inteligentes S.A. (“Company”), identified as Company and Consolidated, respectively, contained in the Quarterly Information (ITR) for the quarter ended June 30,  2017, which comprises the balance sheet as at June 30, 2017 and the related income statement,  statement of comprehensive income for the quarter,  the statement of changes in equity and statement of cash flows for the three and six-month periods then ended, and a summary of significant accounting practices and other explanatory notes.

Company management is responsible for the preparation of interim individual financial information in accordance with the Technical Pronouncement of the Accounting Pronouncements Committee (CPC) 21 (R1) – Interim Financial Reporting and the consolidated interim financial information in accordance with CPC 21 (R1) and IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of these information in compliance with the rules issued by the Brazilian Securities Commission (“CVM”), applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

We conducted our review in accordance with Brazilian and International Standards on Review Engagements (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The scope of a review is significantly narrower than an audit conducted in accordance with Brazilian and International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might have be identified in an audit. Therefore, we do not express an audit opinion.

Conclusion on the individual and consolidated interim financial information

Based on our review, nothing came to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the Quarterly Information referred to above was not prepared, in all material respects, in accordance with CPC 21(R1) and IAS 34 applicable to the preparation of Quarterly Financial Information, consistently with the standards issued by the Brazilian Securities Commission (CVM).

 

 

Other matters

Statements of value added

We have also reviewed the individual and consolidated statements of value added for the six-month period ended June 30, 2017, prepared under the responsibility of management, the presentation of which in the interim financial information is required by rules issued by the Brazilian Securities Commission (CVM) applicable to the preparation of Quarterly Financial Information (ITR), and as supplementary information by IFRS, whereby no statement of value added presentation is required. These statements have been subjected to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that they are not prepared, in all material respects, in accordance with the overall accompanying interim individual and consolidated interim financial information.

 

São Paulo, August 8, 2017.

 

ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP015199/O-6

 

Vanessa Martins Bernardi
Accountant CRC-1SP244569/O-3         

 

 

 

9


 

 

Statements of financial position

As of June 30, 2017 and December 31, 2016

(In thousands of Brazilian reais - R$)

 
 

 

 

Parent Company

Consolidated

Assets

Note

06/30/2017

12/31/2016

06/30/2017

12/31/2016

 

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

4

46,363

57,378

568,711

562,207

Short-term investments

5

-

49

111,517

431,233

Trade receivables

7

-

-

859,921

760,237

Inventories

8

-

-

208,106

182,588

Recoverable taxes

9.1

7,233

9,289

57,329

27,287

Rights on derivative transactions

28

-

-

-

3,817

Other credits

 

6,802

64,770

137,333

113,345

 

60,398

131,486

1,942,917

2,080,714

 

 

 

 

 

Noncurrent assets

 

 

 

 

 

Deposits

10

58,908

38,760

1,266,787

1,188,992

Restricted cash

6

37,255

32,656

230,323

168,769

Recoverable taxes

9.1

21,568

17,286

78,046

72,060

Deferred taxes

9.2

13,364

13,409

115,518

107,159

Other credits

 

-

-

971

4,713

Credits with related parties

11

1,654,507

1,873,350

-

-

Investments

13

209,515

281,758

17,353

17,222

Property, plant and equipment

15

323,013

323,013

3,081,637

3,025,010

Intangible assets

16

-

-

1,733,228

1,739,716

 

2,318,130

2,580,232

6,523,863

6,323,641

 

 

 

 

 

Total

 

2,378,528

2,711,718

8,466,780

8,404,355

 

The accompanying notes are an integral part of the quarterly information.

 

 

 

10


 

Statements of financial position

As of June 30, 2017 and December 31, 2016

(In thousands of Brazilian reais - R$)

 

 

Parent Company

Consolidated

Liabilities

Note

06/30/2017

12/31/2016

06/30/2017

12/31/2016

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Loans and financing

17

81,388

277,219

728,051

835,290

Suppliers

 

2,188

1,314

1,079,311

1,097,997

Salaries, wages and benefits

 

444

309

261,134

283,522

Taxes payable

18

17,519

119

134,514

146,174

Taxes and landing fees

 

-

-

338,148

239,566

Advance ticket sales

19

-

-

1,274,236

1,185,945

Mileage program

20

-

-

764,882

781,707

Advances from customers

 

-

-

189,356

16,823

Provisions

21

-

-

6,653

66,502

Obligations on derivative transactions

28

581

-

38,962

89,211

Share loan liabilities

28

93,056

-

93,056

-

Other current liabilities

 

2,466

2,252

123,061

106,005

 

197,642

281,213

5,031,364

4,848,742

Noncurrent liabilities

 

 

 

 

 

Loans and financing

17

3,054,216

2,984,495

5,488,935

5,543,930

Suppliers

 

-

-

157,138

-

Provisions

21

-

-

739,870

723,713

Mileage program

20

-

-

175,776

219,325

Deferred taxes

9.2

-

-

338,108

338,020

Taxes payable

18

-

-

70,060

42,803

Obligations to related companies

11

22,193

21,818

-

-

Provision for loss on investment

13

2,970,818

3,074,190

-

-

Other noncurrent liabilities

 

10,307

-

94,165

44,573

 

6,057,534

6,080,503

7,064,052

6,912,364

Equity (deficit)

22

 

 

 

 

Capital stock

 

3,080,110

3,080,110

3,080,110

3,080,110

Shares to be issued

 

1,137

-

1,137

-

Share issuance costs

 

(42,290)

(42,290)

(155,618)

(155,618)

Treasury shares

 

(4,456)

(13,371)

(4,456)

(13,371)

Capital reserves

 

88,854

91,399

88,854

91,399

Equity valuation adjustments

 

(122,940)

(147,229)

(122,940)

(147,229)

Share-based payments

 

111,310

113,918

111,310

113,918

Effects of changes in equity interest

 

751,584

693,251

751,584

693,251

Accumulated losses

 

(7,739,957)

(7,425,786)

(7,626,629)

(7,312,458)

Equity (deficit) attributable to controlling shareholders

 

(3,876,648)

(3,649,998)

(3,876,648)

(3,649,998)

 

 

 

 

 

Smiles’ non-controlling interests

 

-

-

248,012

293,247

Total equity (deficit)

 

(3,876,648)

(3,649,998)

(3,628,636)

(3,356,751)

 

 

 

 

 

Total

 

2,378,528

2,711,718

8,466,780

8,404,355

 

The accompanying notes are an integral part of the quarterly information.

 

 

11


 

 

Statements of income

Periods ended June 30, 2017 and 2016

(In thousands of Brazilian reais - R$, except basic and diluted earnings (loss) per share)

 

   

Parent Company

 

 

Three-month period ended

Six-month period ended

 

Note

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Operating income (expenses)

 

 

     

Administrative expenses

24

(7,560)

(4,657)

(10,732)

(7,134)

Other operating income (expenses), net

24

(1,988)

9,734

(3,977)

223,125

   

(9,548)

5,077

(14,709)

215,991

   

 

 

 

 

Equity results

13

(349,003)

(58,830)

(177,760)

265,892

   

 

 

 

 

Operating profit (loss) before income taxes and financial result

 

(358,551)

(53,753)

(192,469)

481,883

   

 

 

 

 

Financial result

 

 

 

 

 

Financial income

 

19,578

22,537

39,854

45,427

Financial expenses

 

(69,381)

(101,921)

(137,362)

(196,443)

Exchange variation, net

 

(66,016)

385,691

(24,006)

624,413

 

25

(115,819)

306,307

(121,514)

473,397

   

 

 

 

 

Income (loss) before income

and social contribution taxes

 

(474,370)

252,554

(313,983)

955,280

   

 

 

 

 

Current income and social contribution taxes

 

(143)

-

(143)

-

Deferred income and social contribution taxes

 

(37)

-

(45)

-

 

9

(180)

-

(188)

-

Net Income (loss) for the period

 

(474,550)

252,554

(314,171)

955,280

   

 

 

 

 

Basic earnings (loss) per common share

14

(0.039)

0.021

(0.026)

0.079

Basic earnings (loss) per preferred share

14

(1.368)

0.733

(0.906)

2.761

Diluted earnings (loss) per common share

14

(0.039)

0.021

(0.026)

0.079

Diluted earnings (loss) per preferred share

14

(1.368)

0.733

(0.906)

2.761

 

 

 

The accompanying notes are an integral part of the quarterly information.

 

12


 

Statements of income

Periods ended June 30, 2017 and 2016

(In thousands of Brazilian reais - R$, except basic and diluted earnings (loss) per share)

 
   

Consolidated

 

 

Three-month period ended

Six-month period ended

 

Note

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Net revenue

 

 

 

 

 

Passenger

 

1,886,314

1,790,978

4,182,979

4,229,804

Cargo and other

 

347,684

297,835

696,858

572,078

 

23

2,233,998

2,088,813

4,879,837

4,801,882

   

 

 

 

 

Cost of services provided

24

(1,812,612)

(1,839,865)

(3,778,450)

(3,938,543)

Gross profit

 

421,386

248,948

1,101,387

863,339

   

 

 

 

 

Operating expenses

 

 

 

 

 

Selling expenses

24

(203,820)

(225,076)

(389,545)

(422,578)

Administrative expenses

24

(190,183)

(170,569)

(429,400)

(358,968)

Other operating income (expenses), net

24

(1,988)

(25,292)

(3,977)

187,292

   

(395,991)

(420,937)

(822,922)

(594,254)

   

 

 

 

 

Equity results

13

5

576

131

(3,318)

   

 

 

 

 

Operating profit (loss) before income taxes and financial result

 

25,400

(171,413)

278,596

265,767

   

 

 

 

 

Financial result

 

 

 

 

 

Financial income

 

21,818

116,665

67,536

188,433

Financial expenses

 

(217,591)

(353,391)

(504,063)

(692,426)

Exchange variation, net

 

(229,506)

779,815

(88,353)

1,433,292

 

25

(425,279)

543,089

(524,880)

929,299

   

 

 

 

 

Income (loss) before income

and social contribution taxes

 

(399,879)

371,676

(246,284)

1,195,066

   

 

 

 

 

Current income and social contribution taxes

 

(69,272)

(61,282)

(154,367)

(124,238)

Deferred income and social contribution taxes

 

62,824

(888)

227,009

(4,183)

 

9

(6,448)

(62,170)

72,642

(128,421)

Net income (loss) for the period

 

(406,327)

309,506

(173,642)

1,066,645

   

 

 

 

 

Attributable to controlling shareholders

 

(474,550)

252,554

(314,171)

955,280

Attributable to non-controlling interests from Smiles

 

68,223

56,952

140,529

111,365

   

 

 

 

 

Basic earnings (loss) per common share

14

(0.039)

0.021

(0.026)

0.079

Basic earnings (loss) per preferred share

14

(1.368)

0.733

(0.906)

2.761

Diluted earnings (loss) per common share

14

(0.039)

0.021

(0.026)

0.079

Diluted earnings (loss) per preferred share

14

(1.368)

0.733

(0.906)

2.761

 

 

 

The accompanying notes are an integral part of the quarterly information.

 

 

13


 

Statements of comprehensive income

Periods ended June 30, 2017 and 2016

(In thousands of Brazilian reais - R$, except basic and diluted earnings (loss) per share)

 

 

 

Note

Parent Company

 

Three-month period ended

Six-month period ended

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

 

 

 

 

 

Net income (loss) for the period

 

(474,550)

252,554

(314,171)

955,280

 

 

 

 

 

Cash flow hedges

 

7,211

(14,079)

24,289

(32,345)

Tax effect

 

-

4,786

-

10,997

Other comprehensive income (loss) to be reclassified to profit or loss

28

7,211

(9,293)

24,289

(21,348)

 

 

 

 

 

Total comprehensive income (loss) for the period

 

(467,339)

243,261

(289,882)

933,932

 

 

 

 

Note

Consolidated

 

Three-month period ended

Six-month period ended

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

 

 

 

 

 

Net income (loss) for the period

 

(406,327)

309,506

(173,642)

1,066,645

 

 

 

 

 

Cash flow hedges

 

7,211

(14,079)

24,289

(32,345)

Tax effect

 

-

4,786

-

10,997

Other comprehensive income (loss) to be reclassified to profit or loss

28

7,211

(9,293)

24,289

(21,348)

 

 

 

 

 

Total comprehensive income (loss) for the period

 

(399,116)

300,213

(149,353)

1,045,297

 

 

 

 

 

 

Comprehensive income attributable to:

 

 

 

 

 

Controlling shareholders

 

(467,339)

243,261

(289,882)

933,932

Non-controlling interests from Smiles

 

68,223

56,952

140,529

111,365

 

 

 

The accompanying notes are an integral part of the quarterly information.

 

 

 

14


 

 

Statements of changes in equity - Parent Company

Six-month periods ended June 30, 2017 and 2016

(In thousands of Brazilian reais - R$)

 
 

 

 

 

 

 

 

 

 

Capital

reserves

Equity valuation adjustments

 

 

 

 

 

Note

Capital

stock

Shares to be issued

Share issuance costs

Treasury shares

Goodwill on transfer of shares

Special goodwill reserve of subsidiary

Unrealized

hedge gain (losses)

Share-based

payments

Effects of changes in equity interest

Accumulated losses

Total

Balances as of December 31, 2015

 

3,080,110

-

(41,895)

(22,699)

27,882

70,979

(178,939)

103,126

690,379

(8,275,405)

(4,546,462)

Other comprehensive loss, net

 

-

-

-

-

-

-

(21,348)

-

-

-

(21,348)

Share issuance costs

 

-

-

(395)

-

-

-

-

-

-

-

(395)

Stock options

 

-

-

-

-

-

-

-

12,674

-

-

12,674

Equity interest dilution effects

 

-

-

-

-

-

-

-

-

(1,492)

-

(1,492)

Net income for the period

 

-

-

-

-

-

-

-

-

-

955,280

955,280

Transfer of restricted shares

 

-

-

-

7,868

-

-

-

(7,868)

-

-

-

Balances as of June 30, 2016

 

3,080,110

-

(42,290)

(14,831)

27,882

70,979

(200,287)

107,932

688,887

(7,320,125)

(3,601,743)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2016

 

3,080,110

-

(42,290)

(13,371)

20,420

70,979

(147,229)

113,918

693,251

(7,425,786)

(3,649,998)

Capital increase for exercise of stock options

 

-

1,137

-

-

-

-

-

-

-

-

1,137

Other comprehensive income

 

-

-

-

-

-

-

24,289

-

-

-

24,289

Stock options

22

-

-

-

-

-

-

-

3,762

-

-

3,762

Equity interest dilution effects

13

-

-

-

-

-

-

-

-

3,887

-

3,887

Partial sale of interest in subsidiary

13

-

-

-

-

-

-

-

-

54,446

-

54,446

Transfer of treasury shares

 

-

-

-

8,915

(2,545)

-

-

(6,370)

-

-

-

Net loss for the period

 

-

-

-

-

-

-

-

-

-

(314,171)

(314,171)

Balances as of June 30, 2017

 

3,080,110

1,137

(42,290)

(4,456)

17,875

70,979

(122,940)

111,310

751,584

(7,739,957)

(3,876,648)

 

The accompanying notes are an integral part of the quarterly information.

 

15


 

Statements of changes in equity - Consolidated

Six-month periods ended June 30, 2017 and 2016

(In thousands of Brazilian reais - R$)

 

 

 

 

 

 

 

 

Capital

reserves

Equity valuation adjustments

 

 

 

 

 

 

 

 

Note

Capital stock

Shares to be issued

Cost of issued

shares

Treasury shares

Goodwill on transfer

of shares

Special goodwill reserve of subsidiary

Unrealized hedge

gain (losses)

Share-based

payments

Effects of changes in equity interest

Accumulated losses

Equity (deficit) attributable to controlling shareholders

Smiles’

non-controlling

interests

Total

Balances as of December 31, 2015

 

3,080,110

-

(155,223)

(22,699)

27,882

70,979

(178,939)

103,126

690,379

(8,162,077)

(4,546,462)

224,022

(4,322,440)

Other comprehensive income (loss), net

 

-

-

-

-

-

-

(21,348)

-

-

-

(21,348)

-

(21,348)

Capital increase for exercise of stock option in subsidiary

 

-

-

-

-

-

-

-

-

-

-

-

3,352

3,352

Share issuance costs

 

-

-

(395)

-

-

-

-

-

-

-

(395)

-

(395)

Stock options

 

-

-

-

-

-

-

-

12,674

-

-

12,674

313

12,987

Equity interest dilution effects

 

-

-

-

-

-

-

-

-

(1,492)

-

(1,492)

-

(1,492)

Net income for the period

 

-

-

-

-

-

-

-

-

-

955,280

955,280

111,365

1,066,645

Transfer of restricted shares

 

-

-

-

7,868

-

-

-

(7,868)

-

-

-

-

-

Dividends distributed by Smiles

 

-

-

-

-

-

-

-

-

-

-

-

(123,766)

(123,766)

Balances as of June 30, 2016

 

3,080,110

-

(155,618)

(14,831)

27,882

70,979

(200,287)

107,932

688,887

(7,206,797)

(3,601,743)

215,286

(3,386,457)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2016

 

3,080,110

-

(155,618)

(13,371)

20,420

70,979

(147,229)

113,918

693,251

(7,312,458)

(3,649,998)

293,247

(3,356,751)

Capital increase for exercise of stock options

 

-

1,137

-

-

-

-

-

-

-

-

1,137

-

1,137

Other comprehensive income (loss), net

 

-

-

-

-

-

-

24,289

-

-

-

24,289

-

24,289

Capital increase for exercise of stock option in subsidiary

 

-

-

-

-

-

-

-

-

-

-

-

1,988

1,988

Stock options

22

-

-

-

-

-

-

-

3,762

-

-

3,762

111

3,873

Equity interest dilution effects

13

-

-

-

-

-

-

-

-

3,887

-

3,887

-

3,887

Partial sale of interest in subsidiary

13

-

-

-

-

-

-

-

-

54,446

-

54,446

4,863

59,309

Transfer of treasury shares

 

-

-

-

8,915

(2,545)

-

-

(6,370)

-

-

-

-

-

Net loss for the period

 

-

-

-

-

-

-

-

-

-

(314,171)

(314,171)

140,529

(173,642)

Interest on equity distributed by Smiles

 

-

-

-

-

-

-

-

-

-

-

-

(6,947)

(6,947)

Dividends distributed by Smiles

 

-

-

-

-

-

-

-

-

-

-

-

(185,779)

(185,779)

Balances as of June 30, 2017

 

3,080,110

1,137

(155,618)

(4,456)

17,875

70,979

(122,940)

111,310

751,584

(7,626,629)

(3,876,648)

248,012

(3,628,636)

 

The accompanying notes are an integral part of the quarterly information.

16


 

Statements of cash flows

Six-month periods ended June 30, 2017 and 2016

(In thousands of Brazilian reais - R$)

 
 
 

Parent Company

Consolidated

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Net Income (loss) for the period

(314,171)

955,280

(173,642)

1,066,645

Adjustments to reconcile net income to net cash

 

 

 

 

Depreciation and amortization

-

-

225,564

224,914

Allowance for doubtful accounts

-

-

3,537

6,990

Provision for legal proceedings

-

-

73,178

22,354

Provision (reversal) for inventory obsolescence

-

-

613

(15)

Deferred taxes

45

-

(227,009)

4,183

Equity results

177,760

(265,892)

(131)

3,318

Share-based payments

-

775

6,484

7,804

Exchange and monetary variations, net

26,178

(632,387)

107,822

(1,208,551)

Interest on loans and financial lease

100,107

133,886

282,371

330,111

Unrealized derivative results

492

-

492

43,172

Provision for profit sharing

-

-

524

4,639

Write-off of property, plant and equipment and intangible assets

-

80,556

23,081

114,307

Adjusted net income

(9,589)

272,218

322,884

619,871

Changes in operating assets and liabilities:

 

 

 

 

Trade receivables

-

-

(100,949)

(307,015)

Short-term investments

49

17,525

60,042

(53,925)

Inventories

-

-

(26,131)

12,524

Deposits

(20,148)

(5,827)

(55,869)

(240,210)

Suppliers

869

(2,148)

118,081

(47,581)

Advance ticket sales

-

-

88,291

(127,681)

Mileage program

-

-

(60,374)

41,288

Advances from customers

-

-

172,533

153,562

Salaries, wages and benefits

135

(75)

(22,912)

628

Taxes and landing fees

-

-

98,582

(36,226)

Taxes payable

17,400

69

367,293

96,290

Obligations on derivative transactions

-

-

(22,724)

(36,543)

Provisions

-

-

(144,287)

(76,684)

Other assets (liabilities)

16,274

31,821

51,941

(105,829)

Interest paid

(125,724)

(176,079)

(249,661)

(344,268)

Income tax paid

-

-

(132,958)

(94,366)

Net cash generated (used) in operating activities

(120,734)

137,504

463,782

(546,165)

Sale of interest in subsidiary, net of taxes

59,309

-

59,309

 

Transactions with related parties

276,974

(974,560)

-

-

Short-term investments

-

-

-

-

Restricted cash

(4,599)

49,353

(63,115)

374,558

Short-term investments of subsidiary Smiles

-

-

259,674

82,807

Advances for future capital increase

(141,000)

-

-

-

Capital increase in subsidiary

(275,000)

(191,587)

-

-

Advances for property, plant and equipment acquisition, net

-

502,001

(2,324)

467,000

Property, plant and equipment

-

-

(289,406)

(76,721)

Intangible assets

-

-

(21,338)

(8,623)

Dividends and interest on capital received

280,414

145,612

-

1,305

Net cash generated (used) in investing activities

196,098

(469,181)

(57,200)

840,326

 

 

17


 

Statements of cash flows

Six-month periods ended June 30, 2017 and 2016

(In thousands of Brazilian reais - R$)

 

 

 

Parent Company

Consolidated

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Loan funding

93,145

-

223,143

-

Loan payments

(179,021)

-

(232,472)

(360,804)

Finance lease payments

-

-

(120,930)

(230,051)

Dividends paid to Smiles’ non-controlling interests

-

-

(241,337)

(153,962)

Interest on equity paid through subsidiary

-

-

-

-

Shares to be issued

1,137

-

1,137

-

Share issuance costs

-

(395)

-

(395)

Capital increase

-

-

-

4,351

Net cash used in financing activities

(84,739)

(395)

(370,459)

(740,861)

Exchange variation on cash in foreign subsidiaries

(1,640)

-

(29,619)

(18,603)

Net increase in cash and cash equivalents

(11,015)

(332,072)

6,504

(465,303)

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

57,378

387,323

562,207

1,072,332

Cash and cash equivalents at the end of the period

46,363

55,251

568,711

607,029

 

 

 

 

 

 

 

 

 

 

Statements of cash flows - Additional information

 

 

 

 

 

 

 

 

 

Non-cash items:

 

 

 

 

Interest on equity distributed, net of taxes

(7,751)

-

6,947

-

Costs on sale in subsidiary’s interest

4,863

-

-

-

Escrow deposits

-

-

10,307

-

Write-off of finance lease agreements

-

-

(15,334)

(444,890)

Provision for aircraft return

-

-

-

64,775

Software acquisition

-

-

-

(21,834)

 

 

18


 

 

Value added statements

Six-month periods ended June 30, 2017 and 2016

(In thousands of Brazilian reais - R$)

 

 

Parent Company

Consolidated

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Revenues

 

 

 

 

Passengers, cargo and other

-

-

5,212,431

5,122,731

Other operating income (expenses)

(3,978)

246,575

15,249

246,668

Allowance for doubtful accounts

-

-

1,442

2,904

 

(3,978)

246,575

5,229,122

5,372,303

Inputs acquired from third parties (including ICMS and IPI)

 

 

 

 

Suppliers of fuel and lubricants

-

-

(1,385,736)

(1,383,780)

Material, electricity, third-party services and others

(7,207)

(29,636)

(1,458,670)

(1,570,841)

Aircraft insurance

-

-

(5,221)

(17,592)

Sales and marketing

(326)

(216)

(243,513)

(253,748)

Gross value added

(11,511)

216,723

2,135,982

2,146,342

 

 

 

 

Depreciation and amortization

-

-

(225,564)

(224,914)

Value added produced

(11,511)

216,723

1,910,418

1,921,428

 

 

 

 

Value added received in transfer

 

 

 

 

Equity results

(177,760)

265,892

131

(3,318)

Financial income

26,619

242,737

330,297

2,070,549

Value added for distribution (distributed)

(162,652)

725,352

2,240,846

3,988,659

 

 

 

 

Distribution of value added:

 

 

 

 

Salaries

2,779

1,350

614,389

613,331

Benefits

-

-

77,371

82,141

FGTS

-

(57)

51,713

53,442

Personnel

2,779

1,293

743,473

748,914

 

 

 

 

 

Federal taxes

1,165

698

296,078

426,720

State taxes

-

-

15,713

16,984

Municipal taxes

-

-

1,180

997

Tax, charges and contributions

1,165

698

312,971

444,701

 

 

 

 

 

Interest

147,664

(231,919)

845,472

1,094,938

Rent

-

-

512,595

603,987

Other

(89)

-

(23)

29,474

Third-party capital remuneration

147,575

(231,919)

1,358,044

1,728,399

 

 

 

 

 

Net Income (loss) for the period

(314,171)

955,280

(314,171)

955,280

Income for the period attributable to Smiles’ non-controlling interests

-

-

140,529

111,365

Remuneration of own capital

(314,171)

955,280

(173,642)

1,066,645

 

 

 

 

 

Value added for distribution (distributed)

(162,652)

725,352

2,240,846

3,988,659

 

 

19


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

1.  Operations

 

Gol Linhas Aéreas Inteligentes S.A. (the “Company” or “GLAI”) is a publicly-listed company established on March 12, 2004, in accordance with Brazilian corporate legislation. The Company is engaged in controlling its subsidiaries: (i) Gol Linhas Aéreas S.A. (currently “GLA”, formerly “VRG Linhas Aéreas S.A.” prior to the change in the corporate name on September 22, 2016), which essentially explores (a) the regular and non-regular flight transportation services of passengers, cargo and mailbags, domestically or internationally, according to the concessions granted by the competent authorities; and (b) complementary activities of flight transport services provided in its By-laws; and (ii) Smiles S.A. (“Smiles”), which mainly operates (a) the development and management of its own or third party’s customer loyalty program, and (b) the sale of redemption rights of rewards related to the loyalty program.

    

Additionally, the Company is the direct parent Company of the wholly-owned subsidiaries GAC Inc. (“GAC”), Gol Finance Inc. (“Gol Finance”), Gol LuxCo S.A. (“Gol LuxCo”) and Gol Dominicana Lineas Aereas SAS (“Gol Dominicana”), and indirect parent Company of Smiles Fidelidade S.A. (“Smiles Fidelidade”, formerly Webjet Participações S.A. prior to the change in the corporate name on July 1, 2017).

 

The Company’s registered office is at Pça. Comandante Linneu Gomes, s/n, portaria 3, prédio 24, Jardim Aeroporto, São Paulo, Brazil.

 

The Company’s shares are traded on the Securities, Commodities and Futures Exchange - B3 and on the New York Stock Exchange (“NYSE”). The Company adopted Level 2 Differentiated Corporate Governance Practices from the B3 and is included in the Special Corporate Governance Stock Index (“IGC”) and the Special Tag Along Stock Index (“ITAG”), which were created to identify companies committed to the differentiated corporate governance practices.

 

GLA is highly sensitive to the economy and also to the U.S. dollar, since approximately 50% of its costs are denominated in U.S. dollar. To overcome the challenges faced throughout 2016, the Company implemented a plan to improve its liquidity and its operating margin. As a result, the Company has been improving in safe levels its liquidity and ability to respond effectively to the adverse events caused by the instability of the Brazilian economic scenario.

 

The Company established and has been executing several initiatives to adjust its short and long-term liquidity. The diligent work performed to adjust the fleet size to economic growth and match seat supply to demand are some of the ongoing initiatives implemented to maintain a high load factor. The Company will maintain a solid strategy by means of liquidity initiatives, such as the adjustment of the route network, initiatives to reduce costs and the adjustment of its capital structure.

 

It is worth noting that, even in a scenario with an outlook for improvement, the Company does not rule out uncertainties in Brazil’s economic and political scenario that may directly impact the effectiveness of the expected returns.

 

20


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

Management understands that the business plan prepared, presented and approved by the Board of Directors on January 31, 2017, shows strong elements to continue as going concern.

 

In 2016, Brazilian tax authorities questioned the Company regarding certain payments to companies owned by politically exposed persons in Brazil. After beginning an internal investigation, the Company hired legal counsels from the United States and Brazil to conduct an independent investigation in order to assess the facts related to these and other payments identified as irregular, as well as analyze compliance with internal controls and their effectiveness based on the conclusions of said investigation.

 

In December 2016, the Company entered into a leniency agreement with the Federal Prosecutor Office (“Leniency Agreement”), whereby the Company agreed to pay R$12 million in fines and improve its compliance program. The Federal Prosecutor Office, in turn, agreed not to press criminal or civil charges related to the activities that are the object of the Leniency Agreement and that may represent (i) acts of administrative misconduct and related acts involving politically exposed persons or (ii) other possible proceedings that, until the date of the agreement, had not been identified by the ongoing investigation (eventual proceedings that may increase the fines related to the Leniency Agreement). In addition, the Company paid R$4.2 million in fines to Brazilian tax authorities related to the above-mentioned payments. The Company voluntarily informed the U.S. Justice Department, the SEC (Securities and Exchange Commission) and the CVM (Brazilian Securities and Exchange Commission) of the external and independent investigation and the Leniency Agreement.

 

The investigation was concluded in April 2017 and showed that additional irregular payments were made to politically exposed persons. None of the amounts paid was significant (individually or jointly) in terms of cash flow and none of the Company’s current employees, representatives or members of the Board of Directors was aware of any illegal purpose behind the transactions identified, or of any illegal benefit for the Company arising from the operations object of the investigation. The Company will report to the competent authorities the ongoing of the investigation in due time. These authorities may impose fines and possibly other sanctions on the Company.

 

In 2016, the Company took measures to strengthen and expand its internal control and compliance program. Among other measures, the Company began monitoring its transactions with politically exposed persons and improved its hiring procedures and the procedures for hiring and implementing outsourced services. The Company is committed to continue improving its internal control and compliance programs.

 

On July 1, 2017, in order to optimize and simplify GOL’s organizational structure, thus generating tax savings from the use of accumulated tax losses, the Company approved a corporate restructuring through the merger of Smiles by Smiles Fidelidade S.A. ("Merger"). As a result of the Merger, Smiles was dissolved and all its assets, rights and obligations were transferred to Smiles Fidelidade, pursuant to articles 224, 225, 227 and 264 of Brazilian Corporation Law.

 

21


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

2.  Approval and summary of significant accounting policies applied in preparing the quarterly information form (ITR)

 

This quarterly information form was approved by the Board of Directors and had its publication authorized at a meeting held on August 8, 2017.

 

2.1. Statement of compliance

 

The Company’s individual and consolidated quarterly information for the three- and six-month periods ended June 30, 2017, has been prepared in accordance with International Accounting Standards (“IAS”) No. 34, and Accounting Pronouncement No. 21 (R1) (CPC 21), which deals with interim statements, and the standards issued by the Brazilian Securities and Exchange Commission, applicable to the preparation of quarterly information.

 

When preparing the quarterly information form, the Company uses the following disclosure criteria: (i) regulatory requirements; (ii) the relevance and specificity of the information on the Company’s operations provided to users; (iii) the information needs of the users of the quarterly information form; and (iv) information from other entities in the same sector, mainly in the international market. Accordingly, Management confirms that all the material information presented in this quarterly information form is being demonstrated and corresponds to the information used by Management in the course of its duties, and is in accordance with the standards issued by the Brazilian Securities and Exchange Commission, applicable to the preparation of quarterly information.

 

2.2. Basis of preparation

 

This quarterly information was prepared based on historical cost, except for certain financial assets and liabilities that are measured at fair value and investments measured using the equity method.

 

This quarterly information does not include all the information or disclosures required in the annual financial statements, and it should therefore be read in conjunction with the financial statements for the year ended December 31, 2016, which were prepared in accordance with the accounting practices generally accepted in Brazil and the International Financial Reporting Standards (IFRS). There were no changes between December 31, 2016, and June 30, 2017, in the accounting practices adopted.

 

Except for the subsidiary Gol Dominicana, whose functional currency is the U.S. dollar, the functional currency of all the other group entities is the Brazilian real. The presentation currency of this quarterly information is the Brazilian real.

 

Consolidation criteria

 

 

22


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

The consolidated quarterly information comprises Gol Linhas Aéreas Inteligentes S.A. and its direct and indirect subsidiaries and associates, as follows:

 

Entity

Date of

constitution

Location

Operational

activity

Type of control

% equity interest

06/30/2017

12/31/2016

Extensions (*):

 

 

 

 

 

 

GAC

03/23/2006

Cayman Islands

Aircraft acquisition

Direct

100.0

100.0

Gol Finance

03/16/2006

Cayman Islands

Financial funding

Direct

100.0

100.0

Gol LuxCo

06/21/2013

Luxembourg

Financial funding

Direct

100.0

100.0

Subsidiaries:

 

 

 

 

 

 

GLA

04/09/2007

Brazil

Flight transportation

Direct

100.0

100.0

Smiles Fidelidade

08/01/2011

Brazil

Business activities

Indirect

100.0

100.0

Smiles

06/10/2012

Brazil

Frequent flyer program

Direct

52.7

53.8

Gol Dominicana

02/28/2013

Dominican Republic

Non-operational

Direct

100.0

100.0

Jointly controlled:

 

 

 

 

 

SCP Trip

04/27/2012

Brazil

Flight magazine

Indirect

60.0

60.0

Associate:

 

 

 

 

 

 

Netpoints

11/08/2013

Brazil

Frequent flyer program

Indirect

25.4

25.4

 

(*) These are entities constituted with the specific purpose of pursuing with the Company’s operations or which represent rights and/or obligations established solely to meet the Company’s needs. They have no management bodies and cannot take independent decisions. The assets and liabilities of these companies are consolidated line by line in the Parent Company’s quarterly information. 

 

23


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

2.3. New standards, amendments and interpretations of standards

 

a)       Issued by the IASB, but not yet in effect on the issue date of this quarterly information and not early adopted by the Company:

 

IFRS 9 (CPC 48) – Financial instruments:

 

In July 2014, IASB issued the final version of “IFRS 9 – Financial Instruments”, which reflects all the phases of the financial instrument project and replaces “IAS 39 – Financial Instruments: Recognition and Measurement” and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 will be effective for annual periods beginning on or after January 1, 2018, with early adoption being permitted. The Company intends to adopt the standard on the effective date. This standard must be applied retrospectively; however, it is not mandatory to present comparative data. The adoption of IFRS 9 will affect the classification and measurement of the Company’s financial assets and, based on the instruments in effect until the moment, the Company does not expect significant impacts on the classification and measurement of its financial liabilities.

 

IFRS 15 (CPC 47) – Revenue from Contracts with Customers

 

In 2014, the International Accounting Standards Board (IASB) issued standard IFRS15 - Revenue from Contracts with Customers, which will be in effect for fiscal years beginning on or after January 1, 2018. IFRS15 (CPC47 - under public hearing process) presents revenue recognition principles based on a five-step model to be applied to all contracts with customers, in accordance with the entity’s performance requirements. The Company expects to adopt the new standard on the date it becomes effective using the full retrospective method. In 2017, the Company carried out a preliminary assessment of IFRS 15, which is subject to changes due to more detailed analyses that are still in progress. Among the main challenges for the adoption of IFRS 15, the Company believes that the recognition of the following revenues may change compared with the current format:   

 

a) Passenger revenue arising from shared flight agreements: corresponds to agreements where two or more airlines unite to deliver air transportation services. In situations when the Company will work as the principal, revenue will be recognized based on the gross value of the transaction (price of the ticket to the final customer), rather than on the portion that corresponds only to the service provided by the Company.

 

b) Ancillary revenue: comprises all revenue linked to air transportation services, such as excess baggage, rebooking fees, refunds, among others. These revenues must be assessed and classified as “distinct” or “related to the main service”, and are recognized when incurred. In this regard, the Company does not expect significant changes, since these revenues are already recognized based on their nature, at the moment of recognition of passenger transportation revenue. Accordingly, the recognition of ancillary revenue is already aligned with the new standard.  

 

24


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

c) Recognition of revenue from the loyalty program: considering that the Smiles program works as a separate entity and that the allocation of the fair value corresponds to the amount for which the mile has been sold, the Company does not expect any material impact on the calculation of the transaction price for separate performance obligations.

 

d) Breakage revenue: comprises the expectation of mileage and tickets that are not likely to be used by the customer. To recognize these revenues, the Company uses analysis tools and statistical data that allow the estimate to be calculated with a reasonable level of certainty. Given the standard’s specific requirements regarding this, the Company does not believe that the implementation of IFRS 15 will cause material impacts.

 

Although the pronouncement allows for early adoption as of January 1, 2017, the Company will only adopt the new standard as of January 1, 2018. Additionally, the Company will continue assessing the impacts from the adoption of the new standard and will disclose additional impacts as the analyses are concluded. 

 

IFRS 16 – Leases

 

In January 2016, the IASB issued the final version of “IFRS 16 – Leases”, which establishes the principles for recognizing, measuring and disclosing leases. IFRS 16 will be effective for annual periods beginning on or after January 1, 2019. Internationally, initial adoption is permitted as of January 01, 2018, but in Brazil early adoption of this standard is not permitted by the CVM. IFRS 16 establishes that, for most leases, the lessor will recognize an asset related to the right of use of the identified asset, as well as the liability related to the lease. Since 89 of the Company’s 120 aircraft are leased, the adoption of this standard will have a material impact on the Company, with the potential increase in the assets corresponding to the right of use and liabilities corresponding to leases, which will be recorded in the statements of financial position as of the adoption date.    

 

IFRIC 22 – Foreign Currency Transactions and Advance Consideration

 

In December 2016, the IASB issued IFRIC 22, which deals with the exchange rate to be used in transactions that involve consideration paid or received in advance denominated in foreign currency. The interpretation clarifies that the date of transaction is the date on which the company recognizes the non-monetary asset or liability. IFRIC 22 will be effective for annual periods beginning on or after January 1, 2018. The Company does not expect this interpretation to have significant impacts, as transactions with these characteristics already comply with this standard.

 

IFRIC 23 – Uncertainty over Income Tax Treatments

 

In June 2017, the IASB issued IFRIC 23, which clarifies the application of requirements in IAS 12 “Income Taxes” when there is uncertainty over the acceptance of income tax treatments by the tax authority. The interpretation clarifies that, if it is not probable that the tax authority will accept the income tax treatments, the amounts of tax assets and liabilities shall be adjusted to reflect the best resolution of the uncertainty. IFRIC 23 will be effective for annual periods beginning on or after January 1, 2019, and the Company does not expect significant impacts from the adoption of this standard.

 

25


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

b) Annual improvements – Applicable to annual periods beginning on or after January 1, 2017:

 

IFRS 12 – Investment Entities

 

This amendment clarifies the requirements for disclosing interests in subsidiaries, associates and/or joint ventures classified as held for sale, for distribution or as part of discontinued operations.

 

IAS 12 – Income taxes

 

Clarifications on the recognition requirements of deferred tax assets for unrealized losses on debt instruments and the method to assess the existence of probable future taxable income against which the deductible temporary differences can be utilized.

 

IAS 7 – Statement of cash flows

 

Greater transparency in the disclosure of liabilities arising from financing activities, including changes in cash and non-cash items.

 

According to Management, there are no other standards and interpretations issued and not yet adopted that may have a significant impact on the result or equity disclosed by the Company.

 

 

 

26


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

3.  Seasonality

 

The Company expects revenues and operating profit or loss from its flights to be at their highest levels in the summer and winter months of January and July, respectively, and during the year-end holiday period in the last fortnight of December. Given the high proportion of fixed costs, this seasonality tends to drive variations in operating profits or losses across fiscal-year quarters.

 

4.  Cash and cash equivalents

 

 

Parent Company

Consolidated

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Cash and bank deposits

37,083

17,978

78,334

246,528

Cash equivalents

9,280

39,400

490,377

315,679

46,363

57,378

568,711

562,207

 

The breakdown of cash equivalents is as follows:

 

 

Parent Company

Consolidated

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Private bonds

7,130

31,267

384,949

45,882

Investment funds

2,150

8,133

105,428

269,797

9,280

39,400

490,377

315,679

 

As of June 30, 2017, the private securities were mainly comprised by private bonds (Bank Deposit Certificates - “CDBs”) and repos, yielding an average 73% (52% as of December 31, 2016) of the CDI rate.

 

Investment funds classified as cash equivalents have high liquidity and are readily convertible to a known amount of cash with insignificant risk of change in value. As of June 30, 2017, investment funds had an average yield of 94% (91% as of December 31, 2016) of the CDI rate.

 

5.  Short-term investments

 

 

Parent Company

Consolidated

 

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Private bonds

-

-

2

77,080

Government bonds

-

-

21,285

41,104

Investment funds

-

49

90,230

313,049

 

-

49

111,517

431,233

 

As of June 30, 2017, the private bonds were mainly represented by short-term investments with first-rate financial institutions, remunerated at a weighted average rate of 27% (38% as of December 31, 2016) of the CDI rate.

 

 

27


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

Government bonds are primarily represented by LFT and LTN, yielding a weighted average of 99% (102% as of December 31, 2016) of the CDI rate.

 

Investment funds include private funds and bonds remunerated at a weighted average rate of 113% (101% as of December 31, 2016) of the CDI rate and whose value may be subject to significant changes.

 

6.  Restricted cash

Parent Company

Consolidated

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Escrow deposits for letter of guarantee

2,179

2,114

16,250

15,721

Escrow deposits (a)

31,337

29,360

71,420

67,345

Escrow deposits - Leases (b)

-

-

104,709

78,015

Other restricted deposits (c)

3,739

1,182

37,944

7,688

37,255

32,656

230,323

168,769

 

(a)     The amount of R$31,337 (parent company and consolidated) refers to a contractual guarantee for STJs related to PIS and Cofins on interest attributable to shareholders’ equity paid to GLAI as described in Note 21. The other amounts relate to guarantees of GLA letters of credit.

(b)    Related to deposits made to obtain letters of credit for aircraft operating leases from GLA.

(c)     Refers mainly to the margin of derivative hedging instruments contracted in the six-month period ended June 30, 2017.

 

 

28


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

7.  Trade receivables

 

 

Consolidated

06/30/2017

12/31/2016

Local currency:

 

Credit card administrators

392,000

345,798

Travel agencies

315,138

228,089

Cargo agencies

39,651

41,926

Airline partner companies

3,755

4,153

Other

61,664

66,774

 

812,208

686,740

Foreign currency:

 

 

Credit card administrators

50,070

49,104

Travel agencies

2,922

16,323

Cargo agencies

600

2,215

Airline partner companies

29,767

31,200

Other

-

8,837

 

83,359

107,679

 

895,567

794,419

Allowance for doubtful accounts

(35,646)

(34,182)

 

859,921

760,237

 

The aging list of trade receivables, net of allowance for doubtful accounts, is as follows:

 

 

Consolidated

 

06/30/2017

12/31/2016

To be due

   

Up to 30 days

580,856

348,168

31 to 60 days

73,423

151,186

61 to 90 days

38,894

66,925

91 to 180 days

41,821

86,652

181 to 360 days

22,181

11,147

Above 360 days

1,690

239

 

758,865

664,317

 

 

 

Overdue

   

Up to 30 days

40,926

19,117

31 to 60 days

6,402

5,623

61 to 90 days

9,932

10,915

91 to 180 days

4,390

22,648

181 to 360 days

12,313

20,609

Above 360 days

27,093

17,008

 

101,056

95,920

 

 

 

Total

859,921

760,237

 

 

29


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

The changes in allowance for doubtful accounts are as follows:

 

 

Consolidated

 

06/30/2017

12/31/2016

Balance at the beginning of the period

(34,182)

(50,389)

Additions

(3,537)

(9,806)

Write-off of unrecoverable amounts

2,002

16,250

Recoveries

71

9,763

Balance at the end of the period

(35,646)

(34,182)

 

8.  Inventories

 

Consolidated

 

06/30/2017

12/31/2016

Consumables

29,229

27,281

Parts and maintenance materials

191,348

160,884

Other

553

6,867

Provision for obsolescence

(13,024)

(12,444)

208,106

182,588

 

The changes in provision for inventory obsolescence are as follows:

 

Consolidated

 

06/30/2017

12/31/2016

Balances at the beginning of the period

(12,444)

(12,444)

Additions

(613)

-

Write-offs

33

-

Balances at the end of the period

(13,024)

(12,444)

 

 

 

30


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

9.  Deferred and recoverable taxes

 

9.1.    Recoverable taxes

 

 

Parent Company

Consolidated

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Prepaid and recoverable income and social contribution taxes

27,382

24,377

105,468

51,215

Withholding income tax (IRRF)

1,419

2,198

2,611

9,601

PIS and COFINS

-

-

10,698

16,908

Withholding tax of public institutions

-

-

5,243

8,130

Recoverable value added tax - IVA

-

-

7,201

12,044

Other

-

-

4,154

1,449

Total

28,801

26,575

135,375

99,347

 

 

 

 

Current

7,233

9,289

57,329

27,287

Noncurrent

21,568

17,286

78,046

72,060

 

9.2.         Deferred tax assets (liabilities) – Long term

 

 

GLAI

GLA

Smiles

Consolidated

06/30/2017

12/31/2016

06/30/2017

12/31/2016

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Income tax losses

9,149

9,149

-

-

-

-

9,149

9,149

Negative basis of social contribution

3,294

3,294

-

-

-

-

3,294

3,294

Temporary differences:

 

 

 

 

 

 

 

 

Mileage program

-

-

1

9

-

-

1

9

Allowance for doubtful accounts and other credits

-

-

15,751

13,697

65

126

15,816

13,823

Provision for losses on GLA’s acquisition

-

-

143,350

143,350

-

-

143,350

143,350

Provision for legal proceedings and tax liabilities

951

966

19,754

16,352

74

169

20,779

17,487

Aircraft return

-

-

37,762

32,515

-

-

37,762

32,515

Derivative transactions

-

 

3,279

1,635

-

 

3,279

1,635

Tax benefit due to goodwill incorporation (a)

-

-

 

-

21,882

29,177

21,882

29,177

Flight rights

-

-

(353,226)

(353,226)

-

-

(353,226)

(353,226)

Depreciation of engines and parts for aircraft maintenance

-

-

(167,415)

(148,581)

-

-

(167,415)

(148,581)

Reversal of goodwill amortization on GLA’s acquisition

-

-

(127,659)

(127,659)

-

-

(127,659)

(127,659)

Aircraft leases

-

-

27,748

30,589

-

-

27,748

30,589

Other (b)

(30)

-

62,547

53,299

45,512

33,193

142,650

117,577

Total deferred income and social

contribution taxes - Noncurrent

13,364

13,409

(338,108)

(338,020)

67,533

62,665

(222,590)

(230,861)

 

(a)     Related to the tax benefit from the reverse merger of G.A. Smiles Participações S.A. by Smiles. Under the terms of the current tax legislation, goodwill arising from the transaction will be a deductible expense when calculating income and social contribution taxes.

(b)    The R$34,621 portion of taxes on unrealized profits from transactions between GLA and Smiles is recognized directly in Consolidated (R$31,085 as of December 31, 2016).

 

31


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

The Company and its directly held subsidiary GLA and indirectly held subsidiary Webjet show income tax losses and negative basis of social contribution on taxable income to be offset against 30% of annual taxable income, with no prescription period, in the following amounts:

 

 

Parent Company

(GLAI)

Directly held

subsidiary (GLA)

Indirectly held subsidiary

(Webjet)

06/30/2017

12/31/2016

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Income tax losses

168,496

190,125

4,146,260

3,971,845

878,787

867,403

Negative basis of social contribution

168,496

190,125

4,146,260

3,971,845

878,787

867,403

             

 

The Company’s Management considers that the deferred assets and liabilities recognized as of June 30, 2017 arising from temporary differences will be realized in proportion to realization of their bases and the expectation of future results.

    

The analysis of the realization of deferred tax assets was prepared on a company basis, as follows:

        

GLAI: the Company has tax credits of R$58,240, of which R$57,289 is related to tax losses and negative base for social contribution and R$951 is related to temporary differences, with realization supported by the long-term plan. The Company assessed the projections of results and did not recognize the amount of R$44,846 related to credits on tax losses and negative base for social contribution.

    

GLA: GLA has tax credits arising from tax losses and negative basis of social contribution in the amount of R$1,409,728. However, in view of recent events on the political scenario in Brazil, instability of the economic environment, constant fluctuations in the U.S. dollar exchange rate and other variables that significantly affect the projections of future results, as well as the history of losses in recent years, GLA did not recognize tax credits arising from tax losses and negative basis of social contribution in their entirety. On March 10, 2017, the Company adhered to the Tax Regularization Program (PRT), which allowed the partial settlement of taxes by means of tax loss carryforwards, as per Note 18. As a result, the Company used tax credits in the amount of R$218,739. Additionally, the Company analyzed the realization of deferred tax assets on temporary differences and limited the recognition based on the expected realization of deferred tax liabilities on temporary differences, and did not recognize the net amount of R$475,475 of deferred income and social contribution taxes on temporary difference.   

    

Smiles: Smiles does not have tax losses and negative calculation base for social contribution. Therefore, the deferred tax credit is composed only by temporary differences which, according to the history and projections of taxable results, have an expectation of realization.

    

Webjet: the forecast did not present sufficient taxable income to be realized over future periods and, as a result, tax credits of R$298,788 have not been recorded. 

 

32


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

The reconciliation of effective income tax rates and social contribution charges for the three- and six-month periods ended June 30, 2017 is as follows:

 

 

Parent Company

 

Three-month period ended

Six-month period ended

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Income (loss) before income and social contribution taxes

(474,370)

252,554

(313,983)

955,280

Combined tax rate

34%

34%

34%

34%

Income and social contribution tax credits at the combined tax rate

161,286

(85,868)

106,754

(324,795)

Adjustments to calculate the effective tax rate:

 

 

 

 

Equity results

(118,661)

(20,002)

(60,438)

90,403

Tax income (losses) from wholly-owned subsidiaries

(16,898)

31,844

(34,839)

66,600

Nontaxable revenues (nondeductible expenses), net

(51)

63

(110)

(234)

Interest on equity

(2,635)

-

(2,635)

-

Exchange variation on foreign investments

(24,935)

80,206

(8,788)

179,091

Tax benefit on tax losses not constituted

1,714

(6,243)

(132)

(11,065)

Income and social contribution tax expenses

(180)

-

(188)

-

 

 

 

 

 

Current income and social contribution taxes

(143)

-

(143)

-

Deferred income and social contribution taxes

(37)

-

(45)

-

 

(180)

-

(188)

-

 

 

 

33


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

Consolidated

 

Three-month period ended

Six-month period ended

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Income (loss) before income and social contribution taxes

(399,879)

371,676

(246,284)

1,195,066

Combined tax rate

34%

34%

34%

34%

Income and social contribution tax credits at the combined tax rate

135,959

(126,370)

83,737

(406,322)

Adjustments to calculate the effective tax rate:

 

 

 

 

Equity results

2

196

45

(1,128)

Tax income (losses) from wholly-owned subsidiaries

(17,787)

31,844

(35,728)

66,600

Nontaxable revenues (nondeductible expenses), net

6,617

(5,068)

40,332

32,745

Exchange variation on foreign investments

(21,338)

77,846

(3,106)

178,326

Interest on equity

2,362

-

2,362

-

Tax benefit on tax losses and temporary differences not constituted

(184,886)

(220,216)

(280,813)

(231,106)

Use of tax credits in non-recurring installment payments (*)

54,936

-

218,739

-

Changes in deferred taxes on temporary differences

17,687

179,598

47,074

232,464

Income and social contribution tax expenses

(6,448)

(62,170)

72,642

(128,421)

 

 

 

 

 

Current income and social contribution taxes

(69,272)

(61,282)

(154,367)

(124,238)

Deferred income and social contribution taxes

62,824

(888)

227,009

(4,183)

 

(6,448)

(62,170)

72,642

(128,421)

 

(*) This amount was used to reduce 76% of the tax debt, after GLA adhered to the PRT, as per Note 18.

 

 

34


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

10.Deposits

 

Parent Company

Consolidated

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Judicial deposits (a)

45,124

38,760

463,692

432,182

Maintenance deposits (b)

-

-

637,556

584,149

Deposits in guarantee for lease agreements (c)

13,784

-

165,539

172,661

58,908

38,760

1,266,787

1,188,992

 

(a)    Judicial deposits

 

Judicial deposits and blocked escrows represent guarantees of lawsuits related to tax, civil and labor claims deposited in escrow until the resolution of the related claims. Part of the judicial deposits is related to civil and labor claims arising from the succession orders on claims against Varig S.A. and proceedings filed by employees that are not related to the Company or any related party (third-party claims). As the Company is not correctly classified as the defendant of these lawsuits, whenever such blockages occur, the exclusion of such is requested in order to release the resources.   As of June 30, 2017, the blocked amounts regarding Varig’s succession lawsuit and third-party lawsuits were R$105,132 and R$74,251, respectively (R$101,352 and R$77,695 as of December 31, 2016, respectively).

 

(b)   Maintenance deposits

 

The Company made deposits in U.S. dollars for maintenance of aircraft and engines that will be used in future events as set forth in some lease contracts.

 

The maintenance deposits do not exempt the Company, as lessee, neither from the contractual obligations relating to maintenance nor from risk associated with maintenance activities. The Company holds the right to select any of the maintenance service providers or to perform such services internally.

 

The Company has two categories of maintenance deposits:

 

i. Maintenance guarantee: refers to individual deposits refunded at the end of the agreement, which may also be used in maintenance events, depending on negotiations with lessors. The balance as of June 30, 2017 was R$352,863 (R$336,318 as of December 31, 2016).

 

ii. Maintenance reserve: refers to amounts paid monthly based on the use of the parts, which can be used in maintenance events, pursuant to the agreement. As of June 30, 2017, the balance of these reserves was R$284,693 (R$247,831 as of December 31, 2016).

 

(c)    Deposits in guarantee for lease agreements

 

As required by its lease agreements, the Company holds guarantee deposits in U.S. dollars on

 

35


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

behalf of the leasing companies, whose full refund occurs upon the contract expiration date.

 

 

 

36


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

11. Transactions with related parties

 

11.1.            Loan agreements - noncurrent assets and liabilities

 

Parent Company

 

       The Company's asset and liability inter-company accounts with GLA have no sureties or guarantees, as shown in the table below:

 

 

Assets

Liabilities

 

06/30/2017

12/31/2016

06/30/2017

12/31/2016

GLAI - GLA

39,752

37,855

51

-

GAC - GLA

38,935

281,630

21,814

21,490

Gol LuxCo - GLA

1,575,820

1,553,865

328

328

 

1,654,507

1,873,350

22,193

21,818

 

Additionally, the Parent company has inter-company accounts involving Gol LuxCo, Finance and GAC, as shown below:

 

 

Assets

Liabilities

 

06/30/2017

12/31/2016

06/30/2017

12/31/2016

GAC - GLAI

-

-

125,156

123,298

GAC - Gol Finance

32,240

-

928,780

1,096,749

Gol LuxCo - GAC

442,288

437,559

-

-

Gol LuxCo - GLAI

-

-

23,675

23,675

Gol LuxCo - Gol Finance

853,374

863,596

745,919

734,848

 

1,327,902

1,301,155

1,823,530

1,978,570

 

These transactions are eliminated in the Parent company's accounts since they took place in offshore entities considered extensions of the Company's own operations.

 

11.2.            Transportation and consulting services

 

All agreements related to transportation and consulting services were entered into by GLA; the companies with which those agreements were entered into are listed below, together with the object of the agreements and their main contractual conditions:

 

Breda Transportes e Serviços S.A.: provides airport shuttle services for passengers, luggage and employees. Pursuant to the agreement, prices may be adjusted at 12-month intervals to hold for the same period through an amendment to be signed by the parties, monetarily restated annually based on the IGPM fluctuation (General Market Price Index from Getulio Vargas Foundation). The agreement expires on November 6, 2018.

 

37


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

Expresso União: provides transportation to employees, and the agreement expires on April 2, 2018.

 

Pax Participações S.A.: provides consulting and advisory services, and the agreement has no expiration date.

 

Aller Participações: provides consulting and advisory services, and the agreement has no expiration date.

 

Limmat Participações S.A.: provides consulting and advisory services, and the agreement has no expiration date.

 

As of June 30, 2017, the GLA subsidiary recognized a total expense related to these services in the amount of R$6,325 (R$6,869 as of June 30, 2016). On the same date, the balance payable to the 'related companies - suppliers' line item was R$864 (R$800 as of December 31, 2016), and was mainly related to services provided by Breda Transportes e Serviços S.A.

 

11.3.            Agreements to open UATP (“Universal Air Transportation Plan") account with credit limit granted

 

In September 2011, GLA entered into agreements with the related parties Pássaro Azul Taxi Aéreo Ltda., Empresa de Ônibus Pássaro Marrom S/A., Viação Piracicabana Ltda., Thurgau Participações S.A., Comporte Participações S.A., Quality Bus Comércio De Veículos Ltda., Empresa Princesa Do Norte S.A., Expresso União Ltda., Breda Transporte e Serviços S.A., Oeste Sul Empreendimentos Imobiliários S.A. Spe., Empresa Cruz De Transportes Ltda., Expresso Maringá do Vale S.A., Glarus Serviços Tecnologia e Participações S.A., Expresso Itamarati S.A., Transporte Coletivo Cidade Canção Ltda., Limmat Participações S.A., Turb Transporte Urbano S.A. and Vaud Participações, all with no expiration date, whose purpose is to issue credits to purchase airline tickets issued by the Company. The UATP account (virtual card) is accepted as a payment method on the purchase of airline tickets and related services, seeking to simplify billing and facilitate payment between participating companies.

 

11.4.            Financing contract for engine maintenance

 

In 2010, GLA entered into an engine maintenance service agreement with Delta Airlines. The maintenance agreement was renewed on December 22, 2016 and will expire on December 31, 2020. In the six-month period ended June 30, 2017, expenses incurred for engine maintenance services provided by Delta Air Lines amounted to R$145,141 (R$52,796 as of June 30, 2016). As of June 30, 2017, the outstanding balance with Delta Air Lines recorded under “Suppliers” totaled R$244,497 (R$201,170 as of December 31, 2016).

                                                                   

11.5.           Term loan guarantee

 

38


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

On August 31, 2015, through its Gol LuxCo subsidiary, the Company issued a term loan in the amount of US$300,000 through Morgan Stanley, with a term of 5 years and effective interest rate of 6.7% p.a. The Company had an additional backstop guarantee from Delta Air Lines.  For further information, see Note 17.

 

On January 31, 2017, the subsidiary GLA entered into a Loan Agreement with Delta Air Lines in the amount of US$50,000, maturing on December 31, 2020, with a refund obligation to be performed by the Company, GLA and Gol LuxCo, pursuant to the refund agreement entered into on August 19, 2015, with personal guarantee granted by the Company to the subsidiary GAC. Under the terms of this agreement, the Company holds flexible payments maturities regarding engine maintenance services, through a credit limit available. The amounts realted to these maintenance services are registered under “Suppliers” as Note nº11.4.

 

11.6.            Strategic business partnerships

 

On February 19, 2014, the Company signed a strategic partnership agreement for long-term business cooperation with Air France-KLM with the purpose of improving sales activities and expanding flight and benefits sharing through mileage programs between companies for the customers in the Brazilian and European markets. The agreement provides for the incentive investment in the Company in the amount of R$112,152, fully paid to the Company. The agreement will mature within 5 years and the installments will be amortized on a monthly basis. As of June 30, 2017, the Company has deferred revenues in the amount of R$20,768 and R$13,704 recorded under "Other liabilities" in the current and noncurrent liabilities, respectively (R$22,430 and R$26,169 as of December 31, 2016, in the current and noncurrent liabilities, respectively). 

 

On January 1, 2017, the Company entered into an agreement to expand its strategic partnership with Airfrance-KLM in order to include engine maintenance and repair services. As of June 30, 2017, the Company had an outstanding balance with AirFrance-KLM recorded under current liabilities in suppliers in the amount of R$92,766.

 

11.7.           Remuneration of key management personnel

 

 

Three-month period ended

Six-month period ended

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Salaries and benefits (*)

15,126

6,303

25,577

13,925

Related taxes and charges

1,729

1,186

2,711

2,120

Share-based payments

1,650

3,604

4,164

7,054

 

18,505

11,093

32,452

23,099

 

(*) Includes the Board of Directors’ and Audit Committee’s compensation.

 

39


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

As of June 30, 2017 and December 31, 2016, the Company had no post-employment benefit policy, and there were no severance benefits or other long-term benefits for employees. One-off benefits may be granted to key executive officers, limited to a short-term period.

 

12.Share-based payments

 

The Company has two share-based payment plans offered to its management personnel: the Stock Option Plan and the Restricted Shares Plan. Both plans stimulate and promote the alignment of the Company’s goals with management and employees, mitigate risks for the Company’s value added resulting from the loss of executives and strengthen the productivity and commitment of these executives to long-term results. 

 

GLAI

 

a)     Stock options plan

 

The beneficiaries of the Company’s stock option plan are allowed to purchase shares at the price agreed on the grant date after three years from the grant date, provided that they maintain their employment relationship up to the end of this period.

 

The stock options become vested 20% as from the first year, an additional 30% as from the second year, and the remaining 50% as from the third year. All stock options may also be exercised within 10 years after the grant date. In all option plans, the expected volatility of the options is based on the historical volatility of 252 working days of the Company’s shares traded on the B3.

 

Stock options plan

Option

year

Date of Board

Meeting

Total

options

granted

Number of

options outstanding

Average

exercise

price

(in Reais)

Average fair

value at grant

date

(in Reais)

Estimated volatility

of share

price

Expected dividend yield

Risk-free

return

rate

Average remaining maturity

(in years)

2008

12/20/2007

190,296

29,066

45.46

29.27

40.95%

0.86%

11.18%

0.3

2009 (a)

02/04/2009

1,142,473

149,000

10.52

8.53

76.91%

-

12.66%

1.5

2010 (b)

02/02/2010

2,774,640

832,836

20.65

16.81

77.95%

2.73%

8.65%

2.5

2011

12/20/2010

2,722,444

739,062

27.83

16.07 (c)

44.55%

0.47%

10.25%

3.4

2012

10/19/2012

778,912

430,272

12.81

5.32 (d)

52.25%

2.26%

9.00%

5.2

2013

05/13/2013

802,296

460,247

12.76

6.54 (e)

46.91%

2.00%

7.50%

5.8

2014

08/12/2014

653,130

432,846

11.31

7.98 (f)

52.66%

3.27%

11.00%

7.1

2015

08/11/2015

1,930,844

1,371,002

9.35

3.37 (g)

55.57%

5.06%

13.25%

8.1

2016

06/30/2016

5,742,732

4,303,539

2.62

1.24 (h)

98.20%

6.59%

14.25%

9.0

 

 

16,737,767

8,747,870

9.26

 

 

 

 

7.1

 

a)    In April 2010, an additional grant of 216,673 shares referring to the 2009 plan was approved.

b)    In April 2010, an additional grant of 101,894 shares referring to the 2010 plan was approved.

c)    The fair value is calculated by the average value from R$16.92, R$16.11 and R$15.17 for the respective periods of vesting (2011, 2012 and 2013).

d)    The fair value is calculated by the average value from R$6.04 R$5.35 and R$4.56 for the respective periods of vesting (2012, 2013 and 2014).

 

40


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

e)    The fair value is calculated by the average value from R$7.34, R$6.58 and R$5.71 for the respective periods of vesting (2013, 2014 and December 31, 2016).

f)     The fair value is calculated by the average value from R$8.20 R$7.89 and R$7.85 for the respective periods of vesting (2014, 2015 and 2016).

g)    The fair value is calculated by the average value from R$3.60, R$3.30 and R$3.19 for the respective periods of vesting (2015, 2016 and 2017).

h)    On July 27, 2016, an additional grant of 900,000 shares referring to the 2016 plan was approved. The fair value was calculated by the average value from R$1.29, R$1.21 and R$1.22 for the respective periods of vesting (2017, 2018 and 2019).

 

Changes in stock options in the six-month period ended June 30, 2017 are disclosure below:

 

 

Number of stock

options

Weighted average

exercise price

Options outstanding as of December 31, 2016

8,992,055

9.14

Options exercised

(244,185)

9.36

Options outstanding as of June 30, 2017

8,747,870

9.26

 

 

Number of options exercisable as of:

 

 

December 31, 2016

6,214,124

13.66

June 30, 2017

7,417,427

12.05

 

b)    Restricted share plan

 

The Company’s restricted share plan was approved at the Extraordinary Shareholders’ Meeting of October 19, 2012, and the first grants were approved at the Board of Directors’ Meeting of November 13, 2012.

 

Restricted share plan

Option

year

Date of Board Meeting

Total

shares

granted

 

Vested

shares

Average fair

value at grant

date

(in Reais)

2014

08/13/2014

804,073

-

11.31

2015

04/30/2015

1,207,037

819,034

9.35

2016

06/30/2016

4,007,081

3,194,307

2.62

 

 

6,018,191

4,013,341

 

 

Changes in restricted shares in the six-month period ended June 30, 2017:

 

 

Total restricted shares

Vested shares as of December 31, 2016

4,609,256

Restricted shares transferred (*)

(595,915)

Vested shares as of June 30, 2017

4,013,341

 

(*) The restricted shares transferred totaled R$6,370.

 

41


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

Smiles

 

Stock options plan

 

The beneficiaries of the Company’s stock option plan are allowed to purchase shares at the price agreed on the grant date after three years from the grant date, provided that they maintain their employment relationship up to the end of this period.

 

The stock options become vested 20% as from the first year, an additional 30% as from the second year, and the remaining 50% as from the third year. All stock options may also be exercised within 10 years after the grant date. In all option plans, the expected volatility of the options is based on the historical volatility of 252 working days of the Company’s shares traded on the B3.

 

Stock options plan

Option year

Date of Board Meeting

 

Total options granted

Number of options outstanding

Exercise price

of the option

(in Reais)

Average fair value at grant date

(in Reais)

Estimated volatility

option

price

Expected dividend yield

Risk-free return rate

Average remaining maturity (in years)

2013

08/08/2013

1,058,043

54,003

21.70

4.25 (a)

36.35%

6.96%

7.40%

6.3

2014

02/04/2014

1,150,000

199,050

31.28

4.90 (b)

33.25%

10.67%

9.90%

6.8

 

 

2,208,043

253,053

 

 

 

 

 

 

 

(a)   Average fair value in Brazilian reais calculated for the stock options was R$4.84 and R$4.20 for the vesting periods in 2013 and 2014, and R$3.73 for the vesting periods in 2015 and 2016.

(b)   Average fair value in Brazilian reais calculated for the stock options was R$4.35, R$4.63, R$4.90, R$5.15 and R$5.37 for the respective vesting periods from 2014 to 2018.

 

 

42


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

Changes in stock options in the six-month period ended June 30, 2017 are shown below:

 

 

Number of stock

options

Weighted average exercise price

Options outstanding as of December 31, 2016

483,053

30.21

Options exercised

(230,000)

16.45

Options outstanding as of June 30, 2017

253,053

29.24

 

In the six-month period ended June 30, 2017, the Company recorded in equity share-based payments in the amount of R$3,762 (R$12,674 as of June 30, 2016) for the above-mentioned plans, with a counter entry in profit or loss under personnel costs.

 

13.Investments

 

Investments in the GAC, Gol Finance and Gol LuxCo offshore subsidiaries were essentially seen as an extension of the Company and summed line by line with the GLAI parent company. Therefore, only Smiles and GLA are treated as investments in the GLAI parent company.

 

The balance of investments in the consolidated figures reflects the 25.4% share of the capital of Netpoints Fidelidade S.A. held by the Smiles subsidiary, together with the investment in SCP Trip held by the GLA subsidiary, both recognized under the equity method.

 

Investments for the six-month period ended June 30, 2017:

 

 

Parent Company

 

Consolidated

 

GLA

Smiles

 

Trip

Netpoints

Relevant information of the subsidiaries as of June 30, 2017

 

 

 

 

 

Total number of shares

5,085,725,049

123,856,840

 

-

130,492,408

Capital stock

4,377,670

185,606

 

1,318

75,351

Interest

100.0%

52.7%

 

60.0%

25.4%

Total equity

(2,970,818)

524,731

 

3,619

(16,387)

Unrealized accumulated profits (a)

-

(67,204)

 

-

-

Goodwill on investments

-

-

 

-

15,184

Adjusted equity (b)

(2,970,818)

209,515

 

2,169

15,184

Net income (loss) for the period

(332,940)

302,570

 

219

(1,577)

Unrealized profits in the period (a)

-

(6,861)

 

-

-

Adjusted net income for the period

(332,940)

155,180

 

131

-

 

43


 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

Parent Company

 

Consolidated

 

GLA

Smiles

Total

 

Trip

Netpoints

Total

Balances as of December 31, 2016

(3,074,190)

281,758

(2,792,432)

 

2,038

15,184

17,222

Equity results

(332,940)

155,180

(177,760)

 

131

-

131

Unrealized gains (losses) on hedges

24,289

-

24,289

 

-

-

-

Equity interest dilution effects

-

1,402

1,402

 

-

-

-

Costs on sale in subsidiary’s interest

-

(4,863)

(4,863)

 

-

-

-

Capital increase

275,000

-

275,000

 

-

-

-

Advances for future capital increase

141,000

-

141,000

 

-

-

-

Dividends and interest on equity

-

(223,962)

(223,962)

 

-

-

-

Amortization of losses on sale-leaseback transactions (c)

(3,977)

-

(3,977)

 

-

-

-

Balances as of June 30, 2017

(2,970,818)

209,515

(2,761,303)

 

2,169

15,184

17,353

 

 

(a)   Corresponds to transactions involving revenue from mileage redemption for airline tickets by members in the Smiles Program which, for the purposes of consolidated statements are only accrued when program members are actually transported by GLA.

(b)   Adjusted shareholders' equity corresponds to the percentage of total shareholders' equity net of unrealized profits.

(c)   The subsidiary GAC has a net balance of deferred losses and gains on sale-leaseback, whose deferral is subject to the payment of contractual installments made by its subsidiary GLA. Accordingly, the net balance to be deferred is essentially part of the net investment of the Parent Company in GLA.  The net balance to be deferred in the six-month period ended June 30, 2017 was R$5,982 (R$9,959 in the year ended December 31, 2016). For further information, see Note 27.2.

 

 

Partial sale of equity interest - Smiles S.A.

 

On June 26, 2017, the Company sold 1,250,000 shares of Smiles S.A. through a stock auction totaling R$76,313. With this sale, the Company reduced its interest in Smiles from 53.8% to 52.7%, while maintaining its position as controlling shareholder. The gain from this partial sale of investment was recorded under equity as “Gains from the sale of equity interest, net”, net of tax effects. The amounts related to this transaction are as follows:

 

 

06/30/2017

Shares sold

1,250,000

Investment per share

61.05

 

Sale price

76,313

Write-off of investment cost

(4,863)

Income tax on capital gain (*)

(17,004)

Gain from the sale of investment

54,446

 

(*) Refers to income tax (25%) and social contribution (9%).

 

 

44


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

14.Earnings per share

 

Although there are differences between common and preferred shares in terms of voting rights and priority in case of liquidation, the Company’s preferred shares are not entitled to receive any fixed dividends. Preferred shares hold economic power and the right to 35 times more dividends than common shares. The Company believes that the economic power of preferred shares is more than that of common shares. As a result, income for the year attributable to controlling shareholders is allocated in proportion to their interest in the total common and preferred shares.

 

Basic earnings per share are calculated by dividing the period's net income attributable to controlling shareholders by the weighted average number of all classes of shares outstanding during the year.

 

Diluted earnings per share are calculated by adjusting the weighted average number of shares outstanding by instruments potentially convertible into shares. The Company has only one category of potentially dilutive shares, namely stock options, as described in Note 12. In the six-month period ended June 30, 2017, only the exercise prices of the stock options plan granted in 2016 were lower than the accumulated market average (in the money); therefore, the plan has a dilutive effect. The other plans have no dilutive effect and were not included in the total number of outstanding shares, as their exercise prices were higher than the accumulated market average (out of money).  However, in the three and six-month periods ended June 30, 2016, there is no dilutive effect due to the loss in the period.

 

 

45


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

Parent Company and Consolidated

 

Three-month period ended

06/30/2017

06/30/2016

 

Common

Preferred

Common

Preferred

Numerator

   

 

 

Net income (loss) for the period attributable to controlling shareholders

(196,812)

(277,738)

104,981

147,573

 

 

 

 

 

Denominator

 

 

 

 

Weighted average number of outstanding shares (*)

5,035,037

203,010

5,035,037

202,219

Adjusted weighted average number of outstanding shares and diluted conversions summarized (*)

5,035,037

203,010

5,035,037

202,219

 

 

 

 

Basic earnings (losses) per share

(0.039)

(1.368)

0.021

0.733

Diluted earnings (losses) per share

(0.039)

(1.368)

0.021

0.733

 

 

 

Parent Company and Consolidated

 

Six-month period ended

06/30/2017

06/30/2016

 

Common

Preferred

Common

Preferred

Numerator

   

 

 

Net income (loss) for the period attributable to controlling shareholders

(130,395)

(183,776)

397,285

557,995

 

 

 

 

 

Denominator

 

 

 

 

Weighted average number of outstanding shares (*)

5,035,037

202,750

5,035,037

202,052

Adjusted weighted average number of outstanding shares and diluted conversions summarized (*)

5,035,037

202,750

5,035,037

202,052

 

 

 

 

Basic earnings (losses) per share

(0.026)

(0.906)

0.079

2.761

Diluted earnings (losses) per share

(0.026)

(0.906)

0.079

2.761

 

(*) The weighted average considers the split of one common share for 35 common shares approved at the Extraordinary Shareholders’ Meeting held on March 23, 2015. The earnings per share presented herein reflects the economic rights of each class of shares.

 

 

46


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

15.Property, plant and equipment

 

Parent Company

 

As of June 30, 2017 and December 31, 2016, the Company did not have balances of advances for the acquisition of aircraft related to contract renegotiations carried out throughout 2016, due to the change in the aircraft delivery schedule. In addition, the residual value of the ownership rights on the aircraft totaled R$323,013 as of June 30, 2017 and December 31, 2016, both realized by the GAC subsidiary.

 

Consolidated

 

06/30/2017

 

12/31/2016

 

Weighted annual

Cost

Accumulated

depreciation

Net

amount

 

Net

amount

 

depreciation rate

 

Flight equipment:

 

 

 

 

 

 

Property, plant and equipment under finance lease

5.9%

2,033,800

(654,935)

1,378,865

 

1,411,932

Sets of replacement parts and spare engines

5.6%

1,247,881

(453,816)

794,065

 

804,974

Aircraft reconfigurations/overhauling

27.8%

1,524,235

(810,958)

713,277

 

615,812

Aircraft and safety equipment

20.0%

842

(411)

431

 

467

Tools

10.0%

31,993

(16,695)

15,298

 

14,617

 

 

4,838,751

(1,936,815)

2,901,936

 

2,847,802

 

 

 

 

 

 

 

Impairment losses (*)

-

(26,076)

-

(26,076)

 

(30,726)

 

 

4,812,675

(1,936,815)

2,875,860

 

2,817,076

 

 

 

 

 

 

 

Property, plant and equipment in use:

 

 

 

 

 

 

Vehicles

20.0%

10,630

(8,861)

1,769

 

1,660

Machinery and equipment

10.0%

55,866

(35,640)

20,226

 

22,343

Furniture and fixtures

10.0%

25,560

(15,699)

9,861

 

10,061

Computers and peripherals

20.0%

36,776

(29,595)

7,181

 

7,401

Communication equipment

10.0%

2,618

(1,823)

795

 

823

Facilities

10.0%

1,523

(1,207)

316

 

332

Maintenance center - Confins

10.0%

107,127

(74,620)

32,507

 

38,096

Leasehold improvements

18.1%

24,424

(18,040)

6,384

 

8,248

Construction in progress

-

37,015

-

37,015

 

31,571

 

 

301,539

(185,485)

116,054

 

120,535

 

 

5,114,214

(2,122,300)

2,991,914

 

2,937,611

 

 

 

 

 

 

 

Advances for property, plant and equipment acquisition

-

89,723

-

89,723

 

87,399

 

 

 

 

 

 

 

 

 

5,203,937

(2,122,300)

3,081,637

 

3,025,010

 

(*) Refers to provisions for impairment losses for rotables, classified under “Sets of replacement parts and spare engines”, made by the Company in order to present its assets according to their actual capacity for generating economic benefits.

 

Changes in property, plant and equipment balances are as follows:

 

47


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

Property, plant and equipment under finance lease

Other

flight equipment

Advances for property, plant and equipment acquisition

Other

Total

As of December 31, 2015

2,081,973

1,419,596

623,843

131,202

4,256,614

Additions

-

425,218

71,503

27,400

524,121

Write-offs

(597,136)

(122,487)

(607,947)

(9,911)

(1,337,481)

Depreciation

(72,905)

(317,183)

-

(28,156)

(418,244)

As of December 31, 2016

1,411,932

1,405,144

87,399

120,535

3,025,010

Additions

-

280,082

117,672

9,324

407,078

Write-offs

(5,638)

(21,468)

(115,348)

(1,662)

(144,116)

Depreciation

(27,429)

(166,763)

-

(12,143)

(206,335)

As of June 30, 2017

1,378,865

1,496,995

89,723

116,054

3,081,637

 

16.Intangible assets

 

 

 

Goodwill

Airport operating rights

Software

Total

Balances as of December 31, 2015

542,302

1,038,900

133,403

1,714,605

Additions

-

-

55,316

55,316

Transfers

-

-

(781)

(781)

Amortization

-

-

(29,424)

(29,424)

Balances as of December 31, 2016

542,302

1,038,900

158,514

1,739,716

Additions

-

-

21,338

21,338

Write-offs

-

-

(9,647)

(9,647)

Amortization

-

-

(18,179)

(18,179)

Balances as of June 30, 2017

542,302

1,038,900

152,026

1,733,228

 

 

48


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

17.Loans and financing

 

 

Maturity of

the contract

Interest rate

Parent Company

Consolidated

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Current

   

 

 

 

 

In local currency:

   

 

 

 

 

Safra - Forfaiting

Aug 2017

1.58% p.m.

-

-

65,497

-

Safra (a)

May 2018

128% of DI

-

-

-

9,690

Interest

-

-

-

-

40,279

45,026

In foreign currency (US$):

   

 

 

 

 

J.P. Morgan (b)

Oct 2018

1.23% p.a.

-

-

48,989

42,275

Finimp (c)

Jun 2018

5.81% p.a.

-

-

210,066

174,428

Engine Facility (Cacib) (d)

Jun 2021

Libor 3m+2.25% p.a.

-

-

17,146

16,889

Senior Bonds I (e)

Apr 2017

7.60% p.a.

-

182,418

-

182,418

Interest

-

-

81,388

94,801

84,807

97,670

 

   

81,388

277,219

466,784

568,396

Finance leases

Jun 2025

4.07% p.a.

-

-

261,267

266,894

Total current

   

81,388

277,219

728,051

835,290

 

 

 

 

 

 

 

Noncurrent

   

 

 

 

 

In local currency:

   

 

 

 

 

Safra (a)

May 2018

128% of DI

-

-

-

4,871

Debentures VI (f)

Sep 2019

132% of DI

-

-

1,008,834

1,005,242

In foreign currency (US$):

   

 

 

 

 

J.P. Morgan (b)

Oct 2018

1.23% p.a.

-

-

8,347

11,142

Engine Facility (Cacib) (d)

Jun 2021

Libor 3m+2.25% p.a.

-

-

150,718

156,917

Senior Bonds II (g)

Jul 2020

9.64% p.a.

383,860

368,000

383,860

368,000

Senior Bonds III (h)

Feb 2023

9.24% p.a.

69,079

68,053

69,079

68,053

Senior Bonds IV (i)

Jan 2022

11.30% p.a.

904,392

889,595

904,392

889,595

Senior Bonds V (j)

Dec 2018

9.71% p.a.

45,122

43,010

45,122

43,010

Senior Bonds VI (k)

Jul 2021

9.87% p.a.

124,949

120,631

124,949

120,631

Senior Bonds VII (l)

Dec 2028

9.84% p.a.

54,184

52,721

54,184

52,721

Perpetual Bonds (m)

-

8.75% p.a.

509,133

498,291

438,227

428,436

Term Loan (n)

Aug 2020

6.70% p.a.

963,497

944,194

963,497

944,194

     

3,054,216

2,984,495

4,151,209

4,092,812

Finance leases

Jun 2025

4.07% p.a.

-

-

1,337,726

1,451,118

Total noncurrent

   

3,054,216

2,984,495

5,488,935

5,543,930

Total

   

3,135,604

3,261,714

6,216,986

6,379,220

 

(a)   Credit line obtained by the Webjet subsidiary fully paid as Note 17.3.

(b)   Issuance of 2 series of Guaranteed Notes to finance engine maintenance, as per Note 11.4.

(c)   Credit line with Banco do Brasil and Safra used to finance imports of spare parts and aircraft equipment.

(d)   Credit line raised on September 30, 2014 with Credit Agricole.

(e)   Issuance of Senior Bonds series I by Gol Finance on March 22, 2007, which was used to prepay aircraft purchases. The total amount was paid on its maturity in April, 2017.

(f)    105,000 debentures issued by the GLA subsidiary on September 30, 2015 for early lump-sum repayment of Debentures IV and V.

(g)   Issuance of Senior Bonds series II by Gol Finance on July 13, 2010 in order to repay debts held by the Company.

(h)   Issuance of Senior Bonds series III by GLA on February 7, 2013 in order to finance the prepayment of debts due within the next 3 years. The total amount of bonds was transferred to Gol LuxCo along with the financial investments acquired on the date of issuance, and a portion of the loan was prepaid.

(i)    Issuance of Senior Bonds series IV by Gol LuxCo on September 24, 2014 in order to finance partial buyback of Senior Bonds I, II and III.

(j)    Issuance of Senior Bonds series V by Gol LuxCo on July 7, 2016, as a result of the private swap offering of Senior Bonds I, II, III, IV and Perpetual Bonds.

(k)   Issuance of Senior Bonds series VI by Gol LuxCo on July 7, 2016, as a result of the private swap offering of Senior Bonds I, II, III, IV and Perpetual Bonds.

(l)    Issuance of Senior Bonds series VII by Gol LuxCo on July 7, 2016, as a result of the private swap offering of Senior Bonds I, II, III, IV and Perpetual Bonds.

 

49


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

(m)  Issuance of Perpetual Bonds by Gol Finance on April 5, 2006 to repay bank loans and purchase aircraft.

(n)   Term Loan issued by Gol LuxCo on August 31, 2016 for aircraft purchases and bank loan repayment, with backstop guarantee from Delta Airlines. For further information, see Note 11.5.

 

Total loans and financing includes funding costs of R$84,550 (R$97,433 as of December 31, 2016) which will be repaid over the term of the related loans and financing.

 

As of June 30, 2017, the maturities of loans and financing, except long-term financial lease agreements, were as follows:

 

 

Parent Company

 

2018

2019

2020

2021

2021 onwards

Without

maturity

 date

Total

In foreign currency (US$):

 

 

 

 

 

 

 

Senior Bonds II

-

-

383,860

-

-

-

383,860

Senior Bonds III

-

-

-

-

69,079

-

69,079

Senior Bonds IV

-

-

-

-

904,392

-

904,392

Senior Bonds V

45,122

-

-

-

-

-

45,122

Senior Bonds VI

-

-

-

124,949

-

-

124,949

Senior Bonds VII

-

-

-

-

54,184

-

54,184

Perpetual Bonds

-

-

-

-

-

509,133

509,133

Term Loan

-

-

963,497

-

-

-

963,497

Total

45,122

-

1,347,357

124,949

1,027,655

509,133

3,054,216

 

 

 

 

 

 

 

 

 

 

Consolidated

 

2018

2019

2020

2021

2021 onwards

Without

 maturity

date

Total

In local currency:

 

 

 

 

 

 

 

Debentures VI

400,000

608,834

-

-

-

-

1,008,834

In foreign currency (US$):

 

 

 

 

 

 

 

J.P. Morgan

8,347

-

-

-

-

-

8,347

Engine Facility (Cacib)

8,667

17,335

17,335

107,381

-

-

150,718

Senior Bonds II

-

-

383,860

-

-

-

383,860

Senior Bonds III

-

-

-

-

69,079

-

69,079

Senior Bonds IV

-

-

-

-

904,392

-

904,392

Senior Bonds V

45,122

-

-

-

-

-

45,122

Senior Bonds VI

-

-

-

124,949

-

-

124,949

Senior Bonds VII

-

-

-

-

54,184

-

54,184

Perpetual Bonds

-

-

-

-

-

438,227

438,227

Term Loan

-

-

963,497

-

-

-

963,497

Total

462,136

626,169

1,364,692

232,330

1,027,655

438,227

4,151,209

 

The fair value of loans as of June 30, 2017 is as follows:

 

50


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

Parent Company

Consolidated

 

Book value

Market value

Book value

Market value

Senior and Perpetual Bonds (*)

2,077,990

1,863,159

2,007,084

1,863,159

Debentures (**)

-

-

999,879

1,142,258

Term Loan (**)

963,889

986,701

963,889

986,701

Other loans

93,725

81,388

647,141

625,849

Total

3,135,604

2,931,248

4,617,993

4,617,967

 

(*) Fair value obtained through current market quotations.

(**)Fair value obtained through internal method valuation.

 

51


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

17.1.            Covenants

 

As of June 30, 2017, long-term financing (excluding perpetual bonds and finance leases) in the total amount of R$3,712,982 (R$3,664,376 as of December 31, 2016) involved restrictive covenants, including but not limited to those that require the Company to maintain the liquidity requirements and the coverage of expenses with interest.

 

The Company has restrictive covenants on the Term Loan with Morgan Stanley and Debentures VI with the following financial institutions: Bradesco and Banco do Brasil. In the Term Loan, the Company must make deposits for reaching contractual limits of the debt pegged to the U.S. dollar. On June 30, 2017, the Company did not have collateralized deposits pegged to the contractual limits of the Term Loan. The Debentures’ indicators are measured every six months. On June 30, 2017, Debentures VI were subject to the following covenants: (i) net debt/EBITDAR below 6.49 and (ii) debt coverage ratio (ICSD) of at least 1.17. According to the most recent measurements on June 30, 2017, the ratios obtained were: (i) net debt/EBITDA of 5.62; and (ii) debt coverage ratio (ICSD) of 1.28. Accordingly, as of June 30, 2017, the Company was in compliance with the Debenture covenants.

 

17.2.            New loans and financing during the six-month period ended June 30, 2017

 

Import financing (Finimp): through its GLA subsidiary, the Company obtained new funding in the period and renegotiated contracts of this type. Promissory notes were issued as collateral for these transactions, which are part of a credit line maintained by the Company for import financing in order to purchase spare parts and aircraft equipment. Please see the table below for more information:

 

Date of

Financial institution

Amount funded

Interest

Date of

funding

(US$)

(R$)

rate (p.a.)

maturity

01/13/2017

Banco do Brasil

5,245

16,619

6.13%

01/05/2018

02/01/2017

Banco do Brasil

8,595

27,233

6.15%

01/28/2018

02/10/2017

Banco do Brasil

4,815

15,256

6.14%

02/05/2018

04/20/2017

Banco do Brasil

4,274

14,139

6.20%

04/16/2018

05/31/2017

Banco Safra

5,407

17,889

4.85%

05/29/2018

06/26/2017

Banco do Brasil

9,638

31,885

5.95%

06/21/2018

06/26/2017

Banco Safra

4,571

15,121

5.17%

06/21/2018

06/30/2017

Banco do Brasil

10,436

34,526

5.85%

06/28/2018

06/30/2017

Banco do Brasil

7,823

25,879

5.85%

06/28/2018

 

 

Engine maintenance financing (J.P. Morgan): On January 11, 2017, the GLA subsidiary contracted a credit line for engine maintenance services with Delta Airlines, which is drawn on by issuing Guaranteed Notes, in the amount of R$33,129 (US$10,456 on the borrowing date) with quarterly amortization and interest payments, and issue cost of R$1,802 (US$560 on the borrowing date) and a financial guarantee from Ex-Im Bank.

 

52


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

On April 13, 2017, the Company entered into an agreement to carry out a specific type of forfaiting operation with Banco Safra, under which obligations to suppliers are settled on the original payment date by the financial institution, which, in turn, becomes a creditor of the Company, with a new payment term and contractual interest rates. As the financial institutions extend the payment term, the operation is characterized as a loan. As of June 30, 2017, the amount payable to Banco Safra came to R$69,901.

 

Other loans and financing have not been affected by contractual alterations during the six-month period ended June 30, 2017.

 

17.3.           Early settlement of loans and financing during the six-month period ended June 30, 2017

 

In the period ended June 30, 2017, the subsidiary Webjet fully settled its debt with Banco Safra, and the portion of the debt recorded as noncurrent was settled in advance. As a result, the remaining funding costs of R$438 and the fine for the early settlement of the loan in the amount of R$137 were fully recorded in the financial result.

 

17.4.            Finance leases

 

The future payments of finance agreements indexed to U.S. dollar are detailed as follows:

 

 

Consolidated

 

06/30/2017

12/31/2016

2017

166,836

350,883

2018

333,599

328,931

2019

319,513

307,027

2020

267,343

267,885

2021

224,604

227,204

2022 onwards

428,184

407,729

Total minimum lease repayments

1,740,079

1,889,659

Less total interest

(141,086)

(171,647)

Present value of minimum lease payments

1,598,993

1,718,012

Less current portion

(261,267)

(266,894)

Noncurrent portion

1,337,726

1,451,118

 

 

The discount rate used to calculate present value of the minimum lease payments was 4.07% as of June 30, 2017 (4.52% as of December 31, 2016). There are no significant differences between the present value of minimum lease payments and the fair value of these financial liabilities.

 

The Company extended the maturity date of the financing for some of its aircraft leased for 15 years using the SOAR framework (mechanism for extending financing amortization and

 

53


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

repayment), which enables the performance of calculated withdrawals to be settled by payment in full at the end of the lease agreement. As of June 30, 2017, amounts of withdrawals for the repayment at maturity date of the lease agreements totaled R$237,180 (R$217,065 as of December 31, 2016) and they have been added to the 'loans and financing’ line item in Noncurrent liabilities.

 

 

54


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

18. Taxes payable

 

 

Parent Company

Consolidated

06/30/2017

12/31/2016

06/30/2017

12/31/2016

PIS and COFINS

135

33

39,057

89,332

ICMS installments

-

-

3,931

4,852

Installment payments - PRT

-

-

58,695

-

Withholding income tax on salaries

-

-

9,894

29,519

ICMS

-

-

43,912

43,226

Tax on import

-

-

3,454

3,454

IRPJ and CSLL payable

17,147

-

39,984

12,489

Other

237

86

5,647

6,105

17,519

119

204,574

188,977

 

 

 

 

Current

17,519

119

134,514

146,174

Noncurrent

-

-

70,060

42,803

 

 

Adherence to the Tax Regularization Program (PRT)

 

On March 10, 2017, the subsidiary GLA adhered to the Tax Regularization Program (PRT), pursuant to MP 766 of January 4, 2017, including tax debts owed to the Brazilian Federal Internal Revenue Service, which matured on November 30, 2016.

 

GLA chose to pay 76% of its debt by means of tax loss carryforwards and the remaining 24% in 24 monthly installments adjusted based on the SELIC rate as of the month it adhered to the program.

 

The breakdown of the updated debt is as follows:

 

 

06/30/2017

IPI on customs import (a)

          92,153

PIS and COFINS (a)

          98,491

PIS and COFINS on financial income (c)

69,262

Income and social contribution taxes (a)

          23,372

Other (a)

          4,536

Total debt

 287,814

Use of tax loss carryforwards (b)

  218,739

Amount paid in installments

69,075

 

(a) Recorded under “Administrative expenses” in “Others, net”, as per Note 24.2.

(b) See Note 9.2.

(c) Debt included in May, 2017, after the PRT adoption.

 

 

55


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

19.Advance ticket sales

 

As of June 30, 2017, the balance of Advance ticket sales classified in current liabilities was R$1,274,236 (R$1,185,945 as of December 31, 2016) and is represented by 5,164,541 tickets sold and not yet used (4,447,824 as of December 31, 2016) with an average use of 63 days (46 days as of December 31, 2016).

 

20.Mileage program

 

As of June 30, 2017, the balance of Smiles loyalty program deferred revenue was R$764,882 (R$781,707 as of December 31, 2016) and R$175,776 (R$219,325 as of December 31, 2016) classified in current and noncurrent liabilities, respectively.

 

 

56


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

21.Provisions

 

 

Consolidated

 

Insurance provision

Provision for aircraft and engines return (a)

Provision for legal proceedings (b)

Total

Balances as of December 31, 2016

742

583,941

205,532

790,215

Additional provisions recognized (*)

-

24,422

73,178

97,600

Utilized provisions

-

(63,413)

(80,874)

(144,287)

Exchange variation

-

2,995

-

2,995

Balances as of June 30, 2017

742

547,945

197,836

746,523

 

 

 

 

 

As of December 31, 2016

 

 

 

 

Current

742

65,760

-

66,502

Noncurrent

-

518,181

205,532

723,713

 

742

583,941

205,532

790,215

 

 

 

 

 

As of June 30, 2017

 

 

 

 

Current

742

5,911

-

6,653

Noncurrent

-

542,034

197,836

739,870

 

742

547,945

197,836

746,523

 

(*) The additions of provisions for aircraft and engine return also include present value adjustment effects.

 

(a)     Provision for aircraft and engines return

 

Provision for returns considers the costs that meet the contractual conditions for the return of engines maintained under operating leases, as well as the costs to reconfigure aircraft when returned as described in the return conditions of the lease contracts. The corresponding debit entry is capitalized in property, plant and equipment (aircraft reconfigurations/overhauling).

 

(b)   Provision for legal proceedings

 

As of June 30, 2017, the Company and its subsidiaries are parties to lawsuits and administrative proceedings. The lawsuits and administrative proceedings are classified into Operational (those arising from the Company’s normal course of operations), and Succession (those arising from claims for recognition of the succession of former Varig S.A. obligations). 

 

The civil lawsuits are primarily related to compensation claims generally related to flight delays and cancellations, baggage loss and damage. The labor claims primarily consist of discussions related to overtime, hazard pay, risk premium and wage differences.

 

The provisions related to civil and labor suits, whose likelihood of loss is assessed as probable are as follows:

 

57


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

06/30/2017

12/31/2016

Civil

66,977

73,356

Labor

130,279

132,163

Tax

580

13

 

197,836

205,532

 

Provisions are reviewed based on the progress of the proceedings and history of losses based on the best current estimate for labor and civil lawsuits.

 

There are other civil and labor lawsuits assessed by Management and its legal counsel as possible risk of loss, in the estimated amount of R$41,837 for civil claims and R$96,791 for labor claims as of June 30, 2017 (R$31,598 and R$79,532 as of December 31, 2016, respectively), for which no provisions are recognized.

 

The tax lawsuits below were evaluated by the Company’s Management and its legal counsels as being relevant and with possible risk of loss as of June 30, 2017:

 

·  GLA is discussing the non-incidence of the 1% additional COFINS rate on the imports of aircraft and parts, in the amount of R$43,423 (R$39,428 as of December 31, 2016). Our legal counsel believes that the classification of possible risk was due to the fact that there was no express revocation of the tax relief (zero rate) granted to regular air transportation companies.

·   Tax on Services (ISS), the amount of R$20,374 (R$19,443 as of December 31, 2016) arising from assessment notices issued by the Municipality of São Paulo against the Company, in the period from January 2007 to December 2010 regarding a possible ISS taxation on partnerships. The classification of possible risk of loss is a result from the matters under discussion being interpretative and involving discussions of factual and evidential materials on which there is no final positioning of the Superior Courts.

·   Customs Penalty in the amount of R$56,312 (R$45,689 as of December 31, 2016) relating to assessment notices issued against the Company for alleged breach of customs rules regarding procedures for temporary import of aircraft. The classification of possible risk is a result of the absence of a final positioning of the Superior Courts.

·   BSSF goodwill (BSSF Air Holdings), in the amount of R$101,469 (R$47,572 as of December 31, 2016) related to an infraction notice due to the deductibility of the goodwill allocated to future profitability. The classification of possible risk is a result of the absence of a final positioning of the Superior Courts.

·   GLA’s goodwill in the amount of R$77,099 (R$72,687 as of December 31, 2016) resulted from an assessment notice related to the deductibility of the goodwill classified as future profitability. The classification of possible risk is a result of the absence of a final positioning of the Superior Courts.

 

·   GLAI is discussing the non-incidence of taxation of PIS and COFINS on revenues generated    by interest attributable to shareholders’ equity in the amount of R$61,081 related to the years from 2006 to 2008, paid by its subsidiary GTA Transportes Aéreos S.A., succeeded by GLA on September 25, 2008. According to the opinion of the Company’s legal counsel and based on the jurisprudence occurred in recent events, the Company classified this case as possible loss, without a provision registered for the related amount. Additionally, the Company maintains escrow deposits with Bic Banco with a partial guarantee on the lawsuit of R$31,337 as disclosed in Note 6. 

 

58


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

·  Tax on Industrialized Products (“IPI”): from tax-deficiency notices supposedly levied on the importation of aircraft in the amount of R$115,136 as of December 31, 2016. On March 10, 2017, even though the lawsuit was not yet resolved in the administrative level, the Company included said debt in the Tax Regularization Program (PRT), as per Note 18, given that decisions in similar proceedings have not been favorable.

 

There are other lawsuits considered by the Company’s Management and its legal counsels as possible risk, in the estimated amount of R$57,746 (R$39,113 as of December 31, 2016) which added to the lawsuits mentioned above, totaled R$417,504 as of June 30, 2017 (R$436,861 as of December 31, 2016).

 

22.Equity

 

22.1.            Capital stock

 

As of June 30, 2017, the Company’s capital stock was R$3,080,110, represented by 5,238,421,108 shares, comprised by 5,035,037,140 common shares and 203,383,968 preferred shares. The Fundo de Investimento em Participações Volluto is the Company’s controlling shareholder, which is equally controlled by Constantino de Oliveira Junior, Henrique Constantino, Joaquim Constantino Neto and Ricardo Constantino.

 

The Company’s shares are held as follows:

 

 

06/30/2017

12/31/2016

 

Common

Preferred

Total

Common

Preferred

Total

Fundo Volluto

100.00%

33.84%

61.23%

100.00%

33.88%

61.28%

Delta Airlines, Inc.

-

16.17%

9.48%

-

16.19%

9.48%

Treasury shares

-

0.15%

0.09%

-

0.44%

0.26%

Other

-

1.20%

0.70%

-

1.11%

0.65%

Free float

-

48.64%

28.50%

-

48.38%

28.34%

 

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

 

The authorized capital stock as of June 30, 2017 was R$4.0 billion. Within the authorized limit, the Company can, once approved by the Board of Directors, increase its capital regardless of any amendment to its by-laws, by issuing shares, without necessarily maintaining the proportion between the different types of shares. Under the law terms, in case of capital increase within the authorized limit, the Board of Directors will define the issuance conditions, including pricing and payment terms.

 

59


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

On May 29, 2017, the Company increased its capital stock by R$1,137 due to the subscription of 244,185 preferred shares as a result of the exercise of stock options, recorded under “Shares to be issued”. This increase was approved by the meeting of the Company’s Board of Directors held on August 8, 2017, totaling 203,628,153 preferred shares.

 

22.2.           Dividends

 

The Company’s By-laws provide for a mandatory minimum dividend to be paid to common and preferred shareholders, at least 25% of period adjusted net income after allocation to reserves in accordance with Brazilian Corporation Law (6404/76).

 

22.3.            Treasury shares

                                                                                                        

During the six-month period ended June 30, 2017, the Company transferred 595,915 restricted shares to its beneficiaries (535,398 restricted shares in the six-month period ended June 30, 2016).

 

As of June 30, 2017, the Company had 297,878 treasury shares, totaling R$4,456, with a market value of R$2,249 (893,793 treasury shares, totaling R$13,371 in treasury shares, with a market value of R$4,129 as of December 31, 2016).

 

23.     Revenue

 

 

Consolidated

 

Three-month period ended

Six-month period ended

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Passenger transportation

1,946,325

1,934,316

4,313,996

4,362,484

Cargo

85,345

78,840

164,312

153,430

Mileage revenue

202,772

139,486

405,225

283,280

Other revenue (*)

157,061

85,786

328,898

323,538

Gross revenue

2,391,503

2,238,428

5,212,431

5,122,732

 

 

 

 

 

Related tax

(157,505)

(149,615)

(332,594)

(320,850)

Net revenue

2,233,998

2,088,813

4,879,837

4,801,882

 

(*) Of the total amount, R$106,779 and R$216,883 in the three- and six-month periods ended June 30, 2017, respectively (R$114,385 and R$179,185 in the three- and six-month periods ended June 30, 2016, respectively), consist of revenues from unused passenger tickets, reissued tickets and cancellation of flight tickets.

 

Revenues are net of federal, state and municipal taxes, which are paid and transferred to the appropriate government entities.

 

60


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

Revenues by geographical location is as follows:

 

 

Consolidated

 

Three-month period ended

Six-month period ended

 

06/30/2017

%

06/30/2016

%

06/30/2017

%

06/30/2016

%

Domestic

1,917,779

85.8

1,797,467

86.1

4,111,417

84.3

4,006,432

83.4

International

316,219

14.2

291,346

13.9

768,420

15.7

795,450

16.6

Net revenue

2,233,998

100.0

2,088,813

100.0

4,879,837

100.0

4,801,882

100.0

 

 

 

61


 
a

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

24.     Costs of services provided, selling and administrative expenses

 

24.1.           Parent Company

 

 

Three-month period ended

Six-month period ended

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

 

Total

%

Total

%

Total

%

Total

%

Personnel (a)

(2,700)

28.3

(443)

(8.7)

(3,159)

21.5

(1,305)

(0.6)

Services provided

(4,126)

43.2

(5,460)

(107.5)

(6,145)

41.8

(5,829)

(2.7)

Sale-leaseback transactions (b)

(1,988)

20.8

623

12.3

(3,977)

27.0

213,205

98.7

Other operating expenses

(734)

7.7

10,357

203.9

(1,428)

9.7

9,920

4.6

 

(9,548)

100.0

5,077

100.00

(14,709)

100.0

215,991

100.0

 

24.2.           Consolidated

 

 

Three-month period ended 06/30/2017

Cost of services provided

Selling

expenses

Administrative

expenses

Other operating revenues

Total

%

Personnel (a)

(300,822)

(12,777)

(68,093)

-

(381,692)

17.3

Fuels and lubricants

(629,729)

-

-

-

(629,729)

28.5

Aircraft leases

(241,937)

-

-

-

(241,937)

10.9

Maintenance and repair materials

(132,150)

-

-

-

(132,150)

6.0

Passenger costs

(98,382)

-

-

-

(98,382)

4.5

Services provided

(90,499)

(57,357)

(61,460)

-

(209,316)

9.5

Sales and marketing

-

(124,405)

-

-

(124,405)

5.6

Landing and takeoff tariffs

(144,714)

-

-

-

(144,714)

6.5

Depreciation and amortization

(115,851)

-

(3,105)

-

(118,956)

5.4

Sale-leaseback transactions (b)

-

-

-

(1,988)

(1,988)

0.1

Other, net (c)

(58,528)

(9,281)

(57,525)

-

(125,334)

5.7

 

(1,812,612)

(203,820)

(190,183)

(1,988)

(2,208,603)

100.0

 

 

 

 

Three-month period ended 06/30/2016

Cost of services provided

Selling expenses

Administrative expenses

Other operating revenues

Total

%

Personnel (a)

(291,595)

(10,266)

(79,897)

-

(381,758)

16.9

Fuels and lubricants

(591,674)

-

-

-

(591,674)

26.2

Aircraft leases

(286,522)

-

-

-

(286,522)

12.7

Maintenance and repair materials

(157,326)

-

-

-

(157,326)

7.0

Passenger costs

(115,884)

-

-

-

(115,884)

5.1

Services provided

(57,717)

(67,909)

(76,660)

-

(202,286)

8.9

Sales and marketing

-

(132,166)

-

-

(132,166)

5.8

Landing and takeoff tariffs

(157,227)

-

-

-

(157,227)

7.0

Depreciation and amortization

(110,209)

-

-

-

(110,209)

4.9

Sale-leaseback transactions (b)

-

-

-

702

702

(0.0)

Other, net (c)

(71,711)

(14,735)

(14,012)

(25,994)

(126,452)

5.5

 

(1,839,865)

(225,076)

(170,569)

(25,292)

(2,260,802)

100

 

62


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

Six-month period ended 06/30/2017

Cost of services provided

Selling

expenses

Administrative

expenses

Other operating revenues

Total

%

Personnel (a)

(615,264)

(24,333)

(156,076)

-

(795,673)

17.3

Fuels and lubricants

(1,365,540)

-

-

-

(1,365,540)

29.7

Aircraft leases

(483,446)

-

-

-

(483,446)

10.5

Maintenance and repair materials

(220,397)

-

-

-

(220,397)

4.8

Passenger costs

(215,648)

-

-

-

(215,648)

4.7

Services provided

(168,186)

(104,595)

(130,446)

-

(403,227)

8.8

Sales and marketing

-

(241,963)

-

-

(241,963)

5.3

Landing and takeoff tariffs

(319,505)

-

-

-

(319,505)

6.9

Depreciation and amortization

(219,031)

-

(6,533)

-

(225,564)

4.9

Sale-leaseback transactions (b)

-

-

-

(3,977)

(3,977)

0.1

Other, net (c)

(171,433)

(18,654)

(136,345)

-

(326,432)

7.0

 

(3,778,450)

(389,545)

(429,400)

(3,977)

(4,601,372)

100.0

 

 

 

Six-month period ended 06/30/2016

Cost of services provided

Selling

expenses

Administrative

expenses

Other operating revenues

Total

%

Personnel (a)

(616,071)

(20,667)

(159,900)

-

(796,638)

17.6

Fuels and lubricants

(1,348,561)

-

-

-

(1,348,561)

29.8

Aircraft leases

(610,390)

-

-

-

(610,390)

13.5

Maintenance and repair materials

(285,401)

-

-

-

(285,401)

6.3

Passenger costs

(238,079)

-

-

-

(238,079)

5.3

Services provided

(117,645)

(130,981)

(135,979)

-

(384,605)

8.5

Sales and marketing

-

(250,750)

-

-

(250,750)

5.5

Landing and takeoff tariffs

(346,781)

-

-

-

(346,781)

7.7

Depreciation and amortization

(224,892)

-

(22)

-

(224,914)

5.0

Sale-leaseback transactions (b)

-

-

-

213,284

213,284

(4.8)

Other, net (c)

(150,723)

(20,180)

(63,067)

(25,992)

(259,962)

5.6

 

(3,938,543)

(422,578)

(358,968)

187,292

(4,532,797)

100

 

 

(a)         The Company recognizes expenses for the Audit Committee and the Board of Directors in the "Personnel" line item.

(b)         In the period ended June 30, 2017, the amount of R$3,977 is related to deferred net losses from sale-leaseback aircraft traded between 2006 and 2009 (net gain of R$213,284 arising from 7 aircraft transactions, 6 of which renegotiated, in the period ended June 30, 2016).

(c)         Comprising tax debts included in the PRT, as per Note 18, classified as “Administrative expenses”.

 

 

63


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

25.Financial income (expenses)

 

 

Parent Company

 

Three-month period ended

Six-month period ended

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Financial income

 

 

 

 

Income from short-term investments and investment funds

927

1,298

2,043

2,901

Monetary variation

577

499

1,326

1,030

(-) Taxes on financial income (*)

(315)

(334)

(523)

(653)

Interest on loan agreement

18,389

21,074

37,008

42,149

 

19,578

22,537

39,854

45,427

Financial expenses

 

 

 

 

Losses from derivatives

(581)

-

(581)

-

Interest on loans and financing

(62,942)

(80,296)

(125,034)

(169,822)

Bank charges and expenses

(2,688)

(19,902)

(5,845)

(23,004)

Other

(3,170)

(1,723)

(5,902)

(3,617)

 

(69,381)

(101,921)

(137,362)

(196,443)

 

 

 

 

 

Exchange variation, net

(66,016)

385,691

(24,006)

624,413

 

 

 

 

 

Total

(115,819)

306,307

(121,514)

473,397

 

 

Consolidated

 

Three-month period ended

Six-month period ended

 

06/30/2017

06/30/2016

06/30/2017

06/30/2016

Financial income

       

Income from derivatives

5

28,589

1,346

45,552

Income from short-term investments and investment funds

19,728

34,115

48,898

87,937

Monetary variation

4,643

2,951

8,026

6,056

Interest income

713

2,602

15,958

2,602

(-) Taxes on financial income (*)

(4,929)

(4,695)

(10,664)

(10,690)

Other

1,658

53,103

3,972

56,976

 

21,818

116,665

67,536

188,433

Financial expenses

 

 

 

 

Losses from derivatives

(12,333)

(45,140)

(25,338)

(108,713)

Interest on loans and financing

(165,388)

(178,739)

(405,580)

(416,619)

Bank charges and expenses

(7,824)

(54,772)

(16,469)

(63,641)

Monetary variation

(858)

(1,408)

(1,738)

(2,323)

Other

(31,188)

(73,332)

(54,938)

(101,130)

 

(217,591)

(353,391)

(504,063)

(692,426)

 

 

 

 

 

Exchange variation, net

(229,506)

779,815

(88,353)

1,433,292

 

 

 

 

 

Total

(425,279)

543,089

(524,880)

929,299

 

 

64


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

26.Segments

 

Operating segments are defined as business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the relevant decision makers to evaluate performance and allocate resources to the segments. The Company holds two operating segments: flight transportation and the Smiles loyalty program.

 

The accounting policies of the operating segments are the same as those applied to consolidated quarterly information. Additionally, the Company has distinct natures between the two reportable segments, so there are no common costs and revenues between operating segments.

 

The Company is the controlling shareholder of Smiles, and the non-controlling interests of Smiles were 47.3% as of June 30, 2017 and 46.2% as of December 31, 2016.

 

The information below presents the summarized financial position related to reportable segments for the periods ended June 30, 2017 and December 31, 2016:

 

26.1.           Assets and liabilities of the operating segments

 

06/30/2017

 

Flight transportation

Frequent flyer program

Combined information

Eliminations

Total consolidated

Assets

 

 

 

 

 

Current

1,544,280

978,471

2,522,751

(579,834)

1,942,917

Noncurrent

6,592,359

796,455

7,388,814

(864,951)

6,523,863

Total assets

8,136,639

1,774,926

9,911,565

(1,444,785)

8,466,780

 

 

 

 

 

Liabilities

 

 

 

 

 

Current

4,442,802

1,071,186

5,513,988

(482,624)

5,031,364

Noncurrent

7,570,486

179,009

7,749,495

(685,443)

7,064,052

Total equity (deficit)

(3,876,649)

524,731

(3,351,918)

(276,718)

(3,628,636)

Total liabilities and equity (deficit)

8,136,639

1,774,926

9,911,565

(1,444,785)

8,466,780

 

 

65


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

12/31/2016

 

Flight

transportation

Frequent flyer

program

Combined

information

Eliminations

Total

consolidated

Assets

 

 

 

 

 

Current

1,426,750

1,413,422

2,840,172

(759,458)

2,080,714

Noncurrent

6,474,404

513,456

6,987,860

(664,219)

6,323,641

Total assets

7,901,154

1,926,878

9,828,032

(1,423,677)

8,404,355

 

 

 

 

 

Liabilities

 

 

 

 

 

Current

4,767,322

1,061,806

5,829,128

(980,386)

4,848,742

Noncurrent

6,782,835

229,725

7,012,560

(100,196)

6,912,364

Total equity (deficit)

(3,649,003)

635,347

(3,013,656)

(343,095)

(3,356,751)

Total liabilities and equity (deficit)

7,901,154

1,926,878

9,828,032

(1,423,677)

8,404,355

 

 

66


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

26.2.           Revenues and results of the operating segments

 

 

06/30/2017

 

Flight

transportation

Frequent flyer

program

Combined

information

Eliminations

Total

consolidated

Net revenue

 

 

 

 

 

Passenger (a)

3,986,423

-

3,986,423

196,556

4,182,979

Cargo and other (a)

366,691

-

366,691

(112,797)

253,894

Miles revenue (a)

-

885,021

885,021

(442,057)

442,964

Cost of services provided (b)

(3,650,776)

(458,234)

(4,109,010)

330,560

(3,778,450)

Gross profit

702,338

426,787

1,129,125

(27,738)

1,101,387

 

 

 

 

 

 

Operating income (expenses)

 

 

 

 

 

Selling expenses

(367,484)

(43,488)

(410,972)

21,427

(389,545)

Administrative expenses (c)

(390,001)

(35,314)

(425,315)

(4,085)

(429,400)

Other operating income (expenses), net

(3,977)

-

(3,977)

-

(3,977)

 

(761,462)

(78,802)

(840,264)

17,342

(822,922)

 

 

 

 

 

 

Equity results

155,311

-

155,311

(155,180)

131

 

 

 

 

 

Financial result

 

 

 

 

 

Financial income

47,620

107,468

155,088

(87,552)

67,536

Financial expenses

(591,355)

(260)

(591,615)

87,552

(504,063)

Exchange variation, net

(84,522)

(3,831)

(88,353)

-

(88,353)

(628,257)

103,377

(524,880)

-

(524,880)

 

 

 

 

 

 

Income before income and social contribution taxes

(532,070)

451,362

(80,708)

(165,576)

(246,284)

 

 

 

 

 

Income and social contribution taxes

217,899

(148,792)

69,107

3,535

72,642

Net income for the period

(314,171)

302,570

(11,601)

(162,041)

(173,642)

 

 

 

 

 

Income (loss) attributable to controlling shareholders

(314,171)

162,041

(152,130)

(162,041)

(314,171)

Income (loss) attributable to Smiles’ non-controlling interests

-

140,529

140,529

-

140,529

 

 

67


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

06/30/2016

 

Flight

transportation

Frequent flyer

program

Combined

information

Eliminations

Total

consolidated

Net revenue

 

 

 

 

 

Passenger (a)

4,084,806

-

4,084,806

144,998

4,229,804

Cargo and other (a)

366,182

-

366,182

(16,689)

349,493

Miles revenue (a)

 

700,431

700,431

(477,846)

222,585

Cost of services provided (b)

(3,867,953)

(373,158)

(4,241,111)

302,568

(3,938,543)

Gross profit

583,035

327,273

910,308

(46,969)

863,339

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

Selling expenses

(427,886)

(44,345)

(472,231)

49,653

(422,578)

Administrative expenses (c)

(334,666)

(26,955)

(361,621)

2,653

(358,968)

Other operating income, net

186,582

-

186,582

710

187,292

 

(575,970)

(71,300)

(647,270)

53,016

(594,254)

 

 

 

 

 

 

Equity results

126,547

(3,541)

123,006

(126,324)

(3,318)

 

 

 

 

 

Financial result

 

 

 

 

 

Financial income

92,059

103,188

195,247

(6,814)

188,433

Financial expenses

(699,128)

(110)

(699,238)

6,812

(692,426)

Exchange variation, net

1,256,916

11,939

1,268,855

164,437

1,433,292

649,847

115,017

764,864

164,435

929,299

 

 

 

 

 

 

Income before income and social contribution taxes

783,459

367,449

1,150,908

44,158

1,195,066

 

 

 

 

 

Income and social contribution taxes

(5,099)

(125,511)

(130,610)

2,189

(128,421)

Net income for the period

778,360

241,938

1,020,298

46,347

1,066,645

 

 

 

 

 

Income (loss) attributable to controlling shareholders

778,360

130,573

908,933

46,347

955,280

Income (loss) attributable to Smiles’ non-controlling interests

-

111,365

111,365

-

111,365

 

(a)   Eliminations are related to transactions between GLA and Smiles.

(b)  Includes depreciation and amortization expenses in the amount of R$219,031 in the six-month period ended June 30, 2017, allocated to the following segments: R$212,573 for flight transportation and R$6,458 for the Smiles loyalty program (R$222,180 and R$2,712 in the period ended June 30, 2016, respectively).

(c)   Includes depreciation and amortization expenses in the amount of R$6,533 in the six-month period ended June 30, 2017, allocated to the following segments: R$6,303 for flight transportation and R$230 for the Smiles loyalty program (R$22 for flight transportation in the period ended June 30, 2016) .

 

In the individual quarterly forms of the subsidiary Smiles, which corresponds to the Loyalty Program segment, and in information provided to the main operational decision makers, revenue is recognized when miles are redeemed by participants. From the perspective of this segment, this measurement is appropriate since this is when the revenue recognition cycle is complete, and Smiles transfers to GLA the obligation to provide services or deliver products to its customers.

 

 

68


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

However, from a consolidated perspective, the revenue recognition cycle related to miles exchanged for flight tickets is only complete when the passengers are effectively transported. Therefore, for purposes of reconciliation with the consolidated assets, liabilities and results, as well as for equity method of accounting and consolidation purposes, the Company performs, in addition to eliminations, an adjustment to transactions as yet unrealized in the Smiles Program’s revenues. In this case, from the consolidated perspective, the miles used to redeem airline tickets are only recognized as revenues when passengers are transported, in accordance with accounting practices adopted by the Company.

 

 

 

69


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

27.Commitments

 

As of June 30, 2017, the Company had 120 firm orders for aircraft acquisitions with Boeing. These aircraft acquisition commitments include estimated contractual price increases during the construction phase. The approximate amount of firm orders, not including contractual discounts, is R$46,937,228 (corresponding to US$14,188,147 on the reporting date), classified by year as shown below:

 

 

Consolidated

 

06/30/2017

12/31/2016

2018

-

1,787,388

2019

2,961,792

2,917,833

2020

4,538,533

4,471,172

2021

6,198,634

6,106,634

2022 onwards

33,238,269

32,749,402

46,937,228

48,032,429

 

As of June 30, 2017, of the above-mentioned commitments, the Company has to pay the amount of R$6,727,908 (corresponding to US$2,033,706 on the reporting date) in advance payments for aircraft acquisition, by year, as shown below:

 

 

Consolidated

 

06/30/2017

12/31/2016

2017

73,433

286,829

2018

487,598

483,518

2019

792,471

658,930

2020

848,055

835,468

2021

852,509

839,856

2022 onwards

3,673,842

3,619,940

6,727,908

6,724,541

 

The portion financed by long-term loans with U.S. Ex-Im Bank guarantees for aircraft corresponds to approximately 85% of the aircraft total cost. Other agents finance the acquisitions with equal or higher percentages, reaching up to 100%. 

 

The Company is making payments for aircraft acquisitions using its own funds, loans, cash provided by operating activities, short-and medium-term credit facilities and supplier financing.

 

The Company leases its entire fleet of aircraft through a combination of operating and finance lease agreements. As of June 30, 2017, the total fleet consisted of 120 aircraft, 89 of which were operating leases and 31 finance leases with purchase options. During the six-month period ended June 30, 2017, the Company returned 10 aircraft under operating lease contracts. In addition, the Company changed the classification of three finance lease agreements, which are now classified as operating leases due to the new characteristics arising from the renewal of these contracts.

 

On February 14, 2017, the Company carried out a sale-leaseback transaction for five aircraft with AWAS. The aircraft should be delivered between June and November 2018 and, pursuant to the agreement, the leases will have a 12-year term as of the arrival date of each aircraft.

 

70


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

Under this agreement, AWAS undertakes to carry out all necessary disbursements to pay for advances based on the disbursement schedule of the aircraft acquisition agreement. Under the same agreement, the Company shall act as a guarantor for the transaction if AWAS fails to comply with the commitments undertaken.

 

27.1.           Operating leases

 

Future payments of non-cancelable operational lease contracts denominated in U.S. dollars are as follows:

 

 

Consolidated

 

06/30/2017

12/31/2016

2017

429,434

857,747

2018

837,084

839,343

2019

899,814

889,940

2020

876,458

873,692

2021

730,692

745,719

2022 onwards

1,805,524

2,040,284

Total minimum lease repayments

5,579,006

6,246,725

 

27.2.           Sale-leaseback transactions

 

In the six-month period ended June 30, 2017, the Company had no sale-leaseback transactions (net gain of R$213,284 arising from 7 aircraft transactions from sale-leaseback transactions in the six-month period ended June 30, 2016).

 

The Company also has balances of deferred losses from transactions carried out between 2006 and 2009, in the amount of R$5,982 (R$9,959 on December 31, 2016), recorded under “Other liabilities”.

 

 

71


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

28.Financial instruments and risk management

 

Operational activities expose the Company and its subsidiaries to market risk (fuel prices, currency exchange rate and interest rate), credit risk and liquidity risk. These risks may be mitigated through the use of oil market, U.S. dollar and interest-rate swap derivatives, futures and options.

 

Financial instruments are managed by the Risk Committee in line with the Risk Management Policy approved by the Risk Policy Committee and submitted to the Board of Directors. The Risk Policy Committee sets guidelines and limits and monitors controls, including mathematical models used to continuously monitor exposures and potential financial impacts, and also prevents the use of financial instruments for speculative trading.

 

The Company does not hedge its total risk exposure, and is, therefore, subject to market fluctuations for a significant portion of its exposed assets and liabilities. Decisions on the portion to be hedged depend on the financial risks and costs of hedging and are determined and reviewed at least quarterly in line with Risk Policy Committee strategies. Gains or losses arising from these transactions and the application of risk management controls are part of the Committee's monitoring remit and have been satisfactory to the proposed objectives.

 

 

72


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

The accounting classifications of the Company's consolidated financial instruments on June 30, 2017 and December 31, 2016 are shown below:

 

 

Measured at fair value

through profit or loss

Loans and

receivables (d)

 

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Assets

 

 

 

 

Cash and cash equivalents (a)

105,428

269,797

463,283

292,410

Short-term investments (a)

111,517

431,233

-

-

Restricted cash

230,323

168,769

-

-

Rights on derivative transactions

-

3,817

-

-

Trade receivables

-

-

859,921

760,237

Deposits (b)

-

-

803,095

756,810

Other credits

-

-

138,304

118,058

 

 

 

 

Liabilities

 

 

 

 

Loans and financing

-

-

6,216,986

6,379,220

Suppliers

-

-

1,236,449

1,097,997

Obligations on derivative transactions

38,962

89,211

-

-

Share loan liabilities

93,056

-

-

-

Other obligations (c)

-

-

 

146,319

 

62,665

 

(a)     The Company manages part of its financial investments in order to meet its near-term cash needs.

(b)    Excluding judicial deposits, as described in Note 10.

(c)     Includes only the operating lease payable.

(d)    Items classified as amortized cost refer to credits, obligations or debt issues involving private institutions in which, in any cases of early settlement, there are no substantial alterations in relation to the amounts recognized except amounts related to Perpetual Bonds and Senior Notes as disclosed in Note 17. Fair values are approximately the same as book values due to the short term-maturities of these assets and liabilities. In the six-month period ended June 30, 2017, financial instruments were not reclassified.

 

In the quarter ended June 30, 2017, the Company carried out share loan transactions from third-party companies on the Stock Exchange totaling R$93,056. Under this type of transaction, the loaned shares were recorded under “Share loan liabilities” and adjusted by the closing price at the last trading session. Under the terms of this transaction, the Company shall pay a fixed monthly fee for the duration of the transaction, which will be directly recorded in the financial result. At the end of the transaction term, in December 2017, the Company shall return the number of loaned shares to the holder of the shares. To carry out this transaction, the Company presented equivalent to 1,293,500 Smiles shares used exclusively as guarantee for initial margin, as required by the Bovespa for this type of transaction.

 

In order to minimize the volatility caused by the share loan transaction from third-party companies, the Company also contracted equity forward derivatives using the same number of assets traded under the share loan from third-party companies, setting a fixed price for the settlement date. On June 30, 2017, this transaction was recorded under “Obligations on derivative transactions”.

 

 

73


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

As of June 30, 2017 and December 31, 2016, the Company did not have financial assets classified as available for sale.

 

The Company's derivative financial instruments were recorded in the following line items:

 

 

Fuel

Interest rate

Equity forward

Total

Assets (Liabilities) as of December 31, 2016 (*)

3,817

(89,211)

-

(85,394)

Fair value variations:

 

 

 

 

Losses recognized in profit or loss

(2,111)

-

(581)

(2,692)

Losses recognized in other comprehensive result

-

(2,905)

-

(2,905)

Settlements (payments received) during the period

(3,817)

55,846

-

52,029

Liabilities as of June 30, 2017 (*)

(2,111)

(36,270)

(581)

(38,962)

 

Changes in other comprehensive income

Fuel

Interest rate

Equity forward

Total

Balances as of December 31, 2016

-

(147,229)

-

(147,229)

Fair value adjustments during the period

-

(2,905)

-

(2,905)

Net reversals to profit or loss

-

27,194

-

27,194

Balances as of June 30, 2017

-

(122,940)

-

(122,940)

 

 

 

 

Effects on profit/loss

(2,111)

(27,194)

(581)

(29,886)

 

 

 

 

Recognized in operating income

-

(5,895)

-

(5,895)

Recognized in financial income

(2,111)

(21,299)

(581)

(23,991)

 

(*)   Classified as "Rights on derivative transactions" if the balance is an asset or "Obligations on derivative transactions" if the balance is a liability.

 

The Company may adopt hedge accounting for derivatives contracted to hedge cash flow and that qualify for this classification as per CPC38 - Financial Instruments - Recognition and Measurement. As of June 30, 2017, the Company adopts cash flow hedge only for the interest rate (mainly the Libor interest rates).

 

The Company holds hedge margin deposits in guarantee for derivative transactions as per Note 6.

 

28.1.           Market risks

 

a)   Fuel risk

 

Aircraft fuel prices vary due to the volatility of the price of crude oil and its by-products. In order to mitigate any losses from changes in the fuel market, the Company held call options and zero cost collar (call option purchased and put option sold) pegged to the WTI on June 30, 2017. In the periods ended June 30, 2017 and 2016, the Company had no fuel derivative operations recorded as hedge accounting.

 

74


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

b)   Foreign currency risk

 

Currency risk arises from the possibility of unfavorable fluctuation of foreign currencies to which the Company’s liabilities or cash flows are exposed. On June 30, 2017, the Company had no outstanding derivative financial instruments (the Company recognized a loss on foreign exchange hedges for futures derivatives agreements in U.S. dollar in the amount of R$42,172 in the six-month period ended June 30, 2016). The Company had no currency derivative operations recorded as hedge accounting.

 

 

75


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

Exposure to exchange rates is summarized below:

        

 

Parent Company

Consolidated

 

06/30/2017

12/31/2016

06/30/2017

12/31/2016

Assets

 

 

 

 

Cash, short-term investments and restricted cash

18,863

49,646

330,984

548,792

Trade receivables

-

-

83,276

104,800

Deposits

-

-

803,095

756,810

Gains (losses) on derivative transactions

-

-

-

3,817

Other

-

-

-

10,184

Total assets

18,863

49,646

1,217,355

1,424,403

 

 

 

 

Liabilities

 

 

 

 

Loans and financing

3,135,604

3,261,714

3,503,383

3,596,379

Finance lease payable

-

-

1,598,993

1,718,012

Foreign suppliers

1,050

604

285,615

341,026

Obligations on derivative transactions

581

-

38,962

89,211

Other leases payable

-

-

146,319

62,665

Total liabilities

3,137,235

3,262,318

5,573,272

5,807,293

 

 

 

 

 

Total currency exposure

3,118,372

3,212,672

4,355,917

4,382,890

 

 

 

 

Commitments not recorded in the statements of financial position

 

 

 

 

Future commitments resulting from operating leases

-

-

5,579,006

6,246,725

Future commitments resulting from firm aircraft orders

46,937,228

48,032,429

46,937,228

48,032,429

Total

46,937,228

48,032,429

52,516,234

54,279,154

 

 

 

 

 

Total foreign currency exposure R$

50,055,600

51,245,101

56,872,151

58,662,044

Total foreign currency exposure US$

15,130,766

15,723,697

17,191,267

17,999,461

Exchange rate (R$/US$)

3.3082

3.2591

3.3082

3.2591

 

The Company’s foreign exchange exposure is manly indexed to the U.S. dollar.

 

c)   Interest rate

 

The Company is exposed to future finance lease transactions including installments to be paid that are exposed to LIBOR variations through the date of aircraft delivery. In order to mitigate these risks, the Company holds swap derivatives based on LIBOR. In the six-month period ended June 30, 2017, the Company recognized a total loss with interest hedge transactions in the amount of R$27,194 (a loss of R$27,391 as of June 30, 2016).

 

76


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

As of June 30, 2017 and December 31, 2016, the Company and its subsidiaries hold LIBOR derivatives recorded as hedge accounting.

 

28.2.           Credit risk

 

The credit risk is inherent in the Company’s operating and financing activities, mainly represented by trade receivables, cash and cash equivalents, and short-term investments. Financial assets classified as cash, cash equivalents and short-term investments are deposited  with counterparties rated investment grade or higher by S&P or Moody's (between AAA and AA-), pursuant to risk management policies. The financial institutions in which the Company concentrates more than10% of its total financial assets are Itaú and Banco do Brasil. Other assets are diluted among other financial institutions, pursuant to the Company’s risk policy.  Trade receivables consists of amounts falling due from credit card operators, travel agencies, installments sales and government entities, which leaves the Company exposed to a small portion of the credit risk of individuals and other entities. Credit limits are set for all customers based on internal credit rating criteria and carrying amounts represent the maximum credit risk exposure. Customer creditworthiness is assessed based on an internal system of extensive credit rating. Outstanding trade receivables are frequently monitored by the Company.  

 

Derivative financial instruments are contracted in the over-the-counter market (OTC) with counterparties rated investment grade or higher, or in a commodities and futures exchange (BM&FBOVESPA or NYMEX), thus substantially mitigating credit risk. The Company's obligation is to evaluate counterparty risk involved in financial instruments and periodically diversify its exposure.

 

28.3.           Liquidity risk

 

The Company is exposed to two different types of liquidity risk: (i) market liquidity, which varies depending on the types of assets and markets in which assets are traded, and (ii) cash flow liquidity related to difficulties in meeting our contracted operating obligations at the maturity dates. In order to manage liquidity risk, the Company invests its funds in liquid assets (government bonds, CDBs and investment funds with daily liquidity) and its Cash Management Policy requires the weighted average maturity of its debt to be longer than the weighted average term of its investment portfolio.

 

The schedule of maturity of the Company's consolidated financial liabilities on June 30, 2017 is as follows:

 

 

77


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

Less than 6

months

6 - 12

months

1 - 5

years

More than

5 years

Total

Loans and financing

451,850

210,066

3,655,854

1,899,216

6,216,986

Suppliers

1,079,310

1

157,138

-

1,236,449

Obligations on derivative transactions

38,962

-

-

-

38,962

Share loan liabilities

93,056

 

-

-

93,056

Other obligations

75,829

39,804

30,686

-

146,319

As of June 30, 2017

1,739,007

249,871

3,843,678

1,899,216

7,731,772

 

 

 

 

 

 

Loans and financing

499,542

335,748

2,654,007

2,889,923

6,379,220

Suppliers

1,088,859

-

9,138

-

1,097,997

Obligations on derivative transactions

89,211

-

-

-

89,211

Other obligations

27,851

16,520

18,294

-

62,665

As of December 31, 2016

1,705,463

352,268

2,681,439

2,889,923

7,629,093

 

28.4.           Capital management

 

The Company uses alternative sources of capital to meet its operational requirements and to ensure that its capital structure takes into account suitable parameters for the financial costs, the maturities of funding and its guarantees. The Company monitors its financial leverage ratio, which corresponds to net debt, including short and long-term loans. The following table shows financial leverage as of June 30, 2017 and December 31, 2016:

 

 

Consolidated

 

06/30/2017

12/31/2016

Total loans and financing

6,216,986

6,379,220

(-) Cash and cash equivalents

(568,711)

(562,207)

(-) Short-term investments

(111,517)

(431,233)

(-) Restricted cash

(230,323)

(168,769)

A - Net debt

5,306,435

5,217,011

B – Total equity (deficit)

(3,628,636)

(3,356,751)

C = (B + A) - Total capital

1,677,799

1,860,260

 

28.5.           Sensitivity analysis of financial instruments

 

The sensitivity analysis of financial instruments has been prepared in accordance with CVM Instruction 475/08 in order to estimate the impact on fair value of financial instruments traded by the Company in three scenarios for each risk variable: the most likely scenario in the Company's assessment (which is levels of demand remaining unchanged); a 25% deterioration (possible adverse scenario) in the risk variable; a 50% deterioration (remote adverse scenario).

 

The estimates shown do not necessarily reflect amounts to be stated in the next quarterly reports. The use of different methodologies may have an impact on these estimates.

 

 

The tables below show sensitivity analyses for exposure to foreign currency exchange rates, outstanding derivatives positions and interest rate variations as of June 30, 2017 for market risks that management believes are material. The positive amounts shown are net asset exposures (assets greater than liabilities) while negative values shown are net liability exposures (liabilities greater than assets).

 

78


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

Parent Company

 

a)   Currency risk

 

As of June 30, 2017, the Company adopted the R$3.3082/US$1.00 exchange rate corresponding to the month's closing rate announced by the Central Bank of Brazil as probable scenario. The table below shows the sensitivity analysis and the effect on profit or loss of exchange rate fluctuations in the exposure amount of the period:

 

 

Exchange rate

Effect on profit/loss

Net liabilities exposed to the risk of appreciation of the U.S. dollar (R$3.3082/US$1.00)

3.3082

(3,118,372)

Dollar depreciation (-50%)

1.6541

1,559,186

Dollar depreciation (-25%)

2.4812

779,593

Dollar appreciation (+25%)

4.1353

(779,593)

Dollar appreciation (+50%)

4.9623

(1,559,186)

 

b)   Risk factor of stock volatility

 

On June 30, 2017, the Company holds a lease and share transaction with a term derivative attached to the transaction, in order to neutralize the risk of volatility of the shares leased in the market. The table below shows the sensitivity analysis and the effect on the Company’s result of the volatility of the rented shares and the term derivatives of shares:

 

 

Market value of the

stock lease

Term

derivative (*)

Net effect on

the result

Net liability exposed to stock appreciation risk (R$18.31)

93,056

93,056

-

Stock depreciation (-50%)

46,528

(46,528)

-

Stock depreciation (-25%)

69,792

(69,792)

-

Stock appreciation (+25%)

116,320

(116,320)

-

Stock appreciation (+50%)

139,584

(139,584)

-

 

(*) Corresponds to the amount protected by the term derivative of shares.

 

Consolidated

 

a)   Fuel risk

 

The Company and its subsidiaries contract crude oil derivatives (WTI, Brent) and its byproducts (Heating Oil) to hedge against fluctuations in jet fuel prices. Historically, oil prices are highly correlated with aircraft fuel prices.

 

 

79


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

3Q17

4Q17

1Q18

2Q18

Total 12M

Percentage of fuel exposure hedged

51%

51%

9%

9%

28%

Amount in barrels (thousand barrels)

321,875

359,375

75,000

75,000

2,456,250

Future rate agreed per barrel (US$) (*)

51.05

52.08

51.28

51.35

51.55

Total in Brazilian reais (**)

54,359,619

61,922,267

12,723,337

12,740,705

418,850,478

 

 

b)   Currency risk

 

As of June 30, 2017, the Company adopted the R$3.3082/US$1.00 exchange rate corresponding to the month's closing rate announced by the Central Bank of Brazil as probable scenario. The table below shows the sensitivity analysis and the effect on profit or loss of exchange rate fluctuations in the exposure amount of the period:

 

 

Exchange rate

Effect on profit/loss

Net liabilities exposed to the risk of appreciation of the U.S. dollar (R$3.3082/US$1.00)

3.3082

(4,355,917)

Dollar depreciation (-50%)

1.6541

2,177,959

Dollar depreciation (-25%)

2.4812

1,088,979

Dollar appreciation (+25%)

4.1353

(1,088,979)

Dollar appreciation (+50%)

4.9623

(2,177,959)

 

c)   Interest-rate risk

 

As of June 30, 2017, the Company held financial investments and debt with different types of rates and position in LIBOR derivatives. Its sensitivity analysis of non-derivative financial instruments examined the impact on annual interest rates only for positions with material amounts on June 30, 2017 (see Note 17) that were exposed to fluctuations in interest rates, as the scenarios below show. The amounts show the impacts on profit or loss in accordance with the scenarios used:

 

 

Financial debt net of short-term investments (a)

Derivatives (c)

Risk

Increase in

the CDI rate

Decrease in

the LIBOR rate

Decrease in the

LIBOR rate

Reference rates

10.14%

1.38%

1.38%

Exposure amount (probable scenario) (b)

(299,460)

(167,864)

(38,962)

Possible adverse scenario (+25%)

(51,915)

(2,904)

(674)

Remote adverse scenario (+50%)

(62,298)

(3,485)

(809)

 

(a) Total invested and raised in the financial market at the CDI rate. A negative amount means more funding than investment.

(b) Accounting balances recorded on June 30, 2017.

(c) Derivatives contracted to hedge the Libor rate variation embedded in the agreements for future delivery of aircraft.

 

80


 

 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

Fair value measurement of financial instruments

 

In order to comply with the disclosure requirements for financial instruments measured at fair value, the Company and its subsidiaries must classify its instruments in Levels 1 to 3, based on observable fair value levels:

 

·       Level 1: Fair value measurements obtained from prices quoted (not adjusted) in identical active or passive markets;

·       Level 2: Fair value measurements obtained through variables other than the price quotes included in Level 1 that are observable for the asset or liability, either directly (such as prices) or indirectly (derived from prices); and

·       Level 3: Fair value measurements obtained by using valuation methods that include the asset or liability but are not based on observable market data (unobservable data).

 

The following table shows a summary of the Company’s and its subsidiaries’ financial instruments measured at fair value, including their respective classifications of valuation methods as of June 30, 2017 and December 31, 2016:

 

 

 

06/30/2017

12/31/2016

 

Fair value

hierarchy

Book

value

Fair

value

Book

value

Fair

value

Cash and cash equivalents

Level 2

105,428

105,428

269,797

269,797

Short-term investments

Level 1

21,285

21,285

41,104

41,104

Short-term investments

Level 2

90,232

90,232

390,129

390,129

Restricted Cash

Level 2

230,323

230,323

168,769

168,769

Rights on derivative transactions

Level 2

-

-

3,817

3,817

Obligations on derivative transactions

Level 2

(38,962)

(38,962)

(89,211)

(89,211)

Share loan liabilities

Level 2

(93,056)

(93,056)

-

-

 

29.Insurance

 

As of June 30, 2017, insurance coverage, by nature, for the aircraft fleet and in relation to maximum indemnifiable amounts denominated in U.S. dollars is as follows:

 

Aviation

In thousands of

Brazilian Reais

In thousands of

U.S. dollars

Guarantee - hull/war

12,505

3,780

Civil liability per event/aircraft (*)

2,481

750

Inventories (local) (*)

992

300

 

(*)   Amounts per event and annual aggregate.

 

Under Law 10744 of October 9, 2003, the Brazilian government will cover any civil-liability expenses to third parties caused by acts of war or terrorism in Brazil or elsewhere up to a total of the equivalent of US$1,000,000,000 in Brazilian Reais as of September 10, 2001, through which GLA may be subject to claims.

 

81


 

 

Notes to the quarterly information (ITR)

June 30, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

30.Subsequent events

 

a)      On July 1, 2017, the Extraordinary Shareholders’ Meeting of Smiles Fidelidade S.A. approved the merger of Smiles by Smiles Fidelidade S.A. (formerly WebjetParticipações S.A.), pursuant to the Protocol and Justification for Merger entered into between the companies’ management teams on June 6, 2017. As a result of the merger, Smiles will be dissolved and all its assets, rights and obligations will be transferred to Smiles Fidelidade S.A., pursuant to articles 224, 225, 227 and 264 of Brazilian Corporation Law.

 

b)     On July 20, 2017, the Company received interest on equity in the amount of R$6,589 from its subsidiary Smiles, pursuant to the terms approved by Smiles’ Board of Directors’ Meeting held on June 6, 2017.

 

c)      On July 31, 2017, was approved, in the meeting of the Company's Board of Directors, the Credit Agreement to be entered between the Company, the subsidiary GLA and the financial institutions JPMorgan and Ex-Im Bank, in a limit of up to US$11,000, within the scope of technical services to be performed on GLA aircraft engines. As a guarantee of the obligations assumed by GLA, the Company entered into a Guaranty Agreement with JPMorgan and Ex-Im Bank up to US$11,000. In addition, the Company entered into a Borrower Indemnity Agreement and Fee Letters containing its direct obligations under the GLA agreements.

 

On the same date, the approval of the Credit Agreement by the Company, GLA, CréditAgricole CIB and Ex-Im Bank was also approved in the limit of up to US$11,000, in relation to the financing of the payment due by the GLA under the In-Flight Connectivity And Entertainment Services Agreement ("In-Flight Agreement"). The Guaranty Agreement between the Company, Crédit Agricole CIB and Ex-Im Bank up to US$11,000 was also approved, in order to guarantee compliance with the obligations assumed by the GLA, as well as the conclusion of the Borrower Indemnity Agreement and Of Fee Letters containing the direct obligations of the Company.

 

d)      On August 8, 2017, the Board of Directors approved a capital increase of R$1,137 due to the subscription of 244,186 preferred shares as a result of the exercise of stock options.

 

e)   On August 8, 2017, the Company approved the grant of 947,767 stock options for the 2017 fiscal year, under the terms of the Stock Option Plan approved on October 19, 2012 and the concession of a total of 1,538,213 restricted stock awards, pursuant to the Company's Restricted Share Plan.

 

      In addition, on the same date, the Company granted guarantees to: (i) GAC, in order to ensure compliance with obligations under the Purchase Agreement No. 3780 between GAC, Boeing and GECAS; (Ii) GLA in order to guarantee the obligations in the aircraft lease agreements to be entered into between the Company, GLA and GECAS and in the motor financing agreement to be entered into between the Company, GLA and PK AirFinance ; And (iii) GLA in order to guarantee the obligations in the aircraft lease agreement to be entered into between the Company, GLA, GAC, Ex-Im Bank and GECAS.

 

82

 


 
SIGNATURE
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: August 8, 2017
 
GOL LINHAS AÉREAS INTELIGENTES S.A.
By:

/S/ Richard Freeman Lark Junior


 
Name: Richard Freeman Lark Junior
Title:   Investor Relations Officer
 

 

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates offuture economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will a ctually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.