São Paulo, May 13, 2013 - GOL Linhas Aéreas Inteligentes S.A. (BM&FBOVESPA: GOLL4 and NYSE: GOL), (S&P: B, Fitch: B-, Moody’s: B3), the largest low-cost and low-fare airline in Latin America, announces its results for the first quarter of 2013 (1Q13). All information presented herein is in accordance with International Financial Reporting Standards (IFRS) and in Brazilian Reais (R$), and all comparisons are with the first quarter of 2012 (1Q12).

1Q13 Highlights

GOL recorded an operating result of R$101 million in 1Q13, accompanied by a margin of 4.9%, an increase of R$94 million or 4.6 percentage points, versus an operating result of R$7 million in 1Q12, with a margin of 0.3%.         Net revenue per available seat-kilometer (PRASK) reached R$15.46 in 1Q13, 12.4% up over 1Q12. This performance gave momentum to the annual increase of 9.1% in revenue per available seat-kilometer (RASK), which came to R$16.89 in 1Q13.          Operating cost per available seat-kilometer excluding fuel costs (CASK ex-fuel)  stood at 8.71 cents (R$) in 1Q13, remaining virtually flat in relation to the 8.63 cents (R$) recorded in 1Q12.        After approval of the Board of Directors in 1Q13, on May 10, Smiles S.A. established the offering’s price at R$1,132,173,890.40, equivalent to 52,173,912 common shares, representing 43% of its total capital. The shares of Smiles S.A. have been traded on BM&F Bovespa as of April 29, 2013. The net proceeds of approximately R$1.1 billion will be used by Smiles S.A. excusively for the advance purchase of airline tickets from VRG, a Company subsidiary.         Once again, GOL was the most punctual airline in the Brazilian market. The Company achieved a punctuality ratio of 95% (93% in 1Q12).

Message from Management

In 1Q13, the Company recorded operating result (EBIT) of R$101.2 million, accompanied by a margin of 4.9%, an increase of 4.6 percentage points in relation to 1Q12. This upturn was achieved despite a scenario of pressure on operating expenses when compared to the same period last year, represented by the 14% increase in fuel prices (a record high in a quarter), the 12% depreciation of the real against the dollar, and the more than 10% upturn in airport and connection fees.  

This performance reflects GOL’s efficiency in adjusting its structure to the Brazilian market’s new cost level. Its focus on the domestic supply rationalization strategy, combined with the adjustment to its costs structure, played an essential role in recovering positive operating margins in this period. In 1Q13, the Company reduced seat supply in the domestic market by 15.7% and achieved a growth of 12.4% in net revenue per available seat-kilometer (PRASK) in relation to 1Q12.

The measures taken in 2012 aimed at reducing costs maintained operating cost per available seat-kilometer excluding fuel costs (CASK ex-fuel) at the same level of the previous year. This reduction took place despite a scenario of reduction in supply. The Company closed the quarter with CASK ex-fuel at R$8.71.

At the close of the first quarter, GOL maintained its solid cash position, with total cash (which includes cash, cash equivalents, financial investments, and short and long-term restricted cash) representing around 20% of LTM revenue, or R$1.6 billion. Furthermore, in February 2013, the Company priced an issue of Senior Notes abroad at US$200 million, and in April 2013 Smiles S.A, a Company subsidiary, announced an anticipated mileage sales to banks totaling around R$400 million.

Also in 1Q13, the Board of Directors of GOL approved the initial public offering (IPO) of Smiles S.A.. On May 10, Smiles S.A. established the offering’s price at approximately R$1.1 billion, representing the conclusion of an important stage to strenghten the Company’s strategy. The proceeds were used for the advance purchase of tickets of VRG, a Company subsidiary. The result of this operation shows the capital market’s confidence in the potential for growth of the loyalty program industry in the coming years, as well as reiterates GOL’s commitment to maintaining its strong liquidity.

Due to the 1Q13 results, GOL’s leverage ratio (gross debt/EBITDAR) declined by approximately 25% in relation to 4Q12, thus beginning the gradual process of reduction in leverage. The driver for this recovery will be the recomposition of EBITDAR in 2013, which reached R$367 million in 1Q13, above the R$258 million recorded in the entire year of 2012.

In the first quarter, GOL continued to focus on operational efficiency and, once again, was the most punctual airline in the Brazilian market. In 1Q13, 95% of the Company’s flights departed on time (93% in 1Q12). In addition, the share of remote check-in use reached around 60% in March 2013.

In line with its focus on operational efficiency, GOL expanded the fast travel concept into the major Brazilian airports and implemented a new route network, bringing more benefits to passengers. Additionaly, on May 2013, GOL announced the expansion of its codeshare agreement with Delta, maximizing the connectivity between the airlines and in the Brazil – United States corridor. By the end of August, all destinations operated by Delta in Brazil will be integrated into GOL’s route network and available at the Company’s sales channels. The Brasília – Atlanta stretch is already available for purchase, with its first flight scheduled for May 20.  

Represented by the Brazilian Airline Association (ABEAR), the civil aviation industry has made important advancements. On April 10, the federal government announced a reduction in the ICMS tax ratio from 25% to 12% for operations within the state. This is another step towards a better economic and regulatory framework in the Brazilian civil aviation industry. 

GOL appreciate the efforts and motivation of our employees (the “Team of Eagles”), and we thank them for their commitment in this challenging period for the civil aviation industry.

Paulo Sérgio Kakinoff  

CEO of GOL Linhas Aéreas Inteligentes S.A.

On May 10, 2013, Smiles S.A. established the offering’s price at R$1,132,173,890.40, equivalent to 52,173,912 common shares, representing 43% of its total capital. The proceeds will be used by Smiles S.A. for the advance purchase of tickets from VRG, a Company subsidiary. This shows the financial market’s confidence in the potential for growth of the Brazilian loyalty program industry in the coming years. The shares of Smiles S.A. (SMLE3) started being traded on BM&F Bovespa on April 29, 2013.

In February, Smiles announced the agreement of R$400 million for advance sale of miles to financial institutions. Also 1Q13, the Company formed partnerships with key Brazilian players to further strengthen the loyalty program, including:

Also in 1Q13, Smiles S.A. announced a partnership between its loyalty program and Delta’s Sky Miles. The benefits for Smiles Diamond clients include priority check-in and boarding on Delta flights, as well as access to the Delta Sky Clubs in Atlanta, New York (JFK) and Detroit. Similarly, Delta’s Diamond, Platinum and Gold Elite members can enjoy the same benefits as Smiles Diamond members on GOL flights and have access to VIP rooms in airports in São Paulo (Guarulhos International Airport) and Rio de Janeiro (Galeão International Airport) airports.

Financial Highlights Smiles

Aviation Market: Industry

National Civil Aviation Agency (ANAC) figures; 

In the first quarter of 2013, Domestic aviation industry supply and demand fell by 7.9% and 1.3%, respectively, in relation to 1Q12. Due to the reduction in supply, the load factor climbed by 5.0 p.p. in the period.

As the graph below shows, the reduction in supply is becoming more accentuated, depicting a new moment for the Brazilian civil industry. The fall is a response to the new costs levels, and to the sluggish economic growth.

Aviation Market: GOL

ANAC data; Consolidates GOL+Webjet data for 1Q12 and 4Q12.

Domestic Market

In 1Q13, supply on GOL’s domestic route network fell by 15.7% over 1Q12, chiefly due to the discontinuation of Boeing 737-300 related to the shutting down of Webjet’s operating activities at the end of 2012.

Domestic demand dropped by 15.5%, due to the above-mentioned reduction in supply. The domestic load factor remained flat, standing at 68.1% in 1Q13 (68.0% in 1Q12).

International Market

In 1Q13, international supply grew by 34.0% year-over-year, chiefly due to the new daily flights to Santo Domingo, Miami and Orlando, which began in December 2012.

International demand moved up by 21.1%, also due to the creation of new international routes.

Load Factor

As a result of the above, the total load factor came to 67.3% in 1Q13, a slight drop of 0.6 p.p. (67.9% in 1Q12).

The graph below shows the evolution of the Company’s strategy to maximize net revenue per available seat-kilometer (PRASK) since its adoption in March 2012. 

The annual increase of 12.4% and 9.1% in PRASK and RASK, respectively, in 1Q13 were chiefly a reflection of the 13.5% upturn in yield, combined with the stability of the load factor between the periods.

Key Operating Indicators

1.                Source: Brazil’s Central Bank;
2.                Bloomberg; 
3.                Expenses with fuel/liters consumed;

  Statement of Profit or Loss in IFRS (R$ in thousands)

In accordance with CVM Instruction 527, the Company shows the reconciliation of EBIT and EBITDA. To visualize the reconciliation, see the “Operating Result” section. We also show the reconciliation of EBITDAR, given its importance as a specific aviation industry indicator.

1Q13 Result – Operating Segment (R$ in thousands)

For more information on the breakdown by operating segment, see Note 29 to the Quarterly Information (ITR).

Net Revenue (R$ million)

Net revenue came to R$2,082.7 million in 1Q13, 3.8% down on the R$2,166.1 million reported in 1Q12, chiefly due to the 11.9% reduction in seat supply in the period.

Revenue per available seat-kilometer (RASK) grew by 9.1% in relation to 1Q12, reflecting the strategy to maximize PRASK through domestic supply rationalization, partially offset by the contribution to INSS, which is now recorded under “Taxes on Revenue”. This reclassification resulted from the inclusion of the civil aviation industry in the Brasil Maior program for payroll tax as of 2013, which changed the INSS on payroll calculation basis to 1% over total gross revenue. Consequently, there was an annual increase of 20.1% in taxes on revenue, despite the 3.8% decline in gross revenue, as shown in the table below.

Net passenger revenue totaled R$1,906.1 million, 0.9% down on the R$1,924.3 million in 1Q12, due to the reduction in supply in the period. Net passenger revenue per ASK (PRASK) moved up by 12.4%, thanks to the domestic supply rationalization strategy, combined with the 13.5% upturn in yield between 1Q13 and 1Q12. The Company’s flight rationalization strategy completed one year in March 2012, and for the fifth consecutive month, PRASK posted a two-digit increase.

Ancillary revenue totaled R$176.6 million, 27.0% down on the R$241.8 million recorded in 1Q12, primarily due to: (i) the 11.9% reduction in seat supply; (ii) the 12% decline in revenue from excess of luggage; and (iii) the change in the valuation of the fair value of sales of miles due to the Smiles and VRG segregation. This result was partially offset by the 22% increase in revenue from flight rebooking charges, no show, and ticket cancellations, and the 60% upturn in revenue from flight chartering between the periods. Ancillary revenue per ASK fell by 17.1%.

Operating Expenses (in R$ million)

Operating expenses dropped by 8.2% in relation to 1Q12, totaling R$1,981.5 million in 1Q13, versus R$2,158.8 in 1Q12.

Operating Cost Breakdown

Total CASK reached 16.07 cents (R$) in 1Q13, 4.2% up on the 15.43 cents (R$) recorded in 1Q12. CASK ex-fuel moved up by 1.0% in relation to 1Q12, totaling 8.71 cents (R$),  despite the pressure over operating expenses, represented by the 11.9% reduction in supply, the 12% depreciation of the real against the dollar, and the increase of more than 10% in airport fees between the periods. 

Aircraft fuel costs per ASK totaled 7.36 cents (R$) in 1Q13, 8.2% up on 1Q12, chiefly due to the 13.5% upturn in average fuel prices in relation to the first quarter of 2012. In 1Q13, fuel expenses accounted for around 46% of total consolidated expenses (44% no 1Q12). This cost was positively impacted by the 5.0% increase in fuel efficiency per ASK between the periods, especially due to the discontinuation of Boeing 737-300 related to the shutting down of Webjet’s operating activities.

Salaries, wages and benefits per ASK came to 2.33 cents (R$), 20.1% down on 1Q12, due to: (i) the 20,1% reduction in the Company’s workforce in 2012; and (ii) the inclusion of the civil aviation industry in the Brasil Maior program for payroll tax exemption as of this year. At the end of the quarter, GOL had 16,470 employees, versus 20,548 at the end of 1Q12.

Aircraft leasing costs per ASK stood at 1.25 cents (R$), 23.7% up on 1Q12, due to: (i) the 12% depreciation of the real against the dollar, given that these expenses are dollar-pegged; and (ii) the lower dilution of costs between the periods resulting from annual drop of 11.9% in ASK (productivity  of 11.7 block hours a day in 1Q13, versus 12.6 block hours a day in 1Q12). At the end of the period, the Company had 88 aircraft under operational leasing (100 in 1Q12).

Sales and marketing expenses per ASK totaled 0.73 cents (R$), 10.1% up on 1Q12, chiefly due to the 11.9% reduction in supply. This was partially offset by the reduction in expenses with commissions, due to the period decline in sales volume.

Landing costs per ASK came to 1.09 cents (R$) in 1Q13, 6.8% up on 1Q12, due to the increase of approximately 10% in airport fees, combined with the fact that a passenger connection fee has been applied as of the end of 2012.

Aircraft and traffic servicing expenses per ASK increased by 24.8% over 1Q12 to 1.10 cents (R$), chiefly due to expenses with consulting and advisory services related to IPO of Smiles S.A., and the 12% average depreciation of the real against the dollar.

Maintenance, materials and repairs per ASK stood at 0.75 cents (R$), 72.5% up on 1Q12, due to: (i) the increase in the number of engine removals between the periods; and (ii) the 12% average depreciation of the real against the dollar, given that most maintenance expenses are dollar-pegged.

Depreciation and amortization per ASK grew by 5.8% over 1Q12 to 0.90 cents (R$) in 1Q13. This increase was due to the increase in the depreciation regarding costs from improvements related to major engine maintenance established in the contracts.  At the end of 1Q13, GOL had 45 aircraft under financial leasing (45 in 1Q12).

Other operating expenses per ASK decreased by 34.3% over 1Q12 to 0.56 cents (R$), chiefly due to the increase of approximately R$30 million in gains from sale leaseback transactions between the periods.

  Operating Result

The 1Q13 consolidated operating result (EBIT) was R$101.2 million, with an operating margin of 4.9%, versus the R$7.3 million and margin of 0.3% recorded in 1Q12. This growth of 4.5 p.p. in operating (EBIT) margin was achieved despite the scenario of pressure over operating expenses in the year-over-year comparison, especially regarding fuel prices (+14%), the average depreciation of the real against the dollar (+12%), and increase in airport fees (>+10%).

This growth results from GOL’s focus on its domestic supply rationalization strategy, combined with the adjustment of its cost structure in 2012. The Company reiterates its commitment to remain focused on this strategy in the remaining quarters of 2013, as well as its financial prospects for the year.

In accordance with CVM Instruction 527, the Company presents the reconciliation of EBIT and EBITDA, where: EBIT = net loss (income) plus income and social contribution taxes and the net financial result; and EBITDA = net loss (income) plus income and social contribution taxes, the net financial result and depreciation and amortization.

We also show the reconciliation of EBITDAR, given its importance as a specific aviation industry indicator, where: EBITDAR = net income (loss) plus income and social contribution taxes, the net financial result, depreciation and amortization, and aircraft operational leasing expenses.

Hedge Result

GOL makes use of hedge accounting to record some of its derivative instruments. In 1Q13, the Company recorded net loss from hedge operations of R$26.1 million.

*OCI (Other Comprehensive Income) or Statement of Comprehensive Income is a transitional account where positive and negative fair value adjustments of future operations are booked, designated as effective cash flow hedge. The purpose is to state income as close to the Company’s reality as possible. As the results from operations occur in their respective accrual periods, they are incorporated into the Company's income. GOL records the fair value of hedges due in future periods that aims to cash flow protection.

The amount related to hedge transactions was substantially  recognized in the financial result (for more details, see the Financial Result section).

Fuel: fuel consumption hedge transactions, which are effected through crude oil and its by-products (WTI, Brent and heating oil) generated gains of R$4.7 million in the quarter.

Foreign Exchange: foreign exchange hedge transactions designed to protect the Company’s cash flow generated losses of R$27.7 million, which were booked under the financial result.

Interest: swap transactions to protect cash flow from aircraft leasing against an increase in interest rates generated a net expense of R$3.0 million, which was booked under the financial result.

The table below shows the nominal value of derivatives contracted as a hedge against future expenses, the derivatives’ average contracted rate and the percentages of hedged fuel exposure on an accrual basis on March 31, 2013:

Weighted average of derivative strike prices.

** On 12/31/2012, the exchange rate was R$2.0158 / US$1.00.

All the financial instruments used for hedging purposes this quarter consisted of Brent and WTI options, Libor interest rate swaps and dollar futures.  GOL focuses on simplified derivative structures, aiming to reduce its operating risks and ensure as much compliance as possible with the targets established in its annual budget.

Financial Result

In 1Q13, net financial result climbed by 360.7%, totaling an expense of R$106.9 million, versus an expense of R$23.2 million in 1Q12.

Interest expenses totaled R$120.8 million, 5.4% up on 1Q12, chiefly due to the combined effect of the Company’s higher total debt and the 11% depreciation of the real against the dollar, adversely impacting the dollar-denominted debt (73% of total debt in 1Q13, versus 67% in 1Q12). This was partially offset by the decline in the CDI interbank rate, which reduced interest on CDI-indexed debt, such as the 4th and 5th debenture issues.

The exchange variation posted a gain of R$54.3 million in 1Q13, a decrease of 25.3% on the R$72.7 million recorded in 1Q12, due to the reduced volatility of the exchange rate in 1Q13/4Q12 (-1.5%) versus 4Q11/3Q11 (-2.9%), given that most of the Company’s debt is foreign-currency-denominated (73% of total debt in 1Q13).

Interest and investment income came to R$24.8 million in 1Q13, 21.9% down on the R$31.7 million posted in 1Q12, primarily due to the lower volume of cash invested in the period and the reduction in the benchmark interest rate (SELIC), given that most of the Company’s cash investments are pegged to the CDI.

Other financial expenses climbed by 20.0%, recording an expense of R$39.1 million in 1Q13, versus the R$32.3 million in 1Q12, due to: (i) higher payment of fees resulting from the waiver obtained with the institutions holding the Company’s 4th and 5th issue debentures in regard to non-compliance with the restrictive clauses; and (ii) the increasing in bank commissions between the periods due to new funding operations.

Income Tax

Income tax moved up by 173.2%, recording an expense of R$69.5 million in 1Q13, versus the R$25.5 million in 1Q12, chiefly due to the 237.7% upturn in expenses with deferred income tax. This variation was a result of: (i) the effect of the realization of miles constituted before the segregation of the activities of Smiles S.A. ; and (ii) the temporary difference on the foreign exchange variation of financial leasings, reflecting the 11% depreciation of the real against the dollar. 

Net Loss

In 1Q13, GOL posted a net loss of R$75.3 million, with a negative net margin of 3.6%, versus a net loss of R$41.4 million and a negative net margin of 1.9% in 1Q12.

Balance Sheet: Liquidity

Cash, cash equivalents, financial investments and short and long-term restricted cash closed the quarter at R$1,619.7 million, 24.9% down on 1Q12, and 2.2% up on 4Q12.

GOL maintained its strong cash position, with total cash representing around 20.2% of LTM revenue and 3.3x obligations due in the next 12 months (4.6x in 1Q12 and 0.9x in 4Q12). The reduction over 1Q12 was due to the year-over-year decline in LTM cash generation. When compared to 4Q12, there was an upturn of 2.2%, primarily due to the issue of Senior Notes totaling US$200 million in the period. The proceeds were used to pay short-term debts and to strengthen the Company’s cash position.

Short-term receivables consist mostly of ticket sales via credit card and accounts receivable from travel agencies and cargo transportation. At the end of 1Q13, these receivables totaled R$359.8 million, 10.5% more than the R$325.7 million recorded in 4Q12, essentially due to the period increase of 10% in volume of sales to travel agencies.

In May 2013, the Company added approximately R$1.5 billion to its cash as a result of: (i) the funds from the advance sale of tickets to Smiles S.A. (R$1.1 billion), including the full exercise of the greenshoe option within the context of the closing of Smiles S.A.’s offering on May 10, 2013; and (ii) the agreement for advance sale of miles from the Company subsidiary Smiles to financial institutions (R$400 million). These initiatives reinforce the Company’s commitment to maintaining its strong liquidity.

Balance Sheet: Indebtedness

On March 31, 2013, the Company’s total loans and financings came to R$5,346.9 million, 9.7% up on 1Q12, chiefly due to issue of Senior Notes totaling US$200 million (“Senior Bonds Notes”) and the 11% depreciation of the real against the dollar (73% of debt is dollar-pegged). In 1Q13, total loans and financings climbed by 3.0% over 4Q12, primarily due to the issue of Senior Notes totaling US$200 million in February 2013. This was partially offset by the appreciation of approximately 1.5% of the real against the dollar between the periods.

In 1Q13, GOL paid around R$140 million of credit lines, aligned with the purpose of the proceeds from the issue of Senior Notes in the period. The Company remais focused on its strategy to have an adequate debt amortization profile.

The current liquidity ratio (total cash plus receivables divided by current liabilities) stood at 0.6x in 1Q13 (versus 0.4x in 4Q12 and 0.9x in 1Q12). On March 31, 2013, the average maturity of the Company’s long-term debt, excluding perpetual bonds and financial leasing, was 7.3 years, with an average rate of 10.5% for local-currency debt and 9.0% for dollar-denominated debt.

The Company closed 1Q13 with a leverage ratio (adjusted gross debt/EBITDAR) of 27.9x, versus 37.6x in 4Q12 and 14.9x in 1Q12. The reduction of 25% in relation to 4Q12 was due to the process of recomposition of EBITDAR initiated this quarter. At the end of 1Q13, EBITDAR came to R$367 million, with a margin of 17.6%, higher than the R$258 million (margin of 3.2%) recorded in the entire 2012 fiscal year. The Company’s financial leverage metrics will gradually recovery over the course of 2013. 

As already disclosed to the market, on February 1, 2013 the Debenture Holders’ Meeting resolved to grant a waiver (“waiver”) in regard to non-compliance with the restrictive clauses, especially financial ratios and limits, contained in the indentures of the 4th and 5th debenture issues of VRG Linhas Aéreas S.A. (“VRG”), a Company subsidiary. 

Financial Debt Amortization Schedule (in R$ million)

The chart and table below show the amortization schedule of the Company’s loans and financings, excluding interest and financial leasing, on March 31, 2013. GOL remains committed to reducing its financial obligations over the next three years.

Main Financial Ratios

1- Financial commitments (gross debt + operational leasing contracts, in accordance with note 30 to the interim financial statements) less cash and cash equivalents and short-term investments; 2-Gross debt + LTM operational leasing expenses x 7; 3-Adjusted gross debt less cash and cash equivalents, short-term financial investments and restricted cash. Certain variation calculations in this report may not match due to rounding.

Operational Fleet

The Company closed the quarter with an operational fleet of 131 Boeing 737-700 and 800 NG aircraft with an average age of 7.1 years, and a total fleet of 148 aircraft.

 * Non-operational aircraft.

In 1Q13, another four of Webjet’s remaining leased B737-300s were returned, ending the period with 15 Boeing 737-300s, of which nine were leased and six were owned by GOL. The Company estimates that all leased aircraft will be returned by the end of the first half. The sale of the Company’s six Boeing 737-300s is currently being negotiated. The Company leases its fleet through a combination of financial and operational leases. Out of the total of 133 aircraft, excluding Webjet’s aircraft, 88 were under operational leases, and 45 under financial leasing. Of the 45 under financial leasing, 39 have a purchase option when their leasing contracts terminate.

On March 31, 2013, the Company had 150 firm aircraft acquisition orders with Boeing, totaling around R$31.2 billion, excluding contractual discounts. 

  * Considers the list price of the aircraft

Also on March 31, 2013, of the commitments mentioned above, the Company had obligations of R$3.9 billion in pre-delivery deposits, which will be disbursed as per the table below.

The portion financed through long-term loans with the US-based Ex-Im Bank, guaranteed by aircraft, accounted for around 85% of the total aircraft cost. Other agents finance the acquisitions with equal or higher percentages, reaching up to 100%. 

The Company has been paying for the aircraft acquisitions with its own resources, loans, cash flow from operations, short and long-term credit lines and financing by the supplier.

Future Fleet Plan