Earnings Call: Q1 2020

May 14, 2020

Hello, everyone, and welcome to Azul's First Quarter 2020 Results Conference Call. My name is Beatrice, and I will be your operator for today. This event is being recorded and all participants will be in a listen only mode until we conduct a question and answer session following the company's presentation. I would like now to turn the presentation over to Andrea Botcher, Investor Relations Manager. Please proceed. Thank you, Beatrice, and welcome all to Azul's Q1 earnings call. The results that we announced this morning, the audio of this call and the slides I will reference are available on our IR website. Presenting today will be David Neeleman, Agul's Founder and Chairman and John Rogers, our CEO. Alex Nafetani, our CFO and Avi Shah, our Chief Revenue Officer, are also here for the Q and A session. Before I turn the call over to David, I'd like to caution you regarding our forward looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance constitute forward looking statements. These statements are based on a range of assumptions that the company believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in our CVM and SEC filings. Also during the course of this call, we will discuss non IFRS performance measures, which should not be considered in isolation. With that, I'll turn the call over to David. David? Thank you, Andrea. Hello, everybody, and thanks for joining us for our Q1 2020 earnings call. As always, I want to start by thanking our crew members who are making great sacrifices to take care of our customers, each other and the company. Amazingly, almost 80% of our crew members have elected to take unpaid leaves to help Azul during this unprecedented time. This is an incredible number and I'm very grateful for their support. It really speaks volumes about the amazing culture we have here at Azul. Thanks to the team, we have created one of the best airlines in the world. We started this year as the largest airline in Brazil by number of destinations. We are the number one airline with 83% of our markets we're number 1 in 83% of the markets we fly, one of the most profitable airlines in the world and one of the carriers with the best customer service. It is certainly better to start a crisis from a position of strength and weakness. The founding team of Azul has been with the company since the beginning. I have a CFO, then I made the President, and that is very rare. Having 2 CFOs at the company in times like these is very important. I'd also like to take this opportunity to reaffirm the management teams and my full commitment to Azul long term. There is nothing more important to me than Azul. It's such a great company. What gives Azul the greatest strength is the flexibility of its fleet, which you can see on Slide 4. We have anywhere from 9 seater caravans all the way up to 2 14 seater 321s in our domestic fleet, which gives us enormous amount of flexibility as we go forward. During times of uncertain demand, the best thing to do is to bring the demand in at the lowest possible trip costs. This is exactly what we are doing as we rebuild the network step by step. As demand recovers, we have more options to create to recreate our network than other airlines that have a larger single type aircraft. Abhi is building the schedules on a weekly basis, which allows him to constantly test demand, swap out aircraft at different times. So if we can only fill an ATR with the demand, we fly an ATR. If he fills if he can fill an Embraer, we'll fly an Embraer. If he can fly it with the 320 or 321, we can fly that. This is why we've been able to grow our central network since April and continue to look for opportunities to keep it going. We are currently serving 38 destinations with 115 daily flights and the revenue we are generating is enough to cover all of our variable costs, if not higher. Azul is fortunate to count on the support of many stakeholders, including crew members, aircraft manufacturers and lessors, banks, suppliers and the Brazilian government. We have developed a recovery plan that includes a contribution from all of our stakeholders and I am confident that we will come out of this crisis stronger. And with that, I will pass it over to John who will give you more details about Q1 results and our response to the crisis. Thanks, David. I would also like to thank all of our crew members, our customers, partners and suppliers and everyone who is contributing to Protect Azul's long term success. I'll give you a brief overview of our Q1 results and then we will focus on the initiatives taken in response to the crisis. Our revenues in the Q1 grew 10% year over year, driven by strong passenger demand in January February and a 12% growth in capacity. Azul came into this crisis strong with a stage length adjusted unit revenue expansion in the Q1, even with a significant increase of capacity. In addition, our cargo business delivered another strong quarter of results, with revenues up 41% year over year. Cargo continues to be a strategic business unit for Azul and we see a lot of potential for cargo in Brazil, especially in e commerce. We recently adapted several passenger aircraft into cargo planes to be used during the crisis. As you know, with the implementation of travel restrictions and social measures started in the second half of March, the Brazilian economy came to a standstill, leading to a sharp drop in passenger demand. Our results were further impacted by the 18% depreciation of the Brazilian real. As a result, we recorded an EBIT of BRL170 1,000,000 representing a margin of 6.2%. Normalizing for currency and COVID-nineteen, our EBIT margin would have been 14.9%. As you can see on Slide 6, we ended the quarter with significant sources of liquidity in unencumbered assets, totaling over $6,700,000,000 We have a strong balance sheet with no restricted cash. We also have our loyalty program TudoAzul, which can sell points in advance and is wholly owned and unencumbered. The value of our investment in TAP decreased to $937,000,000 due to COVID-nineteen. This amount includes the face value and accrued interest of the bond of approximately $700,000,000 The bond is guaranteed by TAP, who is expected to receive support from the Portuguese government. It's also secured by TAP's loyalty program. We will have the ability to convert this into cash. Moving on to Slide 8, we moved quickly and aggressively to reduce our costs and improve while taking care of our customers and crew members. Since the onset of the pandemic, we reacted quickly to make short term adjustments to our network by cutting capacity by 50% in the second half of March. On March 26, Azul is the 1st airline in Brazil to implement an essential air network, reducing its 950 daily departures to only 70. Since then, we've been carefully monitoring the demand recovery to gradually increase our network and schedules. It's important to highlight that we will only operate flights that generate enough revenue to cover its variable costs. This is why having a flexible fleet with the aircraft that have lower trip costs is key in the current environment. Moving on to Slide 9. Our quick reaction to reduce capacity contributed to a significant reduction in variable costs, which represents approximately 60% of our operating expenses. In addition, we implemented several initiatives to reduce fixed costs, including an over 50% reduction in payroll in the Q2, deferral of all aircraft lease payments, suspension of new aircraft deliveries, PDP payments and CapEx investments. Through the implementation of these initiatives, we significantly reduced our cash outflows. Moving on to Slide 10, our immediate response was has mainly been focused on preserving our financial liquidity to work through the crisis. We ended March with a cash position of $2,200,000,000 In April, our cash actually went up and we expect to end the Q2 with approximately $2,000,000,000 in cash. We expect to have a net cash burn of only BRL3 1,000,000 to BRL4 1,000,000 a day in May June. In addition, we have no PDP payments or aircraft CapEx commitments due in 2020. We have no significant debt repayments due this year. Moving on to Slide 12, we've addressed the immediate cash needs and now have developed a recovery plan to continue to engage all stakeholders, including crew members, lessors, aircraft manufacturers, suppliers and government authorities to maintain the liquidity required to confront this crisis and optimize the airline for the future. This plan is based on conservative assumptions. We used to have the capacity to fly 1,000 flights a day in December, but we're planning for only 400 to be conservative in December. As you can see on Slide 13, our plan is focused on several additional measures. We're looking at all payroll initiatives to adjust our fixed cost to the new demand environment. We're holding comprehensive renegotiations with the lessors to allow us to pay up as we increase our flight schedule. We're also seeking support from aircraft manufacturers and all OEMs. Yesterday, we announced the deferral of 59 E-two deliveries to 2024 and beyond. We have a great relationship with Embraer and are very excited about the E-two. Unfortunately, we had to push back our plans to take on more of these planes until the economy recovers. It's important to highlight that we also have 51 aircraft naturally exiting our fleet before these E-2s will arrive. This is excluding any potential subleases to LOT and Breeze, which still have signed contracts. To the extent that the market size changes post COVID, we want to be prepared. As mentioned before, we are no strangers to the short term challenges and remain confident in our long term targets. We entered this crisis as one of the strongest airlines in the world. Our fast response allowed us to build cash reserves for over 1 year. We're also taking conservative approach to demand recovery and have developed a plan to ensure a positive cash position in the long term. And finally, our flexible fleet gives us a trip cost advantage that no other airline in the region has. With that, David, Alex and I will take any of your questions. And For those following the call via webcast, you may post your questions on the platform and they will be answered during this call or by the Agua Investor Relations team after the conference is finished. Our first question comes from Seamus, Raymond James. Hey, good afternoon. If I can ask just a little bit more clarity on the fleet plans, I think you were expecting about maybe 68 E2s by the end of 2023. And does this mean kind of you'll only have kind of 4 more coming or just a little clarity on that? And then just to clarify, was the 51 aircraft that leads over the next few years, is that ex the E-1? No. So Savi, just quickly. So we have there is 4 built Embraer aircraft that we're working through. They're going to a lessor and we're working through that with them. First of all, what we found out is the greatest asset that anybody can have in this crisis is an airline that can actually pay their bills, right? And so the asset values don't exist anymore, not for a 7 37, A320, E1 or anything. And so what everybody wants is for airlines to be healthy that can continue to pay. So what we've decided to do is stop the incoming flow of aircraft and that was the big important step that we took. And so all aircraft that haven't been built yet will not come in and then allow us to take down the fleet as we go forward over the next couple of years. The 51 aircraft that we mentioned is the natural redelivery that we have, not that gets accelerated with Lott and Breeze. But a lot of people have questioned is LOT and Breeze still on. And they still have commitments with us. They will still take it, but every airline in the world is currently suffering. So we wanted to give a conservative assumption on that. And so the 51 aircraft that are leaving are several different aircraft types. We have A330 Seos leaving. We have E-1s leaving. We have ATRs leaving. We have 737 cargo planes leaving in that same period. And so what we've done is no new aircraft coming in from now until 2024 to give us the headroom in case the market is smaller in a post COVID world. And if things recover sooner, I'm guessing then are you able to kind of rework that or? Yes, absolutely. I mean, I think that the aircraft manufacturers would certainly like to deliver aircraft sooner and we're working through plans with them. As Savi, one other thing that I think is really important, a lot of the E-2s that we were taking, the initial E-2s were coming through, lessors. And so the lessors were actually very happy because it reduces their CapEx in the short term and their financing risk associated with financing aircraft as well. And so as we're looking for support in a step up plan for our leases, having the lessors taking a little bit of that burden off of them is great. And the other great thing is that we did this with no penalties. And so Embraer it's in Embraer's best interest to have a healthy Azul that will be able to take our full order in the future. And so we helped the lessors, we helped ourselves significantly in that process. And having that lessors healthier, it actually helps us as we look for their support as we move forward. Makes sense. And just on that same topic, last question is just how are you thinking about it then CapEx? And I know you get some color on 2020, what would that look like in 2021? I think it will be very much dependent on the recovery. If we have excess aircraft, we can stagger them and we can manage so that we do not have to incur any heavy maintenance checks and we can fly the aircraft that have available time without kind of tripping up any big maintenance milestones. And then if we're flying all of the aircraft, that's a good problem to have, right? And then we'll have the ability to perform those maintenance checks and we'll have the CapEx for it. But assuming the conservative scenario of demand recovery that we have assumed, you can assume no CapEx for the foreseeable future either. Helpful. Thank you. Thanks, Avi. Our next question comes from George Muilberg, Morgan Stanley. Hey, everyone. Thank you for the call and the questions. I wanted to first ask about your cash flow. When we had spoken to Alex around mid April, I think you were indicating a monthly cash burn of $150,000,000 to $200,000,000 And the new guidance implies a number that's considerably below that. I know that there are a lot of moving parts, but just wanted to better understand the specific variables behind the improvement, if I've got the numbers right? No. Hey, Josh, I think you do. But yes, we have seen an improvement from what we originally assumed. And there are a lot of moving parts like you said. I mean, one thing that's encouraging is that when we say that we're flying flights that cover their marginal cost, we're actually seeing that it covers, it's not breakeven, right? There is a good cushion there between the variable cost of the flight and the revenue that we are getting, right. And that's why you're also seeing a significant increase from the number of flights that we flew in April, to the number of flights that we're flying in May. Obviously, it's still a long way to go until we get back to the almost 1,000 flights a day that we used to fly, but that's part of it. And we're also finding a lot of cash sources that we're working through. And some of these are under negotiation, some of these we conservatively assumed that we wouldn't be able to get, but we were able to execute on them. So for example, kind of replacing cash collateral for insurance. So some of these initiatives, which are outside of our control, originally we didn't assume that we were able going to be able to tap them to be conservative, but we have been able to execute upon them. And also, like John said, it's in our suppliers and lessors' best interest to support Azul in this period because the way for them to maximize their payout is for us to get to the other side, right, and have a healthy cash generating airline after this crisis. That's the best way that they will be doing the best favor for themselves. And that's what we've been seeing that over time we've been able to get these stakeholders to support us in a stronger way than we originally expect. Okay. And as a part of that and talking about your stakeholders, it sounded like from your comments that you're a little further along in your agreements with lessors than you were a month ago. I think you mentioned that your payments would move in tandem with you're putting back the capacity. But can you talk a little bit more about that? Yes. That's the construct. The conversations with the lessors are being very positive and again very collaborative because it's the intersection of what's best for Azul and best for the lessors, right. It's not a sort of a zero sum game here. If everybody helps Azul get to a cash generating position, everybody will benefit. So that's the concept. We don't want to commit to something that we can't deliver. And also the lessors know that it's not constructive for us to just promise them to pay them something that we're not able to pay. The best way for us to pay the resource is to pay them as we start generating cash by operating, right. So that's the natural profile of what the payment should look like because anything that deviates from that, it's just not realistic, right. And so we're still talking to most of our listeners. We have agreements with some of them as well. But we believe that with a ton of the conversations that we're having with the sharing of our plan, the conservatism of our cash recover of our demand recovery plan, This is all kind of coalescing around the management recovery plan that we mentioned, which kind of aligns all stakeholders' interests and gets contributions from all of our stakeholders. Whatever stakeholders want to do first is make sure that this plan is equitable, right? The worst thing I think for a lessor is for them to pay more of the tab than the other lessor. But if you're treating all the source fairly, they understand, right. They it's really the best way for themselves to get the maximum payout possible. And same thing among banks, same thing among suppliers, same thing among all of our stakeholders, right. It's treating kind of each category equitably and making sure that we get to the other side of this crisis. Hey, Josh, I would just add a couple of things. 60 days ago, a lessor would call and say, hey, I want to get paid, I want to get paid, I want to get paid. Now they're calling and saying, how are we going to help, right? And I think it's completely changed the tone. I think the world has grounded airlines. And so everybody they're taking 10, 12 year risk on Azul, right? And I think that that's something that they need us to be healthy because their asset has no doesn't have value right now. Their asset is the airline customers that can pay them. And so I think had we cut deals 60 days ago, we would have done suboptimal deals. And so what we wanted to do is we want to take care of the immediate cash needs and we've done that and now we're going to roll out a comprehensive plan with all of our stakeholders and kind of, hey, we're going to build it up. As Abhi builds the schedule back up, you'll get paid accordingly and we're all in this together, right? We're all we all want Azul to be successful. And so we're going to do that. We're going to work very closely with them and they're our partners. Okay. That's very helpful color, John and Alex. And talking about the interest of keeping you guys healthy, the government probably has that interest too. And so I was just wondering if you could also touch on the status of the BNDES funding. Obviously, there's been a lot of different reports out there, but one thing that seems to be the case is that the BNDES may be contemplating a lower amount of funding than it had previously and that they are in fact insisting on a private market participation? Hey, Josh. I don't know if you can address that. Josh, I think the country is in a tough spot right now, right? And so I think that maybe what was previously announced and what they're able to do is going to be different. But I will tell you that one of our largest stakeholders is the Brazilian government. We paid BRL2.5 billion last year in taxes, right? And so a healthy Azul is very important to Brazil. When you talk about how many cities we serve, our importance to Embraer, our importance kind of across the board. And the reality is, they don't have as much money as they previously thought, right? And I think that I think they would love to kind of help fund the industries like you're seeing elsewhere in the world, in the U. S. And in Europe and other places. But I don't know that they have that. I think it's disappointing that the dollar amount is lower. But I think that, you know what, it brings a lot of clarity to us as to what we need to do. And so I think it's going to make the conversations with all of our stakeholders a lot easier. Hey, we are going to get this back. We had one of the best airlines the world. We are going to be back there. Everybody is going to get paid in full. Let's just move forward. I think the good thing about the BNDES deal is it's equal, right? And so what I get is what GOL gets, what LATAM gets. And so there's nobody kind of getting a preferential treatment one way or the other. Nobody's negotiating a better deal or a worse deal. And so look, any money is any money is welcome right now, obviously, because it helps us across the board. But again, I think we're disappointed that it's not bigger. I think it would but we will do what we need to do to have a strong airline over the next 18 months and certainly we will do everything we need to do to have a strong airline 10, 20 years from now. Okay. Much appreciated. Our next question comes from Matthew with Numiqui, Barclays. Francisco, your line is open. Matthew, your line is open. You may proceed. Hi. Sorry about that. Thanks for taking my questions. Sorry, Matt, we can't hear you at all. Sorry, Matt, you're breaking up. Maybe we'll go to the next question and we'll come back to you, Matt, if we can fix your line. Our next question comes from Mike Linenberg, Deutsche Bank. Yes. Hey, good morning, everybody. Couple here. So you've been able to work a deal with Embraer and to push those airplanes back a few years. Where are you with respect to Airbus? I know you mentioned that you were in talks with them as well as the engine manufacturers on the airplane. How many neos were you expected to take maybe this year, next year? And what is the right number? Or does it seem like no airplanes for the next few years is the right number? Mike, obviously no airlines for the next few years is the right number. I think getting Embraer done and being Brazil's largest domestic carrier in terms of destinations and being how important we are to Embraer is a clear signal that we want to send to Airbus. It's a negotiation, right. And so we have to negotiate. I think all OEMs want to deliver aircraft and no airline in the world wants aircraft. And so it's an active negotiation, but we wanted to set the example with Embraer and use that in our discussions. We're talking about deferrals. We're not talking about cancellation. And I think as depending on how the conversation goes, it could get to cancellations. I think it's in Airbus' best interest to try to keep it keep the portfolio alive and make sure that Azul is healthy, so that we'll be able to take the full complement of their aircraft over time. Yes. And the big aircraft number that was coming, Mike, were Embraer. So if you remember, we were kind of halfway done with our fleet transformation, and we already have over 40 neos. So the next couple of years, we're going to be primarily replacing E1s with E2s. So on the Airbus side, we're talking about low single digits. It's not it's nothing as relevant as what we had on the Embraer side. But we also believe and we're pretty close to agreement with Airbus as well. So you can essentially consider that we will not take aircraft that we don't need. Okay. Now that's helpful. And then maybe just a question to Abhi. It was interesting to see that you are ramping up a little bit May versus April. We know in the U. S, it seems like that the low point was mid April. Our sense was that Latin America was maybe a month, maybe 6 weeks behind the U. S. So sort of maybe it's a 2 part question. 1, have you seen the bottom or did you as you cut and LatAm cut and Gold Cut, did you realize that opportunistically and because of your fleet and the fact that like you mentioned you fly all the way down to, I guess, ATRs and caravans now with the 2 Flex acquisition. Were there markets there that you realized you could serve and like you said that they would cover the variable costs that it made sense and so that the additional service is less a function of demand improving and just you being more opportunistic. I'm just really curious about the ramp back up. And I realize it is modest, but it is noticeable. Yes. Hey, Mike, thanks. Yes, so in terms of the bottom, I think that we are well off the bottoms, which is good news. I would say the bottom in terms of demand was in 2nd week of April, 2nd and third week of April. And we have seen a bounce back from that, which is very good. The size of the bounce is sort of commensurate with how we've been ramping up the demand, the network. So we're kind of going face to face with what we're seeing in terms of demand. And so that is good news. In terms of how we are deploying the fleet, as David said, it's flexibility. So we are flying today caravans in markets. Used to fly with ATRs before. We have ATRs flying in the north, for example, in cities like Belem, which we supply Embraers. And we have Embraer's flying A320 routes, for example. So we definitely are using, I would say, 2 really, really powerful tools to bring back the network. And the first is flexibility. Smaller aircraft feed bigger aircraft. We're using our multiple hub structure. Obviously, Campinas, Bella Horizonte and Recife. And we're recreating the hub structure that we had. And we're driving a lot of connectivity. If you remember, Azul was always a very connected airline and now that's even more important. Corporate demand is not back yet, especially big corporate demand, which tends to be more local. And so it's really connecting demand that's driving the bulk of the revenue right now. And 90 of our 100 daily flights on average are in Compinas, Confins or Belluangi or Recife. Of the 59 routes that we're flying, only 4 of them have airport to airport competition and not even on a daily basis. And so it's very much, the Azure network flying very much within our hub structure where we are strong. And that's allowing us to ramp up because we have the aircraft that we can use to access demand and we see how it goes. We actually had one route, believe it or not, that we started with caravans, went to ATRs, now flying an A321, up in the north actually. And so and what we've been able to do is thanks to our crew members, our pilots and flight attendants, we have the ability to roll out a schedule on a weekly basis, including crew schedules. So we are planning revenue, system operations and crew scheduling, upgrading, downgrading aircraft by week, launching a new crew schedule every single week and that allows us to take opportunities in the network. So we're launching new routes actually by week to see what works. We're removing some stuff that doesn't work. So that's sort of how we're thinking about it. Obviously, unit revenue is important. We have to be able to generate variable cash. That's really important. And we have to be able to contribute to the network, which we already have. So the flexibility together with the connectivity is really important and that's allowed us to bring back the network. And we'll keep doing this. We're discussing this week and early next week, we'll start rolling out early part of June. One thing that's really helping also, it's helping and makes things a little bit more difficult is demand is actually very close in, right? There are a lot of Brazilians right now that are looking for the second half of the year. And so even if you have a flight, a new route or a new flight out to sale, out 2 to 3 weeks, that's like more than enough time right now. And so that's sort of giving us opportunities to put flights pretty close in to see what works. So it's kind of all of these combinations that allowed us to bring back to about 118 flights a day on peak days, where we are now and we're currently in the process of evaluating early part of June. And Mike, we've also done a lot of kind of charter flights to repatriate Brazilians. So we actually had our 3:30 was in Rome yesterday picking up Brazilians. We flew to Lima and we have flights going to China to pick up medical equipment. So we're trying to utilize our fleet as much as we can in that way as well. Yes. And also just to add, we've dedicated 2 A320 aircraft. We've adapted 2 A320 aircraft for all cargo operations with the boxes on the seats. Of course, we have ATR quick change. We have our 2 freighters. So we have almost 9 aircraft sort of dedicated to the cargo team and they're making hay while the sunshine, so which is also good. Thanks. That's a fantastic answer. And I don't think there's any airline in the world that probably has the ability to do crew bids on a weekly basis. So that does speak to the flexibility. Just one quick last one, and this is probably to John and Alex. So the burn now is $3,000,000 to $4,000,000 per day. And I think at the end of the day, whether we get to the 4th quarter and revenue is down 80% or down 30 percent, obviously, we're hoping for the latter. The fact is, I'm sure that you have to get to breakeven no matter what the backdrop is. And my sense is that it's a come hell or high water situation for you. Where at what point can you just walk us through the trajectory of the 3% to 4% now and where do you think you are 3rd quarter, Q4, maybe early 2021? Do we get to that cash breakeven? Is it the fixed cost basis tied to the fleet and the fact that you do have a sizable number of aircraft leased? Does it make it more difficult to get to that breakeven? How are you thinking about the trajectory or at least the pace of the trajectory? And thanks for my questions. Mike, I'll start and then I'll pass it over to Alex. We will do whatever it takes. Okay. It's that simple, right? We will do whatever it takes. We're owners of this company. We built it from scratch. We will do whatever it takes to get Azul to the other side of this. We have several stakeholders that will do whatever it takes as well because they are long term partners of Azul. Okay? And so they've been extremely flexible on payment terms as of right now and we need to get back to a more healthy economy where we're flying majority of our fleet. But we will do whatever it takes. And so, our Chairman is one of the most optimistic guys I know, but we're having an earnings call telling you we're planning for a 40% flight schedule in December, okay? And so that means that pushing out all these E2s, it shows a conservative approach by management. It's not appropriate to be taking new metal when we're asking for our current partners to step up and help us, right? So that was a big signal as well to our current partners. It's like, look, we're not going to bring new metal in unless you're getting paid $100 on the dollar, right? And so that's one of the big signals that we wanted to bring to all of our partners. I'll let Alex kind of talk through the specific attachment. Flow. Yes, Mike, you're right. I mean, it's going to be easier for us to get to breakeven as the demand comes back. But it's also a question of the variables that we are working with, right. So depending on demand, but also depending on our cash position, depending on our cash sources, right. How is the negotiation with the BNDES evolving? What other sources? The world is not going to be unfinanceable forever. There's going to be a point where and even now you're seeing some airlines tapping the capital markets and there will be a point where we will be able to tap the capital markets where we will be interested in accepting the terms that the market is looking for. And so all of those external variables are going to determine what we're going to do. And that's how, as John put it, we're going to do whatever it takes. So what we're doing here is we're preparing all these different scenarios, right, and obviously kind of preparing for the worst. And preparing for the worst means that even if demand doesn't come back, the cash outflow is going to reduce as required, right? And we'll make sure that the franchise is alive and well for when the recovery starts. So the development or the evolution of this cash flow will very much depend on what the outside variables will look like. And we have a strategy for each one of the sort of scenarios that we're looking at. And some of these are, like you said, easier to execute and more friendly and we're looking forward to those scenarios and hoping we're going down those roads. But if we're going down the roads of a more delayed recovery, and we'll adjust accordingly. And Mike, just back to what I was saying earlier, lessors, banks, crew members, everybody depends on Azul, airports, right, the Brazilian government. And so all these people are going to say, hey, let's get through this, right. I mean, this is not this was not a mismanagement of a business that led us to where we are today. This is something completely out of our control. It's out of Brazil's control. And so we're going to have to get through it. And so it makes the decisions a lot easier and a lot clearer when you take a conservative approach and say, hey, this is what we're going to do. And we're all united. I mean, this management team has been together for 12 years, right? And so we know each other. We know what we are capable of. And it's we are back to old Azovilly, right? It's a small airline again. We're going to build it right back up. And so we're excited to build it back up. We talked about, hey, when we put these flights back on, we're going to do it differently this way. We're going to be more efficient this time. We're going to make sure we do things better. And so we're going to build this back up. And what Alex has kind of continued to say is, we have an unbelievably great franchise. Nobody flies to where we fly to. Nobody has a product that we have. Nobody has the crew members we have. Nobody has the partners we have. That's the greatest asset of all. We have the best business in the world and we are going to come back from this. It sucks right now. It sucks for all of us right now. It sucks for every single person on this call right now. But we're going to come back, right? And we're going to come back because we're going to do everything we have to, to come back. And so this is an unbelievable great franchise that was built and we're proud of it and we're going to see it through. Very good. Thanks for taking the time. Appreciate it everyone. Our next question comes from Pablo Montivay, Barclays. I think we're having some kind of trouble with Barclays line here. Your line is open. Yes. Paolo, for Matthew and Paolo, maybe we'll call you out later. Paolo, are you there? Yes. Go ahead, Pablo. Okay, perfect. One question I have is, if you guys can help me to reconcile your amortization schedule. I think that you have short term debt for BRL4 1,000,000,000. However, when I see your amortization table for the next three quarters, it's R46 $1,000,000. So it is correct to think that you have like 3.5 amortization obligation in the Q1 of 2021? Yes. No, that's an easy one, Pablo. As of March 31, we have a facility with OPIC on engine maintenance financing that as of March 31, it's the only covenant that we have that is measured on a quarterly basis. So as of March 31, we had reached the covenant, but we've received a waiver already. So for balance sheet purposes, we have to put it in short term. But for practical purposes, because we already have the waiver and we have the waiver actually until the end of the year in advance already, it's not really a short term debt anymore. Okay. That's great. And regarding your leveraging your receivables, I remember that the conversations we have had, you already have $1,000,000,000 of that in. I'm not sure if that $1,000,000,000 is already in the Q1 numbers. Do you have any info on that? No. So the ability to leverage receivables is something that's related to the credit markets, right. So it's something we believe we'll be able to tap into over time, But it's not something that we're looking at right now. What we're doing is advancing receivables, right? That is still ongoing. It's still functioning. So again, for those on the line that maybe are not familiar with the Brazilian market, we sell and all of all the businesses here in Brazil sell a lot in installments, in credit card installments. And you can either pull those installments forward and get cash today, which is what we're doing, or you can let that balance be used as a partial collateral for debt, right. We've done that in the past. We will be able to do that in the future. But right now, we're just advancing the receivables. Okay, great. And one last question, if I may. On your cash burn ratio, what is the estimate of lease payments right now? As of right now, today it's 0. But as we go forward, it will ramp up according to the demand environment and our operation. Flight schedule. As the flight schedule steps up, it steps up. Our next question comes from Stephen Trent, Citi. Hi, good morning everybody and thanks very much for taking my questions. Just a few quick ones for me. One, I saw you guys provided some very helpful detail on the hedge positions and I guess you've immunized kind of a piece of the fuel hedges for this year. Could you tell me more or less sort of on a net on net what percentage you now have covered for this year, just in case I misread it? Thank you. Sure. So based on the conservative schedule that we assume, we're roughly we're a little bit low 50% hedged for this demand. Obviously, if this demand kind of changes, that number changes. But what's important, Steve, is that we should not expect any big cash outflows from these hedges, right. We've been negotiating with our banks and we've made some payments in March and especially in March. But over time, whatever payments we need to make will not impact our short term cash position. We will be either rolling those contracts forward or we will be rolling over the payment, the settlement of these hedges. Okay. Very helpful, Alex. And just another quick one. I think this might be for Abhijit. Abhijit, what you very helpful detail in terms of the connecting traffic has kind of driven the bounce, not corporate demand, but non corporate demand. When do you guys think about the cadence of the potential recovery? Is it fair to say that some modicum of corporate demand has to return before Azul might start to think about testing higher fares? Yes. Hey, Steven. Yes, I mean, look, absolutely, corporate demand is a big part of all demand in Brazil, especially the big companies like Vale, Petrobras, the banks. They are some of the biggest consumers of air travel in Brazil. So one thing that's held corporate travel back is Sao Paulo is still under quarantine, right, which has been extended until May 31. And we'll have to see kind of how the numbers are and what kind of recovery looks like. Sao Paulo is obviously the biggest consumer of air travel in Brazil. And so that drives a lot of demand across the entire domestic network in Brazil. So yes, corporate is going to be very, very important and it's something that we're watching very carefully to measure how we bring back the network. Our commercial teams are continuously talking to our corporate customers, our travel agency partners. And we are seeing some signs like Fiat, for example, is bringing back about 30% of their production and things like that. But we haven't really seen any big signs yet from the banks, for example, that they're bringing back corporate travel in a big way. The banks are a big sign, Vale, things like that. So I think we have to wait for a little bit of Sao Paulo demand coming back, the Sao Paulo state, the interior of Campinas region before we make broader steps in terms of the network. But obviously, we're evaluating everything we can. We're trying to find pockets of demand. I would say right now the oil and gas sector is probably overachieving in terms of who's flying and the financial sector is probably underachieving in terms of what's flying. And that's what we'll watch for over the next couple of weeks. Okay. That's really helpful. I will leave it there. Thanks, Avi, and I hope all you guys are good and healthy. Take care. Thanks, Javier. Our next question comes from Florenta Mayorte, MetLife. Hi. Thanks for taking my question and thanks for your time. Just a couple of questions. The first one is regarding the financial covenants. I saw in the financial statement of 2019 that you have 2 covenants, once regarding to the local inventors, another one regarding to aircraft financing. The second one is measured quarterly. I would like to double check if you are already asking some waiver because leverage already pick up to 5 times and the leverage the covenant is at 5.5. This is the first one. And the second one is regarding to the cash burn, it includes the principal payments. Thank you. Yes. So on the covenant side, the one that's measured quarterly as you mentioned is the one that we mentioned to Pablo that we already received a waiver not only for Q1, but also Q2, Q3 and Q4. For the other one, it's the same counterpart that has both the debenture and the aircraft financing. So it's really just one discussion. It's kind of 2 facilities, but one discussion with 1 counterpart. It's measured annually. We are already in discussions and we have full confidence that we'll be able to get a waiver. We've gotten a waiver from this counterpart in the past back in the Brazilian recession 2015 or 2016. They're great partners of ours. So we're very confident that we will get a waiver on that, but it's only measured at the end of the year. On the cash burn, like we mentioned, there are no significant debt repayments this year. The main one that we haven't rolled over yet is also the debenture that expires only in December. So the cash burn includes interest, it does not include principal, but we don't expect there will be a cash outflow related to that principal. And in Q2, which is the $3,000,000,000 to $4,000,000,000 cash burn that we mentioned, there's no principal payment. Our next question comes from Victor Mizusatti, Bradesco BBI. Hi. I have two questions. The first one, we have seen a lot of discussions about the seat configuration given the COVID-nineteen. So I'd like to know if you haven't had any kind of discussion with the Brazilian government in order to mitigate this kind of risk. And the second question, let me take a look on your numbers. We can see sublease receivables going up in the Q1. So just to double check if this is related just to FX or for example, TAP is not paying? Hey, Victor. Abhi here. I'll take the first one regarding the seat configuration. One thing I think the industry is doing very well is communicating a lot with the customer on safety on board, right, regarding cleanliness, masks, all those kinds of things. There's been no discussion and there's been no request for discussion regarding seat configuration. We don't believe it's on the agenda for the Brazilian industry. Nobody has raised it. Nobody has asked about it. And I think the industry by itself is doing a very good job communicating that it's safe on board in terms of air quality, in terms of cleanliness, using masks, all those kinds of things. Pretty much all the airlines are doing similar things. And I think we need to continue this so that we all make the customer feel confident when they fly. I think it's in everybody's best interest to do so. We are not planning any changes in seat configurations. We do not have any limitations on seat configurations right now. We are flying 118 flights today with customers on board. And all this time, I don't have any reports of customers wanting to get off the plane because they don't want to sit where they are, of customers not being confident or customers not comfortable regarding the flying experience. So I think the airlines are doing a good job of communicating. I think we got to keep doing this, but we have no plans or are in no discussions about changing anything in regards to seat configuration. I would just add to that as well. We've got over 13,700 crew members and to date we have 25 cases of COVID in our entire company. And only one of them was hospitalized. And so we have a very young population, a very healthy population that travels. And so we've taken great care. We're measuring the temperature. Everybody's wearing masks. And so I think we're really looking very closely to ensure that our crew members and our customers are safe when they travel. One your question referenced to TAP, it's a standstill for everybody with respect to lessors, right? And so we're not paying the lessors in the Q2. So there's no reason for TAP to pay as well, right. We're kind of united in that through our partner. They've halted flying for the time being to preserve cash. And so it's simply that. And so their obligations remain the same, but we've kind of across the board have done a standstill. And so that's all that you're seeing there. Okay. Thank you. Our next question comes from Zima Mitueneyu, William Blair. Yes. Thanks for taking my question. Just a confirmation on the amount of the BND deal. So the recent headlines talk about BRL4 1,000,000,000. This amount refers to all 3 companies or on to you and GOL? And do you have a very specific deadline to go for it or there is a flexibility around that? Thank you. So we haven't decided yet on we have a call today with them to understand better the structure, what it means. They've set aside $4,000,000,000 They said it's for 1 to 3 carriers, right? And so I think that that's the total amount if it's divided by 3, obviously it's less. If it's 2 airlines take it, it's more. And so but we're working through that, right? We need to understand it. It's kind of a different structure than what we're used to. And but we're we have several questions with them and we need to make sure that if we were to potentially take that and we haven't decided yet, whether it gives us the flexibility we need to rebuild the airline the way we believe it should be rebuilt. And so we're working through that. And I think what will most likely happen is most airlines will get to the next step with them. And this is still something that's quite about 45 days away from any funding. And so kind of getting to the next stage is probably important, but that's the only thing that we have to say about it right now. We give you further clarity on it as we move forward. Our next question comes from Savi Syth, Raymond James. Hey, thanks for the follow-up. Just a clarification on the cash burn and just generally on revenue, which you're seeing the commentary previously was very helpful. Just wondering if as you're kind of selling these slides, what level of revenue you're seeing and if that's mostly kind people using up vouchers or are you actually getting kind of cash in and what level is assumed in that kind of cash burn figure? Yes. Hey, Savi. Yes. So actually, it is cash in. I would say, I mean, the vast, vast majority is cash in. We do obviously are have travel credits out there. But I would say that customers really haven't decided yet when and how to use those travel credits. So we're tracking this every day and the vast, vast majority of the money coming in is new cash in. And one thing as I'm looking at with regards to these flights is not just sort of the revenue on the flight. Does that cover the variable cost? But more importantly, does the new cash in cover the cash going out in terms of the operations of these flights. And that really is even more important right now to make sure that the new real cash coming in, whether it's credit, whether it's debit, whether it's cash, net of vouchers, net of travel credits is able to cover the variable cost. And even with netting out sort of those types of forms of payment, the new cash in coming in itself is able to cover the variable cost of these operations. And that is our goal going forward to maintain it that way. That makes a lot of sense. Thank you. Our next question comes from Mike Linenberg, Deutsche Bank. Just a quick follow-up here. I know just early in the call, I think, John, you had mentioned that TudoAzul is a potential source of liquidity. I know you've tapped it in the past for sort of the Advanced Mileage sale. What would be what do you think is the potential capacity there? And maybe even since the timing, is that a 2020 type event? Any color on that would be great. Thanks. Sure, Mike. So Tunica's tool brings in on average about a R1 $1,000,000,000 a year from outside the Azul system, right. So not including the points sold to the airline. So real cash brought in from banks and from retailers and from customers themselves, right, because that's a big part of TudoAzul's business. We have the club, which is a monthly subscription plan, which is actually very resilient in this situation. We still have a lot of members paying monthly their dues in the TudoAzul club and that's great cash coming in the door. So that's up to $1,000,000,000 If we could structure it like let's say in a very friendly environment, right, I think you could have as much as R2 $1,000,000,000 to pull forward from 2 years, right. I think partners would be comfortable with that and there are ways to kind of structure. Obviously, in this environment, we're not talking about anything in this magnitude. I think today, we are in current negotiations to actually bring in as much as $200,000,000 Those are kind of term sheets that are being exchanged right now. But as the situation improves, I think that's what people are willing to advance given the situation that we are today, how much we're flying and also on their side, how much their customers are using their credit cards, right. That affects sort of the demand for points. But as we recover, everything benefits, right, everything improves because people will use their credit card more, they will get more points, they also get more comfortable on their own economic situation. And also we will have more flights to offer to them, which also helps, right? So I think we're sort of in the bottom. I think that today we could get at least a couple of 100,000,000. Dollars I think this could increase as the situation improves. Very helpful. Thanks, Alex. Ladies and gentlemen, this concludes today's question and answer session. I would like to invite John to proceed with his closing statements. Please go ahead, sir. I'd like to thank all of you for joining us today. We're working hard. We're going to get through this, especially with our great crew members on our side, our great partners. And so you have any individual questions, feel free to follow-up with Andre or Alex, myself or Avi. We appreciate everybody taking the time. Stay safe. Ladies and gentlemen, that does conclude the Azul's audio conference for today. Thank you very much for your participation and have a good day.