Gol Linhas Aereas Inteligentes S.A.(GOL) - 2023 Q4 - Annual Report

PART I Explanatory Note: Chapter 11 Filing GOL and its subsidiaries filed for Chapter 11 bankruptcy on January 25, 2024, securing up to US$1 billion in DIP financing to support operations during restructuring - GOL and its subsidiaries filed for Chapter 11 bankruptcy protection on January 25, 2024, in the Southern District of New York[16] - The company secured a Debtor-in-Possession (DIP) financing commitment, which was approved for up to US$1 billion to fund operations during the restructuring. As of the report date, all amounts under the DIP financing have been drawn[16] - The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from the Chapter 11 cases[20] Item 3. Key Information This section details significant investment risks, including uncertainties from Chapter 11 proceedings, Brazilian economic and political instability, and airline industry-specific challenges Risks Relating to Chapter 11 Cases The company faces substantial risks from its Chapter 11 filing, including challenges in confirming a reorganization plan, maintaining business relationships, and securing liquidity, with existing equity value highly speculative - Key risks include the ability to confirm a reorganization plan, emerge from bankruptcy, comply with DIP financing terms, and maintain relationships with creditors, suppliers, and customers[39][42] - The company has substantial liquidity needs for ongoing operations and significant professional fees related to the Chapter 11 cases, with no assurance that the US$1 billion DIP financing will be sufficient[48][49] - Trading in the company's ADSs is highly speculative, as the post-bankruptcy capital structure may dilute or completely extinguish the value of existing equity securities[123][124] Risks Relating to Brazil The company's operations are significantly influenced by Brazil's economic and political environment, including government intervention, currency volatility, and tax reforms, with substantial U.S. dollar-denominated costs and debt - The Brazilian government's significant influence over the economy, including changes in interest rates, tax policies, and currency controls, could adversely affect the company[56] - In 2023, 48.6% of total operating costs were denominated in or linked to U.S. dollars, while 94.3% of indebtedness was U.S. dollar-denominated, creating significant exposure to the depreciation of the Brazilian real[77] - Brazil's tax reform (EC No. 132/2023) aims to simplify consumption taxes, but its effects and interpretation are uncertain and could impact the company's financial condition[82] Risks Relating to the Company and Airline Industry The company faces industry-specific risks including fuel price volatility, intense competition, liquidity challenges, reliance on a single aircraft manufacturer, and ongoing going concern uncertainties in its financial statements - Fuel costs are a significant and volatile expense, representing 39% of total operating costs in 2023. The company is exposed to price fluctuations and supplier risk, with Petrobras Distribuidora being the primary source[85][87] - The company relies exclusively on Boeing for its aircraft (737 NG and 737 MAX models) and CFM for engines, creating significant risk related to manufacturer performance, delivery delays, or grounding of aircraft models[94][98][99] - As of December 31, 2023, the company had negative working capital of R$9.973 billion. The auditor's reports for 2021, 2022, and 2023 expressed substantial doubt about the company's ability to continue as a going concern[87][92] - Recent credit rating downgrades by Fitch, Moody's, and S&P in late 2023 and early 2024 may adversely affect the company's ability to secure financing and conduct business[93] Item 4. Information on the Company GOL, a leading low-cost carrier, details its history, recent Chapter 11 filing, and business units including airline operations, loyalty, cargo, and MRO, alongside the Brazilian airline industry context History and Development Founded in 2000, GOL pioneered the low-cost model in Brazil, with recent developments including its January 2024 Chapter 11 filing and March 2023 corporate reorganization under the Abra Group - On January 25, 2024, GOL filed for Chapter 11 bankruptcy protection to restructure its finances, securing up to US$1 billion in DIP financing[136] - In March 2023, a corporate reorganization placed GOL under the Abra Group Limited holding structure, which also has economic interests in Avianca, with voting control split 50/50 between Abra Mobi LLP and Abra Kingsland LLP[133][137] Operating Metric | Operating Metric | 2022 | 2023 | | :--- | :--- | :--- | | Revenue passengers carried (thousands) | 27,269 | 30,818 | | Load factor (%) | 80.0% | 82.0% | | Aircraft utilization (block hours/day) | 11.0 | 11.7 | | RASK (R$ cents) | 37.3 | 43.6 | | CASK (R$ cents) | 35.9 | 35.8 | | CASK ex-fuel (R$ cents) | 20.5 | 22.0 | Business Overview GOL's core low-cost airline operations are supported by Smiles, GOLLOG, and GOL Aerotech, featuring a standardized Boeing 737 fleet, significant domestic market share, and strategic international partnerships - GOL's domestic market share by RPKs was 33.7% in 2022 and 33.3% in 2023. The company holds a leading market share in key airports, including 44.0% at São Paulo (CGH) and 53.1% at Salvador (SSA) in 2023[141][144][191] - The fleet is being modernized by replacing Boeing 737 NG aircraft with more fuel-efficient Boeing 737 MAX aircraft. As of year-end 2023, the fleet comprised 97 NG and 44 MAX aircraft, with firm orders for 101 additional MAX aircraft through 2030[152][154][158] - The Smiles loyalty program is a key business unit with 22.6 million members as of December 31, 2023, generating revenue from miles redemption and partnerships with banks and retailers[196] - GOLLOG cargo operations are expanding, notably through a 10-year agreement with e-commerce giant Mercado Livre, utilizing a dedicated fleet of six Boeing 737-800 BCF cargo aircraft[202][203] - The company has strategic partnerships with major international carriers, including an expanded exclusive codeshare agreement with American Airlines and a renewed 10-year strategic partnership with Air France-KLM[182][185][188] Organizational Structure GOL Linhas Aéreas Inteligentes S.A. is a holding company with nine subsidiaries, primarily operating its air transportation business through GOL Linhas Aéreas S.A. (GLA) - The company is a holding entity with nine subsidiaries. The primary air transportation operations are conducted through its subsidiary GOL Linhas Aéreas S.A. (GLA)[262] Property, Plant and Equipment The company's main physical assets include corporate offices in São Paulo and three GOL Aerotech maintenance hangars in Confins, Brasília, and Congonhas, supporting its Boeing 737 fleet - Key properties include corporate offices in São Paulo and three GOL Aerotech maintenance hangars in Confins, Brasília, and Congonhas, which form one of the largest MRO centers in South America[263] Item 5. Operating and Financial Review and Prospects This section analyzes GOL's financial performance, highlighting R$18.8 billion net revenue and a R$1.2 billion net loss in 2023, alongside liquidity challenges, significant indebtedness, and Chapter 11 uncertainties Operating Results (FY 2023 vs. FY 2022) In 2023, GOL's net revenue grew 23.5% to R$18.8 billion, with operating income improving to R$3.3 billion, but a substantial increase in net financial expenses resulted in a R$1.2 billion net loss Financial Metric (in millions of R$) | Financial Metric (in millions of R$) | 2022 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | 15,198.7 | 18,774.0 | +23.5% | | Passenger Revenue | 14,153.1 | 17,251.5 | +21.9% | | Total Operating Costs | (14,641.6) | (15,435.0) | +5.4% | | Aircraft Fuel | (6,288.4) | (5,950.4) | -5.4% | | Maintenance, Materials & Repairs | (461.6) | (1,364.6) | +195.6% | | Income from Operations | 557.1 | 3,339.0 | +499.3% | | Net Financial Expense | (2,074.8) | (4,295.8) | +107.0% | | Net Loss | (1,561.5) | (1,222.3) | -21.7% | Operational Metric | Operational Metric | 2022 | 2023 | Change | | :--- | :--- | :--- | :--- | | RASK (R$ cents) | 37.3 | 43.6 | +17.0% | | CASK (R$ cents) | 35.90 | 35.85 | -0.1% | | CASK ex-fuel (R$ cents) | 20.48 | 22.03 | +7.6% | - Maintenance expenses surged 195.6% primarily due to higher costs associated with the return of six aircraft during the period[303] - Net financial expense more than doubled to R$4.3 billion, largely driven by a R$1.8 billion loss on derivative financial instruments, specifically related to exchangeable senior notes[306][314] Liquidity and Capital Resources The company's liquidity remains constrained with R$10.0 billion negative working capital and R$1.6 billion total liquidity, while total indebtedness decreased to R$20.7 billion, with significant future commitments for new aircraft - As of December 31, 2023, the company had a negative working capital of R$10.0 billion, an improvement from R$10.9 billion at year-end 2022[326] Indebtedness (in millions of R$) | Indebtedness (in millions of R$) | Dec 31, 2022 | Dec 31, 2023 | | :--- | :--- | :--- | | Loans and financing | 11,984.9 | 10,583.6 | | Lease liabilities | 11,207.0 | 9,441.4 | | Total indebtedness | 23,191.9 | 20,709.9 | - The company has firm commitments for 101 Boeing 737 MAX aircraft, representing a present value of R$18.8 billion (US$3.9 billion) for deliveries through 2030[327][352] - As of December 31, 2023, the company was in compliance with the financial covenants of its indebtedness agreements that require maintenance of specified financial ratios[350] Trend Information Brazilian air travel demand increased in 2023, but capacity remains constrained, with the company's operational recovery and revenue subject to uncertainties from fuel costs, political policies, and Chapter 11 restructuring - Domestic demand, measured by RPKs, increased by 5.9% in 2023 compared to 2022[366] - The company's average daily flights decreased by 9.0% in December 2023 compared to December 2022, indicating capacity constraints[366] - The financial statements have been prepared on a going concern basis, but do not include adjustments that might result from the inability to continue as a going concern due to the Chapter 11 proceedings[367] Item 6. Directors, Senior Management and Employees This section details GOL's governance, including its Board of Directors and executive officers, R$30.6 million aggregate compensation in 2023, and employee relations, with 13,837 active employees as of year-end 2023 - The Board of Directors is chaired by founder Constantino de Oliveira Junior. As of the report date, the board comprises nine members, five of whom are independent[374][378][379] - The executive team is led by CEO Celso Guimarães Ferrer Junior, who has been with the company for 17 years and is also a Boeing 737 pilot[391][392] - Aggregate compensation for the board of directors and executive officers in 2023 was R$30.6 million, excluding stock options[396] - The company has stock option and restricted share plans, with the combined total not to exceed 5% of preferred shares. In the last three years, 4.8 million stock options and 1.5 million restricted shares were granted[398][402][403] - As of December 31, 2023, the company had 13,837 active employees. GOL has not experienced a work stoppage since its inception and believes it has a good relationship with its employees and their unions[415][419] Item 7. Major Shareholders and Related Party Transactions This section details GOL's ownership structure, with control held jointly by Abra MOBI LLP and Abra Kingsland LLP, and outlines major related party transactions including transportation and commercial agreements Shareholder | Shareholder | Common Shares (%) | Preferred Shares (%) | Total Economic Interest (%) | | :--- | :--- | :--- | :--- | | Abra MOBI LLP | 50.0% | 18.80% | 24.90% | | Abra Kingsland LLP | 50.0% | 18.80% | 24.90% | | American Airlines Inc. | – | 6.60% | 5.31% | | Free float | – | 50.58% | 40.70% | - The company has ongoing transportation agreements with bus companies (Expresso Caxiense, Viação Piracicabana) that are controlled by its controlling shareholders. In 2023, expenses under these agreements totaled R$3.0 million[426][427] - GOL has commercial partnership agreements with Pagol and Comporte, entities owned by the company's main shareholders, related to financial products and the sale of Smiles miles[430][434] - Following the formation of the Abra Group, Avianca is now a related party. GOL has several agreements with Avianca, including for codesharing and loyalty program participation[437][438] Item 8. Financial Information This section details GOL's legal proceedings, with R$858.5 million in provisions for probable losses, and its dividend policy, which mandates a 25% minimum distribution but has seen no payments in the last five years Provision for Legal Proceedings (Probable Loss) | Provision for Legal Proceedings (Probable Loss) | Amount (in millions of R$) | | :--- | :--- | | Civil | 169.3 | | Labor | 442.8 | | Tax | 246.4 | | Total | 858.5 | - The company has several significant tax proceedings classified as a possible risk of loss (not provisioned), including disputes over goodwill amortization and social security credits, with total exposure exceeding R$1.4 billion[447][449][450][973] - In September 2022, GOL finalized settlement agreements with the Brazilian Federal Public Ministry, the DOJ, and the SEC regarding investigations into certain payments, agreeing to pay a total of US$44.9 million in fines and disgorgement[456] - The company's bylaws require a mandatory dividend distribution of at least 25% of adjusted annual net income. However, the board may suspend this distribution if it is inadvisable given the company's financial condition[468] - GOL has not distributed dividends in the last five years[480] Item 9. The Offer and Listing This section details the trading of GOL's preferred shares on B3 and its ADSs, which were delisted from NYSE following the Chapter 11 filing and now trade on the less liquid over-the-counter market - As a result of the Chapter 11 filing, the NYSE suspended trading of GOL's ADSs on January 26, 2024, and began the delisting process[483] - The ADSs are currently traded in the over-the-counter (OTC) market, which is less liquid than a major exchange[483] - The company's preferred shares (GOLL4) are listed on the B3's Level 2 of Differentiated Corporate Governance Practices, which requires adherence to higher standards of corporate governance and shareholder rights than standard listings[491] Item 10. Additional Information This section provides additional information on GOL's corporate structure, material contracts like aircraft purchase and fuel supply agreements, and the regulatory framework for exchange controls and taxation of its shares and ADSs - Preferred shares are non-voting but have dividend priority, receiving 35 times the dividend per common share. They also have tag-along rights in a change of control, valued at 35 times the price paid per common share[513][514] - Material contracts include a long-term aircraft purchase agreement with Boeing for 737 MAX aircraft and a commercial fuel supply agreement with Petrobras Distribuidora[555][556] - Brazilian tax law generally exempts dividends paid from profits earned after January 1, 1996, from withholding tax for non-Brazilian holders. However, distributions of 'interest on shareholders' equity' are subject to a 15% withholding tax (or 25% for residents of low-tax jurisdictions)[565][581] PART II Item 13. Defaults, Dividend Arrearages and Delinquencies The company is in material default on its debt obligations and has breached covenants, but Chapter 11 proceedings initiated on January 25, 2024, impose an automatic stay preventing creditor actions - The company is in material default on its debt obligations, including payments of principal and interest[638] - Actions by creditors regarding these defaults are stayed as a result of the Chapter 11 filing[638] Item 15. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with material weaknesses identified in 2022 successfully remediated - Management concluded that both disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2023[641][643] - Material weaknesses in internal controls that were identified as of year-end 2022 have been remediated during 2023[644] Item 16G. Corporate Governance As a foreign private issuer, GOL's corporate governance practices differ from NYSE standards, notably regarding independent directors and committee structures, while maintaining a statutory audit committee meeting SEC requirements - Unlike NYSE rules, Brazilian law does not require a majority of the board to be independent. While GOL has independent directors, they do not constitute a majority[657] - The company has a statutory audit committee whose members meet SEC independence requirements for foreign private issuers. Marcela de Paiva Bonfim Teixeira is designated as the 'audit committee financial expert'[663][646] - GOL does not have a dedicated compensation committee composed entirely of independent directors as required by the NYSE. Instead, its Corporate Governance and People Policies Committee reviews and recommends compensation policies to the board[665][666] Item 16K. Cybersecurity GOL maintains an integrated cybersecurity risk management strategy, overseen by a dedicated manager and various committees, with no material adverse effects on operations or financial condition reported to date - The company has a comprehensive cybersecurity risk management process that is integrated into its overall risk management system and strategy[675] - Governance is structured with a cybersecurity manager reporting to the Chief IT Officer, with oversight from the risk committee, statutory audit committee, and the board of directors[683][686] - As of the report date, risks from cybersecurity threats have not materially adversely affected the company's business strategy, results of operations, or financial condition[682] PART III Item 18. Financial Statements This section presents GOL's audited consolidated financial statements for fiscal year 2023, prepared under IFRS, including the independent auditor's report and detailed financial statements with accompanying notes Report of Independent Registered Public Accounting Firm Ernst & Young issued an unqualified opinion on GOL's 2023 consolidated financial statements, while including an explanatory paragraph highlighting substantial doubt about the company's going concern ability due to recurring losses and Chapter 11 filing - The auditor's report contains an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern[700] - The going concern uncertainty is based on recurring losses from operations, a significant working capital deficiency, and the company's filing for Chapter 11 bankruptcy protection[700] - The auditor identified 'Passenger transportation revenue' and 'Provision for aircraft and engine return' as critical audit matters due to their complexity and the subjective judgments involved[703][704][708] - The auditor issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[699][714] Consolidated Financial Statements The consolidated financial statements as of December 31, 2023, show total assets of R$16.7 billion, total liabilities of R$39.9 billion, an equity deficit of R$23.2 billion, and a net loss of R$1.2 billion for the year Consolidated Statement of Financial Position (in thousands of R$) | | Dec 31, 2022 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | 16,970,285 | 16,726,194 | | Total Current Assets | 2,993,543 | 3,028,253 | | Total Non-Current Assets | 13,976,742 | 13,697,941 | | Total Liabilities | 38,329,100 | 39,893,308 | | Total Current Liabilities | 13,861,247 | 13,001,593 | | Total Non-Current Liabilities | 24,467,853 | 26,891,715 | | Total Equity (Deficit) | (21,358,815) | (23,167,114) | Consolidated Statement of Operations (in thousands of R$) | | 2021 | 2022 | 2023 | | :--- | :--- | :--- | :--- | | Total Net Revenue | 7,433,384 | 15,198,725 | 18,774,024 | | Total Operating Costs | (11,267,979) | (14,641,611) | (15,435,046) | | Income (Loss) from Operations | (3,834,595) | 557,114 | 3,338,978 | | Net Loss for the Year | (7,183,804) | (1,561,473) | (1,222,259) | Consolidated Statement of Cash Flows (in thousands of R$) | | 2022 | 2023 | | :--- | :--- | :--- | | Net cash flows from operating activities | 2,168,772 | 1,821,748 | | Net cash flows used in investing activities | (787,510) | (871,989) | | Net cash flows used in financing activities | (1,673,546) | (626,458) |