GOL Records 4Q10 Operating Income of R$261.9mm

EBIT moves up by 120% over the same period in 2009, with an operating margin

of 14%, the highest for four years

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        GOL ended the quarter with a leverage ratio (adjusted gross debt / EBITDAR) of 5.0x, versus 6.4x in 4Q09 and 5.6x in 3Q10. The adjusted net debt / EBITDAR ratio was 3.7x, compared to 5.2x in 4Q09 and 4.3x in 3Q10. GOL therefore achieved its end-of-2010 leverage ratio, and is in the group of airlines capable of reducing its leverage and generating cash. The Company intends to further reduce its leverage ratio to below 4.5x and its adjusted net debt / EBITDAR ratio to below 3.5x for the next 18 months. 

      Total cash (including cash equivalents and short-term investments) closed the quarter at R$1,978.6mm, an 11.9% increase over 3Q10 and 37.2% up on 4Q09, equivalent to 28.3% of LTM net revenue, therefore achieving its 2010 target of maintaining at least 25% of net revenue.  

      In January 2011, GOL signed a new code-share agreement with Qatar Airways, the flag carrier of the State of Qatar, which operates direct flights between Doha (the country’s capital) and São Paulo. The agreement will permit mileage accrual on all flights operated by both airlines. As a result, the “GOL Alliance” now includes six major international players: American Airlines, AirFrance/KLM, Delta Air Lines, Iberia, AeroMexico and Qatar Airways.

      In 2010, GOL also signed new interline agreements with the regional airlines NOAR Linhas Aéreas and Passaredo Linhas Aéreas. Thanks to these partnerships, GOL added more new regional destinations (Bauru, Montes Claros, Caruaru, Mossoró, Marília, Ribeirão Preto, São José de Rio Preto, Barreiras, Vitória da Conquista (in the Bahia State) and Ji-Paraná (in the Rondônia State); and international destinations (St. Maarten, Punta Cana in the Dominican Republic, Bridgetown in Barbados, and Jorge Newbery Airport in Buenos Aires).

       GOLLOG did exceptionally well in 2010, completing 10 years of regular operations in January, with almost 100 units and coverage of more than 2,000 municipalities. In September 2010, it opened a new terminal in Congonhas airport in São Paulo, Brazil’s most important domestic airport. Cargo revenue has been making an increasing contribution to ancillary revenues and climbed by 50% over 4Q09, while its share of net revenue stood at 4.0% in the quarter, versus 3.0% in 4Q09. GOLLOG’s end-of-2011 target is to reach 144 units and cover up to 3,000 municipalities.

       Buy on Board, an additional on-board service that supplements GOL's standard service, was launched in June 2009, with a high customer approval rate. Initially present on 42 flights, it closed 2010 with 84 flights. Due to its success, GOL is planning to expand this service to 50% of its total daily flights by the end of 2011.

       In the first half of 2010 GOL concluded its fleet renovation plan, and the fleet now consists entirely of Boeing 737-700NG and 737-800NG operating aircraft. A standardized fleet not only allows the Company to provide its customers with better-quality service, but also improves its financial performance by reducing maintenance, crew training and fuel consumption costs. In 2010, it returned all its B737-300s aircraft to the lessors, thereby diluting fixed leasing costs. At year-end, it had 100 firm orders, 10 purchase rights and an additional 40 purchase options, for acquisition of Boeing 737 NGs to be delivered between 2011 and 2016 out of a total order of 177 Boeing aircraft.     

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GOL received the following awards in 2010:

§   Best Company for Shareholders 2010, in the R$5bn to R$15bn market cap category, awarded by Capital Aberto Magazine Award.

§   The Best of Dinheiro 2010 – Best Company in the Transportation Service Sector awarded by Istoé Dinheiro magazine;

§   IR Magazine Awards Brazil 2010 – GOL won the Most Progress in Investor Relations category among those companies with the highest market cap in the country;

§   Best Managed LATAM – 2010 in the Airline category from Euromoney magazine;

§   Deal of the Year 2009, from AirFinance Magazine, published by Institutional Investor, for its US$150mm PDP Facility, announced in December 2009;

§   Best Corporate Governance Practices and Best Investor Relations Website, by IR Global Rankings 2010 (IRGR), the 12^th edition of these awards;

§  Institutional Investor Latin America - Best CEO, CFO e IRO – according to the opinion of assets analysts and institutional investors;

§   2010 National Teleservices Award awarded by the Brazilian Teleservices Association, in the categories: “GOL for the customer” and “Customer/Consumer Communication Channels” with the case “Home Based: the VIP lounge for the GOL customer”; and

§   Companies with the Most Respect for Consumers in the Airline Category – 2010 awarded by Consumidor Moderno magazine.

Management Comments

In its first ten years of operations, completed on January 15, 2011, GOL surpassed the mark of 160 million passengers carried, offered a series of new services and entered into several partnerships, strengthening its relations with customers and ensuring their satisfaction so that GOL became their first airline of choice.   

The year’s operating and financial results achieved in 2010 have already put GOL among the most profitable airlines  in the world, and management is fully confident that this will continue in 2011.

Operating improvements in the coming years will be based on its low-cost and low-fare model, as it strives to build an increasingly solid operation focused on the Brazilian market, backed by yet another year of consistent growth.

Results in 2010 and the years ahead were only achieved and will only be achieved thanks to the dedication of GOL’s Team of Eagles, our 18,000-plus employees, and I would like to take this opportunity to thank each and every one of them for their commitment.

Constantino de Oliveira Junior Founder and CEO of GOL Linhas Aéreas Inteligentes S.A.

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Operating Performance

Data from the Brazilian Civil Aviation Authority (ANAC): adjusted in accordance with the new methodology adopted as of October 2010.

Change in Data Calculation Methodology – ANAC

In October 2010, ANAC’s monthly traffic information was subjected to a new calculation method (Official Letter no. 11/2010/GEAC/SRE/ANAC). According to the authority, the changes were designed to ensure alignment with the concepts adopted by the International Civil Aviation Organization (ICAO). The alteration was necessary because Brazil has joined the ICAO’s statistical program and supplies the latter’s database with several industry data. The changes in the methodology refer to the calculation of ASK (seat supply) and the classification of domestic lags in international flights, which are now considered to be part of the domestic market.

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Demand

In 4Q10, the Company surpassed the mark of 160.5mm passengers carried since it began operations in 2001, the highest growth in the history of Brazilian commerial aviation.

The domestic aviation industry demand grew by 23.5%, the highest figure for five years, and market projections point to further double-digit growth in 2011. The upturn reflects the industry’s positive scenario in the past few years, together with the recovery of Brazil’s economy and increasing access to air transport on the part of Brazil’s emerging middle class.

Domestic market

GOL’s domestic demand increasing by 6.9% over 4Q09, chiefly due to Brazil’s improved economic scenario and increasing access to the service industry by Brazil’s emerging middle class, in addition to its competitive advantages. In comparison with 3Q10, demand grew by 4.0% due to seasonal factors, i.e. the school vacations and end-of-year festivities which characterize the busiest quarter of the year in terms of passenger traffic.

GOL ended 2010 with a 39.5% share of domestic demand, 2.2 p.p. down on the 41.7% recorded in 2009, mainly due to the 18.0% upturn in national supply, which encouraged sector demand. The Company continued with its responsible capacity management strategy, allowing it to improve load factors, maintain a competitive pricing policy, push up the aircraft utilization rate, reduce CASK ex fuel, and, consequently, enhance its operating margins.

International Market

Demand on GOL’s international route network growing by 8.4% over 4Q09, chiefly due to the recovery of the Latin American scenario, in addition to: (i) the larger number of international destinations (Punta Cana, Barbados, St. Maarten, the Jorge Newbery Airport in Buenos Aires); (ii) the sector’s improved regularity and punctuality indices during the year’s busiest period; (iii) the reactivation of B767 aircraft for use on international charter flights in order to meet growing demand in this segment; and (iv) the 2.4% appreciation of the Real against the Dollar, which helped boost tourism growth in the Southern Cone and Caribbean regions. In comparison with the previous quarter, international market demand fell by 21.3% due to the change in ANAC’s methodology which in 3Q10 classified international flights with stopovers at domestic airports as being part of the international market, and as of 4Q10 began to classify them as domestic flights.

Supply

GOL added disciplined capacity in the market growing by 11.5%, versus the industry’s 19.1% in the year-on-year comparison.

Supply on the Company’s total route network recorded a 10.5% upturn, due to: (i) the larger average number of aicraft in operation (operational fleet);  (ii) the higher fleet utilization rate (12.4 block hours/day in 4Q10 versus 12.1 in 4Q09); (iii) the 1.8%  increase in the average stage length (910 km in 4Q10, versus 894km in 4Q09); (iv) the replacement of 11 B737-300s (approximately 145 seats) with B737-800s (185 seats); (v) the reactivation of B767 aircraft for use on international charter flights in order to meet growing demand in this segment; and (vi) GOL’s higher number of national and international destinations (Bauru, Montes Claros, Punta Cana, Barbados, St. Maarten, the Jorge Newbery Airport in Buenos Aires). These positive factors were partially offset by the change in ANAC’s methodology, which led to a year-on-year reduction in ASK.

Load Factor and Yields

GOL’s load factor totaled 71.1% in 4Q10, 2.3 p.p. below the 73.4% recorded in 4Q09 and 0.2 p.p. down on the 71.3% reported in 3Q10.

Yields grew by 12.9% and 5.4%, respectively, over 4Q09 and 3Q10, in both cases due to the higher  number of passengers, which allowed the Company to increase fares with no undue impact on the load factor. Consequently, PRASK increased by 9.4% and 5.1%, respectively.

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 Sources: (1) Brazilian Central Bank (2) FGV (3) IBGE (4) Bloomberg

Net Revenue

Net revenue totaled R$1,869.8mm in 4Q10, 15.6% up on the R$1,617.9mm recorded in 4Q09, and 4.5% more than the R$1,788.9mm reported in 3Q10, as shown below:

Fourth-quarter passenger revenue came to R$1,698.0mm, 20.8% more than the R$1,405.1mm posted in the same period last year, fueled by the 7.0% increase in demand, which pushed up yields by 12.9%, partially offset by the 2.3 p.p. decline in the load factor. In comparison with 3Q10, passenger revenue increased by 6.0%, also due to the 5.4% upturn in yields (partially offset by the 0.2 p.p. reduction in the load factor).

Ancillary revenue (cargo, flight rebooking, excess baggage, on-board sales, etc) decreased by 19.1% year-on-year, due to the decrease in no-show fee and tickets rescheduling revenue. In comparison with 3Q10, ancillary revenue decreased by 8.5%, due to the same reasons stated above and by the decline in revenue from the Smiles mileage program and miles used by partner airlines.

RASK (revenue per available seat kilometer) grew by 4.6%, from 15.27 cents (R$) in 4Q09 to 15.98 cents (R$) in 4Q10, due to the 12.9% increase in yields (despite the 10.5% upturn in capacity) partially offset by the decrease of ancillary revenue in total net revenue. Compared to the 15.43 cents (R$) reported in 3Q10, RASK climbed by 3.6% due to the 5.4% upturn in yield, partially offset by the decrease of ancillary revenue, the 4.0% upturn in capacity and the 0.2 p.p. decline in the load factor.

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Operating Costs and Expenses

Operating costs totaled R$1,607.9mm in the quarter, 7.3% up on 4Q09, mainly due to: (i) the 12.1% increase in the WTI oil price and the 8.9% upturn in fuel consumption (as a result of the 8.3% period growth in the number of hours flown); (ii) costs directly related to the Company's operations (handling, aircraft cleaning, landing fees and navigational assistance); (iii) IT and consulting expenses due to the introduction and improvement of internal systems for efficiency gains (Smiles, Buy-on-Board, remote check-in and zero-based budgeting); (iv) higher salaries, wages and benefits due to the expansion of the workforce, and the impact of the partial 6.0% (from the 8.75% pay rise approved with the Union on January 21, 2011) on December’s salary and the 13th salary bonus; and (v) the upturn in depreciation and amortization expenses due to the change in accounting practices in 1Q10, as well as the larger number of aircraft under financial leasing.

In comparison with the previous quarter, operating costs edged up by 0.4%, chiefly due to: (i) the increase in advertising expenses as a result of the company’s new institutional campaign; (ii) higher expenses related to the company’s operations (handling, aircraft cleaning, landing fees, navigational assistance and direct passenger expenses); (iii) increased salaries, wages and benefits due to the expansion of the workforce and the annual pay rise; and (iv) the 6.5% upturn in operational leasing expenses. These factors were partially offset by the 59.3% decline in engine maintenance expenses.

* CASK = operating costs and expenses divided by ASK, expressed in cents(R$)

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Operating costs per ASK (CASK) totaled 13.74 cents (R$) in 4Q10, 2.9% down on the 14.15 cents (R$) reported in 4Q09. As a result, there was again some dilution of CASK when compared to nominal terms, due to the company’s increased productivity (2.4% upturn in the aircraft utilization rate), which resulted in a 10.5% capacity increase. Compared to 3Q10, CASK fell by 0.5%, as a result of the 0.9% increase in capacity.   

CASK excluding fuel expenses (CASK ex-fuel) amounted to 8.75 cents (R$), 11.5% down on the 9.88 cents (R$) reported in the same quarter last year, also due to the Company's increased productivity, which, by raising capacity by 10.5%, diluted fixed costs. In comparison with 3Q10, CASK ex-fuel dipped by 0.7%, chiefly due to: (i) the 2.3% increase in aircraft utilization; (ii) lower CASK from aircraft maintenance expenses (in 3Q10 there was a concentration of engine removals, as disclosed in that quarter’s earnings release). These factors were partially offset by (iii) higher CASK in the other expenses, sales and marketing and landing fees lines.

Aircraft fuel costs came to R$584.6mm in the quarter, 29.4% up on 4Q09 due to the following factors: (i) the 12.1% growth in the cost of WTI jet fuel, partially offset by the average 2.4% period depreciation of the Dollar against the Real; and (ii) the 8.9% upturn in fuel consumption  as a result of increased operational volume. Compared to 3Q10, fuel costs increased by 0.8% and consumption grew by 0.1%. In per-ASK terms, there was a 17.1% upturn and a 0.1% decline over 4Q09 and 3Q10, respectively.  

Salaries, wages and benefits came to R$343.9mm in 4Q10, 14.7% up on 4Q09, chiefly due to: (i) partial provision of 6.0% from the 8.75% pay rise approved with the Union on January 21, 2011 on December’s salaries; (ii) the 4.5% expansion of the workforce fueled by the need to keep pace with the growth of the Company's operations, in turn caused by the sustainable increase in demand in the domestic and international markets; and (iii) the increase in flight crew bonuses due to the 8.3% upturn in the number of hours flown by the Company.

In comparison with 3Q10, salaries, wages and benefits grew by 10.1%, due to: (i) the increase in the hourly compensation paid to flight crew (8.3% upturn in the number of hours flown); (ii) the expansion of the workforce (0.7% for pilots and co-pilots and 5.9% for crew); (iii) the 6.0% rise in provisions for the December pay hike related to the 2nd portion of the 13th salary bonus. In per-ASK terms, these costs increased by 3.9% and 9.1% over 4Q09 and 3Q10, respectively.

Aircraft leasing costs totaled R$138.9mm, 3.8% down on 3Q09, due to: (i) the average 2.4% period depreciation of the Dollar against the Real; (ii) the higher number of aircraft under financial leasing (39 in 4Q10 and 33 in 4Q09); and (iii) the return of 11 B737-300s under operational leasing in the first half of 2010, which helped reduce quarterly expenses by approximately R$9mm. These factors were partially offset by non-recurring expenses of around R$11.0mm from the accounting reconciliation of aircraft returned throughout 2010. In comparison with 3Q10, leasing costs grew by 6.5%, chiefly due to the above-mentioned accounting adjustment, partially offset by the period addition of four aircraft under financial leasing. In per-ASK terms, leasing costs declined by 12.9% over 4Q09 and increased by 5.6% over 3Q10.

Aircraft insurance remained virtually stable, with a slight drop of 0.9%, from R$11.8mm in 4Q09 to R$11.7mm in 4Q10, due to the interim reduction in the fleet from 127 to 125 aircraft and the average 2.4% depreciation of the Dollar against the Real, given that these contracts are executed in foreign currency. In comparison with the R$11.5mm registered in previous quarter, there was an increase of 1.9%, due to the larger number of aircraft (125 in 4Q10 versus 121 in 3Q10). In per-ASK terms, aircraft insurance fell by 10.3% over 4Q09 and grew by 1.0% over 3Q10.

Sales and marketing expenses came to R$111.8mm, 13.5% up on the R$94.1mm reported in 4Q09, due to: (i) the increase in expenses associated with sales incentives; and (ii) expenses of approximately R$11mm associated with GOL’s new institutional campaign. These factors were partially offset by the elimination of ticket sale commissions for travel agents as of February 2010.  

Compared to 3Q10, these expenses moved up by 17.7% due to the new institutional campaign expenses and the 31.7% increase in expenses from sales incentives, given that such incentives are related to travel agents’ sales targets, which in turn were higher than the targets established for the previous quarter. In per-ASK terms, sales expenses rose by 2.8% and 16.7% over 4Q09 and 3Q10, respectively.

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Landing fees totaled R$92.9mm in 4Q10, 24.5% more than the R$74.6mm recorded in 4Q09, due to: (i) the 5.2% upturn in the number of departures; (ii) the larger number of operations in international airports in South America (whose fees are higher) with B767 aircraft (higher unit costs than domestic flights with B737s); and (iii) non-recurring landing fee payments in Congonhas airport of approximately R$6mm, due to the reconciliation of 2010 fees with Infraero. This increase was partially offset by the average 2.4% depreciation of the Dollar against the Real between the periods (international landings). Compared to 3Q10, these fees fell by 11.1% for the same reasons (0.2% upturn in the number of landings). In per-ASK terms, they grew by 12.8% and 10.1% over 4Q09 and 3Q10, respectively.

Aircraft and traffic servicing expenses totaled R$119.1mm, 15.3% up on the R$103.3mm reported in 4Q09, due to: (i) the increase in operational volume (5.2% upturn in departures and landings); (ii) higher expenses from IT services due to the improvement of internal software (Smiles, Buy on Board, remote check-in, on-board entertainment, among others); (iii) implementation of the Shared Service Center, designed to improve the quality and productivity of the Company’s processes; and (iii) expenses from consulting services related to the implementation of the Company's new budget planning method (zero-based budgeting).

In comparison with the previous quarter, these expenses grew by 7.4% due to: (i) higher operational volume (0.2% increase in the number of landings); and (ii) in addition to the non-recurring reversal, in this quarter, of a previously capitalized expense of approximately R$5mm related to an operational control (Optima) software. In per-ASK terms, these expenses increased by 4.4% and 6.5%, respectively, over 4Q09 and 3Q10.

Maintenance, materials and repairs came to R$54.6mm, 63.2% down on the R$148.3mm recorded in 4Q09, due to: (i) the lower number of engine removals for maintenance between the quarters (6 engines in 4Q10 versus 25 in 4Q09); (ii) expenses from the return of B737-300 aircraft in 4Q09, which were not incurred in 4Q10; and (iii) the average 2.4% depreciation of the Dollar against the Real, given that most of these expenses are in foreign currency.

In comparison with 3Q10, these costs fell by 59.3% thanks to the concentration of maintenance-based engine removals in 3Q10 due to the increase in fleet productivity since the year end of 2009, resulting in an expense of approximately R$45mm in the previous quarter (as discussed in 3Q10 release). In per-ASK terms, these costs fell by 66.7% and 59.6% over 4Q09 and 3Q10, respectively.

Depreciation and amortization expenses totaled R$74.2mm in 4Q10, 180.7% up on the R$26.4mm reported in 4Q09, due to: (i) the higher number of aircraft under financial leasing (39 in 4Q10, versus 33 in 4Q09); and (ii) the change in the Company’s estimate for the depreciation of maintenance costs for engines under financial leasing, which now have a 5-year depreciation period, whereas the remaining items continue to depreciate over 25 years (as discussed in the 1Q10 release.) Compared to the R$63.3mm recorded in 3Q10, these expenses grew by 17.3%, due to the addition of four aircrafts classified as financial leasing. In per-ASK terms, these expenses grew by 154.1% and 16.3% over 4Q09 and 3Q10, respectively.

Other operating expenses (mainly crew travel, accommodation and daily expenses, direct passenger expenses, equipment leasing and general and administrative expenses) totaled R$81.2mm in 4Q10, 43.6% down on 4Q09 due to non-recurring expenses in the previous year related to the improvement of internal controls, and the increase in accounting automation in order to adapt to the new accounting practices adopted.

In comparison with 3Q10, other operating expenses fell by 4.2% given the lower number of international passengers and landings that resulted in lower direct passenger expenses, crew accommodation and daily expenses. In per-ASK terms, these expenses declined by 48.9% and 5.1% over 4Q09 and 3Q10, respectively.

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Operating Result^*

EBITDAR stood at R$475.0million, with an EBITDAR margin of 25.4%, 7.4 p.p. above the 17.9% reported in 4Q09 (on EBITDAR of R$290.1mm) and 4.1 p.p. higher than the 21.3% recorded in 3Q10 (on EBITDAR of R$380.9mm). Therefore, the EBITDAR for the quarter was the highest ever recorded in the Company’s history and the 4Q10 EBITDAR margin was the highest since 2006.

Hedge Result

The Company records derivative financial instruments in accordance with IAS 39 ― Financial Instruments: Recognition and Measurement.

*OCI (Other Comprehensive Income): O OCI acumulado (que se difere do lucro líquido) é atribuído a ganhos ou perdas não realizadas de uma variedade de fontes, como títulos mobiliários classificados como Disponíveis para Venda, e operações com derivativos classificados como hedge de Fluxo de Caixa ou como hedge de Investimentos Líquidos no Exterior.

In the fourth quarter of 2010, the Company recognized a net loss from hedge operations of R$26.5mm (dealt with in more detail in the Financial Result section), with a negative cash impact of R$11.7mm in the same period.

Fuel: fuel consumption hedge transactions, which are effected through crude oil (WTI) derivative contracts, generated losses of R$8.8mm in the quarter.

Of this total, losses of R$2.2mm from contracts maturing in 4Q10 (accrual basis) and losses of R$6.6mm from contracts maturing in the future, but which were booked in advance under the financial result, were considered ineffective for hedge accounting purposes.

Foreign exchange: foreign exchange hedge transactions generated a net loss of R$19.6mm, booked under the financial result. Of this total, losses of R$1.1mm originated from contracts maturing in 4Q10 (accrual basis), losses of R$1.1mm arose from contracts maturing in the future, but which were booked in advance and losses of R$15.8mm came from future Dollar contracts designated as fair value hedge. The Company also reported losses of R$1.6mm booked under financial expenses referring to a Dollar x CDI swap contracted to protect a debt against the exchange variation. Neither operation was considered effective for hedge accounting purposes.

* The Company believes that EBITDAR, equivalent to EBITDA before expenses from aircraft leasing (denominated in dollars) is a useful indicator of airline operating performance. In the specific case of GOL and the air transport sector, a substantial number of aircraft are leased, representing a material cost item. EBITDAR therefore indicates the capacity to cover such costs, as well as facilitating comparisons with other companies in the sector.

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Interest: interest hedge transactions generated a net gain of R$2.0mm, booked under the financial result. There were no gains or losses from derivatives designated for hedge accounting purposes.

 * Weighted average among derivative strikes. Average for cap prices only.

** On 12/31/2010, the exchange rate was R$1.6662 / US$1.00.

GOL adopts a hedging policy in order to protect the Company against market fluctuations in fuel prices, exchange rates and interest rates that can substantially harm its operational competitiveness. In order to perform this task, the Company employs a financial risk policy committee, comprising certain members of the Board, an external consultant, and senior executives. The committee meets quarterly to monitor and set 24-month targets on a rolling basis. The committee can also meet extraordinarily if any of its members calls a meeting. Management builds its hedge position based on these decisions.

The vast majority of the financial instruments used for hedging purposes consist of WTI and Dollar call options, Dollar future contracts, foreign exchange and CDI swaps, and fixed and floating interest rate swaps. 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.

The tables below show the sensitivity analysis on December 31, 2010 and 2009, and the impacts of the price of financial instruments on the Company's annual result and on its shareholders' equity, based on the scenarios described below:

Fuel: 10 p.p. increase and reduction in the price of fuel, all other variables remaining constant;

Dollar exchange rate: 10 p.p. increase and reduction in the dollar exchange rate, all other variables remaining constant;

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Interest rate - Libor: 10 p.p. increase and reduction in the Libor rate, all other variables remaining constant;

Net Financial Result

The 4Q10 net financial result was an expense of R$44.1mm versus an expense of R$72.3mm in 4Q09 and an expense of R$20.3mm in 3Q10.

Interest expenses totaled R$93.4mm, 25.1% up on 4Q09, chiefly due to: (i) higher interest expenses from the senior notes issued in July 2010 and maturing in 2020; (ii) interest expenses from the R$600mm debenture issue launched at the end of September 2010; and (iii) the larger number of aircraft classified under financial leasing (39 in 4Q10, versus 33 in 4Q09).

In comparison to 3Q10, these expenses increased by 10.4%, chiefly due to: (i) the slight 1.2% upturn in the CDI interbank rate, to which the interest on the debentures is tied, and (ii) interest expenses from the R$600mm debenture issue at the end of September 2010 which were not incurred in the previous quarter. The increase was partially offset by the 1.7% appreciation of the Real (end of period), affecting interest payments on the foreign-currency debt, which closed 4Q10 at R$2,858.4mm.

The exchange variation generated revenue of R$44.3mm in 4Q10, mainly due to the impact of the 1.7% appreciation of the Dollar on the Company’s foreign-currency debt (76% of its total debt), versus revenue of R$12.7mm in 4Q09 due to the appreciation of the Real against the Dollar, even though the foreign-currency debt was lower. In 3Q10 there was a R$90.5mm expense also due to the 6.0% depreciation of the Real.

Interest and investment income came to R$34.4mm in 4Q10, 45.1% up on the R$23.7mm recorded in 4Q09, and 22.2% more than the R$28.2mm reported in 3Q10, both increases being due to: (i) the upturn in the CDI interbank rate on fixed-income investments; (ii) financial gains from increased investments of the Company’s cash position, which is already equivalent to 28.3% of LTM net revenue (versus 26.3% in 3Q10 and 23.9% in 4Q09).

Other financial expenses totaled R$3.0mm in 4Q10, versus R$37.7mm in 4Q09, chiefly due to the recognition, in the latter quarter, of non-recurring expenses totaling R$27mm from IOF (financial operations tax), associated with the Company’s adhesion to the federal government’s tax recovery program (REFIS), as disclosed in the 4Q09 release. The reduction over the R$7.4mm recorded in 3Q10 was due to the fact that the previous quarter included banking expenses and commissions related to the senior notes issued in July 2010 and maturing in 2020.

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Income Tax

Total 4Q10 income tax was an expense of R$85.6mm, versus a benefit of R$351.4mm in 4Q09 and an expense of R$56.9mm in 3Q10. The R$34.4mm expense in the current income tax line was basically due to the increase in taxable income calculated in accordance with Law 6,404/76. The variation in the deferred income tax line was a result of the recognition of VRG’s tax losses due to the expected generation of future taxable income (as disclosed in the 4Q09 release).

In comparison with the previous quarter, the variation in the deferred income tax line was caused by the reduced appreciation of the Real against the Dollar, generating temporary differences on the exchange variation in financial leasing operations.

Net Result

GOL posted net income of R$132.2mm in 4Q10, versus R$397.8mm in 4Q09 and R$110.0mm in 3Q10, chiefly due to: (i) the combined effect of the 7.0% increase in demand and the 12.9% upturn in yields in a quarter marked by a high degree of seasonality; (ii) the average 3.0% appreciation of the Real against the Dollar; and (iii) lower aircraft maintenance costs due to fewer engine removals.

Liquidity and Indebtedness

Short-term receivables include flight sales via credit card, receivables from the VoeFácil installment payment program, and accounts receivable from travel agencies and cargo transportation. At the end of 4Q10, these receivables totaled R$303.1mm, 4.4% down on the R$317.1mm recorded in 3Q10, chiefly due to the decrease in sales volume (forward bookings effect), caused by: (i) fewer promotions during the period, and: (ii) dynamic fare management, which focused on increasing yields in a quarter of strong demand.

The 41.6% decline over the R$519.3mm recorded in 4Q09 was due to the larger number of discounted trade notes and the fact that 4Q09 had more forward bookings due to the more competitive second-half price scenario.

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* the sum of loans and financings and the estimated total value of operational leasing contracts payable, pursuant to the financial statements.

In 2010, GOL achieved its goal of deleveraging its balance sheet and extending its financial commitments, eliminating the risk of having to refinance debt maturing within the next three years. On December 31, 2010, total loans and financings came to R$3,704.7mm. Long-term debt, excluding perpetual bonds that have no maturity date, had an average term of 8.6 years and an average rate of 11.2% for local-currency debt and 6.5% for dollar-denominated debt. Excluding the perpetual bonds, debt stood at R$3,442.9mm, 4.3% up on 3Q10, due to: (i) the contracting of a working capital loan of approximately R$84mm; and (ii) the 10.3% increase in aircraft financing as a result of the addition of four aircraft under financial leasing in 4Q10.

Total financial obligations, comprising the gross debt recorded in the balance sheet and projected operational leasing payments between 2010 and 2021, came to R$5,846.4mm, 1.0% down on 3Q10 mainly as a result of the 1.7% appreciation of the Dollar against the Real between the periods and the higher share of aircraft under operational leasing.  In comparison with 4Q09, total financial obligations increased by 3.8%, due to: (i) the 4^th debenture issue totaling R$600mm; and (ii) the issue of senior notes maturing in 2020 (both of which disclosed in the 3Q10 release). These factors were partially offset by the settlement of working capital loans and PDP facilities.

At the end of 4Q10, aircraft acquisition financing totaled R$1,680.1mm, composed of financial leasing operations, which correspond to financial expenses paid periodically to the aircraft lessors with the Company’s own operating cash flow or through long-term loans, also backed by the U.S. Ex-Im Bank. In comparison with 3Q10, there was a 10.3% increase due to the addition of four aircraft under financial leasing, partially offset by: (i) the settlement of the PDP facility; (ii) period amortizations; and (iii) the 1.7% decline in the end-of-period Dollar exchange rate.

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¹Financial commitments (gross debt + operational leasing contracts, in accordance with note 25 of the financial statements) less cash and cash equivalents and short-term financial investments

²Gross Debt + LTM operational leasing expenses x 7

³Adjusted gross debt less and cash equivalents and short-term financial investments

³Price of R$25.10 per share.

* Some calculations may not match due to rounding up or down.

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Fleet and Fleet Plan

The Company closed 4Q10 with an operational fleet of 114 aircraft and a total fleet of 125 aircraft, with an average age of 6.8 years. This quarter, GOL took delivery of two Boeing 737-800NG SFPs, replacing one Boeing 737-300 and two Boeing 737-800s.

The Company leases its entire fleet through a combination of financial and operational leases. Out of the total of 125 aircraft, 86 were under operational leases and 39 under financial leases. GOL also has purchase options on 33 aircraft when their leasing contracts terminate.

* includes SFP (Short Field Performance) aircraft

* List prices

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Capex

GOL invested R$67.7mm in 4Q09, 58% of which in the acquisition of aircraft for delivery between 2011 and 2013 (pre-delivery deposits); 28% in the purchase of parts; and 14% in bases, IT and the expansion of the maintenance center in Confins, Minas Gerais (construction of the third hangar). Year-to-date investments totaled R$462.3mm, 63% of which in pre-delivery deposits for aircraft acquisitions, 30% in parts purchases and 4% in bases, IT and the expansion of the maintenance center. The total estimated capex investments expected for 2011 is between R$500 and R$550 million.

Ownership Breakdown

Summary: 2011 Guidance

Complete information on GOL’s guidance can be found on the Company’s website www.voegol.com.br/ir, in the News – Press Releases section or by clicking here.

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