As filed with the Securities and Exchange Commission on February 28, 2007May 7, 2009


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 20-F


¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 20062008

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-32221

Gol Linhas Aéreas Inteligentes S.A.

(Exact name of Registrant as specified in its charter)

Gol Intelligent Airlines Inc.

(Translation of Registrant’s name into English)


The Federative Republic of Brazil

(Jurisdiction of incorporation or organization)
RuaPraça Comte Linneu Gomes, de Carvalho 1629S/N Portaria 3,
04547-006Jd. Aeroporto
04626-020 São Paulo, São Paulo

Federative Republic of Brazil

(+55 11 3169 6800)2128-4000)
(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)


Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class:

Name of each exchange on which registered:

Preferred Shares, without par value 

New York Stock Exchange*
American Depositary Shares (as evidenced
New York Stock Exchange
by American Depositary Receipts), each
representing one share
of Preferred Stock

 

New York Stock Exchange*

New York Stock Exchange

*

Not for trading purposes, but only in connection with the trading on the New York Stock Exchange of American Depositary Shares representing those preferred shares.



* Not for trading purposes, but only in connection with the trading on the New York Stock Exchange of American Depositary Shares representing those preferred shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

None


Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
7.50% Senior Notes Due 2017

None


The number of outstanding shares of each class of stock of Gol Linhas Aéreas Inteligentes S.A. as of December 31, 2006:2008:

107,590,792Shares of Common Stock
88,615,67494,709,463Shares of Preferred Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x¨    No  ¨x

If this is an annual or transition report, indicate by check mark if the registrant is not required to file pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934    Yes  ¨    No  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer  x Accelerated Filer  ¨ 

Non-acceleratedFilerNon-accelerated Filer  ¨

Indicate by check mark which financial statement item the Registrant has elected to follow.

Item 17  ¨    Item 18  x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨    No  x

i


Table of Contents

Introduction 1  ITEM 9. The Offer and the Listing 64 
Presentation of Financial and Other Data 2         A. Offer and Listing Details 64 
Special Note about Forward-Looking Statements 3         B. Plan of Distribution 66 
Item 1. Identity of Directors, Senior Management and Advisors4         C. Markets 66 
Item 2. Offer Statistics and Expected Timetable 4         D. Selling Shareholders 72 
Item 3. Key Information 4         E. Dilution 73 
         A. Selected Financial Data 4         F. Expenses of the Issue 73 
         B. Capitalization and Indebtedness 7  ITEM 10. Additional Information 73 
         C. Reasons for the Offer and Use of Proceeds 7         A. Share Capital 73 
         D. Risk Factors 7         B. Memorandum and Articles of Association 73 
Item 4. Information on the Company 14         C. Material Contracts 80 
         A. History and Development of the Company 14         D. Exchange Controls 81 
         B. Business Overview 15         E. Taxation 82 
         C. Organizational Structure 36         F. Dividends and Paying Agents 89 
         D. Property, Plants and Equipment 36         G. Statement by Experts 89 
ITEM 4A. Unresolved Staff Comments 36         H. Documents on Display 89 
ITEM 5. Operating and Financial Review and Prospects 36         I. Subsidiary Information 89 
         A. Operating Results 37  ITEM 11. Quantitative and Qualitative Disclosures about Market Risk 89 
         B. Liquidity and Capital Resources 49  ITEM 12. Description of Securities Other than Equity Securities 90 
         C. Research and Development, Patents and Licenses, etc. 51  ITEM 13. Defaults, Dividend Arrearages and Delinquencies 91 
         D. Trend Information 52  ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 91 
         E. Off-Balance Sheet Arrangements 52  ITEM 15. Controls and Proceedures 91 
          F. Tabular Disclosure of Contractual Obligations52  ITEM 16 91 
ITEM 6. Directors, Senior Managmenet and Employees 52         A. Audit Committee Financial Expert 91 
         A. Directors and Senior Management 52         B. Code of Ethics 92 
         B. Compensation 56         C. Principal Accountant Fees and Services 92 
         C. Board Practices 56          D. Exemptions from the Listing Standards for Audit Committees 92 
         D. Employees 58         E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers92 
         E. Share Ownership 59  ITEM 17. Financial Statements 93 
ITEM 7. Major Shareholders and Related Party Transactions 59  ITEM 18. Financial Statements 93 
         A. Major Shareholders 59  ITEM 19. Exhibits 93 
         B. Related Party Transactions 59  Signature 95 
         C. Interests of Experts and Counsel 60    
ITEM 8. Financial Information 60    
A. Consolidated Statements and Other Financial Information 60    
         B. Significant Changes 64    
     
Presentation of Financial and Other Data3
Special Note about Forward-Looking Statements4
ITEM 1. Identity of Directors, Senior Management and Advisors5
ITEM 2. Offer Statistics and Expected Timetable5
ITEM 3. Key Information5
A. Selected Financial Data5
B. Capitalization and Indebtedness9
C. Reasons for the Offer and Use of Proceeds9
D. Risk Factors10
ITEM 4.  Information On The Company 17
A. History and Development of the Company17
B. Business Overview17
C. Organizational Structure36
D. Property, Plant and Equipment 36
ITEM 4A. Unresolved Staff Comments37
ITEM 5. Operating and Financial Review and Prospects37
A. Operating Results37
B. Liquidity and Capital Resources 49
C. Research and Development, Patents and Licenses, etc. 54
D. Trend Information54
E. Off-Balance Sheet Arrangements54
F. Tabular Disclosure of Contractual Obligations55
ITEM 6. Directors, Senior Management and Employees55
A. Directors and Senior Management55
B. Compensation59
C. Board Practices60
D. Employees61
E. Share Ownership62
ITEM 7. Major Shareholders and Related Party Transactions62
A. Major Shareholders62
B. Related Party Transactions63
C. Interests of Experts and Counsel64
ITEM 8. Financial Information64
A. Consolidated Statements and Other Financial Information64
B. Significant Changes69
ITEM 9.  The Offer and Listing 69
A. Offer and Listing Details 69
B. Plan of Distribution 71
C. Markets71
D. Selling Shareholders76
E. Dilution77
F. Expenses of the Issue 77
ITEM 10. Additional Information77
A. Share Capital77
B. Memorandum and Articles of Association .77 
C. Material Contracts85 
D. Exchange Controls85 
E. Taxation86
F. Dividends and Paying Agents 93
G. Statement by Experts 93
H. Documents on Display 93
I. Subsidiary Information94
ITEM 11. Quantitative and Qualitative Disclosures about Market Risk 94
ITEM 12. Description of Securities Other than Equity Securities95
ITEM 13. Defaults, Dividend Arrearages and Delinquencies95
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 95
ITEM 15. Controls and Procedures95
ITEM 16.96
A. Audit Committee Financial Expert 96
B. Code of Ethics 96
C. Principal Accountant Fees and Services 97
D. Exemptions from the Listing Standards for Audit Committees97
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 97
F. Change in Registrant’s Certifying Accountant98 
G. Corporate Governance98
ITEM 17. Financial Statements100
ITEM 18. Financial Statements100
ITEM 19. Exhibits101
Signature104

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Table of Contents

INTRODUCTION

     In this annual report, we use the terms “the Registrant” to refer to Gol Linhas Aéreas Inteligentes S.A., “Gol” to refer to Gol Transportes Aéreos S.A. and “we,” “us” and “our” to refer to the Registrant and Gol together, except where the context requires otherwise. References to “preferred shares” and “ADSs” refer to non-voting preferred shares of the Registrant and American depositary shares representing those preferred shares, respectively, except where the context requires otherwise.

     The phrase “Brazilian government” refers to the federal government of the Federative Republic of Brazil, and the term “Central Bank” refers to the Banco Central do Brasil, or the Central Bank of Brazil. The term “Brazil” refers to the Federative Republic of Brazil. The terms “U.S. dollar” and “U.S. dollars” and the symbol “US$” refer to the legal currency of the United States. The terms “real” and “reais” and the symbol “R$” refer to the legal currency of Brazil. “U.S. GAAP” refers to generally accepted accounting principles in the United States, and “Brazilian GAAP” refers to generally accepted accounting principles in Brazil, which are accounting principles derived from Law No. 6,404 of December 15, 1976, as amended and supplemented, or the Brazilian corporation law and the rules of the CVM.

This annual report contains terms relating to operating performance within the airline industry that are defined as follows:

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PRESENTATION OF FINANCIAL AND OTHER DATA

      We make statements in this annual report about our competitive position and market share in, and the market size of, the Brazilian and South Americaninternational airline industry. We have made these statements on the basis of statistics and other information from third-party sources, governmental agencies or industry or general publications that we believe are reliable. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share and market size or market growth data provided by third parties or by industry or general publications. All industry and market data contained in this annual report is based upon the latest publicly available information as of the date of this annual report.

     Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

     The consolidated financial statements included in this annual report have been prepared in accordance with U.S. GAAPInternational Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) inreaisreais.and reflect our financial condition and results of operations as if the Registrant had been incorporated and held all of the capital stock of Gol, with the exception of five common shares of Gol held by members of Gol’s board of directors for eligibility purposes, since January 1, 2001. See “Item 10B. Memorandum of Articles of Association—Description of Capital Stock—General.” We publish our consolidated financial statements in Brazil in accordance with Brazilian GAAP, which differ in certain significant respects from U.S. GAAP.

     We have translated some of therealamounts contained in this annual report into U.S. dollars. The rate used to translate such amounts in respect of the year ended December 31, 20062008 was R$2.13802.337 to US$1.00, which was the commercial rate for the purchase of U.S. dollars in effect as of December 31, 2006,2008, as reported by the Central Bank. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that therealamounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. See “Exchange Rates” for more detailed information regarding the translation ofreaisinto U.S. dollars.

2     In this annual report, we use the terms “the Registrant” to refer to Gol Linhas Aéreas Inteligentes S.A., and “Gol”, “Company”, “we,” “us” and “our” to refer to the Registrant and its consolidated subsidiaries together, except where the context requires otherwise. The term VRG refers to VRG Linhas Aéreas S.A., a wholly owned subsidiary of the Registrant. References to “preferred shares” and “ADSs” refer to non-voting preferred shares of the Registrant and American depositary shares representing those preferred shares, respectively, except where the context requires otherwise.

     The phrase “Brazilian government” refers to the federal government of the Federative Republic of Brazil, and the term “Central Bank” refers to the Banco Central do Brasil, or the Central Bank of Brazil. The term “Brazil” refers to the Federative Republic of Brazil. The terms “U.S. dollar” and “U.S. dollars” and the symbol “US$” refer to the legal currency of the United States. The terms “real” and “reais” and the symbol “R$” refer to the legal currency of Brazil. “IFRS” refers to the international financial reporting standards issued by the International Accounting Standards Board (IASB). “U.S. GAAP” refers to generally accepted accounting principles in the United States, and “Brazilian GAAP” refers to generally accepted accounting principles in Brazil, which are accounting principles derived from Law No. 6,404 of December 15, 1976, as amended and supplemented, or the Brazilian corporation law and the rules of the CVM.

     This annual report contains terms relating to operating performance within the airline industry that are defined as follows:

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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

     This annual report includes forward-looking statements, principally under the captions “Risk Factors,” “Operating and Financial Review and Prospects” and “Business Overview.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:

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Table of Contents

     The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, and the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSADVISORS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

      We changed our financial reporting from U.S. GAAP to IFRS, beginning with the financial statements as of and for the year ended December 31, 2008. Therefore, we present in this section the following summary financial data:

     For a reconciliation of profit (loss) and shareholders’ equity of our audited financial statements in U.S. GAAP to our audited financial statements in IFRS at January 1, 2007 and December 31, 2007 and for the year then ended, see note 23 under the caption "Reconciliation between USGAAP and IFRS as of and for the year ended December 31, 2007" to our financial statements included in this annual report. See also Item 5 for information on certain differences between U.S. GAAP and IFRS and related critical accounting policies.

     The summary financial data prepared in accordance with IFRS and U.S. GAAP is not comparable.

The following table presentstables present summary historical consolidated financial and operating data for us for each of the periods indicated. You should read this information in conjunction with our consolidated financial statements and related notes, and the information under “—Selected Financial Data” and “Item 5. Operating and Financial Review and Prospects.”

     The consolidated financial statements and related notes included elsewhere in this annual report have been prepared in accordance with U.S. GAAP and reflect our financial condition and results of operations as if the Registrant had been incorporated and held all of the capital stock of Gol since January 1, 2001, except for five common shares of Gol held by members of Gol’s board of directors for eligibility purposes.

Solely for the convenience of the reader,real amounts as of and for the year ended December 31, 20062008 have been translated into U.S. dollars at the commercial market rate in effect as of December 31, 20062008 as reported by the Brazilian Central Bank of R$2.13802.337 to US$1.00.

  Year Ended December 31, 
  
  2002         2003         2004         2005  2006  2006 
       
  (in thousands)
Net operating revenues:             
       Passenger  R$643,549  R$1,339,191  R$1,875,475  R$2,539,016  R$3,580,919  US$1,674,892 
       Cargo and other  34,330  61,399  85,411  130,074  221,098  103,413 
       
               Total net operating revenues 677,879  1,400,590  1,960,886  2,669,090  3,802,017  1,778,305 
Operating expenses:             
       Salaries, wages and benefits 77,855  137,638  183,037  260,183  413,977  193,628 
       Aircraft fuel  160,537  308,244  459,192  808,268  1,227,001  573,901 
       Aircraft rent  130,755  188,841  195,504  240,876  292,548  136,833 
       Sales and marketing  96,626  191,280  261,756  335,722  414,597  193,918 
       Landing fees  32,758  47,924  57,393  92,404  157,695  73,758 
       Aircraft and traffic servicing  47,381  58,710  74,825  91,599  199,430  93,279 
       Maintenance, materials and repairs  16,160  42,039  51,796  55,373  146,505  68,524 
       Depreciation  7,885  13,844  21,242  35,014  69,313  32,420 
       Other operating expenses  45,740  70,344  79,840  128,300  179,494  83,954 
       
              Total operating expenses 615,797  1,058,864  1,384,585  2,047,739  3,100,560  1,450,215 
Operating income  62,082  341,726  576,301  621,351  701,457  328,090 
Other income (expense):             
       Interest expense  (16,530) (20,910) (13,445) (19,383) (66,378) (31,047)
       Financial income (expense), net  7,447  (56,681) 24,424  115,554  163,883  76,652 
       
Income (loss) before income taxes  52,999  264,135  587,280  717,522  798,962  373,695 
       Income taxes  (17,642) (88,676) (202,570) (204,292) (229,825) (107,495)
       
Net income (loss) R$35,357  R$175,459  R$384,710  R$513,230  R$569,137  US$266,200 
       

IFRS Summary Financial and Operating Data

    Year Ended December 31,   
  
  2007  2008  2008 
    
    (in thousands)  
Income Statement Data:       
Net operating revenues:       
   Passenger  R$4,566,691  R$5,890,104  US$2,520,370 
   Cargo and other  374,293  516,089  220,834 
    
Total net operating revenues  4,940,984  6,406,193  2,741,204 
Operating expenses:       
   Salaries   (799,344) (983,783) (420,960)

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   Aircraft fuel  (1,898,840) (2,630,834) (1,125,731)
   Aircraft rent  (525,785) (645,089) (276,033)
   Sales and marketing  (367,866) (588,735) (251,919)
   Landing fees  (273,655) (338,370) (144,788)
   Aircraft and traffic servicing  (348,732) (422,177) (180,649)
   Maintenance, materials and repairs  (339,281) (388,030) (166,038)
   Depreciation  (62,548) (125,127) (53,542)
   Other operating expenses  (315,068) (372,696) (159,476)
    
Total operating expenses  (4,931,119) (6,494,841) (2,779,136)
 
Operating profit (loss) 9,865  (88,648) (37,932)
 
Other income (expense):       
Interest expense  (182,618) (269,278) (115,224)
Financial income (expense), net  373,636  (837,116) (358,201)
    
Profit (loss) before income taxes  200,883  (1,195,042) (511,357)
Income taxes  (33,595) (44,305) (18,958)
    
Profit (loss) for the year  167,288  (1,239,347) (530,315)
 
Earnings (loss) per share, basic (1):  0.84  (6.16) (2.64)
Earnings (loss) per share, diluted (1):  0.84  (6.16) (2.64)
   Weighted average shares used in       
   computing earnings per share basic       
   (in thousands)(1) 198,609  201,193  201,193 
   Weighted average shares used in       
   computing earnings per share, diluted       
   (in thousands)(1) 198,657  201,193  201,193 
   Earnings per ADS, basic (1) 0.84  (6.16) (2.64)
   Earnings per ADS, diluted (1) 0.84  (6.16) (2.64)
   Dividends paid per share (net of withheld income tax) (1) 1.25  0.18  0.08 
   Dividends paid per ADS (net of withheld income tax) (1) 1.25  0.18  0.08 

  Year Ended December 31, 
  
  2002         2003         2004         2005  2006  2006 
       
  (in thousands)
Earnings (loss) per share, basic(1) R$0.36  R$1.07  R$2.14  R$2.66  R$2.90  US$1.36 
Earnings (loss) per share, diluted(1) R$0.36  R$1.07  R$2.13  R$2.65  R$2.90  US$1.36 
Weighted average shares used in computing             
 earnings (loss) per share, basic (in thousands)(1) 98,268  164,410  179,731  192,828  196,103  196,103 
Weighted average shares used in computing             
 earnings (loss) per share, diluted (in thousands)(1) 98,268  164,410  180,557  193,604  196,210  196,210 
Earnings (loss) per ADS, basic(2) R$0.36  R$1.07  R$2.14  R$2.66  R$2.90  US$1.36 
Earnings (loss) per ADS, diluted(2) R$0.36  R$1.07  R$2.13  R$2.65  R$2.90  US$1.36 
Dividends paid per share  —  R$0.16  R$0.32  R$0.60  R$0.92  US$0.43 
Dividends paid per ADS(2) —  R$0.16  R$0.32  R$0.60  R$0.92  US$0.43 
  As of December 31, 
  
  2007  2008  2008 
    
    (in thousands)  
Balance Sheet Data:       
   Cash and cash equivalents  R$573,121  R$169,330  US$72,456 
   Financial assets  820,343  245,585  105,086 
   Accounts receivable(2) 903,061  344,927  147,594 
   Deposits with lessors  641,164  745,342  318,931 
   Total assets  7,486,412  7,258,578  3,105,938 
   Short-term borrowings  891,543  967,452  381,490 
   Shareholders’ equity  2,392,448  1,071,608  458,540 

     As of December 31, 
  
  2002         2003         2004         2005  2006  2006 
       
  (in thousands)
Balance Sheet Data:             
Cash and cash equivalents  R$9,452  R$146,291  R$405,730  R$106,347  R$280,977  US$131,420 
Short-term investments  —  —  443,361  762,688  1,425,369  666,683 
Accounts receivable(3) 105,245  240,576  386,370  563,958  659,306  308,375 
Deposits with lessors  121,980  180,916  289,416  408,776  537,835  251,560 
Total assets  318,342  685,019  1,734,284  2,555,843  4,258,454  1,991,793 
Short-term debt  22,800  38,906  118,349  54,016  128,304  60,011 
Long-term debt  —  —  —  —  949,006  443,876 
Shareholders’ equity  71,583  314,739  1,148,453  1,822,331  2,205,158  1,031,411 
  Year Ended December 31, 
  
  2007  2008  2008 
    
  (in thousands ofreais, except percentages) (in thousands of 
                    U.S.dollars
      except 
      percentages)
Other Financial Data:       
   Operating margin(3) 0.02%  (1.4)%  (1.4)% 
   Net cash provided by (used in) operating activities  R$(141,488) R$166,860  US$71,399 
   Net cash used in investing activities  (190,339) 40,650  17,394 
   Net cash provided by (used in) financing activities  617,484  (611,301) (261,575)

  Year Ended December 31, 
  
  2002         2003         2004         2005  2006  2006 
       
  (in thousands, except percentages)
Other Financial Data:             
Operating margin(4) 9.2%  24.4%  29.4%  23.3%  18.4%  18.4% 
Net cash provided by (used in) operating activities R$17,023  R$85,235  R$239,920  R$353,745  R$530,436  US$248,099 
Net cash used in investing activities  (34,479) (39,263) (533,043) (801,787) (1,234,088) (577,216)
Net cash provided by financing activities  21,752  90,867  552,562  148,659  878,282  410,796 
   Year Ended December 31, 
  
  2007  2008 
   
Operating Data (unaudited):     
   Revenue passengers (in thousands) 23,689  25,664 
   Revenue passenger kilometers (in millions) 22,670  25,308 
   Available seat kilometers (in millions) 34,349  41,107 
   Load-factor  66.0%  61.6% 
   Break-even load-factor  65.9%  62.5% 
   Aircraft utilization (block hours per day) 13.8  12.1 
   Average fare  198  262 

             Year Ended December 31, 
  
  2002  2003  2004  2005  2006 
      
Operating Data (unaudited):           
Revenue passengers (in thousands) 4,847  7,324  9,215  13,000  17,447 
Revenue passenger kilometers (in millions) 3,156  4,835  6,289  9,740  14,819 
Available seat kilometers (in millions) 5,049  7,527  8,844  13,246  20,261 
Load-factor  62.5%  64.2%  71.1%  73.5%  73.1% 
Break-even load-factor  59.8%  50.8%  52.5%  56.4%  59.6% 
Aircraft utilization (block hours per day) 12.3  12.8  13.6  13.9  14.2 
Average fare  R$140  R$195  R$210  R$201  R$205 
Yield per passenger kilometer (cents) 20.4  27.7  29.8  26.1  24.2 
Passenger revenue per available seat kilometer (cents) 12.7  17.8  21.2  19.1  17.7 
Operating revenue per available seat kilometer (cents) 13.4  18.6  22.2  20.1  18.8 
Operating expense per available seat kilometer (cents) 12.2  14.1  15.7  15.5  15.3 
Operating expense less fuel expense per available seat kilometer (cents) 9.0  9.9  10.5  9.4  9.2 
Departures  52,665  75,439  87,708  122,683  164,696 
Departures per day  144  207  240  336  451 
Destinations served  22  25  36  45  55 
Average stage length (kilometers) 628  659  689  721  832 
Average number of operating aircraft during period  15.3  21.6  22.3  34.3  50.1 
Full-time equivalent employees at period end  2,072  2,453  3,307  5,456  8,840 
Fuel liters consumed (in thousands) 164,008  264,402  317,444  476,725  712,881 
Percentage of sales through website during period  48.7%  57.9%  76.4%  81.3%  81.6% 
Percentage of sales through website and call center during period  72.1%  74.1%  83.6%  88.7%  92.4% 
_______________________

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Yield per passenger kilometer (cents) 20.1  23.3 
Passenger revenue per available seat kilometer (cents) 13.3  14.3 
Operating revenue per available seat kilometer (cents) 14.4  15.6 
Operating expense per available seat kilometer (cents) 14.4  15.8 
Operating expense less fuel expense per available seat kilometer (cents) 8.9  9.4 
Departures  237,287  268,540 
Departures per day  650  736 
Destinations served  66  59 
Average stage length (kilometers) 960  933 
Average number of operating aircraft during period  88.6  106.4 
Full-time equivalent employees at period end  15,722  15,911 
Fuel liters consumed (in thousands) 1,177,300  1,364,719 
Percentage of sales through website during period  80%  79% 
Percentage of sales through website and call center during period  90%  86% 
__________________

(1)     Our preferred shares are not entitled to any fixed dividend preferences, but are instead entitled to receive dividends per share in the same amount of dividends per share paid to holders of our common shares. Consequently, our earnings (loss) per share are computed by dividing income by the weighted average number of all classes of shares outstanding during the year.

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(2)     AdjustedTrade and other receivables related to receivables from credit card administrators, travel agencies, installment sales from the Voe Facil program, cargo agencies and others. These receivables are stated at cost less allowances for the ADS ratio change in December 2005,doubtful receivables, which changed the ratio of ADS per preferred share from one ADS representing two preferred shares to one ADS representing one preferred share.approximates their fair value given their short term nature.
 
(3)     In managing our liquidity, we take into account our cash and cash equivalents, our short-term investments and our accounts receivable balances. Accounts receivable consist primarily of credit card receivables for purchased passenger tickets. We provide our customers with the option to pay in installments and therefore have to a limited extent a lag between the time that we pay our suppliers and the time that we receive payment for our services.
(4)Operating margin represents operating income divided by net operating revenues.
 

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U.S. GAAP Summary Financial Data
    Year Ended December 31,   
  
  2004  2005  2006  2007(3)
     
               (in thousands)  
Income Statement Data:         
 
Net operating revenues:         
       Passenger  R$1,875,475  R$2,539,016  R$3,580,919  R$4,566,691 
       Cargo and other  85,411  130,074  221,098  371,640 
     
       Total net operating revenues  1,960,886  2,669,090  3,802,017  4,938,331 
Operating expenses:         
       Salaries, wages and benefits  183,037  260,183  413,977  798,141 
       Aircraft fuel  459,192  808,268  1,227,001  1,898,840 
       Aircraft rent  195,504  240,876  292,548  515,897 
       Sales and marketing  261,756  335,722  414,597  367,866 
       Landing fees  57,393  92,404  157,695  273,655 
       Aircraft and traffic servicing  74,825  91,599  199,430  348,732 
       Maintenance, materials and repairs  51,796  55,373  146,505  318,917 
       Depreciation  21,242  35,014  69,313  121,570 
       Other operating expenses  79,840  128,300  179,494  317,686 
       Total operating expenses  1,384,585  2,047,739  3,100,560  4,961,304 
Operating income (loss) 576,301  621,351  701,457  (22,973)
Other income (expense):         
       Interest expense  (13,445) (19,383) (66,378) (142,390)
       Financial income (expense), net  24,424  115,554  163,883  265,074 
     
Income (expense) benefits before         
income taxes  587,280  717,522  798,962  99,711 
       Income taxes  (202,570) (204,292) (229,825) 2,802 
     
Net income  R$384,710  R$513,230  R$569,137  R$102,513 
     
Earnings per share, basic(1) R$2.14  R$2.66  R$2.90  R$0.52 
Earnings per share, diluted(1) R$2.13  R$2.65  R$2.90  R$0.52 
Weighted average shares used in         
computing earnings per share, basic         
(in thousands)(1) 179,731  192,828  196,103  198,609 
Weighted average shares used in         
computing earnings per share, diluted         
(in thousands)(1) 180,557  193,604  196,210  198,657 
Earnings per ADS, basic(1) R$2.14  R$2.66  R$2.90  R$0.52 
Earnings per ADS, diluted(1) R$2.13  R$2.65  R$2.90  R$0.52 
Dividends paid per share  R$0.32  R$0.60  R$0.92  R$1.40 
Dividends paid per ADS(1) R$0.32  R$0.60  R$0.92  R$1.40 

       As of December 31,   
  
  2004  2005  2006  2007 
     
    (in thousands)  
Balance Sheet Data:         
Cash and cash equivalents  R$405,730  R$106,347  R$280,977  R$574,363 
Short-term investments  443,361  762,688  1,425,369  858,438 
Accounts receivable(2) 386,370  563,958  659,306  916,133 
Deposits with lessors  289,416  408,776  537,835  589,665 
Total assets  1,734,284  2,555,843  4,258,454  7,002,421 
Short-term borrowings  118,349  54,016  128,304  496,788 
Long-term debt  —  —  949,006  1,066,102 
Shareholders’ equity  1,148,453  1,822,331  2,205,158  2,375,263 
_________________

(1)     Our preferred shares are not entitled to any fixed dividend preferences, but are instead entitled to receive dividends per share in the same amount of dividends per share paid to holders of our common shares. Consequently, our earnings (loss) per share are computed by dividing income by the weighted average number of all classes of shares outstanding during the year.
(2)     Trade and other receivables related to receivables from credit card administrators, travel agencies, installment sales from the Voe Facil program, cargo agencies and others. These receivables are stated at cost less allowances for doubtful receivables, which approximates their fair value given their short term nature
(3)     Includes the results of VRG since April 9, 2007.

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Exchange Rates

Before March 4, 2005, there were two principal legal     The Brazilian foreign exchange markets in Brazil:

     Most trade and financial foreign-exchange transactions were carried out on the commercial rate exchange market. These transactions includedsystem allows the purchase orand sale of sharesforeign currency and the international transfer ofreaisby any person or paymentlegal entity, regardless of dividends or interestthe amount, subject to certain regulatory procedures. The Brazilian currency has during the last decades experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. Between 2000 and 2002, the real depreciated significantly against the U.S. dollar, reaching an exchange rate of R$3.53 per US$1.00 at the end of 2002. Between 2003 and mid-2008, thereal appreciated significantly against the U.S. dollar due to the stabilization of the macro-economic environment and a strong increase in foreign investment in Brazil, with respect to shares. Foreign currencies could only be purchasedthe exchange rate reaching R$1.56 per US$1.00 in August 2008. In the context of the crisis in the commercial exchange market through a Brazilian bank authorized to operate in these markets. In bothglobal financial markets rates were freely negotiated.

     In March 2005, the National Monetary Council, dated March 4, 2005, consolidated the foreign exchange markets into one single foreign exchange market. All foreign exchange transactions are now carried out through institutions authorized to operate in the consolidated market and are subject to registration with the Central Bank’s electronic registration system. Foreign exchange rates continue to be freely negotiated, but may be influenced by Central Bank intervention.

     Since 1999, the Central Bank has allowedsince mid-2008, thereal/ depreciated 31.9% against the U.S. dollar over the year 2008, reaching R$2.34 per US$1.00 on December 31, 2008. On April 30, 2009, the exchange rate to float freely, and during that period, thereal/U.S. dollar exchange rate has fluctuated considerably. In the past, thewas R$2.18 per US$1.00. The Central Bank has intervened occasionally to control unstable movementsinstability in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to letallow thereal to float freely or will intervene in the exchange rate market through a currency band system or otherwise. Therealmay depreciate or appreciate against the U.S. dollar substantially in the future. For more information on these risks, see “Item 3D. Risk Factors—Risks Relating to Brazil.”substantially.

     The following tables set forthpresent the commercial selling rate, expressed inreaisper U.S. dollar (R$/US$), for the periods indicated.

    Average for     
  Period-end  Period  Low  High 
     
  (reais per US.dollar)
Year Ended         
December 31, 2002  3.533  2.998(1) 2.271  3.955 
December 31, 2003  2.889  3.060(1) 2.822  3.662 
December 31, 2004  2.654  2.917(1) 2.654  3.205 
December 31, 2005  2.341  2.412(1) 2.163  2.762 
December 31, 2006  2.138  2.168(1) 2.059  2.371 
 
Month Ended         
September 2006  2.174  2.169  2.128  2.218 
October 2006  2.143  2.148  2.133  2.168 
November 2006  2.167  2.158  2.135  2.187 
December 2006  2.138  2.150  2.138  2.169 
January 2007  2.125  2.139  2.125  2.156 
February 2007(through February 27) 2.110  2.095  2.077  2.114 
    Average for     
  Period-End  Period(1) Low High
     
         (reaisper U.S. dollar)
Year         
2004  2.654  2.926  2.654  3.205 
2005  2.341  2.435  2.163  2.762 
2006  2.138  2.177  2.059  2.371 
2007  1.771  1.948  1.733  2.156 
2008  2.337  1.836  1.559  2.500 
2009 (through April 30) 2.178  2.285  2.169  2.289 

    Average for     
  Month-End  Month(2) Low High
     
  (reaisper U.S. dollar)
Month         
September 2008  1.914  1.800  1.645  1.956 
October 2008  2.115  2.157  1.921  2.392 
November 2008  2.333  2.273  2.121  2.428 
December 2008  2.337  2.266  2.337  2.500 
January 2009  2.316  2.394  2.189  2.380 
February 2009  2.378  2.307  2.245  2.392 
March 2009  2.315  2.314  2.422  2.237 
April 2009  2.178  2.205  2.169  2.289 
_____________

Source: Central Bank
Notes:—
(1) Represents the average of the exchange rates on the last day of each month during the period.

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(2) Average of Contents

the lowest and highest rates in the month.

B. Capitalization and Indebtedness

     Not applicable.

C. Reasons for the Offer and Use of Proceeds

     Not applicable.

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D. Risk Factors

     An investment in the ADSs or our preferred shares involves a high degree of risk. You should carefully consider the risks described below before making an investment decision .decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. The trading price of the ADSs could decline due to any of these risks or other factors, and you may lose all or part of your investment. The risks described below are those that we currently believe may materially affect us.

Risks Relating to Brazil

     The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement, as well as Brazilian political and economic conditions, could adversely affect our business and the trading price of our ADSs and our preferred shares.

     The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition and results of operations may be adversely affected by changes in policy or regulations at the federal, state or municipal levels involving or affecting factors such as:

     Uncertainty over whether the Brazilian government will implement changes in policies or regulations affecting these or other factors may contribute to heightened volatility in the Brazilian securities markets and of securities issued abroad by Brazilian companies.

     Exchange rate instability may adversely affect our financial condition and results of operations and the market price of the ADSs and our preferred shares.

     As a result of inflationary pressures, among other factors, theThe Brazilian currency has devalued periodically during the last four decades. Throughout this period, the Brazilian government has implemented various economic plansdecades experienced frequent and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from dailysubstantial variations in relation to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Although over long periods depreciation of the Brazilian currency generally has correlated with the rate of inflation in Brazil, devaluation over shorter periods has resulted in significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other foreign currencies. Between 2000 and 2002, the real depreciated significantly against the U.S. dollar, reaching an exchange rate of R$3.53 per US$1.00 at the end of 2002. Between 2003 and mid-2008, thereal appreciated significantly against the U.S. dollar due to the stabilization of the macro-economic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.56 per US$1.00 in August 2008. In the context of the crisis in the global financial markets since mid-2008, thereal depreciated 31.9% against the U.S. dollar over the year 2008 and reached R$2.337 per US$1.00 at year end 2008. On April 30, 2009, the exchange rate was R$2.18 per US$1.00.

7     Depreciation of thereal against the U.S. dollar could create inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and harm our financial condition and results of operations, may curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciation of thereal against the U.S. dollar can also, as in the context of the current economic slowdown, lead to decreased consumer spending, deflationary pressures and reduced growth of the economy as a whole. On the other hand, appreciation of thereal relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange current accounts, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of thereal could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

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     Therealdepreciated against the U.S. dollar by 9.3% in 2000 and by 18.7% in 2001. In 2002, therealdepreciated 52.3% against the U.S. dollar, due in part to political uncertainty surrounding the Brazilian presidential elections and the global economic slowdown. Although therealappreciated 18.2%, 8.1%, 11.8% and 8.7% against the U.S. dollar in 2003, 2004, 2005 and 2006, respectively, no assurance can be given that therealwill not depreciate or be devalued against the U.S. dollar again. On February 27, 2007, the U.S. dollar/realexchange rate was R$2.110 per US$1.00. See “¯Exchange Rates.”

     Substantially all of our passenger revenue and cargo revenue and temporary investments are denominated inreais, and a significant part of our operating expenses, such as fuel, aircraft and engine maintenance services, aircraft rent payments and aircraft insurance, are denominated in, or linked to, U.S. dollars. We maintain U.S. dollar-denominated deposits and maintenance reserve deposits under the terms of some of our aircraft operating leases. For the year ended December 31, 2006, 49%2008, 57% of our operating expenses were either denominated in or linked to the U.S. dollar. In addition, the purchase price of the 76 737-80094 Boeing 737 Next Generation aircraft for which currently we havehad placed firm purchase orders as of December 31, 2008 and the 34 737-80036 Boeing 737 Next Generation aircraft for which we currently have purchase options are denominated in U.S. dollars. Since 2006, a portionAt the end of 2008, 96.1% of our indebtedness iswas denominated in U.S. dollars. While in the past we have generally adjusted our fares in response to, and to alleviate the effect of, depreciationsdepreciation of therealand increases in the price of jet fuel (which is priced in U.S. dollars) and have entered into hedging arrangements to protect us against the effects of such developments, there can be no assurance we will be able to continue to do so. To the extent we are unable to adjust our fares or effectively hedge against any such depreciation or increases in jet fuel prices,developments, this may lead to a decrease in our profit margins or to operating losses caused by increases in U.S. dollar-denominated costs, increases in interest expense or exchange losses on unhedged fixed obligations and indebtedness denominated in foreign currency. We had total U.S. dollar-denominated future operating lease payment obligations of US$911.44,675.4 million (including long-term vendor payables) and US$715.6R$3,396.3 million other U.S. dollar-denominated indebtedness at December 31, 2006.2008. We may incur substantial additional substantial amounts of U.S. dollar-denominated operating lease or financial obligations and U.S. dollar-denominated indebtedness and be subject to fuel cost increases linked to the U.S. dollar. At December 31, 2006,2008, we had a short-term hedging program in place forto cover part of our U.S. dollar-denominated operating lease obligations, our U.S. dollar-linked jet fuel expenses and our interest rate exposure.

     Historically, depreciationsDepreciation of therealrelative to the U.S. dollar have also created additional inflationary pressures in Brazil, and future depreciations could negatively affect us. Depreciations generally curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciations also reducereduces the U.S. dollar value of distributions and dividends on the ADSs and the U.S. dollar equivalent of the market price of our preferred shares and, as a result, the ADSs.

     Inflation and governmentGovernment efforts to combat inflation may contribute significantly to economic uncertainty in Brazilhinder the growth of the Brazilian economy and could harm our business and the market value of the ADSs and our preferred shares.business.

     Brazil has in the past experienced extremely high rates of inflation. More recently, Brazil’s annualinflation and has therefore followed monetary policies that have resulted in one of the highest real interest rates in the world. Between 2004 and 2008, the base interest rate of inflation was 25.3%(“SELIC”) in 2002, 8.7% in 2003, 12.4% in 2004, 1.2% in 2005Brazil varied between 19.25% p.a. and 3.8% in 2006 (as measured by¥ndice Geral de Preços—Mercado, or the IGP-M).11.25% p.a. Inflation and certain government actions takenthe Brazilian government’s measures to combat inflation,fight it, principally through the Central Bank, have in the past had and may have significant negative effects on the Brazilian economy. Actions taken to curb inflation, coupledeconomy and our business. Tight monetary policies with public speculation about possible future governmental actions, have contributed to economic uncertainty in Brazilhigh interest rates may restrict Brazil’s growth and heightened volatility in the Brazilian securities market. Future Brazilianavailability of credit. Conversely, more lenient government actions, includingand Central Bank policies and interest rate decreases intervention in the foreign exchange market and actions to adjust or fix the value of therealmay trigger increases in inflation. If Brazil again experiences high inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect our business. In addition, we may not be able to adjust the fares we charge our customers to offset the effects of inflation on our cost structure. Inflationary pressures may also hinder our ability to access foreign financial markets or lead to government policies to combat inflation that could harm our business or adversely affect the market value of our preferred shares and, as a result, the ADSs.

     Developments and the perception of risk in other countries, especiallyincluding the United States and emerging market countries, may adversely affect the market price of Brazilian securities, including the ADSs and our preferred shares.

     The market value of securities of Brazilian companiesissuers is affected to varying degrees by economic and market conditions in other countries, including other Latin Americanthe United States, the European Union and emerging market countries. Although economic conditions in suchthose countries may differ significantly from economic conditions in Brazil, investors’investor’s reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in otherthe United States, the European Union or emerging market countries may diminish investor interest in securities of Brazilian issuers, including ours. This could adversely affect the trading price of the ADSs or our preferred shares, and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

8     The global financial crisis has had significant consequences, including in Brazil, such as stock and credit market volatility, unavailability of credit, higher interest rates, a general economic slowdown, volatile exchange rates and inflationary pressure, among others, which may, directly or indirectly, adversely affect us and the market price of Brazilian securities, including the ADSs and our preferred shares.

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Risks Relating to Us and the Brazilian Airline Industry

     Changes to the Brazilian civil aviation regulatory framework and air traffic control may adversely affect our business and results of operations.

     TheBrazilian aviation supervisory authorities monitor and influence the developments in Brazil’s airline market. For example, the predecessor of the National Civil Aviation Agency (Agência Nacional de Aviação Civil, or “ANAC”), an independent regulatory agency linked, but not subordinated, to the Ministry of Defense was created in 2005 and operates as an independent agency for an indefinite term. ANAC principally has the authority to: (i) regulate, inspect and supervise services rendered by airlines operating in Brazil, (ii) grant concessions, permits and authorizations for air transport operations and airport infrastructure services, (iii) represent the Brazilian government before international civil aviation organizations, (iv) control, register and inspect civil aircraft, and (v) ensure that air transportation services are provided under free market principles.

     As ANAC commenced its activities and began to exercise its powers, the Civil Aviation DepartmentDAC (Departamento de Aviação CivilCivíl, or “DAC”), an organization that was subordinated to the Air Force Command of the Ministry of Defense, and responsible prior to ANAC for coordinating and supervising Brazilian civil aviation (coordinating and supervising air transportation services and aviation and ground infrastructure), transferred all its responsibilities and operations to the new agency and was extinguished. ANAC did not assume any of the current responsibilities of the Civil Aviation National Council (Conselho de Aviação Civilor “CONAC”), which will continue to set guidelines for regulation, control the development, and generally establish policy for the air transportation sector as a whole.

     The importation of any new aircraft is subject to approval by the Commission for Coordination of Civil Air Transportation (Comissão de Coordenação de Transporte Aéreo Civil, or “COTAC”), a sub-department of ANAC. In recent years, the DAC and since 2006 the ANAC have actively monitored developments in Brazil’s airline market and have taken certain restrictive measures that have helped to restore greater stability to the industry. For example, the ANAChad addressed overcapacity by establishing stricter criteria that must be met before new routes or additional flight frequencies arewere awarded. Our growth plans contemplate expanding into new markets, increasing flight frequenciesConversely, the ANAC has more recently pursued policies to loosen the market structures and operating considerably more thanincrease competition. The policies of the ANAC and other aviation supervisory authorities may negatively affect our existing fleet. As such,operations. For example, in 2008, ANAC enacted a regulation providing that the minimal ground time for aircraft between landing and take-off must be 40 minutes at the International Airport of São Paulo in Guarulhos, the international airport of Rio de Janeiro Galeão and at the Brasília airports, and 30 minutes at all other Brazilian airports. This regulation negatively affected our ability to grow generally depends on receiving the required authorizations from ANAC and COTAC. We cannot assure you that future authorizations will be granted to us. If the Brazilian civil aviation framework changes in the future, or ANAC implements increased restrictions, our growth plans and our business and results of operations could be adversely affected.increase aircraft utilization by minimizing turnaround times between flights.

     Several legislative initiatives have been taken by the National Congress, including the preparation of a draft bill of law that would replace Law No. 7,565 of December 19, 1986, the current Brazilian Aeronautical Code (Código Brasileiro de Aeronáutica). In general, this draft bill deals with matters related to civil aviation, including airport concessions, consumer protection, increased foreign shareholder participation in airlines, limitation of airlines’ civilairlines’civil liability, compulsory insurance and fines.

     No assurance can This draft bill is still under discussion in theHouse of Representatives and, if approved, must be given that these or othersubmitted to the Federal Senate, for new approval, before being sent to the government for presidential approval. If the Brazilian civil aviation framework changes in the Brazilianfuture, or ANAC implements increased restrictions, our growth plans and our business and results of operations could be adversely affected.

     The airline industry regulatoryis particularly sensitive to changes in economic conditions and continued negative economic conditions would likely continue to negatively impact our results of operations and our ability to obtain financing on acceptable terms.

     Our operations and the airline industry in general are particularly sensitive to changes in economic conditions. Unfavorable general economic conditions, such as higher unemployment rates, a constrained credit market and increased business operating costs, can reduce spending for both leisure and business travel. Unfavorable economic conditions can also impact our ability to raise fares to counteract increased fuel, labor, and other costs. An increasingly unfavorable economic environment will notwould likely negatively impact our results of operations. We continue to be cautious of current domestic economic conditions.

     Factors such as continued unfavorable economic conditions, a significant decline in demand for air travel, or continued instability of the credit and capital markets could result in pressure on our borrowing costs, operating results and financial condition and would affect our growth and investment plans. These factors could also negatively impact our ability to obtain financing on acceptable terms and our liquidity generally.

Technical and operational problems in the Brazilian civil aviation infrastructure, including air traffic control systems, airspace and airport infrastructure may have a material adverse effect on our business, andour results of operations.operations and our strategy.

     Technical and operational problemsWe are dependent on improvements in the coordination and development of Brazilian air trafficairspace control systems since the last quarter of 2006 have led to extensive flight delays, higher than usual flight cancellations and airport congestionsinfrastructure, which, mainly due to the large growth in civil aviation in Brazil in recent years, require substantial improvements and negatively affected our punctualitygovernment investments. If the measures taken and operating results. The Brazilian government and air traffic control authorities have taken measures to improve the Brazilian air traffic control systems, but if the changes proposed and measures takeninvestments made by the Brazilian government and regulatory authorities do not prove successful, thesesufficient or effective, air traffic control, airspace management and runway safety relatedsector coordination-related difficulties might reoccur or worsen, which might have a material adverse effect on our business, our results of operations and our growth strategy.

     We operate in a highly competitive industry.

     We face intense competition on our domestic routes in Brazil from existing scheduled airlines and charter airlines. In addition, the Brazilian aviation authorities have the flexibility to permitairlines and new entrants in our market. In addition to competition among scheduled airline companies and charter operators, the Brazilian airline industry faces competition from ground transportation alternatives, such as interstate buses. We may also face increased competition in the future.from international airlines as they introduce and expand flights between Brazil and other South American destinations.

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     Our existing competitors or new entrants into the marketmarkets in which we operate may undercut our fares, increase capacity on their routes in an effort to increase their market share or attempt to conduct low-fare or low-cost airline operations of their own. In any such an event, we cannot assure you that our level of fares or passenger traffic would not be adversely affected. We may also face competition from international airlines as we introduceaffected and expand flights between Brazil and other South American destinations.

     In addition to competition among scheduled airline companies and charter operators, the Brazilian airline industry faces competition from ground transportation alternatives, such as interstate buses. Such competition maywould not have an adverse impact on our business and results of operations.

     A failure to successfully implement our growth strategy would harm the market value of the ADSs and our preferred shares.

     Our growth strategy involves expandingcapitalizing on our strong market position in Brazil and Latina America, with the highest number of markets we serve and increasingroutes at the frequency of flights to the markets we currently serve. Increasing the number of markets we servemost important airports in Brazil, our consolidated flight network and our flight frequencies depend onSmiles mileage program, to increase our ability to identifypenetration of all traveler segments.

     Slots at Congonhas Airport in São Paulo, the appropriate geographic markets upon which to focus and to gain suitablemost important airport access and route approval in these markets. There can be no assurance that the new markets we enter will provide passenger traffic that is sufficient to makefor our operations, in those new markets profitable.

     Two of theare fully utilized. The Santos-Dumont airport facilities from which we operate, Santos Dumont in Rio de Janeiro, Congonhas ina highly utilized airport with half-hourly shuttle flights between São Paulo have limited landing slots available and passenger processing is at or near maximum capacity. Four ofRio de Janeiro, has certain slot restrictions. Several other Brazilian airports, for example the airports from which we operate, Juscelino Kubitschek in Brasília Santos Dumont, Congonhas, GuarulhosInternational Airport and São Paulo International Airport in Guarulhos, are subject to slot restrictions limitinghave limited the number of landings and take-offsslots per day due to infrastructural limitations at these airports and when they can be made.airports. Any condition that would prevent or delay our access to airports or routes that will beare vital to our growth strategy, including the ability to process more passengers or the imposition of flight capacity restrictions or our inability to maintain our existing slots, and obtain additional slots, inat the Juscelino Kubitschek, Santos Dumont,Santos-Dumont and Congonhas Guarulhos airports, could constrain the expansion ofmaterially adversely affect our operations. In addition, we cannot assure that any investments will be made by the Brazilian government in the Brazilian aviation infrastructure to permit a capacity increase at busy airports and consequently additional concessions for new slots to airlines.

     In addition,     We may be subject to increased litigation risks related to the introduction and expansionoperations of flights between Brazil and other destinations outsideVarig S.A.

     Even though the Brazilian bankruptcy laws protect us from any risks related to the legal succession of Brazil requiresVarig S.A., the availabilitycompany from which, in the context of flight capacity under, and compliance with,its bankruptcy proceeding, we bought certain assets for the criteria set forth in bilateral treaties governing cross-border air travel that have been negotiated between Brazil and other South American countries. To the extent that there is no available capacity orcreation of VRG, we cannot comply withforesee the criteria containednumber and amount of contingencies relating to lawsuits making claims related to that succession. After our acquisition of VRG, we experienced a significant increase in legal proceedings, especially proceedings related to labor claims of Varig S.A. We cannot foresee the outcome of these treaties, our plans to introduceproceedings and the amounts of any additional flights between Brazil and other destinations outside of Brazil could be constrained. In addition, our plans to further expand our operations into other South American countries could be adversely affected by political, economic and social conditions in those countries.

     The expansion of our business will also require additional skilled personnel, equipment and facilities. An inability to hire and retain skilled personnel or secure the required equipment and facilities efficiently and cost-effectivelyprobable disbursements, which may adversely affect our ability to execute our growth strategy. Expansionconsolidated operating margins and results of our markets and flight frequencies may also strain our existing management resources and operational, financial and management information systems to the point that they may no longer be adequate to support our operations, requiring us to make significant expenditures in these areas. In light of these factors, we cannot assure you that we will be able to successfully establish new markets or expand our existing markets and operations, and our failure to do so would harm our business and the value of the ADSs and our preferred shares.operations.

     We have significant fixedrecurring aircraft lease costs, and we will incur significantly more fixed costs that could hinder our ability to meet our strategic goals.

     We have significant fixed costs, relating primarily to operating leases for our aircraft and engines, of which leases for four115 aircraft have floating-rate rent payments based on LIBOR or U.S. interest rates. Currently,As of December 31, 2008, we havehad commitments of approximately US$11.5R$15.8 billion to purchase 7694 additional Boeing 737-800 Next Generation aircraft, based on aircraft list prices, although the actual price payable by us for the aircraft will be lower due to supplier discounts. As of December 31, 20062008, we had US$949.0R$2,024.4 million in long-term indebtedness.indebtedness, excluding our perpetual bonds in the amount of R$414.4 million. We expect that we will incur additional fixed obligations and debt as we take delivery of the new aircraft and other equipment to implement our growth strategy.

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     Having significant fixed payment obligations could:

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     Our ability to make scheduled payments on our fixed obligations, including indebtedness we will incur, will depend on our operating performance and cash flow, which will in turn depend on prevailing economic and political conditions and financial, competitive, regulatory, business and other factors, many of which are beyond our control. In addition, our ability to raise our fares to compensate for an increase in our fixed costs may be adversely affected by any imposition of fare control mechanisms by the Brazilian civil aviation authorities.

     We may have to use our cash resources to finance a portion of our firm purchase order aircraft. We may not have sufficient cash resources available to do so.

     We currently finance our aircraft principally through operating leases. As a result of our firm purchase orders to purchase 7694 Boeing 737-800 Next Generation aircraft in the futureas of December 31, 2008, we expect to own a larger portion of our fleet as well as continue to lease aircraft through principally long-term operating leases. The firm purchase orders represent a significant financial commitment for us. In 2006, weWe have in recent years financed and we intend to finance a portion ofcontinue financing our new Boeing 737-800 NG aircraft with a commitment we received from the U.S. Export-Import Bank of the United States providing guarantees covering approximately 85% of the aggregate purchase price for the firm purchase order aircraft. While we expect that the guaranty from the U.S. Export-Import Bank will assisthelp us in obtaining low-cost financing for the purchase of the firm purchase order aircraft, we may be required to use our own cash resources for the remaining 15% of the aggregate purchase price for the firm purchase order aircraft. As of December 31, 2006,2008, we had R$1.7 billion591.6 million of cash, cash equivalents, and short-term investments in overnight deposits and deposit certificates of highly-rated Brazilian banks and marketable securities, mainly highly-rated Brazilian government bonds.bonds, including R$176.7 million in restricted cash. If the value or liquidity of these investments were to decrease, or we do not have sufficient cash resources, we may be required to modify our aircraft acquisition plans or to incur higher than anticipated financing costs, which would have an adverse impact on the execution of our growth strategy and business and could have an adverse impact on our results of operations.

     Substantial increasesfluctuations in fuel costs or the unavailability of sufficient quantities of fuel would harm our business.

     Fuel costs, which have recently beenat times in 2007 and 2008 were at historically high levels, constitute a significant portion of our total operating expenses, accounting for 39.6%40.5% of our operating expenses for the year ended December 31, 2006.2008. Historically, international and local fuel prices have been subject to wide price fluctuations based on geopolitical issues and supply and demand. In 2008, WTI prices peaked at US$145.3 per barrel in March 2008, but decreased to US$44.6 per barrel at the end of 2008. Fuel availability is also subject to periods of market surplus and shortage and is affected by demand for both home heating oil and gasoline. In the event of an international or local fuel supply shortage, our fuel prices may increase.

     In addition, substantially all of our fuel is supplied by one source, Petrobras Distribuidora S.A. If Petrobras Distribuidora is unable or unwilling to continue to supply fuel to us at the times and in the quantities that we require, or if Petrobras Distribuidora were to raise significantly the price it charges us for its fuel, our business and results of operations would be adversely affected. Some of our competitors may be able to obtain fuel on better terms than we, both with respect to quantity and price. Although we enter into hedging arrangements to reduce our exposure to fuel price fluctuations and have historically passed on the majority of fuel price increases by adjusting our fare structure, the price and future availability of fuel cannot be predicted with any degree of certainty. Our hedging activities or the extent of our ability to adjust our fares may not be sufficient to protect us from fuel price increases.

     In addition, substantially all of our fuel is supplied by one source, Petrobras Distribuidora S.A. If Petrobras Distribuidora is unable or unwilling to continue to supply fuel to us at the times and in the quantities that we require, or if Petrobras Distribuidora were to raise significantly the price it charges us for its fuel, our business and results of operations would be adversely affected.

     We have only a limited number of suppliers for our aircraft and engines.

     One of the key elements of our current business strategy is to save costs by operating a simplifiedstandardized aircraft fleet equipped with one type of engine.fleet. After extensive research and analysis, we chose the Boeing 737-700/800 Next Generation aircraft and CFM 56-7B engines from CFM International. In light of our firm purchase orders to purchase 76 Boeing 737-800 Next Generation aircraft and options to purchase an additional 34 Boeing 737-800 Next Generation aircraft, weWe expect to continue to rely on Boeing and CFM International into the foreseeable future. If either Boeing or CFM International were unable to perform their contractual obligations, we would have to find another supplier for a similar type of aircraft or engines. While we await the delivery of our new 737-800 Next Generation aircraft, we are currently using 14 Boeing 737-300 aircraft to help meet our short-term capacity needs caused by higher than expected demand for our air travel services in Brazil and South America.

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     If we had to lease or purchase aircraft from another supplier, we could lose the benefits we derive from our current fleet composition. We cannot assure you that any replacement aircraft would have the same operating advantages as the Boeing 737-700/800 Next Generation aircraft or that we could lease or purchase engines that would be as reliable and efficient as the CFM engines. We may also incur substantial transition costs, including costs associated with retraining our employees, replacing our manuals and adapting our facilities, to the extent that such costs would not be covered by the alternate supplier. Our operations could also be disrupted by the failure or inability of Boeing or CFM International to provide sufficient parts or related support services on a timely basis.

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     Our business would also be significantly harmed if a design defect or mechanical problem with the Boeing 737-700/800 Next Generation aircraft, Boeing 737-300 aircraft or the CFM engines used on our aircraft were discovered, causing our aircraft to be grounded while any such defect or problem is being corrected, assuming it could be corrected at all. The use of our aircraft could be suspended or restricted by the ANAC in the event of any actual or perceived mechanical, design or other problems while the ANAC conducts its ownan investigation. Our business would also be significantly harmed if the public avoids flying on our aircraft due to an adverse perception of the Boeing 737-700/800 Next Generation aircraft Boeing 737-300 aircraft or the CFM engines because of safety concerns or other problems, whether real or perceived, or in the event of an accident involving Boeing 737-700/800 Next Generation aircraft, Boeing 737-300 aircraft or the CFM engines.

     We may be unable to maintain our company culture as our business grows.

     We believe that our growth potential and the maintenance of our results-oriented corporate culture are directly linked to our capacity to attract and maintain the best professionals available in the Brazilian and South American airline industry. We are dedicated to providing professional, high-quality service in a positive work environment and finding innovative ways to improve our business. We place great emphasis on the selection and training of enthusiastic employees with potential to add value to our business and who we believe fit in with and contribute to our company culture. As we grow domestically and internationally, we may be unable to identify, hire or retain enough people who meet the these criteria, or we may have trouble maintaining this company culture as we become larger. Our company culture is crucial to our business plan, and failure to maintain that culture could adversely affect our business and results of operations.

     The loss of our senior management and key employees could disrupt our business.

     Our business also depends significantly upon the efforts of our chief executive officer, who has played an important role in shaping our company culture and, through his interest in our controlling shareholder, owns a significant numberculture. If the services of our shares, as well as other key executives. If our chief executive officer or a number of our key executives leave our company,become unavailable to us, we may have difficulty finding suitable replacements, which could harm our business and results of operations.

     We rely heavily on automated systems to operate our business, and any failure of these systems could harm our business.

     We depend on automated systems to operate our business, including our computerized airline ticket sales system, our telecommunication systems and our website. Our website and ticket sales system must be able to accommodate a high volume of traffic and deliver important flight information. Substantial or repeated website, ticket sales system or telecommunication systems failures could reduce the attractiveness of our services and could cause our customers to purchase tickets from another airline. Any disruption in these systems could result in the loss of important data, increase our expenses and generally harm our business.

     We rely on maintaining a high daily aircraft utilization rate to increase our revenues.revenues and reduce our costs. High aircraft utilization also makes us vulnerable to delays.

     One of the key elements of our business strategy is to maintain a high daily aircraft utilization rate. High daily aircraft utilization allows us to generate more revenue from our aircraft and dilute our fixed costs, and is achieved in part by operating with quick turnaround times at airports so we can fly more hours on average in a day. Our rate of aircraft utilization could be adversely affected by a number of different factors that are beyond our control, including, among others, air traffic and airport congestion, adverse weather conditions and delays by third-party service providers relating to matters such as fueling and ground handling.

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Table In 2008, our aircraft utilization was negatively affected due to a new regulation effective as of ContentsMarch, 2008 that increased turnaround times of our aircraft, and our parallel operation of two airlines until our corporate restructuring in September 2008.

     High aircraft utilization increases the risk that if an aircraft falls behind schedule during the day, it could remain behind schedule during the remainder of that day and potentially the next day, which can result in disruption in operating performance, leading to passenger dissatisfaction related to delayed or cancelled flights and missed connections.

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     Our reputation and financial results could be harmed in the event of an accident or incident involving our or other Brazilian airline’s aircraft or our aircraft type or as a result of the mid-air collision of one of our aircraft in September 2006.type.

     Accidents or incidents involving our aircraft could involve significant claims by injured passengers and others, as well as significant costs related to the repair or replacement of a damaged aircraft and its temporary or permanent loss from service. We are required by ANAC and lessors of our aircraft under our operating lease agreements to carry liability insurance. Although we believe we currently maintain liability insurance in amounts and of the type generally consistent with industry practice, the amount of such coverage may not be adequate and we may be forced to bear substantial losses in the event of an accident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our business and financial results. Moreover, any aircraft accident or incident involving our aircraft, even if fully insured, or an accident or incident involving Boeing 737 Next Generation aircraft or the aircraft of any other Brazilian airline could cause anegative public perception that we areperceptions about us or the Brazilian air transport system as less safe or reliable than other airlines, which would harm our business and results of operations. On September 29, 2006, one of our new Boeing 737-800 NG aircraft was involved in a mid-air collision with a private aircraft of ExcelAir. We cannot assure you that our reputation will not be negatively affected by the implications of this accident.

     Our controlling shareholder has the ability to direct our business and affairs and its interests could conflict with yours.

     Our controlling shareholder has the power to, among other things, elect a majority of our directors and determine the outcome of any action requiring shareholder approval, including transactions with related parties, corporate reorganizations, dispositions, and the timing and payment of any future dividends, subject to minimum dividend payment requirements imposed under the Brazilian corporation law. Although you are entitled to tag-along rights in connection with a change of control of our company and you will have specific protections in connection with transactions between our controlling shareholder and related parties, our controlling shareholder may have an interest in pursuing acquisitions, dispositions, financings or similar transactions that could conflict with your interests as a holder of the ADSs or our preferred shares.

Risks Relating to the ADSs and Our Preferred Shares

     The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the preferred shares underlying the ADSs at the price and time you desire.

     Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature. The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States. Accordingly, although you are entitled to withdraw the preferred shares underlying the ADSs from the depositary at any time, your ability to sell the preferred shares underlying the ADSs at a price and time at which you wish to do so may be substantially limited. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. The ten largest companies in terms of market capitalization represented approximately 50.4%52.4% of the aggregate market capitalization of the BM&F BOVESPA S.A. Bolsa de Valores, Mercadorias & Futuros (“BOVESPA”) as of December 31, 2006.2008. The top ten stocks in terms of trading volume accounted for approximately 45%46.1%, 51%41.5% and 46.4%53.2% of all shares traded on the BOVESPA in 2004, 20052006, 2007 and 2006,2008, respectively.

     Holders of the ADSs and our preferred shares may not receive any dividends.

     According to our by-laws, we must generally pay our shareholders at least 25% of our annual net income as dividends, as determined and adjusted under Brazilian GAAP.corporate law. This adjusted income may be capitalized, used to absorb losses or otherwise appropriated as allowed under the Brazilian corporation law and may not be available to be paid as dividends. We may not pay dividends to our shareholders in any particular fiscal year if our board of directors determines that such distributions would be inadvisable in view of our financial condition.

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     If you surrender your ADSs and withdraw preferred shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages.

     As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our preferred shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the preferred shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw preferred shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal. Thereafter, upon the disposition of or distributions relating to the preferred shares, you will not be able to remit abroad non-Brazilian currency unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration. If you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our preferred shares.

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     If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our preferred shares or the return of your capital in a timely manner. The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes.

     Holders of ADSs may be unable to exercise preemptive rights with respect to our preferred shares.

     We may not be able to offer our preferred shares to U.S. holders of ADSs pursuant to preemptive rights granted to holders of our preferred shares in connection with any future issuance of our preferred shares unless a registration statement under the Securities Act is effective with respect to such preferred shares and preemptive rights, or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement relating to preemptive rights with respect to our preferred shares, and we cannot assure you that we will file any such registration statement. If such a registration statement is not filed and an exemption from registration does not exist, The Bank of New York Mellon, as depositary, will attempt to sell the preemptive rights, and you will be entitled to receive the proceeds of such sale. However, these preemptive rights will expire if the depositary does not sell them, and U.S. holders of ADSs will not realize any value from the granting of such preemptive rights.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

General

     The Registrant was formed on March 12, 2004 as asociedade por ações, a stock corporation duly incorporated under the laws of Brazil with unlimited duration. The Registrant’s only material assets consist of the shares of Gol, twoVRG, three offshore finance subsidiaries, cash and cash equivalents and short-term investments. The Registrant owns all of Gol’sVRG’s shares, except for five common shares of Gol that are held by members of Gol’s boardVRG’s boards of directors for eligibility purposes. Our principal executive offices are located at RuaPraça Comte Linneu Gomes, de Carvalho 1629, 04547-006S/N, Portaria 3, Jardim Aeroporto, CEP: 04626-020, São Paulo, SP, Brazil, and our general telephone number is +55 11 3169-6003.2128-4000. The telephone number of our investor relations department is +55 11 3169-6800.2128-4700. Our website address is www.voegol.com.br and our website is available in Portuguese, Spanish and English.www.voegol.com.br. Investor information can be found on our website under the caption “Investor Relations.”www.voegol.com.br/ir. Information contained on our website is not incorporated by reference in, and shall not be considered a part of, this annual report.

Capital Expenditures

     For a description of our capital expenditures, see below “Item 5—5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

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B. Business Overview

     We are one of the most profitablelargest low-cost low fare airlines in the world and the most profitable airline in South America,terms of passengers transported in 2008, and had net revenues of R$3.8 billion and net income of R$569.1 million for the year ended December 31, 2006. We are the only low-fare low-cost airline providing frequent service on routes connecting all of Brazil’s major cities and also to major cities in Argentina, Bolivia, Chile, Paraguay, Peru,South America. With our young and Uruguay. Our mission is to increasestandardized operating fleet of 106 Boeing 737 aircraft, we serve the growth and profitslargest number of our business by stimulating and meeting demand for safe, affordable, convenient air travel for both business and leisure passengers. We do this by offering simple, safe and efficient service while having one of the lowest operating costsdestinations in the airline industry worldwide. Our vision is to be recognized by 2010 asBrazilian air passenger transportation market.

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      Since the airline that popularized high-quality, low-fare air transportation in South America.

     We have flown over 55 million passengers since beginning of our operations in 2001, and, according to the ANAC, Brazil’s civil aviation authority, our share of the domestic market, based on revenue passenger kilometers, grew from 4.7% in 2001 to 37.1% in December 2006. Our share of the international market, based on revenue passenger kilometers transported by Brazilian airlines grew from 3.1% in 2005 (our first full year operating international flights) to 13.3% in December 2006. Our strategy is to increase the size of the market by attracting new passengers through our low fares, a young and modern aircraft fleet, targeted marketing, simplified travel services and through a variety of payment mechanisms designed to make the purchase of our tickets easier for customers belonging to a much broader income class. Our affordable, reliable and simple service and our focus on markets that were either underserved or did not have a lower-fare alternative has led to a strong awareness of our brand and a rapid increase in our market share.

     As of We were the end of 2006, we operated 65 single-class Boeing 737 aircraft. We have firm purchase orders with The Boeing Company for 76 737-800 Next Generation aircraft,first company to successfully introduce low cost carrier industry practices and we have options to purchase an additional 20 737-800 Next Generation aircraft. Currently, we have 14 firm purchase orders for aircraft deliveries scheduledtechnologies in 2007, 9 in 2008, 16 in 2009, 16 in 2010 and 21 after 2010. To meet the recent higher than expected demand for our air travel services in Brazil and South America, in 2006 we took delivery of six Boeing 737-300 aircraft under four year operating leases, which we are using to help meet our short-term capacity needs while we await the delivery of the new 737-800 Next Generation aircraft.

Latin America. We have a diversified revenue base, with customers ranging from business passengers traveling between densely populated cities in Brazil, such as São Paulo, Rio de Janeiro and Belo Horizonte, to leisure passengers traveling to destinations throughout Brazil and to our internationalSouth American destinations. Our strategy is to increase the size of the market by attracting new passengers through our consolidated flight network, a modern aircraft fleet, targeted marketing and our loyalty program (Smiles, the largest loyalty program in South America with more than six million members), a variety of attractive ancillary businesses such as our air cargo services (Gollog), and through a variety of payment mechanisms (includingVoe Fácil) designed to make the purchase of our tickets easier for customers in lower income classes. Passenger transportation revenues represented 91.9% and ancillary revenues represented 8.1% of our consolidated revenues in 2008.

     As of the end of 2008, we offered over 736 daily flights to 59 destinations connecting the most important cities in Brazil as well as the main destinations in Argentina, Bolivia, Chile, Colombia, Paraguay, Peru, Uruguay and Venezuela. We strategically focus on the Brazilian and South America. WeAmerican markets, and will continue to carefully evaluate opportunities to continue the growth of our business through increasing the frequency of flights to our existing high-demand markets and adding new routes in these markets, all of which can be reached with our Boeing 737 Next Generation aircraft.

     In April 2007, we acquired VRG in order to improve over the long term our position within the highly competitive Brazilian and Latin American passenger transportation industry. VRG is a company formed from assets of the former Varig group, which sought bankruptcy protection in June 2005. Varig’s route and airport operating rights permitted us to expand our activities in Brazil and South America and increased our slots at the Congonhas airport in São Paulo, the most important airport for our operations, from 138 slots in 2006 to other Latin232 slots at the end of 2008. The acquisition was approved by the ANAC in April 2007 and by the Brazilian antitrust authority CADE in June 2008. In the second half of 2008, we completed a corporate restructuring that resulted in the merger of our former operating subsidiary Gol Transportes Aéreos S.A. (GTA) into VRG and allowed the integration of ourSmiles loyalty program into our consolidated flight network. The corporate restructuring became effective on September 30, 2008 and has since then simplified and improved our operational structure, enabling us to explore synergies and to provide more efficient air transportation service through an integrated network for Brazilian and South American destinations.

     Our net passenger revenues in 2008 reached R$5.9 billion, an increase of 29.0% when compared to net passenger revenues in 2007. Due to increased costs related to the integration and consolidation of our business after the VRG acquisition, high fuel prices in the first half of 2008 (which reached an all time high of US$145.3 per barrel in March 2008), and a strong devaluation of thereal against the U.S. dollar in the second half of 2008 (thereal depreciated from an all time high of R$1.56 per US$1.00 in July, 2008 to R$2.34 at year end 2008), we had net losses of R$1.2 billion in 2008. After our corporate restructuring, we were able to improve our operating performance as compared to the first half of 2008. In 2006,the fourth quarter of 2008 we inaugurated 10 new destinations, thereby increasinghad operating income of R$54 million, with an operating margin of 3.5% .

     Our Competitive Strengths

     Our principal competitive strengths are:

We Keep Our Operating Costs Low.Our operating cost per available seat kilometer for the year ended December 31, 2008 was R$15.80 cents, or US$6.76 cents. We believe that our cost per available seat kilometer for the year ended December 31, 2008, adjusted for the average number of destinations servedkilometers flown per flight, was over the year the lowest in the domestic market and one of the lowest among international low-cost carriers, based upon our analysis of data collected from publicly available information. Our business model is based on innovation and best practices adopted to 55 (48improve our operating efficiency, including:

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Operation of a young and standardized fleet.At December 31, 2008, our operating fleet of 106 Boeing 737 aircraft was one of Latin America’s largest and youngest fleets, with an average age of 6.8 years. We plan to return or sublease our remaining leased Boeing 737-300 and Boeing 767 aircraft in 2009, and exclusively use Boeing 737 NG aircraft. Having a fleet with one aircraft type reduces inventory costs, as fewer spare parts are required, and reduces the need to train our pilots to operate different types of aircraft. It also simplifies our maintenance and operations processes. With our 94 firm purchase orders as of December 31, 2008, and purchase options for 36 additional Boeing 737-800 NG aircraft, we expect to be able to further decrease the age of our fleet, and therefore increase efficiency and better control maintenance costs.
Maintenance efficiency. We internalized heavy maintenance on our Boeing 737 aircraft in our Aircraft Maintenance Center at the Tancredo Neves International Airport in Confins, in the State of Minas Gerais. We use this facility for airframe heavy checks, line maintenance, aircraft painting and aircraft interior refurbishment. With our system of phased maintenance for our Boeing Next Generation 737-700 and 737-800 aircraft fleet, we are able to perform maintenance work every day without sacrificing aircraft revenue time and to schedule preventive maintenance with more regularity and around the utilization of our aircraft, which reduces costs. We are one of the few airlines in the world that takes full advantage of the Boeing 737 Next Generation phased maintenance philosophy, supported by extensive investments we made in personnel, material, tools and equipment.
We are one of the largest e-commerce companies in Brazil. Our effective use of technology helps us to keep our costs low and our operations highly scaleable and efficient. We seek to keep our distribution channels streamlined and convenient so as to allow our customers to interact with us via the Internet. In 2008, we booked a significant majority of our ticket sales through a combination of our website (79%) and our call center (7%) . In addition, our customers can check in for their flights online and by web-enabled cell phones. As a result of our emphasis on low-cost distribution channels, we were in 2008 one of the largest e-commerce companies in Brazil with R$4.8 billion in net ticket sales on our website, more than any other airline company in Brazil. We enjoy significant cost savings associated with automated ticket sales, which makes the selection of travel options more convenient for our customers.

We Stimulate Demand for Our Service.We believe that through our differentiated services we create demand for air travel services. Our average fares are lower than the average fares of our domestic competitors. We identify and stimulate demand among both business and leisure passengers for air travel that is safe, convenient, simple and is a reasonably priced alternative to traditional air, bus and car travel. By combining low fares with simple and reliable service, we have successfully increased our market share, strengthened customer loyalty and are attracting new groups of air travelers in Brazil)our markets. These new travelers did not previously consider air travel due to the higher prices and more complicated sales procedures that preceded our entry into the market. For example, our night flights, which we have offered since 2005 at highly competitive fares, have proven to be very successful, generating load factors higher than that of our other flights. In 2008, we commenced offering attractive fares on certain routes with minimum stay requirements. We estimate that on average, approximately 10% of the customers on our flights are either first-time flyers or have not flown for more than one year. We have developed and will further develop flexible payment mechanisms such as debit payments and long-term installment payments (Voe Fácil), with which we expect to increase our potential market and customer base to broader income classes and which enable us to further penetrate markets and customers.

We Have a Strong Market Position at the Most Important Airports in Brazil.Since the VRG acquisition, we have had the most flights at the busiest airports in Brazil: Congonhas (São Paulo), Santos Dumont (Rio de Janeiro), Juscelino Kubitschek (Brasilia) and Confins (Belo Horizonte). Routes between those airports are among the most profitable routes in our markets, with higher yields achieved mostly from travelers in the corporate segment. In Congonhas, an airport with slot restrictions, we were the leader in terms of passengers transported in 2008.

We Have the Largest Loyalty Program in Latin America.We have a loyalty program (Smiles), which we consider as a strong relationship tool and which is available to all our passengers. TheSmiles program serves as a source of revenue for us, since we can sell miles directly to corporations for marketing purposes or utilize them for co-branded credit cards. It supports partnerships with hotel chains, car rental companies, restaurants, insurance companies, publishers and schools and also forms the basis for partnerships with some of Brazil and South America’s largest banks and credit card companies. In 2008, the program offered a number of marketing promotions aimed at re-engaging its existing members and expanding its client base. The Smiles program had over six million members at the end of 2008.

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We Have Strong Brands that are Widely Recognized.We believe that the Gol brand has become synonymous with innovation and value in the airline industry. Our customers identify Gol as being safe, accessible, friendly, fair and reliable and distinguish Gol in Brazil’s domestic airline industry on the basis of its modern and simplified approach to providing air travel services. OurSmiles,Gollog andVoe Fácil brands give us valuable customer recognition in various businesses and create a tool for brand diversification for us. OurVarig brand is widely known in the Brazilian and the South American markets in which we operate.

We Have a Proven Management Team and High Corporate Governance Standards. Our controlling shareholder has been operating in the Brazilian passenger transportation market for over 50 years, and our top managers have an average of approximately 25 years of experience in the Brazilian passenger transportation industries. This experience has helped us to develop the most effective elements of our low-cost model. Our corporate governance practices go beyond those of most issuers in the transportation industry and emerging markets issuers, with the efficient and active use of specialized committees with highly qualified professionals and senior managers that add value to decisions made in the day-to-day management of our business.

Our Strategies

Capitalize on Our Strong Market Position in Brazil and Latin America. We intend to further expandcapitalize on our servicestrong market position, with the highest number of routes at the most important airports in Brazil, our consolidated flight network and ourSmiles program, to additional internationalincrease penetration of all segments of travelers. We focus on Brazilian operations and selected South American destinations in South America.that are or we expect to become profitable and fit into our flight network.

Reduce Operating Costs and Improve Operating Efficiency. Continuing to reduce our operating costs per available seat kilometer is a key to increasing profitability. We generate ancillary revenues from air cargo services and our installment payment mechanisms. We areaim to remain one of the fewlowest cost airlines in the world. We intend to further reduce the average age of our fuel-efficient fleet, while optimizing the size of our fleet to ensure high utilization rates. We expect to return or sublease all our Boeing 737-300 and 767 aircraft in 2009. We are also working to achieve this goal by using our aircraft efficiently, concentrating on minimizing our turnaround times at airports and maintaining a high number of daily flights per aircraft. Due to macro-economic developments, regulatory limitations and the effects of the VRG acquisition until our corporate restructuring in September 2008, our operating results in 2008 were atypical, driven by increased average fares (reflecting record-high fuel costs) and decreasing utilization, while our corporate strategy remains to operate as a low cost carriers in the world that offers cargo services.low fare airline with high aircraft utilization. We will continue to utilize technological innovations wherever possible to reduce our distribution costs and improve our operating efficiency. We expect to benefit from economies of scale and reduce our average cost per available seat kilometer as we add aircraft to an established and efficient operating infrastructure.

Stimulate Demand. Our installmentwidely available service is designed to popularize air travel and stimulate demand, particularly from fare-conscious leisure travelers and small to mid-size business travelers who might otherwise use alternative forms of transportation or not travel at all. We will continue to provide our customers with low fare alternatives and flexible payment mechanisms, such as debit payments, credit card installment payments and monthly installment payments in the form of direct credit. For example, ourVoe Fácil card, are (“Fly Easy”) Program, which allows qualifying customers to pay for airline tickets in up to 36 monthly installments as an innovative and help stimulate demand.

     We offer a simplified productway to our customers with single-class seating and a light snack and beverage service. Generally, our low operating costs allow uspurchase airline tickets, is especially designed to set our fares at levels to win customer loyalty and stimulate demand by attracting new customers who previously used other means of travel or traveled less often due to price sensitivity. We have kept our operating costs low principally by maintaining a simplified aircraft fleet that is one ofmake the newest in South America, which reduces maintenance and fuel costs.

     We deploy aircraft in a highly efficient manner to maintain industry leading aircraft utilization and concentrate heavily upon internet-based distribution channels and sales. The strong promotion of internet-based distribution channels and sales is an integral elementpurchase of our low cost structure and efficiency and has made us one of the largest and leading e-commerce businesses in Brazil with total sales of passenger tickets of R$3.7 billion over the internet in 2006. We believe we effectively employ technology to make our operations more efficient, using real time sales and operating information, internet based sales and ticketless travel, advanced yield management systems and intelligent outsourcing.easier for customers from lower income classes.

     Expand Our operational emphasis on controlling costs and yield management has given us flexibility in setting our fares to achieve a balance between our load factors and yields that we believe will generate the highest profitability and growth for us. During 2006, a year with historically high fuel prices, we generated net income of R$569.1 million. Our profits in 2006 were due largely to the economies of scale fromCustomer Base. In planning the growth of our business, we will continue to select our routes and havingbuild the lowest cost per available seat kilometerfrequency of our service based upon the extent and type of demand in the marketsregions we serve in Brazil and South America. We are committed to provide air travel to a wide range of travelers. We will continue to popularize air travel, making low-fare flights more accessible to a larger portion of the population, including business travelers from small and medium-sized companies, a growing customer base that tends to be price sensitive.

      We will continue to carefully evaluate opportunities to meet demand for leisure travel by offering more seats at lower fares, expanding flight frequencies on existing routes and adding additional routes that contribute to our network and for which we perceive a market demand in Brazil. In addition, by offering flights to South American destinations with connections integrated in our network, we create opportunities for incremental traffic, feeding our network and increasing our overall load factor and supporting our strategy of expanding our network and stimulating demand for our services.

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     We believe we have the best platform in the market in which we operate based uponto expand our analysiscustomer base. Our standardized services and lower fares attract leisure travelers from all income levels, and with the integration of publicly available data.theSmiles loyalty program into our consolidated operations we intend to increase the penetration of the corporate segment. In addition, since April 2009 we have offered lower priced seats to price-sensitive leisure travelers and more flexible tickets with higherSmiles miles allocation to our corporate customers. We expect to receive our IOSA airline safety certification in 2009, which we believe will, combined with the integration of theSmiles loyalty program in our consolidated flight network, make us the preferred partner of major international airlines in Brazil, with which we do not compete on inter-continental routes. We expect that, under these partnerships, our customers could use their miles accumulated under the Smiles program to fly to international destinations in North America, Europe and Asia. For example, in April 2009, we entered into a commercial agreement with Air France-KLM, which will be implemented in two phases and will allow for the integration of ourSmiles and Air France-KLM’s Flying Blue programs and lays the groundwork for a future code-share agreement. We intend to strengthen our existing partnerships and build new ones with large international airlines in the form of code-share arrangements to further increase our international feeder network, load factors and profitability.

Further Establish and Increase Our Ancillary Revenue Businesses.Our ancillary revenues are derived from theGollog andVoe Fácil businesses as well as ticket change fees, excess baggage charges and other incidental services. Ancillary revenue represents a significant, growing revenue stream and have grown from R$374.3 million in 2007 to R$516.1 million in 2008. We expect further growth in these businesses, which will provide us with additional revenue at low incremental cost.

     ThroughGollog, our cargo transportation service, we make efficient use of extra capacity in the stronghold of our aircraft by carrying cargo. TheVoe Fácil (“Fly Easy”) program allows select customers to pay for airline tickets in up to 36 monthly installments, with interest. By acquiring 63 new Boeing 737-800 Next Generation aircraft through 2011, with a seat capacity approximately 30% higher than that of conventional Boeing 737-700NG aircraft,increasing the Voe Fácil program penetration we believe that we will be able to more efficiently usestimulate demand for our tickets and increase our ancillary revenue business. We are constantly evaluating opportunities to generate additional ancillary revenues such as sales of travel insurance, marketing activities and other services which may help us to better capitalize on the airport slots available to uslarge number of passengers on our flights on our aircraft and to further reducethe high volumes of customers using our costs per seat kilometer.website.

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     Our operating model is a highly integrated, multiple-stopmultiple-hub route network that is a variation ondifferent from the point-to-point model used by other successful low-cost carriers worldwide. The high level of integration of flights at selected airports permits us to offer frequent, non-stop flights at low fares between Brazil’s most important economic centers and ample interconnections through our network linking city pairs through a combination of two or more flights with little connecting or stop-over time. Our network also allows us to increase our load factors on our strongest city pair routes by using the airports in those cities to connect our customers to their final destinations. This strategy increases our load factor by attracting customers traveling to secondary markets who prefer to pay lower fares even if this means making one or more stops before reaching their final destination. Over 40% of our passengers connect or path through one or more destinations before reaching their final travel destination. Our operating model allows us to build our flight routes to add destinations to cities that would not, individually, be feasible to serve in the traditional point-to-point model, but that are feasible to serve when simply added as additional points on our multiple-stop route network. We do this by offering low-fare, early-bird, minimum stay or night (red-eye) flights to lower-traffic destinations, which are usually the first or last stops on our routes, allowing us to increase our aircraft utilization and generate additional revenues. By offering international flights to South American destinations, and with stops integrated in our network, we create opportunities for incremental traffic, feeding our network and increasing our overall load factor and our competitive advantage and supporting our strategy of expanding our network and stimulating demand for our services.

     We believe that our operating model, when combined with our low fares and reliable service, stimulates demand for air travel, and helped us to achieve a load factor of 73.1% in 2006, the highest in the domestic market, according to the ANAC. During 2006, we maintained high standards of operating efficiency and customer satisfaction, completing 96.4% of our scheduled flights, with on-time performance of 98.8%, based on our internal data.

     We were one of the first Latin American companies to give the relevant officer certifications under Section 404 of the U.S. Sarbanes Oxley Act of 2002 regarding internal controls over financial reporting. The 2006 certifications are included as Exhibits 12.1 and 12.2 to this Annual Report.

     In December 2005, we entered into a joint venture to create a low-cost Mexican airline. We can currently not foresee if and when this joint venture will become operative.

     On September 29, 2006, one of our new Boeing 737-800 NG aircraft was involved in a mid-air collision with a private aircraft of ExcelAir. Our aircraft went down in the Amazon forest, leaving no survivors among the 148 passengers and six crew members. The ExcelAir aircraft, a new Embraer Legacy 135BJ, performed an emergency landing and all of its seven occupants were unharmed. We continue to cooperate fully with all regulatory and investigatory agencies to determine the cause of this accident. We believe that the costs to defend any claims and any potential liability exposure will be covered by insurance.

     Our Competitive Strengths

     Our principal competitive strengths are:

We Keep Our Operating Costs Low.Our cost per available seat kilometer for the year ended December 31, 2006 was R$15.3 cents, or approximately US$7.2 cents. We believe that our cost per available seat kilometer for the year ended December 31, 2006, adjusted for the average number of kilometers flown per flight, was one of the lowest in the airline industry worldwide, and was on average the lowest in the domestic market, based upon our analysis of data collected from publicly available information. Typically, airline operating costs per kilometer decrease as flight length increases. Our low operating costs are the result of being innovative and using best practices adopted from other leading low-cost carriers to improve our operating efficiency, including:   

Efficient use of aircraft.During 2006, our aircraft utilization totaled an average of 14.2 block hours per day, the highest aircraft utilization rate in the South American airline industry, according to the ANAC, and among the highest worldwide according to airline company public filings. We achieve high aircraft utilization rates by operating a new fleet that requires less maintenance down-time, accomplishing a fast turnaround on our aircraft between flights and operating more flights per day per aircraft than our competitors. The fast turnaround time for our aircraft between flights, which averaged in 25 minutes in 2006, minimizes connection times for our passengers and enables our aircraft to fly approximately nine flight legs a day, the highest number of flight legs in the domestic market. As part of our aircraft utilization strategy, we introduced night flights on certain routes in December 2003 at very low fares to increase utilization, generate higher load factors and stimulate demand. Our night flights, which generated a load factor higher than that of our other flights, have helped us to make a portion of our fleet productive practically 24 hours per day. We also offer air cargo services on our flights to generate incremental revenue from space in the stronghold sections of our aircraft that would otherwise remain unutilized.

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Operation of a young and simplified fleet.At December 31, 2006, our fleet of 65 Boeing 737 aircraft had an average age of 7.8 years, making our fleet one of the youngest in South America. Having a fleet with minimal aircraft types reduces inventory costs, as fewer spare parts are required, and reduces the need to train our pilots to operate different types of aircraft. In addition, keeping the number of types of aircraft we operate to a minimum simplifies our maintenance and operations processes. While our focus on having the lowest operating costs means that we will periodically review our fleet composition to ensure that it is achieving our low-cost goals, any decision we may make to introduce a new fleet type will be made only after carefully weighing the performance and profitability benefits of doing so against the emphasis we place on maintaining simplified operations. With our 76 firm purchase orders and purchase options of 34 additional Boeing 737-800 Next Generation aircraft, we expect to be able to further decrease the age of our fleet, and therefore increase efficiency and reduce maintenance costs.

Flexible and efficient operating approach.We always seek the most cost-effective way of providing our services to our customers without compromising quality and safety. We constantly evaluate our operations to see if sensible cost-savings opportunities exist. As a result, we outsource the work that can be done properly and more efficiently by third parties and we internalize the functions that our employees can do more cost-efficiently. We get competitive rates for these services by negotiating multi-year contracts at prices that are fixed or subject only to periodic increases linked to inflation. With our phased maintenance system, we are able to perform maintenance work every day without sacrificing aircraft revenue time and to schedule preventive maintenance with more regularity and around the utilization of our aircraft, which helps to maintain high levels of block hours per day and reduce costs. Furthermore, we completed in 2006 our state-of-the-art aircraft maintenance center at the airport of Confins in the State of Minas Gerais, enabling us to internalize aircraft heavy maintenance work to reduce maintenance costs. We plan to internalize other services that are currently outsourced if we believe we can better control the quality and efficiency of these services.

Use of efficient, low-cost distribution channels.Our effective use of technology helps us to keep our costs low and our operations highly scaleable and efficient. We seek to keep our distribution channels streamlined and convenient so as to allow our customers to interact with us directly via the internet. In 2006, 81.6% of our ticket sales were through our website, and our customers can check-in for their flights online and by web-enabled cell phones. As a result of our emphasis on low-cost distribution channels, we were in 2006 one of the largest e-commerce companies in Brazil with R$3.7 billion in gross ticket sales on our website, more than any other airline company in Brazil. We enjoy significant cost savings associated with automated ticket sales, which makes the selection of travel options more convenient for our customers. We estimate that our distribution costs using our online ticket sales system is 65% lower than our distribution costs involving more traditional means, such as the Global Distribution System, or GDS. In addition, like other low-cost carriers, all travel on our flights is ticketless. The elimination of paper tickets saves paper costs, postage, employee time and back-office processing expenses. Also, we do not need to maintain physical ticket sales locations outside of airports.

We Stimulate Demand for Our Services.We believe that through our low fares and high-quality service, we provide the best value in our markets and create demand for air travel services. Our average fares are lower than the average fares of our domestic competitors. We identify and stimulate demand among both business and leisure passengers for air travel that is safe, convenient, simple and is a reasonably priced alternative to traditional air, bus and car travel. By combining low fares with simple and reliable service that treats passengers equally in a single-class environment, we have successfully increased our market share, strengthened customer loyalty and are attracting a new group of air travelers in our markets. These new travelers did not previously consider air travel due to the higher prices and more complicated sales procedures that preceded our entry into the market. For example, our night flights, for which we offer highly competitive fares, have proven to be very successful, generating load factors higher than that of our other flights. We believe our night flights attract passengers who previously relied upon bus or car travel and who have now become air travel customers. We estimate that on average, approximately 10% of the customers on our flights are either first-time flyers or have not flown for more than one year. We have developed and will further develop flexible payment mechanisms such as debit payments and long-term installment payments, with which we expect to increase our potential market and customer base to broader income classes and which enable us to further penetrate markets and customers. Our strong market position and strong brand recognition allow us to increasingly influence and stimulate this demand. Our firm order for 76 new Boeing 737-800NG aircraft, which has an increased seat capacity of 187 passengers but does not compromise passenger comfort, will enable us to increase our capacity in the key markets in which we operate.

We Have a Strong Brand that is Widely Recognized Among Consumers and Investors.We believe that the Gol brand has become synonymous with innovation and value in airline industry. In 2006, we received for the second time the “Melhores e Maiores” (Best and Biggest) award in the transportation sector from the leading business magazine in Brazil,EXAME, and we were elected the best performing airline in the world in 2005 according to a study published byAviation Week and SpaceTechnology. Our customers also identify us as being safe, accessible, friendly, fair and reliable and distinguish us in Brazil’s domestic airline industry on the basis of our modern and simplified approach to providing air travel services. Customer satisfaction surveys conducted in 2006 byPesquisas Inteligentes, an independent market research firm, indicated that approximately nine out of every ten passengers trust Gol, and would recommend Gol to others. Our effort at promoting our brand awareness has earned us recognition from the marketing industry in Brazil as well. In 2005, we were named one of Brazil’s most valuable brands byIsto é Dinheiro magazine in its fourth annual Most Valuable Brazilian Brands Ranking, with a brand value of US$326 million. In 2006, we were also the most awarded company in a survey conducted by theLatinFinance magazine. In addition, we are recognized among Brazilian and international investors as a company with an innovative financial management and very high level of disclosure and transparency. For a second year in a row, we ranked first in the category of “Disclosure Procedures” in Latin America and our investor relations website was awarded the top prize in the industry and was top 5 in Latin American websites at the Ninth Annual IR Global Rankings in February 2007.

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We Have a Strong Financial Position and Access to the Financial Markets.We have focused on maintaining a strong financial position with significant cash balances. As of December 31, 2006, we had R$281.0 million of cash and cash equivalents, R$1,425.4 million of short-term investments, R$659.3 million of accounts receivable and R$537.8 million of U.S. dollar denominated deposits for aircraft leasing and aircraft engine maintenance contracts, representing a total of R$2,903.5 million. As of December 31, 2006, our debt to capitalization ratio was 33.7% . In 2006, to finance our operations and capital expenditures, we accessed the international debt capital markets with the issuance of US$200 million of perpetual notes and also arranged long-term financings with the BNDES, the International Finance Corporation (IFC) and the Private Export Funding Corporation (PEFCO).

We Actively Manage Risk.We actively monitor movements in fuel prices, foreign exchange rates and interest rates to reduce our earnings volatility. We are able to adjust our fares to compensate for changes in fuel prices and the exchange rate of the real versus the U.S. dollar. Our general policy is to hedge on a short-term basis a majority of the fuel we expect to consume and our U.S. dollar exchange rate exposure, so as to minimize the effects of adverse changes in the fuel or foreign exchange markets. As part of our risk management program, we establish exposure limits, hedge ratios, instruments and programmed price triggers. We use a variety of financial instruments, including petroleum call options, petroleum fixed-price swap agreements, and foreign currency forward contracts. We do not hold or issue derivative financial instruments for trading purposes. As there is not a futures market for Brazilian jet fuel, we use international crude oil derivatives to hedge our exposure to increases in fuel price. In addition, we believe that our corporate-wide high standards of internal control reduce our risk exposure. We were one of the first foreign private issuers in Latin America to certify our internal controls over financial reporting.

We Have a Motivated Workforce and a Proven Management Team.We benefit from a highly motivated workforce that brings a new enthusiasm to air travel and a commitment to high standards of friendly and reliable quality service that we believe distinguishes us in our markets. We believe that the positive feedback we received from our customers in our customer satisfaction surveys is directly related to the priority our employees place on delivering top quality customer service. We invest a significant amount of time and resources into carefully developing the best training practices and selecting individuals to join our team who share our focus on ingenuity and continuous improvement. We conduct ongoing training programs that incorporate industry best practices and encourage strong and open communication channels among all of the members of our team so that we can continue to improve the quality of the services we provide. We also motivate our workforce by providing all our employees with profit sharing and our management employees with stock options. Our controlling shareholder has been operating in the Brazilian passenger transportation market for over 50 years, and our top managers have an average of approximately 25 years of experience in the Brazilian passenger transportation industries. This experience has helped us to develop the most effective elements of our low-cost model.

Our Strategy

     Our strategy is to offer travelers in Brazil and other South American countries a low-fare transportation alternative that we believe is cost-competitive compared to conventional airline and bus transportation. To continue the growth of our business and increase its profitability, our strategy is to further stimulate customer demand by continuing to offer a single-class of air travel service at low fares, while maintaining a high standard of quality and safety. We will strive to keep our operating costs low and continually pursue ways to make our operations more efficient. Our objectives are to provide the best travel value in the markets we serve, to encourage people to fly by making air travel accessible in our markets, and to further increase our market share.

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     We will continue to evaluate opportunities to expand our operations by (i) adding additional flights to existing high-demand routes and night flight domestic routes, (ii) adding new domestic routes where sufficient market demand exists or where we believe we can stimulate demand, (iii) expanding into other high-traffic centers in other countries, (iv) developing ancillary revenues in activities related to air transportation, and (v) seeking opportunities to grow through joint ventures or acquisitions. Our vision is to be recognized by 2010 as the airline that popularized high-quality, low-fare air transportation in South America. The following are the key elements of our strategy:

To Expand Our Customer Base by Offering Services on High-Demand Routes.When planning the growth of our business, we will continue to establish bases, select our routes and build the frequency of our service based upon the extent and type of demand in the regions we serve in Brazil and other South American countries. In particular, we expect to increase our focus on business travelers from small and medium-sized companies, a growing customer base that tends to be more price sensitive, by developing the routes and flight frequencies that best serve their travel needs and increasing our marketing efforts directed at this segment of our customer base. We will continue to carefully evaluate opportunities to meet demand for leisure travel by offering more seats at lower fares, expanding flight frequencies on existing routes, expanding successful night flight services and adding additional routes that contribute to our network and for which we perceive a market demand.

     We believe that the same business model and route management techniques that we have successfully introduced in Brazil to help popularize air travel can also be used to capture market share and stimulate demand for air travel between Brazil and other South American countries. We are pursuing opportunities to offer flights on routes between Brazil and select cities in other South American markets where growth opportunities exist and where the new destinations fit into our integrated flight network. In 2006, we inaugurated five new international destinations in Argentina, Chile, Paraguay and Uruguay and commenced service of non-Brazilian city-pairs between Asuncíon, Paraguay and Buenos Aires, Argentina, and Santiago, Chile. By offering international flights with connections integrated in our network, we create opportunities for incremental traffic, feeding our network and increasing our overall load factor and supporting our strategy of expanding our network and stimulating demand for our services.

To Stimulate Demand with Low Fares.Our widely available low fares and superior product offering are designed to popularize air travel and stimulate demand, particularly from fare-conscious leisure travelers and small- to mid-size business travelers who might otherwise have used alternative forms of transportation or would not have traveled at all. Our strategy is to continue to stimulate demand and encourage more people to fly by continuing to provide a superior product and low-fares. A key element of our superior product offering is our new Boeing 737-800 aircraft with increased seat capacity, which we achieve by means of new internal arrangements that do not compromise passenger comfort, and which allows us to distribute our operating costs over a higher number of available seat kilometers, therefore allowing us to offer more seats at lower fares. We will also continue to provide our customers with flexible payment mechanisms, such as debit payments, credit card installment payments and monthly installment payments in the form of direct credit. For example, we launched in November 2005 the Voe Fácil (“Fly Easy”) Gol Program, which allows qualifying customers to pay for airline tickets in up to 36 monthly installments as an innovative new way to purchase airline tickets, especially designed to make the purchase of our tickets easier for customers belonging to broader income classes. At December 31, 2006, over 650,000 customers had registered for our Voe Fácil program, 70% of whom were flying for the first time. Also, at the end of 2006 we launched in association with Mastercard and Banco do Brasil our corporate credit card “Gol Negócios” targeting small- and medium-sized corporate enterprises.

     The following table shows total passengers enplaned at airports in selected cities served by us outside the São Paulo – Rio de Janeiro market for the year ended December 31, 2000 (just before we commenced our operations) and the year ended December 31, 2006. The table also sets forth the date we commenced service at airports in selected cities and the compound annual growth rate of passengers enplaned at such airports.

  Total Passenger Traffic (Arrivals and Departures)
  Year Ended December 31, 
  Service      
  Commencement     CAGR (%)
Cities  Date 2000  2006  2000-2006 
     
    (in millions)    
Belo Horizonte(1) January 2001  2.62  4.53  9.6 
Brasília  January 2001  5.43  9.70  10.2 
Curitiba  May 2001  2.07  3.53  9.3 
Florianópolis  January 2001  0.72  1.63  14.6 
Fortaleza  December 2001  1.44  3.28  14.7 
Porto Alegre  January 2001  2.25  3.85  9.4 
Recife  April 2001  2.14  3.95  10.8 
Salvador  January 2001  3.02  5.41  10.2 
Vitória  November 2001  0.84  1.66  12.0 
_______________________

(1) Includes the airports of Pampulha and Confins in Belo Horizonte. A large portion of passenger flow was transferred from the airport of Pampulha to the airport of Confins in 2005.

Source: INFRAERO


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To Reduce Operating Costs and Improve Operating Efficiency.Continuing to reduce our operating costs per available seat kilometer is a key to increasing profitability. Our revenues per average aircraft in 2006 were US$35.5 million, which was the highest in the low cost carrier industry according to publicly available data. Our unit operating costs, or CASK, of US$7.2 cents was the lowest in the domestic market. We aim to remain one of the lowest cost airlines in the world. We have worked toward achieving this goal by assembling a new fleet of single-class aircraft that is capable of safely and reliably accommodating a high utilization rate, incurs low maintenance costs and is fuel-efficient. We are also working to achieve this goal by using our aircraft efficiently, concentrating on minimizing our turnaround times at airports and maintaining a high number of daily flights per aircraft. We will also continue to utilize technological innovations wherever possible to reduce our distribution costs and improve our operating efficiency. We expect to benefit from economies of scale and reduce our average cost per available seat kilometer as we add additional aircraft to an established and efficient operating infrastructure. Our system of phased maintenance allows us to perform maintenance work every day without sacrificing aircraft revenue time, to better determine the timing of heavy maintenance so as to help maximize aircraft utilization and to further reduce our maintenance costs. By performing our structural aircraft maintenance in our new Aircraft Maintenance Center in Confins, in the State of Minas Gerais we achieve greater control over maintenance costs. By performing 121 new and fuel efficient Boeing 737-800 Next Generation aircraft, we will further reduce the average age of our fleet, increase the number of available seat kilometers per aircraft and therefore increase operating efficiency and potentially lower our operating costs.

To Keep Our Customer Service Offering Attractive, Simple and Convenient.We believe that we are perceived by our customers as providing excellent value at reasonable fares and acting as a catalyst for changing the way the Brazilian airline industry works. In addition to offering low fares, our strategy is to make flying a simpler, more convenient experience. We have achieved this objective largely through the elimination of unnecessary extras and common-sense applications of technology. According to ANAC data, we had a punctuality rate of 90.4% in 2006, the highest punctuality rate in the Brazilian airline industry. We encourage our customers to use the internet not only to make reservations, but also to make many of the arrangements from the comfort of their home or office that they would otherwise have to make at crowded airports or airline ticket offices, such as checking-in and changing their seat assignments. We provide free shuttle service between airports and drop-off zones on selected routes. We offer customers single-class, pre-assigned seating flights, do not overbook our flights and have designated female lavatories. Our strategy will be to continue to seek ways to make the Gol brand signify simplicity and convenience in the minds of air travelers.

Routes and Schedules

     Our aircraft fly to various points on our route network linking our destinations. A significant portion of our route network is concentrated in highly populated areas in Brazil and South America, where numerous major business centers are located. We generally offer direct flights between these primary business centers, which enables many of our business travelers to fly with us directly to their destinations. However, after directly connecting high-density cities along the primary business routes, our aircraft often make multiple stops to other destinations. In this way, most of our aircraft has a daily flight plan that includes stops at multiple destinations throughout our network. We integrate the flight plans of our aircraft to provide maximum flexibility and connectivity at each stop, so that passengers have numerous connection options to reach their final destination. We believe this model of flight scheduling has helped us to more frequently serve a greater number of cities, generate higher load factors and stimulate demand for air travel in new markets, while also enabling us to increase aircraft utilization and provide our customers with more destination options. Having implemented this variation on the point to point approach successfully in Brazil, we have started adding international destinations to our flight plans in 2005, offering Brazilian and international passengers further destination options via direct flights or with one or more stops in a cost-efficient and practicable fashion.

     At December 31, 2006, we offered 600 daily flights in Brazil and to our international destinations. In 2006, we inaugurated ten new destinations, increasing the number of destinations served to 55 (48 in Brazil). By adding points of destination for our customers, we believe we can increase our overall load factor.

     Since 2001, we operate our cargo transport service Gollog, which achieved a 60% increase in revenues in 2006. Gollog ships packages in the cargo hold of our aircraft. In Brazil, Gollog currently operates from 44 locations in 41 cities.

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     In addition to monitoring growing market demand for increased daily flight frequency on our existing routes, we also seek to offer services in markets with previously untapped demand. We are also pursuing opportunities to offer flights on routes between Brazil and select cities in other South American countries where favorable market opportunities exist using the same business model and route management techniques that have proven successful within Brazil. Since 2005, we have been increasing the number of flights to and through Guarulhos and Galeão, the two international airports servinglocated in São Paulo and Rio de Janeiro, respectively, which we expect will givegives us additional growth opportunities in the Brazilian and international markets and more code share and interline agreement opportunities with international airlines.

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     At December 31, 2008, we offered over 730 daily flights to 59 destinations connecting the most important cities in Brazil as well as the main destinations in Argentina, Bolivia, Chile, Paraguay, Peru, Uruguay, Colombia and Venezuela. As part of our strategy to focus exclusively on the Brazilian and selected South American markets, we decided, in the first half of 2008, to discontinue our intercontinental flights to Frankfurt, London, Rome, Madrid, Mexico City and Paris.

Services

Passenger Transportation

     We recognize that we must offer excellent services to our customers. As a result,Since April 2009, we offer lower priced seats to price sensitive leisure travelers and more flexible tickets with higherSmiles miles allocation to our corporate customers. We pay particular attention to the details that help to make for a pleasant, hassle-free flying experience, including:

     We also recognize that efficient andseek to achieve punctual operations, which are of primary importance to our customers. This emphasis resultedAccording to our internal data, which is corrected for delays out of our control and pre-advised changes in flight schedules, our punctuality rate in 2008 was 97%. According to ANAC data, which is not corrected for delays out of our control and pre-advised changes in flight schedules, our domestic punctuality statistic in 2008 averaged 72%.

Smiles Loyalty Program.

     We have a loyalty program (Smiles), which we consider as a strong relationship tool and which is available to all our passengers. We intend to increase theSmiles penetration through increasing and establishing partnerships with affiliated credit cards or using services and products at partner establishments. There are four tiers in our domestic completion factorSmiles program (Diamond,Gold,SilverandBlue) and qualification for a particular tier is based on the miles flown. TheSmiles program serves as a source of 97%revenue for us, since we can sell miles directly to corporations for marketing purposes or utilize them for co-branded credit cards. It maintains partnerships with hotel chains, car rental companies, restaurants, insurance companies, publishers and schools and also maintains a partnership with some of Brazil and South America’s largest banks and credit card companies. In 2008, the program offered a number of marketing promotions aimed at re-engaging its existing members and expanding its client base. We expect to receive our IOSA airline safety certification in 2009, which we believe will make us, combined with the integration of theSmiles loyalty program in our consolidated flight network, the preferred partner of major international airlines in Brazil, with which we do not compete on inter-continental routes. We expect that, under these partnerships, our customers could use their miles accumulated under the Smiles program to fly to international destinations in North America, Europe and Asia. For example, in April 2009, we entered into a commercial cooperation agreement with Air France-KLM, which will be implemented in two phases and will allow for the integration of ourSmiles and Air France-KLM’s Flying Blue programs and lays the groundwork for a future code-share agreement. The Smiles program had over six million members at the end of 2008.

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Ancillary revenues

     Ancillary revenues such as revenues from our Gollog services, ourVoe Fácilprogram, as well as baggage excess and ticket change fee revenues are an increasingly important part of our revenues. The further development and growth of our Gollog services andVoe Fácil program is part of our strategy, and they represented 8.1% of our consolidated revenues in 2008.

Gollog Cargo Transportation

     In addition to our passenger service, we make efficient use of extra capacity in the stronghold of our aircraft by carrying cargo, through our cargo transport service – Gollog. Gollog’s success is the result of the unique service we offer to the market: the Electronic Air Waybill that can be completed via the Internet. The Gollog system provides online access to air waybills and allows customers to track their shipment from any computer with Internet access. Our 49 destinations throughout Brazil and South America provide access to multiple locations in the region. With our capacity of over 800 daily flights we can guarantee quick and reliable delivery. Packages are shipped in the freighthold of our passenger aircraft.

Voe Fácil Installment Program

     We launched in 2005 and 93% in 2006, and domestic on-time performance rate of 98% in 2005 and 90% in 2006,theVoe Fácil (“Fly Easy”) program, an innovative new way to purchase airline tickets, which allows selected customers based on company data.their credit history to pay for airline tickets in up to 36 monthly installments. The program is especially designed for highly price-sensitive customers, many of which do not hold credit cards. Installment payments are a typical sales strategy in the Brazilian retail market and we are applying this sales technique to passenger transportation to increase our market and stimulate demand for our tickets. In 2008, theVoe Fácil program increased its ticket sales by 14% compared to 2007.

Sales and Distribution

     BasedOur customers can purchase tickets directly from us through a number of different channels, such as our website including our Booking Web Services (BWS), GDS – Global Distribution System, our call center and at airport ticket counters.

     Our low cost low fare business model utilizes website ticket sales as its main distribution channel. For the year ended December 31, 2008, 79% of our passenger revenues, whether directly to the customer or through travel agents, were booked via the Internet, making us one of the worldwide industry leaders in this area. In the same period 7% of our passenger revenues were booked through call centers and airport sales counters, 13% through our BWS and 1% of our total sales were made through the GDS, respectively.

     Our customers can purchase tickets indirectly through travel agents, who are a widely-used travel service resource in Brazil and South America, Europe, North America and other regions. Travel agents provide us with more than 20,000 distribution outlets throughout these regions. For the year ended December 31, 2008, 60% of our sales were to customers who purchased tickets indirectly from travel agents (74% of these sales were made on feedbackour website, 8% through call centers, 16% via BWS, and 2% by travel agents through a GDS system).

     GDSs allows us access to a large number of tourism professionals who are able to sell our tickets to customers throughout the globe, and enables us to enter into interline agreements with other airlines to offer more flights and connection options to our passengers and add incremental passenger traffic to our network.

Partnerships and Alliances

     Our market positioning enables us to successfully negotiate a number of arranged partnerships with supplementary major carriers worldwide, mostly in the form of code share agreements and interline agreements. Strategically, the additional passenger inflows generated from those partnerships aim to improve revenues at low incremental costs. At December 31, 2008, we had a code share agreement with COPA Airlines, and we had interline agreements with 53 airlines, including Air France – KLM, Alitalia, Delta and TAP Air Portugal. An interline agreement is a commercial agreement between individual airlines to handle passengers traveling on itineraries that require multiple airlines and allow its customers to utilize a single ticket, and to check their baggage through to the customers final destination. Interline agreements differ from code sharing agreements in that code sharing agreements usually refer to numbering a flight with the airline’s code (abbreviation) even though the flight is operated by another airline. This provides for better marketing and customer recognition of the links between the airlines.

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     Since early 2009, we have a code-share agreement with Air France and KLM, where their passengers will be able to connect with Gol operated flights within Brazil, marketed as Air France or KLM flights. Similar agreements are being negotiated with other international carriers. We are also launching a frequent flyer tie between ourSmiles program and the Flying Blue program of Air France – KLM, enabling travelers of both airlines to accrue and redeem miles within Air France – KLM, and our networks. We intend to enter into similar agreements with other long haul airlines serving Brazil.

     An important element of our business strategy is to cater to the corporate client. To further develop our business relationship with our corporate customers, we believehave also entered into partnerships with hotel chains and rental car service providers to offer our corporate customers the convenience of the combination of transportation and accommodation arrangements.

Pricing

     Brazilian airlines are permitted to establish their own domestic fares without previous government approval. However, domestic fares are monitored on a regular basis by the ANAC in order to prevent airlines, which are public concessionaires, from engaging in predatory pricing. Airlines are free to offer price discounts or follow other promotion activities. Airlines must submit, with a minimum of five working days’ advance notice, fares that are set at greater than a 65% discount to the per kilometer reference fares index curve published by the ANAC. The reference fares index curves are based on industry average operating costs, according to ANAC calculations.

     Airlines are permitted to establish fares for international tickets sold in Brazil without previous government approval, subject only to registration with the ANAC.

Yield Management

     Yield management involves the use of historical data and statistical forecasting models to produce knowledge about our markets and guidance on how to compete to maximize our operating revenues. Yield management forms the backbone of our revenue generation strategy and is strongly linked to our route and schedule planning and our sales and distribution methods. Our yield management practices enable us to react quickly in response to market changes. For example, our yield management systems are instrumental in helping us to identify the flight times and routes for which we offer promotions. By offering lower fares for seats that our yield management indicates would otherwise remain unsold, we capture additional revenue and also stimulate customer demand.

     The number of seats we offer at each fare level in each market results from a continual process of analysis and forecasting. Past sales history, seasonality, the effects of competition and current sales trends are meetingused to forecast demand. Current fares and exceedingknowledge of upcoming events at destinations that will affect traffic volumes are included in our forecasting model to arrive at optimal seat allocations for our fares on specific routes. Also, our practice of restricting seat reservations but instead requiring customers to pay for tickets at the time their service expectations, as approximately nine outseat is secured helps to increase the accuracy of every ten passengers trust Golour yield management. We use a combination of approaches, taking into account yields and would recommend Golflight load factors, depending on the characteristics of the markets served, to others.arrive at a strategy for achieving the best possible revenue per available seat kilometer, balancing the average fare charged against the corresponding effect on our load factors. For this purpose, we use a sophisticated forecasting, optimization and competitive analysis technology that proposes the optimal fare mix for a given flight based on the historical purchasing behavior of our customers. Our revenue management system is a state of the art tool based on the Sabre Air Max RM platform, which is able to store, process and analyze data, and provides us information about the passenger true origin and destination details, giving us insights on our passenger flows, and allowing us to maximize revenue at the network level. This tool has a specific module for low cost carriers that is able to optimize revenue in a non-restricted fare environment, moving away from the traditional models of discrete demand among fare classes. We worked with Sabre to build this version of their product, and were its launch customer.

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Safety and Security

     Our most important priority is the safety of our passengers and employees. We maintain our aircraft in strict accordance with manufacturer specifications and all applicable safety regulations, and perform routine line maintenance every day. Our pilots have extensive experience, with flight captains having more than 10,000 hours of career flight time, and we conduct ongoing courses, extensive flight simulation training and seminars addressing the latest developments in safety and security issues. We closely follow the standards established by the Air Accident Prevention Program of the ANAC and we have installed the Flight Operations Quality Assurance System, which maximizes proactive prevention of incidents through the systematic analysis of the flight data recorder system. All of our aircraft are also equipped with Maintenance Operations Quality Assurance, a troubleshooting program that monitors performance and aircraft engine trends. The Brazilian civil aviation market follows the highest recognized safety standards in the world. We are also an active member of the Flight Safety Foundation, a foundation for the exchange of information about flight safety.

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Sales and DistributionAircraft Fleet

     Our customers can purchase tickets directly from us through a number of different channels, including via our website, our call center and at airport ticket counters. For the year ended December 31, 2006, 30.4% of our customers purchased tickets directly from us (25.2% on our website and 5.2% via call centers and directly at airports).

     Our customers can also purchase tickets indirectly through travel agents, who are a widely-used travel service resource in Brazil and South America. Travel agents provide us with more than 8,000 distribution outlets throughout the region. For the year ended December 31, 2006, 69.6% of our sales were to customers purchased tickets indirectly from travel agents (approximately 3.0% of our sales through travel agents are made through a GDS system, with 5.6% of those sales made through call centers, and 61% on our website).

     For the year ended December 31, 2006, 81.6% of our passenger revenues, whether directly to the customer or to travel agents, were made via the internet, making us one of the worldwide industry leaders in this area, as compared to 10.8% of our passenger revenues through call centers and airport sales counters and 3.0% of our total sales made through the GDS, respectively.

     We also use GDSs, which allows us to access to approximately 75,000 tourism professionals who are able to sell our tickets to customers throughout the globe. GDSs also enables us to enter into code sharing agreements with other airlines to offer more flights and connection options to our passengers and add incremental passenger traffic to our network.

     To illustrate the importance of continuing to focus on increasing internet-based ticket sales directly to our customers, it costs an average of 90.8% less for each ticket sale made directly to a customer through our website compared to internet ticket sales through travel agents, 91.5% less than a call center ticket sale through a travel agent and 92.9% less than a GDS ticket sale. The higher ticket sales costs for GDS ticket sales are partially offset by higher average fares for tickets booked through a GDS. We strongly promote the use of our website because it is our most efficient distribution channel in terms of cost-savings and customer convenience. By focusing on virtual distribution, we are able to streamline our ticket sales and services and eliminate the need to incur costs associated with more traditional distribution channels, such as physical ticket sale centers located outside of airports. In addition to being cost-effective, focusing on internet distribution also provides our customers with high levels of convenience, as they are better able to interact with us when they want and how they want, in either Portuguese, English or Spanish. As a result of this emphasis on virtual distribution, we have become one of the largest and leading e-commerce businesses in South America in terms of revenue from internet-based sales.

     An importantA key element of our business strategymodel is to cater to the corporate client. To further develop our business relationship with our corporate customers, we have also entered into alliances with hotel chainsoperate a young and rental car service providers to offer our corporate customers the convenience of packaged transportation and accommodation arrangements.standardized fleet. At the end of 20062008, we launched in association with Mastercard and Banco do Brasil our corporate credit card “Gol Negócios” targeting small- and medium-size corporate enterprises. We will continue to focus on expanding our base of cost-conscious, medium-sized corporate clients who serve ashad a source of recurring revenues.

     We advertise primarily through cost-efficient media, including internet websites, radio spots, local newspaper ads and billboards. OurAqui todo mundo pode voar, or “Here everyone can fly” advertising campaign, commenced in July 2004, has been very effective in various related campaigns in promoting our objective to popularize air travel in Brazil. In December 2005, we successfully launched the campaignPor que viajar de outro jeito, se você pode voar?, or “Why travel by other means of transportation, if you can fly?” In 2006, we launched several campaigns related to the opening of ten new destinations (five of which international) and related to the beginning of the new Boeing 737-800 aircraft deliveries, which commenced in July 2006.

     We also use innovative promotions to stimulate demand for air travel. For example, we first offered our night flights in December 2003 as a measure designed to attract customers who may not have previously considered air travel as an option due to their price sensitivity and also to generate revenues from our aircraft at times they would otherwise have remained idle. These flights proved to be extremely popular among customers, achieving an average load factor of 90%, and we decided to offer them on a permanent basis. In 2004, we introduced ourBrasil mais perto, or “Brazil is closer”, campaign, which featured very low internet-based fares for weekend travel and we also offered promotional prices for certain customer segments, such as senior citizens and children. We believe that the high number of visits to our website, which averaged 1,500,000 visitors per month during 2006, are in part the result of the customer interest created by our promotions. By offering campaigns with low promotional prices, we stimulate our customers to search for opportunities to fly Gol.

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     To increase our market and stimulate demand for our tickets, we will also continue to provide our customers with a variety of flexible payment mechanisms. We offer more than 13 payment options for online-sales, such as credit card payments, debit payments and monthly installment payments. As part of this strategy, we launched in 2005 the Voe Fácil (“Fly Easy”) Gol Program, an innovative new way to purchase airline tickets, which allows selected customers based on their credit history to pay for airline tickets in up to 36 monthly installments. The program is especially designed for highly price-sensitive customers, many of which do not hold credit cards. Installment payments are a typical sales strategy in the Brazilian retail market and we are applying this sales technique to passenger transportation.

     Unlike other Brazilian airlines, we do not accept customer reservations for flights. Instead, tickets are paid for by our customers at the time their seat is secured. This eliminates the possibility of overbooking, and guarantees all of our ticketed customers a seat on our flights.

Awards and Recognition

     We have received a number of awards for matters such as service excellence, our website, operations, finance, marketing, investor relations, and corporate responsibility. Among the highlights in 2006 were:

Pricing

     Our emphasis on keeping ourtotal operating costs low has in turn allowed us to set low fares while maintaining profitability. We have designed our fare structure to balance our load factors and yields in a way that we believe will generate the most profits from our flights. Our fares are below the average fares of our competitors. Our approach to more transparent and competitive pricing has lowered fares in many of the markets that we have entered. Consistent with airline industry market practice in Brazil, with the exception of our deeply discounted night flights or special offers and promotions, we do not have advance purchase restrictions, minimum stays or required Saturday night stayovers.

     As provided for in the ANAC regulations, passengers canceling travel plans on our flights are subject to a cancellation penalty. Passengers canceling their travel plans on our flights can either reschedule (if it occurs up to 24 hours prior to the flight and subject to the fare differential, if any), obtain a credit for future flights or be reimbursed for 80% of their fare. If the cancellation occurs less than 24 hours before the scheduled flight time, there is an additional penalty of R$30. We charge no-show customers a R$80 change fee, plus fare differential, if any, to use their ticket for another flight. If the replacement flight has a lower fare than the original flight (after giving effect to the change fee), the customer receives a credit equal to the difference.

     In connection with our night flights, we set deeply discounted fares designed to compete with bus lines for travel to the same destinations. This approach has helped us to maximize our aircraft utilization rates to generate revenue during night hours. The night flights have also increased our customer base to include those who have previously only used other modes of transportation. Approximately one third of our fleet operates night flights on a daily basis.

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     We also adjust our pricing in accordance with changes in passenger volume stemming from imbalances in the direction of traffic, such as during the holiday season. These periods often create demand peaks that result in traffic flows that are weighted heavily in one direction, causing demand for seats in the other direction to be low. During these periods, we discount fares on the lower demand flights to stimulate traffic on those routes to help offset our fixed costs.

Yield Management

     Yield management involves the use of historical data and statistical forecasting models to produce knowledge about our markets and guidance on how to compete in them to maximize our operating revenues. Yield management and pricing form the backbone of our revenue generation strategy and they are also strongly linked to our route and schedule planning and our sales and distribution methods. Our yield management practices enable us not only to react quickly in response to market changes but also to anticipate and help shape market changes. For example, our yield management is instrumental in helping us to identify times and the routes for which we offer promotions. By offering lower fares for seats that our yield management indicates would otherwise remain unsold, we capture additional revenue and also stimulate customer demand.

     The number of seats we offer at each fare level in each market results from a continual process of analysis and forecasting. Past sales history, seasonality, the effects of competition and current sales trends are used to forecast demand. Current fares and knowledge of upcoming events at destinations that will affect traffic volumes are included in our forecasting model to arrive at optimal seat allocations for our fares on specific routes. Also, our practice of not accepting seat reservations but instead requiring customers to pay for tickets at the time their seat is secured helps to increase the accuracy of our yield management. We use a combination of approaches, taking into account yields and flight load factors, depending on the characteristics of the markets served, to arrive at a strategy for achieving the best possible revenue per available seat kilometer, balancing the average fare charged against the corresponding effect on our load factors. For this purpose, we use a sophisticated forecasting, optimization and competitive analysis technology that proposes the optimal fare mix for a given flight based on the historical purchasing behavior of our customers. Our revenue management system is similar to that used by other successful low-cost carriers around the world.

Competition

     As the growth in the Brazilian low-cost, low-fare sector evolves, we may face increased competition from our primary competitors and charter airlines as well as other entrants into the market that reduce their fares to attract new passengers in some of our markets. In 2005, we became the second largest airline in the Brazilian market and our market share in December 2006 was 37.1% (13.3% in the international market).

     Airlines in Brazil compete primarily on the basis of routes, fare levels, frequency of flights, reliability of services, brand recognition, passenger amenities, such as frequent flyer programs, and customer service. We believe that our low-cost operating model and our low fares enable us to compete favorably in many of these areas. See “—Our Competitive Strengths.”

     Our competitors and potential competitors include TAM Linhas Aéreas S.A., or TAM, which is a full-service scheduled carrier offering flights on domestic routes and international routes, as well as other domestic scheduled carriers, regional airlines and charter airlines, which mainly have regional networks.

     On June 17, 2005, our former competitor Varig, filed for bankruptcy protection in Brazil and the United States. During 2006, the assets and operations of Varig were sold to various investors. Varig ceased operations on December 14, 2006 and VRG Linhas Aéreas S.A., or VRG, initiated operations as a commercial airline on December 15, 2006.

     The following table sets forth the historical market shares on domestic routes, based on revenue passenger kilometers, of the significant airlines in Brazil for each of the periods indicated:

Domestic Market Share— Scheduled Airlines  2002  2003  2004  2005  2006  12/06 
       
Gol  11.8%  19.4%   22.4%  25.9%  34.0%  37.1% 
TAM  34.9%  33.0%   35.8%  41.3%  47.8%  49.1% 
Varig (1) 39.3%  33.6%   31.0%  25.5%  10.0%  2.0% 
Others(2) 14.0%  14.0%   10.8%  7.3%  8.2%  11.8% 
_______________________
Source: ANAC/DAC—Annual Air Transportation Report (Anuário do Transporte Aéreo)—Statistical Data—2002-2004. Advanced Comparative Data (Dados Comparativos Avançados) 2005 and 2006
(1) Ceased operations on December 14, 2006.
(2) Includes VRG Linhas Aéreas S.A., or VRG, which initiated operations as a commercial airline on December 15, 2006.

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     The following table sets forth the historical market share of the major Brazilian airlines on international routes for each of the periods indicated.

International Market Share— Scheduled Airlines  2002  2003  2004  2005  2006  12/06 
       
Gol     2.1%  7.3%  13.3% 
TAM  12.6%  12.0%  14.5%  18.4%  37.3%  60.6% 
Varig(1) 87.4%  87.9%  85.4%  77.0%  49.9%  7.2% 
Others(2)  0.1%  0.1%  2.5%  5.5%  18.9% 
_______________________
Source: ANAC/DAC—Annual Air Transportation Report (Anuário do Transporte Aéreo)—Statistical Data—2002-2004. Advanced Comparative Data (Dados Comparativos Avançados) 2005 and 2006
(1) Ceased operations on December 14, 2006.
(2) Includes VRG, which initiated operations as a commercial airline on December 15, 2006.

     We also face competition from ground transportation alternatives, primarily interstate bus companies. In 2005, interstate bus companies transported over 141 million passengers, according to the National Ground Transportation Agency (Agência Nacional de Transportes Terrestres), and given the absence of meaningful passenger rail services in Brazil, travel by bus has traditionally been the only low-cost option for long-distance travel for a significant portion of Brazil’s population. We believe that our low-cost business model and strong capitalization has given us flexibility in setting our fares to stimulate demand for air travel among passengers who in the past have traveled long distances primarily by bus. In particular, the highly competitive fares we have offered for travel on our night flights, which have often been comparable to bus fares for the same destinations, have had the effect of providing direct competition for interstate bus companies on these routes. For example, at the end of 2006, we offered night flights between São Paulo and Porto Alegre, with a 1.5 hour flight duration, for fares as low as R$129. In comparison, interstate bus companies charged their passengers a fare of approximately R$137 for an 18.5 hour journey between the same two cities. We believe that operating night flights presents an opportunity to increase our overall load factor.

     As we expand our international services, our pool of competitors will increase and we will face competition from airlines that are already established in the international market and that participate in strategic alliances and code sharing arrangements.

Aircraft

     At the end of 2006, we operated a fleet of 65 aircraft comprised of 30106 Boeing 737-700 Next Generation aircraft, 21 Boeing 737-800 Next Generation aircraft and 14 Boeing 737-300737 aircraft. We expect to return all our Boeing 737-300 aircraft during 2009 and intend to concentrate our fleet on Boeing 737 Next Generation aircraft. We intend to operate approximately 94127 aircraft by the end of 2011, concentrating2012. At the end of 2008 we had 7 Boeing 767-300 under lease, which are not operating and which we expect to sublease or return in 2009/2010.

     The average age of our operating aircraft at December 31, 2008 was 6.8 years.The average daily utilization rate of our operating fleet on the 737-800 Next Generation aircraft. in 2008 was 12.1 block hours (13.8 block hours in 2007).

The composition of our operating fleet as of December 31, 20062008 is more fully described below:

  Average   Number of Aircraft  Average 
Term of 
Lease 
Remaining 
(Years)
 
 Number of Aircraft  Term of     
     Total  Operating 
Lease 
 Average 
Age (Years)
 Seating 
Capacity 
  Lease       
  Operating  Remaining  Average Age  Seating 
 Total  Lease  (Years) (Years) Capacity 
     
Boeing 737-800NG SFP  10   8.3  0.2  178-187 
Operating Fleet Composition           
Boeing 737-800NG SFP*  33  15  9.5  1.4  187 
Boeing 737-800NG  11  11  3.9  4.9  177  22  18  4.6  6.6  177 
Boeing 737-700NG  30  28  3.4  6.7  144  37  36  3.8  8.3  144 
Boeing 737-300  14  14  2.4  17.6  141  14  14  1.2  19.1  141 
 65  60  

*SFP means short field performance

     Each Boeing 737 aircraft in our fleet is powered by two CFM International Model CFM 56-7B22 engines or two CFM International Model CFM 56-7B24 engines, two 56-7B27B1 engines or two 56-3C1 engines and operates in a comfortable single-class layout. The average age of our aircraft at December 31, 2006 was 7.8 years and the average age of our Boeing 737NG fleet, which represents 78.5% of our total fleet, was 5.1 years.

     We took delivery of 14 Boeing 737-800 aircraft, 8 Boeing 737-700 aircraft and 3 Boeing 737-300 aircraft in 2006. We have placed firm purchase orders with The Boeing Company for 76 737-800 Next Generation aircraft and we have options to purchase an additional 34 737-800 Next Generation aircraft. Currently, we have 14 firm purchase orders for aircraft deliveries scheduled in 2007, 9 in 2008, 16 in 2009, 16 in 2010 and 21 after 2010. With these firm purchase orders and purchase options, we expect to further reduce our operating and financial costs. In addition, by purchasing aircraft, we expect to be able to maintain our young fleet of aircraft going forward, increase fuel and operating efficiency and reduce maintenance costs.

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     The following table shows the historical and expected development of our operating fleet at December 31, 2005 and 20062009 and the expected development of our operating fleet until December 31, 2012:

  2005  2006  2007  2008  2009  2010  2011  2012 
         
737-800        21       36       46  60  72  84  91 
737-700  22       30       30       28  21  20  10  10 
737-300  12       14       14       12     
         
Total fleet  42       65       80       86  88  92  94  101 
Fleet Plan  2009  2010  2011  2012 
     
B737-800 NG SFP  52  64  74  85 
B737-800 NG  16  11   
B737-700 NG  40  40  40  40 
Total  108  115  121  127 

     Our new and simplifiedWe will revise this fleet structure allows usplan according to maintain a cost-efficient operation by reducing maintenance and training costs, reducing spare parts inventory requirements and supporting high reliability and high aircraft utilization rates. The average daily utilization rate of our aircraft between 2004 and 2006 was 14.0 block hours (including 14.2 block hours in 2006), which wasexpectations for the highest average utilization rate in Brazil and one of the highest utilization ratesgrowth potential in the industry worldwide according to airline company public filings.markets in which we operate.

     The Boeing 737-700 Next Generation and Boeing 737-800 Next Generation aircraft currently comprising our fleet are fuel-efficient and very reliable. They suit our cost efficient operations well for the following reasons:

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     In addition to being cost-efficient, the Boeing 737-700/800 Next Generation aircraft are equipped with advanced technology that promotes flight stability, providing a more comfortable flying experience for our customers. Our focus on having low operating costs means that we will periodically review our fleet composition. As a result, our fleet composition may change over time if we conclude that adding otherWe use one single type of aircraft types would contribute to this goal. However, our approach to our fleet composition is based upon having a minimal number of different aircraft types to preserve the simplicity of our operations. As a result, the introduction of any new aircraft type to our fleet will only be done if, after careful consideration, we determine that such a step will reduce our operating costs. Since 2005, mostMost of our leased Boeing 737-800 Next Generation aircraft have beenare equipped with blended winglets and all Boeing 737-800 Next Generation aircraft from our purchase order will be equipped with winglets, which reduce our fuel and maintenance costs. Our experience with the new winglets has shown operating costfuel consumption reductions of overapproximately 3%. In addition, we expect the winglets to improve airplane performance during take-off and landing on short runways. The new Boeing 737-800NG aircraft will be delivered with short-field performance (SFP) with technical modifications that we expect to significantly improve flight performance, the ability to operate non-stop flights, reducedreduce noise during take-off and to enable us to fly with our Boeing 737-800 Next Generation aircraft to the airport of Santos Dumont in Rio de Janeiro, an important link to the most important routes in Brazil.

     At the end of 2006,2008, we leased all90 of our 115 aircraft under operating lease agreements that have an average remaining term of 5248 months. We believe that leasing our aircraft fleet under operating leases provides us with flexibility to adjust our fleet size if we consider it to be in our best interests to do so. We make monthly rental payments, some of which are based on floating rates, but are not required to make termination payments at the end of our leases. Under our operating lease agreements, we do not have purchase options and for some of our lease agreements we are required to maintain maintenance reserve deposits and to return the aircraft and engine in the agreed condition at the end of the lease term. Title to the aircraft remains with the lessor. We are responsible for the maintenance, servicing, insurance, repair and overhaul of the aircraft during the term of the lease. As of December 31, 2006,2008, our operating leases had terms of up to 12071 months from the date of delivery of the relevant aircraft. Currently, 10At the end of 2008, we had 18 aircraft acquired under our aircraft leases expire in 2007, 5 in 2008, 14 in 2009, 12 in 2010, and 19 after 2010.firm purchase order with Boeing under finance lease arrangements that had an average remaining term of 129 months.

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Maintenance

     According to ANAC regulation, we are directly responsible for the execution and control of all maintenance services performed on our aircraft. The maintenance performed on our aircraft can be divided into two general categories: line and heavy maintenance. Line maintenance consists of routine, scheduled maintenance checks on our aircraft, including pre-flight, daily and overnight checks and any diagnostics and routine repairs. All of our line maintenance is performed by our own highly experienced technicians at our line maintenance service bases throughout Brazil.Brazil and South America. We believe that our practice of performing daily preventative maintenance helps to maintain a higher aircraft utilization rate and reduces maintenance costs. Heavy maintenance consists of more complex inspections and servicing of the aircraft that cannot be accomplished overnight. Heavy maintenance checks are performed following a pre-scheduled agenda of major overhauls defined by the aircraft’s manual,manufacturer, based on the number of hours and flights flown by the aircraft. Our continued high aircraft utilization rate will result in shorter periods of time between heavy maintenance checks for our aircraft in comparison to carriers with lower aircraft utilization rates. In addition, engine maintenance services are rendered in different MRO facilities. We do not believe that our high aircraft utilization rate will necessarily result in the need to make more frequent repairs to our aircraft, given the durability of the aircraft type in our fleet. Our aircraft are covered by warranties that have an average term of three to five years. The warranties on the aircraft we received in 20062008 under our firm purchase order with Boeing will start expiring in 2011.2013.

     We internalized heavy maintenance on our Boeing 737 aircraft in 2006 with the completion of our new Aircraft Maintenance Center at the Tancredo Neves International Airport in Confins, in the State of Minas Gerais. The certification for the operation of the center authorizes maintenance services for Boeing 737-300s and Boeing Next Generation 737-700 and 800s. We use the newthis facility for airframe heavy checks, line maintenance, aircraft painting and aircraft interior refurbishment. We believe that the neware currently expanding our Aircraft Maintenance Center in order to ensure maintenance facility will accommodatecapacity while our recent and future fleet expansion, centralize our aircraft maintenance operations, provide cost savings and better enable us to determine the timinggrows.

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     With our system of phased maintenance for our Boeing Next Generation 737-700 and 737-800 aircraft fleet, we are able to perform maintenance work every day without sacrificing aircraft revenue time and to schedule preventive maintenance with more regularity and around the utilization of our aircraft, which helps to maintain high levels of block hours per day and reduces costs. We are one of the only airlinefew airlines in the world that takes full advantage of the Boeing 737-800NG737 Next Generation phased maintenance philosophy, supported by extensive investments we made in personnel, material, tools and equipment.

     We have also been certified by the ANAC under the Brazilian Aeronautical Certification Regulations to perform heavy maintenance services for third parties. We expect to utilize this certification, a potential source for ancillary revenues, only after the construction of an additional maintenance facility, currently contemplated to be finalized in 2008.2009.

     We employ 945 maintenance professionals, including engineers, supervisors, technicians and mechanics, who perform maintenance in accordance with maintenance plans that are established by Boeing and approved and certified by Brazilian aviation authorities.

     Facilities

     We have renewable concessions with terms varying from one to five years from INFRAERO to use and operate all of our facilities at each of the major airports that we serve. Our concession agreements for our terminals’ passenger service facilities, which include check-in counters and ticket offices, operations support area and baggage service offices, contain provisions for periodic adjustments of the lease rates and the extension of the concession term.

     Our primary corporate offices are located in São Paulo. Our commercial, operations, technology, finance and administrative staff is based primarily at our headquarters. We have concessions to use other airport buildings and hangars throughout Brazil, including a part of a hangar at Congonhas airport where we perform parts of our aircraft maintenance. In addition, we have a maintenance center at the Tancredo Neves International Airport in Confins, in the State of Minas Gerais.

Fuel

     Our fuel costs totaled R$1,227.02,630.8 million in 2006,2008, representing 39.6%40.5% of our operating expenses for the year. In 2006,2008, we consumed approximately 712.9 million liters of fuel. We purchasepurchased substantially all of our fuel from Petrobras Distribuidora S.A., a retail subsidiary of Petrobras, principally under an into-plane contract under which the supplier supplies fuel and also fills our aircraft tanks. In 2006,2008, fuel prices under our contracts were re-set every 1530 days and arewere composed of a variable and a fixed component. The variable component is defined by the refinery and follows international crude oil price fluctuations and thereal/U.S. dollar exchange rate. The fixed component is a spread charged by the supplier and is usually a fixed cost per liter during the term of the contract. We currently operate a tankering program under which we fill the fuel tanks of our aircraft in regions where fuel prices are lower. We also provide our pilots with training in fuel management techniques, such as carefully selecting flight altitudes to optimize fuel efficiency.

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     Fuel costs are extremely volatile, as they are subject to many global economic and geopolitical factors that we can neither control nor accurately predict. Because international prices for jet fuel are denominated in U.S. dollars, our fuel costs, though payable inreais, are subject not only to price fluctuations but also to exchange rate fluctuations. We maintain a fuel and foreign exchange hedging program, based upon best practices,policies which define volume, price targets and instruments for multi-year periods, under which we enter into fuel and currency hedging agreements with various counterparties providing for price protection in connection with the purchase of fuel. Our hedging practicespositions cover short-term periods, and are adjusted weekly or more frequently as conditions require. Our hedging practices are executed by our internal risk management committee and overseen by the risk policies committee of our board of directors. The risk policies committee of our board of directors meets quarterly or more often, if called, and its main responsibilities are to assess the effectiveness of our hedging policies, recommend amendments when and recommends amendments where appropriate.appropriate and establish its views regarding fuel price trends. We use risk management instruments that have a high correlation with the underlying assets so as to reduce our exposure. We require that all of our risk management instruments be liquid so as to allow us to make position adjustments and have prices that are widely disclosed. We also avoid concentration of credit and product risk. We have not otherwise entered into arrangements to guarantee our supply of fuel and we cannot provide assurance that our hedging program is sufficient to protect us against significant increases in the price of fuel. As of December 31, 2006,2008, we had hedged approximately 87%, 75% and 21%20% of our projected fuel requirements for the first, second and third quarters of 2007, respectively.2009.

The following chart summarizes our fuel consumption and costs for the periods indicated:

 Year Ended December 31,   Year Ended December 31, 
  
 2003  2004  2005  2006  2007  2008 
      
Liters consumed (in thousands) 264,402  317,444  476,725  712,881  1,177,300  1,364,719 
Total cost (in thousands) R$308,244  R$459,192  R$808,268  R$1,227,001  R$1,898,840  R$2,630,834 
Average price per liter  R$1.23  R$1.43  R$1.65  R$1.70  R$1.61  R$1.93 
% change in price per liter  n/a  17.6% 
Percent of operating expenses  29.1%  33.2%  39.5%  39.6%  38.5%  40.5% 

Insurance

     We maintain passenger liability insurance in an amount consistent with industry practice and we insure our aircraft against losses and damages on an “all risks” basis. We are required by the ANAC to maintain insurance coverage for general liability against terrorist acts or acts of war with a minimum amount of US$750 million. We are in compliance with this requirement.1.0 billion. We have obtained all insurance coverage required by the terms of our leasing agreements. We believe our insurance coverage is consistent with airline industry standards in Brazil and is appropriate to protect us from material loss in light of the activities we conduct. No assurance can be given, however, that the amount of insurance we carry will be sufficient to protect us from material loss.

     In response to the substantial increases of insurance premiums for coverage for damages resulting from terrorist attacks to aircraft after the September 11, 2001 attacks in the United States, the Brazilian government enacted Law No. 10,309 on November 22, 2001, generally authorizing the Brazilian government to undertake liabilities for damages caused to third parties as a result of terrorist attacks or acts of war against aircraft of Brazilian airlines. According to Law No. 10,744 of October 9, 2003, this undertaking by the federal government is currently limited to cover damages caused to third parties resulting from terrorist attacks and acts of war to Brazilian aircraft up to US$1 billion. Decree No. 5,035 of April 5, 2004, which regulates the provisions of Law No. 10,744, provides that the Brazilian government may, at its sole discretion, suspend this coverage at any time, effective within seven days after the announcement by the Brazilian government of its decision to do so.

     On September 29, 2006, one of our new Boeing 737-800 NG aircraft was involved in a mid-air collision with a private aircraft of ExcelAir. Our aircraft went down in the Amazon forest, leaving no survivors among the 148 passengers and six crew members. The ExcelAir aircraft, a new Embraer Legacy 135BJ, performed an emergency landing and all of its seven occupants were unharmed. We continue to cooperate fully with all regulatory and investigatory agencies to determine the cause of this accident. We believe that the costs to defend any claims and any potential liability exposure will be covered by insurance.

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Corporate ResponsibilityCompetition

Domestic

     Airlines in Brazil compete primarily on the basis of routes, fare levels, frequency of flights, capacity, airport operating rights and presence, reliability of services, brand recognition, frequent flyer programs and customer service.

     Our values are based uponmain competitor in Brazil is TAM Linhas Aéreas S.A., or TAM, which is a full-service scheduled carrier offering flights on domestic routes and international routes. We also face domestic competition from other domestic scheduled carriers, regional airlines and charter airlines, which mainly have regional networks.

     As the growth respect,in the Brazilian airline sector evolves, we may face increased competition from our primary competitors and incentives for teamwork for our employees, andcharter airlines as well as other entrants into the fulfillmentmarket that reduce their fares to attract new passengers in some of our social and environmental obligations. We are committed to being a good corporate citizenmarkets.

     The following table sets forth the historical market shares on domestic routes, based on revenue passenger kilometers, of the significant airlines in Brazil by participating in projects dedicated to improving the education, health and nutritionfor each of the underprivilegedperiods indicated:

Domestic Market Share— Scheduled Airlines  2005  2006  2007  2008 
     
Gol  25.9%  34.0%  43.0%  42.5% 
TAM  41.3%  47.8%  48.8%  50.3% 
Others  32.8%  18.2%  8.2%  7.2% 

__________
Source:Advanced Comparative Data (Dados Comparativos Avançados) 2005—2008

     Domestically, we also face competition from ground transportation alternatives, primarily interstate bus companies. In 2007, interstate bus companies transported over 131 million passengers, according to preliminary data from the National Ground Transportation Agency (Agência Nacional de Transportes Terrestres), and given the absence of meaningful passenger rail services in Brazil, travel by bus has traditionally been the only low-cost option for long-distance travel for a significant portion of Brazil’s population, particularly children and sponsored in 2006 approximately R$2 million to social and cultural activities and donated 1,200 tickets for charity purposes.population. We are the largest individual sponsor ofPastoral da Criança, a non-governmental organization that has assisted in the health and education needs of more than 1.8 million children in Brazil from infancy to age six. We also support other various other governmental and non-governmental organizations, such asFundação Gol de Letra, a foundation dedicated to educating underprivileged children and teenagers;Projeto Felicidade, a project that provides assistance to children with cancer; andProjeto Solidariedade ao Nordeste, a project that provides food donations to poor families in the northeastern region of Brazil. We sponsor numerous cultural and sports activities, such as theater plays and dance shows and sports events, to help promote travel and tourism in Brazil. In addition to making a difference for those in need, we also believe that our social responsibilitylow-cost business model has given us flexibility in setting our fares to stimulate demand for air travel among passengers who in the past have traveled long distances primarily by bus. In particular, the highly competitive fares we have offered for travel on our night flights, which have often been comparable to bus fares for the same destinations, have had the effect of providing direct competition for interstate bus companies on these routes.

International

     As we expand our international services in South America, our pool of competitors will increase and cultural sponsorship initiatives benefit us by enhancing our corporate imagewe will face competition from Brazilian and promoting awarenessSouth American airlines that are already established in the international market and that participate in strategic alliances and code sharing arrangements. As part of our brand. In December 2005, our shares were includedstrategy to focus exclusively on the Brazilian and selected South American markets and to access inter-continental markets through code-share agreements with major international carriers, we decided, in the Corporate Sustainability Index (ISE) Bovespa. It is the first stock index in Latin America comprisedhalf of companies with responsible views towards the environment, society, customers, suppliers2008, to discontinue our intercontinental flights to Frankfurt, London, Rome, Madrid, Mexico City and other stakeholders.Paris.

Industry Overview

     Since air transportation has historically been affordable only to the higher income segment of Brazil’s population, resulting in a comparatively low level of air travel, we believe that the low-cost, low-fare business model has the potential to significantly increase the use of air transportation in Brazil. AccordingBrazil is the fifth largest domestic aviation market in the world and according to the ANAC, there were 38.746.0 million domestic enplanements and 5.85.1 million international enplanements on Brazilian carriers in Brazil in 2005,2007, out of a total population of approximately 184 million, according to the Brazilian Geographical and Statistical Institute (Instituto Brasileiro de Geografia e Estatística—IBGE). In contrast, according to the U.S. Department of Transportation, the United States had 669.8681 million domestic enplanements and 68.889 million international enplanements in 2005,2007, out of a total population of approximately 297304 million, based on the latest U.S. census figures.

     Most long-distance public travel services within Brazil are provided by interstate bus companies. In 2005, Brazil’s domestic airline industry transported almost 38 million passengers, as compared to over 141 million passengers transported by interstate bus companies in 2005, according to the National Ground Transportation Agency (Agência Nacional de Transportes Terrestres). Brazil has no meaningful interstate passenger rail services.28


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     The business travel segment is the largest component of Brazilian air transportation demand and the most profitable in the market. According to company data, business travel represented approximately 70%65% of the total demand for domestic air travel in 2006,2008, which we believe is significantly higher than the business travel portion of domestic air travel in the global aviation sector. According to data collected from the ANAC, flights between Rio de Janeiro and São Paulo accounted for 12.2%9.6% of all domestic passengers in 2005.2007. The ten busiest routes accounted for 29.5%25.9% of all domestic air passengers in 20062007, while the ten busiest airports accounted for 75.6%72,0% and 75.1%74% of all domestic passenger traffic through INFRAERO airports in terms of arrivals and departures in 20052007 and 2008, respectively.

     In light of economic growth, increased passenger volumes and the soccer world cup scheduled for 2014 in Brazil, the Brazilian airport infrastructure will need substantial improvements. In addition, in parts of 2006 respectively.and 2007, technical and operational problems in the Brazilian civil aviation system, including air traffic control, airspace coordination and airport administration adversely affected airline operations. Various measures, such as hiring and training of additional air-traffic control personnel, investments in new systems and additional terminal and runway capacity in congested airports, have been taken by the relevant governmental authorities and discussions are currently ongoing with a view to possible additional changes in the organizational structure of the aviation infrastructure system.

     The table below sets forth information about the ten busiest routes for air travel in Brazil during 2005.2007 and 2006.

City Pair  Passengers  Route Market Share 
  
  Route Market  2006  2007  2006  2007 
City Pair  Passengers  Share 
      
São Paulo—Rio de Janeiro(1) 4,609,027  12.2%  4,596,903  4,423,798  10.9%  9.6% 
São Paulo (Congonhas)—Rio de Janeiro (Santos Dumont) 3,383,008  8.9%  3,317,537  2,961,125  7.9%  6.4% 
Rio de Janeiro (Galeão)—São Paulo (Guarulhos) 771,676  2.0%  678,378  820,298  1.6%  1.8% 
São Paulo (Congonhas)—Brasília  1,388,701  3.7%  1,496,919  1,306,151  3.6%  2.8% 
São Paulo (Congonhas)—Curitiba  1,211,342  3.2%  1,292,422  1,068,056  3.1%  2.3% 
São Paulo (Congonhas)—Porto Alegre  1,137,041  3.0%  1,283,671  1,092,994  3.0%  2.4% 
São Paulo (Congonhas)—Confins  858,580  2.3%  1,089,284  1,015,497  2.6%  2.2% 
São Paulo (Cumbica)—Recife  646,708  1.7% 
São Paulo (Guarulhos)—Salvador  1,025,257  1,256,402  2.4%  2.7% 
Rio de Janeiro (Galeão)—Salvador  780,677  883,879  1.9%  1.9% 
São Paulo (Congonhas)—Florianópolis  641,568  1.7%  770,707  662,087  1.8%  1.4% 
Rio de Janeiro (Galeão)—Salvador  634,378  1.7% 
São Paulo (Congonhas)—Salvador  471,273  1.2% 
São Paulo (Guarulhos)—Recife  757,726  819,480  1.8%  1.8% 

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Source: DAC,ANAC, from Anuário do Transporte Aéreo 20052007
_______________________
(1) Includes flights between Congonhas and Guarulhos to either Santos Dumont or Galeão airports.

     The table below sets forth the number of passengers at the ten busiest airports in Brazil during 2007 and 2008:

Airport  Thousands of Passengers (Inbound and Outbound)
  
 
  2007  2008 
   
São Paulo—Guarulhos  18,796  20,400 
São Paulo—Congonhas  15,265  13,672 
Brasília  11,120  10,443 
Rio de Janeiro—Galeão  10,353  10,753 
Salvador  5,932  6,042 
Recife  4,188  4,679 
Porto Alegre  4,444  4,931 
Belo Horizonte—Confins  4,340  5,189 
Rio de Janeiro—Santos Dumont  3,214  3,628 
Curitiba  3,907  4,281 

_____________
      Source
: INFRAERO

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     The scheduled domestic passenger airline industry in Brazil is primarily served by Gol and TAM. At the end of 2006, Gol and TAM accounted for approximately 86% of the market share of domestic regular routes, measured in terms of revenue passenger kilometers.

     Set forth in the table below is the number of passengers traveling by air between Brazil and other specified South American countries during 2005, as well as the gross domestic product and population of each listed country.

      GDP(2)  
  Enplanements(1) Percentage of  (in billions of  Population(3)
Country  (in thousands) Total  US$) (in millions)
     
Argentina  1,651.5  51.1%  183.3  38.7 
Chile  546.4  16.9%  115.3  16.3 
Uruguay  272.3  8.4%  16.8  3.5 
Bolivia  180.7  5.6%  9.3  9.2 
Paraguay  206.5  6.4%  8.2  6.2 
Peru  173.5  5.4%  78.4  28.0 
Colombia  109.6  3.4%  122.3  45.6 
Venezuela  94.0  2.8%  138.9  26.6 
     
Total  3,234.5  100%  672.5  174.1 
     
_______________________
Sources:(1) DAC—Anuário de Transporte Aéreo 2005
(2) World Development Bank Indicators database, August 2005. Figures as of 2005
(3)World Development Bank Indicators database, August 2005. Figures as of 2005

     When inaugurating flights between Brazil and select destinations in neighboring South American countries, we must observe the terms of bilateral air transport agreements negotiated between Brazil and foreign governments. These bilateral agreements govern the operation of scheduled services between specified destinations in each country. See “—Regulation of the Brazilian Civil Aviation Market—Route Rights—International routes.”

Trends in Brazilian Civil Aviation Market Evolution

     Since 1970, Brazil has for the most part had stable growth in revenue passenger kilometers. From 1970 to 2006,2008, domestic revenue passenger kilometers grew at a compound annual rate of 8.4% 8.7%. In the past 368 years, the domestic market generally experienced year over yearyear-over-year growth in revenue passenger kilometers except in times of significant economic or political distress, such as the petroleum crisis in the 1970’s,1970s, the Brazilian sovereign debt crisis in the early 1980’s1980s and the economic and political distress in Brazil in the early 1990’s.1990s.

     From 19982004 to 2006,2008, the compound annual growth rate in industry passenger traffic, in terms of domestic revenue passenger kilometers, was 7.4%14.0%, versus a compound annual growth rate in available industry capacity, in terms of available seat kilometers, of 4.8%14.1% . Domestic industry load factors, calculated as revenue passenger kilometers divided by available seat kilometers, have averaged 62.3%68.8% over the same period. The table below shows the figures of domestic industry passenger traffic and available capacity for the periods indicated:

  1998  1999  2000  2001  2002  2003  2004  2005  2006 
          
  (In millions, except percentages)
Available Seat                   
   Kilometers  38,121  40,323  41,437  45,008  47,109  41,927  43,034  50,182  55,608 
Available Seat                   
   Kilometers Growth  22.4%  5.8%  2.8%  8.6%  4.7%  (11.0)%  2.6%  11.5%  10.8% 
Revenue Passenger                   
   Kilometers  22,539  22,204  24,284  26,296  26,780  25,180  28,214  35,429  39,802 
Revenue Passenger                   
   Kilometers Growth  26.5%  (1.5)%  9.4%  8.3%  1.8%  (6.0)%  12.0%  19.4%  12.3% 
Load Factor  59.1%  55.1%  58.6%  58.4%  56.8%  60.1%  65.6%  70.2%  71.6% 
  2004  2005  2006  2007  2008 
      
   (in millions, except percentages)
Available Seat Kilometers  43,034  50,182  55,608  64,597  72,841 
Available Seat Kilometers Growth  2.6%  11.5%  10.8%  16.2%  12.8% 
Revenue Passenger Kilometers  28,214  35,429  39,802  44,446  47,838 
Revenue Passenger Kilometers Growth  12.0%  19.4%  12.3%  11.7%  7.4% 
Load Factor  65.6%  70.2%  71.6%  68.8%  65.5% 

_________________
_______________________
Source: DAC - ANAC, for 19981999 to 2002 from Anuário Estatístico; and for 20032004 through 20062008 from Dados Comparativos Avançados.

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     Historically, domestic airline industry revenue growth has generally surpassed Brazilian GDP growth. From 1998 to 2005, domestic airline industry revenue grew at a real compound annual growth rate of 11.6% (as adjusted by the IPCA inflation index) while Brazilian GDP has grown at a real compound annual growth rate of 2.3% over the same period, according to data from the ANAC and the Central Bank.

     The airline industry in Brazil is regulated pursuant to Law No. 7,565, of December 19, 1986, also known as the Brazilian Aeronautical Code, as well as extensive regulations issued by the High Command of Aeronautics of the Ministry of Defense (Comando da Aeronáutica), the CONAC, and, since March 2006 the ANAC, which replaced the DAC in its function. Although the Brazilian airline sector was deregulated in the early 1990s, the DAC and the ANAC have imposed varying degrees of regulation since that time, and are charged with guiding, planning, stimulating and supporting the activities of public and private civil aviation as well as implementing international rules and conventions that have already been adopted by the Brazilian government. The decisions of the CONAC and the ANAC at times significantly alter the regulatory environment for civil aviation. Decisions that change regulatory policy often correspond to major socio-economic events, such as the Persian Gulf War and the September 11, 2001 terrorist attacks, and we believe have been designed to shelter domestic carriers from major economic shocks. The ANAC monitors and reacts to ongoing developments in the air transportation sector to achieve multiple competing objectives. The ANAC often takes targeted action to address perceived constraints or challenges affecting civil aviation. Thead hoc policy initiatives of the DAC in the past, and of the CONAC, presently, have included moving to restrict or expand the supply of air transportation services, to increase or decrease the availability of new routes and slots, to curtail or encourage competition in air fares, and to facilitate an orderly cessation of the activities of financially unsound carriers. Currently, the ANAC imposes a series of restrictions and demands on the standards, safety, maintenance, regularity and quality of air carrier operations. Brazilian airlines are permitted to establish their own domestic fares. Domestic fares can be reviewed by the ANAC in order to prevent airlines, which are public concessionaires, from operating in a way that is detrimental to their economic viability. The ANAC also monitors the concession of airport slots, entry of new companies, launch of new routes, increases in route frequencies and lease or acquisition of new aircraft. The regulatory environment relating to the Brazilian civil aviation market is evolving, and a number of new laws are being discussed in Congress and within various regulatory bodies that could change the way in which the industry is regulated. See “Item 4. Business Overview—Regulation of the Brazilian Civil Aviation Market.”

     On September 27, 2005, President Luiz Inácio Lula da Silva approved Law No. 11,182 relating to the creation of the National Civil Aviation Agency, or ANAC, which replaced DAC as the primary civil aviation authority. According to Law No. 11,182, ANAC is responsible for organizing civil aviation within a coherent system (coordinating and supervising air transportation service and aviation and ground infrastructure) and for modernizing the regulation of Brazilian aviation operations. ANAC is linked, but not subordinated, to the Ministry of Defense and operates as an independent agency for an indefinite term. ANAC principally has the authority to (i) regulate, inspect and supervise services rendered by Brazilian and foreign airlines operating in Brazil, (ii) grant concessions, permits and authorizations for air transport operations and airport infrastructure services, (iii) represent the Brazilian government before international civil aviation organizations and (iv) control, register and inspect civil aircraft. Furthermore, Law No. 11,182 promotes private enterprise in civil aviation. In accordance with articles 48 and 49, passenger transportation is intended to be provided by the private sector on a competitive basis. In accordance with Section 7 of Law No. 11,182, and with Section 4 of the Decree No.5,731, issued on March 20, 2006, and that set forth the organizational structure of the agency as well as its internal regulatory regime.

Regulation of the Brazilian Civil Aviation Market

The Brazilian Aviation Authorities and Regulation Overview

     Air transportation services are considered a public service and are subject to extensive regulation and monitoring by the High Command of Aeronautics of the Ministry of Defense (Comando da Aeronáutica), the CONAC and the ANAC. Air transportation services are also regulated by the Brazilian Federal Constitution and the Brazilian Aeronautical Code. The Brazilian civil air transportation system is controlled by several authorities. The ANAC is responsible for the regulation of the airlines, the DECEA is responsible for airspace control and INFRAERO is responsible for airport administration.

     InThe following chart illustrates the last quarter of 2006, various technicalmain regulatory bodies, their responsibilities and operational problems inreporting lines within the Brazilian air traffic control systems lead to increased flight delays, higher than usual flight cancellations and airport congestions. The Brazilian government has proposed changes and taken measures to further improve the Brazilian air traffic control systems such as the decentralization of the control structure, the hiring of additional personnel, increased training and technical improvements in the operational systems.governmental structure.

     The Brazilian Aeronautical Code provides for the main rules and regulations relating to airport infrastructure and operation, flight safety and protection, airline certification, lease structuring, burdening, disposal, registration and licensing of aircraft; crew training; concessions, inspection and control of airlines; public and private air carrier services, civil liability of airlines, and penalties in case of infringements.

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     The ANAC is currently responsible for guiding, planning, stimulating and supporting the activities of public and private civil aviation companies in Brazil, and also regulates flying operations generally and economic issues affecting air transportation, including matters relating to air safety, certification and fitness, insurance, consumer protection and competitive practices.

     On October 5, 2001, the Department of Air Space Control (Departamento de Controle do Espaço Aéreo), or DECEA, was created. It reports indirectly to the Brazilian Minister of Defense. The DECEA is responsible for planning, administrating and controlling activities related to airspace, aeronautical telecommunications and technology. This includes approving and overseeing the implementation of equipment as well as of navigation, meteorologic and radar systems. The DECEA also controls and supervises the Brazilian Airspace Control System.

     INFRAERO, a state-controlled corporation reporting to the High Command of Aeronautics, is in charge of managing, operating and controlling federal airports, including control towers and airport safety operations. See “Airport Infrastructure” below.

     The CONAC is an advisory body of the President of Brazil and its upper level advisory board is composed of the Minister of Defense, the Minister of Foreign Affairs, the Minister of Treasury, the Minister of Development, Industry and International Trade, the Minister of Tourism, the Minister Chief of the Civil Cabinet, the Minister of Justice and the Commandant of the Air Force.

The CONAC has the authority to establish national civil aviation policies that may be adopted and enforced by the High Command of Aeronautics and by the ANAC. The CONAC establishes guidelines relating to the proper representation of Brazil in conventions, treaties and other actions related to international air transportation, airport infrastructure, the granting of supplemental funds to be used for the benefit of airlines and airports based on strategic, economic or tourism-related aspects, the coordination of civil aviation, air safety, the granting of air routes and concessions, as well as permission for the provision of commercial air transportation services.

     UntilThe Brazilian Aeronautical Code provides for the installationmain rules and regulations relating to airport infrastructure and operation, flight safety and protection, airline certification, lease structuring, burdening, disposal, registration and licensing of aircraft; crew training; concessions, inspection and control of airlines; public and private air carrier services; civil liability of airlines; and penalties in case of infringements.

     Recently, in February 2009, the ANAC,Federal Government approved the DAC,new Civil Aviation National Policy (Política Nacional de Aviação Civil or “PNAC”). Although the highestPNAC does not establish any immediate measure, it contains the main guidelines for the national civil aviation authority insystem. It encourages the past, reported directlyMinistry of Defense, CONAC and ANAC to the High Command of Aeronauticsissue regulations on strategic matters such as safety, competition, environmental, and was responsible for guiding, planning, stimulatingconsumers’ issues, as well as to inspect, review and supportingvaluate the activities of public and private civil aviation companies in Brazil. The ANAC is currently responsible for those activities, and also regulates flying operations generally and economic issues affecting air transportation, including matters relating to air safety, certification and fitness, insurance, consumer protection and competitive practices.all operating companies.

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     The Brazilian government recognized and ratified, and must comply with, the Warsaw Convention of 1929, the Chicago Convention of 1944, and the Geneva Convention of 1948, the three leading international conventions relating to worldwide commercial air transportation activities.

Route Rights

Domestic routes. For the granting of new routes and changes to existing ones, the ANAC evaluates the actual capacity of the airport infrastructure where such route is or would be operated. In addition, route frequencies are granted subject to the condition that they are operated on a frequent basis. Any airline’s route frequency rights may be terminated if the airline (a) fails to begin operation of a given route for a period exceeding 15 days, (b) fails to maintain at least 75% of flights provided for in its air transportation schedule (Horário de Transporte Aéreo, or HOTRAN) for any 90-day period or (c) suspends its operation for a period exceeding 30 days. The ANAC approval of new routes or changes to existing routes is given in the course of an administrative procedure and requires no changes to existing concession agreements.

     Once routes are granted, they must be immediately reflected in the HOTRAN, which is the official schedule report of all routes that an airline can operate. The HOTRAN provides not only for the routes but also the times of arrival at and departure from certain airports, none of which may be changed without the prior consent of the ANAC. According to Brazilian laws and regulations, an airline cannot sell, assign or transfer its routes to another airline.

International routes. In general, requests for new international routes, or changes to existing routes, must be filed by each interested Brazilian airline that has been previously qualified by the ANAC to provide international services, with the SRI (Superintendency of International Relations of the ANAC), which, based on the provisions of the applicable bilateral agreement and general policies of the Brazilian aviation authorities, submits the request to the ANAC for approval. International route rights for all countries, as well as the corresponding transit rights, derive from bilateral air transport agreements negotiated between Brazil and foreign governments. Under such agreements, each government grants to the other the right to designate one or more of its domestic airlines to operate scheduled service between certain destinations in each country. Airlines are only entitled to apply for new international routes when they are made available under these agreements. For the granting of new routes and changes to existing ones, the ANAC has the authority to approve Brazilian airlines to operate new routes, subject to the airline having filed studies satisfactory to the ANAC demonstrating the technical and financial viability of such routes and fulfilling certain conditions in respect of the concession for such routes. Any airline’s international route frequency rights may be terminated if the airline fails to maintain at least 80% of flights provided for in its air transportation schedule HOTRAN for any 180-day period or suspends its operation for a period exceeding 180 days.

Slots Policy

Domestic. Under Brazilian law, a domestic slot is a concession of the ANAC, which is reflected in the airline’s HOTRAN. Each HOTRAN represents the authorization for an airline to depart from and arrive at specific airports within a predetermined timeframe. Such period of time is known as an “airport slot” and provides that an airline can operate at the specific airport at the times established in the HOTRAN. An airline must request an additional slot from the ANAC with a minimum of two months’ prior notice.

     Congonhas airport in the city of São Paulo is a coordinated airport, where slots must be allocated to an airline before it can operate there. Currently, there are no slots available at the downtown Congonhas airport. If capacity at the airport increases and slots become available, 20% of those slots must be distributed to new entrants. The Santos-Dumont airport in Rio de Janeiro, a highly utilized airport with half-hourly shuttle flights between São Paulo and Rio de Janeiro, is also a coordinated airport with certain slot restrictions. Several other Brazilian airports, for example the Brasília International Airport and São Paulo International Airport in Guarulhos have limited the number of slots per day due to infrastructural limitations at these airports.

      Recently, ANAC has imposed schedule restrictions to several Brazilian airports from which we operate. Operating restrictions, including the prohibition of international flights’ operations and the prohibition of civil aircraft’s operation after 11:00 p.m. and before 6:00 a.m, were imposed for Congonhas Airport, one of the busiest Brazilian airports and the most important airport for our operations. No assurance can be given that these or other government measures will not have a material adverse effect on our business and results of operations.

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     CONAC has recently taken measures to minimize the recent technical and operational problems in the São Paulo airports, redistributing air traffic from the Congonhas airport to the airports of Guarulhos and has mentioned its intention to adjust tariffs for the use of busy airport hubs to encourage further redistribution of air traffic.

     In the last quarter of 2008, the ANAC proposed a new regulation for the allocation of slots to domestic airlines. This regulation governs the manner of allocation of slots, by organizing rotations among the concessionaires, determining the procedures for registration, qualification, judgment and homologation of a request for slot concessions in coordinated airports . Additionally, such regulation also establishes the rules permitting transfers of slots between concessionaires. ANAC’s resolution is expected to be released in the first half of 2009.

     Also, in 2008, the ANAC enacted a regulation providing that the minimal ground time for aircraft between landing and take-off must be 40 minutes at the International Airport of Sao Paulo in Guarulhos, the international airport of Rio de Janeiro Galeão and at the Brasília airports, and 30 minutes at all other Brazilian airports. This regulation negatively affected our ability to increase aircraft utilization by minimizing turnaround times between flights.

Airport Infrastructure

     INFRAERO, a state-controlled corporation reporting to the Ministry of Defense, is in charge of managing, operating and controlling federal airports, including control towers and airport safety operations.

     Smaller, regional airports may belong to states or municipalities within Brazil and, in such cases, are often managed by local governmental entities. At most important Brazilian airports, INFRAERO performs safety and security activities, including passenger and baggage screening, cargo security measures and airport security.

     The use of areas within federal airports, such as hangars and check-in counters, is subject to a concession by INFRAERO. If there is more than one applicant for the use of a specific airport area, INFRAERO may conduct a public bidding process for the granting of the concession.

     We have renewable concessions with terms varying from one to five years from INFRAERO to use and operate all of our facilities at each of the major airports that we serve. Our concession agreements for our terminals’ passenger service facilities, which include check-in counters and ticket offices, operations support area and baggage service offices, contain provisions for periodic adjustments of the lease rates and the extension of the concession term.

     Of the 67 Brazilian airports managed by INFRAERO, approximately 20 airports are receiving infrastructure investments and upgrades. The airport upgrade plan does not require contributions or investments by the Brazilian airlines and is not expected to be accompanied by increases in landing fees or passenger taxes on air travel.

Concession for Air Transportation Services

     According to the Brazilian Federal Constitution, the Brazilian government is responsible for public services related to airspace as well as airport infrastructure, and may provide these services directly or through third parties under concessions or permissions.authorizations. According to the Brazilian Aeronautical Code and regulations issued by the High Command of Aeronautics,CONAC, the application for a concession to operate regular air transportation services is subject to a license granted by the ANAC having granted to the applicant a license to operate an airline and to explore regular air transportation services. The applicant is required by the ANAC to have met certain economic, financial, technical, operational and administrative requirements in order to be granted such license. Additionally, a concession applicant must be an entity incorporated in Brazil, duly registered with the Brazilian Aeronautical Registry (Registro Aeronáutico Brasileiro, or RAB), must have a valid CHETAairline operating certificate (Certificado de Homologação de Empresa de Transporte Aéreo or “CHETA”) and must also comply with certain ownership restrictions. See “—Restrictions to the Ownership of Shares Issued by Concessionaires of Air Transportation Services.” The ANAC has the authority to revoke a concession for failure by the airline to comply with the terms of the Brazilian Aeronautical Code, the complementary laws and regulations and the terms of the concession agreement.

     Our concession was granted on January 2, 2001 by the High Command of Aeronautics of the Ministry of Defense. Our concession agreement has a 15-year term and is renewable at its expiration for a further 15-year term upon six months’ prior written notice. The concession agreement can be terminated if, among other things, we fail to meet specified service levels, cease operations or declare bankruptcy.

     Article 122 of Law No. 8,666 of June 21, 1993, provides that airline concessions are to be regulated by specific procedures set forth in the Brazilian Aeronautical Code. The Brazilian Aeronautical Code and the regulations issued by the High Command of AeronauticsCONAC and ANAC do not expressly provide for public bidding processes and currently it is not necessary to conduct public bidding processes prior to the granting of concessions for the operation of air transportation services. Due to the intense growth of the civil aviation sector, this rule may be changed by the government, in order to allow more competition or to achieve other political purposes.

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Import of Aircraft into Brazil

     The import of civil or commercial aircraft into Brazil is subject to prior authorization by the COTAC, which is a sub-department of the ANAC. Such import authorizations usually follow the general procedures for import of goods into Brazil, after which the importer must request the registration of the aircraft with the RAB.

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Registration of Aircraft

     The registration of aircraft in Brazil is governed by the Brazilian Aeronautical Code. Under the Brazilian Aeronautical Code, under which no aircraft is allowed to fly in Brazilian airspace, or land in or take off from Brazilian territory, without having been properly registered. In order to be registered and continue to be registered in Brazil, an aircraft must have a certificate of registration (certificado de matrícula) and a certificate of airworthiness (certificado de aeronavegabilidade), both of which are issued by the RAB after technical inspection of the aircraft by the ANAC. A certificate of registration attributes Brazilian nationality to the aircraft and is evidence of its enrollment with the competent aviation authority. A certificate of airworthiness is generally valid for six years from the date of the ANAC’s inspection and authorizes the aircraft to fly in Brazilian airspace, subject to continuing compliance with certain technical requirements and conditions. The registration of any aircraft may be cancelled if it is found that the aircraft is not in compliance with the requirements for registration and, in particular, if the aircraft has failed to comply with any applicable safety requirements specified by the ANAC or the Brazilian Aeronautical Code.

     All information relating to the contractual status of an aircraft, including purchase and sale agreements, operating leases and mortgages, must be filed with the RAB in order to provide the public with an updated record of any amendments made to the aircraft certificate of registration.

Route RightsRestrictions on the Ownership of Shares Issued by Concessionaires of Air Transportation Services

     Domestic routes.According to the Brazilian Aeronautical Code, in order to be eligible for a concession for operation of regular services, the entity operating the concession must have at least 80% of its voting stock held directly or indirectly by Brazilian citizens and must have certain management positions entrusted to Brazilian citizens. The Brazilian Aeronautical Code also imposes certain restrictions on the transfer of capital stock of concessionaires of air transportation services, such as VRG, including the following:

     The Registrant holds substantially all of the shares of VRG, which are public concessionaires of air transportation services in Brazil. Under the Brazilian airlinesAeronautical Code, the rightrestrictions on the transfer of shares described above apply only to operate new routes, subjectcompanies that hold concessions to provide regular air transportation services. Therefore, the restrictions do not apply to the airline having filed studies satisfactory to the ANAC demonstrating the technical and financial viability of such routes and fulfilling certain conditions in respect of the concession for such routes. For the granting of new routes and changes to existing ones, the ANAC evaluates the actual capacity of the airport infrastructure from where such route is or would be operated, as well as the increase in demand and competition among airlines. In addition, route frequencies are granted subject to the condition that they are operated on a frequent basis. Any airline’s route frequency rights may be terminated if the airline (a) fails to begin operation of a given route for a period exceeding 15 days, (b) fails to maintain at least 75% of flights provided for in its air transportation schedule (Horário de Transporte Aéreo, or HOTRAN) for any 90-day period or (c) suspends its operation for a period exceeding 30 days. The ANAC approval of new routes or changes to existing routes is given in the course of an administrative procedure and requires no changes to existing concession agreements.

     Once routes are granted, they must be immediately reflected in the HOTRAN, which is the official schedule report of all routes that an airline can operate. The HOTRAN provides not only for the routes but also the times of arrival at and departure from certain airports, none of which may be changed without the prior consent of the ANAC. According to Brazilian laws and regulations, an airline cannot sell, assign or transfer its routes to another airline.

International routes.In general, requests for new international routes, or changes to existing ones, must be filed by each interested Brazilian airline that has been previously qualified by the ANAC to provide international services, with the CERNAI, which decides upon each request based on the provisions of the applicable bilateral agreement and general policies of the Brazilian aviation authorities. International route rights for major city pairs, as well as the corresponding landing rights, derive from bilateral air transport agreements negotiated between Brazil and foreign governments. Under such agreements, each government grants to the other the right to designate one or more of its domestic airlines to operate scheduled service between certain destinations in each country. Airlines are only entitled to apply for new international routes when they are made available under these agreements. Since the beginning of 2005, we extended our South American network to destinations in Argentina, Uruguay, Paraguay, Bolivia, Chile and Peru.Registrant.

Slots PolicyEnvironmental Regulation

     Under Brazilian law, a slot is a concession of the ANAC, which is reflected in the airline’s HOTRAN. Each HOTRAN represents the authorization for an airline to depart from and arrive at specific airports within a predetermined timeframe. Such period of time is known as an “airport slot” and provides that an airline can operate at the specific airport at the times established in the HOTRAN. The most congested Brazilian airports are subject to traffic restrictions through time slot policies. An airline must request an additional slot from the ANAC upon a minimum of two months’ prior notice.

     On October 5, 2001, the Department of Control of the Air Space (Departamento de Controle do Espaço Aéreo), or DECEA, was created with the main purpose of coordinating and inspecting the infrastructure support of airports and the safety of aircraft operations. The DECEA also performs studies in all Brazilian airports to determine the maximum capacity of the operations of each airport. There are five airports in Brazil that have slot restrictions: Congonhas and Guarulhos (both of which serve São Paulo), Santos Dumont in Rio de Janeiro, Pampulha in Belo Horizonte and Juscelino Kubitschek in Brasília. In view that the slots of all congested airports are fully utilized, the ANAC is unable to grant the right to new slots to airlines to operate in these airports.

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     Recently the ANAC approved a regulation on the allocation of slots on domestic air lines. The regulation governs the manner of allocation of slots, by organizing rotations among the concessionaires, determining the procedures for registration, qualification, judgment and homologation of a request for slot concessions in airports that operate at full capacity (coordinated airports). Additionally, such regulation also establishes the rules permitting transfers of slots between concessionaires.

Airport Infrastructure

     INFRAERO, a state-controlled corporation reporting to the High Command of Aeronautics, is in charge of managing, operating and controlling federal airports, including control towers and airport safety operations.

     Smaller, regional airports may belong to states or municipalities within Brazil and, in such cases, are often managed by local governmental entities. At most Brazilian airports, INFRAERO performs safety and security activities, including passenger and baggage screening, cargo security measures and airport security.

     The use of areas within federal airports, such as hangars and check-in booths, is subject to a concession by INFRAERO. If there is more than one applicant for the use of a specific airport area, INFRAERO may conduct a public bidding process for the granting of the concession.

     We have renewable concessions with terms varying from one to five years from INFRAERO to use and operate all of our facilities at each of the major airports that we serve. Our concession agreements for our terminals’ passenger service facilities, which include check-in counters and ticket offices, operations support area and baggage service offices, contain provisions for periodic adjustments of the lease rates and the extension of the concession term.

      INFRAERO has announced in January 2007 its intention to invest approximately R$1.8 billion in the Brazilian airport system until 2010. Among the projects underway is an investment to modernize the passenger terminal, the improvement of the main and auxiliary runways (planned for 2007) and the construction of a new control tower at Congonhas airport in São Paulo, an investment in the airport of Curitiba (extension of runway and cargo terminal), an investment in the airport of Porto Alegre (runway extensions and construction of a new logistics center), and an investment in a capacity increase of the international airport of Brasilia. The airport upgrade plan does not require contributions or investments by the Brazilian airlines and is not expected to be accompanied by increases in landing fees or passenger taxes on air travel.

The table below sets forth the number of passengers at the ten busiest airports in Brazil during 2006:

Thousands of
Passengers
(Inbound and
AirportOutbound)
São Paulo—Congonhas 18,459 
São Paulo—Guarulhos 15,689 
Brasília 9,670 
Rio de Janeiro—Galeão 8,741 
Salvador 5,411 
Recife 3,954 
Porto Alegre 3,847 
Belo Horizonte—Confins 3,728 
Rio de Janeiro—Santos Dumont 3,553 
Curitiba 3,532 
_______________________
Source:INFRAERO

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Pricing

     Brazilian airlines are permitted to establish their own domestic fares without government regulation. However, domestic fares are monitored on a regular basis by the ANAC in order to prevent airlines, which are public concessionaires, from operating in a way that is detrimental to their economic viability. Airlines are free to offer price discounts or follow other promotional strategies. Airlines must submit, with a minimum of five working days’ advance notice, fares that are set at greater than a 65% discount to the per kilometer reference fares index curve published by the ANAC. Such reference fares index curves are based on industry average operating costs, according to ANAC calculations.

     International tariffs are set based upon bilateral arrangements. Fares for specific routes are submitted to the ANAC for approval.

Civil Liability

     The Brazilian Aeronautical Code and the Warsaw Convention limit the liability of an aircraft operator for damages caused to third parties during its air and ground operations, or resulting from persons or things ejected out of the aircraft. Brazilian courts, however, have occasionally disregarded these limitations by awarding damages purely based on the Brazilian Consumer Protection Code, which does not expressly provide for limitations on the amount of such awards.

     In response to the substantial increases in insurance premiums for coverage relating to damage resulting from terrorist attacks to aircraft after the September 11, 2001 attacks in the United States, the Brazilian government enacted a law which authorizes the Brazilian government to undertake liability for damages caused to third parties as a result of terrorist attacks or acts of war against aircraft operated by Brazilian airlines. See “Item 4. Business Overview—Insurance.”

Environmental Regulations

     Brazilian airlines are subject to various federal, state and municipal laws and regulations relating to the protection of the environment, including the disposal of materials and chemical substances and aircraft noise. These laws and regulations are enforced by various governmental authorities. The non-compliance with such laws and regulations may subject the violator to administrative and criminal sanctions, in addition to the obligation to repair or to pay damages caused to the environment and third parties. As far as civil liabilities are concerned, Brazilian environmental laws adopt the strict liability regime. Moreover, pursuant to Brazilian environmental laws and regulations, the piercing of the corporate veil of a company may occur in order to ensure enough financial resources to the recovery of damages caused against the environment. For example, according to aan ANAC ordinance, the operation of scheduled commercial flights to and from the Congonhas airport is subject to a noise curfew from 11:00 p.m. to 6:00 a.m. because of its proximity to residential areas in São Paulo. Our scheduled flights to Congonhas airport are in full compliance with the noise curfew limits.

     We adopted several Environmental Management System (EMS) procedures with our suppliers and use technical audits to enforce compliance. We exercise caution, and may reject goods and services from companies that do not meet our environmental protection parameters unless confirmation of compliance is received.

     We are monitoring and analyzing the developments regarding amendments to Kyoto protocol and emissions regulations in the processUnited States and Europe and may in the future be obliged to acquire carbon credits for the operation of formalizing our quality and environmental management systems (EMS), with the objective of certifying them to international standards. We are conducting planning for these activities, including preparing the necessary documentation, various operating procedures, as well as establishing organizational responsibilities and monitoring protocols.business. No legislation on this matter has yet been enacted in Brazil.

Restrictions on the Ownership of Shares Issued by Concessionaires of Air Transportation ServicesBrazilian Bankruptcy Law

     AccordingIn 2005, the Brazilian government enacted a new bankruptcy law, providing a new set of rules for bankruptcy in Brazil. The reform was motivated by the need to enhance the chances of restructuring distressed businesses and credit recovery.

     The major changes introduced by the new bankruptcy law include the possibility of extra-judicial and judicial restructurings. In essence, debtors are able to negotiate with creditors the repayment of debts, including any necessary corporate restructurings under the protection of the law.

     Using the extra-judicial recovery procedures, borrowers in distress will be allowed to negotiate restructuring directly with creditors without judicial interference. In case of an agreement, the restructuring plan is binding on all creditors (tax and labor claims are not subjected to extra-judicial reorganization), provided it is approved by the majority of a company’s creditors and ratified by the competent bankruptcy court. In case the plan is rejected by creditors or not confirmed by the bankruptcy court, the debtor may submit a new out-of-court reorganization plan or may file for judicial reorganization.

     Through judicial restructuring, the debtor may present a restructuring plan to the Brazilian Aeronautical Code, in orderbankruptcy court, which, if opposed by its creditors, will be submitted to a General Meeting of Creditors. Judicial reorganization binds all pre-petition credits (even those not yet due), except for tax credits. The plan can be eligible for a concession for operationapproved, amended or rejected. In case of regular services,rejection, the entity operatingdebtor shall be declared bankrupt.

     Among the concession must have at least 80% of its voting stock held directly or indirectly by Brazilian citizens and must have certain management positions entrusted to Brazilian citizens. The Brazilian Aeronautical Code also imposes certain restrictions on the transfer of capital stock of concessionaires of air transportation services, such as Gol, including the following:

funds.

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     The Registrant holds substantiallyassure that VRG completes, in the strictest terms, all of the sharesterms of Gol, whichthe above mentioned bidding rules for the judicial auction.

      Due to the recency of the new bankruptcy law, there is a public concessionaireno judicial or regulatory guidance or consolidated experience with regard to the application of air transportation servicesthis law. We believe that the law protects us from bankruptcy-related claims of creditors of the former Varig group in Brazil. UnderOther countries, however, may or may not recognize the Brazilian Aeronautical Code, the restrictions on the transfer of shares described above apply onlyprotection granted to companies that hold concessionsus under this law. See “Risk Factors—We may be subject to provide regular air transportation services. Therefore, the restrictions do not applyincreased litigation risks related to the Registrant.operations of the former Varig group.”

Pending Legislation

      In addition, on March 28, 2001, CONAC published for public consultation a draft of a bill to replace the Brazilian Aeronautical Code and modernize the basic laws and regulations relating to the industry. In general, this draft deals with matters related to civil aviation, including airport concessions, consumer protection, increased foreign shareholding participation in airlines, limitation of airlines’ civil liability, compulsory insurance and fines. This draft bill is still under discussion in the House of Representatives and, if approved, must be submitted to the Federal Senate, for new approval, before being sent to the government in order to receive the presidential approval.

Cape Town Convention

     The Cape Town Convention aims at promoting investments in aircraft by facilitating the granting of guarantees on aircraft lease and purchase transactions. The Brazilian government has not yet ratified the Cape Town Convention. In case

     The Export-Import Bank of the conventionUnited States (“Ex-Im”) has extended its offer to reduce by one-third the premium it charges in connection with guarantees of large commercial aircraft financings for those countries that ratify the Cape Town Convention. If the Cape Town Convention is ratified by the government of Brazil, future guarantee premiums charged to Gol by Ex-Im (“Exposure Fees”) may be reduced by as much as one percent for aircraft financing coststhat are scheduled for Brazilian airlines could decreasedelivery prior to December 31, 2010; provided that the underlying purchase contract was a firm contract as of April 30, 2007.

     Ex-Im has also agreed on a common approach with European export-credit agencies on offering export credits for commercial aircraft. Among other things, the new Sector Understanding on Export Credits for Civil Aircraft (the “ASU”) sets forth minimum guarantee premium rates applicable to aircraft delivered on or after January 1, 2011, or under a firm contract entered into after April 30, 2007. While subject to modification, the exposure fees paid by about one percent.GOL on applicable aircraft are likely to increase, the amount of any such increase will depend upon the credit risk assigned to GOL by the participating export-agencies pursuant to the protocols of the ASU. In addition, GOL will no longer be able to finance the amortization payments of loans guaranteed by Ex-Im with SOAR loan facilities.

C. Organizational Structure

     The Registrant is a holding company, which owns directly or indirectly shares of four subsidiaries: Gol, twoVRG and three offshore finance subsidiaries Gol Finance Cayman and GAC Inc. and a non operative subsidiary GTI S.A. Gol, which owns Sky Finance. VRG is the Registrant’s operating subsidiary, under which we conduct our business. Gol Finance, and GAC Inc. and Sky Finance are Cayman Islands-basedoff-shore companies established for the purpose of facilitating cross-border transactions, including the lease and the purchase of aircraft.transactions.

D. Property, PlantsPlant and Equipment

     Our primary corporate offices are located in two buildings in São Paulo. Our commercial, operations, technology, finance and administrative staff is based primarily at our headquarters. We have concessions to use other airport buildings and hangars throughout Brazil, including a part of a hangar at Congonhas airport where we perform aircraft maintenance. We completed in 2006 our newown a state-of-the-art Aircraft Maintenance Center in Confins, in the State of Minas Gerais. The certification authorizes maintenance services for Boeing 737-300s and Boeing Next Generation 737-700 and 800s. We use the new facility for airframe heavy checks, line maintenance, aircraft painting and aircraft interior refurbishment. See also “Item 4—Business Overview—Aircraft” and note 6 to our financial statements as of and for the year ended December 31, 2008.

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ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     You should read this discussion in conjunction with our consolidated financial statements and the related notes and the other financial information included elsewhere in this annual report.

A. Operating Results

Change in Accounting from U.S. GAAP to IFRS

     We are oneadopted IFRS for the consolidated financial statements as of the most profitable low-cost airlines in the world and had net revenues of R$3.8 billion and net income of R$569.1 million for the year ended December 31, 2006. We are a Brazilian low-fare, low-cost airline providing frequent service on routes connecting all Brazilian major cities2008. Our financial statements were previously prepared and Brazil and other South American destinations. We are the second largest commercial airlinepresented in Brazil and focus on increasing the growth and profitsaccordance with U.S. GAAP. Pursuant to IFRS 1 “First-time Adoption of our business by popularizing air travel and stimulating and meeting demand for safe, affordable, convenient air travelInternational Reporting Standards”, we have used consistent accounting policies for both businessthe current period and leisure passengers.the comparative period, the year ended December 31, 2007. These accounting policies comply with each IFRS effective at December 31, 2008.

36     The following describes the most significant differences between our financial statements prepared in accordance with U.S. GAAP and IFRS:

Accounting for the return of aircraft– Under our operating leases, we are obliged to return the aircraft in a specified condition at the end of the lease term. The stipulations require the aircraft to be returned with a minimum number of engine cycles and/or hours remaining until the next required maintenance. Under IFRS, a provision for the cost to restore aircraft leased under operating leases to these specified return conditions is recorded once the aircraft no longer meets these conditions. We therefore record expenses during the lease term for the estimated maintenance costs that would be needed in order to return the aircraft in the appropriate condition upon its return to the lessor. As the condition of aircraft is depleted through operation and then subsequently restored by performing maintenance several times during the lease term, we recognize lease return provisions during each maintenance cycle from the inception of the lease to its terminati on. Under U.S. GAAP, these maintenance costs were only recorded as incurred or provided for when the termination of the lease was probable and the costs estimable, usually in the last maintenance cycle of the aircraft prior to the end of the lease term. 
Accounting for major maintenance activities– Under IFRS, we capitalize the cost of major overhauls on our aircraft leased under finance leases. Such costs are depreciated over their estimated useful life, usually to the date of the next overhaul. Under U.S. GAAP, we expensed the costs of major maintenance activities when these costs were incurred. This difference in accounting policy results in the capitalization and depreciation of maintenance costs under IFRS whereas under U.S. GAAP, such costs were expensed as incurred. 
Accounting for leases– Our adoption of IFRS resulted in changes to the measurement of aircraft asset and finance lease obligations when compared to U.S. GAAP. To determine the lease classification under IFRS, we used lease implicit interest rates to quantify the capitalization of the lease (the finance-leased aircraft and obligation is recorded as the lower of the fair value of the aircraft or present value of the future minimal rental payments as of the inception date of the lease). Additionally, the adoption of IFRS resulted in a net decrease of leases classified as financing that would have been capitalized as such under U.S. GAAP. These differences result in lower expenses recognized for depreciation and interest cost when compared to U.S. GAAP. 

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A. Operating Results

        For a reconciliation of profit (loss) and shareholders’ equity of our audited financial statements in U.S. GAAP to our audited financial statements in IFRS at January 1, 2007 and December 31, 2007 and for the year then ended, see note 23 under the caption "Reconciliation between USGAAP and IFRS as of and for the year ended December 31, 2007" to our financial statements included in this annual report. 

Revenues

     We derive our revenues primarily from transporting passengers on our aircraft. 94.2%In 2008, 91.9% of our revenues arewere derived from passenger fares, and the remaining 5.8%8.1% of our revenues arewere derived from ancillary revenues principally from our cargo business, which utilizes available cargo space on our passenger flights. Nearly all of our passenger revenue and cargo revenue is denominated inreais. Passenger revenue is recognized either when transportation is provided or when the ticket expires unused. Cargo revenue is recognized when transportation is provided. Other revenue consists primarily of our frequent flyer program (Smiles), charter services, ticket change fees, excess baggage charges, and interest on installment sales.sales and other incidental services. Passenger revenues are based upon our capacity, load factor and yield. Our capacity is measured in terms of available seat kilometers, which represents the number of seats we make available on our aircraft multiplied by the number of kilometers the seats are flown. Load factor, or the percentage of our capacity that is actually used by paying customers, is calculated by dividing revenue passenger kilometers by available seat kilometers. Yield is the average amount that one passenger pays to fly one kilometer.

The following table sets forthdemonstrates our capacity, load factormain financial and yield for the periods indicated.

  Year Ended December 31, 
  
  2004  2005  2006 
    
Capacity (in available seat kilometers, in millions) 8,844  13,246  20,261 
Revenue per available seat kilometers (in R$ cents) 22.2  20.2  18.8 
Load factor  71.1%  73.5%  73.1% 
Yield (in R$ cents) R$29.8  R$26.1  R$24.2 
Growth in passenger revenues per available seat kilometer  19.2%  (9.6)%  (8.1)% 

     We have increased our revenues by increasing our capacity (in terms of fleet size and departures) and load factor. We believe that our careful focus on serving specific segments of the domestic air travel market, the value that we offer our customers and our low fares distinguish us from other airlines and enable us to continue increasing our capacity to take advantage of strong, untapped demand for low-cost, low-fare services.

     We are optimizing our revenues per available seat kilometer due to strong demand for our services, quick aircraft turnaround times, our efficient route network and our modern fleet, our high aircraft utilization rate and effective revenue management strategies that balance our fares and load factors. In 2006, our revenue per available seat kilometer decreased by 6.9% from R$20.2 centsoperating performance indicators in 2005 to R$18.8 cents mainly due to a decreaseIFRS in yield of 7.3% from R$26.1 cents in 2005 to R$24.2 cents. Our yield decreased mainly due to a 15.2% increase in stage length. Our load factors decreased by 0.4 percentage points from 73.5% in 2005 to 73.1% in 2006.2008.

     The ANAC and the aviation authorities of the other countries in which we operate, may influence our ability to generate revenues. In Brazil, the ANAC approves the concession of slots, entry of new companies, launch of new routes, increases in route frequencies and lease or acquisition of new aircraft. Our ability to grow and to increase our revenues is dependent on the receipt of approvals for new routes, increased frequencies and additional aircraft from the ANAC.

  Year Ended 
  December 31, 
  
  2007  2008 
   
Financial and Operating Data (unaudited):     
Load-factor  66.0%  61.6% 
Break-even load-factor  65.9%  62.5% 
Aircraft utilization (block hours per day) 13.8  12.1 
Yield per passenger kilometer (cents) 20.1  23.3 
Passenger revenue per available seat kilometer (cents) 13.3  14.3 
Operating revenue per available seat kilometer (cents) 14.4  15.6 
Number of departures  237,287  268,540 
Operating aircraft  107  106 

     Our revenues are net of certain taxes, including state-value added taxes,Imposto sobre Circulação de Mercadorias e Serviços, or ICMS; federal social contribution taxes, includingPrograma de Integração Social,, or PIS,PIS; and theContribuição Social para o Financiamento da Seguridade Social, or COFINS. ICMS does not apply to passenger revenues. The average rate of ICMS on cargo revenues varies by state from 4% to 12%. As a general rule, PIS and COFINS are imposed at rates of 1.65% and 7.6%, respectively, of total revenues.

     Generally, the revenues from and profitability of our flights reach their highest levels during the January (summer) and July summer and winter(winter) vacation periods and in the final two weeks of December during the Christmas holiday season. The week during which the annual Carnival celebrations take place in Brazil is generally accompanied by a decrease in load factors. Given our high proportion of fixed costs, this seasonality is likely to cause our results of operations to vary from quarter to quarter. We generate most of our revenue from ticket sales through our website, and we are one of the largest and leading e-commerce companies in Brazil in terms of net sales through the internet.Internet.

     The ANAC and the aviation authorities of the other countries in which we operate may influence our ability to generate revenues. In Brazil, the ANAC approves the concession of slots, entry of new companies, launch of new routes, increases in route frequencies and lease or acquisition of new aircraft. Our ability to grow and to increase our revenues is dependent on the receipt of approvals for new routes, increased frequencies and additional aircraft from the ANAC.

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Operating Expenses

     We haveseek to lower our operating expenses than other airlines because we operateby operating a simplifiedstandardized fleet with a single-class of service, havehaving one of the newest fleets in the industry, utilizeutilizing our aircraft efficiently, useusing and encourageencouraging low-cost ticket sales and distribution processes.

     The main components of operating expenses include those related to aircraft fuel, aircraft rent, aircraft maintenance, sales and marketing, and salaries, wages and benefits provided to employees, including provisions for our profit sharing plan.

     Our aircraft fuel expenses are higher than those of low-cost airlines in the United States and Europe because therethe Brazilian infrastructure to produce, transport and store fuel is only one significant supplierexpensive and underdeveloped, especially in the north and northeast regions of jet fuel in Brazil andthe country. In addition, taxes applicable to the sale of jet fuel are very high and are passed along to us. Our aircraft fuel expenses are variable and fluctuate based on global oil prices. From January 1, 2001Since global oil prices are U.S. dollar-based, our aircraft fuel costs are also linked to December 31, 2006,fluctuations in the exchange rate of the real versus the U.S. dollar. In 2008, fuel expenses represented 40.5% of our total operating expenses, as compared to 38.3% in 2007. In 2007 and 2008, the price of West Texas Intermediate crude oil, a benchmark widely used for crude oil prices that is measured in barrels and quoted in U.S. dollars, increased by 128% fromvaried significantly, reaching an all-time high of US$26.80 145 in March, 2008 and decreasing to US$ 44.60 per barrel to US$61.05 per barrel. Since global oil prices are U.S. dollar-based, our aircraft fuel costs are also linked to fluctuations inat the exchange rateend of therealversus the U.S. dollar.2008. We currently enter into short-term arrangements to hedge against increases in oil prices and foreign exchange fluctuations. We believe that we have an advantage compared to industry peers in Brazil in aircraft fuel expenses because we mainly use Boeing 737 NewNext Generation aircraft that are more fuel efficient than other aircraft in the industry .industry. We expect these advantages to improve in the future due to the incorporation intoincrease of our fleet of fuel efficient new Boeing 737-800 Next Generation aircraft.

     Our aircraft rent expenses are in U.S. dollars and have increased in line with the expansion of our operations. We also use short-term arrangements to hedge against exchange rate exposure related to our lease payment obligations. In addition, leases for four16 of our aircraft are subject to floating-rate payment obligations that are based on fluctuations in international interest rates. We currently have hedging policies in place to manage our interest rate exposure.

     Our maintenance, material and repair expenses consist of light (line) and scheduled heavy (structural) maintenance of our aircraft. MaintenanceLine maintenance and repair expenses including overhaul of aircraft components, are charged to operating expenses as incurred. OurStructural maintenance for aircraft leased under finance leases is capitalized and amortized over the life of the maintenance cycle. Structural maintenance for aircraft leased under operating leases is accrued at such time as the status of the maintenance does not meet the return condition stipulated in the lease. Once the maintenance is performed, accrual does not commence again until the maintenance status is reduced below the return condition. Since the average age of our operating fleet was 6.8 years at December 31, 2008 and most of the parts on our aircraft are under multi-year warranties, our aircraft have required a low level of maintenance and therefore we have incurred low maintenance expenses, because the average age of the aircraft in our fleet at December 31, 2006 was less than 8 years and most of the parts on our aircraft are under multi-year warranties.expenses. Our aircraft are covered by warranties that have an average term of three to five years. The warranties on the aircraft we received in 20062008 under our firm purchase order with Boeing will start expiring in 2011.2013. Based on scheduled maintenance events, we experienced an increase in maintenance expenses in 2006.2008. We expect our maintenance expenses to further increase due to the expiration of certain of our multi-year warrantiesand an increase in scheduled maintenance events in the near future. Thus, with regard to the accounting for aircraft maintenance and repair costs, our current and past results of operations may not be indicative of future results. In 2006, we completed our newOur Aircraft Maintenance Center in Confins, in the State of Minas Gerais. The certification ofGerais is certificated for the center authorizes maintenance services for Boeing 737-300s and Boeing Next Generation 737-700 and 800s. We currently use the new facility for airframe heavy checks, line maintenance, aircraft painting and aircraft interior refurbishment. We believe that we have an advantage compared to industry peers in maintenance, materials and repairs expenses due to the use of Boeing 737 Next Generation aircraft that allows for phased maintenance as described in this annual report, and due to the internalization of our maintenance. We believe that this advantage will remain in the future.

     Our sales and marketing expenses include commissions paid to travel agents, fees paid for our own and third-party reservationsreservation systems and agents, fees paid to credit card companies and advertising. Our distribution costs are lower than those of other airlines in Brazil on a per available seat kilometer basis because a higher proportion of our customers purchase tickets from us directly through our website instead of through traditional distribution channels, such as ticket offices, and we have comparatively fewer sales made through higher cost global distribution systems. We generated 76.4%, 81.3%80% and 81.6%79% of our consolidated passenger revenues through our website in the years ended December 31, 2004, 20052007 and 2006,2008, respectively, including internetInternet sales through travel agents. For these reasons, we believe that we have an advantage compared to industry peers in sales and marketing expenses and expect this advantage will remain in the future.

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     Salaries, wages and benefits paid to our employees increase as the number of our employees grows and include annual cost of living adjustments and provisions made for our profit sharing plan. We have no seniority-related increases in these costs due to our salary structure. We believe that we have an advantage compared to industry peers in salaries, wages and benefits expenses due to generally lower labor costs in Brazil as compared to other countries and due to higher work productivity of our employees as compared to airlines in the Brazilian market.countries. We believe that these advantages will continue to exist in the future.

     Aircraft and traffic servicing expenses include ground handling and the cost of airport facilities. Other operating expenses consist of general and administrative expenses, purchased services, equipment rentals, passenger refreshments, communication costs, supplies and professional fees.

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     During the period between the beginning of 2001 and December 31, 2006, we reduced our     Our break-even load factor, which is the passenger load factor that will result in operating revenues being equal to operating expenses, decreased from 61.5%66.0% to 59.6% .62.5% between 2007 and 2008. This decrease has been primarily due to increasesan increase in yield, andwhich resulted in an increase in revenues per available seat kilometer, due topartially offset by the decrease in utilization, which increased our effective revenue management system, combined with thecost per available seat kilometer, and spreading of fixed costs over a greater number of available seat kilometers.

Operating Efficiency and Growth

     We are the lowestkilometers which benefited also our cost provider of passenger air transportation in South America, and one of the lowest cost airlines in the world based on publiclyper available data. Our low costs have helped us to become the most profitable airline in South America and one of the most profitable airlines in the world, based on results of operations for the year ended December 31, 2006.seat kilometer.

     Set forth in the table below is information about key performance indicators for select leading low-cost carriers worldwide and other South American carriers.

  Operating  Net Income     
  Income(in  (Loss) (in     
  Millions of  Millions of  Operating  Net Income 
Company  US$) US$) Margin  Margin 
     
Low-cost carriers:         
Southwest Airlines(1) 935.0  499.0  10.3%  5.5% 
Ryanair(2) 642.6  534.1  22.9%  19.0% 
Gol(3) 328.1  266.2  18.4%  15.0% 
EasyJet(4) 220.6  176.2  7.3%  5.8% 
WestJet(5) 215.2  98.4  14.2%  6.5% 
Jet Blue Airways(6) 127.0  (1.0) 5.4%  0.0% 
Virgin Blue(7) 113.4  73.4  8.6%  5.6% 
Air Asia(8) 38.7  32.8  15.7%  13.3% 
South American carriers:         
Copa Airlines(8) 142.2  110.0  17.9%  13.9% 
LanChile(9) 297.7  239.9  9.9%  7.9% 
TAM(10) 476.7  223.7  14.6%  7.0% 
________________________________________
(1)U.S. GAAP figures for the fiscal year ended December 31, 2006
(2)U.S. GAAP figures for the 12 month period ended December 31, 2006. Based on a Euro/US Dollar exchange rate of 0.758 as of December 31, 2006.
(3)U.S. GAAP figures for the fiscal year ended December 31, 2006. Based on a Brazilian Real/US Dollar exchange rate of 2.138 as of December 31, 2006.
(4)UK GAAP figures for the twelve month period ended September 30, 2006. Based on a British Pound/ US Dollar exchange rate of 0.534 as of September 30, 2006.
(5)Canadian GAAP figures for the 12 month period ended December 31, 2006. Based on a Canadian Dollar/US Dollar exchange rate of 1.166 as of December 31, 2006
(6)Australian GAAP figures for the 12 month period ended March 31, 2006. Based on an Australian Dollar/US Dollar exchange rate of 1.396 as of March 31, 2006.
(7)Malaysian GAAP figures for the 12 month period ended September 30, 2006. Based on a Malaysian Ringgitt/ US Dollar exchange rate of 3.688 as of September 30, 2006.
(8)U.S. GAAP figures for the 12 month period ended September 30, 2006.
(9)Chilean GAAP figures in US Dollars, for the fiscal year ended December 31, 2006.
(10)U.S. GAAP figures for the twelve month period ended September 30, 2006. Based on a Brazilian Real/US Dollar exchange rate of 2.174 as of September 30, 2006.

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     The following table demonstrates the growth of our operations, on a quarterly basis, since we commenced our operations in January 2001:

  Cities  Number of  Operating 
At Period Ended  Served  Departures  Aircraft 
    
March 31, 2001   3,771  
June 30, 2001  10  5,493  
September 30, 2001  11  6,540  
December 31, 2001  16  8,923  10 
March 31, 2002  16  9,791  15 
June 30, 2002  20  13,040  15 
September 30, 2002  20  13,880  16 
December 31, 2002  21  15,954  19 
March 31, 2003  24  17,349  21 
June 30, 2003  25  18,298  21 
September 30, 2003  25  19,685  22 
December 31, 2003  28  20,107  22 
March 31, 2004  28  20,825  22 
June 30, 2004  28  20,838  22 
September 30, 2004  30  22,299  23 
December 31, 2004  36  23,746  27 
March 31, 2005  37  25,513  30 
June 30, 2005  41  28,750  34 
September 30, 2005  42  32,237  38 
December 31, 2005  45  34,192  42 
March 31, 2006  49  36,516  45 
June 30, 2006  50  39,043  50 
September 30, 2006  53  42,514  54 
December 31, 2006  55  46,623  65 

Brazilian Economic Environment

     As a company with substantially all of its operations currently in Brazil, we are affected by general economic conditions in the country. While our growth since 2001 has been primarily driven by our expansion into new markets and increased flight frequencies, we have also been affected by macroeconomic conditions in Brazil. Our growth outpaced that of our primary competitors because of strong demand for our lower fare service. In 2006,2008, we grew 52.6%11.6% in terms of revenue passenger kilometers. We believe the rate of growth in Brazil is important in determining our future growth capacity and our results of operations.

     Our results of operations are affected by currency fluctuations. Almost allThe vast majority of our revenues are denominated inreais(with (with a small portion of our revenues from our international flights being denominated in other currencies), but a significant part of our operating expenses are either payable in or affected by the U.S. dollar, such as our aircraft operating lease payments, related maintenance reserves and deposits, and jet fuel expenses. Based on a statistical analysis of our first sixseven years of operations, we believe that our revenues are highly correlated with thereal/U.S. dollar exchange rate and jet fuel prices becauserealfluctuations and increases in jet fuel prices are generally incorporated into the fare structures of Brazilian airlines. 49%In 2008, 57% of our operating expenses (including aircraft fuel) are denominated in, or linked to, U.S. dollars and therefore vary with thereal/U.S. dollar exchange rate. We believe that our foreign exchange and fuel hedging programs protect us against short-term swings in thereal/U.S. dollar exchange rate and jet fuel prices. Overall, we believe that the combination of our revenue stream, with its correlation to movements in thereal/U.S. dollar exchange rate, and short-term hedges on the U.S. dollar-linked portion of our expenses, will mitigate the adverse effect on our operating expenses of abrupt movements in thereal/ U.S. dollar exchange rate.rate

     Inflation has also had, and may continue to have, effects on our financial condition and results of operations. 51%In 2008, 43% of our operating expenses (excluding aircraft fuel) arewere denominated inreais, and the suppliers and service providers of these expense items generally attempt to increase their prices to reflect Brazilian inflation.

     Since presidential elections were held in Brazil in 2002, the Labor Party government administration has largely continued the macroeconomic policies of the previous administration, focusing on fiscal responsibility. The country went through a period of market turmoil in the second half of 2002 as investors feared that, if elected, the Labor Party led by Luiz Inácio Lula da Silva would change the economic policies of the previous administration. Therealfluctuated significantly as a result, depreciating by 52.3% during the year and closing at R$3.5333 to US$1.00 on December 31, 2002. Inflation for the year, as measured by the IGP-M, was 25.3% and real GDP grew by 1.9% .

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     During 2003, investor confidence rebounded asIn the second half of 2008, the Brazilian economy began to reflect the effects of the global financial markets and economic crisis, with slower GDP growth, a resultweakeningreal, increasing unemployment rates, decreasing liquidity and thereal appreciated by 18.2% againstreduced consumer spending. This led to a slow down in the U.S. dollarair transportation industry, which we expect to R$2.8892 per US$1.00 at December 31, 2003. Inflationremain in 2003, as measured by the IGP-M, decreased to 8.7% . Brazil’s real gross domestic product, or GDP, increased 0.5% to US$507 billion during 2003, despite the very high interest rates that prevailed at the beginning of 2003 to combat inflationary pressures, which also acted to constrain economic growth.

     During 2004, Brazil’s GDP increased 4.9% to US$604 billion and the country achieved a trade surplus of US$33.7 billion, its highest trade surplus ever. Inflation in 2004, as measured by the IGP-M, was 12.4% and 7.6% as measured by the IPCA. Interest rates continued to be high, with the CDI rate at the end of 2004 equaling an annualized rate of 17.8% . By the end of 2004, therealappreciated by 8.1% against the U.S. dollar, reflecting continued investor confidence. On December 31, 2004, the U.S. dollar/realexchange rate was R$2.6544 per US$1.00.

     During 2005, Brazil’s GDP increased 2.3% and the country achieved a trade surplus of US$44.8 billion, its highest trade surplus ever. Inflation in 2005, as measured by the IGP-M, was 1.2% and 5.7% as measured by the IPCA. Interest rates continued to be high, with the CDI rate at the end of 2005 equaling an annualized rate of 18.0% . In 2005, therealappreciated by 11.8% against the U.S. dollar, reflecting continued investor confidence. On December 31, 2005, the U.S. dollar/real exchange rate was R$2.3407 per US$1.00.

     During 2006, Brazil’s GDP increased 2.9% and the country achieved a trade surplus of US$46.1 billion, its highest trade surplus ever. Inflation in 2006, as measured by the IGP-M, was 3.8% and 3.1% as measured by the IPCA. The Brazilian Central Bank’s year-end inflation target for each of 2007 and 2008 is 4.5%, based on the IPCA index, within a band of 2 percentage points. Interest rates continued to be high, with the CDI rate at the end of 2006 equaling an annualized rate of 13.2% . In 2006, therealappreciated by 8.7% against the U.S. dollar, reflecting continued investor confidence. On December 31, 2006, the U.S. dollar/realexchange rate was R$2.1380 per US$1.00. In November 2006, Luiz Inácio Lula da Silva was reelected as president of Brazil for a second term of four years.short term.

     The following table shows data for real GDP growth, inflation, interest rates, the U.S. dollar exchange rate and crude oil prices for and as atof the periods indicated.

    December 31,   
  
  2004  2005  2006 
    
Real growth in gross domestic product  4.9%  2.3%  2.9% 
Inflation (IGP-M)(1) 12.4%  1.2%  3.8% 
Inflation (IPCA)(2) 7.6%  5.7%  3.1% 
CDI rate(3) 17.8%  18.0%  13.2% 
LIBOR rate(4) 2.6%  4.5%  5.4% 
Depreciation (appreciation) of therealvs. U.S. dollar  (8.1)%  (11.8)%  (8.7)% 
Period-end exchange rate—US$1.00  R$2.6544  R$2.3407  R$2.1380 
Average exchange rate—US$1.00(5) R$2.9171  R$2.4125  R$2.1499 
Increase (decrease) in West Texas intermediate crude (per barrel) 33.6%  40.5%  0.02% 
West Texas intermediate crude (per barrel) US$43.45  US$61.04  US$61.05 
West Texas intermediate crude (average per barrel during period) US$41.51  US$56.59  US$66.09 
  December 31, 
  
  2006  2007  2008 
    
Real growth in gross domestic product  2.9%  5.4%  5.1% 
Inflation (IGP-M)(1) 3.8%  7.7%  9.8% 
Inflation (IPCA)(2) 3.1%  4.5%  5.9% 
CDI rate(3) 13.2%  11.1%  13.5% 
LIBOR rate(4) 5.4%  4.7%  1.4% 
Depreciation (appreciation) of therealvs. U.S. dollar  (9.5)%  (20.7)%  32.2% 
Period-end exchange rate—US$1.00  R$2.1380  R$1.7713  R$ 2.337 
Average exchange rate—US$1.00(5) R$2.1499  R$1.9483  R$1.8364 
West Texas intermediate crude (per barrel) US$61.05  US$96.00  US$ 44.6 
Year end Increase (decrease) in West Texas intermediate crude (per barrel) 0.02%  57.2%  (53.5)% 
West Texas Intermediate crude (average per barrel during period) US$66.09  US$72.23  US$99.92 
Average Increase (decrease) in West Texas Intermediate crude (per barrel) 16.8%  9.3%  (38.3)% 
____________________

Sources: Fundação Getúlio Vargas, the Central Bank and Bloomberg
Sources: Fundação Getúlio Vargas, the Central Bank and Bloomberg 
(1) Inflation (IGP-M) is the general market price index measured by the Fundação Getúlio VargasVargas. 
(2) Inflation (IPCA) is a broad consumer price index measured by the Instituto Brasileiro de Geografia e Estatísticastica. 
(3) The CDI rate is average of inter-bank overnight rates in Brazil (accumulated for period-end month, annualized).
(4) Three-month U.S. dollar LIBOR rate as of the last date of the period. The LIBOR rate is the London  inter-bank offer rate, which is the rate applicable to the short-term international inter-bank marketmarket. 
(5) Represents the average of the exchange rates on the last day of each month during the periodperiod. 

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Critical Accounting Policies and Estimates

     The preparation of our consolidated financial statements in conformity with U.S. GAAPIFRS requires our management to adopt accounting policies and make estimates and judgments to develop amounts reported in our consolidated financial statements and related notes. We strive to maintain a process to review the application of our accounting policies and to evaluate the appropriateness of the estimates that are required to prepare our consolidated financial statements. We believe that our estimates and judgments are reasonable; however, actual results and the timing of recognition of such amounts could differ from those estimates. In addition, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

     Critical accounting policies and estimates are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different outcomes under different assumptions and conditions. The policies and estimates discussed below have been reviewed with our independent auditors. For a discussion of these and other accounting policies, see Note 2 to our consolidated financial statements.

     Revenue Recognition.Passenger revenue is recognized either when transportation is provided or when the ticket expires unused. Tickets sold but not yet used are recorded as air traffic liability. Air traffic liability primarily represents tickets sold for future travel dates and estimated refunds and exchanges of tickets sold for past travel dates. A small percentage of tickets (or partial tickets) expire unused. We estimate the amount of future refunds and exchanges, net of forfeitures, for all unused tickets once the flight date has passed. These estimates are based on historical data and experience. Estimated future refunds and exchanges included in the air traffic liability account are constantly evaluated based on actual refund and exchange activity to validate the accuracy of our revenue recognition method with respect to forfeited tickets. Revenue from the shipment of cargo is recognized when transportation is provided. Other revenue includes charter services, ticket change fees and other incidental services, and is recognized when the service is performed. Our revenues are net of certain taxes, including state value-added and other state and federal taxes that are collected from customers and transferred to the appropriate government entities. Such taxes in 2006, 2005 and 2004 were R$149.8 million, R$109.0 million, and R$93.8 million, respectively.

Accounting for Long-lived Assets.Assets. The following table shows a breakdown of Company’s long-lived asset groups along with information about estimated useful lives and residual values of these groups:

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  Estimated Useful Life  Estimated Residual 
Life Value 
   
Aircraft and engines  20 years  20% 
Ground property and equipment  5 to 10 years  0% 

     In estimating the lives and expected residual values of its aircraft, the Company primarily has relied upon actual experience with the same or similar aircraft types and recommendations from Boeing, the manufacturer of the Company’s aircraft. Aircraft estimated useful lives are based on the number of “cycles” flown (one-take-off and landing). The Company has made a conversion of cycles into years based on both its historical and anticipated future utilization of the aircraft. Subsequent revisions to these estimates, which can be significant, could be caused by changes to the Company’s maintenance program, changes in utilization of the aircraft (actual cycles during a given period of time), governmental regulations related to aging aircraft, and changing market prices of new and used aircraft of the same or similar types. The Company evaluates its estimates and assumptions each reporting period and, when warranted, adjusts these estimates and assumptions. These adjustments are accounted for on a prospective basis through depreciation and amortization expense, as required by GAAP, the Company does not expect its transition to a new, more efficient heavy maintenance program for 737-300 and 737-800 airframes in 2006 to have an impact on the estimated useful lives for those aircraft. See Note 2 to the Consolidated Financial Statements for more information on this change.IFRS.

     When appropriate, the Company evaluates its long-lived assets for impairment. Factors that would indicate potential impairment may include, but are not limited to, significant decreases in the market value of the long-lived asset(s), a significant change in the long-lived asset’s physical condition, and operating or cash flow losses associated with the use of the long-lived assets. While the airline industry as a whole has experienced many of these indicators, the Company has continued to operate all of its aircraft, generate positive cash flow, and produce profits. Consequently, theThe Company has not identified any impairments related to its existing aircraft fleet. The Company will continue to monitor its long-lived assets and the airline operating environment.

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     The Company believes it unlikely that materially different estimates for expected lives, expected residual values, and impairment evaluations would be made or reported based on other reasonable assumptions or conditions suggested by actual historical experience and other data available at the time estimates were made.

     Financial Derivative Instruments.Goodwill and Intangible Assets. We accountGoodwill is tested for financial derivative instruments utilizing Statementimpairment annually by comparing the carrying amount to the recoverable amount at the cash-generating unit level. Considerable judgment is necessary to evaluate the impact of Financial Accounting Standards No. 133 (SFAS 133), “Accounting for Derivative Instrumentsoperating and Hedging Activities”,macroeconomic changes to estimate future cash flows and to measure the recoverable amount. Assumptions in the Company’s impairment evaluations are consistent with internal projections and operating plans. Airport operating rights were acquired as amended. As part of the acquisition of VRG and were capitalized at fair value at that date and are not amortized. Those rights are considered to be indefinite due to several factors and considerations, including requirements for necessary permits to operate within Brazil and limited slot availability in the most important airports in terms of traffic volume. VRG tradenames were acquired as part of the VRG acquisition and were capitalized at fair value at that date. The tradenames are considered to have an indefinite useful life (and are not amortized) due to several factors and considerations, including the brand awareness and market position, customer recognition and loyalty and the continued use of the VARIG tradenames. The carrying values of the airport operating rights and tradenames are reviewed for impairment at each reporting date and are subject to impairment testing when events or changes in circumstances indicate that carrying values may not be recoverable. No impairment has been recorded to date. Costs related to the purchase or development of computer software that is separable from an item of related hardware is capitalized separately and amortized over a period not exceeding five years on a straight-line basis. The carrying value of these intangibles is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. The Company assesses at each balance sheet date whether a financial asset is impaired using discounted cash flow analyses, which considers the creditworthiness of the issuer of the security, as further described in Note 18 to our financial statements.

Derivative Financial Instruments. The Company accounts for derivative financial instruments in accordance with IAS 39. In executing the risk management program, we usemanagement uses a variety of financial instruments, including petroleum call options, petroleum collar structures, petroleum fixed-price swap agreements, and foreign currency forward contracts. We doThe Company does not hold or issue derivative financial instruments for trading purposes.

     As there is not a futures market for Brazilian jet fuel we usein Brazil, the Company uses international crude oil derivatives to hedge ourits exposure to increases in fuel prices.price. Historically, there ishas been a high correlation between international crude oil prices and Brazilian jet fuel prices, making crude oil derivatives effective at offsetting jet fuel prices to provide some short-term protection against a sharp increase in average fuel prices. We measure

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     The Company also uses derivative financial instruments such as forward currency contracts and interest swaps to hedge its foreign market risks and interest rate risks, respectively. Derivative financial instruments are remeasured at fair value at each reporting date. Derivatives are carried as financial assets when the effectiveness offair value is positive and as financial liabilities when the hedging instruments in offsetting changes to those prices, as required by SFAS 133.fair value is negative.

     Since the majority of ourthe Company’s derivative financial derivative instruments for fuel are not traded on a market exchange, we estimatethe Company estimates their fair values. The fair value of fuel derivative instruments, depending on the type of instrument, is determined by the use of present value methods or standard option value models with assumptions about commodity prices based on those observed in underlying markets. Also, since there is not a reliable forward market for jet fuel, wethe Company must estimate the future prices of jet fuel in order to measure the effectiveness of the hedging instruments in offsetting changes to those prices, as required by SFAS 133.IAS 39.

     OurThe fair value of forward currency contracts is the difference between the forward exchange rate and the contract rate. The forward exchange rate is referenced to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

     The Company designates certain of its derivative financial instruments for hedge accounting. These instruments are classified as cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment.

     At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

     The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while any ineffective portion is recognized immediately in profit or loss. Amounts classified in equity are transferred to profit or loss when the hedged transaction affects profit or loss. If the hedged item is the cost of a non-financial asset or non-financial liability, the amounts classified in equity are transferred to the initial carrying amount of the non-financial asset or liability. If the firm commitment is no longer expected to occur, amounts previously recognized in equity are transferred to profit or loss. If the hedging instrument expires, is terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in equity remain in equity until the firm commitment occurs. The Company’s outstanding derivative contracts are all designated as cash flow hedges for accounting purposes. While outstanding, these contracts are recorded at fair value on the balance sheet with the effective portion of the change in their fair value being recorded in other comprehensive income.equity. All changes in fair value that are considered to be effective, as defined, are recorded in “Accumulated other comprehensive income”equity until the underlying exchange exposure is realized and fuel is consumed. Changes in fair value that are not considered to be effective are recorded to “other gains and losses”in other income (expense), net in the income statement.statement of income. The Company measures the effectiveness of the hedging instruments in offsetting changes to the hedged item, as required by IAS 39. See Note 1218 for further information on SFAS 133IAS 39 and derivative financial derivative instruments.

     Stock options. The Company accountsDerivative instruments that are not designated for stock-based compensation under the fair value method in accordance with SFAS 123(R), “Share-Based Payment”, which superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees,” after December 2005. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employees stock options, to be recognized in the income statementhedge accounting treatment are classified as current or non-current or separated into a current and non-current portion based on their fair values.

     SFAS 123(R) permits companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under to modified prospective method, compensation cost is recognized inan assessment of the financial statements for new awardsfacts and to awards modified, repurchased, or cancelled aftercircumstances (i.e., the required affective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been renderedunderlying contracted cash flows). Derivative instruments that are outstandingdesignated as, and are effective hedging instruments, are classified consistent with the classification of the required effective date shallunderlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if a reliable allocation can be recognized as the requisite service is rendered on or after the required effective date. The Company has adopted SFAS 123(R) in the first quartermade.

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Table of 2006 using the modified prospective method. The impact of this change in accounting principle in 2006 was to increase stock-based employee compensation expense by R$792, resulting in total stock-based employee compensation expense in the year of R$3,239.Contents

     Aircraft maintenance and repair costs. Our aircraft lease agreements specifically provide that we, as lessee, are responsible for maintenance of the leased aircraft and engines, and we must meet specified airframe and engine return conditions upon lease expiration. Under certain of our existing lease agreements, we pay maintenance deposits to aircraft and engine lessors that are to be applied to future maintenance events. These deposits are calculated based on a performance measure, such as flight hours or cycles, and are available for reimbursement to us upon the completion of the maintenance of the leased aircraft. If there are sufficient funds on deposit to reimburse us for our maintenance costs, such funds are returned to us. The maintenance deposits paid under our lease agreements do not transfer either the obligation to maintain the aircraft or the cost risk associated with the maintenance activities to the aircraft lessor. In addition, we maintain the right to select any third-party maintenance provider or to perform such services in-house. Therefore, we record these amounts as a deposit on our balance sheet and recognize maintenance expense when the underlying maintenance is performed, in accordance with our maintenance accounting policy. The amount of aircraft and engine maintenance deposits expected to be utilized in the next twelve months is classified in Current Assets. Certain of our lease agreements provide that excess deposits at the end of the lease term are not refundable to us. Such excess could occur if the amounts ultimately expended for the maintenance events were less than the amounts on deposit. Any excess amounts held by the lessor or retained by the lessor upon the expiration of the lease, which are not expected to be significant, would be recognized as additional aircraft rental expense at the time it is no longer probable that such amounts will be used for maintenance for which they were deposited.

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     In determining whether it is probable maintenance deposits will be used to fund the cost of maintenance events, the Company conducts the following analysis at the inception of the lease, on an annual and quarterly basis and whenever events or changes in circumstances indicate that amounts may not be recoverable, to evaluate potential impairment of this balance:

     At the inception of the leases, our initial estimates of the maintenance expenses are equal to or in excess of the amounts required to be deposited. This demonstrates it is probable the amounts will be utilized for the maintenance for which they are to be deposited and the likelihood of an impairment of the balance is remote. Additionally, some of our lessors are agreeing for usthat to replace the deposits with letters of credit and use the deposited funds to settle other amounts owed under the leases. Upon this amendment of the lease, we reevaluate the appropriateness of the lease accounting and reclassify the affected deposits as Other Deposits. We intend to pursue additional lease amendments. Many of our new aircraft leases do not require maintenance deposits.

     Based on the foregoing analysis, management believes that the amounts reflected on the consolidated balance sheet as Aircraft and Engine Maintenance Deposits are probable of recovery. There has been no impairment of our maintenance deposits. A summary of activity in the Aircraft and Engine Maintenance Deposits is as follows:

   
 2006  2005  2004  2007  2008 
     
            (in thousands ofreais) (in thousands ofreais)
Beginning of year  386,193  266,532  162,295  263,647  322,354 
Amounts paid in  118,308  119,661  104,237  113,942  142,282 
Reimbursement of expense incurred  (24,739)   (47,437) (71,141)
Reclassified to Other Deposits  (216,115)     (7,798) (1,506)
     
End of year  263,647  386,193  266,532  322,354  391,989 
  

     The estimated maintenance reserve deposits to be paid to the lessors and the estimated amounts to be charged to maintenance expense that will be reimbursed from the deposits, based on currently scheduled maintenance are set forth in the following table:

  2007  2008  2009  2010  2011 
      
  (in thousands ofreais)
   Estimated Reserve Deposits   69,443   66,792   60,287   28,808  13,763 
   Estimated Reserve Reimbursements  64,499   95,184   28,891   18,226  930 

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  2009 2010 2011 2012 2013
      
    (in thousands ofreais)  
Estimated Reserve Deposits  40,099  40,099  18,505  18,505  18,505
Estimated Reserve Reimbursements  50,773  37,399  26,159  26,654  26,654

     These estimates are subject to significant variation, including, among others, the actual cost to complete the maintenance, timing of the maintenance, aircraft cycles impacting the timing, and the imposition of potential new maintenance requirements.

     With respect to non-refundable aircraft and engine maintenance deposits, an alternative method of accounting exists, under which such deposit payments would be accounted for as additional rental and recorded as rental expense. The choice of our method of accounting for non-refundable maintenance deposit payments, as opposed to expensing the payments when made, results in recognizing less expenses in the earlier years of the leases than in the later years (potentially substantially so) even though the use of and benefit from the aircraft does not vary correspondingly over the term of the lease. We have chosen our current policy because under the terms of our leases the maintenance deposits are required to provide assurance to the lessors that the maintenance, which is our responsibility, will be performed, and are not additional rental. We have concluded our policy is preferable.

44Revenue Recognition and Mileage Program. Passenger revenue is recognized either when transportation is provided or when the ticket expires unused. Tickets sold but not yet used are recorded as advance ticket sales.Advance ticket sales represents deferred revenue for tickets sold for future travel dates and estimated refunds and exchanges of tickets sold for past travel dates. A small percentage of tickets (or partial tickets) expire unused. The Company estimates the amount of future refunds and exchanges, net of forfeitures, for all unused tickets once the flight date has passed. These estimates are based on historical data and experience. Estimated future refunds and exchanges included in the air traffic liability account are compared with actual refund and exchange activities every month to monitor the reasonableness of the estimated refunds and exchanges.

     Since the acquisition of VRG, the Company operates a frequent flyer program, Smiles (“Mileage Program”) that provides travel and other awards to members based on accumulated mileage credits. The obligations assumed under the Mileage Program were valued at the acquisition date at estimated fair value that represents the estimated price the Company would pay to a third party to assume the obligation for miles expected to be redeemed under the Mileage Program. Outstanding miles earned by flying VRG or distributed by its non-airline partners (such as banks, credit card issuers and e-commerce companies) were revalued using a weighted-average per-mile equivalent ticket value, taking into account such factors as differing classes of service and domestic and international ticket itineraries, which can be reflected in awards chosen by Mileage Program members. The probability of air miles being converted into award tickets is estimated using a statistical method.

     The sale of passenger tickets by the Company includes air transportation and mileage credits. The Company’s sales of miles to business partners include marketing and mileage credits. The Company uses the deferred revenue model to account for its obligation for miles to be redeemed based upon the equivalent ticket value of similar fares. The Company accounts for all miles earned and sold as separate deliverables. The Company defers the portion of the sales proceeds that represents the estimated fair value of the award and recognizes that amount in cargo and other revenue when the award is provided. The excess of sale proceeds over the fair value of the award (which is mileage program marketing revenue) is recognized in cargo and other revenue, as applicable.

Results of Operations

Year 2008 Compared to Year 2007

     Our results of operations in 2008 were affected by the following key drivers:

Macro-economic conditions: Record-high fuel prices in the first half of 2008 and a strong devaluation of thereal against the U.S. dollar in the second half of 2008 have negatively affected our results of operations in 2008. Average crude oil WTI was up 38.3% year-over-year, from US$72.23 per barrel in 2007 against US$99.92 per barrel in 2008. In March 2008, crude oil WTI peaked at a historical record of US$145.29 per barrel. In the context of the global financial markets and credit crisis oil prices sharply decreased in the fourth quarter of 2008, with crude oil WTI closing in 2008 at US$44.60 per barrel. While the average exchange rate of the real against the U.S. dollar year over year decreased 5.6% from R$ 1.95 per US$1.00 in 2007 to R$1.84 per US$1.00 in 2008, the real depreciated 31.9% in absolute terms in the second half of 2008, from an all time high of R$1.56 per US$1.00 in July, 2008 to R$2.34 at year end 2008.

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ResultsVRG acquisition: In April 2007, we acquired VRG as part of Operationsour strategy to strengthen our market position with VRG’s route rights, airport operating rights and the largest passenger loyalty program in South America. The acquisition was approved by the ANAC on April 3, 2007 and by the Brazilian antitrust authority CADE on June 25, 2008. Until the CADE approval and the subsequent corporate restructuring, we had to operate two fully separate airlines until September 30, 2008, which resulted in lower overall load factors, an overlap in flight networks, increased operating and overhead costs and therefore lower efficiency for the year. In additon, the operational and technological integration of VRG caused substantial costs in 2008. The launch and cancellation of our long-haul operations to European destinations, a business we opportunistically entered into at the end of 2007, did not prove successful and resulted in lower than expected revenues and higher than expected operating and administrative costs. Meanwhile, we were not able to return or sublease all of the seven Boeing 767 wide-body aircraft, all of which we stopped operating during the second half of 2008. Our corporate restructuring took place in September 2008, which allowed us, commencing in the last quarter of 2008, to consolidate our flight network, standardize our aircraft maintenance and optimize employee allocation by standardizing job positions, responsibilities and salaries. We were, as a consequence, able to achieve operating income of R$53.9 million for the last quarter of 2008.

     Low fleet utilization and higher fares: Due to the above factors, our results of operations in 2008 were atypical, with a 32.2% increase in average fares and a reduction in block hours from 13.8 in 2007 to 12.1 in 2008. The cancellation of our long-haul operations and the increase in the minimum turnaround time for our aircraft led to the 1.7 block hours reduction in our aircraft utilization and a reduction from nine flight legs per day in 2007 to seven flight legs per day in 2008. On a cost per available seat kilometer basis, this effect was partially offset by our 19.7% increase in available seat kilometers in 2008. Increased fuel expenses led us to increase average fares by 32.3%, which increased our yields and revenues per available seat kilometers.

     We present in the following table sets forth certain componentsinformation regarding our results of our income for the years ended December 31, 2006, 2005operations in IFRS in 2008 and 2004.2007.

   Year Ended December 31,    Year Ended December 31, 
  
 2004  2005  2006  2006  2007  2008 
      
            (In thousands) (in R$, except where indicated)
 (in thousands)
Income Statement Data:     
Net operating revenues:             
Passenger  R$1,875,475  R$2,539,016  R$3,580,919  US$1,674,892  4,566,691  5,890,104 
Cargo and other  85,411  130,074  221,098  103,413  374,293  516,089 
      
Total net operating revenues  1,960,886  2,669,090  3,802,017  1,778,305  4,940,984  6,406,193 
Operating expenses:             
Salaries, wages and benefits  183,037  260,183  413,977  193,628  (799,344) (983,783)
Aircraft fuel  459,192  808,268  1,227,001  573,901  (1,898,840) (2,630,834)
Aircraft rent  195,504  240,876  292,548  136,833  (525,785) (645,089)
Sales and marketing  261,756  335,722  414,597  193,918  (367,866) (588,735)
Landing fees  57,393  92,404  157,695  73,758  (273,655) (338,370)
Aircraft and traffic servicing  74,825  91,599  199,430  93,279  (348,732) (422,177)
Maintenance, materials and repairs  51,796  55,373  146,505  68,524  (339,281) (388,030)
Depreciation  21,242  35,014  69,313  32,420  (62,548) (125,127)
Other operating expenses  79,840  128,300  179,494  83,954  (315,068) (372,696)
      
Total operating expenses  1,384,585  2,047,739  3,100,560  1,450,215  (4,931,119) (6,494,841)
Operating income  576,301  621,351  701,457  328,090 
Other expenses:         
Interest expense  (13,445) (19,383) (66,378) (31,047)
Financial income (expense), net  24,424  115,554  163,883  76,652 
      
Income before income taxes  587,280  717,522  798,962  373,695 
Income taxes  (202,570) (204,292) (229,825) (107,495)
    
Net income  R$384,710  R$513,230  R$569,137  US$266,200 
    
Earnings per share and ADS, basic(1) R$2.14  R$2.66  R$2.90  US$1.36 
Earnings per share and ADS, diluted(1  R$2.13  R$2.65  R$2.90  US$1.36 
Weighted average shares used in computing earnings per
share, basic (in thousands)(1)
 179,731  192,828  196,103  196,103 
Weighted average shares used in computing earnings per
share, diluted (in thousands)(1)
 180,557  193,604  196,210  196,210 
Earnings per ADS, basic(2) R$2.14  R$2.66  R$2.90  US$1.36 
Earnings (loss) per ADS, diluted(2) R$2.13  R$2.65  R$2.90  US$1.36 
Operating income (loss) 9,865  (88,648)

(1)     Our preferred shares are not entitled to any fixed dividend preferences, but are instead entitled to receive dividends per share in the same amount of dividends per share paid to holders of our common shares. However, our preferred shares are entitled to receive distributions prior to holders of the common shares. Consequently, our earnings (loss) per share are computed by dividing income by the weighted average number of all classes of shares outstanding during the year. Preferred shares are excluded during any     We incurred operating losses of R$88.6 million in 2008, compared to operating profit of R$9.9 million in 2007. Our operating margin in 2008 was a negative 1.4%, and break-even in 2007. We reported a net loss period.
(2)     Adjusted for the ADS ratio change in December 2005, which changed the ratio of ADS per preferred share from one ADS representing two preferred shares to one ADS representing one preferred share.

Year 2006 Compared to Year 2005

     Our net income for the year 2006 increased2008 of R$1,239.3 million compared to profit of R$569.1 million from R$513.2167.3 million for 2005, an increase of R$55.9 million. We had operating income of R$701.5 million, an increase of R$80.1 million over 2005, and our operating margin was 18.4%, a decrease of 4.8 percentage points from 2005. Income2007. Losses before income tax increased 11.4%were R$1.195.0 million in 2008 compared to income before income tax of R$799.0 million.200.9 million in 2007.

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     Net Operating Revenues.Net operating revenues increased 42.4%, or29.0% to R$1,132.96,406.2 million in 2008, due primarily to a 41%15.5% increase in passenger revenuesyield from R$20.14 cents in 2007 to 1,042.0 million. Increased passenger revenues resulted primarily from a 52.6%R$23.27 cents in 2008. The increase in yield was mainly due to a 32.3% increase in average fares from R$198 in 2007 to R$262 in 2008, reflecting higher fuel prices during the first nine months of 2008. For the fourth quarter, yields remained at high levels due to better yield management under our new integrated route network that eliminated overlapping routes and schedules between the former Gol and Varig route networks. For the same reasons, our operating revenue per available seat kilometer increased by 8.3% from R$14.38 cents in 2007 to R$15.58 cents in 2008.

     Revenue passenger kilometers increased 11.6% from 22,670 million in 2007 to 25,308 million in 2008, while the number of enplaned passengers increased 8.3% from 23,689 in 2007 to 25,664 in 2008. Our revenue passenger kilometers whichgrowth in 2008 was due tomainly driven by a 36.1%13.2% increase in the number of departures a 2.0% increasefrom 237,287 in our average fares based on strong underlying demand for air transportation services and an2007 to 268,540 in 2008.

     A 20.1% increase in the average number of operating aircraft from 88.6 in service from 34.32007 to 50.1. The106.4 in 2008 resulted in a 19.7% increase in operating capacity, or available seat kilometers, from 34,349 million in 2007 to 41,107 million in 2008 and a 13.2% growth in departures from 237,287 in 2007 to 268,540 in 2008.

     Our load factor decreased 4.4 percentage points from 66.0 in 2007 to 61.6 in 2008, mainly due a 19.7% increase in available seat kilometers and the inefficiency resulting from our parallel operation of two airline companies with partly overlapping route networks until October 2008.

     Our ancillary revenues are derived from theGollog andVoe Fácil businesses as well as ticket change fees, excess baggage charges, charter service revenues and other incidental services, and are an increasingly important part of our revenue passenger kilometers was partially offset by a 7.6% decreasecomposition. Our ancillary and other revenues increased 37.9% from R$374.3 million in 2007 to R$516.1 million in 2008 representing 8.1% of our yieldtotal revenues, mainly due to a 15.2% increase in our average stage length, a competitive pricing environment and a 0.4 point decrease in our load factor from 73.5% in 2005 to 73.1% in 2006. Cargo and other revenue increased by R$91.0 million due primarily to increases inhigher revenues from our cargo service operations.transportation.

     Operating Expenses.Operating expenses per available seat kilometer increased 51.4%, or10.1% to R$1,052.8 million,15.80 in 2008, primarily due primarilyto (i) the costs related to the operationintegration of an average 16 additionalVRG in 2008, mostly related to non-recurring costs for closing of inter-continental long haul routes, aircraft during 2006, leading to an increase in flight departures during the periodreturn (Boeing 737-300 and an increase in the average number of liters of jet fuel consumedBoeing 767 aircraft) and an increase in cost per liter of jet fuel consumed, an increase in salaries expenses, aircraft and traffic servicingdowntime (Boeing 767 aircraft) expenses and maintenance, materialsthe implementation of a new integrated sales system and repair expenses. To a large extent, changes in operating expenses for airlines are driven by changes in capacity, or available seat kilometers. Operating capacity increased by 53.4% to 20,261 million available seat kilometers due to scheduled capacity increases and high aircraft utilization at 14.2 block hours per day.(ii) unfavorable macro-economic conditions. Operating expenses per available seat kilometer decreased 0.9%excluding fuel increased by 6.5% to R$15.3 cents9.40 in 2008.

     Our breakeven load factor decreased 3.4 percentage points to 62.5% in 2008 compared to 65.9% in 2007, primarily due to the use of additional larger, more fuel efficient and winglet equipped aircraft, a reductionan increase in aircraft rent and sales and marketing expenses and a 0.7% decreaseyield, which resulted in fuel expense on aan increase in revenue per available seat kilometer, basis andpartially offset by the decrease in utilization, which increased our cost per available seat kilometer. Our breakeven load factor was also impacted by the spreading of our fixed costs over a larger fleet, despite an increase in aircraft and traffic servicing expenses, increased depreciation and an increase in landing fees, each on agreater number of available seat kilometers which benefited our cost per available seat kilometer basis.kilometer.

     The breakdown of our operating expenses on a per available seat kilometer basis in IFRS for 20062008 compared to 20052007 is as follows (percent changes are based on unrounded numbers):follows.

     Percent  Percentage of  Year Ended December 31, 
 Year Ended December 31,  Change  Net Revenues  
    2007  2008 
        2005     2006             2006   
     (cost per available seat 
 (cost per available seat 
kilometer in R$ cents)
     kilometer in R$ cents)
Operating expenses:             
Salaries, wages and benefits  1.96  2.04  4.1%  10.9%  2.33  2.39 
Aircraft fuel  6.10  6.06  -0.7%  32.3%  5.53  6.40 
Aircraft rent  1.82  1.44  -20.9%  7.5%  1.53  1.57 
Sales and marketing  2.53  2.05  -19.0%  10.9%  1.07  1.43 
Landing fees  0.70  0.78  11.4%  4.1%  0.80  0.82 
Aircraft and traffic servicing  0.69  0.98  42.0%  5.2%  1.02  1.03 
Maintenance, materials and repairs  0.42  0.72  71.4%  3.9% 
Depreciation  0.26  0.34  30.8%  1.8% 
Maintenance materials and repairs  0.99  0.94 
Depreciation and amortization  0.18  0.30 
Other operating expenses  0.96  0.89  -7.3%  4.7%  0.92  0.91 
      
Total operating expenses  15.46  15.30  -0.9%  81.6%  14.36  15.80 
      
Cost per flight hour  R$14.77  R$14.82   14.62  16.84 
Break-even load factor  56.4%  59.6%  5.7%  

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      Salaries, wages and benefits increased 59.1%23.1%, or R$153.8184.4 million, due to a 6.0%5% cost of living increase on salaries effected in December 20052007, the 20.1% increase in the average number of operating aircraft from 88.6 in 2007 to 106.4 in 2008, and a 62%the 1.2% increase in the number of full-time employees to 8,840, related to planned capacity expansion.in the year over year comparison. Salaries, wages and benefits per available seat kilometer increased 4.1%2.6% due to a 5.6%the same reasons, although diluted by the increase in headcount on a peravailable seat kilometer basis, partially offset by increased productivity.kilometers in 2008.

     Aircraft fuel expense increased 51.8%38.5%, or R$418.7732.0 million, primarily due to a 49.6%38% increase in the liters ofWTI fuel consumed, or 236.3 million liters, and anprices, a 16% increase in fuel price per literconsumption derived from the increase in departures and capacity, and the devaluation of 4.1%, partially offset by an improvementthereal against the U.S. dollar in fuel efficiencythe second half of the fleet due to additional larger, more fuel efficient winglet equipped 737-800 SFP aircraft.2008. Aircraft fuel expense per available seat kilometer decreased 0.7%increased 15.7% due primarily to the use of more fuel efficient aircraft and a 10.7% appreciation ofsame reasons, although diluted by therealagainst the U.S. Dollar during the year, a factor influencing the determination of Brazilian jet fuel prices. As of December 31, 2006, we had hedged approximately 87%, 75% and 21% of our projected fuel requirements for the first, second and third quarters of 2007, respectively.

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Table of Contents increase in available seat kilometers in 2008.

     Aircraft rent, which we incur in U.S. dollars, increased 21.5%22.7%, or R$51.7119.3 million, due to ana 20.1% increase in the average size of our fleetnumber operating aircraft from 34.3 aircraft88.6 in 2007 to 50.1, partially offset by106.4 in 2008 and the appreciationdevaluation of thereal versusagainst the U.S. Dollardollar in the second half of 2008. During the second half of 2008, we stopped operating our seven Boeing 767 aircraft, which we expect to return or sublease during the year and amortized gains of R$16.0 million on sale-leaseback transactions for eight 737-800 aircraft during 2006 (amortized over the term of the leases).2009. Aircraft rent per available seat kilometer decreased 20.9% due to a high aircraft utilization rate, which increased to 14.2 block hours per day compared to 13.9 block hoursonly 2.6% as the cost increase was offset by the 19.7% increase in 2005, and the 10.7% appreciation of thereal versus the U.S. Dollar during the year.available seat kilometers in 2008.

     Sales and marketing expense increased 23.5%60.0%, or R$78.9220.9 million, primarily due to higher bookings and costs associated with the opening of new bases and higher credit card fees resulting from increased passenger revenues. We booked(i) expenses incurred in operating both Gol and Varig as separate airlines until our corporate reorganization, (ii) the launch in 2008 of a majoritynew integrated sales system that improved the purchasing process, identifies operating and performance synergies and improves the performance and quality of our ticketthe online sales through our website (81.6%)service, and our call center (10.8%) . Travel agents accounted for 69.6%(iii) an increase in sales incentives mainly during the first nine months of our sales in 2006, 81.0% of which through the internet.2008. Sales and marketing per available seat kilometer decreased 19.0%, primarilyincreased 34.0% due to a suspension of marketing activities during the fourth quarter in memoriam ofsame reasons, although diluted by the victims of the Flight 1907, and, to a lesser extent, an increase in direct non-commissioned ticket sales to 30.4% of our total ticket sales.available seat kilometers in 2008.

     Landing fees increased 70.7%23.6%, or R$65.364.7 million, mainly due to a 36.1%the 13.2% increase in the number of departures and a 21.0% increase in average landing fee rates. This increase in domestic landing fee rates in 2006 was substantially higher than the average increases in prior years.departures. Landing fees per available seat kilometer increased 11.4%2.5% due to the same reasons, although diluted by the increase in landing fee rates and an increaseavailable seat kilometers in landings at international airports (which have higher rates), partially offset by increased average stage length of 15.2%, and a higher aircraft utilization rate.

2008. Aircraft and traffic servicing expense increased 117.7%21.0%, or R$107.873.4 million, primarily due to an increase in our operations from 45 to 55 airports served, an increase in third party servicesof 20.1% in the amount of R$33.4 millionaverage operating fleet, from 88.6 in 2007 to 106.4 in 2008, higher departures and a 36.1% increase in departures.lower average stage length. Aircraft and traffic servicing expense per available seat kilometer increased 42.0%, mainly due toremained flat reflecting the full dilution of these expenses by the increase in third party services related to technology and systems implementation and higher ground handling services expenses,mainly due to the increase in international destinations (with relatively higher ground handling costs), partially offset by an increased average stage length and higher aircraft utilization.available seat kilometers.

     Maintenance, materials and repairs increased 164.6%14.4%, or R$91.148.7 million, due to 16an increase in scheduled aircraft maintenance events during the year, reflecting (i) the larger average additional aircraft in operation as well as theoperating fleet and lower average stage length, which reduced scheduled maintenance periods and (ii) extraordinary expenses related to returned aircrafts during the second half of 23 engines, in the amount of R$77.1 million, mainly on our Boeing 737-300 aircraft, repair of rotable materials, in the amount of R$34.3 million, and the use of spare parts inventory, in the amount of R$20.1 million.2008. Maintenance, materials and repairs per available seat kilometer increased 71.4%decreased 5.1% primarily due to a higher number of scheduled maintenance services, partially offsetthe same reasons, although diluted by a 10.7% appreciation of the real against the U.S. Dollar.increase in available seat kilometers in 2008.

     Depreciation and amortization increased 98.0%,100% or R$34.362.6 million, due primarily to the increase in fixed assets resulting from the addition of 12 aircraft to our consolidated fleet during the last quarter of 2007, including four 767-300ERS operated under finance leases. This increased our total fixed assets to be depreciated during 2008, and also caused an increase in our inventory of aircraft sparerotables and other parts and to a lesser extent, an increase in technology equipment resulting from the expansion of our operationsinventories for maintenance purposes. Depreciation and the addition of five new aircraft subject to depreciation to our fleet. Depreciationamortization per available seat kilometer increased 30.8%66.7% due to athe same reasons, although diluted by the increase to R$185.5 million in fixed assets subject to depreciation and an increase of R$0.9 million related to depreciation of three new 737-800 NG aircraft which entered the fleetavailable seat kilometers in 4Q06, and two 737-700 aircraft classified as capital leases.2008.

     Other operating expenses increased 39.9%22.0%, or R$51.259.5 million, due to costs related to closing of international bases in 2008, an increase in generalinsurance expenses and administrative expenses related to cancelled flights and crew lodging expenses, especially during the expansionfirst nine months of our operations, and interrupted flights.2008. Other operating expenses per available seat kilometer decreased 7.3%3.2% due to decreasesthe same reasons, although diluted by the increase in insurance expenses, a decrease of 9.9% in direct passenger expenses and flight crew lodging. Insurance expenses, at R$0.15 cents per available seat kilometer orkilometers in 2008.

Financial expenses totaled R$30.21,106.4 million, decreased 33.7%, duecompared to a reduction in average premium rates, a 10.7% appreciation of therealagainst the U.S. Dollar,and a higher aircraft utilization rate.

Other Income (Expense).Interest expense and financial income (expense), net increasedof R$1.3191.0 million in 2007, mainly as a result of non-cash foreign exchange variation loss of R$757.5 million due to an increase of R$34.2 million in interest income on cash balances and a R$14.6 million decrease in other losses, offset by a R$47.0 million increase in interest expenses due to increased working capital and long term debt and R$0.4 million decrease in capitalized interest.

Income Taxes.Income taxes, as a percentage of income before taxes, remained stable at 28.8% in 2006 as compared to 28.5% in 2005.

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Year 2005 Compared to Year 2004

     Our net income for the year 2005 increased to R$513.2 million from R$384.7 million for 2004, an increase of R$128.5 million. We had operating income of R$621.4 million, an increase of R$45.1 million over 2004, and our operating margin was 23.3%, a decrease of 6.1% from 2004. Income before income tax increased 22.2% to R$717.5 million.

Net Operating Revenues. Net operating revenues increased 36.1%, or R$708.2 million, due primarily to increased passenger revenues. Increased passenger revenues, resulted primarily from a 53.8% increase in revenue passenger kilometers, which was due to a 39.9% increase in departures, an increase in the average number of aircraft in service from 22.3 to 34.3 and a 2.4% increase in our load factor from 71.1% to 73.5% . The increase in revenue passenger kilometers was partially offset by a 12.4% decrease in our yield due to a 4.1% decrease in our average fares and an increase in our average stage length. Cargo and other revenue increased by R$44.7 million due primarily to increases in revenues from our cargo service operations.

Operating Expenses.Operating expenses increased 47.9%, or R$663.2 million, due primarily to the operation of an average 12 additional aircraft during 2005, increased flight departures during the period, an increase in the average cost and number of liters of jet fuel consumed and an increase in salaries, wages and benefits and sales and marketing expenses. Operating capacity increased by 49.8% to 13,246 million available seat kilometers due to scheduled capacity increases and higher aircraft utilization at 13.9 block hours per day. Operating expenses per available seat kilometer decreased 1.3% to R$15.46 cents primarily due to a reduction in maintenance expense on a per available seat kilometer basis and the spreading of our fixed costs over a larger fleet, despite a 17.5% increase in the average cost of jet fuel and an 7.5% increase in landing fees, each on a per seat kilometer basis. The breakdown of our operating expenses on a per available seat kilometer basis for 2005 compared to 2004 is as follows (percent changes are based on unrounded numbers):

  Year Ended December 31,  

Percent
Change 

 Percentage of NetRevenues(2005)
    
  2004  2005     
     
  (cost per available seat
kilometer in R$ cents)
 
    
Operating expenses:         
Salaries, wages and benefits  2.07  1.96  (5.1)%  9.7% 
Aircraft fuel  5.19  6.10  17.5%  30.3% 
Aircraft rent  2.21  1.82  (17.7)%  9.0% 
Aircraft insurance  0.29  0.22  (22.6)%  1.1% 
Sales and marketing  2.96  2.53  (14.4)%  12.6% 
Landing fees  0.65  0.70  7.5%  3.5% 
Aircraft and traffic servicing  0.85  0.69  (18.3)%  3.4% 
Maintenance, materials and repairs  0.59  0.42  (28.6)%  2.1% 
Depreciation  0.24  0.26  10.1%  1.3% 
Other operating expenses  0.61  0.74  21.4%  3.7% 
     
Total operating expenses  15.66  15.46  (1.3)%  76.7% 
     
Cost per flight hour  14.94  14.77  (1.2)%  — 
Break-even load factor  52.5  56.4  12.3%  — 

     Salaries, wages and benefits increased 42.1%, or R$77.1 million, due to (i) a 65.0% increase in full-time equivalent employees from 3,307 at the end of 2004 to 5,456 at the end of 2005 due to a higher number of employees in training, the international expansion of our operations and the internalization of certain services, (ii) an increases in wage rates of 6.0% due to cost of living increase and (iii) an increase of R$3.4 million in provisions for our profit sharing plan. Salaries, wages and benefits per available seat kilometer decreased 5.1% due to increased productivity and higher capacity.

     Aircraft fuel expense increased 76.0%, or R$349.1 million, primarily due to 159.3 million more liters of fuel being consumed (a 50.2% increase from 2004) and an increase in average fuel cost per liter (a 17.2% increase per liter from 2004), partially offset by the appreciationdevaluation of therealagainst the U.S. dollar in the second half of 2008, and to fuel and currency hedge losses of R$131.8 million in the effectsyear.

Income Taxes. Income tax expenses increased 31.9%, or R$10.7 million in 2008, as compared to 2007, mainly due to the fact that, in 2008, our prior operating subsidiary GTA had taxable profits for the nine months ended September 30, 2008, which could not be offset against losses in the operations of VRG, a separate legal entity until the execution of our exchange rate hedging program. Aircraft fuel per available seat kilometer increased 17.5% due primarilycorporate restructuring in September 2008. For further detail on our income tax expenses, see note 5 to our financial statements as of and for the increase in the average fuel cost per liter.year ended December 31, 2008 included herein.

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     Aircraft rent, which we incur in U.S. dollars, increased 23.2%, or R$45.4 million, due to an increase in the average size of our fleet to 34.3 aircraft from 22.3, partially offset by the 11.8% appreciation of therealagainst the U.S. dollar during the year and the effects of our exchange rate hedging program. Aircraft rent per available seat kilometer decreased 17.7% due to the appreciation of therealagainst the U.S. dollar and higher aircraft utilization.

     Aircraft insurance expense, which we incur in U.S. dollars, increased 16.0%, or R$4.1 million, due to a larger fleet size, partially offset by the 11.8% appreciation of therealagainst the U.S. dollar during the year, a decrease in average insurance premium rates and the effects of our exchange rate hedging program. Aircraft insurance per available seat kilometer decreased 22.6% due to the appreciation of therealagainst the U.S. dollar and the decrease in average insurance premium rates.

     Sales and marketing expense increased 28.3%, or R$74.0 million, primarily due to higher bookings through travel agents, increased advertising expenses, costs due to the opening of four new operating bases, and higher credit card fees resulting from increased passenger revenues. We booked a substantial majority of our ticket sales through a combination of our website (81.3% in 2005 compared to 76.4% in 2004). Travel agents accounted for approximately 70% of our sales in 2005, 63% of which were booked through the internet. Sales and marketing per available seat kilometer decreased 14.4% due to increased internet sales, lower sales and travel agent commissions and higher aircraft utilization rates.

     Landing fees increased 61.0%, or R$35.0 million, due to a 39.9% increase in departures and a 26% increase in average landing tariffs because of increased international traffic, partially offset by increased average stage length. Landing fees per available seat kilometer increased 7.5% .

     Aircraft and traffic servicing expense increased 22.4%, or R$16.8 million, primarily due to an increase in our operations from 38 to 45 airports served and a 39.9% increase in departures, partially offset by a reduction in technology costs. Aircraft and traffic servicing per available seat kilometer decreased 18.3% as a result of fixed costs being spread over a higher number of available seat kilometers.

     Maintenance, materials and repairs increased 6.9%, or R$3.6 million, due to 12 average additional aircraft in operation as well as 34.3 airframe checks and engine repairs in 2005 as compared to 27 airframe checks and engine repairs in 2004. Maintenance, materials and repairs per available seat kilometer decreased 28.6% due to the appreciation of thereal against the U.S. dollar and lower maintenance costs for airframe checks and engine repairs.

     Depreciation increased 64.8%, or R$13.8 million, due primarily to an increase in our inventory of aircraft spare parts and, to a lesser extent, an increase in computer equipment resulting from the expansion of our operations. Depreciation per available seat kilometer increased 10.1% due to increased depreciable assets, offset by higher aircraft utilization rates.

     Other operating expenses increased 81.8%, or R$44.4 million, due to an increase in general and administrative expenses related to the expansion of our operations, the increased lodging of flight crews, increased direct passenger expenses and interrupted flights. Other operating expenses per available seat kilometer increased 21.4% due to the expansion of our operations.

Other Income (Expense).Interest expense and financial income (expense), net increased R$85.2 million, due to increases of R$106.0 million in interest income on cash balances, and an increase of R$13.9 million in capitalized interest, partially offset by an increase of R$5.9 million in interest expenses due to increased working capital financing.

Income Taxes.Income taxes, as a percentage of income before taxes, decreased to 28% in 2005 from 34% in 2004. The reduction was principally due to the payment of a portion of a mandatory minimum dividend as interest in shareholder’s equity, which is deductible for corporate income tax purposes.

B. Liquidity and Capital Resources

Liquidity

     In managing our liquidity, we take into account our cash and cash equivalents and short-term investments as well as our accounts receivable balances. Our accounts receivable balance is affected by the payment terms of our credit card receivables. Our customers can purchase seats on our flights using a credit card and pay in installments, typically creating a one-or two-month lag between the time that we pay our suppliers and expenses and the time that we receive payment for our services. When necessary, we obtain working capital loans, which can be secured by our receivables, to finance the sale-to-cash collection cycle.

     The following table sets forth certain key liquidity data in IFRS at the dates indicated:

  At December 31, 
  
  2007  2008  % Change 
    
    (in millions ofreais)  
Real Denominated  2,296.6  936.5  (59.2)% 
Cash and Cash Equivalents, Short Term  1,393.5  591.6  (57.5)% 
Investments and Restricted Cash       
Short-term Receivables  903.1  344.9  (61.8)% 
Foreign Exchange Denominated  695.5  957.2  37.6% 
Pre-Delivery Deposit Advances  695.5  957.2  37.6% 
Total Liquidity  2,292.1  1,893.7  (17.4)% 

     At December 31, 2006, we had2008, cash and cash equivalentsinvestments were R$591.6 million, including R$176.7 million in restricted deposits that guarantee a portion of BNDES, BDMG and hedge operations. The balance of R$281.0414.9 million short-term investments of R$1,425.4 million and accounts receivable of R$659.3 million,is invested in immediate liquid assets. The decrease in total liquidity as compared to cash2007 is mostly due to negative operating results in 2008 as discussed above under “—Results of Operations”.

     Short-term receivables include credit card sales, the Voe Fácil installment payment program, accounts receivables from travel agencies and cash equivalentscargo transportation. At the end of 2008, we prepaid a working capital loan in the amount of R$106.3467 million with short-term investmentsreceivables discounted to their present value, which resulted in a 62.4% decrease in our short-term receivables on December 31, 2008 as compared to December 31, 2007.

     At December 31, 2008, we had R$957.2 million deposited with Boeing as advances for aircraft acquisitions, an increase of 37.6% as compared to December 31, 2007, mainly due to an increase in aircraft to be received from Boeing under our fleet plan.

     As a result, our total liquidity was R$762.7 million and accounts receivable of R$564.01,893.7 million at December 31, 2005.

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     At2008 as compared to R$2,292.1 at December 31, 2006, we had nine revolving lines of credit with five financial institutions, which allowed for total borrowings of up to R$332.0 million. As of December 31, 2006 and 2005, there were R$128.3 million (US$60.0 million) and R$54.0 million (US$23.1 million) outstanding under these facilities, respectively.2007.

Cash Flow Analysis

     Operating Activities.ActivitiesWe. Our strategy is to rely primarily on cash flows from operations to provide working capital for current and future operations. Cash flowsIn 2008, we generated R$166.9 million cash from our operating activities. Excluding, however, the prepayment of a R$467 million working capital loan with short-term receivables, we would have a use of operating cash of R$300.1 million in 2008 (instead of the operating cash provided of R$166.9 million), mainly due to our operating losses in 2008. In 2007, the year in which we acquired VRG, we used cash of R$141.5 million in our operating activities totaled R$530.4 milliondue to net operating losses in 2006, R$353.7 million in 2005 and R$239.9 million in 2004. The increase in2007. We expect to return to positive operating cash flows over these periods was primarily due to the growthflow generation in 2009.

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Table of our business. Net cash used for investing and financing activities was R$326.2 million in 2006 and net cash used for investing and financing activities was R$653.1 million in 2005. Net cash provided by investing and financing activities was R$19.5 million in 2004. The increase in cash provided by financing activities in 2006 was due primarily to the capital we raised in our offering of US$200 million in 8.75% perpetual notes in April 2006, a R$75.7 million long-term financing from BNDES (Brazilian National Economic and Social Development Bank) in June 2006 and a US$50 million long-term financing from the International Finance Corporation in June 2006 and US$78.3 million of long-term financing from the Private Export Funding Corporation (PEFCO) in November 2006.Contents

     Our operating cash flows are affected by the requirement under the terms of certain of our aircraft operating leasinglease agreements that we establish maintenance reserve deposit accounts for our aircraft that must be funded at specified levels. At December 31, 2006,2008, we had R$263.6745.3 million of deposits under our aircraft operating leases for maintenance. Funds will be drawn from the maintenance reserve accounts to reimburse for certain structural maintenance expenditures incurred. We believe the amounts deposited and to be deposited plus our own cash resources will be sufficient to service our future aircraft and maintenance costs for the duration of the applicable operating leases.

     We believe that we can meet our existing financial commitments and aircraft rent obligations with our cash and cash equivalents, and cash from operations, short-term investments and accounts receivable collected.leases

     Investing Activities.Activities. During 2006,2008, capital expenditures were R$553.2436.9 million, which included expenditures of R$489.8261.7 million of pre-delivery deposits (PDP) for aircraft acquisitions. Cash generated in our investing activities totaled R$40.7 million, which included the PDP capital expenditures and R$574.8 million of net investments in liquid financial assets. During 2007, capital expenditures were R$742.7 million, which included expenditures of R$201.5 million for the VRG acquisition (net of cash acquired), R$541.2 million related to acquisitions of property and equipment andwhich included R$63.4255.3 million of pre-delivery deposits for aircraft acquisitions. OurCash used in our investing activities totaledin 2007 was R$1,234.1190.3 million, which included the capital expenditures described beforeabove and R$662.7566.9 million of purchases of short term investments. During 2005, capital expenditures were R$482.8 million, which included expenditures of R$169.4 million related to acquisitions of propertynet investments in liquid financial assets.

     Financing Activities. The following table sets forth our loans and equipment and R$313.3 million of pre-delivery deposits for aircraft acquisitions. Our investing activities totaled R$801.8 million, which included the capital expenditures described before and R$319.3 million of purchases of short term investments. During 2004, capital expenditures were R$85.4 million, which included expenditures of R$42.0 million related to acquisitions of property and equipment and R$43.4 million of pre-delivery deposits for aircraft acquisitions. Our investing activities totaled R$533.0 million, which included the capital expenditures described before and R$443.4 million of purchases of short term investments.

Financing Activities.Financing activities during 2006 consisted primarily of:

     Our long term financings include customary covenants and restrictions and some of these financings require us to maintain defined financial ratios, with which we were in compliance at December 31, 2006 and none of which are expected to have a material adverse effect on our business. See also Note 7 to our consolidated financial statements for further information on these financings.financings):

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  At December 31 
  
  2007  2008  % Change 
    
  (in millions ofreais)
Short-term       
Real Denominated Loans  511.8  66.8  (86.9)% 
Working Capital  496.8  50.0  (89.9)% 
BNDES(1) 15.0  14.2  (5.3)% 
BDMG(2) —  2.6  NA 
Foreign Currency Denominated Loans  124.1  19.5  NA 
Security Floating Rate Bank Loans  106.3  —  NA 
IFC(3) 17.8  19.5  9.6% 
Total Short-term  635.9  86.3  NM 
 
Long-term       
Real Denominated Loans  65.0  49.2  (24.3)% 
BNDES(1) 50.8  36.6  (28.0)% 
BDMG(2) 14.2  12.6  (11.3)% 
Foreign Currency Denominated Loans  454.4  559.5  23.1% 
IFC(3) 73.8  77.9  5.6% 
Senior Notes  380.6  481.6  26.5% 
Total Long-term  519.4  608.7  17.2% 
Total Loans ex-perpetual bonds  1,155.3  695.0  (38.9)% 
Perpetual Bonds**  332.3  414.4  24.7% 
Loans - including perpetual bonds  1,487.6  1,109.4  (25.4)% 

*Does not include interest
**No maturity term bonds
(1) Credit line with Banco Nacional de Desinvolvimento Economico e Social (the Brazilian Development Bank)
(2)Credit line with Banco de Desinvolvimento Minas Gerais (Minas Gerais State Development Bank)
(3)Credit line with International Finance Corporation)

Aircraft Financings*:

  At December 31, 
  
  2007 2008  % Change 
    
  (in millions ofreais)
Short-term (Foreign Currency)      
Pre Delivery Deposits (PDP) 169.2  697.7  312.4% 
Financial Leasings  67.4  157.9  134.3% 
Total Short-term (Foreign Currency) 236.6  855.6  261.6% 
Long-term (Foreign Currency)      
Pre Delivery Deposits (PDP) 174.4  —  (100.0)% 
Financial Leasings  688.5  1,415.7  NA 
Total Long-term (Foreign Currency) 863.0  1,415.7  64.0% 
Total Aircraft Financings*  1,099.6  2,271.3  106.6% 

* Does not include interest

     Financing activities during 2005 consisted primarilyOn December 31, 2008, aircraft financing debt totaled R$2.3 billion, including:

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     Total short-term borrowingsdebt for 2008 (excluding the Pre-Delivery Deposit Facility) adding finance leases of R$64.3157.9 million, offset by the proceeds from the issuanceinterest of R$279.1 million of preferred shares in our follow-on offering in May 2005. Financing activities during 2004 consisted primarily of short-term borrowings of R$79.425.6 million and the issuanceloans of R$470.486.2 million, of preferred shares of Gol in our initial public offering in June 2004.is R$269.7 million.

     We intend to increase our funded debt principallyLong term financings in the formaggregate amount of R$695 million at December 31, 2008 contain customary covenants and restrictions, including but not limited to those that require us to maintain defined debt liquidity and interest expense coverage ratios. At December 31, 2008, we were compliant with all restrictive covenants.

The following table sets forth the maturities and interest rates of our indebtedness in IFRS:

Maturities and Interest    Contractual  Effective  Currency 
  Maturity  Interest  Interest p.a.   
Working Capital  Aug/09  15.0%  15.0%  Real 
BNDES  Jul/12  TJLP +2.65%  8.9%  Real 
BDMG  Jan/14  IPCA +6%  12.79%  Real 
Bank Loans  Dec/08    Real 
IFC Loan  Jul/13  Libor +1.875%  5.50%  U.S. dollar 
Senior Notes  Apr/17  7.50%  7.50%  U.S. dollar 
PDP Facility  Dec/09  Libor + 0.5%  3.51%  U.S. dollar 
Perpetual Bonus  n/a  8.75%  8.75%  U.S. dollar 

The following table sets forth the loans from privateand financings amortization schedule in IFRS:

Loans and Financing Amortization Schedule            After   
  2009  2010  2011  2012  2013  2013  Total 
      (in R$ millions)      
Real Denominated  66.7  17.7  17.7  10.4  3.1  0.2  116.0 
   BDMG  2.6  3.1  3.1  3.1  3.1  0.2  15.2 
   BNDES  14.2  14.7  14.7  7.3    50.8 
   Working Capital  50.0            50.0 
Foreign Currency Denominated  19.5  19.5  19.5  19.5  19.5  481.6  579.0 
   IFC  19.5  19.5  19.5  19.5  19.5   97.4 
   Senior Notes       481.6  481.6 
Total*  86.2  37.2  37.2  29.9  22.6  481.8  695.0 

*excluding interest expenses and aircraft financing

     For further information on our financing activities, see note 19 to our consolidated financial institutions, capital markets financingsstatements as of and finance leases related tofor the acquisition of aircraft.year ended December 31, 2008.

      We declared aggregate dividends of R$181.136.4 million, net of taxes, for the fiscal year 2006.2008. We declared dividends of R$117.9302.8 million (of which R$144.6 were paid as interest on equity) for the fiscal year 20052007.

     On March 20, 2009, our board of directors approved a capital stock increase issuing 6,606,366 voting and 19,487,356 non-voting shares to improve the company’s cash position and capital structure and to ensure the level of investments planned. The voting and non-voting shares will be issued at R$60.7 million7.80 per share. Our controlling shareholders have fully subscribed and paid for their portion of the fiscal year 2004. Under our by-laws, at least 25%capital increase in an amount of our adjusted net income, as calculated under Brazilian GAAP and adjusted underR$150.0 million. If fully subscribed, the Brazilian corporation law (which differs significantly from net income as calculated under U.S. GAAP), for the preceding fiscal year must be distributed as a mandatory annual dividend. The most significant adjustment to U.S. GAAP net income in arriving at adjusted net income under Brazilian GAAP relates to the accounting for deposits to our maintenance reserves. Under U.S. GAAP, deposits to our maintenance reserve accounts are accounted for as prepaid expenses and actual maintenance is charged to operating expense as maintenance is incurred. Under Brazilian GAAP, deposits to our maintenance reserve accounts are charged to operating expenses when made.capital increase will total R$203.5 million.

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Capital Resources

     Capital Resources.We typically finance our leased aircraft through operating and finance lease financings. Although we believe that debt and/or operating lease financings should be available for our future aircraft deliveries, we cannot assure you that we will be able to secure financings on terms attractive to us, if at all. To the extent we cannot secure financing, we may be required to modify our aircraft acquisition plans or incur higher than anticipated financing costs. We expect to continue to require working capital investment due to the use of credit card installment payments by our customers. We expect to meet our operating obligations as they become due through available cash and internally generated funds, supplemented as necessary by short-term credit lines.

     Our growth plans contemplate operating approximately 94127 aircraft by the end of 2011.2012. As of December 31,200631,2008, we had firm purchase orders with The Boeing Company for 7694 737-800 Next Generation aircraft as of December 31, 2008 and we have options to purchase an additional 3436 737-800 Next Generation aircraft. Committed expenditures for these aircraft, based on aircraft list price and including estimated amounts for contractual price escalations and pre-delivery deposits, are US$2,618 million in 2007, US$2,122 million in 2008, US$2,406170.5 million in 2009, US$1,846139.1 million in 2010, US$177.9 million in 2011, US$235.0 million in 2012 and US$1,592722.5 million after 2010.in 2013. We expect to meet our pre-delivery deposits by using cashlong term loans from operations or borrowings under short-term credit facilities and/or vendor financing. We expect to finance the balance of the purchase price of the Boeing 737-800 Next Generation aircraft through a combination of means,private financial institutions guaranteed by triple A rated institutions and capital markets financings such as cashlong term and funds generated from operations, low-interest bank financing and credit agreements, sale and leaseback transactions, additional equity or debt offerings and/or vendor financing.perpetual bonds.

     The firm aircraft orders represent a significant financial commitment for us. Pending the application of the proceeds from financing activities, we have invested these proceeds in overnight deposits and deposit certificates with highly-rated Brazilian banks and short-term investments, mainly highly-rated Brazilian government bonds. As of December 31, 2006, we had approximately R$1,425.4 million of these short-term investments.

     We expect that the continuance of the commitment to us from the Export-Import Bank of the United States to provide guarantees covering approximately 85% of the aggregate purchase price for the firm order aircraft will assist us in obtaining low-cost financing for the purchase of the firm order aircraft. The remaining 15% of the aggregate purchase price for the firm order aircraft is expected to be funded by our cash or other financing alternatives. To the extent that we do not have sufficient cash resources to do so, we may be required to modify our aircraft acquisition plans or to incur higher than anticipated financing costs, which would have an adverse impact on the execution of our growth strategy and business. The Company believes that it has and will in the future have appropriate funding resources available with the combination of U.S. Eximbank supported financing, local development bank funding and sale and leaseback transactions. As a result, we believe that the subprime credit crisis in the United States will not affect our financial position and ability to finance our operations and the acquisition of aircraft.

Recent Accounting Pronouncements

     The following new accounting standards or amendments to accounting standards, which are not yet effective and have not been adopted in the financial statements included in this annual report, will be adopted in future financial statements, if applicable.

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     In addition, the Company does not expect the following new accounting standards or amendments will impact the Company’s financial reporting:

C. Research and Development, Patents and Licenses, etc.

     We believe that the Gol brand has become synonymous with innovation and value in the Brazilian airline industry. We have filed requests for registration of the trademarks “GOL” and “GOL LINHAS AÉREAS INTELIGENTES” with trademark offices in Brazil and in other countries, and have already been granted final registration of these trademarks in Argentina, Bolivia, Chile, Colombia, the European Union, the United States, Paraguay and Uruguay. In 2005, we were named one of Brazil’s most valuableVRG holds trademarks for its “Varig” and “Smiles brands byIsto é Dinheiro magazine in its fourth annual Most Valuable Brazilian Brands Ranking, with a brand value of US$326 million.

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D. Trend Information

     We expectcontinue to invest in our successful low-cost business model and will continue to evaluate opportunities to expand our operations by adding additionalnew flights in Brazil, as well as expanding to existing domestic routes, adding new domestic routes where sufficient market potential exists and expanding into high-trafficother high traffic centers in other South American countries. In 2006, we added destinations to our network and we intend to continue this growth strategy in Brazil and South America. As in previous years, in 2007Although we will also concentrate on keepinghave a flexible fleet plan that allow us to manage our operating costs low and pursuing wayscapacity growth according to make our operations more efficient.

     Givenmarket growth, the demand for our services, we believe that we will continue to have significant growth opportunities. We expectcompany expects to benefit from economies of scale as we continue to renew and standardize our fleet and further improve and integrate its highly efficient operating network. We expect to reduce our averagenon-fuel cost per available seat kilometer (CASK) over time as we add additional aircraft to an established and efficient operating infrastructure. We currently have applications with the ANAC to add additional routes and flight frequencies. We expect our operating capacity to increase 50% with the addition of up to 15 aircraft in 2007, which will increase our available seat kilometers and operating costs on an aggregate basis.

     We expect jet fuel prices will continue to be highreduce the age of our fleet, increase the utilization of our aircraft, benefit from the cost savings through the aircraft maintenance center and improve upon our cost-efficient distribution channels. We also expect to grow revenues from the Gollog cargo transportation business, theSmiles loyalty program and other ancillary revenues, such as the Voe Fácil installment payment program. The air passenger transportation market in 2007Brazil remains under-penetrated and we plan to use our fuelincreasing the number of available seats at low fares is important for the continued development of the sector and foreign exchange hedging programs to help protect us against short-term movements in crude oil prices and thereal/ U.S. dollar exchange rate. economy.

E. Off-Balance Sheet Arrangements

     None of our operating lease obligations are reflected on our balance sheet. At December 31, 2006,2008, we had five90 aircraft recognized as capitalizedfinance leases on our balance sheet. We are responsible for all maintenance, insurance and other costs associated with operating these aircraft; however, we have not made any residual value or other guarantees to our lessors.

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F. Tabular Disclosure of Contractual Obligations

Our non-cancelable contractual obligations at December 31, 20062008 included the following (in thousands ofreais):following:

  Less than 1  More than 
 Total  Year  1-3 Years  3-5 Years  5 Years 
    Total   Less than 1 Year  1-3 Years  3-5 Years  More than
5
 Years 
     
        (in thousands ofreais)  
Aircraft and engine operating leases  1,948,607  421,870  646,007  377,701  503,029  4,675,420  916,298  1,638,827  1,442,091  678,204 
Aircraft capital leases  390,651  38,696  77,392  77,392  197,171  2,075,726  222,222  442,811  438,375  972,318 
Short-term borrowings  128,304  128,304     50,000  50,000    
Long-term borrowings(1) 553,402  41,298  205,968  159,776  146,360  608,756   74,448  52,469  481,839 
Pre-delivery deposits  635,533  115,954  311,386  206,663  1,530  842,667  170,530  316,953  348,441  6,743 
Aircraft purchase commitments  11,549,004  2,502,025  4,216,841  3,239,819  1,590,319  15,820,109  1,958,781  5,135,243  5,615,345  3,110,740 
          
Total  15,205,501  3,248,147  5,457,594  4,061,351  2,438,409  24,072,678  3,317,831  7,608,282  7,896,721  5,249,844 
     

(1) Does not include issuance of US$200 million (R$414.4 million) perpetual notes on April 5, 20062006.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

     Under our by-laws, we are managed by ourConselho de Administração, or board of directors, which is composed of at least five members and at most eleven members, and aDiretoria, or board of executive officers, which is composed of at least two and at most seven members. According to the Differentiated Corporate Governance Practices Level 2 introduced by BOVESPA, at least 20% of the members of our board of directors shall be “independent directors”,directors,” as defined by the BOVESPA.

     Our by-laws provide formanagement and board of directors is supported and advised by a number of committees which comprise highly specialized and qualified individuals. These committees actively participate in the establishmentstrategic and other decisions of a non-permanentConselho Fiscal, or fiscal committee,our day to be comprised of threeday management and we believe they add substantial value to five members.our business. We alsocurrently have corporate governance and nomination, audit, people management policies, risk policies, financial policy, and accounting and financial policystatements committees comprised of members of our board of directors and non-board members, and management, executive policy, budget, investment, corporate governance and risk management and finance committees, comprised of members of our board of executive officers and senior managers.

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     We are committed to achieving and maintaining high standards of corporate governance. In working towards this goal, we have established a corporate governance and nomination committee to monitor and make recommendations with respect to corporate governance “best practices” to our board of directors. In addition, in connection with listing as a Level 2 company on the BOVESPA, we have entered into an agreement with the BOVESPA to grant certain additional rights not required of Level 2 companies to our shareholders, such as tag-along rights offering our preferred shareholders 100% of the price paid per common share of controlling block shareholders. We conduct our business with a view towards transparency and the equal treatment of all of our shareholders. We have implemented policies to help to ensure that all material information that our shareholders require to make informed investment decisions is made available to the public promptly and that we at all times accurately reflect the state of our operations and financial position through press releases, filings with the SEC and CVM,Brazilian Securities Commission (“CVM”), and by keeping the investor relations section of our website current and complete. We have also adopted formal policies that restrict trading in our preferred shares by company insiders.

     In addition, according to the Level 2 practices, the company shall cause all new members of the board of directors, board of executive officers and officers tofiscal committee must sign a statement of consent in which they undertake to comply with the regulations of the Differentiated Corporate Governance Practices Level 2, their2. Their taking office is conditioned to signing of such document.

Also the members of the board of directors, board of executive officers and fiscal committee shallmust sign a statement of consent, in which they undertake to refer to arbitration rules, instituted byunder the auspices of the BOVESPA Arbitration Chamber for resolution ofany disputes and/or controversies arising out of the application of the listing rules of the Differentiated Corporate Governance Practices Level 2, the listing agreement with the latter,BOVESPA, the regulations of the BOVESPA, the provisions of the Brazilian corporation law, guidelines issued by the Brazilian authorities and the other rules applicable to the capital markets in general, involving the company, the shareholders, the managers and the members of the fiscal committee. The taking office

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Board of Directors

     Our board of directors is dedicated to providing our overall strategic guidelines and, among other things, is responsible for establishing our general business policies and for electing our executive officers and supervising their management. Currently, our board of directors is comprised of eight members. EachThree of the board members qualifiesqualify as independent based upon New York Stock Exchange criteria. The board of directors meets sixan average of five times per year or whenever requested by the president or three members of our board of directors.

     Under the Brazilian corporation law, each director must hold at least one of our common or preferred shares may reside outside of Brazil,and be a Brazilian resident, and is elected by the holders of our common shares at theAssembléia Geral, or the annual general meeting of shareholders. There are no provisions in our by-laws restricting (i) a director’s power to vote on a proposal, arrangement or contract in which such director is materially interested, or (ii) the borrowing powers exercisable by our directors from us. However, under the Brazilian corporation law, a director is prohibited from voting on any matter that would result in which such director havinghas a conflict of interest with our company.

     UnderAdditionally, under the Brazilian corporation law, shareholders of publicly traded companies, such as we are, who together hold non-voting or voting-right restricted preferred shares representing at least 10% of our total share capital for at least three months are entitled to appoint one member of our board of directors.

     Under our by-laws, the members of the board of directors are elected by the holders of our common shares at the annual general meeting of shareholders. Members of our board of directors serve the samesimultaneous one-year terms and may be re-elected. The terms of our current directors expire in April 2007.2010. Our by-laws do not provide for a mandatory retirement age for our directors.

      The following table sets forth the name, age and position of each member of our board of directors. A brief biographical description of each member of our board of directors follows the table.

Name  Age  Position 
   
ConstantinoAlvaro de OliveiraSouza  7560  Chairman 
Constantino de Oliveira Junior  3840  Director 
Henrique Constantino  3537  Director 
Joaquim Constantino Neto  4244  Director 
Ricardo Constantino  43 Director 
Alvaro de Souza 5846  Director 
Antonio Kandir  5355  Director 
Luiz Kaufmann  6163 Director 
Richard F. Lark Jr. 42  Director 

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     ConstantinoAlvaro de Oliveira is the chairman of our board of directors and has served in this capacity since March 2004. Mr. Oliveira has also been the chairman of the board of directors of Gol since 2002. Mr. Oliveira is founder and president of the Áurea group. He founded his first company, Expresso União, a bus transportation company, in 1957 in the state of Minas Gerais. Mr. Oliveira was the principal architect in our creation.

Constantino de Oliveira Junioris a member of our board of directors and our Chief Executive Officer. He has served in both capacities since March 2004. Mr. Oliveira has also been the chief executive officer and a member of the board of directors of Gol since 2001. Mr. Oliveira introduced the “low-cost, low-fare” concept to the Brazilian airline industry and was elected the Most Valuable Executive in 2001 and 2002 by the Brazilian newspaperValor Econômicoand was also elected the Leading Executive in the logistics sector in 2003 by the readers ofGazeta Mercantil, a Brazilian financial newspaper. From 1994 to 2000, Mr. Oliveira served as an officer of the Áurea group. Mr. Oliveira studied Business Administration at theUniversidade do Distrito Federaland he attended the Executive Program on Corporate Management for Brazil conducted by the Association for Overseas Technical Scholarships.

Henrique ConstantinoSouza has been a member of our board of directors since March 2004. Mr. Constantino has also been a memberAugust 2004 and became our chairman of the board of directors of Gol since 2003. He has been the financial officer of the Áurea group since 1994. He participated in the creation of Gol and served as its financial officer from January 2001 to March 2003, when he became a member of the board. Mr. Constantino has a law degree fromCEUB—Centro de Ensino Unificado de Brasíliaand has a Master in Business Administration degree from EAESP—FGV(Fundação Getúlio Vargas—São Paulo).

Joaquim Constantino Netohas been a member of our board of directors since March 2004. Mr. Constantino has been a member of the board of directors of Gol since 2001. He has been the operations officer of the Áurea group since 1994. From 1984 to 1990, he was in charge of operations of Reunidas Paulista. Since 1990 to the present, he has been the President of Breda Turismo, a transportation company. Since 1998, Mr. Constantino has also been a member of the board of directors of Metra, a metropolitan bus company serving the cities of São Paulo, Santo André, São Bernardo do Campo and Diadema.

Ricardo Constantinohas been a member of our board of directors since March 2004. Mr. Constantino has been a member of the board of directors of Gol since 2001. He has been the technical and maintenance officer of the Áurea group since 1994.

Alvaro de Souzahas been a member of our board of directors since August 2004.April 2009. Mr. Souza is an officer of AdS—Gestão, Consultoria e Investimentos Ltda. and member, chairman of the board of directors of SAG do Brasil S.A.Unidas S/A , chairman of the board of directors of World Wildlife Group (WWF), Comgás, British Gas Group, AMBEVco-chairman of the board of directors of Quinsa (Argentina) and Roland Berger do Brasil.member of the audit committee of AMBEV. He was the Chief Executive Officer of Citibank Brazil from 19931991 to 1994 and an Executive Vice-President of Citigroup in New York from 1995 to 2003. Mr. Souza holds a bachelor’s degree in Economics and Business Administration from Pontifícia Universidade Católica de São Paulo. Mr. Souza is an independent member of our board of directors under the requirement of the SEC and NYSE listing standards and is a member of our audit committeecommittee.

Constantino de Oliveira Junior has been a member of GOL’s board of directors and partnerits Chief Executive Officer since the Company was founded in 2001. Mr. de Oliveira introduced the “low-cost, low-fare” concept to the Brazilian airline industry and was named “Most Valuable Executive” by the Brazilian newspaperValor Econômico in 2001 and 2002. He was also elected the Leading Executive in the logistics sector by the readers ofGovernanç Gazeta Mercantil, a e GestãBrazilian financial newspaper, in 2003, and in 2008, was named a “Distinguished Executive” in the Air Transportation category at the GALA (Latin American Aeronautics Gallery) awards, sponsored by IATA (International Air Transport Association. Prior to joining GOL, Mr. de Oliveira served as an officer of the Áurea group (1994-2000). Mr. de Oliveira studied Business Administration at the Universidade do Distrito Federal and attended the Executive Program on Corporate Management for Brazil conducted by the Association for Overseas Technical Scholarships.

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Henrique Constantino has been a member of our board of directors since March 2004. Mr. Constantino has also been a member of the board of directors of Gol since 2003. He has been the chief financial officer of the Áurea group since 1994 and is an officer of Comporte S.A. He participated in the creation of Gol and served as its chief financial officer from January 2001 to March 2003, when he became a member of the board. Mr. Henrique Constantino is also a member of the board of directors of Providência S.A. and BR Vias S.A. Mr. Constantino has a law degree fromCEUB—Centro de Ensino Unificado de Brasília and has a post-graduate degree in Business Administration fromEAESP—FGV (Fundação Getúlio Vargas—São Paulo). Mr. Constantino is a member of our Risk Policies Committee, People Management Policies Committee and our Financial Policy Committee.

Joaquim ConstantinoNeto has been a member of our board of directors since March 2004. Mr. Constantino has been a member of the board of directors of Gol since 2001. He has been the chief operations officer of the Áurea group since 1994. From 1984 to 1990, he was in charge of operations of Reunidas Paulista. Since 1990 to the present, he has been the President of Breda Serviços, a bus transportation company. Mr. Joaquim Constantino Neto is also member of the board of directors of Providência S.A.

Ricardo Constantino has been a member of our board of directors since March 2004. Mr. Constantino has been a member of the board of directors of Gol since 2001. He has been the chief technical and maintenance officer of the Áurea group since 1994.

     Antonio Kandirhas been a member of our board of directors since August 2004. MrMr. Kandir is an economic consultant Mr. Kandir is also partner of Governança e Gestão and is a member of the board of directors of AVIPAL/ELEGÊMedial Saúde and the consulting board of Portugal Telecom.Providência S.A. Mr. Kandir served in the Brazilian government as a CongressionalFederal Lower House Representative for two terms of office, and served as Planning and Budget Minister and Secretary of Economic Policy and President of the Privatization Council. He has a bachelor’sbachelor degree in production engineering from the Escola Politécnica at USP and bachelor’s, master’sbachelors, masters and PHDdoctoral degrees in Economics from Unicamp. Mr. Kandir is an independent member of our board of directors under the requirement of the SEC and NYSE listing standards and is a member of our audit committee.

     Luiz Kaufmannhas been a member of our board of directors since December 2004. MrMr. Kaufmann is the Managing Partner of L. Kaufmann Consultores Associados, and member of the board of directors of Providência S.A. Mr. Kaufmann has presided over several companies such as Aracruz Celulose S.A. (1993-1998), Vésper, Petropar, Grupo Multiplic, Arthur D. Little, and was a partner at GP Investimentos. He was a member of several companies’ board of directors, including Pioneer Hi-Bred International, América Latina Logística and Lojas Americanas. Luiz Kaufmann is also a member of and VIVO’s Board of Directors, chief executive officer of Medial Saude S.A. and L. Kaufmann Consultores. He was a member of the Global Corporate Governance Advisory Board, which was comprised of 20 internationally renowned business leaders from 16 different countries, created to advance knowledge on the roles and responsibilities of boards of directors of international companies. Mr. Kaufmann is an independent member of our board of directors under the requirement of the SEC and NYSE listing standards. He is a member of our audit committee and our audit committee financial expert as defined by the current SEC rules.

54Richard F. Lark, Jr.has been a member of our board of directors since June 2008. Mr. Lark served as our executive vice president, chief financial officer and investor relations officer from April 2003 to June 2008. He is also president of Endurance Capital Partners S.A and chairman of the board of directors of Bioclean Energy Brasil S.A. and Sequoia Desenvolvimento Imobiliária S.A. From 2000 to 2003, Mr. Lark served as chief financial officer of Americanas.com, one of the leading Brazilian e-commerce companies. Prior to joining Americanas.com, Mr. Lark was a vice president in the investment banking division of Morgan Stanley & Co. in New York and São Paulo from 1994 to 2000, an investment associate at Citicorp Chile in 1993 and a financial analyst at The First Boston Corporation in New York and London from 1988 to 1990. Mr. Lark was a member of the Board of Governors of the American Society of São Paulo from 2003 to 2008, having served as its president during 2005-2007. Mr. Lark holds a Master in Business Administration degree from the Anderson School at The University of California at Los Angeles (UCLA), class of 1994, and bachelor degrees in philosophy and finance and business economics from The University of Notre Dame, class of 1988. Mr. Lark is a member of our Risk Policies Committee, Financial Policy Committee, and Accounting and Financial Statements Policies Committee.

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     Constantino de Oliveira Junior, Henrique Constantino, Joaquim Constantino Neto and Ricardo Constantino are brothers and Constantino de Oliveira is their father.brothers. Constantino de Oliveira Junior, Henrique Constantino, Joaquim Constantino Neto and Ricardo Constantino control our controllingmajor shareholder Fundo de Investimento em Participações Asas on an equal basis.

Executive Officers

     Our executive officers have significant experience in the domestic and international passenger transportation industries, and we have been able to draw upon this extensive experience to develop our low-cost operating structure. The executive officers are responsible for our day-to-day management. The executive officers have individual responsibilities established in our by-laws and by our board of directors. The business address of each of our executive officers is the address of our principal executive office.

     Under our by-laws, we must have at least two and at most seven executive officers that are elected by the board of directors for a one-year term. Any executive officer may be removed by the board of directors before the expiration of his term. The current term of all our executive officers ends in March 2007.2010.

     The following table sets forth the name, age and position of each of our executive officers elected in March 2006.2008. A brief biographical description of each of our executive officers follows the table.

Name  Age  Position 
   
Constantino de Oliveira Junior  3840  President and Chief Executive Officer 
David Barioni NetoFernando Rockert de Magalhães  4858  Executive Vice President-Technical 
Richard F. Lark, Jr Leonardo Porciúncula Gomes Pereira 4050  Executive Vice President-Finance,President Chief Financial Officer
and Investor Relations Officer
Tarcisio Geraldo Gargioni  6062  Executive Vice President-Marketing and Services 
Wilson Maciel Ramos  5962  Executive Vice President-Planning and Information Technology 

Constantino de Oliveira Junior.See “—Board of Directors.”

     David Barioni Netohas been an officer since May 2004. Mr. Barioni has been an officer of Gol since 2001. Mr. Barioni has been an aircraft pilot for 25 years and worked as an aircraft pilot for VASP from 1982 to 2000. Mr. Barioni is a civil aviation inspector, flight instructor and aeronautical accident investigator. He also specializes in restricted and dangerous cargo.

Richard F. Lark, Jr.Fernando Rockert de Magalhães has been an officer since May 2004.August 2007. Mr. Lark has beenRockert joined Gol in January 2004 and assumed the role of Gol’s Director of Flight Operations in March 2005. He is an officer of Gol since 2003. From 2000 to 2003,experienced pilot with more than 16,000 flight hours. Mr. Lark wasRockert holds a founding directorlaw degree and served as Chief Financial Officer of Americanas.com, one of the leading Brazilian e-commerce companies. Prior to joining Americanas.com, Mr. Lark was a Vice Presidentgraduate degree in the investment banking division of Morgan Stanley, where he was responsible for the Brazilian transportation sector. Mr. Lark holdsAdministration. He also earned a Master in Business Administration degree from the Anderson SchoolFundação Getúlio Vargas (FGV). Mr. Rockert is also a professor of Aeronautical Law. Mr. Rockert began his career in the 1970s as a pilot for Rio Sul, a regional airline in Brazil. He also worked as a VASP pilot for more than 18 years, his last position being MD-11 Captain and Instructor. During three years Capt Rockert was a simulator instructor based in Seoul, South Korea for Flight Safety Boeing (now Alteon), where he trained pilots for Korean Airlines.

Leonardo Pereirahas been an officer since February 2009. Prior to joining Gol, Pereira served two years as the Director President of Companhia do Vale do Araguaia, a Brazilian commercial foresting company, and six years as the Executive Director Finance and Investor Relations of NET Serviços, a leading cable provider in Latin America listed on the Bovespa (Level II), NASDAQ and Latibex. He previously served five years as Planning Director at The UniversityGlobopar, a media industry holding company, and 13 years in a number of Californiaroles at Los Angeles (UCLA)Citibank Corporate Finance Bank in Brazil, Asia, Latin America and bachelorthe United States, including leader of the Latin American Aviation team. He is member of the Corporate Governance Committee of the São Paulo chapter of the American Chamber of Commerce. Mr. Pereira holds degrees in philosophyProduction Engineering from the Universidade Federal do Rio de Janeiro (UFRJ) and financeEconomics from the Universidade Candido Mendes; he received his MBA from Warwick University (England). Pereira has also studied Finance at IMD in Switzerland and business economics fromGeneral Management at Wharton Business School, attended The University of Notre Dame. Mr. Lark is a member of our Risk Policies CommitteeAssociation for Overseas Technical Scholarship (AOTS) in Japan, and Financial Policy Committee.completed Columbia University’s Senior Executive Education Program.

     Tarcisio Geraldo Gargionihas been an officer since May 2004. Mr. Gargioni has been an officer of Gol since 2001. From 1990 to 2000, Mr. Gargioni served as Commercial Director of VASP. Mr. Gargioni received a degree in Business Administration by Fundação Getúlio Vargas and a post-graduate degree in transport engineering from COOPEAD/RJ, Brazil. Mr. Gargioni received a certificate in marketing fromFundação Getúlio Vargas—São Paulo.Paulo.

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     Wilson Maciel Ramoshas been an officer since March 2004. Mr. Ramos has been an officer of Gol since 2001. From 1999 to 2000, Mr. Ramos was an independent consultant for urban transportation companies. From 1997 to 1999, Mr. Ramos was the President of Transurb, a syndicate of urban transportation companies in São Paulo. From 1993 to 1997, Mr. Ramos served as Chief Information Officer at VASP. Mr. Ramos received a degree in mechanical engineering from theUniversidade do Rio Grande do Suland a master’s degree in production engineering from theUniversidade de Santa Catarina.

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B. Compensation

     Under our by-laws, our shareholders are responsible for establishing the aggregate amount we pay to the members of our board of directors and our executive officers. Once our shareholders establish an aggregate amount of compensation for our board of directors and executive officers, the members of our board of directors are then responsible for setting individual compensation levels in compliance with our by-laws.

     For the fiscal year ended December 31, 2006,2008, the aggregate compensation, including cash and benefits-in-kind, that we paid to the members of our board of directors and executive officers was R$3.0million.6.6 million.

Executive Stock Options

     At a shareholders’ meeting held on May 25, 2004, our shareholders approved an executive stock option plan for key senior executive officers. Under this plan, we have issued to executive officers stock options to purchase up to 937,412 of our preferred shares at an exercise price of R$3.04 per share. One half of the options vested on October 25, 2004, with the remaining 50% vesting at the end of each quarter subsequent to October 25, 2004. Each option will expire two years after its vesting date. The preferred shares reserved for issuance pursuant to these options are in addition to and separate from those shares that are reserved for issuance under the plan described in the paragraph immediatelyunder “—Stock Option Plan” below. During 2006,2007, our executive officers exercised all stock options for an aggregate of 233,833 preferred shares.shares that had not been exercised earlier under the plan. For further information regarding our stock option plans, see Note 104 of our notes to our consolidated financial statements as of and for the year ended December 31, 2006 and 2005.2008.

Stock Option Plan

     Our stock option plan was approved at a special shareholders’ meeting held on December 9, 2004.July 4, 2008. The stock option plan is aimed at promoting our interests by encouraging management employees to contribute substantially to our success, by motivating them with stock options. The plan is managed by both our people management policies committee and our board of directors.

     Participants in the plan are selected by the people management policies committee, provided that they have been either president, vice-president, officer, advisor to the president or to the vice-president, or general manager for at least six months prior to the date on which the option is granted.manager. The stock options to be granted under the plan confer rights related only to our preferred shares, and over a number of preferred shares that does not, at any time, exceed 5% of our shares. The people management policies committee establishes the strike price of the options to be granted, which must be equal to the average price of the preferred shares recorded in the last 60 trading sessions prior to the granting date, adjusted pursuant to the IGP-M inflation index. The options that can be freely exercised may be exercised up to the tenth anniversary of the granting date.

     The plan is valid for a ten-year term. In case of termination of our legal relationship with the option holder, with or without cause (except in the case of retirement, permanent disability or death) all options that have been granted to the participant, and which were not yet exercisable, automatically expire.

     In 2005,2007, we issued stock options of up to 87,418113,379 of our preferred shares to our directors and certain employees, at a weighted average exercise price of R$33.0665.85 per share.

In 2006,2008, we issued stock options of up to 99,816 of our preferred shares to our directors and certain employees,190,296 at a weighted average exercise price of R$47.3045.46 per share. On December 18, 2006, ourFebruary 4, 2009, the board of directors approved the continuation ofcontinuing the stock option plan through 2009 and the issuance of up to 925,800 options for our preferred shares, at a weighted average exercise price of R$10.52 per share. The decision increases the fiscal yearnumber of 2007.options granted to 1.2 million in the last three years, or 0.6% of our total shares. The purpose of our stock option plan is to align shareholder and top management interests.

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C. Board Practices

     Currently, our board of directors is comprised of eight members. The terms of our current directors will expire in 2007. See “—Board of Directors.”

Fiscal Committee

     Under the Brazilian corporation law, theConselho Fiscal, or fiscal committee, is a corporate body independent of management and a company’s external auditors. The fiscal committee may be either permanent or non-permanent, in which case it is appointed by the shareholders to act during a specific fiscal year. A fiscal committee is not equivalent to, or comparable with, a U.S. audit committee. The primary responsibility of the fiscal committee is to review management’s activities and a company’s financial statements, and to report its findings to a company’s shareholders. The Brazilian corporation law requires fiscal committee members to receive as remuneration at least 10% of the average annual amount paid to a company’s executive officers. The Brazilian corporation law requires a fiscal committee to be composed of a minimum of three and a maximum of five members and their respective alternates.

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     Under the Brazilian corporation law, ourthe fiscal committee may not contain members that (i) are on our board of directors, (ii) are on the board of executive officers, (iii) are employed by us or a controlled company, or (iv) are spouses or relatives of any member of our management, up to the third degree. Our by-laws provide for a non-permanent fiscal committee to be elected only by our shareholders’ request at a general shareholders’ meeting. The fiscal committee, when elected, will be comprised of a minimum of three and a maximum of five members and an equal number of alternate members. We currently doIn 2008, our shareholders did not have an activerequest the election of a fiscal committee and, therefore, no members have been appointed.committee.

Committees of the Board of Directors and Board of Executive Officers

     Our board of directors also has corporate governance and nomination, audit, people management and risk policies committees.committees, a financial policy committee and an accounting policy committee. Our board of executive officers has management, executive policy, budget, investment, corporate governance and risk policies committees. In most cases, members of the committees do not need to be members of our board of directors or board of executive officers. The responsibilities and composition of these committees are described below.

     Corporate Governance and Nomination Committee.Committee. The corporate governance and nomination committee is responsible for the coordination, implementation and periodic review of “best practices” of corporate governance and for monitoring and keeping our board of directors informed about legislation and market recommendations addressing corporate governance. The committee also proposes individuals for consideration for election to our board of directors. The committee consists of up to five members elected by our board of directors for a one-year term. The corporate governance and nomination committee currently consists of Betania Tanure de Barros, Charles Barnsley Holland, Paulo César Aragão and Betania Tanure de Barros.o.

     Audit Committee.Committee. Our audit committee, which is not equivalent to, or comparable with, a U.S. audit committee, provides assistance to our board of directors in matters involving our accounting, internal controls, financial reporting and compliance. The audit committee recommends the appointment of our independent auditors to our board of directors and reviews the compensation of and coordinates with our independent auditors. The audit committee also evaluates the effectiveness of our internal financial and legal compliance controls. The audit committee is comprised of up to three members elected by the board of directors for a one-year term. The current members of our audit committee are Álvaro Souza, Antonio Kandir and Luiz Kaufmann. All members of the audit committee satisfy the audit committee membership independence requirements of the SEC and the independence and other standards of the NYSE. Luiz Kaufmann is an audit committee “financial expert” within the meaning of the rules adopted by the SEC relating to the disclosure of financial experts on audit committees in periodic filings pursuant to the U.S. Securities Exchange Act of 1934.

     People Management Policies Committee.Committee. The people management policies committee, among other things, reviews and recommends to our board of directors the forms of compensation, including salary, bonus and stock options, to be paid to our employees. The people management policies committee also reviews and recommends revisions to the compensation policies applicable to our employees and reviews our management’s career and succession plans. The people management policies committee is comprised of up to three members elected by our board of directors for a one-year term and can be reelected. The people management policies committee currently consists of Henrique Constantino, member of our board of directors, Marco Antonio Piller Human Resources Director of Gol and Marcos Roberto Morales, a human resources consultant.

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     Risk Policies Committee.Committee. The risk policies committee conducts periodic reviews of the measures we take to protect the company against foreign exchange, jet fuel price and interest rate changes and analyzes the effect of such changes on our revenues and expenses, cash flow and balance sheet. The risk policies committee assesses the effectiveness of hedging measures taken during the previous quarter and approves recommendations for future changes and also conducts reviews of cash management activities. The risk policies committee meets on a quarterly basis and is comprised of our chief financial officer and two other members elected by our board of directors. The risk policies committee currently consists of Henrique Constantino and Richard F. Lark, Jr., our chief financial officer, Henrique Constantino, oneboth members of our board of directors, and Barry Siler, a fuel hedging specialist and the chief executive officer of Kodiak Fuels.

     Financial Policy Committee. The financial policy committee prepares and approves our corporate finance policies, and examines their effectiveness and implementation; periodically examines our investment and financing plans, and makes recommendations to the Board of Directors; assesses the impact of the investment and financing plans on the capital structure of the company, and makes recommendations to the Board of Directors; and determines parameters for the maintenance of desired capital and liquidity structures, monitors their enforcement and approves the policies to be used in the subsequent quarter. The financial policy committee meets quarterly and is comprised of our chief financial officer and two other members elected by our board of directors, one of which must be aan independent member. The financial policy committee currently consists of Richard F. Lark, Jr.,Leonardo Porciúncula Gomes Pereira, our chief financial officer, and Henrique Constantino a memberand Richard F. Lark, Jr., both members of our board of directors.

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TableAccounting Policies and Financial Statements Committee. The Accounting Policies and Financial Reports Committee conducts periodic reviews of Contentsthe Company’s accounting policies and financial reports, also evaluates and follows the accomplishment of these policies. The committee makes recommendations to the Board of Directors regarding GOL’s accounting policies and financial reports. The Accounting Policies and Financial Reports Committee meets quarterly and is composed of our Leonardo Pereira, our chief financial officer, and two other members elected by the board of directors: Charles B. Holland and Richard F. Lark, Jr., a member of Board of Directors.

D. Employees

     We believe that our growth potential and the achievement of our results-oriented corporate goals are directly linked to our ability to attract and maintain the best professionals available in the airline business. We place great emphasis on the selection and training of enthusiastic employees with potential to add value to our business and who we believe fit in with and contribute to our business culture.

     As of December 31, 2006,2008, we had 8,84015,911 active employees, compared to 5,456, and 3,307 active employees as of December 31, 2005 and 2004 respectively. As of December 31, 2006, we employed only full-time employees, which consisted of 968 pilots and co-pilots, 1,844 flight attendants, 1,111 mechanics, customer service representatives (including sales and marketing personnel and reservation agents), 3,654 airport and flight operations personnel and 1,263 management and administrative personnel. We also subcontract certain services, such as cargo handling, information technology, call center personnel and runway handling operations personnel.employees.

     We invest significant resources promoting the well being of our employees. In 2006,2007, we allocated 23.4% of our net income tospent R$281.8 million on health and safety matters, training, social contributions, employee meals, and transportation and profit sharing.

     We train our own pilots and promoted 56 co-pilots during 2006.pilots. We also provide extensive ongoing training for our pilots, flight attendants and customer service representatives. In addition to the required technical training, which follows the strictest international standards, we also provide comprehensive managerial training to our pilots and flight attendants through Crew Resource Management and Line Oriented Flight Training programs, emphasizing the importance of resource management to provide the best service to our passengers.

     In order to help retain our employees, we encourage open communication channels between our employees and management and offer career development opportunities in the company and periodic evaluations. We offer in-house post-graduate business school training in conjunction with theFundação Getúlio Vargas, a leading Brazilian business school, to provide management training to selected employees. Our compensation strategy reinforces our determination to retain talented and highly motivated employees and is designed to align the interests of our employees with our shareholders. Our compensation packages include competitive salaries and participation in our profit sharing program. We have agreements with medical and insurance companies to offer affordable health and pension plan options to our employees.

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     A national aviators’ union represents Brazil’s pilots and flight attendants, and seven other regional aviation unions represent ground employees of air transportation companies. Approximately 4%6% of our employees are members of unions. Negotiations in respect of cost of living wage and salary increases are conducted annually between the workers’ unions and a national association of airline companies. There is no salary differential or seniority pay escalation among our pilots. Work conditions and maximum work hours are regulated by government legislation and are not the subject of labor negotiations. Since the commencement of our operations, we have not had a work stoppage by our employees and we believe that our relationship with our employees is good.

     To motivate our employees and align their interests with our results of operations, we provide an annual profit sharing program to all of our employees. Under Brazilian law, companies may provide profit sharing programs that define mechanisms for distributing a portion of a company’s profits based upon the achievement of pre-defined targets established by the company. Our annual profit sharing programs are negotiated with a commission formed by our employees and approved by labor unions for the benefit of all of our unionized and non-unionized employees. For the purposes of our profit sharing program, a portion of profit sharing distributions are based upon the achievement of corporate profit targets and a portion of the distributions are based on the achievement of operational targets set for each of our departments. We have established a stock option plan for 43 of our management and employees vesting over a 5 year period. In 2006, an additional 24As of February, 2009, a total of 52 our management and employees were granted stock options under this plan.

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E. Share Ownership

     The members of our board of directors and our executive officers, on an individual basis and as a group, directly own less than 1%approximately 1.0% of our common stock. See “Item 7A.Major Shareholdings and Related Party Transactions—Major Shareholders.” Fundo de Investimento em Participações Asas is a fund directly controlled by Messrs. Constantino de Oliveira Júnior, Henrique Constantino, Joaquim Constantino Neto and Ricardo Constantino, respectively.

     For a description of stock options granted to our board of directors and our executive officers, see “—Compensation—Executive Stock Options” and “—Compensation—Stock Option Plan.”

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

     The following table sets forth information relating to the beneficial ownership of our common shares and preferred shares as of December 31, 2006,2008, by each person known by us to beneficially own 5% or more of our common shares or preferred shares and all our directors and officers as a group.

     Each shareholder’s percentage ownership in the following table is based on the 107,590,792 common shares and 88,615,67494,709,799 preferred shares outstanding as of December 31, 2006.2008.

  
Common Shares
 Preferred Shares Beneficially 
Owned 
  Common and Preferred 
Shares Beneficially Owned
 
  Preferred Shares   Common and Preferred 
    Common Shares   Beneficially Owned  Shares Beneficially Owned 
 Shares  (%) Shares  (%) Shares  (%)   
       Shares  (%) Shares  (%) Shares  (%)
Fundo de Investimento em Participações Asas (1) (3) 107,590,772  100.0% 31,715,638  35.79% 139,306,410  71.00%
Executive officers and directors as a group (8 persons) 20(2)  2,697,017  3.04% 2,697,037  1.37%
      
Fundo de Investimento em Participações ASAS (1) 107,590,772  100%  40,342,238  43%  147,933,010  73% 
Executive officers and directors (8 persons) 20  0%  2,066,787  2%  2,066,807  1% 
Stock Held in Treasury    1,574,200  2%  1,574,200  1% 
Free Float    54,203,019  61.17% 54,203,019  27.63%   50,726,574  53%  50,726,574  25% 
      
Total  107,590,792  100.0% 88,615,674  100.0% 196,206,466  100.0% 107,590,792  100%  94,709,799  100%  202,300,591  100% 

*Represents ownership of less than 1%.
(1)     On March 17, 2006, our former controlling shareholder Aeropar Participações S.A., or Aeropar, which was indirectly controlled by Messrs. Constantino de Oliveira Júnior, Henrique Constantino, Joaquim Constantino Neto and Ricardo Constantino, concluded a restructuring of its corporate shareholdings, by means of which 31,493,863 of our preferred shares, held by Aeropar, were transferred to Fundo de Investimento em Participações Asas, or the Fund, which is controlled by Messrs. Constantino de Oliveira Júnior, Henrique Constantino, Joaquim Constantino Neto and Ricardo Constantino. In addition, our former shareholder Comporte Participações S.A. (a company controlled equally by Constantino de Oliveira Junior, Henrique Constantino, Joaquim Constantino Neto and Ricardo Constantino), or Comporte, also transferred its 3,351,775 of our preferred shares to the Fund. On June 19, 2006, Aeropar concluded a further restructuring of its corporate shareholdings, by means of which 107,590,772 of its common shares in our company were transferred equally to the Fund and a total of 1,857,705 of its common shares in our company were transferred to Constantino de Oliveira Junior. These 1,857,705 common shares were converted on July 19, 2006 to preferred shares.
(2)     Shares transferred to members of the board of directors for eligibility purposes.
(3)     Mr. Constantino de Oliveira Júnior, Ricardo Constantino, Joaquim Constantino Neto and Henrique Constantino are usufructuary and have the right to vote of 13,681,100 common shares issued by Gol, each one, in the amount of 54,724,400 common shares.

(1) Fundo de Investimento em Participações Asas is controlled equally by Constantino de Oliveira Junior, Henrique Constantino, Joaquim Constantino Neto and Ricardo Constantino.

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     According to our internal share record, which contains information regarding the ownership of our shares and the ADSs as filed by the holders of such shares and ADS, there were, at December 31, 2006, six2008, 30 record holders of ADSs in the United States.

     In January 2008, our board of directors authorized a share buy-back program on the BOVESPA of up to 5,000,000 of our preferred shares, at market prices, representing 8.8% of the total number of preferred shares outstanding in the market. The purpose of the buyback is the purchase of preferred shares to be held in treasury and subsequently resold or cancelled, without reducing our capital. The period for these authorized transactions is 365 days from January 28, 2008. The program expired in January 2009, and a total of 1,574,200 preferred shares were bought back under the program.

     On March 20, 2009, our board of directors approved a capital stock increase issuing 6,606,366 voting and 19,487,356 non-voting shares to improve the company’s cash position and capital structure and to ensure the level of investments planned. The voting and non-voting shares will be issued at R$7.80 per share. Our controlling shareholders have fully subscribed and paid for their portion of the capital increase in an amount of R$150.0 million. If fully subscribed, the capital increase will total R$203.5 million.

Shareholders’ Agreement

     No shareholders’ agreements have been filed with us.

B. Related Party Transactions

     According to the Level 2 regulations, the company shall forward and disclose to BOVESPA the information regarding every and any agreement entered by and between Gol and its affiliates and associate companies, its administrators, its controlling shareholder, as the case may be, as well as other corporations that make a group with any such persons, whether factual or by law, whenever they reach, with a single agreement or with successive agreements, with or without the same purpose, at any period of one year, an amount of R$0.2 million or more, or a value of 1% or more over the net equity of the company, whichever is higher.

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     Such announced information shall describe the scope of the agreement, the term, the price, the termination or completion conditions and any possible influence of the agreement upon administration or company business conducting.

     We have engaged in a number of transactions with related parties, none of which have involved the issuance of guarantees.

Shareholders’ AgreementAssignment of Rights in the Context of the VRG Acquisition

     No shareholders’ agreements have been filed with us.The consideration paid by us for the acquisition of shares in VRG on April 9, 2007 consisted of a combination of cash and stock in the registrant. The payment in stock represented 3.1% of our total outstanding shares, or 6.1 million preferred shares that were created by way of a capital increase in our share capital. The issuance of preferred shares to Varig Logística S.A., the seller of VRG, triggered preemptive rights to our existing shareholders under Brazilian corporate law. In order for us to satisfy our obligation to deliver shares to Varig Logística S.A., our major shareholder Fundo de Investimento em Participações Asas assigned its preemptive rights on a cost-free basis back to GTI for transfer to Varig Logística S.A., thereby permitting the delivery of shares as a part of the purchase price.

Transportation Agreements with Áurea Administração e Participações S.A.

     Gol has entered into exclusive bus transportation agreements with Expresso União Ltda. and Breda Serviços, which are companies controlled by Áurea Administração e Participações S.A. for the transportation of Gol’s passengers, their baggage and Gol’s employees. In 20052007 and 2006,2008, Gol made total payments of approximately R$ 2.06.9 million and approximately R$ 3.55.3 million, under these bus transportation agreement.

Commercial Agreement with Unidas Rent a Car

     In May, 2009, Gol entered into a commercial agreement with Unidas Rent a Car, a Brazilian car rental company, which gives Unidas' customers a 50% discount on the daily car rental charges when these customers purchase their Gol tickets through Gol' s website. Gol's chairman, Álvaro de Souza, is also the chairman of Unidas Rent a Car.

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C. Interests of Experts and Counsel

     Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

     See “Item 3. Key Information—Selected Financial Data” and “Item 18. Financial Statements.”

Legal Proceedings

     In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to our operations, in large part linked to the routine demands related to the rights of consumers. As ofAt December 31, 2006,2008, we had R$29.2 million of total provisions for legalwere parties in judicial lawsuits and administrative actions,proceedings, including 749 administrative proceedings, 9,013 civil proceedings and 4,188 labor civil and tax.claims. We believe that the outcome of the proceedings to which we are currently a party will not have a material adverse effect on our financial position, results of operations and cash flows. We have established provisions for all amounts in dispute that represent a probable loss in the view of our legal advisors and in relation to those disputes that are covered by laws, administrative decrees, decrees or court rulings that have proven to be unfavorable. The table below sets forth the total estimated value of amounts claimed, provisions for contingencies and court deposits at December 31, 2008:

     Additionally, weWe are party to approximately 9,000 civil proceedings arising from the normal course of our business. The vast majority of these proceedings involve minor cases relating to customer relations. At December 31, 2008, we had established provisions to address these contingencies in fourthe total amount of R$20.9 million.

     We are party to approximately 4,180 labor proceedings arising from the normal course of our business. At December 31, 2008, we had established provisions to address these contingencies in the total amount of R$13.4 million. We are subject to 21 labor proceedings related to employees’ claims against Varig S.A. in Spain. We established provisions in the amount of R$25.2 million for these proceedings, even though we consider the probability of the execution of any decision against us in Brazil as remote.

     In 2001, we commenced proceedings against the Brazilian state revenue service, in which we claim an exemption from the payment of Brazilian value added tax (ICMS) due on imported aircraft, parts and engines. On May 30, 2007, theSupremo TribunalFederal(Federal Supreme Court) ruled in our favor in respect of one of these cases. Various of the proceedings relating to this matter are still pending. We have not established any provisions for the amounts in question, which was, as of December 31, 2008, R$201.8 million.

     We are party in indemnification lawsuits regarding the collision of our new Boeing 737-800 NG aircraft on September 26, 2006. We believe that any potential liability arising out of such lawsuits will be covered by our insurance policies.

ICMS We continue to cooperate fully with all regulatory and investigatory agencies to determine the cause of this accident and have reached agreements with 91 of the 148 passengers. The payments for the hull to the lessor were made by the insurance company. We have provisioned the amount insured as a liability on our balance sheet, and recorded a corresponding receivable for the insurance claim under “Other assets”.

     We commenced an arbitration before the International Chamber of Commerce against the sellers of VRG and its controlling shareholders relating to the purchase price adjustments for our acquisition of VRG. In the arbitral proceeding, we are currently challengingseeking a price adjustment of R$164.0 million from the levysellers of Brazil’s state value added tax (theImposto sobre Circulação de Mercadorias e Serviços, or ICMS) onVRG. The amount owed by the importsellers of VRG will be determined by an accounting firm to be selected by the arbitral tribunal. In conjunction with the arbitral proceedings, we have brought legal action and joined certain lawsuits in Brazilian courts with a view to preserving the ability of the sellers to satisfy our leased aircraft and engines from foreign countries. It is the understanding of our administration that the ICMS does not applyclaims. We have provisioned all amounts subject to these operations becauseproceedings.

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Table of their status as leases, which by contractual obligation requires the return of the aircraft and engines. We believe that, by not having circulated the aircraft and engines, we are exempt from the ICMS. The aggregate value of our ongoing disputes at December 31, 2006 was R$45.2 million.

     We have not constituted provisions in regards to these processes because we understand that the possibility of loss in these instances are remote and that practices adopted in financial preparation, consistent with international patterns, do not require provisions for losses.Contents

Dividends and Dividend Policy

Amounts Available for Distribution

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     At each annual general shareholders’ meeting, our board of directors is required to propose how our earnings for the preceding fiscal year are to be allocated. For purposes of Brazilian corporation law, a company’s non-consolidated net income after federal income tax and social contribution on net income for such fiscal year, net of any accumulated losses from prior fiscal years and amounts allocated to employees’ and management’s participation in earnings, represents its “income” for such fiscal year. In accordance with the Brazilian corporation law, an amount equal to the company’s “income,” as adjusted (the “distributable amount”), will be available for distribution to shareholders in any particular year. The distributable amount will be affected by the following:

     Our by-laws do not provide for statutory or contingency reserves. Under the Brazilian corporation law and according to our by-laws, we are required to maintain a “legal reserve” to which we must allocate 5% of our “income” for each fiscal year until the amount of the reserve equals 20% of paid-in capital. We are not required to make any allocations to our legal reserve in respect of any fiscal year in which such reserve, when added to our capital reserves, exceeds 30% of our capital. Accumulated losses, if any, may be charged against the legal reserve. Other than that, the legal reserve can only be used to increase our capital. The legal reserve is subject to approval by the shareholders voting at the annual shareholders’ meeting and may be transferred to capital but is not available for the payment of dividends in subsequent years. Our calculation of net income and allocations to reserves for any fiscal year are determined on the basis of our non-consolidated financial statements prepared in accordance with the Brazilian corporation law.

     Under the Brazilian corporation law, a portion of a corporation’s “income” may be allocated for discretionary appropriations for plant expansion and other fixed or working capital investment projects, the amount of which is based on a capital budget previously presented by management and approved by the shareholders in a general shareholders’ meeting. After completion of the relevant capital projects, the company may retain the appropriation until shareholders vote to transfer all or a portion of the reserve to capital or retained earnings. The Brazilian corporation law provides that, if a project to which the reserve for investment projects account is allocated has a term exceeding one year, the budget related to the project must be submitted to the shareholders’ meeting each fiscal year until the relevant investment is completed.

     Under the Brazilian corporation law, the amount by which the mandatory distribution exceeds the “realized” portion of net income for any particular year may be allocated to the unrealized profits reserve and the mandatory distribution may be limited to the “realized” portion of net income. The “realized” portion of net income is the amount by which “income” exceeds the sum of (a) our net positive results, if any, from the equity method of accounting for earnings and losses of our subsidiaries and certain affiliates, and (b) the profits, gains or income obtained on transactions maturing after the end of the following fiscal year. As amounts allocated to the unrealized income reserve are realized in subsequent years, such amounts must be added to the dividend payment relating to the year of realization.

     Under Brazilian tax legislation, a portion of the income taxes payable may also be transferred to a general “fiscal incentive reserve” in amounts equivalent to the reduction in the company’s income tax liability which results from the option to deposit part of that liability into investment in approved projects in investment incentive regions established by government.

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     Under the Brazilian corporation law, any company may create a “statutory” reserve, which reserve must be described in the company’s by-laws. Those by-laws which authorize the allocation of a percentage of a company’s net income to the statutory reserve must also indicate the purpose, the criteria for allocation and the maximum amount of the reserve. The Brazilian corporation law provides that all discretionary allocations of “income,” including the unrealized profits reserve and the reserve for investment projects, are subject to approval by the shareholders voting at the general shareholders’ meeting and may be transferred to capital or used for the payment of dividends in subsequent years. The fiscal incentive reserve and the legal reserve are also subject to approval by the shareholders voting at the general shareholders’ meeting and may be transferred to capital or used to absorb losses, but are not available for the payment of dividends in subsequent years.

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     The amounts available for distribution may be further increased by a reversion of the contingency reserve for anticipated losses constituted in prior years but not realized. Allocations to the contingency reserve are also subject to approval by the shareholders voting at the general shareholders meeting. The amounts available for distribution are determined on the basis of our non-consolidated financial statements prepared in accordance with Brazilian GAAP.

     The balance of the profit reserve accounts, except for the contingency reserve and unrealized profits reserve, may not exceed the share capital. If this happens, a shareholders’ meeting must resolve whether the excess will be applied to pay in the subscribed and unpaid capital, to increase and pay in the subscribed stock capital or to distribute dividends.

     Pursuant to Law No. 10,303, net income unallocated to the accounts mentioned above must be distributed as dividends.

Mandatory Distribution

     The Brazilian corporation law generally requires that the by-laws of each Brazilian corporation specify a minimum percentage of the amounts available for distribution by such corporation for each fiscal year that must be distributed to shareholders as dividends, also known as the mandatory distribution.

     The mandatory distribution is based on a percentage of adjusted non-consolidated net income, not lower than 25%, rather than a fixed monetary amount per share. If the by-laws of a corporation are silent in this regard, the percentage is deemed to be 50%. Under our by-laws, at least 25% of our adjusted non-consolidated net income, as calculated under Brazilian GAAP and adjusted under the Brazilian corporation law (which differs significantly from net income as calculated under U.S. GAAP)IFRS), for the preceding fiscal year must be distributed as a mandatory annual dividend. Adjusted net income means the net income after any deductions for the legal reserve and contingency reserves and any reversals of the contingency reserves created in previous fiscal years. The Brazilian corporation law, however, permits a publicly held company, such as we are, to suspend the mandatory distribution of dividends in any fiscal year in which the board of directors reports to the shareholders’ meeting that the distribution would be inadvisable in view of the company’s financial condition. The suspension is subject to the approval at the shareholders’ meeting and review by members of the fiscal committee. While the law does not establish the circumstances in which payment of the mandatory dividend would be “inadvisable” based on the company’s financial condition, it is generally agreed that a company need not pay the mandatory dividend if such payment threatens the existence of the company as a going concern or harms its normal course of operations. In the case of publicly held corporations, the board of directors must file a justification for such suspension with the CVM within five days of the relevant general meeting. If the mandatory dividend is not paid and funds are available, those funds shall be attributed to a special reserve account. If not absorbed by subsequent losses, those funds shall be paid out as dividends as soon as the financial condition of the company permits.

     The board of directors can also decide to make the mandatory dividend distribution in the form of interest attributable to shareholders’ equity, which is deductible when calculating income and social contribution taxes.

Payment of Dividends

     We are required by the Brazilian corporation law to hold an annual general shareholders’ meeting by no later than April 30 of each year, at which time, among other things, the shareholders have to decide on the payment of an annual dividend. Additionally, interim dividends may be declared by the board of directors. Any holder of record of shares at the time of a dividend declaration is entitled to receive dividends. Dividends on shares held through depositaries are paid to the depositary for further distribution to the shareholders. Commencing in the first quarter

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     Under the Brazilian corporation law, dividends are generally required to be paid to the holder of record on a dividend declaration date within 60 days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of payment, which, in either case, must occur prior to the end of the fiscal year in which such dividend was declared. Pursuant to our by-laws, unclaimed dividends do not bear interest, are not monetarily adjusted and revert to us three years after dividends were declared. See “Item 10.B. Memorandum of Articles of Association—Description of Capital Stock.”

     Our board of directors may declare interim dividends or interest attributable to shareholders’ equity based on income verified in semi-annual financial statements. The board of directors may also declare dividends based on financial statements prepared for shorter periods, provided that the total dividends paid in each six-month period do not exceed the capital reserves amount prescribedrequired by paragraph 1, article 182, of the Brazilian corporation law. The board of directors may also pay interim dividends or interest attributable to shareholders’ equity out of retained earnings or income reserves recorded in the last annual balance sheet. Any payment of interim dividends may be set off against the amount of mandatory dividends relating to the net income earned in the year in which the interim dividends were paid.

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     Our bylawsby-laws do not require that we adjust the amount of any dividend payment to inflation.

     In general, shareholders who are not residents of Brazil must register their equity investment with the Central Bank to have dividends, sales proceeds or other amounts with respect to their shares eligible to be remitted outside Brazil. The preferred shares underlying the ADSs are held in Brazil by Banco Itaú S.A., also known as the custodian, as agent for the depositary, that is the registered owner on the records of the registrar for our shares. The current registrar is Banco Itaú S.A.. The depositary registers the preferred shares underlying the ADSs with the Central Bank and, therefore, is able to have dividends, sales proceeds or other amounts with respect to registered preferred shares remitted outside Brazil.

     Payments of cash dividends and distributions, if any, are made inreaisto the custodian on behalf of the depositary, which then converts such proceeds into U.S. dollars and causes such U.S. dollars to be delivered to the depositary for distribution to holders of ADSs. In the event that the custodian is unable to convert immediately the Brazilian currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by depreciationsdepreciation of the Brazilian currency that occur before the dividends are converted. Under the current Brazilian corporation law, dividends paid to persons who are not Brazilian residents, including holders of ADSs, will not be subject to Brazilian withholding tax, except for dividends declared based on profits generated prior to December 31, 1995, which will be subject to Brazilian withholding income tax at varying tax rates. See “Item 10. Taxation—Material Brazilian Tax Considerations.”

     Holders of ADSs have the benefit of the electronic registration obtained from the Central Bank, which permits the depositary and the custodian to convert dividends and other distributions or sales proceeds with respect to the preferred shares represented by ADSs into foreign currency and remits the proceeds outside Brazil. In the event the holder exchanges the ADSs for preferred shares, the holder will be entitled to continue to rely on the depositary’s certificate of registration for five business days after the exchange. Thereafter, in order to convert foreign currency and remit outside Brazil the sales proceeds or distributions with respect to the preferred shares, the holder must obtain a new certificate of registration in its own name that will permit the conversion and remittance of such payments through the commercial rate exchange market. See “Item 10.B. Memorandum of Articles of Association—Description of Capital Stock—Regulation of Foreign Investment and Exchange Controls.”

     If the holder is not a duly qualified investor and does not obtain an electronic certificate of foreign capital registration, a special authorization from the Central Bank must be obtained in order to remit from Brazil any payments with respect to the preferred shares through the commercial rate exchange market. Without this special authorization, the holder may currently remit payments with respect to the preferred shares through the floating rate exchange market, although no assurance can be given that the floating rate exchange market will be accessible for these purposes in the future.

     Under current Brazilian legislation, the federal government may impose temporary restrictions of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments.

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Interest Attributable to Shareholders’ Equity

     Under Brazilian tax legislation effective January 1, 1996, Brazilian companies are permitted to pay “interest” to holders of equity securities and treat such payments as an expense for Brazilian income tax purposes and, beginning in 1998, for social contribution purposes. The purpose of the tax law change is to encourage the use of equity investment, as opposed to debt, to finance corporate activities. Payment of such interest may be made at the discretion of our board of directors, subject to the approval of the shareholders at a general shareholders’ meeting. The amount of any such notional “interest” payment to holders of equity securities is limited in respect of any particular year to the daily pro rata variation of the TJLP, as determined by the Brazilian Central Bank from time to time, and may not exceed the greater of:

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     Under current Brazilian legislation, the sum of the amount distributed as interest on shareholders’ equity and as dividends must be at least equal to the mandatory dividend. For Brazilian GAAP accounting purposes, although the interest charge must be reflected in the statement of operations to be tax deductible, the charge is reversed before calculating net income in the statutory financial statements and deducted from shareholders’ equity in a manner similar to a dividend. Any payment of interest in respect of preferred shares (including the ADSs) is subject to Brazilian withholding income tax at the rate of 15%, or 25% in the case of a shareholder domiciled in a tax haven jurisdiction (see “Item 10. Taxation—Material Brazilian Tax Considerations”). If such payments are accounted for, at their net value, as part of any mandatory dividend, the tax is paid by the company on behalf of its shareholders, upon distribution of the interest. In case we distribute interest attributed to shareholders’ equity in any year, and that distribution is not accounted for as part of mandatory distribution, Brazilian income tax would be borne by the shareholders. For U.S. GAAPIFRS accounting purposes, interest attributable to shareholders’ equity is reflected as a dividend payment.

     Under our by-laws, interest attributable to shareholders’ equity may be treated as a dividend for purposes of the mandatory dividend.

     The following table sets forth the distributions out of net income that we made or will make to our shareholders in respect of our 2004, 20052006, 2007 and 20062008 net income.

Year Ended December 31,   Payment Dates  Payment per Share  Payment per ADS(1) Aggregate AmountDistributed(2) Gross Pay-out Ratio(3) Net Pay-out Ratio(4)
       
2004  April 2005  0.32  0.32  60.7         26.6%  26.6% 
2005  April 2006  0.60  0.60  117.9         29.2%  25.0% 
2006:             
     First quarter  May 2006  0.22  0.22  43.5         28.5%  25.0% 
     Second quarter  August 2006  0.16  0.16  32.1         34.4%  29.2% 
     Third quarter  Nov/Dec 2006  0.32  0.32  62.1         28.1%  26.1% 
     Fourth quarter  Feb/Mar 2007*  0.22  0.22  43.5         23.7%  21.5% 
           Total    0.90  0.90  181.2         27.9%  25.0% 

        Aggregate     
    Payment per  Payment per  Amount  Gross Pay-out  Net Pay-out 
Year Ended December 31,  Payment Dates  Share  ADS(1) Distributed(2) Ratio(3) Ratio(4)
       
2006:             
     First quarter  May 2006  0.22  0.22  43.5  28.5%  25.0% 
     Second quarter  August 2006  0.16  0.16  32.1  34.4%  29.2% 
     Third quarter  Nov/Dec 2006  0.32  0.32  62.1  28.1%  26.1% 
     Fourth quarter  Feb/Mar 2007  0.22  0.22  43.5  23.7%  21.5% 
           Total    0.90  0.90  181.2  27.9%  25.0% 
2007:             
     First quarter  May 2007  0.35  0.35  73.7  84.7%  78.9% 
     Second quarter  August 2007  0.35  0.35  76.0  50.9%  47.5% 
     Third quarter  November 2007  0.35  0.35  76.5  163.0%  150.8% 
     Fourth quarter  February 2008  0.35  0.35  76.5  NA  NA 
           Total    1.39  1.39  302.8  118.7%  110.2% 
2008:             
     First quarter  June 2008  0.18  0.18  36.3  NA  NA 
           Total    0.18  0.18  36.3  NA  NA 
______________________
* Expected payment date 
(1)Adjusted for the 2:1 ADS ratio change in December 2005.
(2)In millions ofreais.
(3)Represents distribution divided by net income, as calculated under Brazilian GAAP and adjusted under the Brazilian corporation law.
(4)Net of withholding tax on interest on shareholders’ equity.

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     Based on its dividend policy and the income accrued, the Company distributed interim dividends in the first quarter of 2008. On August 6, 2008 the Board of Directors decided to suspend the distribution of quarterly dividends for the remainder of 2008, owing to the fact that such distribution was no longer compatible with the results forecast for the year.

Dividend Policy

     We intend to declare and pay dividends and/or interest attributed to shareholders’ equity, as required by the Brazilian corporation law and our by-laws. Commencing in the first quarter of 2006, we started paying dividends quarterly. Our board of directors has approved the distribution of dividends and/or interest attributed to shareholders’ equity, calculated based on our non-consolidated semiannual or quarterly financial statements. The declaration of annual dividends, including dividends in excess of the mandatory distribution, requires approval by the vote of the majority of the holders of our common shares. The amount of any distributions will depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and shareholders. Within the context of our tax planning, we may in the future continue determining that it is to our benefit to distribute interest attributed to shareholders’ equity.

     On August 6, 2008, our Board of Directors decided to suspend quarterly dividend payments in order to allow GOL to employ cash to fund investments and improve credit ratios.

B. Significant Changes

None.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

     In the United States, our preferred shares trade in the form of ADS. Since December 2005 each ADS represents one preferred share, issued by The Bank of New York, as Depositary pursuant to a Deposit Agreement. On December 13, 2005, we executed a 2:1 ADS split, changing to ratio of one ADS representing two preferred shares to one ADS representing one preferred share, as approved by a meeting of the Board of Directors of the Company on November 8, 2005. The ADSs commenced trading on the NYSE on June 24, 2004. As of December 31, 2006,2008, the ADSs represented approximately 47.4%24.1% of our preferred shares and 76.2%45.0% of our current global public float. Our preferred share and ADSs s are included in various indexes at the BOVESPA and the New York Stock Exchange and were most recently included in the BOVESPA’s IBrX-50 Index, which measures the total return of a select portfolio of the 50 most traded stocks on the BOVESPA, in terms of liquidity.

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     The following table sets forth the reported high and low closing sales prices for the ADSs on the NYSE for the periods indicated.

  US$ per ADS(1)
  
  Low  High  Average(2)
    
2004       
Annual       8.20               16.45  10.47 
2005       
Annual  12.20             28.74  16.57 
First quarter  12.57             16.51  14.60 
Second quarter  12.20             16.56  14.62 
Third Quarter  14.06             18.00  15.88 
Fourth Quarter  15.50             28.74  21.17 
2006       
Annual  25.25             40.24  31.54 
First quarter  25.25             34.12  28.96 
Second quarter  27.16             40.24  33.27 
Third Quarter  28.21             36.67  33.08 
Fourth Quarter  27.44             36.92  30.79 
Last Six Months  27.44             36.92  31.56 
August 2006  30.53             34.91  32.62 
September 2006  33.30             36.67  35.08 
October 2006  31.00             36.92  33.42 
November 2006  27.85             31.85  29.53 
December 2006  27.44             31.21  29.22 
January 2007  27.55  ��          30.52  29.21 

Source: Bloomberg
  US$ per ADS 
  
  Low  High  Average(1)
    
2006       
Annual  25.16  40.09  31.42 
2007       
Annual       
First quarter  25.78  32.03  28.89 
Second quarter  27.20  34.30  30.44 
Third Quarter  19.19  32.96  24.79 
Fourth Quarter  23.07  27.62  25.48 
2008       
Annual       
First quarter  14.76  23.99  18.40 
Second quarter  11.26  17.83  14.83 
Third Quarter  5.95  12.00  9.04 
Fourth Quarter  2.93  6.97  4.14 
Last Six Months       
September 2008  5.95  9.35  7.93 
October 2008  2.93  6.97  4.43 
November 2008  3.20  4.70  3.76 
December 2008  3.63  4.63  4.18 
January 2009  4.27  5.26  4.71 
February 2009  3.75  4.55  4.17 
March 2009  2.83  4.16  3.46 
April 2009  2.86  3.57  3.31 
______________
Source: Bloomberg
(1) Reflecting the ADS ratio change from one ADS representing two preferred shares to one ADS representing one preferred share, occurred in December 2005.
(2)     Calculated as average of closing prices for the periodperiod. 

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     Our preferred shares began trading on the São Paulo Stock Exchange on June 24, 2004. The following table sets forth the reported high and low closing sale prices for our preferred shares on the BOVESPA, for the periods indicated.

 Reaisper Preferred Share  Reaisper Preferred Share 
  
 Low  High  Average(1) Low  High  Average(1)
      
2004       
2006       
Annual       25.00     44.31  29.83  54.60  82.50  68.19 
2005   
2007       
Annual       32.24   66.90  40.00       
First quarter       34.00   42.60  38.89  52.99  67.26  60.70 
Second quarter     32.24   39.88  36.29  54.99  65.47  60.31 
Third Quarter       33.53   42.00  37.19  36.61  63.00  47.36 
Fourth Quarter     35.05   66.90  47.64  42.00  48.49  45.55 
2006   
2008       
Annual       54.80   82.80  68.44       
First quarter       54.80   72.00  63.14  25.40  42.40  31.84 
Second quarter     58.30   82.80  72.30  17.92  29.12  24.51 
Third Quarter       62.60   79.88  71.85  11.51  19.10  14.96 
Fourth Quarter  6.90  13.05  9.37 
Last Six Months       
September 2008  11.51  17.10  14.27 
October 2008  6.90  13.05  9.47 
November 2008  7.51  10.00  8.54 
December 2008  9.20  11.29  10.05 
January 2009  10.02  11.96  10.93 
February 2009  9.32  10.22  9.81 
March 2009  6.65  9.80  8.04 
April 2009  6.58  7.63  7.28 
______________
Source: Bloomberg
(1) Calculated as average of closing prices for the period. 

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Fourth Quarter  59.40  79.60  66.30 
Last Six Months  59.40  79.88  67.99 
August 2006  66.50  74.01  70.38 
September 2006  72.49  79.88  76.04 
October 2006  65.90  79.60  71.60 
November 2006  60.30  68.50  63.78 
December 2006  59.40  66.70  62.98 
January 2007  59.44  64.90  62.43 

Source: Bloomberg
     (1) Calculated as average of closing prices for the period.

B. Plan of Distribution

     Not applicable.

C. Markets

Trading on the BOVESPA

     In 2000, the BOVESPASão Paulo Stock Exchange was reorganized through the execution of memoranda of understanding by the Brazilian stock exchanges. Under the memoranda, all securities are now traded only on the BOVESPA,São Paulo Stock Exchange, with the exception of electronically traded public debt securities and privatization auctions, which are traded on the Rio de Janeiro Stock Exchange.

     On May 8, 2008, the São Paulo Stock Exchange and the Brazilian Mercantile and Futures Exchange merged, creating the new BM&F BOVESPA. Together, the companies have formed the third largest exchange worldwide in terms of market value, the second largest in the Americas, and the leading exchange in Latin America

     When shareholders trade in common and preferred shares on the BOVESPA, the trade is settled in three business days after the trade date without adjustment of the purchase price for inflation. The seller is ordinarily required to deliver the shares to the exchange on the second business day following the trade date. Delivery of and payment for shares are made through the facilities of the clearinghouse,Companhia Brasileira de Liquidação e Custódia, or CBLC.

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     The BOVESPA is a nonprofit entity owned byfor-profit listed company that has regulatory authority over its member brokerage firms.trading markets. Trading on the BOVESPA is limited to member brokerage firms and a limited number of authorized nonmembers. The BOVESPA has two open outcry trading sessions each day from 11:10:00 a.m. to 6:5:00 p.m., São Paulo time, for all securities traded on all markets, except during daylight savings time in the United States.Brazil. During daylight savings time in the United States,Brazil, usually the sessions are from 10:11:00 a.m. to 17:6:00 p.m., São Paulo time, to closely mirror the NYSE trading hours. Trading is also conducted between 11:00 a.m. and 6:00 p.m., or between 10:00 a.m. and 5:00 p.m. during daylight savings time in the United States, on an automated system known as the Computer Assisted Trading System (Sistema de NegociaçãoAssistida por Computador) on the BOVESPA and on the National Electronic Trading System (Sistema Eletrônico de Negociação Nacional). This system is a computerized system that links electronically with the seven smaller regional exchanges. The BOVESPA also permits trading from 6:5:45 p.m. to 7:3000 p.m., São Paulo time, on an online system connected to traditional and internetInternet brokers called the “after market.” Trading on the after market is subject to regulatory limits on price volatility and on the volume of shares transacted through internetInternet brokers. There are no specialists or officially recognized market makers for our shares in Brazil.

     In order to better control volatility, the BOVESPA adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the indices of the BOVESPA falls below the limits of 10% or 15%, respectively, in relation to the index registered in the previous trading session.

     The BOVESPA is significantly less liquid than the NYSE or other major exchanges in the world. As of December 2006,2008, the aggregate market capitalization of the BOVESPA was equivalent to R$1.6 billion1.37 trillion and the 10 largest companies listed on the BOVESPA represented approximately 54%53.1% of the total market capitalization of all listed companies. In contrast, as of December 2006,2007, the aggregate market capitalization of the NYSE was US$25 trillion and the 10 largest companies listed on the NYSE represented approximately 10% of the total market capitalization of all listed companies. The average daily trading volume of BOVESPA and NYSE for December 2006 was approximately R$2.4 billion and US$68 billion, respectively.17 trillion. Although any of the outstanding shares of a listed company may trade on the BOVESPA, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, by government entities or by one principal shareholder. See “Item 3. Risk Factors—Risks Relating to the ADSs and Our Preferred Shares—The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the preferred shares underlying the ADSs at the time and price you desire.”

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     Trading on the BOVESPA by a holder not deemed to be domiciled in Brazil for Brazilian tax and regulatory purposes, a non-Brazilian holder, is subject to certain limitations under Brazilian foreign investment legislation. With limited exceptions, non-Brazilian holders may only trade on Brazilian stock exchanges in accordance with the requirements of Resolution No. 2,689, of January 26, 2000, of the National Monetary Council (Conselho Monetário Nacional,, or CMN), or Resolution No. 2,689. Resolution No. 2,689 requires that securities held by non-Brazilian holders be maintained in the custody of, or in deposit accounts with, financial institutions and be registered with a clearinghouse. Such financial institutions and clearinghouses must be duly authorized to act as such by the Central Bank and the CVM. In addition, Resolution No. 2,689 requires non-Brazilian holders to restrict their securities trading to transactions on Brazilian stock exchanges or qualified over-the-counter markets. With limited exceptions, non-Brazilian holders may not transfer the ownership of investments made under Resolution No. 2,689 to other non-Brazilian holders through a private transaction. See “Item 10. Taxation—Material Brazilian Tax Considerations—Taxation on Gains” for a description of certain tax benefits extended to non-Brazilian holders who qualify under Resolution No. 2,689.

Corporate Governance Practices

     In 2000, the BOVESPASão Paulo Stock Exchange introduced three special listing segments, known as Level 1 and 2 of Differentiated Corporate Governance Practices and New Market (Novo Mercado), aiming at fostering a secondary market for securities issued by Brazilian companies with securities listed on the BOVESPA,São Paulo, by prompting such companies to follow good practices of corporate governance. The listing segments were designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders.

     To become a Level 1 (Nível 1) company, in addition to the obligations imposed by current Brazilian law, an issuer must agree to (a) ensure that shares of the issuer representing 25% of its total capital are effectively available for trading, (b) adopt offering procedures that favor widespread ownership of shares whenever making a public offering, (c) comply with minimum quarterly disclosure standards including cash flow statements, (d) follow stricter disclosure policies with respect to transactions made by controlling shareholders, directors and officers involving securities issued by the issuer;issuers; (e) submit any existing shareholders’ agreements and stock option plans to the BOVESPA;BOVESPA and (f) make an annual calendar announcing scheduled corporate events, bringing information on the company, the event, date and time it is going to take place; any changes in the schedule shall be promptly forwarded to BOVESPA and published.

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     To become a Level 2 (Nível 2) company, in addition to the obligations imposed by current Brazilian law, an issuer must agree to (a) comply with all of the listing requirements for Level 1 companies, (b) grant tag-along rights for all shareholders in connection with a transfer of control of the company, offering the same price paid per share for controlling block common shares and 80% of the price paid per share for controlling block preferred shares, (c) grant voting rights to holders of preferred shares in connection with certain corporate restructurings and related party transactions, such as: (i) any transformation of the company into another corporate form, (ii) any merger, consolidation or spin-off of the company, (iii) approval of any transactions between the company and its controlling shareholder, including parties related to the controlling shareholder, (iv) approval of any valuation of assets to be delivered to the company in payment for shares issued in a capital increase, (v) appointment of an independent company, with renowned expertise, to ascertain the economic value of the company in connection with any deregistration and delisting tender offer, and (vi) any changes to these voting rights, (d) have a board of directors comprised of at least five members, of which at least 20% shall be “independent”,“independent,” as defined by the BOVESPA, with a term limited to two years, (e) if it elects to delist from the Level 2 segment, hold a tender offer by the company’s controlling shareholder (the minimum price of the shares to be offered will be the economic value determined by an appraisal process), and, for the same purposes, in the case of companies with diffuse control (controlling power exercised by the shareholder holding less than 50% of the voting capital and per group of shareholders who are not signatories of voting agreements and which is not under a common control and does not act as a representative of a common interest) to comply with complementary rules to be issued by BOVESPA,; (f) disclose: (i) quarterly financial statements in English or prepared in accordance with U.S. GAAP or International Financial Reporting Standards (IFRS);IFRS and (ii) annual financial statements in English, including cash flow statements, prepared in accordance with U.S. GAAP or International Financial Reporting Standards ( IFRS),IFRS, in American DollarsU.S. dollars orreais, and (g) adhere exclusively to the rules of the BOVESPA Arbitration Chamber for resolution of disputes involving the controlling shareholders, the managers and the members of the fiscal committee.

     To be listed in theNovo Mercado, an issuer must meet all of the requirements described above, in addition to (a) issuing only voting shares and ensure that all the shares will be composed exclusively of common shares, (b) granting tag-along rights for all shareholders in connection with a transfer of control of the company, offering the same price paid per share for controlling block common shares.

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     In May 2004, we entered into an agreement with the BOVESPA to comply with the requirements to become a Level 2 company. Upon the closing of our global public offering of our preferred shares on May 3, 2005, we are in compliance with the requirement to achieve a free float of 25% of our preferred shares. In addition to complying with Level 2 requirements, we have also granted tag-along rights to holders ofthat entitle our preferred shares in connection with a transfer of control of our company, offering preferred shareholders to receive 100% of the price paid per common share of controlling block shareholders.shareholders in connection with a transaction resulting in a transfer of control of our company. Furthermore, we prepare quarterly financial statements in accordance with U.S. GAAP.IFRS. We were included in the following indexes (a) in 2005: IbrX-100 (¥Índice Brasil, Index Brazil), IGC (¥Índice de Ações com Governanca Corporativa Diferciada, Special Corporate Governance Index), ITAG (¥Índice de Ações com Tag Along Diferciado, Special Tag Along Stock Index) and MSCI (Morgan Stanley Capital International Index);, (b) in 2006: IbrX-50 (¥Índice Brasil 50,, Index Brazil 50)50): and c)(c) in 2007:¥Índice BOVESPA, all of which reflectsreflect our increased market capitalization and liquidity of our preferred shares.

Regulation of the Brazilian Securities Market

     The Brazilian securities markets are regulated by the CVM, which has regulatory authority over the stock exchanges and securities markets, as well as by the Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions. The Brazilian securities markets are governed by Law No. 10,198 dated February 14, 2001, Law No. 10,303 dated October 31, 2001, known as Law No. 10,303 and Law No. 10,411 dated February 26, 2002, which introduced new concepts and several changes to Law No. 6,385 dated December 7, 1976, as amended and supplemented, the principal law governing the Brazilian securities markets, by Brazilian corporation law, and by regulations issued by the CVM, the CMN and the Central Bank. These laws and regulations, among others, provide for disclosure requirements applicable to issuers of traded securities, criminal sanctions for insider trading and price manipulation, and protection of minority shareholders. They also provide for licensing and oversight of brokerage firms and governance of Brazilian stock exchanges. However, the Brazilian securities markets are not as highly regulated and supervised as U.S. securities markets.

     Under the Brazilian corporation law, a company is either publicly held, acompanhia aberta, or privately held, acompanhia fechada. All listed companies are registered with the CVM and are subject to reporting and regulatory requirements. A company registered with the CVM may trade its securities either on the BOVESPA or in the Brazilian over-the-counter market. Shares of companies listed on the BOVESPA may not simultaneously trade on the Brazilian over-the-counter market. The shares of a listed company may also be traded privately, subject to several limitations. To be listed on the BOVESPA, a company must apply for registration with the BOVESPA and the CVM.

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     The trading of securities on the BOVESPA may be halted at the request of a company in anticipation of a material announcement. Trading may also be suspended on the initiative of the BOVESPA or the CVM, among other reasons, based on or due to a belief that a company has provided inadequate information regarding a significant event or has provided inadequate responses to inquiries by the CVM or the BOVESPA.

     Trading on the BOVESPA by non-residents of Brazil is subject to limitations under Brazilian foreign investment and tax legislation. The Brazilian custodian for the preferred shares underlying the ADSs must, on behalf of the depositary for the ADSs, obtain registration from the Central Bank to remit U.S. dollars abroad for payments of dividends, any other cash distributions, or upon the disposition of the shares and sales proceeds thereof. If you exchange your ADSs for preferred shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for five business days after the exchange. Thereafter, you may not be able to obtain and remit abroad non-Brazilian currency upon the disposition of or distributions relating to the preferred shares, and will be subject to a less favorable tax treatment on gains with respect to the preferred shares, unless you obtain a new electronic certificate of foreign capital registration or qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on the BOVESPA without obtaining separate electronic certificates of foreign capital registration. See “Item 10.B. Memorandum of Articles of Association—Description of Capital Stock—Regulation of Foreign Investment.”

Disclosure Requirements

     According to Law No. 6.385,No 6,385, a publicly held company must submit to CVM and BOVESPA certain periodic information, including annual and quarterly reports prepared by management and independent auditors. This legislation also requires us to file with CVM our shareholders’ agreements, notices of shareholders’ meetings and copies of the related minutes.

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     Pursuant to CVM Rule No. 358, of January 3, 2002, the CVM revised and consolidated the requirements regarding the disclosure and use of information related to material facts and acts of publicly held companies, including the disclosure of information in the trading and acquisition of securities issued by publicly held companies.

     Such requirements include provisions that:

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     In addition to the disclosure requirements under the Brazilian corporate law and the CVM regulations, we must also observe the following disclosure requirements:

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Changes in the Brazilian Corporation Law

     On October 31, 2001, Law No. 10,303, amending the Brazilian corporation law, was enacted. The main goal of Law No. 10,303 is to broaden the rights of minority shareholders. Law No. 10,303:

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Significant Differences between our Corporate Governance Practices and NYSE Corporate Governance Standards

     We are subject     On July 13, 2007, the CVM issued CVM Rule No. 457 to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE rules, we are required only to: (a) have an audit committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (b) provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules, and (c) provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies. The discussion of the significant differences between our corporate governance practices and those required of U.S.require listed companies follows below.

     Majority of Independent Directorsto publish their consolidated financial statements according to IFRS starting with the year ending December 31, 2010.

     The NYSE rules require that a majority of the board must consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the directorOn December 28, 2007, Law No. 11,638 was enacted and the listed company. Brazilian law does not have a similar requirement. Under Brazilian law, neither our board of directors nor our management is required to test the independence of directors before their election to the board. However, both the Brazilian Corporate Law and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While our directors meet the qualification requirementsamended numerous provisions of the Brazilian Corporatecorporate law relating to accounting principles and authority to issue accounting standards. Law No. 11,638 sought to enable greater convergence between Brazilian GAAP and IFRS. To promote convergence, Law No. 11,638 modified certain accounting principles of the Brazilian corporate law and mandated the CVM to issue accounting rules conforming to the accounting standards adopted in international markets. Additionally, the statute acknowledged a role in the setting of accounting standards for the Comitê de Pronunciamentos Contábeis (the Committee for Accounting Pronouncements or CPC), which is a committee of officials from the BOVESPA, industry representatives and academic bodies that has issued accounting guidance and pursued the improvement of accounting standards in Brazil. Law No. 11,638 permits the CVM and the CVM, we do not believe that a majority of our directors would be considered independent underBrazilian Central Bank to rely on the NYSE test for director independence. The Brazilian Corporate Law requires that our directors be elected by our shareholders at a general shareholders’ meeting. Five of our directors are elected by, and represent, our controlling shareholder.

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     Executive Sessions

     NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. The Brazilian Corporate Law does not have a similar provision. According to the Brazilian Corporate Law, up to one-third of the members of the board of directors can be elected from management. Constantino de Oliveira Jr., our president and chief executive officer, is a member of our board of directors. The remaining non-management directors are not expressly empowered to serve as a check on management, and there is no requirement that those directors meet regularly without management. As a result, the non-management directors on our board do not typically meet in executive session.

     Nominating/Corporate Governance Committee

     NYSE rules require that listed companies have a nominating/corporate governance committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. Our corporate governance and nomination committee is responsible for the coordination, implementation and periodic review of “best practices” of corporate governance and for monitoring and keeping our board of directors informed about legislation and market recommendations addressing corporate governance. The committee also proposes individuals to be considered for election to our board of directors. The committee consists of up to five members elected by our board of directors for a one-year term of office. Currently, the corporate governance and nomination committee consists of Charles Barnsley Holland, Paulo César Aragão and Betania Tanure de Barros.

     People Management Policies Committee

     NYSE rules require that listed companies have a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive-compensation and equity-based plans. We are not required under applicable Brazilian law to have a compensation committee. Under the Brazilian Corporate Law, the total amount available for compensation of our directors and executive officers and for profit-sharing payments to our executive officers is established by our shareholders at the annual general meeting. The board of directors is then responsible for determining the individual compensation and profit-sharing of each executive officer, as well as the compensation of our board and committee members. In making such determinations, the board reviews the performance of the executive officers, including the performance of our chief executive officer, who typically excuses himself from discussions regarding his performance and compensation.

     Our compensation committee reviews and recommends to our board of directors the forms of compensation, including salary, bonus and stock options, to be paid to our directors and executive officers. The compensation committee also reviews and recommends revisions to the compensation policies applicable to our directors and executive officers and reviews our management’s career and succession plans. The compensation committee is comprised of up to three members elected by our board of directors for a one-year term. The compensation committee currently consists of Henrique Constantino, who is one of our directors, Marco Antonio Piller, the human resources director of Gol, and Marcos Morales, a human resources consultant from Watson Wyatt.

     Audit Committee

     NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, we need only to comply with the requirement that the audit committee meet the SEC rules regarding audit committees for listed companies. The Brazilian Corporate Law requires companies to have a non-permanentConselho Fiscal composed of three to five members who are elected at the general shareholders’ meeting.We have established an audit committee, which is equivalent to a U.S. audit committee, provides assistance to our board of directors in matters involving our accounting, internal controls, financial reporting and compliance. The audit committee recommends the appointment of our independent auditors to our board of directors and reviews the compensation of, and coordinates with, our independent auditors. The audit committee also evaluates the effectiveness of our internal financial and legal compliance controls. The audit committee is comprised of up to three members electedstandards issued by the board of directorsCPC in establishing accounting principles for a one-year term of office. The current members of our a udit committee are Álvaro Souza, Antonio Kandir and Luiz Kaufmann. All members of the audit committee satisfy the audit committee membership independence requirements set forth by the SEC and the NYSE. Luiz Kaufmann is an audit committee “financial expert” within the meaning of the rules adopted by the SEC relating to the disclosure of financial experts on audit committees in periodic filings pursuant to the U.S. Securities Exchange Act of 1934.

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     Shareholder Approval of Equity Compensation Plans

     NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions. Under the Brazilian Corporate Law, shareholders must approve all stock option plans. In addition, any issuance of new shares that exceeds our authorized share capital is subject to shareholder approval.

     Corporate Governance Guidelines

     NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We have not adopted any formal corporate governance guidelines beyond those required by applicable Brazilian law. We have adopted and observe a disclosure policy, which requires the public disclosure of all relevant information pursuant to guidelines set forth by the CVM, as well as an insider trading policy, which, among other things, establishes black-out periods and requires insiders to inform management of all transactions involving our securities.

     Code of Business Conduct and Ethics

     NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Applicable Brazilian law does not have a similar requirement. We have adopted a Code of Ethics and Conduct applicable to our officers, directors and employees worldwide, including at the subsidiary level. We believe this code addresses the matters required to be addressed pursuant to the NYSE rules. For a further discussion of our Code of Ethics and Conduct, see “Item 16B. Code of Ethics.”

     Internal Audit Function

     NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control. Our internal audit and compliance department was created in 2004 under the supervision of our chief financial officer and our audit committee and is responsible for our compliance with the requirements of Section 404 of the U.S. Sarbanes Oxley Act of 2002 regarding internal control over financial reporting. The internal audit and compliance department reports to our chief executive officer and the audit committee.

Sarbanes Oxley Act of 2002

     The Company maintains controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. We were one of the first Latin American companies to give the relevant officer certifications under Section 404 of the U.S. Sarbanes Oxley Act of 2002 regarding internal controls over financial reporting. The certifications are included as Exhibits 12.1 and 12.2 to this Annual Report.regulated entities.

D. Selling Shareholders

    Not applicable.

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E. Dilution

     Not applicable.

F. Expenses of the Issue

     Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

     Not applicable.

B. Memorandum and Articles of Association

     The Registrant was formed on March 12, 2004 as asociedade por ações, a stock corporation duly incorporated under the laws of Brazil with unlimited duration. The Registrant is registered with the São Paulo Commercial Registry (Junta Comercial do Estado de São Paulo) under number NIRE 35.300.314.441. Gol was formed on August 1, 2001 as a Braziliansociedade limitada, and on May 2, 2002, Gol was converted into asociedade por ações.

Description of Capital Stock

General

     The Registrant became the parent company of Gol on March 29, 2004, when all of the common shares, Class A preferred shares and Class B preferred shares of Gol (except for five common shares of Gol that are held by members of Gol’s board of directors for eligibility purposes) were contributed to the Registrant by the shareholders of Gol in exchange for the applicable number of either common shares or preferred shares of the Registrant. As a result of this reorganization, 41,499,995 common shares of Gol were exchanged for 109.448.497109,448,497 common shares and 6,751,719 preferred shares of the Registrant, 10,375,000 Class A preferred shares of Gol were exchanged for 29,049,994 preferred shares and 6six common shares of the Registrant and 8,408,206 Class B preferred shares of Gol were exchanged for 23,542,977 preferred shares of the Registrant. The reorganization did not affect our operations in any respect. The aggregate number of our common and preferred shares outstanding was increased to 168,793,243 as the result of a 2.80 -for-one stock split on May 25, 2004 (which includes 224 common shares and 56 preferred shares of the Registrant that were issued in connection with its formation on March 12, 2004). On June 24, 2004, the Registrant completed its initial public offering through the issuance of 18,750,000 preferred shares in the form of ADSs in the United States and other countries outside Brazil and in the form of preferred shares in Brazil. On April 28, 2005, the Registrant completed a primary and secondary offering of 16,905,000 preferred shares in the form of ADSs in the United States and other countries outside Brazil and in the form of preferred shares in Brazil. In addition, during 2005, our executive officers exercised stock options for an aggregate of 703,579 preferred shares. During 2006, our executive officers exercised stock options for an aggregate of 233,833 preferred shares. AsIn 2007, we increased our capital and, as a result of 6.1 million shares issued for the VRG acquisition and 11,569 shares issued related to our capital structurestock option program, as of December 31, 20062007 our capital structure consisted of 107,590,792 common shares and 88,615,674 undesignated94,709,463 preferred shares, alleach with no par value. On March 20, 2009, our board of directors approved a capital stock increase issuing 6,606,366 voting and 19,487,356 non-voting shares to improve the company’s cash position and capital structure and to ensure the level of investments planned. The voting and non-voting shares will be issued at R$7.80 per share. Our controlling shareholders have fully subscribed and paid for their portion of the capital increase in an amount of R$150.0 million. If fully subscribed, the capital increase will total R$203.5 million. We are a stock corporation (sociedade anônima) incorporated under the laws of Brazil.

Issued Share Capital

     Under our by-laws, our authorized capital as of December 31, 20062008 was R$22.0 billion, and can be increased by the issuance of preferred or common shares, after approval by our board of directors. Our shareholders must approve any capital increase that exceeds our authorized capital. Under our by-laws and the Brazilian corporation law, if we issue additional shares in a private transaction, the existing shareholders have preemptive rights to subscribe for shares on a pro rata basis according to their holdings. See “—Preemptive Rights.”

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Regulation of Foreign Investment

     There are no general restrictions on ownership of our preferred shares or common shares by individuals or legal entities domiciled outside Brazil, except for those regarding airline companies (see “—Regulation of the Brazilian Civil Aviation Market”). However, the right to convert dividend payments and proceeds from the sale of preferred shares or common shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, the registration of the relevant investment with the Central Bank.

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     Foreign investors may register their investment under Law No. 4,131 of September 3, 1962, or Law No. 4,131, or Resolution No. 2,689 of January 26, 2000 of the CMN, or Resolution No. 2,689. Registration under Law No. 4,131 or under Resolution No. 2,689 generally enables foreign investors to convert into foreign currency dividends, other distributions and sales proceeds received in connection with registered investments and to remit such amounts abroad. Resolution No. 2,689 affords favorable tax treatment to foreign investors who are not resident in a tax haven jurisdiction, which is defined under Brazilian tax laws as a country that does not impose taxes or where the maximum income tax rate is lower than 20% or that restricts the disclosure of shareholder composition or ownership of investments.

     Under Resolution No. 2,689, foreign investors may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are fulfilled. In accordance with Resolution No. 2,689, the definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities that are domiciled or headquartered abroad. Resolution No.2,690No. 2,690 investors may not transfer the ownership of investments made under Resolution No.2,689No. 2,689 to other non-Brazilian holders through private transactions.

     Pursuant to Resolution No. 2,689, foreign investors must:

     SecuritiesAmounts invested in our preferred shares by a non-Brazilian holder who qualifies under Resolution 2,689 and other financial assets heldobtains registration with the CVM, or by the depositary representing an ADS holder, are eligible for registration with the Central Bank. This registration (the amount so registered is referred to as registered capital) allows the remittance outside Brazil of foreign investors pursuant to Resolution No. 2,689 must becurrency, converted at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized through, dispositions of our preferred shares. The registered or maintainedcapital per preferred share purchased in deposit accounts or under the custodyform of an entity duly licensedADS, or purchased in Brazil and deposited with the depositary in exchange for an ADS, will be equal to its purchase price (stated in U.S. dollars). The registered capital per preferred share withdrawn upon cancellation of an ADS will be the U.S. dollar equivalent of (i) the average price of a preferred share on the Brazilian stock exchange on which the most preferred shares were traded on the day of withdrawal or (ii) if no preferred shares were traded on that day, the average price on the Brazilian stock exchange on which the most preferred shares were traded in the fifteen trading sessions immediately preceding such withdrawal. The U.S. dollar equivalent will be determined on the basis of the average commercial market rates quoted by the Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchanges or organized over-the-counter markets licensed by the CVM. The right to convert dividend payments and proceeds from the saleon these dates.

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Table of our capital stock into foreign currency and to remit these amounts outside Brazil is subject to restrictions under foreign investment legislation, which generally requires, among other things, that the relevant investment be registered with the Central Bank. Restrictions on the remittance of foreign capital abroad could hinder or prevent the custodian for the preferred shares represented by ADSs, or holders who have exchanged ADSs for preferred shares, from converting dividends, distributions or the proceeds from any saleContents

     A non-Brazilian holder of preferred shares asmay experience delays in effecting Central Bank registration, which may delay remittances abroad. This delay may adversely affect the case may be, intoamount in U.S. dollars, and remitting such U.S. dollars abroad. Delaysreceived by the non-Brazilian holder.

     A certificate of registration has been issued in or refusal to grant, any required governmental approval for conversions ofreaispayments and remittances abroad of amounts owed to holders of ADSs could adversely affect holders of ADSs.

     Resolution No. 1,927the name of the CMN, which is the restated and amended Annex V to Resolution No. 1,289 of the CMN, or the Annex V Regulations, provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. We will file an application to have the ADSs approved under the Annex V Regulations by the Central Bank and the CVM, and we will have received final approval before the completion of this offering.

     The custodian will obtain on behalf of the depositary an electronic certificate of foreign capital registration with respect to the ADSs sold inand is maintained by the international offering. This electronic registration is carriedcustodian on throughbehalf of the Central Bank Information System, or SISBACEN.depositary. Pursuant to the certificate of registration, the custodian and the depositary will beare able to convert dividends and other distributions with respect to the preferred shares represented by our ADSs into foreign currency and remit the proceeds outside Brazil. In the event that a holder of ADSs surrendersexchanges such ADSs and withdrawsfor preferred shares, thesuch holder will be entitled to continue to rely on the depositary’s certificate of registration for five business days after the withdrawal,such exchange, following which such holder must seek to obtain its own electronic certificate of foreign capital registration.registration with the Central Bank.

     Thereafter, unless the preferred shares are held pursuant to Resolution No. 2,689, by a duly registered investor, or, if not a registered investor under Resolution No. 2,689, aany holder of preferred shares applies for and obtains a new certificate of registration, the holder may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, thesuch preferred shares, unless the holder is a duly qualified investor under Resolution 2,689 or obtains its own certificate of registration.

     If the shareholder does not qualify under Resolution 2,689 by registering with the CVM and the Central Bank and appointing a representative in Brazil, the holder if not registered under Resolution No. 2,689, will be subject to less favorable Brazilian tax treatment than a holder of ADSs. In addition, if the foreign investor residesRegardless of qualification under Resolution 2,689, residents in a tax haven jurisdiction the investor will also beare subject to less favorable tax treatment.treatment than other foreign investors. See “Risk“—Taxation—Brazilian Tax Considerations.”

     Under current Brazilian legislation, the federal government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately six months in 1989 and early 1990, the Brazilian government froze all dividend and capital repatriations held by the Central Bank that were owed to foreign equity investors, in order to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with federal government directives. There can be no assurance that the Brazilian government will not impose similar restrictions on foreign repatriations in the future. See “Item 3. Risk Factors—Risks Relating to the ADSs and Our Preferred Shares—If you surrender the ADSs and withdraw our preferred shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages” and “Taxation—Brazilian Tax Consequences.Brazil.

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Description of Preferred Shares

     According to our by-laws, similar to preferred shares of companies incorporated under the laws of the State of Delaware, our preferred shares are non-voting. However, under certain limited circumstances provided for in the Brazilian corporation law and as described in this section, holders of our preferred shares may be entitled to vote. Upon liquidation, holders of preferred shares are entitled to receive distributions prior to the holders of our common shares.

     Also unlike holders of preferred shares of companies incorporated under the laws of the State of Delaware, which typically do not have the benefit of tag-along rights, accordingAccording to our by-laws, holders of our preferred shares are entitled to be included in a public tender offer in case our controlling shareholder sells its controlling stake in us, and the minimum price to be offered for each preferred share is 100% of the price paid per share of the controlling stake.

     Under Brazilian law, the protections afforded to minority shareholders are different from those in the United States. In particular, judicial guidance with respect to shareholder disputes is less established under Brazilian law than U.S. law and there are different procedural requirements for bringing shareholder lawsuits, such as shareholder derivative suits. As a result, in practice it may be more difficult for our minority shareholders to enforce their rights against us or our directors or controlling shareholder than it would be for shareholders of a U.S. company.

Redemption and Rights of Withdrawal

     Similar to dissenting shareholders of corporations incorporated under the State of Delaware, underUnder the Brazilian corporation law, a dissenting or non-voting shareholder has the right to withdraw from a company and be reimbursed for the value of the preferred or common shares held whenever a decision is taken at a general shareholders’ meeting by a vote of shareholders representing at least 50% of the total outstanding voting capital to:

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     In the event that the entity resulting from a merger, consolidation, orincorporação de ações, or spin-off of a listed company fails to become a listed company within 120 days of the shareholders meeting at which such decision was taken, the dissenting or non-voting shareholders may also exercise their withdrawal right.

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     If there is a resolution to (a) merge or consolidate us with another company; (b) conduct aincorporação de ações;es; (c) participate in a group of companies, as defined under the Brazilian corporation law or (d) acquire control of another company, the withdrawal rights are exercisable only if our shares do not satisfy certain tests of liquidity and dispersal of the type or class of shares in the market at the time of the general meeting.

     Only holders of shares adversely affected by the changes mentioned in the first and second items above may withdraw their shares.

     The right of withdrawal lapses 30 days after publication of the minutes of the relevant general shareholders’ meeting that approved the corporate actions described above. In the case of the changes mentioned in the firstitems (a) and second items(b) above, the resolution is subject to confirmation by the preferred shareholders, which must be obtained at a special meeting held within one year. In those cases, the 30-day term is counted from the date of publication of the minutes of the special meeting. We would be entitled to reconsider any action triggering appraisal rights within 10 days following the expiration of such rights if the redemption of shares of dissenting or non-voting shareholders would jeopardize our financial stability. Shares to be purchased by us from the dissenting or non-voting shareholders exercising appraisal rights will be valued at an amount equal to the lesser of the ratable portion attributable to such shares of our shareholders’ equity as shown on the last balance sheet approved at a general shareholders’ meeting (book value) and the ratable portion attributable to such shares of the economic value of the company, pursuant to an appraisal report produced in accordance with the provisions of the Brazilian corporation law. If more than 60 days have elapsed since the date of such balance sheet, dissenting shareholders may require that the book value of their shares be calculated on the basis of a new balance sheet. As a general rule, shareholders who acquire their shares after the first notice convening the general shareholders’ meeting or after the relevant press release concerning the meeting is published will not be entitled to appraisal rights.

     For purposes of the right of withdrawal, the concept of “dissenting shareholder,” under the Brazilian corporation law, includes not only those shareholders who vote against a specific resolution, but also those who abstain from voting, who fail to attend the shareholders meeting or who do not have voting rights. The concept of “dissenting shareholder” under the Brazilian corporation law differs from that of “dissenting shareholder” under Delaware law, under which a dissenting shareholder is generally a shareholder who objects to a proposed corporate action and demands payment for his or her shares before such action is voted upon.

Preemptive Rights

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     Each of our shareholders generally has a preemptive right to subscribe for shares or convertible securities in any capital increases, in proportion to its shareholdings. A minimum period of 30 days, unless a shorter period is established by our board of directors, following the publication of notice of the capital increase is allowed for the exercise of the right and the right is negotiable. In the event of a capital increase which would maintain or increase the proportion of capital represented by preferred shares, holders of ADSs or preferred shares would have preemptive rights to subscribe only to newly issued preferred shares.

     In the event of a capital increase which would reduce the proportion of capital represented by preferred shares, holders of ADSs or preferred shares would have preemptive rights to subscribe for preferred shares, in proportion to their shareholdings, and for common shares, only to the extent necessary to prevent dilution of their equity participation. (See “Risks Relating to the ADSs and Our Preferred Shares—Holders of ADSs may be unable to exercise preemptive rights with respect to our preferred shares”). Our by-laws provide that our board of directors may, within the limit of its authorized capital, withdraw preemptive rights to existing shareholders in connection with an increase in share capital through sale in stock exchanges, public offerings or public exchange offers. In addition, Brazilian corporation law provides that the granting or exercise of stock options pursuant to certain stock option plans is not subject to preemptive rights. Shareholders of corporations incorporated under the laws of the State of Delaware generally do not have preemptive rights unless set forth specifically in such corporations’ charters.

     Voting Rights

     Each common share entitles its holder to one vote at our shareholders’ meetings. Preferred shares have no voting rights, except that each preferred share entitles its holder to one vote at our shareholders’ meeting to decide on certain specific matters, such as:

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     Holders of preferred shares are entitled to attend shareholders’ meetings and to participate in the discussions. The Brazilian corporation law provides that non-voting shares, such as preferred shares, may acquire voting rights if the company fails to distribute fixed or minimum dividends in connection with such shares for three consecutive fiscal years and will retain such voting rights until the distribution of such fixed or minimum dividends. (See “Risks Relating to the ADSs and Our Preferred Shares—Holders of the preferred shares may not receive any dividends”).

     According to the Brazilian corporation law, any change in the preferences or rights of our preferred shares, or the creation of a class of shares having priority over our preferred shares, unless such change is authorized by our by-laws, would require the approval of our preferred shareholders in a special shareholders’ meeting in addition to approval by a majority of the holders of our outstanding voting shares. The holders of preferred shares would vote as a class at the special meeting.

     The Brazilian corporation law grants (i) holders of preferred shares without voting rights (or with restricted voting rights) representing 10% of the total issued capital stock and (ii) holders of our common shares that are not part of the controlling group, and represent at least 15% of the voting capital stock, the right to appoint a member to the board of directors, by voting during the annual shareholders’ meeting. If none of our non-controlling holders of common or preferred shares meets the respective thresholds described above, holders of preferred or common shares representing at least 10% of the share capital would be able to combine their holdings to appoint one member and an alternate to our board of directors. Such rights may only be exercised by those shareholders who prove that they have held the required stake with no interruption during at least the three months directly preceding our annual shareholders meeting.

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     Holders of common shares are entitled to certain rights that cannot be amended by changes in the by-laws or at a general shareholders’ meeting, which include (i) the right to vote at general shareholders’ meetings; (ii) the right to participate in distributions of dividends and interest on capital and to share in the remaining assets of the company in the event of liquidation; (iii) preemptive rights in certain circumstances;circumstances and (iv) the right to withdraw from the company in certain cases. In addition to those rights, the by-laws or a majority of the voting shareholders may establish additional rights and, likewise, remove them. Currently, our by-laws do not establish any rights in addition to those already set forth by the Brazilian corporation law. The Level 2 of Differentiated Corporate Governance Practices, which we comply with, provides for the granting of voting rights to holders of preferred shares in connection with certain matters, including corporate restructurings, mergers and related party transactions.

     Controlling shareholders may nominate and elect a majority of the members of the board of directors of Brazilian companies. In a Brazilian company, management is not entitled to nominate directors for election by the shareholders. Non-controlling shareholders and holders of non-voting shares are entitled to elect representatives to the board, as described above. Holders of a threshold percentage of the voting shares may also request, up to 48 hours prior to any general shareholders’ meeting, that the election of directors be subject to cumulative voting. The threshold percentage required for cumulative voting for a corporation such as ours is currently 5% of the outstanding shares. Shareholders who vote to elect a representative of the non-controlling shareholders may not cast cumulative votes to elect other members of the board.

     Conversion Right

     Our shareholders may, at any time, convert common shares into preferred shares, at the rate of one common share to one preferred share, to the extent such shares are duly paid and provided that the amount of preferred shares does not exceed 50% of the total amount of shares outstanding. Any request for conversion must be delivered to our board of executive officers and, once accepted by the board of executive officers, must be confirmed by our board of directors at the first meeting after the date of the request for conversion.

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     Special and General Meetings

     Unlike the laws governing corporations incorporated under the laws of the State of Delaware, the Brazilian corporation law does not allow shareholders to approve matters by written consent obtained as a response to a consent solicitation procedure. All matters subject to approval by the shareholders must be approved in a general meeting, duly convened pursuant to the provisions of Brazilian corporation law. Shareholders may be represented at a shareholders’ meeting by attorneys-in-fact who are (i) shareholders of the corporation, (ii) a Brazilian attorney, (iii) a member of management or (iv) a financial institution.

     General and special shareholders’ meetings may be called by publication of a notice in theDiário Oficial do Estado de São Pauloand in a newspaper of general circulation in our principal place of business at least 15 days prior to the meeting. Special meetings are convened in the same manner as general shareholders’ meetings and may occur immediately before or after a general meeting.

     At duly called and convened meetings, our shareholders are empowered to take any action regarding our business. Shareholders have the exclusive right, during our annual shareholders’ meetings required to be hold within 120 days of the end of our fiscal year, to approve our financial statements and to determine the allocation of our net income and the distribution of dividends related to the fiscal year immediately preceding the meeting. The members of our board of directors are generally elected at annual shareholders’ meetings. However, according to Brazilian corporation law, they can also be elected at extraordinary shareholders’ meetings. At the request of shareholders holding a sufficient number of shares, a fiscal council can be established and its members elected at any shareholders’ meeting.

     An extraordinary shareholders’ meeting may be held concurrently with the annual shareholders’ meeting and at other times during the year. Our shareholders may take the following actions, among others, exclusively at hareholders’shareholders’ meetings:

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     Anti-Takeover Provisions

     Differently from companies incorporated under the laws of the State of Delaware, Brazilian companies generally do not employ “poison pill” provisions to prevent hostile takeovers. As most Brazilian companies have clearly identified controlling shareholders, hostile takeovers are highly unusual and no developed body of case law addresses the limits on the ability of management to prevent or deter potential hostile bidders. Our by-laws require any party that acquires our control to extend a tender offer for common and preferred shares held by non-controlling shareholders at the same purchase price paid to the controlling shareholder.

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     Arbitration

     In connection with our listing with Level 2 of Differentiated Corporate Governance Practices, we and our controlling shareholders, directors, officers and members of our fiscal committee have undertaken to refer to arbitration any and all disputes arising out of the Level 2 rules or any other corporate matters. See “Market Information.” Under our by-laws,bylaws, any disputes among us, our shareholders and our management with respect to the application of Level 2 rules, the Brazilian Corporate Law or the application of the rules and regulations regarding Brazilian capital markets, will be resolved by arbitration conducted pursuant to the BOVESPA Arbitration Chamber and rules. Any disputes among shareholders, including holders of ADSs, and disputes between us and shareholders, including holders of ADSs, will be submitted to arbitration in accordance with the BOVESPA Arbitration Chamber and rules.

     Going private processPrivate Process

     Pursuant to our bylaws, we may become a privately-held company only if we, our controlling shareholders or our group of controlling shareholders make a public tender offer for all outstanding shares.

     According to the Level 2 regulations and our bylaws, the minimum price of the shares in the public tender offer for the acquisition of sharesrequired to be made in case we go private shall be equivalent to the economic value determined in the appraisal report prepared by a specialized and independent company, with renowned expertise, to be selected at the annual shareholders’ meeting from among the three companies suggested by the board of directors.

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     In addition to the requirements set out in the Level 2 regulations and our bylaws, according to the Brazilian corporation law, our registration as a publicly held company with shares traded on stock exchanges will be canceled only if we or our direct or indirect controlling shareholders make a public tender offer for the total outstanding shares in the market (which may be the same tender offer required by Level 2 regulations and our bylaws), at a fair value, for a price at least equal to our evaluation, determined based on the following criteria, separately or jointly adopted: stockholders' equity book value, stockholders' equity at market price, discounted cash flow, multiple comparisons, market price of our shares or any other criteria accepted by the CVM. Shareholders holding at least 10% of our outstanding shares may require our management to review the price offered for the shares, and in this event our management shall call a special shareholders'shareholders` meeting to determine whether to perform another valuation using the same or a different valuation method. Such request must be made within 15 days following the disclosure of the price to be paid for the shares in the public tender offer, and shall be duly justified. The shareholders who make such request, as well as those who vote in its favor, shall reimburse us for any costs involved in preparing the new valuation if the valuation price is lower than or equal to the original valuation price. If the new valuation price is higher than the original valuation price, the public tender offer must be made at the new valuation price.

     Delisting from Differentiated Corporate Governance Practices Level 2

     We may, at any time, delist our shares from the Level 2 segment, provided that this is approved by shareholders representing the majority of our voting share capital at an annual shareholders’ meeting and that we provide written notice to the BOVESPA at least 30 days in advance. If we decide to delist from the Level 2 segment, in order to make our shares available to be traded outside the Level 2 segment, our controlling shareholders must conduct a public tender offer for the acquisition of our shares within the legal timeframe, based on the economic value calculated in the appraisal report prepared by a specialized and independent company, to be selected at an annual shareholders’ meeting from among three companies suggested by the board of directors. The public tender offer notice must be communicated to the BOVESPA and immediately disclosed to the market after the shareholder’s meeting during which the delisting was approved. If the delisting from the Level 2 segment is a result of the cancellation of our registration as a publicly held company, our controlling shareholders must follow the other requirements applicable to going private.

     The delisting from the Level 2 segment does not imply the cancellation of the trading of our shares on the BOVESPA.

     If our share control is transferred within the 12 months subsequent to the delisting from the Level 2, the selling controlling shareholder and the buyer shall offer to our other shareholders the acquisition of their shares at the price and conditions provided to the controlling shareholder selling the shares, adjusted for inflation.

     After delisting from the Level 2 segment, we may not request the listing of our shares in the Level 2 segment for two years subsequent to the cancellation, except if there is a change of our share control after delisting from the Level 2 segment.

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     Form and Transfer

     Because our preferred shares are in registered book-entry form, Banco Itaú S.A., as registrar, must effect any transfer of shares by an entry made in its books, in which it debits the share account of the transferor and credits the share account of the transferee. When our shares are acquired or sold on a Brazilian stock exchange, the transfer is effected on the records of our registrar by a representative of a brokerage firm or the stock exchange’s clearing system. Transfers of shares by a foreign investor are executed in the same way by that investor’s local agent on the investor’s behalf except that, if the original investment were registered with the Central Bank pursuant to Resolution No. 2,689, the foreign investor should also seek amendment through its local agent, if necessary, of the electronic registration to reflect the new ownership. The BOVESPA operates a clearinghouse through CBLC. The fact that such shares are subject to custody with the relevant stock exchange will be reflected in our registry of shareholders. Each participating shareholder will, in turn, be registered in the register of our beneficial shareholders that is maintained by CBLC and will be treated in the same way as registered shareholders.

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     American Depositary Receipts

     The Bank of New York, as depositary, has executed and delivered the ADRs representing our preferred shares. Each ADR is a certificate evidencing a specific number of American Depositary Shares, also referred to as ADSs. After our 2:1 ADS ratio change in December 2005, each ADS represents one preferred share (or a right to receive one preferred share) deposited with the principal São Paulo office of Banco Itaú S.A., as custodian for the depositary in Brazil. Each ADS also represents any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the ADRs are administered is located at 101 Barclay Street, New York, New York 10286.

     You may hold ADSs either directly (by having an ADR registered in your name) or indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADR holder. We do not treat ADR holders as our shareholders and ADR holders have no shareholder rights. Brazilian law governs shareholder rights. The depositary is the holder of the preferred shares underlying the ADSs. Holders of ADRs have ADR holder rights. A deposit agreement among us, the depositary and you, as an ADR holder, and the beneficial owners of ADRs sets out ADR holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADRs.

C. Material Contracts

     Our material contracts are directly related to our operating activities, such as contracts relating to aircraft leasing and fuel supply as well as contracts relating to our concession to operate as a commercial airline. We do not have material contracts that are not related to our operating activities.

Aircraft General Terms Agreement between The Boeing Company and Gol Transportes Aéreos S.A.

In 2004, we entered into an agreement, as amended, with The Boeing Company for the purchase of aircraft, installation of buyer furnished equipment provided by us, customer support services and product assurance. In addition to the aircraft supplied, The Boeing Company will provide maintenance training and flight training programs, as well as operations engineering support.

Commercial Sale Promise Agreement between Petrobras Distribuidora S.A. and Gol Transportes Aéreos S.A.

     On May 1,In 2001, we entered into a commercial sale promise agreement for the purchase of fuel from Petrobras, which was renewed July 7, 2006. We agreed to purchase fuel exclusively from Petrobras in all of the airports where Petrobras maintains aircraft fueling facilities. Petrobras, in turn, agreed to provide us with all of our fuel needs in the supplying airports.

Reservation Services and Software License Use Agreement between Navitaire Inc. and Gol Transportes Aéreos S.A.

     On May 1, 2004, we entered into an agreement, as amended and updated, with Navitaire Inc. for host reservation services and obtained a license to use the Navitaire software to provide reservation services to Gol customers. Navitaire provides a number of ancillary services in addition to the host reservation services, including data center implementation services, network configuration and design services, system integration services, customer site installation services and initial training services.

Aircraft General Terms Agreement between The Boeing Company and Gol Transportes Aéreos S.A.

     In 2004, we entered into an agreement, as amended, with The Boeing Company for the purchase of aircraft, installation of buyer furnished equipment provided by us, customer support services and product assurance. In addition to the aircraft supplied, The Boeing Company will provide maintenance training and flight training programs, as well as operations engineering support.

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D. Exchange Controls

     The right to convert dividend or interest payments and proceeds from the sale of shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, that the relevant investments have been registered with the Central Bank and the CVM. Such restrictions on the remittance of foreign capital abroad may hinder or prevent the custodian for our preferred shares represented by our ADSs or the holders of our preferred shares from converting dividends, distributions or the proceeds from any sale of these preferred shares into U.S. dollars and remitting the U.S. dollars abroad. Holders of our ADSs could be adversely affected by delays in, or refusal to grant any, required government approval to convert Brazilian currency payments on the preferred shares underlying our ADS and to remit the proceeds abroad.

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     Resolution No. 1,927 of the National Monetary Council provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. It restates and amends Annex V to Resolution No. 1,289 of the National Monetary Council, known as the Annex V Regulations. The ADS program was approved under the Annex V Regulations by the Central Bank and the CVM prior to the issuance of the ADSs. Accordingly, the proceeds from the sale of ADSs by ADR holders outside Brazil are not subject to Brazilian foreign investment controls, and holders of the ADSs are entitled to favorable tax treatment under certain circumstances. See “Taxation—Material Brazilian Tax Considerations.

     Under Resolution 2,689 of the CMN, foreign investors registered with the CVM may buy and sell Brazilian securities, including our preferred shares, on Brazilian stock exchanges without obtaining separate certificates of registration for each transaction. Registration is available to qualified foreign investors, which principally include foreign financial institutions, insurance companies, pension and investment funds, charitable foreign institutions and other institutions that meet certain minimum capital and other requirements. Resolution 2,689 also extends favorable tax treatment to registered investors. See “Taxation—Material Brazilian Tax Considerations.”

     Pursuant to the Resolution 2,689 foreign investors must: (i) appoint at least one representative in Brazil with the ability to perform actions regarding the foreign investment; (ii) complete the appropriate foreign investor registration form; (iii) obtain registration as a foreign investor with CVM; and (iv) register the foreign investment with the Central Bank.

     The securities and other financial assets held by a foreign investor pursuant to Resolution 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or by the CVM or be registered in register, clearing and custody systems authorized by the Central Bank or by the CVM. In addition, the trading of securities is restricted to transactions carried out on the stock exchanges or over-the-counter markets licensed by the CVM.

     Registered Capital

     Amounts invested in our preferred shares by a non-Brazilian holder who qualifies under Resolution 2,689 and obtains registration with the CVM, or by the depositary representing an ADS holder, are eligible for registration with the Central Bank. This registration (the amount so registered is referred to as registered capital) allows the remittance outside Brazil of foreign currency, converted at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized through, dispositions of our preferred shares. The registered capital per preferred share purchased in the form of an ADS, or purchased in Brazil and deposited with the depositary in exchange for an ADS, will be equal to its purchase price (stated in U.S. dollars). The registered capital per preferred share withdrawn upon cancellation of an ADS will be the U.S. dollar equivalent of (i) the average price of a preferred share on the Brazilian stock exchange on which the most preferred shares were traded on the day of withdrawal or, (ii) if no preferred shares were traded on that day, the average price on the Brazilian stock exchange on which the most preferred shares were traded in the fifteen trading sessions immediately preceding such withdrawal. The U.S. dollar equivalent will be determined on the basis of the average commercial market rates quoted by the Central Bank on these dates.

     A non-Brazilian holder of preferred shares may experience delays in effecting Central Bank registration, which may delay remittances abroad. This delay may adversely affect the amount in U.S. dollars, received by the non-Brazilian holder.

     A certificate of registration has been issued in the name of the depositary with respect to the ADSs and is maintained by the custodian on behalf of the depositary. Pursuant to the certificate of registration, the custodian and the depositary are able to convert dividends and other distributions with respect to the preferred shares represented by our ADSs into foreign currency and remit the proceeds outside Brazil. In the event that a holder of ADSs exchanges such ADSs for preferred shares, such holder will be entitled to continue to rely on the depositary’s certificate of registration for five business days after such exchange, following which such holder must seek to obtain its own certificate of registration with the Central Bank. Thereafter, any holder of preferred shares may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, such preferred shares, unless the holder is a duly qualified investor under Resolution 2,689 or obtains its own certificate of registration.

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     If the shareholder does not qualify under Resolution 2,689 by registering with the CVM and the Central Bank and appointing a representative in Brazil, the holder will be subject to less favorable Brazilian tax treatment than a holder of ADSs. Regardless of qualification under Resolution 2,689, residents in tax haven jurisdiction are subject to less favorable tax treatment than other foreign investors. See “—Taxation—Brazilian Tax Considerations.”

     Under current Brazilian legislation, the federal government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately six months in 1989 and early 1990, the Brazilian government froze all dividend and capital repatriations held by the Central Bank that were owed to foreign equity investors, in order to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with federal government directives. There can be no assurance that the Brazilian government will not impose similar restrictions on foreign repatriations in the future. See “Item 3. Risk Factors—Risks Relating to Brazil.

E. Taxation

     The following discussion addresses the material Brazilian and United States federal income tax consequences of acquiring, holding and disposing of our preferred shares or ADSs.

     This discussion is not a comprehensive discussion of all the tax considerations that may be relevant to a decision to purchase our preferred shares or ADSs and is not applicable to all categories of investors, some of which may be subject to special rules, and does not specifically address all of the Brazilian and United States federal income tax considerations applicable to any particular holder. It is based upon the tax laws of Brazil and the United States as in effect on the date of this annual report, which are subject to change, possibly with retroactive effect, and to differing interpretations. Each prospective purchaser is urged to consult its own tax advisor about the particular Brazilian and United States federal income tax consequences to it of an investment in our preferred shares or ADSs. This discussion is also based upon the representations of the depositary and on the assumption that each obligation in the deposit agreement among us, The Bank of New York, as depositary, and the registered holders and beneficial owners of our ADSs, and any related documents, will be performed in accordance with its terms.

     Although there presently is no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. We cannot assure you, however, as to whether or when a treaty will enter into force or how it will affect holders of our preferred shares or ADSs.

Material Brazilian Tax Considerations

     The following discussion, in the opinion of Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados addresses the material Brazilian tax consequences of the acquisition, ownership and disposition of our preferred shares or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation (a “Non-Brazilian Holder”).

     This discussion is based on Brazilian law as currently in effect, which are subject to change, possibly with retroactive effect, and therefore, anyto differing interpretations. Any change in such law may change the consequences described below. Each Non-Brazilian Holder should consult his or her own tax adviser concerning the Brazilian tax consequences of an investment in the preferred shares or ADSs.

     Taxation of Dividends.Dividends, including dividends in kind, paid by us to the depository in respect of the preferred shares underlying the ADSs or to a Non-Brazilian Holder in respect of preferred shares generally will not be subject to Brazilian withholding income tax, provided that such amounts are related to profits earned after January 1, 1996. Dividends and stock devidends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at varying rates, according to the tax legislation applicable to each corresponding year.

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     Taxation of Gains.According to Law No. 10,833, enacted on December 29, 2003, or Law No. 10,833, capital gains realized on the disposition of assets located in Brazil by a Non-Brazilian Holder are subject to taxation in Brazil, without regard toregardless of whether the transactionsale or the disposition is conducted in Brazil or conducted with a Brazilian resident. As such,made by a Non-Brazilian Holder mayto another non-Brazilian resident or to a Brazilian resident.

     With respect to the disposition of preferred shares, as they are assets located in Brazil, the Non-Brazilian Holder will be subject to income tax on the gains assessed, following the rules described below, regardless of whether the disposition is conducted in Brazil or with a Brazilian resident.

     With respect to the ADSs, arguably the gains realized by a Non-Brazilian Holder on the disposition of ADSs to another non-Brazilian resident are not taxed in Brazil, based on the preferred shares. Although we believeargument that the ADSs dowould not fall within the definition ofconstitute assets located in Brazil for purposes of Law No. 10,833, considering10,833/03. However, we cannot assure you how Brazilian courts would interpret the general and unclear scopedefinition of Law No. 10,833 such provision andassets located in Brazil in connection with the lacktaxation of gains realized by a judicial guidance in respect thereof, we are unableNon- Brazilian Holder on the disposition of ADSs to predict whether such understanding will ultimately prevail in the Brazilian courts.another non-Brazilian resident. As a result, gains on a disposition of ADSs by a Non-Brazilian Holder to Brazilian resident, or even to Non-Brazilian Holder in the event that courts determine that ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil according to the rules described ahead.

It is important to clarify that, for purposes of Brazilian taxation, the income tax rules on gains related to disposition of preferred shares or ADSs vary depending on the domicile of the Non-Brazilian Holder, the form by which such Non-Brazilian Holder has registered its investment before the Central Bank and/or how the disposition is carried out, as described below.

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     The deposit of preferred shares in exchange for ADSs may be subject to Brazilian tax on capital gains at the rate of 15%, or 25% in the case of investors domiciled in tax haven jurisdiction, (i.e.i.e., a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% or where the internal legislation imposes restrictions to disclosure of shareholding composition or the ownership of the investment, (“Tax Haven Holder”), if the acquisition cost of the preferred shares is lower than (a) the average price per preferred share on a Brazilian stock exchange on which the greatest number of such shares were sold on the day of deposit;deposit or (b) if no preferred shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of preferred shares were sold in the 15 trading sessions immediately preceding such deposit. In such case, the difference between the acquisition cost and the average price of the preferred shares calculated as described above, will be considered to be a capital gain subject to taxation. In some circumstances, there may be arguments to sustain that such taxation is not applicable in the case of a Non-Brazilian Holder that is a 2,689 Holder (as defined below) and is not a Tax Haven Holder.

     The withdrawal of ADSs in exchange for preferred shares is not subject to Brazilian tax as long as the regulatory rules are duly observed in respect to the registration of the investment before the Brazilian Central Bank.

     Gains assessed on the disposition of the preferred shares carried out on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market) are:

 ��     Any other gains assessed on the disposition of the preferred shares that are not carried out on the Brazilian stock exchange are subject to income tax at a rate of 15%, except for Tax Haven Holder which, in this case, is subject to income tax at a rate of 25%. If these gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% shall also be applicable and can be offset against the eventual income tax due on the capital gain.

     In the case of a redemption of preferred shares or ADSs or a capital reduction by a Brazilian corporation, the positive difference between the amount received by the Non-Brazilian Holder and the acquisition cost of the preferred shares or ADSs redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market and is therefore subject to income tax at the rate of 15%, or 25%, as the case may be.

     As a general rule, the gains realized as a result of a disposition transaction of preferred shares or ADRsADSs is the difference between the amount in Brazilian currency realized on the sale or exchange of the shares and their acquisition cost, without any adjustments for inflation.cost.

     There can be no assurance that the current preferential treatment for Non-Brazilian Holder of ADSs and 2,689 Holder of preferred shares will continue or will not be changed in the future.

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     Any exercise of preemptive rights relating to the preferred shares or ADSs will not be subject to Brazilian income tax. Any gain on the sale or assignment of preemptive rights relating to preferred shares or the ADSs by a Non-Brazilian Holder will be subject to Brazilian income taxation according to the same rules applicable to the sale or disposition of preferred shares.

     Distributionsof Interest on Shareholders’ Equity.In accordance with Law No. 9,249, dated December 26, 1995, as amended, Brazilian corporations may make payments to shareholders characterized as distributions of interest on the company’s shareholders’ equity. Such interest is calculated by reference to the TJLP as determined by the Central Bank from time to time and cannot exceed the greater of:

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     Distributions of interest on shareholders’ equity in respect of the preferred shares paid to shareholders who are either Brazilian residents or Non-Brazilian Holders, including Non-Brazilian Holders of ADSs, are subject to Brazilian income withholding tax at the rate of 15%, or 25% in case of a Tax Haven Holder. The distribution of interest on shareholders’ equity may be determined by our board of directors. We cannot assure you that our board of directors will not determine that future distributions of profits may be made by means of interest on shareholders’ equity instead of by means of dividends.

     The amounts paid as distribution of interest on shareholders’ equity are deductible for corporation income tax and social contribution on profit, both of which are taxes levied on our profits, as far as the limits and rules described above are observed by us.

Other Relevant Brazilian Taxes

     There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of preferred shares or ADSs by a Non-Brazilian Holder except for gift and inheritance taxes which are levied by some states of Brazil on gifts made or inheritances bestowed by the Non-Brazilian Holder to individuals or entities resident or domiciled within such states in Brazil. There are no Braziliannon-Brazilian stamp, issue, registration or similar taxes or duties payable by a NonBrazilianNon-Brazilian Holder of preferred shares or ADSs.

     Tax on foreign exchange transactions. Pursuant to Decree 4,494No. 6,306 of December 2000,14, 2007, the conversion into foreign currency or the conversion into Brazilian currency of the proceeds received or remitted by a Brazilian entity from a foreign investment in the Brazilian securities market, including those in connection with the investment by the Non-Brazilian Holder in the preferred shares and ADSs may be subject to the Tax on Foreign Exchange Transactions (IOF/Câmbio)(“IOF/Exchange”). Except under specific circumstances,Currently, for most exchange transactions, the rate of IOF/Câmbio, onincluding such conversion is currently 0%0.38%, but the Minister of Finance has the legal power to increase at any time the rate to a maximum of 25%, but only in relation to future transaction.the future.

     Pursuant to Decree 4,494/2000,6,306/07, the Tax on Bonds and Securities Transactions(IOF/Títulos) (“IOF/Bonds”) may be imposed on any transactions involving bonds and securities even if the transactions are performed on a Brazilian stock exchange. As a general rule, the rate of this tax is currently 0% but the executive branch may increase such rate up to 1.5% per day, but only with respect to future transactions.

     FinancialUntil December 31, 2007, fund transfers are taxed byin connection with financial transactions in Brazil were subject to theContribuição Provisória sobre Movimentação Financeira temporary contribution on financial transactions (“CPMF”), or CPMF,which was levied at a rate of 0.38% . The CPMF is levied upon the remittance of proceeds on the amount converted inreaisof the transaction and is required to be withheld by the financial institution that carries out the transaction. Currently, the funds transferred from aany bank account to acquire shares can be exempt from CPMF. Since there are recent modifications inwithdrawals.

     As of January 1, 2008, the legislation in this respect, each Non-Brazilian Holder should consult its own legal and financial advisors with respect to the applicability of CPMF tax was abolished, and should not be levied on any debit to its purchase.bank accounts carried out after that. The funds transferred abroad resulting fromBrazilian government may attempt to reestablish the disposal of the preferred shares on the Brazilian stock exchange are also exempt from CPMF.

Registered Capital.The amount of an investment in preferred shares held by a Non-Brazilian Holder who qualifies under Resolution No. 2,689 and obtains registration with the CVM, or by the depositary, as the depositary representing such holder, is eligible for registration with the Central Bank. Such registration allows the remittance outside of Brazil of any proceeds of distributions on the shares, and amounts realized with respect to disposition of such shares. The amounts received in Brazilian currency are converted into foreign currency through the use of the commercial market rate. The registered capital for preferred shares purchased in the form of ADSs or purchased in Brazil, and deposited with the depositary in exchange for ADSs will be equal to their purchase price (in U.S. dollars) to the purchaser. The registered capital for preferred shares that are withdrawn upon surrender of ADSs, as applicable, will be the U.S. dollar equivalent of the average price of preferred shares, as applicable, on a Brazilianstock exchange on which the greatest number of such preferred shares, as applicable, was sold on the day of withdrawal. If no preferred shares, as applicable, were sold on such day, the registered capital will refer to the average price on the Brazilian stock exchange on which the greatest number of preferred shares, as applicable, were sold in the 15 trading sessions immediately preceding such withdrawal. The U.S. dollar value of the preferred shares, as applicable, is determined on the basis of the average commercial market rate quoted by the Central Bank on such date or, if the average price of preferred shares is determined under the last preceding sentence, the average of such average quoted rates on the same 15 dates used to determine the average price of the preferred shares.

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     A Non-Brazilian Holder of preferred shares may experience delays in effecting such action, which may delay remittances abroad. Such a delay may adversely affect the amount, in U.S. dollars, received by the Non-Brazilian Holder.

     Material United States Federal Income Tax Consequences

     The following discussion describes the material United States federal income tax consequences of purchasing, holding and disposing of our preferred shares or ADSs. This discussion applies only to beneficial owners of ADSs or preferred shares that are “U.S. Holders,” as defined below. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing final, temporary and proposed Treasury Regulations, administrative pronouncements by the United States Internal Revenue Service, or IRS, and judicial decisions, all as currently in effect and all of which are subject to change (possibly on a retroactive basis) and to different interpretations.

     This discussion does not purport to address all United States federal income tax consequences that may be relevant to a particular holderU.S. Holder and you are urged to consult your own tax advisor regarding your specific tax situation. The discussion applies only to U.S. Holders who hold preferred shares or ADSs as “capital assets” (generally, property held for investment) under the Code and does not address the tax consequences that may be relevant to U.S. Holders in special tax situations including, for example:

     Except where specifically described below, this discussion assumes that we are not a passive foreign investment company, or PFIC, for United States federal income tax purposes. Please see the discussion under “—Taxation—Material United States Federal Income Tax Consequences—Passive Foreign Investment Company Rules”foreign investment company rules” below. Further, this discussion does not address the alternative minimum tax consequences of holding preferred shares or ADSs or the indirect consequences to holders of equity interests in partnerships or other entities that own our preferred shares or ADSs. In addition, this discussion does not address the state, local and foreign tax consequences of holding our preferred shares or ADSs.

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     You should consult your own tax advisor regarding the United States federal, state, local and foreign income and other tax consequences of purchasing, owning and disposing of our preferred shares or ADSs in your particular circumstances.

     You are a “U.S. Holder” if you are a beneficial owner of preferred shares or ADSs and you are for United States federal income tax purposes:

     If a partnership (or any others entity taxable as a partnership for United States federal income tax purposes) holds preferred shares or ADSs, the United States federal income tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. A prospective investor who is a partner of a partnership holdingthat holds our preferred shares or ADSs and partners in such partnerships should consult itstheir own tax advisor.advisors regarding the United States federal income tax consequences of the purchase, ownership and disposition of our preferred shares or ADSs.

     For United States federal income tax purposes, a U.S. Holder of an ADS will generally be treated as the beneficial owner of the preferred shares represented by the ADS. However, see the discussion below under “Distribution on preferred shares or ADSs” regarding certain statements made by the U.S. Treasury concerning depository arrangements.

     Distributions on preferred shares or ADSs

     Cash distributions (including amounts withheld to pay Brazilian withholding taxes and distributions of notional interest chargespayments on shareholders’ equity, but excluding distributions in redemption of the preferred shares treated as exchanges or sales under the Code) made by us to or for the account of a U.S. Holder with respect to preferred shares or ADSs generally will be taxable to such U.S. Holder as ordinary dividend income when such distribution is paid, actually or constructively, out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes). Distributions in excess of our current or accumulated earnings and profits will be treated first as a non-taxable return of capital reducing such U.S. Holder’s adjusted tax basis in the preferred shares or ADSs. Any distribution in excess of such U.S. Holder’s adjusted tax basis will be treated as capital gain and will be either long-term or short-term capital gain depending upon whetherif the U.S. Holder held the preferred shares or ADSs for more than one year. As used below, the term “dividend” means a distribution that constitutes a dividend for U.S.United States federal income tax purposes.

     A U.S. Holder will be entitled, subject to a number of complex limitations and conditions, to claim a United States foreign tax credit in respect of any Brazilian withholding taxes imposed on dividends received on preferred shares or ADSs. U.S. Holders who do not elect to claim a foreign tax credit with regard to any foreign income taxes paid or accrued during the taxable year may instead claim a deduction in respect of such withholding taxes. Dividends received with respect to the preferred shares or ADSs will be treated as foreign source income, which may be relevant in calculating such U.S. Holder’s United States foreign tax credit limitation. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit in their particular circumstances. The U.S. Treasury has expressed concern that intermediaries in connection with depository arrangements may be taking actions that are inconsistent with the claiming of foreign tax credits by United States persons who are holding depositary shares. Accordingly, investors should be aware that the discussion above regarding the ability to credit Brazilian withholding tax on dividends and the availability of the reduced tax rate for dividends received by certain non-corporate holders described below could be affected by actions taken by parties to whom the ADSs are released and the IRS.

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     Dividends paid by us generally will not be eligible for the dividends received deduction available under the Code to certain United States corporate shareholders. Subject to the above-mentioned concerns by the U.S. Treasury and certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by certain U.S. Holders (including individuals) prior to January 1, 2011 with respect to the ADSs will be subject to taxation at a maximum rate of 15% if the dividends represent “qualified dividend income.” Dividends paid on the ADSs will be treated as qualified dividend income if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a PFIC. Our ADSs are listed on the New York Stock Exchange, and therefore the ADSs will qualify as readily tradable on an established securities market in the United States so long as they are so listed. However, no assurances can be given that the ADSs will be or will remain readily tradable. Subject to the discussion of passive foreign investment company rules below, based upon the nature of our current and projected income, assets and activities, we do not believe the preferred shares or the ADSs have been, nor do we expect them to be, shares of a PFIC for United States federal income tax purposes.

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     Based on existing guidance, it is not entirely clear whether dividends received with respect to the preferred shares will be treated as qualified dividends, because the preferred shares are not themselves listed on a United States exchange. In addition, the United States Treasury Department has announced its intention to promulgate rules pursuant to which holders of ADSs or preferred stock and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, we are not certain that we will be able to comply with them. U.S. Holders of ADSs and preferred shares should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.

     The amount of any cash distribution paid in Brazilian currency will equal the U.S. dollar value of the distribution, calculated by reference to the exchange rate in effect at the time the distribution is received by the depositary (in the case of ADSs) or by the U.S. Holder (in the case of preferred shares held directly by such U.S. Holder), regardless of whether the payment is in fact converted to U.S. dollars at that time. A U.S. Holder should not recognize any foreign currency gain or loss in respect of such distribution if such Brazilian currency is converted into U.S. dollars on the date received. If the Brazilian currency is not converted into U.S. dollars on the date of receipt, however, gain or loss may be recognized upon a subsequent sale or other disposition of the Brazilian currency. Such foreign currency gain or loss, if any, will be United States source ordinary income or loss.

     Because our preferred shares will not be treated as “preferred stock” for purposes of Section 305 of the Code, distributions to U.S. Holders of additional shares of our “non-preferred stock” or preemptive rights relating to such “non-preferred stock” with respect to their preferred shares or ADSs that are made as part of a pro rata distribution to all shareholders in most instances will not be subject to United States federal income tax. However, if the holders of ADSs are restricted in their ability to participate in the exercise of preemptive rights, the preemptive rights may give rise to a deemed distribution to holders of the preferred shares under Section 305 of the Code. Any deemed distribution will be taxable as a dividend to the extent of our earnings and profits as discussed above.

     Sale or exchange or other taxable disposition of preferred shares or ADSs

     Deposits and withdrawals of preferred shares by U.S. Holders in exchange for ADSs will not result in the realization of gain or loss for United States federal income tax purposes.

     A U.S. Holder generally will recognize capital gain or loss upon the sale, exchange or other taxable disposition of preferred shares or ADSs measured by the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the preferred shares or ADSs. Any gain or loss will be long-term capital gain or loss if the preferred shares or ADSs have been held for more than one year. Long-term capital gains of certain U.S. holdersHolders (including individuals) are eligible for reduced rates of United States federal income taxation. The deductibility of capital losses is subject to certain limitations under the Code.

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     If a Brazilian tax is withheld on the sale, exchange or other taxable disposition of a preferred share or ADS, the amount realized by a U.S. Holder will include the gross amount of the proceeds of that sale, exchange or other taxable disposition before deduction of the Brazilian tax. Capital gain or loss, if any, realized by a U.S. Holder on the sale, exchange or other taxable disposition of a preferred share or ADS generally will be treated as United States source income or loss for United States foreign tax credit purposes. Consequently, in the case of a sale, exchange or other taxable disposition of a preferred share or ADS that is subject to Brazilian tax imposed on the gain (or, in the case of a deposit, in exchange for an ADS or preferred share, as the case may be, that is not registered pursuant to Resolution No. 2,689, on which a Brazilian capital gains tax is imposed (see “— Taxation — Material Brazilian Tax Considerations — Taxation of Gains”)), the U.S. Holder may not be able to benefit from the foreign tax credit for that Brazilian tax unless the U.S. Holder can apply the credit against United States federal income tax payable on other income from foreign sources in the appropriate income category. Alternatively, the U.S. Holder may take a deduction for the Brazilian tax if it does not elect to claim a foreign tax credit for any foreign income taxes paid or accrued during the taxable year.

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     Passive foreign investment company rules

     In general, a foreign corporation is a PFIC with respect to a U.S. Holder if, for any taxable year in which the U.S. Holder holds stock in the foreign corporation, at least 75% of its gross income is passive income or at least 50% of the value of its assets (determined on the basis of a quarterly average) produce passive income or are held for the production of passive income. For this purpose, passive income generally includes, among other things, dividends, interest, rents, royalties and gains from the disposition of investment assets (subject to various exceptions). Based upon the nature of our current and projected income, assets and activities, we do not believe the preferred shares or ADSs are, nor do we expect them to be, shares of a PFIC for United States federal income tax purposes. However, the determination of whether the preferred shares or ADSs constitute shares of a PFIC is a factual determination made annually and thus may be subject to change. Because these determinations are based on the nature of our income and assets from time to time, and involve the application of complex tax rules, no assurances can be provided that we will not be considered a PFIC for the current or any past or future tax year.

     If, contrary to the discussion above, we are treated as a PFIC, a U.S. Holder would be subject to special rules (and may be subject to increased United States federal income tax liability and form filing requirements) with respect to (a) any gain realized on the sale, exchange or other disposition of preferred shares or ADSs and (b) any “excess distribution” made by us to the U.S. Holder (generally, any distribution during a taxable year in which distributions to the U.S. Holder on the preferred shares or ADSs exceed 125% of the average annual distributions the U.S. Holder received on the preferred shares or ADSs during the preceding three taxable years or, if shorter, the U.S. Holder’s holding period for the preferred shares or ADSs). Under those rules, (a) the gain or excess distribution would be allocated ratably over the U.S. Holder’s holding period for the preferred shares or ADSs, (b) the amount allocated to the taxable year in which the gain or excess distribution is realized and to taxable years before the first day on which we became a PFIC would be taxable as ordinary income, (c) the amount allocated to each prior year in which we were a PFIC would be subject to United States federal income tax at the highest tax rate in effect for that year and (d) the interest charge generally applicable to underpayments of United States federal income tax would be imposed in respect of the tax attributable to each prior year in which we were a PFIC.

A U.S. Holder who owns preferred shares or ADSs during any taxable year that we are a PFIC must file IRS Form 8621.

      In general, if we are treated as a PFIC, the rules described above can be avoided by a U.S. Holder that elects to be subject to a mark-to-market regime for stock in a PFIC. A U.S. Holder may elect mark-to-market treatment for its preferred shares or ADSs, provided the preferred shares or ADSs, for purposes of the rules, constitute “marketable stock” as defined in Treasury Regulations. The ADSs will be “marketable stock” for this purpose if they are regularly traded on the New York Stock Exchange, other than in de minimis quantities on at least 15 days during each calendar quarter. A U.S. Holder electing the mark-to-market regime generally would compute gain or loss at the end of each taxable year as if the preferred shares or ADSs had been sold at fair market value. Any gain recognized by the U.S. Holder under mark-to-market treatment, or on an actual sale, would be treated as ordinary income, and the U.S. Holder would be allowed an ordinary deduction for any decrease in the value of preferred shares or ADSs as of the end of any taxable year, and for any loss recognized on an actual sale, but only to the extent, in each case, of previously included mark-to-market income not offset by previously deducted decreases in value. Any loss on an actual sale of preferred shares or ADSs would be a capital loss to the extent in excess of previously included mark-to-market income not offset by previously deducted decreases in value. A U.S. Holder’s adjusted tax basis in preferred shares or ADSs would increase or decrease by gain or loss taken into account under the mark-to-market regime. A mark-to-market election is generally irrevocable. In addition, a mark-to-market election with respect to preferred shares or ADSs would not apply to any subsidiary of ours that is itself a PFIC (lower-tier PFIC), and a U.S. Holder would not be able to make such a mark-to-market election in respect of its indirect ownership interest in that lower-tier PFIC. Consequently, the PFIC rules could apply with respect to income of a lower-tier PFIC, the value of which would already have been taken into account indirectly via mark-to-market adjustments in respect of preferred shares or ADSs.

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     If we are deemed to be a PFIC for a taxable year, dividends on our ADSs would not be “qualified dividend income” subject to preferential rates of Unites States federal income tax, as described above. See “—Certain Taxation — Material United States Federal Income Tax Consequences—Distributions on preferred shares or ADSs.”

     Backup withholding and information reporting

     In general, dividends on preferred shares or ADSs, and payments of the proceeds of a sale, exchange or other disposition of preferred shares or ADSs, paid within the United States or through certain United States-related financial intermediaries to a U.S. Holder are subject to information reporting and may be subject to backup withholding of United States federal income tax at a current maximum rate of 28% unless the holderU.S. Holder (i) is a corporation or other exempt recipient or (ii) provides an accurate taxpayer identification number and certifies that it is a U.S. person and that no loss of exemption from backup withholding has occurred.

     You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your United States federal income tax liability by filing a refund claim with the IRS. The amount of any backup withholding tax from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s United States federal income tax liability, provided that the required information is timely furnished to the IRS.

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Table You generally may obtain a refund of Contentsany amounts withheld under the backup withholding rules that exceed your United States federal income tax liability by timely filing a refund claim with the IRS.

F. Dividends and Paying Agents

     Not applicable.

G. Statement by Experts

     Not applicable.

H. Documents on Display

     We are subject to the informational requirements of the U.S. Securities Exchange Act of 1934, which is also known as the Exchange Act. Accordingly, we are required to file reports and other information with the Commission, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information to be filed with the Commission at the public reference facilities maintained by the Commission at 450 Fifth100 F Street, N.W., Washington D.C. 20549 and at the Commission’s regional offices at 500 West Madison Street, Suite 1400, Chicago Illinois 60661, and 233 Broadway, New York, New York 10279. Copies of the materials may be obtained from the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. In addition, the Commission maintains an internetInternet website at http://www.sec.gov, from which you can electronically access the registration statement and its materials.

     As a foreign private issuer, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act. For example, we are not required to prepare and issue quarterly reports. However, we furnish our shareholders with annual reports containing financial statements audited by our independent auditors and make available to our shareholders quarterly reports containing unaudited financial data for the first three quarters of each fiscal year. We file quarterly financial statements with the Commission within two months of the end of the first three quarters of our fiscal year, and we file annual reports on Form 20-F within the time period required by the Commission, which is currently six months from December 31, the end of our fiscal year.

     We will send the depositary a copy of all notices that we give relating to meetings of our shareholders or to distributions to shareholders or the offering of rights and a copy of any other report or communication that we make generally available to our shareholders. The depositary will make all these notices, reports and communications that it receives from us available for inspection by registered holders of ADSs at its office. The depositary will mail copies of those notices, reports and communications to you if we ask the depositary to do so and furnish sufficient copies of materials for that purpose.

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     We also file financial statements and other periodic reports with the CVM located at Rua Sete de Setembro, 111, Rio de Janeiro, Rio de Janeiro 20159-900, Brazil.

I. Subsidiary Information

     Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes to the price of fuel, thereal/U.S. dollar exchange rate and interest rates. The Company purchases jet fuel at prevailing market prices, but seeks to manage market risk through execution of a documented hedging program. The Company incurs a portion of its costs and operating expenses in U.S. dollars. The Company has interest rate risk in its floating rate leases and debt obligations. The Company operates 6590 aircraft under operating and 25 capital leases. However, fixed rate leases are not considered market sensitive financial instruments and, therefore, are not included in the interest rate sensitivity analysis below.

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Aircraft Fuel

     Our results of operations are affected by changes in the price of aircraft fuel required to operate our aircraft fleet. To manage the price risk, we utilize crude oil and heating oil derivative contracts. All of our derivative instruments must be liquid so as to allow us to make position adjustments and have prices that are widely disclosed. We avoid concentration of credit risk. All existing contracts settle on a monthly basis. We do not purchase or hold any derivative instruments for trading purposes. At December 31, 2006,2008, we had crude oil derivative contracts outstanding for up to 1,804,0002,046,250 barrels of oil. The fair value of such contracts was R$(4.6)102.3 million. If the price of fuel increased by 10% in relation to the average 20062008 price, based on expected fuel consumption in 2007,2008, such an increase would result in an increase to aircraft fuel expense of approximately R$177207.4 million in 2007,2009, not considering our derivative contracts. We acquire substantially all of our fuel and oil from one supplier.

Foreign Currencies

     A significant part of our costs and operating expenses, such as aircraft and engine maintenance services, aircraft lease payments and aircraft insurance, are denominated in U.S. dollars. To manage exchange rate risk, we enter into derivative contracts with various counterparties to protect ourselves against a possible depreciation or devaluation of therealin relation to the U.S. dollar. At December 31, 2006,2008, we had outstanding currency futures contracts. The fair value of such contracts was R$(0.3)9.4 million. As a measure of our market risk with respect to our foreign currency exposure, an increase in aircraft and engine maintenance expense, aircraft operating lease payments and aircraft insurance from a hypothetical R$0.10 depreciation of therealagainst the U.S. dollar would be approximately R$2258.6 million, not considering our derivative contracts.

Interest Rates

     Our earnings are affected by changes in interest rates due to the impact those changes have on interest expense from variable-rate debt instruments, variable-rate leasing contracts and on interest income generated from our cash and short-term investment balances. At December 31, 2006, 8.3%2008, 13.9% of our aircraft rental expenses had floating interest rates. A hypothetical ten percent10% increase in market interest rates as of December 31, 20062008 would increase our aircraft rental and interest expense by approximately R$38.9 million. A hypothetical ten percent10% decrease in market interest rates as of December 31, 20062008 would decrease our interest income from cash equivalents and short-term investments by approximately R$1210.0 million. These amounts are determined by considering the impact of the hypothetical interest rates on our variable-rate debt, variable-rate leasing contracts and cash equivalent and short-term investment balances at December 31, 2006.2008.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     None.

ITEM 15. CONTROLS AND PROCEDURES

     Disclosure Controls and Procedures.ProceduresThe Registrant maintains controls. Our chief executive officer and procedures designed to ensure that it is able to collectour chief financial officer, after evaluating together with other members of management the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the ruleseffectiveness of the SEC. Based on an evaluation of the Registrant’sour disclosure controls and procedures as(as defined in the U.S. Securities Exchange Act of the end of the period covered by this report conducted by the Registrant’s management, with the participation of the Chief Executive and Chief Financial Officers, the Chief Executive and Chief Financial Officers believe1934 under Rule 13a-15(e)) have concluded that theseour disclosure controls and procedures arewere not effective to ensure thatbecause of the Registrant is able to collect, process and disclose the information it is required to discloseidentification of a material weakness in the reports it files with the SEC within the required time periods.internal control over financial reporting, described below.

     Management’s Report on Internal Control over Financial Reporting.Reporting. Management of the Registrant is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Registrant’s internal control over financial reporting is designed to provide reasonable assurance to the Registrant’s management and board of directors regarding the preparation and fair presentation of published financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance

     Our management, under the supervision of and with respect tothe participation of our chief executive officer and chief financial statement preparation and presentation.

     Managementinvestor relations officer, assessed the effectiveness of the Registrant’s internal control over financial reporting as of December 31, 2006.2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this assessment, management believes that, as

     A material weakness is a deficiency, or combination of December 31, 2006, the Company’sdeficiencies, in internal control over financial reporting, such that there is effective based on those criteria.

     Management’s assessmenta reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. After the publication of our financial statements in IFRS as of and for the year ended December 31, 2008, we identified in the process of preparing this annual report, adjustments related to the accounting for the acquisition of VRG and the recognition of certain deferred tax assets related to temporary differences in our accounting for aircraft leases. Our internal controls over financial reporting did not detect these deficiencies, which led to the need to restate the aforementioned IFRS financial statements. For further information, see note 2 to our consolidated financial statements included in this annual report.

     Management found that the following material weakness in our internal controls over financial reporting resulted in the need for the adjustments to our financial statements:

     • We have performed and continue to perform the consolidation of our financial statements using spreadsheets for complex manual accounting processes. As a result, certain controls in the consolidation process are manual and we have not taken advantage of the inherent controls in an automated consolidation package.

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     • The regulatory complexity in the integration of VRG and our parallel transition to IFRS led to more time and effort being spent on the preparation of our financial statements, at the expense of the time we allocated to the financial statement close process and the internal controls related thereto.

     • This shift in focus could not be mitigated due to turnover of certain personnel, which resulted in insufficient communication and teamwork among those involved in the audit and the preparation of our financial statements, leading to less efficient and thorough review and closing processes.

     In light of this material weakness, in preparing the restated financial statements included in this annual report, we performed a full revision of the financial statements and post-closing procedures to provide assurance regarding the accuracy of the restated financial statements.

Plan to Remediate the Material Weakness. To address the material weakness described above, we are currently undertaking remediation measures to ensure the accuracy and effectiveness of our internal controls over financial reporting, including:

     • Automating certain portions of the financial statement close process so that we take advantage of the built-in controls of the automated system and increasing the amount of time allocated to the internal controls over the process.

     • Ensuring that the supervisory function and experience levels of the personnel in the accounting area are adequate and allow sufficient time to review and address critical accounting issues in order to further strengthen the financial statement close process.

     • Providing ongoing training in IFRS and internal controls to our staff.

     • Strengthening management's proactive oversight function through the company’s internal accounting and tax committees by increased focus on income taxes and related deferrals, and all future material non-common and non-recurring transactions.

      The measures described above have been submitted to and approved by our chief financial and investor relations officer, our chief executive officer and our board of directors, after consultation with our audit committee.

     The internal controls over financial reporting as of December 31, 2006 has2008 have been audited by Ernst & Young Auditores Independentes S.S., the independent registered public accounting firm who also audited the Company’s consolidated financial statements. Ernst & Young’s attestation report on management’s assessment of the Company’s internal controls over financial reporting is included herein.

     Changes in internal controls. No significant changes in our internal controls or in other factors that could significantly affect these controls subsequent toafter the date of the evaluation including any corrective actions with regard to significant deficiencies and material weaknesses, were made as a result of the evaluation. However, there are changes planned as a result of the aformentioned material weakness and the plan to remediate the weakness.

ITEM 16.

A. Audit Committee Financial Expert

     Our board of directors has determined that Luiz Kaufmann, a member of our audit committee, is an “audit committee financial expert” as defined by current SEC rules and meets the independence requirements of the SEC and the NYSE listing standards. For a discussion of the role of our audit committee, see “Item 6C. Board Practices—Audit Committee.”

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B. Code of Ethics

     Our board of directors has adopted a Code of Ethics applicable to our directors, officers and employees, including our principal executive officer and principal financial officer. The Code of Ethics can be found at www.voegol.com.br under the heading “Investor Relations”.Relations.” Information found at this website is not incorporated by reference into this document.

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C. Principal Accountant Fees and Services

     The following table sets forth by category of service the total fees for services performed by Ernst & Young Auditores Independentes S.S. during the fiscal years ended December 31, 20062008 and 2005:2007:

 2006  2005  2008  2007 
    
 (inreais) (inreais)
Audit Fees  2,852,141  1,771,142  5,616,361  5,066,411 
Audit-Related Fees  511,879  2,063,728  —  388,060 
Tax Fees  —  27,669  335,618  — 
All Other Fees  —  —  351,818  — 
    
Total  3,364,020  3,862,539  6,303,797  5,454,471 
  

Audit Fees

     Audit fees includedinclude the audit of our consolidated annual financial statements and internal controls, the audit of our Brazilian GAAP financial statements, review of our quarterly reports in 2006 and required statutory audits.

Audit-Related Fees

     Audit-related fees includedinclude fees for the preparation and issuance of comfort letters in connection with our offering and registering securities with the SEC. In 2007, the audit-related fees also include services performed in connection with the acquisition of securities.VRG Linhas Aéreas S.A.. No audit-related fees were incurred in 2008.

Tax Fees

     Tax fees include the review of our income tax returns in 2005. There were no taxadvisory services provided in 2006.2008 amounted to R$335,618.

All Other Fees

     There were no other fees for services performed by Ernst & Young Auditores Independentes S.S. during the fiscal years ended December 31, 20062007. Other fees for 2008 amounted to R$351,818 and 2005.were related to the adoption of IFRS.

Pre-Approval Policies and Procedures

     Our audit committee approves all audit, audit-related services, tax services and other services provided by Ernst & Young Auditores Independentes S.S. Any services provided by Ernst & Young Auditores Independentes S.S. that are not specifically included within the scope of the audit must be pre-approved by the audit committee in advance of any engagement. Pursuant to Rule 2-01 of Regulation S-X, audit committees are permitted to approve certain fees for audit-related services, tax services and other services pursuant to ade minimis exception prior to the completion of an audit engagement. In 20062008 and 2005,2007, none of the fees paid to Ernst & Young Auditores Independentes S.S. were approved pursuant to thede minimis exception.

D. Exemptions from the Listing Standards for Audit Committees

     None.

E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     None.In January 2008, our board of directors authorized a share buy-back program on the BOVESPA of up to 5,000,000 of our preferred shares, at market prices, representing 8.8% of the total number of preferred shares outstanding in the market. The purpose of the buyback is the purchase of preferred shares to be held in treasury and subsequently resold or cancelled, without reducing our capital. The period for these authorized transactions is 365 days from January 28, 2008. The program expired in January 2009, and a total of 1,574,200 preferred shares were bought back under the program.

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F. Change in Registrant’s Certifying Accountant

None

G. Corporate Governance

Significant Differences between our Corporate Governance Practices and NYSE Corporate Governance Standards

     We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE rules, we are required only to: (a) have an audit committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (b) provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules, and (c) provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies. The discussion of the significant differences between our corporate governance practices and those required of U.S. listed companies follows below.

     Majority of Independent Directors

     The NYSE rules require that a majority of the board must consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Brazilian law does not have a similar requirement. Under Brazilian law, neither our board of directors nor our management is required to test the independence of directors before their election to the board. However, both the Brazilian Corporate Law and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While our directors meet the qualification requirements of the Brazilian Corporate Law and the CVM, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence. The Brazilian Corporate Law requires that our directors be elected by our shareholders at a general shareholders’ meeting. All of our directors are elected by our controlling shareholder and five of our directors represent our controlling shareholder.

     Executive Sessions

     NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. The Brazilian Corporate Law does not have a similar provision. According to the Brazilian Corporate Law, up to one-third of the members of the board of directors can be elected from management. Constantino de Oliveira Jr., our president and chief executive officer, is a member of our board of directors. There is no requirement that non-management directors meet regularly without management. As a result, the non-management directors on our board do not typically meet in executive session.

     Nominating/Corporate Governance Committee

     NYSE rules require that listed companies have a nominating/corporate governance committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. Our corporate governance and nomination committee is responsible for the coordination, implementation and periodic review of “best practices” of corporate governance and for monitoring and keeping our board of directors informed about legislation and market recommendations addressing corporate governance. The committee also proposes individuals to be considered for election to our board of directors. The committee consists of up to five members elected by our board of directors for a one-year term of office. Currently, the corporate governance and nomination committee consists of Charles Barnsley Holland, Paulo César Aragão and Betania Tanure de Barros.

     People Management Policies Committee

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     NYSE rules require that listed companies have a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive-compensation and equity-based plans. We are not required under applicable Brazilian law to have a compensation committee. Under the Brazilian Corporate Law, the total amount available for compensation of our directors and executive officers and for profit-sharing payments to our executive officers is established by our shareholders at the annual general meeting. The board of directors is then responsible for determining the individual compensation and profit-sharing of each executive officer, as well as the compensation of our board and committee members. In making such determinations, the board reviews the performance of the executive officers, including the performance of our chief executive officer, who typically excuses himself from discussions regarding his performance and compensation.

     Our compensation committee reviews and recommends to our board of directors the forms of compensation, including salary, bonus and stock options, to be paid to our directors and executive officers. The compensation committee also reviews and recommends revisions to the compensation policies applicable to our directors and executive officers and reviews our management’s career and succession plans. The compensation committee is comprised of up to three members elected by our board of directors for a one-year term. The compensation committee currently consists of Henrique Constantino, who is one of our directors, Marco Antonio Piller, the human resources director of Gol, and Marcos Morales, a human resources consultant from Watson Wyatt.

     Audit Committee

     NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, we need only to comply with the requirement that the audit committee meet the SEC rules regarding audit committees for listed companies to the extent compatible with Brazilian corporate law. We have established an audit committee, which is equivalent to a U.S. audit committee, provides assistance to our board of directors in matters involving our accounting, internal controls, financial reporting and compliance. The audit committee recommends the appointment of our independent auditors to our board of directors and reviews the compensation of, and coordinates with, our independent auditors. The audit committee also evaluates the effectiveness of our internal financial and legal compliance controls. The audit committee is comprised of up to three members elected by the board of directors for a one-year term of office. The current members of our audit committee are Álvaro Souza, Antonio Kandir and Luiz Kaufmann. All members of the audit committee satisfy the audit committee membership independence requirements set forth by the SEC and the NYSE. Luiz Kaufmann is an audit committee “financial expert” within the meaning of the rules adopted by the SEC relating to the disclosure of financial experts on audit committees in periodic filings pursuant to the U.S. Securities Exchange Act of 1934.

     Shareholder Approval of Equity Compensation Plans

     NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions. Under the Brazilian Corporate Law, shareholders must approve all stock option plans. In addition, any issuance of new shares that exceeds our authorized share capital is subject to shareholder approval.

     Corporate Governance Guidelines

     NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We have not adopted any formal corporate governance guidelines beyond those required by applicable Brazilian law. We have adopted and observe a disclosure policy, which requires the public disclosure of all relevant information pursuant to guidelines set forth by the CVM, as well as an insider trading policy, which, among other things, establishes black-out periods and requires insiders to inform management of all transactions involving our securities.

     Code of Business Conduct and Ethics

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     NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Applicable Brazilian law does not have a similar requirement. We have adopted a Code of Ethics and Conduct applicable to our officers, directors and employees worldwide, including at the subsidiary level. We believe this code addresses the matters required to be addressed pursuant to the NYSE rules. For a further discussion of our Code of Ethics and Conduct, see “Item 16B. Code of Ethics.”

     Internal Audit Function

NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control. Our internal audit and compliance department was created in 2004 under the supervision of our chief financial officer and our audit committee and is responsible for our compliance with the requirements of Section 404 of the U.S. Sarbanes Oxley Act of 2002 regarding internal control over financial reporting. The internal audit and compliance department reports to our chief executive officer and the audit committee.

PART III

ITEM 17. FINANCIAL STATEMENTS

     See “Item 18. Financial Statements.”

ITEM 18. FINANCIAL STATEMENTS

     See our consolidated financial statements beginning on Page F-1.

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ITEM 19. EXHIBITS

1.1
1.1 
 
2.1 Form of Deposit Agreement among the Registrant, The Bank of New York, as depositary, and the Holders from time to time of American Depositary Shares issued thereunder, including the form of American Depositary Receipts, incorporated herein by reference from our Registration Statement on Form F-1, filed June 1, 2004, as amended on June 17, 2004 and June 23, 2004, File No. 333-116054.
 
2.2 8.1Shareholders’ Agreement among Comporte Participações S.A., Aeropar Participações S.A., BSSF Air Holdings LLC and the Registrant, incorporated herein by reference from our Registration Statement on Form F-1, filed June 1, 2004, as amended on June 17, 2004 and June 23, 2004, File No. 333-116054. 
2.3 Subscription and Option Agreement, dated January 20, 2003, by and among Áurea Administração e Participações S.A., BSSF Air Holdings Ltd., BSSF II Holdings Ltda. and Gol Transportes Aéreos S.A., and addendum, incorporated herein by reference from our Registration Statement on Form F-1, filed June 1, 2004, as amended on June 17, 2004 and June 23, 2004, File No. 333-116054. 
 
10.1 Agreement, dated as of January 1, 2002, between the Registrant and Petrobras Distribuidora S.A., including Amendment No. 1, dated as of May 1, 2002, incorporated herein by reference from our Registration Statement on Form F-1, filed June 1, 2004, as amended on June 17, 2004 and June 23, 2004, File No. 333-116054.
 
10.3 
10.4 
 
10.410.5 
10.6 
10.7 
10.8 
10.9 
10.10 
10.11 
10.12 Aircraft Purchase Agreement, dated as of May 17, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Registration Statement on Form F-1, filed June 1, 2004, as amended on June 17, 2004 and June 23, 2004, File No. 333-116054.

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10.510.13 Supplemental Aircraft Purchase Agreement No.1No. 1 dated as of July 16, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Registration Statement on Form F-1, filed March 28, 2004, as amended on April 11, 2005 and April 26, 2005, File No. 333-123625.
 
10.610.14 Supplemental Aircraft Purchase Agreement No.2No 2 dated as of January 20, 2005 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Registration Statement on Form F-1, filed March 28, 2004, as amended on April 11, 2005 and April 26, 2005, File No. 333-123625.
 
10.710.15 Supplemental Aircraft Purchase Agreement No.3No. 3 dated as of January 7, 2005 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Registration Statement on Form F-1, filed March 28, 2004, as amended on April 11, 2005 and April 26, 2005, File No. 333-123625.
 
10.810.16 Supplemental Aircraft Purchase Agreement No.4No. 4 dated as of March 24, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Registration Statement on Form F-1, filed March 28, 2004, as amended on April 11, 2005 and April 26, 2005, File No. 333-123625.
 
10.910.17 Supplemental Agreement No. 5 dated July 25, 2005 to Purchase Agreement dated as of May 17, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Annual Report on Form 20-F for the year ended December 31, 2005, as filed on March 20, 2006 and as amended on May 2, 2006.

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10.10
10.18 Supplemental Agreement No. 6 dated August 26, 2005 to Purchase Agreement dated as of May 17, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Annual Report on Form 20-F for the year ended December 31, 2005, as filed on March 20, 2006 and as amended on May 2, 2006.
 
10.1110.19 Supplemental Agreement No. 7 dated October 18, 2005 to Purchase Agreement dated as of May 17, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Annual Report on Form 20-F for the year ended December 31, 2005, as filed on March 20, 2006 and as amended on May 2, 2006.
 
10.1210.20 Supplemental Agreement No. 8 dated February 19, 2006 to Purchase Agreement dated as of May 17, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Annual Report on Form 20-F for the year ended December 31, 2005, as filed on March 20, 2006 and as amended on May 2, 2006.
 
10.1310.21 Supplemental Agreement No. 9 dated March 6, 2006 to Purchase Agreement dated as of May 17, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Annual Report on Form 20-F for the year ended December 31, 2005, as filed on March 20, 2006 and as amended on May 2, 2006.
 
10.1410.22  Certain portions of this exhibit have been omitted from the public filing and were separately filed with the Commission with a request for confidential treatment.
 
10.1510.23 
10.24 Supplemental Agreement No. 12 dated February 8, 2007 to Purchase Agreement dated as of May 17, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Annual Report on Form 20-F for the year ended December 31, 2007, as filed on April 22, 2008.

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10.25 Supplemental Agreement No. 13 dated December 17, 2007 to Purchase Agreement dated as of May 17, 2004 between Gol Transportes Aéreos S.A. and The Boeing Company, incorporated herein by reference from our Annual Report on Form 20-F for the year ended December 31, 2007, as filed on April 22, 2008.
10.26 
 
12.1
 
12.2
 
13.1
 
13.2

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SIGNATURE

The Company hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on Form 20-F (Form 20-F) on its behalf.

GOL LINHAS AÉREAS INTELIGENTES S.A.

By: /s/ CONSTANTINO DE OLIVEIRA JUNIOR 
Name: Constantino de Oliveira Junior 
Title: President and Chief Executive Officer 

GOL LINHAS AÉREAS INTELIGENTES S.A.

By: /s/ LEONARDO PORCIÚNCULA GOMES PEREIRA 
Name:Leonardo Porciúncula Gomes Pereira 
Title:Executive Vice President, Chief Financial and Investor Relations Officer 

Dated: February 28, 2007May 7, 2009

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Consolidated Financial Statements
GOL Linhas Aéreas Inteligentes S.A.
Year ended December 31, 2008


GOL LINHAS AÉREAS INTELIGENTES S.A.


CONSOLIDATED FINANCIAL STATEMENTSConsolidated financial statements


December 31, 20062008 and 2005
(In2007 (In thousands of Brazilian Reais)


Contents
reais)

Contents 
Report of independent registered public accounting firm on internal control F-2 
Report of independent registered public accounting firm F-4 
Audited consolidated financial statements 
Consolidated income statements for the years ended December 31, 2008 and 2007 F-5 
Consolidated balance sheets as of December 31, 2008 and 2007 F-6 
Consolidated statements of shareholders’ equity for the years ended 
December 31, 2008 and 2007 F-8 
Consolidated statements of cash flows for the years ended December 31, 2008 and 2007 F-9 
Notes to consolidated financial statements F-10


Table of Contents

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 

F-2
Report of Independent Registered Public Accounting Firm
F-3
Audited Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2006 and 2005
F-4
Consolidated Statements of Income for the Years ended December 31, 2006, 2005 and 2004
F-6
Consolidated Statements of Cash Flows for the Years ended December 31, 2006, 2005 and 2004
F-7
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Years ended December 31, 2006, 2005 and 2004 
F-8
Notes to Consolidated Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Gol Linhas Aéreas Inteligentes S.A.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Gol Linhas Aéreas Inteligentes S.A. maintained effective’s internal control over financial reporting as of December 31, 2006,2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Gol Linhas Aéreas Inteligentes’Inteligentes S.A.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting.reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’sCompany’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment,assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in the financial statement close process in connection with the implementation of IFRS related to the acquisition of VRG and the recognition of certain deferred tax assets related to temporary differences in the accounting for aircraft leases and, as a result, concluded that previously reported profit (loss) had been overstated. The insufficient controls related to the foregoing resulted in a restatement of the Company’s consolidated financial statements as of December 31, 2008 and 2007 and for the years then ended. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2008 consolidated financial statements, and this report does not affect our report dated March 19, 2009, except for Notes 2a) and 24 and, as to which the date is May 4, 2009, on those consolidated financial statements (as restated).

In our opinion, management’s assessment thatbecause of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Gol Linhas Aéreas Inteligentes S.A. has not maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Gol Linhas Aéreas Inteligentes S.A. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006,2008, based on the COSO criteria.

We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Gol Linhas Aéreas Inteligentes S.A. as of December 31, 20062008 and 2005,2007, and the related consolidated statements of income, stockholder’sshareholder’s equity, and cash flows for each of the three years in the periodthen ended December 31, 2006 of Gol Linhas Aéreas Inteligentes S.A. and our report dated January 29, 2007March 19, 2009, except for Notes 2 a) and 24, as to which the date is May 4, 2009, expressed an unqualified opinion thereon.

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


Maria Helena Pettersson
Partner


São Paulo, Brazil,
January 29, 2007March 19, 2009,
except for the effects of the material weakness
described in the fifth paragraph above, as
to which the date May 4, 2009

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Gol Linhas Aéreas Inteligentes S.A.

We have audited the accompanying consolidated balance sheets of Gol Linhas Aéreas Inteligentes S.A.and subsidiariesS.A. as of December 31, 20062008 and 20052007 and the related consolidated statements of income, shareholders’changes in equity and cash flows for each of the three years ended in the period December 31, 2006.then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Gol Linhas Aéreas Inteligentes S.A. and subsidiaries at December 31, 20062008 and 2005,2007, and the consolidated results of theirits operations and theirits cash flows for each of the three years in the periodthen ended, December 31, 2006, in conformity with U.S. generally acceptedInternational Financial Reporting Standards, issued by the International Accounting Standards Board.

As discussed in Note 2 a), the consolidated financial statements have been restated to correct the accounting principles.for the acquisition of VRG and the recognition of certain deferred tax assets related to temporary differences in the accounting for aircraft leases

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Gol Linhas Aéreas Inteligentes S.A.’s internal control over financial reporting as of December 31, 2006,2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 29, 2007March 19, 2009, except for the effects of the material weakness described in the fifth paragraph of that report, as to which the date is May 4, 2009, expressed an unqualifiedadverse opinion thereon.

ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP015199/O-1


Maria Helena Pettersson
Partner


São Paulo, Brazil
January 29, 2007March 19, 2009, except for Notes 2 a) and 24,
as to which the date is May 4, 2009

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GOL LINHAS AÉREAS INTELIGENTES S.A.

 Consolidated income statements
CONSOLIDATED BALANCE SHEETS
Years ended December 31, 20062008 and 20052007
(In thousands of Brazilian Reais)reais, except per share amounts)
(Restated)

      Translation into 
      thousands of US$ 
  2005  2006  2006 
    
ASSETS       
 
CURRENT ASSETS       
     Cash and cash equivalents  R$ 106,347  R$ 280,977  US$ 131,420 
     Short-term investments  762,688  1,425,369  666,683 
     Receivables, less allowance (2005 – R$ 4,890;       
         2006 – R$ 10,366, US$ 4,848) 563,958  659,306  308,375 
     Inventories  40,683  75,165  35,157 
     Deposits with lessors   232,960  108,962 
     Recoverable taxes  13,953  60,396  28,249 
     Prepaid expenses  39,907  64,496  30,167 
     Other  13,102  12,654  5,919 
    
                         Total current assets  1,540,638  2,811,323  1,314,932 
 
 
PROPERTY AND EQUIPMENT       
     Pre-delivery deposits  356,765  436,911  204,355 
     Flight equipment  225,724  660,861  309,102 
     Other  75,619  129,260  60,458 
    
  658,108  1,227,032  573,915 
     Accumulated depreciation  (79,508) (147,809) (69,134)
    
                         Property and equipment, net  578,600  1,079,223  504,781 
 
OTHER ASSETS       
     Deposits with lessors  408,776  304,875  142,598 
     Other  27,829  63,033  29,482 
    
                         Total other assets  436,605  367,908  172,080 
 
 
 
 
    
TOTAL ASSETS  R$ 2,555,843  R$ 4,258,454  US$ 1,991,793 
    
  Note  2008  2007 
    
 
Operating revenues       
   Passenger    5,890,104  4,566,691 
   Cargo and other    516,089  374,293 
    
Total operating revenues    6,406,193  4,940,984 
 
Operating expenses       
   Salaries   (983,783) (799,344)
   Aircraft fuel    (2,630,834) (1,898,840)
   Aircraft rent    (645,089) (525,785)
   Aircraft insurance    (42,813) (44,646)
   Sales and marketing    (588,735) (367,866)
   Landing fees    (338,370) (273,655)
   Aircraft and traffic servicing    (422,177) (348,732)
   Maintenance materials and repairs    (388,030) (339,281)
   Depreciation    (125,127) (62,548)
   Other operating expenses    (329,883) (270,422)
    
Total operating expenses    (6,494,841) (4,931,119)
 
Operating profit (loss)   (88,648) 9,865 
 
Finance costs and other income (expense)      
   Finance costs       
       Interest expense    (269,278) (182,618)
       Capitalized interest    27,179  38,879 
    
   Total finance costs    (242,099) (143,739)
   Exchange gain (loss)   (757,526) 165,230 
   Interest and investment income    78,349  293,333 
   Other income (expense), net    (185,118) (123,806)
    
Total finance costs and other income (expense)   (1,106,394) 191,018 
 
Profit (loss) before income taxes    (1,195,042) 200,883 
 
   Income taxes expense   (44,305) (33,595)
    
 
Profit (loss) for the year from continuing       
 operations attributable to equity       
 holders of the parent    (1,239,347) 167,288 
    
 
Earnings (loss) per share:       
   Basic  15  (6.16) 0.84 
   Diluted  15  (6.16) 0.84 

See accompanying notes to consolidated financial statements

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GOL LINHAS AÉREAS INTELIGENTES S.A.


CONSOLIDATED BALANCE SHEETSConsolidated balance sheets
December 31, 20062008 and 20052007
(In thousands of Brazilian Reais)
reais) (Restated)

      Translation into 
      thousands of US$ 
  2005  2006  2006 
    
LIABILITIES AND SHAREHOLDERS’ EQUITY       
 
CURRENT LIABILITIES       
   Short-term borrowings  R$ 54,016  R$ 128,304   US$ 60,011 
   Current portion of long-term debt   41,298  19,316 
   Accounts payable  73,924  124,110  58,050 
   Salaries, wages and benefits  71,638  87,821  41,076 
   Sales tax and landing fees  83,750  139,394  65,198 
   Air traffic liability  217,800  335,268  156,814 
   Insurance premium payable  25,371  44,897  21,000 
   Dividends payable  101,482  42,961  20,094 
   Deferred gains on sale and leaseback transactions   10,128  4,737 
   Other  18,244  46,165  21,592 
    
                     Total current liabilities  646,225  1,000,346  467,888 
 
NON-CURRENT LIABILITIES       
   Long-term debt   949,006  443,876 
   Deferred income taxes, net  63,694  28,064  13,126 
   Deferred gains on sale and leaseback transactions   48,219  22,553 
   Other  23,593  27,661  12,939 
    
  87,287  1,052,950  492,494 
 
SHAREHOLDERS’ EQUITY       
   Preferred shares, no par value; 88,615,674 issued       
             and outstanding in 2006 and 86,524,136       
             issued and 85,952,136 outstanding in 2005  843,714  846,125  395,755 
   Common shares, no par value; 107,590,792 and       
             109,448,497 issued and outstanding in 2006       
             and 2005, respectively  41,500  41,500  19,411 
   Additional paid-in capital  32,273  35,430  16,572 
   Appropriated retained earnings  39,577  39,577  18,511 
   Unappropriated retained earnings  858,856  1,246,848  583,184 
   Accumulated other comprehensive income  6,411  (4,322) (2,022)
    
                     Total shareholders’ equity  1,822,331  2,205,158  1,031,411 
 
    
TOTAL LIABILITIES AND SHAREHOLDERS’       
EQUITY  R$ 2,555,843  R$ 4,258,454  US$ 1,991,793 
    
  Note  2008  2007 
    
 
Assets       
Non-current assets       
     Property, plant and equipment, net   2,998,756  2,191,028 
     Intangible assets   1,197,861  1,197,441 
     Other non-current assets       
           Prepaid expenses   58,793  44,808 
           Deposits   507,428  448,807 
           Deferred income taxes   729,784  485,980 
           Restricted cash  12  6,589  6,041 
           Other non-current assets   97,446  87,489 
    
     Total other non-current assets    1,400,040  1,073,125 
    
Total non-current assets    5,596,657  4,461,594 
 
 
Current assets       
     Other current assets   52,386  144,484 
     Prepaid expenses   123,801  135,957 
     Deposits   237,914  192,357 
     Recoverable income taxes    110,767  45,569 
     Inventories of parts and supplies   200,514  209,926 
     Trade and other receivables  10  344,927  903,061 
     Restricted cash  12  176,697  
     Financial assets  19  245,585  820,343 
     Cash and cash equivalents  11  169,330  573,121 
    
Total current assets    1,661,921  3,024,818 
    
 
 
Total assets    7,258,578  7,486,412 
    

See accompanying notes to consolidated financial statements

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GOL LINHAS AÉREAS INTELIGENTES S.A.

     Consolidated balance sheets
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2006, 20052008 and 20042007
(In thousands of Brazilian Reais, except per share amounts)reais)
(Restated)

        Translation into 
        thousands 
        of US$ 
  
2004 
 
2005 
 
2006 
 2006 
      
 
NET OPERATING REVENUES         
   Passenger R$ 1,875,475  R$ 2,539,016  R$ 3,580,919  US$ 1,674,892 
   Cargo and Other  85,411  130,074  221,098  103,413 
     
                       Total net operating revenues  1,960,886  2,669,090  3,802,017  1,778,305 
 
OPERATING EXPENSES         
   Salaries, wages and benefits  183,037  260,183  413,977  193,628 
   Aircraft fuel  459,192  808,268  1,227,001  573,901 
   Aircraft rent  195,504  240,876  292,548  136,833 
   Sales and marketing  261,756  335,722  414,597  193,918 
   Landing fees  57,393  92,404  157,695  73,758 
   Aircraft and traffic servicing  74,825  91,599  199,430  93,279 
   Maintenance materials and repairs  51,796  55,373  146,505  68,524 
   Depreciation  21,242  35,014  69,313  32,420 
   Other  79,840  128,300  179,494  83,954 
     
                       Total operating expenses  1,384,585  2,047,739  3,100,560  1,450,215 
 
OPERATING INCOME  576,301  621,351  701,457  328,090 
 
OTHER INCOME (EXPENSE)        
   Interest expense  (13,445) (19,383) (66,378) (31,047)
   Capitalized interest  3,216  17,113  16,733  7,826 
   Interest and investment income  34,159  140,204  174,354  81,550 
   Other expenses, net  (12,951) (41,763) (27,204) (12,724)
     
                       Total other income  10,979  96,171  97,505  45,605 
 
INCOME BEFORE INCOME TAXES  587,280  717,522  798,962  373,695 
 
   Income taxes  (202,570) (204,292) (229,825) (107,495)
      
NET INCOME  R$ 384,710  R$ 513,230  R$ 569,137  US$ 266,200 
      
 
EARNINGS PER COMMON AND         
PREFERRED SHARE:         
 
Basic     R$ 2.14     R$ 2.66     R$ 2.90     US$ 1.36 
Diluted     R$ 2.13     R$ 2.65     R$ 2.90     US$ 1.36 
  Note  2008  2007 
    
 
Liabilities and shareholders' equity       
Shareholders' equity       
     Issued share capital  13  1,250,618  1,250,618 
     Capital reserves  13  89,556  89,556 
     Treasury shares  13  (41,180) 
     Retained earnings (deficit) 13  (227,386) 1,052,274 
    
Total shareholders' equity    1,071,608  2,392,448 
 
Non-current liabilities       
     Long-term debt  19  2,438,881  1,714,716 
     Smiles deferred revenue   262,626  233,618 
     Deferred income taxes   548,680  341,634 
     Provisions  16  157,310  200,664 
     Other non-current liabilities    196,894  107,132 
    
Total non-current liabilities    3,604,391  2,597,764 
 
Current liabilities       
     Short-term debt  19  967,452  891,543 
     Accounts payable    283,719  326,364 
     Salaries, wages and benefits    146,805  163,437 
     Current income taxes payable    39,605  68,013 
     Sales tax and landing fees    97,210  84,319 
     Advance ticket sales  22  572,573  472,860 
     Provisions  16  165,287  175,976 
     Smiles deferred revenue   90,043  147,348 
     Other current liabilities    219,885  166,340 
    
Total current liabilities    2,582,579  2,496,200 
    
 
 
Total liabilities and shareholders' equity    7,258,578  7,486,412 
    

See accompanying notes to Consolidated Financial Statements.notes.

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Table of Contents

GOL LINHAS AÉREAS INTELIGENTES S.A.


CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2006, 2005 and 2004
(In thousands of Brazilian Reais)

        Translation in 
        thousands of US$ 
  2004  2005  2006  2006 
  
CASH FLOWS FROM OPERATING ACTIVITIES         
Net income  R$ 384,710  R$ 513,230  R$ 569,137  US$ 266,200 
     Adjustments to reconcile net income to net cash provided by         
         operating activities:         
         Depreciation  31,300  35,519  69,313  32,420 
         Deferred income taxes  36,860  20,926  (27,882) (13,041)
         Allowance for doubtful accounts receivable  (213) 1,343  5,476  2,561 
         Capitalized interest  (3,244) (17,113) (16,733) (7,826)
         Changes in operating assets and liabilities:         
                 Receivables  (145,581) (178,931) (100,824) (47,158)
                 Inventories  (7,468) (19,645) (34,482) (16,128)
                 Accounts payable and other accrued liabilities  15,355  37,488  50,186  23,473 
                 Deposits with lessors  (104,237) (119,661) (110,858) (51,851)
                 Air traffic liability  36,498  57,909  117,468  54,943 
                 Dividends payable   40,806  (58,521) (27,372)
                 Other, net  (4,060) (18,126) 68,156  31,878 
  
Net cash provided by operating activities  239,920  353,745  530,436  248,099 
 
CASH FLOWS FROM INVESTING ACTIVITIES         
         Deposits for aircraft leasing contracts  (4,263) 301  (18,204) (8,514)
         Acquisition of property and equipment  (41,971) (169,443) (489,790) (229,089)
         Pre-delivery deposits  (43,447) (313,318) (63,413) (29,660)
         Purchase of available-for-sale securities  (1,386,991) (456,418) (2,021,593) (945,553)
         Sale of available-for-sale securities  943,629  137,091  1,358,912  635,600 
  
Net cash used in investing activities  (533,043) (801,787) (1,234,088) (577,216)
 
CASH FLOWS FROM FINANCING ACTIVITIES         
         Short-term borrowings  79,443  (64,333) 74,288  34,746 
         Proceeds from issuance of long-term debt    990,304  463,192 
         Issuance of preferred shares  470,434  279,080   
         Tax benefit contributed by shareholders  29,188    
         Dividends paid  (26,503) (60,676) (181,145) (84,726)
         Other, net   (5,412) (5,165) (2,416)
  
Net cash provided by financing activities  552,562  148,659  878,282  410,796 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  259,439  (299,383) 174,630  81,679 
 
     Cash and cash equivalents at beginning of the year  146,291  405,730  106,347  49,741 
  
     Cash and cash equivalents at end of the year  R$ 405,730  R$ 106,347  R$ 280,977  US$ 131,420 
  
 
Supplemental disclosure of cash flow information         
     Interest paid  R$ 12,223  R$ 19,383  R$ 65,207  US$ 30,499 
     Income taxes paid  R$ 162,663  R$ 168,975  R$ 257,706  US$ 120,536 
 
Non cash investing activities         
     Tax benefit contributed by shareholders  R$ 29,188  R$ -  R$ -  US$ - 
     Accrued capitalized interest  R$ 3,244  R$ 17,113  R$ 16,733  US$ 7,826 

See accompanying notes to consolidated financial statements.

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Table of Contents

GOLLINHASAÉREASINTELIGENTES S.A.
CONSOLIDATEDSTATEMENTS OFSHAREHOLDERS’EQUITY

     Consolidated statement of changes in equity
Years ended December 31, 2006, 20052008 and 20042007
(In thousands of Brazilian Reais,reais, except forper share information)amounts)
(Restated)

  Common Shares  Preferred Shares  Additional 
paid-in capital 
  Deferred 
compensation 
 Retained Earnings  Accumulated other   
     
  Shares  Amount  Shares  Amount    Appropriated  Unapropriated  comprehensive income       Total 
  
Balance at December 31, 2003  116,200,000  R$ 41,500  52,592,985  R$ 94,200    R$ 5,579  R$ 173,460   R$ 314,739 
  
           Net income         384,710   384,710 
           Proceeds from public offering, net  (6,751,503)  25,501,761  459,185       459,185 
           Deferred income taxes on public offering issuance costs, net     11,249       11,249 
           Tax benefit contributed by shareholders      29,188      29,188 
           Deferred compensation      20,117  (20,117)    
           Amortization of deferred compensation       10,058     10,058 
           Dividends payable         (60,676)  (60,676)
           Transfer to appropriated retained earnings         12,773  (12,773)  
  
Balance at December 31, 2004  109,448,497  R$ 41,500  78,094,746  R$ 564,634  R$ 49,305  R$ (10,059) R$ 18,352  R$ 484,721   R$ 1,148,453 
  
           Comprehensive income:                     
                   Net income         513,230   513,230 
                   Unrealized gain on derivative instruments, net of taxes          6,411  6,411 
           
                   Total Comprehensive income                    519,641 
           Proceeds from public offering, net    7,725,811  258,123       258,123 
           Issuance of preferred shares pursuant to employee stock option
               plan 
   703,579  17,238  (15,099)     2,139 
           Unpaid subscribed capital    (572,000) (1,739)      (1,739)
           Deferred income taxes on public offering issuance costs, net     5,458       5,458 
           Deferred compensation      428  (428)    
           Amortization of deferred compensation       8,126     8,126 
           Dividends payable and interest on shareholders’ equity         (117,870)  (117,870)
           Transfer to appropriated retained earnings        21,225  (21,225)  
  
Balance at December 31, 2005  109,448,497  R$ 41,500  85,952,136  R$ 843,714  R$ 34,634   R$ (2,361) R$ 39,577  R$ 858,856  R$ 6,411  R$ 1,822,331 
  
           Comprehensive income:                     
                   Net income         569,137   569,137 
                   Change in fair value of derivative instruments, net of taxes          (10,733) (10,733)
           
                   Total Comprehensive income                    558,404 
           Paid-in subscribed capital  (1,857,705)   2,663,538  2,411       2,411 
           Deferred compensation      4,641  (4,641)    
           Amortization of deferred compensation       3,157     3,157 
           Dividends payable and interest on shareholders’ equity         (181,145)  (181,145)
  
Balance at December 31, 20062  107,590,792  R$ 41,500  88,615,674  R$ 846,125  R$ 39,275  R$ (3,845) R$ 39,577  R$ 1,246,848  R$ (4,322) R$ 2,205,158 
  
    Issued Shares  Treasury Shares       
       
              Retained   
            Capital  Earnings   
  Notes  Shares  Amount  Shares  Amount  Reserves  (Deficit)    Total 
   
Balance at January 1, 2007    196,206,466  887,625    89,556  1,191,977  2,169,158 
   
   Comprehensive income:                 
       Profit for the year         167,288  167,288 
       Net loss on available for sale         (6,726) (6,726)
       Derivative instruments, net of taxes         (2,395) (2,395)
   
   Total Comprehensive income         158,167  158,167 
   Common shares issued    11,569  432      432 
   Shares issued   6,082,220  362,561      362,561 
   Share-based payment  14       4,905  4,905 
   Dividends payable and interest on shareholders' equity         (302,775) (302,775)
   
Balance at December 31, 2007    202,300,255  1,250,618  -  -  89,556  1,052,274  2,392,448 
   
   Comprehensive income:                 
       Loss for the year    -  -  -  -  -  (1,239,347) (1,239,347)
       Net gain on available for sale    -  -  -  -  -  4,001  4,001 
       Derivative instruments, net of taxes    -  -  -  -  -  (13,418) (13,418)
         
   Total Comprehensive loss    -  -  -  -  -  (1,248,764) (1,248,764)
   Common shares issued    336  -  -  -  -  -  - 
   Share-based payment  14  -  -  -  -  -  5,362  5,362 
   Treasury shares  13  -  -  (1,574,200) (41,180) -  -  (41,180)
   Dividends payable  13  -  -  -  -  -  (36,258) (36,258)
   
Balance at December 31, 2008    202,300,591  1,250,618  (1,574,200) (41,180) 89,556  (227,386) 1,071,608 
   

See accompanying notes to consolidated financial statements.notes.

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Table of Contents

GOL LINHAS AÉREAS INTELIGENTES S.A.

     Consolidated statements of cash flows
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 20062008 and 20052007
(In thousands of Brazilian reais)
(Restated)

   2008  2007 
   
Cash flows from operating activities:     
     Net profit (loss) (1,239,347) 167,288 
Adjustments to reconcile net profit (loss) to net     
   cash provided by operating activities:     
     Depreciation  125,127  62,548 
     Share-based payments  5,362  4,905 
     Changes in fair value of derivative financial instruments  (9,417) (9,121)
     Net foreign exchange fluctuations  757,526  (165,230)
Changes in operating assets and liabilities:     
     Provisions  (54,043) 184,811 
     Trade and other receivables  558,134  (219,602)
     Changes in inventories  9,412  (129,319)
     Deposits  (104,178) (163,836)
     Prepaid expenses  (1,829) (45,683)
     Other assets  81,781  1,389 
     Advance ticket sales  99,713  98,800 
     Smiles deferred revenues  (28,297) 5,469 
     Accounts payable  (42,645) (22,055)
     Income taxes  (130,364) (198,707)
     Other liabilities  139,925  286,855 
   
Net cash provided by (used in) operating activities  166,860  (141,488)
 
Cash flows from investing activities:     
     Acquisition of VRG, net of cash acquired  -  (201,509)
     Purchase of property, plant and equipment, net  (436,914) (541,181)
     Proceeds from sale of property, plant and equipment, net  90,879  1,774 
     Purchase of intangible assets  (10,828) (22,395)
     Net investments in restricted cash  (177,245) 6,041 
     Net investments in financial assets  574,758  566,931 
   
Net cash provided by (used in) investing activities  40,650  (190,339)
 
Cash flows from financing activities:     
     Net proceeds from (repayment of) debt  (533,863) 919,827 
     Dividends paid  (36,258) (302,775)
     Addition of treasury shares  (41,180) 
     Paid subscribed capital  -  432 
   
Net cash provided by (used in) financing activities  (611,301) 617,484 
 
Net increase (decrease) in cash and cash equivalents  (403,791) 285,657 
   
 
Cash and cash equivalents at beginning of the period  573,121  287,464 
   
Cash and cash equivalents at end of the period  169,330  573,121 
   
 
Supplemental disclosure of cash flow information:     
     Interest paid  205,497  162,715 
     Income tax paid  57,338  105,291 
 
Non-cash investing and financing activities :     
     Accrued capitalized interest  33,955  18,721 
     Shares issued as consideration for the acquisition of VRG  -  362,561 
     Finance leases  514,708  663,277 

See accompanying notes.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial
statements (In thousands of Brazilian Reais)

1. Corporate information

Gol Linhas Aéreas Inteligentes S.A. (“Company” or “GLAI”) is a joint stock company (sociedade por ações) constituted in accordance with Brazilian bylaws. The objective of the Company is to exercise corporate control of VRG Linhas Aéreas S.A. (“VRG”), to exploit (i) regular and non-regular air transportation services of passengers, cargo and mail bags, nationally or internationally, according to the concessions granted by the competent authorities; (ii) complementary activities of chartering air transportation of passengers, cargo and mail bags.

The Company’s shares are traded on the New York Stock Exchange (NYSE) and on the São Paulo Stock Exchange (BOVESPA). The Company has entered into an Agreement for Adoption of Level 2 Differentiated Corporate Governance Practices with the São Paulo Stock Exchange – BOVESPA, integrating indices of Shares with Differentiated Corporate Governance – IGC and Shares with Differentiated Tag Along – ITAG, created to differ companies committed to adopting differentiated corporate governance practices.

The Company’s financial statements for the year ended December 31, 2008 were authorized for issue by the Board of Directors on March 19, 2009. The registered office is located at Rua Tamoios, 246, Jd. Aeroporto, São Paulo, Brazil.

2. Summary of significant accounting policies

a)Restatement of previously issued financial statements

Subsequent to the issuance of the Company’s consolidated financial statements for the years ended December 31, 2008 and December 31, 2007, the Company identified items that had been incorrectly handled in processing the final allocation of the purchase price for the acquisition of VRG. This resulted in the omission of provisions from the balance sheet at December 31, 2007 and recognition of income tax benefit in the income statement for the year ended December 31, 2007. Additionally, the Company identified that deferred tax assets related to temporary differences on its accounting for aircraft leases were not properly recorded as of and for the year ended December 31, 2008. Also, the Company identified certain adjustments which were appropriate to classify sale and leaseback assets on a gross rather than a net basis in the balance sheets.

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Table of Contents

GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements
(In thousands of Brazilian Reais)

1. Business Overview

GOL Linhas Aéreas Inteligentes S.A. (the Company or GLAI) is the parent company of GOL Transportes Aéreos S.A. (GOL), a low-fare, low-cost airline headquartered in Brazil, providing frequent service on routes between all of Brazil’s major cities and also to major cities in Argentina, Bolivia, Chile, Paraguay and Uruguay. The Company focuses on increasing the growth and profits of its business by popularizing and stimulating and meeting demand for simple, safe and affordable air travel in South America for both business and leisure passengers, while maintaining among the lowest costs in the airline industry worldwide. GOL’s simplified, single class fleet is among the newest and most modern in the industry, with low maintenance, fuel, and training costs and high levels of utilization and efficiency.

As of December 31, 2006, the Company operated a fleet of 65 aircraft, consisting of 21 Boeing 737-800 Next Generation, 30 Boeing 737-700 and 14 Boeing 737-300 aircraft. During 2006, the Company inaugurated 10 new destinations increasing the number of destinations served to 55 (48 in Brazil, three in Argentina, one each in Bolivia, Uruguay, Paraguay and Chile).

In the third quarter of 2006 the Company inaugurated its Center for Aircraft Maintenance at the Confins International Airport, in the state of Minas Gerais, Brazil.

The Company incorporated in March 2006 two new subsidiaries, GAC Inc. and Gol Finance, located in Cayman Islands, whose activities are related to aircraft acquisition and financing.

2. Summary of Significant Accounting Policiessignificant accounting policies(Continued)

a)Restatement of previously issued financial statements(Continued)

The following table sets forth the effects of the restatement on certain line items within the Company’s previously reported consolidated financial statements (in thousands, except per share data).

  As of and for the year ended December 31, 
  
  2008  2007 
   
  Previously    Previously   
  reported  Restated  reported  Restated 
     
Assets         
Non-current assets         
   Prepaid expenses   58,793   44,808 
   Deferred income taxes  495,544  729,784  485,980  485,980 
   Other non-current assets  105,526  97,446  87,694  87,489 
 
Current assets         
   Other current assets  49,439  52,386  144,484  144,484 
   Prepaid expenses  120,100  123,801  131,231  135,957 
   Trade and other receivables  344,927  344,927  916,133  903,061 
 
Liabilities and shareholders' equity         
Shareholders' equity         
   Issued share capital  1,248,649  1,250,618  1,248,649  1,250,618 
   Retained earnings (deficit) (273,877) (227,386) 1,153,412  1,052,274 
 
Non-current liabilities         
   Deferred income taxes  323,345  548,680  339,348  341,634 
   Provisions  157,310  157,310  117,062  200,664 
   Other non-current liabilities  160,069  196,894  63,135  107,132 
 
Current liabilities         
   Other current liabilities  238,904  219,885  160,799  166,340 

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements
(In thousands of Brazilian Reais)

Basis2. Summary of presentation.significant accounting policies(Continued)

a)Restatement of previously issued financial statements(Continued)

  As of and for the year ended December 31, 
  
  2008  2007 
   
  Previously    Previously   
  reported  Restated  reported  Restated 
     
Operating expenses         
   Other operating expenses  (329,883) (329,883) (277,844) (270,422)
 
Finance costs and other income (expense)        
   Capitalized interest  28,871  27,179  38,879  38,879 
         
Income taxes benefit (expense) (193,626) (44,305) 78,800  (33,595)
 
Profit (loss) for the year from         
 continuing operations attributable         
 to equity holders of the parent  (1,386,976) (1,239,347) 272,261  167,288 
 
Earnings (loss) per share:         
   Basic  (6.89) (6.16) 1.37  0.84 
   Diluted  (6.89) (6.16) 1.37  0.84 

The restatement resulted in changes to amounts previously reported in Notes 3, 5, 10, 13, 15, 16 and 23 and, accordingly, such notes have been amended and restated in these financial statements.

b)Statement of compliance and basis of presentation

The consolidated financial statements were prepared on a historical cost basis except for certain financial assets and liabilities, including derivative financial instruments and available-for-sale financial assets that are measured at fair value. The carrying value of recognized assets and liabilities that are accounted for as cash flow and fair value hedges are adjusted to record changes in the fair values attributable to the risks that are being hedged.

These consolidated financial statements were prepared in accordance with accounting principles generally accepted inInternational Financial Reporting Standards (IFRS) as issued by the United States (US GAAP),International Accounting Standards Board, using Brazilian Reais as the functional and reporting currency. The exchange rate at December 31, 2006 was R$ 2.1380 and R$ 2.3407 at December 31, 2005 (the December 31, 2006 rate is used for convenience translation). The average exchange rates for 2006 and 2005 were R$ 2.1771 and R$ 2.4341, respectively, per US Dollar (these rates are provided for reference purposes). The accounting principles adopted under USGAAPIFRS differ in certain respectsaspects from accounting principles generally accepted in Brazil (“BrazilianBR GAAP”), which the Company uses to prepare its statutory financial statements.

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Notes to consolidated financial statements
(In thousands of Brazilian Reais)

2. Summary of significant accounting policies(Continued)

b)Statement of compliance and basis of presentation (Continued)

The Company adopted International Financial Reporting Standards (“IFRS”) for the first time in its consolidated financial statements for the year ended December 31, 2008, which includes comparative financial statements for the year ended December 31, 2007. IFRS 1, “First-time adoption of International Reporting Standards”, requires that an entity develop accounting policies based on the standards and related interpretations effective at the reporting date of its first annual IFRS consolidated financial statements (i.e. December 31, 2007). IFRS 1 also requires that those policies be applied as of the date of transition to IFRS (i.e. January 1, 2007) and throughout all periods presented in the first IFRS financial statements.

The Note "Transition to IFRS”, details the principal effects of the transition to IFRS on the Company’s balance sheet as of January 1, 2007 and the principal differences with the Brazilian Corporate Law (Law No. 6,404/76) related to the year ended December 31, 2007.

c)Basis of consolidation

The consolidated financial statements include accountscomprise the financial statements of Golthe Company and its subsidiaries: VRG Linhas Aéreas Inteligentes S.A.S.A, and of its wholly-owned subsidiaries Gol Transportes Aéreos S.A. (GTA), GAC Inc., Gol Finance and GolSKY Finance, LLP.which are domiciled in the Cayman Islands.

Results include those of VRG since April 9, 2007, the date the Company assumed control of the operations of VRG. All significant intercompany balances have been eliminated.

Use of estimates. The preparation of financial statements in conformity with USGAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures in the accompanying notes. Actual results could differ from these estimates.

d)Cash and cash equivalents.equivalents

Cash in excess of that necessary for operating requirements is invested in short-term, highly liquid, income-producing investments. Investments with original maturities of three months or less are classified as cash and cash equivalents, which primarily consist of certificates of deposit, money market funds, and investment grade commercial paper issued by major financial institutions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2006 and 2005Notes to consolidated financial statements
(In thousands of Brazilian Reais)

Securities available-for-sale.2. Summary of significant accounting policies(Continued)

e)Restricted cash

Restricted cash represents pledge deposits with the purpose to guarantee some of Company’s hedge operations and long-term financings (BNDES and BDMG) and earns interests.

f)Financial assets

The Company's short-term investment portfolio consistsCompany’s financial assets consist of traditional fixed maturitiesmaturity securities, which are readily convertible into cash and are primarily highly liquid in nature. Management determines the appropriate classification of debtthese securities at the time of purchase and reevaluates such designation as of each balance sheet date. As defined by SFAS 115, “Accounting for Certain Investments in DebtIAS 39, “Financial Instruments: Recognition and Equity Securities”Measurement, the Company’s short-term investments are classified as available-for-sale securities.financial assets. Available-for-sale securitiesfinancial assets are carriedthose non-derivative financial assets that are designated as available-for-sale and not classified as held-to-maturity or loans and receivables. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognized as equity until the unrealized gains and losses, net of tax,investment is derecognized or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in other comprehensive income. Realized gains and losses and declinesequity is included in value judged to be other-than-temporary on available-for-saleprofit or loss. Held-to-maturity securities are included in investment income.measured at amortized cost through the income statement.

g)Trade and other receivables

Trade and other receivables are stated at cost less allowances made for doubtful receivables, which approximates fair value given their short term nature. An allowance for doubtful receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivable.

h)Inventories

Inventories, including aircraft expendables, are valued at the lower of cost, determined by the weighted average cost method, and net realizable value. The cost of securities soldinventory is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

Provision for doubtful accounts.Provision for doubtful accounts is constituted in an amount sufficient to cover possible losses in the realization of accounts receivable.

Inventories.Inventories consist of expendable aircraft spare parts and supplies. These items are stated at average acquisition cost and are charged to expense when used. Allowanceconsumed.

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Notes to consolidated financial statements
(In thousands of Brazilian Reais)

2. Summary of significant accounting policies(Continued)

i)Lease accounting

In accordance with IAS 17 "Leases", leases are classified as finance leases when the lease arrangement transfers substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease payments are recognized as an expense in the income statement on a straight line basis over the lease term. Differences between aircraft rentals paid and rentals recognized as expense in the income statement are recorded as prepaid assets or accrued rent in the balance sheet.

The assets held under a finance lease are valued at the lower of the following two amounts: the present value of the minimum lease payments under the lease arrangement or the leased asset’s fair value determined at inception of the lease. Lease payments are allocated between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the income statement. The corresponding obligation to the lessor is accounted for obsolescenceas long-term debt. These assets are depreciated over the shorter of the useful life of the assets and the lease term when there is no reasonable certainty that the Company will obtain ownership at the end of the lease term.

Profit or loss related to sale and operating leaseback transactions, is accounted for as follows:

• They are recognized immediately when it is clear that the transaction is established at fair value;

• If the sale price is below fair value, any profit or loss is recognized immediately. However, if the loss is compensated for by future lease payments at below market price, it is deferred and amortized in proportion to the lease payments over the asset’s expected useful life;

• If the sale price is above fair value, the excess is deferred and amortized over the asset’s expected useful life, with the amortization recorded as a reduction of rent expense.

j)Prepaid expenses and other assets

Prepaid expenses and other assets primarily consist of prepayments for aircraft rentals under operating lease agreements, security deposits required under aircraft lease agreements and amounts receivable from insurance claims.

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Notes to consolidated financial statements
(In thousands of Brazilian Reais)

2. Summary of significant accounting policies(Continued)

k)Revenue recognition

Passenger revenue is recognized either when transportation is provided or when the ticket expires unused. Tickets sold but not yet used are recorded as advance ticket sales.Advance ticket sales represents deferred revenue for tickets sold for future travel dates and estimated refunds and exchanges of tickets sold for past travel dates. A small percentage of tickets (or partial tickets) expire unused. The Company estimates the amount of future refunds and exchanges, net of forfeitures, for all unused tickets once the flight date has passed. These estimates are based on management estimates,historical data and experience. Estimated future refunds and exchanges included in the air traffic liability account are compared with actual refund and exchange activities every month to monitor the reasonableness of the estimated refunds and exchanges.

Revenue from cargo shipments is recognized when transportation is provided. Other revenue includes charter services, ticket change fees and other incidental services, and is recognized when the service is performed. The Company’s revenues are net of certain taxes, including state value-added and other state and federal taxes that are collected from customers and transferred to the appropriate government entities. Such taxes in the year ended December 31, 2008 and December 31, 2007 were R$262,388 and R$191,164, respectively.

l)Mileage program

Since the acquisition of VRG (see Note 3), the Company operates a frequent flyer program, Smiles (“Mileage Program”) that provides travel and other awards to members based on accumulated mileage credits. The obligations assumed under the Mileage Program were valued at the acquisition date at estimated fair value that represents the estimated price the Company would pay to a third party to assume the obligation for miles expected to be redeemed under the Mileage Program. Outstanding miles earned by flying VRG or distributed by its non-airline partners (such as banks, credit card issuers and e-commerce companies) were revalued using a weighted-average per-mile equivalent ticket value, taking into account such factors as differing classes of service and domestic and international ticket itineraries, which can be reflected in awards chosen by Mileage Program members. The probability of air miles being converted into award tickets is estimated using a statistical method.

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Notes to consolidated financial statements
(In thousands of Brazilian Reais)

2. Summary of significant accounting policies(Continued)

l)Mileage program (Continued)

The sale of passenger tickets by the Company includes air transportation and mileage credits. The Company’s sales of miles to business partners include marketing and mileage credits. The Company uses the deferred revenue model to account for its obligation for miles to be redeemed based upon the equivalent ticket value of similar fares. The Company accounts for all miles earned and sold as separate deliverables. The Company defers the portion of the sales proceeds that represents the estimated fair value of the award and recognizes that amount in cargo and other revenue when the award is provided. The excess of sale proceeds over the fair value of the award (which is mileage program marketing revenue) is recognized in cargo and other revenue, as applicable.

For accounts that are inactive for a period of 36 consecutive months, it is the Company’s policy to cancel all miles contained in those accounts at the end of the 36 month period of inactivity. The value associated with mileage credits that are estimated to be cancelled based upon inactivity is recognized as passenger revenue in proportion to actual mileage award redemptions over the period in which the expired miles occurred.

On 28 June 2007, the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 13 – “Customer Loyalty Programmes” (effective for periods beginning on or after 1 July 2008 with early adoption permitted), which deals with accounting for customer loyalty award credits. The Company adopted IFRIC 13 on April 9, 2007 (see Note 3). The adoption of this interpretation had no impact on the Company’s consolidated financial statements.

m)Property, plant and equipment

Property, plant and equipment, including rotable parts, are recorded at cost and are depreciated to estimated residual values over their estimated useful lives using the straight-line method. Each component of property, plant and equipment that has a cost that is significant in relation to the overall cost of the item is depreciated separately. Aircraft and engine spares acquired on the introduction or expansion of a fleet, as well as rotable spares purchased separately, are carried as fixed assets and generally depreciated in line with the fleet to which they relate. Pre-delivery deposits refer to prepayments made based on the agreements entered into with Boeing Company for the purchase of Boeing 737-800 Next Generation aircraft.

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Notes to consolidated financial statements
(In thousands of Brazilian Reais)

2. Summary of significant accounting policies(Continued)

m)Property, plant and equipment (Continued)

The estimated useful lives for property and equipment are as follows:

Estimated Useful Life
Lower of lease term or useful 
Leasehold improvements to flight equipment life 
Flight equipment 20 years 
Rotables 20 years 
Maintenance and engineering equipment. 10 years 
Major overhaul expenditures 1 to 4 years 
Communication and meteorological equipment 10 years 
Computer hardware and software 5 years 

Under IAS 16 “Property, Plant and Equipment”, major engine overhauls including replacement spares and labor costs, are treated as a separate asset component with the cost capitalized and depreciated over the period to the next major overhaul. All other replacement spares and costs relating to maintenance of fleet assets are charged to the income statement on consumption or as incurred. Interest costs incurred and identified exchange differences on borrowings that fund progress payments on assets under construction, including pre-delivery deposits to acquire new aircraft, are capitalized and included as part of the cost of the assets through the earlier of the date of completion or aircraft delivery.

The carrying value of property, plant and equipment is reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable and the cumulative impairment losses are shown as a reduction in the carrying value of property, plant and equipment.

n)Intangible assets

i) Goodwill

Goodwill is tested for impairment annually by comparing the carrying amount to the recoverable amount at the cash-generating unit level. Considerable judgment is necessary to evaluate the impact of operating and macroeconomic changes to estimate future cash flows and to measure the recoverable amount. Assumptions in the Company’s impairment evaluations are consistent with internal projections and operating plans.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements
(In thousands of Brazilian Reais)

2. Summary of significant accounting policies(Continued)

n)Intangible assets (Continued)

ii) Airport operating rights

Airport operating rights were acquired as part of the acquisition of VRG and were capitalized at fair value at that date and are not amortized. Those rights are considered to be indefinite due to several factors and considerations, including requirements for necessary permits to operate within Brazil and limited slot availability in the most important airports in terms of traffic volume. The carrying value of those rights is reviewed for impairment at each reporting date and are subject to change. At December 31, 2006, there was no amount recognizedimpairment testing when events or changes in circumstances indicate that carrying values may not be recoverable. No impairment has been recorded to date.

iii) Tradenames

VRG tradenames were acquired as allowancepart of the VRG acquisition and were capitalized at fair value at that date. The tradenames are considered to have an indefinite useful life (and are not amortized) due to several factors and considerations, including the brand awareness and market position, customer recognition and loyalty and the continued use of the VARIG tradenames. The carrying value of the tradenames is reviewed for obsolescence.impairment at each reporting date and are subject to impairment testing when events or changes in circumstances indicate that carrying values may not be recoverable. No impairment has been recorded to date.

iv) Software

Costs related to the purchase or development of computer software that is separable from an item of related hardware is capitalized separately and amortized over a period not exceeding five years on a straight-line basis.

The carrying value of these intangibles is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.

o)Impairment of financial assets

The Company assesses at each balance sheet date whether a financial asset is impaired using discounted cash flow analyses, which considers the creditworthiness of the issuer of the security, as further described in Note 18.

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Notes to consolidated financial statements
(In thousands of Brazilian Reais)

Aircraft and engine maintenance deposits.2. Summary of significant accounting policies Our(Continued)

p)Deposits

The Company’s aircraft lease agreements specifically provide that we, as lessee, arethe Company is responsible for maintenance of the leased aircraft. Under certain of our existing lease agreements, we pay maintenance deposits are paid to aircraft and engine lessors that are to be applied to future maintenance events. These deposits are calculated based on a performance measure, such as flight hours or cycles, and are available for reimbursement to us upon the completion of the maintenance of the leased aircraft. If there are sufficient funds on deposit to reimburse us for our maintenance costs, such funds are returned to us.the Company. The maintenance deposits paid under our lease agreements do not transfer eitherneither the obligation to maintain the aircraft ornor the cost risk associated with the maintenance activities to the aircraft lessor.

In addition, we maintainthe Company maintains the right to select any third-party maintenance provider or to perform such services in-house. Therefore, we record these amounts are recorded as a deposit on ourthe balance sheet and recognize maintenance expensecost is recognized when the underlying maintenance is performed, in accordance with ourthe Company’s maintenance accounting policy. The amount of aircraft and engine maintenance deposits expected to be utilized in the next twelve months is classified in Current Assets. Certain of our lease agreements provide that excess deposits are not refundable to us. Such excess could occur if the amounts ultimately expended for the maintenance events were less than the amounts on deposit. Any excess amounts held by the lessor or retained by the lessor upon the expiration of the lease, which are not expected to be significant, would be recognized as additional aircraft rental expense at the time it is no longer probable that such amounts will be used for the maintenance for which they were deposited.

In determining whether it is probable that maintenance deposits will be used to fund the cost of maintenance events, the Company conducts the following analysis at the inception of the lease, on an annual and quarterly basis and whenever events or changes in circumstances indicate that amounts may not be recoverable, to evaluate potential impairment of this balance:

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Notes to consolidated financial statements
(In thousands of Brazilian Reais)

2. Summary of significant accounting policies(Continued)

p)Deposits (Continued)

1) At the time of delivery of each aircraft under lease, the Company evaluates the aircraft’s condition, including the airframe, the engines, the auxiliary power unit and the landing gear.

2) The Company projects future usage of the aircraft during the term of the lease based on its business and fleet plan.

3) The Company estimates the cost of performing all required maintenance during the lease term. These estimates are based on the extensive experience of the Company’s Managementmanagement and industry available data, including historical fleet operating statistic reports published by the Company’s engine manufacturer, CFM.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
manufacturers.

At the inception of the leases, our initial estimates of the maintenance expensescosts are equal to or in excess of the amounts required to be deposited. This demonstrates it is probable the amounts will be utilized for the maintenance for which they are to be deposited and the likelihood of an impairment of the balance is remote. Additionally, some of our lessor are agreeing for usthe Company has reached agreements with certain lessors to replace the deposits with letters of credit and amend the lease terms to enable us to utilize the deposited funds to settle other amounts owed under the lease. Upon this amendment of the lease we reevaluatethe Company reevaluates the appropriateness of the lease accounting and reclassifyreclassifies the affected deposits as Other Deposits. Many of our new aircraft leases do not require maintenance deposits.

Based on the foregoing analysis, Managementmanagement believes that the amounts reflected on the consolidated balance sheet as Aircraft and Engine Maintenance Deposits are probable of recovery. There has been no impairment of ourCompany’s maintenance deposits.

Property and equipment.Property and equipmentq)Foreign currency transactions

Transactions in foreign currencies are recordedtranslated into the Company’s functional currency at cost and are depreciated to estimated residual values over their estimated useful lives using the straight-line method. Interest related to pre-delivery deposits to acquire new aircraft is capitalized. The estimated useful lives for property and equipment are as follows:

Estimated Useful Life
Leasehold improvements Lower of lease term or useful life 
Aircraft 20 years 
Maintenance and engineering equipment 10 years 
Communication and meteorological equipment 5 years 
Computer hardware and software 5 years 

Measurement of asset impairments.In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting forexchange rate at the Impairment or Disposal of Long-Lived Assets” (SFAS 144), the Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Impairment losses, when determined, are measured by comparing the fair valuedate of the asset to its net book value,transaction. Monetary assets and liabilities denominated in foreign currencies are subsequently translated at the exchange rate at the balance sheet date. Any differences resulting from the currency translation are recognized directly in the statement of income.income statement.

Maintenance and repair costs.The Company accounts for maintenance activities under the direct expense method. Under this method, regular aircraft and engine maintenance and repair costs, including the overhaul of aircraft components, for owned and leased flight equipment, are charged to operating expenses as incurred.

Lease accounting.SFAS No. 28, "Accounting for Sales with Leaseback", defines a sale-leaseback as a financing transaction in which any income or loss on the sale shall be deferred and amortized by the seller, who becomes the lessee, in proportion to rental payments over the period of time the asset is expected to be used for leases classified as operating leases. We amortize deferred gains on the sale and leaseback of equipment over the lives of these leases. The amortization of these gains is recorded as a reduction to rent expense. Under our operating lease agreements the Company is responsible for all maintenance costs on aircraft and engines, and it must meet specified airframe and engine return conditions upon lease expiration. If these return conditions are not met, the leases require financial compensation to the lessor. The Company accrues ratably, if estimable, the total costs that will be incurred by the Company to render the aircraft in a suitable return condition per the contract.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2006 and 2005Notes to consolidated financial statements
(In thousands of Brazilian Reais)

Revenue recognition2. Summary of significant accounting policies.Passenger revenue is recognized either when transportation is provided or when the ticket expires unused. Tickets sold but not yet used are recorded as air traffic liability.Air traffic liability primarily represents tickets sold for future travel dates(Continued)

r)Derivative financial instruments and estimated refunds and exchanges of tickets sold for past travel dates. A small percentage of tickets (or partial tickets) expire unused. The company estimates the amount of future refunds and exchanges, net of forfeitures, for all unused tickets once the flight date has passed. These estimates are based on historical data and experience. Estimated future refunds and exchanges included in the air traffic liability account are constantly compared with actual refund and exchange activities to ensure the accuracy of the Company’s revenue recognition method with respect to forfeited tickets.hedge accounting

Revenue from cargo shipment is recognized when transportation is provided. Other revenue includes charter services, ticket change fees and other incidental services, and is recognized when the service is performed. The Company’s revenues are net of certain taxes, including state value-added and other state and federal taxes that are collected from customers and transferred to the appropriate government entities. Such taxes in 2006, 2005 and 2004 were R$ 149,841, R$ 108,994 and R$ 93,763, respectively.

Advertising. Advertising costs, which are included in sales and marketing expenses, are expensed as incurred. Advertising expense in 2006, 2005 and 2004 was R$ 37,240, R$ 32,720 and R$ 31,798, respectively.

Income Taxes. Deferred income taxes are provided using the liability method and reflect the net tax effects of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance for net deferred tax assets is provided unless realizability is judged to be more likely than not.

Financial Derivative Instruments.The Company accounts for financial derivative instruments utilizing Statement of Financial Accounting Standards No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities”, as amended. As part ofin accordance with IAS 39. In executing the Company’s risk management program, the Companymanagement uses a variety of financial instruments, including petroleum call options, petroleum collar structures, petroleum fixed-price swap agreements, and foreign currency forward contracts. The Company does not hold or issue derivative financial instruments for trading purposes.

As there is not a futures market for jet fuel in Brazil, the Company uses international crude oil derivatives to hedge its exposure to increases in fuel price. Historically, there has been a high correlation between international crude oil prices and Brazilian jet fuel prices, making crude oil derivatives effective at offsetting jet fuel prices to provide some short-term protection against a sharp increase in average fuel prices.

The Company measuresalso uses derivative financial instruments such as forward currency contracts and interest swaps to hedge its foreign market risks and interest rate risks respectively. Derivative financial instruments are remeasured at fair value at each reporting date. Derivatives are carried as financial assets when the effectiveness offair value is positive and as financial liabilities when the hedging instruments in offsetting changes to those prices, as required by SFAS 133. fair value is negative.

Since the majority of the Company’s financial derivative instruments for fuel are not traded on a market exchange, the Company estimates their fair values. The fair value of fuel derivative instruments, depending on the type of instrument, is determined by the use of present value methods or standard option value models with assumptions about commodity prices based on those observed in underlying markets. Also, since there is not a reliable forward market for jet fuel, the Company must estimate the future prices of jet fuel in order to measure the effectiveness of the hedging instruments in offsetting changes to those prices, as required by SFAS 133.IAS 39.

F - 12The fair value of forward currency contracts is the difference between the forward exchange rate and the contract rate. The forward exchange rate is referenced to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2006 and 2005Notes to consolidated financial statements
(In thousands of Brazilian Reais)

2. Summary of significant accounting policies(Continued)

r)Derivative financial instruments and hedge accounting (Continued)

The Company designates certain of its derivative financial instruments for hedge accounting. These instruments are classified as cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment.

At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while any ineffective portion is recognized immediately in profit or loss.

Amounts classified in equity are transferred to profit or loss when the hedged transaction affects profit or loss. If the hedged item is the cost of a non-financial asset or non-financial liability, the amounts classified in equity are transferred to the initial carrying amount of the non-financial asset or liability.

If the firm commitment is no longer expected to occur, amounts previously recognized in equity are transferred to profit or loss. If the hedging instrument expires, is terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in equity remain in equity until the firm commitment occurs.

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Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

2. Summary of significant accounting policies(Continued)

r)Derivative financial instruments and hedge accounting (Continued)

Cash flow hedges(Continued)

The Company’s outstanding derivative contracts are all designated as cash flow hedges for accounting purposes. While outstanding, these contracts are recorded at fair value on the balance sheet with the effective portion of the change in their fair value being recorded in other comprehensive income.equity. All changes in fair value that are considered to be effective, as defined, are recorded in “Accumulated other comprehensive income”equity until the underlying exchange exposure is realized and fuel is consumed. Changes in fair value that are not considered to be effective are recorded to “other gains and losses”in other income (expense), net in the statement of income. The Company measures the effectiveness of the hedging instruments in offsetting changes to the hedged item, as required by IAS 39. See Note 1318 for further information on SFAS 133IAS 39 and derivative financial derivative instruments.

Foreign currency transactions.Current versus non-current classificationTransactions in foreign currency

Derivative instruments that are recorded at the prevailing exchange rate at the timenot designated for hedge accounting treatment are classified as current or non-current or separated into a current and non-current portion based on an assessment of the related transactions. Exchange gainsfacts and lossescircumstances (i.e., the underlying contracted cash flows).

Derivative instruments that are recognized in the statements of incomedesignated as, they occur and are recorded in financial expense.effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if a reliable allocation can be made.

Stock options.s)Share-based payments

The Company accounts for stock-based compensation undermeasures the fair value methodof equity-settled transactions with employees at the grant date using an appropriate valuation model. The resulting amount, as adjusted for forfeitures is charged to income over the period in accordance with SFAS 123(R), “Share-Based Payment”, which superseded APB Opinion No. 25, “Accounting for Stock Issuedthe options vest. At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to Employees,” after December 2005. Generally,which the approachvesting period has expired and management’s best estimate of the number of equity instruments that will ultimately vest. The movement in SFAS 123(R)cumulative expense since the previous balance sheet date is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.with a corresponding entry in equity.

SFAS 123(R) permits companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the modified prospective method, compensation cost is recognized in the financial statements for new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The Company has adopted SFAS 123(R) in the first quarter of 2006 using the modified prospective method. The impact of this change in accounting principle in 2006 was to increase stock-based employee compensation expense by R$ 792, resulting in total stock-based employee compensation expense in the year of R$ 3,239.

The following table illustrates the effect on net income and earnings per common and preferred share as if the fair value method to measure stock-based compensation had been applied as required under the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended for the years of 2005 and 2004:

  
2004 
 
2005 
   
Net income, as reported  R$ 384,710  R$ 513,230 
Add: Stock-based employee compensation using intrinsic value  10,058  8,126 
Deduct: Stock-based employee compensation expense determined     
     under the fair value method  (9,969) (8,632)
   
Pro forma net income  R$ 384,799  R$ 512,724 
   
 
Earnings per common and preferred shares:     
 
 Basic as reported and pro forma     R$ 2.14     R$ 2.66 
 Diluted as reported and pro forma     R$ 2.13     R$ 2.65 

The fair value for these stock options was estimated at the date of grant using the Black-Scholes option-pricing model assuming an expected dividend yield of 2%, expected volatility of approximately 39%, weighted average risk-free interest rate of 17%, and an expected average life of 3.9 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

US dollar amounts.2. Summary of significant accounting policies(Continued

t)Provisions

For certain operating leases, the Company is contractually obligated to return aircraft in a defined condition. The U.S. dollar amountsCompany accrues for restitution costs related to aircraft held under operating leases at the time the asset does not meet the return condition criteria throughout the duration of the lease.

Other provisions are included solelyrecorded for probable losses and are reviewed based on the development of lawsuits and the background of losses on labor and civil claims, based on the best current estimate.

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

u)Segment information

The Company has one business segment: the provision of air transportation services within South America, where it operates domestic and international flights.

v)Income taxes

a) Current income tax

Current income tax assets and liabilities for the convenience of the readercurrent and have been translatedprior periods are measured at the rate of R$ 2.1380 = US$ 1.00,amount expected to be recovered from or paid to the official exchange rate issuedtaxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the Brazilian Central Bank as of December 31, 2006. This translation should not be construedbalance sheet date.

Current income tax relating to imply that the Brazilian reais amounts represent, or have been or could be converted into, equivalent amountsitems recognized directly in U.S. dollars.

3. Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board reached a consensus on Emerging Issue Task Force (EITF) Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (Thatequity is Gross versus Net Presentation)”. This EITF is effective for financial reports for interim and annual reporting periods beginning after December 15, 2006. The adoption of EITF 06-3 will not have a significant impact on the Company’s consolidated financial statements.

In July 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interestequity and penalties, accountingnot in interim periods, disclosure and transition. In addition, FIN 48 clearly scopes out income taxes from Financial Accounting Standards Board Statement No. 5, “Accounting for Contingencies”. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 will not have significant impact on the Company’s consolidated financial statements.profit or loss.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application is encouraged. The Company does not believe SAB 108 will have a material impact on its results of operations or financial position.

4. Short-term investments

      Translation into 
      thousands of US$ - 
  2005  2006  2006 
    
 
Investments       
   Bank Deposit Certificates – CDB  R$ 309,757  R$ 552,546     US$ 258,441 
   Public Securities  452,931  219,745  102,781 
   Fixed Income Securities   653,078  305,462 
    
  R$ 762,688  R$ 1,425,369     US$ 666,683 
    

The following is a summary of available-for-sale securities:

  
December 31, 2006 
  
  Gross 
Unrealized
 
Gains
 
 Gross 
Unrealized
 
Losses 
 Estimated Fair 
    Value (Net 
    Carrying Amount)
    
Public Securities and Fixed Income Securities  R$ 17  R$ (55) R$ 872,823 
Bank Deposit Certificates – CDB  16  (22) 552,546 
    
  R$ 33  R$ (77) R$ 1,425,369 
    

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GOL LINHAS AÉREAS INTELIGENTES S.A.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

December 31, 2005
Gross
Unrealized

Gains
Gross
Unrealized

Losses
Estimated Fair
Value (Net
Carrying Amount)
Public Securities and Fixed Income Securities  R$ 779 R$ (112) R$ 452,931 
Bank Deposit Certificates – CDB 309,757 
 R$ 779 R$ (112) R$ 762,688 

The gross realized gains2. Summary of significant accounting policies(Continued)

v)Income taxes(Continued)

b) Deferred income tax

Deferred income tax is provided using the liability method on salestemporary differences at the balance sheet date between the tax bases of available-for-sale securities totaled R$ 114,028assets and R$ 23,857 (US$ 53,334liabilities and US$ 10,192),their carrying amounts for financial reporting purposes.

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except:

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to compensate the lessors for other lease related costs when due. Followingextent that it is the compositionno longer probable that sufficient taxable profit will be available to allow all or part of the balance:

  
December 31 
  
      Translation 
      into thousands 
  2005  2006  of US$ - 2006 
    
Aircraft and engine maintenance deposits  386,193  263,647  123,315 
Security deposits  22,583  40,787  19,077 
Other deposits   233,401  109,168 
    
  408,776  537,835  251,560 
    
Short-term   (232,960) (108,962)
    
Long-term  408,776  304,875  142,598 
    

6. Short-term Borrowingsdeferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

At December 31, 2006,Deferred income tax assets and liabilities are measured at the Company had nine revolving lines of credit with five financial institutions allowing for combined borrowings uptax rates that are expected to R$ 332,000. One ofapply to the credit linesyear when the asset is secured by promissory notesrealized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred income tax assets and allows for borrowings updeferred income tax liabilities are offset, if a legally enforceable right exists to R$ 200,000. At December 31, 2006set off current tax assets against current income tax liabilities and 2005, there were R$128,304 (US$ 60,011)the deferred income taxes relate to the same taxable entity and R$ 54,016 (US$ 23,077) outstanding borrowings under these facilities, respectively.the same taxation authority.

The weighted average annual interest rate for these Reais-based short-term borrowings at December 31, 2006 and 2005 was 15.5% and 20.7%, respectively.

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GOL LINHAS AÉREAS INTELIGENTES S.A.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

7. Long-term Debt2. Summary of significant accounting policies(Continued)

    Translation into 
    thousands of US$ - 
  December 31, 2006  2006 
   
 
Foreign currency:     
           5.39 % Bank loan  128,304  60,011 
           7.24 % IFC loan  107,150  50,117 
           8.75 % Perpetual notes  436,902  204,351 
   
  672,356  314,479 
Local currency:     
           9.60 % BNDES loan  54,626  25,550 
 
Capital leases (note 11) 222,024  103,846 
   
 
Long-term debt  949,006  443,876 
   

In April 2006,w)Key accounting estimates and judgments

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the Company’s wholly-owned subsidiary Gol Finance issued US$ 200 million (R$455 million) 8.75% perpetual notesapplication of policies and the reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ from these estimates. These underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised. The estimates and assumptions that have no fixed final maturity datea significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are callablediscussed below.

i) Impairment of non-financial assets

The Company assesses whether there are any indicators of impairment for all non-financial assets at pareach reporting date. Goodwill and indefinite-lived intangible assets are tested for impairment annually and at other times when such indicators exist. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. The value in use is determined using discounted cash flow assumptions established by management. These calculations require the optionuse of estimates (Note 8).

Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.

ii) Impairment of available-for-sale financial assets

The Company classifies certain financial assets as available-for-sale and recognizes movements in their fair value in shareholders’ equity. When the fair value declines, Management evaluates the decline in value to determine whether it is an impairment that should be recognized in the income statement. See Note 19.

iii) Passenger revenue recognition

Passenger revenue is recognized when the transportation is provided. Unused tickets and mileage credits under the Mileage Program are recognized as revenue using estimates regarding the timing of recognition based on the terms and conditions of the issuer after five years. At December 31, 2006, there was R$ 436,902 outstanding under this facility.ticket and historical trends.

In April 2006, the Company’s wholly-owned subsidiary GAC Inc., arranged a US$ 60 million (R$ 130 million) borrowing facility with Credit Suisse. The term of the facility is 2.7 years with an annual interest rate of 3-month Libor. At December 31, 2006, there was US$ 60,011 (R$ 128,304) outstanding under this facility.

In June 2006, GTA borrowed R$ 75.7 million (US$ 35.0 million) from the BNDES (the Brazilian Development Bank) and R$ 107.1 million (US$ 50.0 million) from the International Finance Corporation (IFC). The BNDES credit line financed a major portion of the construction and expansion of the Gol Aircraft Maintenance Center at the International Airport of Confins, in the state of Minas Gerais, Brazil. The term of the BNDES loan is five years with an interest rate of 2.65% over the long-term borrowing rate –TJLP (6.85% p.a. during the fourth quarter) and has a guarantee of accounts receivable in the amount of R$ 12,920. The loan from the International Finance Corporation (IFC) financed the acquisition of aircraft spare parts inventories and working capital. The term of the IFC loan is six years with a rate of 1.875% over the 3-month Libor. As of December 31, 2006, there was outstanding R$ 54,626 (US$ 25,550) in the long-term and R$ 8,186 (US$ 3,829) in the short-term under the BNDES agreement and R$ 107,150 (US$ 50,117) in the long-term under the IFC agreement.

In November 2006, the Company signed a long-term financing agreement with the Private Export Funding Corporation (PEFCO) to finance the acquisition of Boeing 737-800 aircraft with a carrying value of R$ 117,950 at December 31, 2006. The term of the financing is 12 years, with an average annual fixed interest rate of 5.28% . As of December 31, 2006, there was outstanding R$ 167,333 (US$ 78,266) in the long-term under the PEFCO agreement. This financing is recorded as capital lease.

The following table provides a summary of our principal payments of long-term debt obligations at December 31:

            Beyond   
(in R$ 000) 2008  2009  2010  2011  2012  2012  Total 
        
Long-term debt obligations (1) 148,408  57,560  56,946  57,048  45,782  146,360  512,104 

(1) The long-term debt obligations do not include the perpetual notes.

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GOL LINHAS AÉREAS INTELIGENTES S.A.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)reais)

2. Summary of significant accounting policies(Continued)

w)Key accounting estimates and judgments (Continued)

iv) Income taxes

The Company believes that the tax positions taken are reasonable. However, various taxing authorities may challenge the positions taken resulting in additional liabilities for taxes and interest that may become payable in future years as a result of audits by tax authorities. The tax positions involve considerable judgment on the part of management and tax positions are reviewed and adjusted to account for changes in circumstances, such as lapsing of applicable statutes of limitations, conclusions of tax audits, additional exposures based on identification of new issues or court decisions affecting a particular tax issue. Actual results could differ from estimates.

x)Prospective accounting changes, new standards and interpretations not yet adopted

The following new accounting standards or amendments to accounting standards, which are not yet effective and have not been adopted in these consolidated financial statements, will be adopted in future consolidated financial statements, if applicable.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

2. Summary of significant accounting policies(Continued

x)Prospective accounting changes, new standards and interpretations not yet adopted (Continued)

In addition, the Company does not expect the following new accounting standards or amendments will impact the Company’s financial reporting:

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

3. Business combination

On April 9, 2007, the Company acquired 100% of the voting shares of VRG. The total purchase price was R$562,101 (US$291,838) of which R$194,087 (US$100,762) was paid in cash, net of cash acquired and R$360,592 (US$187,226) was paid in non-voting preferred shares. In addition, R$7,422 (US$3,853) was paid in acquisition costs. The value of Company’s preferred shares issued as consideration to the shareholders of VRG (6,082,220 in number) was determined based on the closing market price (R$59.61) at the date control was obtained. The purchase contract includes provisions for a post-closing purchase price adjustment based on an audit of specific assets and liabilities. Disputed items involved in the arbitration process pursuant to this contract provision could result in a reduction of the purchase price of up to R$153,000. The results of VRG’s operations have been consolidated since the acquisition date.

Under the purchase method of accounting, the total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on their fair values as of the date of acquisition.

From the date of acquisition, VRG Linhas Aéreas has contributed R$47,013 to the profit for the year ended December 31, 2007 from continuing operations of the Company. If the combination had taken place at the beginning of the year, the net profit for 2007 would have been R$230,269 and revenue would have been R$4,967,261.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

3. Business combination(Continued)

The following table summarizes the final allocation of the fair value of assets acquired and liabilities assumed:

Assets acquired 
   Accounts receivable 24,153 
   Inventories 5,442 
   Deferred income tax assets 323,370 
   Fixed assets 11,740 
   Intangible assets 623,951 
   Other assets 101,206 
   Total assets acquired 1,089,862 
Liabilities assumed 
   Accounts payable (220,862)
   Air traffic liability (38,792)
   Smiles deferred revenue (375,497)
   Debentures (87,876)
   Deferred income taxes (210,154)
   Other liabilities (136,882)
   Total liabilities assumed (1,070,063)
Net assets acquired 19,799 
Purchase price, net of cash acquired 562,101 
Goodwill 542,302 

Goodwill represents the excess of the purchase price of the acquired business over the fair value of the net assets acquired and is tax-deductible in the amount of R$375,462. Intangible assets with indefinite lives consist of the fair value allocated to airport operating rights and tradenames, valued at R$560,842 and R$63,109, respectively.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

4. Employee costs and numbers

a)Staff costs

The average number of persons employed during the period was as follows:

       Number  2008   2007 
   
 
       Brazil  15,421  15,123 
       Rest of world  490  599 
   
  15,911  15,722 
   
 
       Salaries, wages and benefits  945,702  784,450 
       Other employee costs  38,081  14,894 
   
       Total employee costs  983,783  799,344 
   
 
b)Key management personnel     
 
  2008   2007 
   
       Fees  3,622  2,383 
       Salary and benefits  6,928  7,588 
       Share-based payments  3,599  3,448 
   
       Total  14,149  13,419 
   

At December 31, 2008, the total expense of share-based payments amounting R$3,599 (R$3,448 at December 31, 2007) arises from transactions accounted for as equity-settled share-based payment transactions.

5. Income taxes

The major components of income tax expense for the years ended December 31, 2008 and 2007 are:

  2008  2007 
   
Consolidated income statement  Restated 
  
 
Current income tax:     
   Current income tax expense  (57,338) (105,291)
Deferred income tax:     
   Relating to origination and reversal of temporary differences  13,033  71,696 
   
Income tax (expense) benefit reported in the income statement  (44,305) (33,595)

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

5. Income taxes(Continued)

The Company and its subsidiary VRG have tax loss carry-fowards of R$1,328,022 (R$569,166 in December 31, 2007) that are available indefinitely to offset future taxable profits of the companies in which the losses arose. Deferred tax assets have been recognized in respect of these losses to the extent that they are expected to offset future taxable profits. The tax loss carry-forwards are not subject to expiration. However, there is a limitation of 30% of utilization against each year’s taxable profit.

The Company will recognize penalties and interest accrued on any unrecognized tax benefits as a component of income tax expenses. The Company files its tax returns in Brazil and in foreign jurisdictions as prescribed by the tax laws of the jurisdictions in which it operates.

Deferred income taxes at December 31, 2008 and 2007, are summarized as follows:

  2008   2007 
   
Deferred income tax assets  Restated 
  
 Tax loss carry-forward  309,392  337,407 
 Non-deductible provisions  36,554  36,554 
 Smiles deferred revenue  99,214  109,600 
 Leasing  247,202  
 Other  37,422  2,419 
   
Total deferred tax assets  729,784  485,980 
 
Deferred income tax liabilities     
 Acquisition of VRG (intangible assets) 210,154  210,154 
 Leasing  129,884  63,276 
 Maintenance expenses  133,291  19,959 
 Depreciation  64,564  15,973 
 Other  10,787  32,272 
   
Total deferred tax liabilities  548,680  341,634 

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

5. Income taxes(Continued)

The reconciliation of the reported income tax and social contribution tax and the amount determined by applying the composite fiscal rate at December 31, 2008 and 2007, are as follows:

  2008   2007 
   
Deferred income tax assets  Restated 
  
Accounting profit (loss) before income taxes  (1,195,042) 200,383 
Statutory rate  34%  34% 
   
Income tax by the nominal rate  406,314  (68,130)
   Deductible interest on shareholders’ equity  -  49,161 
   Non-deductible exchange losses  (98,921) 
   Unrecognized tax profit (losses) (274,953) 25,185 
   Other permanent differences  11,865  (39,811)
   
Income taxes (expense) benefit  (44,305) (33,595)
   

The tax years and corresponding tax returns for 2003, 2004, 2005, 2006 and 2007 are subject to examination. The Company is currently under audit by federal authorities for its 2004 tax year.

In 2008, one subsidiary in the consolidated group recorded taxable income which resulted in income tax expense.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

6. Property, plant and equipment

  Flight equipment       
     
Year ended December 31, 2007  Finance   
lease 
aircraft 
 Rotable
 parts and
spares 
 Pre-delivery
 deposits 
 Other   Total 
      
 
Cost           
At January 1, 2007  194,307  366,666  440,165  121,456  1,122,594 
   Additions  663,277  235,518  622,359  64,309  1,585,463 
   Transfers   (269) (366,986) (1,632) (368,887)
   Disposals   7,106   (35,049) (27,943)
      
At December 31, 2007  857,584  609,021  695,538  149,084  2,311,227 
 
Depreciation           
At January 1, 2007  (648) (36,112)  (22,299) (59,059)
   Depreciation expense  (15,494) (31,497)  (15,153) (62,144)
   Transfers   (44)  (323) (367)
   Disposals     1,371  1,371 
      
At December 31, 2007  (16,142) (67,653)  (36,404) (120,199)
 
Net book value           
      
At December 31, 2007  841,442  541,368  695,538  112,680  2,191,028 
      
 
Year ended December 31, 2008           
 
Cost           
At January 1, 2008  857,584  609,021  695,538  149,084  2,311,227 
   Additions  514,708  178,433  498,958  63,227  1,255,326 
   Transfers  -  (66,770) (237,292) 358  (303,704)
   Disposals  -  (17,896) -  (21,096) (38,992)
      
At December 31, 2008  1,372,292  702,788  957,204  191,573  3,223,857 
 
Depreciation           
At January 1, 2008  (16,142) (67,652) -  (36,405) (120,199)
   Depreciation expense  (55,004) (47,401) -  (17,807) (120,212)
   Transfers  -  7,420  -  (421) 6,999 
   Disposals  -  113  -  8,198  8,311 
      
At December 31, 2008  (71,146) (107,520) -  (46,435) (225,101)
 
Net book value           
      
At December 31, 2008  1,301,146  595,268  957,204  145,138  2,998,756 
      

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

6. Property, plant and equipment(Continued)

Pre-delivery deposits refer to prepayments made based on the agreements entered into with Boeing Company for the purchase of 58 Boeing 737-800 Next Generation (63 aircraft at December 31, 2007), amounting to R$957,204 (R$695,538 at December 31, 2007) and other payments related to future aircraft acquisitions including capitalized interest of R$33,955 (R$18,721 at December 31, 2007). Deposits are transferred to the acquisition cost of aircraft when the aircraft are purchased.

7. Intangible assets

      Airport     
      operating     
Year ended December 31, 2007  Goodwill  Tradenames   rights  Software  Total 
      
 
Cost           
At January 1, 2007     25,085  25,085 
   Additions  542,302  63,109  560,842  22,395  1,188,648 
   Disposals      
      
At December 31, 2007  542,302  63,109  560,842  47,480  1,213,733 
 
Amortization           
At January 1, 2007     (9,971) (9,971)
   Amortization expense     (6,321) (6,321)
   Disposals      
      
At December 31, 2007     (16,292) (16,292)
 
Net book value           
      
At December 31, 2007  542,302  63,109  560,842  31,188  1,197,441 
      
 
Year ended December 31, 2008           
Cost           
At January 1, 2008  542,302  63,109  560,842  47,480  1,213,733 
   Additions in year  -  -  -  10,828  10,828 
   Disposals in year  -  -  -  -  - 
      
At December 31, 2008  542,302  63,109  560,842  58,308  1,224,561 
 
Amortization           
At January 1, 2008  -  -  -  (16,292) (16,292)
   Amortization expense  -  -  -  (10,408) (10,408)
   Disposals  -  -  -  -  - 
      
At December 31, 2008  -  -  -  (26,700) (26,700)
 
Net book value           
      
At December 31, 2008  542,302  63,109  560,842  31,608  1,197,861 
      

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

8. Transactions with Related PartiesImpairment of goodwill and intangible assets

The Company has allocated goodwill and intangible assets with indefinite lives acquired through business combinations for the purposes of impairment testing to a bus transportation agreementsingle cash-generating unit.

The recoverable amount of the cash generating unit has been measured on the basis of its value-in-use, by applying cash flow projections in the functional currency based on the Company’s approved business plan covering a five-year period followed by the long-term growth rate of 3.0% . The pre-tax discount rate applied to the cash flow projections is 15.04% .

The calculation of value-in-use for the cash generating unit is most sensitive to the following assumptions:

• Discounted free cash flow approach, based on current acquisition valuation model;
• Discount rates derived from the Company’s weighted average cost of capital, adjusted for the risks specific to the market;
• Long-term growth rate which reflects the market consensus on the business;
• Royalty stream that could be obtained from licensing the intangible asset to a third party in an arm’s length transaction.

9. Inventories of parts and supplies

  2008  2007 
   
Consumable material  9,318  12,107 
Parts and maintenance material  104,133  103,833 
Advances to suppliers  68,206  44,492 
Parts import assets in progress  14,752  44,528 
Other  4,105  4,966 
   
  200,514  209,926 
   

The amount of inventories recognized as an expense was R$92,422 in 2008 (R$93,953 in 2007) which is recognized in maintenance materials and repairs expense.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

10. Trade and other receivables

  2008   2007 
   
Local currency:  Restated
  
     Credit card administrators  95,097  674,380 
     Travel agencies  116,270  117,933 
     Installment sales  92,913  76,017 
     Cargo agencies  15,505  18,178 
     Other  48,723  21,810 
   
  368,508  908,318 
Foreign currency  21,117  31,112 
   
  389,625  939,430 
   
Allowance for doubtful accounts  (44,698) (36,369)
   
  344,927  903,061 
   
 
 
Changes in the allowance for doubtful accounts are as follows:   
 
  2008   2007 
   
  Restated
  
 
Balances at beginning of year  (36,369) (10,366)
Additions  (15,864) (32,937)
Recoveries  7,535  6,934 
   
Balances at end of year  (44,698) (36,369)
   
 
The aging analysis of accounts receivable is as follows:     
 
  2008   2007 
   
  Restated
  
 
Current  327,722  899,032 
Past-due from less than 30 days to 90 days  21,113  26,232 
Past-due from 91 days to more than 360 days  40,790  14,166 
   
  389,625  939,430 
   

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

11. Cash and cash equivalents

Cash and cash equivalents were comprised of the following at 31 December:

  2008  2007 
   
Cash on hand  148,716  298,969 
Short-term deposits with maturity within     
 three months  20,614  274,152 
   
  169,330  573,121 
   

Short-term deposits with related companies Breda Transportes e Serviços S.A.banks earn interest at floating rates based on daily bank deposit rates. These are made for varying periods of between one day and Expresso União Ltda. During 2006 and 2005,three months, depending on the immediate cash requirements of the Company, paid R$3,109 and R$ 413 (R$ 1,690 and R$ 308) to these companies, respectively.

The Company also has a five-year office space lease agreement with Áurea Administração e Participações S.A. (expiring on March 31, 2008) forearn interest at the lease of headquarters located at Rua Tamoios, 246 in São Paulo. The lease agreement provides for monthly payments, adjusted by the IGP-M inflation index. During 2006 and 2005, the Company paid R$ 362 and R$ 344 to this company, respectively.

The payments to and from the related parties in the normal course of business were based on prevailing marketrespective short-term deposit rates.

9.12. Restricted cash

On December 31, 2008, restricted cash is comprised of cash pledged for some of the Company’s long-term financings (BNDES and BDMG) and to guarantee certain of its hedge operations.

13. Shareholders’ Equityequity

The following table sets forth the ownership and the percentagespercentage of the Company’s voting (common) and non-voting (preferred) shares as at December 31, 20062008 and December 31, 2005:2007:

   
2006 
     
2005 
       2008     2007  
    
 Common  Preferred  Total  Common  Preferred  Total  Common  Preferred  Total  Common  Preferred  Total 
        
ASAS Investment Fund  100.00%  35.79%  71.00%     100.00%  42.60%  73.13%  100.00%  37.84%  70.90% 
Aeropar Participações S.A.    -  100.00%  36.40%  71.92% 
Comporte Participações S.A.    -   3.87%  1.71% 
Treasury shares  -  1.66%  0.78%    
Others   3.04%  1.37%   0.82%  0.36%   3.84%  1.80%   2.74%  1.28% 
Public Market (Free Float)  61.17%  27.63%   58.91%  26.01%   51.90%  24.29%   59.42%  27.82% 
        
 100.00%  100.00%  100.00%  100.00%  100.00%  100.00%  100.00%  100.00%  100.00%  100.00%  100.00%  100.00% 
        

The Company is a stock corporation (sociedade anônima) incorporated under the laws of Brazil. As of December 31, 2006,2008, the capital of the Company hadis comprised of 202,300,591 fully paid-up shares being 107,590,792 shares of common stock and 88,615,67494,709,799 shares of preferred stock, each with no par value, authorized, issued and outstanding. According to the Company’s bylaws, the capital can be increased up to R$ 2,000,0002 billion through the issuance of common or preferred shares.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

13. Shareholders’ equity(Continued)

Each common share entitles its holder to one vote at the Company’s shareholder meetings. The preferred shares outstanding have no class designation, are not convertible into any other security and are non-voting, except under the limited circumstances provided under Brazilian law. Upon liquidation, holders of preferred shares are entitled to receive distributions prior to the holders of our common shares. In addition, the São Paulo Stock Exchange – Bovespa Level 2 of Differentiated Corporate Governance Practices which we will comply with, provides for the granting of voting rights to holders of preferred shares in connection with certain matters, including corporate restructurings, mergers and related party transactions.

On June 14, 2007, the Company increased its capital by 6,082,220 preferred shares, of which 6,049,185, amounting to R$360,592, were used to increase capital in the subsidiary GTI S.A., and later transferred to third parties in connection with the acquisition of VRG Linhas Aéreas S.A.

On March 17, 2006, the Company’s then controlling shareholder, Aeropar Participações S.A. concluded a restructuring of its corporate shareholdings, by means of which 31,493,863 preferred shares of the Company, held by Aeropar, were transferred to the Fundo de Investimento em Participações Asas (a fund controlled by the shareholders of Aeropar Participações S.A.). Comporte Participações S.A. also transferred its 3,351,775 preferred shares of GOL to the same fund.

On April 27, 2005 the Company concluded a public offering on the New York Stock Exchange (NYSE) and the São Paulo Stock Exchange (BOVESPA) of 14,700,000 preferred shares (5,520,811 offered by the Company, representing proceeds in the amount of R$ 184,454, net of issuance costs of R$8,723, and 9,179,189 by a selling shareholder, BSSF Air Holdings LLC) at a price of R$35.12 per share (US$27.88 per American Depositary Share). On May 2, 2005 the Company issued an additional of 2,205,000 preferred shares, related to the exercise of the underwriter’s over-allotment option on the April 27, 2005 public offering, representing proceeds in the amount of R$73,669, net of issuance costs of R$3,484.

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GOL LINHAS AÉREAS INTELIGENTES S.A.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

13. Shareholders’ equity(Continued)

Appropriated retained earningsCapital reserves

Under Brazilian corporation law and according to its bylaws, the Company is required to maintain a “legal reserve” to which it must allocate 5% of its net income, less accumulated losses as determined on the basis of the statutory financial statements for each fiscal year until the amount of the reserve equals 20% of paid-in capital. Accumulated losses, if any, may be charged against the legal reserve. The legal reserve can only be used to increase the capital of the Company. The legal reserve is subject to approval by the shareholders voting at the annual shareholders meeting and may be transferred to capital but is not available for the payment of dividends in subsequent years. At December 31, 2006, the allocation of retained earnings related to the legal reserve was R$ 39,577.

Unappropriated retained earnings

The balance of R$ 1,246,848 is pending approval at the Annual Shareholders Meeting in order to meet the Company investment plan and increase in working capital.

Dividends

The Company’s bylaws provide for a mandatory minimum dividend to common and preferred shareholders, including interest on shareholders equity, in the aggregate of at least 25% of annual net distributable income determined in accordance with Brazilian corporation law.

Brazilian law permits the payment of cash dividends only from unappropriated retained earnings and certain reserves registered in the Company’s statutory accounting records. On December 31, 2006, after considering appropriated retained earnings which can be transferred to unappropriated retained earnings, the earnings and reserves available for distribution as dividends, upon approval by the Company’s shareholders at the annual shareholder’s meeting, amounted to R$ 1,246,848.

Brazilian corporations are allowed to attribute interest on shareholders’ equity. The calculation is based on the shareholders’ equity amounts as stated in the statutory accounting records and the interest rate applied may not exceed the long term interest rate (“TJLP”) determined by the Brazilian Central Bank (approximately 9.81%, 9.75%6.25% and 7.88%6.25% for years 2004, 20052007 and 2006,2008, respectively). Also, such interest may not exceed the greater of 50% of net income for the year or 50% of retained earnings plus revenue reserves, determined in each case on the basis of the statutory financial statements. The amount of interest attributed to shareholders is deductible for corporate income tax purposes, and applied towards the mandatory minimum dividend.

ForDuring 2008, the quarter ended March 31, 2006,Company paid interim dividends in the Company’s statutory consolidated financial statements presented a net profittotal amount of R$36,258 corresponding R$0.18 per share. In 2007, the Company distributed interim dividends in the total amount of R$ 160,678 (R$ 112,472 in 2005). The Company accrued a total302,775, of which R$43,470 of interim dividends payable (represented by R$ 35,391 of144,592 was tax deductible interest on stockholder’s equity and R$8,079 of dividends) for payment on May 23, 2006, which is also included in current liabilities.own capital.

For the quarter ended June 30, 2006, the Company’s statutory consolidated financial statements presented a net profit of R$ 98,169 (R$43,744 in 2005). The Company accrued a total of R$ 32,051 of interim dividends payable represented fully by interest on stockholder’s equity for payment on August 15, 2006.

For the quarter ended September 30, 2006, the Company’s statutory consolidated financial statements presented a net profit of R$ 245,932 (R$116,798 in 2005). The Company accrued a total of R$ 62,495 of interim dividends payable represented by R$ 29,506 of interest on stockholder’s equity and R$ 32,592 of dividends for payment in the fourth quarter of 2006.

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GOL LINHAS AÉREAS INTELIGENTES S.A.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

Dividends13. Shareholders’ equity(Continued)

For the quarter ended December 31, 2006, the Company accrued a total of R$ 39,486 of dividends payable (represented by R$ 22,899 of interest on stockholder’s equity and R$ 16,587 of dividends) for payment in 2007 (R$ 117,870 in 2005). Dividends and interest on shareholders’ equity are included in current liabilities and ratification for payment will be made at the Annual Shareholders Meeting.(Continued)

For the year ended December 31, 2006,2008, the Company’s statutory consolidated financial statements prepared under BR GAAP presented net loss of R$1,384,743 (net income of R$ 684,472 (R$ 424,501268,527 in 2005)2007).

10. Stock Option PlansTreasury shares

At shareholders meetingsThe Board of Directors at the meeting held on May 25 and December 9, 2004,January 28, 2008, approved a preferred shares repurchase program. The total amount to be acquired is up to a total of 5 million shares representing 5.3% of the Company’s shareholders approved an executive stock option planpreferred shares, in accordance with Brazilian Securities and Exchange Commission (CVM) Ruling No. 10/80. The maximum term for key senior executive officers. On April 25, 2004,the performance of the transaction is 365 days counted from January 28, 2008. To date, the Company issued to executive officers stock options to purchase up to 937,412 of its preferredhas acquired 1,574,200 shares at an exerciseaverage price of R$3.0426.16 per share, (determined based on the bookminimum price was R$19.98 and the maximum price was R$30.28. On December 31, 2008, the amount of R$41,180 is recorded in shareholders' equity as treasury stock, with market value of GOL before the creation of GLAI). Fifty percent of the options vested on October 25, 2004, with the remaining 50% vesting at the end of each quarter ending subsequent to October 25, 2004, on a pro rata basis, through the second quarter of 2006. Each option will expire two years after the vesting date. The fair value of each share at the date of the grant was R$ 24.50. In connection with the initial grant of preferred stock options, the Company recorded deferred stock compensation of R$ 20,117, representing the difference between the exercise price of the options and the deemed fair value of the preferred stock.15,600.

14. Share-based payments

On December 9, 2004, the Company’s shareholders approved a stock option plan for employees. Under this plan the stock options granted to employees cannot exceed 5% of total outstanding shares. Initially, 87,418 of the Company’s preferred shares have been reserved for issuance under this plan. On January 19, 2005, the Company issued stock options to 17 key employees to purchase up to 87,418 of its preferred shares at an exercise price of R$33.06 per share, (the volume weighted average price for the 60 previous trading days).share. The options vest at a rate of 1/5 per year, and can be exercised up to 10 years after the grant date. The fair value of each share at the date of the grant was R$ 37.96. In29.22. During 2008, the Company recorded share based payments expenses of R$206 (R$448 in 2007), in connection with the initialthis grant of preferred stock options, the Company recorded deferred stock compensation of R$ 428, representing the difference between the exercise price of the options and the deemed fair value of the preferred stock.options.

On January 2, 2006, following a plan approved in 2005, the Compensation Committee within the scope of its functions and in conformity with the Company’s Stock Option Plan, approved the granting of 99,816 options for the purchase of the Company’s preferred shares at the price of R$47.30 per share. The options vest at a rate of 1/5 per year, and can be exercised up to 10 years after the grant date. The fair value of each share at the date of the grant was R$ 64.70. In51.68. During 2008, the Company recorded share based payments expenses of R$802 (R$1,529 in 2007), in connection with the initialthis grant of preferred stock options, the Company recorded deferred stock compensation of R$ 1,737, representing the difference between the exercise price of the options and the deemed fair value of the preferred stock.options.

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GOL LINHAS AÉREAS INTELIGENTES S.A.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

10. Stock Option Plans14. Share-based payments(Continued)

On December 31, 2006, the Board of Directors approved the granting of 113,379 options for the purchase of the Company’s preferred shares at the price of R$65.85 per share. The options vest at a rate of 1/5 per year, and can be exercised up to 10 years after the grant date. The fair value of each share at the date of the grant was R$46.61. During 2008, the Company recorded share based payments expenses of R$1,323 (R$2,928 in 2007), in connection with this grant of preferred stock options.

On December 20, 2007, the Board of Directors approved the granting of 190,296 options for the purchase of the Company’s preferred shares at the price of R$45.46 per share. The options vest at a rate of 1/5 per year, and can be exercised up to 10 years after the grant date. The fair value of each share at the date of the grant was R$29.27. During 2008, the Company recorded share based payments expenses of R$3,031, in connection with this grant of preferred stock options.

The share-based payments expense of R$5,362 and R$4,905 in 2008 and 2007, respectively, has been recorded in the income statement as employee costs.

Transactions are summarized as follows:

  Stock  Weighted-Average 
  Options  Exercise Price 
   
Outstanding at December 31, 2003   
     Granted  937,412  3.04 
     Exercised   
   
Outstanding at December 31, 2004  937,412  3.04 
     Granted  87,418  33.06 
     Exercised  (703,579) 3.04 
   
Outstanding at December 31, 2005  321,251  11.21 
     Granted  99,816  47.30 
     Exercised  (233,833) 3.04 
   
Outstanding at December 31, 2006  187,234  40.65 
 
Options exercisable at December 31, 2004  507,765  3.04 
Options exercisable at December 31, 2005  158,353  6.50 
Options exercisable at December 31, 2006  17,484  33.06 
  Stock  Weighted-average 
  options  exercise price 
   
Outstanding at January 1, 2007  152,518  40.65 
   
     Granted  113,379  65.85 
     Forfeited  (12,135) 33.06 
     Exercised  (11,905) 50.52 
   
Outstanding at December 31, 2007  241,857  50.67 
   
     Granted  190,296  45.46 
     Forfeited  (69,916) 49.21 
     Exercised         (336) 36.35 
   
Outstanding at December 31, 2008  361,901  48.26 
 
Options exercisable at December 31, 2007  91,013  44.97 
Options exercisable at December 31, 2008  151,436  46.23 

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

14. Share-based payments(Continued)

The weighted-average fair valuesvalue of equity-settled share options was estimated at the date of grant for options granted, as of December 31, 2006 and December 31, 2005, were R$ 27.20 and R$ 19.95, respectively, and were estimateddate using the Black-Scholes option-pricing model, assuming an expected dividend yieldtaking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the models for all options granted:

    Stock-option grants   
  
   2005   2006     2006     2007 
     
Total of options granted  87,418  99,816  113,379  190,296 
Option exercise price  33.06  47.30  65.85  45.46 
Estimated volatility of share price  32.52%  39.87%  46.54%  40.95% 
Share's expected dividend yield  0.84%  0.93%  0.98%  0.86% 
Risk free interest rate  17.23%  18.00%  13.19%  11.18% 
Option duration  10.00  10.00  10.00  10.00 
Fair value at grant date  29.22  51.68  46.61  29.27 

Expected volatility was determined on the basis of 1.50%, expectedhistorical volatility of approximately 40.19%, weighted average risk-free interest rate of 13.67%, and an expected average life of 3.53 years.using historical data.

The range of exercise prices and the weighted average remaining contractual life of the options outstanding and the range of exercise prices for the options exercisable at December 31, 20062008 are summarized as follows:

Options Outstanding 
 
Options Exercisable 
     
    Weighted       
    Average      Weighted 
Range of  Options  Remaining  Weighted  Options  Average 
Exercise  Outstanding  Contractual  Average  Exercisable  Exercise 
Prices  at 12/31/2006  Life  Exercise Price  at 12/31/2006  Price 
     
 
3.04    3.04   3.04 
33.06  87,418  3.0  33.06  17,484  33.06 
47.30  99,816  4.0  47.30   47.30 
      
3.04-47.30  187.234  3,53  40,65  17,484  33.06 
      
Options outstanding  Options exercisable 
  
 
  Options  Weighted average  Weighted  Options  Weighted 
Exercise  outstanding  remaining  average  exercisable  average 
prices  at 12/31/08  contractual life  exercise price  at 12/31/08  exercise price 
      
33.06  55,724  6.00  33.06  47,516  33.06 
47.30  69,194  7.00  47.30  41,053  47.30 
65.85  77,353  8.00  65.85  30,941  65.85 
45.46  159,630  9.00  45.46  31,926  45.46 
      
  361,901      151,436   
      

11. Leases

The Company has entered into five lease agreements for aircraft which are classified as capital leases under the provisions of SFAS No. 13, “Accounting For Leases”. The capital lease agreements are typically for a term of twelve years and for two aircraft the present value of the minimum lease payments exceed 90% of their fair market value at the inception of the lease and for the remaining three aircraft, the Company has bargain purchase options to buy them at the end of the lease term. The carrying value of aircraft under capital lease arrangements included in property and equipment totaled R$ 254,228 as of December 31, 2006. Amortization of aircraft under capital lease arrangements is included in depreciation and amortization expense.

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GOL LINHAS AÉREAS INTELIGENTES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

15. Earnings per share

The Company had five aircraft classifiedCompany’s preferred shares are not entitled to receive any fixed dividends. Rather, the preferred shareholders are entitled to receive dividends per share in the same amount of the dividends per share paid to holders of the common shares. However, preferred shares are entitled to receive distributions prior to holders of the common shares. Consequently, basic earnings per share are computed by dividing income by the weighted average number of all classes of shares outstanding during the period. Preferred shares are excluded during any loss period. The diluted preferred shares are computed including the executive employee stock options calculated using the treasury-stock method as capital leasesthey were granted at an exercise price less that the market price of the shares.

       2008  2007 
   
Numerator  Restated
  
Net profit (loss) attributable to common and preferred     
 shareholders for basic and diluted earnings per share  (1,239,347) 167,288 
 
Denominator     
Weighted-average shares outstanding for basic earnings     
 per share (in thousands) 202,301  198,609 
 
Treasury shares  (1,108) 
Adjusted weighted-average shares outstanding for basic     
 earnings per share (in thousands) 201,193  198,609 
 
Effect of dilutive securities    
Executive stock options (in thousands) -  48 
   
Adjusted weighted-average shares outstanding and assumed     
 conversions for diluted earnings per shares (in thousands) 201,193  198,657 
   
 
Basic earnings (loss) per share  (6.16) 0.84 
Diluted earnings (loss) per share  (6.16) 0.84 

As of December 31, 2006. The amounts applicable to these aircraft included2008, the 361,901 stock options described in property and equipment were:

  2006  2005 
   
Flight equipment  264,629  
Less accumulated depreciation  (10,401) 
   
  254,228  
   

Future minimum lease payments under capital leases with initial or remaining terms in excess of one year at December 31, 2006 were as follows:

  Thousands of R$  Thousands of US$ 
   
2007  38,696  18,099 
2008  38,696  18,099 
2009  38,696  18,099 
2010  38,696  18,099 
2011  38,696  18,099 
After 2011  197,171  92,222 
   
Total minimum lease payments  390,651  182,717 
Less: Amount representing interest  (135,515) (63,384)
  
Present value of net minimum lease payments  255,136  119,333 
Less current portion  (33,112) (15,487)
  
Long-term portion  222,024  103,846 
  

The Company leases aircraft in operation, airport terminal space, other airport facilities, office space and other equipment. At December 31, 2006, the Company leased 60 aircraft under operating leases (as compared to 42 aircraft at December 31, 2005), with initial lease term expiration dates ranging from 2007 to 2016.Note 14are non-dilutive.

Future minimum lease payments under non-cancelable operating leases are denominated in US dollars. Such leases with initial or remaining terms in excess of one year at December 31, 2006 were as follows:

  Thousands of R$  Thousands of US$ 
   
  Aircraft  Other     Total  Aircraft  Other  Total 
   
2007  407,056  14,814  421,870  190,391  6,929  197,320 
2008  336,252  10,829  347,081  157,274  5,065  162,339 
2009  293,004  5,922  298,926  137,046  2,770  139,816 
2010  198,481  3,147  201,628  92,835  1,472  94,307 
2011  175,981  92  176,073  82,311  43  82,354 
After 2011  503,029   503,029  235,280   235,280 
   
Total minimum Lease             
payments  1,913,803  34,804  1,948,607  895,137  16,279  911,416 
   

During 2006 the Company received three Boeing 737-300 aircraft, eight Boeing 737-700 aircraft and fourteen Boeing 737-800 aircraft.

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GOL LINHAS AÉREAS INTELIGENTES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

12. Other Commitments16. Provisions

  Insurance  Onerous
lease
 
 Return     
  provision  provision  of aircraft  Litigation  Total 
  
  Restated 
  
 
At December 31, 2007  129,137   131,826  115,677  376,640 
   Arising during the year  10,272  8,250  102,615   121,137 
   Utilized    (131,826) (43,354) (175,180)
      
At December 31, 2008  139,409  8,250  102,615  72,323  322,597 
      
 
Current  54,422  8,250  102,615   165,287 
Non-current  84,987    72,323  157,310 

a)Insurance provision

The following table provides a summaryRelates to the accident of our principal payments underan aircraft purchase commitments and other obligations at December 31:

            Beyond   
(in R$ 000) 2007  2008  2009  2010  2011  2011  Total 
  
Pre-delivery deposits (1) 115,954  150,191  161,195  141,191  65,472  1,530  635,533 
Aircraft purchase               
     commitments (2) 2,502,025  1,971,577  2,245,264  1,704,769  1,535,050  1,590,319  11,549,004 
  
 
Total  2,617,979  2,121,768  2,406,459  1,845,960  1,600,522  1,591,849  12,184,537 
  

(1)performing Gol Airlines Flight 1907 on September 29, 2006. The Company makescontinues to cooperate fully with all regulatory and investigatory agencies to determine the cause of this accident. The Company maintains insurance for the coverage of these risks and liabilities resulting from the claim. The payments for aircraft acquisitions utilizing the proceeds from equity and debt financings, cash flow from operations, short and medium-term credit lines and supplier financing. Pre-delivery deposits referhull to prepaymentsthe lessor were made based on the agreements entered into with Boeing Company for the purchase of Boeing 737-800 Next Generation aircraft.

(2) The Company has a purchase contract with Boeing for 110 Boeing 737-800 Next Generation aircraft, under which the Company currently has 76 firm orders and 34 purchase options. The firm orders have an approximate value of R$ 11,549 million (corresponding to approximately US$ 5,402 million) based on the aircraft list price (excluding contractual manufacturer’s discounts), including estimated amounts for contractual price escalations and pre-delivery deposits. Aircraft purchase commitments can be financed with long-term financing guaranteed by the U.S. Exim Bank (for approximately 85% ofinsurance company. Management does not expect any liabilities arising from the total acquisition cost). During 2006, the Company entered into sale-leaseback agreements for eight Boeing 737-800 Next Generation aircraft, six of which were delivered during the third quarter of 2006, and two of which were delivered during the fourth quarter of 2006.

13. Contingencies

The Company is partyaccident involving Flight 1907 to legal proceedings and claims that arise during the ordinary course of business. While the outcome of these lawsuits and proceedings cannot be predicted with certainty and could have a material adverse effect on the Company’s financial position or results of operations and cash flows, it isits operations.

b)Onerous lease provision

Relates to the Company’s opinion, after consulting with its outside counsel, thatset down of Boeing 767 aircraft held as operating leases.

c)Return of aircraft

Includes provisions for the ultimate dispositioncosts to meet the contractual return conditions on such lawsuits will not have a material adverse effect on its financial position, results of operation or cash flows.aircraft held under operating leases.

14. Financial Instruments and Concentration of Riskd)Litigation

At December 31, 20062008, the Company and December 31, 2005,its subsidiaries are parties in judicial lawsuits and administrative proceedings, including 828 administrative proceedings, 9,013 civil proceedings and 4,188 labor claims, of which, 696 administrative proceedings, 8,438 civil proceedings and 674 labor claims were filed as a result of the Company’s primary monetary assets were cash equivalents, short-term investments and assetsoperations. The remainder is related to aircraft leasing operations. The Company’s primary monetary liabilities arerequests for recognition of succession related to aircraft leasing operations. All monetary assets other than those related to aircraft leasing operations included in the balance sheet are stated at amounts that approximate their fair values.acquisition of VRG.

Financial instruments that expose the Company to credit risk involve mainly cash equivalents, short-term investments and accounts receivable. Credit risk on cash equivalents and short term investments related to amounts invested with major financial institutions. Credit risk on accounts receivable relates to amounts receivable from the major international credit card companies. These receivables are short-term and the majority of them settle within 30 days.

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GOL LINHAS AÉREAS INTELIGENTES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

17. Transactions with related parties

VRG maintains operating agreements with related parties for passenger and luggage transportation between airports and for the transportation of employees, executed under usual market conditions.

VRG is the tenant of the property located at Rua Tamoios, 246, in the city of São Paulo, State of São Paulo, owned by a related company whose lease agreement expires on April 01, 2009 and has an annual price restatement clause based on the General Market Price Index (IGP-M) variation.

The balances payable to related parties, in the amount of R$281 on December 31, 2008 (R$482 on December 31, 2007) are included in the suppliers’ balances together with third-party operations. The amount of expenses which affected income on December 31, 2008 is R$8,589 (R$19,526 on December 31, 2007).

18. Financial instruments and concentration of risk

The Company’s revenueprincipal financial liabilities, other than financial derivatives, are comprised of loans and borrowings, trade and other payables. The main purpose of these financial liabilities is generated in Brazilian Reais (exceptto raise finances for a small portion in Argentine Pesos, Bolivian Bolivianos, Chilean Pesos, Paraguay Guaranisthe Company’s operations. The Company has loan and Uruguay Pesosother receivables, trade and other receivables, and cash and short-term deposits that are derived directly from flights between Brazil, Argentina, Bolivia, Chile, Paraguay, Uruguay). However, its liabilities, particularly those related to aircraft leasingoperations. The Company also holds available-for-sale investments, and acquisition, are US dollar-denominated. The Company’s currency exchange exposure at December 31, 2006 is as set forth below:

  R$ 000  Translation into
th
ousands of US$
 2006 
   
Assets     
   Cash and cash equivalents  788,136  368,632 
   Deposits with lessors  273,031  127,704 
   Aircraft and engine maintenance deposits  20,223  9,459 
   Other  15,405  7,205 
   
               Total assets  1,096,795  513,000 
 
Liabilities     
   Foreign suppliers  25,249  11,810 
   Leases payable  18,270  8,545 
   Insurance premium payable  44,897  21,000 
   
               Total liabilities  88,416  41,355 
   
   Exchange exposure  1,008,379  471,645 
   
 
Off-balance sheet transactions exposure     
   Operating leases  1,948,607  911,416 
   Aircraft commitments  11,549,004  5,401,779 
   
               Total exchange exposure  14,505,990  6,784,840 
   

The Company’s off-balance sheet exposure represents the future obligations related to operating lease contracts and aircraft purchase contracts.enters into financial derivative transactions.

The Company utilizesis exposed to market risk (including exchange rate risk, interest rate risk and fuel price risk), credit risk and liquidity risk. Financial instruments affected by risk include loans and borrowings, deposits, available-for-sale investments, and derivative financial instruments.

The Company’s senior management, with the assistance of the Financial Risk Committee, oversees the management of these risks. The Financial Risk Committee provides assurance to the Company’s senior management that the Company’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with Company policies and Company risk appetite. All derivative transactions are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company’s policy that no trading in derivatives for speculative purposes shall be undertaken.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments with first-tier banksand concentration of risk(Continued)

The Board of Directors reviews and approves policies for cash management purposes. The Company currently has synthetic fixed income options and swap agreements to obtain the Brazilian overnight deposit rate from fixed-rate or dollar-denominated investments.managing each of these risks which are summarized below.

Market risk

a)Fuel price risk

The Company is exposed to fuel price risk and the management fuel price risk strategy aims to provide the airline with protection against sudden and significant increases in oil prices while ensuring that the airline is not competitively disadvantaged in a serious way in the event of a substantial fall in the price of fuel. Pursuing these objectives, the fuel risk management program allows for the judicious use of a number of derivatives available on the Over the Counter (OTC) markets with approved counterparties and within approved limits.

Airline operations are exposed to the effects of changes in the price of aircraft fuel. Aircraft fuel consumed in 2006, 2005the year ended December 31, 2008 and 20042007 represented approximately 39.6%, 39.5%40.5% and 33.2%38.4% of the Company’s operating expenses, respectively. To manage this risk, the Company periodically enters into crude oil option contracts and swap agreements. Because jet fuel is not traded on an organized futures exchange, liquidity for hedging is limited. However, the Company has found commodities for effective hedging of jet fuel costs. Historically, prices for crude oil are highly correlated to jet fuel in Brazil, making crude oil derivatives effective at offsetting jet fuel prices to provide short-term protection against a sharp increase in average fuel prices.

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GOL LINHAS AÉREAS INTELIGENTES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)

The following is a summary of the company’sCompany’s fuel derivative contracts (in thousands, except as otherwise indicated):

  2006   2005   
    
At December 31:       
Fair value of derivative instruments at year end  R$ (4,573) R$ 8,464   
Average remaining term (months)  8  
Hedged volume (barrels) 1,804,000  1,431,000   
 
  2006   2005  2004 
    
Year ended December 31:       
Hedge effectiveness gains (losses) recognized in aircraft fuel       
     expense  R$ (8,665) R$ 5,246  N.A. 
Hedge ineffectiveness gains (losses) recognized in other income       
     (expense) R$ (1,125) R$ 397  N.A. 
Percentage of actual consumption hedged (during year) 77%  55%  75% 
Year ended December 31:  2008  2007 
   
Fair value of derivative instruments at December 31 (R$) *  (102,387) 23,302 
 
Hedge effectiveness gains recognized in operating     
 expenses (R$) -  33,167 
Hedge ineffectiveness gains (losses) recognized in other     
 income (R$) (40,583) 17,233 
Hedged volume (thousands barrels) during the year  4,141  4,936 
Percentage of hedged consumption during the year  56%  56% 

* The derivative instruments are recorded in other current liabilities

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and concentration of risk(Continued)

a)Fuel price risk (Continued)

The Company utilizes financial derivative instruments as hedges to decrease its exposure to jet fuel price increases for short-term time frames. Theincreases. At December 31, 2008, the Company currently has a combination of purchased call options, collar structures and fixed price swap agreements in place to hedge approximately 65%12%, 37%, 39%, 9% and 44%2% of its jet fuel requirements at average crude equivalent prices of approximately US$ 66.80 and US$ 69.20 per barrel for the first, second, third and second quartersfourth quarter of 2007,2009 and first quarter of 2010, respectively.

The Company accounts for its fuel hedge derivative instruments as cash flow hedges under SFAS 133.IAS 39. Under SFAS 133,IAS 39, all derivatives designated as hedges that meet certain requirements are granted special hedge accounting treatment. Generally, utilizing the special hedge accounting, all periodic changes in fair value of the derivatives designated as hedges that are considered to be effective, as defined, are recorded in “Accumulated other comprehensive income”equity until the underlying jet fuel is consumed. When the aircraft fuel is consumed and the related derivative contract settles, any gains or losses previously deferred in other comprehensive incomeequity are recognized as aircraft fuel expense. The Company is exposed to the risk that periodic changes will not be effective, as defined, or that the derivatives will no longer qualify for special hedge accounting. Ineffectiveness, as defined, results when the change in the total fair value of the derivative instrument does not equal 80-125% of the change in the value of the aircraft fuel being hedged or the change in value of the Company’s expected future cash outlay to purchase and consume jet fuel. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to “Other gains and losses”in other income (expense), net in the income statement. Likewise, if a hedge ceases to qualify for hedge accounting, those periodic changes in the fair value of derivative instruments are recorded to “Other gains and losses”in other income (expense), net in the income statement in the period of the change.

Ineffectiveness is inherent in hedging jet fuel with derivative positions based in other crude oil related commodities, especially given the recent volatility in the prices of refined products. Due to the volatility in markets for crude oil and related products, the Company is unable to predict the amount of ineffectiveness each period, including the loss of hedge accounting, which could be determined on a derivative by derivative basis or in the aggregate. In specific instances, the Company has determined that specific hedges will not regain effectiveness in the time period remaining until settlement and therefore must discontinue special hedge accounting, as defined by SFAS 133. When this happens, any changes in fair value of the derivative instruments are marked to market through earnings in the period of change.

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GOL LINHAS AÉREAS INTELIGENTES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)

The Company continually looks for better and more accurate methodologies in forecasting and estimating future cash flows relating to its jet fuel hedging program. These estimates are used in the measurement of hedge effectiveness for the Company’s fuel hedges, as required by SFAS 133. During second quarter 2006, the Company revised its method for forecasting future cash flows. Previously, the Company had estimated future cash flows using actual market forward prices of like commodities and adjusting for historical differences from the Company’s actual jet fuel purchase prices.IAS 39. The Company’s new methodology utilizes a statistical-based regression equation with data from market forward prices of like commodities,commodities.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and will not have a material impact on the financial statements.concentration of risk(Continued)

a)Fuel price risk (Continued)

During 2006,2008, there were no recognized gains by the Company recognized approximatelyas a reduction of aircraft fuel expense (R$33,167 of gains in 2007). During 2008, there were R$18 (US$ 8)40,583 of additional net losses (R$17,233 of gains in 2007) recognized in Other gains,expenses, net related to the ineffectiveness of its hedges and the loss of hedge accounting for certain hedges. Of this net total, approximatelyThe amount of R$61 (US$ 29) was40,318 in 2008 (R$41 of losses in 2007) represented ineffectiveness expenselosses and mark-to-market losses related to contracts that will be settled during the year.in future periods. As of December 31, 20062008 there were R$90,580 (none at December 31, 2007 since all unrealized value was R$ 3,018 (US$ 1,412)ineffective), net of taxes, onof unrealized losses with jet fuel hedges recorded in “comprehensive income”equity. During the period, all derivative contracts were designated as hedges.

The following table demonstrates the notional value of the derivatives contracted to protect the fuel exposure for each period:

Position as of December 31, 2008      Maturities     
   
Fuel Risk  1Q09  2Q09  3Q09  4Q09  1Q10  Total 
       
Notional volume in barrels (thousands) 381  1,208  1,334  293  58  3,274 
Notional volume in liters (thousands) 60,571  192,048  212,079  46,581  9,221  520,501 
 
Future agreed rate per barrel (USD)*  96.56  71.40  72.11  66.19  62.45  73.99 
       
 
Total in Reais **  85,977  201,569  224,807  45,323  8,465  566,141 
       

* Weighted average between the strikes of collars and callspreads.
** Exchange rate at 12.31.2008 was R$ 2.337 / US$ 1.00

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and concentration of risk(Continued)

a)Fuel price risk (Continued)

The following table demonstrates the sensitivity of financial instruments to a reasonably possible change in fuel prices, with all other variables held constant, on profit before tax and equity:

       Position as of December 31, 2008  Position as of December 31, 2007 
     
Increase / (decrease)in fuel price 
(percent)
 Effect on profit before tax 
(R$ million)
 Effect on equity 
(R$ million)
 Effect on profit before tax 
(R$ million)
 Effect on equity 
(R$ million)
       
+10  (292.93) (173.12) (204.84) (122.90)
-10  285.61  163.85  192.17  126.83 

b)Foreign currency risks

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense are denominated in a different currency from the Company’s functional currency) and the Company’s net investments in foreign subsidiaries.

Exchange exposure relates to amounts payable arising from US$-denominated and US$-linked expenses and payments. To manage this risk, the Company uses US options and futures contracts.

The Company’s revenue is generated in Brazilian reais (except for a small portion in Argentine Pesos, Bolivian Bolivianos, Chilean Pesos, Colombian Pesos, Euros, Paraguayan Guaranis, Peruvian Nuevos Soles, Uruguayan Pesos and Venezuelan Bolivares from flights between Brazil, Argentina, Bolivia, Chile, Colombia, Paraguay, Peru, Uruguay and Venezuela). However, its liabilities, particularly those related to aircraft leasing and acquisition, are US dollar-denominated. The Company’s currency exchange exposure at December 31, 2008 and 2007 are as set forth below:

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and concentration of risk(Continued)

b)Foreign currency risks (Continued)

       2008  2007 
   
Assets     
   Cash, cash equivalents and short-term investments  281,286  1,170,526 
   Deposits with lessors  104,465  163,973 
   Aircraft and engine maintenance deposits  111,326  31,928 
   Maintenance deposits  391,989  322,354 
   Other  99,129  55,032 
   
Total assets  988,195  1,743,813 
 
Liabilities     
   Foreign suppliers  37,336  42,341 
   Loans and borrowings  1,715,068  1,850,329 
   Finance leases  1,573,605  755,930 
   Other leases payable  15,863  17,169 
   Insurance premium payable  54,422  44,150 
   
Total liabilities  3,396,294  2,709,919 
   
   Exchange exposure  2,408,099  966,106 
   
 
Off-balance sheet transactions exposure     
   Operating leases  4,675,420  3,263,994 
   Aircraft commitments  16,662,776  8,155,237 
   
Total exchange exposure  23,746,295  12,385,337 
   

The following is a summary of Company’s foreign currency derivative contracts (in thousands, except as otherwise indicated):

     2008  2007 
   
Fair value of derivative instruments at December 31 (R$) 9,416  1,049 
 
Year ended December 31:     2008  2007 
   
Hedge effectiveness gains (losses) recognized in operating     
 expenses (R$)      65,295  (14,935)
Hedge ineffectiveness losses recognized in other income (R$)      (1,828) (11,637)
Hedged volume (USD) during the year  1,070,250  626,800 
Percentage of expenses hedged during the year  52%  47% 

The Company utilizes financial derivative instruments as hedges to decrease its exposure to increases in the US$ exchange rate. The Company has utilized derivative financial instruments for short-term time frames. The Company accounts for its foreign currency futures derivative instruments as cash flow hedges under IAS 39. As of December 31, 2008 the unrealized exchange gains recorded in equity was R$50,387 (R$229 of losses as of December 31, 2007).

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and concentration of risk(Continued)

b)Foreign currency risks (Continued)

While outstanding, these contracts are recorded at fair value on the balance sheet with the effective portion of the change in their fair value being reflected in equity. Ineffectiveness, the extent to which the change in fair value of the financial derivatives exceeds the change in the fair value of the operating expenses being hedged, is recognized in other income (expense) immediately. When operating expenses are incurred and the related derivative contract settles, any gain or loss previously deferred in equity is recognized in operating expenses.

The following table demonstrates the notional value of the derivatives contracted to protect the US dollar exchange rate exposure for each period:

Position as of December 31, 2008      Maturities     
   
US dollar Exchange risk  1Q09  2Q09     3Q09  4Q09  Total 
      
Notional value in US dollar  124,750   3,000  12,000  139,750 
      
Futures contracted average rate  2.8121   2.0000  2.0000  2.7249 
      
      
Total in Reais  350,809   6,000  24,000  380,809 
      

The following table demonstrates the sensitivity to a reasonably possible change in the US$ exchange rate, with all other variables held constant, of the Company’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Company’s equity (due to changes in the fair value of forward exchange contracts).

  Position as of December 31, 2008  Position as of December 31, 2007 
   
Strengthening / weakening in US dollar 
(percent)
 Effect on profit before tax 
(R$ million)
 Effect on equity 
(R$ million)
 Effect on profit before tax 
(R$ million)
 Effect on equity 
(R$ million)
     
+10  (500.85) (313.61) (358.03) (230.57)
-10  493.53  315.85  345.36  223.20 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and concentration of risk(Continued)

c)Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term debt obligations with floating interest rates.

The Company’s results are affected by fluctuations in international interest rates due to the impact of such changes on expenses of lease agreements. The Company uses derivative financial instruments to reduce its exposure to fluctuations in international interest rates and accounts for these instruments in accordance with IAS 39. In general, when a derivative can be defined within the terms and cash flows of a leasing agreement, this may be designed as a “Cash Flow Hedge” and the effective portion of fair value variations are recorded in equity until the date the cash flow of the hedged leasing agreement becomes due. The Company also has interest rate derivatives not designated for hedge accounting treatment and, in this case, the periodic variations in fair values are recognized as financial income or expense.

In the fourth quarter of 2008, the Company settled interest swap-lock derivatives to protect itself from movements of international interest rates. On December 31, 2008, for financial instruments designated as cash flow hedges, the Company had contracts with a nominal amount of R$141,564 with a fair value of R$3,878 of losses and recognized R$3,873 of losses in equity. During the period, the Company recognized R$211 of net losses as a reduction of interest payment recorded in financial income.

For interest rate derivatives not designated as hedges, on December 31, 2008, the Company had contracts with a nominal amount of R$203,786 with a fair value of R$30,903 of losses and recognized R$38,390 of net losses, resulting from market value fluctuations and settled contracts, in financial income.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and concentration of risk(Continued)

c)Interest rate risk (Continued)

The Company’s results are affected by changes in interest rates prevailing in Brazil, changes in financial investments, short-term investments, local currency liabilities, and assets and liabilities indexed to US dollars. Such variations affect the market value of fixed income securities denominated in reais and the remuneration of cash and financial investment balances. The Company uses Interbank Deposit futures of the Brazilian Mercantile and Futures Exchange (BM&F) solely to protect itself against domestic interest rate impacts on the fixed income portion of its investments. On December 31, 2008, the nominal value of Interbank Deposit futures contracts with the Brazilian Mercantile and Futures Exchange (BM&F) totaled R$3,100 with periods of up to 9 months, with a fair market value of R$0.09, loss corresponding to the last owed or receivable adjustment not yet settled. The total variations in market value, payments and receivables related to the interest rate futures are recognized as an increase or decrease in financial income.

The following table illustrates the sensitivity of financial instruments on profit before tax for the year to a reasonably possible change in Libor interest rates, with effect from the beginning of the year. There was no impact on shareholders’ equity. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on financial instruments held at each balance sheet date. All other variables were held constant.

  Position as of December 31, 2008  Position as of December 31, 2007 
   
Increasing/(decreasing)in Libor interest rates for all maturities, in percent  Effect on profit before tax 
(R$ million)
 Effect on equity 
(R$ million)
 Effect on profit before tax 
(R$ million)
 Effect on equity 
(R$ million)
     
+10  (1.35) (0.63) (1.97) (1.30)
-10  1.36  0.63  1.97  1.30 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and concentration of risk(Continued)

Liquidity risk

Liquidity risk represents the risk of shortage of funds to pay off debts. To avoid mismatch of accounts receivable and accounts payable, the Company’s cash management policy limits a maximum of 20% of its investments with maturities in the same month and the duration of the investments cannot exceed the duration of the Company’s payment obligations.

The Company’s off-balance sheet exposure represents the future obligations related to operating lease contracts and aircraft purchase contracts. The Company utilizes derivative financial instruments with first-tier banks for cash management purposes. The Company currently has synthetic fixed income options and swap agreements to obtain the Brazilian overnight deposit rate from fixed-rate or dollar-denominated investments.

The table below presents the Company’s contractual payments required on its financial liabilities:

  Within one  One to five  In five years   
Year ended December 31, 2008       year       years     or more     Total 
     
 
Interest-bearing borrowings:         
   Finance leases  (222,222) (881,186) (972,318) (2,075,726)
   Floating rate loans  (759,504) (126,917) (209) (886,630)
   Fixed rate loans  -  -  (896,098) (896,098)
   Working capital  (50,953) -  -  (50,953)
Derivative Financial Instruments:        - 
   Fuel derivatives  (102,341) (46) -  (102,387)
   Interest rate swaps  (15,043) (19,737) -  (34,780)
     
Total  (1,150,063) (1,027,886) (1,868,625) (4,046,574)
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and concentration of risk(Continued)

Liquidity risk (Continued)

  Within  One to five  In five years   
Year ended December 31, 2007  one year  years  or more     Total 
     
 
Interest-bearing borrowings:         
   Finance leases  (92,672) (360,731) (524,142) (977,545)
   Floating rate loans  (327,344) (295,689) (17,610) (640,643)
   Fixed rate loans                   -   (712,898) (712,898)
   Working capital  (500,519)   (500,519)
Derivative Financial Instruments:         
   Fuel derivatives  23,302    23,302 
     
Total  (897,233) (656,420) (1,254,650) (2,808,303)
     

Capital management

The Company’s policy is to maintain a strong capital base so as to maintain growth, and an optimal capital structure to reduce the cost of capital and to provide returns for its shareholders.

Consistent with others in the industry, the Company monitors capital on the basis of the leverage ratio, net debt as a percentage of total capital. Net debt is defined as the total loans and borrowings, finance leases, net cash and cash equivalents and other current financial assets. The Company defines capital as the total of shareholders’ equity and net debt.

The leverage ratios at December 31, 2008 and 2007 were as follows:

  2008  2007 
   
 
Total equity  1,071,608  2,392,448 
   
   Cash and cash equivalents  (169,330) (573,121)
   Restricted cash  (183,286) (6,041)
   Other current financial assets  (245,585) (820,343)
   Loans and borrowings  1,832,728  1,850,329 
   Finance leases  1,573,605  755,930 
   
Net debt (a) 2,808,132  1,206,754 
   
Total capital (b) 3,879,740  3,599,202 
   
 
Leverage ratio (a) / (b) 72%  34% 
   

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

18. Financial instruments and concentration of risk(Continued)

Capital management (Continued)

The increase in the leverage ratio during 2008 resulted primarily from the delivery of Boeing aircraft classified as finance leases during the year and lower cash balances due to lower operating profit.

Management believes that the resources available to the Company are sufficient for its present requirements and will be sufficient to meet its anticipated requirements for capital expenditures and other cash requirements for the 2009 fiscal year. The Company is not subject to any externally imposed capital requirements.

Credit risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

Financial instruments that expose the Company to credit risk involve mainly cash equivalents, short-term investments and accounts receivable. Credit risk on cash equivalents and short term investments relate to amounts invested with major financial institutions. Credit risk on accounts receivable relates primarily to amounts receivable from the major international credit card companies. These receivables are short-term and the majority of them settle within 30 days.

Outstanding financial derivative instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company does not expect any of its sixeight counterparties to fail to meet their obligations. The amount of such credit exposure is generally the unrealized gain, if any, in such contracts. To manage credit risk, the Company selects counterparties based on credit assessments, limits overall exposure to any single counterparty and monitors the market position with each counterparty. The Company does not purchase or hold derivative financial derivative instruments for trading purposes.

b)Exchange rates

The Company is exposed to the effects of changes in the USD exchange rate. Exchange exposure relates to amounts payable arising from USD-denominated and USD-linked expenses and payments. To manage this risk, the Company uses USD options and futures contracts.

The following is a summary of our foreign currency derivative contracts (in thousands, except as otherwise indicated):

  2006   2005   
    
At December 31:       
Fair value of derivative instruments at year end  R$ (275) R$ 1,249   
Longest remaining term (months)    
Hedged volume  180,127  R$ 135,129   
 
  2006   2005  2004 
    
Year ended December 31:       
Hedge effectiveness gains (losses) recognized in operating expenses  R$ (2,868) R$ (24,236) N.A. 
Hedge ineffectiveness gains (losses) recognized in other income       
   (expense) R$ (1,269) R$ (10,921) N.A. 
Percentage of expenses hedged (during year) 51%  60%  73% 

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GOL LINHAS AÉREAS INTELIGENTES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

The Company utilizes financial derivative instruments as hedges to decrease its exposure to increases in the USD exchange rate. The Company has utilized financial derivative instruments for short-term time frames. The Company accounts for its foreign currency futures derivative instruments as cash flow hedges under SFAS 133. As of December 31, 2006 the unrealized loss with exchange rates recorded in “comprehensive income” was R$ 1,275, net of taxes.19. Financial assets and liabilities

While outstanding, these contracts are recorded atBelow there is a comparative summary between fair value on the balance sheet with the effective portion of the change in their fair value being reflected in other comprehensive income. Ineffectiveness, the extent to which the change in fairand carrying amount value of the financial derivatives exceeds the change in theassets and financial liabilities by categories:

  Carrying value  Fair value     
     
  2008  2007   2008   2007 
     
Financial Assets         
   Held to maturity  -  189,989  -  199,240 
     
  -  189,989  -  199,240 
     
 
Financial Liabilities         
Interest bearing loans and borrowings         
   Floating rate borrowings *  936,630  1,137,431  904,926  1,095,708 
   Fixed rate borrowing **  896,098  712,898  403,372  675,170 
     
  1,832,728  1,850,329  1,308,298  1,770,878 
     

* BNDES, BDMG, IFC, PDP Facility and other bank borrowings. ** Perpetual Bonds and Senior Notes.

There are no significant differences between carrying value and fair value of the operating expenses being hedged,other financial assets and liabilities.

a)Financial assets

Available-for-sale assets consist principally of exclusive funds with investments in certificate bank deposits (CDB), investment funds, box operations, public securities, fixed income securities and other investments. The held-to-maturity investment is recognized in other income (expense) immediately. When operating expenses are incurredcomprised by a public security. The cash flow hedge consists of future US dollars derivative instruments and the related derivative contract settles, any gain or loss previously deferred in other comprehensive income is recognized in operating expenses.

c)Cash managementUS dollars call options.

The Company utilizeshas no intention to trade financial derivative instruments forinstruments. The main purpose of investing in financial assets is to maximize the return on surplus cash. The Company’s cash management purposes. The Company utilizes synthetic fixed income optionspolicy defines that an investment in financial assets must concentrate in instruments with high liquidity, with minimum transaction cost and swaps to obtain the Brazilian overnight deposit rate from fixed-ratewith first tier financial institutions. Investments must be readily redeemable with little or dollar-denominated investments. The Company enters into synthetic fixed income option contracts with first-tier banks registeredno loss in the Brazilian CETIP clearing house. Astime of December 31, 2006, the total amount invested in synthetic fixed-income option contracts was R$ 77,350 with average term of 88 days. The Company utilizes swap agreements to change the remuneration of a portion of its short term investments to the Brazilian overnight deposit rate (“CDI”). As of December 31, 2006, the notional amount of fixed-rate swaps to CDI was R$ 75,000 with a fair value of R$ (256), and the notional amount of dollar-denominated swaps to CDI was R$ 351,088 with a fair value or R$ 7,890. The change in fair value of these swaps is recognized in interest income in the period of change.need for cash.

15. Insurance Coverage

Management holds insurance coverage in amounts that it deems necessary to cover possible accidents, due to the nature of its assets and the risks inherent to its activity, observing the limits established in lease agreements. On December 31, 2006 the insurance coverage, by nature, considering GOL’s aircraft fleet and in relation to the maximum indemnifiable amounts, is the following:

  Unaudited 
  
Aeronautic Type  R$  US$ 
   
Warranty – Hull  4,401,838  2,058,858 
Civil Liability per occurrence/aircraft  1,603,500  750,000 
Warranty – Hull/War  4,401,838  2,058,858 
Inventories  421,582  197,185 

By means of Law 10,605, as of December 18, 2002, the Brazilian government undertook to supplement any civil liability expenses against third parties caused by acts of war or terrorist attacks, occurred in Brazil or abroad, for which GOL may be demanded, for the amounts that exceed the insurance policy limit effective on September 10, 2001, limited to the equivalent in reais to one billion US dollars.

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GOL LINHAS AÉREAS INTELIGENTES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

On September 29, 2006,19. Financial assets and liabilities(Continued)

a)Financial assets (Continued)

Below is a summary of financial assets by categories:

  2008  2007 
   
Investments     
         Available for sale  245,585  630,354 
         Held to maturity  -  189,989 
   
  245,585  820,343 
   

* Short-term investments with maturity between three months and one year or the Company have the intention to redeem the security in less than one year.

The major investments classified as available-for-sale financial assets have their fair value based on quoted price on active market. When there is no active market, the Company utilizes the fair value of the most recent transaction for the investment or the fair value of an aircraft performing Gol Airlines Flight 1907 from Manaus enroute to Rioinstrument with a stop in Brasilia, was involved in a mid-air collision with a aircraftsimilar characteristics founded on active market. When there are no similar instruments or recent transactions, the fair values of ExcelAir. The Gol aircraft, a new Boeing 737-800 Next Generation, went down in the Amazon forest and there were no survivor amonginvestments are calculated using the 148 passengers and six crew members. The ExcelAir aircraft, a new Embraer Legacy 135 BJ, performed an emergency landing and alldiscounted cash flow method. To calculate the discounted cash flow, the Company used the yield of its seven occupants were unharmed. The Company continues to cooperate fully with all regulatorybonds as a discount rate and, investigatory agencies to determinefor other cases, the cause of this accident. The Company maintains insurance for the coverage of these risks and liabilities. The payments for the hull to the lessor were made by the insurance maintained. The Company does not expect any exposure to arise from the accident involving Flight 1907 to have a material adverse effect on the financial position or results of operationcredit risk rate of the Company.

16. Income Taxes

a)Deferred income taxesissuer bank as a discount rate.

The deferred income taxes are summarized as follows:summary below demonstrates the fair value of listed and unlisted financial assets:

  2004  2005  2006  Translation 
into thousands 
of US$
 2006 
  
Deferred tax assets         
   Loss carryforward  R$  11,589  R$  8,762  R$  7,218  US$ 3,376 
   Interest on shareholders’ equity   36,748   
   Deferred tax on sale leasebacks    19,838  9,279 
   Deferred tax benefit contributed         
       by shareholders  25,296  19,458  13,621  6,371 
   Estimated liabilities  3,519  964  9,931  4,645 
   Allowance for doubtful accounts  2,943  1,663  3,524  1,648 
   Other  244  4,059  7,445  3,482 
  
   Total deferred tax assets  43,591  71,654  61,577  28,801 
Deferred tax liabilities 
        
   Property and equipment  (1,093) (5,818)  
   Deposits with lessors  (86,991) (128,914) (89,641) (41,928)
   Other   (616)  
  
   Total deferred tax liabilities  (88,084) (135,348) (89,641) (41,928)
  
Net deferred tax liabilities  (44,493) (63,694) (28,064) (13,126)
  
               Fair value 
  
   2008  2007 
   
Listed  210,615  630,354 
Unlisted  34,970  199,240 

The following current and deferred income tax amounts were recorded in the statements of income:

  2004  2005  2006  Translation
into
 thousands
of US$

 2006 
  
Current expense  165,710  189,576  257,707               120,536 
Deferred expense  36,860  14,716  (27,882) (13,041)
  
  202,570  204,292  229,825               107,495 
  

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GOL LINHAS AÉREAS INTELIGENTES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

b)19. Financial assets and liabilities(Continued)

a)Income statementFinancial assets (Continued)

Listed investments are recorded at fair value on a marked-to-market basis. For unlisted investments fair value is estimated by the discounted cash flow method.

The reconciliationfollowing is a summary of available-for-sale securities:

  Gross unrealized  Gross unrealized  Net carrying 
  gains  losses  amount 
    
2008  4,008  (7) 245,585 
2007  145     (6,870) 630,354 

The gross realized gains on sales of available-for-sale securities totaled R$3,911 and R$23,332 (US$1,674 and US$13,172), in the reported income tax and social contribution tax and the amount determined by applying the composite fiscal rate atyear ended December 31, 2006,2008 and 2007, respectively. The gross realized losses on sales of available-for-sale totaled R$742 (US$317) in the year ended December 31, 20052008, and in the year ended December 31, 2004, is as follows:

       2004       2005       2006  Translation into
thousands of US$ 
2006 
  
Income before income taxes  R$ 587,280  R$ 717,522  R$ 798,962  US$ 373,695 
Nominal composite rate  34%  34%  34%  34% 
  
Income tax by the nominal rate  199,675  243,957  271,647  127,057 
Interest on shareholders’ equity  -  (38,716) (42,122) (19,702)
Other permanent differences  2,895  (949) (300) (140)
  
Income tax expense  202,570  204,292  229,825  107,495 
  
Effective rate  34.5%  28.5%  28.7%  28.7% 
  

17. Earnings per Share2007 there were no losses.

The Company’s preferred shares are not entitled to receive any fixed dividends. Rather, the preferred shareholders are entitled to receive dividends per share in the same amount of the dividends per share paid to holders of the common shares.However, our preferred shares are entitled to receive distributions prior to holders of the common shares. Consequently, basic earnings per share are computed by dividing income by the weighted average number of all classes of shares outstanding during the year. Preferred shares are excluded during any loss period. The diluted preferred shares are computed including the executive employee stock options calculated using the treasury-stock method as they were granted at an exercise price less that the market price of the shares.

  R$  US$ 
   
  2004  2005  2006  2006 
   
Numerator         
Net income applicable to common and         
     preferred shareholders for basic and         
     diluted earnings per share  384,710  513,230  569,137  266,200 
 
Denominator         
Weighted-average shares outstanding for         
     basic earnings per share (in         
     thousands) 179,731  192,828  196,103  196,103 
 
Effect of dilutive securities:         
Executive stock options (in thousands) 826  776  117  117 
  
 
Adjusted weighted-average shares         
     outstanding and assumed conversions         
     for diluted earnings per shares (in         
     thousands) 180,557  193,604  196,210  196,210 
  

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GOL LINHAS AÉREAS INTELIGENTES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to consolidated financial statements (Continued)
December 31, 2006 and 2005
(In thousands of Brazilian Reais)
reais)

18. Quarterly19. Financial Dataassets and liabilities (Unaudited)(Continued)

Quarterly results

b)Financial liabilities

At December 31, 2008 and 2007 debt consisted of operationsthe following:

  Effective       
  interest       
     rate  Maturity  2008     2007 
     
 
Current         
Local currency:         
   Working capital  15.00%  August, 2009  50,000  496,788 
   Secured floating rate BNDES loan  8.90%  July, 2012  14,181  14,962 
   Secured floating rate BDMG loan  12.79%  January, 2014  2,567  
   Interest     1,686  3,803 
     
      68,434  515,553 
Foreign currency in U.S. Dollars:         
   Unsecured floating rate PDP loan         
   facility  3.51%  December, 2009  697,719  169,173 
   Secured floating rate Bank loan   December, 2008  -  106,278 
   Secured floating rate IFC loan  5.50%  July, 2013  19,475  17,800 
   Finance leases      157,948  67,411 
   Interest      23,876  15,328 
     
      899,018  375,990 
     
      967,452  891,543 
     
Non-current         
Local currency:         
   Secured floating rate BNDES loan  8.90%  July, 2012  36,633  50,813 
   Secured floating rate BDMG loan  12.79%  January, 2014  12,593  14,243 
     
      49,226  65,056 
Foreign currency in U.S. dollars:         
   Unsecured floating rate PDP loan         
     facility  3.51%  December, 2009  -  174,439 
   Secured floating rate IFC loan  5.50%  July, 2013  77,900  73,804 
   Finance leases      1,415,657  688,519 
     
      1,493,557  936,762 
 
   Unsecured fixed rate Senior notes  7.50%  April, 2017  481,630  380,571 
   Unsecured fixed rate Perpetual notes  8.75%   414,468  332,327 
     
      896,098  712,898 
     
      2,438,881  1,714,716 
     
      3,406,333  2,606,259 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

19. Financial assets and liabilities(Continued)

b)Financial liabilities (Continued)

At December 31, 2008, the Company had five revolving lines of credit with five financial institutions allowing for combined borrowings up to R$500,000. At December 31, 2008 and 2007, there was R$50,000 and R$496,788 outstanding borrowings under these facilities, respectively. The weighted average annual interest rate for these real-based short-term borrowings at December 31, 2008 and 2007 was 15.0% and 10.8%, respectively.

In April 2006, the Company, through its subsidiary Gol Finance, issued fixed rate perpetual notes guaranteed by the Company and GOL. The notes are denominated in U.S. dollars, have no fixed final maturity date, are callable at par by the Company after five years from the issuance date, and bear interest at 8.75% . The Company is using the proceeds to finance the pre-delivery deposits made for the acquisition of aircraft, supplementing its own funds and bank financings guaranteed by assets obtained with the U.S. Exim Bank. At December 31, 2008, the fair value of this borrowing was R$161,054 (US$68,914).

In May 2006, the Company closed a secured floating rate loan in the amount of R$75,700 with the BNDES (the Brazilian Development Bank). The proceeds financed a major portion of the construction and expansion of the Gol Aircraft Maintenance Center at the International Airport of Confins, in the state of Minas Gerais, Brazil. The borrowing has a term of six years, an interest rate of 2.65% over the long-term borrowing rate –TJLP and is collateralized by accounts receivable in the amount of R$16,000. The principal is amortized in monthly payments of R$1,190 with a grace period of 12 months.

In June 2006, the Company closed a secured floating rate borrowing agreement in the amount of R$108,000 (US$50,000) with the International Finance Corporation (IFC). This financing is being used to acquire spare parts inventories and fund working capital requirements. The loan has a term of six years with interest of LIBOR plus 1.875% p.a. and is guaranteed by spare parts and equipment at market value at a minimum amount equivalent to 1.3 times the outstanding amount. The principal is amortized in semi-annually payments of R$9,738 (US$4,167), with a grace period of 6 months.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

19. Financial assets and liabilities(Continued)

b)Financial liabilities (Continued)

In March 2007, the Company, through its subsidiary Gol Finance, issued fixed rate senior notes in the amount of R$463,545 (US$225,000) guaranteed by the Company and GOL. The notes are senior unsecured debt obligations, denominated in U.S. dollars, which mature in 2017, and bear interest at 7.50% p.a. The Company is using the proceeds to finance the pre-delivery deposits made for the acquisition of aircraft, supplementing its own funds and the bank financings guaranteed by assets obtained with the U.S. Exim Bank. At December 31, 2008, the fair value of this borrowing was R$242,318 (US$103,688).

In July 2007, the Company closed a secured floating rate loan in the amount of R$14,000 (US$7,613) with the Development Bank of Minas Gerais (BDMG). This credit line will be used to finance a portion of the investments and operating expenses of the Gol Aircraft Maintenance Center at the International Airport of Confins, in the state of Minas Gerais. The loan has a term of five years with an annual interest rate of IPCA plus 6%. The principal is amortized in monthly payments of R$233 with a grace period of 18 months.

In October 2007, the Company closed a committed aircraft pre-delivery payment (“PDP”) loan facility in the amount of R$560,418 (US$310,000) for all of its 21 Boeing 737-800 Next Generation aircraft to be delivered in 2008 and 2009. The loan has a term of 1.6 years with interest of LIBOR plus 0.5% p.a. and is guaranteed by the right to take delivery of the 21 aircraft and by GOL.

The Company has repurchased R$35,055 face value of its 7.5% senior notes maturating April 3, 2017 and R$49,077 of its 8.75% perpetual notes with no fixed final maturity date that were recorded as amortization of principal. At December 31, 2008, the outstanding amounts were R$481,630 and R$414,468, respectively. The repurchase generated a net financial gain of R$3,832.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

19. Financial assets and liabilities(Continued)

b)Financial liabilities (Continued)

The following table provides a summary of Company’s principal payments of long-term debt obligations at December 31, excluding the finance leases:

          Thereafter   
  2010  2011  2012  2013     2013     Total 
       
Local currency            
BDMG loan  3,096  3,096  3,096  3,096  209  12,593 
BNDES loan  14,653  14,653  7,327    36,633 
       
  17,749  17,749  10,423  3,096  209  49,226 
Foreign currency            
IFC loan  19,475  19,475  19,475  19,475   77,900 
Senior notes      481,630  481,630 
       
  19,475  19,475  19,475  19,475  481,630  559,530 
 
Perpetual notes          414,468  414,468 
       
Total  37,224  37,224  29,898  22,571  896,307  1,023,224 
       

Contracts with IFC and BNDES include customary covenants and restrictions including those that require the Company to maintain defined debt liquidity and interest coverage ratios.

Regarding the BNDES loan, according to the specific consent obtained, the Company can present a guarantee letter under the terms and conditions established in order to prevent a breach with the financial covenants. On March 6, 2008, the Company presented to BNDES a guarantee letter with maturity on March 4, 2009, that guarantees all contractual obligations. Subsequent to September 30, 2008, a contract amendment was signed establishing that during the period that the financial covenants are not met, the Company has the obligation to maintain a guarantee letter in order to prevent a covenant breach. At December 31, 2008, the Company was therefore in compliance with the financial covenant established in its loan contract with the BNDES totaling R$50,814, even though the established financial ratios were not met.

On May 20, 2008, the Company and IFC signed a contract amendment, which changed the conditions originally established relating to financial ratios. On December 31, 2008, the Company was in compliance with the new ratios settled with the IFC.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

20. Fair value measurements

Market values are estimated for most of the Company’s financial instruments using a variety of valuation methods, such as discounted future cash flows. However, the methods and assumptions used to provide the information set out below are theoretical in nature. They bear the following inherent limitations:

• Market values cannot take into consideration the effect of subsequent fluctuations in interest or exchange rates.

• Estimated amounts as of December 31, 2008 and December 31, 2007 are not indicative of gains and/or losses arising upon maturity or in the event of cancellation of a financial instrument.

The application of alternative methods and assumptions may, therefore, have a significant impact on the estimated market values. The methods used are as follows:

• Cash, trade receivables, other receivables, short-term bank facilities, trade payable and other payables: The Company believes that, due to their short-term nature, net book value can be deemed a reasonable approximation of market value.

• Marketable securities, investments and other securities: The market value of securities is determined based mainly on the market price or the prices available on other similar securities. Where no comparable exists, the Company uses their book value, which is deemed a reasonable approximation of market value in this instance.

• Borrowings, other financial debts and loans: Floating-rate loans and financial debts are recorded at net book value. The market value of fixed-rate loans and financial debts is determined based on discounted future cash flows at market interest rates for instruments with similar features.

The Company’s available-for-sale securities consist of government bonds, certificates of deposit, time-deposits and investment funds. The inputs utilized to determine the fair values of government bonds are obtained in quoted public markets. The inputs utilized to determine the fair value of certificates of deposit and time deposits are derived from information quoted in public markets.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

20. Fair value measurements(Continued)

The Company’s fuel and interest rate derivative contracts consist of OTC contracts, which are not traded on a public exchange. These contracts include both swaps as well as other types of option contracts. See Note 18 for further information on the Company’s derivative instruments and hedging activities. The fair values of swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The Company determines the value of option contracts utilizing a standard option pricing model based on inputs that are either readily available in public markets, can be derived from information available in publicly quoted markets, or are quoted by counterparties to these contracts. In situations where the Company obtains inputs via quotes from its counterparties, it verifies the reasonableness of these quotes via similar quotes from another counterparty as of each date for which financial statements are prepared.

The Company’s foreign exchange derivatives consist of exchange-listed futures and options contracts. The inputs utilized to determine the fair value of these contracts are obtained from quoted public markets.

The fair value of Company’s Smiles frequent flyer award liability (recorded as deferred revenue on the accompanying condensed consolidated balance sheets) was determined based on weighted average equivalent ticket value of a Smiles award which is redeemed for travel on Gol, VRG or a participating airline. The weighted average equivalent ticket value contemplates differing classes of service and the carrier providing the award travel.

The Company performs the impairment test for indefinite-lived intangible assets by comparing the asset’s fair value to its carrying value. Fair value is estimated based on recent market transactions, where available, or projected discounted future cash flows. For additional information regarding impairment, see Note 8.

In evaluating goodwill for impairment, the Company first compares its fair value to its carrying value. The fair value is estimated by considering (1) projected discounted future cash flows, if reasonably estimable, (2) market multiple and recent transaction values of peer companies, (3) the potential value of synergies and other benefits, (4) Company’s market capitalization and (5) any premium an investor would pay for a controlling interest.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

21. Commitments

The following table provides a summary of Company’s principal payments under aircraft purchase commitments and other obligations at December 31 of each year:

    Between one and  Over five   
(In R$ 000) Within one year  five years  years  Total 
     
Pre-delivery deposits         
 for flight equipment  170,530  665,394  6,743  842,667 
Aircraft purchase         
 commitments  1,958,781  10,750,588  3,110,740  15,820,109 
     
Total  2,129,311  11,415,982  3,117,483  16,662,776 
     

The Company makes payments for aircraft acquisitions utilizing the proceeds from equity and debt financings, cash flow from operations, short and medium-term credit lines and supplier financing.

At December 31, 2008, the Company has a purchase contract with Boeing for acquisition of Boeing 737-800 Next Generation aircraft, under which the Company currently has 94 firm orders and 36 purchase options. The firm orders have an approximate value of R$15,820,109 (US$6.8 billion) based on the aircraft list price (which exclude contractual manufacturer discounts), including estimated amounts for contractual price escalations and pre-delivery deposits. Aircraft purchase commitments can be financed with long-term financing guaranteed by the U.S. Exim Bank (for approximately 85% of the total acquisition cost).

The Company leases its entire fleet under a combination of operating and finance leases. At December 31, 2008, the total fleet was 115 aircraft, of which 90 were operating leases and 25 were recorded as finance leases. Eighteen of the Company’s aircraft finance leases contain bargain purchase options. During the year ended on December 31, 2008, eleven aircraft under finance leases were delivered and five 737-300 aircraft were returned during the quarter ended December 31, 20062008. Fifteen 737-300 aircraft were in the process of being returned.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

21. Commitments(Continued)

a)Finance leases

Future minimum lease payments under finance leases with initial or remaining terms in excess of one year at December 31, 2008 and 2005 are summarized below (in thousands, except per share amounts).

  First  Second  Third  Fourth 
2006  Quarter  Quarter  Quarter  Quarter 
      
Net operating revenues  R$ 863,016  R$ 844,028  R$ 1,082,971  R$ 1,012,002 
Operating income  223,835  132,258  233,063  112,301 
Net income  179,790  106,685  190,006  92,656 
Earnings per share, basic  0.92  0.54  0.97  0.47 
Earnings per share, diluted  0.92  0.54  0.97  0.47 
 
  First  Second  Third  Fourth 
2005  Quarter  Quarter  Quarter  Quarter 
      
Net operating revenues  R$ 589,159  R$ 562,168  R$ 696,658  R$ 821,105 
Operating income  177,246  84,977  183,223  175,905 
Net income  131,084  73,377  138,190  170,579 
Earnings per share, basic  0.70  0.38  0.71  0.88 
Earnings per share, diluted  0.70  0.38  0.70  0.88 
2007 were as follows:

  2008  2007 
   
Within one year  222,222  92,672 
After more than one year but within five years  881,186  360,731 
In five years or more  972,318  524,142 
   
Total minimum lease payments  2,075,726  977,545 
Less: amount representing interest  (502,121) (221,615)
   
Present value of net minimum lease payments  1,573,605  755,930 
Less current portion  (157,948) (67,411)
   
Long-term portion  1,415,657  688,519 
   

The sumCompany extends the maturity of the quarterly earnings per sharefinancing of certain of its leased aircraft to fifteen years through the use of a “Stretched Overall Amortization and Repayment”, or SOAR, structure which provides serial drawdowns calculated to result in a 100% loan accreting to a recourse balloon at the end of the contractual lease term. The scheduled amount of this recourse balloon at the end of the contractual lease term is R$13,556 (R$1,861 as of December 31, 2007).

b)Operating leases

The Company leases aircraft in operation, airport terminal space, other airport facilities, office space and other equipment with initial lease term expiration dates ranging from 2009 to 2018.

Future minimum lease payments under non-cancelable operating leases are denominated in US dollars. Such leases with initial or remaining terms in excess of one year at December 31, 2008 and 2007 were as follows:

  2008  2007 
   
Within one year  916,298  588,987 
After more than one year but within five years  3,080,918  1,754,423 
In five years or more  678,204  920,584 
   
Total minimum lease payments  4,675,420  3,263,994 
   

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

21. Commitments(Continued)

c)Sale-leaseback

During 2008, the Company through its wholly-owned subsidiary GAC Inc. realized sale-leaseback transactions for 2 Boeing 737-800 Next Generation aircraft (5 Boeing 737-800 Next Generation aircraft in 2007) which resulted in losses of R$20,008 (losses of R$34,354 in 2007).

d)Other commitment

The Company does not accrue liabilities for levies imposed on its receipt of leased aircraft, which comprise its fleet. The Company is challenging in court the VAT (ICMS) levies on aircraft and engines imported under aircraft leases without purchase options in transactions carried out with lessors headquartered in foreign countries. The Company’s management understands that these transactions represent simple leases in view of the contractual obligation to return the assets that are the subject of the contract, which will never be considered as the Company’s asset. Given that there is no circulation of goods, a relevant tax triggering event is not characterized. The estimated aggregate value of lawsuits filed is R$201,760 at December 31, 2008 (R$173,887 at December 31, 2007), monetarily adjusted and not including charges in arrears. Management, based on the assessment of the cases by its legal advisors and supported by case laws favorable to taxpayers from the High Court (STJ) and the Supreme Federal Court (STF) handed down in the second quarter of 2007, understands that it is unlikely for the Company to have losses on these lawsuits.

Although the results of these proceedings cannot be anticipated, the final judgment of these actions will not have a material effect on the Company’s financial position, operating income and cash flow, according to management’s opinion supported by its outside legal advisors.

22. Advance ticket sales

At December 31, 2008, the balance of advance ticket sales of R$572,573 (R$472,860 at December 31, 2007) is represented by 2,010,347 (2,211,591 at December 31, 2007) of tickets sold and not yet used with 80 days of average term of use.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS

For all periods up to and including the year ended December 31, 2007, the Company prepared its consolidated financial statements in accordance with Brazilian Corporate Law (“BR GAAP”). These consolidated financial statements, for the year ended December 31, 2008, are the first the Company has prepared in accordance with International Financial Reporting Standards (IFRS) and have been prepared in accordance with the significant accounting policies described in Note 2.

Accordingly, the Company has prepared consolidated financial statements in compliance with IFRS applicable for periods beginning on or after January 1, 2008 as described in the accounting policies. In preparing these consolidated financial statements, the Company’s opening balance sheet was prepared as at January 1, 2007, the Company’s date of transition to IFRS. This Note explains the principal adjustments made by the Company in restating its BR GAAP balance sheet as of January 1, 2007 and its previously published BR GAAP consolidated financial statements for the year ended December 31, 2007. Certain amounts mayin the BR GAAP consolidated balance sheet as of January 1, 2007 have been reclassified to conform with the classification as of December 31, 2007.

The Company has applied IFRS 1 “First-time Adoption of International Financial Reporting Standards” in preparing these consolidated financial statements which allows first-time adopters certain exemptions from the general requirements contained in IFRS. The Company has taken the exemption related to accounting for business combinations that occurred before January 1, 2007, and has not equalrestated these amounts.

The following consolidated balance sheets as of January 1, 2007 and December 31, 2007 and consolidated income statement for the annualyear ended December 31, 2007 show the effects of the adoption of IFRS on January 1, 2007 on the Company’s previously issued 2007 consolidated financial statements prepared under BR GAAP.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS(Continued)

Reconciliation between BR GAAP and IFRS on transition date – January 1, 2007 (Restated)

Consolidated balance sheet

      IFRS   
  Note  BR GAAP  Adjustments     IFRS 
     
 
Non current assets         
     Property, plant and equipment, net  (b) 795,430  264,889  1,060,319 
     Software  (f)  15,103  15,103 
     Other non-current assets         
         Investments  (f) 2,281  (2,281) - 
         Deposits  (c) 133,590  263,650  397,240 
         Deferred income taxes  (h) 23,466  73,451  96,917 
         Other non-current assets  (f) 63,820  (13,136) 50,684 
     
     Total other non-current assets    223,157  321,684  544,841 
     
Total non-current assets    1,018,587  601,676  1,620,263 
 
 
Current assets         
     Other current assets    182,817   182,817 
     Prepaid expenses    64,496   64,496 
     Recoverable and deferred taxes  (h) 73,451  (73,451) - 
     Inventories of parts and supplies    75,165   75,165 
     Trade and other receivables    659,306   659,306 
     Other current financial assets  (e) 1,006,356  419,013  1,425,369 
     Cash and cash equivalents  (e) 699,990  (412,526) 287,464 
     
Total current assets    2,761,581  (66,964) 2,694,617 
         
     
Total assets    3,780,168  534,712  4,314,880 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS(Continued)

Reconciliation between BR GAAP and IFRS on transition date – January 1, 2007 (Restated) (Continued)

Consolidated balance sheet (Continued)

      IFRS   
Liabilities and shareholders’ equity  Note  BR GAAP  Adjustments  IFRS 
     
 
Shareholders’ equity    2,067,959  101,199  2,169,158 
 
Non-current liabilities         
   Long-term debt  (b) 735,168  180,142  915,310 
   Deferred credits  (b)  51,168  51,168 
   Deferred income taxes  (h)  65,133  65,133 
   Provisions    5,715   5,715 
   Other non-current liabilities    23,998   23,998 
     
Total non-current liabilities    764,881  296,443  1,061,324 
 
Current liabilities         
   Short-term debt  (b) 132,501  18,429  150,930 
   Accounts payable    124,110   124,110 
   Salaries, wages and benefits    87,821   87,821 
   Sales tax and landing fees    39,217   39,217 
   Advance ticket sales    335,268   335,268 
   Provisions  (b) 44,897  111,462  156,359 
   Current income taxes payable    100,177   100,177 
   Deferred credits  (b)  7,179  7,179 
   Other current liabilities    83,337   83,337 
     
Total current liabilities    947,328  137,070  1,084,398 
 
 
     
Total liabilities and shareholders'         
   equity    3,780,168  534,712  4,314,880 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS(Continued)

Reconciliation between BR GAAP and IFRS on transition date – January 1, 2007 (Restated) (Continued)

Summary of impact on shareholders’ equity

NoteIFRS
Shareholders' equity – BR GAAP 2,067,959
IFRS Adjustments 
   Maintenance deposits (c)263,650 
   Investments (f)(2,281)
   Deferred charges (f)(13,136)
   Sale-leaseback of aircraft (b)(58,347)
   Differences on leasing classification (b)(109,068)
   Differences on fixed assets capitalization (b)79,026 
   Deferred income taxes (h)(65,133)
   Derivative financial instruments (e)6,488 
Shareholders' equity – IFRS 2,169,158

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS(Continued)

Reconciliation between BR GAAP and IFRS for the year ended December 31, 2007 (Restated)

Consolidated balance sheet

             IFRS   
  Note  BR GAAP  Adjustments  IFRS 
     
 
Non current assets         
   Property, plant and equipment, net  (b) / (d) 1,251,423  939,605  2,191,028 
   Intangible assets  (d) / (f)  1,197,441  1,197,441 
   Other non-current assets         
       Investments  (d) 884,847  (884,847) - 
       Prepaid expenses  (b)  44,808  44,808 
       Deposits  (c) 169,081  279,726  448,807 
       Deferred income taxes  (h) 367,088  118,892  485,980 
       Restricted cash  (e)  6,041  6,041 
       Other non-current assets  (f) / (i) 24,462  63,027  87,489 
     
   Total other non-current assets    1,445,478  (372,353) 1,073,125 
     
Total non-current assets    2,696,901  1,764,693  4,461,594 
 
 
Current assets         
   Other current assets    144,484   144,484 
   Prepaid expenses  (b) 143,756  (7,799) 135,957 
   Recoverable income taxes  (h) 65,247  (19,678) 45,569 
   Deposits  (c) 149,729  42,628  192,357 
   Inventories of parts and supplies  (d) 215,777  (5,851) 209,926 
   Trade and other receivables  (d) 916,133  (13,072) 903,061 
   Other current financial assets  (e) 516,637  303,706  820,343 
   Cash and cash equivalents  (e) 916,164  (343,043) 573,121 
     
Total current assets    3,067,927  (43,109) 3,024,818 
 
 
     
Total assets    5,764,828  1,721,584  7,486,412 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS(Continued)

Reconciliation between BR GAAP and IFRS for the year ended December 31, 2007 (Restated) (Continued)

Consolidated balance sheet (Continued)

      IFRS   
Liabilities and shareholders’ equity  Note  BR GAAP  Adjustments  IFRS 
     
 
Shareholders’ equity    2,410,992  (18,544) 2,392,448 
 
Non-current liabilities         
   Long-term debt  (b) 1,066,102  648,614  1,714,716 
   Smiles deferred revenue  (a) / (d)  233,618  233,618 
   Deferred income taxes  (h)  341,634  341,634 
   Provisions  (d) / (i) 32,075  168,589  200,664 
   Other non-current liabilities  (b) 63,135  43,997  107,132 
     
Total non-current liabilities    1,161,312  1,436,452  2,597,764 
 
Current liabilities         
   Short-term debt  (b) 824,132  67,411  891,543 
   Accounts payable    326,364   326,364 
   Salaries, wages and benefits    163,437   163,437 
   Current income taxes payable    68,013   68,013 
   Sales tax and landing fees    84,319   84,319 
   Advance ticket sales    472,860   472,860 
   Provisions  (b) 44,150  131,826  175,976 
   Smiles deferred revenue  (a) / (d) 50,080  97,268  147,348 
   Other current liabilities  (b) 159,169  7,171  166,340 
     
Total current liabilities    2,192,524  303,676  2,496,200 
 
 
     
Total liabilities and shareholders’         
 equity    5,764,828  1,721,584  7,486,412 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS(Continued)

Reconciliation between BR GAAP and IFRS for the year ended December 31, 2007 (Restated) (Continued)

Consolidated income statement

      IFRS   
  Note  BR GAAP  Adjustments   IFRS 
     
 
Operating revenues         
   Passenger    4,566,691   4,566,691 
   Cargo and other  (a) / (d) 400,571  (26,278) 374,293 
     
Total operating revenues    4,967,262  (26,278) 4,940,984 
 
Operating expenses         
   Salaries  (g) (794,439) (4,905) (799,344)
   Aircraft fuel    (1,898,840)  (1,898,840)
   Aircraft rent  (b) (558,625) 32,840  (525,785)
   Supplementary rent  (c) (68,554) 68,554  - 
   Aircraft insurance    (44,646)  (44,646)
   Sales and marketing    (367,866)  (367,866)
   Landing fees    (273,655)  (273,655)
   Aircraft and traffic servicing    (348,732)  (348,732)
   Maintenance materials and repairs  (b) (318,917) (20,364) (339,281)
   Depreciation  (b) / (f) (90,253) 27,705  (62,548)
   Other operating expenses  (f) (262,959) (7,463) (270,422)
     
Total operating expenses    (5,027,486) 96,367  (4,931,119)
 
Operating profit (loss)   (60,224) 70,089  (9,865)
 
Finance costs and other income (expense)        
   Finance costs         
       Interest expense  (b) (162,715) (19,903) (182,618)
       Capitalized interest  (b) 22,156  16,723  38,879 
     
   Total finance costs    (140,559) (3,180) (143,739)
   Exchange gains  (b) 61,037  104,193  165,230 
   Interest and investment income  (e) 288,282  5,051  293,333 
   Other income (expense), net  (c) / (e) (102,562) (21,244) (123,806)
     
Total finance costs and other         
   income (expense)   106,198  84,820  191,018 
 
   Non-operating results  (b) (34,354) 34,354  - 
 
Profit before income taxes    11,620  189,269  200,883 
 
   Income taxes (expense) benefit  (h) 256,907  (290,502) (33,595)
     
 
Profit (loss) for the year from continuing         
 operations attributable to equity holders         
 of the parent    268,527  (101,239) 167,288 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS(Continued)

Reconciliation between BR GAAP and IFRS for the year ended December 31, 2007 (Restated) (Continued)

Consolidated statement of cash flow

The transition from BR GAAP to IFRS has not had a material impact on the cash flow statement.

Summary of impact on shareholders’ equity

NoteIFRS
Shareholders’ equity – BR GAAP 2,410,992
IFRS Adjustment 
   VRG acquisition effects (d)(235,318)
   Mileage program (a)(26,278)
   Maintenance deposits (c)322,354 
   Investments write-off (f)(1,551)
   Deferred charges (f)(21,757)
   Sale-leaseback of aicraft (b)(825)
   Differences on leasing classification (b)(42,969)
   Differences on fixed assets capitalization (b)126,005 
   Deferred income taxes (h)(131,479)
   Derivative financial instruments (e)(6,726)
Shareholders' equity – IFRS 2,392,448

a)Mileage program

These adjustments relate to the increase in the frequent flyer liability from incremental cost (BR GAAP) to estimated fair value (IFRS). Under BR GAAP, obligations related to miles issued under the frequent flyer program, (accumulated and not redeemed) were recognized in a provision based on the estimated total tickets to be granted and on incremental cost to transport passengers redeeming an award. The revenue arising from miles sold to partners under the Smiles mileage program was recorded as other income when sold.

b)Property, plant and equipment and leases

These adjustments are to record finance leases, capitalized major overhaul costs, aircraft maintenance reserve deposit assets and borrowing costs. Under BR GAAP, all leased aircraft were recorded as operating leases. Also, the costs of major overhauls, payments to aircraft lessors for maintenance reserves were expensed as incurred. Finally, borrowing costs under BR GAAP were capitalized at different amounts.

Adjustments to recognize the aircraft assets and the obligations under finance leases include the recognition of related depreciation and interest costs. Additionally, under IFRS, the Company recorded liabilities related to the aircraft restoration obligations for aircraft under operating leases, which were expensed when paid under BR GAAP.

c)Aircraft maintenance deposits

Under BR GAAP, all aircraft and engine maintenance deposits were expensed when paid to the lessor and recognized as supplementary rent in the income statement.

IFRS requires aircraft and engine maintenance deposits to be recorded as a deposit on the balance sheet and maintenance cost is recognized when the underlying maintenance is performed. The amount reported because per shareof aircraft and engine maintenance deposits expected to be utilized in the next twelve months is classified in current assets.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS(Continued)

d)Business combination

Under BR GAAP, goodwill was calculated as the difference between acquisition cost and the carrying value of shareholders’ equity of the acquired entity. No separate allocation of the acquisition cost to the assets acquired and liabilities assumed was made. Goodwill was generally amortized over a period of up to ten years. Transaction costs were not accounted for as part of the acquisition cost. The total cost of the acquisition of VRG was classified as “investments” in the balance sheet as of December 31, 2007.

These adjustments relate to the allocation of the purchase price for VRG (see Note 3), including the recognition of separable intangible assets, as required by IFRS. The investment in VRG (BR GAAP) has been eliminated by the allocation of the IFRS-basis purchase price to the relative fair values of the net assets acquired.

e)Financial instruments

These adjustments were made to record derivatives and available-for-sale financial assets at fair value, as required by IFRS. Under BR GAAP, financial instruments, including securities, were recorded at cost plus income earned through the date of the financial statements according to the rates agreed with the financial institutions, not in excess of market value. Financial instruments include the Company’s investments in highly liquid investment grade commercial paper issued by financial institutions which are classified differently under IFRS and BR GAAP. Restricted cash has been disclosed separately under IFRS.

f)Deferred charges

Under BR GAAP, pre-operating costs were capitalized and amortized. Under IFRS, pre-operating costs that do not meet the definition of an intangible asset are recorded as expenses. Additionally, amounts capitalized related to the cost of software developed for internal use have been reclassified from property, plant and equipment to other non-current assets for IFRS.

g)Share-based payments

The Company recorded adjustments to recognize the expense for equity instruments granted based on their fair value at the date of grant, as required by IFRS. As permitted under BR GAAP, the Company did not record any compensation expense.

h)Income and social contribution taxes

Changes in the Company’s deferred tax assets and liabilities are computed independentlythe result of the tax effects created by adjustments made to amounts recognized under IFRS which differ from amounts recognized for each quarterstatutory income tax purposes (see Note 5).

i)Provisions

The Company recorded provisions for losses covered by insurance together with corresponding insurance receivables under IFRS. Under BR GAAP, these amounts were presented net in the balance sheet.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

Reconciliation between US GAAP and IFRS as of and for the full year ended December 31,2007

The Company’s consolidated financial statements as of and for the year ended December 31, 2008 have been prepared in accordance with IFRS, which, as applied by us, differ in certain significant respects from accounting principles generally accepted in the United States of America (“US GAAP”).

23. Transition to IFRS(Continued)

The following table presents a reconciliation of the effects of the application of US GAAP on the Company’s consolidated profit for the year ended December 31, 2007 as reported under IFRS.

Profit for the year under IFRS167,288
US GAAP adjustments:
       Aircraft leasing Note (a)(61,136)
       Aircraft depreciation Note (b)(46,979)
       Provision for return of aircraft Note (c)20,364 
       Derivative financial instruments Note (d)(4,408)
       Other Note (e)(9,014)
       Deferred income taxes Note (f)36,398 
Total US GAAP adjustments(64,775)
Net income under US GAAP102,513

The following table presents a reconciliation of the effects of the application of US GAAP on the Company’s consolidated shareholders’ equity as of December 31, 2007 and January 1, 2007 as reported under IFRS.

    December 31,  January 1, 
    2007  2007 
    
Shareholders’ equity under IFRS    2,392,448  2,169,158 
IFRS adjustments:       
     Aircraft leasing  Note (a) (63,131) (4,894)
     Aircraft depreciation  Note (b) (126,006) (79,026)
     Provision for return of aircraft  Note (c) 131,826  111,462 
     Derivative financial instruments  Note (d) 6,726  (6,488)
     Other  Note (e) 2,150  23,326 
     Deferred income taxes  Note (f) 31,250  (8,380)
    
Total US GAAP adjustments    (17,185) 36,000 
    
Shareholders’ equity under US GAAP    2,375,263  2,205,158 
    

a)Aircraft leasing

For aircraft leases classified as financing, under US GAAP and IFRS, the Company records the aircraft as a long-lived asset and records a lease obligation at the lower of the fair value of the aircraft or present value of the future minimum rental payments as of the inception date of the lease. The adoption of IFRS resulted in changes to the measurement of aircraft asset and finance lease obligations for certain finance leases, as well as changes to the classification of certain aircraft leases from US GAAP (resulting in a net reduction in leases classified as financing as of December 31, 2007). The reduction under IFRS to amounts capitalized as finance leases reduced related depreciation and interest expense when compared to the corresponding amounts in US GAAP; and, the changes in lease classification from financing (US GAAP) to operating (IFRS) eliminated previously recognized losses from foreign exchange rate movements (all of the Company’s aircraft leases are denominated in U.S. dollars) recorded on the US GAAP capital lease obligations in 2007.

b)Aircraft depreciation

The Company depreciates the cost of aircraft and related parts (including rotables and engines) over their estimated useful lives using the straight-line method to estimated residual values. Upon implementation of IFRS, the Company determined that certain rotable parts and engines have estimated useful lives that exceeded those previously used under US GAAP.

c)Provision for return of aircraft

For certain operating leases, the Company is contractually obliged to return aircraft in a defined condition. Under IFRS, the Company accrues for restitution costs related to aircraft held under operating leases at any time during the lease term if the asset does not meet the return condition. This results in our charging to expense during the term of our lease agreements the estimated costs to perform the maintenance that will render the aircraft in the appropriate condition upon its return to the lessor. As the condition of the aircraft is depleted through operation and subsequently restored (by performing maintenance) numerous times during the term of a lease, this results in the recognition of expenses in the intervening maintenance periods from the inception of the lease to its termination. Under US GAAP, restitution costs are only accrued when the termination of the lease becomes probable and such costs become estimable.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

Notes to consolidated financial statements (Continued)
(In thousands of Brazilian reais)

23. Transition to IFRS(Continued)

d)Derivatives

Under IFRS, the Company assesses effectiveness for derivatives accounted for as cash flow hedges based on respective weighted-averagethe changes in intrinsic value. Under this method, the change in the time value of the contract is excluded from the assessment of hedge effectiveness and as a result, changes in time value (the excluded component) are recognized in earnings together with hedge ineffectiveness.

Under US GAAP, changes in derivative instruments’ time values are excluded from the measurement of hedge effectiveness because the critical terms of the hedging instruments completely match the related terms of the hedged forecast transactions, resulting in recording all changes in the hedging option’s fair value (including changes in the option’s time value) in other comprehensive income as permitted by US GAAP Statement No. 133.

e)Other

Items included in “Other” relate to differences between US GAAP and IFRS for the purchase accounting for the VRG acquisition and accounting for the Company’s stock option plans.

f)Deferred income taxes

The tax effect of the adjustments included in the reconciliation of net income and shareholders’ equity from IFRS to US GAAP is calculated by applying the applicable tax rate to the pretax adjustments where such adjustments have a tax effect. The applicable tax rate is the tax rate expected to apply at the time the temporary difference will reverse based on the specific tax jurisdiction in which the reversal will occur.

24. Subsequent Events

In March 20, 2009 the Board of Directors approved a capital increase of the Company in the amount of R$203,531,031.60 and the issuance of 26,093,722 shares, comprising 6,606,366 common shares outstanding and other dilutive potential19,487,356 preferred shares. The issuance price for the common shares.and preferred shares is fixed at R$ 7.80 per share, according to the quotation of the shares in the São Paulo Stock Exchange on March 20, 2009, verified after the closing of the trading session, in accordance with Article 170, Paragraph 1, Item III of the Law No. 6,404/76. The issuance price is equivalent to 90.9% of the average closing price of the preferred shares during the last 30 trading sessions, which was R$ 8.58, and to 83.2% of the average closing price during the last 60 trading sessions, which was R$ 9.37.

19.25. Consolidating Condensed Financial Information of Guarantor Subsidiaries

The following condensed consolidating financial information, prepared in accordance with USGAAP,IFRS, is presented in lieu of providing separate audited financial statements for the guarantor subsidiary Gol Transportes Aereos S.A. (GTA)VRG in connection with its unconditional guarantee, on a joint and several basis, of the obligation to pay principal and interest under the 8.75% perpetual notes and 7.50% senior notes issued by company´sCompany’s wholly owned subsidiary Gol Finance.

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Table of Contents

GOLLINHASAÉREASINTELIGENTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Balance Sheet as of December 31, 2006
2008

  Parent 
Company
 
    Issuer 
Subsidiary
 
 Subsidiary 
Guarantor
 
 Subsidiary Non guarantor Consolidating 
Adjustments
 
 Consolidated
       
ASSETS             
CURRENT ASSETS             
         Cash and cash equivalents  136,332  8,322  136,041  282   280,977 
         Short-term investments  473,166  561,843  390,360    1,425,369 
         Receivables, less allowance    659,306    659,306 
         Inventories    75,165    75,165 
         Deposits with lessors    232,960    232,960 
         Recoverable taxes  13,467   46,929    60,396 
         Prepaid expenses    64,496    64,496 
         Dividends receivable  173,372     (173,372) 
         Other  86,776   39,179  56  (113,357) 12,654 
      
                       Total current assets  883,113  570,165  1,644,436  338  (286,729) 2,811,323 
             
PROPERTY AND EQUIPMENT             
         Pre-delivery deposits   436,911     436,911 
         Flight equipment    660,861    660,861 
         Other    129,260    129,260 
      
   436,911  790,121    1,227,032 
         Accumulated depreciation     (147,809)   (147,809)
      
                       Property and equipment, net   436,911  642,312    1,079,223 
 
OTHER ASSETS             
         Investments  1,316,428     (1,316,428) 
         Deposits with lessors  130,068   287,592   (112,785) 304,875 
         Due from related parties   29,566   433,744  (463,310) 
         Other   5,175  75,939   (18,081) 63,033 
      
                       Total other assets  1,446,496  34,741  363,531  433,744  (1,910,604) 367,908 
       
                       TOTAL ASSETS  2,329,609  1,041,817  2,650,279  434,082  (2,197,333) 4,258,454 
       
  Parent  Issuer  Subsidiary  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Non guarantor  Adjustments  Consolidated 
       
 
Assets             
Non-current assets             
   Property, plant and equipment, net  355   2,041,197  957,204   2,998,756 
   Intangible assets    1,197,861    1,197,861 
   Investments  310,781     (310,781) 
   Other non-current assets             
       Credits with related parties  699,537  986,273   693,843  (2,379,653) 
       Other non-current assets  822   1,317,496  81,722   1,400,040 
       
   Total other non-current assets  700,359  986,273  1,317,496  775,565  (2,379,653) 1,400,040 
       
Total non-current assets  1,011,495  986,273  4,556,554  1,732,769  (2,690,434) 5,596,657 
 
Current assets             
   Other current assets  133,044  2,332  728,961  261,877  (256,419) 869,795 
   Inventories of parts and supplies    200,514    200,514 
   Restricted cash  137,571   39,126    176,697 
   Financial assets  21,177   277,454  31,086  (84,132) 245,585 
   Cash and cash equivalents  420  20  165,809  3,081   169,330 
       
Total current assets  292,212  2,352  1,411,864  296,044  (340,551) 1,661,921 
       
 
 
Total assets  1,303,707  988,625  5,968,418  2,028,813  (3,030,985) 7,258,578 
       

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GOLLINHASAÉREASINTELIGENTES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Balance Sheet as of December 31, 2006

  Parent 
Company 
 Issuer 
Subsidiary 
 Subsidiary 
Guarantor
 Subsidiary 
Non guarantor 
 Consolidating 
Adjustments 
 Consolidated 
       
LIABILITIES AND SHAREHOLDERS’             
EQUITY             
 
CURRENT LIABILITIES             
         Short-term borrowings    128,304    128,304 
         Current portion of long-term debt    41,298    41,298 
         Accounts payable    124,110    124,110 
         Salaries, wages and benefits    87,821    87,821 
         Sales tax and landing fees  44,478  10,236  84,680    139,394 
         Air traffic liability    335,268    335,268 
         Insurance premium payable    44,897    44,897 
         Dividends payable  42,961   173,091   (173,091) 42,961 
         Deferred gains on sale and leaseback             
             transactions   10,128     10,128 
         Other  37,012   45,967   (36,820) 46,165 
       
Total current liabilities  124,451  20,364  1,065,436   (209,911) 1,000,346 
 
NON-CURRENT LIABILITIES             
         Long-term debt   128,304  383,800  436,902   949,006 
         Deferred income taxes, net   14,398  13,666    28,064 
         Deferred gains on sale and leaseback             
             transactions   48,219     48,219 
         Credit with related parties   811,593  29,566   (841,159) 
         Other    29,719   (2,058) 27,661 
 
SHAREHOLDERS’ EQUITY             
         Capital stock  887,625   556,367   (556,367) 887,625 
         Additional paid-in capital  35,430   3,157   (3,157) 35,430 
         Appropriated retained earnings  39,577   359,337   (359,337) 39,577 
         Unappropriated retained earnings  1,246,848  18,939  213,553  (2,826) (229,666) 1,246,848 
         Accumulated other comprehensive income  (4,322)  (4,322)  4,322  (4,322)
       
Total shareholders’ equity  2,205,158  18,939  1,128,092  (2,826) (1,144,205) 2,205,158 
       
TOTAL LIABILITIES AND             
SHAREHOLDERS’ EQUITY  2,329,609  1,041,817  2,650,279  434,082  (2,197,333) 4,258,454 
       

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GOLLINHASAÉREASINTELIGENTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Balance Sheet as of December 31, 2005
2008

  Parent  Issuer  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Adjustments  Consolidated 
      
ASSETS           
 
CURRENT ASSETS           
         Cash and cash equivalents  36,632  1,333  68,382   106,347 
         Short-term investments  210,408   552,280   762,688 
         Receivables, less allowance    563,958   563,958 
         Inventories    40,683   40,683 
         Recoverable taxes  4,968   8,985   13,953 
         Prepaid expenses    39,907   39,907 
         Dividends receivable  349,506    (349,506) 
         Other  864  1,041  12,336  (1,139) 13,102 
      
                       Total current assets  602,378  2,374  1,286,531  (350,645) 1,540,638 
 
PROPERTY AND EQUIPMENT           
         Pre-delivery deposits   356,765    356,765 
         Flight equipment    225,724   225,724 
         Other    75,619   75,619 
      
   356,765  301,343   658,108 
         Accumulated depreciation    (79,508)  (79,508)
      
                       Property and equipment, net   356,765  221,835   578,600 
 
OTHER ASSETS           
         Investments  1,288,093    (1,288,093) 
         Deposits with lessors    408,776   408,776 
         Other  51,164   27,374  (50,709) 27,829 
      
                       Total other assets  1,339,257   436,150  (1,338,802) 436,605 
 
      
TOTAL ASSETS  1,941,635  359,139  1,944,516  (1,689,447) 2,555,843 
      
  Parent  Issuer  Subsidiary  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Non guarantor  Adjustments  Consolidated 
       
 
Total shareholders' equity  1,182,200  (11,688) 446,238  22,038  (567,180) 1,071,608 
 
Non-current liabilities             
 Long-term debt   980,230  1,542,783   (84,132) 2,438,881 
 Debt with related parties    1,146,224  1,233,430  (2,379,654) 
 Other non-current liabilities  10,786   1,118,114  36,825  (215) 1,165,510 
       
Total non-current liabilities  10,786  980,230  3,807,121  1,270,255  (2,464,001) 3,604,391 
 
Current liabilities             
 Short-term debt   20,083  248,332  699,036   967,452 
 Accounts payable  4,292   280,019   (592) 283,719 
 Advance ticket sales    572,573    572,573 
 Smiles deferred revenue    90,043    90,043 
 Other current liabilities  106,429   524,092  37,484  787  668,792 
       
Total current liabilities  110,721  20,083  1,715,059  736,520  196  2,582,579 
       
 
 
Total liabilities and shareholders' equity  1,303,707  988,625  5,968,418  2,028,813  (3,030,985) 7,258,578 
       

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GOLLINHASAÉREASINTELIGENTES
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Income Statement for the year ended December 31, 2008

  Parent  Issuer  Subsidiary  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Non guarantor  Adjustments  Consolidated 
       
 
Total operating revenues    6,406,193    6,406,193 
 
Operating expenses             
   Salaries  (6,805)  (976,978)   (983,783)
   Aircraft fuel    (2,630,834) 2,901  (2,901) (2,630,834)
   Aircraft rent    (647,990)  2,901  (645,089)
   Aircraft insurance    (42,813)   (42,813)
   Sales and marketing  (484)  (588,251)   (588,735)
   Landing fees  (5)  (338,365)   (338,370)
   Aircraft and traffic servicing  (10,044) (66) (407,344) (4,723)  (422,177)
   Maintenance materials and repairs    (388,030)   (388,030)
   Depreciation    (125,127)   (125,127)
   Other operating expenses  (1,712)  (328,038) (133)  (329,883)
       
Total operating expenses  (19,050) (66) (6,473,770) (1,955)  (6,494,841)
 
Operating profit(loss) (19,050) (66) (67,577) (1,955)  (88,648)
 
Total finance costs and other income (expense) (247,562) (3,789) (795,074) (59,824) (145) (1,106,394)
 
   Equity in income (loss) of subsidiary  (778,419)  (719,960)  1,498,379  
       
 
Profit (loss) before income taxes  (1,045,031) (3,855) (1,582,611) (61,779) 1,498,234  (1,195,042)
 
   Income taxes  (59,406)  8,827   6,274  (44,305)
       
 
Profit (loss) for the year from continuing             
 operations attributable to equity             
 holders of the parent  (1,104,437) (3,855) (1,573,784) (61,779) 1,504,508  (1,239,347)
       

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GOLLINHASAÉREASINTELIGENTES
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Cash Flow Statement for the year ended December 31, 2008

  Parent  Issuer  Subsidiary  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Non guarantor  Adjustments  Consolidated 
       
 
Cash flows from operating activities:             
Net cash provided by (used in) operating activities  577,034  753,982  (426,146) (317,097) (420,913) 166,860 
 
Cash flows from investing activities:             
   Acquisition of property, plant and equipment, net  (355)  (174,893) (261,666)  (436,914)
   Net investments in restricted cash  (137,571)  (39,674)   (177,245)
   Net investments in financial assets  66,000   218,000  245,000  46,000  575,000 
   Other    79,809    79,809 
       
Net cash provided by (used in) investing activities  (71,926)  83,242  (16,666) 46,000  40,650 
 
Cash flows from financing activities:             
   Net proceeds from long-term debt   232,288  (751,934) (14,217)  (533,863)
   Credit with related parties  (608,605) (986,273) 1,083,674  136,291  374,913  
   Dividends paid  (36,258)     (36,258)
   Addition of treasury shares  (41,180)     (41,180)
       
Net cash provided by (used in) financing activities  (686,043) (753,985) 331,740  122,074  374,913  (611,301)
 
Net increase (decrease) in cash and cash equivalents  (180,935) (3) (11,164) (211,689)  (403,791)
 
Cash and cash equivalents at beginning of the period  181,355  23  176,973  214,770   573,121 
       
Cash and cash equivalents at end of the period  420  20  165,809  3,081   169,330 
       

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GOLLINHASAÉREASINTELIGENTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Balance Sheet as of December 31, 2005
2007

  Parent  Issuer  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Adjustments  Consolidated 
      
LIABILITIES AND SHAREHOLDERS’ EQUITY           
 
CURRENT LIABILITIES           
         Short-term borrowings    54,016   54,016 
         Accounts payable    73,924   73,924 
         Salaries, wages and benefits    71,638   71,638 
         Sales tax and landing fees  17,051  5,818  60,881   83,750 
         Air traffic liability    217,800   217,800 
         Insurance premium payable    25,371   25,371 
         Dividends payable  101,482   349,506  (349,506) 101,482 
         Other  771   31,027  (13,554) 18,244 
      
                   Total current liabilities  119,304  5,818  884,163  (363,060) 646,225 
           
NON-CURRENT LIABILITIES           
         Long-term debt          
         Deferred income taxes, net    63,694   63,694 
         Other    20,295  3,298  23,593 
 
SHAREHOLDERS’ EQUITY           
         Capital stock  885,214  347,784  556,367  (904,151) 885,214 
         Additional paid-in capital  32,273     32,273 
         Appropriated retained earnings  39,577   222,183  (222,183) 39,577 
         Unappropriated retained earnings  858,856  5,537  192,103  (197,640) 858,856 
         Accumulated other comprehensive income  6,411   5,711  (5,711) 6,411 
      
                   Total shareholders’ equity  1,822,331  353,321  976,364  (1,329,685) 1,822,331 
 
      
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  1,941,635  359,139  1,944,516  (1,689,447) 2,555,843 
      
  Parent  Issuer  Subsidiary  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Non guarantor  Adjustments  Consolidated 
       
 
Assets             
Non-current assets             
   Property, plant and equipment, net    1,342,862  848,166   2,191,028 
   Intangible assets     390,680  806,761  1,197,441 
   Investments  1,747,840  747,766    (2,495,606) 
   Other non-current assets  133,830   521,511  1,710,637  (1,292,853) 1,073,125 
       
Total non-current assets  1,881,670  747,766  1,864,373  2,949,483  (2,981,698) 4,461,594 
 
Current assets             
   Other current assets  180,560  13,335  1,034,999  135,764  56,770  1,421,428 
   Inventories of parts and supplies    184,573  25,353   209,926 
   Financial assets  86,786    495,474  238,083  820,343 
   Cash and cash equivalents  319,434  23  453,151  216,012  (415,499) 573,121 
       
Total current assets  586,780  13,358  1,672,723  872,603  (120,646) 3,024,818 
       
 
 
Total assets  2,468,450  761,124  3,537,096  3,822,086  (3,102,344) 7,486,412 
       

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GOLLINHASAÉREASINTELIGENTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Balance Sheet as of December 31, 2007

  Parent  Issuer  Subsidiary  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Non guarantor  Adjustments  Consolidated 
       
 
Total shareholders' equity  2,375,264  (7,834) 929,477  488,690  (1,393,149) 2,392,448 
 
Non-current liabilities             
 Long-term debt   752,803  677,278  316,599  (31,964) 1,714,716 
 Other non-current liabilities  14,826   194,078  1,840,598  (1,166,454) 883,048 
       
Total non-current liabilities  14,826  752,803  871,356  2,157,197  (1,198,418) 2,597,764 
 
Current liabilities             
 Short-term debt    486,359  380,511  24,673  891,543 
 Accounts payable  597  (7) 191,314  134,459   326,364 
 Advance ticket sales      472,860  472,860 
 Smiles deferred revenue     90,843  56,505  147,348 
 Other current liabilities  77,763  16,162  1,058,590  570,386  (1,064,816) 658,085 
       
Total current liabilities  78,360  16,155  1,736,263  1,176,199  (510,777) 2,496,200 
       
 
 
Total liabilities and shareholders' equity  2,468,450  761,124  3,537,096  3,822,086  (3,102,344) 7,486,412 
       

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GOLLINHASAÉREASINTELIGENTES
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Income Statement for the year ended December 31, 2007

  Parent  Issuer  Subsidiary  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Non guarantor  Adjustments  Consolidated 
       
 
Total operating revenues    4,386,273  554,711   4,940,984 
 
Operating expenses             
   Salaries  (3,727)  (646,396) (149,221)  (799,344)
   Aircraft fuel    (1,595,346) (303,494)  (1,898,840)
   Aircraft rent    (406,078) (119,707)  (525,785)
   Aircraft insurance    (43,019) (1,627)  (44,646)
   Sales and marketing    (308,436) (59,428) (2) (367,866)
   Landing fees    (215,977) (57,678)  (273,655)
   Aircraft and traffic servicing  (6,897) (305) (237,813) (103,361) (356) (348,732)
   Maintenance materials and repairs    (247,905) (91,376)  (339,281)
   Depreciation    (109,111) 46,563   (62,548)
   Other operating expenses  (1,336)  (245,311) (23,769) (6) (270,422)
       
Total operating expenses  (11,960) (305) (4,055,392) (863,098) (364) (4,931,119)
 
Operating profit(loss) (11,960) (305) 330,881  (308,387) (364) 9,865 
 
Total finance costs and other income (expense) 49,923  (4,702) 42,604  102,788  405  191,018 
 
   Equity in income (loss) of subsidiary  63,562    (63,562)  
   Non-operating results     (47,015) 47,015  
       
 
Profit (loss) before income taxes  101,525  (5,007) 373,485  (316,176) 47,056  200,883 
 
   Income taxes  46,401   (127,439) 47,443   (33,595)
       
 
Profit (loss) for the year from continuing             
 operations attributable to equity             
 holders of the parent  147,926  (5,007) 246,046  (268,733) 47,056  167,288 
       

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GOLLINHASAÉREASINTELIGENTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Cash Flow Statement of Income for the year ended December 31, 2006
2007

  Parent 
Company 
 Issuer 
Subsidiary 
 Subsidiary 
Guarantor
 Subsidiary 
Non guarantor 
 Consolidating 
Adjustments 
 Consolidated 
       
NET OPERATING REVENUES             
     Passenger    3,580,919    3,580,919 
     Cargo and Other    221,098    221,098 
       
                   Total net operating revenues    3,802,017    3,802,017 
OPERATING EXPENSES             
     Salaries, wages and benefits    413,977    413,977 
     Aircraft fuel    1,227,001    1,227,001 
     Aircraft rent    292,548    292,548 
     Sales and marketing    414,597    414,597 
     Landing fees    157,695    157,695 
     Aircraft and traffic servicing    199,430    199,430 
     Maintenance materials and repairs    146,505    146,505 
     Depreciation    69,313    69,313 
     Other  8,664  24,556  161,865  1,017  (16,608) 179,494 
       
                   Total operating expenses  8,664  24,556  3,082,931  1,017  (16,608) 3,100,560 
 
OPERATING INCOME (LOSS) (8,664) (24,556) 719,086  (1,017) 16,608  701,457 
 
OTHER INCOME (EXPENSE)            
     Interest expense   (46,600) (23,311) (29,375) 32,908  (66,378)
     Capitalized interest   11,001  5,732    16,733 
     Interest and investment income  57,401  34,886  73,364  27,566  (18,863) 174,354 
     Other expenses, net  2,109  6,449  (11,293)  (24,469) (27,204)
       
                   Total other income  59,510  5,736  44,492  (1,809) (10,424) 97,505 
 
     Results of equity interest  637,095     (637,095) 
     Non-operating results   16,000    (16,000) 
       
             
INCOME(LOSS) BEFORE INCOME TAXES  687,941  (2,820) 763,578  (2,826) (646,911) 798,962 
     Income taxes  (118,804) 10,690  (121,711)   (229,825)
       
NET INCOME (LOSS) 569,137  7,870  641,867  (2,826) (646,911) 569,137 
       

  Parent  Issuer  Subsidiary  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Non guarantor  Adjustments  Consolidated 
       
 
Cash flows from operating activities:             
Net cash provided by (used in) operating activities  249,179  (4,205) 810,428  (690,916) (505,974) (141,488)
 
Cash flows from investing activities:             
   Acquisition of VRG, net cash acquired     (201,509)  (201,509)
   Acquisition of property, plant and equipment, net    (367,874) (187,887)  (555,761)
   Investments  (431,412)    431,412  
   Due from related parties  82,906  (327,177) (140,227)  384,498  
   Net investments in financial assets  386,380   114,182  66,369   566,931 
       
Net cash provided by (used in) investing activities  37,874  (327,177) (393,919) (323,027) 815,910  (190,339)
 
Cash flows from financing activities:            
   Net proceeds from long-term debt   331,123  234,732  353,972   919,827 
   Paid subscribed capital  60,745   (436,592) 257,448  118,831  432 
   Dividends paid  (302,775)  (173,717)  173,717  (302,775)
   Credit with related parties     602,484  (602,484) 
       
Net cash provided by (used in) financing activities  (242,030) 331,123  (375,577) 1,213,904  (309,936) 617,484 
            
Net increase (decrease) in cash and cash equivalents  45,023  (259) 40,932  199,961   285,657 
            
Cash and cash equivalents at beginning of the period  136,332  282  136,041  14,809   287,464 
       
Cash and cash equivalents at end of the period  181,355  23  176,973  214,770   573,121 
       

F - 34F-89


Table of Contents

GOLLINHASAÉREASINTELIGENTES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Statement of Income for the year ended December 31, 2005

  Parent  Issuer  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Adjustments  Consolidated 
      
NET OPERATING REVENUES           
   Passenger    2,539,016   2,539,016 
   Cargo and Other    130,074   130,074 
      
                   Total net operating revenues    2,669,090   2,669,090 
 
OPERATING EXPENSES           
   Salaries, wages and benefits    260,183   260,183 
   Aircraft fuel    808,268   808,268 
   Aircraft rent    240,876   240,876 
   Sales and marketing    335,722   335,722 
   Landing fees    92,404   92,404 
   Aircraft and traffic servicing    91,599   91,599 
   Maintenance materials and repairs    55,373   55,373 
   Depreciation    35,014   35,014 
   Other  1,733   128,270  (1,703) 128,300 
      
                   Total operating expenses  1,733   2,047,709  (1,703) 2,047,739 
 
OPERATING INCOME (LOSS) (1,733)  621,381  1,703  621,351 
 
OTHER INCOME (EXPENSE)          
   Interest expense    (19,383)  (19,383)
   Capitalized interest   17,113    17,113 
   Interest and investment income  31,519    98,161  10,524  140,204 
   Other expenses, net  (13,991) (5,241) (28,806) 6,275  (41,763)
      
                   Total other income  17,528  11,872  49,972  16,799  96,171 
 
 Results of equity interest  464,157    (464,157) 
      
INCOME (LOSS) BEFORE INCOME TAXES  479,952  11,872  671,353  (445,655) 717,522 
 
   Income taxes  33,278  (5,818) (226,276) (5,476) (204,292)
      
NET INCOME (LOSS) 513,230  6,054  445,077  (451,131) 513,230 
      

F - 35


Table of Contents

GOLLINHASAÉREASINTELIGENTES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Statement of Income for the year ended December 31, 2004

  Parent  Issuer  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Adjustments  Consolidated 
      
NET OPERATING REVENUES           
   Passenger    1,875,475   1,875,475 
   Cargo and Other    85,411   85,411 
      
                   Total net operating revenues    1,960,886   1,960,886 
 
OPERATING EXPENSES           
   Salaries, wages and benefits    183,037   183,037 
   Aircraft fuel    459,192   459,192 
   Aircraft rent    195,504   195,504 
   Sales and marketing    261,756   261,756 
   Landing fees    57,393   57,393 
   Aircraft and traffic servicing    74,825   74,825 
   Maintenance materials and repairs    51,796   51,796 
   Depreciation    21,242   21,242 
   Other    79,840   79,840 
      
                   Total operating expenses    1,384,585   1,384,585 
 
OPERATING INCOME    576,301   576,301 
 
OTHER INCOME (EXPENSE)          
   Interest expense    (13,445)  (13,445)
   Capitalized interest    3,216   3,216 
   Interest and investment income  322   27,911   28,233 
   Other expenses, net  (31,223) (517) 24,198  517  (7,025)
      
                   Total other income  (30,901) (517) 41,880  517  10,979 
 
   Results of equity interest  403,890    (403,890) 
   Non-operating results      
      
INCOME (LOSS) BEFORE INCOME TAXES  (30,901) (517) 618,181  517  587,280 
 
   Income taxes  11,721   (214,291)  (202,570)
      
NET INCOME (LOSS) 384,710  (517) 403,890  517  384,710 
      

F - 36


Table of Contents

GOL LINHAS AÉREAS INTELIGENTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Statements of Cash Flows for the year ended December 31, 2006

  Parent 
Company 
 Issuer 
Subsidiary 
 Subsidiary 
Guarantor
 Subsidiary 
Non guarantor 
 Consolidating 
Adjustments 
 Consolidated 
       
 
CASH FLOWS FROM OPERATING             
     ACTIVITIES             
Net income (loss) 569,137  7,870  641,867  (2,826) (646,911) 569,137 
Adjustments to reconcile net income to net             
     cash provided by operating activities             
       Depreciation    69,313    69,313 
       Provision for doubtful accounts             
             receivable    5,476    5,476 
       Deferred income taxes  (27,882) 14,398  34,717   (49,115) (27,882)
       Capitalized income   (16,733)    (16,733)
Changes in operating assets and liabilities            
       Receivables    (100,824)   (100,824)
       Inventories    (34,482)   (34,482)
       Credits with lessors  (130,068)  (54,836)  184,904  
       Prepaid expenses, other assets and             
             recoverable taxes  104,542  (34,750) (165,326) (433,811) 529,346  
       Deposits for engine maintenance      (110,858) (110,858)
       Accounts payable and long-term vendor             
             payable    50,186    50,186 
       Air traffic liability    117,468    117,468 
       Dividends payable  (58,521)  (176,415)  176,415  (58,521)
       Payroll and related charges    16,183   (16,183) 
       Sales tax an landing fees, insurance             
             premium payable and other liabilities  91,550  880,177  (17,052)  (886,525) 68,156 
       
Net cash provided by operating activities  548,758  850,963  386,275  (436,631) (818,927) 530,436 
 
CASH FLOWS FROM INVESTING             
     ACTIVITIES             
       Short-term investments  (262,758) (561,843) 161,920   662,681  
       Deposits for aircraft leasing contracts      (18,204) (18,204)
       Acquisition of property and equipment    (489,791)   (489,791)
       Pre-delivery deposits   (420,178)   356,765  (63,413)
       Purchase of available-for-sale securities      (2,021,593) (2,021,593)
       Sale of available-for.sale securities      1,358,912  1,358,912 
       
Net cash used in investing activities  (262,758) (982,021) (327,871)  338,561  (1,234,088)
 
CASH FLOWS FROM FINANCING             
     ACTIVITIES             
       Short term borrowings, net    115,586   (41,298) 74,288 
       Long term borrowings, net   128,304  383,800  436,913  41,287  990,304 
       Reinvestment reserve   11,077  (298,953)  287,876  
       Issuance of preferred shares        
       Paid subscribed capital  5,568     (5,568) 
       Changes in fair value of derivatives             
             financial instruments  (10,733)  (10,033)  20,766  
       Dividends paid  (181,135)  (181,145)  181,135  (181,145)
       Other, net      (5,165) (5,165)
       
Net cash provided by (used in) financing             
     activities  (186,300) 139,381  9,255  436,913  479,033  878,282 
       
 
NET INCREASE IN CASH AND CASH             
     EQUIVALENTS  99,700  8,322  67,659  282  (1,333) 174,630 
       
 
Cash and cash equivalents at beginning of the             
     period  36,632   68,382   1,333  106,347 
       
Cash and cash equivalents at end of the period  136,332  8,322  136,041  282   280,977 
       

F - 37


Table of Contents

GOL LINHAS AÉREAS INTELIGENTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Statements of Cash Flows for the year ended December 31, 2005

   Parent  Issuer  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Adjustments  Consolidated 
      
CASH FLOWS FROM OPERATING           
ACTIVITIES           
Net income (loss) 513,230  (6,054) 445,077  (439,023) 513,230 
Adjustments to reconcile net income to net cash           
     provided by operating activities           
       Depreciation    35,014  505  35,519 
       Provision for doubtful accounts receivable    1,343   1,343 
       Deferred income taxes  (27,882)  20,926  27,882  20,926 
       Capitalized income   (17,113)   (17,113)
Changes in operating assets and liabilities           
       Receivables    (178,931)  (178,931)
       Inventories    (19,645)  (19,645)
       Credits with lessors    (146,734) 146,734  
       Prepaid expenses, other assets and recoverable           
            taxes  (489,331) (658) (14,904) 504,893  
       Deposits for engine maintenance     (119,661) (119,661)
       Accounts payable and long-term vendor payable    37,488   37,488 
       Air traffic liability    57,909   57,909 
       Dividends payable  40,806   273,267  (273,267) 40,806 
       Payroll and related charges    20,597  (20,597) 
       Sales tax an landing fees, insurance premium           
            payable and other liabilities  24,032  5,818  (369,819) 321,843  (18,126)
      
Net cash provided by operating activities  60,855  (18,006) 161,588  149,308  353,745 
CASH FLOWS FROM INVESTING           
ACTIVITIES           
       Short-term investments  (210,408)  (108,919) 319,327  
       Deposits for aircraft leasing contracts      301  301 
       Acquisition of property and equipment    (168,938) (505) (169,443)
       Pre-delivery deposits   (296,205)  (17,113) (313,318)
       Purchase of available-for-sale securities     (456,418) (456,418)
       Sale of available-for.sale securities     137,091  137,091 
      
Net cash used in investing activities  (210,408) (296,205) (277,857) (17,317) (801,787)
CASH FLOWS FROM FINANCING           
ACTIVITIES          
       Short term borrowings, net    (64,333)  (64,333)
       Reinvestment reserve    (171,191) 171,191  
       Issuance of preferred shares     279,080  279,080 
       Paid subscribed capital  272,107  288,974  390,789  (951,870) 
       Changes in fair value of derivatives financial           
            instruments  6,411   5,711  (12,122) 
       Dividends paid  (96,635)  (351,183) 387,142  (60,676)
       Other, net     (5,412) (5,412)
      
Net cash provided by (used in) financing activities  181,883  288,974  (190,207) (131,991) 148,659 
      
NET INCREASE IN CASH AND CASH           
EQUIVALENTS  32,330  (25,237) (306,476)  (299,383)
      
Cash and cash equivalents at beginning of the period  4,302  26,570  374,858   405,730 
      
Cash and cash equivalents at end of the period  36,632  1,333  68,382   106,347 
      

F - 38


Table of Contents

GOL LINHAS AÉREAS INTELIGENTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Expressed in thousands of Brazilian Reais)
Condensed Consolidating Statements of Cash Flows for the year ended December 31, 2004

   Parent  Issuer  Subsidiary  Consolidating   
  Company  Subsidiary  Guarantor  Adjustments  Consolidated 
      
CASH FLOWS FROM OPERATING           
ACTIVITIES           
Net income (loss) 384,710  (517) 403,890  (403,373) 384,710 
Adjustments to reconcile net income to net cash           
     provided by operating activities           
       Depreciation    21,242  10,058  31,300 
       Provision for doubtful accounts receivable    (213)  (213)
       Deferred income taxes    36,860   36,860 
       Capitalized income  (27,882) (3,244)  27,882  (3,244)
Changes in operating assets and liabilities           
       Receivables     (145,581)  (145,581)
       Inventories    (7,468)  (7,468)
       Credits with lessors    (108,500) 108,500  
       Prepaid expenses, other assets and recoverable           
            taxes   (404) (9,859) 10,263  
       Deposits for engine maintenance  (1,205,284)   1,101,047  (104,237)
       Accounts payable and long-term vendor payable    (12,169) 27,524  15,355 
       Air traffic liability    36,498   36,498 
       Dividends payable  60,676   49,735  (110,411) 
       Payroll and related charges    16,082  (16,082) 
       Sales tax an landing fees, insurance premium           
            payable and other liabilities  9,977   414,522  (428,559) (4,060)
      
Net cash provided by operating activities  (777,803) (4,165) 695,039  326,849  239,920 
CASH FLOWS FROM INVESTING           
ACTIVITIES           
       Short-term investments    (443,361) 443,361  
       Deposits for aircraft leasing contracts     (4,263) (4,263)
       Acquisition of property and equipment    (41,971)  (41,971)
       Pre-delivery deposits   (40,203)  (3,244) (43,447)
       Purchase of available-for-sale securities     (1,386,991) (1,386,991)
       Sale of available-for.sale securities     943,629  943,629 
      
Net cash used in investing activities   (40,203) (485,332) (7,508) (533,043)
 
CASH FLOWS FROM FINANCING           
       Short term borrowings, net    79,443   79,443 
       Reinvestment reserve    (14,222) 14,222  
       Issuance of preferred shares      470,434  470,434 
       Paid subscribed capital  645,380  70,938  29,878  (746,196) 
       Dividends paid  136,725   (76,239) (86,989) (26,503)
       Other, net     29,188  29,188 
      
Net cash provided by (used in) financing activities  782,105  70,938  18,860  (319,341) 552,562 
      
NET INCREASE IN CASH AND CASH           
EQUIVALENTS  4,302  26,570  228,567   259,439 
      
Cash and cash equivalents at beginning of the period    146,291   146,291 
      
Cash and cash equivalents at end of the period  4,302  26,570  374,858   405,730 
      

F - 39