As filed with the Securities and Exchange Commission on April 22, 2008March 31, 2010

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

OR

OR

OR

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)
RuaLeonardo Porciúncula Gomes de Carvalho 1629Pereira
04547-006+55 11 2128-4000
Fax: +55 11 5098-2341
E-mail: ri@golnaweb.com.br
Praça Comandante Linneu Gomes, S/N Portaria 3,
Jardim. Aeroporto
04626-020 São Paulo, São Paulo
Federative Republic of Brazil

(+55 11 3169 6800)2128-4000)
(Name, Telephone, E-mail and/or Facsimile number and Address including zip code and telephone number, including area code, of registrant’s principal executive offices)Company Contact Person)

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

* 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

The number of outstanding shares of each class of stock of Gol Linhas Aéreas Inteligentes S.A. as of December 31, 2007:2009: 

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  ¨

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 19341934.    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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ¨    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.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrantregistrant 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

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INTRODUCTION

     In this annual report, we use the terms “the Registrant” to refer to Gol Linhas Aéreas Inteligentes S.A., “Gol” or “GTA” to refer to Gol Transportes Aéreos S.A., “Varig” or “VRG” refers to VRG Linhas Aéreas S.A., and “we,” “us” and “our” to refer to the Registrant and its consolidated subsidiaries 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:

• “Revenue passengers” represents the total number of paying passengers flown on all flight segments.

• “Revenue passenger kilometers” represents the numbers of kilometers flown by revenue passengers.

• “Available seat kilometers” represents the aircraft seating capacity multiplied by the number of kilometers the seats are flown.

• “Load factor” represents the percentage of aircraft seating capacity that is actually utilized (calculated by dividing revenue passenger kilometers by available seat kilometers).

• “Breakeven load factor” is the passenger load factor that will result in passenger revenues being equal to operating expenses.

• “Aircraft utilization” represents the average number of block hours operated per day per aircraft for the total aircraft fleet.

• “Block hours” refers to the elapsed time between an aircraft’s leaving an airport gate and arriving at an airport gate.

• “Yield per passenger kilometer” represents the average amount one passenger pays to fly one kilometer.

• “Passenger revenue per available seat kilometer” represents passenger revenue divided by available seat kilometers.

• “Operating revenue per available seat kilometer” represents operating revenues divided by available seat kilometers.

• “Average stage length” represents the average number of kilometers flown per flight.

• “Operating expense per available seat kilometer” represents operating expenses divided by available seat kilometers.

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PRESENTATION OF FINANCIAL AND OTHER DATA

     The consolidated financial statements included in this annual report have been prepared in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), inreais.

     We have translated some of thereal amounts contained in this annual report into U.S. dollars. The rate used to translate such amounts in respect of the year ended December 31, 2009 was R$1.7412 to US$1.00, which was the commercial rate for the purchase of U.S. dollars in effect on December 31, 2009, 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 thereal amounts represent, or could have been or could be converted into, U.S. dollars at the above rate. See “Exchange Rates” for more detailed information regarding the Brazilian foreign exchange system and historical data on the exchange rate of thereal against the into U.S. dollars.

     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. 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, or 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 by Law No. 11,638 of December 28, 2007, or the Brazilian corporation law and the rules of the CVM.

     We make statements in this annual report about our competitive position and market share in, and the market size of, the Brazilian and international airline industry. We have made these statements on the basis of statistics and other information from third-partythird 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.rounded. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregationsum of the figures that precede them.

     The consolidated financial statements included in thisThis annual report have been preparedcontains terms relating to operating performance in accordance with U.S. GAAPthe airline industry that are defined as follows:

• “Revenue passengers” represents the total number of paying passengers flown on all flight segments.
  
  
• “Revenue passenger kilometers” represents the numbers of kilometers flown by revenue passengers.
  
  
• “Available seat kilometers” represents the aircraft seating capacity multiplied by the number of kilometers the seats are flown.
  
  
• “Load factor” represents the percentage of aircraft seating capacity that is actually utilized (calculated by dividing revenue passenger kilometers by available seat kilometers).
  
  
• “Breakeven load factor” is the passenger load factor that will result inreais and reflect our financial condition and results passenger revenues being equal to operating expenses.

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• “Aircraft utilization” represents the Registrant had been incorporated and held allaverage number of the capital stock of GTA and VRG. 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 differs in certain significant respects from U.S. GAAP.

       We have translated some of thereal amounts contained in this annual report into U.S. dollars. The rate used to translate such amounts in respect of the year ended December 31, 2007 was R$1.771 to US$1.00, which was the commercial rateblock hours operated per day per aircraft for the purchasetotal aircraft fleet.
  
  

• “Block hours” refers to the elapsed time between an aircraft’s leaving an airport gate and arriving at an airport gate.
  
  
• “Yield per passenger kilometer” represents the average amount one passenger pays to fly one kilometer.
  
  
• “Passenger revenue per available seat kilometer” represents passenger revenue divided by available seat kilometers.
  
  
• “Operating revenue per available seat kilometer” represents operating revenues divided by available seat kilometers.
  
  
• “Average stage length” represents the average number of U.S. dollars in effect as of December 31, 2007, as reportedkilometers flown per flight.
  
  
• “Operating expense per available seat kilometer” represents operating expenses divided 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 thereal amounts 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 ofreais into U.S. dollars.
  available seat kilometers.

SPECIAL NOTECAUTIONARY STATEMENTS 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:

•

• general economic, political and business conditions in Brazil and in other South American markets we serve;

  •
  
  

• the effects of the global financial markets and economic crisis;
  
  
• management’s expectations and estimates concerning our future financial performance and financing plans and programs;

  •
  
  

• our level of fixed obligations;

  •
  
  

• our capital expenditure plans;

  •
  
  

• our ability to obtain financing on acceptable terms;
  
  
• inflation and fluctuations in the exchange rate of the real;

  • real;
  
  

• existing and future governmental regulations, including air traffic capacity controls;

  •
  
  

• increases in fuel costs, maintenance costs and insurance premiums;

  •
  
  

• changes in market prices, customer demand and preferences and competitive conditions;

  •
  
  

• cyclical and seasonal fluctuations in our operating results;

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  •
  
  

• defects or mechanical problems with our aircraft;

  •
  
  

• our ability to successfully implement our growth strategy;

  •
  
  

• developments in the Brazilian civil aviation infrastructure, including air traffic control, airspace and airport infrastructure, and

  •
  
  

• the risk factors discussed under “Risk Factors.”

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     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.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

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:

• Summary financial and operating data derived from our audited financial statements included herein and prepared in accordance with IFRS as of and for the years ended December 31, 2009, 2008 and 2007; and
  
  
• Summary financial data derived from our audited financial statements not included herein and prepared in accordance with U.S. GAAP as of and for the years ended December 31, 2006 and 2005.

     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.

Solely for the convenience of the reader,real amounts as of and for the year ended December 31, 20072009 have been translated into U.S. dollars at the commercial market rate in effect as ofon December 31, 20072009 as reported by the Brazilian Central Bank of R$1.7711.7412 to US$1.00.

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IFRS Summary Financial and Operating Data

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U.S. GAAP Summary Financial Data*

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Selected Information Regarding the Year Ended December 31, 2007

     Our consolidated results for 2007 include the results of Varig since April 9, 2007, which limits the comparability of our results of operations in 2007 and 2006. The comparability of these periods is further reduced by our acquisition of Varig, its integration and investments in Varig in 2007, more specifically the development and implementation of Varig’s business model in order to achieve cost savings and operating and financial efficiencies at Varig, which experienced losses in 2007 and in the periods before our acquisition. We are currently in the process of improving Varig’s results and financial condition.

     To better demonstrate the development of our results of operations and operating data on a comparable basis, we present in the following table certain consolidated financial and operating data and financial and operating data excluding Varig. Gol and Varig operate in the same segment (for a detailed discussion of our results of operations and financial condition in 2006 and 2007, see Item 5 below).

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Exchange Rates

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

• the commercial rate exchange market; and

• the floating rate exchange market.

     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. With the crisis in the commercial exchange market through a Brazilian bank authorized to operateglobal financial markets beginning in these markets. In both markets, rates were freely negotiated.

     In March 2005,mid-2008, the National Monetary Council, dated March 4, 2005, consolidatedreal depreciated 31.9% against 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 allowed the real/U.S. dollar over the year 2008, reaching R$2.34 per US$1.00 on December 31, 2008. On December 31, 2009 the exchange rate to float freely,was R$1.74 per US$1.00 and during that period,on March 26, 2010, the real/U.S. dollar exchange rate has fluctuated considerably. In the past, thewas R$1.82 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. Thereal may substantially 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.”dollar.

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

Source: Central Bank

(1) Represents the average of the exchange rates on the last day of each month during the period.

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. 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.

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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:

•

• interest rates;

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• currency fluctuations;

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• inflation;

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• liquidity of domestic capital and lending markets;

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• tax policies;

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• exchange rates and exchange controls and restrictions on remittances abroad, such as those that were briefly imposed in 1989 and early 1990;
  
  
• presidential elections will be held in Brazil in October 2010 and

  • speculation about the new government’s economic, monetary and tax policies may create market instability and volatility; and
  
  

• other political, social and economic developments in or affecting Brazil.

       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.

     The 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 after mid-2008, thereal depreciated against the U.S. dollar by 9.3% in 2000over the year 2008 and by 18.7% in 2001. In 2002,reached R$2.337 per US$1.00 at year end 2008. During 2009 thereal depreciated 52.3%appreciated against the U.S. dollar due25.26% in part to political uncertainty surrounding the Brazilian presidential electionscontext of the economic recovery and reached 1.7412 per US$1.00 at year end 2009. On March 26, 2010, the global economic slowdown. Althoughexchange rate was R$1.8231 per US$1.00.

     Depreciation of thereal appreciated 11.8%, 8.7% and 20.7% against the U.S. dollar could create inflationary pressures in 2005, 2006Brazil and 2007, respectively, no assurance can be given thatcause 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 will not depreciate or be devalued against the U.S. dollar again.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 April 15, 2008,the other hand, appreciation of thereal relative to the U.S. dollar/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 exchange rate was R$1.682 per US$1.00. See “¯Exchange Rates.”could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

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     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, 2007, 48.7%2009, 52.3% of our operating expenses were either denominated in or linked to the U.S. dollar. In addition, the purchase price of the 101 737-80090 Boeing 737 Next Generation aircraft for which we had placed firm purchase orders as of December 31, 20072009 and the 34 737-80040 Boeing 737 Next Generation aircraft for which we currently have purchase options are denominated in U.S. dollars. At the end of 2007, 69.2%2009, 81.3% of our indebtedness was 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$2,088.1R$2,498.6 million (including long-term vendor payables) and US$1,343.4R$2,530.0 million other U.S. dollar-denominated indebtedness at December 31, 2007.2009. We may incur substantial additional 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, 2007,2009, 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 floating interest rate exposure.

     Historically, depreciationsDepreciation of thereal relative 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 government     Government 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. 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 2009, the base interest rate of inflation was 1.2%(SELIC) in 2005, 3.8% in 2006Brazil varied between 19.25% p.a. and 7.8% in 2007 (as measured byÍndice Geral de Preços—Mercado, or the IGP-M).8.75% 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 thereal may 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 the United States, other Latin Americanthe 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 the United States, the European Union or emerging marketsmarket 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.

11     The global financial crisis which began during the second half of 2008 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. Although the scenario has improved significantly since the second half of 2009, it is still not clear that the global economy has efficiently recovered.

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Risks Relating to Us and the Brazilian Airline Industry

Changes to the Brazilian civil aviation regulatory framework 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”) was created in 2005, by Law No. 11,182, replacingANAC, 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 was responsible, prior to ANAC, for coordinating and supervising Brazilian civil aviation (coordinating and supervising air transportation services and aviation and ground infrastructure).

     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.

     Law No. 11,182 promotes private enterprises in civil aviation. Some recent resolutions enacted by ANAC have modified the agency’s structure in order to decentralize its controlling function.

     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 ANAC, together with the other Brazilian regulatory authorities,had addressed overcapacity by establishing stricterstrict 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 (the successor of the DAC) 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. In addition, in December 2009, ANAC imposed a reduction in the number of landings per hour in Guarulhos International Airport (GRU) from 49 to 45 in order to avoid congestion in the airport during peak hours. These regulations negatively affected our ability to grow generally depends on receivingincrease aircraft utilization by minimizing turnaround times between flights.

     Several legislative initiatives have been taken by the required authorizations from ANACNational Congress, including the preparation of a draft bill that would replace 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, limitation of airlines’civil liability, compulsory insurance and COTAC. We cannot assure you that future authorizations willfines. This draft bill is still under discussion in theHouse of Representatives and, if approved, must be grantedsubmitted for approval to us.the Federal Senate, before being sent to the government for presidential approval. 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.

     Several legislative initiatives have been taken, 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’ civil liability, compulsory insurance and fines.

     No assurance can be given that these or other changes inSince 2009, the Brazilian airline industry regulatory environment will not havegovernment has been analyzing the privatization of airports or granting of rights for private concessionaries to operate currently existing airports or expansions of those airports. Although such measures may serve as a material adverse effectpotential positive catalyst to accelerate investments in airport infrastructure, we are unable to foresee the effects of any such measures on our business and results of operations.

The airline industry is 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. Any of these factors may negatively impact our results of operations.

     Unfavorable economic conditions, a significant decline in demand for air travel, or continued instability of the credit and capital markets could also 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, our results of operations and our growth strategy.

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     From the last quarter of 2006 through a large part of 2007, technical and operational problems in the Brazilian air traffic control management and systems led to extensive flight delays, higher than usual flight cancellations and airport congestions and negatively affected our punctuality and operating results. In addition, we     We are dependent on improvements in the coordination and development of Brazilian airspace control and airport infrastructure, which, mainly due to the large growth in civil aviation in Brazil in recent years, require substantial improvements and government investments. This is further emphasized by the need for additional infrastructure investments in the context of the Soccer Confederations Cup (2013) and World Cup (2014) and the Summer Olympics (2016) in Brazil. If the measures taken and investments made by the Brazilian government and regulatory authorities do not prove sufficient or effective, air traffic control, airspace management and sector 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.

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We operate in a highly competitive industry.

     Gol and VarigWe face intense competition on domestic routes in Brazil from existing scheduled airlines and charter airlines. The Brazilian aviation authorities may also 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. Gol and VarigWe may also face competition from international airlines as they introduce and expand flights between Brazil, and other South American destinations. On South American routes, Gol and Varig compete with South American and international airlines with a larger international flight network and fleet and a larger market share than that of Gol and Varig.Caribbean destinations.

     Our existing competitors or new entrants into the markets in which we operate have in the past and may again 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 event, we cannot assure you that our level of fares or passenger traffic would not be adversely affected and would not have an adverse impact on our business and results of operations.

     In 2009 the National Civil Aviation Council (Conselho de Aviação Civil), or CONAC, announced that it would propose to the Brazilian Government a change to the regulatory limit of foreign ownership in Brazilian airline companies from 20% to 49%. This proposal may be accepted by the Brazilian Government and become a draft bill. We cannot foresee the effects of this regulation on the competitive environment on us and our industry.

     As a result of the competitive environment there may be further consolidation in the Brazilian and global airline industry, whether by means of acquisitions, joint ventures, partnerships or strategic alliances. We cannot predict the effects of further consolidation on the industry and, to the extent that we act as a consolidator, we may not be able to implement our growth strategy or make use of synergies, our costs may increase and our operational efficiency may be reduced.

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 Latin America with the highest number of markets we serveroutes at the most important airports in Brazil, our consolidated flight network, our e-commerce platform and increasingourSmiles mileage program, to increase our penetration of all traveler segments.

     Slots at Congonhas Airport in São Paulo, the frequency of flights to the markets we currently serve. Increasing the number of markets we serve and our flight frequencies necessitates that we identify 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, and Congonhas ina highly utilized airport with half-hourly shuttle flights between São Paulo have limited landing slots available and airport capacity 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 and Guarulhos International Airport are subject to slot restrictions limitingand São Paulo International Airport in Guarulhos, have 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 are 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, at the Juscelino Kubitschek, Santos Dumont, Congonhas and Guarulhos airports, would constrain the expansion ofcould materially 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.

     Our strategy involves developing new products and businesses in order to increase our ancillary revenues and therefore our total net revenues. Any condition that would prevent or delay our ability to develop such additional revenue sources may significantly impact our operating margins. In addition, a large portion of such ancillary revenues relies on developing partnerships to sell products through our e-commerce platform and on our flights. We do not have any experience in the introductionoperation of these businesses and expansionif any of flights between Brazilour partners fails to properly deliver products or services it offers, our brand, reputation and other destinations outsideresults of Brazil require the availability of flight capacity in complianceoperations may be significantly adversely impacted and we may be exposed to contingencies with the criteria set forth in bilateral treaties between Brazil and other South American countries governing cross-border air travel. To the extent that there is no available capacity or we cannot comply with the criteria contained in these treaties, our plansregard to introduce 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 would be adversely affected by political, economic and social conditions in those countries.activities.

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     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-effectively may adversely affect our ability to execute our growth strategy. Expansion 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.

Our investment in Varig may not generate the expected benefits.

     In the second quarter of 2007, we purchased VRG, a company with route and airport operating rights, the Varig brand and the Smiles mileage program. Varig’s results of operations are highly sensitive to competitive conditions in the Brazilian domestic and international air travel markets. Varig has been historically significantly less profitable than Gol. Varig has experienced losses in recent periods and its losses may continue for an indeterminate period. Additionally, in case we do not receive or receive with delay the approval of the VRG acquisition by CADE, we may not be able to fully utilize potential operational, financial, tax and revenue synergies from the consolidated operations of Gol and Varig. We may not be able to achieve the cost savings and other improvements we seek at Varig, and our failure to do so would adversely affect our consolidated operating margins and results of operations.

We may be subject to increased litigation risks related to the operations of VRG’s predecessor company.

     Even though the Brazilian bankruptcy laws protect us from any risks related to the legal succession of VRG’s predecessor company, we cannot foresee the number 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 VRG’s predecessor company. In 2007, more than 80% of our labor proceedings were related to VRG’s predecessor company. We cannot foresee the outcome of these proceedings and the amounts of any additional probable disbursements, which may adversely affect our consolidated operating margins and results of operations. In addition, although we believe we have adequately recorded all of the probable contingencies related to the VRG acquisition, we cannot assure you that countries other than Brazil will recognize the protections we have under the Brazilian bankruptcy laws and that we will not be held responsible for liabilities of the former Varig group.

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. As of December 31, 2007,2009, we had commitments of R$8.210.9 billion to purchase 101 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, 20072009, we had US$1,842.7 millionR$2.2 billion in long-term indebtedness.indebtedness, excluding our perpetual bonds in the amount of R$310.1 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.

Having significant fixed payment obligations could:

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• limit our ability to obtain additional financing to support expansion plans and for working capital and other purposes;

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• divert substantial cash flow from our operations to service our fixed obligations under aircraft operating leases and aircraft purchase commitments;

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• if LIBOR or U.S. interest rates increase, require us to incur significantly more lease or interest expense than we currently do; and

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• limit our ability to plan for or react to changes in our business and the airline industry and to general economic conditions.

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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 10140 Boeing 737-800 Next Generation aircraft (asas of December 31, 2007), in the future2009, 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 2007, 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 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, 2007,2009, we had R$1,432.8 million1.4 billion 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$18.8 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 been at historically high levels, constitute a significant portion of our total operating expenses, accounting for 38.3% of our operating expenses for the year ended December 31, 2007.     Historically, international and local fuel prices have been subject to wide price fluctuations based on geopolitical issues and supply and demand. Fuel costs, which at times in 2007 and 2008 were at historically high levels, constitute a significant portion of our total operating expenses, accounting for 32.2% of our operating expenses for the year ended December 31, 2009. 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.

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     In addition, substantially all of our fuel is supplied by one source, Petrobrás Distribuidora S.A. If Petrobrás Distribuidora is unable or unwilling to continue to supply fuel to us at the times and in the quantities that we require, our business and results of operations would be adversely affected.

We have only a limited number of suppliersrely on one supplier 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. After extensive research and analysis, we chose the Boeing 737-700/800 Next Generation aircraft and CFM 56-7B engines from CFM International to serve our short haul routes. In light of our firm purchase orders to purchase 101 Boeing 737-800 Next Generation aircraft as of December 31, 2007 and options to purchase an additional 34 Boeing 737-800 Next Generation aircraft, weInternational. We expect to continue to rely on Boeing and CFM International into the foreseeable future. If either Boeing or CFM International were unable to perform theirits 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 28 Boeing 737-300 aircraft to help meet our short-term capacity needs caused by the VRG acquisition and by higher than expected demand for our air travel services in Brazil and South America experienced in 2006 and 2007.

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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.

     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 executive officers, especially 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.

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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.

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We rely on maintaining a high daily aircraft utilization rate to increase our 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 on our short haul operations.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.

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.connections, which may negatively affect our reputation, results of operation and the market price of our ADSs and preferred shares

Our     The airline industry is dynamic and volatile and our reputation, and financial results and the market price of our ADSs and preferred shares could be harmed in the eventby events out of an accident or incident involving our or other Brazilian airline’s aircraft or our aircraft type.control

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 Boeing 767 aircraft or the aircraft of any other Brazilianmajor airline could cause negative public perceptions about us or the Brazilian air transport system, are less safe or reliable than other airlines, which would harm our business and results of operations as well as the market price of our ADSs and preferred shares.

     We may also be affected by other events that affect travel behavior, such as the potential of epidemics or acts of terrorism. These events are out of our control and may affect us even if occurring in markets where we do not operate and/or in connection with other airlines. For example, in the second quarter of 2009, there was an outbreak of the H1N1 virus which had an adverse impact on global air travel and on our operations to and from Argentina. In addition, in the past there have been concerns about outbreaks or potential outbreaks of other diseases, such as avian flu and Severe Acute Respiratory Syndrome, or SARS, which had an adverse impact on global air travel. Any outbreak of a disease that affects travel behavior could have a material adverse impact on us and the trading price of shares of companies in the worldwide airline industry, including our ADRs and preferred shares. Outbreaks of disease could also result in quarantines of our personnel or an inability to access facilities or our aircraft, which could adversely affect our operations. The trading price of shares of companies in the worldwide airline industry are relatively volatile and investors’ perception of the market value of these shares, including our ADSs and preferred shares, may also be negatively impacted with additional volatility and decreases in the price of our ADSs and preferred shares.

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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 43.3%52.5% of the aggregate market capitalization of the BOVESPABM&FBOVESPA S.A. Bolsa de Valores, Mercadorias & Futuros (“BM&FBOVESPA”) as of December 31, 2007.2009. The top ten stocks in terms of trading volume accounted for 51.0%41.5%, 46.4%53.2% and 41.5%49.7% of all shares traded on the BOVESPABM&FBOVESPA in 2005, 20062007, 2008 and 2007,2009, respectively.

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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.

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.

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.

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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 material assets consist of the shares of GTA and VRG, three offshore finance subsidiaries, cash and cash equivalents and short-term investments. The Registrant owns all of Gol’sVRG’s shares, except for shares held by members of Gol’sVRG’s boards of directors for eligibility purposes, and VRG’s shares, through its wholly owned subsidiary GTI, except for one share held by one of its officers.purposes. Our principal executive offices are located at RuaPraça Comandante 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. 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.

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Capital Expenditures

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

B. Business Overview

We are one of the world’s leading low-cost carriers and one of South America’s leading airlines. We serve the largest number of destinations in the Brazilian air passenger transportation market, with a 45% domestic market share and a 44% domestic seat capacity share at the end of 2007. We operate our passenger air transportation business through our subsidiaries GTA (which operates the Gol brand) and VRG (which operates the Varig brand).

Gol operates based on a low-cost low-fare business model, with a single class of service in the Brazilian domestic market and South America. It is the fourth largest low-cost airlineairlines in the world in terms of passengers transported in 20072009, and the onlylargest low-cost low-fare low-cost airline in Latin America providing frequent service on routes connecting all of Brazil’s major cities and alsofrom Brazil to major cities in South America. Gol’sAmerica and select touristic destinations in the Caribbean. With our young and standardized operating fleet of 108 Boeing 737 aircraft, we serve the largest number of destinations of any airline in the Brazilian air passenger transportation market.

     Since the beginning of our operations in 2001, our affordable, reliable and simple service and itsour focus on markets that were either underserved or did not have a lower-fare alternative hashave led to a strong awareness of itsour brand and a rapid increase in itsour market share, while allowing itshare. We were the first company to maintain one of the lowest operating costs in the airlinesuccessfully introduce low-cost carrier industry worldwide. Gol’s vision is to be recognized as the airline that popularized high-quality, low-fare air transportation in South America.

Varig offers flights with singlepractices and dual class services to domestic and South American destinations. Varig’s services focus on business travelers and emphasize business-oriented schedules and destinations, with differentiated onboard services and VIP lounges at principal airports. Varig offers the most legroom in a single class configuration of all Brazilian domestic airlines. On certain domestic and international routes, it also offers business/comfort class service. Varig focuses on competing in specific high-demand markets with comparable services at low prices. Varig’s vision is to be recognized as the Brazilian airline that offers high quality air travel services to its customers.

Our Smiles loyalty program is one of the largest airline loyalty programstechnologies in Latin America. TheSmiles program started in June 1994 and currently has over five million members.

For the year ended December 31, 2007 we had net revenues of R$4.9 billion and net income of R$102.5 million. During the same period, Gol contributed R$4,096.1 million in passenger revenues and Varig contributed R$470.6 million passenger revenues. AncillaryWe have a diversified revenue base, with customers ranging from business passengers to leisure passengers traveling throughout Brazil and other revenues represented 7.5% of our consolidated revenues.

South American and Caribbean destinations. Our strategy is to increase the size of the market by attracting new passengers as well as to diversify our revenue portfolio through the combination of Gol’s and Varig’sour consolidated flight networks,network, a modern aircraft fleet, targeted marketing and our loyalty programSmiles (the largest loyalty program in Latin America with more than 6.6 million members), a variety of attractive ancillary businesses such as our loyalty program (Smiles), 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 88.1% and ancillary revenues represented 11.9%, of our net revenues of R$6.0 billion in 2009.

In April 2007, we acquired VRG in order to improve our position within the highly competitive Brazilian and Latin American passenger transportation industry over the long-term. 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 permit us to expand our activities in Brazil and South America, while the acquisition also provided us the possibility of extending our services beyond South America to intercontinental markets. The combination of Gol and Varig created a Brazilian airline group with a large and broad passenger base. Varig operates primarily with a single-class service with increased travel comfort and the most legroom of any Brazilian airline, prioritizing corporate clients and business traveler destinations and schedules between the main economic centers of Brazil. On some flights, Varig offers a business/comfort class. Varig operates one of the largest airline loyalty programs in Latin America (Smiles). To improve Varig’s efficiency, in 2007, we increased our investment in fleet modernization, launched service to new markets and implemented our concepts of efficient administration, asset optimization, intensive use of technology, transparency, innovation and employee motivation. Varig’s new and efficient operating model allows it to offer high standards of customer service at reduced costs. We expect to further integrate Gol’s and Varig’s operations after the acquisition is approved by the CADE, which approval we expect to receive in the first semester of 2008. The launch and integration of Varig’s operations, however, has in 2007 and may in the near term lead result in lower profitability.

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Gol has flown over 77 million passengers since beginning operations in 2001 and, according to the ANAC, Brazil’s civil aviation authority, our consolidated share of the domestic market, based on revenue passenger kilometers, grew from 4.7% in 2001 to 44.6% in December 2007. Our consolidated share of the international market served by Brazilian carriers, based on revenue passenger kilometers transported by Brazilian airlines, grew from 3.1% in 2005 (Gol’s first full year operating international flights) to 28.8% in December 2007.

As of the end of 2007, GolMarch 31, 2010, we offered over 590approximately 800 daily flights per day to 5961 destinations connecting the most important cities in Brazil as well as the mainkey destinations in Argentina, Bolivia, Curacao, Aruba, Chile, Colombia, Paraguay, PeruUruguay and Uruguay. As of that date, Varig offered over 115 daily flightsVenezuela. We strategically focus on the Brazilian and South American markets, and will continue to 12 destinations in Brazil, and to nine to international destinations in South America and Europe. In line with our objective of making VRG accretive to our consolidated business, we decided in 2008 to concentrate Varig’s international route network in South America and discontinue service to other international destinations operated. Varig’s status as a flag carrier permits us to explore future opportunities to operate in attractive international markets beyond South America.

We have kept our operating costs low principally by maintaining a simplified and modern aircraft fleet. We are dedicated to having a modern fleet, which we expect under our current fleet plan will have an average age of less than 6 years at the end of 2009. At December 31, 2007, our standardized fleet of Boeing 737 narrow body and 767 wide body aircraft had an average age of 9.0 years (7.0 years for Gol and 13.6 years for Varig), one of the lowest in South America. In 2007, our combined fleet grew 63%, including a 44% increase in Varig’s fleet. As of the end of 2007, we operated 99 single-class Boeing 737 aircraft and seven dual-class Boeing 767 aircraft. As of that date, we had firm purchase orders with The Boeing Company for 101 737-800 Next Generation aircraft, and we have options to purchase an additional 34 737-800 Next Generation aircraft. Currently, we have nine firm purchase orders for aircraft deliveries scheduled in 2008, 15 in 2009, 16 in 2010, 12 in 2011 and 49 after 2011. To meet our capacity requirements, we took in 2007 delivery of 34 Boeing 737 aircraft (15 with Boeing’s short field performance-SFP) under operating and finance leases with lease terms between one and twelve years and seven Boeing 767 aircraft under operating leases with lease terms between one and seven years.

We have a diversified revenue base, with customers ranging from business passengers traveling between densely populated cities in Brazil and internationally, to leisure passengers traveling to destinations throughout Brazil and to our international destinations. We carefully evaluate opportunities to continue the growth of our business throughgrowing by increasing the frequency of flights to our existing high-demand markets and adding new routes in Brazil and to South America.these markets (for example, in the Caribbean region), all of which can be reached with our Boeing 737 Next Generation (NG) aircraft.

We generate ancillary revenues from our branded businesses operating air cargo services (Gollog), frequent flyer program (Smiles) and installment payment mechanisms (Voe Fácil), which help stimulate demand. Each of these businesses attracts a specific customer segment, adds strong brand recognition to our business and creates customer loyalty. In 2007, these revenues represented 7.5% of our consolidated revenues, an increase of 68.1% as compared to 2006.

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 2007 certifications are included as Exhibits 12.1 and 12.2 to this Annual Report.

Our Competitive Strengths

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Our principal competitive strengths are:Competitive Strengths

We Keep Our Operating Costs Low.Have a Strong Market Position Based on Slots at the Most Important Airports in Brazil.Gol’s cost per available seat kilometer for the year ended December 31, 2007 was R$14.44 cents, or US$7.41 cents. We believe that Gol’s cost per available seat kilometer for the year ended December 31, 2007, adjusted for the average number of kilometers flown per flight, was over the year the lowest in the domestic market, based upon our analysis of data collected from publicly available information. We have sinceSince the VRG acquisition, reducedwe have been the carrier with the most flights connecting the busiest airports in Brazil: Congonhas (São Paulo), Santos Dumont and intend to further reduce Varig’s cost per available seat kilometer.

Our business model is based onGaleão (Rio de Janeiro), Juscelino Kubitschek (Brasília), Confins (Belo Horizonte) Salvador (Bahia), Porto Alegre (Rio Grande do Sul), Recife (Pernambuco) and our low operating costsCuritiba (Paraná). Routes between these airports are the result of being innovative and using best practices adopted from leading low-cost carriers to improve our operating efficiency, including:

Efficient use of aircraft.During 2007, Gol’s Boeing 737 aircraft and Varig’s Boeing 737 and 767 aircraft averaged utilization of 14.2 and 11.7 block hours per day, respectively. Gol had the highest aircraft utilization rate in the South American airline industry, and among the highest worldwide, according to company public filings. We achieve high aircraft utilization rates by operating a new fleet that requires less maintenance down time, having a fast turnaround of our aircraft between flights and operating more flights per day per aircraft than our competitors on short haul routes. The fast turnaround time for our aircraft between flights, which averaged 38 minutes in 2007 in the domestic market, minimizes connection times for our passengers, and was affected by the industry-wide air traffic and airport bottlenecks experienced in the Brazilian airline industry during the year. Our aircraft flew seven domestic flight legs a day in 2007, the highest number of flight legs in the domestic market. As part of our aircraft utilization strategy, Gol introduced night flights on certainmost profitable routes in December 2003 at very low fares to increase utilization, generateour markets, with higher load factors and stimulate demand. Our night flights, which have generated a load factor higher than thatyields achieved mostly from business travelers. In Congonhas, an airport with slot restrictions, we were the leading airline in terms of our other flights, have enabled 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.

Operation of a young and simplified fleet.At December 31, 2007, our operating fleet of 99 Boeing 737 narrow body and 7 Boeing 767 wide body aircraft made up one of Latin America’s largest and youngest fleets, with an average age of 9.0 years (7.0 years for Gol’ Boeing 737 aircraft and 13.6 years for Varig’s Boeing 737 and 767 aircraft). We plan to return our Boeing 737-300 and 767-300 aircraft in 2008, and exclusively use Boeing 737 NG aircraft. Having a fleet with few 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 and maintain 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 101 firm purchase orders as of December 31, 2007, 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 better control maintenance costs. We are able to serve all our marketsdepartures for these routes in Brazil and South America with our Boeing 737 aircraft fleet.2009.

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 keep in-house the tasks that our employees can do more cost-efficiently. We get competitive rates for the outsourced 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 for Boeing 737 aircraft (which represented 93% of our combined fleet as of December 31, 2007) 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, our state-of-the-art aircraft maintenance center at the airport of Confins in the State of Minas Gerais enables us to internalize aircraft heavy maintenance work to reduce maintenance costs and we expect to expand it during 2008 to provide service to our expanding fleet and, in the future, to third party operators.

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Efficient use of 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 via the Internet. In 2007, Gol booked a significant majority of its ticket sales through a combination of its website (80.3%) and its call center (10.1%) . 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 2007 one of the largest e-commerce companies in Brazil with R$4.3 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 77% 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 Gol flights is ticketless. The elimination of paper tickets saves paper costs, postage, employee time and back-office processing expenses. Also, Gol does not need to maintain physical ticket sales locations outside of airports. For the Varig brand, we rely on more traditional sales channels such as GDS, call centers and airport facilities. In 2007, Varig booked 8.8% of its sales on its website, which was re-launched in October 2007.

We Stimulate Demand for Our Services.We believe that through our differentiated services we provide the best value in our markets and create demand for air travel services. Gol’s 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, Gol has successfully increased its market share, strengthened customer loyalty and is 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, Gol night flights, which are offered at highly competitive fares, have proven to be very successful, generating load factors higher than that of its other flights. We believe Gol 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 6% of the customers on Gol’s flights are either first-time flyers or have not flown for more than one year. The VRG acquisition gives us the ability to diversify our service offering, and it provides us opportunities to explore the opportunity to operate intercontinental flights in the future. We also stimulate demand for our ancillary businesses likeGollogandSmiles. 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. Our strong market position and strong brand recognition allow us to increasingly influence and stimulate this demand. Our firm order for 101 new Boeing 737-800NG aircraft as of December 31, 2007, which has an increased seat capacity of 187 passengers, will enable us to increase our capacity in the key markets in which we operate.

We Have a Strong Brands that are Widely Recognized Among Consumers, Suppliers and Investors.Brand Recognition.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, intelligent 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. The Varig brand is one of the best-known in our industry, with a history of over 80 years. In October 2007, we launched Varig’s new visual identity as part of our strategy to use brand segmentation to better target all customer segments. The new Varig brand is intended to represent rational, value-oriented air travel service without excessive costs. OurSmiles,Gollog andVoe Fácil brands give us valuable customer recognition in various businesses and create a tool for brand diversification for us. Our success at promoting awareness of our brands has earned us recognition from our customers, suppliers,Varig brand is widely known in the investment communityBrazilian and the marketing industryLatin American markets in Brazil.which we operate.

We HaveKeep Our Operating Costs Low.Our operating expense per available seat kilometer (CASK) for the year ended December 31, 2009 was R$14.0 cents. We believe that our CASK for the year ended December 31, 2009, adjusted for the average number of kilometers 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 improve our operating efficiency, including:

• Operation of a Strong Financial Positionyoung and Accessstandardized fleet.At December 31, 2009, our operating fleet of 108 Boeing 737 aircraft was one of Latin America’s largest and youngest fleets, with an average age of 6 years. We plan to continue keeping our operating fleet exclusively comprised of Boeing 737-800 and 737-700 NG aircraft. Having a standardized fleet reduces inventory costs, as it requires fewer spare parts, and reduces the Financial Markets.We have focused on maintaining a strong financial position with significant cash balances. Asneed to train our pilots to operate different types of aircraft. It also simplifies our maintenance and operations processes. From our original 94 firm purchase orders and 36 options placed in December 2008, we had 90 firm purchase orders remaining as of December 31, 2007,2009, to be delivered until 2016, and purchase options for 40 additional Boeing 737 NG aircraft. We expect to be able to further decrease the age of our fleet, and therefore increase efficiency and better control maintenance costs. We expect to have our seven remaining Boeing 737-300 aircraft returned during 2010. We are in the process of returning our six remaining Boeing 767 aircraft and until we had R$574.4 millionare able to return these aircraft we will assign them to revenue generating uses to reduce their leasing costs.
  
  
• State of cash and cash equivalents, R$858.4 millionthe art maintenance.We carry out heavy maintenance on our Boeing 737 aircraft internally at our Aircraft Maintenance Center at the Tancredo Neves International Airport located in Confins, in the State of short-term investments, R$916.1 million of accounts receivable and R$589.7 million of U.S. dollar denominated depositsMinas Gerais. We use this facility for airframe heavy checks, line maintenance, aircraft leasingpainting and aircraft engine maintenance contracts, representinginterior refurbishment. We started the first of a two-stage expansion project in 2008, when the facility had a capacity to service 60 aircraft. The second stage was inaugurated in March, 2010 and we now have a total capacity to perform full maintenance services for more than 120 Boeing 737 aircraft per year. With our system of R$2,938.6 million. Asphased maintenance for our Boeing NG 737-700 and 737-800 aircraft fleet, we are able to perform maintenance work every day without sacrificing aircraft revenue time, and schedule preventive maintenance with more regularity and around the utilization of December 31, 2007, our debt to capitalization ratio was 57.9% . To finance our operations and capital expenditures, we issued in 2007aircraft, which further dilutes fixed costs. We are one of the few airlines in the international markets US$225 millionworld that takes full advantage of senior notes duethe Boeing 737 NG phased maintenance philosophy, supported by extensive investments we have made in 2017personnel, material, tools and US$200 millionequipment.

We Stimulate Demand for Our Service.As a result of perpetual notes in 2006.our low cost structure, we believe that through our differentiated services we create demand for air travel services. Our average fares are lower than the average fares of most of our domestic competitors. We identify and stimulate demand among both business and leisure passengers for air travel that is safe, convenient, simple and a reasonably priced alternative to traditional air, bus and car travel. By combining low fares with simple and reliable service, we have long-term financings with the BNDES, the Banco de Desenvolvimento de Minas Gerais (BDMG), the International Finance Corporation (IFC),the Private Export Funding Corporation (PEFCO)successfully improved our brand awareness, product quality, punctuality and commercial banksregularity as well as strengthened customer loyalty and are attracting new groups of air travelers in our markets. 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 a committed aircraft pre-delivery payment (PDP) loan facility from eight banks.year.

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We Actively Manage Risk.Have the Largest Loyalty Program in Latin America.Since the VRG acquisition, we have a loyalty program (Smiles), which is available to all our passengers and which we consider a strong relationship tool. TheSmiles loyalty program serves as a source of revenue for us, as it enables us to sell miles directly to corporate clients for marketing purposes or utilize them for co-branded credit cards. It supports partnerships with more than 160 partners, including 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. The Smiles loyalty program had over 6.6 million members at December 31, 2009. On June 30, 2009, we entered into a partnership with Banco Bradesco and Banco do Brasil for the issuance and management of co-branded credit cards, enabling these banks to issue credit cards under theSmiles brand. As part of the agreement, we received an aggregate of R$252.7 million (i) from the sale of miles under theSmiles loyalty program to these two institutions, (ii) from a share of the revenue generated by the cards, and (iii) for granting the banks the right to access and use the program’s database.

We actively monitor movementsare one of the largest e-commerce companies in fuel prices, foreign exchange ratesBrazil.Our effective use of technology helps us to keep our costs low and interest ratesour operations highly scalable and efficient. We seek to reducekeep our earnings volatility.distribution channels streamlined and convenient so as to allow our customers to interact with us via the Internet. In 2009, we booked a significant majority (92.4%) of our ticket sales through a combination of our website and application programming interface, or API, systems and our call center (6.3%) . In addition, our customers can check in online and through web-enabled cell phones. As a result of our emphasis on low-cost distribution channels, in 2009 we were one of the largest e-commerce companies in Brazil and Latin America, with R$5.7 billion in net ticket sales through the internet, more than any other airline and publicly-held e-commerce company in Brazil. Our platform also has strong traffic statistics, with more than six million visitors per month. We enjoy significant cost savings associated with automated ticket sales, which also makes the selection of travel options more convenient for our customers. Our e-commerce platform is starting to allow us to cross-sell other travel-related products to our customers.

We Offer Innovative and Flexible Payment Mechanisms. We have the ability to adjust our fares to compensate for changes in fuel pricesdeveloped and the exchange rate of the real versus the U.S. dollar. Our general policy is to hedge on a shortwill further develop flexible payment mechanisms such as debit payments and medium term basis a majority of the fuellong-term installment payments (Voe Fácil), with which we expect to consumeincrease our potential market and our U.S. dollar exchange rate exposure, so ascustomer base 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, instrumentsbroader income classes and programmed price triggers. We use a variety of financial instruments, including petroleum call options, petroleum fixed-price swap agreements,which enable us to further penetrate markets 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 prices. In addition, we believe that our corporate-wide high standards of internal control reduce our risk exposure.capture customers.

We Have a Motivated Workforce and a Proven Management Team.Management.We benefit from a highly motivated workforce that brings enthusiasm to air travel and a commitment to high standards of friendly and reliable quality service which we believe distinguishes us in our markets. We believe that the positive comments from our customers in satisfaction surveys is directly related to the priority our employees place on delivering top quality customer service. We invest significant 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 profit sharing to all our employees and stock options to our management employees. Our controlling shareholder hasshareholders have been operating in the Brazilian passenger transportation market for over 50 years, and our top managers have an average of approximately 25 years ofbroad experience in many sectors of the Brazilian passengereconomy, including air and ground transportation, industries.telecommunications and home appliances and consumer products. This experience has helped us to develop the most effective elements of our low-cost model.model and we expect will help us to further penetrate the Brazilian middle class and to generate ancillary revenues through Voe Fácil and our e-commerce platform www.voegol.com.

We Have High Corporate Governance Standards.Our Strategycorporate 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. We have four independent board members, including the chairman of our board of directors. All members of our board of directors have broad and internationally recognized skills in the areas of corporate finance, business management, banking and in the transportation industry.

We Have a Strong Liquidity and Cash Position.We believe that a strong liquidity and cash position is key to our success. Our strong balance sheet increases our capacity to establish partnerships, negotiate with suppliers and to mitigate impacts of financial markets volatility on our results, to strengthen our financial resilience and to ensure the execution of our growth strategy. We have a strong balance sheet, especially our cash and cash equivalents position which amount to approximately 24% of our trailing twelve months’ net operating revenues. We are also committed to our strategy of profitable growth based onnot having any significant financial debt coming due within any three-year horizon. In this view we believe that a highly efficient operating structure and high quality customer service, and offering the best in air travel: new, modern aircraft, frequent flights in major markets and an expanding integrated route system. We intend to remain focused on our low-cost business model while continuing to grow, innovate and provide the highest quality service through both our Gol and Varig brands. We intend to focus on flights to markets that offer attractive returns to us. In addition, we expect to further stimulate customer demand by continuing to offer differentiated air travel service while maintaining a high standard of quality and safety. We will strive to keepstronger balance sheet, combined with our operating costs low and continually pursue wayscash flow generation will further improve our operating flexibility in order to make our operations more efficient. Our objectives areallow us to provide the best travel value in the markets we serve,rapidly respond to encourage people to fly by making air travel accessible in our markets,market changes and to further increase the size of the air travel market.explore opportunities.

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 to where sufficient market demand exists or where we believe we can stimulate demand, (iii) expanding into other high-traffic centers in other South American countries, (iv) developing ancillary revenues in activities related to air transportation and (v) seeking opportunities to grow through acquisitions, joint ventures and airline partnerships, including code share and interline arrangements. The VRG acquisition provides us opportunities to explore synergies resulting from gains in efficiency, quality and competitiveness.

Gol’s vision is to be recognized by 2010 as the airline that popularized high-quality, low-fare air transportation in South America. Varig’s vision is to be recognized as the Brazilian airline that offers high quality passenger air travel services to its customers. The following are the key elements of our strategy:

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Our Strategies

     Our strategy is to capitalize on our competitive advantages while further strengthening our financial resilience, based on four main strategic pillars: increase passenger revenue, expand ancillary revenues, further reduce costs and improve our financial resilience. In order to implement our strategies we intend to:

To Capitalize on Our Strong Market Position in Brazil and Latin America. We intend to capitalize on our strong market position, with our high brand recognition, the highest number of routes and frequencies between the most important airports in Brazil, our consolidated flight network and ourSmiles loyalty program and to increase penetration across all segments of travelers. We will focus on Brazilian operations and selected South American destinations that are, or we expect to become, profitable and fit into our flight network. In addition, we believe that the airline industry may experience further consolidation in the future and therefore partnerships and alliances are key success factors. In this environment we intend play a leading role and strengthen our position as a long-term player.

Expand Our Customer Base by Offering Services on High-Demand Routes.. In planning the growth of our business, we will continue to establish bases, select our routes and build the frequency of our service based uponon the extent and type of demand in the regionsareas we serve in Brazil and internationally. Gol isLatin America. We are committed to popularizingproviding 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 all types of business travelers, including with the following measures:

• Stimulate Demand.Our widely available service is designed to popularize air travel and stimulate demand, particularly from smallfare-conscious leisure travelers and medium-sized companies, a growing customer base that tendssmall-to mid-size business travelers who might otherwise use alternative forms of transportation or not travel at all. We will continue to be price sensitive. Varig offers mostlyprovide 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 flights, more legroom, differentiated on board service, VIP loungescredit. For example, ourVoeFácil (“Fly Easy”) Program, which allows qualifying customers to pay for airline tickets in up to 36 monthly installments as an innovative way to purchase airline tickets, is especially designed to make the purchase of our tickets easier for customers from lower income classes. The Brazilian middle class has grown significantly in the last five years. According toFundação Getúlio Vargas, or FGV, and one of the largest airline loyalty programs in Latin AmericaBrazilian Geographical and Statistical Institute (SmilesInstituto Brasileiro de Geografia e Estatística), allowing usor IBGE, the total population with monthly income between R$450 and R$4,500 has grown by 22 million, from 76 million in 2003 to increase98 million 2009.
  
  
• Expand our focus on corporate clients and business travelers.network. 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 introduceddemand in BrazilBrazil. In addition, by offering flights to help popularize air travel can also be used to capture market share and stimulate demand for air travel internationally, especially in South America. 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 newCaribbean destinations fit into our integrated flight network. By offering these international flights with connections integrated in our network, we will 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.

  
  
  

• Expand our partnerships. We believe we have the best platform to expand our customer base in the markets in which we operate. Our standardized services and lower fares attract leisure travelers from all income levels, and with the integration of theSmiles loyalty program into our operations we intend to increase our penetration in the corporate segment. In recent yearsAugust 2009, we enteredreceived our International Operating Safety Audit, or IOSA, airline safety registration from International Air Transport Association, or IATA, and we believe this certification will, combined with the integration of theSmiles loyalty program into variousour consolidated flight network, make us the preferred Brazilian partner of major international airlines operating in the country, with which we do not compete on inter-continental routes. We expect that, under these partnerships, our customers will be able to use miles accumulated under theSmiles loyalty program to fly to destinations in North America, Europe and Asia. We intend to strengthen our existing partnerships and build new ones with large international airlines in the form of code share and interlinecode-share arrangements with a number of international airlines. We intend to further increase our international feeder network, by entering intoload factors and profitability. During 2009, we signed four important code share agreements, with Air France-KLM in April, with American Airlines in July and with Aero Mexico and Iberia in October. We also seek to evaluate partnerships with large international air carriers orfinancial institutions, retail chain-stores, car rental and insurance companies. We believe that these agreements will generate passenger and ancillary revenues by joining a global airline alliance. These partnerships are crucial tofeeding our route network, strengthening the increaseSmiles loyalty program and increasing traffic and sales through our e-commerce platform.

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Table of our load factors. In addition, we expect the modernized New Skies reservation system to allow Gol the booking of tickets through code share arrangements, which should substantially increase our partnership options.Contents

To Stimulate Demand     Further Establish and Increase Our Ancillary Revenue Businesses.. Gol’s widely availableOur ancillary revenues are derived fromVoe Fácil, our e-commerce platform www.voegol.com.br andGollog as well as ticket change fees, excess baggage charges and other incidental services. We expect further growth in these businesses, which will provide us with additional revenue at low fares and low frills 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 have used alternative forms of transportation or would not have traveled at all. In addition, as part of our strategy to use brand segmentation to better target all customer segments. A key element of our strategy is our young fleet of new Boeing 737-800 aircraft with increased seat capacity, which allows Gol to distribute our operating costs over a higher number of available seat kilometers, therefore allowing it 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 theincremental cost by:

• Increasing Voe Fácil (“Fly Easy”) Gol Program, whichpenetration.TheVoe Fácil program allows qualifyingselect customers to pay for airline tickets in up to 36 monthly installments, as an innovative new waywith interest. By increasing theVoe Fácil program penetration we believe that we will be able to purchase airline tickets, especially designed to make the purchase ofstimulate demand for our tickets easier forand better utilize our yield management system by selling seats which, based on statistical analyses, we would otherwise expect to fly empty without the implementation of the program.
  
  
• Continuously innovating and introducing new businesses to the Brazilian market.We have a strong track record of innovation and introduction of new business practices in Brazil. We started our operations in 2001 introducing the low-cost low-fare in Brazil and were the first company to develop paperless travel ticketing.In June 2009, we introduced the sale of beverages and food on board (buy on board) in Brazil, providing a more flexible and robust board service, generating ancillary revenue without increasing our cost structure or the fare price. We are currently developing an onboard wireless entertainment system in order to provide onboard entertainment which will be sponsored by large corporations, particularly from the media, entertainment and consumer segments.
  
  We believe that integrating travel-related products through the combination of partnerships, the development of new products, our e-commerce platform (www.voegol.com) and Smiles, will be key to a faster increase in our ancillary revenues. We intend to provide comfort and convenience to our clients by upgrading our current e-commerce platform into a fully-integrated portal that provides a wide range of integrated travel-related products to be charged in a single invoice. We are constantly evaluating opportunities, such as sales of travel insurance, marketing activities and other services, which may help us to better capitalize on the large number of passengers on our flights and the high volume of customers from lower income classes. At December 31, 2007, over 700,000 customers had registered for Gol’s Voe Fácil program.
  using our website.
  
  
• Focusing on express delivery services.ThroughGollog, our cargo transportation service, we make efficient use of extra capacity in our aircraft by carrying cargo. During 2009 we launched our express Gollog product line, a value added service which provides a range or express delivery services focusing on the corporate market. We intend to intensify our efforts in the express delivery services by further strengthening our logistics capability, mainly by expanding our ground distribution network and further intensifying our commercial efforts.

To Reduce Operating Costs and Improve Operating Efficiency.Efficiency and Financial Resilience.Continuing to reduce our operating costsexpense per available seat kilometer is a key to increasingincreased profitability. We aim to remainmaintain our position as one of the lowest cost airlines in the world. We have worked toward achieving this goal by assembling a newintend to further reduce the average age of our fuel-efficient fleet, while optimizing the size of young aircraft that is capable of safely and reliably accommodating aour fleet to ensure high utilization rate, incurs low maintenance costsrates. In 2005, we became the first airline in Latin America to use winglets on our aircraft and is fuel-efficient.in 2009, we became the first airline in Latin America to implement electrostatic painting in our aircraft reducing significant aircraft weight and savings in paintings and environmental emissions. We are alsocurrently working on implementation of GPS Landing system, installation of winglets to achieve this goalour Boeing 737-700 fleet and a tankering strategy, among other initiatives to further increase our fuel efficiency and lower our operating costs.

     We seek to continue to reduce our operating expense per available seat kilometer 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 aircraft to an established and efficient operating infrastructure. We are applying Gol’s best business practices to Varig’s operations, adjusted only in specific areas of Varig’s service-oriented concept, like more legroom, differentiated onboard service, ticket distribution channels and the offering of VIP lounges.

     We have since the acquisition reduceda strong balance sheet and intendwe seek to further reduce Varig’s cost per available seat kilometer through fleet modernization, renegotiation of Varig’s supplier agreements and other cost-reducing measures. With the VRG acquisition and the growth of our ancillary businessesGollog,Smiles,Voe Fácil andGol Negócios, we intend to further centralize certain administrative, maintenance and overhead cost and create synergies in efficiency, quality and competitiveness gains. Our system of phased maintenance for Boeing 737 aircraft allows us to perform maintenance work every day without sacrificing aircraft revenue time and to bettercontinuously set 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 believe we achieve greater control over maintenance costs. We are currently expanding our Aircraft Maintenance Centerfinancial targets in order to provide maintenance servicesfurther improve our financial resilience to support our growing fleet. With the acquisition of 101 new and fuel efficient Boeing 737-800 Next Generation aircraft (as of December 31, 2007) through 2014, we will further reduce the average agegrowth strategy. We currently seek to maintain a cash position equivalent to more than 20% of our fleet, increasenet revenues recorded in the number of available seat kilometers per aircraftlast twelve months, to continuously improve debt ratios and therefore increase operating efficiency and potentially lower our operating costs.to avoid significant debt maturities in a three-year range.

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To Offer Attractive Services to a Variety of Customer Segments.The main customer segments in the Brazilian airline industry are business travelers, representing 56% of the total travelers according to our internal data with the remainder being leisure travelers and occasional travelers who are more price sensitive. Our strategy is focused on all these groups, with Gol’s business model being more suitable to the more price sensitive groups, and with Varig’s business model being more attractive to business travelers, who value higher travel comfort and service levels and flight service during peak business hours. We believe that Gol is perceived by our customers as providing attractive, simple and convenient services, at excellent value at low 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. 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 selecting seat assignments. We provide free shuttle service between airports and drop-off zones on selected routes. Gol offers customers a single-class in the Brazilian domestic routes, pre-assigned seating flights, does not overbook flights and provides designated female lavatories. Gol’s strategy will be to continue to seek ways to make the Gol brand signify simplicity and convenience in the minds of air travelers. Varig has the most legroom of any Brazilian airline in a single class service, offers a business/comfort class for certain routes, and emphasizes our friendly and multilingual flight attendants and VIP lounges. Varig’s strategy is to offer rational, value-oriented passenger air transportation services without excessive costs.

To Make Varig’s Operations Accretive to our Consolidated Business. We acquired VRG in order to improve our competitive position in the highly competitive Brazilian and international passenger transportation industry over the long term. We increased our investments in Varig and intend to further focus on the development of its business model, fleet modernization and integration with Gol’s operations. Upon the approval of the acquisition by CADE, which we expect to receive in the first semester of 2008, we intend to further integrate Varig’s and Gol’s operations. We intend to operate Varig under a highly efficient business model derived from Gol’s successful low cost model, but with a more business traveler-focused service. In line with our objective of making VRG accretive to our consolidated business, we decided in 2008 to concentrate Varig’s international route network in South America and discontinue service to other international destinations. Varig’s status as a flag carrier permits us to explore future opportunities to operate in attractive international markets beyond South America.

To Further Establish and Increase Our Ancillary Revenue Businesses.Our ancillary revenues are derived from theSmiles,Gollog 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$85.4 million in 2004 to R$371.6 million in 2007. We expect further growth in these businesses, which will provide us with ancillary revenue at low incremental cost. TheSmiles frequent flyer program is one of Latin America’s largest airline loyalty programs. We intend to increase theSmiles marketing and penetration through adding partnerships with affiliated credit cards or using services and products at partner establishments. 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 increasing the Voe Fácil program penetration we believe that we will be able to stimulate 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 high load factors on our aircraft and the high volumes of customers using our website.

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Routes and Schedules

Gol’s     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 Gol’sour passengers connect or pathfly 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 feasibleeconomically viable 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 usuallycan be 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 and Caribbean 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.

Varig mostly provides frequent point-to-point direct service on     We have been increasing the number of flights to and through the major Brazilian airports and prudently adding more routes to main and central airports in and around major population centers and the most important economic centers in Brazil and South America. Its point-to-point model allows Varig to offer frequent, direct, non-stop services.

Our consolidated route network and our ability to further integrate our route networks offer us a large number of distribution options, and convenient frequencies to the clients within South America. We intend to manage Gol’s and Varig’s route networks as complementary and synergistic networks. Until the CADE approves our acquisition of VRG, we cannot, however, make use of all potential operational, cost and revenue synergies from the consolidated operations of Gol and Varig. After an approval by CADE,Caribbean destinations, which we expect to receivegive us additional growth opportunities in the first semester of 2008,Brazilian and international markets.

     At March 31, 2009, we will be able to further integrate Gol’s and Varig’s networks and service offerings and offer attractive network connections between Gol’s multiple stop network and Varig’s point to point network, combined with access to the international destinations served in South America.

At December 31, 2007, Gol offered over 590800 daily flights to 5961 destinations connecting the most important cities in Brazil as well as the main destinations in Argentina, Bolivia, Chile, Paraguay, PeruUruguay, Colombia, Venezuela and Uruguay. As of December 31, 2007, Varig offered over 115 daily flights to 14 destinations in Brazil, and to nine international destinations in South America and Europe: Buenos Aires, Bogotá, Caracas and Santiago, in South America and Frankfurt, London, Paris and Rome in Europe. In 2007, Gol inaugurated four new destinations, thereby increasing the number of destinations served to 59 (51 in Brazil). In 2007, Varig inaugurated four new destinations thereby increasing the number of destinations served to 23 (14 in Brazil). In the first half of 2008, we decided to reposition VRG’s international route network to South American destinations and discontinue Varig’s intercontinental flights to Frankfurt, London and Rome at the end of the first quarter, and flights to Madrid, Mexico City and Paris in the second quarter of 2008.Caribbean Region.

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 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, two international airports located in São Paulo and Rio de Janeiro, respectively, which we expect will give 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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Our market positioning enables both Gol and Varig to successfully negotiate a number of arranged partnerships with supplementary major carriers worldwide. Strategically, these additional passenger inflows aim to improve revenues at lower costs. In 2005, Gol entered into its first code share agreement with Copa Airlines, and unilateral interline agreements include Varig, Air France, Delta Airlines, Continental Airlines, TAP Air Portugal and Aerolíneas Argentinas. Varig entered into multilateral interline agreements with 35 airlines as of December 2007, including Aeromexico, Alitalia, Air Europe, Air France, Copa, Delta Airlines, Iberia, JAL, KLM 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 check-in with the baggage sent 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. Both the code share marketing carrier and code share operating carrier must have interline agreements with all other carriers in the itinerary to allow a single ticket to be issued. We are currently analyzing the viability of entering into a global airline alliance.

Customer Value and ServiceServices

Gol’s and Varig’s Passenger Transportation

We recognize that we must offer excellent services to our customers. As a result,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 pay particular attention to the details that help to make for a pleasant, hassle-freecomplication-free flying experience, including:

•

• ticketless travel;

  •
  
  

• convenient on-line sales, check-in, seat assignment and flight change and cancellation services;

  •
  
  

• online flight status service;

  •
  
  

• web-enabled cell phone ticket sales and check-in;

  •
  
  

• self check-in at kiosks at designated airports;

  • airport parking discounts;

  •
  
  

• designated female lavatories;

  • a choice between single-class, low frills, pre-assigned seating (Gol) and differentiated services with the most legroom in the domestic market and a loyalty program (Varig);

  • business-oriented, comfortable travel;

  •
  
  

• friendly and efficient in-flight service;

  •
  
  

• modern aircraft interiors;

  •
  
  

• quick turnaround times at airport gates; and

  •
  
  

• free or discounted shuttle services between airports and drop-off zones on certain routes.routes;

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• buy on board services on certain flights;
  
  
• Mobile check-in and boarding pass (100% paperless boarding); and
  
  
• iPhone application for check-in, electronic boarding pass andSmilesaccount management.

We seek to achieve punctual operations, which are of primary importance to our customers. In 2007, the adverse industry environment in Brazil, airport congestions and changes in slot allocations made punctuality a challenge, even though we increased the scheduled time between flight legs and took further measures to improve punctuality. According to our internal data, which isare corrected for delays out of our control and pre-advised changes in flight schedules, our punctuality ratesrate in 2007 were 98% for GolDecember 2009 was 85.3%, as compared to 72.0% in 2008.

Smiles Loyalty Program.

     We have a loyalty program (Smiles), which we consider as a strong relationship tool and 96% for Varig.

According to ANAC data, which is available to all our passengers. We intend to increase theSmiles penetration through creating marketing initiatives and additional benefits to our customers (e.g., double miles promotions and the launch of several miles redemption options, allowing our customers to use part of their miles to complete the payment) increasing and establishing partnerships with affiliated credit cards or using services and products at partner establishments. There are four tiers in ourSmiles program (Diamond,Gold,SilverandBlue) and qualification for a particular tier is based on the miles flown. TheSmiles program serves as a source of revenue for us, since we can sell miles directly to corporate clients 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 2009, the program offered a number of marketing promotions aimed at re-engaging its existing members and expanding its client base. We have received our IOSA certification during the first half of 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 correctedcompete on intercontinental routes. We expect that, through 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 delays outthe integration of our controlSmiles and pre-advised changes in flight schedules, Gol’sAir France-KLM’s Flying Blue programs and Varig’s domestic punctuality statistics in 2007 averaged 50%lays the groundwork for a future code-share agreement. The Smiles program had over 6.6 million members at the end of 2009.

Ancillary revenues

     Ancillary revenues such as revenues from our Gollog services, ourVoe Fácilprogram, as well as baggage excess and 77%, respectively. International punctuality statistics according to ANAC averaged 47%ticket change fees and 66% for Gol and Varig, respectively. These figures were lower than previous years, due in part to problems with the administration and coordination of the Brazilian air traffic control, which began in the fourth quarter of 2006 and continued throughoutbuy on board 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 11.9% of our consolidated revenues in 2009, compared to 8.1% in 2008.

     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 year,large number of passengers on our flights and peaked with the restrictions placed at Congonhas airports after an accidenthigh volumes of customers using our website.

     We believe that integrating travel-related products in our e-commerce platform to be key to a competitor’s aircraft atfaster increase in our ancillary revenues. We intend to provide comfort and convenience to our clients by upgrading our current e-commerce platform into a fully-integrated portal that airportprovides a wide range of integrated travel-related products to be charged in July 2007, which affected Gol, with its highly integrated multi-stop network,a single invoice. In addition, we plan to integrate theSmilesandGollogplatforms into our air travel portal to further provide convenience and Varig, with its largely Congonhas-based flight network.simplicity to our customers.

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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. Gol’s 59 destinations and Varig’s 23Our 61 destinations throughout Brazil, and South America and Caribbean provide access to multiple locations in the region. Gol’sWith our capacity of over 590800 daily flights and Varig’s over 115 daily flightswe can guarantee quick and reliable delivery. Packages are shipped in the cargo holdfreighthold of Gol’s and Varig’sour passenger aircraft. Gollog has two storage facilities – one at Congonhas airport in São Paulo, and another at Cumbica airport in Guarulhos – with 112 employees. Additionally, Gollog has 49 franchised branches and a fleet

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Table of 201 vehicles to collect and deliver cargo. In 2007, Gollog generated revenues of R$172 million and carried volume was 56,500 tons.

Smiles Loyalty Program

We have a loyalty program (Smiles) and is available for passengers flying Varig. We consider Varig’s frequent flyer program as a strong relationship tool. Members may accumulate miles by flying on Varig’s flights. We intend to increase theSmiles penetration through increasing and establishing partnerships with affiliated credit cards or using services and products at partner establishments. We believe that Varig’sSmiles program can strengthen lines of communications with its passengers. There are four tiers in Varig’sSmiles program (Diamond,Gold,SilverandBlue) and qualification for a particular tier is based on the miles flown. TheSmiles program serves as a source of revenue for us. 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 2007, 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 five million members at the end of 2007.Contents

Voe Fácil Installment Program

Gol     In 2005 we launched in 2005 theVoe Fácil (“Fly Easy”) 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 to increase our market and stimulate demand for our tickets. In 2009, theVoe Fácil program decreased its ticket sales by 43% compared to 2008 to R$112.6 million in 2009 from R$198.4 million in 2008, corresponding to a decrease in tickets sold by 51.6% to 140,661 in 2009 from 290,850 in 2008. This decrease was due to reduced promotion and exposure of theVoe Fácil product during the first half of 2009.

Aircraft Fleet

     In line with our strategy of combining the renovation of our fleet with disciplined growth in our seat supply, we concluded the following operating agreements and initiatives in 2009:

• Agreement with Boeing to reschedule the delivery of 20 Boeing 737 NG aircraft from between 2010 and 2012 to between 2010 and 2014.
  
  
• Sub-leasing of two 737-800s to a European airline, which returned in October 2009. This agreement can be renewed in the next year and represents more flexibility for us by enabling a temporary fleet reduction during our winter period providing an opportunity to keep higher levels of average aircraft utilization during the year.
  
  
• Replacement of a 767-300 with a 737-800 in April, leaving six wide-body aircraft grounded, two of which are currently under sub-leasing/wet-leasing negotiations.
  
  
• Receipt of three 737-800 NGs (two of which are specially equipped for short runway landings and take-offs) as part of the 737-700 and 737-800 fleet standardization, which aims to replace all remaining 737-300s.

     As a result of the above, on December 31, 2009 we had an operational fleet of 108 operational aircraft and a total fleet of 127. We expect to have 111 aircraft in our operating fleet by the end of 2010.

     As of March 31, 2010, one of our Boeing 767 aircrafts was subleased to a charter company in the United States until 2013, one is under final formalization process for a wet lease to a Brazilian company for flights connecting Brazil to Angola and three are under final stages of negotiation to be chartered to operate intercontinental flights.

The following table sets forth the composition of our fleet at the dates indicated:

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     At December 31, 2009, we had a total of 127 aircraft, 94 of which were under operating leases and 33 were under finance leases.

     The average age of our operating aircraft at December 31, 2009 was 6.3 years. The average daily utilization rate of our operating fleet in 2009 was 11.6 block hours (12.1 block hours in 2008).

     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.

The following table sets forth our year-end projected operating fleet through 2015:

     We will revise this fleet plan according to our expectations for the Fly Easy Purchase Programgrowth potential in the 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:

• they have comparatively standardized maintenance routines;
  
  
• they require just one type of standardized training for our crews;
  
  
• they use an average of 7% less fuel than other aircraft of comparable size, according to Boeing; and
  
  
• they have one of the lowest operating costs in their class.

     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. We use a single type of aircraft 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. Most of our leased Boeing 737-800 Next Generation aircraft are 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 received over one million applications since its launchshown operating fuel consumption reductions from 3% to 5%. In addition, the winglets improve airplane performance during take-off and landing on short runways. The new Boeing 737-800 NG 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, reduce 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 2005Rio de Janeiro, an important link to the most important routes in Brazil.

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     At the end of 2009, we leased 94 of our 127 aircraft under operating lease agreements that have an average remaining term of 42 months. We believe that leasing our aircraft fleet under operating leases provides us with flexibility to adjust our fleet size. We make monthly rental payments, some of which are based on floating rates. We 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 has issued more than 700,000 cards.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, 2009, our operating leases had terms of up to 144 months from the date of delivery of the relevant aircraft.

     At the end of 2009, we had 33 aircraft acquired under our firm purchase order with Boeing under finance lease arrangements that had an average remaining term of 121 months.

Sales and Distribution

Our 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.

Gol

Gol’s     Our low cost low fare business model utilizes website ticket sales as its main distribution channel.channel especially in the local market. For the year ended December 31, 2007, 80.0%2009, 23.2% of Gol’sour passenger revenues, whether directly to the customer or through travel agents, were booked via the Internet, making Golus one of the worldwide industry leaders in this area. In the same period, 10.3%6.3% of Gol’sour passenger revenues were booked through call centers, and airport sales counters, 8.3% through itsand our BWS and 1.5%1.3% of itsour total sales were made through the GDS, respectively.

Gol     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. TravelFor the year ended December 31, 2009, travel agents provide Golus with more than 20,000 distribution outlets throughout these regions. For the year ended December 31, 2007, 66.4% of Gol’s sales were to customers who purchased tickets indirectly from travel agents (78.7% of these sales were made on Gol’s website, 6.7% through call centers and 2.2% by travel agents through a GDS system).

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GDSs allows us to 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 international passenger traffic, especially to our international network. In 2009 we made additional investments to expand our presence with Amadeus, Sabre and TravelPort.

To illustrate the importance     On October 21, 2009 we became an issuer of continuing to focus on increasing Internet-based ticket sales directly to Gol’s customers, it costs an average of 22% lesscards for each ticket sale made directlyUniversal Air Travel Plan, or UATP, a payment network owned and operated by several foreign airlines. UATP allows us access to a customer through our website compared to Internet ticket sales through travel agents, 54% lesspayment network with lower costs than a call center ticket salethose offered by credit cards and 78% less than a GDS ticket sale. The higher ticket sales costs for GDS ticket salesother means of payment. In addition, as an UATP card issuer we are partially offset by higher average fares for tickets booked through a GDS. Gol strongly promotes the use of its website because it is its most efficient distribution channel in terms of cost savings and customer convenience. By focusing on virtual distribution, Gol is able to streamline ticket sales and services and reduce the need to incur costs associatedmaintain a closer relationship 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 Gol customers with high levels of convenience, as they are better able to interact with Gol when they want and how they want, in either Portuguese, English or Spanish. As a result of this emphasis on virtual distribution,our corporate customers.

     During 2009 we have become oneinvested in increasing the number of the largest and leading e-commerce businesses in South America in terms of revenue from Internet-based sales.

Varig

Due to its larger volume of operations with interline partnerships and international flights, Varig mainly usesdistribution channels: we have opened Gol stores outside the traditional distribution channel GDS, which isairport areas in Buenos Aires, Cordoba, Rosário (Argentina); Asunción (Paraguay); Santiago (Chile); Santa Cruz de la Sierra, La Paz, Cochabamba (Bolivia); Montevideo (Uruguay); Caracas (Venezuela), Bogota (Colombia). We also opened the system primarily used by travel agents for international destinations. In 2007, 75.1% of Varig’s passenger revenues werefirst airline store in São Paulo (Brazil) 100% designed to customers who purchased tickets indirectly from travel agents, mostly through GDS systems. For the same period, 8.8% of Varig’s passenger revenues, whether directlysell to the customer or to travel agents, were made via the Internet. Varig’s strategy is to increase sales through its website. It booked 12.3% of its sales on the web since the re-launch of its website on October 23, 2007.Brazilian middle class. All stores are strategically located in high density population regions.

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 March 31, 2010, we had a code share agreement with American Airlines, Iberia, Air France KLM, Aero Mexico and Copa Airlines. We are also launching a frequent flyer tie between ourSmiles program and the code share partners enabling travelers to accrue and redeem miles between ourSmilesand the each of the partners (however, the partnerships are not integrated among themselves). In addition, passengers will be able to connect with Gol operated flights within Brazil, marketed as a code-share partner flight. We intend to enter into similar agreements with other long haul airlines serving or intending to serve Brazil.

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     At December 31, 2009 we had interline agreements with 63 airlines, including Korean Airlines, Delta Airlines, Emirates Airlines, Avianca, Continental Airlines, Japan Airlines, TAP Air Portugal, and others. 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.

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 have also entered into alliancespartnerships with hotel chains, and rental car service and insurance providers to offer our corporate customers the convenience of packagedthe combination of transportation and accommodation arrangements. At the end of 2006, Gol launched in association with MasterCard and Banco do Brasil, its corporate credit card “Gol Negócios” targeting small and medium-size corporate enterprises. We will continue to focus on expanding Gol’s base of cost-conscious, medium-sized corporate clients who serve as a source of recurring revenues. In addition, we believe Varig’s increased travel comfort and frequent flyer program can attract premium passengers and can develop into a strong relationship that stimulates demand.

Another distribution channel of our services, which increases our load factors, are partnerships with international air carriers. Gol has entered into unilateral interline agreements with Varig, Air France, Delta Airlines, Continental Airlines, TAP Air Portugal, Aerolíneas Argentinas and COPA Airlines (code share since 2005) at Gol; and Varig had multilateral interline agreements with 35 airlines at Varig as of December 31, 2007. Until the approval of the VRG acquisition by CADE, we cannot, however, make use of all potential operational and revenue synergies from the consolidated operations of Gol and Varig.

Brands and Marketing

We use the Gol brand and the Varig brand as separate brands to better target all customer segments. As part of this strategy to use brand segmentation we re-launched the Varig brand officially in October 2007. While Gol’s motto “Here everyone can fly” is linked to Gol’s low cost-low fare service, we have positioned the Varig brand with the motto “The pleasure is in flying” to emphasize Varig’s service-oriented approach, with the most legroom in the Brazilian airline industry.

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We advertise primarily through cost-efficient media, including Internet websites, radio spots, local newspaper ads and billboards.

We also use innovative promotions to stimulate demand for air travel. We believe that the high number of visits to Gol’s and Varig’s websites, which averaged 4.4 million visitors per month during 2007, are in part the result of the customer interest created by our promotions. By offering campaigns with low promotional prices, Gol and Varig stimulate their customers to search for opportunities to fly Gol and Varig.

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 20 payment options for online sales, such as credit card payments, debit payments and monthly installment payments.

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 promotional strategies.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.

Under our operating model, we     Airlines are keeping our operating costs low and we have designed our fare structurepermitted to balance our load factors and yields in a way that we believe will optimize profits from our flights. Gol’sestablish fares are below the average fares of its Brazilian competitors and Varig’s fares are based on market demand. 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. 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.

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.

Internationalinternational tickets sold in Brazil arewithout previous government approval, subject only to a price range determined by and approval of the ANAC, except for international tickets to South American destinations, for which no approval but only registration with the ANAC is required. International tickets sold outside Brazil are priced based on market demand.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.

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 and South America. We believe that our practice of performing daily preventative maintenance helps to maintain a high 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 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 (Maintenance, Repair and Operations) 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 2009 under our firm purchase order with Boeing will start expiring in 2013.

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     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. We started the first of a two-stage expansion project in 2008, when the facility had a capacity to service 60 aircraft. The second stage was inaugurated in March, 2010 and we now have a total capacity to perform full maintenance services for more than 120 Boeing 737 aircraft per year.

     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 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 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, now that the construction of an additional maintenance facility has been completed.

Fuel

     Our fuel costs totaled R$1,813.1 million in 2009, representing 32.2% of our operating expenses for the year. In 2009, we purchased substantially all of our fuel from Petrobrás Distribuidora S.A., a retail subsidiary of Petrobrás, principally under an into-plane contract under which the supplier supplies fuel and also fills our aircraft tanks. In 2009, fuel prices under our contracts were re-set every 30 days and were 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.

     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 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 positions 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 where 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, 2009, we had hedged 22% on average for our projected fuel requirements for 2010 and 5.5% in average for our projected expenditures in foreign currency. The fuel hedges are based on call options and the foreign currency hedges are divided in 67% in call options and 33% in futures contracts.

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The number of seats we offer at each fare level in each market results from a continual process of analysisfollowing chart summarizes our fuel consumption 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, Gol’s 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.

Gol recently replaced its existing system and started using a modernized state of the art revenue management tool based on the Sabre Air Max RM platform, which is able to store, process and analyze data, and provides Gol 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. Gol worked with Sabre to build this version of their product, and was its launch customer. Varig currently uses an in-house yield management system developed by its predecessor company, but we expect Varig to start using the modernized system utilized by Gol during the first semester of 2008.

Awards and Recognition

We have received a number of awards for areas such as service excellence, our website, technology, operations, finance, marketing, investor relations, and corporate responsibility. Recent highlights are:

• Top Performer in Transport and Logistics in theValor 1000 publication in Brazil;

• Best Performing Airline in the world in 2005 and 2006 byAviation Week and Space Technology;

• Most awarded Latin American Company in a survey by theLatinFinance magazine;

• Best transportation company in Brazil, according to theEXAME magazine in Brazil in 2007 and the Best Brazilian company in 2004;

• Most competitive airline in Latin America, according to rankings disclosed byAmerica Economia Magazine;

• Air Transport Worlds Market Leadership Award byAir Transport World;

• No. 1 in the category of “Disclosure Procedures” in Latin America in two consecutive years and the top prize in the industry and top five ranking in Latin American websites for our investor relations website at the Ninth Annual IR Global Rankings in February 2007;

• One of five “Global High Performers” in the transportation industry ranked onForbes Magazine’s annual list of the largest 2000 global companies;

• One of the top shareholder-friendly companies in Brazil’s aerospace, transportation & industrial sector ranked by theInstitutional Investor magazine; and

• Our Chief Executive Officer, Constantino de Oliveira Junior, ranked byInstitutional Investor magazine as the number one CEO in Brazil’s aerospace, transportation & industrial sector.

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Corporate Responsibility

Our values are based upon growth, respect and incentives for teamwork for our employees, and the fulfillment of our social and environmental obligations. We are committed to being a good corporate citizen in Brazil by participating in projects dedicated to improving the education, health and nutrition of the underprivileged portion of Brazil’s population, particularly children.

In 2007, we contributed R$3.5 million to social and cultural activities and donated 5,495 tickets, with a value of over R$1.0 million, for charity and cultural purposes. We collected food and school supplies and sponsored cultural and educational projects, as well as environmental protection initiatives. In September and October 2007, we launched an innovative promotioncosts for the AACD (Associação de Assisténcia Crianca Deficiente), in which we sold more than 200,000 tickets (corresponding to 9% of tickets sold in the period), and which generated revenues of R$2.0 million for the AACD. 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.periods indicated:

We also support other various 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 responsibility and cultural sponsorship initiatives benefit us by enhancing our corporate image and promoting awareness of our brand.

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. SinceIn June 2009, we created the last quarteroffice of 2006, technicalSafety Officer which reports directly to our board of directors and operational problems in the Brazilian civil aviation infrastructure, including air traffic control systems, airspace and airport infrastructure have adversely affected airline operations and may continue to adversely affect the industry. Since 2006, two major airline accidents have caused casualties in Brazil. See “Industry Overview — Trends and Recent Developments in Brazilian Civil Aviation Market” below.

Various measures have been taken by the relevant governmental authorities and discussions are currently ongoing with a view to possible changes in the organizational structure of the aviation infrastructure system and to further improve safety in the industry. See “Trends and Recent Developments in Brazilian Civil Aviation Market” below.

Aircraft

A key element of our business modelwhose main goal is to operate a youngoversee flight safety and simplified fleet. At the end of 2007, we had a total fleet of 111 Boeing aircraft, of which 106 aircraft were operating (31 Boeing 737-700 Next Generation aircraft, 41 Boeing 737-800 Next Generation aircraft, 27 Boeing 737-300 aircraftreport directly to our highest management level.

Environmental Sustainability

     We constantly invest in becoming more environmentally sustainable and 7 Boeing 767-300 ER aircraft) and 4 aircraft were in the process of being returned to lessors. We expect to return all our Boeing 737-300 and 767-300 aircraft during 2008 and intend to concentrate our fleet on Boeing 737-800 Next Generation aircraft for Gol and Boeing 737-700 Next Generation aircraft for Varig. We intend to operate 135 aircraft by the end of 2012. We are able to serve all our markets in Brazil and South America with our new Boeing 737 aircraft fleet.

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The composition of our fleet as of December 31, 2007 is more fully described below: