Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the course aviation Inc. first quarter 2020 earnings conference call. At this time all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session.
Do you asked a question during this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I.
I would now like to hand, the conference over to your speaker today, not Aleem again, Vice President Investor Relations. Thank you. Please go ahead.
Thank you operator, Hello, and thank you for joining us today for first quarter 2020 conference call audio webcast.
With me today from of course, there, Joe Randall President and Chief Executive Officer, and dairy Osborne Chief Financial Officer.
Let's start but even in brief overview result.
In Texas covert 19 bigger and what we're hearing about it.
Then go into questions from the analyst community because some of the discussion is called me before looking I direct your attention to the caution regarding forward looking information and statement, which are subject to various risks uncertainties and assumptions that are concluded or referenced on page 45 of our management discussion and then.
Now sits at the results in operations important Aviation Inc.
Periods ended March 31st 2020, the outlook section and other sections of our Mdna were such things appear. In addition, some of the following discussions or involve certain non-GAAP financial measures, including references to EBITDA adjusted EBITDA adjusted EIBTDA, an adjusted net income.
Please refer to section 18, or Mdna for discussion relating to the usage such non-GAAP measures I'll now turn call over to Joe Randall.
Thank you that way and good morning, everyone.
It's difficult to know where to begin.
We are in I'm sure on charter territory.
We entered this pandemic from the strongest position or history, having a solid balance sheet customer base and growth prospects.
Our growth trajectory generated increases in adjusted net income and adjusted EBITDA of approximately 31, and 18% respectively quarter over quarter.
We would spend much time discussing the first quarter as most interest is in the near future.
Our efforts remain focused on ensuring the wellbeing of our employees and passengers reducing costs and bolstering our liquidity as we prepare for the lifting of travel restrictions.
We've been prudently and responsibly, managing our financial resources and have eliminated all discretionary cash flows, including our dividend as announced last month.
We have reduced our workforce to match or operational demand reduced compensation for management administrative employees and our board of directors and deferred capital spending.
Gary will take you through the specifics with these measures in a few minutes.
No one can predict how long this crisis, my wife, or what Pete Ultimate impact will be on the aviation industry.
Most airlines or downsizing the number and size of aircraft in their fleet and accelerating the retirement of older aircraft.
There have also been deferrals of new aircraft acquisitions, causing an associate a decline in production rates by aircraft manufacturers. However, airlines will still need to improve operating efficiencies and replace existing aged aircraft overtime.
That's a recovery unfolds, we believe there will be new opportunities where aircraft leasing at several carriers pop to lease versus purchase aircraft.
We are seeing promising airline activity in Asia and in some parts of Europe, where capacity is starting to ramp up as travel restrictions start to ease.
As such and its history has shown in times of economic downturn.
Its regional capacity the comes back first since most carriers are starting with building domestic operations utilizing smaller gauged aircraft.
There are few examples of this with some of our airline leasing customers.
We understand Croatia Airlines resumed some domestic service utilizing daschle four hundreds KLM have started to gradually restore its European network by flying Embraer Jets and Lion Air has started to resume limited domestic operations.
The crisis. This crisis has affected our business in various ways.
We've been working closely with air Canada and have reduced our air Canada Express capacity by 90% for April and May resulting in over 70, or Crapping Park, and approximately 65% of the jazz workforce being placed on inactive status.
We have temporarily shut down or jazz technical services operation and the associated employee reductions are included in the 65%.
Our focus has been on ensuring that health and safety, our active employees and implementing the necessary policies and processes to ensure business continuity.
In conjunction with Air Canada, we are implementing the customer clean plus program and working on flying resumption clients.
At this point, we believe the Crj 900 aircraft will be an important part of the recovery schedule given its size and economics.
It's been birthday restarting its production line, we now anticipate commencing the delivery of new Crj nine hundreds later this year.
In April jazz became to watch customer for the Dashi 400 simplified.
Package freighter developed by the heavily in Canada.
Josh order to service Bulletin and conversion kits for up to 13 aircraft to commence cargo flying under the CP.
Simplified package freighter allows us to redeploy aircraft, while contributing to the collective fight against Corbett 19 by supporting our customer Air Canada, and the delivery of essential cargo.
On the leasing fraud, except for UK based fly D.
Our portfolio of leasing customers remains intact.
City jet convergent, Australia have voluntarily entered a restructuring process.
We have a total of five aircraft with these two carriers.
Both carriers continue to operate and we hold security deposits in respect of the aircraft we have under lease.
We also had a 24 month remarketing period available under our loan agreements should the need arrives.
We are working cooperatively with her lessees as we try to manage through these difficult circumstances.
We've provided a temporary rent deferrals to substantially all our lessees for a period of between three and six months with repayment terms between six and 24 months.
Given our lease portfolio is geographically diverse we expect to see a variation in the ramp up speed and financial stability of these airlines.
Our approach with our customers is to work with them to our mutual benefit.
Consistent with market norms are leases are for a fixed term contain an absolute payment obligation under part of the lessee and cannot be terminated for convenience.
Well, we do expect or industry, and especially the regional aviation sector to recover in time, we are pausing or growth plan of adding up to 20 aircraft per year to preserve liquidity.
At Voyager, we've been fortunate that the impact on our contract flying has been mitigated by the essential nature of the humanitarian and peacekeeping operations as well as error ambulance operation in New Brunswick.
However, our parts sales and our specialty maintenance repair and overhaul work are showing declines related to reduce their light operations and this is being somewhat positively offset by several government customers and contractors.
Prior to this crisis, we were flying over 700 daily flights to 990, North American destinations.
Many of them being a remote communities and eight of which we were the sole error operator.
Today, we're operating fewer than 60 daily flights and have ceased operations at 36 airports.
Billions in government assistance has been announced for airlines around the world in recognition of their rule as critical infrastructure.
The government of Canada announced this week the creation of a large employer emergency financing facility, which we will review to determine our next steps.
We believe air service to regional communities is a critical component to stimulating the return of the Canadian economy.
We remain hopeful that the government of Canada will spearhead a collaborative effort amongst all stakeholders in aviation to address the many additional measures required beyond financial support to ensure the safe and timely reopening of air travel in Canada.
As Gary will explain we have a strong liquidity position, which combined cash and committed facilities of over 265 million, providing us with the ability to navigate through this period.
And emerge positively on the other side [noise].
In these times, a great stress and uncertainty I'm inspired by and thankful for the energy resilience and commitment of our employees.
Our employees are amongst the most talented in the industry and I'm deeply troubled by the uncertainty and anxiety this is causing them and their families.
Together, our team has overcome significant challenges.
I'm confident this crisis will be no different.
We want to be ready to capitalize on opportunities that will inevitably arise. Thank you and now I'll pass the line over to Gary. Thank you, Joe and good morning.
So Joe sentiments on the resiliency and strength of our employees, we truly have an incredible team and I am confident we'll get through this period together.
Our financial performance in the first quarter had adjusted EBITDA at 88.7 million, a 14 million dollar increase over first quarter 2019.
We also saw an adjusted net income 25 million in the quarter.
6 million dollar increase over last year, which led to an increase in adjusted EPS is at 16 cents versus 13 cents last year.
Net unrealized foreign exchange losses on long term debt of 55 billion drove the net loss of 17.3 million over first quarter 2019.
As noted in our Mdna the losses do not materially affect current or future cash flows as we build the revenue in the same currency as the debt payments.
[noise] overall the growth in our Q1 earnings was driven by by a regional aircraft leasing segment, which increased by 24 aircraft and resultant adjusted EBITDA by 16.5 billion and adjusted EBITA key by 4.8 million over that same period last year.
The regional Aviation services segment had a reduction in adjusted EBITDA of 2.6 million, but a small increase in the just in adjusted EBITA of 0.3 million.
The SCPA financial results were within our expectations, but we had some headwinds in the aircraft parts sales at Emory outside of the business given the slowdown with Covidien team along with an increase in other general administrative expenses.
As we've seen cobot 19 has to structure disrupted our daily lives and with it the economy like most businesses, we have taken and continue to take numerous substantial measures to protect our company.
He's protective measures include initiatives for the physical wellbeing of our employees passengers and customers along with significant steps to enhance our liquidity, including reducing costs and travel spending as we recycle operations to meet hurt demand.
As Joe mentioned, we currently have over 265 million in committed liquidity. In addition, we expect to raise financing of between 30 and $50 million U.S.
On for unencumbered aircraft, bringing the total anticipated liquidity to approximately 310 million [noise].
[noise] during the quarter, we saw or restricted cash position increased by 21 point threemillion given some of our regional aircraft leasing customers. We're no longer current in their rent payments to course.
Once we have completed five finalizing rent deferral agreements with our left piece, we expect most of the restricted cash increase we saw in Q1 will be released back into our unrestricted cash balance and remain there provided or let fees were being compliant with the rent deferral agreement.
As previously announced we suspended future dividend payments and the dividend reinvestment plan until further notice.
This is estimated to save approximately 55 million in annual cash dividend payments when taking into account a drip participation rate of 29%.
Our growth plans have been delayed and we're no longer projecting the with the addition of up to 20 aircraft to our leasing portfolio.
Our current aircraft and DSP group Capex forecast has been reduced by approximately 95 million.
And only includes the nine committed crj nine hundreds for the CP operation two aircraft to an undisclosed customer and three is yes piece of which one was completed in the first quarter with another currently undergoing the program.
Last month, we did collect approximately 25% ever contractual revenue for the regional aircraft leasing segment. The deferral of rents by most of our lessees are estimated to increase trade receivables to aggregate amount of between 40 and 60 million.
At its peak over the next two quarters [noise].
On the regional aviation services side of the business, we have seen a significant reduction implying that jazz due to covert 19, particularly in Q2.
With this reduction flying we are estimating to control costs career receivable from Air Canada could increase between 20 and 40 million by the end of the year as compared to 2019.
This is due to the unpredictability in the flying levels and its impact on our rates under the SCPA contract. This amount will be subsequently paid by air Canada in Q1 2021.
In addition to the employee reductions.
Weve enacted several cost reduction initiatives, including employee salary and board fee reductions.
We've also reduced our non growth capex and other capital expenditures by approximately 15 million versus or Q4 2019 outlook.
Capital expenditures in 2020, including capitalized major maintenance overhauls, but excluding.
Expenditures for the acquisition of aircraft and BSP are expected to be between 23 in 29 million.
Aircraft related acquisitions in SP capital expenditures in 2020 are expected to be between 349 in 355 million.
For additional information supporting her work for the balance of this year I'll refer you to section for the 2020, a look section of our Mdna for the period ended March 30, Onest Twentytwenty.
That concludes my commentary thank you for listening operator.
Yes, we can open the call to questions from the analyst community when you already.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Joe Your question press the pound our house key.
Please standby well, we compiled acuity roster.
Your first question comes from Konark Gupta with Scotiabank.
Your line is that right.
Money just a few questions maybe first on the receivables.
So you mentioned the M. DNA that you're about to see hundred million dollar and got unfortunate contracted Lisa receivables.
Does that include a and B 53, aircrafts that on a currency going to lease with their Canada.
And then secondly, when you said $40 million to $60 million season receivables over the next two quarters. What are you referring to the lease payment flows.
Three to six months.
So the lease receivable in the financial statements that you're talking moved to 300 million, Yes, I do believe it includes the or can the piece.
On the 40 to 60 million that relates to the third party non air Canada related receivables on the rentals.
Okay. So the increase in receivables depleted receivables.
Locked in that receivable them out and potentially bad receivable does not show up in into working capital is that correct.
No. It does show up in the working capital side of the accounts receivable.
And I feel good.
Yes.
Yeah, I know I was actually Moduslink do I think there was a there was a common during the m. DNA that says that the working capital is not good measure liquidity because.
The current assets do not due to the current portion of leases. So I was just kind of making sure what what does not mean with respect with this amount.
Yeah, Yeah, no doubt that was put in I think in Q4. This reflects the fact that you know you put in a current portion of the the future all the payment obligations, but yet you have all those Lisa amounts coming in so.
I see okay. Thanks, and then secondly, EM with respect to yeah.
As a video tenant and other customers, even if you agree to collect payments opco six to 24 months or what do you keep recognizing revenue and EBITDA from those leases that rates similar to people would levels.
If if we're into a situation as we are now where it's a deferral of the rentals payback over a period of time, yes, we would continue to recognize our revenue with the same rate that we've seen.
So as long as its deferrals in the receivable that's what we would do.
I see so it's just the cash that's being delayed that's not the other revenue the cash on cash.
So hence why we put the disclosure in on the receivable side that so you could that you'd be able to model and a understand where that could go.
Okay that makes sense and lastly from me out you still have the nine crj nine hundreds in the Capex schedule.
Just because somebody had just announced that they are closing the sale of their crj business to Mitsubishi now on June 1st what do you anticipate in terms of timing to mine Crj 900, some little bit becoming Buddy.
From Mitsubishi.
Yes, we're still working through the exact timing and the delivery of those aircraft, but we do anticipate.
Commencement around midyear yeah.
And our Capex forecast, we left them into the full year until we know more wearable murdy sits as far as that production line. They were attempting to close it by the end of the years, Hence why we left the cabinets as it is once we get his update from Liberty will go back at that it appropriately yeah, we're working to have the delivery schedule.
Data it and there is a possibility that you may have some of that flow into next year, but we're on certain on that at the moment until we get from delivery schedule from Virginia.
Okay. Thanks, then it'll it thank you so much.
Your next question comes from Walter Spracklin with RBC capital markets. Your line is open yeah. Thanks, very much good morning, everyone.
What are your older. So I'd like to start with a few questions just on the post cobot 19 environment to the to extend that you can see it so not asking you when it's going to happen, but just moving to into the future and it's in a rear view mirror.
How would you describe the early.
Ramp up in in in in compare airline capacity.
Well the asset to kill it in his call. He indicated that domestic would be the first to come out and if if that's the case.
Would you see a bit of an over servicing of regional aircraft during that early phase of ramp up where that you will ramp up a lot quicker than color. Your overall airline that would have international. These are domestic crossword and all that included would you would you expect to see that kind of.
More rapid ramp up in your business.
Well, we are seeing that Ah first of all when you look at the fleet around the world the percentage of regional fleet actually grounded as a percentage of total fleet is less than narrow body in white body. I think if you look at it the largest percentage of sleek routed is our wide body aircraft.
So what you're sort of starting from there.
Number two is.
We are seeing short haul domestic markets come back first.
In Asia, I think I mentioned that now with KLM in Europe, and so we're seeing those markets showing some some green shoots I guess earlier on certainly before any of the long haul or international services I think domestic markets are the ones that countries.
Generally feel most comfortable opening first and there are a lot of domestic markets that as they ramp back up will require services you know in terms of remote communities and you know et cetera, and the loans I think initially will probably be somewhat lighter. So so some routes.
Originally would have had for instance, the 320 on maybe better suited to Crj 900, because the trick costs are lower et cetera. So you know I think up of the segments of the business. We're in the ones that I think is showing the earliest sign of returns.
But again it depends on the speed of these travel restrictions being lifted.
In Canada right now, we're seeing travel restrictions.
Tween provinces, and that's not particularly helpful in terms of getting.
Travel back up in there but.
You know there or at least I think is increasing pressure on governments and as the curve starts to flatten.
And increased interest in getting back up in regional and some of the domestic markets.
Keeping with the post cobot environment I guess when these airlines the ones that come through this when they come out there we're going to be in a much more debt laden situation a lot more focus on on on liquidity do you expect that leasing therefore as oppose.
As to outright ownership will be more prevail and.
Then would have been the case prior to covert 19 at least in the in the maybe early early months in years.
Yes, we do believe that and I think we're seeing some evidence as I've actually because some of the airlines that were previously stronger credits and I think most airlines in the world have decreased in terms of their credit ratings.
These airlines are more and more focused on their own liquidity. So we're seeing opportunities in the business for instance in terms of sale leasebacks both of Newfleet, because we still see aircraft lucky to Twentys and aircraft like that actually being a good demand.
So I think that some of the carriers that may have finance those themselves previously well now look at the sale leaseback opportunities sale leaseback of existing fleets, because it's all going to be about a about liquidity, but we're not we're not acting on goes because for us it supposed preserving our own liquids.
Right, but we're keeping a very.
Very keen outlook on how the leasing business ultimately comes out of those and we believe that there will be good demand.
So on that if there is good demand coming out and and and.
Taking your experience in the current environment into consideration are there any major changes you would put into the lease terms that you didn't have before I know you mentioned security deposits and so on would you do require higher security deposits would you. You know is there anything that you would change with regard.
To the lease term and is youre.
Lets call it the price of at least going up as a result of the higher demand and the more you know.
Arguably more risk that that is out there that perhaps we didn't consider before.
Well certainly you know security is so important here term of lease, but also things like deposits maintenance reserves things of that nature and those are the things that gives you comfort as a less or so we'll certainly be looking for a lot of those things.
And you know so there's that there's bad and also.
Looking more closely on business plans because.
You know how the industry evolves from this and you know the travel travel patterns et cetera will influence this but as well you know where we are seeing a lot of instances where governments are actually supporting their carriers through both capital injections and loan supports and things of that.
Nature and that gives us some comfort there, but on the lease rates themselves.
Like I think it'll be a function of the cost of debt and what the cost of debt will be I think coming into this and as we've said before generally the leases than the least amount at least amounts will float with whatever that cost of that is so its early.
To tell exactly what it's going to look like but those are just a few thoughts right now in terms of Oh type of credits that were you know we're interested in the types of deals and where some opportunities may lie.
Two quick questions here to to wrap up for me, we had ever Canada or conference yesterday, and there were a lot of questions being asked about.
Her Canada's C.P.A. with with you.
To your do you know or can you shed any light on weather or Canada has sought to revise their C.P.A. and if they were to even if they haven't is there accommodations that you could be made that could be made.
Much like you did I think it was maybe 10 15 years ago, where wearers Air Canada requested changes, but in return you were able to achieve.
Lengthening of the program are electing the contract and so forth.
Well, we're working very closely with their Canada, probably more closely than we've ever worked in terms of responding to this you know to this crisis to the situation and you know Air Canada is you know is is leaving that there will take some time to recover from this in terms of.
The industry the shape of the industry will be somewhat different than you know and therefore, you know our communication with air Canada will be around how this evolves and and how things happen or up to this point arc, our work with air Canada, though has been more on.
Removing operational costs.
Perhaps you know going forward, there, maybe some opportunities to reduce some fixed costs.
And we always speak with them, we're always willing to work with them as a partner you know I believe the CR Jays will pay will play a pretty critical role in the Air Canada network et cetera, and we do provide a lot of very unique services. So we're we're going to work with them, but as always.
You know, we will work to satisfy their requirements, but always on a win win basis and that's the way we've done it time and time again, and you know the industry keeps changing and evolving and we always have to be opening to change absolutely and something that works for our partner, but whatever it is it has.
The work for us as well so you know again, it's in the early stages, how it all comes back the timeframe.
The whole network is up from our perspective right now to be determined.
Okay last question for me I noted you had a.
Shareholder rights plan Amendment, there can you Oh I get this question a lot so anything that prompted that any color around that.
I'll leave it there.
Yeah, No you know I think in this environment, where share prices are very very volatile and we saw such a dramatic.
Dropping our share price et cetera, we just thought that it would be prudent in this environment to do whatever we can to protect the rights of our existing shareholders to ensure that nothing untoward happens and that we again look to bring back maximum value to our shareholders. So there was no protect.
Killer action that has caused us to do that none of that we know of and we just didnt assembly or has it precautionary measure.
Okay. That's it for me thanks, very much in the hope everyone's keeping whelan safe.
You too thank you.
Your next question comes from Kevin Chiang, Let's see a B C. Your line is open.
Hi, good morning, Thanks for taking my question.
Maybe first off just just on the trade receivable of disclosure the $40 million to $60 million just peak trade receivables over the next two quarters.
If I looked at the.
I guess the question is just about would have looked at it if I think of the quarterly revenue run rate for of course, they vision capital looks like a couple of 40 million of quarters. So over two quarters that about 80 million.
That suggests I guess the cash conversion rate.
Of anywhere from kind of 25% to 50%.
And you're seeing a 25% collection right now I guess.
I guess does that suggest that april's kind of the low point or you see that kind of being the low point for cash collection or at least deferral requests and then in it.
Improve from here is that the underlying assumptions, you're making what that trade receivables guidance.
Yeah, I guess the way, we calculate that I think you're right. It's around 42 million. We ended the quarter for revenue you take 20, you know soon you're collecting about 25% of that you get into the $30 million to $60 million range and Ah. That's based on our current agreements that we have with or less ease and we're hoping that's a you know where we're going to end up Toby.
On three to six months deferral and paid back over a six to 24 month that is the the peak range somewhere between 40 and 60.
Yep.
And maybe and maybe just a follow up on Walter's question there on on just the constant.
Concern around the CPM, maybe if you can just highlight the opportunities do a lot of people worry about the fixed fee coming in but maybe what you're doing on the controllable cost side and how that might be a bigger opportunity to pass through cost savings to air Canada versus the I'm just trying to squeeze are fixed fee that they've agreed to.
Well the fixed fee is a small amount of what has been the the cost of the CP and the the greatest cost reductions obviously come from the reduction of the operational costs and you know Unfortunately, we've had to lay off employees and all the various areas et cetera.
And and reduced discretionary spend and you know so I think that's where the greatest benefit is is being delivered to air Canada. I think the other thing that you had to remembers that when we reset this agreement it's at market and we established market rates.
In the long term agreements Air Canada came in as you know as a shareholder.
Okay.
So you know I think that puts us in a in a very good position. We will continue to talk about how we can take down costs for Canada because in this environment costs are so important.
But at the same time you know we've worked for a fixed fee. That's how we're compensated and if we do have leasing a agreements with air Canada that or other long term nature on the larger turboprops and some of the older Daschle three hundreds and those obligations remain in place. So you know we.
We'll go continuing to work with and find ways of reducing their costs.
Maybe just two more for me I appreciate that so it's obviously tough.
Because you know the future here, but.
I'd be interested in your thoughts on what you think cobot 19, copilot scope clause relief.
Maybe maybe especially within the U.S., where I think there was a lot of.
Push back on on on Bad idea, given the U.S. Airlines when a strong financial position, obviously much has changed over the past [noise].
Month, or so do you see do see potential relief on public scope clause or not potentially being.
An opportunity for four more outsource why or or or bigger regional jets.
Well I think generally go causes only happened when there are actual bankruptcies or restructurings.
Not seem a lot of changes in spoke causes outside of that.
Thank you know the environment has changed significantly from there being a pilot shortage to there being a pilot surplus, especially as you look at I think some of the longer haul.
And leisure rooms, being perhaps longer coming back.
So I don't really see a big change in that regard right now, but again are you know I've been in the business long enough to know that anything could happen [laughter], but I don't see anything in the near future and in that regard, especially if there are surplus pilots at the larger.
But the larger operation.
That's helpful and just maybe last one for me.
When you when you looked at your portfolio of leased aircraft you did take an impairment on T.R. from fly be you didn't pick one on the [noise].
On the gosh.
Just within the regional aircraft portfolio.
Is there a change in how you'd like that mix to <unk> coming out of.
Coming out of coal the 19 whenever that is just based on how you're seeing residual values Holden here through the crisis, which would you want to be less exposed to total comps a more exposed to regional jets or or certain brands.
Anything that changes from that perspective.
Well I think we've said before going into this that we were becoming more focused on larger regional jets [noise].
Gives me and I think that's a that's exactly where we are filled right now.
We still think there's a solid base demand for turboprops, although we are seeing some surpluses in some areas.
But we're seeing maybe some opportunities in some of those areas as well, but you know in terms of newer equipment, new customers and where we see growth opportunities I would have to say it would be into larger a newer regional jets and I mentioned earlier the eight to 20 as an example.
You know and it'll be interesting to see what happens with Embraer and the twos as a result of all this because as you know there's uncertainty there, but I think we're going to see good demand in those [noise].
For those types of airplanes.
Especially for me.
Actually when you have lower demand levels anyway, and I think keeping trip costs down it's important and even I see some of the the financial support that's been given in some of these countries also has sort of environmental.
Requirements being placed on airlines, which I think well help in terms of newer technology and new airplanes.
That's that's super helpful color. Thank you very much.
Huh.
Your next question comes from Doug Taylor with Canaccord Genuity. Your line is open.
Thank you good morning, I going to build on Kevin's question.
The residual value I mean, I understand that the market for re leasing or remarketing aircraft is not going to be strong year end.
Unprecedented, but yeah, I mean, you've had the flight would be aircraft now I guess on the shelf for a couple of months here can you give us any additional color as to what the.
You know realistic process backs or range of potential scenarios is for releasing those aircrafts.
So we do have prospects for.
Some of those airplanes and we're actively pursuing them right now if you know it is a tough environment. There are a lot of aircraft available. If there I don't think anybody knows exactly what's going to happen with with residual values. As a result of this but we are seeing some signs of demand and you know when when people.
Go bankrupt a lot of their routes and services have to be replaced and you may see some carriers as they enter.
Into some sort of liquidation I'm not talking about any of hours in particular or anything like that but generally what happens is there are new entrance that come in and the leases or restructured or they are at a different different type of level and they the aircraft are utilized so.
You know so we're seeing some signs, but again you know I can hold out a lot of opportunities right now it is a very difficult situation, but.
It's not dead, but you know there there was a good about heartbeat put it that way.
And you know related question, perhaps you can educate us a little bit on you know the intricacies of voluntary versus involuntary administration and maybe how you would approach those situations a differently with respect to how you start thinking about your options.
With unrelated to with respect to those aircraft like like Virgin Australian City jet seem to be right now.
Okay. When carriers go through restructuring everything is looked at in terms of their network or fleet et cetera, and everything is reviewed I think as with a lot of less orders. We're no different it's always desirable keep your aircraft in your assets placed and a into restructured environment. Then you know that's why we.
I think that would be a first preference as long as it works economically and Oh you you have comfort in that regard so that becomes the prime focus right now in any of these is to see whether these aircrafts can be utilized.
Similar environment.
And then when would the lease payment deferrals that you guys are.
You know these agreements that you guys and I've put in place over the last a couple of months since the pandemic really.
Hit in earnest I mean, there are you receiving any other.
They are qualitative or quantitative a you know consideration back for I mean really offering up your balance sheet your liquidity to these airlines.
[noise] I guess in the short term, we were going through deferral agreements in the long run there could you know as we.
Hello, this or could be some other opportunities that come up but right now to go agreements given the situation has been so so volatile so quickly.
And also perhaps Oh, we're hopeful that as a result of this will be a in a position to extend leases et cetera.
And so that you know there maybe some opportunities there, but we don't know leader.
Perhaps you the sports analogy and penetrating for future considerations.
[laughter].
Good for Us, where we're looking to work Laverdiere cooperatively with these customers you know we do believe that a you know this too shall pass and we want to ensure that we have good relationships that were seeing it as being a trusted partner.
The solid partner and a at the same type of course, our liquidity is what's most important but oh, we Ah we look to preserve really relationships and build on them and to take advantage of opportunities as we come over this.
Okay.
You know last one for me just a clarification because I think I might have missed it here, but perhaps everyone is air Canada, specifically, you're receiving rent deferral and can you maybe describe what that particular situation looks like with respect to their rent payments given it is such a meaningful portion of your your cash flow and revenue.
Yeah Air Canada is current and all payments and essentially we are not deferred any rental.
Or lease payments with Air Canada.
That's what I understood. Okay, great. Thank you I'll pass the line.
Your next question comes from Cameron Dark Sen with National Bank Financial Your line is open.
Thanks, Good morning.
Morning.
Just one follow up on I guess, the the burden Australia city seed yet situations.
As of this quite a they have not rejected the leases during their restructuring is that correct.
They have not yet.
Okay.
And we're working to see whether of course, we can keep those leases at Virgin Australia. They are some of the newer assets ER and the newer HCR 72, six hundreds so.
And we're hearing and as many have in the media that Virgin will as it emerges be most likely a purely domestic operation and I think that's good for regional regional service, but again, who know you know Australia itself. It's had a tough time with all of this and even quarter suffering I think.
So, but you know we think we're in a reasonably good position.
Okay.
And it seems as though I mean that maybe did the flood b. I don't have as the exception that the I guess, the the repayment terms of the debt associated with the Q4 hundred suits in September but most of it seemed like most of the other.
Once you've described to you or our 24 months in the event of the <unk> that middle tied to remarket aircraft before you'd have to pay the debt principle is that pretty typical for most of your leases that you would have up to two years to Jimmy marketplace before having to to repay the principal.
A lot of our debt does have that currently a two year remarketing and in there and then others are around six to nine month. As you you noted with those a lot there was a three or sorry, those five but Q4 hundreds with fly B and we're actively looking to push that will further and you know the other thing is it's an option it's not.
Given that it will be paid out at that point in time zones, we're paying or debt payments with the big which we are they've me just leave it sits so.
And as noted in our Mdna, we some of the leases that have been deferred we've been able to achieve for a number months here.
Deferral on payment a inside interest and principal on those assets. So that's helpful.
Okay, but actually leads me to ER to my next question, which was just on the I guess, the totality of principal debt repayments.
For the next to over next 12 months I mean, if I look at the current long term debt, it's around 180 million or so.
It's not a good proxy for what you would expect to adapt to pay in principle repayments and does that include the.
I guess the deferral of some of those two through September.
Yes, that's or that's what we would expect over the next 12 months. That's a good proxy that would include the September deferrals.
So if you're modeling that's a that's a pretty good number the current debt number.
Okay.
Maybe just despite a one for me I just you know just looking at the the leasing portfolio or the portfolio of airlines there.
Obviously, the situation pretty dire for a lot of airlines that was there I'm just wondering if there's do you have any other sort of near term concerns for any of your other we'll be seeing customers.
If any sort of highlighted to you I mean other than obviously coming to you and I see for rent to build that are there any other I guess airlines there there in your portfolio that you are particularly worried about without necessarily mentioned Im just wondering what the sort of risk is for additional aircraft being returned to you.
Yeah, we watch them all very closely we've executed a number of these agreements now in terms of the a the new arrangements etcetera, and we don't get into talking about individual accounts for customer confidentiality purposes.
Such risks of disclosed on the part of the customer in terms of where there, but we are watching at a.
Very closely and.
So study as it goes but.
You never know.
Yeah.
Okay fair enough. Thanks, very much for your time.
Yeah. Thank you.
[noise] as a reminder, and its star one on your telephone keypad, if he would like to ask a question.
Next question comes from Tim James with TD Securities. Your line is open.
Thanks, Good morning, just one last question here.
The cost to capital across the airline industry will will obviously go up as a result of this through certainly the short to medium term at least the leasing businesses largely dependent on its relative cost of capital versus the airline so to the extent of course can can improve or limit the upward pressure on its own costs.
Some capital and I'm thinking both debt costs in equity cost.
It's certainly creates a real growth opportunity.
Good thing how do you previously think about.
Your cost of capital getting it as low as possible and how do you think about it going forward if it changes at all as a result of this.
Well good question would be cost capital is obviously very important to the leasing side and we continue to try to get that as well as possible as you alluded to and I think when you know when we move ahead here.
Obviously, how we're able to raise the funds on the secured side in particular for the assets.
And our the equity portion we put in there will play a big factor along with the risk profile within the industry and within the airline itself from the security packages as Joe alluded to so I think you know when we as we move ahead will continue to keep or cost capital low I think you're going to see as a you know as we approach each lessee and each deal.
Once we come out of this a bit I think you're you're going to see a very.
A bit different anyway shall we say than what you've seen in the past is first that goes because because of the volatility of that we've seen so you know as far as our capital goes.
There are situation, we've got what we've got at this at this juncture and we'll continue to monitor going ahead and see if there's opportunities to.
Cheaper cost to capital lower than than what some others.
If I could just kind of build on that and then specifically thinking about the equity cost, which is which is still a.
An important component, albeit smaller than than debt.
Longer term, obviously, you know the quality the balance sheet liquidity et cetera affects your cost of equity.
What about that the dividend do you do you view that returning or the size of that as helping.
Reduce your cost of equity or how does that.
Factor into the equation.
Well, we know the dividend is important and it does affect the cost of equity or for sure. So like everything it's going to be a consideration for us going forward as things start to emerge but at this point, we not put out any particular view on it it's all about hunkering down here getting through it.
But we do recognize what you're saying and the impact of the dividend cut out on the cost of your equity.
[laughter].
Great. Thank thank you very much so that's the only question yeah.
Your next question comes from corner Gupta with Scotiabank. Your line is open.
Thanks, Ed just a just a quick follow up on that dividend question I'm. So I'm like you have the operating credit facility and the easy supposed to the debt. That's just got a so it looks like on the you have.
Some restrictions on dividend in that but do you can still be a dividend that you had before so just curious as to any any other changes with respect to yard.
Lending agreements done that restrict the amount of dividend below the previous depend debate.
No. There is nothing that's that is the only restriction, but when you see there.
Thanks.
Your next question comes from David Ocampo with Cormark Securities.
Your line is open.
Wondering every week.
Two quick questions for me first on the her Canada SCPA.
In your release, you noted that the cost guardrail receivable and might be 20 to 40 million.
For this year. So are we behind plan right now or is that order of magnitude expected to hit in Q2 Q3 with a trail payment in Q4.
Yeah, you probably see it in Q2 Q3, and it's really just a laggard on the cost where you know we're bidding or cost so but the rates are really a they're separate there based on 2019 and it just takes time to get the cost into kind of match the environment. We're in all that being said under the you know the way things in the moving with the a activity.
In the CB eight we estimate around 20 to 40 million higher and then it will get paid in Q1 next year. So.
That's great and my last one is.
Sort of building on on the receivable questions on was asking.
Kind of one when you put everything together you know your your leniency on principle payments and maybe even on the interest portion or are you guys burning cash in this environment on almost the same monthly or quarterly basis.
No I don't feel it at all we've been.
Doing quite well holding her own as far as the cash and liquid decided is something we monitor daily.
As everybody is in this environment.
And if you look at Air Canada, the TV side of the equation is performing as expected as we noted and then on the leasing side, we still have 25% of the revenues coming in so we feel very good about or liquidity and where we're at so.
That's great. Thanks.
Thank you.
Yeah. There are no further questions at this time I will now turn the call back over to their presenters.
Thank you very much operator, and thank you everyone for joining us today.
Okay well.
Ladies and gentlemen, this concludes today's conference call.
Thank you for participating you may now disconnect.
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