Q3 2020 Air Transport Services Group Inc Earnings Call
Welcome to the Q3 2020 Air Transport Services Group incorporated earnings Conference call. My name is Darrell and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question answer session. If you have a question. Please press star.
Then one on your Touchtone phone.
On the call over to Joe Payne, Chief Legal officer of 80, S.G. Mr. Payne you may begin.
Good morning, and welcome everyone to our third quarter 2020 earnings Conference call, We issued our earnings release yesterday after the market close it's on our website H.P.S.G.I.N.C. Dot com let.
Let me begin by advising you that during the course of this call we will make projections and other forward looking statements that involve risks and uncertainties, our actual results or other future events may differ materially from those we described here. These forward looking statements are based on information plans and ask them.
That's as of the date of this call Air Transport Services Group undertakes no obligation to update any forward looking statements to reflect changes in underlying assumptions factors new information or other changes. These factors include but are not limited to the following which relate to the current cope at 19.
Pandemic and related economic downturn.
A pandemic may continue for a longer period or its effect on commercial and military passenger flying maybe more substantial than we currently expect.
It may also affect our workforce and staffing capability, our ability to access airports and maintenance facilities, our customers' credit worthiness and the continuing ability of our vendors and third party service providers to maintain customary service levels.
Other factors could also impact the market demand for assets and services. These include our operating airline's ability to main on time service and control costs, the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration.
Fluctuations in H.T.S.G.'s trade at a fair price and then interest rates, which May result in mark to market charges on certain financial instruments.
The number timing and scheduled routes of our aircraft deployments to customers.
Our ability to remain in compliance with key agreements with customers lenders and government agencies chain.
Changes in general economic and or industry specific conditions.
And other factors as contained from time to time in our filings with the FCC, including the form 10-Q, we expect to file next week.
We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings adjusted earnings per share adjusted pre tax earnings and adjusted EBITDA.
Management believes these metrics are useful to investors in assessing Ats chief financial position and results.
These non-GAAP measures are not meant to be a substitute for our GAAP financials, and we advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website and now I'll turn the call over to rich Corrado, President and CEO for his opening comments.
Thanks, Joe and welcome everyone.
I want to begin by acknowledging the dedication and sacrifice is our employees.
Despite the operating challenges of the pandemic continued to deliver excellent service.
Their focus is not only yielding financial rewards, but also appreciation from our customers.
We talk a lot about safety year round, but what the pandemic. Its personnel our employees are focused on keeping themselves their fellow employees and their loved ones safe, while continuing to deliver excellent service.
The press release, we issued last night shows that during the third quarter 80, S.G. continued to show solid improvement in results for both its reportable segments compared to the prior year, while maintaining focus on customer service.
Our revenue adjusted earnings and adjusted EBITDA, all increased at double digit rates compared with the same quarter last year.
That includes a 10% revenue increase of 48% increase in our adjusted earnings.
And a 15% increase in adjusted EBITDA.
Quint Turner, our CFO will share all the numbers in a moment Cam our aircraft leasing business is setting records for leasing Boeing 767, 300 freighters to external customers.
Six were added during the third quarter, leading to eight by the end of September.
For more are expected in the fourth quarter to round out the 12, we expect to deliver for the full year.
That pace will get even faster next year, when we will deliver at least 15 more 7673, hundreds including 11 to Amazon.
We're also releasing 37672 hundreds demonstrating the strong demand for the smaller 767 Marion.
The pandemic continues to affect our business and not only in the stress it places on our employees and their families.
Our passenger operations, especially our kabi flying for the department of Defense and our commercial passenger flying have taken a significant hit along with our external aircraft maintenance business.
But in spite of those factors and demonstrating the resiliency of our business model. We now expect our adjusted EBITDA for 2020 to be about $490 million, which is where we began when we first issued 2020 guidance in February.
Quint is ready to fill in the details of our consolidated and operating results.
And I'll close with more comments on the fourth quarter and 2021 outlook.
Quint.
Thanks, Rich and thanks to all of you on the call for joining us this morning.
As rich said, our third quarter results were very good on both our top and adjusted bottom line and on a consolidated basis track very closely with our comparable second quarter results.
On a consolidated basis third quarter revenues rose, 10% compared to 2000 $19 million to $404 million.
Once again the increase came from more leased aircraft in service and more AC mine CMR and charter operations overall versus a year ago.
On a GAAP basis, we had a third quarter loss from continuing operations of $6 million or 10 cents per share basic.
13% increase in Ats the share price during the quarter required us to record a noncash loss for outstanding warrants issued to Amazon.
The warrants and other financial instrument effects reduced third quarter, GAAP income by $51 million or 76 cents per share to date, none of the warrants Ats. She has issued to Amazon have been exercised.
We also recognized a net benefit of nearly 28 cents and GAAP earnings from the carriers that grants for omni and 18.
As we indicated last time, we are excluding those contributions from our adjusted results.
Our adjusted EPS for the third quarter was 44 cents versus 31 cents a year ago.
On the same basis, our adjusted EBITDA was $126 million versus $109 million a year ago.
Our capital expenditures for the quarter were $128 million for a total of $394 million for the year through September that's.
Thats up 17% year to date versus last year and includes purchases of eight Boeing 767, 300 passenger aircraft for freighter conversion plus ongoing mod cost.
As rich mentioned, our 767 freighters remain a hot commodity and more customers are approaching us to lease them to.
To meet expanded demand, we're now expecting to spend $485 million on Capex and 2020.
As we noted on our second quarter call. Some of this year's spending is for next year's freighter delivers many of which come early in 2021. In fact, we expect five of the 11 cents et seventhree hundred leased deliveries to Amazon to occur during next year's first quarter. When 80 I will also begin.
In CMR serves.
Even with the strong order book for our lease seven success next year, we still expect 2021 capex spend to come in lower than the $485 million. We are forecasting for this year.
But that isn't likely to be as low as we had previously anticipated right.
Right now we expect Capex next year to be approximately $425 million.
That summarizes our consolidated financial results for the quarter.
On a segment basis I'm pleased to tell you that results from our HCM. Our services segment continued to improve year over year as both our express package network line for ecommerce customers and AD hoc assignments for the U.S. government increase.
Partially offsetting these increases were a reduction in flying due to removing three out of four of our 757 freighters from service earlier this year.
The overall segment improvement came despite significant reductions in the commercial passenger flying that omni does and the 757 Combi flying for the military performed by a tie.
On a block hour basis commercial passenger operations were down 80%, while our 757 comp be fine was off by 50% from a year ago, owing to the pandemic.
The AC HMI services segment earned $19 million on a pre tax basis in the third quarter up from just $4 million a year ago.
The earnings improvement stemmed primarily from the airline's ability defined HCM on charter opportunities during the pandemic increased E Commerce network line lower aircraft and engine maintenance expense.
Reduced travel cost for positioning flight crews and a reduction in the Amazon related ramp up costs, we were incurring a year ago.
Allocated interest expense also declined.
Cam our leasing business had pre tax earnings of $20 million up 2.4 million from the prior year.
It's externally leased fleet increased by 11 aircraft and external revenues increased by 22%.
Fleet growth increased cams, depreciation and amortization expense and interest expense by about two and a half million versus year ago.
Revenues from our other businesses grouped as other activities were down from a year ago and the businesses collectively yielded a small pre tax loss for the quarter extra.
External revenues increased slightly mainly from more fuel sales as customer flight operations for Amazon from the Wilmington Air Park expanded and due to the timing of customer schedule for aircraft maintenance services.
The pre tax loss from those businesses for the period was largely due to a lower margin revenue mix growth plus higher corporate expenses. Additionally, we incurred startup costs at two postal facilities operated by our logistics group and had lower profitability compared to last year at our Mros, which are working on.
On our own aircraft more than external customer aircraft as many customer aircrafts have been part due to the pandemic.
We have recently seen demand from the commercial passenger airlines pick up at our Mros, However, and expect improved prospects for those businesses next year.
That's the summary of our financial and operating results for the quarter I will turn it back to rich for some other comments on our operations and outlook.
Thanks Quint.
As I said at the outset, the TSG businesses are performing well during a very unusual year.
Building customer service bonuses in seven of the nine months of 2020, so far.
I'd like to remind everyone. A service business requires good people, who have the tools to perform well.
We are giving our people everything we can to help them work safely and we're investing in technology. So that they can work more productively.
We are very focused on continuous improvement processes, which includes new software and other systems that monitor more components of our aircraft and real time track compare and predict their performance over time well.
We're also driving out cost from our parts and maintenance operations through procurement optimization efforts across our airline and MRO subsidiaries.
As Quint mentioned demand for our 767 converted freighters is exceptionally strong during.
During the year, we will place a record number of newly converted freighters, but also released several others some of which are going to international customers like mott's there in Mexico.
Astral aviation of Kenya, and riot Airways in Malaysia.
We are currently finalizing customer orders for at least four more seven six sevens in 2021. In addition to the 11 was scheduled to deliver to Amazon.
80, I will be flying at least five of the 11 additional Amazon aircraft next year.
We also have indications of interest from others for seven six Sevens next year and into 2022 with requests for 767 capacity extending as far out as 2024.
We are responding as best we can given feedstock availability conversion slots and pricing that meets our rate of return requirements.
That will mean more capex in the near term than we had expected, but also the prospect of more committed cash flow from leasing that will extend beyond 2030.
Our AC IMI services business is generating good returns overall.
It was another busy quarter for our express network flying rebounding demand from the depot de for troop rotation operations, but still we had no demand from omni is commercial customers and reduced demand for 80, 757, kabi flying related to Covance.
We do not expect that overall pattern to change until next year.
One heartening sign is that one of our larger commercial passenger customers has announced plans to resume service in early 2021.
As more travel is gain confidence, we expect charter demand to resume as fast if not faster than scheduled carrier demand.
The prototype Airbus Athree hundred 21 converted freighter, we developed with our joint venture partner precision recently completed its first test flight and is undergoing epay testing now.
We are still anticipating FDA approval before year end.
A number of owners of Athree hundred 21 aircraft have already were approached us about conversion slots in 2021.
Our own plans for converted Athree hundred 21 investments have been pushed into 2022 as we focus in the near term on meeting 767 demand.
We do expect that our PEMCO conversion subsidiary will begin to convert Athree hundred 20 ones by mid 2021.
Quinn told you that our projected capex spend for 2020 is back up to 485 million this year that.
That includes three more feedstock seven six sevens, we are buying in the fourth quarter for 2021 deployment.
We will end 2020, having purchased 11 feedstock seven six sevens with eight aircraft in our awaiting mod.
We currently expect to purchase at least 7767 feedstock aircraft next year and have already source the majority of them.
We have access to ample conversion slots through 2022 to keep pace with continued exceptional capacity demand.
Our 2020 adjusted EBITDA is projected at 490 million. This year based on current expectations about fourth quarter peak demand maintenance expenses and other factors.
That's just about where we started when we issued preliminary 2020 guidance of $487 million to $492 million back in February.
A combination of great service charter opportunities and E commerce demand and an on schedule deployment of additional aircraft have offset significant reductions in our passenger operation caused by the pandemic.
Keep in mind that the fourth quarter is omni slowest season for its DRD operations and that neither its commercial charters, nor a T.I.s kabi operation are expected to improve until next year.
While we will stick to our tradition of issuing full year guidance in February I am very optimistic about what I see ahead.
By then we anticipate having a clearer view of any continuing pandemic effects and perhaps even more orders for our 767 freighters.
Until then we will work hard to finish the year strong and look forward to generating more cash flow to allocate towards value enhancing alternatives.
That concludes our prepared remarks, quint and I, along with Mike Berger, Our Chief commercial officer are ready to answer your questions. Maybe please have the first question operator.
Thank you. The first question comes from Jack Atkins from Stephens.
Great Good morning, and thanks for taking my questions guys great quarter.
Thanks, Jerry I'd say, so there are a lot of different places.
I'd like to go, but maybe maybe rich if I could start with the the outlook into 2021.
I think if we go back to the last report you guys were quarterly report you guys were talking about competition.
Ability to grow your business from a profitability perspective in 2021 and 2022, just given the outlook that you see for the demand for your assets.
Here, we are three months later it feels like that demand is just increasing.
But obviously there are some uncertainties out there about the pandemic as we move forward how would you I know you're not providing 2021 guidance, but how would you characterize your confidence in that statement for three months ago do you still do you feel more confident in your ability to grow and perhaps maybe.
Maybe grow greater than you initially expected for 2021, just can you kind of help us frame that up.
Jack Good question we.
Were even more bullish on 2021 growth and even 2022 than we were last quarter.
We've had customers come to us with.
Kind of longer term profiles out into 2023 and 2024 potentially.
Of what they are looking at the.
The interesting thing about this is you know a lot of this demand has spurred from.
There is some from the pandemic and from the increase in the ecommerce business.
So, but the the customers are looking for long term assets looking for least airplanes, which is great. So yes, it's stronger we have.
Visibility right now.
The 11 for Amazon, we have four others that we're finalizing an agreement on so Thats 15, we believe what we may have the ability to deliver more than that.
Depending on feedstock availability.
We've got slots into 2022, so we're pretty confident in terms, our ability to deliver and but the the it's definitely stronger than it was last quarter.
Okay, that's great that's great to hear.
And maybe this one's for quiet, but when we think about the guidance for this year. The EBITDA guidance 400 million in EBITDA, you know, it's sort of about where to your point, where we thought we would be when we start that sort of a year and obviously a lot of things that are different.
I know the pandemic has has.
Weighed on your results, particularly with an omni and some other parts of the business like your MRO.
Quint is there a way to kind of think about the net impact.
The pandemic has had on your profitability this year.
I think just to be helpful to think about what could be what things return to normal.
Yes, it's a great question Jack answer it gets a little complicated because.
Some of the mitigating opportunities we've had the charter trips really were also related to the pandemic sure for example in our retrieving repatriating Cogs.
We talked about that in prior quarters right that omni omni did.
But I think one kinda yardstick for you. If you think about again fourth quarter. This is a little I guess those comments a little forward looking but fourth quarter a year ago.
Omni did.
Commercial passenger flying.
Probably the revenue was around $20 million, maybe just a little shy of that in the fourth quarter and this year, we're not anticipating any of those opportunities and the fourth quarter.
They were doing some flying for air Canada at that time, they had their longtime customer vacations, Hawaii was operating.
So we've seen that impact on commercial passenger flying sort of the regularly scheduled.
Type flying that we would expect to do.
Since the pandemic began but we mitigated and we we've been resourceful and on the cargo side the businesses as really performed very well rich spoke to that.
Don't know that we've seen demand on the cargo side like we're currently seeing.
So.
It's certainly cost us.
Thank the 490 that we originally guided to.
But for the pandemic, we feel like we kind of we can have better that.
We as rich said, we do on the plus side, we expect those opportunities on commercial passenger flying to come back.
Early next year, although as we all know.
Evolution have the pandemic effects are difficult to predict.
Good and positive feedback from some customers that they're going to restart.
So I don't know if that gives you an idea, but I think the other the other thing Jack real quick is that the MRO segment was impacted significantly as well.
As our passenger customers in the MRO segments stop stop the work going into the rest of the year.
The MRO has been able to rebound we put a lot of our own assets in there to cover the slots keep the employees working.
And and now what we're seeing is the passenger customers coming back we've started up.
767 line here for United in Wilmington, and then some Athree 20 lines down in Tampa. So that's good and our hangar outlook for next year is looking much better.
Then how we adapted this year. So there are some things that are kind of precursors hopefully to what we'll see on the passenger side going into 2021 and lastly, Jack.
I should have mentioned it but calm before we talk about it in our.
Our release and in the remarks script right.
Remarks, but the copy flying has also been negatively impacted.
Seven five said that 80, I operates and it's really not because the military doesn't want us to fly it's because some of the destinations they're flying into imposed restrictions on our ability to fly. So we've had and expect to continue to add those impacts at least through the balance of the year.
Okay.
I am sorry go ahead.
No Jack It was Mike I, just wanted to maybe just tag on to a little bit to your first question there it's about the marketplace.
You know the big Big driver as well why we're so bullish on the go forward into 2021 and beyond.
You know internationally.
The flights of just not come back the belly freight remains dramatically down well over 30%.
The virus with the uptick in the virus, specifically as we see now across across Europe.
We're going to see a continuation of the lack of.
Belly capacity, which is which is crucial right. So.
That's just really fueling the market in terms of freighter demand, so you're going to you're going to continue to see that on a go forward basis for some time, Okay got it that's great maybe one if I could sneak one more quick one in just could you give us an update if there is one on what's going on with the.
Labor negotiations.
A bx any any progress there.
You're worth reporting.
Yes, so the.
The parties have been continuing to work on the process. They took a little break is scheduled to get back together next week.
We've made significant progress on several of the items and we've got it down to a few.
So were.
Optimistic.
That will get that over the goal line.
By the end of the us a little aggressive because of the process that you need to go through.
But we believe that due to the progress has been made recently that will.
We'll get the ball over the goal line. The other side of it is obviously, we have been negotiating so that.
We get a market compare.
Competitive.
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Contract.
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For the pilots to be able to attract crew members into the airline but also so that we can price and sell a bx services in the market and and based on where we're at today. We believe we're going to accomplish that goal. So that when the contract comes in it's going to be good for the employees and it's going to be good for the growth of the company okay.
Great to hear thanks again for the top guys.
Thanks, Thanks Jack.
Thank you. The next question comes from David Ross from Stifel.
Yes, good morning, gentlemen.
Good morning.
Rich maybe talk about the international opportunity.
You mentioned, Mexico Africa, Malaysia.
Starting up with operations very small, but if you think about over the next five to 10 years.
There are more opportunities in the us or outside of the U.S.
Both actually I mean keep in mind that these are the the Kenya, Mexico and Malaysia.
Malaysia, our lease opportunities so we're replacing the airplane there.
And it's going to be operated by another operator, but what we're seeing is.
An increase in interest for the 767 freighter in other parts of the World now, it's still kind of a network based airplane and a lot of these folks that releasing two or actually flying for.
The large integrators show their vendors that are not vendors, but their airlines that are that are contracted for work with.
Folks like DHL, So and that's you know that's who we look to market too.
The air in areas and geographies around the world, where the aircraft will prevail.
And so what we're seeing is more more interest in that.
The.
The interesting thing is those were 767 200 deployments. So its the smaller variant of the 767.
Which kind of makes sense, given where they're going and and how they're flying and we know we've had discussions with with the two of those new customers that they will also be looking at the 767 300 in the future.
As far as the US goes I mean, obviously, we've got two large customers here.
Related to 767 deployments and Amazon DHL and.
There's a lot of their strong growth as you've seen in their numbers is related to the ecommerce growth.
There was a study put out in August by Ivy and retail index.
And they noted that due to the pandemic their estimate is that ecommerce growth has been pulled five years forward.
Which explains the volumes that that everybody's seeing and if you also notice.
Most of the integrators are producing.
Our projecting I should say of extremely large peak.
But all that said, we anticipate that they will continue to grow into the future and they will continue to need aircraft.
Which is a good thing for Creight TSG going forward.
And then how does M&A fit into the growth plans.
Whether it's a CMO related.
Buying other smaller operators or MRO or any other adjacent sees that you might find interesting.
Yes, so kind of RMR MRO strategy has been to really look for adjacent sees that makes sense with our business model.
Opportunities to diversify revenue.
And profit going forward and so we are the ones. We made in the past that you've seen fit into that pocket and we'll continue to look for those.
And it which includes which includes airlines, which includes logistics companies Mros.
And.
And other companies other service companies that may.
Produce value for our customers.
I haven't spent a lot of time in marketing and sales throughout my career. This one of the one of the things that's it's easier is.
To sell a new service to an existing customer rather than trying to drum up new customers. So.
Wherever we can add value to our customers were looking to to to look for that.
Excellent. Thank you.
Thanks, Dave.
Thank you. Our next question comes from Helane Becker from Cowen.
Thanks, very much operator, I, everybody and thanks for your time rich.
Rich congratulations on Cincinnati 300.
I think that was a another accolade. In addition to one you received earlier in the year from another [laughter] another.
Location, so well done thanks.
Thanks, a couple of course.
First a couple of questions.
Earlier this week, you talked about Walmart and the fact that.
Anything you were talking to you about that mix is not coming to fruition, but are.
Are there other companies, maybe Walmart does never made sense for them, because they're such a big footprint right around the country.
But are there other companies similar to that that would make sense.
For your services.
So yes.
Interesting comment on Walmart.
It was I admitted in the cargo effects fireside chat in their conference. This week and it has taken a little bit out of context, and some what they wrote about it but that being as m-. It's a very good question.
If you look around the world there are too many companies that are as captive and largest Amazon when it comes to their ability to have the scale sufficient enough to law.
Laurent the network that they are growing.
Walmart if you just look at what they do they have taken a different strategy. They have such a strong retail footprint that theyve linked their supply chains of their E com in their store footprint to produce.
Buy online pickup at store opportunities as much as.
Just regular ecommerce.
Probably the biggest population where you would find.
Some significant size would be in China.
The Alibaba network.
Ali Baba has a network separately logistic network called Ciano, Thats made up of a number of different logistics providers, but it it isn't it isn't alibaba with their own fleet.
So that there is there we continue to believe there will be significant opportunities for regional type freighters in China in and around Southeast Asia.
There have been some large retailers that have shown interest in putting up.
The captive aircraft, but nowhere near what Amazon is doing more in the two to four airplanes to make sure that they have there there Rob.
Their lift captive, but I did.
Well I don't see any large opportunities that would.
Produce the type of network that we're seeing out of the Amazon Air Group.
Gotcha, and that's very helpful and then the other question.
With feedstock.
It's kind of a mixed bag out there I guess right. Some airlines like Delta and American announced they are retiring seven six sevens and I know you are able to capture a lot of the American seven success.
But others like United Havent really indicated that they are willing to part with those aircraft. So.
A long way to get to the question, which is are you having difficulties sourcing aircraft to me up with.
To keep up with your demand.
Today, we haven't but as you know, we we strongly prefer to buy fleet segments.
From Airlines, we had the 20 aircraft by from American we purchased eight from them prior to that we bought 23 remain a we brought another five from M&A over the past years. So we prefer that because obviously, we think about even though our leasing company first we think about acquiring feedstock as an operator. So if you can keep your.
I agree.
The same it obviously leads to lower costs going forward that said, we right now have all the two slots filled for 20 to pitch for our 2021 need.
We have been able to.
Of secure.
That feedstock so were looking for two more aircraft for 2021.
And then for for going forward for 2020, so we're paying particular attention, but we don't see any fleets in the market right now I know Delta made the announcement, we as we talked about all the time because there are.
A large vendor for us a large engine vendor.
But we were always in the market, we don't come in and out we're always looking at what those airlines are doing we know where the large fleets are we know were all the pieces parts are as well.
You know in the 90 91 to 1999 segment, there's probably about a little less than 200 aircraft feedstock aircraft that are available in that segment.
And then there's probably about a 150 aircraft at a younger.
So there is plenty if you look at that you are looking at close to 350 aircraft now that's a split of GE engine and Pratt.
Most of our owned aircraft or GE, but we do own three pratt's they perform the mission fine.
It's just that when you have a second fleet type a second engine type you have to spare that separately.
Separately and so if you see better, but the where you know we don't think feedstocks and limiting factor right now and we also have and we're looking forward to hopefully the prices coming down we haven't seen that yet either.
And slot wise, we're in we're in great shape as well.
Right and then my last question is on pilots.
You know given what's going on on the passenger side I'm, assuming you're not going to have any issues finding pilots over the next year or so.
Yes.
Is that.
Hi group.
I know that you see.
You have two groups I would think one or the younger pilots that are going to be furloughed.
And the question. There is is there a risk that when passenger business comes back they go back to their passenger airline and then the other is on the other side.
You know the passengers are encouraging pilots to retire early.
But even as youngest 58 or 57 and I know you know they have to retire at 65, but does it make sense to hire some of those pilots as well, even though you may not have them as long.
Yes. So we have some interesting part is we have not.
There was a lot of talk about pilot shortage and pilot retirements.
Over the last couple of years.
We've had some very strong growth at 18.
Growth in omni and we have had no problem getting very qualified pilots to apply for those opportunities.
Pilots like to get.
Get into a growing air airline because that helps them move their career faster try to get from the first officers seats at the captaincy.
And we were getting our average.
Hours.
Experience was was over 6000, so we were getting already experienced pilots now with the pandemic.
There was.
Thought that they would be more resumes and but we already and we can't tell one pile from the other I guess is the point, but.
But we've got no limitation in terms of the pies and our pilots.
For all of our airlines, there's there's a group that's getting close to retirement as well so we're managing that as well as as the new pilots coming in the other thing Weve made some great progress on.
Is the maintenance technicians maintenance technicians, and we believe depend nemec has had.
As an added impact on.
On providing more labor in that sense.
We have done some things with the compensation program and done some things to attract labor and we're we're having.
A lot of.
Good progress not only with attracting new folks, but the intent to the retention has obviously improved too and you could look at that in terms of that they would be concerned to go anywhere and.
And so the pandemic has had somewhat of a.
Yes, an effect there as well.
That's very helpful well, thanks for all those detailed answers I really appreciate that.
Thanks Helane.
Sure.
Thank you. The next question comes from Stephanie Benjamin from Korea.
Hi, good morning.
Good morning, 70 have any.
My first question.
Looking at how many traders are coming to their end of their leases and neither 2021, and 2022 that would need to be redeployed bank.
Yes.
We don't we don't have zero in 2021.
Stephanie, it's Mike and we have.
For that are coming due in 2022.
But at this point to the high high expectation that we would anticipate to extend those.
Got it. Thank you and then I wanted to circle back a little bit on just any commentary you want to provide on feedstock conversion capacity, obviously the market getting pretty busy on the freighter side, particularly in this environment. So how do you view 2022 and be.
It's Matt available capacity implant I believe you said you are pretty much locked in through 2021, but would love to hear where you stand or where you think it's Dan.
2021, thank you.
Yeah I think.
With the increase in demand you may have read that.
You know I was increasing.
Their capacity in Mexico, and both the 737 and 767 side.
And I think Boeing is looking to potentially put up another line of of.
Capacity.
That really hasn't impacted us because we've we've been with III, so long and we've been there anchor.
Customer for so long we've had four lines of conversion ongoing for a couple of years now and we anticipate.
Maintaining those four lines well into 2022 we've.
We've got all those slots for 2021 already under agreement we have.
Slots in 2022 under agreement as well.
So.
Regardless of what's going on in the rest of the industry given the fact that this is our core business is what we do.
And the demand is strong we feel.
Try not to get over our skis.
And.
We feel we're in great shape as far as slots go.
Got it. Thank you so much for the color.
You're welcome.
Thank you and our next question comes from Chris Some uplift from Susquehanna.
Good morning.
Hi, Chris.
So rich or quint.
Right now we are in a obviously very unique time or.
For aviation in general and certainly on the on the freighter side.
In the past you've said that you can do high single digit EBITDA grew.
Growth I think in a steady state is how you described it in.
And right now if we if we just if we kind of look at what's happening here in terms of.
The the supply demand dynamic it looks like the passenger airlines for the reasons. We all know are not going to layer or add back on their pre kobin.
Passenger SMS for one or two years, we have the vaccine here, which looks like this is going to be a multiyear event.
What looks like also.
Ample feedstock in the seven six that means with delta and others will retire.
Retiring that aircraft and of course, you're attached to two to Amazon. So.
If we assume that Theres a vaccine in the first half of next year.
Can we see higher.
Than that or why can't we let's say do a mid teens type EBITDA grew.
Growth or you know a few points above what you've said in the past is that high single digit steady state growth trajectory.
Well, Chris this is classified.
Our base is growing nicely with.
You know the 490 million that were guiding to this year.
So it becomes a larger base, but certainly to your point, we're in an unprecedented at least we believe.
Demand environment right now for our mid size freighter, and we said on the in the release, Mike can buttresses, but 15 plus.
Aircraft deliveries next year and of course, they are more evenly distributed throughout the year. You may you may recall that in the past few years.
A lot of those deliveries going to Amazon. They wanted them later in the year. This year, it's it's a.
More of an even distribution, which will help our EBITDA growth, but the big bogey.
Is the.
Is is how quickly some of those commercial passenger flying opportunities that have adversely impacted.
The come back and when you say a vaccine mid year, well does that mean those trips resume mid year or do they resume early in the year those.
Those are some of the some.
Some of the things that can impact us at the same time, we keep growing our cargo CMR business with with Amazon, primarily as well in our right now we expect to be operating over 40 aircraft for Amazon.
Next year and the CMO by so that is a that has a good fact, we hit the passenger airlines recover that will help our mros certainly, but how fast will that occur thats a bogey.
But.
It is it may be possible to get to double digit I think when you talk about mid teens.
That that's.
That would be things have to fall right to get that kind of a growth rate.
And we're going to deliver just took words point, we're going to deliver five airplanes by the end of Q1 and 2021.
Okay.
Are there any plans right now to to participate in the <unk>.
Distribution of the vaccine.
We don't have any.
Direct plans through.
What we are doing as it relates to communication we are.
Some of our airlines are talking with government agencies, but there is nothing fixed right now.
Also through through the flying that we do for our partners.
They may be tap to distribute the virus so we would.
Fly for them.
Going forward. So there is definitely some conversations going on but nothing fixed in terms of what what our role would be.
Obviously, a lot of our assets and resources are committed to the customers already and so the ability to free up.
Lift in those in that respect is.
We're looking to to do the best we can.
Okay.
And then quick just remind us what's your mix of freight versus pure passenger in terms of revenue the revenue and EBITDA.
Well, we don't we don't really break it that way, we put omni at our HCM services segment with our cargo carriers and so we don't because those carriers tend to as.
Their customer base is somewhat concentrated we don't typically talk about individual airline.
Contributions Chris but.
Certainly the Cam segment, you know is responsible for the majority of the EBITDA.
And the AC IMI services segment.
Which is an asset intensive so you know what they contribute is nice on a return on asset basis, but it's a smaller portion of our EBITDA.
Okay. Thanks for the time.
Sure. Thank you.
Thank you. The next question comes from Steve O'hara from Sidoti.
Hi, good morning, Thanks for taking the questions.
Hey, Steve Lawrence.
Hi, just kind.
Kind of curious to me it seemed like you.
Things came in better than expected in the third quarter.
And can you just.
Kind of remind me what the expectation was in terms of.
You know what you are expecting to either.
Slow down from Twoq, you I thought it was about kind of repeat repatriation things like that.
And then maybe fewer charter opportunities.
But it seemed like you had I think it was better flying for other customers and things.
Things like that and I'm guess I'm, just wondering why that wouldn't continue into fourq, given kind of cargo demand and where it is and things like that.
Yeah, I mean, some of the factors that helped Q3 was that the DRD flying volume.
Wes was up a bit stronger than we had forecasted.
We.
We had.
Add some some better.
Results in terms of some of the expenses, we mentioned in the remarks, some lower engine and maintenance costs, which helped us in the third quarter.
And bill.
The leases that we we put in place and we put a record number came to.
Aircraft into service for external lessees during the third quarter I think we we may have mentioned that in our.
In our earnings release, but.
The contributions from getting those in place a little earlier than we had.
Budget. It also was a factor and better performance during the third quarter.
Okay all right.
All right. That's that's helpful. And then just maybe go into the share count.
What was the what drove that was it the.
Kind of the re.
Adjusting for.
You know that the make up in terms of getting them to 19.9% is that what kind of drove that increase or was it a time thing given the.
Yes, they are best Didnt expire within a year if not executed.
The biggest driver in that Steven you're talking about the adjusted share count that we use just GPS as is the increase in Ats ceased traded stock price during the quarter.
And it relates to the warrants to Amazon holds we essentially apply the treasury stock method in calculating adjusted share count.
And so when you do that part of that calculation is.
Factoring in how many shares you could reacquire at the at the trade the trade stock price I think the price at the end of the quarter was a bit over $25 versus.
Going from memory here, but something like 22.
Colors at the beginning of the quarter and so when you apply that $25. The proceeds from warrant exercise would allow you to reacquire fewer shares at that price than they would have 22. So you can see that.
We added about 13 million shares.
When applying the treasury stock method this quarter and I think in the previous quarter. It was about 9 billion and I'm glad you asked the question because you know as as the analysts think about.
Earnings per share going forward they need to.
Factor in that into their calculation of EPS for that for the coming quarter, because obviously, you're spreading your earnings over a greater number of shares is going to have.
It's going to push your EPS down a bit.
Right Okay.
And then maybe just.
Going to the current expectation for 2020.
Yeah, and I mean, it seems like it.
Kind of on par with what you guys were initially expecting and yet good things and bad things kind of to get there.
You are adding aircraft next year I guess, a record number of aircraft next year.
It does is for 90.
Kind of the right base to think about adding those aircraft on.
Or do some of the positives maybe that happened in Twoq and Threeq you.
Subtract from that a bit in terms of.
You know what comes back and obviously, it's a little early to tell I am sure but.
What's the best way to think about that.
You know, Steve I think of you as you know.
As we I think I don't know if it was Jack who asked the question but.
So many factors of course have affected.
2020, and it's ironic that we're winding up.
About where we thought we were going to be at the end of end of February when we gave our initial guidance, but certainly the pathway. We've taken to get there has been anything but what we would have predicted.
That said.
We're still in a pandemic and we're still having impacts on our commercial passenger flying but based on everything we know now I would say that using 490 as a sort of a jumping off point and then factoring in.
The 15, plus leases that are anticipated next year of additional aircraft.
It is not a bad place to begin in terms of your thinking about what the business might produce and 2021.
Certainly the balance sheet is in is in a fantastic position we are.
Back below three times Levered.
Which which was also I believe what we had planned for when we gave you. The initial guidance. So you know certainly.
Certainly the company is in a strong position heading into next year and the visibility we have on growth.
As really I think nothing we've seen.
It's the best we've seen.
Yes, Okay, all right. Thank you very much.
Okay.
Thank you we have a follow up question from Chris Stephanopoulos from Susquehanna.
Hey, Thanks for taking my follow up.
So to to here.
Quinn any.
Credit concerns or perhaps maybe you know the percent of your book that might be towards the lower end of the credit spectrum.
You know it's.
Rich just handed me a dollar bill I'm glad in paving backup singled out rich but.
No Chris it's a good question and certainly at the initial part of the pandemic there were pieces of our receivables that we we had some commercial carriers right customers for the Mros, but we have worked with them and they have a.
We are I think very good shape.
Currently in terms of our our lease customers of course, we we concentrate on cargo leasing and as you know cargo leasing has been so much more fortunate than passenger less orders.
And our customers for cargo leases by and large are doing very well and so I would say our receivables are in excellent shape, we really don't.
Unless there's something services I'm not aware of we really don't have any kind of significant concerns about collection I think I think Chris just to add so as we look to growth and specifically global growth. We've done a lot of due diligence in regards to who we're partnering with.
To ensure the sustainability.
Of these of these customers on a go forward basis and as you've heard many times you heard again today.
You know we're very comfortable.
Understanding and knowing what their business models are who their customers are and a lot of cases the customers that we've had for years here specifically on the big integrators. These.
These folks are doing work for them and are also large customers for them, even though there is smaller airlines as we as we grow in progress but.
As as Quinn mentioned is our receivables are in great are in great shape and it's that's not by accident, we're really choosing to make sure that we're partnering with the right folks around the world.
Okay. Thank you and then two on the balance sheet. So your balance sheet as you said before is and.
Relatively good shape is there an opportunity here to grow your presence in the commercial charter market on the cargo side and then two I guess for Quinn just what is your maturity schedule look like for 2021, and then just remind us what your revolver to.
Pasadena Thanks.
Yes, I can do the second one first rich you good but the yes. The in terms of the revolver. We have currently a $600 million revolver, there's probably roughly about.
400.
Million or so that we have room under that revolver.
Currently.
And debt maturities course, there in our our 10-Q, which will will have out.
Next probably next Wednesday, Chris.
I don't have I am not exactly on that page. We encourage you to take a look there and see.
It's it's it's probably about.
Hang on let me take a quick look.
The current mill the current portion of our debt is about 14 million. So that's probably what we're looking at for next year.
Okay.
And then on.
Whether it makes sense to grow your your presence in the charter market for commercial cargo.
Chris we.
We we think about a little bit differently on the charter market and cargo.
You know we are first.
You know our first look is to is to lease the aircraft and Thats, what we invest our dollars to do the charter market tends to be up and down.
And when you are buying it 20 year asset.
For us it's much better to look in the leasing side of the business. So we don't allocate.
Aircraft.
Two our airlines to simply.
Dude to commercial charters on the cargo side.
Omni has a fairly robust.
Charter capability and it's one of the reasons that they have been successful in capturing additional business because of their experience and knowledge of particularly on the government side and and their folks that run the charter group there on the cargo side. It's we're just not allocating assets to it because the demand for the assets is significant on the leasing side.
And that we believe is a better return on that investment.
Okay. Thanks for the time.
Thank you.
We have no further questions at this time Mr. Corrado. Please begin your closing remarks.
Thank you held up.
I would like to again, thank our employees for their vigilance against the Corona virus their tenacity and meeting challenges and their commitment to maintaining great customer service as we enter the peak holiday season and winter months.
Our business model continues to deliver good results during the most challenging environment.
At the same time, we're getting commitments for more 767 leases that will produce great cash flow for the long term.
That's the definition of resilience good results during tough times and commitments from great customers that extend for a decade or more.
We all hope this pandemic will end soon but no matter how long it lasts I'm confident that we'll generate strong returns for years to come.
Stacy and thank you for your interest in Ats G.
Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may.
Now disconnect.
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