Q4 2020 Chorus Aviation Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the chorus aviation, our fourth quarter and year end results conference call.
And this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session really depressed 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 and.
I would now like turn the call over.
Got you and Natalie and again, Vice President Investor Relations. Please go ahead.
Thank you Johnny Hello, and thank you for joining us today and for our fourth quarter and year end 2020 conference call and audio webcast.
From today's report are Joe Randell, President and Chief Executive Officer, and Gary Osborne, Chief Financial Officer.
And even a brief overview of Covid.
And then go and take questions from the analyst community because some of the discussion and this call may be forward looking thank you Matt for your attention to the caution regarding forward.
Forward looking information and statements.
And subject to various risks and uncertainties and assumptions and are.
And including a reference and their names.
And the discussion and analysis and the results and operations of course Aviation Inc. For the year ended December 31, 2020, Yeah look section and other sections of our MD&A, where such statements appear.
In addition, some of the following discussion involves certain non-GAAP financial measures, including references to EBITDA adjusted.
Adjusted EBITDA adjusted EBT and adjusted net income please refer to our and DNA for a discussion related to the use of cash non-GAAP measures and then turn the call over to Joe Randall. Thank you Natalie and good morning, everyone.
And it's remarkable the difference a year can make.
One can't help but to reflect.
And to care, how dramatically our business has changed and the last 12 months.
2019 was an outstanding year, and we were poised for significant growth and diversification and 2020, having started the year from our strongest position and our history.
However, the COVID-19 crisis forced us to quickly pivot.
And competitively from offense and defense from organic growth to one of building liquidity and protecting the balance sheet.
The crisis brought a deep global reduction and passenger demand and onerous travel restrictions and posing significant financial hardship on our customers.
Our strength and dramatically, reducing our CPA operations.
Nevertheless, the resiliency of our business model and the dedication of our team delivered respectful respect pebble and financial performance. Despite these unprecedented challenges.
Year over year adjusted EBITDA of 300.
<unk> $47 million was relatively consistent due primarily to the fixed fee nature of our contract with air Canada, and modest growth and regional aircraft leasing revenue.
We are one of the few operators reporting positive returns having concluded the 2020 fiscal year with 26 and net earnings per basic.
And care or <unk> 40 on an adjusted basis.
We closed 2020 with approximately $200 million and liquidity and we anticipate this to be relatively stable for the balance of this year.
Preserving liquidity remains a priority given the duration and ultimate impact of the pandemic on our industry.
<unk> share of known.
We understand that the financial losses Airlines are incurring are not sustainable and the long term.
We continue to work with Air Canada, and our leasing customers to help them manage the economic pressures. They are facing as a consequence of the sustained reduction in demand for passenger air travel.
Free we are confident that air travel will return, but given the uncertainty of when we continue to take the steps necessary to protect the company.
But there had been some bright spots, we are encouraged by the incremental increases and aircraft utilization and leasing revenue collected in the leasing segment.
The fourth quarter, we collected approximately 60% of the revenue build and that period, a 10 percentage point increase over the third quarter.
We continue to monitor our portfolio of lessees and area and active discussions to remarket to 13 aircraft that have been returned.
This has been challenging in this environment.
And we were very pleased to have delivered the final two of five new Airbus <unk> hundred 20 aircraft to air Politic of last year in the fourth quarter.
Voyager was successful and securing contract extensions with the United Nations for <unk> 200 aircraft and one of the competitive.
Bid for a new five year contract with ambulance New Brunswick. This milestone extends our 25 year relationship with the province, a wonderful Testament to the expertise of our team.
And the latter part of December we took delivery of five new <unk> nine hundreds and bringing the total to eight new aircraft, earning leasing.
And with new under the CPA and 2020.
And we received a nice aircraft last week.
While we only operated approximately 35% of the capacity with flu and the same period last year, our fixed fee compensation under the CPA was unaffected by the significant reduction and flying activity.
<unk> revenue as a result of service cancellations across Air Canada's network, many of our smaller and regional communities power without here service and over half of our employees remain inactive status.
We have revenue.
We've been advocating for our industry with key government stakeholders. So.
To ensure the sustainability of regional aviation services is top of mind, when making policy decisions.
Aviation and Canada needs sector support and urgently need attention from government.
Our stakeholders are being challenged by the uncertainty surrounding future services.
We look forward to resuming.
Zooming service and providing critical links to the rest of Canada and the world through the Air Canada and network and we are eager to do so.
I am hopeful our government will soon introduce his plan to assist our vital industry given its importance to the transportation and infrastructure, social fabric and economic recovery of Canada.
And so as I continue to be amazed by the resolve of our team and I sincerely. Thank our employees for doing all possible to maintain the safety and integrity of our operations for the near term. We will continue to focus on this while preserving liquidity and supporting our customers.
Before I turn the call.
Gary I wanted to touch on the preliminary acquisition proposal, we received last October.
And that proposal is no longer being considered we are having discussions with the same party regarding a potential investment.
While I understand many of you may have questions regarding this due to the contractual and confidential consider.
Over to patients and I can't provide more color on this dialogue at this time and naturally we will update the market should and material transaction be realized.
Thank you very much for your time and I'll now pass the line over to GAAP.
Thank you Joe and good morning.
In line with Joe's commentary there is that.
And there is.
Considered and incredibly challenging year, and which we saw the industry and reduced to a fraction of its 2019 operating levels. Even with this of course was able to achieve positive cash from operations net income and EBITDA ending the year with over $200 million and liquidity.
The results are a testament to our business model strong partnerships with customers.
<unk>, including Air Canada, and the dedication of all our employees, including those on inactive status as a leading their return.
Our first and fourth quarter adjusted EBITDA was 82 million a $6 $7 million decrease over fourth quarter 2019 adjust.
Adjusted net income and <unk>.
There's been a $97 million a $15 $6 million decrease over last year, which led to a decrease in adjusted EPS at <unk> versus <unk> 15 last year.
Here's how the fourth quarter of this year compares to 2019.
The regional aircraft leasing segment's adjusted EBITDA decreased by $7 eight.
$8 million, primarily due to a $3 6 million expected credit loss provision and lower lease margin attributable to <unk> off lease aircraft.
Due to the impact of COVID-19, the noncash general aircraft impairment provision of $41 6 million and <unk> $5 million per lease.
Seven possession costs were added back to adjusted EBITDA.
The general aircraft impairment provision was a result of the combination of a drop and current market values of general assessment of our leases and carrying values of the related assets.
Adjusted EBITDA for the regional Aviation services segment increased by $1 1 billion.
The results were impacted by.
Decreased.
Decrease and stock based compensation and increase and aircraft leasing under the CPA a decrease in general and administrative expenses.
Set by decrease and capitalization of major maintenance overhauls on owned aircraft operated under the CPA.
<unk> and a reduction and and other revenue and an expected credit loss provision.
Adjusted net income was $7 7 million for the quarter, a decrease of $15 6 million due to the previously mentioned $6 $7 million decrease and adjusted EBITDA.
And increase in depreciation of $3 million primarily related.
And two additional aircraft and.
And increase in net interest cost of $3 8 million, primarily related to the new credit facilities for general operating purposes, and additional aircraft debt and.
And an increase of $6 million and not being realized and unrealized foreign exchange offset by $3 5 million decrease and adjusted income.
Hey.
Net income decreased $27 4 million, primarily due to the previously noted decrease and adjusted net income of $15 6 million of general aircraft provision of $41 6 million offset by the change in net unrealized foreign exchange on long term debt of 20.
And $5 3 million and tax recovery on adjusted items of $5 8 million.
For the year 2020 of course reported adjusted EBITDA of $347 5 million and increase of $5 7 million over 2019.
Adjusted EBITDA for the regional aircraft leasing segment.
Increased by $12 $9 million, primarily due to the additional aircraft, earning leasing revenue, partially offset by the allowance for adjusted or sorry for expected credit loss provision of $8 8 million and lower lease margin attributable to off lease aircraft.
The regional Aviation services segment adjusted EBITDA.
<unk> decreased by $7 2 million and and was impacted by a reduction and other revenue due to a decrease and third party MRO activity reduced part sales and reduce contract line.
A decrease and capitalization of major maintenance overhauls on owned aircraft operated under the CPA, a $5 9 million.
And expected credit loss provision of $1 5 million, partially offset by a decrease and stock based compensation and $9 3 million due to the change and share price inclusive of the change in fair value of the total return swap.
And increase in aircraft leasing under the CPA primarily related to.
Two additional revenue of $9 9 million earned from two incremental dashing three hundreds and inc. Incremental <unk> nine hundreds and 2020 versus 2019 and a decrease in general and administrative expenses.
Adjusted net income was $64 million a decrease over 2019 of $30 9 million primarily.
Due to an increase in depreciation and $19 2 million related to additional aircraft.
And increase in net interest cost of $19 million related to additional aircraft debt the 575% unsecured debentures added in December 2019, and new credit facilities.
And increase of $6.
$9 million and realized foreign exchange and unrealized foreign exchange losses, partially offset by a $5 $7 million increase and adjusted EBITDA as previously described and a decrease and the adjusted income tax expense of $9 3 million.
Net income decreased $91 7 million over 2019, primarily due to the general.
General aircraft impairment of $68 2 million, a decrease of $39 million and adjusted net income.
$3 2 million on lease repossession costs and increased employee separation program costs of $2 5 million offset by tax recovery on adjusted items of $10 3 million.
Now turning to liquidity.
We ended 2020 with approximately $200 million and included in liquidity a decrease from the third quarter of approximately $17 million, primarily due to the equity funding on two previously committed <unk> hundred 23, hundreds acquired and the fourth quarter as well as working capital requirements and generate strong cash from operations of 50.
<unk> $56 8 million.
Key items that impacted our overall liquidity and the quarter included and.
And increased receivable from air Canada of $28 $4 million, primarily related to increased flying and other activity increase CIC receivable of $8 4 million decreased cash of $34 4 million.
Due to repayment of long term borrowings and decreased cash of $33 1 million, primarily due to the acquisition of two <unk> hundred 2300 aircraft net of financing.
In the fourth quarter of course also successfully negotiated the terms of certain of its debt facilities by extending.
And repayment terms.
All of which.
As further described in her and B M D N a.
In summary, we amended the following increased the term out period of the $100 million U S unsecured revolving credit facility to replace a bullet payment due in April 2022 with repayment over eight equals.
Installments of principal and interest starting in July 2022, and.
And increased the term of the loan deferral program repayment by lengthening the repayment period from 12 to 18 months beginning in January 'twenty, one and the balance deferred as of December 2020 was $28 9 million.
U S.
And then at the terms of certain of its aircraft loans to remove the remarketing period deadline for aircraft repossessed up to April 24th 2021. This eliminates the requirement to repay the principal amount of the loans prior to maturity. If the aircraft are not released by the end of the remarketing period and of course.
<unk> remains in compliance with the relevant loan conditions.
We currently expect liquidity to be relatively stable and the end of this year as we continue with measures to manage it including the continuation of the reduction of non essential capital expenditures and overhead costs.
As Joe mentioned, we collected approximately.
Approximately 60% of lease revenue build and the fourth quarter from our lessees, excluding repossessed aircraft, a 10 percentage point improvement over the third quarter of 2020.
Planned capital expenditures in 2021, including capital and capitalized major maintenance overhauls are estimated to be between 32.
And $38 million. This estimate includes $18 4 million and that will be included and controllable costs.
Planned aircraft related acquisitions are expected to be between 101 hundred $10 million and 2021. These deliveries are subject to securing financing and certain closing terms.
That concludes my Com.
Great. Thank you for listening operator, we can open the call to questions from the analyst community. When you are ready.
Thank you. Thank you, ladies and gentlemen to ask a question. Please press star and the number one and your telephone keypad.
For just a moment the punishment and roster.
Your first question comes from David Ocampo.
Commentary Cormack Securities Your line is open.
Thanks, Good morning, everyone.
Good morning.
So it's pretty good to see the remarketing periods get eliminated them, but it and.
The commentary is that it's for all claims up to April 24.
And with 21.
And do you expect to see or do you see any major concerns with your customers right now where you may have to repossess and other aircraft I, just try and get a sense on why that that data is two months and.
So just on the remarks that April 2004th date that relates to our largest lender EDC. So.
With every marketing period.
There's been eliminated for up to that day for anything repossessed. So you can see that and the other one section of the MD&A and and as far as the lessees, we actively monitor all of our lessees and.
And we have aeromexico and it's continuing to go through its bankruptcy process and we're we're optimistic through of that piece and then we continue to monitor.
Enter others across the globe and and.
As far as the lessees go it is an ongoing and it's a very fluid situation. We're monitoring everybody very closely and I'd say, we certainly don't see anything near term.
But a game or and a difficult environment, but I would add though that.
We have.
And airplanes off lease and.
And we are in active discussions are presently with a number of parties with respect to those airplanes and certainly feel more optimistic this quarter than we did at the end of the last about being able to.
To position those aircraft with other operators, but again.
Nothing firm at this point, but we're seeing some positive signs.
Yeah, and Joe and you just took my next question, but maybe to build on that line.
How are the discussions with customers or lease rates coming down quite dramatically from what youre seeing and.
And are there a lot of other regional aircraft and or that are hitting the.
Market that you have to compete against.
And where there are quite a number of airplanes available and every of every type out there.
If you look at the values today unused airplanes, both or their current market values and the lease costs and that sort of thing.
Things are down quite substantially.
Year over year, depending on which publication you look at and you can see indications of 30% that's not unusual et cetera. So you know what.
These are the things, we're dealing with and the near term I think we're optimistic we're going to see that start to come around as as.
Covid hits to the effect of Covid starts to decline.
And the other good thing we're seeing is increased utilization of our fleet that we have out there and this is consistent with what we've said before that the domestic and short haul markets will be the first to come back.
And I think that's generally accepted.
And the industry. So we are seeing that and we're seeing good utilization rates and and other parts of the world on the fleet, including in Asia, and Africa, and also and South.
Erika so.
You know sort of steady as it goes but.
You know.
Feeling that flying is up.
And we're collecting more of our receivables et cetera, we're heading in the right direction, but how long and as I've said in my commentary how deep is yet to be determined.
So Joe on that have you noticed an uptick from the 60% of lease revenue.
Revenue that you guys have collected or is.
Can we assume that that's going to remain flat for Q1.
Yeah, we're not seeing a significant change from that at this point, but.
And we'll continue to monitor our game, we're working with several customers and as they come back and the flying increase increases.
Certainly, we hope and expect to see some some increase in that regard there is sometimes a little bit of a lag and as people come back.
Because obviously you know and in some cases fares are lower et cetera. So and you know operators are digging themselves out of a of a rough.
And you know it was created over 'twenty and 'twenty.
That's helpful I'll hand, the call over.
Yeah.
Your next question comes from Tim James from TD Securities. Your line is open.
Oh, Thanks, and good morning.
I'm just checking.
And then your expectations for the controllable cost guardrail receivable at the end of the first quarter, it's a fairly wide range relative to what you provided.
And your Q3 reports for the end of the year is there any particular reason why.
Yes.
And there's a fairly wide wide range on that expectation for the end of the first quarter.
So that is actually is.
Is it as it pertains to worry about at the end of 2021. So that's why you see that wide range and 10, it's really going to depend on.
And how things work out and the operation we also have.
And to Saddam, where our customer and air Canada and.
Tried to set some rates here coming up so that is difficult in this environment, but that's giving you a range for the entire year, so and the first part of the year, we would expect to be and the you know the lower part of that range and and as the year progresses towards the higher end of that range.
Okay.
Okay. That's helpful that makes sense.
And then your Capex plans for 2021 of of 102 hundred 10 million and this is obviously non maintenance capex.
And it just seemed a little high to me when I think about sort of the aircraft that are being acquired and and taking into account there is a little bit and there for the ESP.
And I'm, just wondering and I underestimated the cost of those are assets likely or is there something else included in there that isn't sort of specifically called out.
Yes, we have probably somewhere between 10, and 20 million and as a general provision and case, we need to do any aircraft.
<unk>. So it's just a it's an old book at this stage.
Okay.
Okay. Okay.
And then I'm, just wondering and I'm not sure. If you can provide any color on that but the report sites prior to the pandemic chorus was providing air Canada or.
And we're providing about 80 per cent of the Air Canada Express capacity.
And what would that value have been can you give us.
And in 2020, what that.
Percentage of capacity would've changed too if if at all.
You know I think it's probably fair to say it wouldn't have changed from where the.
You know remain proportionate through that period of time, you know the two carriers, providing and the capacity to be ourselves.
A central or regional and both of us and both ourselves and Sky are flying these pace. So I don't think there's too much of a material difference there.
Okay. Thank you that's all the questions I had.
Okay.
Yes.
Your next question comes from a corner good.
And smoke sorry Scotia capital your line is open.
And good money and thanks, everyone.
Just wanted to first start off on the liquidity argument.
So you guys are expecting a liquidity to be more or less kind of stable throughout the year I'm. Just curious if you can provide any cadence for that.
Do you expect some initial liquidity decline and the first half and then it rebounds sort of art and the other way and then does it reflect your assumption reflects any external climate and seeing all the sector and support from the government.
Okay. So.
And as for as far as the liquidity goes.
And something you'd expect from the first part of the year to.
Have a little bit of pressure traditionally if you look back it's one of our worst.
Quarters Q1 on working capital, but we still don't see and meaningful.
Reduction from that level and then as you go through Q2, and Q3 and improves in Q4, you're trying to fight back.
Back a bit so.
And we'll be plus or minus a little bit from from that projection through the.
Through the course of the year.
And surely there was another person who I think are related to our assumptions and perhaps some government or a sector sectorial support and we'd go and support and any external the external financing that you plan to raise and that liquidity.
Eruption.
So we do we do assume that we would raise around 70% are on those aircraft financing from that that's a very typical assumption we have but we do not assume any level of government assistance and that.
Okay, and just a reminder, anything that anything that we get under the <unk> program flows.
The other two here in Canada, so it doesn't directly flow to us.
Yes, you're right.
And we feel about the sectorial supports very important but of course.
And the fact that we're a contract Florida for Canada.
We're certainly hopeful that air Canada will be a Cisco and looking to you know.
Reinstate and provide services.
As the market comes back up and so that that discussion is very important to us.
No absolutely true maybe just a clarification on the cost guardrail is it if the boom and sectoral support comes and will it impact the cost guardrail receivable by by any any magnitude.
And.
It will depend.
And it's kind of hard to speculate but the way it works under the CPA is if we get a reduction of cost net through the government programs. It flows back as part of that guardrail process. So.
You can expect that it would make its way back from your candidate could reduce our guardrails or could.
And depending on if it was overly negative but.
And would generally be positive.
It makes sense for free.
Program.
Okay. Thanks, and then on the on the gross lease receivable at CFC.
If if I am understanding correctly, and just making sure.
And do you have been collecting less and 100% up your leases, obviously and so as you collect less than 100 per cent you believe receivable and then you start collecting some of the previous receivables I guess right.
You know payments come due.
How should we think about this this liability and all of this asset.
You and make them.
Gross leasing assumable should increase as you go throughout the year as you, obviously feel like gloves, and 100% minus the payments you receive or how should we think about it.
If you go to our disclosure and we expect it to remain fairly constant to the end of the year without seeing a major change and it's really as you alluded.
That's true we are going to receive some deferral payments back from the.
Customers are what they are.
We put in and receivable and then there could be some amount that interchange and there. So we see it as being pretty flat to the end of the year.
Okay, Thanks, sorry for that and defer capex.
Any timing for Capex severity and in any particular quarter, which is a heavy on capex.
I think you could say Q1 will probably be lighter than most coming through here are the two aircraft that were with the undisclosed customers still under negotiation and that so.
Uh huh.
And not something that's imminent right now, but that could change and as far as the maintenance Capex I think you would see that start to spool up as the operation and starts to spool up so.
Okay. Thank you.
And with respect to our remarketing discussion Joe curious if you if you can help us here and like.
You have been sitting with.
And second aircraft for quite some time, obviously now and then hopefully the vaccine they've gone up and it brings and some some recovery for the industry here what are the early discussions like with your customers are they interest interested in and be studying some obesity and aircraft. You have are they are looking for some other kind of aircraft type and what's sort of the timing.
And discussion that's happening at this point and is it like late 'twenty, one or early 'twenty and 'twenty two at this point.
Yes.
These customers are actively considering the aircraft that we have off lease.
You know and we have not been out actively marketing marketing and increase and our business due to.
Our focus on liquidity over the year. So we've been we've been focused on remarketing those airplanes. Aside I think there are a couple of aircraft. There then we may potentially do and and <unk>.
So there are operators that are looking at getting back up here and and so at the.
Timing is to be determined but certainly you know we're hopeful that a throat. This year, you'll see quite a number of those 13 airplanes start to be released and put back in operation with with customers.
That's great and then last one from me before I turn it over.
Stock based comp and.
Q1 last year.
It dropped because the stock price dropped I was just curious like given where you are right now on the share price and the total return swap you have.
Do you expect the second but Q1 of this year.
Dog based from be flat or down.
Last year.
Well it should be flat and we put the as far as the total expense year over year I would have to book at that but with the total return swap essentially when we put in place and blocks in a very flat number so its constant and through 2020. It was a relatively close to the numbers. So you shouldnt see a lot of fluctuation.
And 21 year over year.
Perfect. That's it from me. Thank you so much.
Your next question comes from Walter <unk> with RBC capital markets. Your line is open.
Good morning, everyone.
Hi, good morning, So theres a lot of obviously stranded capacity.
And belly space of aircraft that we're flying and no no grounded internationally and I noticed that you got a nice renewal with Voyager I'm, just curious as to whether there's any potential to repurpose aircraft either temporary temporarily or longer term if there's as many expect.
At this stage.
Days.
Constrained for some time and and Ken Voyager aircraft be repurposed or can you can you look too.
And do our strategy pivot here to include a cargo element.
Two voyager or to course.
Yeah.
That's a very.
And we have repurposed our few dash eight one hundreds into package freighters and these aircraft and some cases, we lease them as a dry lease and and others. We operate on a contract with Voyager.
And we are actually using aircraft as well.
Good question.
And not entirely converted so we've been growing it's still relatively small though.
It is an area of focus for Voyager and we do have quite a number of assets that we can repurpose here.
And we have the expertise and the knowhow and to do the change.
The other thing.
So so that's a that's a very good interest to us and you know.
And I'm, hoping that over the next couple of months, we will have more to say with respect to our two cargo and and how we're how we're doing and what our plans are there.
Okay, that's great.
And in line.
You mentioned and Youre, absolutely right and I believe that certainly shorter haul will come back quicker than longer haul and you mentioned some.
Indicators that you follow.
And that suggests that that is occurring can you give us some hard numbers on that by any chance or.
And offline and give it give us some indication of what you follow just so we can.
Followed along with you and and kind of gauge that gauge.
Gage that trend because I think it is.
Trend that a lot of your investors are very much focused on as part of their investment thesis so any any any specific.
Proof of that would be would be very helpful.
Yeah.
And have stats that we can provide you there are a number of industry publications and of course, we monitor the utilization on our own fleet by aircraft five months and.
And so we're watching that very very closely with each of the operators.
And.
And we've seen as I said positive signs, there and that sort of thing but.
We can just take that offline I don't have the specific publications with me right now, but we can certainly provide you with with.
And with some indication as to where you can find some of this information and really I was referring to what you.
Referencing Joe.
Your your own utilization and if you if you have the chance again offline just to give us when you set a positive indication does that what would be the more quantitative.
But certainly we can take that offline absolutely yes.
And we could look at that for sure but.
We're just you know the other thing is is that I think if you look at the percentage of our aircraft.
And our with operators that are active.
Very very high percentage.
Which is itself I think a good sign and that.
The aircraft that are still with operators.
Very very few.
But.
Very low utilization or they're actually not too bad.
Right.
In terms of the government talks I know.
And are probably taking the lead on on this along with west ship, but but Youre you are no doubt closer to.
And then certainly we are.
The tone of Air Canada changed very dramatically in a matter of a couple of weeks from from what I would say is fairly muted or even negative to very encouraged by the talks that they were having with government as of.
As of the last quarter call.
Do you have any sense of how that that's been progressing from your perspective are you and talks with government as well officials on potential aid packages and <unk>.
Do you concur with that assessment that it is encouraging and even since air Canada's report would you say that.
It continues to progress how would you characterize it Joe.
Well I can't really speak on behalf of Air Canada, and those talks however, we have.
Ourselves and talking to a number of government officials over the last number of months and I think it's fair to say that the level of engagement.
And discussion has improved from from our point of view and.
And you know and you know.
There was some very senior people and Ottawa now and fault of this so you know and we're encouraging them to support the sector.
And for sure there are a few things that we think are really.
It's important and.
And that's that we really need to get people back up and the euro safely and people feeling safe about flying and and.
I think rapid testing and adjusting quarantine periods et cetera, but it's a very difficult environment right now that we face.
To talk about some of those things but.
And our focuses on how you get back up here and what it looks like.
So the focus is on that the other thing is you know.
And what we've been saying is that regional services have been under some financial stress for quite some time.
And you know we've been in the regional business a long time.
And for 40 years, and I can tell you that the download of government imposed fees charges from institutions is incredible and this country compared to the U S and others.
We have all of these independent agencies now that have their own.
One.
I've been in lines to worry about the government institutions. It doesn't matter, it's NAV, Canada and the airports cats.
You know etcetera and these institutions are all putting up their charges and we see and other parts of the world. When the market comes back people want to be encouraged to fly and not have prohibited fares facing.
Bottom line.
And as a return through the year so.
Our focus has been on.
And saying to the government.
Government read of it.
Really needs to look at regional air transportation, as and economic enabler and something that supports.
The transportation infrastructure within the country rather than.
And then being a cash cow and these charges and these approaches have had over the years, a very disproportionate effect on regional air transportation and we've seen it happen.
So we did an example, and the other day, we're at $250 airfare and the U S.
Attractive.
Attracts fees tax.
Taxes et cetera, and about a 15% level.
Level and Canada, the same fair.
Tracks about 37% and.
And now we're seeing increases of AI apps, and NAV, Canada fees of 25, 30%.
And that's not helpful. In terms of the return of Air services, and you know and we've been saying as well with these communities require access into a large network into the world rather than being isolated and and not part of a larger and network. So that's been our message.
And we have thousands of employees.
And it off here and it's really important where we have the aircraft. We have the employees, we have and we have to position and the market. We have the safety record and the quality of service that is required and these markets and.
And I think these markets need assistance in terms of how they get back up and how we reestablish regional air service within Canada.
And that's been our message.
It's about how do we get back up as an industry and start linking the country again, the way it needs to be linked.
Social and economic perspective.
And hopefully the silver lining from all of this is that we do get a revamp and many of these fees as we start to get the airline industry back on its feet I appreciate the time as always Joe.
Okay no problem.
Your next question comes from Cameron that's been dealt with.
National Bank financial your line is open.
From a thanks very much and good morning.
Good morning and camera.
So just wanted to come back to the 2020 cost guardrail number I guess it was the $44 million I'm, just wondering when and when that I guess that receivable is collected my guess my understanding was that would be cash that would be.
And then did in Q1, but I may be wrong on that so maybe if you can just sort of clarify when that that receivable comes in as cash.
Cash for you.
That comes in and Q1 and.
This moment and it's been collected so.
Okay.
And.
And for the 2021 and cost guardrail it'd be the same thing at the end of the year. You would debuted actually received the cash and Q1 of 2022.
And as always and Q1, okay. Okay perfect.
<unk>.
Maybe a question on <unk>.
And sort of the nature of your.
Discussions with Air Canada. These days I mean, obviously I.
Colonial day, probably.
Everybody and industry is probably thinking that this crisis has gone on longer than most people would have expected a year ago.
And then of course, there are candidates continue to pay.
The leases.
Under the CPA.
And has there been any discussion about air Canada.
And are deferring some lease payments or any other adjustments to the CPA at this point I mean, maybe you can just sort of discuss the nature of the discussions.
Yeah, we continue to discuss with air Canada ways of yeah.
Improving efficiency.
Helping them through this pandemic.
And I make.
Et cetera, and our partnership is very strong and we've done a lot and we will continue to do what we can and to.
To help and to be a good partner going forward. So.
And where we discuss have deep discussions on every.
Picture of our business and so and we will continue to do that.
And that's I think that's the nature of our partnership.
Okay Fair enough and just maybe a final one from me.
As regards to the remarketing of some of the aircraft and the third.
Every ASIC business.
And the discussions that you're having with some of the potential.
And the airlines and I think more.
We're looking for short term leases or maybe the better question is which I assume you would probably prefer short term leases given where lease rates are and then three years down the road to maybe re lease those aircraft again net.
Lisa once the industry has recovered as that kind of what youre looking at it.
Yes, well there are a little all over the place.
I guess the benefit of the short term is.
The market may be better but.
But there is a benefit to a long term lease as well and that you have certainty of payment.
Payment and a longer term.
Customer et cetera, so right.
Right now we have I think a variety of potential here that we're talking about so.
There's a there's a put and a take on whether it's short or long and.
So it's India and.
Something that works for us.
Okay, well, that's great I appreciate the time.
Thank you.
Your next question comes from Kevin Chiang with CIBC. Your line is open.
Thanks, Thanks for taking my question, everybody and hope everyone is happening and good morning.
Maybe just back on the government assistance stuff one.
And so I think the government has decided as part of the criteria would be like a public interest test or <unk>.
Or are some sort of support for the broader aviation and airline industry aerospace industry and in Canada. So those that that receive any funding would have to provide additional support to the Canadian aerospace.
Based on industry, just when you look at boys your MRO business.
Do you see an opportunity to potentially benefit from from maybe more Canadian airlines using their services.
To the extent that they that they participate and a and a sectoral.
<unk> program, and what percentage of let's say that business.
Our revenue today sits with Canadian and airlines.
Yeah.
Yeah.
A lot of the voice your businesses with customers outside of Canada.
And you know the the thing about it is is that you know.
All segments and of course as you know are not created equal and this pandemic with them.
Okay.
The part that's been most.
And severely hit has been and passenger.
And airlines and and leases, etc. So.
Thank you.
And I can't help but believe that the support will be more along that segment.
Because the others.
Voyager itself is is doing not bad these days frankly and.
And and it is somewhat insulated from the passenger side of things and but of course, our CPA is very much influenced the leasing our third party leasing at this.
Point is all passenger aircraft and so.
And I don't really know what the government's thinking here with respect to the to the sector, but I think the most immediate need is certainly a more and the operating side of our aviation within Canada.
And I think that's where other governments have put and putting support in terms of our of the sector for instance, and the United States as an example.
Okay. That's.
That's helpful.
And then just on <unk>.
Korea of course aviation capital or the regional aircraft leasing operations.
As you have noted that most of your customers if not all of your customers have asked for some sort of relief.
Can you are you able to share with us the brae.
Down to the type of releasing provided let's say you know the percentage off.
Customers are aircraft that are now under some sort of power by the hour versus just a straight delay and payment that gets.
Recaptured and in a future quarter.
And I guess, what I'm trying to get at is like.
Do you need to see do these customers need to see traffic back at pre pandemic levels before you get 100% rental recovery rate or.
Because I would think that it could be lower like as long as there is some you know as long as they're they're they're on.
You bet and actual putting it doesn't matter if they're running 80 per cent of 2019 and there'll be you shouldn't you shouldn't be say 100 per cent of your lease payments.
And that's the right way to think about it or do you need to see them back and 100 per cent of pre pandemic levels before that rental collection weighted about 100 per cent.
I think the simple answer is that is.
It depends on the customer and.
And we have customers that are in various states and it depends what's going on within their individual geography, and jurisdiction and you know and what works for one doesn't necessarily work for another and you know one of the things that we do is we work closely.
And with each of them to work to find a solution that works. So you're going to have a variety of things. There are you know we have a we have customers that are that have there's been no issue with throughout the pandemic and others that are struggling a lot.
And we don't break it down and that way Kevin a lot of it is competitively sensitive.
Thank you.
And because you know I think one other things that we believe is and you can actually have a competitive advantage if you're more responsive with your customers and you work to find solutions and it includes and some.
And some cases extending leases.
You know a number of years, so it's a little all over the place to go even true.
Okay. That's that's helpful.
And maybe just two housekeeping questions for me and Joe you think.
And in a previous answer you talked about working with Air Canada.
And finding other ways to find cost savings on that.
It help them.
And sure there are key partner on the regional air aircraft side.
If I look at the CPA pass through revenue that was down.
55 per cent year over year.
Give or.
Take the controllable cost revenue was down it looks down less than that.
And if are you just you know simple rule of thumb is that kind of the opportunity that that that that controllable cost revenue.
Should be down and maybe similar to what you saw in terms of the pass through revenue.
You know just given how given the lack of flying and.
And if you're able to capture that savings and working with air Canada, that's kind of a bigger bucket of flow through and things are.
Canada.
Yeah. The only thing I'd say about that is the pass through flying is generally costs are generally very directly linked to the amount of flying and youre doing so whereas the other controllable.
And it's you know where you got the aircraft facilities things of that nature.
And are not directly impacted and some of those costs continue to exist. So I don't think you should can save but there should be or there can be a direct relationship where they are at the same.
Cop.
I think you know, we just work with air Canada, and all of the cost buckets and look at how we can improve the efficiency.
We can help them and and it.
It relates more to things other than costs.
In terms of what we do with them.
And streamlining procedures and processes, helping them work through things and we'll that's what we do yeah I would concur with what Joe said I mean, there is a large fixed component and the controllable costs for facilities and for aircraft and Thats what.
And make the difference and you see there.
Okay.
And that helps and I P.
And as I was late on the call, but let me Gary.
And if you might have given this and your prepared remarks, I think guided to what we should be thinking about in terms of the repayment of long term debt and.
And 2021, just given a number of the amendments to your your debt facilities and it's kind of a low.
Oh, the mid $30 million a quarter still.
The other way run rate, assuming assuming current levels of flying.
Yeah, I think if you just go to the current portion of the debt that'll give you a pretty good idea of what's coming and so you've got four months and you could you know kind.
Even though for the most part okay perfect. That's it from me. Thank you very much.
Yes.
Yes.
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Thank you very much operator, and thank you and your line.
And for teens economic cause and we look forward to speaking with you again soon have a great weekend.
This concludes today's conference call you may now disconnect.
And.
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