Q1 2021 Exchange Income Corp Earnings Call

Good morning, everyone. Welcome to Exchange income Corporation conference call to discuss the financial results for the three months period ended March 31st 2021.

Corporation's results, including the MD&A and financial statements were issued on May 13th 2021, and are currently available via the company's website or SEDAR.

But fortunately on the call over to management and listeners are cautioned that today's presentation and the responses to questions may contain forward looking statements within the meaning of the safe Harbor provisions and Canadian provincial Securities laws.

Forward looking statements involve risks and uncertainties and undue reliance should not be placed on such statements.

Certain material factors or assumptions are applied in making forward looking statements and actual results may differ materially from those expressed or implied and such statements.

For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward looking statements. Please consult the MD&A for this quarter the risk factors section of the annual information form and.

And exchange exchange as other filings with Canadian Securities regulators, and except as required by Canadian Securities Law Exchange does not undertake to update any forward looking statements such statements speak only as of the date made.

Listeners are also reminded that today's call is being recorded and broadcast live via the internet for the benefit of individuals and sure shareholders analysts and other interested parties.

I would now like to turn the call over to the CEO of Exchange income Corporation, Mike Pyle. Please go ahead Mr. Pyle.

Good morning, everyone and thank you for joining us on todays through Q1 conference call.

And the day by Eic's, President and terminal and Peter who will review and additional detail the outflow and free IC later on the call and by our CFO Darryl Bergman, who.

Will.

Provide a more detailed breakdown of the EIC its financial results for the period.

As you're all aware the COVID-19 pandemic continues to create significant Jackie and all the turbulence and do that.

And internationally.

And while we've actively managed our business on a day to day basis, that's been required to adjust to the constantly shifting realities of COVID-19. We've also established clear core principles GIC, because I've guided our behavior through the course of the year.

First we have without compromise.

Tied to the safety of our employees and our customers, we've implemented and industry, leading bio security protections across our probably a mere operators to make sure. Our passengers are safe with the communities. We serve are protected and that our frontline workers are comfortable with the knowledge and we're doing everything we can.

And to safeguard their health.

And then on all our operations, particularly in our manufacturing segment. We have made significant changes to our workplaces to ensure that we are meeting and exceeding the guidance and public health authorities for social distancing.

The provision of appropriate personal protective equipment and <unk>.

Process changes and segregate, our workplace and enhanced disease prevention throughout our facilities and second we have maintained our services even in instances, where it was not profitable to do so.

Besides a precipitous guides and passenger traffic across our family and airline operators and points. During the pandemic. We made the proactive choice to continue fly every destination and our pre pandemic network.

And we understand the aviation services, we provide are vital.

The communications, we serve and count on those.

It was pardon me the communities and people, we serve couch my boss and irreplaceable link for transportation medical care and delivery of essential supplies and food and went out and otherwise be available.

So at this critical time when prior is keeping those linkages and staying presence and our communities.

Thirdly, we actively go out and ensure expenses and our financial resources to ensure that our dividend and remains volatile.

So yes, he's foundry and we made the payment of a dividend and explicit policy of the corporation. We've got this commitment to our shareholders and every instance, irrespective of global economic circumstances. We've worked hard to continue this obligations through the pandemic.

And finally, we've worked hard to position the EIC to exceed and to succeed and the new norm.

This encouraging signs on the horizon this vaccine distributions and Canada ramps up and we continue to see evidence of considerable pent up demand across our lines of business, we believe EIC, while identifying new opportunities to continue growing our company through accretive acquisition and.

Strategic investments and our existing businesses.

We've been taking steps and managing our business since the start of the pandemic to ensure we're ready to move when the time is right and I'll share. Some additional thoughts on that later in my remarks.

Turning to our financial performance I'm. Once again today very pleased to be reported strong results for EIC through the first quarter.

<unk> that are even more exceptional when contrasted with the comparable period in 2020.

While Q1 this year Saar businesses balance.

Judy entirely and a pandemic environment, particularly volatile on the quarter as domestic markets were heavily affected by a pronounced second wave of COVID-19.

Well Q1, 2020 included only two weeks of pandemic conditions and over two months of regular operation irrespective of the environment. Our operations consider we outperformed last year's standard.

Our consolidated revenue of $301 million remained consistent year over year down approximately 2% from the comparable periods in 2020.

Our EBITDA performance of 64 billion and the quarter improved 12% when compared to the first quarter of 2020.

And critically Eic's payout ratio on our free cash flow less maintenance capital expenditure basis improved year over year with income would you be changing and 62% payout ratio improved in comparison to the 68% recorded and the 12 months ended March 31 2020.

This measure is a testament to managements proven ability to navigate the pandemic environment, while maintaining our focus on cash flow.

Q1, 2021 and marks the first 12 months of operations and a pandemic environment characterized by uncertainty and stability of a global and domestic market.

During that time, and the benefits and underlying strength of our diversified business model and our ability to generate value for the show shareholders, while solidify the future of our enterprise and being borne out.

In addition to improving our payout ratio on free cash flow less capital expenditures basis, yes, He's got debt.

<unk> decreased by approximately $50 million over the last 12 months.

We've continued to responsibly and sustainably meet our dividend and obligation to shareholders move forward with maintenance Reinvestments in our operations and completed a strategic and accretive acquisition and fundamentally strengthens our competitive position going forward, adding W. I asked and the EIC.

Family of companies and the third quarter of last year.

Yeah.

We've also reported numerous positive achievements and speak directly to the strength and innovative capacity of our existing and younger prices.

Pals Aerospace's recent award of a contract to provide two fully mission.

Dash eight maritime surveillance aircraft and a company and support services for the Netherlands Coast Guard being just one. Notable example is a series of accomplishments, we see extended across all of our business on.

Importantly, we made significant contributions to the communities we serve by directly leveraging our unique capabilities to assist in the fight against COVID-19.

Gross profit as it did those efforts as the management and operation of a highly specialized charter service on behalf of and digital services category.

These dedicated flights deliver frontline medical personnel to remote Phy and first nations communities across the country.

Following strict bio security profiles and allow isc's nursing workforce to complete their car T and obligations at home and get directly to work on arrival.

Given the markets are airlines and serve our deep commitment to providing essential air services on a reliable basis and our appreciation for the challenge and northern limit, especially.

Actually the pandemic contacts and our ability to partner with IFC and developing and delivering and service has been <unk>.

Really meaningful for all of those loans involved and EIC.

In closing, while the carve out and will provide additional guidance on the outlook for EIC later on the call I wanted to share my thoughts on a couple of specific topics.

With respect to the ongoing uncertainty of the pandemic, we know it's not done with US yet the recent third wave of COVID-19, and Canada has created significant challenges staffing and safe operation of our production facilities, while engaged negatively impacting our passenger loads and our airline operations.

And <unk>.

We are confident and our ability to persevere and we will draw heavily from the lessons we learned during the first.

Europe, and the pandemic to see our way through the third wave, which will invariably.

Affect our results through the next quarter or perhaps too.

We're also starting to see some light at the end of the tunnel, we're picking up some encouraging early indications, but yeah. She remains poised for strong post pandemic recovery.

And the pace of vaccine distribution has accelerated and the United States, where you'll see the steady build of activity and revenue and our operations at regional one is U S Air carriers actively reintroduce service to meet demands and that market.

Closer to home vaccine distribution, and Canada is now proceeding with encouraging consistency and desert <unk>.

Domestic economy response, we expect to lead the recovery was strong pent up demand for our vital aviation services and healthy order books across our manufacturing cycle.

Yes. She is also committed to continuing our search for acquisition and investment opportunities and aligned with our strategy and solidify the future of our company and building organizational value for our shareholders.

We have repeatedly demonstrated our ability to complete accretive acquisitions that build our enterprise and we are greatly encouraged by what we see on the horizon and with that respect.

To ensure we are prepared to execute when the time comes we made the proactive decision to raise $80 billion and equity through a bought deal public offering of common shares.

This move on our part was not taken to reduce existing and glamorous, but rather because we would expect to grow we understand the imperative of being TD and our historically, Bob strong balance sheet, while completing future acquisitions. This additional liquidity was secured to ensure we meet both of those objectives.

With that and by appreciating that some of the pandemic challenges are still ahead of us I remain profoundly optimistic about the near term future free IC and I look forward to future reports, where I anticipate outlining how we have and this invested this additional liquidity and growth.

I see for the future.

Now turning to Daryl outlined Exe's financial performance and greater detail.

<unk>.

Thank you, Mike and good morning, everyone.

And as Mike noted and as result.

And his remarks, EIC and continued to deliver solid financial performance through the first quarter and 2021, despite the ongoing challenges and unpredictability associated with the COVID-19 pandemic.

We remain highly focused on the company's balance sheet carefully managing expenses and financial resources to support <unk> strong foundation, while sustainably meeting our dividend commitments.

Additionally, we benefited greatly from the diversity and management has carefully built and the EIC since its inception strong leadership teams. We have in place across her subsidiary divisions have continued to find solutions to challenges inherent in the COVID-19 environment demonstrating time.

And again, our ability to continue delivering for our customers.

Turning now specifically to Eic's results for Q1, 2020 one.

Working capital management continues to be of Paramount importance for EIC and a quarter historically considered weaker for EIC and terms of financial results.

Principally to I used to run on availabilities and northern communities served by our legacy Airlines and traditionally higher maintenance capital expenditures the company delivered a quarterly increase and net debt of only $4 million.

Comparatively over the last 10 years, our average net debt rose approximately $40 million in the first quarter.

This improved performance again demonstrates the flexibility of our business model and ability to adapt and respond quickly to unforeseen challenges.

The size of the Corporation's credit facility as at March 31 remained unchanged at approximately $1 3 billion with the ability to access and another $300 million and an accordion feature should we choose to exercise it given the corporation combined assets of up to $1 6 billion.

Utilization of the corporate credit facility was $815 million at the end of the period, reducing this by 84 million and cash on hand.

And the net debt of $731 million at.

At the end of the quarter and corporation had readily available access to liquidity of $560 million, excluding the accordion.

And as Mike noted subsequent to the ended the quarter. The company did complete a bought deal financing of common shares net proceeds of the operating room.

We used to repay debt on its credit facility and the second quarter.

Also subsequent to the quarter and the company and the repayment of debt with cash on hand.

And by and the fact that these transactions reduced outstanding credit facility debt by approximately $90 million.

Bringing it to.

$725 million. This provides the company with the additional capacity to accommodate the opportunities for growth and they are identified and.

At the end of Q1 2021, our leverage ratio has remained well within the current five times covenant and.

And notably our original four times covenant and prior to the temporary amendment and Q3, 2020 with vendors coming in at two seven times debt.

And covenant results are driven by the corporation and successful management of capital expenditures along with working capital.

Going forward inclusive of the impact of all announcements to date management continues to expect to be within the original four times Covenant, which we will revert back to you at the end of Q3 2021.

Further on our balance sheet and we ended the period with working capital of $312 million, which represents a current ratio of 195. This compares to working capital of $324 million and a current ratio of 210 at the end of 2020.

Q1, 2020 revenue continued to be negatively affected by the impact of the pandemic.

Note that comparative to the corresponding quarter and 2020 would only reflect the impact of the pandemic on Q1, 2020 period for approximately the last two weeks of the quarter.

Also notable and the first quarter of 2021, the provincial government, and Manitoba, and Ontario announced the and reached agreement with the government of Canada to support essential air access into remote communities and a period of July 2022 through December 2020.

Finally to support continued service to remote communities that otherwise would not be economical.

Revenue for the period includes an estimate of the amount that the corporation expects to receive under these provincial government programs, which is lessened and the maximum available under the programs.

Total government governments, and subsequently announced and the extension of the support for 2020. One on a portion of the program has not been determined but is expected to be sequentially less any amounts received and recorded and subsequent periods.

And Q1, 2021 and we generated $301 million of.

Revenue, which is a decrease of $6 million or 2% from Q1 last year, the aerospace and aviation segment revenue decreased 17 million and the manufacturing segment revenue increased by $11 million.

Aerospace and aviation segment revenue was down 9% to 183 million.

Revenues from our legacy Airlines and provincial decreased by $2 million decrease and was primarily attributed to reduced demand to schedule and travel caused by the pandemic throughout the quarter and the comparative periods for 2020, EIC experienced strong revenues and the first two months of the quarter before the pandemic impacted our.

Patients and the second half of March.

Decreases across a subsidiary scheduled passenger operations were largely offset by improvements and cargo charter rotary and S operations and greater utilization of Prudential and on demand ISR aircraft.

The government financial assistance support supporting continued essential service into the remote communities and it's also partly mitigated the decreases.

Regional one revenue decreased in Q1 2021 relative to the comparable comparative period in 2020 by $16 million.

This decrease was driven by declines in net regional ones. Two main streams of revenue sales and service revenue and lease revenue sales and service revenue decreased by 21% over the year.

And over year over year attributable to the impact of depending on me for the full quarter of 2021 that said decreases and the quarter were partially offset by an increase and lower sales of larger assets compared to Q1, and 2020 and airlines around the world are either reintroducing service or preparing fleets to return to service.

Lease revenue decreased by 54% period over period cash.

And then make impact and consistently driven a material drop in and custard and customer demand and utilization of the company's assets Q.

Q1, 2021 and takes into account and a full quarter of the pandemic now turning to our manufacturing segment revenue grew by $11 million over and the prior period. The total revenue for this segment was 118 million on.

All of these manufacturing facilities have been deemed essential services and have been operating throughout the pandemic.

Segment continues to experience and more robust demand slightly offset by reduced efficiencies as operations adapt and COVID-19 health and safety measures.

The acquisition of width, and Q3, 2020 also contribute to that period over period increase in revenue with no comparative in the first quarter of 2020.

Moving to EBITDA and.

Solid EBIT growth.

Solid and at EBITDA was 64 million up 12% or $7 million compared to the prior period.

And within the period the corporation was eligible for and received the Canadian and employee wage subsidy or soon after by the government of Canada under the program The Corporation and received $9 million during the period.

And he's finding allows the corporation and retain workers on payroll.

It would have otherwise been laid off.

Should we hire workers, who were previously laid out and to continue essential business activities.

EBITDA and the aerospace and aviation segment in Q1, 2021 was $53 million and increase of 4 million compared to the prior period.

And they are generated by the legacy Airlines and provincial increased by 16 million and with the quarter within the quarter strong cargo charter rotary wing operations and improvements and the aerospace operations helped mitigate pandemic impact two scheduled passenger operations Prudential and aerospace operations benefited from cons.

Tractor pricing and scope escalators and increased on demand ISR aircraft utilization.

Additionally, cost reduction measures associated with schedule frequency reductions labor rationalization and business transformation strategy that took some time to implement and 2020, we're meaningfully realized in the first quarter of 2021.

EBITDA for regional and decreased by $12 million from the prior period. The decrease is relative is it related most significantly to the 9 million reduction and lease lease revenue.

EBITDA margin are maturing.

Reduced passenger volumes being experienced by regional airlines around the world remains the primary driver behind the decrease compared to the comparative period decreased part sales also contributed to decreased EBITDA.

Increased sales of aircraft and engines compared to the prior.

Compared to prior period and cost savings initiatives initiatives implemented since that time gets contribute to mitigating the impacts of the pandemic.

And the manufacturing segment, EBITDA was $18 million and increase of $4 million compared to the prior period EBITDA at our flex business increased over the period, reflecting the acquisition of wisdom and the third quarter of 2020 with no comparative and the comparative and the first quarter of 2020.

During the first quarter of 2021 operations.

And the quest facility in Texas was interrupted for several days due to the severe weather snow storm experienced across the state of Texas.

Which resulted in a state of emergency and being declared.

This reduced output from the facility and reduced efficiencies for a period of time, which negatively impacted EBIT during the period.

In addition quest continues to be impacted by job type delays and inefficiencies as a result, and health and safety protocols relating to the impacts of COVID-19.

The balance of the manufacturing segment collectively experienced an increase in EBITDA period over period as noted with revenue demand and this segment continues to be robust and the suit program helped to offset higher and health and safety costs.

Turning to earnings net earnings for the quarter were $7 million and increase of 12 million compared to the prior period and addition to the increase in EBITDA and reduction in interest costs and depreciation on capital assets increased net earnings.

Of note and the prior period and nonrecurring $6 million impairment loss on certain intangible assets decreased net earnings.

Net earnings per share increased by 35 cents to <unk> 20 per share and comparison to the prior period. It should be noted that in the periods and weighted average number of shares increased by 2%, which partially offset any increase on a per share basis and net earnings adjusted net earnings and free cash flow.

EIC reported adjusted net earnings of $11 million for Q1, 2020, one representing an increase of $8 million or 413% compared to the prior period.

The company delivered adjusted net earnings per share of <unk> 30 cents up from six cents and the compared comparative period.

EIC continues to demonstrate our ability to achieve positive cash flow and positive earnings and a period defined by economic uncertainty.

And Q1 2021 free cash flow increased by 7% over last year to $42 million or $1 17 per share. These results are driven by the increase in EBITDA and partially offset by higher current tax expense free cash flow less maintenance capital expenditures per.

Share increased to 55 per share from seven cents per share and the prior period.

And free cash flow less maintenance capital expenditures payout ratio on a 12 month trailing basis is a strong indicator of the corporation's ability to actively manage cash flow and even through uncertain and volatile times.

Barry nine and line free cash flow and less maintenance capital expenditures payout ratio on a 12 month on.

On a trailing 12 month basis compared to the prior period strengthen and 62% and Q1 2021 versus 68% in Q1, 2020. Despite a full year of operations within a pandemic environment.

As Mike indicated earlier EIC and ability.

To improve our payout ratio on our free cash flow less maintenance capital expenditures basis is evidence of the success successes, we've achieved and managing the challenges of the pandemic, maintaining our focus on cash flow and building a strong foundation that will support the future growth of the corporation.

That concludes my review of our financial results and I'll now turn the call over to Carmel to share some share some thoughts on eic's outlook for the coming months.

Thanks, Darryl My comments today will focus primarily on the near term outlook for the corporation across our various lines of business and then transition to some more general observations on our optimism for the future of EIC.

We know that COVID-19 third wave and the emergence of new variants will continue to challenge our operations and our results and Q2 and into Q3 2021.

That said, we we see a hopeful sign and the near term and vaccine distribution programs and accelerate in North America, and we're getting positive indications of pent up demand, we can capture and the post pandemic environment.

And for the next several months COVID-19 will continue to impact each of our subsidiaries business lines, albeit differently and.

And operational and revenue perspective.

And our airline operations scheduled passenger volumes will remain closely tied to travel restrictions and New Jersey and then.

Tears addictions, and which we operate.

Currently passenger and bookings across our network are tracking on average between 60 to 70 per cent behind what we would historically expense.

Despite this immediate pressure our operators are seeing strong evidence of pent up demand across our markets with bookings rebounding, almost immediately and circumstances, where travel and becomes feasible.

Yeah, She's medevac operations continue to perform consistently and in line with expectations, while our cargo operations are experiencing persistent and increase the men that we believe is likely to continue and elevated COVID-19 infection rate and regional travel restrictions and other means.

He and she charter and business continues.

And to be strong benefiting from sustained and then.

And that's the resource sector.

Continued activity on behalf of indigenous services, Canada, and AD hoc COVID-19 related charters.

Hell Aerospace's card business is predicated on long term contracts for the delivery and multiyear programs, including our work on behalf of the department of Fisheries and Oceans are performance based logistics contract and the UAE and our support of the government of Canada's fixed wing search and rescue fleet had been a source and great stability.

<unk> for the business and an uncertain environment.

That said government preoccupation with COVID-19 impacts and the vaccine rollout CT and my short term negatively impact Pal aerospace and on demand ISR service offerings.

Regional one although the business continues to be immaterial impacted by the pandemic management has started to see the early signs of industry recovery with particularly accelerated activity and the regional airline market several air operators, particularly in the U S. Our forecasting and returned to pre pandemic domestic passenger loans by <unk>.

Early 2020, two driven by strong demand and the leisure market.

And for trend and activity growth sequentially higher parts and lease revenue through the first quarter and is expected to continue for the remainder of 2021.

And we don't one sales of large assets aircraft and engines will remain variable as it was in the pre pandemic environment.

The men and remains robust through Eic's manufacturing segment, while our businesses continue to navigate pandemic effects, including required employee absenteeism and irregularities and external supply chains.

As we previously discussed COVID-19 has come on the project deferrals and class, which will create production gaps and negatively impact revenue and for the balance of 2020 one.

Right and just turbulent and long term demand remains strong and quest order pipeline is returning to pre pandemic levels.

Yeah, She's maintenance capital expenditures will continue to closely track flying levels, which we anticipate will increase in future quarters and operational tempo increases that EIC Airlines that said yeah. She has not parked aircrafts during the pandemic and in contrast to other Canadian and international carrier.

Ours is not facing substantial deferred maintenance costs.

Shaded with increasing services to meet growing passenger demand.

From a growth capital expenditure perspective, the balance of 2020, one will be focused on the modification work and the two newest religion aircrafts required under the Netherlands contract and the start of construction of the new hangar facility planned to support the government of Canada's fixed wing search and rescue program and I'm supporting opportunistic.

Asset acquisitions and identified by regional one.

Despite the near term COVID-19 challenges and uncertainty our track record continued solid.

Our track record and continued solid financial and operational performance over the course of the last year and not only given us confidence it is positioned to capture near term strategic opportunity and lay the groundwork for an exciting future for the company and.

The scope of our aerospace business will grow through 2020 to realizing the benefit of previous investments through the commencement of the Netherlands operation and the evolution of the fixed wing search and rescue program.

Order books and sales inquiries remained strong across our manufacturing segment with persistent indications of pent up demand for our products as a north American economy begins to rationalize post COVID-19.

Al Airlines as recently initiated significant schedule enhancement to expand its regional network throughout Eastern Canada and Quebec.

So I think and already established presence in the region and deep familiarity with the markets. It serves.

Airlines is well positioned to flexibly deploy capacity to meet emerging demand for travel and the region.

As and extend its network, including to destinations where previous National carrier service has been suspended due to COVID-19 impact on travel Pal Airlines is working cooperatively with national carriers to build regional connectivity by facility and passenger access to domestic transporter and international networks.

And there is no one has increased its tempo and exploring and executing on strategic purchasing opportunities and the market recently, adding additional ear game on nineties here, Jay and Q4 hundred aircrafts, which we expect to deploy in support of regional Airlines and ramp up Corporation and reestablished networks.

And as Mike and Darrell mentioned previously we have recently added substantial liquidity through an equity offering that will provide financial flexibility and he or she needs to execute on increased acquisition opportunities, we are proactively identifying and the market and.

And you've heard throughout our remarks today management is extremely confident and our future free I see our results through the pandemic have again solidified our belief and the company's strategic direction and in the framework. We've established to support the continued health and growth of the Corporation. We're excited about the future free EIC believer and.

And a strong position to continue adding value for our investors and have in place. The strong fundamentals, we need to continue executing on our business plan and the coming months.

Thank you very much for your time this morning, and we would now like to open the call for questions questions operators.

Yeah.

Okay.

Operator, we're ready for the questions.

Okay.

If you would like to ask a question. Please press star followed by the number one on your telephone keypad.

If you would like to withdraw your question. Please press the pound key.

Please standby and why are we compared to Q1 aerostar.

Your first question comes from the line of Chris Murray of HCP Capital. Please go ahead. Your line is open.

Good morning progressed.

I'm just going to look at the margin profile in the quarter, just trying to make sure I understand some of the moving parts on this one.

And you have the Qs benefit I think.

There was about $9 million or if you want to just confirm that for me.

But in the quarter. There was also I think the support agreements that you would have had with a number of the provinces.

That have any impact in the AR and the numbers this quarter from either prior periods or the current quarter.

You're correct on the amount of as soon as it's approximately 9 million.

We did have the benefit of the agreements with the provinces that were announced.

On the funds for that program related to services provided last year, because it's revenue support it goes into the revenue line as opposed to soon as mature and reduction of expenses.

Uh huh.

The.

Previously published.

Support numbers and the government.

We qualified our we've recorded slightly last and what was publicly announced simply because our operations were slightly better over that period, and we're still working on the precise formula with the government.

But the effect of.

The newly announced provincial once would've been less businesses.

Okay. That's that's helpful. Just to keep in mind. So you guys are pretty comfortable that the margin performance and the quarter was was relatively due to operations as opposed to.

Call It third party influences around COVID-19.

Yeah, I mean, there and then it's a whole bunch of things, Chris it's product mix changes its theres, a whole bunch of things that add up to it.

The Suez with definitely have a margin impact, particularly on the manufacturing businesses because there were many of their revenues were reasonably strong.

But having said all that there is.

There's a whole bunch of things that go the other way with plant shutdowns and less employees and ought to give it day in and.

Employee absenteeism, and Dod and the negative sense of that we want our employees to stay away with and they're not feeling well and and those kinds of things, but they do create production challenges and therefore inefficiencies.

Okay Fair enough and then one question for you and you've kind of alluded to it a little bit with the regional one and certainly no big it.

It is a potential for a pretty big swing and the year, depending on how how about activity comes back and I get it and then.

I got the idea that you're kind of getting ready can you give us some context, though.

On the size of the aircraft fleet or the inventory. However, you don't want to kind of try to explain it between where you were before COVID-19 and where you are today.

And any changes and how that mix will look.

Down the road and and then the second part of that question, if you want to address it.

How much are you seeing in terms of opportunity to add additional aircraft you did make the comment I think and this in the MD&A that.

And you are seeing some opportunities out there, but you just sort of waiting and so so any color around you know the what what reach on one might look like.

As we get to the end of the year and enter into next year would be appreciated.

That's a fairly all encompassing question I'll take the the product mix first.

The fleet looks largely like it did before we've added a little bit of exposure to the dash eight Q4 hundred and we've also added a little bit of exposure to the Embraer 190.

Were purchased and knows where you are looking at opportunities add fleets at different prices.

And I would say quite frankly that the strength of the price of aircraft has surprised this test through this perhaps it's the government support of airlines not so much and Canada, but in other parts of the world that actually what we've seen is there's more new start up airlines because there are aircraft airlines failures.

And the world and so we anticipate a fairly fast ramp up and we're starting to see and in the U S.

Number of flights is up and the demand for the narrow body jets is very strong whether it's the conversion of the 700 and C. R. J and 50 seat platform at places like go debt or just the ramp up all of that.

And of aircraft as a whole of the U S.

As we anticipated, but the U S is ahead of the rest of the world the.

And the market and Africa has been reasonably strong as well Europe would look a lot like Canada, where we've seen starts and then fade back starts net and feedback we believe that you'll see the performance and we're starting to see and the U S. Now as we go into the summer and fall and other parts of the world.

When you look at the ramp up.

We've seen the parts business smoothed first as we started to see bigger pieces engines and those kinds of things go as well.

And then and that's always been Ah Ah Ah.

A bigger part of the U S. We've we've always sold more parts there and so that's why it's dropped their first because that market has got first and then I.

I think we will see the leasing and full on aircraft sales strength through the balance of the year Carmel Yeah. I was just going to add Chris that the reason, we haven't really seen much of a change in our what I'll call. Our fleet and competition is that we were in the right type of aircraft and bought farms Ah we made the right decision and kind of pre pandemic.

And so we've got strong and we're very well positioned and when and how strong demand on the other.

And I guess additional color all provided I.

I think you'll see us looking to lease a lot of engines, and we think theres going to be a lot of demand.

And operators.

And come out and start meeting demand that exist, it's one area where they can.

It saves some immediate and it is leasing engines and we're well positioned in that regard to be able to meet that demand and so and I look forward. That's an area that I would focus in on.

Okay. That's helpful. And then one more if I could just sort of flooded and.

And you guys just renewed your and CIB for the common stock, but you also added and NCI would be for the debentures on.

And what's the rationale on on that and the debentures into the on CIB, it's kind of unusual.

It's really simple it's the same concept for years on the stock and that in times of irrational trading we wanted to be able division and step in and stabilize the debentures are not nearly as liquid as the stock is and as a result, there's occasionally adorn.

Boys and the trading and we wanted to be able to support that training.

We haven't used it to date.

And the debentures are trading and a healthy matter and as long as that's the case I don't envision us using that in and in a material way, it's more to provide stability and required.

Alright, that's helpful. Thanks folks.

Your next question comes from Cameroon, The Rx and.

On from National Bank Financial. Please go ahead your line is open.

Thanks, and good morning.

Good morning, Kevin.

So a question on the on Quest, you mentioned and knee and in your remarks that you are starting to see a rebound and inquiries, which obviously a good sign I wonder if you could maybe just expand a bit on that like what specifically are you seeing and does it give you. Some good confidence that youll I guess looking into 2022, we could start to see.

And some growth in and that business again.

Carmela, you're probably closer to that Tobey yeah. So what we're what we're seeing is well I guess I can just take a step back and camera on it first of all our customers that we had before are all alive and well I guess its a whole describe it and they're all kind of re activating and the projects that were.

Our cash and put on hold and deferred so that's the first thing I looked at it and strong sign and secondly, as far as new inquiries coming in where the number of inquiries and the quality.

We are not slowing down there really at a level that we saw prior to the pandemic. So super encouraging now Gander long lead times with these projects by Chinese and get the plans and licensing et cetera. So that's not going to show up as.

As far as works request, you know until 2020, two and 2023.

But all very encouraging that the market has come back and come back strong.

Okay, that's very helpful and and just sort of on a related.

Due to the manufacturing segment I mean, a lot of companies have expressed.

And was concerned about supply chain and and various components inflation and things like that.

Can you maybe just talk about if youre seeing any supply chain shortages and any of your manufacturing operations or if there's any you know big inflation impacts that might impact margins and the business.

I'll take the inflation went first we do well.

While there has been an increase and some of our input costs.

A lot of the things we manufacture.

How direct ties and our contracts with our customers to enable us to pass on.

Both increases and decreases and the cost of steel and so we arent, particularly concerned about the inflationary part of the environment.

We have seen supply chain interruptions.

God and a major way, but sometimes with different versions of stainless for would be they are a challenge is accessing certain things and.

The one thing that.

And that's come out of that is.

Agreed increase and how much we work together within our manufacturing families.

Because they have different suppliers have different access to things and we had the opportunity to help one of our customers out in our overland business.

Simply because their existing supplier for one of their parts could access the right model well, neither could wait and so we talked to our Alberta business, who has access they could find it either but through quest and their relationships, we were able to acquire the steel ship at all.

And to BC and satisfy our customers significant challenge through the relationships.

Tweener companies and so we have seen an increase and the.

And the internal communication on that front and.

I'm not dealing with the supply chain things on a day to day basis, and they're certainly frustrating, but I would describe them as systematic or material at this point, they're frustrating and there.

Isolated for lack of a better word.

Okay, that's very helpful.

All from El Paso, and thanks very much. Thank you.

Your next question comes from Tim James of TD Securities. Please go ahead your line.

Good morning, and Hello, everyone.

And just wondering.

And thinking about cargo opportunities it sounds like you've had some strength there.

And I realize it's on a massive component of the business currently but I was wondering if you can talk about sort.

Sort of how those opportunities have come to fruition and and and as you can look forward is that something.

That you can capitalize on further and and maybe create a little additional revenue relative to what you would've thought kind of pre pandemic.

Yeah, It's a good question Tim.

The free after vision that most of the free we're doing is into remote northern communities and so part of the recent trade is as high as it is is because typically our customers and those communities with travel out once twice three times a year for medical appointments for other things and then come back.

And with significant shopping and they've done it and southern stars and the Walmarts and those things and break fix home with <unk>.

Declines and travel.

And as has occurred but they have access.

Those stores through a more direct internet kind of purchasing we believe that at least a portion of that is going to be a permanent behavior and given the fact that we are the Canada post supplier and most of the markets. We're in.

And the opening on going on a regular basis, we anticipate that we'll maintain.

And that program, we have there through the.

Nor that the federal government have been northward food security program and.

The subsidies day provides.

And.

No and bars food mail, we've seen people buying stuff and the south and how it gets shipped up on a subsidized basis to support that we've begun pilot programs of actually delivering and right to the doors and communities. So they don't even have to come up and pick it up at the airport, we've seen strong buying and on that and that's a program you'll see us continue to enhance.

And the future. So while there is clearly a bit of a.

Our pandemic spike and freight simply because people can't travel we believe that do normal will continue to have higher levels of freight business because of the habits that have been established during the pandemic.

And also we're seeing.

And a stronger demand and the resource sector. So as that grows and we see kind of greater it can be there there are potential opportunities that could arise in that sector and and moving things into pumps.

Okay. That's that's helpful.

My second question.

And is in relation to your.

Airline operations by taking passenger operations here do you think the the airlines have benefited anywhere from changes to regional services from free.

On the big mainline airlines and and if so could could the resumption of those services.

M B, a small headwind for those operations as we kind of emerge from the pandemic over the next one to two years.

We have seen some slight well some.

Withdrawals of service and in the Maritimes and power business.

And so to the extent that.

On some of those where there were a baby carrier it should be returned to service on those routes there could be.

I think theres, some permanent changes and the service in those areas and quite frankly, I actually see it more as a positive and a negative we need to make sure we're providing a connective service into the major carriers were not and alternatives to air Canada has debt rewarded west debt. We've never said, we are and we don't have that debate, but we can work with those.

Carriers to provide connectivity and the smaller markets and make sure they have access.

And I see that as more of the future. There may be a couple of routes, where you may see do competitive flights on but I think that's on weighed by the opportunity to take people out of other service markets and tend to step into the major carriers.

Great. Thanks, Mike.

Yes.

Your next question comes from <unk> crowd of RBC capital markets. Your line is open.

Good morning, Ryan Good morning, everyone. Good morning.

So I guess just to start off here with with with the legacy Airlines and I was curious to get your take on on how discussions with the federal and French.

Parental governments have been going with regards to the potential removal of travel restrictions and.

I was curious if you had any insight or any early indication as to when this might occur or what level of vaccination progress might be required before it seriously considered.

It's a good question.

I wish I could be more informative on this debt.

Much like boast of COVID-19, the governments or fly by what's happening today and tomorrow and the good news is is the adult and virtually all of the first nations could do we service are largely vaccinated.

Uh huh.

The.

Vaxstation levels are way higher than they are down and south so the ability to start up are moving very rapidly, particularly note of it is essentially complete vaccinating adults.

I believe that theyre going to vaccinate children before they take stuff on the restrictions off but I don't believe government restrictions at this point are going to be the key determinant.

Determinant of how fast the recovery is as soon as things normalize it and the south.

And some of the restrictions on movement within the city's restaurants open and those things I think youre going to see an increase and leisure travel from the first nation simply because they haven't been able to do it and then the real thing and I'll open. The flood gates is when the provinces are and are positioned to provide medical care there's backlog.

And we've seen numbers up in excess of a full year's durable medical treatment system for the system. That's in arrears and so the rate determining step I believe will be how much the medical system can handle theres only so many appointments made can make somebody.

Diagnostic services can be provided so I believe the rate determining step is going to be the medical system loosening up as they are fully occupied with COVID-19 like they are now to enable more medical appointments more travel and so we're very bullish and we saw last summer when.

COVID-19 weighted significantly our numbers balance really quickly not in terms of years or months, but actually weeks or days. After the stop was available we sought and our services and so and we've seen that creep up just before this most recent third wave shutdown and so it's a bit of a child.

And this quarter, but as we see it even Ontario already we're starting to see the numbers come back down as the that relaxes the the.

Pent up demand and our airlines will ensure that we bounce back.

Much like whats happening and the U S, but probably even faster than that because of the essential nature of the travel it needs to be done where travel restrictions may have an impact is and the maritime on maritime operation.

And we saw last summer and kind of this effectiveness of the Atlantic bubble on our passenger numbers for Pal Airlines and see what that having been shut down and with the case numbers being out there and the Maritimes and that had been passing our passenger numbers for pillar one.

And so don't know went up and open I think the last date I heard and this may 17th that will likely get pushed but when that does open up that is going to try and some additional passenger volume on propel or loans.

Okay.

And that's definitely something that's been helpful and sit there and then just really quickly wanted to touch on on M&A here, but with a bought deal financing now closed.

I was wondering if you could talk a bit about the nature of the opportunities you're currently seeing and and if you see more potential for tuck ins versus bolt on.

And so existing businesses or maybe if they are even larger opportunities and kind of a new standalone subsidiary.

It's a good question.

To be clear and reiterate as I mentioned on the call, we raised money not to Delever and not because we needed and you see and are.

On our balance sheet. We have lasted until we did at the start of COVID-19. So the raising of this money was to be proactive because we do see opportunities it's very interesting debt.

During.

The pandemic.

That's the bigger transactions have been much harder to do doing due diligence and meeting people, particularly cross border is very difficult, but we've sort of refocused our activities and in and.

And looking for those acquisitions into <unk>.

Companies that are related to businesses that were already and so whether they be direct tuck ins or increasing our geographic breadth of what we do.

Because we know people and the industry its deals that were doable during a COVID-19 environment and so I would suggest that the stuff. We're looking at now tends to be very closely tied to businesses, where they are in whether it's a vertical integration play like you saw us do with with late last year or.

Whether it's geographic expansion or product additions I think that's what you'll see in the near term. We are looking at some bigger transactions, but I would suggest that those are farther away from the finish line the other ones and it wouldn't be the tuck in opportunities and the bolt on opportunities.

That <unk>.

Spurred us to to raise the money and we did last month.

Okay.

Okay got it got it that's helpful and that's that.

That's it for me on that one like it wrong.

Your next question comes from Kevin Chiang of CIBC. Your line is open.

And Kevin.

Good morning, Mike and team. Thanks for taking my question here.

And I know, there's some moving parts and I was wondering.

When I look at your performance in Q1 for the legacy Airlines and and provincial revenue was essentially flat year over year.

I recognize you have some provincial.

Government programs, you're assisting with but.

And our core mail, you talked about and Mike talked about.

I think cargo and it's probably going on here as opposed to stay with us post pandemic and youre optimistic on passenger traffic.

And so if I look at Q1 with revenue being flat year, just wondering if all of those demand drivers start start moving in the right direction.

Do you have the capacity.

And to deal with that growth or and another way like what is your utilization of these assets today and how much can you absorb before you need to think about expanding your your fleet.

That's a great question counting on and in fact it.

Hook up a significant portion of our board meetings yesterday and the day before.

We could we've obviously got capacity to bounce back to where we were in 2019 as fast as the market wants to we kept more people on and then we otherwise went up because of the Susan that enables us to recover more quickly.

And as the demand moves and we saw in Q Q2, and particularly Q3 last year. The first half of it where we got and some markets up to three quarters of normal very rapidly and we anticipate the same thing this year.

And I suspect the one piece of the business that might take a little bit longer is the northern and fishing camps and stuff because those are reliant on a lot of American customers, which whether that will recover this year, it's hard to say, but having said that it's it would be single digits of price.

And as of our passengers, it's not a huge number.

As the free business continues to grow we will add capacity and we're actually and discussions.

As we speak about adding a plane or two into a into that business. So that we can take advantage of market opportunities because we're not the only one seeing increases and this particularly as Carmel mentioned, whereas the natural resource market strengthens that creates opportunities because those are always.

Operating.

<unk> that need things to be brought in so we may acquire wall, especially while the price of these planes is somewhat depressed you may see us out of plane or two in terms of capacity over ensuing quarters, but you're not talking about a big capital infusion required in terms of passenger aircraft unless we were in <unk>.

And new contracts I don't think we need anymore and that's it.

And is it.

And we've become quite effective.

Deploying our aggregate fleet, where required and so it's not uncommon for obviously a column aircraft health trend or vice versa as to have aircraft from provincial Oh here on the Prairie assisting and actually have let's say of aircraft and Pal Airlines right now.

What really effective on utilizing the metal that we do have.

And and ensuring that when she used effectively and efficiently.

And that's that's great color.

And then and you mentioned earlier.

Earlier, I guess you're open to.

I guess interline agreements and maybe partnering up with some of the big Airlines to access and original communities.

Is that something you would do with your existing or when you think about the opportunities is that something you would do within your existing.

Commercial aviation banners or is that something you would do within Lincoln old one or would you think of starting.

Our standalone.

I guess charter business that had various ppas with larger airlines.

I guess.

Operator.

I think what.

We're in discussions with together and wireline and to see how we can do this most effectively.

We don't see ourselves moving to a chorus kind of model, where the capacity purchase agreement where people are selling tickets on our airlines it will be more and interline agreements. So that someone who is in that community that needs to connect through a regional hub somewhere else and Ken can access the other carrier so it's more of a.

Interlining agreement and we would envision doing that through.

Most of it is at the Eastern Canada would be through the Pao banner through provincial and until we do some of that already with Westjet.

And expanding that with both.

With both are either.

S chatter air Canada to ensure connectivity through those markets got as a.

Our branded carrier, but as a supplier to and to deliver our passengers to the regional hubs.

Okay. That's that's that's helpful and maybe just last one for me.

If you can share with US you know you have good insight into you know the regional aircraft leasing market and and I guess the residual value of these aircraft through through our one just how are things trending.

Today versus I guess, a year ago or a little bit over a year ago. Prior to the pandemic. If you can give us a sense of how much lease rates are contracted.

And residual values look like today versus early 2020.

Yeah I've mentioned.

Briefly earlier that we were surprised at how little the values change during the pandemic with as many planes on the ground.

As we see we would have it.

Dissipated bigger price changes, but I think largely because there is no substitute for the type of aircraft, we're involved and which is a narrow body jets and big turboprops and it's got like there's a new seven and 37 and backs version of the narrow body and there aren't and so the the types that are in service.

The CR Jayson the embryos.

Bob.

Are going to be equally needed going forward and recede and the American Airlines have ramped up service. It is infact exactly those smaller gauge aircraft that have gone into service first and so, particularly in North America and demand for those has strengthened significantly.

Europe is a little slower volume worst beginning to see the discussions there with our customers as those go back into service and I think the one thing that's kind of up.

And there's normally and driving it further is the concept of trying to create and do 50 seat aircraft. Historically that was done with the C. R. J 200, which are getting 30 years, plus and agent something and we're coming out of service and.

And because of the scope, where mutations and the union contracts.

And pages for the airlines to fly 50 seat aircraft and what we're seeing now is that movement towards taking whether it's a C. R. J 700, or perhaps even at 900 and the future and reducing the capacity and goes down to 50 seats by putting in different classes of seats.

Bigger lag room and flying to a 50 seat aircraft. It's increased the demand for those aircraft and correspondingly the demand for the engines because they're largely fly similar variants of the same engine.

It's fun to use variants and a positive way as opposed to just.

In terms of the virus, but so we actually see it quite bullish we haven't seen a material change in the residual values and you see that and our financial statements because a year and we exactly that we didn't feel the need to write down and the assets because they're valued uses is strong and.

And if.

And one additional come on on leasing.

During the day I guess he had COVID-19, we saw more of a power by the hour type of lease arrangements, which don't seem to fit with the nature and demanded it and get and now looking at more what I'll call traditional for us not traditional and a sense of its typical leasing but more of a short term leases.

That we would tend to enter into and you know that 18 months 10 year type timeframe. So I think you'll see that slowly.

Get more prevalent as we move on is that depend on it I think the one corollary to that though we should mention is.

As we went into the pandemic, we were very concerned about continuing to accrue traditional style leases and ending up with big receivables on our balance sheet debt, where questionable as to whether it be collectible and so we transfer and a lot of our leases from traditional to sort of power by the hour type relationships.

Which means when the airlines aren't using them that much where non accruing big amounts and as such our balance sheet is a remarkably good shape for some weighted deals with second and third tier carriers.

We aren't sitting with a bunch of questionable.

Working capital and you can see that and the fact that we've been able to generate money from working capital and we arent building.

Long term receivables.

No that makes sense and is a function.

Yeah, So it does Walmart com and on the.

The residual values and one thing that we want to always keep in mind is that regional one's ability to monetize assets goes beyond just being able to lease them out they have a specialized niche of having the full <unk>.

We do monetize the assets after they're done leasing, which regular air carriers might not have so that that ability.

Makes the residual value value to regional one significantly better than regular air operators around the world.

And those are and I, usually of course, Darwin and rich.

Rich Weirich, our chief accounting officer jumped in there to help me.

That's right and I think.

And it was a recent promotion from the press release, so congratulations on that.

That's it for me in terms of questions. Thank you everybody and have a great weekend.

Thanks, Kevin.

Your next question comes from Steve Hansen of revenue.

James Your line is open.

Hey, guys. Good morning, guys and I'll be relatively brief I. Just one question just to circle back on the M&A, Mike as you know one of the common themes coming up lately is prospective changes to capital gains tax on the U S and what that's doing to.

Seller behavior are you seeing anything and the pipeline that would suggest private company owners or are considering selling earlier.

The short answer is yes, there was a whole bunch of stuff even before the election. When it was sort of a 50 50, if there was going to be a change and the white house people were concerned about that capital gains concept.

But the strength of the second wave kind of slowed that and it's really hard for us with our border and the way, but even for pure American buyers and slowed the process, we're seeing that come to a close and ramp back up. So there is there is a discussion and we're excited about.

Uh huh.

The limiting of quarantine with.

And with vaccination and sort of weak again, our due diligence teams.

Effectively across the border.

Most of the work we've done has been deemed country lately, but we are seeing currently in discussions with more opportunities and people tried to close some of the current fiscal period to potentially avoid the increase and capital gains tax.

That's helpful. Thanks, and just one last one if I may I might've missed it earlier and they jumped a bit late but it would be where would you identify the most serious concerns for inflationary inflation and your system. It's been one of those sort of the key question marks across a lot of the value chain lately.

Where are you seeing it.

The most acute right now.

Well it unequivocally that most of the places where we've seen the biggest increases are the same ones you've seen at the gas pump.

And the price of jet fuel is up materially.

Since the pandemic woes and.

I'm hesitant to call that inflation and its more returning to normal the price was at absurdly low levels.

During parts of the pandemic and we have the ability to pass that on and so it's not something.

That gives me undue concern and it will as the market strengthens we will take a look at our fuel surcharges had moved up appropriately we did reduce some when prices went down so the ability to move the backup.

Is there, we do see a little bit and sub base metal and stuff as well, but again most of the contracts were doing theyre based on a base metal price and so we have the ability to pass that on and a lot of circumstances as well so to be honest. The inflationary concern is more of a general market discussion from our <unk>.

And a view and not so much.

Practical and point of gain other than fuel.

And our business specifically.

Okay very helpful guys I appreciate that.

Your next question comes from Norman study of Laurentian Bank. Your line is open.

Hi, good morning, everyone.

Yeah. So my first question and if you could just provide some color on the Moncton flight school and have the students come back and what's your thought process like a way of where you see it heading and in the coming weeks or months.

Again, another really good question, we have the guys. There have had a tough go do it.

The Chinese students hasn't been able to enter the country.

We've been in constant contact with our customers in China and.

And.

I've worked with him on selecting the next class.

We are cautiously optimistic that we will have our first batch of students reasonably soon into the into a quarantine and in and the Maritimes and then into the school.

I'm hesitant to give precise timelines on that because it changes so fast, but we are very tight with the with the Chinese they've made statements that they expect to be back to 90% of pre pandemic volumes very quickly and that means they need a lot of pilots. So its really a simple as as soon as we can get them safer.

And the Canada that business will ramp up very quickly and we're cautiously optimistic that the beginnings of that are reasonably soon but I'm not prepared to give an exact date until it actually happens.

Okay, No that's fair debt, so that's great color and just within the manufacturing segment.

It appears that if if quest was a bit weak there were some of the other portfolio and names within within that that did well. So if you could highlight any of the other names that maybe it did well on what's happening with the other portfolios on things.

I would suggest you like.

And with the exception of our hurdle, Alberta operations, which actually have improved but are still challenged by the lower oil prices on the pandemic and in Alberta, So virtually everything else has done very well our operations in Ontario, and then machine.

Demand is exceptional.

I had a hard time with that.

I'll begin our hotspot and.

And in New York, but our appeal I forget which won the appeal.

And our business and.

Springfield is busy as is our business in Ontario.

D C with overland Theres, all all of them and a strong demand profiles.

There's been some timing differences in our Lv controls business year, and Winnipeg, but again demand is really strong and that.

And well quest.

Quest has.

It's interesting and we talked a lot about how things don't always go the right way or always go the wrong way all at once and quest there'd be a story of the two acquisitions, we've done to buttress, our ability to install and the U S have continued to perform well add to our bottom line.

And well quest is a hall.

Has struggled with plant shutdowns and.

And absent tiers of because of the pandemic and because of the snowstorm.

And <unk>.

And that will continue that bother us over the next two to three quarters as projects are deferred but the exciting part of that is we've seen that all parts of the law and we're working to do plant in Texas is operating the way, we expected him and so as we get back into full production and <unk>.

2022.

We're very excited about the opportunities there in fact, we're actually seeing opportunities and dawn and traditional glass markets.

We've talked about expanding our areas of operation and the past and we're hopeful that we'll be able to talk to you about in future quarters sub successes in that area. So well.

Quest has got some short term pain, we're starting to make the long term bookings and replace to things and were postponed but with the nature of that business people don't decide to build the department next month and its next year or 18 months from now so it'll take a bit for that to stabilize and and returning to growth.

But we are very bullish on that business.

Yeah, no it makes sense and that's it from my end and congrats on the quarter. Thanks.

Thanks, Tom.

Your next question comes from Matthew Lee of Canaccord. Your line is open.

Good morning, Hey.

Hey, good morning, guys and.

And so I just wanted to ask what the opportunities you're seeing on aircraft acquisition.

You mentioned new airlines coming on line.

But are you still seeing opportunities to acquire aircraft at a reasonable rate or hasn't maybe been a tightening of the supply of narrow body planes.

There still are there are opportunities in different places because the markets are different but there is absolutely there and a tightening particularly in North America.

And the demand for the CR J 207 hundred and 900 bottle.

E R. J is perhaps not quite as much.

But there's still there are still.

Opportunities and the other thing.

And actually expanded our presence significantly and as the Q4 hundred the big turboprop market, we're seeing opportunities.

Both acquire and deploy.

We bought a bunch of and carve out and you can help me was at the end of last year or the beginning of this year on their purchases are spread out.

And we've been able to deploy those aircraft and continue to look for more opportunities to acquire them. It's an exceptionally flexible aircrafts and it has a lot of different uses different parts of the world, We've deployed equipment and North America and of Africa.

In other places so I think.

You can answer your question, it's a bit of call a day and a bit of call. It b, it's definitely tied and they give the regional jet market. The turboprop market is probably a little bit slower.

Great and then maybe on the manufacturing side.

And I can talk about the progress that you've kind of made you know.

And so far and Q2 on improving the efficiency and throughput.

Well you may be looked at and.

Expanding workforce or you know are facilities to meet the demand that you're seeing now that it's back to pre pandemic level.

I'm going to give this mostly to carve out but the one thing I would like to say before I hand, it to her.

Yes.

And in this last wave.

Of the debt.

And Dennis.

It's been the most difficult clearly for us and manufacturing.

Not only the amount of the disease, but oh.

And how sick people are getting and the age and the people that are getting set has resulted in more absenteeism bore.

Plant inefficiency in the near term.

And again, the cure for that as vaccinations and we've seen that.

Take COVID-19 places we are they are.

Our pop up clinic, and one of our manufacturing facilities in Ontario.

Which has now resulted in our factory big essentially fully vaccinated. So.

And <unk>.

The heartburn without isn't over yet but.

We could see the finish line per mile. If you want to take efficiencies are a little closer than b share. So on the efficiency front, we continue to struggle and particularly because of that plant and our manufacturing plants are in large part in hot zones, So in Dallas, and the Ontario region. So.

That is not over and as Mike pointed out employee absenteeism and.

May be better described as required employee absenteeism and one of the biggest hurdles that we face because it's folks not just he left and tried to COVID-19, it's folks that need to get tested its folks that are close contact and close its folks that need to be quarantine and so you don't know on any given day, how many are.

Who is showing up and that obviously presents challenges on.

Have enough in a particular department to actually run that department and yeah.

Have to shut down apartment, because you simply have everyone. Let's say in close contact so that will continue until we get kind of vaccination rates up but as Mike pointed out we're making great progress on.

And that.

Some of the things that we have done to try and mitigate that is obviously flexibility are we bringing in more folks than we would typically have so that if we're expecting a certain number not to show up because they can't and we bought already replacements there.

Different shifts that we've been able to put in place just how we scheduled folks so that we can actually increase the overall production hours with her folks and then you know once we deal with the vaccinations and we get a steady flow where folks back that will make a big difference so right and.

And I'll still Dom and true up but the latest certainly at the end of the channel.

Alright, that's perfect and then just one last clean up question are you expecting a similar accused benefit for the remainder of the year and the 9 million range per quarter or.

Although we anticipate that.

We anticipate that declining we will still have some benefits and the second quarter. If we have any benefit beyond the second quarter I.

I'm doubtful again, it depends on what happens with with with aviation.

But my.

My guess is is that we are going to see a fairly rapid bounce back towards the end of the second quarter into the third so.

And I really need a crystal ball to be able to answer that specifically, but I can tell you unequivocally, we expect it to decline materially.

I appreciate it.

Okay.

Your next question comes from cannot Gupta of Scotia Bank. Your line is open.

The money and what's going on in.

Morning, Mike.

So maybe if again and begin with the Q1, EBITDA, which was essentially flat with Q1 of 2019.

And though we know that as you said on the call today regional one is.

And gradually rebounding, especially in the U S. A.

And as well and you are seeing some green shoots elsewhere and the business.

Across our exchange income.

The government support also continues on and I'll do it I think it is declining slightly sequentially here and then you've got some extension separately right on the government's about not putting all that together.

Can we or should we expect the next three quarters to be relatively similar to the comparable quarters of 2019, even without a full recovery and Tibet.

I think what we are what I would suggest is that in the second quarter. We are dealing with this really tough third wave, but I would still anticipate beating.

Last year's numbers somewhat.

And exactly by how much I'm not sure, but it depends on how and how quickly. These things are released the travel requirements and the increase and medical flows.

But I I would even with those I would expect to be to be slightly stronger than last year. When we get into back half of the year, that's really hard to answer simply because they don't know how rapid the bounce back is but.

I think dumpers in and around above what we experienced last year, because our Q3 and Q4, particularly Q3 was exceptional last year I don't have the number in front of me, but it was 80 something million dollars and EBITDA.

No.

Moving towards that and I think is.

As acceptable.

Okay, and it makes up and things like and <unk> on.

On the quest.

Talked about the free.

Election gaps and this year.

Which is obviously impacting can you quantify on the products and GAAP. This year and then when do you expect.

To fully catch up on these scratch and gaps.

I can't quantify it or at least I'm not going to.

And the in terms of when it bounces back I think the beginning of next year, you'll start to see a rapid.

And we're really looking at ramping past 2019, as we go through 2020 two into 2020 three.

The the demand remains strong we're negotiating and all sorts of markets with people.

And I would say the Canadian bounce back is probably the strongest of all in Toronto and the opportunities are are good at and surrounding communities Carmel and would you I got the color to that or no them and I think Mike covered it I mean, when we look at questions.

What youre really seeing this year is simply the price.

That is because of COVID-19 unproper deferral and you just can't fill those gaps so.

Short term, yes, you'll see a slowdown on revenue, but we're really bullish on what we see going forward into 2020, two and onwards I mean, this last quarter I mean, the number of inquiries solid inquiries and so we're really optimistic and so you know and together with that to the acquisition of our installers and the U S E W.

And with that I'll surprises to the greater foundation for for leveraging that on a go forward basis as well. So all in all good just like a blip and we make our way through 2021.

That's good thanks, so come on.

And Richard one Mike if I can ask on your exposure to the U S market because you called it out and you know things are improving and brewing there how much of our work portfolio on what kind of revenue exposure to D. C.

And one has to the U S.

The U S would be a significant majority of our parts business.

Yeah.

And at regional one.

But in terms of our leasing business and the biggest part of that would be in Europe, and so and not what there's nothing that says those planes need to stay and Europe is historically, that's where they've lived and.

So when you look at the recovery the U S is first and that's where as our parts businesses first so and exacerbates that you saw even a bigger.

Value transactions and the first quarter, which was <unk>.

Quite frankly, probably surprising internally and it's also kind of as quick as day out.

And though because the lease business is more Europe centric I think it'll be a little bit more delayed in terms of returning to normal, but notwithstanding that the travel lockdown and still exist in Europe. The airlines are getting ready they can see that business.

Starting to ramp and so we anticipate that improving as well, but the dominant portion of our parts business would be north American, whereas the GOG and a portion of our lease business would be the rest of the world.

And so and last one for me on reasonable on so like we haven't I think we haven't seen.

Our stick and a significant amount of capital being deployed at regional one and during this pandemic.

Unless I'm looking at them and whats differently.

And I'm curious as to your thoughts on and or.

Do you see any risk of losing the attractiveness of aircraft valuations I understand they are non down too much and values, but whatever the values have gone down by are you kind of see any risk of losing the attractiveness here by waiting too long and executing on our aircraft acquisitions.

The real short answer is no the slightly more involved answer is we're looking at that stuff every day and we've picked up places here and there but the bottom line is we're not going to chase because we sell at retail and we buy it wholesale and so we're very careful on where we go and that's why you saw.

Ross jump into that.

That transaction was the EUR 90, we saw a mismatch and the market between the value of the aircraft as a whole and some of its parts and we jumped in and bought those and so.

If the question were.

Should we expect that we'd be able to buy more during the pandemic I think the answer would be yes.

But the glass half full part of that is we bought less because the product the value of the plagues hasn't changed that much. So it's not like we missed an opportunity by being conservative it's more and that the opportunity hasnt materialized as much as we would've hoped but on the bright side of that is that means the assets we own are.

And are value so.

It's really a case of.

On the governments around the world the nature of the airline business stays and business and without the failures you haven't seen as many force sales and without before sales and aircrafts have held their value, particularly and the type. We have if we were and 730 sevens or some either air or some of our bigger craft there are being retired.

Very different story, but as rich mentioned and the key to regional one's business as we understand the component values. So that we don't need to sell it as a complete aircraft. We can parted out at the end of its lease life, we don't have that knowledge and certain of those other aircraft types. So we haven't been asked it because we're not prepared to make up that and that's why we.

And would have been and would have been GAAP like we stopped two identical.

And that makes a lot of time perfect. Thanks, Mike.

Thanks.

Your next question comes from Tim James of TD Securities. Your line is open.

Yes.

Thanks, I just had a really quick follow up question here, probably for Darryl I guess, just I'm interested the depreciation in the quarter.

Dropped sequentially.

On fairly.

And they really I'm, just wondering why that was.

And I think what youre going to see Canada as debt.

And if you look at it quarter over quarter we.

We had more balanced more assets on the balance sheet last year.

Plus E P factor and foreign exchange.

And then.

And what you're also going to see the green time on their assets.

Net.

Is lower.

If our lower use and therefore no longer.

And I'm, sorry, it's not depreciating as quickly.

Sorry, Tim are you asking a quarter over quarter compared to Q4 last year and Q1 of last year.

And I'm comparing sequentially, so Q4 of 'twenty.

It dropped by.

Call it.

$5 million the value of P. P and aged is a bit of a proxy was actually up from the end of Q4 to the end of Q1 and so it just surprised me a little bit that.

And depreciation fell from Q4 by by you know over what's at 15%, but that's all.

And there's a couple things so silver and several of our components are depreciated based on hours. So our Q4 compared to Q1 is not a good comparative generally we would expect in certain businesses to have lower depreciation and Q1 versus Q4.

On the foreign exchange would be and impact as well rates of a billion dollars continue to strengthen.

And the last thing as you noted the capital assets are going up but a lot of the money that we're spending.

And to drive the increase in capital assets relates.

It relates to the fixed wing search and destroy ethics Mr. Dressy.

Other ones contract, which.

We're modifying aircrafts that are not available for use and we're not depreciating those ones, yes, youre not going to see the depreciation on those ones to pick up yet.

Thanks, Eric.

And it's really it's really the utilization of the fleet.

Comparing Q1 versus Q4 debt.

And for components that are done.

Done on an hourly basis that that drives it and Daryl Daryl touched on and as well the depreciation of it.

For items that arent depreciated using ours the.

Annual review of the useful life of our of our assets is affected and the beginning of the quarter. So to the extent debt assets were underutilized in 2020. The green time available on on each component part.

Is longer than we would've originally estimated and pre pandemic extending the useful life of those assets and therefore.

No.

And the short term decreasing depreciation.

Yeah.

Okay. Thanks, Thanks, very much free explanation.

There are no further questions at this time I will turn the call back over to Mr. Pyle for closing remarks.

Thank you for joining us today.

And it's great it's great to be able to reach out and explain whats going on and our operations I look forward to speaking with many of you again and an hour or so and we are.

Go through our annual General meeting and I'm pleased to let you know that in our general portion of the meeting coming up and the AGM and we're gonna have a several of our CEO and he's doing a brief speeches on on how the pandemic has affected their business and what they're doing so.

If you are debating whether you're on to listen and again, you don't have to listen to Carmel and I give answers again there'll be a new group of folks to listen to so thank you very much for joining US we will talk to you again in August with our second quarter results and most importantly stay safe.

And this concludes today's conference call. Thank you for participating you may now disconnect.

[music].