Q2 2021 Air Transport Services Group Inc Earnings Call
[music].
Welcome to the second quarter of 2021 Air Transport Services Group incorporated earnings Conference call.
My name is Vanessa and I will be your operator for today's call.
At this time all participants are in a listen only mode. Please note that this conference is being recorded I will now turn the call over to Mr. Joe Payne Chief Legal officer, Sir you may begin.
Good morning, and welcome to our second quarter, 'twenty, 'twenty, 1 and earnings conference call.
We issued our earnings release yesterday after the market closed its on our website H S. G. I N C dot com.
Let me begin by advising you that during the course of this call we will make projections and other forward looking statements that involve risks and uncertainties, our actual results and other future events may differ materially from those we describe here. These forward looking statements are based on information plans and estimates as of the day.
This call Air Transport services group undertakes no obligation to update any forward looking statements to reflect changes in underlying assumptions factors new information or other changes. These factors include but are not limited to the following which relate to the current COVID-19 pandemic and related.
Economic downturn.
And then it may continue for a longer period or its effect on commercial and military passenger flying may be more substantial than we currently expect.
And May also disrupt our work force and staffing capability, our ability to access airports and maintenance facilities and our customers credit worthiness and the continuing ability of our vendors and third party service providers to maintain customary service levels.
Other factors could also impact the market demand for our assets and services. These include our operating airline's ability to maintain on time service and control costs.
And the cost and timing with respect to which we were able to purchase and modify aircraft to a cargo configuration.
Fluctuations in Atsg's traded share price and and interest rates.
Which may result in mark to market charges on certain financial instruments, the number timing and scheduled routes of our aircraft deployments to customers.
Our ability to remain in compliance with key agreements with customers lenders and government agencies changes and general economic and or industry specific conditions and other factors as contained from time to time and our filings with the SEC, including the form 10-Q, we will file on Monday.
We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings adjusted earnings per share adjusted pretax earnings and adjusted EBITDA.
Management believes these metrics are useful to investors and assessing atsg's financial position and results.
These non-GAAP measures are not meant to be a substitute for our GAAP financials, and we advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website.
And now I'll turn the call over to rich Corrado, our president and CEO for his opening comments.
Thanks, Joe and welcome everyone.
I think it's fair to say that <unk> made significant progress during the second quarter. This year, our businesses across the board improved from the first quarter.
Our adjusted earnings and EBITDA exceeded our own targets and many of yours.
We leased 3 more.
767, and 300 freighters to external customers during the quarter on top of the 5 we added and the first quarter.
That's halfway to our 2021 goal of at least 16, new leases this year.
7 of the 11.760 Sevens, we promise to Amazon This year and now and the air and we're flying and 1 that Amazon owns itself and has assigned to us.
Our airlines rang up 26% more cargo block hours during the quarter versus a year ago and.
And 11% more than and the first quarter.
COVID-19 is still affecting our airlines' passenger and combi operations, but the effect on our recurring.
Passenger operations is less and it was and the first quarter.
We're ahead of the pace, we set for achieving our 2021 guidance for adjusted EBITDA, which remains at least $525 million.
We've assumed that the second half would be stronger than the first and thats, what we intend to deliver.
I'll have more to say about our outlook shortly quint Turner, our CFO is ready to review our second quarter numbers Quint.
Thanks, Rich and welcome to everyone on the call. This morning.
On a consolidated basis, our revenues were up a solid 8% to $410 million and the second quarter.
The principal factors were more leases and more air Express line, particularly for our customers Amazon and DHL.
Our GAAP earnings of $80 million or $1.17 per share basic were strongly positive versus a year ago, when a $110 million and noncash loss from revaluing warrant liabilities offset our positive operating results.
We also recorded $30 million and second quarter after tax benefits from federal pandemic relief assistance under the payroll support program versus $8 million and the second quarter last year.
Results for the second quarter last year also included a $39 million charge to write down aircraft asset values, primarily related to $475.7 freighters that had been retired 3 of those 4 were sold in July.
On an adjusted basis, our second quarter earnings were $4 million lower than a year ago at $28 million or <unk> 35 per share diluted.
But they are up $15 million from the first quarter.
The primary driver of the decline and adjusted earnings versus last year's second quarter was decreased passenger revenues from our airlines due to pandemic effects.
Our adjusted earnings exclude among other items the effects of quarterly mark to market changes and the value of warrants and other financial instruments as well as pandemic related government grants to our airlines.
The diluted share count used to calculate adjusted earnings per share for both the second quarter of 2021 and year ago period reflect Amazon's decision to cash exercise warrants and may of this year.
Interest expense decreased $1 million per the quarter rates on our credit facility balances and lower debt levels overall were principal factors.
Depreciation and amortization expense increased $7 million for the quarter from more aircraft in service.
Our adjusted EBITDA was 128 million $2 million higher than a year ago that.
And that is also a solid $22 million from the first quarter.
On a segment basis, our aircraft leasing business Cam performed very well cash.
<unk> pre tax earnings increased 15% for the quarter to $23 million.
Cam owned 56, Boeing 767, 300 freighter aircraft in service as of June 30 up from 40, a year earlier.
Cam completed a modification of 2 feedstock 760 sevens to freighters during the quarter.
Cam bought 8 and 767 and 300 feedstock aircraft for conversion during the quarter.
That brought the total 767 purchases to 12 for the first half.
Because of continued strong leasing demand Cam now expects to acquire 5 more 760 sevens and the second half along with its first Airbus 321 Dash 200.
Revenues for our <unk> services segment, which includes our 2 cargo airlines and omni air our passenger airline decreased $14 million during the second quarter to $273 million we.
We had a surge of charter demand and army last year, when the pandemic shutdown scheduled carriers, though.
Higher margin flights drove strong results for omni and the second and third quarter a year ago.
Since then passenger charter opportunities have declined but military flying has rebounded from the first quarter.
Billable block hours were up 12% overall.
On a GAAP basis pretax earnings for <unk> services totaled $45 million during the second quarter up from $30 million a year ago.
Excluding federal grants realized in each period earnings were $6 million down $13 million.
On a sequential basis Acm's services earnings excluding grants improved by $13 million from our first quarter results due principally to additional flying for express package networks.
Omni Air has received $83 million and federal payroll support payments this year. These.
These funds require omni to refrain from involuntary furloughs of its flight crews and other personnel at least through this September.
Our earnings on the other activities line were $3 million, a sharp improvement from a year ago and were driven by more fuel sales and gateway services and.
Additionally, maintenance operations for external customers were positive for the quarter.
As we've said and our release the combination of our add on notes offering bank credit facility Amendment and cash from Amazon from warrant exercise strengthened an already strong balance sheet. During the quarter, we were able to pay off our $615 million term loan balance early while also increasing.
Our revolver capacity.
These changes give us significant access to capital going forward maximize flexibility by reducing secured debt and extend our maturities and favorable long term fixed rates.
We ended the quarter with a total debt to trailing EBITDA leverage ratio of 2.4 times under our credit agreement.
With that summary of our financial and operating results for the quarter I will turn it back to rich for some comments on our outlook rich.
Thanks Quint.
Atsg's business as we like to say begins with the aircraft lease.
It's the foundation for everything that comes Aster and the source of our incredible power to generate long term cash flows.
Demand for our least midsized freighters and 760 Sevens continues to be very strong as reflected by <unk>, 18% revenue growth and.
Growing lease order backlog.
The pandemic continues to affect passenger travel and so we're fortunate that the vast majority of our cash flows stem from the cargo side.
Our cargo airlines performed especially well and the second quarter generating good growth from busier schedules and expansion of some trans Atlantic routes for DHL.
We expect our <unk> services segment to continue to improve during the second half that.
And that improvement will continue to depend on the restoration of revenue streams that the pandemic has curtailed but also operating efficiencies at our airlines.
And we issued guidance of at least $525 million for adjusted EBITDA. This year, we noted that our plan call for us to generate approximately 43% or about $225 million of the total in the first half.
We ended the half a bit better than that our strong second quarter leaves me increasingly confident that we can exceed our own expectations.
And the meantime, our freighter leasing and flight operations for Air Express networks are growing at double digit rates. We're on track with our aggressive schedule to lease at least 16.767 300 freighters. This year and at least 10 have already been specifically assigned to customers and 2022.
Including the multi aircraft lease deployments to our marriage it.
Star Air and Europe, and moths Air and Mexico, and the last day before aircraft lease order from DHL.
Separately. We're also deploying 3 returned 767.200 and freighters this year under 5 year leases to Ryder Airways Star Air and Sky taxi.
We're currently stacked with orders for customers, who want to lease freighters from us as soon as we can get them.
That's why we've decided to accelerate the expansion of our footprint and the dedicated cargo aircraft market first and foremost by acquiring more 767 and feedstock to supply customers with freighters next year, but also by expanding into additional freighter types.
We have accelerated and our plans for Cam to add its first Airbus <unk> hundred 21 freighter to its lease portfolio with lease deployments next year of at least 3 aircrafts.
When available for lease or <unk> hundred 21 law for a large standard payload along with an operator friendly design and will be equipped with engines that deliver fuel efficiency comparable to the most popular Boeing 737 models.
We have agreed to purchase our first 3 <unk> hundred 21 aircrafts, 1 this year and 2 and 2022 per.
Put them through the conversion process at our PEMCO facilities, and Tampa and then make them available for lease next year.
We're also pursuing additional <unk> hundred 20 ones per purchase next year.
At the same time, we're making plans to extend our leadership position as the world's largest lessor of mid sized freighter aircrafts by adding another platform for growth.
1 that will have operational synergies with the <unk> hundred 21.
We recently acquired rights to 20, Airbus <unk> hundred 30 conversion slots from Germany, and FW for aircraft that would begin conversion between mid 2023 through the end of 2025.
While the 767 and 300 will remain our primary midsize freighter growth engine for many years to come we also see the <unk> hundred <unk> as an attractive platform with customer appeal and fleet synergies with the <unk> hundred 21, we.
We don't anticipate investing and <unk> hundred 30 feedstock until 2023.
But we believe securing conversion slots to be a wise investment, allowing us to continue to grow our leasing portfolio and attractive return targets, while diversifying our lease options to customers.
In fact across 3 different aircraft types. We currently have rights to 67 freighter conversion slots with induction day, starting in 2022 through the end of 2025.
As you can see we remain bullish on future opportunities and our cargo leasing space.
With our devotion to service quality and expanding scope of services offerings, we anticipate cam and our cargo airlines to remain the principal source for the midsize freighter capacity and flight support that our customers require for their e-commerce driven networks.
That concludes our prepared remarks, quint and I, along with Mike Berger, our Chief commercial officer are ready to answer questions.
And we have the first question operator.
Yes of course as a reminder, if you have a question you can enter the queue by pressing star and 1 on your Touchtone phone. We have our first question from Jack Atkins with Stephens. Please go ahead Sir.
Okay great.
And congratulations on a great quarter.
Thank you Jack Thanks, Jack.
Yes.
Rich or quant, if we could go back just to the guidance for a moment.
And the at least $525 million and EBITDA for this year rich as you noted youre running ahead of plan through the first half of the year.
And.
And what's preventing you from maybe raising that floor as we sort of think about the full year or is it just some uncertainty around.
The pace of recovery with military flying just given the delta variant ramping up or sort of could you walk us through that kind of thought process.
I think Jack.
And we built some efficiencies and some already.
Anticipated customer business coming back.
A good example is 1 of.
On these best customers vacations, Hawaii is scheduled to start.
And again in September and they have been selling tickets and theyre ready to ramp up their business again.
And that's planned to start in September and Thats part of our guidance and so.
When we look at that business as we sit here today.
To go but the Delta Varian is apparently still growing around the country. So we felt that given.
Some of the still uncertainty around the pandemic that it was more prudent and we're real confident we're going to hit our 5.
525 at least $5.25 guidance number but.
But we thought it would be more prudent to not change guidance at this time, we will revisit that and.
Next quarter's call to see if it makes sense to do given what we will know then about the pandemic.
And Jack.
Part of that of course is also military passenger flying.
2.2.
The current day subsequent to second quarter, it's been it's continued to be good.
Good so.
And we're optimistic as you say that we will finish above the.
Above the $5.25, but as rich says you still got.
And the Delta Varian uncertainty that kind of keeps us from.
Being able to give a more precise number at this time.
That makes sense and I think everyone understands that so just thanks for the color on that and I guess kind of shifting gears.
The commentary around the 67, the rights of 67 conversion slots.
You talked about a moment ago and it was disclosed and the released last night.
As you think about.
Those 67 with customer indications of interest how many of those 67 conversion slots would you say.
You feel pretty comfortable are spoken for at this point is there kind of a way to quantify that.
But I think we've got great visibility for 2022 into 2023, where we were real confident and everything that comes out of conversion and paint will go right into lease okay. When you get out to 2024.
Got folks that are talking to us and want airplanes during that time, but we're not in.
And what LOI or anything like that.
Given that far out.
The new platforms, we've got excellent interest in them.
And 1 of the reasons that we wanted to talk about it debt.
And we've got strong interest and those still are.
The 787 remains our flagship backbone.
And we've got commitments on all of our.
Aircrafts coming out in 2022 as.
And as well as.
So 2023 are significantly down as well.
Joe.
And.
When you look at years past, we wouldnt be able to say, we've got 1 to 2 years out.
Locked up as far as customers looking for airplanes, but.
And certainly a different market today.
Which is great. So we're looking to capitalize on that we believe that debt what's fueling it is.
e-commerce growth around the world and if you look at the market penetration of E Commerce, it's still small and the general retail.
And that will that growth will continue to happen and continuing to expand that market.
And there are parts of the market that are and there are in.
And in their infancy, 1 is cross border E Commerce.
And that's 1 where barriers are being worked on to come down things like banking.
And do cross border transactions customs clearance to do cross border transactions are still a little clunky. So when those as those barriers come down now.
Accelerating the cross border side of that and of course cross border generally means airplanes and remember too Jack that the Capex for.
Sure.
A significant amount of those slots will be committed to at a later date.
As we get even more precise visibility on specific demand.
Certainly sir.
Securing the slots based on.
Having and order order visibility thats really good into 2023 and I think is a good decision like just just to and maybe you can give you a little bit more detail around what rich rich was referring to and why we're so bullish on the growth piece of it.
When you look at E Commerce and M Commerce and look at a country like India for example.
Less than 7 percentage of their total their total retail sales is.
E Commerce, and they had 25% growth last year, Latin America had 63%, but yet it was still only 4.7% of their overall retail sales. So if you think about where our customers are and where we look to incrementally grow our existing customers.
As well as new customers when you start thinking about Asia Southeast Asia East Asia, and certainly net.
Mexico, and Latin and Central America were and I don't think we would develop new customers, but we also have existing customers.
That's why we are very prudent as we as we look out to 'twenty, 4 and 25 rich mentioned that.
And her book for 'twenty 2 is full.
And we're almost full for 'twenty 3 so we're real confident in the 2000 and 425 will continue, especially when we see what the where the volume and the engine is.
And as we continue to be and enabler for e-commerce throughout the world.
Fantastic last question and I'll turn it over I believe part of your DHL contract comes up for renewal next year.
Especially around some of those 760 twos.
Where are you and discussions around and extension there anything you could share about it I know you are probably hesitant to talk about and specific customer but.
And I think that debt is an area of interest for investors I would imagine given the demand for aircraft and the market right now it should be a fairly favorable conversation, but would just be curious if you could update us on that.
Well I can address the maybe the return piece of it we have taken.
And our 2.767 2 hundreds.
Back already from DHL, and the Middle East and.
And you heard and Richard's comments that we redeploy those.
We'll have those out on lease 1 for sky taxi, which will which will be delivered actually this week and a 5 year lease.
And the second 1 is right behind that in terms of being going under a C check.
We'll go out to ARIA that's completely.
Under our agreement. So those first 2 returns that that came back from DHL and middle East.
And we'll go right back into service on 5 year leases.
And regards to the upcoming.
<unk> agreements.
And are coming up for renewal and April of 2022, we're very confident at this point.
And that will see renewals on both the aircraft side as well as the CMI side.
And in fact, we believe.
Jack that we will be expanding the operating side of the equation with DHL and the United States.
If you recall AVX.
Our main airline that flies for DHL and the U S got it.
Got the CBA.
Contract with <unk>.
Pilots.
Done and December to be effective in January that's really done a lot to give us growth opportunities for that airline.
And so as we are working with DHL and going through both the expense and its extension of the leases and the U S and the extension of the operating agreement and the U S. It's really been beneficial to us so.
Looking forward to getting that.
Don and expanded.
Hopefully, we'll announce it by the end of this year.
Fantastic that's great news and thank you for the time guys.
Thanks Chip.
And we have our next question from Frank Galanti with Stifel.
Great. Thank you very much for taking my question.
And thank you.
Good morning.
So I guess I wanted to follow up on Jack's question on the 67 and slots and could you just give us.
For.
And the financial obligations.
We're taking those slots and then kind of how they are.
Should there be kind of a weaker demand and that's kind of out years.
There's a there's a deposit.
Because naturally youre tying up the low.
The conversion house from marketing that slot and they're trying to make plans and advanced so there is a deposit its a relatively.
It's not a material deposit and relationship to the into service.
Cost of the asset.
And that.
That is the amount that would be I guess at risk if somehow you didnt sales.
Sales of the slot.
Of course, there would be and opportunity to move the slot to another.
Another supplier or another converter, if you needed to so.
I think it's a it's a confidence.
Statement about what where we see the market demand over the long long term and with the additional platforms will have on top of the 767%.
And we feel very comfortable that it's.
It's a prudent commitment to make.
Okay.
Really helpful.
Switching gears, a little bit to the omni business.
And you can.
Can you give a sense of.
Geographic mix for that business and.
What.
I guess, how those are sharing from.
And just generally and then is there a way to kind of quantify what army was gen.
<unk> from Mike and EBITDA earnings perspective.
And pre pandemic.
And kind of what is the run rate of that business.
Relative to that.
Yes.
We don't just other than our report and reportable segments, which force outage and the CMI services segment, we don't breakdown individual entities in terms of their profitability Frank and the reason we don't is because they have some customer concentration within their book of business and so we don't know.
Necessarily want to talk specifically for commercial reasons about the individual subsidiaries.
I can't I can tell you that in terms of the passenger hours operated.
We saw.
Certainly improvement significant improvement and the second quarter.
All of our packs blind and that would include not only omni, but to combi $75.7 combi that ATI operates.
On an hours flown basis, those were up 17% over our first quarter.
And the level, which.
Now to give you a sense of where we stand.
Through the through the first half.
We're looking at.
Well that was down 8% versus the prior yields you are still in the quarter, but versus the prior first half.
We were off 28% in terms of total passenger hours. So you can see.
And the big drop was in the first quarter second quarter recovering up 17% over the first quarter run rate and of course, we're expecting continued improvement as we move through the second half and our and our passenger operations.
Okay great.
1 last 1 if I could.
Just trying to back into kind of a.
Our core free cash flow number.
And.
From keeping the plant and the air and the business running.
And give kind of an estimate for maintenance Capex number.
The current fleet.
And then maybe a way to think about that as the fleet growth overtime.
Yes.
And you think about maintenance Capex in terms of this year's guidance.
And we're guiding as you know we adjusted our total Capex estimate up to around $5.50.
And you are probably looking at around.
And 160, or so of that as maintenance capex and that.
Includes required heavy maintenance on the airplanes and includes and things like engine overhauls to support the fleet.
As we grow the fleet.
Don't expect maintenance capex to grow significantly and the reason for that is because with our business model.
The lessee maintains the asset during the life of the lease and typically it is returned.
And a and a like for like sort of maintenance condition as it was at the start of the lease and so that transfers that responsibility to to the lessee.
For the lease.
Our maintenance Capex, we have is a lot of it is tied to.
Aircraft that we leased internally to our affiliate airlines and those.
Those assets are used to support the CMI flying and so forth and thats not growing.
As rapidly as the external lease deployments that Cam is making.
Which is what we're spending the majority of our Capex on.
Great. That's really helpful. Thank you very much for taking my questions.
Alright, thank you.
We have our next question from Stephanie Moore with <unk> Securities. Your line is open.
Hi, Good morning. Thank you for the question good morning, good morning.
Stephanie.
And I was hoping you could talk a little bit about the AC 30, I'd love to get your thoughts in terms of.
Potential customers for those for those claims I think we've talked in the past that <unk> hundred 21, and a nice replacement for the 750 Sevens and that represents a large addressable market for conversion and replacement over time, So I would love to hear your thoughts on the <unk> hundred <unk>, maybe as low as some of the economics and how those compare to.
<unk> hundred 20 ones or the 767, thanks, Doug that's a great question, Stephanie and thank you for asking it.
A couple of things we've been looking at the $3.30 for a few years and 1 of the things about 330, there's 2 variance of $3.30 debt 200, and a $3.30 debt 300 that have conversion opportunities for them. The 200 is about the same size and the 767.300.
It's a little bit more expensive feedstock and and just get some higher operating cost because it's a heavier airplane.
It's got great range, but it's not something you need and express environment the HRD.
<unk> hundred 3300 is slightly bigger than the 706, 7 and 300, it's got about a 20% higher cube.
And.
And about an 8%, 8% to 10% higher weight carrying capability and the express environment, where these.
Mid range freighters, midsize and wide body freighters tend to be a solution for <unk>.
<unk> is much more important and wait so.
So the <unk> hundred 3300 looks to be a real solid solution for the same customers that the 767 is providing service for today. It's a newer generation aircraft. So I think it came out and 1990.690 mid nineties.
767 came out and the early eighties.
And so when you look at feedstock capability going into the future into the next decade.
And there'll be more prevalent and feedstock.
And coming available.
As the 767 over the next decade starts to wind down.
We look at it as a as a both a replacement and then it also has.
A little bit higher cube.
4 per line haul operations, so going from country to country and.
As far as customers goes we've got we've got 3 customers that.
Are already engaged and the airplane.
DHL.
As 1 of the largest users and the world.
<unk> hundred 30 freighters and so.
Hopefully there'll be a customer of ours and the future. We've got other customers that were talking to about the aircraft.
And 1 of the other.
Significant events that occurred as a result of the pandemic as feedstock values for the <unk> hundred <unk> have come down significantly.
Depends on which appraiser, you listen to but pretty much the 2 or 3 that I've read.
And the 25% range and that was 1 of the key things that when we looked at the plane. It was more expensive and and therefore that the total cost of ownership and operating was higher than what the 767 could deliver.
So we think we thought at the time that it was going to be a good solution and the future when the economics made sense and with the feedstock coming down going forward, but the newer generation basis of the airplane.
And that we think it's going to be a solution that's going to be.
A long term solution and the medium wide body segment rich the only thing and maybe I give you a little bit more detail. There is a couple of hundred airplanes that are and the prime age area that you've talked about from 13% to 25 that represent very good opportunities to be converted into freighters. The other other reason, we really like the $3.30.
Is it omni.
And then potentially expand into the into the large category to operate for the Dod.
Which is something that we don't have the ability to do today. So we're excited about that potential opportunity with.
And with our omni.
Organization as well as all the other customers that rich referenced prior as well, yes, we do have the triple sevens with omni today, but Mike and I think.
<unk>.
You are saying Mike is that this would be added agila large clients.
And then the last thing obviously is.
It's a great synergy with our <unk> hundred 21, so we would have.
And what kind of a multiple aircraft solution for the same customers that we have today and the set for the 767.300.
The.
<unk> hundred 30, and <unk> hundred 21 and have a common cockpit.
And so what that means is small differences training that needs to be done to move a pilot between the <unk> hundred 21, and the <unk> hundred 30, much smaller than and having to go get it.
A full new type rating from a different aircraft types. So it's a smaller effort.
And so there is significant crew savings and the synergy with debt.
And thinking like and airline even though we are a leasing company.
We think it's a really good.
Yes.
Solution to add to the coming $3.21, and for the future of the medium wide body.
Leadership that we hold.
Got it and that's very helpful. And then I guess broadly speaking I'd love to hear your thoughts on really contract profitability and maybe alright.
<unk> versus post pandemic, just given there's so much increased demand increased ecommerce.
Any color you can provide there would be helpful. Thank you.
Couple of things 1 is lease rates are definitely hardened.
And so.
And that plays out and a couple of different perspectives. So when we're negotiating.
With new customers or for new airplanes from existing customers.
It's pretty much.
Sure.
We've got a better negotiating position and the other thing is any lease that's coming on.
It's coming due.
Most of them tend to be extended or flip.
Flipping them right over once they get through a maintenance event.
And 2 new lessee because the demand is so significant a lot of airlines that we leased 2 right now that have assets coming due.
Between now and the end of next year, and we're already talking to us about extending those.
And so folks that have capacity now and don't want to let it go so high demand as is good for our existing leases from extensions the.
The other piece of that is most of them are extending an existing lease rates and we were actually and positioned to get better lease rates usually on the leasing side. When you go through your second and third extension and a lease you start to.
And the lease rates starts to go down a little bit, but now we're seeing them hold up on extensions.
Great well Thats everything for me. Thank you.
Thank you.
As a reminder, if you have a question and you can enter the queue by pressing Star then 1 and we'll take our next question from Chris <unk> with Susquehanna. Please go ahead Sir.
Good morning, everyone and thanks for taking my question so.
Rich it sounds like you guys have a fair.
Degree.
Hi confidence if you will.
And translating the 67 and slots.
To access and actually putting the aircrafts and service. So as we think about potential EBITDA earnings through the recovery is it fair to say that.
You have 120 aircraft and active fleet at year end.
Could we see by 2025 north of a fleet of 180 aircrafts and service and then also.
Thinking about the recovery there is a lot of puts and takes here right. Because eventually long haul belly capacity is going to come back online at the same time Gary.
And passenger utilization should go up so.
Could we do better through the recovery as we get towards 2025, assuming you fill out these slots here with actual aircrafts could.
Could we do better than $5 million and you will be.
EBITDA per aircraft over that period.
Okay.
Yes.
And I.
Certainly could we be above $1.80.
And that and that timeframe or somewhere in that ZIP code Chris Yes.
We believe that that's true in terms of.
EBITDA contribution per tail.
We think of it more in terms of return on invested capital.
And we believe that as we build the fleet out.
We will maintain the sort of attractive returns we get today on our dry lease investments on our aircraft investments and as rich described a minute ago with the current demand environment, it's actually.
Doing a good job of supporting higher lease rates. So we hope to even add to that return on the asset investment.
As you know our business model provides an opportunity for incremental returns.
Building services around the lease and so and our case it also depends.
Pans of course on opportunities to provide other services to the lessee.
Which may be as we do for DHL and Amazon sort of the full range of services.
Or it could be some portion thereof, like just the maintenance <unk>.
Et cetera. So we certainly believe that our returns and this strong demand environment can return or excuse me can improve over what we've seen historically.
And we are taking these steps because we think we will certainly maintain.
Or improve upon our returns on capital that we get.
For our for our leased assets already.
Okay. Thank you and then my second question. So the question I get a lot from investors is.
Why the stock is and isn't working this year, it's down around 19% and what's a very constructive market for freighter demand because of all of us.
Impeding belly capacity is effectively sidelines. So 1 of the areas. In addition to folks asking about USD O D.
Contribution to EBITDA is.
Why not participate in the charter market market or short term missions, if theres an opportunity here.
To grab some rate.
Or perhaps just.
I don't know if you can I mean, you have such a full order book here.
And issue.
Allocating a few assets here to shorter term missions and she is debt.
And if where consensus is that this is a long haul international passenger travel is not coming back through 2023, and it would seem rates youre going to stay high and there could be an opportunity here and potentially over earn here.
Through the recovery.
Thanks.
So we've.
Pretty much.
And.
A tenant debt for $30 million asset, it's a much better long term.
Commercial structure to get a 10 year 8 year lease on that first lease and.
That's strong long term cash flow and to put the aircraft on our own airline certificate.
And fly and the charter market.
Now the pandemic has obviously made the demand perspectives on that market different but eventually that will come back in line I will tell you.
We have taken advantage of several charter opportunities, we put an airplane ups or DHL between Hong Kong and Sydney last year.
And we put 2 or 3 other international routes, we took airplanes that were flying and the domestic network and are still linking to their CVD domestic network butterfly and internationally to support there.
Their efforts so we have gotten more block hours related to that we tend not to have excess capacity airplanes on our airline certificate other than what we need to cover our own maintenance.
Or meet our commitments and the Dod on the cargo side and again, we just think long term, it's a better use of that asset to get the longer term consistent cash flow is out of it versus putting it and charter environment will get in this case, maybe we did a year and a half of robust usage.
But then we'd be back and a situation, where we'd be getting intermittent and usage on that both from the crude deployment standpoint, and the asset standpoint generally when we in the past when we've had situations like that we've taken the airplane and leased it so.
We think that long term, we've got the right strategy.
Okay, and if I could just get 1 and 1 more here for the quarter were where you are.
<unk> block hours per aircraft day on the Dod and.
And your commercial flights thanks.
Well as I said in terms of the majority of our Dod and fly as passenger.
And the Combi and the patent and the packs all of our packs and our Combi.
Flying we're up 17% over the first quarter.
And that's still down.
About 8% over the prior year.
During the quarter.
If that gives you a sense but.
For the first 6 months.
Those same stats are off 28%. So that shows you the recovery and the second quarter relative to the first.
A 17%.
Improvement over the first quarter.
Levels, so versus the prior year and the second quarter.
We're down 8% and total <unk>.
<unk>.
Line.
And that that includes a 17% sequential improvement over the first quarter.
Okay. Thank you.
And we have no further questions in queue I will now turn the call over to Mr. Rich Corrado for closing remarks.
Thank you.
Our latest commitments to convert and lease more mid sized freighters over the next several years should make 1 thing perfectly clear.
We expect ecommerce and other forces driving demand for our aircraft today will persist well into the future.
And our employees and all of US all levels believed that as well and they have continued to deliver superior service. During this time and they're working together to extend our leadership and this key market I am proud to lead them and I'm confident that their hard work will yield superior rewards for those who choose to invest with us.
And stay safe.
And thank you ladies and gentlemen, this concludes our conference. We thank you for your participation you may now disconnect.
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And.
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Joe.
Joe.
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