Q3 2021 Exchange Income Corp Earnings Call
Good morning, everyone. Welcome to exchange income Corporation's conference call to discuss the financial results for the three and nine month periods ended September 32021.
Corporation's results, including the MD&A and financial statements were issued on November 11, 2021, and are currently available via the company's website or SEDAR.
Before turning the call over to management for 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 of 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 in such statements.
For additional information about the 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 exchange's other filings with Canadian Securities regulators.
Except as required by Canadian Securities Laws exchange does not undertake to update any forward looking statements such statements speak only as of the date made lists.
Listeners are also reminded that today's call is being recorded and broadcast live via the internet for the benefit of individual 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.
Good morning, everyone and thank you for joining us this morning.
Ice's third quarter conference call with me today are Eic's, President Carmel, Peter who will provide some operational insights from the quarter and provide insight into the outlook for the company and Darryl Bergman, who will provide a more detailed breakdown of our third quarter results.
EIC has consistently delivered strong performance through the pandemic and the third quarter of 2021 was no different achieving new records in several financial metrics. We have learned however at the end of the pandemic will not occur quickly or evenly it has become evident that there will be surges of COVID-19, even with <unk>.
<unk>, hi, vaccination rates, but fortunately the searches will be smaller and less lethal did previous outbreaks.
We have also seen that.
We have also seen that many of the side effects of the pandemic are still worsening and it is difficult to ascertain when they may subside supply chain disruptions inflation and labor shortages are all causing challenges in the economy.
We will for the next few quarters.
We will come back to some of these issues later in the call, but first I would like to focus on the exceptional results from the third quarter.
The third quarter marks the second reporting period with the prior year comparable was also impacted by the pandemic as such it reflects the progress that is made by EIC together with the continued abatement of the Covid outbreak.
I should point out that these results have been achieved even with the dramatic decline in government support programs aggregate government support fell by 79% when compared to the previous year and declined by 69% when compared to the second quarter of 2021 in fact aggregate support in.
Third quarter totaled $5 billion and it was entirely from programs in preceding quarters, which could not be quantified at that time in this context, the third quarter improvement is even more impressive.
Impressive.
Financial highlights include revenue grew by 35% to 400 million this exceeded the previous high of $363 million in the fourth quarter of 2019.
EBIT increased 14% to 95 million this exceeded our previous high of $89 million in the third quarter of 2019.
Earnings per share increased 18% to 58 cents per share while adjusted net earnings increased 24% to 73 per share.
Free cash flow less maintenance capital expenditures increased 9% to $48 million and by 1% to $1, 27% 27 cents per share basis, the lower rate of increase on a per share basis basis is driven by an increase in the number of shares outstanding.
Finally, the payout on a free cash flow less maintenance capital expenditures basis continues to strengthen and for the 12 months period, ending in Q3 declined to 57% from 73% in the preceding year and from 58.
Percent sequentially in the second quarter of 2021.
This strong performance was driven by exceptional performance in our aerospace Aerospace and aviation segment. There were many contributors to the strong results.
The largest contributor was the freight passenger and charter operations in northern communities.
Increased vaccination levels at lower stress on the medical system from the pandemic a lot of passenger volumes to continue to improve through the third quarter.
The improvement varied by region. However.
The Maritimes were the strongest with volumes in most markets returning to pre pandemic levels.
Passenger volumes in Central Canada, Manitoba in northwest, Ontario reached approximately 75%, while new like slightly at approximately two thirds of historical volumes.
The volumes flattened out and in some markets reversed slightly as a result of the intensity of the fourth wave. This trend continued until the present, although we're very recently beginning to see signs of strength again.
It is clear that for the volumes to reach historical levels the available capacity in our medical system will need to improve.
Through the pandemic there by necessity has been very limited access to doctors' appointments diagnostic testing and treatment as such there is a very significant backlog of patients waiting their turn to access the medical system.
As the pressure on the system created by Covid lessons access will improve and passenger loads will increase.
It is very important to understand that these high levels of demand will be with us for the foreseeable future.
Even when the normals.
The medical system returns to normal.
There will not be the necessary elasticity of supply to quickly satisfy the backlog and as such we anticipate experiencing higher than historical demand for a prolonged period of time.
Freight volume has been significantly higher than normal through COVID-19 as northern residents ship in purchases.
Historically would have been purchased on trips to the south this demand has not subsided with the increased passenger travel and as such we anticipate the higher freight volume is a permanent part of the northern aviation landscape.
Our rotary wing business has been very strong through the pandemic as investments and multi engine.
Fight aircraft has expanded the number of potential customers strengthening natural resource exploration and to develop.
That said I'm, sorry, strengthening natural resource exploration and development has also increased demand.
Well 2021 was a very strong firefighting season.
Our maritime surveillance business is built around long term government contracts and as such has been stable source of cash flow throughout the pandemic.
Our short term rental aircrafts the force multiplier, where revenue is inherently more variable was also busy during the third quarter.
Finally, our <unk> business continued the strong performance, we've become accustomed to during the pandemic.
Revenues improved over the preceding period.
We are very pleased to add Carson area to the EIC family early in the third quarter.
Carson is the leader.
Lead provider of medical services to the BC government. They are well known for an expense exceptional management team led by Kevin Hillier.
In their first quarter under EIC ownership, they exceeded our lofty expectations.
We have seen a dramatic increase in fuel prices. During 2021, we were able to pass these costs through to our customers. While there may be short term impact to our margins while surcharges are enacted but it is not expected to be material in either the medium or long term.
The second major contributor to our performance was the bounce back at regional one.
You will recall that regional one has three primary revenue sources part sales aircraft and engine sales and leasing.
Regional one customers or airlines around the world and as such.
It was amongst the most affected of our subsidiaries by the pandemic, we have seen a significant recovery of business through the year, but particularly in the third quarter.
Strength of aviation in the U S. In particular has driven parts revenues back to very close to pre pandemic levels asset sales are inherently more variable because each sale.
And a few transactions can make a big difference in revenue.
Strong demand for the <unk> aircraft in North America.
In Q4 hundred turboprops internationally drove near record sales levels. These transactions will vary in the future, but the near term while it is very encouraging.
The leasing business improved from the comparable period in 2020 as well as sequentially from the second quarter of this year. The majority of our lease fleet is located outside of North America, where airline recovery has been slower we expect that lease revenue will reach 2019 levels by mid 2022.
Manufacturing segment.
EBITDA declined year over year over year, largely driven by the end of CE Ws support.
No government support was recorded in the third quarter, nor is any support expected in the future.
Demand remains strong and revenue was largely unchanged from the previous peer here period, we were however.
Questor operation as the cost and challenges of pandemic construction resulted in many projects being delayed.
The sales cycle question for one and a half to two and a half years and as such it is impossible to black backfill the halls of the production schedule. We expect these challenges to continue well into 'twenty to 2022.
Longer term demand is solid in many of the projects are being rescheduled for future dates and there are many new projects out for bid.
We have also seen the impact of supply chain issues, which have reduced the efficiency of our manufacturing sector.
They have not caused significant.
<unk> dislocation at this point of time, but we will keep a close eye on future developments.
We have also seen inflation creep into the cost of raw materials aluminum and steel in particular.
Some of our businesses.
These troughs surpassed.
Our customers while in others, we have fixed price contracts, where the increased cost hurt our margins the increased cost of course in the future be paths on future contracts.
I will leave there.
The discussion of our balance sheet initiatives to Daryl and the acquisition landscape to come out.
ESG has become a very topical.
Because we kept very topical in recent periods and I would like to speak to our approach.
With investors looking for a way to quantify performance in this area scorecards and rating agencies have become a big part of evaluating ESG performance.
We are working on formalizing, our ESG reporting and providing greater clarity on things that we do and have done for a long time in the next few months.
We believe that the topics covered by ESG reporting however are.
Much more of a scorecard rather they are about the opportunity to make a difference to do the right thing because it is the right thing and not because you think someone who is watching.
To that end I would like to talk about the two examples that occurred recently, where EIC has made the difference.
In 2017, EIC began a program, where we bought youth from the northern.
Northern communities in order to attend to professional sports event, primarily the Winnipeg Blue bombers.
But more recently.
We have added the Winnipeg jets as well.
Intent of the program was to give us a chance to see what was available outside their community and to provide a sense of hopefulness and thereby a small way help us help combat the youth suicide problem in many of these communities.
The program was very successful and grew until the pandemic hit.
The pandemic shutdown pro sports and then ensure they were played before empty stadiums and arenas.
When the bombers announced they would be playing before double vaccinated fans. This season, we knew we would have an opportunity to resume some format of our program.
The only requirement that unvaccinated children.
Could attend with a parent vaccinated adult created a wrinkle into our past model, where it was almost entirely aimed at youth.
The recent focus on the residential school issue and every child matters campaign was exceptionally important indigenous people and first nations are important part of our aviation program and we knew that drive positive attention to this issue with something that we could and should do we decided that in recognition of <unk>.
Truth and reconciliation day, we would partner with the Winnipeg Blue bombers and the association of Amanda Chen with Chiefs in our biggest game day project ever.
We announced that at EIC expense, we were bringing 1000 family members from approximately 80 communities from a cross.
Manitoba, Northwestern Ontario in Nunavut to see the game.
Between the bombers and the Edmonton Alex on October six this was a very ambitious plan as a thousand people with more people than we would historically have brought in over two football seasons.
The logistics of travel the Winnipeg sourcing accommodations, confirming vaccinations and transportation to and from the game are massive.
I owe a huge debt of gratitude to my team at EIC.
Together with AMC and the bombers, who enabled us to pull this off.
Just having the people.
Be able to attend and celebrate the great Canadian the CFL is was a victory in and of itself, but we also wanted to increase the exposure to the importance of reconciliation to the country.
I'm, so grateful to the bombers Vioxx and the CFO, who agreed that this was a huge opportunity to do the right thing and under the guidance of Mr. Wayne Miller the bomber CEO, we pulled off a first in 100 years plus of the CFL.
Both teams warmed up in matching jerseys.
Orange jerseys the color of the every child matters movement, yes.
<unk> purchased all of the games attendees bright orange cities emblazoned with the bomber yet logo fans.
Fans at the game and across the country on TSN could not miss the recognition of a very important issue.
It's a very positive way it was accomplished.
The bombers in the out took it one step further auctioning off their orange jerseys and given the proceeds to first nation sports programs.
The program required a commitment of approximately $1 million from EIC and it was worth every penny.
The second initiative I would like to mention is our life in flight and Bill worthy scholarship.
We want to increase the number of indigenous pilots and more so the number of digits pilot serving their own communities.
We were very pleased that the first winner of the Bill worthy scholarship. Mr. Tick Mason completed this pilot trading at Moncton Flight College.
Flu sufficient hours to begin as flying career at parameter, where we piloted this first flight to his home community of St. Teresa point in October.
Take as an awesome role model of what is possible and we look forward to many other young men and women following his footsteps into a career as a pilot or a maintenance engineer.
He is proud to assist in some.
To assist or in some cases fully fund the cost of this training.
I should point out that we named the scholarship after the founder of parameter Mr. Bill Worley Bill was adamant from the day, we began discussions to acquire a company in 2003, the EIC continue to invest in the communities and the people we serve US Bill is a pioneer in aviation and certainly at <unk>.
Three leader in giving back the roots of social responsibility runs deep in our subsidiaries. There are other projects, we could discuss such as EIC assisting in building a fish processing plant and one of the northern communities, we service, but I will leave it here for now.
Just wanted to make sure that all of our stakeholders know, we take our social responsibility very seriously.
We're committed to giving back to the communities we service.
One final matter before I hand, the call to Darryl.
Gary film and the chair of EIC since our inception in 2002 has announced he will be leaving EIC at the end of this term following our AGM in may.
Gary has been a remarkable leader and a source of stability as our company has grown from a small capital pool of company and the venture exchange to a $1 $5 billion market cap company in the <unk> Index, we will certainly miss his guidance and oversight.
I will now hand off the call to Daryl for a more detailed look at our financial results.
Yeah.
Thank you, Mike and good morning, everyone as Mike previewed third quarter, sorry, EIC again delivered exceptional financial results.
Well I would in no way to go on record we were out of the woods just yet it is encouraging to see the company successfully achieve all time high results on revenue revenue EBITDA free cash flow less maintenance capex within the quarter with a further mentioned two improving the free cash flow less maintenance capex payout ratio.
Two a pre pandemic level.
I will begin by commenting on our balance sheet and liquidity before moving on to specific results for the quarter.
The continued commitment and focus on the strength of our balance sheet with modest modest leverage and good liquidity remained intact in Q3 <unk>.
To complement the bought deal equity.
Completed in Q2 of this year, which was used to find growth capex and the acquisitions of carcinoma fab in Q3, we completed two other transactions that led to further liquidity and balance sheet strength.
On August six we completed the extension of our corporate credit facility out for years to August 2025.
Capacity pricing and covenants remained unchanged.
Also within the quarter the corporation completed $144 million convertible debentures offer offering using the proceeds to exercise its right to call in June 2016, debentures and repaid indebtedness.
Notably the new 2021 offering maturing in 2028 carried the same 5.25% right as the June 2016, convertibles that were called within the quarter.
Support and capital markets remained strong evidenced by over allowance on both the previous quarter as equity issuance.
And the current quarter's convertible offering being recognized along with the strong support from the corporation's lending syndicate, extending the corporate credit facility on existing terms and conditions.
Size of the Corporation's credit facility as at September 30 was approximately $1 3 billion with the ability to access another $300 million in an accordion feature should we choose to exercise it giving the corporation of client assets about $1 6 billion.
At the end of the quarter. The corporation had readily accessible access to liquidity and cash and under its credit facility of $910 million, including the accordion.
<unk> liquidity position is that to provide exceptional flexibility to support future growth.
Combined with strong free cash flow, our liquidity position continues to be favorable and after considering our expectation of using the remaining net proceeds of the July 2021 convertible debenture offering to redeem the convertible debentures maturing in December 2022. The corporation, we will not have any long term.
Debt due until June 32025.
EIC as long term debt in the quarter net of cash of roughly $681 million a decrease of approximately 44 million since December 31, 2020, and even more noting is that it is $17 million less than the last full quarter pre COVID-19 quarter December 31 2019.
The corporation targets leverage to be within one five to two five times senior debt to EBITDA range Q.
Q3, 2020 wide leverage is near the top end of this target range caused by the reduction in EBITDA brought on from the impacts of COVID-19, but continues to steadily improve.
Our current leverage ratio for the quarter ended two and a quarter times, which is well below both the correct credit facility covenant requirement of five times and notably the four time requirement, which will come back into effect for year end.
With investments we've already made exiting the pandemic, we expect EBITDA on a $400 million run run rate basis, which will turn.
Which in turn would relate to a leverage ratio of more than the midpoint of our target range of two two times or less.
Further on our balance sheet, we ended the period with working capital of $312 million, which represents a payout ratio of one eight to <unk>.
This compares to net working capital of $324 million and a current ratio of 2.1.
At the end of 2020.
As I turned to revenue and EBITDA I will focus on highlighting the key quarter over quarter changes a detailed analysis of both can be found in the quarter's MD&A release on November 11th.
In Q3, 2021, Eic's revenue hit an all time high of 400 million.
Which is an increase of 103 million or 35% from Q3 last year, the aerospace and aviation segment revenue increased by $104 million, while the manufacturing segment revenues were essentially unchanged decreasing by $1 million.
Aerospace and aviation segment revenue was up 61% to $275 million. The comparative increase was driven largely by passenger in charter revenues that saw a significant increase is an increases in comparison to the prior period.
Corporations Rotary wing operation also delivered strong results in the quarter driven by fire related services and exploration activity is picking up and demand for our ISR assets remains strong and contributed as well to the increase in revenues.
Revenue in Q3 also benefited benefited from the acquisition of Carson here in the quarter with no prior year comparator.
Metal back in cargo revenue, which remains strong throughout the pandemic also contributed to the increases in revenue during the third quarter.
Revenues at regional one, we're stronger and considerably 174% compared to the prior period. The increase was driven by significant increase in parts and engines and aircraft.
Revenue sales revenues in the period.
Accelerated return of air travel in certain jurisdictions, most notably in the United States as being positive driving the increased sales and service revenues.
Before moving on to EBITDA, it's worth highlighting that total support received from all levels of government, including amounts received under the <unk> program in 2020 declined by 79% compared to the prior period.
The Corporation has not received any support under the <unk> program since the end of Q2 2021.
Within the quarter support amounts were recorded from the Manitoba, and Ontario provincial government, although the amounts recorded with respect to previous periods, where uncertainty around what ultimately would be received did not be quantified at the time barring any unforeseen able changes brought on by the pandemic. The corporation does not expect to qualify for governance government funding.
Are there any type of in Q4 2021 or thereafter.
Now on to EBITDA.
Consolidated EBITDA was $95 million up 14% or $12 million compared to the prior period.
The increase was entirely attributable to the aerospace and aviation segment, partially offset by a decrease in the manufacturing segment and higher.
Head office costs.
The consolidated increase was achieved despite overall government funding in the third quarter of 21, 2021, decreasing by $20 million compared to the prior period the government.
When government services are excluded from both periods EBITDA increased by 55%.
EBITDA in the aerospace and aviation segment in Q3, 2021 was $89 million, an increase of $27 million compared to the prior period.
Well scheduled passenger operations in certain markets remained lower compared to the pre pandemic operating environment. This strong increase compared to 2020 drove the improved EBITDA. In addition, robust cargo charter and rotary wing operation also contributed to the increased EBITDA compared to 2020.
The drivers within this segment lending to the increased EBITDA are largely the same as what drove revenue path.
Passenger volumes have rebounded largely attributed to an uptick in vaccination rates, although the improvement is varied across geographical markets.
In the manufacturing segment EBITDA was $16 million, a decrease of $11 million compared to the prior period more than half of the decrease in EBITDA compared to the prior period is attributable to the decreased she was received in this segment in 2021 EBITDA.
EBIT at class was lower than prior period, reflecting the impact of project delays and changes in product mix and its installation business were lower margin projects were completed in the current period.
The impact of the curve.
Current strain on the global supply chain, including increased raw material and transportation costs and a reduction in amounts received under this news program. The balance of the segment collectively experienced an increase in EBITDA, excluding the impact of this news program in both periods as the support received in the current period declined by $5 million.
Turning to earnings to free cash flow in Q3, 2021, Eic's diversified platform once again demonstrated it.
Its ability to achieve positive earnings and positive cash flow over a period defined by economic uncertainty.
Net earnings for the quarter were 20 were $22 million and adjusted net earnings were $28 million, representing an increase of $5 million and $7 million respectively over the prior period. The increase in EBITDA was partially offset by two items.
The first being depreciation where depreciation on capital assets increased by $4 million during the period as regional one expanded the number of assets in its lease portfolio and our airlines increased flying hours.
So the acquisition of Carson Air increased depletion depreciation during the period.
Reducing that earnings was noncash accelerated interest accretion.
As a result of the early redemption of the Corporation's debentures maturing in June 2023 increased interest cost by $3 million.
Mike noted previously in our call our improvements in net earnings adjusted net earnings and free cash flow per share that said it should be recognized that in the period. The weighted average number of shares increased by 8%, which partially offset any increases on these per share results.
In Q3, 2021 free cash flow increased by 26% over the comparable comparative period to $73 million or $1 91 per share. These results were driven by the increase in EBITDA and decrease in current taxes.
The free cash flow less maintenance capital expenditure expenditures payout ratio on a 12 months trailing basis remains a strong indicator of the corporation's ability to actively manage cash flows. Despite unpredictability unpredictable economic conditions. The trailing 12 months free cash flow less maintenance capital expenditures payout ratio and <unk>.
<unk> to 57% at September 32021 from 73% in the comparative period.
This is achieved through diligent management of capital expenditures during the pandemic.
The resulting 12 months.
Railing free cash flow.
Since cap capex payout ratio in the quarter.
Is a significant achievement as it now is back in line with pre pandemic levels being equivalent to a competitive payout ratio at December 31, 2019, a 57% which represents the last full pre pandemic quarter.
To sum up eic's ability to reach all time highs within a quarter on revenue EBITDA and free cash flow less maintenance capex and improve our 12 month trailing free cash flow less maintenance capex to pre pandemic levels is solid evidence of the successes we've achieved in managing the challenges of the pandemic we continue to.
Successfully strengthened our liquidity and balance sheet foundation in the quarter anticipating support for future growth.
That concludes my review of our financial results I will now turn the call over to Carmel to share some thoughts on eic's outlook for the coming months. Thank.
Thanks Darryl.
Discussing the outlook for our business is our teacher investments, both capex and acquisitions and GIC as a whole I would like to briefly touch on another topic being Rds you plan, which has been in place since the establishment of EIC in 2004.
Are these you plan has historically not distributed vested units until retirement, which has resulted in some participants have invested units for over a decade and reviewing industry norms and best practices. The compensation Committee has determined that it is appropriate to authorize a distribution of a portion of those long term vested units.
Certain participants also in connection with this review and to be industry leaders. The compensation Committee is increasingly required equity holds for the CEO and other senior executives. So for instance, the Ceos hold requirement will now be six times now.
Now I will turn to our outlook first a general comment which is that while we are encouraged and have realized very positive results by increase vaccination rates easing restrictions and gradual return to a normalized operations COVID-19 will continue to impact our businesses in the short term.
Let's first look at our passenger business, we experienced positive momentum in the third quarter up to about the middle of September when Covid case, count decreased leisure travel pause any further increases and in some regions created a slight erosion on volumes although growth in volumes installed they have remained steady in Q4.
We expect will continue for the balance of the quarter.
Current passenger volumes in each of our regions compared to pre pandemic levels are as follows.
The maritime to return to pre pandemic travel levels and will be bolstered by Pal Airlines scheduled service expansion in Q3, that's an added.
Central Canada is operating at about 75% with stronger volumes in Manitoba, offset with lower passenger numbers in Ontario due to continued travel sorry.
Sorry could you community travel restrictions.
And you'd have it passenger volumes have reached about 60% to 65% of pre pandemic levels isn't anticipated take another several quarters to return to historical volumes due to continued significantly reduced access to medical diagnostics when medical capacity for such treatments begins to open.
It is anticipated to be get gradual meaning over a few quarters as medical professionals and resources will not shift all at once but over time hopefully the requirement to regular medical treatment. However, once the capacity is fully open we expect volumes will be slightly higher than pre pandemic levels for <unk>.
A long period of time, given the medical backlog.
Yeah. He's charter aviation services continued to perform well in Q4 supported by significant demand in the resource sector and new charter customers.
<unk> cargo volumes have remained strong in Q4 in our kit and anticipated to exceed historical volumes going forward, but to a lesser degree as passenger volumes trend closer to pre COVID-19 levels. It's just due to the permanent change we see on consumer buying habits and ecommerce James Yes.
He's medevac operations will continue their solid performance through the balance of the year and are now bolstered by the acquisition of Carson Air which is performing better than expected.
The company's aerospace operations are expected to finish the year strong driven by increased demand for contracted ISR hours.
There's no one continues its pandemic recovery in Q4 with strong demand for parts that is nearing pre pandemic levels as well as an elevated level of aircraft and engine sales similar in quantum to what we experienced in Q3 larger aircraft and engine sales tend to vary significantly from quarter to quarter and the level of rep.
When you experienced in Q3 and expected in Q4 are abnormally high and are not anticipated to continue at those levels into 2022, but they do illustrate the of deaths nature regional wanted to be opportunistic in.
Changing market dynamics.
Leasing revenues are still down about 60% from pre pandemic levels, but continue to improve each quarter.
Scientists the potential return to normal levels by the second half of 2022 with strong demand for engine leases and the strengthening of the euro in aviation environment, which is where many of our leased aircrafts are located.
Our manufacturing segment has seen material improvements in employee absenteeism and efficiencies with increased vaccination rates.
However, COVID-19 impact on supply chain is increasing as is the challenges with labor shortages and is impacting margins the impact on the company's in the segment vary by region and industry, but include price escalations on direct inputs delays on deliveries and freight increases and some of our companies such as.
Our stainless steel tank business, there is an ability to pass on incremental commodity prices well others like with.
Where the industry norm is fixed price contract.
In the short term and ability to increase prices also as we have previously discussed in respect of quest production gaps and reduced revenue at our crest Quest operation will persist for the balance of 2021 and into the latter part of 2022 as a result of pandemic related project deferrals.
Long term demand remains healthy and questions seeing sale inquiries gradually return to pre pandemic levels and a steady order book also the balance of the segment continued to experience consistent robust demand, which will be further bolstered by the acquisition of Max out in August that expands and Ben machine product offering and adds capacity.
And telecom just a few days ago, which enhances western power's ability to provide a fully integrated solution to telcos by combining wireline installation and maintenance services with our tower work. So although there will be margin pressure in the short term. The segment's foundation is solid and demand is not an issue and we are poised for.
Future growth.
Turning now to maintenance Capex expenditures.
Our aviation operations moved closer to pre pandemic levels, sorry, as our aviation operations move closer to prevent emmick levels, our maintenance capital expenditures looking slightly increased maintenance capital expenditures in Q4 will reflect the elevated level of flight hours and are anticipated to be similar in quantum two Q3.
As for gross capital expenditures, our focus for the remainder of 2021 will be on the investment in the two surveillance aircraft required under the Netherlands contract. The construction of a new hangar required to meet obligations under our fixed wing search and rescue contract.
And realizing on purchasing opportunities uncovered by regional one as government subsidies are coming to an end we are seeing signs of opportunistic purchases from distressed operators.
As for acquisitions, we continue to see increased activity at the time, we announce Carson we indicated that EIC has three other transactions under LOI two of those transactions Mcfadden telecom have closed and the third one we decided not to proceed with we have however entered into two additional LOI with an aggregate.
Price of approximately $770 million is includes clued, both tuck ins and standalone acquisitions for our existing segment.
Subject to completion of due diligence we expect these transactions to close in late Q4 early 2022 now.
Now turning D E T as a whole our businesses have done a tremendous job weathering the pandemic and positioning for growth as we ease toward a new norm is evident from our strengthening performance quarter over quarter notwithstanding the material decline in government subsidies. In fact, we do not expect to qualify for subsidies for the balance of the year or thereafter.
With this performance achieved to date and the momentum moving into Q4, we anticipate barring material unforeseen changes in Covid and government restrictions to complete 2021 with EBITDA nearing our 2019 results all $328 million.
Longer term, we expect an EBITDA run rate of $400 million, but the impact for the fourth wave on our A&H segment recovering supply chain challenges and labor shortages is pushing when we expect that run rate to be achievable to later in 2022 and as such we will not be entering 2022 with that run rate will look to exit.
2022, with the run rate.
We will provide more specific guidance on our expected timing with our year end results.
So as you can see by effectively managing our operations through the pandemic for the long term following our principles for strategic investments and executing on opportunities that meet our criteria by looking and investing for do we have positioned EIC to continue accomplishing.
In the future.
You for your time this morning, and we would now like to open the call for questions operator.
Thank you.
We will now conduct a question and answer session. If you do have a question. Please press star followed by the number one on your Touchtone phone you.
You will hear a tone acknowledging your request your questions will be pulled in the order that they are received please ensure that you lift the handset if you're using a speaker phone.
Your phone before pressing any keys.
Your first question comes from Cameron Dorsen National Bank Cameron. Please go ahead.
Morning.
Good morning, Thanks very much.
Just I guess a question on the I guess, the inflationary cost impact obviously, that's impacting quest is there anything that you can do that obviously, that's going to take maybe a little wilder to mitigate this but is there anything you can do on a more short term basis with some of the other businesses.
To mitigate that inflation cost.
I mean.
Where we have a fixed price contracts like quest, there's not a lot you can do we've made a commitment and we'll honor the commitments in the other businesses. The order cycles are a lot shorter so it's much more flexible in terms of passing that through to our customers, but there isn't any sort of change in policy that we can do to retroactive.
We changed our pricing.
But we are doing is.
We have seen increased demand for some of the non quest products, just given the market positioning.
Positioning so we are taking advantage and our sales certainly increase for AWP line with our two acquisitions in the U S.
Okay.
That's helpful and maybe just a second question for me can you just talk a little bit about the the regional one growth capex expectations here in Q4, maybe into early 2022, I mean, what are you seeing as far as opportunistic purchase here, but it's been like I said, you'll be at obviously you've had some pretty good opportunities here. The last couple of quarters, but maybe anything on the hill.
Look there.
Yeah, it's it's been very interesting or thoughts of what was going to happen during the pandemic weren't particularly accurate in so far as the government support to the aviation industry around the world really delayed any rationalization of fleets and financial distress, we're starting to.
See as that.
Government support lessons and forbearance periods under certain lending agreements with certain leasing companies come to a close that there are more opportunities for distress purchases. The challenge with those is you never know whether you're going to be the successful buyer.
Until you are so.
We're optimistic we see greater opportunity than we have in the last little while but we don't have anything significant under contract or anything I can announce at this time.
Okay. No. That's that's great color that's it for me thanks very much.
Thank you. Your next question comes from Steve Hansen, Raymond James Steve. Please go ahead Steve.
Yeah. Good morning, guys. Thanks for the time.
I will say congrats on all the community efforts, Mike I think the U S is often lost in Oh ESG debate, so kudos to you Keith.
Just first one for me is.
Follow on Ken's question to some degree, but I'm just I'm trying to understand the tension right now that you're seeing between M&A opportunities and capital deployment into organic growth like weeds of one.
How you square those two off right now you've got a couple of otherwise under what it sounded like but maybe just to give a sense for the relative opportunities that youre seeing internally versus externally.
Yeah, It's I mean, it's an exciting period for us because when regional one has the opportunity to buy things that's what fuels their growth.
They're.
Their success is driven by how well they byproduct and that enables us to sell it and so we're excited when those opportunities come and that's why I used to restructure our balance sheet. The way we do so that we can move quickly if as and when they come.
We continue to see a.
Good flow through our acquisition pipeline, we've got two under contract that we're we're excited about and anticipate closing in the next 90 days or so.
But I really don't view it as an either or internally, we very much take our view of capital is that it's head offices job to fund all the good opportunities, we see our balance sheets in great shape.
As we speak we've got one debenture that comes due next year and we will probably refinance that at some point before it comes due and.
Other than that we really don't have any great financial demand. So I think we're in a good spot to be able to fund the opportunities we see now.
Okay very helpful and just one follow up and I'll jump into the queue is just just on the integration now of Carson again, your footprint seems to be really nicely solidified I suggest here no I think you've spoken in the past on future opportunities for the medevac platform, but is that something that's got you know a fair bit of runway of growth.
Still either organically or acquisitive Lee can you broaden the reach into other regions. How do you feel about that platform as a general question.
The medevac platforms through the pandemic has been remarkably resilient and.
Not that that was a surprise to us, but I think the level of resiliency was was was positive and so we were able to at an industry leader like Carson to our existing group.
Gave us a foothold on the west coast, and I think you'll see tremendous opportunities for us both in the fixed wing business as we expand into parts of Canada, where we don't currently operate and that really could be organically by winning new contracts or it could be acquiring either strong companies that have contracts and buy in.
Expansion into the rotary wing part of the medical evacuation business, where we have.
I have a small foothold in Manitoba, what we're really just beginning so.
I think you'll see organic and acquisitive growth in that area over the medium term.
Appreciate the color guys. Thanks.
Thank you. Your next question comes from Chris Murray ATB capital markets. Chris. Please go ahead, yes.
Yes, thanks folks.
Maybe starting off with the aviation business and just thinking about how that's evolving sort of it sounds like.
Definitely.
We are getting better and you did highlight some pent up demand.
Can you talk a little bit about.
How you expect seasonality to play out it sort of sounds like maybe.
Little bit less.
Less seasonality than normal as we go into next year and then the second part of this you've also talked about coming off the <unk>.
Government support I would assume that would be not only for things like huge but also for some of the support into the the remote communities.
You've previously Mike you've talked about not wanting to do anything around the dividend until those programs had ended.
Just any additional thoughts around dividend anyway, I'll leave it there and then let you answer those questions.
Okay answering the second question first.
Our our payout ratios are at a level, where financially we could definitely consider.
Increasing our dividend and that's a key part of our business model, we wanted to share our success with our shareholders and that's given us a 5% CAGR in our dividend. Since we started we don't want to be perceived as utilizing government money that was to help us.
Maintain services.
As a way of paying for the dividend and as such we've chosen to wait until we've.
Cleared any sort of government support on our dividend that's happened now and so.
We're gonna be in a position to look at our dividend and in the short and medium term.
The original question about the seasonality of the business that maintains.
The adding of businesses like car said help to mitigate that because the medevac because this isn't a.
As seasonal or seasonal at all frankly.
Relative to our passenger business.
We anticipate a normal kind of a relationship between the third and fourth quarter. The third quarter is always our company's strongest and there's a slight slight decline and for the fourth quarter simply because oh, the manufacturing base business it slightly harder to do sub notes.
Side work.
And in the aviation business.
Christmas freight work is high volume and lower margin so.
We would anticipate sort of a normal seasonality to the business.
Okay.
And then my other question just is on corporate costs.
A lot higher than normal in the quarter. Just wondering if there was anything unusual maybe related to this change.
In the DSD plan or anything any other color you can give us on.
On why the costs were significantly higher yeah. The D. S. You plan had absolutely nothing to do with the cost change here, Chris that the D. S. You plan was just simply that we had a plan that never.
Distributed vested units and so some of them sitting there for a decade and a half.
Where people that are in them they've asked us they just hadn't been distributed so that's fully gone through the income statement in previous years that has no impact.
The increase in the short term was the.
Total with two things it was that up in the preceding year, there had been a voluntary wage reductions and cost.
Auctions very little accrual for incentive compensation.
Whereas this year reflects a more normal.
Salary structure and irregular accrual of etc crop sensation based on the program, we have and so it's not out of line with preceding years.
Although the company is bigger so it's a higher number but it would be in line relative to the size of the company with preceding periods.
Okay, well I'll leave it there thank you very much.
Thank you. Your next question comes from Kevin Chiang CIBC, Kevin. Please go ahead.
Hi, Good morning, I was taking my.
Mike and team.
If I could just go back to Oh.
Question, I think Ken and Steve had asked any questions here.
Just given the fixed.
Contract nature of that business are you throttling back on bidding just so that you're not caught.
Booking contracts, just given the uncertain outlook for certain costs and inflation or or do you feel comfortable that you can build it in a big enough buffer that you can kind of quote today on projects.
<unk> four months from now.
Inflation is running hot today.
Yeah.
It's a really good question, where we are.
We need to continue to need to transact business in the environment. We're in we're building it buffers for those things working with our customers and.
You may well see a movement in some of those contracts with volatile enough to sort of the sat Fi model, where there's.
Flow through increases or reductions in price based on commodity levels that is not the industry standard in windows at this time, but these projects are with our existing customers with long term customers and we're going to make sure. We look after our customers. So we're going to remain active take advantage of opportunities there and we'll manage that.
Cost as best we can.
Okay.
Looking at me.
On our approach.
And whether that is working with the customers. So that they are set take dates so that takes some variability out of it I mean from a customer's perspective, a commodity prices may go up may go down. So it's something that we have a vested interest in as partners together to try and look to future contracts that makes sense for both.
Customer as well as quests manufacturer. So we're working through those strategies to try and deal with things on the shorter to medium term.
That makes a ton of sense.
And just on.
Just given all the supply chain issues in and resource availability issues just.
Just wondering what.
These vaccine mandates getting getting put forward by I guess, both the binding administration south of the border and obviously here in Canada of course, certain federally regulated industries.
Is that impacting your labor available availability at all or exacerbating it in markets that you're already short.
Or labor issues are not affected the same way as they were by Covid in the past we had a lot of employee absenteeism.
Trouble.
Anticipating exactly how many people we're going to be in the factory on any given day that level of unpredictability has has largely gone away.
Vaccination levels in Canada are very high.
And it really doesn't impact us in the same way, having said that there is a labor shortage in certain places where in to give you. An example in Springfield, where there's a concentration.
Tracing of stainless.
Stainless steel manufacturing competition for employees is high.
Absent the COVID-19 issues and so that's where.
Tight labor markets create the challenge sort of more than COVID-19. The tight labor markets are indirectly the result of COVID-19, but not entirely as businesses are expanding there's just a man for employees.
We're somewhat optimistic that as government subsidies to pay people to stay at home go away in Canada in particular.
It will lessen some of those.
Labor restrictions Carmela.
Carmel, if you've got anything else on that yeah, let me add a little bit more color on the vaccination aspect of this because as you correctly point out our all our airlines of course, there are mandated to have employees vaccinated and we were ahead of that very early on such that we literally at each of our airlines have less than five people.
That are vaccinated, so when the rule came into effect it virtually had no impact on us.
And you've seen the headlines from other airlines, so manage that very very well so no impact there and then let me give you. An example, the manufacturing side, where we've actually taken advantage of this and that's R. R.
Wireless company.
Company, our West tower, where many of the sites that we work on do require vaccinated employees. So.
Obviously those employees that we said will be vaccinated, but there are some that do not require it. So we have a pool of individual employees, who have chosen not to get vaccinated and we use them on those sites and in fact have picked up employees, where other employers have been very dogmatic. It's.
No you have to be vaccine itself. It actually increased their labor force a little bit they they have to use and obviously the right circumstances, but it is just an illustration of how we try to use the rules as best we can and leverage our capability.
That makes sense and maybe just last one for me.
In the prepared remarks, you talked about early this year, just getting pretty close to pre pandemic levels.
Getting a run rate of 400 million of EBITDA.
I guess exiting 2022, so that obviously puts you above what you were doing a few years ago.
So it seems like Youre your mindset now returning to growth here.
As you come out of this pandemic I'm just wondering at a high level, how does that change how you want to shape. This how many company just given the M&A has played a key role here and how you built this.
Portfolio are the end markets you want more exposure to end markets you want less exposure to just.
The lessons from the crisis that might change how you kind of think of this company and you know 510 years from now.
I think Kevin the greatest thing that of course.
The Covid pandemic as it has done for us in terms of our strategy.
It's entrenched the value of our diversification.
We didn't have the same challenges in the same businesses all the way through this and as a result, when other aviation exposed companies, where we're discussing in daily cash burn as we were generating free cash flow enough to.
Fund, our capex and to pay our dividends and so we're even more committed to the concept of a.
Strong group of companies that arent entirely in the same businesses, having said that I don't think you will see us expand.
Into multiple segments, we've always talked about we'd love to have some exposure to the agricultural segment, we have been able to find anything at this point that fits our.
Our standards and our pricing requirements, so whether we will ever be able to do that is.
Questionable, but in terms of adding more companies like Carson to add to our medevac business or adding the underground capabilities to west tower or or Mac fab to increase the production capacity at a bed machine I think you can expect more of the same on that where we have an opportune.
Unity to expand into something that we know that's got a reliable cash flow stream and helps diversify our earnings we will do that.
I appreciate you taking my questions and have a great weekend everybody congrats on a good quarter there. Thank.
Thank you. Thank you. Your next question comes from Newman, Sadie Laurentian Bank no matter what.
Please go ahead.
Hi, good morning, everyone and congrats on the quarter.
Good morning, Thank you.
So just going back to the question of normalized EBIT I'm. Just wondering this quarter you guys have done 95 million.
There was a lot of I would say some challenges on the manufacturing side. So.
So going forward, what additional pressures or challenges do you anticipate or I would think that you know the normalized levels could go even higher if these manufacturing segments sort of bounces back, but just wanted to get your thought.
Where the pressure or challenges you're seeing.
Pension he come up.
Well I think if we.
Do you use Q3, because the number is there.
<unk> 5 million, we achieved that with two key challenges.
Challenges the disrupted schedule at quest.
Which made our production inefficient Ted didn't allow us to generate what we would expect to generate in that business that problem is going to go away over time as we get through the pandemic and regular scheduling occurs so that will definitely increase our EBITDA on a normalized basis and then the other.
One is on the aviation front well, we've had really good improvements and then some business is actually being better than the pre pandemic like our freight and medevac and charter business of all strengths and beyond pre pandemic numbers.
We're still missing 25% of our passenger revenue and that's a big number. So that's getting crews are our performance on a go forward basis and the other thing that's going to help us is when the.
Lease portfolio at regional one normalizes, that's running at slightly less than half of what it would in a normal period, we see those leases improving.
And as Europe, Bob Normalizes like North America, we anticipate that we will return to normal by sort of mid next year. The interesting thing is is that.
Our leasing revenue is almost 100%.
EBIT dollars and so that has a disproportionate impact on our earnings so as that leasing portfolio strengthens.
You'll see further growth in that EBIT number.
Okay. That's very helpful and just one last one for me if you could if there's any update on the cortisol surveillance contract that was up for renewal.
We have submitted our bid and we anticipate hearing back in that Carmel late this year early next year.
Yeah, Here's where while we actually anticipate hearing in Q4, so it'll be sometime this quarter.
Okay I appreciate it that's it for me thank you.
Thank you. Your next question comes from Jeff Fenwick core Mark Jeff. Please go ahead.
Good morning, Jeff.
Good morning, Mike How're you doing.
Good day.
Yeah.
I wanted to circle back on to the power and legacy performance in the quarter I mean top line. Obviously, you had a very nice step up but the thing that stands out to me is that the margin when I back into the EBITDA margin for that.
Ts to remain.
Hi, I guess versus pre Covid wondering when I look at the numbers I know you guys instituted a bunch of cost saving efforts and you mentioned that this was starting to become a more consistent part of your quarters here. So how do we think about the margins for that are not part of the business here going forward is there a bit of a catch up that has to happen on some of these opex items or.
Can you sustain those kinds of strong margins no I think well bear in mind. The one thing that we still did have a small amount of assistance is is in our aviation business in Manitoba, and Ontario, we had that $5 million of government assistance from the previous quarters. So that helps our margins are but going the other way.
The last dollars a passenger business are are very high margin dollars because when you add extra people do an aircraft that's already going on.
Most of that flows to the bottom line so.
We think theres still lots of room to continue to grow EBITDA on an absolute basis in the aviation business and we expect stronger margins exiting.
The pandemic than we had going in largely because some of the cost stuff, we've been able to do through the pandemic and the other thing that's kind of an under discussed part of our business is with the strength of the.
Mining and exploration business, we're picking up a lot more charter and contracted flying in that area and it's been probably a decade since we've seen this level of activity on that side of the business. So that gets us better utilization of our aircraft.
Okay. Thanks, that's helpful color.
Sure.
Okay.
Alright, you mentioned it.
On the airline side as well, we had a little bit of growth in our routes for provincial airlines in the quarter, which will further drive revenue as we look forward.
Okay, Great and then I wanted to talk about the maintenance Capex Bill you called that out in your quarter as well that he does obviously with activity picking up that is going to grow and just trying to think about it with respect to free cash flow payout ratio here is the.
Sort of Big picture high level thinking maintenance Capex is going to March along higher with EBITDA and the free cash flow payout ratio kind of hang out here or is it is it likely that the maintenance side I know, there's some some uptake your Q4 and then Q1 is typically seasonally higher like this the free cash flow payout ratio start to trend a little bit higher here over the next couple of quarters.
That's a really good question.
Maintenance Capex profile is directly proportional to how much we fly most of the things Youre doing overhauling engines overhauling landing gear and those things are done based on how much you're flying so we will see those increase as we fly more.
But there is no deferred maintenance Capex Salt Lake, we've chosen not to do something to save cash for.
A later period, where everything is in line with where it should be you will see a bump up in Q4, because it's not.
Its not something thats exactly equal quarter to quarter, the timing of like engine overhauls you could have for this quarter and to next quarter with an average of three so it bounces around a bit Q4 will.
It will be higher than a normal Q4.
But not by much.
In terms of Q1, we're still in the budgeting process, but we try and do as much as we can during the slow winter season. So that we've got all the planes for the busy summer season.
And as we trend back to a full utilization of our aircraft.
The maintenance Capex costs of 2019 is is a good proxy for that.
Carmel do you have anything else on that.
No I agree with those comments and kind of the range that you've given and that's reflective of what we anticipate on the on the Capex side I mean, there's obviously been.
We've increased our fleet.
Capture some of that revenue so but.
But I think that what you've given is accurate.
Okay, and then maybe just one last one on M&A and you you gave us some good color earlier.
Her comments, there, Mike, but now with $900 million liquidity the balance sheets in really good shape here it.
It sounds like it's more of these sort of.
Maybe $50 million to $75 million ticket sizes youre looking at but would you be in a position that you would contemplate more of a platform acquisition I know, there's still a lot of moving parts in the economy and it probably make that tough, but you know would you contemplate doing something that's more of like a three or four or $500 million acquisition at some point.
Absolutely we're actually have a couple of things we're investigating as we speak we're early in the process, but where we see value and with a long term focus that maybe somebody else doesn't see.
This is the best time to buy on those kinds of things and I don't want to suggest anything is imminent or we're very close to something but we're very active looking on that front and we.
We won't do deals for the sake of doing deals, but I'm a big believer Adam's team has done about five deals over the last year or so those have been tuck ins because that's what's been available and that's what we've been able to do from a due diligence point of view, but in no way should anyone take that as.
That's all we're looking out we are.
Active on the bigger transaction size as well.
Oh.
Okay, great. Thanks for that color I'll re queue.
Thank you. Your next question comes from real Stroud RBC. We all please go ahead.
Morning.
Yes, good morning, everyone.
Nice results today.
Just wanted to touch on the the run rate $400 million EBITDA guidance exiting the pandemic in and try to understand what's embedded within that so does this does this run rate number and bad like any normalization of project delays at quest and I wanted to also include contribution from the $70 million expected to be spent on the two new acquisitions.
In the next few months.
That's a good question. It does not include anything that we haven't paid for.
So the $70 million worth.
With the acquisitions that are under LOI are not included in that number.
It includes a return to normal at class or a more normal environment, which of.
Of all our businesses, that's probably the one that will take the longest to get there.
And when it does we will probably be exceeding the $400 million.
If I missed anything there Carmel.
No I mean, so there is fixed.
If you step back and you look at it we thought what I refer to as pent up EBITDA in our one as it leases normalize.
Quest, obviously and there's two types of quest expansion Theres, one just getting it back to the level. It was and then of course, we had additional capacity is in.
In the Dallas plant that we can utilize as well. So that's that additional capacity is not built in it's just getting back to the level that we were at and then there's also kind of EBITDA for our flight school as our foreign students.
Starts in the hopefully the first started out or the first part of 2022 to come back.
Online then that will be an increase of EBITDA. There. So those start to kind of gather up and get us.
400, but the other projects that we haven't paid for it to Mike's point are not embedded in there our future growth potential even with the money we spend is not embedded in there.
Okay. Okay. That's that's helpful color on the puts and takes there and actually it leads well into my next question, which is on the Moncton Flight College and given some of the news headlines.
Surrounding the pilot shortages in several pockets of the global air travel industry.
I'm curious have you seen a material uptick in any of the kind of demand or registration as recently or are the headwinds that you mentioned with the international student pool. So offsetting this.
If I can take that question sure go ahead terminal.
So demand.
Domestic.
Students have actually remained relatively strong throughout the pandemic, we are seeing a definite uptick in that though as we go forward.
The foreign students that the only issue that we've had there the demand is absolutely. There is just getting them through the process and into the country and vaccinations and isolation periods etcetera. So.
Once that starts to flow and we think you would almost be like a floodgate it'll open up we think that that will come back and then do you believe there will be demand in excess of where we were before and so you know look and we have now the advantage because our Carson are also has a flight school I'll be able to leverage capacity.
The flight school at Carson.
To fully access I think the demand that will exist and of course, if it's beyond that we will of course look to organically potentially.
Establish a salary base.
Okay, Great. That's very helpful. I'll pass the line here.
Thank you. Your next question comes from Tim James T. D Securities Tim. Please go ahead.
Tim.
Good morning, everyone. Thanks for taking my call actually just one last question for me.
The Qs the elimination of Qs this year I noticed sort of last year, the thinking was or while you were we're collecting Qs benefits was.
You know that that was a benefit that would you know if it were not in place you'd be making sort of cost structure adjustments to to account for that given the lower level of business. As you think forward now given that that is no longer in place are you able to eventually recapture through.
To further adjustments to your costs.
The loss benefit of.
Queues in those affected businesses yeah. That's a good really good question you have to look at Qs in sort of two separate buckets. The stuff. We received on the aviation front together with the support we received from provincial and territorial governments that money was truly reinvested in extra flying that we wouldn't have been able to do.
Absent the government support so you see as the majority of that money has fallen off in the aviation business. The margins have stayed where they were a waste which is evidence of the fact that the money was used for what it was intended by the manufacturing business.
You get a double whammy because demand remains strong through that and as a result, the sous did help us.
There are periods, where margins would've definitely tightened because of our access to employees and things we had to do to keep our people safe.
As we exit now we don't have the suite. So we've seen a slight decline in the manufacturing sector at the same time as we're dealing with the supply chain issues and the.
In inflation in material prices. So the government support is almost kind of miss time dressing manufacturing.
Because now it's a more difficult period as it relates to some of those cost features but yeah, you can see that we've basically.
Exited the government support in aviation and our margins are back ahead of where they were historically.
Okay. Thank you very much.
Yeah.
Thank you. Your next question comes from Matthew Weekes I E capital Matthew. Please go ahead good morning, Matt.
Morning, Thanks for taking my question I think I just have one here it looks like you talked about all the positive momentum in the aerospace and aviation segment and some positive demand trends that are happening. There I'm. Just wondering if you could provide some commentary on on how growth happened in the quarter on a basis of volume versus passing through.
The pricing increases for our fuel and that sort of thing and how that contributed as well.
Okay. The fuel ingredients laws were passed where they needed to be.
Those were not in aggregate dollars, a big number where you saw the the biggest improvements in revenue in aviation were driven by a large aircraft sales in engine sales at regional one which were.
Approaching all time highs if they didn't actually exceed our historical numbers together with improvements in the charter business, where we're doing some flying on.
Natural resource projects, where that didn't really exist the year before and together with our.
Continued strong freight performance. So those would be the main drivers and of course increases in passenger load factors yeah.
Fuel prices do.
Play a part in our passenger revenue numbers, but in percentage terms, it's not it's not a big number.
Okay. Thanks, I appreciate the color on that and in terms of the large asset sales that are kind of occurring at a higher than normal levels that regional one are these typically are higher margin sales as opposed to.
Art and the leasing revenues no they would be absolutely the opposite.
If we were to take a plane and parted out.
We might make 30 or 40 or 50% margins on the parts, whereas if you were to sell a whole plane your.
Your margin would be a fraction of that so it's bigger dollars and it definitely impacts revenue and it does help EBITDA, but a dollar in leasing revenue is the highest return in terms of EBITDA.
All are in parts revenue would be the second highest and then the lowest return and from an EBITDA point of view on an.
Additional dollar in sales would be in large asset itself.
Okay understood.
Thanks for the color on that ill turn it back.
Thank you, ladies and gentlemen, as a reminder, should you have a question. Please press star one on your Touchtone phone. Your next question comes from Kunal <unk> Scotia Bank.
Please go ahead.
Good morning.
Good morning, Mike Thanks for squeezing me in.
The call has been longer but we wanted to stay kind of refocused on a couple of things quickly.
All of these for the $100 million of EBITDA.
But you kind of expect AR exiting 2022, obviously, that's pretty remarkable compared to you know, maybe where just like last year.
So kudos on that but I was just kind of wondering you know.
How do you think about.
Because you know the regional one has been kind of lumpy in the past that you know you can have aircraft sales and box and engine leasing and a lot of moving parts there.
How should we think about EBITDA in a more of a sort of a normalized environment without regional or whatnot.
Will that be something closer to 300 is a fair assessment or it's going to be more than three out of it.
300 for what are you talking about a revenue number of Qunar Curt no just before EBITDA across our exchange income excluding real one.
Regional one.
At 2019 was a little over $100 million and Canadian dollars.
And we anticipate that we will be back at that.
At some point during next year that it's important to understand that their diversified within their business and so the fact that in a given quarter.
Asset sales are higher or lower is often offset by a less part sales in that period or or different leasing revenues and so the revenue number has always been the most volatile at regional one the EBITDA number is is remarkably consistent and we're on it in a very good try.
And that will see us get back to pre pandemic levels in the near term.
In terms of surpassing that if we get some opportunities to buy some assets.
We may grow beyond that but that's not included in the $400 million number.
Carmel have you got anything else on that.
No I mean I would agree.
The one thing I guess I would add is that now as you look forward and I think what you've been seeing if you look at articles and be aerospace aviation sector is that engine shop visits are in huge demand I mean, I think Pratt and Whitney came out with its results in Q3, and its revenues were up 25% and.
That is going to drive our engine leases. So we see a kind of a good opportunities there are for our businesses as we look forward and that's what we saw was really good at it's not that they're dependent on any one thing it's not like they have to lease a whole aircraft and they've got the flexibility to do what makes sense for them.
Market and hence why their EBITDA tends to be consistent holiday G that is in different ways, but they're achieving it is consistent.
That's great color, Thanks, guys and last one for me.
You talked about the original long leasing quest Moncton.
The other subsidiaries that that obviously there is still some pent up there and they will recover.
As we come out of the spend that mix.
My My Big Picture question is what ever you have well you know.
Picked up during this pandemic on the positive side.
Anything there that you think might fall.
Fall off or reduce.
For example, charter cargo any of those things you can think of them as it comes off in the next couple of years.
I think the the one thing that's really surprised us qunar is the resilience of the freight revenue.
Our internal expectations were that it was going to fall.
Direct correlation with the improvement of the.
Passenger numbers.
It hasn't.
It's it's it's plateaued, but we think theres been a change in how the northern people are buying and so we anticipate that that will maintain at higher than pre pandemic levels, whether it falls off slightly from these levels. It may well do that but we anticipate continued strong.
Freight revenue the other thing we've seen is the.
The resurgence of the.
Natural resource market in exploration and development of mines, that's something we haven't benefited from in in a decade and I think we're at the beginning stages of that so I think there's always the opportunity for continued growth on that charter revenue to replace charter revenue that perhaps that was pandemic related like.
Our ISR I'm not I'm, sorry, our IFC charter work, where we did we were we are.
Moved the nursing PR people around the country to get them into northern remote locations. So I think there may be some trade off there I don't know if carnival has got any other insight on that but.
That's one.
Yeah, I mean, I think your Bang on Mike, It's the resource sector that keeps them. There is a decline in charges that was driven up.
I bet by virtue of what I'll call Covid specific need is going to be offset by the resource sector and the other thing that we've seen actually the pandemic, it's been very effective and allowed us to attract I think work we may not have in the past is our ability to utilize our assets are in our what I'll call. Our global are collected.
Fleet.
<unk> provides a service that otherwise individually, we would not have been able to do.
And so we will continue to look for opportunities I mean ISC as an example, obviously that's a pandemic one but nonetheless, you know what we do and whether its the bombers.
When we bring in a number of different people different locations those logistics very very effective at and I think we will certainly look to exploit our capability in that regard.
That's that's very clear. Thank you so much and I called that in the quarter.
Thank you.
Thank you there are no further questions at this time. Please proceed.
I just want to thank everyone for sticking with us through a long call here there was a lot to discuss but a lot of good things to discuss Ah. We're excited about where we are and we look forward to talking to you again in February with our year end results.
Have a great day.
Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Okay.
Okay.