Q1 2022 Chorus Aviation Inc Earnings Call

[noise] good morning, ladies and gentlemen, and welcome to the Chorus Aviation, Inc. First quarter 2022 financial results Conference call. At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time during this call you require immediately.

Please press star zero for the operator.

This call is being recorded on Friday may six 2022, I would now like to turn the conference over to Natalie began please go ahead.

Thank you operator, Hello, and thank you for joining us today for our first quarter 2022 conference call and audio webcast.

With me today from Court, Joe Randell, President and Chief Executive Officer, and Gary Osborne, Chief Financial Officer.

Let's start by giving you a brief overview and give yourself and then go on to questions from the analyst community.

The discussion in this call may be forward.

Direct your attention to the caution regarding forward looking information and statements.

Subject to various risks.

Fashion.

Included or referenced in our management.

Alex is that the results and operations support Aviation Inc. For the three months ended March 31st 2022.

Yes look section and other sections of our MD&A, where such statements appear.

In addition, some of the following discussion.

non-GAAP financial measures, including references to EBITDA adjusted EBITDA, adjusted EBT and adjusted net income.

Refrigerate MD&A for a discussion related to the use of such non-GAAP measures I'll now.

I'll now turn the call over to Joe Randell.

Thank you Natalie and good morning, everyone.

There were significant accomplishments in our first quarter and we once again delivered positive financial results.

The past two years have been difficult. However, it seems the worst is behind us.

Globally passenger demand for air travel is rebounding and the regional sector is leading the way.

Our jazz operation is ramping up for the summer peak period, and we are hiring new employees across the organization.

As Air Canada shared in their first quarter report out they're experiencing steady increases in key metrics, such as revenue and passenger load factor to the point, where they've been exceeding 100000 customers per day.

These collections are steadily increasing first quarter lease revenue recognized and collected by chorus aviation capital grew to approximately 92% from 83% in the previous quarter and the portfolio utilization is now operating at approximately 95%.

Pre pandemic levels.

And as more aircraft returns to disguise, there's growing demand for our parks provisioning business at Voyager, where we're hitting record sales.

And we are expanding our aircraft parts offerings now moving into the ATR product.

All are positive indications that are that the passenger aviation business is on the path to recovery.

Of course, the greatest accomplishments. So far this year is our acquisition of focal our market leading aircraft asset management company with an excellent history and tremendous growth opportunities.

We are now the world's largest aircraft lessor focused solely on investing in the regional aircraft leasing space and a leader in all aspects of regional aviation.

The addition of an asset management platform and the equity interest in 123 owned and managed aircraft create scale and a differentiated business model.

Our customer base has increased from 19 to 32 airlines expanding our geographical reach from 16 to 23 countries and increasing the value of assets under management to approximately $4 5 billion in the U S. With a total fleet of 353 regional aircraft.

<unk> of the beneficial interest in five aircraft truss, which we expect to close by the end of the second quarter.

With the addition of focused asset management platform, we will grow our leasing business through an asset light model.

It significantly increases cash flow generation.

Proves return on invested capital and facilitates the pursuit of larger deals with more efficient access to equity capital.

Growth through third party capital and various funds reduces balance sheet exposure lowering debt and residual value asset risk, while enhancing stability and diversity of earnings through asset management fees.

This acquisition is truly transformative for of course significantly advancing our growth and diversification strategy.

With the addition of Falko in 2022, we expect to derive 50% of our earnings from non CPA related operations.

Our immediate priority is to integrate operations and execute on the opportunities this transaction brings.

Including plans to launch a new fund this year.

Defalco management team has a successful track record of raising and deploying capital.

Since 2011 Falko through its managed funds and affiliates has acquired over 320 regional aircraft.

Regional jet and turboprop aircraft and since 2015 has raised over $1 1 billion U S and equity capital.

We believe the timing of this acquisition is opportune as global Air travel returns and growth and demand for regional aircraft leasing increases.

This combined with our extremely strong and experienced team positions us well to capitalize on the current environment and to generate attractive returns for investors.

We have no doubt that we're in the right sector of the aviation business.

The growing demand for regional aircraft is balanced by a supply of new aircraft is most deliveries are made to order by the manufacturer.

There is little overhang from new aircraft orders, allowing for redeployment of idle aircraft.

As the pandemic Abates airlines are looking to curb costs by right sizing their fleets with aircraft financed off balance sheet.

Regional lessors will continue to be an indispensable component of the aircraft financing industry and with recent market dislocation and a changing competitive landscape, we are well positioned to capitalize on growth opportunities.

There are only a handful of operating lessors of scale with regional portfolios.

The majority of the world's regional fleet is managed by three operating lessors of which of course is one.

Of the remaining two one is signal a shift in strategy to include narrow body aircraft.

The other <unk>.

Already has a significantly larger portfolio of wide and narrow body aircraft. In addition to its regional fleet.

The remaining operating lessors focused solely on the regional aircraft segment have smaller portfolios.

Then the combined course Falko platform.

Some of these smaller players are capital constrained or focused purely on turboprops.

In addition to larger scale the courts VAALCO com combined leasing platform as a broadened market opportunity that covers the full age spectrum of regional aircraft from new deliveries to mid and end of life aircraft.

Our excess to capital through third party equity funds is unique in the regional space.

Finally courses technical skills and capabilities, including aircraft Repurposing end of life disassembly and parts provisioning in sales provide multiple opportunities to maximize returns on aircraft assets.

With fewer than 25% of the world's regional aircraft fleet being leased there's plenty of room to grow and we see substantial opportunity to place regional aircraft. This year.

The pandemic has opened new opportunities for us with airlines is expected to seek liquidity through sale and leaseback transactions, we have many new prospects and have numerous transactions under evaluation.

Like the rest of the world, we're watching developments in eastern Europe , we do not have any aircraft in Russia and do not foresee this terrible conflict affecting the growth of our leasing business.

There is opportunity for growth in the other jurisdictions.

We continue to make progress on the implementation of our ESG strategy and intend to publish our 2021 report in advance of our June AGM.

To further formalized our ESG strategy, we recently completed a materiality assessment to identify and prioritize the ESG topics that are most important of course and our stakeholders.

This comprehensive process involves consultations with numerous stakeholders, including shareholders customers employees suppliers and lenders. The assessment provides the basis for determining the high priority focus areas of our ESG roadmap and we will be sharing more detail on this in our upcoming.

<unk> sustainability report.

We are committed to doing our part to improve the environment and as such we are setting an ambitious target to strive for net zero greenhouse gas emissions within our operations by 2050.

We were very proud to participate and air Canada celebration of Earth day, when we flew a CR Jane 900 from San Francisco to Calgary, using sustainable aviation fuel as part of Air Canada's lead less travel program.

We were one of four flights Air Canada operator.

The use of sustainable aviation fuel on these slides reduce greenhouse gas emissions by approximately 39 tonnes of carbon dioxide compared with the use of conventional fossil jet fuel.

There are many initiatives being explored in our industry to reduce emissions and we're closely watching the development of other aircraft technologies, such as electric hybrid and hydrogen powered aircraft.

I'm also pleased to share our commitments regarding equity diversity and inclusion.

While we have received numerous employment awards over the years, we recognize there is still more to be done.

We are committed to increasing our workplace representation by at least 10% over the next five years in each of Canada's employment equity act defined designated groups, including women visible minorities indigenous people and persons with disabilities.

Further we have a goal to increase the total diversity of our leadership team to at least 50%, including a target to increase women in senior leadership roles to 30%.

Jazz as recent employment awards, including Canada's best diversity employee employer for 11 consecutive years and one of the best places to work are a testament to our commitment to our employees for safe equitable and inclusive workspaces and more work in this regard will continue.

So thank you for listening and now I'll turn the call over to Gary to take you through our first quarter financial results and to provide some more insight into how accretive the focal acquisition is expected to be to the earnings for the balance of this year.

Thank you Joe and good morning.

I review the quarter I would like to say how pleased I am to welcome the VAALCO team to the <unk> family with the close of our acquisition on May 3rd as I take you through the financial highlights for the first quarter I will also review the 2022 guidance. We are providing provided given the significance of this investment.

Here's how the first quarter of this year compares to the same quarter of 2021.

We generated adjusted EBITDA of $83 3 million in the quarter consistent with the 2021 Q1 results.

<unk> segment, adjusted EBITDA increased by $2 8 million due to the recognition of an expected recovery on courses claim and the aeromexico bankruptcy, a $2 $5 million decrease in the expected credit loss provision and increased lease revenue from re leased aircraft, partially offset by lower.

Lease revenue attributable to negotiated lease amendments.

The RASM segment adjusted EBITDA decreased by $3 6 million. The first quarter results were impacted by an increase in stock based compensation expense of $3 7 million due to the change in share price inclusive of the change in fair value of the total return swap and an increase in general administrative expenses.

<unk> increased operations.

Partially offset by an increase in other revenue due to an increase in part sales, partially offset by a decrease in third party MRO activity and contract line.

And an increase in capitalization of major maintenance overhauls on owned aircraft of $1 4 million.

Adjusted net income was $17 7 million for the quarter, an increase of $2 million over the first quarter of 2021 at 10 cents per basic share due to a decrease in net interest costs of $4 8 million and a decrease in depreciation expense of $1 1 million.

Partially offset by zero point $8 million decrease in adjusted EBITDA. As previously described an increase of $2 2 million income tax expense on adjusted items and an increase of $1 million, primarily due to unrealized foreign exchange losses on working capital.

Net income increased $61 million over the first quarter of 2021 due to the previously noted increase in adjusted net income of 2 million a decrease in one time restructuring costs of $81 8 million related to the 2021 CPA Amendment.

Partially offset by a decrease in income tax recoveries on adjusted items was $21 5 million in strategic advisory fees related to the Falco acquisition of $2 7 million.

Now turning to liquidity.

As of March 31, 2022 courses liquidity was $199 7 million, including cash of $110 million and $89 7 million of available room on its operating credit facility.

Liquidity increased from the fourth quarter of 2021 by $11 2 million, primarily due to the increased cash flow from operations of $41 5 million and an increase in committed operating credit facility of $25 million offset by scheduled payments on long term debt of $44 6 million and capital expenditures of $11 six.

<unk>.

During the quarter courses of course generated cash flow from operations of $41 5 million. Other key liquidity changes during the quarter were as follows increased cash of $10 $3 million due to a decrease in restricted.

Our restricted cash.

Decreased cash by $14 1 million due to an increase in working capital driven by an increase in the receivable from Air Canada.

Decreased cash by $7 $2 million due to a decrease in security deposits and maintenance reserves.

Leverage decreased from the fourth quarter due to an overall reduction in net debt.

Debt of approximately $61 million net.

Net debt to adjusted EBITDA ratio continued its decline going from five four at the end of 2021 to $5 two as at March 31 2022.

On May three 2022, we completed the <unk> acquisition and expect to close the acquisition of the trust interest on the five aircrafts shortly.

Concurrent with the closing of the Telco acquisition, we completed a private placement with Brookfield, whereby they subscribe for $300 million use of preferred shares and $74 million use of common shares.

In addition on May <unk> 2022.

We entered into a new $30 million U S unsecured revolving operating credit facility with a nine month term maturing in February 2023.

Taking into account the draws under our credit facilities and the paint and the payment of consideration for the <unk> acquisition, we anticipate having total liquidity in excess of $100 million for the remainder of 2022 with approximately half of such liquidity consisting of cash and the remainder consisting of available Craig.

Yeah.

Given the <unk> acquisition, we provided earnings guidance in the outlook section of this quarter's MD&A key highlights of the guidance include <unk>.

Holidayed revenue to range from $1 57 billion to $1 eight 1 billion with between 260 and $275 million in the rail segment.

The <unk> segment, excluding pass through in controllable revenue is expected to have between 310 and $330 million in revenue.

Through and controllable cost revenues are expected to be between one and $1 2 billion.

Adjusted EBITDA for the rail segment is expected to be between $215 and $235 million in the RIS segment between 205 and $220 million.

Adjusted EBT for the rail segment is expected to be between $75 and $90 million in the rail segment between 74 and $84 million.

Adjusted net income available to common shareholders, which deducts the dividend paid to preferred shareholders and the minority interest acquired in the Ravelin Holdings LP to be between 93 and.

$108 million.

And adjusted EPS available to common shareholders is expected to be between 48% and 56.

Net debt to adjusted EBITDA is expected to be between four seven and 5.0 at the end of this year.

Return on invested capital is expected to be between seven and seven 9% and lastly cash flow from operations.

And net changes in noncash working capital is expected to between 270 and $320 million.

Key assumptions related to this forecast are included in the outlook section of the MD&A and include the launch of a second quarter in the second quarter of 2022.

New investment fund managed by Falco with a minimum of $500 million U S and capital commitments with management fees in terms commensurate with those in telcos prior funds.

Revenue is based on current contracted lease revenue and forecasted revenues for leased aircraft and asset management fees.

Aircraft leasing revenue under the CPA fixed margin revenue is expected to be to be a $114 7 million U S and $66 3 million Canadian respectively in 2022.

A combined weighted average statutory tax rates for each of the individual entities based on the jurisdictions in which they are taxable.

No disposals in 2022 aircraft leased under the CPA or in the rail segment.

And the foreign exchange rate of $1 25 to translate U S to Canadian revenue and expenses.

The forecast also excludes the impact of the purchase price allocation or PPA adjustments with the Falco acquisition as required under <unk> III business combinations.

Our preliminary PPA assessment will be completed for Q2 reported and we expect to have a final assessment completed by December 31 2022.

Yeah.

Before turning the call back to Joe I would like to knowledge. The continued dedication of our team, especially with respect to their outstanding efforts related to the successful close of the <unk> acquisition, So with that I'll turn the call back to Joe Thanks, Gary.

And I would also like to close off on the topic of our employees, who remain focused and committed throughout this pandemic.

Safety and operational integrity at the forefront and took great care of each other and our customers.

It's their efforts, including the advancements made in our leasing business by chorus aviation capital by the chorus aviation capital team that contributed to this transformational moment in our history.

I sincerely thank all our employees for their patience and hard work collectively we remain energized and are excited to welcome. The <unk> employees as we embark on a new era for our company that will deliver additional value to our stakeholders.

I also want to recognize Natalie this is her last analyst call as she will be retiring from of course at the end of June .

I've had the pleasure of working with Natalie side by side for almost 25 years and today's call marks our 65th quarterly analyst call together. So we'll definitely Miss you Natalie and we wish you well in your next chapter and Tyrone Coady, who is with US here in this room will be assuming a responsibility.

For Investor Relations effective July one so thank you for listening operator, and we can now open the call for questions.

Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one Touchtone phone you will hear three tone prompt acknowledging our requests in your questions will be pulled in the order they are received.

Should you wish to decline from the polling process. Please press star followed by two.

If you are using a speaker phone please lift the handset before pressing any keys.

Your first question comes from Kevin Chiang CIBC, Kevin. Please go ahead.

Thanks for taking my question and Echo.

Listen I believe best of luck in your retirement and thank you for all your help the past.

Decades.

As I've covered the stock at least.

Maybe just turning to <unk>.

How your risk management.

Risk management processes might have changed.

Given what's happened to the leasing world.

Since the onset of the Russia, Ukraine conflict and as you look to deploy.

Or deploy this capital.

Through this asset management business.

Have you changed the jurisdictions you are not willing to.

And to win two has there been a change in how you think.

The lease rates you want to put out there to cover off some of those for us we'd be interested in.

Been hearing.

How your risk management processes might have changed over the past two months yourself.

Yeah.

Management view Hasnt changed very significantly from what it was previously we spent a lot of time looking at jurisdictional risk political risk.

And each of the transactions we did in.

And I'm working with <unk> now I think they've taken very much the same approach.

As I mentioned, we do not have any <unk>.

Exposure in Russia et cetera.

There will be some degree of worldwide risks no matter what but.

We feel that the jurisdictions that we're in we're quite comfortable with them and with the carriers that we have as customers.

We've not seen any impact with respect or any particular impact on lease rates or lease rate factors. As a result of this obviously there are a lot of aircraft that had been dislocated in Russia. There are a lot of larger lessors that have had a significant impact.

Impact as a result of the sanctions et cetera, but.

The regional business itself.

And the assets that are in this segment are not widely used in Russia, either in some of these other jurisdictions, even including the Ukraine.

So we're not seeing really at this point much of an impact we're not seeing really much of a change in terms of pricing approach et cetera, but we will continue to be.

Very cautious on the jurisdictions and the political risks that we take with any of.

Any of our new any new customers.

Okay.

That's helpful.

And if I could ask on <unk>.

The fund your or that cycle will be.

We will be issuing this new investment of $500 million.

Historically part of asset management.

Business coming into the fold with asarco deal.

The previously indicated about $100 million of internally generated cash flow would be.

Would be used to acquire planes and lever that up kind of three to one.

With this more asset light approach I guess for us.

The way, we should be thinking about the about 100 million now goes into the fund is that that's not kind of the reallocation of that capital or is that $100 million.

Not the right bogey to use anymore and then too.

It seems like given this has also led to the return on invested capital should be better than what you would've gotten when you will be very well.

The equity you're putting in and just wondering what you see the incremental ROIC being as you continue to expand our fleet indirectly through this asset management business.

Yes, so Kevin as Gary here, so on the asset management side, we will continue to grow those funds that we will be a participant in those funds. So from that perspective, yes. We will we will certainly see some growth in there as far as the on balance sheet.

Anything that will make its way to the balance sheet. It would be limited and certainly moving ahead, but we're working through a lot of that with the Alco teams, but nonetheless, I think you can see is co investing or investing in those funds alongside and yes. As we move ahead, we expect returns to get better, especially as your direct more into the asset.

<unk> died because the leverage ratios and that should continue.

Continue to go down.

Our focus on growth will certainly be through that through that approach. The funds will be our primary growth vehicle on the leasing side.

Okay, and then maybe just last one for me here.

Again with this asset light approach does that change how you think about a dividend is that still something you would like to bring back.

Our collection rates are almost back to where they were pre pandemic at least for Europe .

When your leased fleet utilization rates are high the CPA is proving to be resilient.

It feels like we're in a sustained recovery here and again, we have an asset light vehicle to grow.

Wow.

I guess when you put that all in a blender like where does the dividend.

Up here in terms of reintroducing some sort of payout.

Yes, so obviously by changing our business model.

It changes our leverage it.

It changes projected cash flows and things of that nature.

We have a lot to consider here in terms of the balance sheet going forward and we want to do we want to make sure that it is robust and so we have more work to do on our capital structure, I would say and with respect to the use of cash and future investment so.

What this does I think as it gives us far more flexibility in terms of what we do but.

At this point.

We understand the importance of the dividend et cetera, two to shareholders, but at this point I think it would be premature to.

To make any type of commitment.

We need a little more time.

That's not good for me. Thank you very much have a great weekend everybody.

Kevin. Thank you. Your next question comes from Walter <unk> RBC capital markets. Walter. Please go ahead, yeah. Thanks, very much good morning, everyone.

Good morning.

Natalie Best of luck to you as always.

It was it was great working with you and wish you all the best for sure.

Starting I guess with the first question here is on.

The integration and this is a very large transaction for your for your company and your management team and just curious as to what Youre looking for.

I know it's early days, but can you can you can you give us an indication.

Whether theres been any surprises.

Are there any kpis that we can.

That youre looking to SaaS that we can follow as you integrate that acquisition and how long the process do you think the overall integration will take.

Yes.

It's still early days, but obviously, we've started working with the <unk> team now.

We spend a lot of time on this from a due diligence process prior to.

Prior to making the commitments et cetera and.

The more we look at it I think the happier we are about the commonalities between.

<unk>.

And I think not only on the assets, but even on the cultural side et cetera between Falko in chorus.

I think the team together is very very strong we cover so many aspects of of regional aviation.

And a lot of history here, a lot of experience et cetera, and if anything I think it's been reassuring to them in terms of the.

Strength of the team and the strength of the plan so.

That's not really a surprise I guess, but it's a reassurance and we've seen nothing that we would say Oh. This is something we should have looked at or were concerned about et cetera.

But we're really focused now as we've said on launching this new fund.

And.

Our organization will probably be more involved in the trading side of the business as well.

But I think it's all.

<unk> for US right now are extremely positive.

Yes fantastic.

And Walter it's Gary here I'd reiterate that and just say we are we have been very.

Very pleased with the acquisition, thus far and as you can see in our overall section.

It's coming in where we expected.

That's great Okay.

Joe last quarter, you gave us an indication with your booking curve as to where you where you were trending one quarter ahead on capacity and as a percentage of of 2019, how far out can you look now and and and and obviously coming up on the on the important summer months, what what what.

Has there any been major.

Changes that have been surprising in terms of the speed or or.

The overall speed of the recovery I know, we did hear from Air Canada, but just curious to hear from a regional perspective your view on the pace of that recovery and whether it's meeting meeting whatever expectations you might have had before whether it's meeting or exceeding those.

Well I think I think the pace of the recovery is extremely strong.

People are anxious to get back up in the air et cetera, I think some of the airports are struggling a little in terms of handling.

Some of the security side and that sort of thing, but from a <unk> point of view when we look at the utilization of our fleet of aircraft or aircraft will be very fully utilized over the summer period. So.

You know I don't have the exact number and the comparison is a little different because in 2019, we had a different fleet than we have now because during the pandemic we transitioned over the 170 fives, we moved out of the dash eight three hundreds so it isn't a total and apple apples to apples comparison, but what I can tell you.

Is that.

We're going to be pretty full up.

This season coming up and.

It's all go.

It's fantastic.

And any color and I know, it's hard to gauge this but it's an important consideration for the airline industry in Canada as a whole and that is business travel and like I said I know, it's hard to judge whether a ticket is a business travel ticket or not but I know you have.

On Air Canada of some fairly sophisticated.

Algorithms that can can decipher somewhat what what's your view on the comeback of business travel I would say that friends and family travel is perhaps filling a lot of that summer activity that youre, describing Joe but curious to hear your view on on the pickup in.

In business travel.

At least starting with the regional side.

Yeah, I don't have any algorithms or whatever you think that would probably be more a question for air Canada, but all I can tell you is sort of anecdotally that.

I see all kinds of signs of business travel picking up we had our board meeting here yesterday.

With folks from Ireland, and California et cetera.

Everybody is traveling.

I travelled here for this meeting.

The hotel here was pretty full.

And a lot of that and what I've seen as business related but again I can't tell you what percentage or anything like that but again I think people are anxious to get back meeting face to face etcetera.

Et cetera, and it's like US now with the integration of the <unk> team, we've been back and forth to the UK to Dublin as a matter of fact, we're leaving again on Sunday night. So.

And Thats all the return of business travel.

Really post pandemic, although we're I guess, we're not totally through it but.

All signs are very positive okay.

Okay. That's fantastic I appreciate the color and again Natalie best of luck. Thank you.

Thank you. Your next question comes from Matthew Lee Canaccord Genuity Matthew. Please go ahead.

Hi, Good morning, good morning, congratulation to Natalie.

Maybe just to start with a housekeeping question.

In terms of your plan to report the <unk> Division are you going to spoil management leasing returns and if so can you kind of give us some color right now that's what the current split is.

Sorry could you repeat that it was a little girl.

Yes, so most of my questions.

Had been answered but in terms of the way that you report the Buffalo Division are you planning to split out management fee and leasing returns and then can you maybe give us some color as to the correct right.

Between the message.

Okay, sorry, with the management team of leasing returned so he SUV in the rail division, we're still working through the disclosure it'll be we'll certainly give some color on various aspects of it but.

We still got to work through that here in Q2 that.

Great and then you had discussed some of the technical skills that cause is bringing to the partnership.

With <unk> previously outsourcing those skills or is this kind of a.

New method of value creation.

Yes, generally a lot of the services that now we can provide in terms of the total platform.

Falko was outsourcing before for.

For instance, we see this fleet now, including the <unk> fleet is feeding our parts business.

As an example aircraft repurposing et cetera, those were more unique on the core side of the equation. So again very complementary.

In terms of the skills that were that are of course.

What let falko have previously been firming up.

Okay. Thanks, guys. That's it for me.

Thank you. Your next question comes from Kamran Dorsen National Bank Financial Cameron. Please go ahead.

Yes, thanks, very much good morning, and also congratulations Natalie it's been a pleasure working with you over the years.

I guess I had a couple of sort of more modeling questions here.

I appreciate youre still kind of working through some of the disclosures you're going to have with the <unk> acquisition, but safe to say that basically all the revenue and I.

I guess, maybe EBITDA is going to be consolidated.

With course, even even the stuff where you've got.

I guess not a full ownership of the things in the funds maybe you could just talk a little bit about how the I guess the consolidation is going to work.

Yes, Sam it's Gary So interim DNA, we've disclosed the three.

The three companies or interest that we have the majority ownership in so all of those would be consolidated and one of the funds where we owned it I think it's something just less than 4% or so that would not be consolidated so where we owned a majority.

Those would be the ones that come in so.

As we disclosed in the MD&A there that's what you should focus.

Okay, and how about that.

That was associated with the purchase.

Is it 100% of that going to be on your balance sheet.

That is correct all those funds that we lift there, including one with the minority interest is that we're having with holding 100% of that that will be on our statements.

Okay. So we should think about that sort of 400 million U S plus that sort of added to the balance sheet and if thats the case.

Yes.

Sorry, yes, so the 400, we disposed 405 as being the rough debt numbers that will come across and that's what you can expect to see come across.

Okay. It looks like your questioner has dropped from the line. Your next question comes from <unk> core Mark.

Please go ahead.

Everyone. So you noted that youll be a participant in the funds, but can you disclose the expected split between internal versus third party capital invested.

Yeah.

The split between the internal.

Still working through that we will be a minority owner in those funds. So it will be less than 20%. So we don't we don't expect being above 20 at any point in time in any of the new funds that were establishing and then if you go to the MD&A the.

100% in the 64, 2% of companies that we purchase you can see them there and then the other funds are we have a minority interest in <unk>.

It's pretty minor.

Okay.

And just a follow up there.

The $500 million fund how fast do you think you can deploy the capital ones. It has raised you already have a sufficient pipeline or does that still needs to be developed.

Okay.

I think from a pipeline perspective, theres a lot of opportunities out there.

From our side, we've been modeling anywhere from two and a half to three years to be fully deployed as it makes its way out but commitments will be they'll be lumpy, but.

Conceptually, it's about two and a half to three years.

That's all for me thanks, guys.

Yes.

Thank you. Your next question comes from Tim James TD Securities Tim. Please go ahead.

Thank you and good morning, everyone and congratulations Natalie it's been it's been a pleasure all the best for the future.

Yes, I guess, just just one question and I don't know to what extent you can comment I'm wondering if you can characterize the proportion of your lease agreements where you Hans.

<unk> negotiated.

Lease rates and.

Yes, the follow up to that.

As you know if you can kind of comment on lease rate factors and.

Where they stand relative to sort of pre pandemic.

So lease rate factors.

Certainly in this market.

We haven't seen a major change in how you determine them as far as that goes Theres still said importantly, the interest rates and other things make their way through we expect those things to adjust.

As far as the revenue we are booking it.

Per GAAP and the lease rate the lease rate amounts you see there are certainly.

Make their way through Restaging.

The lease rates for the aircraft that are grounded here as the industry picks up the surplus obviously are still lower than we would hope.

They are recovering there are signs that.

With respect to the evaluations that are put on the fleet and the corresponding lease rate factors, we see that improvement.

The surplus is absorbed.

We are there's not a lot of new equipment being manufactured out there as you know.

The four hundreds are not being manufactured there are no more C. R J's.

And there are limited number of <unk>. So the fact that there is no overhang from a lot of new manufacture and <unk>.

Misplaced.

<unk> placed new equipment.

<unk> will help boost the lease rates on the fleet that is has been grounded as a result of the pandemic as you know we've had one of the major competitors in the industry that have had they've had a lot of distress with respect to that.

And that's created a bit of a surplus but.

I think a lot of the types of arrangements that we are looking at here with respect to sale and leasebacks or or other opportunities here are not subject to the same.

Downward pressure as you have on that surplus fleet because a lot of this is sale and leaseback of aircraft that are already on balance sheet or are committed in terms of purchase and then as well of course, there are also potential for purchase of portfolio assets.

And which can produce.

A good return so I think we're seeing returns.

And we are targeting returns that were as they were pre pandemic.

But each.

Each transaction will be different but in the long run and then I guess in the medium run really we're looking at getting back to returns that we were targeting prior to the pandemic.

That's helpful. Maybe just sort of a follow on question to that.

Of course throughout the pandemic you had leasing customers.

Some of which you repossess the aircraft and remark about those and then at the other end of the spectrum you had customers that.

Because of their own liquidity and financial situation.

We're able to continue lease payments I believe without without any interruption.

<unk>.

Do those customers that have kind of.

Made it through this in one piece without interruption to their ability to pay.

To make payment on their leases.

Are those leases or those lease has been subject to any rate pressure just because of broader conditions or is it only those aircrafts that maybe had been repossessed and remarketed at sort of lower rates and maybe those aircraft, where you renegotiated with the customer because they have been in creditor protection or is it sort of more across the.

Board or is it very customer specific I guess is another way of asking them.

It's very customer specific.

Obviously, if a customer was restructured or.

We had significant liquidity issues et cetera, we work with the customers I think we've been straightforward with respect to.

Our credit loss expected credit loss with respect to our financial reporting.

Receivables et cetera.

Other customers those leases remain in full effect.

And we're looking to renew a lot of them, obviously when you renew leases on older aircrafts thats at a lower lease rate because it reflects the.

Reduced value of the asset.

So.

And we see that as I said that market, becoming stronger now with time and is more aircraft get back up in the air there's more demand for for capacity that will start raising the.

The lease rates on those on those assets.

Okay. That's very helpful. Thank you.

Thank you. Your next question comes from <unk> Gupta Scotiabank Kona. Please go ahead.

Thanks, and good morning, everyone Echo my comments at least for your Diamond 10, and thanks for all the help.

So maybe just first question.

Is on the guidance I'm, just trying to figure out what's included and not intuitive in the guidance I mean, how much how much contribution do.

Do you expect in the guidance from the new $500 million fund that Youre launching.

So.

It's Gary here so in the guidance, we expect that fund to be launched later this quarter and so certainly it start to take traction in the back half of this year. So thats included in the guidance and then obviously if the values of.

The acquired assets that we've outlined in there.

From the from the <unk> transaction and included some minority interest in some revenue for minority interest in other pumps.

When you look at the new asset management piece, the 500 plus million.

Facility, which is the minimum side of it we hope to be higher than that.

Don't expect to really have that fully launched till the second half, but it will get announced here shortly.

Okay. Thanks, Thanks, Gary and does that mean that.

The full return from that $5 million of fund.

The animal line sometime in Q4 of this year or could that be some time in 'twenty two.

So you go back to the deployment schedule so.

We'll launch the fund.

The <unk> team will begin to manage that funding and start to earn some fees as we go through the course of this year and then as the assets are deployed then youll start to get returns on the funds. So returns are going to kind of.

If you go when you are modeling it it should be over that two five to three year period.

But it gets fully deployed and then you can start working to return.

That's great. Thanks.

And then with respect to.

Your growth ambitions.

Obviously, the whole growth profile the machines, but mid cycle.

So the kind of guidance you provided for this year.

That's so.

As a bed.

Or what kind of growth in EBITDA. Our earnings are you expecting let's say over the next couple of years or so how should we think about it.

Yes, so what.

What we've given you some good short term guidance here for 2022, we do plan on doing a investor day at the latter part of this year with the data to be announced and Thats, where we will unveil a lot of those longer term.

Plans and other things like that but.

Certainly that that fund this new fund with a minimum of $500 million that we're going to launch here. Shortly we will be the biggest part of the growth Avenue.

We'll have the minority interest in it less in 'twenty it won't be consolidated in our statements.

That's where a lot of our growth is going to come from.

Okay that makes sense.

And if I can just follow up on the combined business.

<unk> and volatile.

Is there going to be any major changes with respect to branding.

Our back office.

Our front.

Front office management things like that.

Yes.

The entire fleet, including the <unk>.

Fleet under the fund and other aircrafts, including the chorus aviation capital aircrafts will be managed by <unk>.

So there is where we will.

Continue with that brand.

And it's being all consolidated under the management of a phone call.

Okay, that's great and final one for me because I know.

You mentioned or you lose our ROIC for the entire company.

I think at two 8% this year.

Can you provide some color there.

Roy.

Or roughly speaking maybe our goal was to your existing business and CPU, how do we compare those.

Yes, sorry, we're not disclosing those at this point in time, but we're doing an overall company metric and the reason we focus on that as we look to optimize the company asset company capital structure amongst the various units. So that's why we focused at that level.

Okay.

Thanks again.

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 Felicia Moon BMO <unk>.

Please go ahead.

Okay. Thank you for squeezing me in and congrats on the retirement.

And thanks, a lot for your help volumes seen in the last couple of years.

I wanted to understand one thing about.

Yeah.

The structure of the funds.

Are these funds typically have a duration.

Let's turn to the lease term does that is that the right way too.

I think about the funds.

Yes.

So the funds generally are around 10 years in terms of life is the way that they're structured.

The $500 million the capital there.

We're looking to commit this year.

Last fund was $650 million.

No.

So that's the duration of the funding generally.

So then there can be trading within the fund et cetera.

So, but it does have a finite life.

In Saudi it's Gary here.

The fund for 500 million plus in last one 650 <unk> leverage in the bonded onto those assets.

It basically back to Joe's point as a 10 year life.

Sure.

Okay.

The leverage that's added and define it as generally is the recourse.

To us, but it is related to the fund investment funding.

Fund investors.

Okay and.

This might be a very basic question I'm just trying to understand how you on money would that would be fun. So effectively you invest in the fund as well and you obviously make a return on your own investment, but how is the fee structure.

<unk> works with you.

Managing assets on behalf of third party.

So Europe paid fees for managing the capital that is committed in the fund.

And there are other transactional fees et cetera, oftentimes there are incentives within the fund once you achieve certain hurdles.

That are paid the.

<unk> expenses.

Generally of the trades are covered by the fund itself.

So really though it's primarily the fees the management fees.

Some transactional fees incentives and of course, then our own participation.

As as an investor in the fund.

It's Gary here, so back to our when we announced the transaction back to what Joe said, we get we get fees from the fund in managing the funding through the various sources. Joe indicated we also get a return from the fund our proportion of what we owned in the fund and then there's the potential for incentives at the fund outperformed certain investment targets that get crystallized.

Sure.

That's the three ways.

We are essentially earn.

Okay, and you start to earn the fees when the fund is.

Completely deployed because now youre doing the funding.

And then you have to go in.

As those funds, obviously, which yes.

Pump time like how would that work.

Yes.

There is some one fund gets launched and you start to manage the capital there are fees that apply than us.

So theres fees almost if you want to call from day, one that go into the funds. So it's not just based on deployment.

Okay, and I mean, the balance sheet.

Is it.

Okay would you.

From this point on favor, placing your on investment in those bundled or would you do transactions on your own like you have in the past with your own balance sheet.

Yes so.

The preference is to go fund first for sure and then the balance sheet and <unk>. So we see going through the funds as being the primary growth piece and we don't see it.

A lot compared to that goes on the balance sheet.

And this is how it really is transforming our our growth within the leasing business is to move more into an asset light.

Funding type of structure that will clearly be our.

Our.

Our focus.

Okay, Okay, great. Thanks for the color.

Alright. Thank you. Thank you there are no further questions at this time. Please proceed.

Thank you operator, and thank you everyone for being present on this call.

And directly with many of you know Sheila.

Thank you.

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.