Q1 2022 Air Transport Services Group Inc Earnings Call
Our adjusted earnings and EBITDA exceeded our own targets and many of yours.
We leased three more Boeing 767, 300 freighters to external customers during the quarter on top of the five we added in the first quarter.
Thats halfway to our 2021 goal of at least 16, new leases this year.
Seven of the 11 760 Sevens, we promise to Amazon. This year are now in the air and we're flying one that Amazon owns itself and has assigned to us.
Our airlines running up 26% more cargo block hours during the quarter versus a year ago and.
And 11% more than in the first quarter.
COVID-19 is still affecting our airlines' passenger and combi operations, but the effect on our recurring.
Passenger operations is less than it was in the first quarter.
We're ahead of the pace, we set for achieving our 2021 guidance for adjusted EBITDA, which remains at least $525 million.
We've assumed that the second half would be stronger than the first and thats, what we intend to deliver.
I'll have more to say about our outlook shortly.
Quint Turner, our CFO is ready to review our second quarter numbers.
<unk>.
Thanks, Rich and welcome to everyone on the call. This morning.
On a consolidated basis, our revenues were up a solid 8% to $410 million in the second quarter the.
The principal factors were more leases and more air Express line, particularly for our customers Amazon and DHL.
Our GAAP earnings of $80 million or $1 17 per share basic were strongly positive versus a year ago, when a $110 million noncash loss from revaluing warrant liabilities offset our positive operating results.
We also recorded $30 million and.
Quarter after tax benefits from federal pandemic relief assistance under the payroll support program versus $8 million in the second quarter last year.
Our results for the second quarter last year also included a $39 million charge to write down aircraft asset values, primarily related to $475 seven freighters that had been retired three of those four were sold in July .
On an adjusted basis, our second quarter earnings were $4 million lower than a year ago at $28 million or <unk> 35 per share diluted.
But they are up $15 million from the first quarter.
The primary driver of the decline in adjusted earnings versus last year's second quarter was decreased passenger revenues from our airlines due to pandemic effects.
Our adjusted earnings exclude among other items the effects of quarterly mark to market changes in the value of warrants and other financial instruments as well as pandemic related government grants to our airlines.
The diluted share count used to calculate adjusted earnings per share for both the second quarter of 2021 and year ago period reflect Amazon's decision to cash exercise warrants in may of this year.
Interest expense decreased $1 million for the quarter rates on our credit facility balances and lower debt levels overall were principal factors.
Depreciation and amortization expense increased $7 million for the quarter for more aircraft in service.
Our adjusted EBITDA was 128 million $2 million higher than a year ago that.
That is also a solid $22 million from the first quarter.
On a segment basis, our aircraft leasing business can perform very well.
<unk> pre tax earnings increased 15% for the quarter to $23 million.
Cam owned 56, Boeing 767, 300 freighter aircraft in service as of June 30 up from 40, a year earlier.
Cam completed a modification of two feedstock 760 sevens to freighters during the quarter.
Cam bought eight 767 300 feedstock aircraft for conversion during the quarter.
That brought the total 767 purchases to 12 for the first half.
Because of continued strong leasing demand Cam now expects to acquire five more 760 sevens in the second half along with its first Airbus 321 Dash 200.
Revenues for our <unk> services segment, which includes our two cargo airlines and omni air our passenger airline decreased $14 million during the second quarter to $273 million.
We had a surge of charter demand an army last year, when the pandemic shutdown scheduled carriers.
Those higher margin flights drove strong results for omni in the second and third quarter a year ago.
Since then passenger charter opportunities have declined but military flying has rebounded from the first quarter.
Billable block hours were up 12% overall.
On a GAAP basis pretax earnings for <unk> services totaled $45 million during the second quarter up from $30 million a year ago.
Excluding federal grants realized in each period earnings were $6 million down $13 million.
On a sequential basis <unk> services' earnings excluding grants improved by $13 million from our first quarter results due principally to additional flying for express package networks.
Omni Air has received $83 million in federal payroll support payments this year. These.
These funds require omni to refrain from involuntary furloughs of its flight crews and other personnel at least through this September .
Our earnings on the other activities line were $3 million, a sharp improvement from a year ago and were driven by more fuel sales and gateway services.
Additionally, maintenance operations for external customers were positive for the quarter.
As we said in our release the combination of our add on notes offering bank credit facility Amendment and cash from Amazon's warrant exercise strengthened an already strong balance sheet. During the quarter, we were able to pay off our $615 million term loan balance early while also increasing.
Our revolver capacity.
These changes give us significant access to capital going forward maximize flexibility by reducing secured debt and extend our maturities at favorable long term fixed rates we.
We ended the quarter with a total debt to trailing EBITDA leverage ratio of two four times under our credit agreement.
With that summary of our financial and operating results for the quarter I will turn it back to rich for some comments on our outlook rich.
Thanks Quint.
Atsg's business as we like to say begins with the aircraft lease.
It's the foundation for everything that comes Aster and the source of our incredible power to generate long term cash flows.
Demand for our least midsized freighter 760 Sevens continues to be very strong as reflected by <unk>, 18% revenue growth.
Growing lease order backlog.
The pandemic continues to affect passenger travel. So we're fortunate that the vast majority of our cash flows stem from the cargo side.
Our cargo airlines performed especially well in the second quarter generating good growth from busier schedules and expansion of some trans Atlantic routes for DHL.
We expect our <unk> services segment to continue to improve during the second half that.
That improvement will continue to depend on the restoration of revenue streams that the pandemic has curtailed but also operating efficiencies at our airlines.
As we issued guidance of at least $525 million for adjusted EBITDA. This year, we noted that our plans call for us to generate approximately 43% or about $225 million of the total in the first half.
We ended the half a bit better than that our strong second quarter leaves me increasingly confident that we can exceed our own expectations.
In the meantime, our freighter leasing and flight operations for Air Express networks are growing at double digit rates. We're on track with our aggressive schedule to lease at least 16 767 300 freighters. This year and at least 10 have already been specifically assigned to customers in 2022.
Including the multi aircraft lease deployments to emerge it.
Star Air in Europe , and <unk> in Mexico, and the Alaska before aircraft lease order from DHL.
Separately. We're also deploying three returned 767 200 freighters this year under five year leases to Ryder Airways Star Air and Sky taxi.
We're currently stacked with orders for customers, who want to lease freighters from us as soon as we can get them.
That's why we've decided to accelerate the expansion of our footprint and the dedicated cargo aircraft market first and foremost by acquiring more 767 feedstock to supply customers with freighters next year, but also by expanding into additional freighter types.
We have accelerated our plans for Cam to add its first Airbus <unk> hundred 21 freighter to its lease portfolio with lease deployments next year of at least three aircrafts.
When available for lease or <unk> hundred 21 offer a large standard payload along with an operator friendly design and will be equipped with engines that deliver fuel efficiency comparable to the most popular Boeing 737 models.
We have agreed to purchase our first three <unk> hundred 21 aircrafts, one this year and two in 2022.
Put them through the conversion process at our PEMCO facilities in Tampa.
And then make them available for lease next year.
We're also pursuing additional <unk> hundred 20 ones for purchase next year.
At the same time, we are making plans to extend our leadership position as the world's largest lessor of midsized freighter aircrafts by adding another platform for growth.
One that will have operational synergies with the <unk> hundred 21.
We recently acquired rights to 20, Airbus <unk> hundred 30 conversion slots from Germany's FW four aircrafts that would begin conversion between mid 2023 through the end of 2025.
While the 767 300 will remain our primary midsized freighter growth engine for many years to come we also see the <unk> hundred <unk> as an attractive platform with customer appeal and fleet synergies with the <unk> hundred 21, we.
We don't anticipate investing in <unk> hundred 30 feedstock until 2023.
But we believe securing conversion slots to be a wise investment, allowing us to continue to grow our leasing portfolio and attractive return targets, while diversifying our lease options to customers.
In fact across three different aircraft types. We currently have rights to 67 freighter conversion slots with induction dates starting in 2022 through the end of 2025.
As you can see we remain bullish on future opportunities and our cargo leasing space.
With our devotion to service quality and expanding scope of service offerings, we anticipate cam and our cargo airlines to remain the principal source for the midsize freighter capacity and flight support that our customers will require for the E Commerce driven networks.
That concludes our prepared remarks, Quintin I, along with Mike Berger, our Chief commercial officer are ready to answer questions maybe.
May we have the first question operator.
Yes of course as a reminder, if you have a question you can enter the queue by pressing star one on your Touchtone phone, we have our first question from Jack Atkins with Stephens. Please go ahead Sir.
Okay great.
And congratulations on a great quarter.
Thank you Jack Thanks, Jack.
Yes.
Rich or quant, if we could go back just to the guidance for a moment.
The at least $525 million in EBITDA for this year rich as you noted youre running ahead of plan through the first half of the year.
Yeah.
What's preventing you from maybe raising that floor as we sort of think about the full year or is it just some uncertainty around.
The pace of recovery with military flying just given the Delta variant ramping up could you walk us through that kind of thought process.
Yes, I think Jack.
We built some efficiencies and some already.
Anticipated customer business coming back.
A good example is one of.
On these best customers vacations, Hawaii is scheduled to start.
And again in September and they have been selling tickets and theyre ready to ramp up their business again.
And that's planned to start in September and Thats part of our guidance and so.
When we look at that business as we sit here today.
To go but the Delta variant is apparently still growing around the country. So we felt that given some of the still uncertainty around the pandemic that it was more prudent and we're real confident we're going to hit our five.
525 at least $5 25 guidance number but.
But we thought it would be more prudent to.
To not change guidance at this time, we will revisit that.
In next quarter's call to see if it makes sense to do given what we will know then about the pandemic.
And Jack.
Part of that of course is also military passenger flying at least two to the.
The current date subsequent to second quarter, it's been it's continued to be good so.
We're optimistic as you say that we will finish above the.
Above the $5 25, but as rich says you've still got.
The Delta Varian uncertainty that kind of keeps us from.
Being able to give a more precise number at this time.
That makes sense and I think everyone understands that so thanks for the color on that and I guess kind of shifting gears.
The commentary around the 67, the rights of 67 conversion slots.
You talked about a moment ago and it was disclosed in the release last night.
As you think about.
<unk> those 67 with customer indications of interest how many of those 67 conversion slots would you say.
You feel pretty comfortable are spoken for at this point is there kind of a way to quantify that.
Well I think we've got great visibility for 2022 into 2023, where we we're real confident in everything that comes out of conversion and paint will go right into lease okay. When you get out to 2024.
Got folks that are talking to us and want airplanes during that time, but we're not in.
Sure.
LOI or anything like that.
Given that far out.
The new platforms, we've got excellent interest in them.
It's one of the reasons that we wanted to talk about it.
We've got strong interest and those still are.
The 787 remains our flagship backbone.
And we've got commitments on all of our <unk>.
Aircraft coming out in 2022 as.
As well as.
2023 are significantly down as well.
No.
<unk>.
When you look at years past, we wouldnt be able to say, we've got one 1%.
Two years ago.
Marked up as far as customers looking for airplanes, but.
It's certainly a different market today.
Which is great. So we're looking to capitalize on that we believe that what's fueling it is.
e-commerce growth around the world and if you look at the market penetration of E. Commerce, It's still small in the general retail.
And that will that growth will continue to happen and continue to expand that market.
There are parts of the market that are in there.
Are in their infancy, one is cross border E Commerce.
And Thats, one where barriers are being worked on to come down things like banking.
To do cross border transactions customs clearance to do cross border transactions are still a little clunky. So when those as those barrels come down that will.
Accelerate the cross border side of that and of course cross border generally means airplanes and remember too Jack that the capex for for <unk>.
A significant amount of those slots will be committed to at a later date.
As we get even more precise visibility on specific demand.
Certainly.
Securing the slots based on.
Having an order.
Order visibility Thats really good into 2023, I think is a good decision.
Maybe you can give you a little bit more detail around what rich rich was referring to and why we're so bullish on the growth piece of it.
When you look at E Commerce and M Commerce look at a country like India for example.
Less than 7% of their total their total retail sales is.
E Commerce, and they had 25% growth last year, Latin America had 63%, but yet it was still only four 7% of the overall retail sales. So if you think about where our customers are and where we look to incrementally grow our existing customers.
As well as new customers when you start thinking about Asia Southeast Asia East Asia, and certainly Mexico in Latin and Central America, where not only where we develop new customers, but we also have existing customers.
That's why we're very prudent as we as we look out to 'twenty four 'twenty five rich mentioned that.
Our order book for 'twenty two is full.
And we're almost full for 'twenty three so we're real confident in the $24 25 will continue, especially when we see what the where the volume and the engine is.
And as we continue to be an enabler for e-commerce throughout the world. Okay. Fantastic last question and I'll turn it over I believe part of your DHL contract comes up for renewal next year.
Especially around some of those.
<unk>.
Where are you in discussions around an extension there anything you could share about it I know you are probably hesitant to talk about a specific customer but.
I think that that is.
An area of interest for investors I would imagine given the demand for aircrafts in the market right now it should be a fairly favorable conversation, but would just be curious if you could update us on that.
Well I can address the maybe the return piece of that we have taken.
Our two 767 two hundreds.
Back already from DHL in the Middle East.
And you heard in Richard's comments that we redeploy those.
We will have those add on lease one for sky taxi, which will which will be delivered actually this week on a five year lease.
And the second one is right behind that in terms of being going under a C check.
That will go out to ARIA that's completely.
Under our agreement. So those first two returns that that came back from DHL in the middle East.
We'll go right back into service on five year leases.
In regards to the.
The upcoming agreements that.
Are coming up for renewal in April of 2022, we're very confident at this point that we will see renewals on both the aircraft side as well as the CMI side.
And in fact, we believe.
Jack that we will be expanding the operating side of the equation with DHL in the United States.
If you recall AVX.
Our main airline that flies for DHL in the U S got it.
The CBA.
Contract with <unk>.
Pilots.
Done in December to be effective in January that's really done a lot to give us growth opportunities for that airline.
And so as we are working with DHL and going through both the expense and its extension of the leases in the U S and the extension of the operating agreement in the U S. It's really been beneficial to us. So we are.
Looking forward to getting that.
Don and expanded.
Hopefully, we'll announce it by the end of this year.
Fantastic that's great news, thanks for the time guys.
Thanks Chip.
And we have our next question from Frank Galanti with Stifel.
Great. Thank you very much for taking my question.
Thank you.
Good morning.
So I guess I wanted to follow up on Jacks question on the 67 slots can you just give us.
For.
The financial obligations.
We're taking those slots and then kind of how big they are.
Should there be kind of a weaker demand in the out years.
There's a there's a deposit.
Because naturally you're tying up.
The conversion house from marketing that slot and they're trying to make plans in advance. So there is a deposit its a relatively.
It's not a material deposit in relationship to the into service.
Cost of the asset.
And that.
That is the.
The amount that would be I guess at risk if somehow you didn't sell.
Phil the slot.
Of course, there would be an opportunity to move the slot to another.
Another supplier or another converter, if you needed to do so.
I think it's a it's a confidence.
Statement about where we see the market demand over the long long term and with the additional platforms will have on top of the 767.
We feel very comfortable that it's.
It's a prudent commitment to make.
Okay.
Really helpful.
Switching gears, a little bit to the omni business.
Yes.
Can you give a sense of.
Geographic mix.
That business in.
What.
I guess, how those are sharing from.
Just generally and then.
They're a way to kind of quantify what.
Ami was.
Generating from like an EBITDA earnings perspective.
Pre pandemic.
And kind of what is the run rate of that business.
Relative to that.
Yes, we do.
We don't other than our report.
Portable segments, which forced outages in the CMI services segment, we don't breakdown individual entities in terms of their profitability Frank and the reason we don't is because they have some customer concentration within their book of business and so we don't know.
Necessarily want to talk specifically for commercial reasons about the individual subsidiaries.
I can't I can tell you that in terms of the passenger hours operated.
We saw.
Certainly improvement significant improvement in the second quarter.
All of our packs blind and that would include not only omni, but the combi $75 seven combi that ATI operates on.
On an hours flown basis, those were up 17% over our first quarter.
Level, which.
Now to give you a sense of where we stand through the through the first half.
We're looking at.
Well that was down 8% versus the prior yields you are still in the quarter, but versus the prior first half.
We were off 28% in terms of total passenger hours. So you can see.
The big drop was in the first quarter second quarter recovering up 17% over the first quarter run rate.
And of course, we're expecting continued improvement as we move through the second half.
In our passenger operations.
Okay great.
Last one if I could.
Just trying to back into kind of a.
Core free cash flow number.
Yes.
For.
Keeping the planes in the air and the business running.
Give kind of an estimate for maintenance Capex number.
At the current fleet.
And then maybe a way to think about that as the fleet grows over time.
Yes.
Think about maintenance Capex in terms of this year's guidance.
We're guiding as you know we adjusted our total Capex estimate up to around $5 50.
Probably looking at around.
160, or so of that as maintenance capex and that.
<unk> required heavy maintenance on the airplanes and includes things like engine overhauls to support the fleet.
As we grow the fleet, we don't expect the maintenance capex to grow significantly and the reason for that is because with our business model.
The lessee maintains the asset during the life of the lease and typically it is returned.
In a in a like for like sort of maintenance condition as it was at the start of the lease and so that transfers that responsibility to to the lessee under the lease.
Our maintenance Capex, we have is a lot of it is tied to aircraft that we lease internally to our affiliate airlines.
Those assets are used to support the CMI flying and so forth and thats not growing.
As rapidly as the external lease deployments that Cam is making which is what we're spending the majority of our capex.
Great. That's really helpful. Thank you very much for taking my questions.
Alright, great. Thank you.
And we have our next question from Stephanie Moore with <unk> Securities. Your line is open.
Hi, Good morning. Thank you for the question good morning, Good morning, Stephanie.
I was hoping you could talk a little bit about the AC 30.
I'd love to get your thoughts in terms of.
Potential customers for those for those claims I think we've talked in the past that <unk> hundred 20 ones are a nice replacement for the 750 Sevens.
That represents a large really addressable market for conversion replacement over time, so we'd love to hear your thoughts on the AC 30, maybe as well as some of the economics and how those compare to the <unk> hundred 20 ones or the 767.
That's great question, Stephanie Thank you for asking it.
A couple of things we've been looking at the $3 30 for a few years and one of the things about 330, there's two variance of 330, <unk> 200, and the $3 30 to 300 that have conversion opportunities for them. The 200 is about the same size of 767 300.
A little bit more expensive feedstock and its got some higher operating costs, because it's a heavier airplane.
Great range, but it's not something you need an express environment the HRD.
<unk> hundred 3300 is slightly bigger than the 767 300, it's got about a 20% higher cube.
And about an 8%, 8% to 10% higher weight carrying capability in the express environment, where these.
Mid range freighters midsize wide body freighters tend to be a solution for cube is much more important in weight.
So the <unk> hundred 3300 looks to be a real solid solution for the same customers that the 767% providing service for today.
The newer generation aircraft. So I think it came out in 1990 690 mid 90.
706, having came out in the early eighties.
And so when you look at feedstock capability going into the future into the next decade.
There'll be more prevalent feedstock.
Coming available.
As the 767 over the next decade starts to wind down.
We look at it as a as a both a replacement and then it also has.
A little bit higher cube.
For for line haul operations, so going from country to country.
As far as customers goes.
Got three customers that.
<unk> are already engaged in the airplane.
DHL.
As one of the largest users in the world.
<unk> hundred 30 freighters and so.
Hopefully there'll be a customer of ours in the future. We've got other customers that were talking to about the aircraft.
Now one of the other.
Significant events that occurred as a result of the pandemic as feedstock values for the <unk> hundred <unk> have come down significantly, though it depends on which appraiser you listen to but pretty much the two or three that I've read.
And then the 25% range and that was one of the key things that when we looked at the plane. It was more expensive and therefore that the total cost of ownership and operating was higher than what the 767 could deliver.
So we think we thought at the time that it was going to be a good solution in the future when the economics made sense and with the feedstock coming down going forward with the newer generation basis of the airplane.
That we think it's going to be a solution that's going to be.
A long term solution in the medium wide body segment rich the only thing maybe I give you a little bit more detail. There is a couple of hundred airplanes that are in the prime age area that you've talked about from 30% to 25 that represent very good opportunities to be converted into freighters. The other other reason, we really like the $3 30.
Is it omni.
And potentially expand into the into the large category to operate for the Dod.
Which is something that we don't have the ability to do today. So.
We're excited about that potential opportunity with.
With our omni.
The organization as well as all the other customers that rich referenced prior as well, yes, we do have the triple sevens with omni today, but Mike I think.
What you are saying Mike is that this would be added it added a large client.
And then the last thing obviously is.
It's a great synergy with our <unk> hundred 21, so we would have.
What kind of a multiple aircraft solution for the same customers that we have today and the set for the 767 300.
<unk>.
<unk> hundred 30, <unk> hundred 21 have a common cockpit.
And so what that means is as small differences training is needed to be done to move a pilot between the <unk> hundred 21, and the <unk> hundred 30, much smaller than having to go get it.
A full new type rating for a different aircraft types. So it's a smaller effort.
So there's significant crew savings and the synergy with that.
And thinking like an airline even though we are a leasing company.
We think it's a really good.
Yes.
Solution to add to the coming $3 21 for the future of the medium wide body.
<unk> ship that we hold.
Got it no. That's very helpful. And then I think broadly speaking I'd love to hear your thoughts on really contract profitability and maybe alright.
<unk> post pandemic just given there is so much increased demand increase ecommerce.
Any color you can provide there would be helpful. Thank you.
Couple of things one is lease rates are definitely hardened.
And so.
That.
<unk> out in a couple of different perspectives. So when we're negotiating.
With.
New customers are for new airplanes for existing customers.
It's pretty much.
Sure.
We've got a better negotiating.
Getting position the other thing is any lease that's coming on.
Coming due.
Most of them tend to be extended or.
Flipping them right over once they get through a maintenance event to a new lessee because the demand is so significant.
Lot of airlines that we leased two right now that have assets coming due.
Now and the end of next year, and we're already talking to us about extending those and so it's.
Folks that have capacity now I don't want to let it go so the high demand as is good for our existing leases for extensions.
Other piece of that is most of them are extending an existing lease rates and we were actually in a position to get better lease rates usually on the leasing side. When you go through your second and third.
Tension on a lease you start to.
The lease rates starts to go down a little bit, but now we're seeing them hold up on extensions.
Great well Thats everything for me. Thank you.
Thank you.
As a reminder, if you have a question you can enter the queue by pressing Star then one and we'll take our next question from Chris <unk> with Susquehanna. Please go ahead Sir.
Good morning, everyone and thanks for taking my question so.
Rich it sounds like you guys have a fair.
Degree.
Hi confidence if you will.
Translating these 67 slots.
To ask actually putting the aircraft in service. So as we think about potential EBITDA earnings through the recovery is it fair to say that.
You have 120 aircraft and active fleet at year end could we see by 2025 North of a fleet of 180 aircraft in service and then also.
Thinking about the recovery there is a lot of puts and takes here right. Because eventually long haul belly capacity is going to come back online at the same time Gary.
Passenger utilization should go up so.
Could we do better through the recovery as we get towards 2025, assuming you fill out these slots here with actual aircrafts could we do better than $5 million in annual <unk>.
EBITDA per aircraft over that period.
Yes.
I.
Certainly could we be above $1 80.
And that in that timeframe or somewhere in that ZIP code Chris Yes.
We believe that that's true in terms of.
EBITDA contribution per tail.
We think of it more in terms of return on invested capital right and we believe that as we build the fleet out.
We will maintain the sort of attractive returns we get today on our dry lease investments on our aircraft investments and as rich described a minute ago with the current demand environment, it's actually.
Doing a good job of supporting higher lease rates. So we hope to even add to that return on the asset investment.
As you know our business model provides an opportunity for incremental returns for building services around the lease and so in our case. It also depends of course on opportunities to provide other services to the lessee.
Maybe as we do for DHL, and Amazon sort of the full range of services or it could be some portion thereof like just the maintenance.
Et cetera. So we certainly believe that our returns in this strong demand environment can return or excuse me Ken improve over what we've seen historically.
And we were.
Taking these steps because we think we will certainly maintain.
Or improve upon the returns on capital that we get.
For our for our leased assets already.
Okay. Thank you and then my second question. So the question I get a lot from investors lately as well.
Why the stock isn't working this year, it's down around 19% in what's a very constructive market for freighter demand because of all this.
Competing belly capacity is effectively sidelines. So one of the areas. In addition to folks asking about U S. Dod.
Contribution to EBITDA is.
Why not participate in the charter market or short term missions. If there is an opportunity here to.
To grab some rate.
Or perhaps just.
I don't know if you can I mean, you have such a full order book here.
Sure.
Allocating a few assets here to shorter term missions.
If where consensus is that this is a long haul international passenger travel is not coming back for 2023, it would seem rates youre going to stay high and there could be an opportunity here to potentially over earn here.
Through the recovery.
Thanks.
So we've.
Pretty much.
Yeah.
A tenant that for $30 million asset, it's a much better long term.
Commercial structure to get a 10 year eight year lease on that first lease.
<unk>.
<unk> long term cash flows and to put the aircrafts on our own airlines' certificate.
And fly in the charter market.
Now the pandemic has obviously made the demand perspectives on that market different but eventually that will come back in line I will tell you.
We have taken advantage of several charter opportunities, we put an airplane ups or DHL between Hong Kong and Sydney last year.
And we've put two or three other international routes. We took airplanes that were flying in the domestic network and are still linking to their CVD domestic network butterfly and internationally to support there.
Their efforts so we have gotten more block hours related to that we tend not to have excess capacity airplanes on our airlines certificate other than what we need to cover our own maintenance.
Or meet our commitments to the <unk> on the cargo side and again, we just think long term, it's a better use of that asset to get the longer term consistent cash flows out of it versus putting it in the charter environment. We will get in this case, maybe we'd get a year and a half of robust usage.
But then we'd be back in a situation, where we'd be getting intermittent usage on that both from the crew deployment standpoint, and the asset standpoint generally when we in the past when we've had situations like that we've taken the airplane leased it so.
We think that long term, we've got the right strategy.
Okay, and if I could just get one more here for the quarter were where you are your utilization or block hours per aircraft day on the deal.
And your commercial flights thanks.
Well as I said in terms of the majority of our Dod flying as passenger.
And the Combi in the pattern in the past all of our packs and our Combi.
Flying we're up 17% over the first quarter.
That's still down.
About 8% over the prior year during the quarter.
If that gives you a sense but.
For the first six months.
Those same staffs are off 28%. So that shows you the recovery in the second quarter relative to the first.
A 17%.
Improvement over the first quarter.
Levels, so versus the prior year in the second quarter.
We're down 8% in total.
Thanks <unk>.
Hi.
And that that includes a 17% sequential improvement over the first quarter.
Okay. Thank you.
And we have no further questions in queue I will now turn the call over to Mr. Rich Corrado for closing remarks.
Thank you.
Our latest commitments to convert and lease more midsized freighters over the next several years should make one thing perfectly clear.
We expect ecommerce and other forces driving demand for our aircraft today will persist well into the future.
Our employees at all.
All levels believed that as well and they have continued to deliver superior service. During this time and they are working together to extend our leadership in this key market I am proud to lead them and I'm confident that their hard work will yield superior rewards for those who choose to invest with us. Thank you and stay safe.
And thank you ladies and gentlemen, this concludes our conference we thank you for your participation.
May now disconnect.