Q3 2023 Chorus Aviation Inc Earnings Call
Speaker 1: Good morning ladies and gentlemen and welcome to the Chorus Aviation Inc. 3rd quarter 2023 financial results conference call
Good morning, ladies and gentlemen, and welcome to the Chorus Aviation, Inc. Third quarter 2023 financial results Conference call. At this time all lines are in listen only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assist.
Speaker 1: At this time, all lines are in listen-only mode. Following the presentation, we'll conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star for the operator or star zero for the operator. This call is being recorded on Thursday.
Please press star for the operator or start zero for the operator that this call is being recorded on Thursday November nine 2023, I would now like to turn the conference over to Tyrone Cody. Please go ahead.
Speaker 1: November 9, 2023. I would now like to turn the conference over to Tyrone Cody. Please go ahead.
Speaker 2: Thank you, Colin. Hello and thank you for joining us today for our third quarter 2023 conference call in audio webcast. With me today from chorus, our Colin Copp, President and Chief Executive Officer, and Gary Osborne Chief Financial Officer.
Thank you Colin.
Hello, and thank you for joining us today for our third quarter 2023 conference call and audio webcast.
With me today from Corsair, Colin Copp, President and Chief Executive Officer, Gary Osborne, Chief Financial Officer.
Speaker 2: We will begin today's call with a brief summary of the results, followed by questions from the analyst community.
We'll begin today's call with a brief summary of the results followed by questions from the analyst community.
Speaker 2: As there may be some former looking information during the call, I ask that you refer to the caution regarding forward looking statements and information found in our MDNA. This pertains specifically to the results and operations of course aviation ink for the three months and its September 30th, 2023, as well as the outlook section and other sections of our MDNA where such statements appear.
Is there may be some forward looking information during the call I ask that you refer to the caution regarding forward looking statements or information found in our MD&A. This pertains specifically to the results and operations of Chorus Aviation Inc. For the three months ended September 32023, as well as the outlook section and other sections of our MD&A, where such statements appear.
Speaker 2: In addition, some of the following discussion involves non-GAAP financial measures, including references to adjusted net income, adjusted EBT, adjusted EBITDA, leverage ratio, and free cash flow. Please refer to our MDNA for discussion relating to the use of such non-GAAP measures. I'll now try to...
In addition to some of the following discussion involves non-GAAP financial measures, including references to adjusted net income adjusted EBT adjusted EBITDA leverage ratio and free cash flow. Please refer to our MD&A for a discussion relating to the use of such non-GAAP measures.
I'll now turn the call over to Collin County.
Speaker 3: Good morning everyone and thank you Tyrone. This is my third quarter reporting out as CEO and I'm pleased with our team's steady progress over the past few months.
Good morning, everyone and thank you Tyrone. This is my third quarter reporting out as CEO and I'm pleased with our team's steady progress over the past few months.
Speaker 3: This quarter we continue to execute on our plan, making solid improvements in our balance sheet flexibility, and progress on our de-leveraging object.
This quarter, we continue to execute on our plan, making solid improvements in our balance sheet flexibility and progress on our deleveraging objectives.
Speaker 3: As our team works diligently to respond to the ongoing macroeconomic challenges affecting our industry, we remain focused on improving our core business fundamentals.
As our team works diligently to respond to the ongoing macroeconomic challenges affecting our industry, we remain focused on improving our core business fundamentals.
Speaker 3: That includes improving our free cash flow and working to bring our leverage ratio within our long-term target of two and a half to three and a half.
That includes improving our free cash flow and working to bring our leverage ratio within our long term target of two five to three five.
Speaker 3: To that end, I'm pleased to report the course generated 113.7 million in free cash flow this quarter, as we improved our leverage ratio from 4.4 at the end of 2022 to 3.6 this quarter, while continuing to generate reliable and solid earnings.
To that end I'm pleased to report the course generated $113 7 million and free cash flow this quarter as we improved our leverage ratio from four four at the end of 2022 to three six this quarter.
While continuing to generate reliable and solid earnings.
Okay.
Speaker 3: As we prepare a business for long-term growth and profitability, I'm pleased to report.
As we prepare our business for long term growth and profitability I am pleased to report.
Speaker 3: that after a year and a half following the FELCO acquisition, we see the industry recovering nicely with a growing market demand and we remain very confident about the regional aircraft leasing sector.
That after a year and a half which fall following the <unk> acquisition, we see the industry recovering nicely with a growing market demand and we remain very confident about the regional aircraft leasing sector.
Speaker 3: We see ourselves as well placed in this space with Falco taking a leading market physician.
We see ourselves as well placed in this space with Falco with taking a leading market position.
Speaker 3: We recognize that Fund 3 is on the minds of our shareholders and analysts today.
We recognize that fund three is on the minds of our shareholders and analysts today.
Speaker 3: While we can't comment on a specific timing around the launch of Fund3, I can say the discussions with investors continue to be paused.
While we can't comment on the specific timing around the launch of funds III.
I can say the discussions with investors continue to be positive.
Speaker 3: It's also important to appreciate that we're not alone in the uncertainty related to the timing of fundraise.
It's also important to appreciate that we're not alone and the uncertainty related to the timing of fundraising.
Speaker 3: The fundamentals of the regional aircraft leasing space remain strong and we're confident in the future of the regional leasing business.
The fundamentals of the regional aircraft leasing space remained strong and we're confident in the future of the regional leasing business.
Speaker 3: Generally, airline market conditions have recovered well with strong Q3 earnings reported by several operators as the industry sees good demand across all markets for aircraft capacity.
Generally airline market conditions have recovered well with strong Q3 earnings reported by several operators.
The industry sees good demand across all markets for aircraft capacity.
Additionally.
Speaker 3: We continue to see industry constraints on MRO capacity and pressure on the supply chain impacting new aircraft delivery.
We continue to see industry constraints on MRO capacity and pressure on the supply chain impacting new aircraft deliveries, which has created an imbalance in aircraft supply versus demand.
Speaker 3: which has created an imbalance in aircraft supply versus...
Speaker 3: all of which supports that in general, lease rates are improving across almost all regional jet types.
All of which supports that in general lease rates are improving across almost all regional jet types.
Speaker 3: and previously idle aircraft are being put back to work.
And previously idle aircraft are being put back to work.
Speaker 3: Let me share some highlights related to Felkel's performance facts that support.
Let me share some highlights related to <unk> performance facts that support potential for long term value for our shareholders from this transaction.
Speaker 3: for long-term value for our shareholders from this transaction.
Okay.
Speaker 3: Jeremy has an incredible aircraft commercial team at Falco with deep industry experience.
Jeremy has an incredible aircraft commercial team at Falco with deep industry experience in.
Speaker 3: In the third quarter alone, they've successfully closed on 17 aircraft transacts.
In the third quarter alone they've successfully closed on 17 aircraft transactions, including purchases of aircraft with leases attached.
Speaker 3: including purchases of aircraft with leases attached and placement of idle aircraft on lease and lease extension.
And placement of idle aircraft on lease and lease extensions.
Speaker 3: These transactions took place with nine distinct airline customers with rough six con.
These transactions took place with nine distinct airline customers across six continents.
Speaker 3: The momentum has continued and since September 30th, the FELCO team has signed several additional letters of intent and are making excellent progress to conclude those transactions in the coming
The momentum has continued and since September 30, the VAALCO team has signed several additional letters of intent and are making excellent progress to conclude those transactions in the coming months.
Speaker 3: Velcro successfully continues to deploy capital from fund two in support of these acts.
Telco successfully continues to deploy capital from fund two in support of these activities and fund two remains on track to hit target returns for investors in the mid teens.
Speaker 3: And Fund II remains on track to hit target returns for investors in the mid-team.
Speaker 3: Furthermore, FELCO has generated net proceeds from wholly owned asset sales of approximately 102 million U.S.
Furthermore, <unk> has generated net proceeds from wholly owned asset sales of approximately 102 million U S.
Speaker 3: so far, and we expect to transact further across sales in the fourth quarter that Gary will speak to shortly.
So far and we expect to transact further aircraft sales in the fourth quarter that Gary will speak to shortly.
Speaker 3: In conclusion, Felco is executing very well, and we are optimistic in Felco's growth opportunity.
In conclusion, Felkel is executing very well and we are optimistic and southwest growth opportunities.
Speaker 3: On the Regional Aviation Services side of the business, we've seen consistent solid performance.
On the regional aviation services side of the business, we've seen consistent solid performance.
Speaker 3: In August , Randolph and the jazz team were successful in working with our pilot union to ratify a significant modification of the pilot collective agreement, securing a new industry competitive compensation structure.
<unk> Randolph and the jazz team were successful in working with our pilot Union Alpha to ratify a significant modification to pilot collective agreement.
Securing a new industry competitive compensation structure.
Speaker 3: Jazz and Elpa have a proven history of working together collaboratively to find creative solutions. And this is yet another great exam.
Jazz and Alpha have a proven history of working together collaboratively to find creative solutions and this is yet another great example.
Speaker 3: This agreement will be instrumental in addressing the changing pilot wage environment and expanding pilot recruitment and training capacity.
This agreement will be instrumental in addressing the changing pilot wage environment, and expanding pilot recruitment and training capacity.
Speaker 3: which will in turn strengthen the pilot supply and overall flying back.
Which will in turn strengthen the pilot supply and overall flying capacity.
Speaker 3: Jazz has a long demonstrated partnership with Air Canada and was able to reach an agreement with Air Canada on the changes consistent with the terms of the Capacity Purchase Agreement.
Jazz has a long demonstrated partnership with air Canada and was able to reach an agreement with air Canada on the changes consistent with the terms of the capacity purchase agreement.
Speaker 3: Our pilot training academy, Signet, led by Lynn, continues its growth with its third cohort of students having started in August of this year.
Our pilot training Academy Cigna led by Lynn continues its growth with its third cohort of students having started in August of this year.
Speaker 3: Through its partnership with CAE, Signet is delivering a first of its kind direct entry cadet program by innovating flight training with the best in class scenario-based and simulation techniques and technology.
Through its partnership with CAE Cigna is delivering a first of its kind direct entry cadet program by innovating flight training with the best in class scenario based and stimulation techniques and technologies.
Speaker 3: Fignant is taking its place as a leader in helping address the industry why need for more pilot.
Signet is taking its place as a leader in helping address the industry wide need for more pilots.
Speaker 3: Gory and the team at Voyager are making excellent progress and continue to execute on their growth plans in a special mission, defense and part space.
Corey and the team at Voyager are making excellent progress and continue to execute on their growth plans in a special mission defense and parts space.
Speaker 3: There are many opportunities to build on there, including the government of Canada contract and support of Canada's MAND, Airborne Intelligence, Surveillance and Reconnaissance Program. No one is mazer.
There are many opportunities to build on there, including the government of Canada contract in support of Canada's manned airborne intelligence surveillance and reconnaissance program known as Mazer.
Speaker 3: This quarter of the Azure added the H.R. aircraft to its product offering, further diversifying the business and building on their capabilities.
This quarter Voyager added the ATR aircraft to its product offering further diversifying the business and building on their capabilities.
Speaker 3: And in July , Oursh are also announced in the amendment to its contract with Air Ambulance New Brunswick, providing new capacity.
And in July or is Youre also announced an amendment to its contract with air ambulance, New Brunswick, providing new capacity.
Speaker 3: Yesterday we announced that Courses renewing its normal course issue are bid under the renewed bid which takes effect on November 14th. We will have the ability to purchase for cancellation up to 15.1 million of our common shares.
Yesterday, we announced that course is renewing its normal course issuer bid under the renewed bid which takes effect on November 14th we will have the ability to purchase for cancellation up to $15 1 million of our common shares.
Speaker 3: And last year we took the opportunity to repurchase and cancel 9.1 million shares.
And last year, we took the opportunity to repurchase and cancel $9 1 million shares.
Speaker 3: In conclusion, I'd like to say that we're executing on our plan, generating strong free cash flow to de-lever and de-risk the business.
In conclusion I'd like to say that we are executing on our plan generating strong free cash flow to delever and derisk the business.
Speaker 3: Overall, we're making important improvements in our balance sheet flexibility, following an unprecedented time in our sex.
Overall, we're making important improvements in our balance sheet flexibility following an unprecedented time in our sector.
Speaker 3: When you combine the strategic progress with our stable earnings, positive news related to our subsidiary activities and implementation of the long-term measures like the recent pilot agreement, we are making solid progress.
When you combine the strategic progress with our stable earnings positive news related to our subsidiaries activities and implementation of the long term measures like the recent pilot agreement, we are making solid progress.
Speaker 3: I'd like to conclude by thanking our employees and the leadership team who are central to both the delivery of our services as well as the execution of our strategy.
I'd like to conclude by thanking our employees and our leadership team who are central to both the delivery of our services as well as the execution of our strategy.
Speaker 3: Together, our talented team is helping lead course into the next phase of its success and growth to rebuild value for our shareholders.
Together, our talented team is helping lead course into the next phase of our success and growth to rebuild value for our shareholders.
Speaker 3: Thank you. I will now pass it over to Gary to take you through the financial. Thank you, Colin, and good morning.
Thank you I will now pass it over to Gary to take you through the financials.
Thank you Colin and good morning.
Speaker 3: Our third quarter, 2023 results, were mostly in line with our expectations, and we remain on track to meet our guidance for the 2023 year.
Our third quarter 2023 results were mostly in line with our expectations and we remain on track to meet our guidance for the 2023 year.
Speaker 4: We are currently tracking to be at the higher end of our guidance for revenue, adjusted if it does, free cash flow and leverage, and at the lower end we're adjusted ED.
We are currently tracking to be at the higher end of our guidance for revenue adjusted EBITDA free cash flow and leverage and at the lower end, where adjusted EBT.
Speaker 4: As Colin mentioned, we continue to make steady progress on our strategy and objective to deleverage and increase our balance sheet flexibility.
As Colin mentioned, we continue to make steady progress on our strategy and objective to deleverage and increase of our balance sheet flexibility.
Speaker 4: Our leverage ratio at quarter end was 3.6, a decrease from the 2022 year end of 4.4, largely due to the year to date long-term debt reduction of $259.8 million.
Our leverage ratio at quarter end was $3 six a decrease from the 2022 year end to four four largely due to the year to date long term debt reduction of $259 8 million.
Speaker 4: This place is our Q3 2023 leveraged close to the top end of our investor day target range of 2.5 to 3.5.
This places our Q3 2023 leverage close to the top end of our Investor day, a targeted range of two five to three and a half.
Our cash flow generation remains strong.
Speaker 4: We generated solid pre-cashel of 113.7 million, and while lower than the prior period, the reduction is due to the net proceeds from Q3 2022 asset sales, offset by stronger cash flow from operations.
We generated solid free cash flow of $113 7 million and while lower than the prior period. The reduction is due to the net proceeds from Q3 2022 asset sales offset by stronger cash flow from operations, including the nonrecurring defined benefit pension revenue of $29 9 million.
The DB pension revenue reflects our agreement with air Canada to compensate us for the impact of the new pilot wage rates scales on the defined pension benefit liability.
This receivable will be collected over 60 months and matches the expected pass service funding to the plan over the same period.
On a year to date basis, our free cash flow increased from $233 million in 2000 $22 million to $257 million, which reflects our strong cash from operations and impact of the Falco acquisition.
As I said earlier, our third quarter earnings were largely in line with our expectations.
<unk> segment continued to perform well with an adjusted EBITDA of $62 3 million in line with the third quarter of 2022.
The rail segment adjusted EBITDA was $56 1 million a decrease of $13 7 million over the third quarter of 2022, mainly attributable to lower lease revenue of $8 6 million, which includes the impact of the 2022 asset sales, which decreased lease revenue recovered claims in the Virgin Australia.
Early bankruptcy in 2022.
Partially offset by increased lease revenue from re leased aircrafts. The recognition of end of lease compensation and a higher U S dollar rate.
We also saw a decrease in the net gain on sale of assets of $2 7 million and an increase in general administrative expenses.
Corporate adjusted EBITDA was a negative $5 3 million.
Improved from the third quarter of 2022.
By $3 2 million due to a decrease in stock based compensation and general administrative expenses.
Adjusted earnings available to common shareholders was <unk> <unk> per share earnings while lower than 2022 by <unk> <unk> per share are supported by strong free cash flows lower leverage levels and our assets that are supported by our underlying contracts.
During the quarter, we also recorded impairments of $25 7 million.
Which represents less than 1% of our consolidated assets in accordance with IRS, we assess our aircraft for impairment at least on an annual basis or in circumstances, indicating the impairment may be required.
Our impairment assessment includes many factors included the weighted average cost of capital lease cash flows maintenance return conditions.
Aircraft market values and residual values.
For the quarter, we ended with our liquidity ended at 210.
$6 million.
Liquidity increase from second quarter of 2023 by $65 6 million, primarily due to our prepayment in September or October controllable cost revenue of $47 8 million and a strong cash and strong cash flows from operations.
On November one 2023, we entered into two new facilities to add flexibility to our capital structure by adding a one year $30 million unsecured facility and a $50 million secured facility that goes to the end of 2025, providing us with flexibility with regards to the repayment of our series a debentures that matured in December 2000.
24.
Turning to asset sales, we continue to operate in Opportunistically trade browse fully owned or majority owned aircraft. We are currently in discussions on sales opportunities that we expect to close before year end, which will places at the lower end of our guidance for asset sales and net proceeds.
We've also just renew the NCI detail until November 2024.
Under which we can purchase up to another 15 million shares.
Under the prior in CIB, which.
Purchased a total of $9 1 million shares.
As I mentioned earlier, we are maintaining our overall guidance for 2023 is contained in the outlook section of our MD&A.
We are now ready for your questions.
Thank you ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question. Please press star followed by one if you'd like to withdraw. Your question. Please press star followed by two if you're using a speaker phone. Please lift the handset before.
Sure.
Joining the call we will now turn to the your first question comes from Hillary <unk> of non Doe.
Hillary Please go ahead.
Hi, Thank you for taking my question.
You said you can't comment on the timing of Brooklyn, but I was wondering if you had a share.
Some of the feedback <unk> gotten from.
The Investor day.
The delay kind of purely macro economic javan noise.
Okay.
But is there hesitation.
What's the.
Most of the day maintained by the macro driven but I was wondering if you could kind of share.
Some of the feedback you've gotten from that.
Yes.
Hi, Hilary it's Colin.
Gary can probably add a bit to this but look we don't have a heck of a lot more than what I commented on in my in my script. There is it's the macroeconomics that we see as kind of.
The bigger issue here.
I think the opportunity is still there there is lots of discussion going on.
And it's really more of a matter of timing.
Which is very hard for us to really predict as far as things go forward, Yes, Hillary it's Gary just to reiterate what Colin said the feedback is good people still like the asset class the regional aviation space. They like the team at Falco and how they manage the assets they would like to turn to rate of returns. It is more market driven at this stage so.
Okay got it and then previously you had mentioned that you were looking to make some acquisition.
On the table.
Any comment on that would be it. Thank you.
Yes, so as we move ahead I mean, we continue to Delever our free cash flows are good. So it's good and provided some opportunities as time goes on tour.
Some type of <unk>.
<unk> opportunities that Youre speaking to particularly on the ratified.
<unk>, so we're certainly continuing to look but.
It's a positioning the balance sheet that will certainly help that.
Thank you very much.
Thank you.
Your next question comes from Kevin Chiang from CIBC, Kevin. Please go ahead.
Thanks for taking my question.
Maybe just a clarification question on the impairment provision you took in the quarters just any.
Anything to call out there and any additional color you can provide on the 26 million booked in Q3.
No theres really not much Kevin I think it's just a general review that we do annually around the fleet and it just reflects everything I've talked about.
Future cash flows whack weed.
Average cost of capital et cetera, So really nothing to really report there out of the ordinary.
Okay. Okay.
And then maybe.
I'll approach the fund three question differently.
Do you think that limit.
Some of the other initiatives you've laid out and you have late though you did lay out about back at your Investor day growth within Voyager.
Maybe how aggressive you wanted you want to be on returning cash to shareholders.
Does it limit what you can do there until fund III closes or.
Sure.
The capital that Youre deploying to fund three.
Pension to set aside and any other kind of non <unk> related growth initiatives, you can continue to pursue that regardless of the timing around the country.
Yes, it's Gary here Kevin.
I think <unk>, we're continuing to.
The positive feedback with market timing is what it is.
It doesn't preclude us from still investing in the the other sides of the business there are other opportunities.
Right back to it we're continuing to deleverage and that's going to give us the opportunities to do that and we continue to look at them, but yes.
Three pieces separate from these other investments.
And I know you can set a percentage amount that you would invest into fund would you can increase your percentage.
Whatever the right amount would be in an extra 5%, 6% whatever to get the fund across the line or do you have or is it a hard line I think it's like 15% of the funds that are.
Hard glass ceiling for you in terms of not wanting to invest more than that amount or would you be open to.
To move that up a little bit just to get the funds at certain sites and to get it closed sooner.
Yes.
Kevin I think 15 would be the limit that we would look at and part of that is.
We wanted to we still want to be able to invest in all parts of our business and also once you start getting above that you start to essentially you get into position, where you may have to consolidate hearings and we're not doing that.
Okay I'll leave it there thank you very much.
Your next question comes from <unk> Gupta from Scotiabank. Please go ahead.
Thanks, operator, good morning, everyone.
First question, maybe Gary for.
For the third quarter, the gap between EBITDA and net income seem pretty wide. It seems like the tax rate on adjusted basis was about 34% much.
Much higher than last year, and a little bit higher than Q2.
Any reason for the tax rate to be higher in Q2.
Yes, no. Thanks, Conor So if you look at the where the earnings are coming from there in the <unk> section and also in the corporate which has a higher rate and statutory rate and then when you look at the rail side.
It is really a function of where some of those losses or gains or our revenues are or income and it's just the way. It plays out through the statements and when you look at that.
Certainly.
Is that the.
The rate is disproportionate probably to the earnings just in the short term. If you look over the long term, 20% to 25% is the range that we would expect to see as far as that against adjusted EBIT as far as the income tax rate.
Great. Thanks.
It seems like.
In the MD&A you guys disclosed the product contract and then air Canada contribution toward that.
Can you share any high level.
Dumps about the pilot contracts, we have seen anywhere from like.
25% to 40%.
Increases across the industry in the U S and Canada any.
So on your contract.
Hi, <unk> column.
Look we've been pretty I think transparent on that to the best of our ability at all.
We've been able to find a solution that really is industry competitive and thats kind of where we stuck with it.
There's a lot of variables that go into that and.
Really all I can all I can give you is that it's it's an industry competitive place.
On the overall compensation as where we ended up.
That's fair, Thanks, and last one for me.
On the asset sales I think I heard you guys, saying you are expecting to close some in Q4, but you'll be coming in at the low end of the target range for the full year.
Any I.
I guess, it's more about timing, while the asset sales did not happen as much as you thought it would have thought initially or.
Is it just the industry conditions.
Want to utilize the assets more before you sell them.
Hello, Eric It's Gary here its more just timing.
You recall, we've always said it's in the back half of the year just happens that it will be in the back half of the back half of the year. In this case. So it's really just timing it seems that things seem to call neat.
In the back half of the year, we're hoping that that will that trend.
Kind of change next year, and we'll have a little more even spread but it's just the actual market timing for the most part.
Yes, I appreciate the color thanks, guys.
Yes.
Your next question comes from Walter Sparkman from RBC capital markets. Walter Please go ahead.
Thanks, very much operator, good morning, everyone I want to follow up here on the pilot side, you said 300 pilots up there Canada training 300 over the last year.
Quite a complishments.
Canada must be very happy with with that pilot flow given how.
How in demand pilots are right now I'm, a little worried about your organization, though if that many pilots are leaving and your training. So many are you concerned at all that this puts a strain on your on your organization and your cost structure on your operating performance I'm just curious.
How you're dealing with that kind of let's call. It turnover, it's not really turnover, but turnover in your in your pilot base, both from a cost structure and operating performance.
Hi, Walter Yes, Paul on yes. It's good question look the one thing jazz is.
Very good at as an industry leader in Canada.
Not even maybe dimension North America is there ability to train pilots, we have our own internal training program, we run our own check as we have our own transport, Canada authority to do.
Sign off pilots.
And we've done that for many many years.
That's an area that we're really really really strong in.
We're not like most other operators that use.
A training pilots to do simulator training, we do our own simulator training. So we have a fairly large contingent of training pilots in our program.
And we've been we've been at it for many many years as you know.
So we're pretty comfortable in that area.
Yes, there has been a significant amount of movement. There is no question the industry has seen that.
Jazz is the perfect place to for large operators to find pilots Theres no question about that I think most of the large operators in Canada.
Have been looking to hire our pilots where they could.
But that really hasnt impacted us that much in the air Canada flow is kind of something that.
I think we worked together with air Canada on capacity versus flow when we look at that depending on what their needs are.
So we've been pretty successful at kind of managing through that yes. The hours are a little constrained. There is no question about that given all of this this activity.
But we're pretty comfortable where we are we've got this new collective agreement in place. It's very competitive we think thats, while we don't think we know that's attracting.
Really good talent coming in the door or we've seen all kinds of improvements here in the last little while if we put that in play.
Our pilot training classes every single one is full.
So we have no problem attracting talent, there's a bit of it's like anything there's a bit of challenge in making sure that you can get all the throughput done and you can get all the training.
<unk> for the right kind of seasonal peaks.
But thats all stuff, we work with air Canada on to work through.
And as competitors.
Kind of a stress on the organization I think there's probably nobody better in Canada to manage this volume of pilots and transition than ourselves.
Sure.
Great answer.
You kind of answered my second question, but I just want to make sure.
Getting pilots that you said you're training classes are full because getting pilots sounds like at least in the U S to be a fairly difficult thing we're seeing some of the U S. Regionals, taking some fairly aggressive tactics to poach pilots from UBS and Fedex I'm sure you've seen that news youre not feeling the need to look at.
Conventional ways to get pilots in your classroom as I recall.
No no we have no problems attracting quality people.
So we're very happy with where we are right now.
And I think quite frankly.
As we work closely with Air Canada, I think theyre pretty happy with what we'll be able to provide them.
So.
It's a good opportunity if you are a pilot in the industry today and.
In your prepared to work hard and study and do all those things, it's a wonderful opportunity career opportunity for <unk>.
Yes.
He leads to my third question Muhtar, Kent, I mean, they must be very happy when you did this agreement I think it was kind of new at the time or not new but formalized very nicely at the time.
But the conditions now have changed that I think the value of that agreement is much higher than where it was perhaps when you signed that are you is the terms of that subject too.
Renewal anytime soon or are you looking at.
Crystallizing the value of the new value that that agreement has created just curious how you're framing your approach to to this relationship or this part of the agreement with Air Canada.
Yes.
The way I look at Air Canada.
We're committed partner, they're a committed partner and we've had great relationships.
<unk> always been able to reinvent things as the years have transpired.
The industry changes there is a need for change and whether it's.
Air, Canada, asking for that or it's us we've ever we've always been able to find a solution. So.
Things will evolve.
Pretty happy with where they are right now I think generally we've got a solid collective agreement in place. We've got happy pilots, we are hiring like crazy the organization's full of energy.
Air Canada is happy with the flow that we've been able to provide we want to provide that flows some some of the.
The attractiveness of and the importance of being able to attract talent into us into jazz is the fact that those opportunities exist at the mainline and if theres some mechanism to kind of flow you through and move your career in progress. Your career. So there is a huge advantage to that for us as well.
So yes look it's.
It's working well right now we had a couple of things we had to sort out and we got them sorted out as we always do and.
I'm sure there'll be more changes in the future as things evolve.
That's good that's great color I really appreciate it thanks, thanks, everyone.
Chip.
Your next question comes from Tim James from TD Cohen, Tim. Please go ahead.
Thanks, very much good morning.
First question Gary.
The step up in depreciation expense sequentially in Israel.
I'm just wondering if you could talk a little bit about that it sounds like there was an increase in depreciation rates and just kind of what what drove that or the need for that change.
Yes.
Jim It's Gary here. So yes, when you look at how we approach things. We we continue to look at our depreciation and it is up a little bit but it just reflects really where we expect the fleet to be where it needs to be in the future as far as depreciation goes. So it's just an annual exercise, we do and it's just a little bit higher for sure than the prior quarter, but.
It's just reflecting.
Where we expect the assets to be at the end of their lease.
Their lease residual.
Residual values.
Okay. Thank you my second question.
With the return on equity.
It has dropped sequentially and I think your expectation is for that to move higher again from the 10, 5% I think it was on a trailing four quarter basis.
Could you just talk through the drivers.
Moving that return on equity higher here over the next couple of years and I say drivers in terms of.
No.
Pricing.
Cost factors, just just any of those kind of drivers that we should think about as to how it can increase.
Yes fair enough.
As far as ROE.
As we reduce our earnings here in the short term it certainly will come down a bit but in the long run as we reinvest back in the business and we allocate our capital appropriately it's going to go back up so thats, where the investments in <unk> and other places like that will come in and also in the asset management platform within telco, so that'll start to pick it back up but in the short term as the.
Earnings come down as you know this.
This year, 2023% to 24 is a bit of a repositioning there'll be youll see some decrease but it will start to grow from there as we started to allocate our capital to accretive transactions.
Okay. Thank you very much.
Okay.
There are no further questions at this time I'll turn it back to Tyrone for closing remarks.
Thank you Colin and thank you everyone for taking part in today's call.
Have a good day.
Okay.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.