Q4 2023 Chorus Aviation Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Chorus Aviation Inc. fourth quarter and year-end 2023 financial results conference call. At this time, all lines are in a listen-only mode.
Good morning, ladies and gentlemen, and welcome to the Chorus Aviation, Inc, fourth quarter and year end 2023.
Results Conference call at this time all lines are in a listen only mode.
Operator: 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 zero for the operator. This call is being recorded on Friday, February 23, 2021. I would now like to turn the conference over to Tyrone Cody. Please go ahead. Thank you, Julie. Hello, and thank you for joining us today for our fourth quarter and year-end 2023 conference call and audio webcast. With me today from Chorus are Colin Kopp, our President and Chief Executive Officer, and Gary Osborne, our Chief Financial Officer. We will begin today's call with a brief summary of the results, followed by questions from the analyst community. This call covers the results and operations of Chorus Aviation for the three months and year ended December 31st, 2023, as well as the outlook section and other sections of the MD&A where such statements appear.
During the presentation, we will conduct a question and answer session. If at any time during this call.
At this time, please press Star Zero audio further this call is being recorded on Friday February 23rd 2024 hours.
Now I'd like to turn the conference over to Carmen Cody. Please go ahead.
Thank you Julie.
Hello, and thank you for joining us today for our fourth quarter and year end 2023 conference call and audio webcast.
Me today from chorus, Colin Copp, our President and Chief Executive Officer, and Gary asked Warren our Chief Financial Officer.
We will begin today's call with a brief summary of the results followed by questions from the analyst community.
This call covers the results and operations of chorus aviation for the three months and year ended December 31, 2023, as well as the outlook section and other sections of the MD&A, where such statements appear.
Operator: As there may be forward-looking discussion during the call, I ask that you refer to the caution regarding forward-looking information found in our MD&E. In addition, some of the following discussion involves non-GAAP financial measures or non-GAAP ratios, including references to adjusted net income, adjusted EBT, adjusted EBITDA, leverage ratio, and free cash flow. Please refer to the MD&A for discussion relating to the use of such non-gap measures or non-gap ratios. I'll now turn the call over to Colin. Good morning, everyone, and thank you, Tyrone.
As there may be forward looking discussion during the call I ask that you refer to the caution regarding forward looking information found in our MD&A.
In addition, some of the following discussion involves non-GAAP financial measures are non-GAAP ratios, including references to adjusted net income adjusted EBT, adjusted EBITDA leverage ratio and free cash flow.
Please refer to the MD&A for a discussion relating to the use of such non-GAAP measures our non-GAAP ratios.
I'll now turn the call over to Colin Connolly.
Good morning, everyone and thank you Tyrone.
Tyrone Cody: Today marks my fourth analyst call, nearly a year since I took on the role of President and CEO of Chorus. And throughout 2023, the teams remain focused and disciplined on achieving our key targets and strategic goals. When you combine our progress with the improving macroeconomic outlook, stronger global airline traffic demand, and much-improved airline credit environment, we are well positioned moving forward. First, I will touch on a few of the financial highlights.
Today marks my fourth analyst call nearly a year since I took on the role of President and CEO of course.
And throughout 2023, the teams remain focused and disciplined on achieving our key targets and strategic goals.
When you combine our progress with the improving macroeconomic outlook stronger global airline traffic demand and much improved airline credit environment.
We are well positioned moving forward.
Let me touch on a few of the financial highlights.
Colin Kopp: Despite the challenging macroeconomic environment for most of last year, we met our financial guidance for 2023 while at the same time significantly strengthening our balance sheet. Chorus saw adjusted EBITDA increase from $441 million in 2022 to $458.7 million in 2023. Gary will provide some further details on this in the financial update. We saw a continued and strong generation of free cash flow of $331.4 million in 2023, a key pillar of our strategic plan. These cash flows were primarily driven by operating cash flows.
Yes.
Despite the challenging macroeconomic environment for most of last year, we met our financial guidance for 2023, while at the same time significantly strengthening our balance sheet.
<unk> adjusted EBITDA increased from $441 million in 2022 to $458 7 million in 2023.
Gary will provide some further details on this in the financial update.
We saw continued strong generation of free cash flow of $331 4 million in 2023.
Key pillar of our strategic plan.
These cash flows were primarily driven from operating cash flows.
Okay.
Colin Kopp: And notably, we achieved our leverage target for 2023, with our leverage ratio improving from 4.4 at December 31, 2022 to 3.6 at December 31, 2023. Strong performance in all these areas is essential to the long-term value creation for our shareholders and continued success of the business. At the heart of this was the hard work and focus demonstrated by all of our businesses and the representative teams during the quarter and the year.
And notably we achieved our leverage target for 2023 with our leverage ratio improving from four four at December 31 2022 to.
To three six at December 31, 2023.
Strong performance in all of these areas is essential to the long term value creation for our shareholders and continued success of the business.
At the heart of this with the hard work and focus demonstrated by all of our businesses and the representative teens during the quarter and the year.
Jazz continue to excuse me.
Colin Kopp: JAZ continued to generate predictable earnings and cash flows under its long-term contract with Air Canada. To help address the changing wage environment and enhanced pilot capacity, JAZ successfully entered into a new agreement with its pilot group, represented by ELPA, and continues to recruit pilots and fill its training class. Voyager had its best year so far with strong growth in part sales and specialty MRO and defense while securing long-term contracts for the Department of Defense and Air Ambulance Services, record years of growth for the last two consecutive years.
Jazz continue to generate predictable earnings and cash flows under its long term contract with air Canada to.
To help address the changing wage environment enhanced pilot capacity jazz successfully entered into a new agreement with its pilot group represented by ALPA.
And continues to recruit pilots and fill it's training classes.
<unk> had its best year, so far was strong growth in part sales in specialty MRO and defense, while securing long term contracts for defense and air Ambulance services.
Or as you're seeing record years of growth for the last two consecutive years.
Colin Kopp: Foreshore is continuing to enhance its capabilities in both the targeted high-margin growth areas of parts and defense to help fuel further growth going forward. They have good momentum now, and we're excited about the potential ahead. Turning to the leasing side, aircraft OEM production rates continue to lag. That has been welcome news for Felco as airlines look to secure available aircraft and extend expiring leases for longer periods. It successfully concluded 57 aircraft transactions in 2023, including new leases, lease extensions, and using third-party capital to purchase aircraft with leases attached. Additionally, it has signed letters of intent for a further 30 aircraft transactions going forward. The transaction activity for 2023 and for the last few months demonstrates that the regional leasing market is active and doing well. Falco continues to be the market leader in regional aircraft leasing and asset management.
Or is your is continuing to enhance its capabilities in both the targeted high margin growth areas of parks and defense to help fuel further growth going forward.
They have good momentum now and we're excited about the potential ahead.
Turning to the leasing side aircraft OEM production rates continue to lag that has been a welcome news for VAALCO as airlines look to secure available aircraft and extend expiring leases for longer periods.
Yes.
Software successfully concluded 57 aircraft transactions in 2023, including new leases lease extensions.
And using third party capital the purchase of aircraft with leases attached.
Additionally, it is signed letters of intent for a further 30 aircraft transactions going forward.
The transaction activity for 2023 and for the last few months demonstrates that the leisure regional leasing market is active and doing well.
Telco continues to be the market leader.
Regional aircraft leasing and the asset management business.
Colin Kopp: In support of our Acid Light strategy post-year-end, Salco also completed the sale of two A220 aircraft on lease to Air Baltic, delivering net proceeds of $21.9 million in January of 2024. As always, in advancing our asset-light strategy, we closely watch market conditions, staying focused on unlocking embedded equity values. And we will continue our deleveraging efforts by selling down our on-balance sheet assets where and when it makes sense for us to optimize value. Additionally, the interest rate in the Inflationary Outlook is promising. That will only assist the discussions that we are having with our fund investors on Fund Street. And now, turning to Cygnet, our pilot training program at Canobie, which was announced on March 28th, 2023 and held its official launch event in April in Kingston, Ontario.
In support of our asset light strategy, both year and vocal also completed the sale of two <unk> hundred 20 aircraft on lease to air Baltic.
Delivering net proceeds of $21 9 million in January of 2024.
As always in advancing our asset light strategy, we closely watch market conditions, staying focused on unlocking embedded equity value.
And we will continue our deleveraging efforts by selling down our on balance.
Our on balance sheet assets, where and when it makes sense for us to optimize value.
Additionally, the interest rate and inflationary outlook is promising.
And that will only assess discussions that we're having with our fund investors on funds III.
And now turning to segment, our pilot training Academy, which was announced on March 28, 2023 and held its official launch event in April in Kingston, Ontario.
Colin Kopp: It is executing very well and growing at a steady rate while contributing to the overall pilot supply as it offers industry-leading pilot training with state-of-the-art instruction. We are very pleased to be working with CAE and the many industry partners on this important initiative. In November, we renewed our normal course issuer bid for common shares, reflecting 10% of the public flow. As at December 31, 2023, Chorus had purchased and cancelled 9,623,451 common shares since the start of the NCIB in November 2022.
It is executing very well and growing at a straight steady rate while contributing to the overall pilot supply as it offers industry, leading pilot training with state of the art instruction.
We are very pleased to be working with CAE as many industry partners on this important initiative.
In November we renewed our.
Normal course issuer bid for common shares, reflecting 10% of the public float.
As at December 31, 2023 course had purchased and canceled 9 million 623451 common shares since the start of the CIB in November of 2022.
Colin Kopp: And we will prudently explore opportunities ahead to make further purchases under our NCIB. As we speak of initiatives like the NCIB and our continued focus on cash generation, I recognize that opportunities for returning capital are on our investors' minds. We've now reported for multiple quarters that we are making strong progress in our leveraging goal. As we transition the business, we will see stronger quality earnings and stronger cash generation, and we will continue to evaluate all return of capital opportunities going forward. In closing, this past year, I have had the great privilege of spending time with our leaders and our various businesses, our employees, and our leadership teams. And their hard work is core to these outcomes.
And we will prudently explore opportunities ahead to make further purchases under our and CIB.
Okay.
As we speak of initiatives like the in CIB and our continued focus on cash generation I recognize that opportunities for returning capital or on our investors' minds.
We've now reported over multiple quarters that we are making strong progress in our deleveraging goals.
As we transition the business, we will see stronger quality of earnings and strengthened cash generation.
And we will continue to evaluate all return of capital opportunities going forward.
In closing this past year.
Had the great privilege of spending time with our leaders and our various businesses our employees and our leadership teams.
And their hard work are core to these outcomes.
Colin Kopp: Their focus on the execution of our strategy and a deep commitment to safety and service delivery drive this success. My many thanks to everyone who's contributed to these outcomes. And finally, I want to thank our investors for their continued support and reiterate our commitment to creating value and achieving sustained success for our business. Thank you. I'll now pass it over to Gary to go through the financials. Thank you, Colin, and good morning everyone.
Their focus on the execution of our strategy and a deep commitment to safety and service delivery drive this success.
Many thanks to everyone who has contributed to these outcomes.
And finally I want to thank our investors for their continued support and reiterate our commitment to creating value and achieving sustained success for our business.
I will now pass it over to Gary to go through the financials. Thank you Colin and good morning, everyone.
Gary Osborne: I want to start by re-integrating Colin's earlier statement on guidance. We delivered on our 2023 published guidance, either meeting or beating the target range. We reduced our leverage ratio by almost a full turn, largely through long-term debt repayments of $341 million.
I want to start by reiterating columns earlier statement on guidance.
We delivered on our 2023 published guidance either meeting or beating the target ranges.
We reduced our leverage ratio by almost a full turn largely through long term debt repayments of $341 million. We ended the year with a leverage ratio of three six down from $4 four compared to December 31 2022.
Gary Osborne: We ended the year with a leverage ratio of 3.6, down from 4.4 compared to December 31, 2022. Lee and Priest adjusted in the dark to $458.7 million for the year, up $17.6 million from last year and ahead of our guidance. We generated strong free cash flow of $331.4 million during the year.
We increased adjusted EBITDA.
$458 7 million for the year up $17 6 million from last year and ahead of our guidance.
We generated strong free cash flow of $3 $31 $4 million during the year. This was down from the $371 $3 million a year before due to the significant aircraft sales in 2022.
Gary Osborne: This was down from the $371.3 million the year before due to the significant aircraft sales in 2022 and the sale of the 2A220 aircraft for 21.9 million U.S., which was planned for 23 but actually closed in January of this year. Paul's remarks focused more on the full year of 2023, and I would like to draw your attention to some specifics on the quarter. Our businesses performed well in the quarter, with the RAS segment, primarily Jazz and Voyager, delivering adjusted EBITDA of $61.3 million, and the leasing segment producing a solid $62.1 million.
And the sale of the <unk> hundred 20 aircraft were $21 9 million U S.
Which was planned in 'twenty, three but actually closed in January of this year.
Yeah.
Following his remarks focused more on the full year of 2023, and I would like to draw your attention to sensus specifics on the quarter.
Our businesses performed well in the quarter with the Grad segment, being primarily jazz and Voyager delivering adjusted EBITDA of $61 3 million and the leasing segment, producing a solid $62 1 million.
Gary Osborne: We are pleased to see positive changes in the airline credit market also, with the improvement in credit ratings on certain of our leasing customers, which resulted in an $8.6 million reduction in the allowances for expected credit losses in the quarter. In addition, we expect to sign an agreement with Azul very shortly that restructures our aircraft lease arrangements to provide for the recovery of all past, present, and future obligations under our original lease. As mentioned in the Outlook section of the MD&A, Azul has been paying under this planned arrangement.
We are pleased to see positive changes in the airline credit market also with the improvement in credit ratings on certain of our leasing customers, which resulted in an $8 $6 million reduction in the allowances for expected credit losses in the quarter.
In addition, we expect very shortly to sign an agreement with the Xul, which restructures our aircraft lease arrangements to provide for the recovery of all past present and future obligations under our original leases.
As mentioned in the outlook section of the MD&A as oil has been paying under this planned arrangement and if we take this into account our collection rate on revenue build in the fourth quarter would have been 97%.
Gary Osborne: And if we take this into account, our collection rate on revenue billed in the fourth quarter would have been 97%. Now, I would like to turn to the future and provide some commentary on 2024 and beyond. As you have seen, our cash flow generation and debt reduction was strong in 2023, and we see this trend continuing for this year, consistent with our Investor Day strategy we outlined last year. We are providing the following consolidated guidance for 2024. We expect our leverage ratio to be between 3.1 and 3.5 by the end of 2024, largely in line with our investor-day target range of 2.5 to 3.5. We expect adjusted EBIT to be between 300 and 400 million or 350 and 400 million, and we expect free cash flow to be between 290 and 340 million.
Yeah.
I would like to turn to the future and provide some commentary on 2024 and beyond.
As you will see our cash flow generation and debt reduction was strong in 2023, and we see this trend continuing for this year consistent with our Investor day strategy, we outlined last year.
We are providing the following consolidated guidance for 2024.
We expect our leverage ratio to be between three 1% and three five by the end of 2024 largely in line with our Investor day targeted range of two 5% to three five.
We expect adjusted EBITDA to be between 300, and $400 million or $350 million and $400 million.
We expect free cash flow to be between 290 and $3 $40 million.
Gary Osborne: Consistent with our transition to the Acid Light model and our previous indications, we are forecasting lower adjusted EBITDA in 2024 versus 2023, but we see the quality of earnings being enhanced. More importantly, we also are forecasting continued strong free cash flows and further strengthening of our balance sheet. I would like to highlight a couple of items in our guidance for 2024. First, we clarify the JAS fixed margin and the cash generated from aircraft leased under the CPA. The information shows the combination of fixed margin and aircraft leasing revenue under the CPA plus principal and interest payments on the aircraft debt generated $88.5 million in 2023 and is expected to be $94.7 million in 2024. The increase in cash generated in 2024 is due to aircraft moving to their second leases within the CTA. The second lease generates less revenue or adjusted EBITDA but generates more cash given the aircraft are debt-free.
Consistent with our transition to the asset light model and our previous indications we are forecasting lower EBIT adjusted EBITDA in 2024 versus 2023, while we see the quality of earnings being enhanced.
More importantly, we also are forecasting continued strong free cash flows and further strengthening of our balance sheet.
I would like to highlight a couple of items in our guidance for 2024.
Firstly can you clarify the jazz fixed margin and the cash generated from aircraft leased under the CPA.
The information shows the combination of fixed margin and aircraft leasing revenue under the CPA, let's principal and interest payments on the aircraft that generated $88 5 million in 2023.
And is expected to be $94 7 million in 2024.
The increase in cash generated in 2024 is due to aircraft moving to their second leases within the CPA.
The second lease generates less revenue or adjusted EBITDA, but generates more cash given the aircraft are debt free.
Gary Osborne: This trend is important to highlight. Older aircraft on the second lease generate less revenue but provide similar or better cash flows. The second item relates to guidance on the route.
This trend is important to highly older aircraft on the second lease generate less revenue.
It provides similar or better cash flows.
The second item relates to the guidance on the routes segments consistent with our asset light leasing strategy. We expect revenue to decrease in rail segment in 2024, as we execute on asset sales to unlock the embedded equity <unk>.
Gary Osborne: Consistent with our asset light leasing strategy, we expect revenue to decrease in the RAL statement in 2024 as we execute our asset sales to unlock the embedded equity, lease renewals that come in at lower lease rates than the original leases, and the expected completion of the restructuring agreement with Azul. On the aircraft sales side, we expect to generate net proceeds on asset sales of between $30 and $52.5 million in 2024. This is based on our current expectations around the core trading environment, which has been improving. The revenue reduction in our VAL segment is partially offset by the reduced aircraft appreciation and interest expense, along with the increase in the gains on the fair value of investments in our management, in our managed button.
Lease renewals that come in at lower lease rates than the original leases and the expected completion of the restructuring agreement with xul.
On the aircraft sales side, we expect to generate net proceeds on asset sales of between 30% and $52 5 million in 2020 for.
This is based on our current expectations around the core trading environment, which has been improving.
The revenue reduction in our rail segment is partially offset by the reduced aircraft depreciation and interest expense along with the increase in the gains in the fair value of investments in our management and our managed funds.
Gary Osborne: If you look at the revenue net of depreciation, interest expense, and gain on fair value assets, you will see a similar percentage margin in 2024 versus 2023. We also continue to target the windup of the Fund One assets in 2025, which currently have a net book value of assets less secure debt of $193.8 million. We expect XCNA and the RAL segment to be consistent year over year. With respect to Fund 3, we expect to close it by the end of 2024 and are encouraged by the improving macroeconomic conditions. Key assumptions for the 2024 guidance are outlined in the Outlook section of our MD MIG. As I close, I would like to thank our employees for delivering on these results this year. We couldn't have done it without them. We're now ready to take questions from the audience. Thank you, ladies and gentlemen. Should you have a question, please press the star followed by the number on your touchtone. If you'd like to withdraw your question, please press the star followed by the. If you're using a speakerphone, please lift the handset before pressing any key.
If you look at the revenue net of depreciation interest expense and gain on fair value of the assets you will see a similar percentage margin in 2024 versus 2023.
We also continue to target the windup of the fund one assets in 2025, which currently has a net book value of assets less secured debt.
Third $93 8 million U S.
We expect SG&A in the rail segment to be consistent year over year.
With respect to fund III, we expect to close this by the end of 2024 and are encouraged by the improving macroeconomic conditions.
Key assumptions for the 2024 guidance Aerovironment Yokel section of our MD&A.
As I close I would like to thank our employees for delivering on these results this year and we couldnt have done it.
We're now ready to take questions from the analyst community.
Thank you, ladies and gentlemen did you have.
A question. Please press the star followed by the one on your Touchtone phone.
To withdraw your question. Please press the star followed by the Q U K using a speaker phone please with the handset before pressing any keys.
Operator: One moment, please, for your first question. Your first question comes from Tim James from TD Cohen. Please go ahead. Thanks very much.
Woman. Please for your first question.
Your first question comes from Tim James from TD Cowen. Please go ahead.
Thanks, very much and good morning, everyone.
Tim James: Good morning. This is my first question. Just looking at the asset management revenue, it looks now that we've got a few quarters to observe this with the falco business. Am I correct that there seems to be a fairly strong kind of seasonal influence?
Good morning.
I guess my first question just wondering if looking at the asset management revenue. It looks now we've got a few quarters to observe this with the Falcon business am I correct that there is it seems to be a fairly strong kind of seasonal influenza like the revenue jumped up significantly in the fourth quarter relative to the third quarter and then I noticed you had a similar dynamic last year could you just talk.
Tim James: Like revenue jumped up. I noticed a similar dynamic last year. Could you just talk about what caused it?
About what causes sort of seasonal fluctuations in asset management revenue.
Gary Osborne: Fluctantuations in asset management. Yeah, Tim, it's Gary. It's sometimes just the way that the funds work as far as how they calibrate the amount of fees that are due to us by quarter. You're going to see a little bit of fluctuation, but what I would do is I would just say, look, you know, we had about $16 million for the year, but, you know, and if you look at the quarter, we're at about $4.2. You know, that's kind of the run rate that you'd expect to see around $4 million or so. But there are some fluctuations just when they do their valuations and how it works. Okay, so I think in the third quarter it was like $1.7 million or something.
Yes, Tim it's Gary.
Sometimes just the way that the the.
The funds work as far as how to calibrate the amount of fees that are due to us by quarter, you're going to see a little bit of fluctuation, but what I would do is I would just say look we had about $16 million for the year that you don't feel for the quarter were $4 two.
So thats kind of the run rate as you would expect to see on that $4 million or so.
But there is some fluctuations just when they do their valuations and how.
It works with the fees so.
Okay. So I think in the third quarter it was like.
One 7 million or something and then jumped up to that four two but youre seeing that.
Tim James: Tim James, Chorus Aviation Inc., Holy shit, about going forward, just more to kind of take your 16 million annual run rate and think about it that way? Yes. I think that's what you should do, Tim, is to take 16 and kind of run with it.
Kind of volatility.
Probably shouldn't sort of thing.
No forward just more just kind of take your $60 million annual run rate and you think about it yes, I think thats, what you should do Tim to take 16 and kind of run.
There could be the odd.
Gary Osborne: There could be the odd increase or decrease versus that trend rate in a quarter, but that's the best way to model it. Uh, my second question, I guess, related to the Azul agreement, and I'm sure you're limited on what you can say there, but is it possible just to confirm at least, I think, that that relates to War Aircraft, is that right, a couple of 195s? Do TRs, have I got that correct?
Increase or decrease versus that trend rate in the quarter.
That's the best way to model.
Okay.
My second question.
I guess related to the <unk> agreement and I'm sure you're limited on what you can see there but is it possible just to confirm at least I think that that relates to four aircraft does that rate a couple of hundred 90, fives and do ETR. So if I got that correct.
Gary Osborne: That agreement actually goes across the entire company. We have assets sitting in Fund 1, and we have assets in Fund 2, which is not really an issue for our consolidated statements. We also have assets that were in the old CASL portfolio, the 62 we had on the balance sheet, and we also acquired some as part of the Falco transaction. So it's a very significant transaction for us, and that's why we're disclosing it right now. It is a positive thing in our minds.
No.
That agreement actually it goes across the entire company we have.
Asset sitting in fund one we have assets in fund two which is not really an issue for our consolidated statements. We also have assets that we're in.
The old castle portfolio to 62, we had our balance sheet, so and we also acquired some.
Part of the telco transaction. So it is a very significant transaction for us and that's why we're disclosing it right now is it is a positive in our mind.
Kevin Chiang: We're getting every past, present, and future dollar recovered under that program. It's very consistent with what other lessors have gotten. We can't get into details at this stage. We're waiting to sign it, but there is a lot of literature out there on their particular restructuring data. That's great. Your next question comes from Kevin Chiang from CIBC. Please go ahead.
We're getting every.
Past present and future dollar recovered under that program, it's very consistent with what other lessors and we can't get into details at this stage that we're willing to sign up but there is a lot of the.
Literature out there on their particular restructuring Devin.
Okay. That's great. Thank you very much.
Okay.
Your next question comes from Kevin Chiang from CIBC. Please go ahead.
Colin Kopp: Hey, thanks for taking my question. I know you're being opportunistic and looking to maximize value, but do you have a sense of the timeline you want to work with in terms of, I guess, moving fully to an asset-light model within RAL? Is that something you want to do within three years, five years, as you, I guess, sell off some of these owned aircraft and, I guess, more fully transition to this portfolio management revenue stream? Hi Kevin, it's Colin.
Hey, Thanks, Thanks for taking my question.
I guess.
<unk> bin I know youre being.
Opportunistic and looking to maximize value, but you have a sense of.
The timeline do you want to work with in terms of.
I guess moving fully to an asset light model within <unk>.
It's been around like is that something.
Do you want to do within kind of three years five years as you as you.
The sell off some of these owned aircraft and I guess more fully transitioned to this portfolio management.
The revenue stream.
Okay.
Hi, Kevin It's Paul.
Colin Kopp: I can't really give you a timeline, but you know that we're working pretty diligently and making some progress here on the launch of Fund 3. I can see us hopefully achieving something in the next short period of time. I think Gary gives some perspective on that as we move into this year. That's the best I can give you, but there's no question we're very focused on it. We're trying to work with the environment that we've got today. It certainly slowed us down a little bit, but our goal is to continue to stay focused on it and grow it. Okay, that's, I appreciate the color there.
Okay.
I can't really give you a timeline.
But you know that we're working pretty diligently and making some progress here on <unk>.
The launch of funds III.
I can see is hopefully achieving something in the next short period of time.
I think Gary give some perspective on that as we move into this year.
That's the best I can give you, but there's no question, we're very focused on it we're trying to.
Work with the environment that we got today, and certainly slowed us down a little bit.
But our goal is to continue to stay focused on it and grow it.
Okay.
I appreciate the color there.
And then just on fund III.
Kevin Chiang: And that's just on Fund 3, sounds like you expect to close this, or in the disclosure, you expect to get this across the finish line by the end of this year. Just wondering, you know, I guess the visibility on that timeline, given we've seen this, the situation's been a little bit fluid over the past six to nine months. And I guess in the backdrop of obviously a pretty large transaction, you know, CDPQ and SMBC, it does feel like there's strong demand for aircraft leasing investments. Just wondering why maybe this is taking a little bit longer than you anticipated, given some of the excitement around this alternative investment vehicle. Kevin and Gary here. I think you can see some players coming in, that's for sure. They're mainly focused on the narrow-body game, so they're a little bit different, I think, from the ones you looked at there.
It sounds like you expect to close this sort of in the disclosure you expect to get this.
Across the finish line by by by the end of this year.
Just wondering I guess the visibility on the timeline given we've seen this.
<unk> been a little.
Bit fluid over the past six to nine months.
And then I guess in the backdrop of obviously, a pretty large transaction.
<unk> and SMB it does feel like there's strong demand for.
For aircraft leasing investments just wondering why.
Maybe just taking a little bit longer than you anticipated, giving given some of the excitement around.
Around this alternative investment vehicles.
Yeah.
Yes, Kevin this is Gerry here I think.
You can see some players coming in Thats for sure they're mainly focused on the narrow body.
Again, so there is little bit different I think of as long as you looked at there, but we've had positive and continue to have positive discussions with the target groups that.
Gary Osborne: But we've had positive and continue to have positive discussions with the target groups that Falco and Jeremy Barnes have been working with. It really is, as we've talked about, larger U.S. pension funds and family houses, things like that. And over the past bit, they've still liked the space; they're certainly interested in it. I think the conditions have come around or are starting to come around in Q4 and into this year with the drop in interest rates, the inflationary environment starting to back off a bit, talking about some reduction in foreign interest rates for the U.S. Fed and the Canadian Bank of Canada, but more importantly, the Fed.
Falco and Jeremy Barnes and been working with it really is as we've talked about this larger U S pension funds and family housing things like that and.
Over the past bit they still like the space Youre certainly interested in it I think the conditions have come around or starting to come around in Q4 and into this year with the drop in interest rates.
The inflationary environment, starting to back off a bit talking about some reduction in forward interest rates for the U S. Fed in median.
Canadian Canada, but more importantly, the fed so I think things are starting to come around and as I've said before we have a pension fund we have alternative investments this type of.
Gary Osborne: So I think things are starting to come around. And as I've said before, we have a pension fund, we have alternative investments, and this type of product fits well into it. It's just more of, I think, it's just waiting for the industry to come around or those that want to invest in it, and I think the conditions are starting to get there. So I wouldn't look as much into some of these other ones because they are focused on a different set of aircraft. Okay, that's fair enough.
Product fits well into its just more of I think.
Just waiting for the industry to come around or those that want to invest in is I think the conditions are starting to get there. So I wouldn't read as much into some of these other ones because they are focused on a different set of aircrafts.
Okay.
That's fair enough maybe.
Kevin Chiang: Maybe more of a strategic question, you obviously have a lot of stuff on the go here, but if you look at your share price performance and, you know, especially versus other aircraft leasing public entities, and I appreciate they traffic in a different kind of aircraft than you do, but the relative underperformance, of course, in aviation, is pretty significant, your price to book value is, you know, at least as of this morning, below 0.4 times. Just wondering how you think about that in terms of trying to narrow that discount, which I presume you feel there is between the intrinsic value of the assets you have versus what the market's attributing today to those assets. It does feel like, obviously, a pretty big discount.
Maybe more of a strategic question.
You, obviously have a lot of stuff on the go here.
But if you look at the share price performance.
Especially versus other aircraft leasing public entities and I appreciate the traffic and a different kind of aircraft than you do but.
The relative underperformance of chorus aviation is pretty significant your price to book value is at.
At least as of this morning below four times.
Just wondering how you think about that in terms of China.
Kind of narrow that discount, which I presume you feel there is between the intrinsic value of the assets you have versus versus what the market is attributing today to the to those assets. It does feel like.
Gary Osborne: Just wondering how you think about narrowing that gap, I guess relative to the long-term strategy you have here. Yeah. It's Gary here, Kevin.
Gary Osborne: You know, it is perplexing to us where we trade. I think you nailed it right. I mean, when you look at the trading price versus the inherent value of the company, it is perplexing. What we need to do, and we are continuing to do, is execute on what we outlined earlier last year at Investor Day. You know, we met our guidance for 2023, and we put a guidance that's within the bounds of that for 2024. We continue to execute on the plan. I think what I would do is, you know, I think for a lot of folks, we're not going to be able to do this. We're not going to be able to do this. We're not going to be able to do this.
Obviously, a pretty big discount or Youre, just just wondering how you think about narrowing that gap.
I guess relative to the long term strategy you have here yet.
It's Gary here Kevin.
Reflecting to us where we traded I think you nailed it right I mean, when you look at the trading price versus the inherent value of the company. It is perplexing, while we need to do is and we are continuing to do is execute on what we outlined earlier last year at Investor Day, We met our guidance for 2023 guidance within within the bounds of that for 'twenty.
Four we continued to execute on the plan I think what I would do is I think for a lot of folks is just focus on the core message, which is we are generating good free cash flow. If you look at the free cash flow. We generated was quite good in the year. If you look at next year EBITDA is down, but I think what im caution everybody is.
Gary Osborne: It's just focused on the core message, which is that we are generating good free cash flow. If you look at the free cash flow we generated this year, it was quite good. But if you look at next year, it is down.
Gary Osborne: But I think what I would caution everybody is that when you look at aircraft leasing, it is essentially revenue minus some SG&A. And as I alluded to earlier today, as we go to second leases, as we sell off aircraft, that revenue line will come down. But what's happening?
Is that EBITDA when you look at aircraft leasing is essentially revenue finding some SG&A.
And as I alluded to earlier today as we go into second leases as we sell off aircraft that revenue line will come down, but what's happening two things. One is the earnings we see within rail the margin percentages are consistent year over year generally speaking so we're seeing good healthy margins on the revenue that remains secondly, if you.
Gary Osborne: Two things. One is the earnings we see within RAL; the margin percentages are consistent year over year, generally speaking. So we're seeing good, healthy margins on the revenue that remains. Secondly, if you look at the free cash flow that we're generating versus EBITDA, it's actually improving. If you take a ratio of that, you can see the improvement.
Look at the free cash flow that we're generating versus the EBITDA is actually improving if you take a ratio of that you can see the improvement so the quality of the earnings although the cash flows are improving but I think one thing I would say two to those that model.
Gary Osborne: So the quality of the earnings, and the quality of the cash flows, are improving. And I think one thing I would say to those that model us and follow us is that free cash flow and cash generation are really what we're focused on. And that is the core of the value proposition for our shareholders, and we're gonna continue to execute on that. But as far as the stock price goes, you know, we don't like where it's at. I think we alluded to some of the issues around it. We have almost double that as far as assets on the balance sheet, quality assets, strong customers with their own canvas, and strong counterparty risk within our lessee environment.
And as my follow ups in the free cash flow and the cash generation is really what we're focused on and that is the core to the value proposition for our shareholders.
And we're going to continue to execute on that but as far as the stock price goes.
We are we don't like where it's at.
Due to some of the issues around it.
We have.
Almost double that as far as us.
Assets on the balance sheet quality assets strong customer with air Canada strong counterparty risks within our lessee environment. So it is perplexing to us, but it's just.
Colin Kopp: So it is perplexing to us, but it's just, I think, hopefully, a matter of time till the market catches up. So, Kevin, I'll just add, you know, when you think about the strategic side, really, we outlined this at the investor day, and really, the plan that we put out there was to transition to Acid Light. What does that do?
Hopefully a matter of time to the market catches up.
Kevin I'll just add when you think about the strategic side really the we.
We outlined this in the Investor day, and really the plan was.
That we put out there was to transition to asset light what does that do the sales down the on balance sheet side really turns the asset light business more into a cash flow business.
Colin Kopp: That sells down the balance sheet side, really turns the Acid Light business more into a cashflow business, and really changes us from the standpoint of the challenge we have today with being heavily on the balance sheet. And you're seeing us make progress there. You know, we've been kind of hung up a little bit on this Fund 3 timing, which has certainly not helped us. We're pretty frustrated with the stock price. There's no question about that.
And really changes us from a standpoint of the <unk>.
We have today was being heavily on balance sheet, and you're seeing us make progress there.
We've been kind of hung up a little bit on this fund III timing, which is certainly not helped us pretty frustrated with the stock price. There is no question about that but.
Colin Kopp: But in the long term, if you look at the business, it's really about transitioning the leasing business to more of a cash flow business than anything, which better aligns with kind of where we are with the rest of the businesses. I think, sorry, I've got a bit of a cold, but I think that is really, you know, the speed at which we've moved there has probably been some of the challenge we've had. There's no question about that. We're frustrated with where the price is, and we're looking at everything we possibly can to kind of move ourselves quicker in that direction, for sure. I appreciate the call out there, Colin. I hope you feel better as you get past this cold. Thanks, and have a good weekend.
But the long term if you look at the business, it's really about transitioning the leasing business to more of a cash flow business.
Which better aligns with where we are.
With the rest of the rest of the businesses. So.
I think sorry, I have got a bit of a cold but I.
I think that is really.
The speed at which we can move there has probably been some of the challenge. We've had there is no question.
We're frustrated where the prices and we're looking at everything we we.
Possibly can move ourselves quicker in that direction for sure.
I appreciate the color there Colin will help hopefully you feel better how did you get pass this call thanks and have a good weekend.
Thank you thanks.
Yes.
Your next question comes from Walter sparkling from RBC capital markets. Please go ahead, yes.
Kevin Chiang: Thank you. Thank you. Your next question comes from Walter Sprockling from RBC Capital Markets. Please go ahead. Yeah, thanks very much. Good morning, everyone.
Yes, thanks, very much good morning, everyone.
Morning.
So yes.
Operator: Morning. So, yeah, I just want to zero in on the pilot contract now that you've got that behind you. How has that helped you in terms of easing some of your constraints, you know, improving your visibility, and attracting and retaining new pilots, if you could give any color there, and of course, Air Canada is having its own pilot negotiations with ALPA, you know, being a new counterparty there. Do you see any risks there at all? Like, you know, I'm trying to think of scope clause changes or anything like that, given that this is kind of going to be a much more significant labor contract that Air Canada is negotiating compared to prior ones. Are there any risks to you that you see emanating from that contract, or if you're in a position to be able to even opine on that? Yeah, sure. Good question, Walter.
Yes.
Zero in on on the pilot contract that now that you've got that behind you is how has that helped you in terms of easing some of your constraints improving your visibility.
And in attracting retaining new pilots, if you could give any color there.
Of course Air Canada is having its own pie.
Pilot negotiation with a new with alpha being a new a new counterparty there.
See any risks there at all.
I'm trying to think scope clause changes or anything like that given that this is kind of be almost going to be a much more.
Much more significant labor contract that air Canada's.
Negotiating compared to prior ones is there any risk to you that you see emanating from from that contract or if youre in a position to be able to even EBIT pine on that.
Yes sure good question Walter.
Colin Kopp: You know, the pilot deal that JAS was able to put together with ELPA has significantly improved the retention and attraction of new candidates. You know, training classes continue to be full. They're, you know, they're busy.
The pilot deal that.
Gas was able to put together with alpha has significantly improves the retention and attraction.
New candidates training classes continue to be full.
They're they're busy like it's the whole industry right now, especially in the smaller gauge equipment is busy.
Colin Kopp: Like, the whole industry right now, especially in the smaller gauge equipment, is busy training and searching for pilots. You know, that whole human capital side of the North American industry is very, very, very busy. So... Jazz is no different in a lot of ways.
Searching for pilots.
All human capital side of the North American industry is very very very busy so.
<unk> is no different than a lot of ways I think jazz is.
Colin Kopp: I think Jazz is... Got a lot of good things and, you know, relating to its flow agreement with Air Canada, relating to the wages now, the contract, the type of contract we offer, the benefits. So recruitment and retention are radically improved. But it doesn't mean that we won't be flowing pilots to Air Canada. There's no question about that.
<unk> got a lot of good things relating to its flow agreement with air Canada relating to the wages now that contract the type of contract we offer the benefits so recruitment and retention has improved radically.
But it doesn't mean that we won't be floating pilots to air Canada. There's no question about that we're going to continue to flow based on what their needs are.
Colin Kopp: We're going to continue to flow based on what their needs are, and they'll balance that flow of pilots based on where they want the equipment and what routes they want flown with what equipment. Capacity wise, it's, you know, to some degree, it's up to your candidate, and we work closely with them to kind of manage that, but we're training full bore. No problems recruiting or attracting on the labor side. You know, Help is the largest pilot union, as you know, pretty sophisticated, and we've worked with them for many years, and we've had no problems. I mean, we always have your normal challenges, but we've had no major problems. We always find solutions with them.
<unk> balance that flow of pilots based on where they want equipment.
What groups, they won't flow and with what equipment. So.
<unk> wise, it's to some degree it's up to air Canada, and we work closely with them to kind of manage that.
But we're training hole bore no problems recruiting are attracting on the labor side.
<unk> the largest pilot Union as you know.
Pretty sophisticated.
We.
We've worked with them for many years at no problems.
Your normal challenges, but we've had no major problems where it was.
Find solutions for them, so I suspect Air Canada, we will find a solution that works through their challenges that they have in getting an agreement with them.
Colin Kopp: So I suspect Air Canada will find a solution and work through their challenges that they have and come up with an agreement. We don't see any threat from it. There could be some good things coming out of it that further facilitate the way the two pilot groups work together or the two companies work together. There is no question about that. We're seeing that in the US, where flow agreements become more precise or concise, more structured. Those types of things, but yeah, look, I have great confidence that this thing will get sorted out. And that, you know, things will continue to improve as we move forward here on the pilot side. Okay, that's great. The second question here now is on the lease revenue from the CPA.
We don't see any threat from it.
There could be quite well some good things come out of it that.
Further facilitate the way the two pilot groups work together the two companies work together.
No question about that and we're seeing that in the U S where flow agreements become more.
Precise or concise more structured.
Those types of things, but yes look.
I have great confidence that this thing will get sorted out.
And that things will continue to improve as we move forward here on the pilot side.
Okay, that's great.
Second question here now is on the lease revenue from the CPA you noted some changes in the lease rates.
Colin Kopp: You noted some changes in the lease rates coming down a bit. Just curious, you know, if you could give a bit more color on that, but also, as Air Canada grows its A220 fleet, do you see any risk there that they need fewer regional aircraft, and if that's going to impact JAZ's revenue profile going forward? Just a little bit more color on that would be great.
Coming down a bit.
Just curious.
Could you give a bit more color on that but also.
As Air Canada.
<unk> <unk> hundred 20 fleet do you see any risk there that they need.
Fewer regional aircraft and if thats going to impact <unk> revenue profile going forward, just a little bit more color on.
That would be great.
Colin Kopp: Yeah, I don't, I don't see any impact coming to us. On the aircraft side, as you know, we've got a threshold in there of 80 aircraft minimum. What we see is from Air Canada's continuous demand for us to continue to fly more and do more with what we have. So, I don't, you know, there's nothing in the near future that shows that in any shape or form.
Yes, I don't see any impact coming to us on the aircraft side as you know we've got a threshold in there of 80 aircraft minimum.
What we see is from air Canada is continuous demand for us to continue to apply more and do more with what we have so.
Theres nothing in the in the near future that shows that.
Any shape or form.
Colin Kopp: Yeah, the A220 has certainly been put on routes that we have flown in the past. No question about it, but traffic's increased. And where you see, you know, smaller markets that make sense or time of day markets that make sense to do that, I think, obviously, that's the right thing to do, but it gives them an opportunity for us to redeploy. And you can see where we've been redeployed in a lot of cases, and we're agnostic to where we go, right? At the end of the day, we don't necessarily have ownership of airports or destinations.
Yes, the <unk> hundred 20 has certainly been put on routes that we have flown in the past no question about it but traffics increased.
And where you see.
Smaller markets that make sense or talking about game markets that make sense to do that I think obviously thats a right thing to do but it gives them opportunity for us to redeploy and you can see where we've been redeployed a lot of cases.
Diagnostic to where we go right at the end of the day, we don't have ownership necessarily.
Airports are destinations per se.
Colin Kopp: We're really focused just on operating the aircraft, so it's pretty straightforward for us. We don't see any reduction there. Our agreement really speaks to AD Aircraft anyway. There's not a lot of change to come for us. Walter, it's Gary here.
<unk>.
We're really focused just on operating aircrafts, so it's pretty straightforward for us.
So, yes, we don't see any any reduction there.
Our agreement is really speaks to 80 aircraft anyway. So.
Theres not a lot of not a lot of change to come there for us So Walter it's Gary here just on the revenue piece those are.
Gary Osborne: Just on the revenue piece, as we see the revenue come down, I just want to remind everybody that the aircraft that we originally purchased through EDC and as the financier and whatnot are fully amortized at the end of the first lease. What you're seeing is they're moving to the second lease. That's why you're seeing these reductions in revenue. It's really just scooping that back, but there's no debt on these aircraft as of today. They're generating really good free cash flow. You look at the table also, we kind of remind everybody the aircraft that are coming off lease or potentially off lease with Air Canada, there is potential to put them back in CPA, put them elsewhere or whatever. There's some upside to that fleet. But yeah, the profile is still very good on that.
Just as we see the revenue come down and I, just remind everybody that.
The aircraft that we originally purchased with.
Through EDC and <unk>.
As a financier and whatnot are fully amortize at the end of the first lease and what Youre seeing as they move into the second lease so thats why youre seeing these reductions in the revenue. So it's really just.
But there is no debt on these aircrafts.
Today, so they're generally really good free cash flow and when you look at the table also we've kind of remind everybody of the aircraft better.
Coming off lease or potentially off lease with air Canada, there is potential to come back and seagate with them elsewhere or whatever so there is some upside to that fleet.
The profile is still very good on this this week.
Gary Osborne: And my last question here is about Voyager; can you talk a bit about the contract pipeline there? I know you added a couple.
That's great and last question here is on Voyager.
Can you talk a bit about the contract pipeline. There I know you added a couple.
Colin Kopp: Can you confirm the air ambulance if that was a new or renewed contract? And yeah, just talk a bit about the pipeline for new contracts on the Voyager side of your business. It'd be great.
Can you confirm the air ambulance, if that was a new or renewed contract and you just talked a bit about the pipeline for new contracts.
<unk> side of your business would be great.
Colin Kopp: Yeah, it's been, it's been good. You know, they're continuing to expand their ambulance business. That's not the one I referenced is not new. It came out a little while ago in a release.
Yeah, it's been it's been good they've continually continuing to expand their ambulance business.
That's not the one I referenced is not new it came out a little while ago in our release, but.
Colin Kopp: But, you know, they've been successful, year-over-year, to consecutively grow top-line and bottom-line, doing a great job there. They're very focused now on where their growth verticals are. And, you know, slowly moving out of that commoditized business that they were in before, which is kind of the MRO business, you know, and there's often a lot of confusion around what an MRO business is or isn't. Boys, you're very much on the specialty MRO side and the pen side.
They've been successful.
Year over year to consecutive legal grow topline bottomline doing a great job there.
They are very focused now on.
Where their growth verticals are.
Slowly moving out of that Commoditized business as they were in before which side of the MRO.
There's often a lot of confusion around what an MRO business sales in the region.
She was very much in our specialty MRO side and defense side. So.
Colin Kopp: So that business is growing well; the major business is growing well. And they've got a lot of opportunities on the horizon that they're working through. So, you know, we're pretty excited about them. We think, you know, right now with the portfolio that we do have, they certainly are starting to show some pretty positive results, and we expect that to continue in the years ahead here. That's great. Okay, that's all my questions. Thanks for your time. Thanks, Walter.
That business is growing well the made in the business is growing well.
And they've got a lot of opportunities on the horizon with the working through so we're pretty excited about them.
We think right now with the portfolio that we do have.
They certainly are starting to.
Shows some pretty positive results and we expect that continue to do.
In the years ahead here.
Great. Okay. That's all my questions. Thanks for the time thanks.
Walter Sprockling: Thank you. Your next question comes from Konark Gupta from Scotiabank. Please go ahead. Hi, good morning. This is Ali filling in for Conor today. Morning. Yeah, this is Ali filling in for Conor today.
Thanks, Walter Thank you.
Your next question comes from <unk> Gupta from Scotiabank. Please go ahead.
Hi, Good morning. This is Andy filling in for a conduct today. Good morning, Yes. This is a deepening into contract today. Thank you for taking my question.
Operator: Thank you for taking my questions. So my first question is about the gap between adjusted EBITDA and adjusted net income. Similar to last quarter, the gap was wider than normal. It seems the adjusted tax rates were even higher this time at about 40%, but income attributable to non-controlling interest was also substantially higher at about 2.4 million. Can you shed some light on what drove those two items and how we should think about them in 2024? It's Gary here.
So my first question is on the gap between adjusted EBITDA and adjusted net income similar to last quarter. The gap was wider than normal. It seems the adjusted tax rate was even higher at this time that about 40%, but income attributable to Noncontrolling interests was also substantially higher at about two.
4 million can you shed some light on what drove those two items and how we should think about them in 2024.
It's Gary here I think the biggest thing to focus on maybe the tax piece.
Gary Osborne: I think that the biggest thing to focus on maybe is the tax piece. This year we saw, if you go to note 14 of the financial statements, there are a couple items and others in the allowance for deferred tax assets. Those would be non-recurring in our minds. They were something we saw this year.
This year, we saw if you go to note 2014 financial statements. There's a couple of items in other in the allowance for deferred tax assets those would be non recurring in your mind.
You saw this year, so going forward, we wouldn't see those so if you start to normalize the tax rate youre going to youre going to get back into more of the 25% plus or minus range I think that's more where its at and Thats really the biggest piece that I think youre seeing as far as the translation goes and we don't see that moving forward.
Gary Osborne: So going forward, we wouldn't see those. So if you start to normalize the tax rate, you're going to get back into more of the 25% plus or minus range. I think that's more where it's at. And that's really the biggest piece that I think you're seeing as far as the translation goes. And anyway, we don't see that moving forward.
Ali: Alright, thanks. That's helpful. Maybe a second question on your RAL outlook. You expect net proceeds from asset sales this year to be between 30 to 35% of gross proceeds, whereas both figures will be similar in 2023. Does that mean the loan-to-value on assets to be sold this year is higher than 50%, or is there some other accounting element? No, I think that's correct.
Alright, Thanks, that's helpful and.
Maybe a second question on your <unk> outlook.
You you expect net proceeds from asset sales this year to be between 30% to 35% of gross proceeds whereas both figures were similar in 2023 does that mean the loan to value on assets to be sold this year is higher than 50% or is there some other accounting item.
No I think.
Gary Osborne: We are looking at our entire portfolio. There would be some other assets in there where we would like to transact on that could be closer, you know, the loan, the value would be higher, say, so we're, that's what you're seeing in that portfolio. Okay, thank you. I appreciate the time. That's all my questions.
That's correct, we are looking at our entire portfolio there would be some other assets in there where you'd like to transact on that could be closer the loan to value would be higher so were thats, what youre seeing in that forecast.
Yes.
Okay. Thank you.
That's all my question.
Ali: Your next question comes from David Ocampo from Carmark Securities. Thanks. Good morning, everyone. Good morning, David. Hi, David.
Your next question comes from David Ocampo from <unk> Securities. Please go ahead.
Yes.
Hi, Thanks, good morning, everyone.
Good morning, David David.
David Ocampo: I really appreciate the color that you guys gave on the CPA with Air Canada going out to 2026. Just a couple of questions on that. First one, is the fixed fee plus leasing revenue your expectation for EBITDA from the CPA? Yeah, so if you look at the fixed fee, there are a few expenses that come out of that, but the bulk of it makes its way through, for sure, the vast majority, and the revenue under the CPA is EBITDA. So, when you look at it, because it's all within the CPA, the aircraft, there's no real administration expense associated with it.
I really appreciate the color that you guys gave on the CPA with air Canada going out to 2026.
Couple of questions on that first one is the <unk>.
<unk> leasing revenue your expectation for EBITDA from the CPA.
Yes, so if you look at the <unk>.
<unk> expenses that come out of that but.
The bulk of that makes its way through for sure the vast majority and the revenue under the CPA is EBITDA. So.
When you look at it because it's all within the Cta the aircraft Theres No real administration expense associated with it so yes, youre seeing a drop off in EBITDA and revenue under the CPA and Thats what were trying to highlight but yet the cash generation is still very very strong.
Gary Osborne: So, yeah, you're seeing a drop off in EBITDA and revenue under the CPA, and that's what we're trying to highlight. But, yet, cash generation is still very, very small. Yeah, that makes sense.
Yes that makes sense and maybe you guys could perhaps walk us through your ability to backfill that decline in the CPA, even though the cash flow looks good because it does seem like not the EBITDA is going to go down, but but maybe even EPS over the next three years.
David Ocampo: And maybe you guys can perhaps walk us through your ability to backfill that decline in the CPA, even though the cash flow looks good. Because it does seem like not just EBSDAO is going to go down, but maybe even EPS over the next three years. Is that a fair statement?
That a fair statement.
Gary Osborne: I think it's potential for everything, as you bring down your revenue and what not, certainly that line could be impacted also. Our ability to reconstitute and put back into the company is really dependent on bringing down our leverage and getting to a point where we're starting to generate positive free cash flows in the sense that we have extra amounts to put into growth capex, and that's what we're doing here right now with the strategy we've put in place. We are deleveraging, we're producing good, strong free cash flow, and we're creating room in order to start to reinvest. I'm sorry, Gary. Is your expectation for 2024 UPS to decline on a year-over-year basis based on that comment? No, we're not giving anything on that side, on the EPS line, but you've got to give it to our line; the revenue will come down. I think if you look at modeling the rest of it, you can make your own decisions on that. Okay, that makes sense.
Yes, I think as the potential for everything as you bring down your revenue and whatnot.
It can be impacted also our ability to re.
Certainly to reconstitute and put back into the company is really.
Dependent on bringing down our leverage and getting to a point, where we're starting to generate positive free cash flows in the sense that we have extra amounts to put into growth Capex and thats what were doing here right now with the with the strategy. We put in place. We are deleveraging. We are producing good strong free cash flow, we are creating room in order to start to <unk>.
And the company.
Okay.
I'm sorry, Gary is your expectation for 2024 EPS to decline on a year over year basis based on that comment no. We're not giving you anything on that side on the EPS line, but.
You've got the EBITDA line the revenue come down.
If you look at modeling the rest of it.
You can make your own decisions on that please.
Okay that makes sense and then just on your on your comments there on on re accelerating maybe growth capex.
Gary Osborne: And then just on your comments there about the accelerating maybe growth capex, at what level of leverage are you guys comfortable ramping that back up since you guys are kind of comfortably in that range that you laid out on investor day? Well, we've given a long-term range of 2.5 to 3.5, so I think that's, you know, certainly where we would start to turn this into growth capex. I think we've got a big year this year. If you look at it, we will have our unsecured revolver paid off with EDC. There was about $25 billion U.S. left on that. We have a Series A that we're dealing with this year. I think we'll be well-positioned post this year to start that. Okay, that's all the questions. Thanks a lot.
Level.
Leverage are you guys comfortable ramping that back up since you guys are kind of comfortably in that range that you laid out on your Investor day.
While we've given a long term range of two five to three and a half. So I think thats, certainly where we would start to try and turn this going into growth capex.
I think we've got a big year. This year. If you look at it we will have our unsecured revolver paid off with EDC. There was about 25 billion U S platform that we have a series of days that we're dealing with this year I think we'll be well positioned post this year to start start that.
Start that trend.
Okay. That's all the questions right excellent okay.
Okay.
Operator: Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the 1. Your next question comes from Matthew Lee from Canaccord. Please go ahead.
Ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by the one your next question comes from Matthew Li from Canaccord. Please go ahead.
Matthew Lee: Good morning, guys. I want to touch on guidance quickly. Obviously, part of the reduction for the F-24 is related to aircraft sales, but are there any other factors causing some reduction in those numbers, whether it be renewals or, you know, utilization? Yeah, it's Gary here, Matt.
Hey, good morning, guys I wanted to touch on guidance quickly. So obviously part of the reduction in EBITDA for F. 'twenty four is made to aircraft sales, but just are there any other factors, causing some reduction in those numbers, whether it'd be renewables.
Utilization.
Yes, it's Gary here Matt.
Gary Osborne: I think there's a couple of things I think we should take into account. One is the sale of the air Baltic aircraft, which does have an impact on next year because of some lease renewals during the course of this year. If you take Q4, it's kind of a run rate, and multiply it by 4, it gives you probably the right starting point. Start to take out something on the air Baltic sales. And also with Azul, it's in the same neighborhood as far as impact. We have a reduction in revenue, but we're collecting all of the same amounts of payments. It's just where the buckets hit.
I think there's a couple things I think we should take into account one is the sale of the two the Baltic aircraft that does have an impact for next year. We've had some lease renewals. During the course of this year. If you take Q4 is kind of a run rate and multiply by four. It gives you is probably the right starting point start to take out something on the with the ear Baltic sale.
And also with Azores, and Susan same neighborhood as far as impact we have a reduction in revenue, but yet we're collecting all of the senior management team, it's just where the buckets here. So what we're trying to show is that look the revenue will come down but.
Gary Osborne: So, what we're trying to show is that look, you know, the revenue will come down, but, you know, overall, our cash generation is still quite high. Right, that's great. And then maybe, in terms of aircraft sales, it looks like the Air Baltic sale already gets you kind of close to the low end of your net sales guidance for 2024. And looking at your footnotes, it looks like the remainder of your guidance is made up primarily of CRJ engines. Just thinking about, are you holding the remainder of your route on aircraft to sell in 2025 and maybe the rationale behind that? Yeah, so if you look at the forecast we've given, there was a question earlier, you know, just on the net proceeds on the asset sales, we're certainly targeting some higher loan to value aircraft. So that's why you're seeing maybe the next generation down a bit but the sales numbers up on Ravelin.
Overall, our cash generation is still quite good.
Alright, that's great and then maybe in terms of aircraft sales.
It looks like the <unk>.
<unk> already gets you kind of close to the low end of your net sales guidance for 2024.
And looking at the remainder of your guidance is made up primarily of <unk> engine.
Just thinking about like are you holding the remainder of the year, Rob on the aircraft the songs by 'twenty, five and maybe the rationale behind bonds.
Yes. So if you look at the forecast we've given there was a question earlier.
Just on the net proceeds from the asset sales, we're certainly targeting some higher loan to value aircrafts. So thats why youre seeing maybe the next generation down a bit but the sales number up on ravelin, yes, we're still targeting 2025 for that piece to wrap it up you may see the odd aircraft.
Gary Osborne: Yeah, we're still targeting 2025 for that to wrap it up. You may see the odd aircraft in the interim or a few aircraft in the interim, but it's a wrap-up in 2025. So that's a big piece of the puzzle.
In the interim or few aircraft in the interim but it's a ramp up in 'twenty five so that's a big.
Piece of the puzzle.
Gary Osborne: All right, that's fantastic. Thanks, and there are no further questions at this time. I will turn the call back over to Tyrone for closing remarks. Thank you, Julie, and thank you everyone for taking part in this call during a very busy week for reporting. Have a good day, everyone. Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.
Alright, that's fantastic thanks, guys.
And there are no further questions at this time I will turn the call back over to Karen for closing remarks.
Thank you Julie and thank you everyone for taking part in this call during a very busy week for reporting.
Have a good day everyone.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
Yes.
Peter.
Yes.
The only one that got it.
<unk>.
[music].
Yes.
[music].