Q1 2024 Air Transport Services Group Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Q1 2024 Air Transport Services Group Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joe Payne, Chief Legal Officer. Please stand by; our conference will begin momentarily.

Good day, and thank you for standing by and welcome to the Q1 'twenty 'twenty four Air Transport Services Group, Inc. Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session. Please press star one.

One on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Joe Payne Chief.

Joe Payne: Keith legal officer.

Joe Payne: Please standby.

Joe Payne: He will begin momentarily.

Joe Payne: Please standby your conference will begin momentarily.

Joe Payne: Good morning, and welcome to our first quarter 2024 earnings conference call. We issued our earnings release yesterday after the market closed. It's on our website at ATSGINC.com.

Joe Payne: Good morning, and welcome to our first quarter 2024 earnings Conference call we issued.

Joe Payne: Our earnings release yesterday after the market closed its on our website at ATSG I N C Dot com.

Joe Payne: Let me begin by advising you that during the course of this call, we will make projections and other forward-looking statements that involve risks and uncertainty. Our actual results and other future events may differ materially from those we describe here. These forward-looking statements are based on information, plans, and estimates as of the date of this call. Air Transport Services Group undertakes no obligation to update any forward-looking statement to reflect changes in underlying assumptions, factors, new information, or other changes.

Joe Payne: Let me begin by advising you that during the course of this call we will make projections and other forward looking statements that involve risks and uncertainties.

Joe Payne: Our actual results and other future events may differ materially from those we describe here.

Joe Payne: These forward looking statements are based on information plans and estimates as of the date of this call.

Joe Payne: These factors include, but are not limited to, unplanned changes in the market demand for our assets and services, including the loss of customers or a reduction in the level of services we perform for customers; our operating airline's ability to maintain on-time service and control costs. The cost and timing with respect to which we were able to purchase and modify aircraft to a cargo configuration. Fluctantuations in ATSG's traded share price and in interest rates, which may result in mark-to-market charges on certain financial instruments, the number, timing, and scheduled routes of our aircraft deployments to customers.

Joe Payne: Air Transport services group undertakes no obligation to update any forward looking statements to reflect changes in underlying assumptions factors, new information or other changes.

Joe Payne: These factors include but are not limited to unplanned changes in the market demand for our assets and services, including the loss of customers a reduction in the level of services, we perform for customers.

Joe Payne: Our operating airline's ability to maintain on time service and control costs the cost.

Joe Payne: And timing with respect to which we were able to purchase and modify aircraft to a cargo configuration.

Joe Payne: Fluctuations in Atsg's traded share price and in interest rates, which may result in mark to market charges on certain financial instruments.

Joe Payne: The number timing and scheduled routes of our aircraft deployments to customers.

Joe Payne: Our ability to remain in compliance with key agreements with customers, lenders, and government agencies. The impact of current supply chain constraints, both within and outside the U.S., which may be more severe or persist longer than we currently expect. The impact of the current competitive labor market and changes in general, economic, and or industry-specific conditions, including inflation and regulatory changes. The impact of geopolitical tensions or conflicts and human health crises and other factors as contained from time to time in our filings with the SEC, including the Form 10-Q to be filed this week.

Joe Payne: Our ability to remain in compliance with key agreements with customers lenders and government agencies.

Joe Payne: The impact of current supply chain constraints, both within and outside the U S, which may be more severe or persist longer than we currently expect.

Joe Payne: The impact of the current competitive labor market.

Joe Payne: Changes in general economic and industry specific conditions, including inflation and regulatory changes.

Joe Payne: The impact of geopolitical tensions or conflicts and human health crises and other factors as contained from time to time in our filings with the SEC, including the Form 10-Q to be filed this week.

Joe Payne: We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings adjusted earnings per share adjusted pretax earnings adjusted EBITDA free cash flow and adjusted free cash flow.

Joe Payne: Management believes these metrics are useful to investors in assessing atsg's financial position and results.

Joe Payne: These non-GAAP measures are not meant to be a substitute for our GAAP financials.

Joe Payne: We advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website.

Joe Payne: We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, adjusted pre-tax earnings, adjusted EBITDA, free cash flow, and adjusted free cash flow. Management believes these metrics are useful to investors in assessing ATSG's financial position and results. These non-GAAP measures are not meant to be a substitute for our GAAP finance. We advise you to refer to the Reconciliations to GAAP measures, which are included in our earnings release and on our website. And now I'll turn the call over to Joe Hete, our Chairman and CEO, for his opening comments.

Joe Payne: And now I'll turn the call over to Joe <unk>, our chairman and CEO for his opening comments.

Joe Hete: Thank you, everyone. I have a couple of positive developments I'd like to share with you before reviewing our results for the quarter. As many of you have seen, we just expanded and extended our flying agreement with Amazon to operate 10 more Boeing 767-300 freighters that Amazon will provide this year, with the first one in June. The agreement includes the potential for Amazon to add up to 10 more aircraft beyond 2024. At ATSG, we are committed to providing high-quality service to our customers, and we believe this expansion of our relationship with Amazon is evidence of those efforts.

Joe Payne: Thanks, Joe.

Joe Payne: Morning, everyone.

Joe Payne: I have a couple of positive developments I'd like to share with you before reviewing our results for the quarter.

Joe Payne: As many of you have seen we just expanded and extended our flying agreement with Amazon to operate 10, more Boeing 767, 300 freighters that Amazon will provide this year with the first one in June.

Joe Payne: The agreement includes the potential for Amazon to add up to 10 more aircraft beyond 2024.

Joe Payne: At ATSG, we are committed to providing high quality service to our customers and we believe this expansion of our relationship with Amazon is evidence of those efforts.

Joe Hete: The first 10 aircraft will be operated by ABX Air. This agreement for 10 aircraft will initially increase the number of freighters that ATSG will operate for Amazon by year end, including 30 that CAM leases. We are now and will continue to be Amazon's principal provider of air operations and capacity. Additionally, the amendment extends the term of the flying agreement into 2029, with the option to extend to 2034.

Joe Payne: The first 10 aircraft will be operated by AVX Air.

Joe Payne: This agreement for 10 aircraft will initially increase to 50, the number of freighters at ATSG will operate for Amazon by year end, including 30 that Cam leases.

Joe Payne: We are now and will continue to be Amazon's principal provider of air operations and capacity.

Joe Payne: Additionally, the amendment extends determined the flying agreement into 2029 with the option to extend it to 2034.

Joe Hete: We have adjusted our guidance for 2024 to include some benefit from the incremental flying under the agreement. The benefit factors in startup costs as we onboard the additional aircraft and a partial year impact of the additional revenue. We expect results from this incremental flying to improve in 2025, as described in the press release in 8K. ATSG granted new warrant incentives to Amazon and amended the terms of vested and unvested warrants they already hold.

Joe Payne: We have adjusted our guidance for 2024 to include some benefit from the incremental flying under the agreement.

Joe Payne: The benefit factors and startup costs as we onboard the additional aircraft and a partial year impact of the additional revenue.

Joe Payne: We expect results from this incremental flying to improve in 2025.

Joe Payne: As described in the press release and 8-K H.

Joe Payne: ATSG granted new Werent incentives to Amazon and amended the terms of vested and unvested warrants they already hold.

Joe Hete: The second piece of good news is that the ABX Air Pilots ratified an extension of their contract over the weekend, pushing the next amendable date out until 2030. This provides that airline's customers with significant labor stability into the next decade. Hats off to their leadership.

Joe Payne: Second piece of good news is the AVX air pilots ratified an extension of their contract over the weekend pushing the next amendable date out until 2030.

Joe Payne: This provides that airlines customers with significant labor stability into the next decade.

Joe Payne: Hats off to their leadership.

Joe Hete: I want to thank the entire ATSG team for their efforts as we execute the plans we laid out for 2024. We remain focused on safety, customer satisfaction, and cost control. We delivered four converted 767-300 freighters to external customers in the quarter, and the benefit of our capital spending reductions was evident as we generated positive free cash flow, putting us in a great position to achieve more of the same for the full year.

Joe Payne: I want to thank the entire <unk> for their efforts as we execute the plans we laid out for 2024.

Joe Payne: We remain focused on safety customer satisfaction and cost control.

Joe Payne: We delivered four converted 767 300 freighters to external customers in the quarter and the benefit of our capital spending reductions were evident as we generated positive free cash flow, putting us in great position to achieve more of the same for the full year.

Joe Hete: As I just mentioned, we are raising our adjusted EBITDA guidance by $10 million and reaffirming our capital expenditure outlook for 2024. Our commercial teams remain focused on opportunities for both additional aircraft leases and incremental flying for our airlines, which could add upside to our guidance. We're excited about these developments and believe they showcase the best of ATSG's fundamentals. We look forward to implementing these plans. I will now turn the call over to Quint Turner to discuss our financial results for the quarter. Thanks, Joe.

Joe Payne: As I just mentioned, we are raising our adjusted EBITDA guidance by $10 million and reaffirming our capital expenditure outlook for 2024.

Joe Payne: Our commercial teams remain focused on opportunities for both additional aircraft leases and incremental flying for airlines, which could add upside to our guidance.

Joe Payne: We're excited about these developments and believe they showcase the best of Atsg's fundamentals.

Joe Payne: We look forward to realizing these plans.

Joe Payne: I will now turn the call over to Quint Turner to discuss our financial results for the quarter Quint.

Quint O. Turner: And welcome to everyone joining us today. I'll start on slide four, which summarizes our financial results for the quarter. Revenues were down $15 million or 3% versus a year ago to $486 million. This was driven by lower revenue in both CAM and the ACMI services segment. In the first quarter, we saw a gap pre-tax earnings of $12 million, down from a pre-tax earnings of $27 million in the prior year period. This resulted in diluted earnings per share of $0.13 versus diluted earnings per share of $0.25 in the first quarter of 2023.

Quint O. Turner: Thanks, Joe and welcome to everyone joining us this morning.

Quint O. Turner: I'll start on slide four which summarizes our financial results for the quarter.

Quint O. Turner: Revenues were down $15 million or 3% versus a year ago to $486 million.

Quint O. Turner: This was driven by lower revenue in both Cam and the <unk> services segment.

Joe Payne: In the first quarter, we saw a GAAP pre tax earnings of $12 million down from our pre tax earnings up $27 million in the prior year period.

Joe Payne: This resulted in a diluted earnings per share of <unk> 30 cents versus diluted earnings per share of <unk> 25 cents in the first quarter of 2023.

Quint O. Turner: On an adjusted basis, pre-tax earnings fell $23 million to $15 million, and adjusted EPS was down by half of prior year levels to $0.16. In our aircraft leasing segment, revenues decreased seven. Excluding revenues associated with CAM's 767-200 engine power program, segment revenue would have been flat. Since March 2023, CAM leased 12 additional Boeing 767-300 and 3 Airbus A321-200 freighters, and saw returns of 16 767 freighters, including 12 767-200s. CAM's pre-tax earnings were down $21 million for the quarter, reflecting a $7 million decline from fewer 767-200 engine cycles and $5 million more in both interest expense and depreciation versus the prior year.

Joe Payne: On an adjusted basis pretax earnings fell 23 million to 15 million.

Joe Payne: And adjusted EPS was down by half of prior year levels to 16 says.

Joe Payne: In our aircraft leasing segment revenues decreased 7%.

Joe Payne: Excluding revenues associated with <unk> 767, 200 engine power program.

Joe Payne: <unk> revenue would have been flat.

Joe Payne: Since March 2023 families 12, additional Boeing 767, 303, Airbus <unk> hundred 21 200 freighters.

Joe Payne: But solid returns of 16, 767 freighters, including 12 767 two hundreds.

Joe Payne: Cam's pretax earnings were down $21 million for the quarter, reflecting a $7 million decline from fewer 767, 200 engine cycles and $5 million more in both interest expense and depreciation versus the prior year.

Quint O. Turner: Additionally, four 767-300 converted freighters were deployed to external customers during the quarter, while one 767-300 and three 767-200 freighters were returned. At quarter end, 90 Camino aircraft were leased to external customers, too, for fewer than a year. In our ACMI services segment, we reported a pre-tax loss of $3 million compared with a loss of $2 million in the first quarter of last year. Total block hours flown by our three airlines were down 3% versus the prior year quarter.

Joe Payne: Additionally, four 767 300 converted freighters were deployed to external customers during the quarter. While one 767 303 767 200 freighters were returned.

Joe Payne: At quarter end 90, Cam owned aircraft were leased to external customers two fewer than a year ago.

Joe Payne: And our <unk> services segment, we reported a pretax loss of $3 million compared with a loss of $2 million in the first quarter of last year.

Joe Payne: Total block hours flown by our three airlines were down 3% versus the prior year quarter.

Quint O. Turner: Omni, which was a topic of particular interest on the last call, performed better than budget in the quarter but continued to see demand trends below normal levels from its largest customer, the Department of Defense. Turning to the next slide, our first quarter adjusted EBITDA was $127 million, down $11 million compared to the prior year. Of the decline in adjusted EBITDA, CAM decreased by $13 million, and ACMI Services and other businesses increased by $2 million. CAM's decline was driven by 767-200 lease returns and fewer engine cycles operated by the 200s remaining in service, resulting in lower power by cycle engine revenue.

Joe Payne: Omni, which was a topic of particular interest on the last call performed better than budget in the quarter, but continued to see demand trends below normal levels from its largest customer the department of defense.

Quint O. Turner: The increase in ACMI services and other services was driven by better performance at our MRO operations. Slide 6 details our capital spending on a trailing 12-month basis. Total CapEx for the quarter was $102 million, consisting of $72 million in growth CapEx and $30 million in sustaining CapEx. Our CapEx spending is down 50% year over year for the first quarter, and we project a decline of more than $380 million in capital expenditures compared to 2023.

Joe Payne: Turning to the next slide our first quarter, adjusted EBITDA was $127 million down $11 million compared to the prior year.

Joe Payne: Of the decline in adjusted EBITDA.

Joe Payne: <unk> decreased by $13 million.

Joe Payne: CMI services and other businesses increased by $2 million.

Joe Payne: Cam's decline was driven by 767 200 lease returns and fewer engine cycles operated by the two hundreds remaining in service.

Joe Payne: <unk> and lower power bi cycle engine revenues.

Joe Payne: The increase in CMI services, and other was driven by better performance at our MRO operations.

Joe Payne: Okay.

Joe Payne: Slide six details our capital spending on a trailing 12 month basis.

Joe Payne: Total capex for the quarter was 102 million consisting of $72 million in growth Capex and $30 million in sustaining capex.

Joe Payne: Our capex spending is down 50% year over year for the first quarter and we project a decline of more than $380 million in capital expenditures compared to 2023.

Quint O. Turner: The next slide updates adjusted free cash flow as measured by our operating cash flow, which was $126 million in the first quarter this year. That was down $90 million versus the prior year period, which was stronger than usual due to recovery of a $67 million fuel receivable from the Department of Defense. Excluding this item, operating cash flow would have decreased by $23 million compared to the prior year.

Joe Payne: The next slide updates adjusted free cash flow as measured by our operating cash flow net of sustaining capex.

Joe Payne: Operating cash flow was $126 million in the first quarter. This year that was down $90 million versus the prior year period, which was stronger than usual due to recovery of a $67 million fuel receivable from the department of defense.

Joe Payne: Excluding this item operating cash flow would have decreased by $23 million compared to the prior year.

Quint O. Turner: On a trailing 12-month basis, adjusted free cash flow was $368 million in March, up slightly from the comparable period ending March 2023. On slide 8, you can see that available credit under our bank revolver in the U.S. and abroad was $404 million at the end of the first quarter. We continue to maintain healthy liquidity under that facility with unencumbered aircraft asset values of $1.4 billion. Now I'll turn the call over to Joe to discuss our updated outline. Thanks, Quint.

Joe Payne: On a trailing 12 month basis adjusted free cash flow was $368 million in March up slightly from the comparable period ending March 2023.

Joe Payne: On slide eight you can see that available credit under our bank revolver and the U S and abroad was $404 million at the end of the first quarter.

Joe Payne: We continue to maintain healthy liquidity under that facility with unencumbered aircraft asset values of one $4 billion.

Quint O. Turner: Now I'll turn the call over to Joe to discuss our updated outlook.

Joe Hete: Turning to the next slide, I'd like to spend some time discussing our outlook and assumptions for 2024. Including the increased Amazon flying opportunities announced yesterday, ATSG now expects adjusted EBITDA of approximately $516 million in 2024, an increase of $10 million from the outlook provided in February. However, similar to our prior guidance, this forecast excludes any contribution from additional aircraft leases or flying opportunities not currently under contract, which could generate additional adjusted EBITDA.

Joe Payne: Thanks Quint.

Joe Payne: Turning to the next slide.

Joe Payne: Like to spend some time discussing our outlook and assumptions for 2024.

Joe Payne: Including the increased Amazon flying opportunities announced yesterday.

Joe Payne: S. G now expects adjusted EBITDA of approximately $516 million in 2024, an increase of $10 million from the outlook provided in February.

Joe Payne: Similar to our prior guidance. This forecast excludes any contribution from additional aircraft leases, we're flying opportunities not currently under contract which could generate additional adjusted EBITDA.

Joe Hete: This projection assumes the startup of 10 Amazon-provided 767-300 aircraft prior to the end of the year and takes into account projected startup costs associated with bringing them into service, as well as adding over 50 pilots at ABX Air. The contribution from this expanded agreement was included in the $30 million of potential adjusted EBITDA we laid out in February. As mentioned, we continue to expect total capital spending of $410 million this year, with $165 million for sustaining CapEx and $245 million for growth.

Joe Payne: This projection assumes the startup of 10, Amazon provided 767 300 aircraft prior to the end of the year and takes into account projected start up costs associated with bringing them into service as well as adding over 50 pilots at AVX Air.

Joe Payne: The contribution from this expanded agreement was included in the $30 million of potential adjusted EBITDA, we laid out in February.

Joe Hete: As mentioned, we continue to expect total capital spending of $410 million. This year with 165 million for sustaining capex and $245 million for growth.

Joe Hete: The gross spending outlook includes the completion of the 17 aircraft that were in the process of conversion at the start of the year and the acquisition of four additional feedstock aircraft for the remainder of the year. At our current capital spending levels, we continue to target positive free cash flow for the year. We remain optimistic about the demand outlook for our midsize freighter assets over the long term and the strength of our business strategy.

Joe Hete: Gross spending outlook includes the completion of the 17 aircraft that were in process of conversion at the start of the year and the acquisition of four additional feedstock aircraft for the remainder of the year.

Joe Hete: At our current capital spending levels, we continue to target positive free cash flow for the year.

Joe Payne: We remain optimistic on the demand outlook for a midsized freighter assets over the long term and the strength of our business strategy.

Joe Hete: We're focused on operational execution and cost control as we position ourselves for the eventual market recovery. As the market leader in midside freighter leasing, we're well positioned to deploy additional aircraft to meet our customers' demand. That concludes our prepared remarks. Quint and I, along with Mike Berger, our president, and Paul Chase, our chief commercial officer, are ready to answer questions. May we have the first question?

Joe Hete: We're focused on operational execution and cost control as we position ourselves for the eventual market recovery.

As the market leader in midsized freighter leasing we are well positioned to deploy additional aircraft to meet our customers demand.

Joe Hete: That concludes our prepared remarks.

Speaker Change: Quint and I, along with Mike Berger, our President and Paul <unk>, Our Chief commercial officer are ready to answer questions.

Speaker Change: I mean, we have the first question.

Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions. Our first question comes from Helane Becker with TD Cowan.

Speaker Change: Thank you.

Joe Hete: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Operator: Our first question comes from Helane Becker with TD Cowen you May proceed.

Helane Renee Becker: Thanks very much, Operator. Hi guys. Thanks for the time.

Helane Renee Becker: Thanks, very much operator, hi, guys. Thanks, good morning, Brian.

Helane Renee Becker: So I just have two questions really. One is, congratulations on the pilots getting that deal done. I feel like I ask you that question every quarter, like, what's going on? And you always say, you know, we're talking, but you know, we're not in a rush. And then you got this deal done. So congratulations on that. But what prompted it to get done?

Helane Renee Becker: So I just have.

Helane Renee Becker: Two questions really.

Helane Renee Becker: One is <unk>.

Helane Renee Becker: Congratulations on the pilots getting that deal done.

Helane Renee Becker: I feel like I ask you that question every quarter like with teleconference.

Helane Renee Becker: You all I'd say.

Helane Renee Becker: We're talking but yeah, we're not in a rush and then you've got this deal done so.

Helane Renee Becker: Congratulations on that but what what prompted it to get done.

Helane Renee Becker: To finally get done.

Joe Hete: Well, Helane, I think there are two things. One, the ones you've asked about previously were the ATI pilots, which we are still in mediation with them. In fact, we had a mediation session last week. This is actually the AVX pilot group, which had a CBA that ran through 2026-2027.

Speaker Change: Well Helane I think theres two things one the ones you've asked about previously he was the ATI pilots, which we are still in mediation with them. In fact had the mediation session last week. This is actually the AVX pilot group, which had a CVA, which ran through 2026 2027.

Joe Hete: One of the challenges that they had, obviously, they were the ones that had the strike back in 2016. And so they had a hole they had to dig out of, and the leadership finally came to the realization that, you know, maybe there's a better way to approach this than the traditional, you know, let's go after the company kind of thing, and came to us with an offer to extend the existing agreement to give potential customers some comfort that they wouldn't experience any labor disruptions in the future. So that's kind of what kicked it off.

Joe Hete: One of the challenges that they had obviously they were the ones that had the strike back in 2016, and so they had a whole they had to dig out of.

Joe Hete: The leadership finally came to the realization that you know what the Navy Theres a better way to approach. This in the traditional let's go after the company kind of bank and came to us with a buffer and offer to extend the existing agreement to give potential customers. Some comfort that they would not experience any labor disruptions in the future. So that's kind of what kicked it off.

Joe Hete: And we're able to get something done really, realistically, I know you're gonna find this hard to believe, but we got it done in three days. So it can be done if there's a will behind it. Yeah, and like I say, you have to have realistic expectations on both sides of the table. Obviously, we had to give some stuff up. And obviously, they had to pull back from what others think the market is for our type of business.

Joe Hete: And we're able to get something done really realistically I know you're going to find its hard to believe but got it done in three days.

Joe Hete: So Jimmy can be done if there is if there is a will behind it it can be done.

Joe Hete: You know, we're not a passenger airline; we're not, you know, a FedEx or a UPS; we're in a different marketplace altogether. And, you know, when people put their minds to it, they can come to an agreement that works.

Joe Hete: You say you have to have realistic expectations on both side of the table. Obviously, we had to give some stuff up and obviously they had to pull back from what others think the market is for our type of business. We're not in the passenger airlines were not a fedex or a UBS, we're in a different marketplace altogether.

Joe Hete: When people put their minds to it they can come to agreement that works for everybody.

Mike Berger: Helene, it's Mike. I'll just add to that. They've also done a fabulous job over the last several years presenting themselves at industry conferences. Normally, you will not see airlines and unions represented at industry conferences, whether it be CargoFax and ISTEDT, and they've done a really nice job of rebranding themselves in a very positive way, and I think this is an example of

Joe Hete: Yes.

Mike Berger: Hilli, it's Michael I'll, just add to that they've also done a fabulous job over the last several years.

Mike Berger: Presenting themselves at industry conferences.

Mike Berger: Normally you will not see airlines and unions represented at the industry conferences or there'd be cargo <unk> and I stat, and they've done a really nice job of rebranding themselves in a very positive way and I think this is an example of.

Mike Berger: The fruits of their labor.

Mike Berger: That's really helpful, thanks. And then just my follow-up question, and it's completely unrelated. On the aircraft that you got back. What are you going to do with those? And are there any more aircraft that are coming back this year that we should know about?

Speaker Change: That's really helpful. Thanks, and then just my follow up question and it's completely unrelated.

Mike Berger:

Mike Berger: On the aircraft that you got back.

Speaker Change: What are you going to do with those and are there is there are there is there more aircrafts that are coming back this year that we should know about.

Paul Chase: Hey Helane, it's Paul Chase. Good morning. With respect to the aircraft that come back, we're marketing, just depending on where the aircraft are in their cycles, maintenance cycles, we're either marketing those for sale or release. We have several opportunities that we're looking at today.

Mike Berger: Hey, Helane, it's Paul Chase.

Paul Chase: Good morning, with respect to the aircraft to come back we're marketing just depending on where the aircraft are in there in their cycles maintenance cycles, where either marketing those for sale or release, we have several opportunities that we're looking at today with.

Paul Chase: With respect to aircraft coming back this year, we expect two more aircraft back in 2024.

Paul Chase: With respect to aircraft coming back this year, we expect two more aircraft back in 2024.

Paul Chase: Are those 300s or 200s?

Helane: Are those three hundreds or two hundreds.

Paul Chase: Yes, ma'am. Yeah, and we're marketing those for sale, at least.

Paul Chase: Matt, Yes, we're marketing those.

Paul Chase: Sorry, 300s. I misunderstood your question. I'm sorry. Those are 767- Okay.

Paul Chase: Our salaries.

Speaker Change: Great sorry, three hundreds I misunderstood your question I'm sorry, those are 77 three hundreds.

Helane Renee Becker: Okay. All right. That's really helpful. Thank you.

Helane: Okay, Alright, Thats really helpful. Thank you.

Operator: Thank you. One moment for questions. Our next question comes from Frank Galanti with Stifel. You may proceed.

Speaker Change: Thanks, a lot.

Speaker Change: Thank you.

Frank Galanti: One moment for questions.

Frank Galanti: Great. I appreciate you taking my questions.

Operator: Our next question comes from Frank Galanti with Stifel. You May proceed.

Frank Galanti: I wanted to ask about sort of the OmniBusiness. Obviously, I think it was sort of the major contributor to that sort of negative pre-tax earnings for that segment. Can you talk about what sort of expectations are for that seasonally, maybe from a margin perspective? And then what expectations are for after the repricing at the end of September.

Frank Galanti: Okay.

Frank Galanti: Great and I appreciate you taking my question.

Speaker Change: I wanted to ask on.

Frank Galanti: Sort of the omni business.

Frank Galanti: Obviously, I think it was sort of the major contributor to that sort of negative.

Frank Galanti: Pretax earnings for that segment can you talk about what sort of expectations are for that seasonally.

Frank Galanti: Maybe from a margin perspective and then.

Frank Galanti: What expectations are sort of after the.

Frank Galanti: The repricing at the sort of at the end of September.

Quint O. Turner: Yeah, Frank, from the standpoint of Omni, obviously, as we've talked about on previous calls, the amount of utilization by the Department of Defense has been down versus where it was in prior years. There was a slight decline versus the first quarter of last year, but not nearly as significant as what we saw in Q4. As we look into the second quarter, things look to be picking up more so on the Omni side of the equation.

Speaker Change: Yes, Frank from the standpoint of omni obviously as we've talked about on the prior calls.

Quint O. Turner: The amount of Utah.

Quint O. Turner: Utilization by the Department of Defense has been down versus where it was in prior years.

Quint O. Turner: There was a slight decline versus first quarter of last year, but not nearly as significant as what we saw in Q4.

Quint O. Turner: As we look into the second quarter things look to be picking up more cell.

Quint O. Turner: In the army side of the equation.

Quint O. Turner: From the standpoint of the first quarter results, it wasn't necessarily Omni that was the contributor to the loss that we experienced. Cargo hours, for example, at ATI were down 9% on a year-over-year basis. It's a combination of all the above, but we still believe that Omni has a lot of longer-term benefit for us. It has, in the last 12 months, underperformed where it has traditionally performed, but it far exceeded our expectations in terms of what it generated in terms of cash flow and profitability at the time we made the acquisition back in 2018.

Quint O. Turner: From the standpoint of the first quarter results field Pleasant necessarily Ami that was a contributor to the philosophy, we experienced cargo hours for example at ATI were down 9% on a.

Quint O. Turner: It appear over year basis.

Quint O. Turner: So it's a combination of all the above but can we all we still believe that omni has for a lot of.

Quint O. Turner: Longer term benefit for us.

Quint O. Turner: It has been in the last 12 months underperformed, where they had traditionally but they far outside our expectations in terms of what they've generated in terms of cash flow and profitability.

Quint O. Turner: At the time, we made the acquisition back in 2018.

Quint O. Turner: Okay, that's helpful. And then, sort of, Quint, you commented that there are about $1.4 billion of unencumbered assets. Is that a book value calculation? Can you sort of comment on where you think market values are for your fleet relative to book value? And then sort of what the comfort level is at the current debt load and sort of expectations for leverage going into the future. Sure, Frank. Yeah, in terms of the values that we hold.

Speaker Change: Okay. That's helpful.

Quint O. Turner: And then thinking about sort of.

Quint O. Turner: Great.

Quint O. Turner: Commented that there's about $1 $4 billion of unencumbered assets.

Quint O. Turner: Is that a book value.

Quint: Calculation can you sort of comment on.

Quint O. Turner: Where you think market values are for your fleet relative to book value and then sort of what the.

Quint: The sort of comfort level is at the current debt load and sort of expectations for leverage going into the future.

Quint O. Turner: Sure, Frank. Yeah, in terms of, you know, the values that we talked about there for unencumbered asset values, that's based on appraisals that are done annually, as you know, under our Senior Secured Bank Facility. You know, that's something we do with the bank group each spring, and so that's a pretty recent appraisal. And actually, of course, the values, as you might expect, depending on the aircraft type, they differ, you know, between, for example, a 767 or an A321 or a 763 versus a 76200. But the values, in general, of course, our fleet is predominantly 767-300. And they've held up well.

Quint: Sure Frank Yes in terms of the.

Quint O. Turner: The values that we talk about there for unencumbered asset value that's based on appraisals that are done.

Quint O. Turner: Ali.

Quint O. Turner: Under our.

Quint O. Turner: Senior secured bank facility, that's something we do with the bank group each spring and so that's a pretty fresh appraisal and actually of course the values as you might expect depending upon the aircraft type.

Quint O. Turner: Can they differ between for example, 707 <unk> hundred 21 are $3 763 versus 762 hundred but.

Quint O. Turner: The values in general.

Quint O. Turner: Of course, our fleets predominantly 767, 300, and they've held up well.

Quint O. Turner: Keep in mind that the asset value is largely driven by the conversion.

Quint O. Turner: You know, keep in mind that the asset value is largely driven by the conversion of the aircraft. You know, over half of the value is in the conversion itself, and our 767-300 fleet is pretty young in terms of years since conversion. And, you know, it's still the most chosen mid-sized freighter around. So those values have held up well.

Quint O. Turner: Of the aircraft.

Quint O. Turner: Over half of the value.

Quint O. Turner: And the conversion itself and our 767 300 fleet is pretty young in terms of year since convergence.

Quint O. Turner: And.

Quint O. Turner: It's still there.

Quint O. Turner: The most chosen midsized freighter around so those values have held up well.

Quint O. Turner: That $1.4 billion is a combination of excess collateral that we've put into our bank facility as well as aircraft we have not put in the facility at all, you know, because we have a coverage ratio. As far as debt levels and leverage levels, you know, according to our bank agreement, we're a little under 3.2 times at the end of the quarter. And as Joe talked about at the beginning, you know, and I think I mentioned in some of the earlier remarks, the CapEx spend is way down this year, and we're targeting some free cash flow generation. So we anticipate, you know, a very stable sort of in that range of leverage. And then as EVDA..., you know, begins to move ahead next year, we look to see some deliver.

Quint O. Turner: That $1 $4 billion is a combination of excess collateral that we've put into our bank facility.

Quint O. Turner: Well as aircraft, we have not put in the facility at all because we have a coverage ratio.

Quint O. Turner: As far as.

Quint O. Turner: Debt levels and leverage levels.

Quint O. Turner: No.

Quint O. Turner: According to our bank agreement, we were a little under three two times at the end of the quarter and as Joe talked about at the onset you know.

Quint O. Turner: And I think I mentioned this on the earlier remarks, the Capex spend is way down this year and we're targeting some free cash flow generation. So we anticipate.

Quint O. Turner: Very stable sort of in that range.

Quint O. Turner: Leverage and then as EBITDA.

Quint O. Turner: Begins to move ahead next year, we look to see.

Quint O. Turner: See some de lever.

Speaker Change: Great. Thank you very much.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Operator: One moment for questions. Our next question comes from Christopher Stathoulopoulos with SIG. Please proceed.

Quint O. Turner: Our next question comes from Christopher <unk> with <unk> you May proceed.

Christopher Nicholas Stathoulopoulos: Good morning, everyone. Thanks for taking my question. So Good morning, everyone. So, Joe, quickly, it's

Operator: Okay.

Christopher Nicholas Stathoulopoulos: Good morning, everyone. Thanks for taking my question so.

Christopher Nicholas Stathoulopoulos: Hey, good morning, everyone. So.

Christopher Nicholas Stathoulopoulos: It's been a while since we've gone through this.

Christopher Nicholas Stathoulopoulos: Joe quickly it's been a while since we've gone through or talked about Amazon in any real detail here and could you walk us through there is a lot of moving parts here as we think about the composition of the fleet the order could be options.

Christopher Nicholas Stathoulopoulos: We've gone through or talked about Amazon in no real detail.

Christopher Nicholas Stathoulopoulos: And, you know, could you walk us through, there's a lot of moving parts here as we think about the composition of the fleet, the order book, the options, the Accelerated ABX deal, you know, who approached who, kind of the economics cam versus ACMI flying here. So, could you kind of walk us through this new segment, this new deal here, you know, specifically?

Christopher Nicholas Stathoulopoulos: The accelerated AVX deal.

Christopher Nicholas Stathoulopoulos: Who approached who.

Christopher Nicholas Stathoulopoulos: Kind of the economics can versus a CMI fly here, so could you kind of walk us through that.

Christopher Nicholas Stathoulopoulos: This new segment.

Christopher Nicholas Stathoulopoulos: This new deal here.

Speaker Change: Specifically <unk>.

Christopher Nicholas Stathoulopoulos: 50 by year end, and there's an option for 10. So that could put you at 60.

Christopher Nicholas Stathoulopoulos: So I heard 50 by year end, there is an option for <unk>. So that could put you at 60.

Christopher Nicholas Stathoulopoulos: Is this entirely 300s now? Are we done with the 200s? What are the economics of the deal?

Christopher Nicholas Stathoulopoulos: Is this entirely three hundreds now are we done with the two hundreds.

Christopher Nicholas Stathoulopoulos: Or the.

Christopher Nicholas Stathoulopoulos: Consider the pull forward with the ABX piece.

Christopher Nicholas Stathoulopoulos: Economics of the deal contemplate the pull forward with the AVX piece and then the duration looking at your K yesterday evening, the duration of the existing yields.

Unknown Executive: Transcripts provided by Transcription Outsourcing, LLC.

Unknown Executive: It gives me.

Unknown Executive: <unk> was staggered through an.

Unknown Executive: Just wondering now if there's a sort of.

Unknown Executive: A uniform sort of endpoint per lateral where they continue to kind of stagger off through end of decade and beyond.

Mike Berger: Yeah, hi Chris, it's Mike. I'll take you through this a little bit. So as you heard, the initial, the initial will be 10 incremental aircraft that will fly that we've designated now to ABX. We'll get those through into service by the end of this year. There's another potential for 10 incremental aircraft that Amazon will potentially award at a future date. Within that, we also have the potential to have lease extensions as part of the 10 incremental aircraft that will potentially come at a future date. So that's how the agreement is structured. 10 initially, 10 potential with the option to also include lease extensions as it relates to the incremental warrants in the future.

Unknown Executive: Yeah, Hi, Chris This is Mike I'll take I'll take you through this a little bit.

Mike Berger: So as you heard the initial the.

Mike Berger: The initial will be 10 incremental aircraft that will fly that we've designated now too to AVX.

Mike Berger: We will get those through into service by by the end of this year.

Mike Berger: There is another potential for 10 incremental aircraft.

Mike Berger: That Amazon will potentially award at a future at a future date.

Mike Berger: Within that we also have the potential to have lease extensions as part of that.

Mike Berger: The 10 incremental aircraft that will potentially come at a future date so.

Mike Berger: That's how that's how the agreement is structured 10, initially 10 potential with the option to also include lease extension and as it relates to the incremental warrants.

Mike Berger: In the future.

Unknown Executive: It's just, yeah, on the mix of AVX versus ATI in terms of, you know, how many aircraft within each of those. And then also, you know, as we think about

Mike Berger: In part of your question.

Unknown Executive: Yeah on the mix of AVX versus ATI in terms of.

Unknown Executive: No.

Unknown Executive: How many aircraft within each of that and then also.

Mike Berger: Utilization levels are sort of similar to what we've seen and on similar routes. I think, you know, most of us are familiar with what that looks like, but any detail so far as the composition of flying and also the mix within ABX and ATI.

Unknown Executive: We think about utilization levels with sort of similar to what we've seen.

Mike Berger: And similar routes I think most of us are familiar with what that looks like but any detail. So far is the composition of flying and also Phoenix within AVX from ATI. Thank you <unk>.

Mike Berger: The initial 10 will be AVX. We'll determine if we're successful with the additional 10. We'll make that decision at a later date. The composition of the flying, not only in terms of the domestic piece, where they'll go, as well as the block hours, will be very similar to what we have today. We have a minimum of 200 block hours per tail, per month, per month. Excuse me, yeah.

Mike Berger: Initial 10 will be AVX.

Mike Berger: We will determine if we're successful with the.

Mike Berger: The additional 10, we'll make that decision at a later date.

Mike Berger: Composition of the flying not only in terms of the domestic piece.

Mike Berger: Where they'll go as well as the block hours will be very similar to what we have today, we have a minimum of 200 block hours a curtailed.

Mike Berger: Per month per month, because Houston project.

Mike Berger: Okay, and these are these are just all three of these are. That's right. This is correct. Oh, okay. Okay. Got it.

Mike Berger: Per month.

Speaker Change: Okay and these are these are just seems to be under these arent.

Mike Berger: Yes et cetera. This is correct okay. Okay got it.

Quint O. Turner: And then, as a follow-up, Quint, could you just remind us of the power by cycle economics, the number of engines in that fleet, and anything else we should consider? Thank you.

Mike Berger: And then as a.

Quint O. Turner: A follow up quick could you just remind us of the power buy cycle economics.

Quint O. Turner: Number of engines in that.

Quint O. Turner: And anything else, we should consider thank you.

Quint O. Turner: Well, Chris, when we talked about power by cycle, you know, in relationship to the changes in CAM, you know, versus prior periods, it was generally in the context of the 767-200 aircraft. And that is the only fleet type where we offer customers access to a pool of engines that we maintain. All that we do in that pool to maintain it is capitalized and is depreciated. So you can see that when utilization utilization drops, or we take, or retire, or remove the 767-200 from service, as we've been doing with that fleet now for the last few years, there's a significant impact on EBITDA, and in particular because the expense is mostly in depreciation, which wasn't there to begin with, so the revenue comes straight out.

Quint O. Turner: Sure.

Quint O. Turner: Chris you only talked about power bi cycle and relationship too.

Quint O. Turner: If that changes and cam versus prior periods has generally been in the context of the 767 200 aircrafts.

Quint O. Turner: That is the only.

Quint O. Turner: Fleet type that.

Quint O. Turner: We offer customers access to a pool of engines that we maintain.

Quint O. Turner: Those being the GE powered <unk> engines, and they take Cam on a purse per cycle basis as they operate in.

Quint O. Turner: Aircrafts, a leased 76 200 day lease they would.

Quint O. Turner: Cam.

Quint O. Turner: Called charge and that would hit revenue.

Quint O. Turner: Any any overhauls are the engines that we do in that pool to maintain it is capitalized and is depreciated. So you can see that when usage utilization drops or <unk>.

Quint O. Turner: Take our retire or removed from service 767, two hundreds as we've been doing with that fleet now for the last few years, there is a significant impact on EBITDA.

Quint O. Turner: And.

Quint O. Turner: In particular, because the expense is mostly in depreciation which wasn't there to begin with so the revenue come straight out and we've seen.

Quint O. Turner: And we've seen some lower monthly utilization of the aircraft that remain in service, and we've talked about the removals, I think, a dozen or so in the last 12 months. And those are just aircraft that have reached sort of that 20... Right around that 20 years post-conversion part of their life, and their airframe cycle age is such that it's beginning to make sense to remove those from service. Aircraft are still performing well, but it's just, as we've said, eventually, some of it is going to sunset.

Quint O. Turner: Some lower <unk>.

Quint O. Turner: The utilization of the aircraft that remain in service and we've talked about the removals I think a dozen or so in the last 12 months and those are just aircraft that have reach sort of that 20 <unk>.

Quint O. Turner: Right around that 20 years post conversion part of their lives.

Quint O. Turner: Airframe cycle ages, such that it has began to make sense to remove us from service aircraft are still performing well, but it's just.

Quint O. Turner: As we've said eventually.

Quint O. Turner: Lastly, some of it is kind of sunset. There are some aircraft I think at the end of this year that will we will still have an service roughly 2014 or so freighter.

Quint O. Turner: There are some aircraft, I think at the end of this year, that will still have roughly 14 or so freighters in service. And the majority of those are a ways away from a cycle standpoint where we would look to remove them from service. So we only expect maybe three or so to come out of service in the next few years of that 14. But we sort of had some cliffs.

Quint O. Turner: And the majority of those are a ways away from a cycle standpoint, where we would look to remove that from service. So we only expect maybe three years or so to come out of service in the next few years of that 14, but we sort of had some some cliffs you may recall they were the first 12 aircrafts.

Quint O. Turner: You may recall they were the first 12 aircraft that sort of got the Amazon relationship started. You know, they were the first 12 of what became 42 aircraft that we were leasing to Amazon. So they came to the end of their extended lease terms, and Amazon had an option, obviously, not to extend further as they had done a couple of times already with that fleet type.

Quint O. Turner: <unk> sort of got the Amazon relationship started.

Quint O. Turner: They were the first 12 of what became 42 aircrafts that we were leasing to Amazon and the other 30 or all of the larger 760 <unk>. So they came to the end of their extended lease terms at Amazon.

Quint O. Turner: Had an option to not obviously not extend further as they have done a couple of times.

Quint O. Turner: So that's what you're seeing. So I do think as we look into next year, on a year over year basis, you'll see less of a negative impact on CAM compared to prior periods because we had these chunks of 200s that we got back last year and this year. And so I think that'll stabilize as we look forward. Okay, if I could just get in one more. So just remind us where you are with the labor.

Quint O. Turner: Already with that fleet types. So that's that's what youre seeing.

Quint O. Turner: So I do think as we look into next year.

Quint O. Turner: From a year over year basis, Youll see less of a negative impact on Cam.

Quint O. Turner: When comparing to prior periods, because we had these chunk.

Quint O. Turner: Chunks of two hundreds that we got back.

Quint O. Turner: Last year and this year.

Quint O. Turner: So I think that will stabilize as we look forward.

Joe Hete: ATR and Omni. Sure.

Speaker Change: Okay, if I could just getting more and more so just remind us where you are with the labor talks with.

Joe Hete: ATI and omni. Thank you sure Kevin as I mentioned earlier, Chris that we had a mediation session last week with the folks at ATI.

Joe Hete: As I mentioned earlier, Chris, we had a mediation session last week with the folks at ATI and had one with the Omni folks a couple of weeks ago. Obviously, we're still trying to work through the negotiations. I think if you look at what we agreed to with the ABX pilots, who weren't in a position where the CBA was amendable, you know, they stepped up and said, Okay, look, here's what we think is reasonable.

Joe Hete: <unk> had one with the omni folks a couple of weeks ago, obviously, we're still trying to work through.

Joe Hete: And the negotiations I think if you look at what we agreed to with the AVX pilots who worked in.

Joe Hete: <unk>.

Joe Hete: Position, where they'd CBA was.

Joe Hete: Amendable.

Joe Hete: They stepped up and said okay look here's what we think is reasonable so it kind of sets the market away for our line of business as opposed to as I said earlier, we can compare ourselves to a fedex or a UBS or anybody of that ilk is a totally different business environment. So we still expect that we won't get any of those done this particular.

Joe Hete: So it kind of sets the market apart for our line of business, as opposed to, as I said earlier, you know, we can't compare ourselves to FedEx or UPS or anybody of that ilk. It's a totally different business environment. So, you know, we still expect that we won't get any of those done this particular year. If we do, that's great. I think the fact that we were able to get something across the plate with the ABX guys and, realistically, what took three days says, you know, the company can get there from here. It used to have expectations, but now we have to have realistic expectations on the other side of the table.

Joe Hete: Here, if we do that is great.

Joe Hete: The fact that we were able to get something across the.

Joe Hete: The plate with the AVX guys and we're thrilled realistically what took three days.

Joe Hete: The company can get there from here it used to have a have to have realistic expectations on the other side of the table.

Joe Hete: Yes.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you thanks, Chris.

Operator: One moment for questions. Our next question comes from Michael Ciarmoli with Truist Securities. Please proceed.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Michael Frank Ciarmoli: Our next question comes from Michael <unk> with two Securities you May proceed.

Michael Frank Ciarmoli: Hey, good morning, guys. Hi, Michael.

Michael Frank Ciarmoli: Nice results here. Thanks for taking the question. Just on this Amazon, I mean, did you opt to use ABX because of the pilot settlement there? And just thinking, I think you said, what, you got to hire 50 pilots? Would that have been more of a challenge? Just, you know, I guess just how did ABX come into play versus ATI?

Michael Frank Ciarmoli: Hey, good morning, guys nice results there thanks for taking the question.

Michael Frank Ciarmoli: Just on this Amazon I mean did you opt to use AVX because of.

Michael Frank Ciarmoli: The pilot settlement, there and just thinking I think you said you've got a higher 50 pilots would that have been more of a challenge.

Michael Frank Ciarmoli: I guess, just how did the AVX come into play versus API.

Joe Hete: Well, I think the key driver there was the fact that there was a new agreement, which basically lowered the new hire rate that allowed us to get people on board. One of the challenges we've had, as every other airline in the industry has had over the last 18 to 24 months, is finding sufficient pilots, and of course, key to that is what your starting rate is in that regard. So with the new agreement, it made it easier for us to basically be able to onboard the people that we need.

Michael Frank Ciarmoli: I think the key driver there was the fact that there was a new agreement, which basically focused on where the new higher rate.

Joe Hete: That allowed us to get people on board one of the challenges. We've had is what every other airline in the industry has had over the last.

Joe Hete: 18 to 24 months is finding sufficient pilots and of course key to that is what youre starting rate is in that regard so with the new agreement. It made it easier for us to to basically be able to onboard the people that we need necessary one of the challenges that we've had on the ATI side of the equation is we don't have enough guys to cover the.

Joe Hete: One of the challenges that we've had on the ATI side of the equation is that we don't have enough guys to cover the left seat of the airplane. Surprisingly enough, we have a lot of new hire first officers with, you know, basically not as much experience to be able to move to the left seat. So that presents challenges in terms of being able to staff up for the aircraft flying that we need to get done.

Joe Hete: The left side of the airplane surprisingly enough, we have a lot of <unk>.

Joe Hete: New hire first officers would basically not as much experience to be able to move to the left seat. So that presents challenges in terms of being able to staff up for the for the aircraft.

Joe Hete: Flying that we need to get done and so the AVX option with the.

Joe Hete: And so the ABX option with the pilot... new agreement certainly made it easier for us to onboard the necessary people in the tight time frame that we have. As we've mentioned, we have to get these aircraft into service by, you know, the target is December 1st, and that's a lot of airplanes to bring in when we won't receive the first one until June.

Joe Hete: <unk> New agreement certainly made it easier for us to onboard the necessary people in the tight timeframe that we have as we mentioned we have to get these aircraft into service by target is December one.

Joe Hete: And Thats a lot of airplanes to bring on when we won't receive the first one until June.

Joe Hete: Right, okay. Is the profitability on these planes the same, just probably assuming that there's more salary and wages on ABX versus ATI?

Joe Hete: Okay.

Joe Hete: Is the profitability on these claims the same chip probably assuming that there are some more salary and wages on AVX versus hei.

Joe Hete: Yeah, every contract is different in terms of the cost structure. For example, the ATI folks have home basing, which is a significant expense to the company to be able to move them to their first assignment, where the ABX guys are domiciled. So it's their responsibility to get there. That keeps that side of the cost equation down. The other piece of it is, as I said, the amount of premium pay that we had to pay on the ATI side of the equation has had a negative impact on our earnings on that side. And so that's what we have to overcome. And we think with the new agreement on the ABX side, that will facilitate the hiring.

Speaker Change: Yes every contract is different now in terms of the cost structure. For example, with the ATI folks they have homebase ing, which is a significant expense to the company to be able to move into their first assignment where the AVX guys are.

Joe Hete: Domiciled so it's their responsibility to get there so that keeps that side of the cost equation down. The other piece of it is is that as I said the.

Joe Hete: The amount of premium pay that we had to pay on the ATI sided equation has had a negative impact on our earnings on that side and so that's what we have to overcome.

Joe Hete: We think with the new agreement on the API side that facilitates the hiring piece.

Joe Hete: Okay, got it. And just to give you the background, why did this new deal have to come with 2.9 million warrants? I mean, I guess that's at some point, maybe 4% dilution. I'm just trying to understand the mechanics behind, you know, this whole transaction and why there is a need for it, and then I guess there was a lot of different language in there regarding if you guys announce the buyback and what price Amazon can sell for. Just if you can give us any color there.

Speaker Change: Okay got it and then just.

Joe Hete: Just to give you the background why why did this new deal has to come with the $2 9 million of warrants I mean, I guess thats at some point, maybe 4% dilution I'm just trying to understand the mechanics behind.

Joe Hete: This whole transaction why the need and then I guess there was a lot of different language in there regarding if you guys announce a buyback and what price Amazon can sell for.

Joe Hete: Just if you can give us any color there.

Quint O. Turner: Yeah, Michael, we've done some, you know, different deals with Amazon on expansions and renewals. And, you know, it's always a question of, you know, just looking at the value creation in any of these deals. I don't think we're unique, you know, that Amazon, when they do significant deals, you know, they may look to the equity side. As part of that negotiation, and the other party always just has to make an assessment of what's in the best interest and what creates the most value. It's a negotiation point that, you know, does come up when you, you know, when you get into these kinds of discussions.

Speaker Change: Yes, Michael we of course, we've done.

Quint O. Turner: Some.

Quint O. Turner: The different deals with Amazon expansions.

Quint O. Turner: <unk>.

Quint O. Turner: And.

Quint O. Turner: It's always a question of just looking at the value creation.

Quint O. Turner: Any of these deals.

Quint O. Turner: I don't think we're unique.

Quint O. Turner: Amazon when they do significant.

Quint O. Turner: Deals.

Quint O. Turner: May look too.

Quint O. Turner: To the equity side.

Quint O. Turner: That's part of that negotiation and the other party always has to make an assessment what's in the best interest and what creates the most value it's a negotiation point that.

Quint O. Turner: Does come off when do you.

Michael Frank Ciarmoli: Okay, I got it. Thanks guys, I'll turn it back to McHugh.

Quint O. Turner: You get into these kind of discussions.

Quint O. Turner: Okay.

Speaker Change: Got it thanks, guys I'll jump back in the queue.

Operator: Thank you. One moment for questions. Our next question comes from Isaac Selhausen with Oppenheimer. You may proceed.

Michael Frank Ciarmoli: Thanks.

McHugh: Thank you one moment for questions.

Isaac Selhausen: Our next question comes from Isaac So housing with Oppenheimer you May proceed.

Isaac Selhausen: Hey guys, good morning. This is Isaac filling in for Ian.

Isaac Selhausen: Hey, guys. Good morning. This is isaac filling in for Ian Thanks for taking my questions.

Isaac Selhausen: Thanks for taking all the questions. I want to ask about the guidance assumptions for the year, which I guess still excludes any additional leases or flying opportunities like you mentioned. I think you previously quantified that at around 30 million. Is that still the right range, or do you feel that it could potentially be higher? And then, you know, any additional leases or flights, would you expect those to be with, you know, existing or new customers?

Speaker Change: I wanted to ask on the guidance assumptions for the year.

Isaac Selhausen: I guess, we're still excludes any additional leases or flying opportunities like you mentioned.

Isaac Selhausen: I think you previously quantified that at around $30 million.

Isaac Selhausen: Is that still the right range or do you feel that could potentially be higher.

Isaac Selhausen: And then any additional leases are fine would you expect those to be with.

Isaac Selhausen: Existing or new customers.

Unknown Executive: Yeah, appreciate the call. Take the piece on the additional leases.

Isaac Selhausen: Yes.

Speaker Change: I appreciate the call I'll take the piece on the additional leases as you've heard us say.

Unknown Executive: Throughout the throughout the year, where we're.

Unknown Executive: We're going to continue to make it make further announcements as our leases become firm we've got several solid opportunities in our in our pipeline.

Unknown Executive: As you've heard us say, you know, throughout the year, we're

Unknown Executive: We're going to continue to make further announcements as our lease has become firmer.

Unknown Executive: Our lease has become firm. We've got several solid opportunities in our pipeline, and as we progress through the year on the next call, we'll advise further in regards to the impact it'll have on revenue and even On the flying piece of it, you know, obviously, there are significant startup costs associated with bringing on the additional pilots transitioning aircraft over; you have to do a bridging check, essentially. So we're estimating that in terms of the impact for 2024, the offset to the revenue that we will gain as it as the aircraft meter is somewhere in the six to $8 million range in terms of expenses that you won't see, obviously, once you get the last airplane in service, so you'll be able to leverage that on a go forward basis.

Unknown Executive: As we progress through the year on our next call.

Unknown Executive: <unk> further in regards to the impact it will have.

Unknown Executive: On revenue and EBITDA.

Unknown Executive: On the <unk> piece of it obviously, there's significant startup costs associated with bringing on the additional pilots transitioning aircraft over you have to do a bridging.

Unknown Executive: Check essentially so we're estimating that in terms of the impact for 2024, the offset to the revenue that we will gain as it nears the aircraft's meter in somewhere in the $6 million to $8 million range in terms of expenses.

Unknown Executive: I don't see obviously more year once you get the last airplane in service, so youll be able to leverage that on a go forward basis.

Unknown Executive: Okay, understood. And then just a quick follow-up on the ACMI side. You know, how have cargo and passenger block hours trended in April, maybe moving into the second quarter? You know, I think you mentioned a slight improvement in DOD activity, but still somewhat lower. So just trying to understand, you know, how hours are trending.

Speaker Change: Okay understood and then just a quick follow up on the <unk> side.

Unknown Executive: How of cargo and passenger block hours trended in April maybe moving into the second quarter.

Unknown Executive: I think you mentioned, a slight improvement activity, but still somewhat lower so just trying to understand.

Unknown Executive: How hours are trending.

Unknown Executive: In terms of the quarter, as I mentioned earlier, for example, the ATI side, they were down about 9% on a quarter-to-quarter basis. Remember, the 76200s all came out of ATI and ABX over the last, call it, 12 months.

Unknown Executive: Yes.

Unknown Executive: In terms of the quarter as I mentioned earlier for example, the ATI side they were down about 9%.

Unknown Executive: On a quarter to quarter basis.

Unknown Executive: If you remember the 706, two hundreds all came out of ATI and AVX over the last call. It 12 months last airplanes were parked April 5th I think it was last couple.

Unknown Executive: The last airplanes were parked April 5th, I think it was, the last couple. So if you look at April, from that standpoint, with no additional flying in place, it's going to be down a little bit versus where it was in, call it, March. But we expect it to start coming back as we bring on the additional 10 aircraft through the balance of the year.

Isaac Selhausen: Okay, great. Thanks so much.

Unknown Executive: So if you look at April it's from that standpoint with no additional flying in place, it's going to be down a little bit versus where it was in call. It March.

Isaac Selhausen: But we expect it to start obviously coming back as we bring on the additional 10 aircrafts through the balance of the year.

Speaker Change: Okay, great. Thanks, so much.

Speaker Change: Yes. Thanks.

Speaker Change: Thank you.

Operator: One moment for questions. Our next question comes from Christopher Stathoulopoulos with SIG.

Speaker Change: One moment for our questions.

Christopher Nicholas Stathoulopoulos: Thanks for taking my follow up. Quint, the 137 aircraft expected at year end, are these all fully committed or, you know, running perhaps at utilization levels?

Christopher Nicholas Stathoulopoulos: Our next question comes from Christopher <unk> with <unk> you May proceed.

Christopher Nicholas Stathoulopoulos: Hey, Thanks for taking my follow up the 137 aircrafts expected at year end or are these all fully committed or running perhaps at the utilization levels you.

Christopher Nicholas Stathoulopoulos: You need them to be meaningful as we contemplate what other flying opportunities there exist here and the potential upside to the guidance, you know.

Christopher Nicholas Stathoulopoulos: You need them to be meaning as we contemplate what other flying opportunities there exists here and potential upside to the guidance.

Christopher Nicholas Stathoulopoulos: Is there any kind of slack capacity or aircraft that are currently on the ground? And then the 18 for next year, particularly the A321s and A330s, just remind us how.

Christopher Nicholas Stathoulopoulos: Is there any kind of slack capacity or currently aircraft that are currently on the ground and then the <unk> for next year.

Christopher Nicholas Stathoulopoulos: Particularly the <unk> hundred 20, <unk> hundred <unk>, just remind us how many of those are committed at this point. Thank you.

Quint O. Turner: A330s. Just remind us how many of those are committed at this point. Thank you. Sure.

Quint O. Turner: Well, as we said, you know, in our guidance that we gave, we did not include in that guidance anything beyond the four contractually committed 767-300 leases, all of which we did place in the first quarter. You know, we're operating by the end of the quarter. So any additional capacity that we leased... during the remainder of the year would be additive to the, you know, that level of guidance that we gave, the 516.

Quint O. Turner: Sure.

Quint O. Turner: Well as we as we said.

Quint O. Turner: Our guidance that we've given we did not include in that guidance anything beyond four contractually committed.

Quint O. Turner: 767, 300 leases all of which we did place in the first quarter.

Quint O. Turner: Operating by the end of the quarter, so any any additional capacity that we lease.

Quint O. Turner: During the remainder of the year would be additive to that.

Quint O. Turner: Level of guidance that we gave the 516 and we do have aircraft.

Quint O. Turner: And we do have aircraft that, as Paul said earlier, that are being marketed, you know, including A321s and 767s. And then late this year, we'll have our first couple of Airbus 330s that come out in the fourth quarter.

Quint O. Turner: As Paul said earlier that are being marketed.

Quint O. Turner: Including <unk> hundred 20 ones and 767 Eric.

Quint O. Turner: Aircraft and then late this year, we will have our first capital of Airbus 300, <unk> that come out in the fourth quarter I don't know Paul if you want to add anything anything to that.

Quint O. Turner: No, I think you covered it. I mean, we're seeing pretty strong demand returning on the 767-300 side, and we see strong customer demand on the A330. The A321 is, you know, we have some existential issues with some overcapacity in the 737 freighter market that's hurting demand there, that'll eventually subside. But yeah, we're, we're, I'm confident, you know.

Quint O. Turner: Coverage, we're seeing pretty strong demand returning on 767, 300 side and we see strong customer demand on the <unk> hundred 30, <unk> hundred 21, as we have snacks essential issues with some overcapacity in the 737 freighter market.

Quint O. Turner: It's hurting demand there that will eventually succeed.

Quint O. Turner: But yes, we're I'm confident in what we're seeing in the market, especially relative to 2023, but as we move through the year Chris.

Quint O. Turner: and what we're seeing in the market, you know, especially relative to 2020. But, you know, as we move through the year, Chris, as contractual commitments are made for those aircraft, we would, we would update that. But certainly, you know, there are discussions taking place that might result in some additional upside there on the weeks piece.

Quint O. Turner: Contractual commitments are made for those aircrafts.

Quint O. Turner: Would update that but certainly.

Quint O. Turner: There are discussions taking place that might result in some additional upside there on the lease piece.

Unknown Executive: the quote-unquote existential issues here as it relates to

Quint O. Turner: The quote unquote existential issues here as it relates to the <unk> hundred 20 ones. Three hundreds is that more of a U S domestic issuer or international.

Unknown Executive: VA 321s and 300s, is that more of a U.S. domestic issue or international? No, the A321 in particular was what I was referencing. And that's it. That's a global issue.

Unknown Executive: No. The <unk> hundred 21 in particular was what I was referencing and that's a global issue you have to challenge as you have an oversupply of 737 freighters.

Unknown Executive: You have two challenges; you have an oversupply of 737 freighters, and then you have some GTS engine issues.

Unknown Executive: And then you have seen some GTS engine issues going on with especially in the <unk> 500, <unk>. So that's what's affecting that particular product.

Unknown Executive: I just want to add from a market standpoint, Chris. You know, we continue to be an enabler of e-commerce. You know, I've spoken, and I have spoken many times on this call, about e-commerce being the engine of the industry. If you couple that with improving air cargo trends, which, by the way, for the last four months have been double-digit positive, you know, over the prior year, that's absolutely a winning combination, right? If you look underneath the major integrators' results in terms of their numbers, the cross-border piece and the international piece stand out dramatically versus their other products.

Unknown Executive: I would just add from a market standpoint, Chris.

Unknown Executive: We continue to be an enabler of e-commerce, we've spoken to and I've spoken many times on this call about e-commerce being the engine of the industry.

Unknown Executive: If you couple that with improving air cargo trends, which by the way for the last four months have been double digit positive.

Unknown Executive: Over over prior year, that's absolutely a winning combination right. If you look underneath the major integrators results in terms of their numbers.

Unknown Executive: The cross border piece and the international piece stand out dramatically versus their other products. So just to expand a drop further on that we bought we've talked a lot about.

Unknown Executive: So, you know, just to expand, to drop further on that, you know, we've all talked a lot about Asia, Central Asia, Southeast Asia, for example, being a growth opportunity for us, specifically. You've seen us place assets there over the past year, and our pipeline is also very robust in those areas. So, as Joe mentioned earlier in his optimism, you know, we're confident we've got the right assets, and first and foremost, those assets will allow us to continue to be the world's largest, less cargo freighters in the world.

Unknown Executive: Asia Central Asia Southeast Asia for example, being a growth opportunity.

Unknown Executive: Opportunity for us specifically, you've seen us place assets there over the past year and our pipeline is also very robust in those areas. So that Joe mentioned earlier.

Operator: One moment for questions. Our next question comes from Michael Ciarmoli with True Securities. Please proceed.

Michael Frank Ciarmoli: His optimism we're confident we've got the right assets.

Operator: And first and foremost those assets will allow us to continue to be the world's largest lessor of cargo freighters in the world.

Michael Frank Ciarmoli: Okay. Thank you.

Michael Frank Ciarmoli: Thank you.

Michael Frank Ciarmoli: One moment for questions.

Michael Frank Ciarmoli: Our next question comes from Michael <unk> with <unk> Securities You May proceed.

Michael Frank Ciarmoli: Hey, thanks for taking the follow-up, guys. Just a point of clarification, the upside potential on EBITDA, $30 million. I mean, that was originally $536 million. You got $10 million. Is there still $20 million left, or are you just not really commenting on a specific number?

Michael Frank Ciarmoli: Hey, Thanks for taking the follow up guys just.

Michael Frank Ciarmoli: Point of clarification.

Michael Frank Ciarmoli: <unk>.

Michael Frank Ciarmoli: The upside potential on EBITDA $30 million that was originally 536, you got $10 million is there is there is still $20 million left or are you just not not really commenting on the specific number.

Quint O. Turner: Well, again, I think our outlook for the potential hasn't changed much. What slid a little bit was this agreement with Amazon.

Michael Frank Ciarmoli: So again I think our outlook for the potential hasnt changed much.

Quint O. Turner: What slid a little bit was this agreement with Amazon, we originally anticipated that it might start a little bit earlier than the and getting the first airplane in June.

Quint O. Turner: We originally anticipated that it might start a little bit earlier than getting the first airplane in June, so there'll be a little bit of downside there. But there are other potential opportunities from a flying standpoint. And again, the lease placements, we started out the year saying we had 17 aircraft coming through conversion. We placed four, which is in the guidance. So there are 13 more out there that at some point in time, we expect to be able to get placed sometime this year that would give us that upside. It all boils down to the timing, in the end. Okay, I got it. Thank you.

Quint O. Turner: A little bit of downside there, but there is other potential opportunities from flying standpoint, and again the lease placements. We started out the year, saying, we had 17 aircrafts coming through conversion, we placed four which is in the guidance. So theres 13 more out there and at some point in time, we expect to be able to get placed some time. This year that would give us that upside it all boils down to the.

Quint O. Turner: The timing in the end.

Speaker Change: Okay got it thanks guys.

Joe Hete: Thank you. I would now like to turn the call back over to Joe Hete for any closing remarks.

Quint O. Turner: Thank you I would now like to turn the call back over to Joe <unk> for any closing remarks.

Joe Hete: From the start of our relationship nine years ago, the people of ATSG have proven that they can provide the fastest, best, and most efficient service to our customer, Amazon. Once again, Amazon has acknowledged our performance with more aircraft to fly and by extending our relationship for many more years. Honoring commitments from customers has always required us to manage our cash flow to fund the investments that growth and great service require. Our goal for 2024 is to generate enough cash to fund our sustaining and growth investments, and we did just that in the first quarter as a first step toward being free cash flow positive for the year. I look forward to keeping you updated on our progress and finding new ways to produce more cash flow and allocate capital more effectively as the year unfolds. Thanks, and have a quality day.

Joe Hete: Thanks, Josh.

Joe Hete: From the start of our relationship nine years ago. The people of <unk> have proven that they can provide the fastest best and most efficient service to our customer Amazon.

Joe Hete: Once again Amazon is acknowledged our performance was more aircraft to fly and by extending our relationship for many more years.

Joe Hete: Honoring commitments from customers is always required us to manage our cash flow to fund the investment that growth and great service required.

Joe Hete: Our goal for 2020 for us to generate enough cash to fund, our sustaining and growth investments and we did just that in the first quarter as a first step towards being free cash flow positive for the year.

Joe Hete: Look forward to keeping you updated on our progress and to find new ways to produce more cash flow and allocate capital more effectively as the year unfolds, thanks and have a.

Joe Hete: All of the day.

Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.

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