Air Transport Services (ATSG) 5 May 232023 Q1 Earnings call transcript

Company Profile

Participants

Joe Payne	Chief Legal Officer
Rich Corrado	President and CEO
Quint Turner	CFO
Mike Berger	CSO
Jack Atkins	Stephens
Helane Becker	TD Cowen
Frank Galanti	Stifel
Chris Stathoulopoulos	Susquehanna Financial
Michael Ciarmoli	Truist

Call transcript

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Operator

Thank you for standing by, and welcome to the Air Transport Services Group First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, There will be a question-and-answer session. [Operator Instructions] A reminder, today's program is being recorded.

And now, I'd like to introduce your host for today's program, Mr. Officer. Legal Chief Payne, Joe Please go ahead.

Joe Payne

our welcome Good earnings the first on XXXX our call. morning, market We It's after and conference yesterday issued quarter release to our atsginc.com. website, closed. earnings

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

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

Services this underlying Group reflect and These no forward-looking estimates plans, call. statements Air other date the changes new information, update Transport are to or as of undertakes to obligation any assumptions, based of statements changes. information, on forward-looking factors, in

may certain current maintain These government both scheduled US, configuration; and able result and currently to to to customers, to our ability on-time unplanned control are factors and costs. key demand and timing the with than limited remain deployments a impact aircraft which which aircraft cargo the our for we ATSG's may in which instruments; on in constraints, not more customers; to we share assets to expect. agreements financial interest charges market of persists our be but in include, changes and and with in to operating compliance longer respect service purchase The are price and routes cost modify lenders timing traded supply the with the number, chain services, fluctuations or rates, agencies; of mark-to-market in within our and outside ability airline's severe

Form events from our other we inflation, COVID-XX economic will next labor the in factors such as and the including the and/or file XX-Q filings SEC, conditions, the as or of The epidemics current general competitive changes including the in contained health impact impact week. with time-to-time of geographical pandemic, industry-specific market,

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

meant a release Management believes advise and in which earnings website. to in for on be to our These assessing these and useful to to you are GAAP reconciliations We non-GAAP the financial to investors ATSG's included substitute are metrics are measures, GAAP our our position not refer results. measures financials.

I'll our And and remarks. CEO, turn call Rich over to now the his President opening Corrado, for

Rich Corrado

Thanks last good us Joe facing we in about in our headwinds and On operating XXXX and morning mostly but everyone. our call, businesses, our the airlines. at talked

inflation-driven as airlines we than airline change a whole, results passenger Unfortunately, issued the year at show our guidance omni for cost the and our yesterday all expected. a bigger at of reduced revenues we and effect our having that are

are Inflation and not sectors a in are especially squeezing softening in alone and regard. profitability in this many economy transport. macro We

line rising, the We maintenance exposure costs but and costs, crews to for have limited between are shuttling our including flight personnel assignments. workers travel fuel

That our strong. aircraft cargo said, are we fortunate remains leased that demand for

Our requirements. guidance to CAM rates deployed our at changes will XX this record meet that year the we which phrases two of were return lease related not

for the to perspective quarter. back reviews first that be more financial results I'll Quint share Quint? after of our

Quint Turner

and everyone this the Rich Thanks call welcome on morning. to

segment. talked is said, just businesses, they As all Services but key in show affecting impacts Inflation businesses were our our specific is that our principal he first ACMI when and greater concern remains inflation its results were a on we the February. you impact quarter than in to

the that The deck results Rich in summarizes slide our next mentioned.

increase. quarter. million segments $XX total ago versus our or grew the contributed record year as well other businesses principal a to of first revenues Both for our to X% million in Our as a $XXX that

airline, only year. quarter of very its did strong Omni our Air, last all businesses, grow among first fact, a not In revenues passenger our operating versus

$X.XX and quarter per share in basic pre-tax adjusted earnings to GAAP were of and On earnings basis, million, to pre-tax was $X.XX XXXX. million $X.XX million fell versus $XX the $XX earnings per first $XX were down down Our $X.XX. earnings an share

were Our quarter. aircraft expense with to leasing earnings the at flat million, freighter year a and segment, CAM, ago due $XX delivered delays. all roughly segment mostly earnings of pre-tax higher our Its interest deployment for

That Our three is segment, million ACMI passenger or for which of which ACMI experienced in loss a pre-tax our had the Services includes on Omni operating Services Air to attributable mostly all airlines, $X revenues million $XXX at airline, flight a this scheduled quarter. fewer in ago. versus aircraft revenues as flat before. block million Airline were service sharply were prior with higher cost than than the year shorter did year roughly more hours year and segments even $XX it quarter loss

were our XXX hours quarter. Transpacific was for sharply cargo military the hours up hours last were as block down the combi fall. block a Block route XX%, up for Passenger for reinstated were operations X%

ended that On the our the XXXX, $XXX in can December was in adjusted to next months slide, ended the months million for you see versus March. XX down XX EBITDA

grants Federal adjusted relief the have since had $XXX our effect under Programs quarter EBITDA pandemic Support was First no million. results on Payroll XXXX.

increase Sustaining our On continues airframe investments lease our mainly customers. capital engine effectively CapEx, the to see that in for growth and XXX-XXX pace includes capitalized and maintenance maintenance, at engine services our slower equipment slide, and next leased from other a spending technology you'll for grew freighter fleet.

to quarter. deployed and $XX first million, million We up Total during $XXX year, the freighters quarter. feedstock. aircraft first the for buy existing CapEx two to CapEx both newly converted Growth prior the more XXX-XXX of was convert was $XXX from million freighters

The CapEx. of increased sustaining or adjusted the of CapEx million first XX next slide the over for in to quarter our months. million free XX net million months, flow as cash $XXX million $XXX by flow, $XXX cash our trailing cash our measured $XX sustaining operating of updates Operating net

million on flow February. gain customers, Adjusted free had we fuel up which when to you been Omni's to from reflects XX-month cost federal cash flow $XX The is basis. cash reimbursement a million talked slower in of $XXX government

the million of million Ireland end quarter the credit March. facility subject capacity the That approvals. was additional that see can in established you slide, credit US abroad facilities revolver available first option next under for in with includes at $XXX in $XXX bank a our the and we to an On

Our fourth of repurchases capital back million our repurchases. share quarter the million in quarter. in the first to during include continues $X common shares We bought allocation approximately strategy after $X

With outlook. of that comments our financial summary some Rich and I'll results, back operating to and it our for operations turn on Rich?

Rich Corrado

Quint. Thanks slide. to the Please turn next

hoped results the to we we XXXX earlier, not measured delivered clearly better a As path stand deliver last than I today. to begin $XXX said where we but adjusted as by EBITDA that's year, had on million

$XX our EPS to achieve adjusted that adjusted more reduced have our million by current guidance environment. can businesses about consistent $X.XX our by XXXX We EBITDA the and the levels results with approximately believe in guidance we

driving is the throughout As up costs Quint company. said, inflation

expense. Our airlines, cost on the interest peers and own higher same of our In margins. dramatic pressures reporting the operating their case, our the are are on effects most

For airlines, been line year. the is we rates aircraft at above over of cost the past in double-digit had operating of and maintenance those years normal keeping services two the the shape has at during The growing start cost of cycles. budgeted what

to to our airlines passenger pay crews assignments. also next the We move

first a is cycle reflecting also on per the XX% these ago. that versus traveling for in more facing increases up transport crude flight fare public example, quarter For year the costs than are

requirements address and of costs, procurement the travel, business personnel maintenance, inflation cut and as costs, Throughout other as line our volumes company, efforts in rightsizing are businesses well focus. to to are engaged areas

other lower Within airlines year. the this were segment, the craft to ACMI by our both including government affected quarter customers. Department's passenger program first were results results of commercial appetite Services Omni's down, more revenues and in participate fully for Those Defense

Many expects better clinicians first quarter contracts under to that do benefit from this in hours pricing in Even its earlier block total DoD it Omni had periods. Omni's flown DoD significantly starting October. year, if increase not the in

on customers flying consists bids shortfall other Omni's assignments real-time government it craft commercial those any and that awards costs. will charter anticipate cover from also that lying. in We based of

airlines cargo CMI some include which has which long-term agreements, this under of quarter. our airlines. will of a occur Our costs fly been Controlling price annual always between focus escalations CMI adjustments,

are their That, win with imperative. that magnified ability business. term and to only in year along season to margins other have trends the their essential inflationary limited contracts throughout Ongoing peak our

fleet slide. commitments to told two go freighters. based will demand Please on the cargo have for We strong that our to increase made next years our they investments the as you overseas, over conversion. our time lease last mainly Many next aircraft customers, airline complete

XX and expect six to XXXs AXXXs We year. deliver customers this to

our our the do the our main are vendors and ability turnaround The constraint international AXXX taken Resolving AXXX our The issues already design. for US on at the FAA times of freighters. expected. certification than has longer AXXX Airbus on extended have regulatory conversion certified based so to

directly working regulators issues are remaining on final elsewhere. with We

throughout reduce issue, situation our to this freighter approach year AXXX that's XXXX our of appropriate a adjustments circumstances change. CapEx, we which program, resolution Pending a make will measured and the a could take monitor if to intend as we

We spending investors questioned number budget from of $XXX growth freighters capital. our deploy we of agree the to the substantially $XXX use will whether of most is including that prudent have million for stepped want have million, spent capital the capital customers up fleet we heard who some convert We than and our need more is before. XXXX

does our have the environment, planned not debt freighter which our we reallocate favor benchmark our the flexibility capital to and reduce economic that share we of growth the other on or repurchases returns, been capital we double-digit returns long expect If growth alternatives. earn beyond to invest, Despite and demand in expected more fully reduction support has XXXX commitment. in investments significantly

you stock multiple, through well us create of as we It's can share that clear current additional as to under many value our price repurchases.

capital for driven creates allocation will be shareholders. what the most decisions about by value always Our

slide. next go Please the to

EBITDA Our and new between to EPS million million guidance XXXX $X.XX adjusted projects to for $X.XX. XXXX a $XXX in adjusted $XXX range of of

we expect cash challenges and XXXX earnings XXXX, lease higher growth fleet and our While from investments we in and face resume in rates. beyond to flow

a and the securities. credit balance customers with strong backing have of We to will continue and sheet, facility in the and position express midsized a in our leasing e-commerce market strong large investors freighter debt leadership

to are our employees generate with shareholders. against returns our all to plans prepared for of superior XXXX a Our long-term goal execute

That Officer, first answer questions. concludes our May to I, Strategy are our prepared Mike and have along ready Quint Chief Berger, with question, operator? we remarks. the

Operator

Atkins Stephens. comes Certainly. Jack first from line And the question from our

please. question Your

Jack Atkins

for my thanks and guys taking morning Good questions. Great. Okay.

So, is cadence. start, if we could everybody thinking about maybe kind Quint, just make to correctly, of I positioned guess the sure

I to some or do think half. your between of first about earnings Within the maybe mean, framework the down Can thinking half, second how improvement maybe about give us you how you guide guidance, framework are EBITDA EBITDA sort And break sequentially? in that? of you

Quint Turner

second half we're is It sort we is weighted, way fairly with ACMI of the in the EBITDA the Sure -- driven Services move growth And a a half as about through of a the CAM the of improvement, second terms now. steady is Jack. thinking segment. the Thanks. right way -- contribution in lot segments, of is steady that projecting year. more

Services, half. will second quarter more ACMI be improvement is the of improvement the I the But but believe some in second modest

about busiest and think the carriers Omni, through as coming balance. got drives we've ATI of typically example, that And cargo that's some the October, are some on customer you peak its season fleet, of in aircraft course, for If the they aircraft Omni, drivers in that and sort as time additional of added, June that. into head

off at in finish third the and more of second quarter looking we're EBITDA-wise, So, in the as and certainly year. that then fourth the improvement we some

Jack Atkins

you if in Got $XXX first EBITDA, say, at in it. quarter the mean, midpoint I guide $XXX million. But did the the million

expect As speaking, second second EBITDA -- the half can improvement, percentage have sort so of about think of like what year EBITDA the just full roughly you of in just you year would that. of said of you we kind -- the kind

Quint Turner

I here for quickly. run -- would we'll that say you

Jack Atkins

if come that, Okay. and if okay. that's that's we I move can can on then back to

Quint Turner

Sure.

Jack Atkins

I of XXX, freighter you AXXX. the or Mike, XXX, think Rich the part the the midsized it's guess core releasing, of demand here, So, which whether of is pipeline for sort as about business

on demand? with everything Have folks in around any you bit months you been customer going last change less in in confident would a think of little that that's expectations make sort the the getting economy? Anything demand in seen are their few that forward

Mike Berger

on at for Jack, now commitments XXXs look if later those to erosion order we about at talked And deposits have out all we've seen XXXX, we inclusive still we start over year. quarters, XXXX. the and this book haven't of you several any our XX with that in inducting those

Our go first couple induction. will into

very, the bullish see So a XXXX when XXXX, specifically, very we coming market. we still new in, look at with XXXX, and and solid those aircraft

whole, further a be view, as forecast, so, those a wide-body medium forecast when in much XXX industry the the close or even XX, very, XX the over continue next cargo industry, XX big the at needs the in look Boeing the we years when or strong And years broader look and regards FX you forecast very to to at to for so.

So, industry broader solid, short-term, very specifically, erosion. view, very bullish. still from no very, question still answer your to an And

Rich Corrado

this Rich. is Jack,

data Mike. during pandemic a a of Just couple year. to that each the points add are from course freighters other Interesting freighters involving -- about XX there's that on year, of normal normal a to serum during retired

about XX. During the pandemic, was that only

looking over different three-year of sizes, right? been retired that may period you're XXX or airplanes so would And at that have

e-commerce fact replacing country certainly airframes pent-up there's with and so going new country. is older better And that this inside outside aircraft the rightsizing on been it's a for airframes growing than forward this demand of growth top for

at that as year, that XXX will that on example, existing XXXX, they're you XX order from to of just If book, for lease the side look airplanes the us. deliver customers an XX the quickly aircraft this already

got in order the we've book with got for these a ongoing So, dialogue folks, really regular we're and confident XXXX. we've

Quint Turner

on back of Jack, the EBITDA. your just on circling question cadence

is XX% of total. half second the about The

So XX-XX two sort split halves. of a between the

Jack Atkins

Okay.

that, appreciate of I outlook. the the I the Okay. on Quint. appreciate And sort thoughts

the mean, end versus I year. was XX% the for it's the reduction. about guess And XX%, is kind benchmark at guidance put together, word a far XXXX, in you back of you down go before all XX% reduction I the Street it your So, if I think bottom when EBITDA, of about so this stock

you pretty aggressive in this about your is of guess, stock it's So sort -- next both the down move confidence, as think and about year CapEx of -- I not plan the year.

supporting do you sort of Rich, mean alternatives your other on market with growth sort the want So better of billion make what I stock cap CapEx. guess we $XXX of for you've to here, million how it the and to you're cheap got knee-jerk XXXX. align $X.X don't reaction is point at capital your a trading, think seen so this but I you flows about a sort haven't stock to spending since cash or

Rich Corrado

before to should Yes. this that that just we to Well, to have been prior first off, we thought results. quarter, got guidance for overreaction the we was this there it -- an the And stock. higher quarter's

We of are for just have XXXX, we do And CapEx dialing about all different scenarios -- got out back well. terms look, and have that freighters on flexibility We forward. we've in in XXXX going everything. do as coming for customer the commitments

deliver conversion business. in any We be decision. the that in of freighters to and EBITDA over put book revenue leasing that, a high in a if so they $XX to of And significant it at backing going you XXXX, on we're the would in XXXX, off little on on of look will a adjusted believe revenue have we that million

The good the sure right we're is XXXX for this that that staying flexibility something airplanes. again, we adjust. a course on do in feel now, those at lease should have But use make to are particularly for point have we So, that to we we this returns we're And think time. we rates the focused of need right capital.

Jack Atkins

Okay.

Quint Turner

were we that guide doesn't generating Jack, ACMI change. CAM And the to somehow related the in to -- is expect. services. returns mean I investments that if the are strictly adjustment And that

an at isn't have is these prices As we on us. investment reduce Rich and same stock CapEx to so said, some our spending. that own we lost how understand attractive at do our flexibility the time, And as

And share best is done towards eye going through what always creation value So, an the growth. with to think there's and value. to capital generates directing repurchase the allocation both we be capital

the this faced quarter, we've we headwinds to passenger been segment, and our on The revenue related at the quarter to release. flying, side Services ACMI in referenced have strictly it's the this limited more least which

improve that as that, think year. move going the to through is do We we

as We that the that cost as for undertaking measures inflation, are well adjustments have help there an now. all of in continues issue right our contract be that also us. our subsidiaries are But to mentioned airlines should that control the the which

Jack Atkins

question, over. I you the on today I one all an sort Okay. quick asset to company the Maybe hog and the of want relative and value company. about think guess as the final of other But hand of cash don't it questions. basis, the flow I'll enterprise value of your to valuation the value

think would about market to what equity value value make appropriately? won't the public like does sense valuations somebody ATSG and At maybe to an it willing holders that the fund yet, what infrastructure company be private or if point

Quint Turner

the Well, certainly have the -- when that our we EBITDA, you And the question. somebody cash it million of the valuation, at terms over Jack, often PE the of $XXX and from kind flows, in is our understand multiple as that do. you public of is to this looked look to what put at company's produces is think it's outside the Quint. EBITDA about believe of way $XXX look EBITDA, We adjusted our which on majority leasing And company the firms a EBITDA, valuation. when at million the you we

with to to higher, on down. that if very be something going there, lower tend EBITDA which obviously, I be Now, do which think, last year, plus. over put even This million. was, to leasing X our and conservative than year ACMI you the But same $XXX Services multiples be is

multiples And ACMI tend -- to Service airline lower. be been has

and other a the well put the MRO businesses. so as And conservative businesses, again, that as multiple logistics on

in in assets customer process. them. the described, have course, what aircraft Rich have that, The million think lost assets gets But And XX Those then, of I debt. waiting have contracts we of conversion. as XXX-plus reduce we on is

dollars out out at take again, what our that we debt, assume it. kind at of invested that's simply just Amazon warrants the how you cost think are, for something if And take of

spread per we we're speak value, And as we below that when that, we than get over we even is XX, it a share to look XX valuation certainly, at and a here. it conservatively closer that's

well your And assets release we've a So, at XX well taken a it on our entity, valuation leasing lot that the doesn't for process, at it public to to credit getting which as is point are flows the our assets conservative EBITDA public at be as for appears, attractive multiple process. aircraft. us, valuation. that fashion. those our in the a to valuation we for at long-term leases got be that have of even at It contracts very And and look seems cash current looked can we in in that seem

Jack Atkins

Okay. for that it. thank right. going All I through guys. appreciate Well, you Quint. Thanks

Quint Turner

Jack. Thanks

Operator

our the line Cowen. Thank question TD you. from comes And from Becker Helane next of

question Your please.

Helane Becker

much. guys. very Thanks Hi

a money. So, they've ATI potential very you're the pilots. just happening That rates. the on that issues talked with increase? contract very what's more and And I'm wondering just They've thinking cost a about about is question give on covering and of open. vocal update And an wanting you us if and attrition how service about aggressive been could

Rich Corrado

in don't Sure. Helane earnings it's regard, Rich. benchmark relations Thanks unions particularly our play unusual on out releases labor to out for fruitful labor in that's the calls the part. question. media. It's and We press think for not put around

out making I with service on paid far. a and of customers, year can which so an for they outstanding. months our quality made bonus example, get And two service bonus this comment as ATI, we of is the the

so we're in goes. in shape. pretty as far May in really So as service good good We're shape far

earnings a It's It's attrition. crew attrition has our that There in industry. It's airlines. managing. between talked we're other situation the crew been on common calls. about prevalent We've X

train good well to of a and of attract and network crews amount the a good able into flying productive. amount experience hours, over and the still be with them them We're get minimum to

we're shape as to relates with it So in good crews. moving forward

days. which our you've got you're training pilots cost raised is you while to that XX But training you're from of period, that anywhere one XX to -- when going it we through When have the [indiscernible], has resource replace cost are it's that an pressures pilots and have. unproductive inflationary

has it cost our So situation. impacted

union negotiation terms kind in it have as the by mediation As goes mediation. and far taken in agreement going the the now of in terms taking take forward, as Alpha themselves, parties Both the of agreed in far cost is they it negotiation ATI now and mediation. and and they as it's of could the

be So, contract cetera. through iterating and going et they'll issues,

to relates to we've cost we well and of it flying. to the best agreements the attract As that we -- allow rates ACMI agreement And negotiated pilots be as while union the that can business that pricing, always when our in and competitive. maintained to fact we benefits the in focusing us need union we for to able need be need for segment also possibly contract for this have we on of side past that, the compete

fashion. it really parameters the on that comment in at still year said, increase least contract But can't two processes probably is a I forward. decision guide or Those like this this I course given rest our in amount going will that mediation. play of of of the out the

Helane Becker

Okay. don't in -- how guys any guidance normally increases? that? you the remember I there there do are any Is for accruals

Quint Turner

off -- you a usually nothing for we expecting mediated resolution just -- and it or on or that's amendment past longer compact takes Yes. industry, through to based comment it's while, Helane, the a mean We but -- contract ever on don't a we're are not process. I the work ways resolution typically,

we to. get record -- and are whatever closer But-- we'll what's we appropriately see as so shaking things going how need out, And we

Helane Becker

No, that's Quint, mean, pretty I standard.

a the and will until of little better amount. they have airlines Some contract sense accrue look what to not is going a some like accrue

did you how it. remember guys So, I just didn't

What's the something the I know for I because not aircraft engine, those going on about status this there? come for know up five? you renewal to that? be due that XXXs to time re-leased. other Three miss we were going year. I of other XX because you could the were to there's use were were wanted to Did ask four so customers. Do use the them

Quint Turner

previously, look or five. think other said I mean we re-lease what Yes, the still goes, Helane, we to sell I would

Helane Becker

Okay. Has anything happened with those yet?

Quint Turner

there's Well, right still-- now,

Rich Corrado

we've Right still as the now, in to but of returns commitments got we progress through the year. four sell operation, the end they're

Helane Becker

-- mean know or included Okay. I guidance? timing. proceeds you must -- timing the do the you proceeds Is the the is timing the And the in --

Quint Turner

It would second the fourth be the were in -- would those in split quarters, in it right half, the and sort and quarter third the be is guidance. between of we what

Helane Becker

very helpful. Thank Okay. you. That’s

Operator

next comes Thank from from Stifel. you. And our question the line of Frank Galanti

Your question please.

Frank Galanti

cargo, taking at the the great. at separate takeout, peers, doing got a split, leasing you thinking Thanks times right? had Lease, on look right, And not and on Yes, XX Atlas are even kind that side. about wanted long-term Air your Air to if trading eight, more eight in two air cap. nine, for times you of half the public about my up business right, questions. the CAM, follow stable, as contracts, You've leasing although entities. I the much

it services And then through inherently about intertwined reasonable the is like is reason they're gets the ACMI is the right? seems think me leasing to value-added that, It -- down to business really the entities so large the as question parts. business. that two to One, two main the as company

of second margins. is that And then a part ACMI long-term

years. But jumped the breaking X%, just negative if pandemic, so those And X%, X%. you were history, couple for the in those through we of even a look margins saw and

you they talk then a back in businesses where is the about you X%? on term? and envision of those -- confidence What to those should Or zero, it do margins ACMI about separate that components? stay the long-term reasonable basis, but the to two go shouldn't medium at X%, think X%, that sort what you Can gives

Quint Turner

think join -- bifurcate in that's will I'll But them we Services I separately why the report historically, here. all, Frank. segment right? Thanks ACMI of on here, as do we start first segments, Rich and and

the So, is ACMI feedstock, leasing we the leasing asset-light. et aircraft, our the the businesses, side separate tends business business. think piece. ACMI of of cetera. Obviously, CapEx the piece And the to airline be the buying more services converting from business

services The to different on range. between margins piece little that historically passenger the had achieve varies generally a than has Omnicare on XX% other to in the whole, that a the ACMI it we of looked speaking, been sort it X% the is -- but as

Omni, that in for the of certainly of right, right you're sometimes that world some there the some during capacity And in you due that improvement were shortage available allowed traditional pandemic, drove those demand the were over or events, that opportunities to case margins.

think some does our leasing of that over But cargo we cash lot term that a our long it we doesn't attractive our large experience and do business right And you're produce CapEx. the can to of of flows that, overall our drive contributions margins, -- and our Amazon and unique. customers, business airlines, DHL, that also, capabilities the the on and model make asset-light

is to need express that handle cash and I going flows. MRO think need add who a our of anyway, our it's freighter and growth and to growth, the them would to the midsize freighter capacity, operating a But I for our be and say think services, converted e-commerce capability regardless, don't -- also having midsized intertwined, the customers you value when those that required they're use services to add value we

the volatility the is future is with what more I ACMI is visible the Now, segment. Services there Omni -- more And demand think probably sometimes. less piece

and to project. the government reasons, customer obvious that the is difficult customers the be DoD, their For sometimes and large largest are can

them. worked several bought Now, we that been really has in worked for years, since us for well --

inflation flying. reduction did revenue in to right can services cost that our that streams inflation pressures expect And we into pressures, worked through quarter, you're this see affect In more. ACMI some we But contracts. our see time, over

contract Omni have get run, you it. things into suffer the short anniversaries the dislocation. costs interim structure period. and that, When in until do your don't margins contract rise But contracts, built we escalation can in long-term rapidly and And has that be there adjustments like points

our But expect Services segment those we margins contribute run, ACMI to over flows should the able it on the streams. top to over long haul, -- overall long on targeted leasing adjust, of ATSG cash we and achieve and our those to be will

Rich Corrado

that only we're I -- to the add Frank, that, the thing it we're to is lessor Yes, think to I'd largest lessor dry the DHL. Amazon, is dry largest

fly that airplanes the the Amazon of a that and -- lot airplanes We also leased we DHL. we to of to all we airplanes lease most leased the

augment advantage with flying we of It's the flying the of with a to and on the strategic piece be that returns the it. pair lease top have to able unique leasing the

in the for that well played so past. And out us the -- over strategy has

is dry growth Now, a what of really plan. leasing we've the done on focused in business global last years couple and the

so coming aircraft outside are And role necessarily going leases that country XXXX of XXXX a what's an have in where lot operating those and in won't airplanes. the we are of

like of so to leasing aircraft strategy a if operators. it's will, so that other And these we're you the diversification,

Now, happen in the of for to UPS or Amazon, parts fly world. or these a operators FedEx DHL, lot other of

augmented supported strong still they're the and customers are that by paying So airplane. for

a So and situation. good allowed we strategy, it's diversify it's to think us into a

count think just also our between And airplanes is large big the in At up US. flying the I to token, our providers customers the for for think I spurt pandemic given CMI asset-light the say was only that the a XX, it's in growth XX now us I us. two during same network will over basis, have

area we -- that an ability if we to be that's in business. So, wouldn't where, airplanes be profitable with our with those confident obviously, those flying weren't

going the at that cost address. on now right cycle we look pressures through is and are so And we that these something will --

Frank Galanti

question I on appreciate wanted I in to helpful. costs. second super dig maintenance to That's really that. the

talk cash think the of of to and large not the sort the focus know I call, jump I it's reaction stock So, call. the of in this the investors last around sustaining the negative was I in flows. some is

the when XXXX number we've to that know, -- relative like, I trailing look in a XX%. I of But on it's a it's CapEx about know that's I on basis $X.XX for had it's through been But so back -- I this just from think historically. and hard and don't wanted assets, look on at XX sustaining a -- to only to a basis, kind X% year, go-forward the

the CapEx, is -- growth this an is like the CapEx way year in all minus about CapEx to -- CapEx. sustaining that sustaining is think Is outsized basically

lumpy. -- you'd X% of assets number. to normalized is sort the it's looked you really But that of it's it, at going if so And be say,

to going bigger assets, year, overall And of brief overhauls engine number, be the Yes, do of right? a year. normalized but next bit sort then We year, is right? to didn't events do engine we're to X% engine we're of a little of going of maintenance this last sort going have because there's

of talk on those between number. difference -- it that and you Because would and a number you the a CapEx there's normalized go-forward a CapEx that about sort way report be what difference maintenance Can sustaining basis?

Quint Turner

to engines of by that require of I'll of engine Yes, while Frank, we pool the part sustained power and shot here. lessors. this is back, for take that of overhauls number associated are the with there spike overhaul larger XXXX in a timing that going out CapEx established But those pool. the were a some cycle we came timing. a of to this engines with a and was offer is The EADA sort agreement that And Delta

you $XXX do see longer million. can million to So, like the norm. over the million you be We've back. $XXX looking been XX-month about can back, on it's under anticipate a see I the more -- look $XXX not talked And

if more What were business that maintenance. going responsible responsible leased we increase would maintenance be our had model, be growth for the our they're to external for aircraft drives that really And in is and to the we to on. sustaining lessees CapEx

as do grows for that maintenance does for for significantly that aircraft, for. the externally growth responsibility airlines in maintenance doesn't they are they do spare anticipate CAM have fleet some significant CapEx. capability their those increase not and we our have responsible but for no themselves we aircraft as -- The CMI agreements, So, its sustained leased that have fleet, lease

the over CapEx so don't feedstock CapEx to There fundamentally. may a that time. we some report grow to And expect cost. et And really be plus due conversion growth really nothing But sustained there's driving we much inflation, growth it strictly is cetera.

putting maintenance we expect may up that and don't subsidiaries, we include that go things some speaking, smaller do hanger, repairs line. large in And pieces smaller that have and else are fall may items but that that, But that that do time grow. does that to that have like category everything of you as into they over generally So, equipment. to items, significantly right we're some sustaining to our

Frank Galanti

Perfect. Very helpful. Thank you very much.

Operator

our the comes line you. Chris Thank of question from next And Stathoulopoulos Financial. Susquehanna from

Your question please.

Chris Stathoulopoulos

risk good a what this could in on potential for get included handle everyone. year to be downside this to Quint, exactly morning guide trying Hey guide. I revised just to what's want EBITDA there understand and this here

of through you block us about Omni? So, walk the we if and kind you year should if hours of through -- particularly could balance ACMI how the think can

it know by with by much going you in month us do Is month? remind what you visibility sort of to their the second already extension into then And you're flying and have be Amazon, flight schedules? do Or half peak. how

doesn't terms there's Three, some sales there for CAM provision accruals. renewals. sounds what's assumption placements then there's Two, in for anything asset pilot like of there sound and it in it the like and in

blocks understand So for year? building sort as we guide about this I this to of the think just EBITDA revised want

Quint Turner

the a Thanks segment, projections. so of starting question and rotations of like we extending sort months more of pattern more of and with with asking obviously, associated Omni terms sort those then true taking A things of in lot those start ACMI seasonal in place there's of variability flying, the in But because the in like Chris. the in of is a our of they probably fall. off terms just with into have summer Jack a the what cadence little detail of Yes, anticipate just Services to bit the hours lot in forth.

then latter And fourth of And have quarter, then so their growth again. period. for their part have days carriers, through and customers have. seasons that progress to the normal hours based customer going various upon typically, the year sort of shipping as that the for the it sort through the quarter the some are they're the hours, you off after assumed we peak drops And of fourth grow cargo we that on

of they're We We're a out. so talked pretty get that aircraft the may the to some of aircraft customer But some stable be operating, about be going but forth. that come to few and year-over-year. aircraft, there it's number retirements going

stable. pretty is part that So

the As segment. as CAM far

quarter. expect, two believe, leased We -- We in I aircraft eight. two we first the put aircraft

I we expect quarter. the six think second in

Rich Corrado

already those leased. of are Two

Quint Turner

then half, external two had the in second those And we other We fairly of we to split. lease have a in did customers evenly we April. that XX project aircraft the

more I four. think little might bit have third a quarter than

we're the some in guess, of of I at drivers cadence, that's some as move of through how terms the so we the looking year. And the

Chris Stathoulopoulos

sold? are Helane's I'm the sorry, Amazon, guidance, is those the with or included older there that's XXXs, question the on whether -- renewed XXXs with in

Quint Turner

in number the it's And a aircraft year. the added three go okay, be Yes, aircraft I half. -- a either be mean way. then we second will -- late it's I will And not It's in I but or they come as not aircraft, pretty the they re-leased five those the not it mean, ahead. Mike, will huge Amazon that's like believe it's significant driver. either mean, that that's sold that out,

Mike Berger

Quintin the XXXs what the piece We've whole we're and with of it. going mentioned, Rich about are We the on those And sales talked Yes. already. talked a forecast in as the the as do and extensions. about to retirements

Chris Stathoulopoulos

Okay.

because which just approval and uncertainty have new cash recession. Airbus in these free around flow about the want year. I growing of next prepared remarks, to follow-up, the my earnings aircraft, So, the you a understand growing we talked assumptions there

pilot We open two have contracts.

if elevated it, to through have you've have the way -- about think a attrition detail lot given on of mid-decade. levels. us your We order Maybe we if book

out aircraft or flow, anyone inflation. accordingly and pandemic rate contracts to is the discounted lease we at the your then where an margin way wants And this so if think to cash about are taking discounting adjusting for bridge really just see per rates about EBITDA to building think peak and EBITDA

growth want and uncertainty. you. assumptions year to in like sounds the better Thank this all business of kind given understand just the I seeing in what the pressures next for macro you're

Quint Turner

being of offset we see that that's will CAM biggest front, said, on EBITDA, cost to call, the rate help Well, the some about model We of seen. believe -- the on trying go talked that we it the increases growth -- Chris, this biggest the what to to but into going we in order going ACMI through with part some does we is with driver as do EBITDA. the don't the the XXXX. drive will Services great is drive, that overall Again, the that to inflation want book in of our we've always get detail lease through as

subsidiaries, particular, cost. our at But there's for in subsidiaries, our steps And that other uncertainties always we're in adjust each taking of there's business. to airline every

a had been through interest higher have more factor. where we've here We rates a as period inflation,

that's into always about months something talked those right? haven't been So, account. significantly, escalated last We XX but that you the that, certainly, take are has pretty have in to things

Rich Corrado

that for XXXs any we this they not leased so delivery to follow just side, And customers and regulatory year, aligned. we're clarity on are be have The that just for all all the XXX facing the clear issues, certification. FAA

that's So for XXXX. no issue

are have to ones the we scheduled And in same. that also the XXXX in fact, aligned

regulatory issues had the we don't XXXX. delivery XXXs planned now for have any in on we So right that and XXXX

Quint Turner

the year. this the aircraft on we our we'll Chris, in And from XX revenue release, said as put annualized just that

Next year, is The it $XX of It's margin EBITDA high. probably will excess generate million. in percent. XX-plus quite

Rich Corrado

strong. And mean the we've in confidence see lot our a seen I conversion we level on of -- really that houses. is stability

talk with You've increasing sites heard locations Boeing about conversion us well. the as our

order in a well. standpoint, throughput as XX not customer the very standpoint aircraft on to a from is we've those So, conversion only as but deliver solid, from mentioned,

Chris Stathoulopoulos

X I just more. in If squeeze could Okay.

How aircraft orders for? there OEMs. you than issues longer with those have because of of we're Just hearing to also are mid-decade. typically is many the spoken production you that on than remind you the what that have older the feedstock are And need would us holding do out through airlines they

you So, you And do curious have the on have in your to feedstock for mid-decade? Thank you. that through place all of that point? you much the need how have spoken book execute to plans through is

Quint Turner

that a XX we've so had Yes, scarce mentioned Quint work as that down XXX airplanes was this AXXXs as at feedstock. That I if earlier, remains by airplane in aircraft feedstock -- scarce. look The the break the and well. includes XXX-XXX, we process. think buy was got We we if you each type,

at right when you're good been you airplane find closer you're for And don't get price. looking airplanes look, airplane you feedstock know acquiring if when the that it. if to going deduct and because you're let go, you an We've a to to going those

an to to We have an we always through were -- acquired aircraft to when we as six for match number, same induction of most months the year close converters can, prior number MSN as serial to airframe for try the induction. a acquired

lag there's So there. a

slots slots those the of now, but all And for three right of got customers of XX through out right XXXX. I those So we've out now. look end XXX,

And for mind, keep then a if STC, that, I look a for conversions, venture which at main also in house own conversion is the Tampa. -- our PEMCO joint part involved the AXXX, but we own in and of we AMS we're

earlier, spoke make issue we got approval. own so the EASA we've queue get about regulatory out. there further AXXX to issues worked expanding depending What the And the is is right And slots. or how and the look XX as decision now, these in on aircraft on we we'll retracting

because And aviation got, authorities regulatory of FAA it's lot FAA. the common and EASA lot they benchmark When the follow there's to into a of follow environments says that so the the is where we're we've follow. with that Mike there's that a going okay ones

EASA, an to work. it approve them down long we're to with takes approved. the unknown that. that pathway in a is It's given it's what issue, the then evaluate one working about it issue and they've and EASA, to just us doing And how get

goes how aircraft. to slots and more that any future wait articulate see we'll we So before

we've of out feedstock. AXXXs, the slots some in identified customer assignments. XX XX, all through got We've first the On XXXX,

the in going we're the which think is the process one, acquiring first of conversion into in fourth go quarter. I to

ways hope going for demand the of terms book. in order quite again, So, your that, strong a out question. real I answered I

Rich Corrado

a drop them we our future. be on on have we timing with on several part converted conversion market that delivery the standpoint. to to of a be going the breadth over Yes, slots the from next a a out the in XX have over year going industry huge years, starting estimate it's the maybe just as from the more about slots AXXXs XXX Based that since I we're few of that depth terms will our XX% of the standpoint years demand. talked it of next the just and looks the freighter are about next all

think our future loss, you order natural that you in the up the about XXX So, as that replacement majority conversions the XX if could is of that see of controlling the already and plus. book filling

XXXX, we're future expansion slots years. terms XXXX is bullish the why reason XXXX, XXXX, optimistic so of into the freighters future where So, coming start in the in these about and the the producing converted

Chris Stathoulopoulos

And there's I EASA Okay. plans. for that solid a that's mid-decade of good pretty through the that to, point, portion has spoken this approval is at what book sounds was like referring it but

Quint Turner

only That EASA had approval EASA clarity, relates to do clarity. has the also XXX. for to the has the Just already with AXXX, for it nothing

Chris Stathoulopoulos

Okay, All time. for got right. Thanks it. the

Quint Turner

Thinks Chris.

Operator

final Thank from from our comes line Ciarmoli of question you. Truist. today the And for Michael

please. question Your

Michael Ciarmoli

headwinds, the these Thanks I these morning rising aren't for question. guess lot good figure interest guys. a of costs, inflation, here, just to out I'm maintenance mean new. still Hey trying I taking rates,

the late you gave So pressure in mean, on ACMI, the I February. guidance

less about hours. than down I for X% year think being of you talking terms the Omni were in

that what changed known? rapidly first the profit quarter. you wasn't called drive erosion to so XX% I in think out down I already in that guess

Quint Turner

been quarter, seeing is I return XX% Omni more although the flight to big have increased on costs of Omni. projected bigger The some particularly piece first a in seen position for what and revenue think on the was reductions, guidance had like a in what of of change, -- et the the we maintenance flight we're pressures impact the terms travel cycle cetera, we've Michael, Yes. than block on cost hours over attendants, crews, significantly. side it But per basis, the

of we to the what eligible some the presenting last macro we more wasn't government We than because environment of other and expected on entitlement said call fly their that previously the we knew pilots fly flyers had and actually we've even and significantly. as cargo Omni attractive to them take And of for we customers. had more example, opportunities that for or quite effects anticipated, seen commercial that their than for seen them,

Omni additionally, flown excess -- missions excess and is lot has been others sort their entitlement the in the sort that of the of carrier them. some of go-to the taking of of a pass

that would is than driver a pressures that side say this. we projected. also they're the had higher cost what large are the -- But of So, is and very cost I

Rich Corrado

first Michael, that in the of Omni. couple prevalent a for other There's quarter. things, were

resulted they one drop the a about First their type that is by ratio were hour. they in an flying that -- in of hour-to-cycle got

plan, their put hours to -- in So, up block their their they're XXX, cycles were but down. that other terms, versus were

involves stops catering So, all things is along that have with maintenance means and drives and got a that what that it XXX the cycle, -- when they've go costs. more your you maintenance

will just that the a flying is not it an hour And unusual forward, back was to that did moving handle Omni of so situation going forward. a thing. They normal return to believes the that be going that type cycle prevalent

as they very Well, the at dropped then staff. amount passenger staff, pilots the in way their quarter, they And for of year in the is, the that at a full flight staffed, mind, flying they the good attendants end you in The of full see thing keep XXXX, amount of staffing were had right had airline, where it's first had charter they Omni never full erosion. a where the you're XXXX, and and at other right fleet. when achieved and ACMI

gotten to in to that projecting plan going the in and that doing of across that. forward. Now, pretty is go-forward the be part to type far going the rightsizing along their flying side staff And fix doing of operating they're they've of already terms

begin the the see cost one second we in we'll benefits that's to quarter. So, think of

Michael Ciarmoli

it. Got

just Okay. of remainder And then the year. the plans the for capital spending

million revolver cap the exhausting sheet. maybe mean about -- exiting balance You've I structure the this -- by got year-end? are in think you on we on should $XX Or cash planning the how year? the

Quint Turner

have we I or year, million to $XXX us about access the et we this so. we're would think, have take through excess also on itself, -- to And have feature, cetera. -- think, about, and it additional care which we should revolver, get that I this would of So, accordion needs, need current of an we us we but

leverage we remain finish to And year. is under the as ratio expected so our three still times

So, levered. we're highly not

isn't And problem liquidity that so -- a access isn't us. for to

Michael Ciarmoli

Okay.

much then Quint, assuming remind on debt down presumably can drawing us or the floating, Okay. just of drawing the And how revolver? And that I'm is you line.

Quint Turner

Yes, XX% it's of the about of it, Michael, space. XX%

Michael Ciarmoli

All perfect. Okay, Thanks guys. right.

Operator

program Thank you. to I'd session This to does remarks. hand the back program. for today's any conclude Corrado the further question-and-answer like Rich of

Rich Corrado

Thanks Jonathan.

a been has of the For foundation fair our leasing than more strategy. decade,

All to returns. our relationships core other with of our add services extend and serve value that supplement overall leasing businesses our

our has off our strategy time for the It's remain of XXX and over paid successful of core been significant freighters That and Boeing will strategy remain this future. returns that fleet. the

fuel sales ticket depend stable far an are the Because when on operate but how and the or and customer prices, returns short ACMI about decisions on or they in airlines inflation term basis, their vulnerable fly. our and how not do CMI they to

way happening Sometimes, passenger as that in both our affects results. converge airline our in factors a is business,

deliver next conversion. the leasing and high are adjusted million EBITDA growing. aircraft in increased over year we stable a with $XX in scheduled XX -- Our both that returns will XXXX are to contribute revenue

in customers consistent you look participation to investment with returns Thank the investments freighter the with the half. improve year strong, our that today's continuing expect shareholders shareholders in forward call, their second will your volumes the We come to finishing in have and keep to indicate Our safe. -- our ATSG. stay while from for

Operator

for This in conclude gentlemen, conference. program. and participation ladies you, Thank today's the your does

now may Good disconnect. day. You

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