Air Transport Services Group - Q1 2022

Transcript

Speaker 0

Welcome to the Second Quarter 2021 Air Transport Services Group Incorporated Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Please note that this conference is being recorded. I will now turn the call over to Mr.

Joe Payne, Chief Legal Officer. Sir, you may begin.

Speaker 1

Good morning and welcome to our Q2 2021 earnings conference call. We issued our earnings released yesterday after the market closed. It's on our website, atsginc.com. 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. Our actual results and other future events may differ materially from those we describe here.

These forward looking statements Any forward looking statements to reflect changes in underlying assumptions, factors, new information or other changes. These factors include, but are not limited to the following, which relate to the current COVID-nineteen pandemic and related economic downturn. The pandemic may continue for a longer period or its effect on commercial and military passenger flying may be more substantial than we currently expect. It may also disrupt our workforce and staffing capability, our ability to access airports and maintenance facilities, Our customers' creditworthiness and the continuing ability of our vendors and third party service providers to maintain customary service levels. Other factors could also impact the market demand for our assets and services.

These include our operating airlines' ability to maintain on service and control costs, the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration, Fluctuations 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 our ability to remain in compliance with key agreements With customers, lenders and government agencies, changes in general economic and or industry specific conditions and other factors as contained from time to time in our filings with the SEC, including the Form 10 Q we will file on Monday. We will also refer to non GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, ATSG's financial position and results. These non GAAP measures are not meant to be a substitute for our GAAP financials And 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 Rich Corrado, our President and CEO for his opening comments.

Speaker 2

Thanks, Joe, and welcome, everyone. I think it's fair to say that ATSG made significant progress during the Q2 this year. Our businesses across the board improved from the Q1. Our adjusted earnings and EBITDA exceeded our own targets and many of yours. We leased 3 more Boeing 767-three 100 freighters to external customers in the quarter on top of the 5 we added in the Q1.

That's halfway to our 2021 goal of at least 16 new leases this year. 7 of the 11,767s we promised to Amazon this year are now in the air and we're flying one that Amazon owns itself and has assigned to us. Our airlines rang up 26% more cargo block hours during the quarter versus a year ago and 11% more than in the Q1. COVID-nineteen is still affecting our airlines passenger and combio operations, But the effect on our recurring passenger operations is less than it was in the Q1. We're ahead of the pace We set for achieving our 2021 guidance for adjusted EBITDA, which remains at least $525,000,000 We've assumed that the second half would be stronger than the first and that's what we intend to deliver.

I'll have more to say about our outlook shortly. Quint Turner, our CFO is ready to review our 2nd quarter numbers.

Speaker 3

Quint? Thanks, Rich, and welcome to everyone on the call this morning. On a consolidated basis, our revenues were up a solid 8% to $410,000,000 in the 2nd quarter. The principal factors were more leases and more Air Express flying, particularly for our customers Amazon and DHL. Our GAAP earnings of $80,000,000 or $1.17 per share basic were strongly positive versus a year ago We also recorded $30,000,000 in 2nd quarter after tax benefits from federal pandemic relief assistance under the payroll support program versus $8,000,000 in the Q2 last year.

Results for the Q2 last year also included A $39,000,000 charge to write down aircraft asset values primarily related to 4 757 freighters that had been retired. 3 of those 4 were sold in July. On an adjusted basis, our 2nd quarter earnings were $4,000,000 lower than a year ago at 28,000,000 or $0.35 per share diluted, but they are up $15,000,000 from the Q1. The primary driver of the decline in adjusted earnings versus last year's Q2 was decreased passenger revenues from our airlines due to pandemic effects. Our adjusted earnings exclude, among other items, the effects of quarterly mark to market changes in the value of warrants and other financial instruments, as well as pandemic related government grants to our airlines.

The diluted share count used to calculate adjusted Earnings per share for both the Q2 of 2021 year ago period reflect Amazon's decision to cash exercise warrants in May of this year. Interest expense decreased $1,000,000 for the quarter. Rates on our credit facility balances and lower debt levels overall were principal factors. Depreciation and amortization expense increased $7,000,000 for the quarter for more aircraft in service. Our adjusted EBITDA was $128,000,000 $2,000,000 higher than a year ago.

That is also up a solid $22,000,000 from the Q1. On a segment basis, our aircraft leasing business CAM performed very well. CAM's pre Tax earnings increased 15% for the quarter to $23,000,000 CAM owned 56 Boeing 767-three freighter aircraft in service as of June 30, up from 40 a year earlier. CAM completed the modification of 2 767s to freighters during the quarter. CAM bought 8767-three 100 feedstock aircraft for conversion during the quarter.

That brought the total 767 purchases to 12 for the first half. Because of continued strong leasing demand, CAM now expects to acquire 5 more 767s in the second half, along with its first Airbus 3 twenty one-two hundred. Revenues for our ACMI Services segment, which includes our 2 cargo airlines and Omni Air, our passenger airline, decreased $14,000,000 during the Q2 to $273,000,000 We had a surge of charter demand in for Omni in the second and third quarter a year ago. Since then, passenger charter opportunities have declined, But military flying has rebounded from the Q1. Billable block hours were up 12% overall.

On a GAAP basis, pre tax earnings for ACMI Services totaled $45,000,000 during the Q2, up from $30,000,000 a year ago. Excluding federal grants realized in each period, earnings were $6,000,000 down 13,000,000 On a sequential basis, ACMI Services earnings excluding grants improved by $13,000,000 from our Q1 results, due principally to additional flying for express package networks. Omni Air has received $83,000,000 in federal Support payments this year. These funds require Omni to refrain from involuntary furloughs of its flight crews and other personnel at least through this September. Our earnings on the other activities line were $3,000,000 a sharp improvement from a year ago We're driven by more fuel sales and gateway services.

Additionally, maintenance operations for external customers were positive for the quarter. As we said in our release, the combination of our add on notes offering, bank credit facility amendment Cash from Amazon's warrant exercise strengthened an already strong balance sheet during the quarter. We were able to pay off our 6 $15,000,000 term loan balance early, while also increasing our revolver capacity. These changes give us significant access to capital going forward, maximize flexibility by reducing secured debt and extend our maturities at favorable long term fixed rates. We ended the quarter with a total debt to trailing EBITDA leverage ratio of 2.4 times under our credit agreement.

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

Speaker 2

Thanks Quint. ATSG's business As we like to say, begins with the aircraft lease. It's the foundation for everything that comes after and the source of our incredible power to generate long term cash flows. Demand for our leased midsized freighter 767s continues to be very strong as reflected by CAM's 18% revenue growth and growing lease order backlog. The pandemic continues to affect passenger travel, so we're fortunate that the vast majority of our cash flows stem from the cargo side.

Our cargo airlines performed especially well in the Q2, generating good growth from busier schedules and expansion of some transatlantic routes for DHL. We expect our ACMI Services segment to continue to improve during the second half. That improvement will continue to depend on the restoration of revenue streams that the pandemic has curtailed, but also operating efficiencies at our airlines. As we issued guidance of at least $525,000,000 for adjusted EBITDA this year, We noted that our planned call for us to generate approximately 43% or about $225,000,000 of the total in the first half. We ended the half a bit better than that.

Our strong second quarter leaves me increasingly confident that we can exceed our own expectations. In the meantime, our freighter leasing and flight operations for Air Express Networks are growing at double digit rates. We're on track with our aggressive schedule to lease at least 16 767-three 100 freighters this year And at least 10 have already been specifically assigned to customers in 2022, including the multi aircraft lease deployments to Amerijet, Star Air in Europe and MasAir in Mexico and the last of a 4 aircraft lease order from DHL. Separately, we're also deploying 3 returned 767-200 freighters this year under 5 year leases to Ryar Airways, Star Air and Sky Taxi. We're currently stacked with orders for customers who want to lease freighters from us as soon as we can get them.

That's why we've decided to accelerate the expansion of our footprint in the dedicated cargo aircraft market. 1st and foremost, by acquiring more 767 feedstock to supply customers with freighters next year, but also We have accelerated our plans for CAM to add its first Airbus A321 freighter to its lease portfolio With lease deployments next year of at least 3 aircraft. When available for lease, our A321 will offer a large We have agreed to purchase our first 3 A321 aircraft, 1 this year and 2 in 2022, Put them through the conversion process at our PEMCO facilities in Tampa and then make them available for lease next year. We're also pursuing additional A321s for purchase next year. At the same time, we are making plans To extend our leadership position as the world's largest lessor of midsize freighter aircraft by adding another platform for growth.

One that will have operational synergies with the A321. We recently acquired rights to 20 Airbus A330 conversion slots from Germany's EfW for aircraft that would begin conversion between mid-twenty 23 through the end of 2025. While the 767-three 100 will remain our primary midsized freighter growth engine for many years to come, we also see the A330 as an attractive platform With customer appeal and fleet synergies with the A321, we don't anticipate investing in A330 feedstock until 2023. Well, we believe securing conversion slots to be a wise investment, allowing us to continue to grow our leasing portfolio and attractive return targets, while diversifying our lease options to customers. In fact, across 3 different aircraft types, we currently have rights to 67 freighter conversion slots with induction dates starting in 2022 through the end of 2025.

As you can see, we remain bullish on future opportunities in our cargo leasing space. With our devotion to service quality For the midsize freighter capacity and flight support that our customers will require for the e commerce driven networks. That concludes our prepared remarks. Quint and I along with Mike Berger, our Chief Commercial Officer are ready to answer questions.

Speaker 0

We have our first question from Jack Atkins with Stephens. Please go ahead, sir.

Speaker 4

Okay, great. Good morning and congratulations on a great quarter.

Speaker 2

Good morning, Jack. Thanks, Jack.

Speaker 5

So I guess,

Speaker 4

Rich or Quinn, if we could go back just to the guidance for a moment, the at least $525,000,000 in EBITDA for this year. Rich, as you noted, you're running ahead of plan through the first half of the year. What's preventing you from maybe raising that floor As we sort of think about the full year, is it just some uncertainty around the pace of recovery with military flying just given The delta variant ramping up or sort of could you walk us through that kind of thought process?

Speaker 2

Yes. I think, Jack, we've built And some already anticipated customer business coming back. A good example is one of Omni's best customers Vacations Hawaii is scheduled to start flying again in September and they've been selling tickets and they're ready to ramp up their business again. That's planned to start in September. That's part of our guidance.

And so, when we look at that business as we sit here today, It's scheduled to go, but the Delta variant is apparently still growing around the country. So we felt that given Some of the still uncertainty around the pandemic that it was more prudent. We're confident we're going to hit our $525,000,000 at least $525,000,000 guidance number.

Speaker 6

But we thought

Speaker 2

it would be more prudent to not change guidance at this time. We will revisit that in next quarter's call, See

Speaker 6

if it makes sense to do given what

Speaker 2

we'll know then about the pandemic.

Speaker 3

Yes. And Jack, part of that, of course, is also military passenger flying. And Elyse, to the current date subsequent to Q2, it's been it's continued to be good. So we're optimistic as you say that we will finish above the $525,000,000 but As Rich says, you still got the delta variant uncertainty that kind of keeps us from Being able to give a more precise number at this time.

Speaker 4

No, that makes sense. And I think everyone understands that. So just thanks for the color on that. And I guess Kind of shifting gears, with the commentary around the 67 the rights of 67 conversion slots You talked about a moment ago and it was disclosed in the release last night. As you think about Matching those 67 with customer indications of interest, how many of those 67 conversion slides would you say You feel pretty comfortable or spoken for at this point.

Is there kind of a way to quantify that?

Speaker 2

Well, I think we have great visibility for 20 2 into 2023 where we're real confident everything that comes out of conversion and paint will go right into lease.

Speaker 4

Okay.

Speaker 7

When

Speaker 2

you get out to 2024, We've got folks that are talking to us and want airplanes during that time, but we're not into LOIs or anything like that, given that far out. The new platforms, we've got excellent interest in them. It's one of the reasons that we wanted to talk about it that we've got strong interest in those. Still our Yes, we're the 767 remains our flagship backbone. And we've got commitments on all of our aircraft coming out in 2020 2, as well as, 2023 is significantly done as well.

So it's When you look at years past, we wouldn't be able to say we've got 1 to 2 years out, locked up as far as customers Looking for airplanes, but it's certainly a different market today, which is great. So we're looking to capitalize on that. We believe That what's fueling it is the e commerce growth around the world. And if you look at the market penetration of e commerce, it's still small In the general retail and that will that growth will continue to happen and continue to expand that market. There are parts of the market that are In their infancy, 1 is cross border e commerce, and that's one where barriers are being worked on to come down, things like banking To do cross border transactions, customs clearance to do cross border transactions are still a little clunky.

So when those as those barriers come down, that Accelerate the cross border side of that, of course cross border generally means airplanes.

Speaker 3

And remember too, Jack, that the CapEx For a significant amount of those slots, we'll be committed to at a later date as we get even Precise visibility on specific demand, but certainly securing the slots based Having an order visibility that's really good into 2023, I think is a good decision.

Speaker 6

Mike, just to maybe give little bit more detail around what Rich was referring to and why we're so bullish on the growth piece of it. When you look at the e commerce m commerce, if you look at a country like India, for example, less than 7% of their total retail sales It's e commerce and they had 25% growth last year. Latin America had 63%, but yet it was still only 4.7% of their overall retail So if you think about where our customers are and where we've looked to incrementally grow our existing customers As well as new customers, when you start thinking about Asia, Southeast Asia, East Asia and certainly Mexico and Latin and Central America where not only we've developed new customers, but we also have existing customers. That's why we're Very prudent as we look out to 2024 and 2025. Rich mentioned that our order book for 2022 is full And we're almost full for 2023.

So we're real confident that 2024 and 2025 will continue, especially when we see what they where the volume and the engine is. And as we continue to be an enabler for e commerce throughout the world.

Speaker 4

Okay, fantastic. Last question and I'll turn it over. I believe Part of your DHL contract comes up for renewal next year, especially around some of those 762s. Where are you in discussions around an extension there? Anything you could share about it?

I know you're probably hesitant to talk about a specific customer, but I think that is an area of interest for investors. I would imagine given the demand for aircraft in the market right now, it should be a Favorable conversation, but we'd just be curious if you could update us on that.

Speaker 6

Well, I can address the maybe The return piece of it, we have taken our 2767-200s Back already from DHL in the Middle East and you heard in Rich's comments that we redeployed those. We We'll have those out on lease, one for Sky Taxi, which will be delivered actually this week on a 5 year lease. And the second one is right behind that in terms of being going under a C check that will go out to Raya that's completely Under agreement. So those first two returns that came back from DHL in the Middle East will go right back into service on 5 year leases. In regards to the upcoming agreements that are coming up for renewal in April of 2020 We're very confident at this point that we'll see renewals on both the aircraft side as well as the CMI side.

Speaker 2

In fact, we believe, Jack, that we'll be expanding the operating side of the equation with DHL in the United States. If you recall, ABX Air is our main airline that flies for DHL in the U. S. We got the CBA Contract with the pilots done in December to be effective in January, that's really Done a lot to give us growth opportunities for that airline. And so as we're working with DHL and going through both the It's an extension of the leases in the U.

S. And the extension of the operating agreement in the U. S, it's really been beneficial to us. So we're I'm looking forward to getting that done and expanded. Hopefully, we'll announce it by the end of this year.

Speaker 4

Okay, fantastic. That's great news. Thanks for the time guys.

Speaker 6

Thanks, Jack. Thanks, Jack.

Speaker 2

And we

Speaker 0

have our next question from Frank Galanti with Stifel.

Speaker 7

Great. Thank you very much for taking my question. Good morning. So I guess I wanted to follow-up on Jack's question on the 67 slots. Can you just give a sense for The financial obligations for taking those slots and then kind of how fixed they are, should there be kind of a weaker demand in those Kind of out

Speaker 3

years. There's a deposit, because naturally you're tying The conversion house from marketing that slot and they're trying to make plans in advance. So there's Deposit, it's a relatively it's not a material deposit in relationship to the end of service cost of the asset. And that is the amount that would be, I guess, at risk if somehow you didn't fill the slot. Of course, there would be an opportunity to move the slot to another supplier or another converter if you needed to.

I think it's a confidence statement about where we see the market demand over Long term and with the additional platforms we'll have on top of the 767, we feel very comfortable that it's a prudent commitment to make.

Speaker 7

Okay. That's really helpful. Kind of switching gears a little bit to the omni business. Can you give a sense of geographic mix for that business and What I guess how those are faring from Just generally. And then is there a way to kind of quantify what Omni was generating from like an EBITDA earnings perspective Pre pandemic, and kind of what is the run rate of that business relative to that?

Speaker 3

Yes, we don't other than our reportable segments, which of course, Omni is in the ACMI Services segment. We don't break down individual entities in terms of their profitability, Frank. And the reason we don't is because They have some customer concentration within their book of business. And so we don't necessarily want to Talked specifically for commercial reasons about the individual subsidiaries. I can tell you that In terms of the passenger hours operated, we saw certainly Improvement, significant improvement in the second quarter.

All of our packs flying And that would include not only omni, but the combi, the 757 combi that ATI operates. On an hours flown basis, Those were up 17% over our 1st quarter level, which Now to give you a sense of where we stand through the first half, We're looking at down well, that was down 8% versus the prior year still in the quarter, But versus the prior first half, we are off 28% in terms of total passenger hours. So you can see The big drop was in the Q1, 2nd quarter recovering, up 17% over the Q1 run rate. And of course, we're expecting continued improvement as we move through the second half in our passenger operations.

Speaker 7

Okay, great. And one last one if I could. Just trying to back into kind of a core free cash flow number. From keeping the planes in the air and the business running, can you give Kind of an estimate for a maintenance CapEx number, at the current fleet size and then maybe a way to think about that as the fleet grows over time?

Speaker 3

Yes. If you think about maintenance CapEx in terms of this year's guidance, And we're guiding as you know, we adjusted our total CapEx estimate up to around $550,000,000 You're probably Looking at around $160,000,000 or so of that as maintenance CapEx. And that includes required Heavy maintenance on the airplanes, it includes things like engine overhauls to support the fleet. As we grow the fleet, We don't expect the maintenance CapEx to grow significantly. And the reason for that is because with our business model, The lessee maintains the asset during the life of the lease.

And typically, it is returned In a like for like sort of maintenance condition as it was at the start of the lease. And so that transfers that responsibility to the lessee Under the lease, our maintenance CapEx we have is a lot of it is tied to aircraft that we lease internally to our affiliate Airlines and those assets are used to support the CMI flying and so forth. And that's not growing As rapidly as the external lease deployments that CAM is making, which is what we're spending the majority of our CapEx on.

Speaker 7

Great. That's really helpful. Thank you very much for taking my questions.

Speaker 6

All right, Frank.

Speaker 2

And

Speaker 0

thank you. And we have our next question from Stephanie Moore with Truist Securities. Your line is open.

Speaker 8

Hi, good morning. Thank you for the question.

Speaker 6

Good morning. Good morning, Stephanie.

Speaker 8

I was hoping you could talk a little bit about the A330s. I'd love to get your thoughts in terms The potential customers for those planes, I think we talked in the past the A321s are a nice replacement for the 757s and That represents a large really addressable market for conversion or replacement over time. So I'd love to hear your thoughts on

Speaker 2

That's a great question, Stephanie. Thank you for asking it. A couple of things. We've been looking at the 330 for a few years. And one of the things about the 330, there's 2 variants, 2030-three hundred that have conversion opportunities for them.

The 200 is about the same size as the 767-three hundred. It's a little bit more expensive for feedstock and it's got some higher operating costs because it's a heavier airplane. It's got great range, but it's not something you need in an express environment. The A330-three hundred is slightly bigger than the 76300. It's got about a 20% higher cube And about an 8% 8% to 10% higher weight carrying capability.

In the Express environment where these Mid range freighters, midsize, medium wide body freighters tend to be a solution for. Cube is much more important than weight. So the A330-three hundred looks to be a real solid solution for the same customers that the 767 is providing service for today. It's a newer generation aircraft. So I think it came out in 1996, mid-90s.

The 767 XAVEN came out in the early 80s. And so when you look at feedstock capability going into the future into the next decade, There'll be more prevalent feedstock coming available as the 767 over the next decade starts to wind down. So we look at it as both a replacement and then it also has a little bit higher cube For line haul operations, so going from country to country. As far as customers goes, we've got 3 customers that Already engaged in the airplane. DHL, I think is one of the largest users in the world of A330 freighters.

And so hopefully there'll be a customer of ours in the future. We've got other customers that we're talking to about the aircraft. Now one of the other significant events that's occurred as a result of the pandemic is feedstock values for the A330 have come down significantly. It depends on which appraiser you listen to, but pretty much the 2% or 3% that I've read is in the 25% range. And that was one of the key things that when we looked at the plane, it was more expensive and therefore the total cost of ownership and operating was higher What the 767 could deliver.

So we think we thought at the time that it was going to be a good solution in the future when the economics made sense and With the feedstock coming down going forward with the newer generation basis of the airplane, that we think it's going to be a solution that's going to be Yes, a long term solution in the medium widebody segment.

Speaker 6

Rich, the only thing maybe I'd give you a little bit more detail. There's a couple 100 airplanes that are in the prime age area that you talked about from 13 to 25 that represent very good These to be converted into freighters. The other reason we really like the 330 is that Omni can potentially expand into the large category to operate for the DoD, which is something that we don't have the ability to do today. So We're excited about that potential opportunity with our omni organization as well All the other customers that Rich referenced prior as well.

Speaker 3

Yes. We do have the 777s with Omni today, but Mike's I think What you're saying, Mike, is that this would be additive

Speaker 6

to the large clients, right?

Speaker 2

And then the last thing, obviously, is it's a great Synergy with our A321, so we have a kind of a multiple aircraft solution for the same customers that we have Today in the set for the 767-300, the A330 and A321 have a common cockpit. And so what that means is, small differences training that need to be done to move a pilot between the A321 and the A330, much smaller And having to go get a full new type rating for a different aircraft type. So it's a smaller effort. And so there's significant crew savings and the synergy with that. And thinking like an airline, even though we're a leasing company, We think it's a really good solution to add to the coming 321 and for the future of the medium widebody Leadership that we hold.

Speaker 8

Got it. No, that's very helpful. And then I guess broadly speaking, I'd love to hear your thoughts on really contract profitability and maybe ROIC pre versus post pandemic, just given there's so A

Speaker 2

couple of things. One is lease rates have definitely hardened. And so that plays out in a couple of different perspectives. So when we're negotiating With new customers or for new airplanes for existing customers, it's pretty much where We've got a better negotiating position. The other thing is any lease that's coming on that's coming due, Most of them tend to be extended or we are flipping them right over once they get through a maintenance event To a new lessee because the demand is so significant.

A lot of airlines that we leased to right now that have assets coming due Between now and the end of next year are already talking to us about extending those. And so it's folks that have capacity now don't want to

Speaker 6

let it go. So the

Speaker 2

high demand is good for our existing leases for extensions. The other piece of Most of them are extending at existing lease rates and we're actually in a position to get better lease rates. Usually, on the leasing side, when you go through your 2nd and third extension on a lease, you start to the lease rate starts to go down a little bit, But now we're seeing them hold up on extensions.

Speaker 8

Great. Well, that's everything for me. Thank you.

Speaker 2

Thank

Speaker 0

you. And we'll take our next question from Chris Sefalopoulos with Susquehanna. Please go ahead, sir.

Speaker 5

Good morning, everyone, and thanks for taking my question.

Speaker 6

So, Rich, Quint, it sounds like

Speaker 5

you have a fair degree of High confidence, if you will, in translating these 67 slots to actually putting the aircraft in service. So As we think about potential EBITDA earnings through the recovery, is it fair to say that You have 120 aircraft and active fleet at year end. Could we see by 2025 North of a fleet of 180 aircraft in service. And then also thinking about the recovery, there's a lot of puts and takes here, right, because eventually long haul, Belly capacity is going to come back online at the same time your DoD and passenger utilization should go up. So could we do better Through the recovery as we get towards 2025, assuming you fill out these slots here with actual aircraft, Could we do better than $5,000,000 in annual EBITDA per aircraft over that period?

Thanks.

Speaker 3

Yes. I mean, I certainly, could we be above 180 In that timeframe or somewhere in that zip code, Chris, yes. We believe that's true. In terms EBITDA contribution per tail, we think of it more in terms of return on invested capital, Right. And we believe that as we build the fleet out, we will maintain attractive returns we get today on our dry lease investments, on our aircraft investments.

And as Rich described a minute ago, With the current demand environment, it's actually doing a good job of supporting higher lease rates. So we hope to even add to that return on the asset investment. As you know, our business model provides an opportunity for incremental returns For building services around the lease. And so in our case, it also depends, of course, on Opportunities to provide other services to the lessee, which may be as we do for DHL and Amazon sort of the full range of services Or it could be some portion thereof, like just the maintenance, etcetera. So we certainly believe that our returns in this Strong demand environment can return or excuse me, can improve over what we've seen historically.

And we're taking these steps because we think we'll certainly maintain or improve upon the returns on capital that we get For our leased assets already.

Speaker 5

Okay. Thank you. And then my second question. The question I get a lot from investors lately is why the stock isn't working this year. It's down around 19 Percent in what's a very constructive market for freighter demand because of all the competing belly capacities effectively side So one of the areas in addition to folks asking about U.

S. DoD contribution to EBITDA is why not participate in the charter market or short term missions if there's an opportunity here To grab some rate, or perhaps just I don't know if you can I mean, you have such a full order book here, if it's an issue of Allocating a few assets here to shorter term missions, it's just that if we're consensus is that this long haul international passenger Travel is not coming back for 2023? It would seem rates are going to stay high and there could be an opportunity here to potentially over earn here through the recovery. Thanks.

Speaker 2

So we've pretty much had A tenant that for a $30,000,000 asset, it's a much better long term Commercial structure to get a 10 year, 8 year lease on that for the first lease and have that strong long term cash flow than to put the aircraft on our own And fly in the charter market. Now the pandemic has obviously made the demand Perspectives on that market different, but eventually that will come back in line. I will tell you, we have taken advantage Several charter opportunities, we put an airplane up for DHL between Hong Kong and Sydney Last year, and we've put 2 or 3 other international routes. We took airplanes that were flying in their domestic network And are still linking to their CVG domestic network, but are flying internationally to support their efforts. So we have gotten more Block hours related to that.

We tend not to have excess capacity airplanes on our airline certificate other than what we need to cover our own maintenance or meet our commitments to the DoD on the cargo side. And again, we just think long term, it's a better So that asset to get the longer term consistent cash flows out of it versus putting it in a charter environment where we'll get In this case, maybe we'd get a year and a half of robust usage, but then we'd be back in a situation where We'd be getting intermittent usage on that both from the crude deployment standpoint and the asset standpoint. Generally, when we in the past, when we've Situations like that, we've taken the airplane and leased it. So, we think that long term, we've got the right strategy.

Speaker 6

Okay. And if I could just get one

Speaker 5

and one more here. For the quarter, where were your utilization or block hours per aircraft day on the DoD and

Speaker 3

Well, as I said, in terms The majority of our DoD flying is passenger and the Kombi and the packs, all of our packs and our Kombi Flying were up 17% over the Q1. That's still down about 8% over the prior year During the quarter, if that gives you a sense, but for the 1st 6 months, Those same stats are off 28%. So that shows you the recovery in the 2nd quarter relative to the first. A 17% improvement over the 1st quarter Levels. So versus the prior year in the second quarter, we're down 8% in total Packs, flying, and that includes a 17% sequential improvement over the Q1.

Speaker 5

Okay. Thank you.

Speaker 0

And we have no further questions in queue. I will now turn the call over to Mr. Rick Corrado for closing remarks.

Speaker 2

Thank you. Our latest commitments to convert and lease more midsized freighters over the next several years should make one thing perfectly clear. We expect e commerce Another force is driving demand for our aircraft today will persist well into the future. Our employees at all levels believe that as well, And they have continued to deliver superior service during this time. And they're working together to extend our leadership in this key market.

I am proud to lead them and I'm confident that their hard work will yield superior rewards for those who choose to invest with us. Thank you and stay safe.

Speaker 0

And thank you, ladies and gentlemen. This concludes our conference. We thank you for your participation. You may now disconnect.