Chorus Aviation Inc.

Thank you, operator. Hello, and thank you for joining us this morning for our first quarter 2021 conference call and webcast.

With me today from Chorus are Joe Randell, President and Chief Executive Officer; and Gary Osborne, Chief Financial Officer. We’ll start by giving a brief overview of the results and then go on to questions from the analyst community.

Because some of the discussion in this call may be forward-looking, I direct your attention to the caution regarding forward-looking information and statements, which are subject to various risks, uncertainties and assumptions that are included or referenced in our management’s discussion and analysis of the results and operations of Chorus Aviation Inc. for the period ended March 31, 2021, the outlook section and other sections of our MD&A where such statements appear.

In addition, some of the following discussion involves certain non-GAAP financial measures, including references to EBITDA, adjusted EBITDA, adjusted EBT and adjusted net income. Please refer to our MD&A for a discussion relating to the use of such non-GAAP measures.

I’ll now turn the call over to Joe Randell.

Thank you, Nathalie, and good morning everyone. In such a difficult environment, I’m pleased and encouraged with our accomplishments so far this year.

They really demonstrate the strength and resiliency of our employees and business model and the tremendous expertise of our team. The safety of our employees is our top priority and the success of our company is in part due to safety, being part of our DNA.

With the third wave of the pandemic now upon us, I’m amazed and grateful for the tenacity and professionalism of our team and especially our frontline employees. We are continually working to address concerns in an ever changing operational environment.

Together with our unions, we are being as proactive as possible to better support our people. At some point, this crisis will abate.

We’ve been managing well through the challenges that are collectively focused on ensuring we emerge on the other side as strong as possible. In March, we amended our CPA with Air Canada to address the dramatic and sustained reduction in air travel demand caused by the pandemic by optimizing the Jazz fleet.

As such Air Canada is transferring the fleet of 25 Embraer 175s, making Jazz their current soul Air Canada Express partner, and the exclusive Air Canada Express operator of 70 to 78 seats capacity regional aircraft until 2025. The transitions of these aircraft and the new alpha pilots are going well and we’re pleased to welcome these new employees.

Earlier this month, we operated our first E175 flight and plan to adopt four aircrafts per month and have them all flying by the end of the third quarter of this year. I comment the Jazz team for their dedication and hard work bringing the E175 fleet online so quickly.

We begun to retire the Dash 8-300 fleet from Jazz, and we are actively pursuing a range of options for these aircrafts. The revision of the CPA also included the implementation of a cap on the Controllable Cost Guardrail receivable at $20 million annually.

This reduces our financial exposure and minimizes draws on our working capital. As our work with Air Canada on recovery plans continues, these revisions further strengthen our relationship and provide network efficiencies and planning flexibility, elements that are vital as service resumptions are implemented.

We continue to focus on our costs and remain prepared to respond increased flying demand when the recovery starts. On the heels of finalizing the revised CPA, we launched the capital raise, which was oversubscribed and delivered gross proceeds of $145 million.

Preserving and building liquidity remains a priority, and we believe the time of this raise was good given the positive momentum we have been building despite the onset of the third wave. We were delighted to have two new institutional investors such as NordStar Capital and the Alberta Investment Management Corporation come onboard through the concurrent private placement in support of our growth strategy.

The net proceeds will be used primarily to support our leasing business, pay down debt, pursue opportunities and for other general corporate purposes. While there remains uncertainty, our industry is seeing positive trends as air travel demand returns, most particularly in regional and short-haul markets.

We are well-positioned to prudently pursue growth opportunities. This was evidenced by our recent long-term lease agreements with two new customers, Sky Alps of Italy and Cobham Aviation Services of Australia.

The aircraft 3 Dash 8-400s were repossessed in 2020 and underwent reconfiguration and return-to-service work at Voyageur and Jazz Technical Services. This is what differentiates us from our competition.

We offer a broad range of solutions to remarket aircraft during one of the most challenging periods in aviation history. We continue to work with our lessees as they manage through this time.

Lease revenue collections have plateaued given the third wave of the pandemic, and we expect this to improve with passenger traffic recovery, and the re-introduction to service of grounded aircraft around the world. The current environment has been difficult to remark at off lease aircraft.

The sector itself is very competitive and dynamic. We are actively remarketing our off-lease aircraft and watching developments in the industry closely.

We haven’t changed our cautious approach to growth and are in a good position to take advantage of new opportunities such as sale and lease back transactions with high quality customers, seeking additional balance sheet flexibility. We have cash on hand, good liquidity and continue to work well with our customers.

Now turning to our Voyager operation where momentum is definitely building. The team in North Bay is having an exceptional start to the year.

The recent contract announcements with Purolator, Transport Canada and Ambulance New Brunswick are a Testament to the incredible skill and ingenuity of the team and clearly positioned us as a leading special mission service provider. We see good potential to grow into the cargo business, which is a new area of focus for us.

We’ve been active in air cargo through the conversion of several Dash 8 aircraft to package freighters and developing a new relationship with a market leader like Purolator is a meaningful step in the expansion of our contract line capabilities in the cargo market. The Purolator contract is for three years and follows the successful completion of an initial six month trial.

We will be using two former Dash 8-100s from Jazz that were converted in-house to package freighters to operate between Indianapolis, Hamilton and Montreal. One of the aircraft is completing a contract with another customer and second aircraft is currently undergoing freighter conversion in North Bay.

This is another demonstration of our ability to leverage the value in our asset at any point in their life cycle. We’re very excited about this opportunity and we’ll work hard to grow this relationship over time.

Another exciting development is our new three year agreement to upgrade and modify Transport Canada’s National Aerial Surveillance Program fleet of 3 Dash 8-100s, 1 Dash 7 aircraft with new surveillance equipment. This contract demonstrates Voyager’s unique engineering capabilities and expertise.

And of course, we were thrilled to extend our 25 year relationship with Ambulance New Brunswick for an additional five years. Our accomplishments to date this year really showed the strength of our employees, our expertise, and the wide range of integrated products we offer in the regional aviation space.

We are making meaningful progress in broadening our footprint in the regional aviation sector and diversifying our business. We are proud of the way we are managing through this pandemic and have centered our attention on the future.

I’m very grateful to our employees for delivering terrific accomplishments despite all of the challenges associated with the global pandemic. We are well positioned to take advantage of future opportunities.

I would be remiss if I didn’t acknowledge Jazz being named one of Canada’s best diversity employers for the 10th consecutive period by Mediacorp Canada Inc. Diversity is core to our culture.

We value individual uniqueness and foster safe spaces that empowers employees to be their authentic sales. By encouraging inclusive work environments that build on the diverse perspectives, experiences, and abilities of the employees, we are fostering innovation and positive change.

Congratulations again for another great accomplishment. Before I turn the call over to Gary, I’d like to recognize the federal government’s recent announcement confirming the importance of regional services in Canada.

I would like to thank the many government representatives across Canada, I’ve spoken with, over the last several months for listening to our concerns, with respect to the importance of regional services, being a critical lifeline to Canada’s regional communities. As the vaccine rollout continues, governments are turning their attention to safe reopening, and longer-term solutions for the sector.

We look forward to learning the details of this plan and hope it is shared very soon as we know air travel is essential to our economy. I will continue to advocate for regional service so that it remains top-of-mind when decision makers – with decision makers, as they chart a course for the country out of this pandemic.

Thank you very much for your time. And I’ll now pass the line over to Gary.

Thank you, Joe. And good morning.

Here’s how the first quarter of this year compares to the first quarter of 2020. Our first quarter adjusted EBITDA was $84 million, a $4.5 million decrease over first quarter 2020.

Adjusted net income was $15.7 million a $8.1 million decrease over last year, which led to a decrease in adjusted EPS at $0.10 versus $0.15 in first quarter of 2020. The Regional Aircraft Leasing segment’s adjusted EBITDA decreased by $9.5 million primarily due to lower lease margins attributable to off-lease aircraft, a $2.5 million expected credit loss provision and a lower U.S.

dollar exchange rate partially offset by additional aircraft earning leasing revenue. Adjusted EBITDA for the Regional Aviation Services segment increased by $4.9 million.

The first quarter results were impacted by a decrease in stock-based compensation, an increase in aircraft leasing revenue under the CPA, an increase in other revenue and a decrease in general administrative expenses; offset by a decrease in fixed margin in line with the CPA contract and a decrease in capitalization of major maintenance overhauls on owned aircraft operated under the CPA. Adjusted net income was $15.7 million for the quarter, a decrease of $8.1 million due to the previously mentioned $4.5 million decrease in adjusted EBITDA; an increase in net interest costs of $4.6 million primarily related to new credit facilities added in April 2020 and additional aircraft debt; and an increase of $1.2 million in realized and unrealized foreign exchange on working capital; offset by a $2.0 million decrease in adjusted income tax expense.

Net loss increased $20.8 million primarily due to the previously noted decrease in adjusted net income of $8.1 million, one-time restructuring costs related to the 2021 CPA Amendments of $81.8 million, a change in net lease repossession costs of $7.0 million; offset by the change in net unrealized foreign exchange on long-term debt of $45.4 million, tax recovery on adjusted items of $21.3 million, and a decreased impairment of $5.9 million in the RAL segment. The 2021 CPA amendments became effective on a retroactive basis to January 1, 2021, resulting in one-time restructuring costs of $81.8 million, with a non-cash impairment and inventory provisions on the Dash 8-300s of $42.8 million; early retirement program costs of $26.3 million to incentivize early departure of Jazz pilots enrolled in the defined benefit pension plan; non-cash DB pension plan curtailment provision of $10.0 million; integration and E175 aircraft related transition costs of $2.0 million; and signing bonuses of $0.7 million for Jazz pilots.

Chorus also agreed to pay Air Canada $20 million in connection with the transfer and integration of the E175s into the covered aircraft fleet. These one-time restructuring costs and provisions are added back to adjusted EBITDA, adjusted EBT and adjusted net income accordingly.

Now turning to liquidity. We ended the first quarter with $171.3 million in liquidity, a decreased from the fourth quarter of approximately $29.7 million primarily due to certain payments related to the 2021 CPA amendments of approximately $17.0 million and debt repayments of $56.0 million, offset by the collection of the 2020 Controllable Cost Guardrail receivable of $44.2 million.

On April 6, 2021, Chorus completed a concurrent public offering and private placement of Equity Units and Convertible Senior Unsecured Debentures for gross proceeds of $145.1 million. The net proceeds, after transaction costs, were $138.0 million.

Chorus used a portion of these proceeds to repay loan deferrals of $33.9 million. Chorus also plans to pay down – pay down secured indebtedness by approximately $75.0 million.

Repayment of these secured debt facilities will reduce our debt and interest payments by approximately US$700,000 per month, while also bringing the carrying value of CCAC’s unencumbered fleet to approximately $140.0 million. And reducing Chorus’ restricted cash requirements by approximately $10.0 million.

With the capital raise Chorus bolstered its liquidity to fund ongoing operations, plan capital expenditures and to fund prudent growth opportunities. We did see CAC’s gross lease receivable increase by US$9.6 million to US$53.8 billion in the quarter, with the potential to increase to US$60 million, by the end of 2021.

The increase is due to the additional rent relief requests from certain customers resulting from the continued travel restrictions and as the number of COVID variance and cases continues to climb. In addition, we collected 62% of lease revenue billed in the first quarter from our lessees excluding repossessed aircraft which is consistent with fourth quarter 2020 collections.

Planned capital expenditures in 2021, including capitalized major maintenance overhauls are estimated to be between $26 million and $35 million. This estimate includes $8 million and $12 million that will be included in controllable costs.

Planned aircraft-related acquisitions are expected to be between $35 million and $45 million in 2021. Before opening the call to questions from the analyst community, I would like to acknowledge the outstanding efforts of our team so far this year.

Thank you to all our employees, stay safe and take care. That includes my commentary.

Thank you for listening. Operator, you can open the call to questions.

Thank you. Good morning, everyone.

Good morning.

My first question, I’m just wondering how we should think about lease rates in the short term here? Should we think that the new leasing contracts and I guess I’m thinking in particular of the off-lease aircraft, with potentially new opportunities as well.

The lease rates will be lower than they were kind of prior to the pandemic. And is it possible if that is the case to kind of quantify to what degree there is pressure on those rates?

Tim, I think, it’s fair to say, given the pandemic and the number of aircraft that have been repossessed and returned, that there will be downward pressure on lease rates, as these aircraft are repositioned with new operators. But of course, it does give you an opportunity to reset leases for a longer period of time, et cetera.

So, there is – I think the industry is experiencing that downward pressure on assets that are on the ground. I think new assets, new financings, are not experiencing the same magnitude of downward pressure in terms of lease rates, et cetera.

And the amount, the reduction, the function of the individual carrier, and I think it’s a little early to say exactly where it’s all going to settle out. I think we were really fortunate, unlike a lot of lessors that haven’t been able to put our aircraft out there with new operators.

We’ve been fortunate to do these. We are working on some others right now.

And we’re optimistic that we will be able to do more here. But I can’t tell you exactly how much the rates are decreasing and that sort of thing, but there is certainly down on the aircraft that are being remarketed for sure, within the industry.

So with that in mind, I’m wondering with these remarketed aircraft, I guess in particular, and then maybe it’s newer aircraft given these kind of unprecedented times, are you approaching sort of the terms on leases any differently? Is there any way to kind of leave some flexibility so that you can avoid locking into leases that may be below market rates one, two, three years from now?

Or are you approaching sort of the terms of the leases in the same way as kind of pre-pandemic?

I think it depends. It depends on the operator.

It depends on the lease. It’s good.

It’s actually beneficial to put some of these aircraft out there on longer-term leases because you certainly don’t face the prospect of having the airplane returned in the near-term and then having to remarket it once again. So again, it varies.

And there’s no particular sort of a rule of thumb per se, other than getting the cash flow back up on these assets that are otherwise sitting idle and doing it with good credit and people who have good business plans as the market starts to recover. And I think that’s what we’re seeing, people are now thinking about the recovery and that’s why we’re seeing some growing interest in terms of people picking up airplanes.

But it isn’t going to happen overnight. It’s going to be a process that’s going to take some time for the industry I think to recover from this, especially with the assets that are on the ground.

And we look at the number of assets that we’ve repossessed during this process is total of 13 airplanes. And we look at our competitors and others in the business and 13 is actually not a bad number at all if you look at it as a percentage of the fleet that we had under at lease.

Okay. That’s really helpful.

Thanks, Joe. And just my last question, really kind of stepping back big picture.

I’m just wondering how you’re thinking about the companies, the equity valuation these days, and kind of where the market’s understanding of the businesses given where we are in terms of the recovery from the pandemic. And I guess, it always is important to come back to kind of the market’s understanding of the risk profile of Chorus in general.

Just wondering if you can comment on kind of your thoughts on the valuation?

Well, clearly, I think 2020 was a difficult year and we were severely hit as everybody else was. A lot of uncertainty in terms of how long and how deep, et cetera.

We really I think use the year to our advantage in doing this new contract with Air Canada and we sort of really re-established the relationship on the basis of this recovery that’s coming up in the future. So we removed the uncertainty with respect to that contract and its longevity and et cetera.

And the recent announcement with Air Canada and the federal government, I think gives everybody a lot of comfort in terms of Air Canada’s ability to get through this as well. So, we look at that side of the business now it’s being very, very solid and very predictable for sure.

And a lot of people still don’t understand that how we’re compensated under the CPA, and under our CPA with Air Canada, we’re paid for the aircraft, we’re paid for the operations, but it’s generally fixed with a very limited exposure in terms of any downside, the guard rail we put a cap on that, et cetera. So I think still the market is grappling a little bit with understanding some of that.

And I think on the leasing business itself, obviously we’ve been through a rough time with this, we’re not fully through it yet, but we’re seeing this recovery starting to happen, et cetera. And so I really do believe that there’s a turnaround coming soon in the leasing business as carriers start to get back up.

I think the third wave in some of these countries was – we didn’t really predict it, but it’s happening for sure. But again, these countries will come out of it, et cetera.

And then while not a really huge part of our business, we have Voyageur when – and Voyageur has been out there, we were diversifying the business. Unfortunately though the bulk of our business was dependent on passenger travel, but you can see now with some of the things that we’re doing organically at Voyageur with respect to the conversion of freighters, the operation of freighter aircraft, other special missions.

We continue to do very well with the UN, et cetera. And actually Voyageur has been doing better than it has in a long, long time through the pandemic.

And it’s because it’s not exposed to the passenger business. So we’re moving in that direction as well.

So, I think we’re definitely in a rebuilding mode. I think we’ve done a very good job of managing our liquidity through this process to ensure that there was no top over here or anything of that nature that was going to happen.

And I think we’ve really solidified our relationships with our customers, including Air Canada and we’ve grown new customers through this process. But it’s tough because people look at the air business and we all get sort of thrown in the same bucket.

And sometimes people don’t really look under the covers to understand the different nature of our business and what we have done. But that makes us feel very optimistic about the future.

So the worst is behind, we believe we’re in that rebuilding mode.

Okay. Thank you very much for your thoughts.

Thanks, Tim.

Hi. Good morning, everybody.

Thanks for taking my question. Maybe just on that last point, Joe, the optimism you have around the recovery, we’ve obviously seen some markets where vaccination rates are higher, a pretty big spike in air traffic.

Just as you think about that, are there any bottlenecks you think you need to work through either from a labor front or maybe from a pilots or personnel front as you think of getting as flight activity picks up again across the portfolio?

No. In terms of getting back up, we don’t lose any sleep at night over that at all.

We are in constant contact with our unions, we’ve been recalling some people and we see people wanting to get back to work, et cetera. It’s been difficult in a pandemic environment operationally, where you have to take proactive steps with your crews, et cetera, on an aircraft where you may have had passengers traveling that have COVID.

But we’ve been doing that well, we’re being very proactive with respect to that. But generally speaking, I don’t think we’re going to see a huge overnight ramp up in flying in any event.

But I think it will be fairly steady and we’re totally equipped in doing that. We’re bringing these 175’s over and operationally the aircraft have to be transitioned.

The crews are generally coming over as well as the pilots. And that transition has been going very well.

So we’re in pretty good shape. So we don’t really see any bottlenecks.

The issue is the restart and how it’s going to happen so that passengers feel comfortable traveling safely and what is going to be required of them. With respect to testing, Colin teams, things of that nature.

So we’re all anxiously awaiting this. And as the vaccine levels starts to increase, you can really see people wanting to get back up and we believe that there’s a pent up demand, especially on the leisure side for people that just want to travel.

We’re seeing some signs, even in terms of Canada and interest in Canadian tourism domestically, and things of that nature that you read about, that makes us hopeful.

Got it. Thank you for the color there.

And then if I could turn to Voyager that they’ve been on quite a roll here to start the year. And then maybe more specifically on your recent agreement with Purolator, just wondering as you think of the charter opportunities in front of you, is a primary focus on converting regional aircraft and turboprops for freighter conversion.

Would you consider other fleet types, as you expand that opportunity, is there anything of the CPA that we should be aware of that that may limit your cargo ambitions here?

No, there were none. There are no limitations in the CPA with respect to cargo.

Our focus is on regional airplanes, currently for sure. And that’s because we have a lot of them that came back as a result of restructuring the CPA with Air Canada.

And we now have –A300s that we believe are going to be very valuable as the world starts to return to some degree of normality. These are 50 seat airplanes.

They had investments in life extension programs and the majority of these airplanes. And we see them as being valuable going forward, because there was only one manufacturer in the world right now, a 50 seat aircraft, and they are incredibly expensive brand new.

And we think there will be a worldwide demand for this size of airplanes as the pandemic starts to come around. So that’s why I mentioned in my comments that we’re looking at a variety of different alternative ways of working this fleet and getting it deployed.

And our Voyager is really the center for doing that. Then they’re going to be focused on making the most out of these assets and that’s in our D&A.

So that’s and we’re feeling very positive about that.

That’s helpful. And maybe just the last one from me, when you look at the pipeline of opportunities, I’d be just interested in the conversations you’re having with customers today, in terms of how they’re looking at their regional fleet maybe leasing that today versus maybe what they thought pre-pandemic and maybe your own appetite for any type of portfolio transaction now, is that something that, that you’d be looking at?

Or is your preference for kind of the overall aviation market to be a little bit further along before you take a bigger bite on a portfolio deal?

So with respect to the regional fleet, the good news is the customers that we deal with in general are not saying they don’t want the airplanes. They’re saying, we just need a little help to get through this.

And as we’re seeing, these are the first airplanes back. So we’re not seeing a big push back on – people just saying, I just don’t want to operate these airplanes anymore.

They all see them, the folks that we deal with as part of their future, and they want to utilize them. It’s just a matter of the – in the interim effect of the pandemic, more or less.

With respect to opportunities, whether its portfolio, sale and lease back, anything of that nature, we see these things out there in the marketplace. We constantly evaluate them.

And we look at them though in terms of what an investment would do for us in terms of improving our results our – what it does to our balance sheet and our debt loads, et cetera. So we are focused on this.

So I can’t really rule anything out but there are interesting opportunities out there.

Thank you for taking my question.

Good morning, everyone. I just want to circle back here on the leasing opportunity that you guys see in front of you.

And when we think about the amount of leverage that you guys typically normally use in a leasing transaction, I think it was 3:1 or 4:1. Has that changed given the current environment?

Are you willing to take on less debt now, just given the risk that you see in front of you?

David, it’s Gary here. I mean, typically, its 3:1 that we’ve seen in the industry with the leverage ratio, so when you take on an aircraft, and certainly that’s always our target.

And as we go through these transactions, that’s what we certainly gravitated back to us, but it could be plus or minus depending,

And Joe, you talked about, new opportunities yielding very similar type results to pre-pandemic levels. I think, previously, you mentioned that you were targeting a mid-teens ROE with that 3:1 leverage?

Is that still the case? Or are you looking at higher quality customers now that may push down those lease rates?

Yes, I think there may be a little downward pressure on the lease rates out there. But we’re still targeting to get back to what we had said before, but it’s just going to take – it’s not going to happen quickly.

Okay. And then just a clarification question for me on the CPA amendment fee that you guys are paying to some of your pilots, is any of that reimbursed by Air Canada as part of the capacity purchase agreement?

Or is that completely one-off and something that you guys have to bear on your own?

Sure. It’s Gary here.

That’s one of the $20 million over fees is of that’s something we bear and same with the early retirement programs and all the items we mentioned.

They’re part of our restructuring costs.

Okay. Thank you.

Thanks. Good morning.

I guess a question on the CapEx and I guess the – I think it’s a related third-party leased fleet expectations this year. I mean, if I look back to the Q4 MD&A, the CapEx expected for 2021 was quite a bit higher and there was also two ATRs I think, for an undisclosed customer that were sort of planned to come in this year at some point.

I see those have kind of disappeared and I just want to make sure that the reason that the CapEx has come down is a big factor, would be the fact that you’d no longer expect those two ATRs to come in?

So Cameron, it’s Gary here. So we removed those two because there’s not a firm commitment on those aircraft, even though we continue to talk to the customer in that transaction.

There is no firm commitment at this point. And if you look at how we’ve approached the disclosure here in Q1 is we’ve put in the CapEx table, the firm commitments, and we’ve done the same also with the fleet in other tables.

So that way, it’s very clear that, if we have a firm commitment, it’s there if not, it isn’t. In this case here, we removed it simply because we’re still in discussions, but there’s nothing firm anymore.

Okay. No, that explains it.

Can you talk about, I guess, any change in, I guess, cash collections? I mean, I didn’t change a whole lot in Q1 relative to Q4.

Have you seen any material change so far in Q2? Or is it still kind of running in that 60% to 65% range?

It’s Gary here, again. I think we – as far as the rent collections in that we are expecting hopefully to be in that 60% range, it’s really what you saw in the receivables.

We had some of the deferral arrangements just get a bit behind given the COVID variant. But as far as the basic rent numbers, we’re hoping to be in that same range.

Okay. And maybe just going back to the Purolator contract I mean, obviously that’s a nice win.

I would expect that Purolator maybe doesn’t only want to operate one or two aircraft here. So I’m just wondering if you can talk about any specific opportunities to grow with Purolator or with any other, I guess, packaging carrier companies in Canada, just any prospects for growth there?

I believe there are good prospects for growth. We’ve fostered a very good relationship with Purolator.

And we believe there could be other opportunities to do more. This is a beginning and I think with the growth of e-commerce certainly, and that’s really affected a lot of regional communities where people are shopping online, et cetera, et cetera.

And I think a lot of that will continue and that will, I think, grow demand especially for time sensitive items into these communities. And these Dash-8 operators are a real workhorses and reliable.

And we did the six months trial. It worked very well.

And so we’re optimistic that it’s going to grow that the demand will be there. And we’re going to work hard to do that, because we see it as being one of the better opportunities we have, no question about it.

Okay. That’s great.

Thanks very much.

Thanks, operator. Good morning, everyone.

And kudos to the team on ESG achievements so far. So the first one is follow-up on Cam’s question on CapEx.

I see from the CapEx table, obviously CapEx has come down. The FX or exchange rate has improved as well as clearly.

But we are still seeing further strength in Canadian dollars since the end of March, 2021. So wanting to Gary, if you have any sense as to what this CapEx numbers $60 million to $80 million would look like under the current FX

Under the current – it’s Gary here. Under the current FX, it would come down a little bit because there is some U.S.

funds in there. Obviously, we used a 1.2575 is conversion rate.

We’re down into the 1.2s now I believe, low 1.2. So would certainly bring it down a bit, but it wouldn’t be materially down given what’s what sits in there.

Yes. Thanks, Gary.

Yes.

Then on the incremental rent relief commentary that you made, just wondering you have a lot of customers in Asia Pacific, Africa, India, different markets where is the rent relief largely coming from, I guess, because every different jurisdiction is in a different mode right now with respect to lockdowns and the waves of the COVID and stuff, right? So where are you seeing more kind of relief requests coming in?

Well, I think that depends on the time where you are in the pandemic. I think you were right Konark that each part of the world seems to be going through things a little bit at a different time.

And I just use it as an example, India, which was doing very, very well with very high utilization and that sort of thing until sort of the end of March and then things have deteriorated quite significantly there. And Africa is having some challenges as well.

But then we see rebounds in other areas in terms of some of the areas in South America are coming back. And even in terms of opening up Europe here, et cetera, and of course the United States is sort of leading I think the rest of the world.

So – but we really don’t know and an area that’s going well, may turn around and fall back a bit. And of course we’re even have experienced that here in Nova Scotia.

So it’s hard to say, but I think it is fair to say that the stress on the carriers is directly proportionate to the extent of the pandemic in any of these jurisdictions. And in other areas of Southeast Asia, we see some improvement.

So it depends.

Yes, that makes sense, Joe, thank you. Then on the lease collection, can you remind us was your lease collection typically about 100% prior to the pandemic?

Or was it a lower number? I mean, I’m just thinking, where can it go back to from 60% plus?

Hi, it’s Gary here again. Typically, it’s a 100% prior to the pandemic.

Normally your rent is paid in advance, so we would hope to gravitate toward back closer to that as we come out of the pandemic here.

Great. Thanks.

And then on the gross lease receivable, it seems like it’s obviously going up here and you expect a further increase as you collect lesser than a 100%. What’s your line of sight Joe, when and at what level the gross lease receivable peaks?

Sorry, go ahead, Gary.

So I guess what we’re showing there Konark is really, we expected to peak at most at $60 million hopefully by the end of the year. And as far as the collections, as I said, we’re hoping to stay in around that where we’re at today and improve on it.

But it’s really going to be dependent on the COVID variance. So it’s hard to give you exact projections on that.

So I guess that’s $60 million, like, it’s obviously going up from here, but it may not necessarily come down right away at that point, like it might continue to build up depending on the collection.

Yes. I think what we’ve shown there is U.S.

$60 million is where we expect the top end to possibly be. It will take time to collect the funds as we come out of this year and into next year.

So that will take some time now to wind its way down.

Great. Okay.

Thanks. And then as you look at the CAC’s growth trajectory from here, perhaps leveraging the recent equity raise and debt raise, how do you envision the growth trajectory?

Like what’s your – historically, you guys have a pre-pandemic looked at 20 odd aircraft a year. And like where would you see that number be today for the next couple of years or further out.

And what would be your assumption for the timing of the remaining 10 of lease aircraft placement?

So Konark, it’s Gary here. I’ll talk a little bit about the growth CapEx.

We’re certainly evaluating leasing transactions out there, and we’re certainly not putting any guidance out there as far as the number of transactions in timing. So, as we’re making our way through this COVID piece, we certainly want to study it and makes sure that we make the right decisions as we come out of that cycle.

Okay. That’s understandable, Gary.

But I was more curious as to the timing of the 10 off-lease aircraft. If you see an opportunity here in the near term within like calendar 2021, or do you see those 10 aircraft fully being remarketed by 2022?

I know we are actively remarketing all those off-lease aircraft and we continue to be optimistic that we’ll get those working here soon. But there’s nothing we can report and give you guidance on at this stage other than we are working hard.

And we’re very optimistic, but it’s tough to give an exact answer to that.

I think it is certainly a possibility that some of them will fall into 2022. So – but like Gary said, we’re working hard and you never know.

So we will see.

Okay. Thanks for the answers.

That’s all my questions. Great.

Thanks.

Good morning, everyone. So I want to come back on the Purolator question, understanding that this was being done to a certain degree with another carrier prior to you having taken that business is that right?

And what can you gauge if that’s true? What can you gauge from the trends there where they look – where they look was Purolator looking forward to someone with larger capacity to grow and, little bit of detail around your ability to win that contract would be great?

Yes. Well, I think this was a service performed by someone else originally with different types of aircraft, et cetera.

I’m sure a Purolator looks at a lot of things when they choose an operator in terms of reliability, costs, volumes, et cetera. And I think it was really a combination of those things and we have a very track record as an operator, in terms of our performance.

And I think I can help to take that way then in terms of the decision as well and reliability in the freight business and the courier business, I think is very important. So I think it was a combination of things.

But the Dash 8 freighters are relatively new in the marketplace, have a good payload and are reliable. And so I think – I think it was really – I think it was one thing Walter, I think it was a combination of things and…

Yes. I know that when whenever one of those time sensitive carrier or customer’s switch its reliability it’s either cause they lost significant liability or reliability with their predecessor or they just needed the capacity and are just hopeful that the reliability stays in place.

And I think they probably had that comfort level with you for the reasons that you mentioned. Any sense of where the growth was going too like – is this a rapid growth trend prior to you picking up that you hope or expect will continue?

How are you – how are you anticipating or factoring in growth? And what has Purolator given you in terms of what they believe the growth rate will be in that business for cross border activity?

Yes. We started actually looking at the cargo business before even COVID with the assets that we had coming off, lease, et cetera.

And we’ve had some of these assets to play for some time with other carriers in Canada, both on the wet lease and the dry lease spaces. So we didn’t say a lot about it because it was pretty small and it was sort of an incubation period.

It was – I think it started getting more serious when we got into the trial with Purolator and this wasn’t something that was just brand new. I could have mentioned, we’d been doing this for some time for them, and they do have other regional services that they offer in Canada that they use in Canada for their needs.

And we see there’s some opportunities there. We don’t have a particular size on that right now or a timeframe, other than we’re working hard in North Bay on converting airplanes.

And we believe that converting these aircraft, there will be a good market for them, whether it’s for us to operate, for us to lease, et cetera. They’re great assets and including now we have these 300 as well coming at us which I think is great raw material.

So that’s been good. And the other thing I didn’t mention is that we’ve launched the used parts business or the USM business sometime ago, and that business we do see a recovery in as well.

So in demand around the world, so that’s – and that’s part of what viser [ph] has been doing as well. We’ve parted out a number of airplanes, et cetera.

So when you look at the number of things that we’re doing and how those fit with us, I think it’s very – it’s very promising.

That’s fantastic. Switching gears a little bit, I know we all have the view that regional is going to open up first, friends and family, travel domestically will be open quickly and ramp-up significantly.

My two questions there are: As we see different regions in the world, moving at different paces, experiencing different levels of opening. When you look at the ones where that are useful as a crystal ball to see where trends are – are you encouraged by that?

And you encouraged by that and importantly if comes importantly, if it comes back very significantly and we get a, kind of a hockey stick knock on wood type of event. Are you positioned to be able to handle that level?

Obviously what would that speed of growth in demand we’ll have a little bit of a look to a it – advanced look of it with your booking curve, You feel comfortable that you’re able to handle some erotic surges in capacity or in demand? Should that come should that come up?

Yes. I know.

I think we’re in good shape. And I look at what’s happening in the U.S.

right now where the vaccination rates are high and people are back in the air and traveling, and a lot of it is driven by leisure travel. People just want to get out of the house and go see their relatives or take a break somewhere.

And I think they’ll be primarily looking domestically to do that. And that’s exactly what we’re seeing in the U.S.

so; I can’t help it fake that. What we’re seeing there will happen with time and the various other jurisdictions, including Europe: they’re talking to go travel, and we do passport now and things of that nature.

So but we’re in good shape. We are ready to go operationally, and we do have as, some assets available to lease, so as recovery comes around, I thing will be there.

Great. I’ve already booked my flights back home; so all set.

Thanks very much Joe.

Okay.

Hey, good morning guys.

Good morning.

So just a follow-up question on the CapEx, if the undisclosed customer ends up from a bit commitment for the two ATRs? Well that flow into F-21 CapEx or that more likely to become an F-22 available at this point?

It would flow into our CapEx table. If we end up doing that deal, Matthew, so we would end up just adding to our CapEx forecasts or into our cap for 2021.

Right, but I mean, in terms of timing, that’s still going to be a 2021 event if possible.

It’s possible; again we’re in discussions with the customers and or the customer. And if you look just given, where the world is worldwide or where everything is worldwide, it could be this year.

It could be next year. It would really depend on how things go.

Okay, great. And then maybe if you were to ballpark, your objective for collection rates going throughout the year, what would you say is an attainable rate by the end of 2021, if you would think about it that way?

We haven’t put together, or, not certainly comfortable putting a forecast around that at this stage, given where we are worldwide, but we do want to improve, obviously off the 60%, I mean, 100% is really the goal. And it’s going to depend on how the markets open up, how the COVID variance shape up and how the jurisdictions go.

So it’s really hard to give you a firm answer on that, just given where the world is so different.

All right. That’s it for me.

Thanks.

Thank you, operator, and thank you everyone for being with us this morning. We wish you a pleasant day, and we’ll now conclude the call.