Air Transport Services Group, Inc. (NASDAQ:ATSG) Q1 2024 Earnings Call Transcript

Air Transport Services Group, Inc. (NASDAQ:ATSG) Q1 2024 Earnings Call Transcript May 7, 2024

Air Transport Services Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the Q1 2024 Air Transport Services Group, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Joe Payne, Chief Legal Officer.

Joe Payne: Good morning and welcome to our first quarter 2024 earnings conference call. We issued our earnings release yesterday after the market closed. It’s on our website at atsginc.com. 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 are based on information, plans and estimates as of the date of this call. Air Transport Services Group undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions, factors, new information or other changes.

These factors include, but are not limited to, unplanned changes in the market demand for our assets and services, including the loss of customers or a reduction in the level of services we perform for customers; our operating airline’s ability to maintain on-time service and control costs; the cost and timing with respect to which we were able to purchase and modify aircraft to a cargo configuration; 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; the impact of current supply chain constraints, both within and outside the U.S., which may be more severe or persist longer than we currently expect; the impact of the current competitive labor market; changes in general economic and/or industry-specific conditions, including inflation and regulatory changes; the impact of geopolitical tensions or conflicts and human health crisis, and other factors as contained from time to time in our filings with the SEC, including the Form 10-Q to be filed this week.

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

Joe Hete: Thanks, Joe. Good morning, everyone. I have a couple of positive developments I’d like to share with you before reviewing our results for the quarter. As many of you have seen, we just expanded and extended our flying agreement with Amazon to operate 10 more Boeing 767-300 freighters that Amazon will provide this year with the first one in June. The agreement includes the potential for Amazon to add up to 10 more aircraft beyond 2024. At ATSG, we are committed to providing high-quality service to our customers, and we believe this expansion of our relationship with Amazon is evidence of those efforts. The first 10 aircraft will be operated by ABX Air. This agreement for 10 aircraft will initially increase to 50, the number of freighters that ATSG will operate for Amazon, by year-end, including 30 that CAM leases.

We are now and will continue to be Amazon’s principal provider of air operations and capacity. Additionally, the amendment extends the term of the flying agreement into 2029, with the option to extend to 2034. We have adjusted our guidance for 2024 to include some benefit from the incremental flying under the agreement. The benefit factors in start-up costs as we onboard the additional aircraft and a partial year impact of the additional revenue. We expect results from this incremental flying to improve in 2025. As described in the press release and 8-K, ATSG granted new warrant incentives to Amazon and amended the terms of vested and unvested warrants they already hold. The second piece of good news is the ABX Air pilots ratified an extension of their contract over the weekend, pushing the next amendable date out until 2030.

This provides that airlines customers with significant labor stability into the next decade. Hats off to their leadership. I want to thank the entire ATSG team for their efforts as we execute the plans we laid out for 2024. We remain focused on safety, customer satisfaction and cost control. We delivered 4 converted 767-300 freighters to external customers in the quarter, and the benefit of our capital spending reductions were evident as we generated positive free cash flow, putting us in great position to achieve more of the same for the full year. As I just mentioned, we are raising our adjusted EBITDA guidance by $10 million, and reaffirming our capital expenditure outlook for 2024. Our commercial teams remain focused on opportunities for both additional aircraft leases and incremental flying for our airlines, which could add upside to our guidance.

We’re excited about these developments and believe they showcase the best of ATSG’s fundamentals. We look forward to realizing these plans. I will now turn the call over to Quint Turner to discuss our financial results for the quarter. Quint?

Quint Turner: Thanks, Joe, and welcome to everyone joining us this morning. I’ll start on Slide 4, which summarizes our financial results for the quarter. Revenues were down $15 million or 20% versus a year ago to $486 million. This was driven by lower revenue in both CAM and the ACMI Services segment. In the first quarter, we saw a GAAP pretax earnings of $12 million, down from a pretax earnings of $27 million in the prior year period. This resulted in a diluted earnings per share of $0.13 versus diluted earnings per share of $0.25 in the first quarter of 2023. On an adjusted basis, pretax earnings fell $23 million to $15 million, and adjusted EPS was down by half of prior year levels to $0.16. In our aircraft leasing segment, revenues decreased 7%.

Excluding revenues associated with CAM’s 767-200 engine power program, segment revenue would have been flat. Since March 2023, CAM leased 12 additional Boeing 767-300 and 3 Airbus A321-200 freighters, but saw returns of 16 767 freighters, including 12 767-200s. CAM’s pretax earnings were down $21 million for the quarter, reflecting a $7 million decline from fewer 767-200 engine cycles and $5 million more in both interest expense and depreciation versus the prior year. Additionally, 4 767-300 converted freighters were deployed to external customers during the quarter, while 1 767-300 and 3 767-200 freighters were returned. At quarter end, 90 CAM-owned aircraft were leased to external customers, 2 fewer than a year ago. In our ACMI Services segment, we reported a pretax loss of $3 million compared with a loss of $2 million in the first quarter of last year.

Total block hours flown by our 3 airlines were down 3% versus the prior year quarter. Omni, which was a topic of particular interest on the last call, performed better than budget in the quarter, but continued to see demand trends below normal levels from its largest customer, the Department of Defense. Turning to the next slide. Our first quarter adjusted EBITDA was $127 million, down $11 million compared to the prior year. Of the decline in adjusted EBITDA, CAM decreased by $13 million and ACMI services and other businesses increased by $2 million. CAM’s decline was driven by 767-200 lease returns and fewer engine cycles operated by the 200s remaining in service, resulting in lower power by cycle engine revenues. The increase in ACMI Services and other was driven by better performance at our MRO operations.

Slide 6 details our capital spending on a trailing 12-month basis. Total CapEx for the quarter was $102 million, consisting of $72 million in growth CapEx and $30 million in sustaining CapEx. Our CapEx spending is down 50% year-over-year for the first quarter, and we project a decline of more than $380 million in capital expenditures compared to 2023. The next slide updates adjusted free cash flow as measured by our operating cash flow, net of sustaining CapEx. Operating cash flow was $126 million in the first quarter this year. That was down $90 million versus the prior year period, which was stronger than usual due to recovery of a $67 million fuel receivable from the Department of Defense. Excluding this item, operating cash flow would have decreased by $23 million compared to the prior year.

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

Joe Hete: Thanks, Quint. Turning to the next slide. I’d like to spend some time discussing our outlook and assumptions for 2024. Including the increased Amazon flying opportunities announced yesterday, ATSG now expects adjusted EBITDA of approximately $516 million in 2024, an increase of $10 million from the outlook provided in February. Similar to our prior guidance, this forecast excludes any contribution from additional aircraft leases or flying opportunities not currently under contract, which could generate additional adjusted EBITDA. This projection assumes a start-up of 10 Amazon-provided 767-300 aircraft prior to the end of the year and takes into account projected start-up costs associated with bringing them into service, as well as adding over 50 pilots at ABX Air.

The contribution from this expanded agreement was included in the $30 million of potential adjusted EBITDA we laid out in February. As mentioned, we continue to expect total capital spending of $410 million this year, with $165 million for sustaining CapEx and $245 million for growth. The gross spending outlook includes the completion of the 17 aircraft that were in process of conversion at the start of the year and the acquisitions of 4 additional feedstock aircraft for the remainder of the year. At our current capital spending levels, we continue to target positive free cash flow for the year. We remain optimistic on the demand outlook for our midsized freighters assets over the long-term and the strength of our business strategy. We are focused on operational execution and cost control as we position ourselves for the eventual market recovery.

As the market leader in midsize freighter leasing, we are well positioned to deploy additional aircraft to meet our customers demand. That concludes our prepared remarks. Quint and I, along with Mike Berger, our President; and Paul Chase, our Chief Commercial Officer, are ready to answer questions. May we have the first question?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Helane Becker with TD Cowen. You may proceed.

Helane Becker: Thanks very much, operator. Hi, guys.

Joe Hete: Hi, Helane.

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

Joe Hete: Well, Helane, I think there is two things. One, the ones you’ve asked about previously was the ATI pilots, which we are still in mediation with them, in fact, had the mediation session last week. This is actually the ABX pilot group, which had a CBA which ran through 2026 – 2027. One of the challenges that they had obviously, they were the ones that had the strike back in 2016. And so they had a hole they had to dig out of. And the leadership finally came into realization that, you know what, maybe there is a better way to approach this than the traditional, let’s go after the company kind of thing. And came to us with an offer to extend the existing agreement to give potential customers some comfort that they wouldn’t experience any labor disruptions in the future. So that’s kind of what kicked it off, and we’re able to get something done. Realistically, I know you’re going to find this hard to believe, but got it done in 3 days.

Helane Becker: So it can be done. If there’s a will behind it, it can be done.

Joe Hete: Yes. I say you have to have realistic expectations on both sides of the table. Obviously, we had to give some stuff up. And obviously, they had back from what others think the market is for our type of business. We’re not in a passenger airline. We’re not a FedEx or UPS. We’re in a different marketplace altogether. When people put their minds to it, they can come to an agreement that works for everybody.

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

Helane Becker: That’s really helpful. Thanks. And then just my follow-up question, and it’s completely unrelated. On the aircraft that you got back, what are you going to do with those? And are there – is there – are there or is there more aircraft that are coming back this year that we should know about?

Paul Chase: Hey, Helane, it’s Paul Chase. Good morning. With respect to the aircraft that come back, we’re marketing – just depending on where the aircraft are in their cycles – maintenance cycles, we’re either marketing those for sale or re-lease. We have several opportunities that we’re looking at today. With respect to aircraft coming back this year, we expect two more aircraft back in 2024.

Helane Becker: Are those 300s or 200s?

Paul Chase: Yes, ma’am. Yes. And we’re marketing those for sale, at least – sorry, 300s, I misunderstood your question. I’m sorry, those are 767-300s.

Helane Becker: Okay, alright. That’s really helpful. thank you.

Joe Hete: Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from Frank Galanti with Stifel. You may proceed.

Frank Galanti: Great. Appreciate taking my questions. I wanted to ask on sort of the Omni business. Obviously, I think it was sort of the major contributor to that sort of negative pretax earnings for that segment. Can you talk about what sort of expectations are for that seasonally maybe from a margin perspective? And then what expectations are sort of after the repricing at the sort of end of September?

Joe Hete: Yes, Frank, from the standpoint of Omni, obviously, as we’ve talked about on the prior calls, the amount of utilization by the Department of Defense has been down versus where it was in prior years. There was a slight decline versus first quarter of last year, but not nearly as significant as what we saw in Q4. As we look into the second quarter, things look to be picking up more so in the Omni side of the equation. And from the standpoint of the first quarter results, it wasn’t necessarily Omni that was the contributor to the loss that we experienced. Cargo hours, for example, at ATI, were down 9% on a year-over-year basis. So it’s a combination of all the above, but we still believe that Omni has a lot of longer-term benefit for us.

And like I said it has, in the last 12 months, underperformed where they had traditionally, but they far exceeded our expectations in terms of what they’ve generated in terms of cash flow and profitability at the time we made the acquisition back in 2018.

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

Quint Turner: Sure, Frank. Yes, in terms of the values that we talked about there for unencumbered asset value, that’s based on appraisals that are done annually under our senior secured bank facility. That’s something we do with the bank group each spring, and so that’s a pretty fresh appraisal. And actually, of course, the values, as you might expect, depending on the aircraft type, they can – they differ between, for example, a 767 or an A321 or a 763 versus 76 200. But the values in general, of course, our fleet is predominantly 767-300, and they’ve held up well. Keep in mind that the asset value is largely driven by the conversion of the aircraft. Over half of the value is in the conversion itself. And our 767-300 fleet is pretty young in terms of years since conversion, and it’s still the most chosen midsized freighter around.

So those values have held up well. That $1.4 billion is a combination of excess collateral that we’ve put into our bank facility as well as aircraft, we have not put in the facility at all because we have a coverage ratio. As far as debt levels and leverage levels, according to our bank agreement, we were a little under 3.2x at the end of the quarter. And as Joe talked about at the onset, and I think I mentioned in some of the earlier remarks, the CapEx spend is way down this year, and we’re targeting some free cash flow generation. So we anticipate a very stable sort of in that range of leverage. And then as EBITDA begins to move ahead next year, we look to see some delevering.

Frank Galanti: Great. Thank you very much.

Operator: Thank you. [Operator Instructions] Our next question comes from Christopher Stathoulopoulos with SIG. You may proceed.

Christopher Stathoulopoulos: Good morning, everyone. Thanks for taking my questions. So Joe, quickly, it’s been a while since we’ve gone through, or talked about Amazon in any real detail here. And could you walk us through, there’s a lot of moving parts here as we think about the composition of the fleet, the order book, the options, the accelerated ABX deal, who approached who kind of the economics, CAM versus ACMI flying here. So could you kind of walk us through this new segment, this new deal here specifically? So I heard 50 by year-end. There’s an option for 10, so that could put you at 60. Is this entirely 300s now? Are we done with the 200s? Are the economics of the deal contemplate the pull forward with the ABX piece?

And then the duration, and looking at your K yesterday, you have made the duration of the existing yields – excuse me, leases was staggered through. And just wondering now if there’s a sort of uniform sort of endpoint for that or they continue to kind of stagger off through end of decade and beyond? Thanks.

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

Christopher Stathoulopoulos: On the mix of ABX versus ATI in terms of how many aircraft within each of that? And then also, as we think about utilization levels as sort of similar to what we’ve seen sort of and similar routes, I think most of us are familiar with what that looks like, but any detail so far as the composition of flying and also the mix within ABX and ATI? Thank you.

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

Joe Hete: Per month.

Mike Berger: Per month. Excuse me, yes, per month.

Christopher Stathoulopoulos: Okay. And these are just small 300…

Mike Berger: Yes. That’s right. Correct.

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

Quint Turner: Sure. Well, Chris, when we talked about power by cycle in relationship to the changes in CAM versus prior periods has generally been in the context of the 767-200 aircraft. And that is the only fleet type that we offer customers access to a pool of engines that we maintain, those being the GE-powered CF6-80A engines. And they pay CAM on a per cycle basis. As they operate aircraft they lease, 767-200s they lease, they would OCAM, a cycle charge and that would hit revenue. Any overhauls of the engines that we do in that pool to maintain it is capitalized and is depreciated. So you can see that when usage, utilization drops or we take or retire or remove from service 767-200s, as we’ve been doing with that fleet now for the last few years, there’s a significant impact on EBITDA and, in particular, because the expense is mostly in depreciation, which wasn’t there to begin with.

So the revenue comes straight out. And we’ve seen some lower monthly utilization of the aircraft that remain in service, and we’ve talked about the removals, I think, a dozen or so in the last 12 months. And those are just aircraft that have reached sort of that 20 – right around that 20 years post conversion part of their life and their airframe cycle age is such that it’s beginning to make sense to remove those from service. The aircraft are still performing well, but it’s just – as we’ve said, eventually, that fleet, some of it is going to sunset. There are some aircraft, I think, at the end of this year that we’ll still have in service roughly 14 or so freighters. And the majority of those are a ways away from a cycle standpoint where we would look to remove them from service.

So we only expect maybe three or so to come out of service in the next few years of that 14, but we sort of had some cliffs. As you may recall, they were the first 12 aircraft that sort of got the Amazon relationship started. They were the first 12 of what became 42 aircraft that we were leasing to Amazon, the other 30 are all the larger 76s. So they came to the end of their extended lease terms. And Amazon had an option to not – obviously not extend further as they had done a couple of times already with that fleet type. So that’s what you’re seeing. So I do think, as we look into next year, from a year-over-year basis, you’ll see less of a negative impact on CAM in comparing to prior periods because we had these chunks of 200s that we got back last year and this year.

And so I think that will stabilize as we look forward.

Christopher Stathoulopoulos: Okay. If I could just get in one more. So just remind us where you are with the labor talks with ATI and Omni? Thank you.

Joe Hete: Sure. As I mentioned earlier, Chris, that we had a mediation session last week with the folks at ATI and had one with the Omni folks a couple of weeks ago. Obviously, we’re still trying to work through the negotiations. I think if you look at what we agreed to with the ABX pilots, who weren’t in a position where the CBA was amendable, they stepped up and said, okay, look, here is what we think is reasonable. So, it kind of sets the market away for our line of business as opposed to, as I said earlier, we can’t compare ourselves to a FedEx or a UPS or anybody of that, it’s a totally different business environment. So, we still expect that we won’t get any of those done this particular year. If we do, that’s great.

And I think the fact that we were able to get something across the plate with the ABX guys, and realistically what took three days. So, the company can get there from here. It used to have and have to have realistic expectations on the other side of the table.

Christopher Stathoulopoulos: Okay. Thank you.

Joe Hete: Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from Michael Ciarmoli with Truist Securities. You may proceed.

Michael Ciarmoli: Hey. Good morning guys.

Joe Hete: Hi Michael.

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

Joe Hete: No, I think the key driver there was the fact that there was a new agreement, which basically the new hire rate that allowed us to get people onboard. One of the challenges we have had is what every other airline in the industry has had over the last 18 months to 24 months is finding sufficient pilots. And of course, key to that is what your starting rate is in that regard. So, with the new agreement, it made it easier for us to basically be able to onboard the people that we need necessary. One of the challenges that we have had on the ATI side of the equation is we don’t have enough guys to cover the left seat of the airplane, surprisingly enough. We have a lot of new hire first officers with basically not as much experience to be able to move to the left seat.

So, that presents challenges in terms of being able to staff up for the aircraft flying that we need to get done. And so the ABX option with the new agreement certainly made it easier for us to onboard the necessary people in the tight timeframe that we have. As we have mentioned, we have to get these aircraft into service by target is December 1st, and that’s a lot of airplanes to bring on when we won’t receive the first one until June.

Michael Ciarmoli: Right. Okay. Is the profitability on these planes the same, just probably assuming that there is more salary and wages on ABX versus ATI?

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

Michael Ciarmoli: Okay. Got it. And then just give me the background. Why did this new deal have to come with the $2.9 million of warrants? I mean I guess that’s at some point maybe 4% dilution. I am just trying to understand the mechanics behind this whole transaction and why the need? And then I guess there was a lot of different language in there regarding if you guys announced a buyback and what price Amazon can sell for, just if you can give us any color there.

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

Michael Ciarmoli: Okay. Got it. Thanks guys. I will jump back in the queue.

Joe Hete: Thanks.

Operator: Thank you. [Operator Instructions] Our next question comes from Isaac Sellhausen with Oppenheimer. You may proceed.

Isaac Sellhausen: Hey guys. Good morning. This is Isaac filling in for Ian. Thanks for taking all questions. I wanted to ask on the guidance assumptions for the year. I guess which still excludes any additional leases or flying opportunities like you mentioned. I think you previously quantified that at around $30 million. Is that still the right range, or do you feel that could potentially be higher? And then any additional leases or flying would you expect those to be with existing or new customers? Thanks.

Mike Berger: Yes. Appreciate the call. I will take the piece on the additional leases. As you have heard us say throughout the year, we are going to continue to make further announcements as our leases become firm. We have got several solid opportunities in our pipeline. And as we progress through the year, on the next call, we will advise further in regards to the impact it will have on revenue and EBITDA.

Joe Hete: The flying piece of it, obviously, there is significant start-up costs associated with bringing on the additional pilots, transitioning aircraft over, you have to do a bridging check essentially. So, we are estimating that in terms of the impact for 2024, the offset to the revenue that we will gain as the aircraft meter in is somewhere in the $6 million to $8 million range in terms of expenses that you won’t see, obviously, once you get the last airplane in service, so you will be able to leverage that on a go-forward basis.

Isaac Sellhausen: Okay. Understood. And then just a quick follow-up on the ACMI side. How have cargo and passenger block hours trended in April and maybe moving into the second quarter? I think you mentioned a slight improvement in DoD activity, but still somewhat lower, so just trying to understand how hours are trending?

Joe Hete: In terms of the quarter, as I just mentioned earlier, for example, the ATI side, they were down about 9% on a quarter-to-quarter basis. Remember, the 76-200s all came out of ATI and ABX over the last, call it, 12 months. Last airplanes were parked April 5th, I think it was, the last couple. So, if you look at April, it’s from that standpoint with no additional flying in place, it’s going to be down a little bit versus where it was in, call it, March. But we expect it to start obviously coming back as we bring on the additional 10 aircraft through the balance of the year.

Isaac Sellhausen: Okay. Great. Thanks so much.

Joe Hete: Yes. Thanks.

Operator: Thank you. [Operator Instructions] Our next question comes from Christopher Stathoulopoulos with SIG. You may proceed.

Christopher Stathoulopoulos: Hey. Thanks for taking my follow-up. Quint, the 137 aircraft expected at year-end, are these all fully committed and/or running perhaps at the utilization levels? You need them to be, meaning as we contemplate, what other flying opportunities that exist here and potential upside to the guidance? Is there any kind of slack capacity or currently aircraft that are currently on the ground? And then the 18 for next year as we – particularly the A321s and A330s, just remind us how many of those are committed at this point? Thank you.

Quint Turner: Sure. Well, as we have said in our guidance that we have given, we did not include in that guidance anything beyond the four contractually committed 767-300 leases, all of which we did place in the first quarter. We are operating by the end of the quarter. So, any additional capacity that we lease during the remainder of the year would be additive to that level of guidance that we gave, the $516 million. And we do have aircraft as Paul said earlier, that are being marketed, including A321s and 767 aircraft. And then late this year, we will have our first couple of Airbus 330s that come out in the fourth quarter. I don’t know, Paul, if you want to anything to that?

Paul Chase: No, you covered it, I mean we are seeing pretty strong demand returning on the 767-300 side, and we see strong customer demand on the A330. A321 is, we have some existential issues with some overcapacity in the 737 freighter market that’s hurting demand there, that will eventually subside. But yes, we are – I am confident in what we are seeing in the market, especially relative to 2023.

Quint Turner: But as we move through the year, Chris, we – as contractual commitments are made for those aircraft, we would update that, but certainly, there are discussions taking place that might result in some additional upside there on the leasing piece.

Christopher Stathoulopoulos: The “existential issues” here as it relates to the A321s and 300s, is that more of a U.S. domestic issue or international?

Paul Chase: No, the A321, in particular, was what I was referencing. And that’s a global issue. You have two challenges. You have an oversupply of 737 freighters and then you have some GTF engine issues going on with especially in the V2500 side. So, that’s what’s affecting that particular product.

Mike Berger: Yes. I would just add from a market standpoint, Chris, we continue to be an enabler of e-commerce. We have spoken and I have spoken many times on this call about e-commerce being the engine of the industry. If you couple that with improving air cargo trends, which by the way, for the last four months have been double-digit positive over prior year, that’s absolutely a winning combination, right. If you look underneath the major integrators results in terms of their numbers, the cross-border piece and the international piece stand out dramatically versus their other products. So, just to expand to drop further on that, we have talked a lot about Asia, Central Asia, Southeast Asia, for example, being a growth opportunity for us, specifically.

You have seen us place assets there over the past year. And our pipeline is also very robust in those areas. So, as Joe mentioned earlier in his optimism, we are confident we have got the right assets. And first and foremost, those assets will allow us to continue to be the world’s largest lessor of cargo freighters in the world.

Christopher Stathoulopoulos: Okay. Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from Michael Ciarmoli with Truist Securities. You may proceed.

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

Joe Hete: So, again, I think our outlook for the potential hasn’t changed much. What slid a little bit was this agreement with Amazon. We originally anticipated that it might start a little bit earlier than getting the first airplane in June. So, that will be a little bit of downside there. But there is other potential opportunities from a flying standpoint. And again, the lease placements, we started out the year saying we had 17 aircraft coming through conversion. We have placed four , which is in the guidance. So, there is 13 more out there, that at some point in time, we expect to be able to get placed sometime this year that give us that upside. It all boils down to the timing in the end.

Michael Ciarmoli: Okay. Got it. Thanks.

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

Joe Hete: Thanks Josh. From the start of our relationship 9 years ago, the people of ATSG have proven that they can provide the fastest, best and most efficient service to our customer, Amazon. Once again, Amazon has acknowledged our performance with more aircraft to fly and by extending our relationship for many more years. Honoring commitments from customers has always required us to manage our cash flow to fund the investment that growth and great service require. Our goal for 2024 is to generate enough cash to fund our sustaining and growth investments, and we did just that in the first quarter as a first step towards being free cash flow positive for the year. I look forward to keeping you updated on our progress and to find new ways to produce more cash flow and allocate capital more effectively as the year unfolds. Thanks and have a quality day.

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