Air Transport Services Group, Inc. (NASDAQ:ATSG) Q2 2023 Earnings Call Transcript

Air Transport Services Group, Inc. (NASDAQ:ATSG) Q2 2023 Earnings Call Transcript August 4, 2023

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Air Transport Services Group’s Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please note that, today’s conference may be recorded. I will now hand the conference over to your speaker host today Mr. Joe Payne, Chief Legal Officer. Sir, you may begin.

Joe Payne: Good morning, and welcome to our second quarter 2023 earnings conference call. We issued our earnings release 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 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; our operating airline’s ability to maintain on-time 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; the impact of current supply chain constraints both within and outside the US 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 other factors as contained from time to time in our filings with the SEC including the Form 10-Q we will file next week.

We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, adjusted pre-tax earnings, adjusted EBITDA 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 Rich Corrado, our President and CEO for his opening comments.

Rich Corrado: Thank you, Joe, and good morning, everyone. Our second quarter results highlight a sequential rebound in our passenger airline operations and continued top line growth across our principal businesses. Additional military and commercial flying, as well as operating efficiencies, led our ACMI Services segment to report a 10% year-over-year gain to $24 million in pre-tax earnings for the second quarter. That was a $26 million improvement from the first quarter. CAM our aircraft leasing business grew revenues 2% versus the prior year, but pre-tax earnings were down. It has leased more Boeing 767-300 freighters, and accepted scheduled returns of several 767-200s over the prior 12 months. We expect a record pace of new freighter lease deployments in the second half, including six already delivered this quarter.

Accordingly, we’re maintaining our full year adjusted EBITDA guidance and have raised our adjusted EPS guidance range by $0.10 from the targets we set in May. At the same time, we’re lowering our CapEx guidance for this year by $65 million to reflect fewer aircraft purchases for 2024 conversion and fewer-than-planned overhauls for our engines for 767-200 freighters. These reductions will have a positive impact on this year’s cash flows. Now, I’d like to turn the call over to Quint Turner to review our financial results for the second quarter. Quint?

Quint Turner: Thank you, Rich and welcome to everyone on the call this morning. As Rich just mentioned, our second quarter results reflect sharp improvement from the first quarter in our ACMI Services segment, stemming from both improved revenues and cost efficiencies. In our leasing segment, we benefited from five more leases of 767-300s from a year ago offset in part by higher interest expense and the effects of 10, 767-200 lease returns over the last 12 months. The next slide summarizes our financial results for the quarter. Our revenues grew $20 million or 4% versus a year ago to $529 million for the second quarter. Both of our principal segments as well as our other businesses in total contributed to that increase. Our GAAP pre-tax earnings were down $20 million and basic earnings per share were $0.54 versus $0.73 in the second quarter of 2022.

On an adjusted basis, pre-tax earnings fell $9 million to $58 million and EPS was down $0.02 to $0.57. In our aircraft leasing segment CAM, pre-tax earnings were down $9 million compared to a year ago at $31 million. That was primarily due to the scheduled return of 10, 767-200 freighters since June 2022 including seven during the second quarter. CAM’s allocated interest expense rose $5 million and depreciation rose $2 million. CAM leased five more 767-300s externally over that same period. In our ACMI Services segment, pre-tax earnings were $24 million up $2 million. The increase in earnings at ACMI Services was primarily attributable to significantly improved performance in our passenger airline operations driven by both military and commercial charter flying as well as greater operating efficiencies.

Airline block hours were up 1% versus the prior year quarter as increased cargo hours more than offset a slight drop in passenger hours. Cargo hours increased 1% for the quarter primarily on more hours flown for our customers’ express networks. Passenger block hours were down 2% for the quarter versus a year ago. That included more block hours for our 757 combi operations, which resumed services over a trans-Pacific route last fall. Turning to the next slide. Our second quarter EBITDA was $157 million flat compared to the prior year period. On a trailing 12-month basis adjusted EBITDA was down $2 million to $621 million. On this slide, you can see CAM’s adjusted EBITDA for the trailing 12 months, which we are breaking out for the first time.

CAM’s share of total adjusted EBITDA has remained at approximately two-thirds over the period shown. CAM is the foundation of our company and we project its adjusted EBITDA to grow as global demand for its leased midsized freighters continues. On the next slide you’ll see that capital spending reflects strong freighter market demand for our leased freighter fleet. Sustaining CapEx mainly for airframe and engine maintenance, technology and other equipment is higher this year due to the timing of aircraft engine overhauls, but will decline significantly next year as the number of projected engine overhauls decreases. Total CapEx was $413 million for the first six months of the year, including $303 million for growth. That’s more than halfway to our projected $785 million total spend in 2023 of which $545 million is for growth.

That spending will primarily fund purchases of feedstock aircraft and freighter conversions. The next slide updates our adjusted free cash flow as measured by our operating cash flow net of our sustaining CapEx. Operating cash flows increased $68 million to $192 million and $631 million for the trailing 12 months. Adjusted free cash flow was $423 million over the last 12 months. That equates to nearly $6 per share based on our outstanding shares as of June 30 and demonstrates the cash-generating power of our company. On the next slide, you can see that available credit under our revolver facilities in the US and abroad was $419 million at the end of the second quarter. Operating cash inflows are expected to largely fund our spending through 2024 and we expect our debt to adjusted EBITDA leverage ratio to remain under 3x.

Our balanced capital allocation strategy continues to include share repurchases. We bought back 950,000 shares in the second quarter following one million shares in the first quarter. Since the restart of share repurchases in October 2022, we have repurchased four million shares demonstrating our conviction to share with investors the returns ATSG’s investments and business performance generate. With that summary of our financial and operating results, I’ll turn it back to Rich for some comments on our operations and outlook. Rich?

Rich Corrado: Thanks, Quint. Let me begin with a few key drivers of our second quarter results, which support our confidence about our continued progress for the rest of the year. The best news for the quarter was the strong rebound in our ACMI Services segment. As already noted, our airlines posted a 10% pre-tax earnings gain to $24 million versus a year ago, which is a $26 million sequential improvement from the first quarter. Passenger flying was the biggest change factor. Omni’s operation for its military and other government customers picked up significantly and it won new business with commercial customers compared with first quarter levels. Our cargo airlines flew more hours than a year ago due primarily to the eight more customers signed 767 freighters in their CMI fleet versus a year ago.

CAM continues to navigate a year of record lease deployments. Three of our projected 19 freighter leases for 2023 were completed in the first half. Of the 16 remaining, the first six have been leased in just the last 30 days, including our first two A321s. Seven 767-200 freighters returned to CAM as planned during the second quarter. Most of those returning 200s were part of the 12 CAM began leasing to Amazon in 2016 to jump-start its Air express network. We expect to operate seven for Amazon at least through peak season. We continue to regard the 767-200 freighter as a key player in air express networks around the world, operating over shorter routes but with more capacity than narrow-body freighters. Our decisions about the future of 200 airframes that come off lease are case by case and based on cycle life and maintenance requirements.

We are actively engaged in discussions to re-lease or sell most of those returning 767-200s. We project that the new owner of any 767-200 airframe we sell will need to contract with CAM for engine power. If you look at the next slide, you may recall that in May, we mentioned our flexibility to modify our CapEx plans. That spend for 2023 is now expected to be approximately $785 million, $65 million lower than prior guidance. That reduction reflects fewer planned engine overhauls and the removal of two A321 feedstock purchases from our plan when the counterparty decided not to move forward with a sale leaseback transaction. Investments in A330 freighter conversions will continue as planned including our first three feedstock purchases this year for lease to customers in 2024.

We’re eager to launch this next phase of our fleet development plan with our first 330 conversion induction in October and the second to enter conversion by year-end. While we remain confident in global e-commerce growth driving strong demand for our midsized freighters, we intend to time our feedstock investments when possible to more closely tie purchases to induction dates. We are focusing on generating strong returns on capital and making sure we see the demand to support the investments in the conversions. We currently expect to spend less for both growth and sustaining CapEx in 2024 than this year. The reduction in our fleet investment outlook gives us even more flexibility to return capital to shareholders should our shares remain undervalued.

Our next slide covers our outlook for the rest of the year. With the positive trends we see in passenger airlines and a strong pipeline of freighter deliveries in the second half, we are maintaining our adjusted EBITDA guidance for 2023 of $610 million to $620 million, but raising our adjusted EPS guidance to a range of $1.65 to $1.80 per share. That increase reflects our projections for second half leased freighter deployments and improved ACMI Services performance. Our balance sheet remains strong. We have a leadership position in the midsized freighter leasing market and a blue-chip roster of large express and e-commerce customers. Those factors are why we remain attractive to credit investors who support our credit facility and debt securities.

Our employees stand ready to deliver our 2023 goals and generate long-term superior returns for our shareholders. Along those lines, I’d like to thank the teams at all of our businesses for their continued efforts to deliver unparalleled services to our customers and especially those who maintained solid on-time performance during Amazon’s Prime Days event last month. That concludes our prepared remarks. Quint and I along with Mike Berger, our Chief Strategy Officer and Paul Chase, our Chief Commercial Officer are ready to answer your questions. Operator?

Q&A Session

Operator: Certainly. [Operator Instructions] And our first question coming from the line of Frank Galanti with Stifel. Your line is open.

Frank Galanti: Hi. Thanks for taking my question. I wanted to ask about the ACMI segment. It’s really good to see the margin improvement there. But can you talk about expectations for that segment for the remainder of the year? How does that generally look from a seasonality perspective? And then from a visibility perspective from what you’ve seen on contract refreshes and the passenger demand?

Rich Corrado: Hi, Frank, thank you for the question. So on the passenger side, we are — we’ve evaluated the outlook in terms of the — we had a nice improvement in the second quarter and we see a strong third quarter from the passenger side. And then the fourth quarter is generally a seasonal quarter for the passenger side and we look to that to be flat as compared to last year. So we’re confident that the gains that the passenger segment gained in Q2 will continue in Q3 and be flat for the fourth quarter, which is generally what they see. On the cargo side, we’ve been encouraged by the block hours that we’re going to be doing in the fourth quarter. It’s really going to be flat over last year, but when you compare that to what’s going on in the general cargo market, which has been fairly weak we look to be holding our own.

Remember our ACMI operations on the cargo side are generally or — are targeted at specific network flying that’s geared towards e-commerce and integrated packages and that has reacted differently to the downturn than general air cargo.

Mike Berger: If I could just answer the seasonality piece, and it’s Mike Berger. As Amazon announced, they had record Prime Days earlier a few weeks back. And that normally translates to a very strong seasonality season as we get into peak season as well.

Frank Galanti: Okay. That’s helpful. And then switching over to CAM. It looks like the growth CapEx has come down, but that looked like it was mostly from engines and engine maintenance and then the two A321s. Have there been any changes this year for the 767s or the A330s? And what are you seeing for demand for those planes?

Rich Corrado: So on the demand for both the 767s and the 330s we’re on plan for the year. We’ll deliver 14 767-300s this year and five A321s and we’ll be putting our first two A330s into conversion. So all — the customer demand remains strong in all of those aircraft that we have in our plan going forward. You’ll recall we guided to 20 last quarter. We dropped that to 19 and that’s really related to one aircraft that is — will be out of conversion but will be awaiting a service bulletin and kit from Airbus. And we’ve tried several different avenues to try to improve the timing on that, but it looks like it’s going to push to next year in the first quarter.

Frank Galanti: Okay, great. Thanks so much.

Rich Corrado: Thanks Frank.

Operator: Thank you. And our next question coming from the line of Jack Atkins with Stephens Inc. Your line is open.

Jack Atkins: Okay great. Good morning, guys. Congratulations, on a nice rebound quarter here.

A – Rich Corrado: Good morning, Jack

Quint Turner: Good morning, Jack

Jack Atkins: So, I guess Quint, if I could maybe start I just would love to make sure expectations are calibrated correctly for the third quarter. I mean, how are you thinking about — within the context of EBITDA guidance, how are you thinking about results sequentially? Would you expect them to be fairly consistent, maybe a little bit of improvement? Just want to make sure we’re all kind of thinking about that, within the context of your outlook.

Quint Turner: Yes, appreciate the question, Jack. I think that third quarter of course, as we mentioned on the CAM side, we had some returns that came back, so you get sort of the full quarter effect as some of those came back during the second quarter there. But on the ACMI Services side, we’re expecting a very similar strong performance there. So I think overall, third quarter as a whole ATSG will look similar to second quarter in terms of the production. And I think the sequential progress that will be more evident in the fourth quarter, because there you’ll have all the deployments that Mike’s mentioned, contributing. And we do expect a sequential improvement in fourth quarter, right now, in the second half. And of course, we’ve given you our guidance range on EBITDA, so you know kind of what the whole second half is projected at. So, hopefully, that helps a little bit.

Jack Atkins: Yes. No, that’s great. That’s perfect, and I appreciate that context. So, I guess maybe shifting gears to the passenger operations and just maybe expanding on that a bit. It looks like you made some changes from a leadership perspective there, during the quarter. Could you maybe talk about just the progress that you’ve made in terms of recouping, some of the inflationary costs that you’ve been seeing? I mean, do you feel like you’ve made the progress that you wanted, or is there additional sort of opportunity left to go to kind of get that business back operating like you want?

A – Rich Corrado: Yes. So, thanks for the question, Jack. In terms of Omni’s passenger operations, they were already on their way to operating efficiencies in the first quarter and we’re able to leverage that into — during the second quarter, for improvement. They reduced their headcount is one thing, just for attrition. We didn’t furlough anybody. And they were able to — many times they fly into markets where they may make one stop or they may go through there for a full quarter. And so they’re able to negotiate, for ground handling for catering, and some other things to get better cost efficiencies out of those operations. They’ve also looked at real estate. They’ve really done a nice job, with kind of looking at any cost in their operation and trimming that out.

So, they’ve done a good job in getting additional revenue. They sold three ACMI opportunities, commercial opportunities outside the government business that were multi-month, opportunities that they’ll leverage probably some of them through October, and somewhere in the third quarter. So, we’re able to do both improve both on the revenue side, and both — and on the cost side. The government did help. Their block hours picked up in the second quarter. Again, Omni’s got a seasonal tone to it and generally, the second and third quarter, are their strong seasons.

Jack Atkins: Okay. No, that’s great to hear. And glad that business is seeing some improvements there. I guess maybe for my last question, shifting gears here to CapEx. You guys definitely sort of heard the voice of the shareholders I think just in terms of the CapEx plans. And I think it’s encouraging to see you kind of trim it, for this year. As you’re thinking about next year in 2024, you talked about 2024 CapEx being below 2023. I know you’re still forming your plan, but is there kind of a way to think about order of magnitude? To what degree can 2024 CapEx be below 2023? I know that you still have probably quite — you have more room to work that than you do 2023, so I just would be curious to kind of get your take on that.

A – Rich Corrado: Yes. We’ve been looking at the 2024 CapEx, since the beginning of the year, as you know. And you’re, right, we heard the shareholders loud and clear. But we still have great growth opportunities in front of us. But there are some efficiencies, we looked from a cash-to-cash cycle. In other words, when we buy an airplane, how long does it take us to put it through conversion? Historically, due to the feedstock environment on the 767 in particular and our — when you normally like to buy multiple aircraft from an operator we were buying lots of airplanes and weren’t necessarily able to have as much control, if you will over the deliveries of those. Going forward, we’re looking to minimize that. So take delivery of an airplane in the year in which we’re going to do the conversion rather than have them parked.

So, we’ll be — in looking at that and looking at some of the programs and deals that were going on for the feedstock for 2024, we feel we’ll be able to reduce the CapEx without really impacting the delivery profile that we’ve got lined out for that. So if I were to — we haven’t done exact calculations yet. We’ve put order of magnitude maybe $100 million lower than 2023. But again, we’re not guiding to that number. We’re just looking at where we can be for given the demand that we have and what we can set up for the future.

Jack Atkins: Okay. Well, I promise I’ll hold you to that number. But no I think that’s great that you guys are able to find efficiencies that way and lower CapEx, while still maintaining the opportunity for growth. So that’s great to hear. Congratulations again and I’ll pass it on.

A – Rich Corrado: Thanks.

Operator: Thank you. And our next question coming from the line of Michael Ciarmoli with Truist. Your line is open.

Michael Ciarmoli: Hey, good morning guys. Thanks for taking questions.

Paul Chase : Good morning.

Michael Ciarmoli: Nice results. Quint maybe just mechanical here on sort of the second half, I’m assuming some of the debt pay-down retired some of the convertible. The share count went down. And then the second half adjusted earnings looks to be lower than the first half EBITDA up. Is there something — is it just interest expense, or what’s that kind of disconnect with EBITDA being up first half but adjusted earnings being down first half?

Quint Turner: Well, there’s — in terms of the of course the guidance change it was centered a lot on interest and depreciation, Michael because we’ve had — for one thing as we talked about in the remarks earlier we had airplanes that I think we were expecting to get six airplanes deployed during the second quarter and I think we got one, right? But then in the last 30 days, we deployed six new leased airplanes, which is pretty remarkable. So since the quarter ended we’ve deployed, but what that — so we’ve had some sliding of CapEx spend, which of course has a positive impact on interest expense. And also we don’t start depreciating until assets go into revenue service. So that had a positive impact on that as well. And then the CapEx reductions making our CapEx spend more efficient, as Rich just described, some engine overhauls that we were able to reduce our CapEx projection by, all that combined has had a favorable impact on both those line items depreciation and interest.

Michael Ciarmoli: Got it. Got it. That’s helpful. And then just can you give us an update on status of negotiations with the pilots union? I mean, I guess, it sounds like still status quo and you don’t kind of think anything’s imminent here either resolution or one way or another but just maybe a general update on what’s happening there.

Rich Corrado : Yes. Thanks Michael. It’s Rich. Yes so we’re in mediation with both of our pilot unions at Omni and at ATI. And as we said before, we’ve always been able to come to agreement with our unions. And our goal always is to get the right contract where we can attract and retain the pilots that we have, and then also have the cost structure that we’re able — from which we’re able to compete for business and that’s our goal. And we’ve maintained that. We don’t expect that either CBA will be settled prior to 2024. So it’s pretty much similar to what we talked about last quarter.

Michael Ciarmoli: Got it. Okay. Perfect. Thanks guys. I’ll jump back in the queue.

Rich Corrado : Thanks, Mike.

Operator: Thank you. And our next question coming from the line of Thomas Fitzgerald with Cowen. Your line is open.

Thomas Fitzgerald : Hi. Thanks very much for the time everyone. The last couple of quarters, you’ve mentioned the theme about how many less freighters were retired during the pandemic than in a normal period. And I was just wondering if you could remind or just walk investors through how. Are you already seeing that in the lease rates for your freighters and the longer-term opportunity in that freighter market as demand seems like it’s really going to inflect higher in the middle part of the decade? It just seems like an exciting theme and you’re probably the best way to play it longer term. Thanks very much.

Rich Corrado: Yes. So where we’re seeing, it playing out — and you’re right, just to recall during a normal year pre-pandemic about 70 freighters were retired and then that’s skinny-ed down to about 15 during each year during the pandemic those three years. And so there was a pent-up demand for retiring assets. And so what we’re seeing is a lot of the — not in our segment but the 734s that were being retired and replaced by 738s or A321s, which is good for our segment because we’re — as you know, we’re getting into that aircraft. And so it’s one of those things that we’re keeping a close eye on. There’s a lot of larger airplanes coming out that have been announced MD-11s out of UPS and FedEx as an example. Those are being replaced by — predominantly by 767s by those operators. So there is some definite movement in terms of retirements and replacement freighters.

Mike Berger: Yes. And in the forecast, I appreciate you mentioning it. The forecast from Boeing and Airbus over the next 20 years is to see new freighters in excess of 2500 and 2800, and if we skinny that down to what we’re really focused on from a medium wide-body standpoint, that’s anywhere from just under 900 to just over 1200. So, demand for freighters over the next couple of decades is going to continue to be strong. The Boeing and Airbus forecast was just raised another 5% recently. So real strong validation of what we’re doing.

Thomas Fitzgerald: Thanks very much. That’s really helpful. And then just kind of curious another big theme that’s been coming up on the calls is the opportunity in e-commerce and emerging markets. I’m just curious if you have anything new or anything interesting to share with investors on what’s going on in that space. Thanks very much.

Paul Chase: Sure. Paul Chase, here. So as we’ve stated before right the assets that we deploy are targeted to these global e-commerce and integrated networks. And in many reports you’re seeing that these networks are projecting double-digit growth outside the United States. And you’re seeing continued cross-border barriers to e-commerce. They are facilitating more movements of door-to-door goods between these countries. So when you look at our freighter deployments, roughly 80% of those aircraft are going outside the United States. So we’re confident in the long-term outlook.

Operator: Thank you. And our next question coming from the line of Christopher Stathoulopoulos with Susquehanna. Your line is open.

Christopher Stathoulopoulos: Good morning, everyone. Thanks for taking my question. Rich or Quint, what was utilization for the fleet in 2Q I guess in block hours per segment or however you typically measure that? And then, if you could break it out on the passenger side, what it was for the US DoD versus commercial?

Quint Turner: Chris, this is Quint. We had the total block hours in the second quarter were about 46,800 roughly. I’ll round it to the nearest hundred 46,800 block hours. And in terms of the DoD, the DoD made up — and again, there’s — they have — you’re talking about our combi flying. We do the 757 combi flying and we also do passenger flying for the DoD. And that was about 7,500 of those hours.

Christopher Stathoulopoulos: And then on a per day basis, I just want to see if you were — if you got back to where you typically are where you need to be.

Quint Turner: Well, I mean certainly sequentially that was a nice increase as we talked about. Last quarter, you recall that was part of the explanation on the results last quarter was some lower hours there. So, nice increases sequentially. When you’re comparing to the prior year, keep in mind we had the things going on in Europe that were taking longer segments. We were flying back and forth to Europe.. And so the hours were actually higher in second quarter if you’re talking about — still talking about the DoD. Those hours were higher. And we also were not operating a long route for the combi. We’ve talked about that, right? There’s what we call the Deep Pacific route which with those 757 combis that was added last fall.

So it wasn’t in the second quarter a year ago. So we were flying like 8,000 hours for the — a little over 8,000 hours in the second quarter a year ago, but those were longer routes. And so you had that going on. But in terms of rate per hour, I think, Omni realized some benefit from a better revenue or rate per hour this year than they had in the prior year. And again that is part of the — that’s one of the drivers of the success that we spoke of with our passenger results for Q2 passenger operations.

Christopher Stathoulopoulos: Okay. And on the 200s could you just remind us the age of that aircraft in years or cycle times? And then how does the efficiency I guess fuel compare to the 300? Just trying to get a sense of what the appetite might be for those 200s versus the 300s, which have more flyable years.

Quint Turner: Yes, Rich will jump in here. But just remember the 200s what we talk about is our useful life post conversion because remember the cargo conversion for an aircraft is really substantial, right? And we’ve talked about that the heavier structures that are put in the upgrades to the cockpit it kind of comes out as a newly built airplane. And we generally expect to get kind of 20 years post conversion. A lot of the 767-200s that we’re talking about went into service in the late ’90s, right?

Rich Corrado: Well, for the first conversion.

Quint Turner: Yes, coming out of conversion, right? So they’ve sort of achieved that kind of lifespan that I just described. The 767-300 fleet in comparison is relative — is quite young in terms of age since it came out of conversion. I mean I don’t have — I haven’t calculated the average lately, but it was like five years four, five years out of conversion. Because remember we put in significant numbers of those as our — as e-commerce has picked up and as we have — as CAM has begun producing double-digit numbers of 767-300s. So our 763 fleet is pretty young in that respect. In terms of cycle life and you’re right to focus on that because that is more relevant in determining when an airplane might be getting near a point where it makes some economic sense to perhaps retire.

And for the 200s what we’ve talked about is kind of 50,000 cycles on the airframe as a benchmark. And the reason for that is — isn’t that you have to take it out of service at that level or anything, but there are some additional maintenance inspection requirements that come into play when the airplane comes in for its C-check. And that probably drives some additional cost because you have to open up more areas and look at them to comply with those requirements. And there is — I think there’s an aft pressure bulkhead AD. It’s not particularly onerous. I think, I don’t know cost of $1.5 million to $2 million to take care of it. But those are things that come into play. So as Rich mentioned we evaluate the 200s on a case by case but many of our 200 fleet is still pretty young in cycle life.

I mean, we have some out there flying routes that are in the 20,000s right in terms of their cycle time. So far away from the 50,000.

Rich Corrado: If you look at the efficiency of the aircraft, which is — it’s still and even when you compare to the 767-300 or any other comparable aircraft an A300-600 Airbus as an example, the 767-200 if you’re only handling between 85,000 and 100,000 pounds in a lane is the most efficient solution today despite the age of the aircraft. So it’s still an efficient aircraft for the missions that it’s pointed at. The 767-300 is a larger airplane handles about 20% 25% more volume and weight. So it really provides a different mission, but the 767-200 is still a good opportunity in the e-commerce market.

Christopher Stathoulopoulos: Okay. If I could squeeze in one more. On the CAM breakout so now that we have a sense of size as it relates to EBITDA last time I checked I think CAM was somewhere in the 25 or top 25 or top 25 to 30 in terms of lessors. Is there a plan to get to top 20, top 15? And if so, would that imply further diversification with aircraft type? I realize your business is very different from someone like, an AerCap. But with the relative size here even I’m curious how we should think about that business let’s say through mid-decade and beyond top 15, top 20 player. Thank you.

Rich Corrado: Yeah. Thank you for the question. We really don’t — that’s really not in our view. We don’t look to be ranked in a certain place. We don’t think that really lowers our cost or raises our profitability. We’re focused on investment returns and capital allocation in the best interest of our shareholders.

Christopher Stathoulopoulos: Okay. Thank you.

Operator: Thank you. I’m not showing any further questions in the queue at this time. I would now like to turn the call back over to Mr. Rich Corrado, for any final comments.

Rich Corrado: Thank you, Operator. As we talked, we’ve made some significant changes and got some operating efficiencies out of our ACMI operations over the past quarter. We’re focused on returns — our capital returns for our shareholders. And we’re looking forward to completing the year in great fashion. In our business the number of freighter lease deployments, military charter flights and maintenance checks can be — can vary materially from one quarter to the next. But the long-term trend is consistent, predictable and resilient. The freighters, we lease the aircraft we fly and the support services we provide are essential to the fast and efficient delivery of military personnel, e-commerce goods and other cargo within the many regional networks now forming and expanding around the world.

We intend to remain at the center of that process with the right mix of medium aircraft, talented people and customer-focused businesses and well-considered capital allocation strategies that will continue to generate superior returns for our investors over the long run. Thank you for listening to our call today. And as always, please stay safe.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.