Frank Galanti: Got you. And then, last question, if I could squeeze this one in. So I think investors will appreciate the ability to generate free cash flow this year. But can you sort of talk about where you plan to spend that, use that free cash flow as it sounds like it doesn’t want to be into incremental assets?
Joe Hete: Yes. In terms of what we expect to generate this year, there’ll be a nominal amount. We’re not talking about significant free cash flow generation, but the first priority is going to start delevering a bit. You saw in our release, we’re about 3.2 turns at the end of the year in terms of our debt. So we want to pay that down, give us a little more flexibility, but then we’ll be able to build on that significantly as we roll into 2025. Preliminary look we have at 2025 is the CapEx spend will come down probably an additional 10% or so as we sit here today. As we mentioned earlier, we’ve already procured a lot of the feedstock. From a conversion standpoint, that’s going to be the biggest driver looking into 2025 and course that will be driven at a large part by what we see in terms of market conditions and demand for the assets.
Operator: Our next question comes from Adam Ritzer with L. L. Capital. You may proceed.
Adam Ritzer: Hey, Joe. How are you doing? Welcome back.
Joe Hete: Thanks, Adam.
Adam Ritzer: Couple of questions for you. Omni, what was Omni’s EBITDA in 2023? I think you said it was down 11%, but how much do they actually generate?
Joe Hete: Adam, you’ve been around long enough to know that we don’t talk about each particular airline individually. What I can tell you overall is as you saw in the earnings release is the overall EBITDA for the airline services side of the equation was down from 2022 going from $209 million roughly to $156 million from an overall. Omni still was significantly positive. We expect about the same level of contribution in 2024 from the omni piece of the business. Actually the largest decline on a year over year basis going into 2024 will be with ABX because of the number of 767-200s they were operating on behalf of Amazon and say they were the biggest — they took the biggest hit in that regard. But Omni, we’re anticipating it’s going to be about the same level of contribution as this year.
Adam Ritzer: Okay, understood. One of the slides in there, it mentions you have 23 planes awaiting or in conversion. So I guess if you have 23 awaiting, if you guys leased all those up, how much upside is there beyond this $30 million you mentioned?
Joe Hete: Well, again, not all of those are going to be available into service in 2024. And as Paul already answered, the expectation is that we will get some of those into service. I think there’s 14 aircraft in total that are going through the conversion process today. They’re coming out at various points in time in the year. But if you were able to lease every one as it came out, it’s probably in the order of magnitude to call it $10 million to $15 million of additional EBITDA because of the timing as to when they actually complete their conversion and are available for lease. Not on a full year basis. That’s just for fiscal 2024.
Adam Ritzer: Right, right. I get it. Of the 2024 growth spend, can you I think you said some of that’s for A330s that were already ordered, but can you break that down, like how much of that do you actually need to spend with all these planes sitting there?
Joe Hete: Well, if you look at it from the pure growth perspective of the number I talked about earlier from that standpoint, it’s about call it $250 million in terms of growth spending and then the balance of it is in sustaining CapEx for 2025.
Adam Ritzer: No, I realize that. But of the $250 million, how many planes is that? I mean, you have so many sitting there that are unleashed. Why are we not cutting that growth CapEx down to as little as possible?
Joe Hete: Well, as I said mentioned earlier, Adam, we’re going to play it by year in that regard. I said, we initially targeted a 10% reduction from where we’re at this year. It could go lower, it could go higher depending upon what the market demand is at this point in time. But there are certain fixed commitments that we have that we can’t avoid in terms of whether it’s a conversion or a feedstock purchase. There’s a couple of aircraft that we have contracts to acquire in 2025. But again, it all goes back to what we think we can avoid if the market isn’t there or what we can respond to if the market is.
Adam Ritzer: Got it. Okay. So of the $250 million for this year, how much is contractually obligated over that 250?
Joe Hete: Well, that’s almost all of that, Adam. Because in 2024, there’s actually nine aircraft that feedstock airplanes that we some of the commitments to buy those were made as much as two years ago. So we’ve got four 767s and five A330 feedstock aircraft that will be purchased in 2024. And then you’ve got the complete conversion of the aircraft that are in process because as we told you last quarter that just that makes sense to not interrupt those conversions midway through. But to the extent that we can pause that production, we have baked that into the budget that we’re giving you already.
Adam Ritzer: Got it. And last question, for 2025 how much do you have obligated contractually for growth CapEx. I think Joe said earlier it would be down about 10% and what of that 200, how much of that is contractual that you cannot get out of?
Joe Hete: I don’t have a good answer for you right now, Adam. Like I said, part of it is, we peg this number, part of it is obviously the obligations that we can avoid and some of them are related to what we think the market will respond to. But overall, it’s a reduction from where we’re at in 2024.
Adam Ritzer: Got it. Okay. Thanks very much. I appreciate you taking my questions and good luck this year, Joe. Thank you.
Operator: One moment for questions. Our next question comes from Christopher Stathoulopoulos with Susquehanna Financial Group. You may proceed.
Christopher Stathoulopoulos: Hey, thanks. This is Anthony again for Chris. Thanks for taking the follow-up. Could you expand on what the opportunities for additional flying entails? Is that kind of peak season related or opportunistic short-term flying? And what types of airlines or shippers would this involve? Thanks.
Mike Berger: Yes, sure. Thanks for the question, Anthony. Most of the opportunities will exist in the passenger charter flying. So what typically happens in the summer for a different part, say in the EU or in Asia, carriers will be looking for additional lift and that’s where Omni can come in and help. In fact, they have done that many times in the past. So predominantly, it exists on the passenger side for short-term opportunities. By short term, I define those as anywhere from a month to three months. Sometimes those get extended, but that’s primarily where the opportunities exist.
Quint Turner: Additionally to that, we see ground peak flying around the holidays, college bowl seasons that type of stuff. We hit Omni tends to do very well in that space as well on the charter side.
Joe Hete: Yes. And on the cargo side, you’ll see some shorter versions of that for Mother’s Day. And then, of course, during peak season in December, some of the larger integrator customers asked us for additional lift.
Christopher Stathoulopoulos: Great. Thank you very much. And I guess final question. In the in your guidance for this year, how much, if at all, are you kind of anticipating a macro slowdown either in the United States or more globally? Kind of can you give us a magnitude or a ballpark that you’re kind of thinking about?
Mike Berger: We hope we’ve already seen it. We talked about how the rate of passenger flying for our, I guess, second largest customer, the DoD, has trended compared to like 2017. You have to go back to 2017. So we haven’t as Joe said, we’ve assumed a pretty flattish outlook on that piece of the ACMI flying. And we talked about the leasing side, where we’ve only assumed already executed contracts in effect for those four 767-300s in terms of growth. So I think we’ve been pretty tried to be conservative certainly in that respect. So beyond that, we haven’t assumed a further significant degradation on the macro side.
Joe Hete: If you think about it on the airline operations side, which is going to be the primary or where there might be some upside or downside. Most of the assets or most of the flying we do, I should say, is relegated to the Amazon network and the DHL network, which basically those are time definite networks, so to speak. So we don’t anticipate there’s a lot of volatility there other than what we’ve already baked in, which is the removal of the 767-200s from the Amazon network. At the same time, we will be adding back one additional Amazon owned tail sometime, I guess, maybe later this quarter beginning of Q2 that we will add into the ATI fleet. So it should be pretty stable from the cargo side of our operations.
Operator: Thank you. I would now like to turn the call back over to Joe Hete for final comments.
Joe Hete: Thank you. I’ve spent my entire business career with this company, including the two decades since we became an independent public company in 2003. Except for 2008, when DHL’s decision to shift from direct competition in the U.S. Express market nearly left us without a customer for our entire air cargo fleet, ATSG has never faced such a rapid shift in customer demand as occurred during 2023. Since returning as CEO last November, I’ve taken steps we have discussed today to reduce spending on fleet expansion and right size our airlines to their own changes in demand. If that isn’t enough, we’ll do more to match the scale of our business to the growth environment and drives us back to being the free cash flow generator that we used to be.
But I’m also an optimist. During my career, long term demand for cargo aircraft has only increased. I know that appeal of shopping online will require more aircraft lift to fulfill their orders around the world, and I intend to work with the great people of ATSG every day to put us back on track as quickly as possible. Thank you and have a quality day.
Operator: This concludes today’s teleconference. [Operator Closing Remarks].
