Global Crossing Airlines Group Inc. (PNK:JETMF) Q2 2023 Earnings Call Transcript

Global Crossing Airlines Group Inc. (PNK:JETMF) Q2 2023 Earnings Call Transcript August 11, 2023

Grant Howard: Well, good morning or afternoon, depending upon where you are. My name is Grant Howard, and welcome to the Second Quarter Financial Report and Webinar with CEO, Ed Wegel, Global Crossing Airlines; and Ryan Goepel, the Chief Financial Officer. Exceedingly good results compared to Q2 of last year. So gentlemen, with that, would you please start the webinar.

Ed Wegel: Sure. Thanks, Grant, and good afternoon, everyone. Thanks for joining us today so that we can discuss our second quarter results. Our second quarter was a success, both in terms of the number of block hours flown as well as the preparatory work we completed to get ready for the summer flying through the rest of this year, through the rest of 2023. During the quarter, also, we negotiated our $35 million financing over the course of May and June, which we closed in July. So a combination of all of those things, a very good quarter for us setting us up for success in the future. Like every other airline in the world today, we have been impacted by the supply chain and staffing issues at the MROs, where we do our heavy maintenance checks as well as from the MROs who are converting our A321s to freighter.

For instance, just to give you an example, our second freighter, originally scheduled for delivery in October of last year, 2022, then January this year, then March, then June was finally delivered and we were able to place it on our certificate to start revenue flying on June 21. While we had built in 90 days of flying for that airplane in 90 days of revenue, for the quarter, we only got 10 days, again, because of staffing issues and supply chain issues at the MROs. The other side of that coin is that the delay in new aircraft deliveries from the OEMs, and they face the same supply chain and staffing issues that we faced, resulted in us flying longer-term ACMI charter contracts for several airlines, and we see that business to continue for us over the next few years until those issues have resolved themselves.

As well during the quarter, we lost the equivalent of two aircraft months because of delays in getting two of our aircraft out of their scheduled heavy maintenance checks. So they went through their normal cycle of about a month that we had scheduled for these. And because of supply chain and against staffing issues, both of these airplanes were delayed getting out of their maintenance checks. An airplane that’s not available to us cannot generate revenue, and that slightly impacted our revenue in the quarter, which we’ll discuss in a moment. We fought through those issues, and we flew 3,500 block hours in Q2, a testament to the 520 team members at GlobalX who make sure we flew every charter and maximize the efficiency in scheduling our fleet.

My hats are off to them for having pulled this off in a tough environment. We’ve seen these supply chain issues easing over the next year to 18 months, but we are working now to ensure we can cover all of our flying contract on aircraft delivered late to us, and we expect to make some announcements soon about partnerships with European ACMI airlines to accomplish this as well as expanding our summer European flying. Our objective to recruit, hire and train enough pilots to fly our summer schedule into the winter was very successful during the quarter, and we’re pleased to state that we have a little over four crews per aircraft right where we should be. And we have a robust pipeline of pilots who have signed letters to start classes in September and October, and we’re starting to fill the November class now.

Our August class, for instance, has five captains. And our September class has eight captains already hired. The August class has started, September class will start right after Labor Day, and we continue to fill our pipeline of very qualified captains and first officers to man our aircraft and fly our schedule. As a subsequent event to the second quarter, we closed the financing with Axar Capital Management, which we will walk you through in a moment. We have finalized the financing and lease of our new maintenance facility at Ft. Lauderdale International Airport, and we expect to break ground on that finally within the next 60 to 90 days. And we signed leases for two more A320 aircraft, ex-Alaska A320s, which are very, very good airplanes for us, which will be delivered later this year.

We will also make some announcements soon about some additional freighters that we have signed for during the rest of this year as well as for delivery in 2024. So we have a robust pipeline of pilots, a robust pipeline of aircraft to be delivered to us to put on our certificate and most importantly, a very robust list of clients and charter contracts that we are signing to utilize those pilots and those aircraft very well. So with that, we’d like to get into a short presentation that we have about the quarter. And then after that, we’ll answer some questions. So we’ll go through the Axar financing, we’ll comment on the quarter and our results, give you an update on 2023 fleet update, some updates on cargo and then an investor update in terms of our exchange listings.

So I’ll ask Ryan Goepel, who was our main negotiator on the Axar financing, to walk us through the terms of that agreement.

Ryan Goepel: Great, thank you, Ed. With an August 2, we closed our financing with Axar Capital. Axar is a $2.3 billion fund that has experienced in aviation, and we believe is going to be a great partner for us going forward. One of the key aspects of this and one of the things we are looking to secure is we’re looking to secure not only our partner, but the capital required to execute on our growth plan. And I recognize in this current interest rate environment, some of these numbers might seem high, but recognize this is the lowest cost of capital we’ve raised since we started as an airline. Prior to this, we were doing all equity raises. When you factor in deal fees, warrants offered, all were at significantly higher cost of capital than the cost of this capital that we’ve raised.

With this capital, however, we can’t – we believe we have enough cash to operate our business plan to grow our fleet and to execute what we’ve been basically forecasting for the last six to twelve months. The deal terms are $35 million loan repayable over six years, with the ability to repay after two years, 15% interest rate, a 1.75% OID and ten million warrants priced at the $1, with semiannual interest payments. With the proceeds of this, we refinanced $8.5 million worth of debt, which is coming due in the next 12 months, which were at higher rates. And so again, we’re very excited to have Axar part of the team. We’re excited to be working with them, and we’re incredibly excited to have this as this financing in place, which is going to allow us to execute on our plan.

Ed Wegel: Yes, let me just comment. I’ll make a few colored comments on this. We’re very pleased with Axar. They understand our business. They have invested in airlines before. They have invested in charter airlines before. So, we have a partner who speaks our language and knows what we are doing. They are also very good people to work with. And I think that – and I know that, going forward, they’ll be very, very good partners with us and for us, especially if other opportunities get presented to us as we grow and other airlines may want to try to work with us. So, very pleased with this. We were able to reduce our cost of the interest rate on our current debt significantly by about 25% to 30% lower interest cost on that portion of the debt.

The terms are very, very good. And in this market, given where we are in our life cycle as a company as we grow, we believe that these terms are excellent for us and shows that Axar is very, very willing to work with us to ensure that we’ve got the financing that we need. Both Jefferies and ROTH Capital advised us on this financing. They both agreed that we’ve got very good terms, and they both agreed that we had a very, very good financing partner in Axar to move forward with us as we execute our business plan. Some of the highlights from Q2 which you’ve seen some of these in some of our press releases as we’ve gone through. But just to summarize, we signed LOIs for two more A320 passenger aircraft and two more A321 freighters. That was just in that quarter.

In Q3, we’re signing more LOIs, which we’ll be making announcements about over the next few weeks. We accrued and hired and trained 35 pilots, with an additional 22 in training, as of the end of the quarter and 36 flight attendants. Those 35 pilots, with the additional 22, are what we needed to fly the summer schedule, which is very, very intense. We’ll talk about that, but we’re over 250 hours per aircraft per month in Q3. And so we needed to ramp up very quickly our cockpit and cabin crews to be able to fly that schedule. And we were successful in doing that. And now with the financing that’s in place, we look very, very strong to the outside world. More and more highlights are coming to us saying, this is where they want to come and work.

So we feel very, very good about that. We received our United Kingdom third country operator authorization, which is a complement to the EASA TCO third country operator authorization that we received a few months ago. We are getting a request now to fly into the UK and from the United Kingdom into Europe, and we will be using this TCO very soon. We’re very, very pleased that we’re able to put that in place. During the quarter, also, we flew for Wizz, one of the leading ULCCs in Europe. We flew 250 hours in about a three-week period. They asked for a longer term on the contract. But because we’re so busy here this summer, as well as two airplanes flying for Toei who were unable to do that, but we believe that we’ll be getting more and more flying from Wizz and other airlines like them in Europe over the next few months.

And we also started flying a wet lease contract for Lynx in Canada. We’ve just concluded that flying in August. We started it in the second quarter, we ended August 7. Almost flawless performance for us, 100% completion, about a 98% on time – controllable on-time performance on that. And those are two examples of airlines that have had their deliveries delayed from the factory. Their new Wizz – at Wizz, their new A320neos and at Lynx, their 737 MAX aircraft. So they needed to turn to an airline like us to fill and ply for them, which they had published and sold tickets on. They needed someone to quickly step in and assist them, and we were there with the airplanes and the crews and all of the certifications needed to be able to do that.

And in a lot of ways, this is what this airline was built to do, was to provide supplemental lift, additional lift to other airlines that need it. And we proved in this quarter that we can do just that, and we can react very quickly and provide them what they need. Just to give you a sense of the breadth and depth of our operation. So this is over the last year since August of 2022. We’ve had 2,500 flights. We visited 51 countries and 116 cities in Europe, Latin America, North America and Canada. So we feel very good about that. It certainly underlines the word global in our name. And we expect to do more and more of this. We’ve been asked to put airplanes operating out of the Middle East. We’ve been asked to operate airplanes out of Eastern Europe.

And we’ve been asked to operate airplanes with crews out of the United Kingdom for two of the major airlines that are located there. So worried about our abilities to perform, the state of our equipment, which is excellent, the performance of our crews, which is excellent. That word is spreading. And we received calls every day from airlines around the world that would like us to fly for them. And I believe, at this point, we’re quoting about $2 million worth of business every day. And so that gives you a sense of the size of the market as well as our ability to gain market share within that market. So to talk about Q2 a little bit, Ryan, why don’t you take this?

Ryan Goepel: Sure. For Q2 2023, we had revenue of $31.5 million; actual EBITDA, negative $6.3 million; adjusted EBITDA, negative $1.5 million. The adjustments we made were effectively for share-based comp and for pilot training and excess pilots of the current requirements. Basically, this is the investment we’ve made in crews. As Ed talked about the number we’ve hired, the number we’ve trained and the number required in order to operate, we continually talk – discuss how Global is made up of three assets. Our first assets are certification, which we continue to add to. It’s our aircraft, which we continue to lease and add more aircraft and ultimately, our cruise. And you need all three assets in order to operate and execute on this business plan.

And we made a big investment in that in Q1 and in Q2, which is starting to pay off in Q3. Our actual EBITDAR of $498,000 and adjusted EBITDAR of $5.2 million. Some ultimate impacts to the quarter had they not occurred, would have actually increased our EBITDA, 5.1 aircraft month loss of maintenance and delivery delays impacted us on a $1.3 million basis. Freighter delivery days, obviously, the plane not being available on the first of the quarter versus the end of the quarter had a large impact. We accelerated crew training required for the summer. That was the 4.2%. There has been zero ice work for us during this quarter with Title 42 wrapping up. There was kind of a freeze on all of that work. That being said, that’s picking up significantly in August and September.

And then a gain on sales is a small parts program, we had estimated what happened. That’s been pushed to Q3. So had all of those things not happened or happened, we would have increased our EBITDA, actual EBITDA by a significant amount. So there’s an opportunity there for us going forward to improve the results. We understand that some people might be disappointed with the loss, but we’re – we made an investment in our future, which, I think, as we’ll discuss 2023, you’re going to see the impact.

Q&A Session

Ed Wegel: And in certain of those line items, we’re putting in place programs and procedures so that these do not impact us as much going forward. We’re working with the MROs and doing a lot of maintenance planning now before our airplanes go into heavy maintenance and we believe we will reduce those delays going forward. The freighter delivery delays are starting to ease up as more A321 freighters get converted and the conversion shops are able to become more efficient in doing those conversions. And two of the freighters that we’ll be getting over the next several months have already been converted to freighter, which means that we’ve eliminated those potential built-in delays. So we’re learning to adjust to this environment where we’ve got difficulties getting aircraft out of maintenance for our freighters out of conversion.

And we’ll see these delays become significantly reduced with future deliveries of aircraft as well as conversions of our freighters. We took a lot of pain in the quarter. As Ryan stated, we get enough crews on board in order to be able to fly the summer schedule. Just to give you a sense, we flew 3,500 hours in Q2. In July alone, we flew 2,500 hours. We’re only able to do that because we ramped up the number of cockpit and cabin crew members that we had. That’s an impact in terms of our profitability, but it is an asset that we now have, which is very, very valuable. The ice work, as Ryan said, was shut down for a period of time. It is now full force again. And we have been asked in the next few months to provide as many as four full-time airplanes to that program.

We’re looking to see how we can do that. We can eventually provide those airplanes, but we have so much other work that we’ve got to work all of this in, but it’s a good problem to have. So with that, we believe that the financial results for Q2 are in line with what we wanted in terms of the adjustments. And when we look at the impacts, which were largely out of our control, we feel very, very good with what we accomplished in Q2, which sets us up for the future. And clearly, as we briefed our new financial investor, they understood all of the dynamics of this, but they look forward as we do, and they say that we’ve built the platform and spent the money to do that, which now allows us to fully leverage that platform for revenue and profitability.

Ryan Goepel: And speaking of leverage, one of the things in the finance side and us as a company are looking at is how are we performing as it relates to growth as it relates to cost. And one of the things we need to kind of point out is each quarter, it’s difficult to compare quarter – sequential quarters because Q1 is a very different market for us as Q2, and Q3 is very different from Q2, and Q4 is very different from Q3. So, the most accurate adjustment and to look at is to look year-over-year. So, how do we do versus Q2 of last year, which is a similar customer base, similar revenue stream, similar kind of pricing? What we managed to do is we grew our revenue by 80%, but we only grew our cost by 59%. We grew our available aircraft by 33%, but we grew our block hours by 70%.

So, what this means is, is we are operating with more aircraft, but we’re using the aircraft we have more, which is getting us much better utilization. We’re also adding revenue to our bottom line without increasing our cost at a lower rate. So this is a key focus for us. And one of the things we’re going to point out, and we’ll be much more detailed about this when we talked about our Q3 results, as I need to remind everyone, we have two types of revenue. We have ACMI revenue and full charter revenue. ACMI revenue is around between $3,000 and $5,000 an hour. Full charter revenue, which includes fuel and basically an all-in price, tends to be 2.5 to 3 times higher. So the mix of ACMI to charter revenue will impact the ultimate revenue number, but not necessarily the margin.

So again, we’ll talk about this significantly more in Q3 results, and we’ll have that disclosure broken out in our 10-Q. But again, revenue isn’t the only metric. It’s one of a couple of metrics. Block hours is another one.

Ed Wegel: So what we’re seeing here is a couple of dynamics going on, which we had talked about in the previous quarters, why we wanted to get to the number of airplanes that we have as quickly as we got to them. You are seeing that the variable costs are increasing as we increase revenue, fixed costs, not increasing as much. So, we’ve got the foundation in place to operate more airplanes than what we currently have. And so as we add airplanes, our costs are increasing on the variable cost side, not as much on the fixed cost side. So, we can grow revenue 80%, but our costs are much lower than that. As well, we’re seeing the power of the network. So, the more aircraft that you have, the more likely it is that you can get shorter contracts because it means that you’ve got more airplanes that are positioned around the country and it’s easier to fit all of the puzzle pieces together so that you can pick up additional flying and have aircraft standing by nearby where that charter will originate.

So, what we’re seeing, as we add airplanes, we’re increasing the block hours. We’re getting better utilization out of the airplanes because they’re spread a bit more across the country or across the Caribbean. And we have more airplanes. So, we can have one airplane take a client to a city, and then a second airplane swoop and the next day to take them back to where they need to go. So again, it’s the power of the network. Additional aircraft allow us better utilization of all aircraft and allow us the opportunity to bid on more contracts beyond just the incremental increase in the number of airplanes.

Ryan Goepel: So, looking forward, these are our key, what we call, nonfinancial KPI metrics, which we released in the past. We have added July just to kind of reinforce the point. So, when you look at our average – so what we’re adding – if you look at the bottom right, the number of aircraft days per month has grown around 135%, but our total block hours per month has grown at 246%. What that means is we’re flying – we’re growing our fleet, but we’re also flying our fleet that we’ve grown more often. And that’s reflected in the average block hour per aircraft. Now one of the big drivers of that is the pilot pool, which we talked in the bottom left. Now one thing I’m going to make a point out for Q3 is kind of a leading kind of indicator.

In Q1 and Q2, the percentage of flights that were flown on an ACMI basis, which is the lower revenue number per hour, is in the 30s. For Q3, that number is going to be in the 70s. So, what that means is you’re not going to see a dollar-for-dollar increase in revenue for the block hours, but you will see – it will have an impact on the profitability. So, I just – again, we’ll make – when we have the numbers for Q3 to show, we will demonstrate that, but we just want to make sure people understand that dynamic. And every quarter is pretty unique on the percentage of ACMI and charter, and then the rates for ACMI and charter. So again, there is multiple dynamics. We’re going to do a much better job. And I think a more detailed job explaining it going forward, so people can understand what’s going on.

But we are growing. We’re growing quickly, and we’re getting better utilization of our assets, which is the key goal of the company. So how does that translate into our outlook for 2023? We’re looking to increase our revenue forecast of over $150 million, with 75% of currently contracted. We have over 50 million in identified targets outstanding [indiscernible] for the period of August through December, which translates into 13,000 hours contracted for 2023 to date, with a potential to add up to another 7,000 hours. This compares to 10,000 hours 615 total hours contracted in 2022, all significant growth numbers. The leading indicators for this is our pilot count and our fleet count. And so we’re executing on this plan. We’re very optimistic with this plan.

And as Ed pointed out, we’re quoting over $2 million a day to help fill this for this year and next year. Our target fleet size at the end of the year is 12-passenger aircraft and six cargo aircraft, and we’ll go into delivery specifically in a few slides. Ed, I don’t know if you want to add anything?

Ed Wegel: Yes. So, we’re currently at about $112 million to $115 million revenue contracted, which means signed with the deposit. Probably another $10 million or so where that is out for contract, and then another $50 million that we’ve identified targets, and we’ve got quotes out there. We closed about 80% of our quotes at this point. So, we’re comfortable now in raising our revenue target to $150 million, up from $140 million. It’s also dependent on getting aircraft delivered, but we are comfortable with the new aircraft delivery dates that we’ve built into our schedule based on the delays that we have seen with other aircraft. So, we’re comfortable with $150 million. We will probably beat that, but $150 million is what we are comfortable with providing as guidance at this point.

This is our next airplane that will be delivered. This is another example. This airplane should have been delivered about 6 months ago. Its continuous delays is because of various supply chain issues, but it’s an A319. It’s a great airplane. Once we get it on to our certificate, it will be converted for a period of time this winter into a VIP configuration with 68 seats. And this airplane is already almost fully booked up on its – well it’s in VIP configuration. That it will make an excellent airplane in a 2-class or a 1-class configuration for many of the support teams that we fly, the NCAA and some of the other teams. So, this airplane should be here and on the certificate by the third week in August. And again, it’s pretty solidly booked, because of its economics and the way that we’re going to configure this airplane into the fall and winter.

Here is our delivery plan. Our current – our target plan is now our current plan. Our target plan was contingent largely on the financing, which is now in place. And so this is our current plan. Our ninth A320 passenger aircraft was delivered as well as our second freighter that was delivered during the quarter. That brings us to nine passenger aircraft and two freighters. Now in the current plan, we’ll take the A319. We’ve just showed you the picture of that. That will be in August. This month – by the third week of this month, we should have that airplane on the certificate. And we are taking another freighter late in Q3 and then a mix of passenger aircraft and freighters through the end of the year. The A320 number 7 is actually a passenger aircraft not a freighter.

So, we expect to be a 12-passenger airplane and six freighter aircraft by the end of this year. And we have all of the capital that’s required to bring those airplanes on. Many of the deposits have already been made, even in advance of the financing that we just put in place. So we’re in great shape in terms of bringing these airplanes into the fleet, we paid the deposits. We have the pilots and the crew standing by to fly these airplanes and we have a pipeline of pilots to make sure that we’ve got enough as we get to 18 airplanes to fly the entire fleet. Our cargo side continues to ramp up. Two freighters, as I said, are currently in operation. Those are fully sold. We’re getting an average of 200 hours per month, per aircraft. And as freight forwarders and others see the operating performance and the economics of this airplane, we are competing against 757 freighters and in many cases, 737, 800 freighters.

And this airplane pencils out both an operating and financial performance better than those two aircraft. Our fuel burn is much less than a 757. And we carry 50% more than a 737-800. We had about the same fuel burn. So, we feel very confident as we present this airplane and pinch it to freight forwarders, other airlines, cargo units that we pitched very well because of those performance characteristics of the airplane. But we’ve got seven aircraft that we, at this point, have allocated. We don’t have seven. We’ve got obviously two, with another four coming this year. But we think that within the U.S. government, post office and other agencies, we tend to sign two airplanes. Our Miami to Caribbean business is taking off. Literally, we’ve got one airplane assigned to that, and we’re flying regularly now to taking cargo to Cuba, cargo to Jamaica, cargo to Dominican Republic, cargo to Haiti as well as to the Eastern Caribbean.

We’ve got a full slate of flights to Port of Spain, Barbados, St. Lucia and Guyana. So, this business will continue to increase for us. I see the number that we have assigned to the Caribbean will increase next year. I would project that we will have three freighters operating almost full time in the Caribbean by this time next year. Central America is also a focus for us. This is the right-sized airplane to come out of the U.S. into Central America. One of our next airplanes will be assigned out of Miami to fly four freight forwarders into Guatemala, Honduras, El Salvador, Costa Rica, et cetera. So we feel good about that business. Our partners at Ascent will keep one airplane busy, because we only have two; it’s been difficult to schedule some of those flights.

The third airplane will be assigned to Ascent, and we’ll move that airplane to be based in Texas to start flying for them. And we anticipate that we’ll get our monthly revenue targets met with that airplane, flying in the automotive market. Latin America, we are progressing with our Colombian AOC. We’re now in Phase 3. We expect to get that AOC finalized and issued to us by late September or October, and we’ll effectively assign one aircraft to that AOC. That aircraft will fly from Latin America into the U.S., with Latin pilots, which will ease some of the pressure our pilot foresee here in the U.S. But we see that business growing. Number of airlines in Latin America have approached us about flying that airplane for them. And I think that that number will increase from one to three airplanes over the next 12 to 18 months.

But we also will want a spare – an aircraft that can provide additional capacity for any of those business lines to be assigned at some point. So effectively, we’ve got the allocation for the first seven airplanes, and we are starting to formulate our plans for the next five airplanes after that. So cargo demand we’re seeing is increasing. While the volumes are down for the wide-body freighters coming from Asia, the intra-regional cargo demands into the Caribbean and into Latin America remains strong. And this airplane outperforms any of its competitors, and so we will win more than our fair share of the market because of that. Ryan, could you take this?

Ryan Goepel: Sure. So the question we get on every Q&A relates to uplisting, I’d probably get it pretty much daily. With the Axar financing, there is no pressing need to raise capital. And generally, the reason you go through the expense of an uplisting is to raise capital. That being said, it’s clear with the way our stock has performed, we’re not on the right exchange and that needs to be addressed. But what we do have is because of the capital raise, we have the option to determine when is the best time to uplist based on market conditions, share price and financial performance. There are two real kind of hurdles that we have to cover. We need a share price over $2 and we need positive shareholder equity. The positive shareholder equity is generally addressed through a raise, which we feel very comfortable we could accomplish at the time and be more comfortable doing if we’re a $3 or $4 a share.

All that being said is we are monitoring it. Ed and I are spending a significant amount of time talking to investors, talking institutional investors, getting our story out. So when the time is right to uplist, will be well received. For people who are existing shareholders, who are wanting to uplist so they could sell their shares becomes that you don’t want – you need buyers on the other side of that or you don’t or it doesn’t work. And so we are thinking through that on the long-term. We’re working towards it, and we understand the value in getting to the different exchange. On the right, we have our updated cap table or post the financial close, which breaks out the common Class A, Class B and the warrant structure that exists. So we have total outstanding shares of $57 million and fully diluted shares of $85 million.

And with that, I think that’s finish.

Ed Wegel: Yes. I think it’s important to understand that with the Axar financing does a number of things for us, most importantly puts cash on the balance sheet, which is important. But that cash and that financial strength allows Ryan and his finance team to put better credit lines in place for us for fuel, for ground handling, for use of FBOs, for maintenance. So it frees up a lot of our capital to invest in the business. And it shows our competitors, our alliance partners and everyone that we have got the capital to stay and grow. And I think that’s very, very important, especially when we’re talking to clients about providing airplanes over in Europe or airplanes for instance, supplied to Hawaii after we get our ETAP certification and so forth.

So this financing gives us room to breathe. It allows us to execute our plan. It allows us to increase our credit lines with our key vendors, and it gives everyone the confidence that we are here to stay, and we will continue to grow to become the preeminent narrow-body charter operator in the U.S. So again, just to wrap up we feel this is a very, very successful quarter for us in terms of setting us up for the future, making sure that we’ve got the aircraft under LOI to be delivered later this year to get our maintenance facility built, to get the pilots that we needed on the payroll, trained and ready to fly. So this has set us up for a great future along with the Axar financing. So again, a successful quarter. We are seeing the benefits of all that we’ve done over the past six months here in July and August and moving forward.

So we are in a very, very good shape, and we are very, very confident about our future and our projections and what we will do to become the best charter airline in the U.S. So with that, Grant, we’ll turn it back to you and happy to answer any questions.

Grant Howard: Thank you, Ed and Ryan. We have some questions in already. And just as a reminder to the participants, there’s a Q&A feature at the bottom of your screen, so please use that to submit your questions. And we’ll get to them in a moment. A lot of discussion understandably about Axar and the flexibility it builds into your future plans. Ryan, when you and I spoke in the recorded interview that was released after the Axar announcement, one thing you addressed, which I thought was important and it’s a little further to what has already been stated. You talked about the certainty that this introduces going into 2024 and the commitments you can make so that there’s much more management comfort around the objectives that have been stated for 2024?

Ryan Goepel: Yes. And ultimately, you do need capital in order to execute as you need capital to execute on a day-to-day basis. And so our growth brands are significant. And we effectively were doing this with little to no capital prior to this and so having that fuel and that fallback is pretty critical for us.

Grant Howard: All right. Let’s get to the questions. There’s a couple here from Chris Roth, and they’re effectively the same question, where he was asking about, when do you anticipate you’ll turn the corner and when you’ll report a profitable quarter?

Ryan Goepel: Q3.

Grant Howard: That was direct. Jason Zambanini, how long do you expect the crew hiring and training to continue as a drag as it continues to be a significant cost quarter-over-quarter?

Ed Wegel: So as we move forward, the percentage of our total costs that are represented by pilot hiring and training will be reduced. But we’re going from two to four airplanes, that’s there’s a significant drag or when you’re going from seven airplanes to 12, there’s a significant drag in the future as you go from, say, 20 airplanes to 21 airplanes, that’s a much less significant drag on cash and our profitability. So as we move forward, with a steady increase in the number of airplanes, the percentage that that represents of our overall cost or overall revenues will get significantly less.

Grant Howard: For Karl Brewer with your new plan almost fully booked already, I believe he’s talking about the freighter, or it may be the executive class, I guess, an 80% acceptance of quotes. Do you think you have room to price more aggressively?

Ed Wegel: Yes. And we are.

Grant Howard: Jeff Lee. Your press release mentioned the LOIs, letters of intent for two A321 freighters in both Q2 and Q3. Can you confirm that those are different and refer to four freighters in total?

Ed Wegel: Yes, I can. So we’ll announce – we signed LOIs for two freighters that will be delivered this year on top of the other two. And the Other LOI is for aircraft that will be delivered in Q1 and Q2 of 2024.

Grant Howard: Randy Hill [indiscernible] was asking, what is ICE? That’s immigration and customs in the U.S.; I believe I’m correct from now on?

Ed Wegel: Right. So ICE which is our customs and integration enforcement agency has as many as a minimum of 12, as many as 20 airplanes operating at any one time to move people across the U.S. and also from the U.S. back to their home countries in Central America and South America. So those programs are ramping up, and we’re seeing a great increase in the number of airplanes that they need in that program. And we’ve been asked to provide, as I said before, as many as four airplanes later this year into that program. As well, we’re flying right now. We’re flying five to six trips a week into Central America under that program.

Grant Howard: Question here. And I think it pertains to some degree you mentioned that there have been a lot of discussions with institutional investors as you look down the road to a NASDAQ listing. When the timing is right, perhaps you can provide a little more clarity around the nature of those discussions and the type of reception that you are receiving?

Ryan Goepel: So over the last – through the fundraise process we probably talked to 70 to 80 different institutional investors. Many of them, if you can say why they did or did not participate, a lot of it is they are credit funds, and we don’t have a lot of assets or their equity fund that are deals, too small. It’s kind of a Goldilocks problem, but we’re on all the radars. I think in the last quarter, I participated in four different investor conferences. Earlier conducted between Ed and I we conducted 70 one-on-ones and we’re going to continue that volume. And a lot of what institutional will do is they’ll put you on the radar, and they’ll watch your results for two or three quarters, and then they’ll decide if they’re going to invest.

They have a much longer buy cycle and much more diligent buy cycle than you would expect from maybe some of the other investors out there. And so we work through it, and we try to be transparent. We try to hit the targets we said we’re going to hit, and as I think our track record of execution is going to ultimately pay off. Ultimately, the biggest value of an uplisting is actually the roadshow that goes with it, that gives you the exposure to these institutional investors, which I like to think we’ve planned to pump when we are ready to do that, we’ll hopefully have a receptive audience.

Grant Howard: Thank you from Chris Roth for the direct answer on the profitability, and you stated it was Q3. Now we’ve got three questions from Helane Becker. And just as a reminder to folks who are listening in that Helane is currently airline and transportation analyst with Colin out of New York and is an adviser to GlobalX. So I’ll start with your first question. Do you fly the aircraft in and out of Haiti with the same crews? If not, how do you ensure the safety of the crews and Haiti and elsewhere in risky markets?

Ed Wegel: So we’ve done a total safety and security assessment of Haiti, and we’re going to start flying there. We’re flying there now with the freighter. And next month, we anticipate starting to fly once a day to Port-au-Prince and once a day to Cap-Haitien. Spirit, JetBlue, American all fly into Haiti. There are protocols there on the ground at the airport to ensure the safety and security of all of the crews and the aircraft. Their protocols in the event that we have to stay overnight there for any reason, we won’t plan to do that. But on the off chance that we have to, we have worked with Spirit and JetBlue, and we’re going to piggyback off of their programs and all three of us will support each other when – if a situation occurs that requires us to stay overnight.

So we’ve done a full security assessment. We’ve got consultants come in and do that for us as well as put in place programs for us to get our people to a hotel and back to the airport the next morning if that situation arises. So we’re very comfortable with the programs that are in place. Again, American flights share out of Miami several times a day. Spirit and JetBlue as well, so there’s international traffic in and out of there all day long. It will just be part of that international community of airlines that support each other in difficult situations like that.

Grant Howard: Helane’s second question. How do you think the bankruptcy of Western Global will affect you? Are there opportunities to pick up either equipment or business?

Ed Wegel: So Western Global is – operates 747s and MD-11 freighters, which obviously a wide-body aircraft very dissimilar to the A321 freighters that we fly. So their business has been severely impacted with the package business coming from Asia to the U.S. and Europe to the U S. And so they’ve seen the number of block hours that they fly significantly reduced because of that. We don’t operate in those markets and so we have not seen that level of reduction of volume of cargo volumes in the narrowbody market, particularly in the markets that we operate in, the automotive, the Express business into the Caribbean. And a lot of what we fly into Cuba and into Kingston and into Haiti is a DHL business that has been contracted to us.

So we’re not really interested in any Western Global’s equipment. It looks like they got essentially a prepackaged bankruptcy that they will put Western Global through, and they’ll come out the other side. I would assume to be a much leaner, lower cost operation that will allow them to survive until their cargo volumes from Asia pick up again. So we don’t really see any impact to us. It’s not like we can pick up flights that they’re not flying because they’re bankrupt, they’re just a different equipment size, and so it doesn’t really impact what we do in any way.

Grant Howard: And our third question relates to ICE and the transportation of Stifel and in short, she’s asking how or what or can GlobalX ensure the best humane treatment for those people that you’re flying?

Ed Wegel: So we have a lot of protocols that we have in place with both – and we fly for a number of agencies. So we fly for customs and border patrol. We fly for ICE, and we fly for HHS, health and human services. So we essentially don’t do much on the airplane. Our flight attendants are there in case of an emergency. The passengers are monitored by guards that are placed on board the airplane by one of those agencies. And we have not seen in the time that we’ve been flying, we’ve not seen any inhumane treatment of any of the passengers. There have been threats made to our crew members, and they’re especially trained to deal with those. But we haven’t seen any mistreatment at all. We do run some flight that contain or including passengers who are being deported because of criminal activity in the U.S. And so there may be more guards or work security involved around that, but we have never had a problem or an incident in any of those flights.

Grant Howard: Question here about a recession and how global would deal with it. There’s a variety of opinions, whether or not there will be a recession, a mild recession, the soft landing or any recession whatsoever. But should there be a severe recession, do you have any contingency plans in place? Or how will you handle that?

Ed Wegel: So a couple of things, and then I’ll let Ryan also provide some color. We’ve built this airline to be as recession improved as possible. When you look at the list of clients that we fly in Slide 4, U.S. government agencies, NCAA Division 1 teams at FLY, whether there’s a recession or not because of the size of their programs. The charter operations where we’re moving the VFR traffic visiting friends and relatives to the Cuba, San Domingo and Haiti, those flights will continue in a recession as normal. And so we calculate that as much as 85% of our current business is effectively recession proof. And that those clients will continue to come to us, and we’ll continue to need airlift for their requirements. So severe recession is not really forecast some as you say, Grant, some analysts are saying it will be a very soft landing.

Some are saying we may be able to avoid it completely. What we’re seeing in Europe right now, where we could have – if we had the capability to do so, we could have moved our entire fleet over to Europe to fly for airlines over there this summer. And Europe is arguably in worse economic shape than the U.S. We’re not seeing any degradation in the number of charter flights that are being requested or the number of people who are traveling on charters particularly this summer. So if that’s a leading indicator, we think that the traffic will hold, but again the vast majority of our business is recession proof.

Grant Howard: And the final one we have here so far, asking for an update on the A330 freighter plans, but in the presentation, I believe I’m correct so that right now, you could use seven freighters. So obviously, there’s a lot of growing demand there, more demand than you currently have capacity to handle. So I don’t know if you want to provide any additional comments on that?

Ed Wegel: Yes. So again, the narrow-body and the wide-body freighter markets are two different markets. So we’re seeing good demand for our airplane because it competes well against its competitor set of aircraft. And because there is a need for additional lift into the Caribbean Central America and out of the U.S. into Latin America, but not with wide-bodies. The A330s something that we very much want to add to our certificate, we would start with the passenger aircraft because we can’t get an A330 freighter now. And frankly, even if we could get an A330 freighter, I think we would want to wait until the volumes come back up on the long-haul cargo markets before we added the A330 freighter. We have already gotten a lot of interest and demand for an A330 passenger aircraft.

And with some of our clients – we’ve received Board approval to start the certification process, which is a very low-risk project or exercise to start because we can do that with internal resources. It’s modifying a number of our manuals, putting together some training programs and getting the FAA to side off and improve those. And we can do all of that before we spend any money on a full certification process with the 330. So a lot of the prep work is being done now to add the 330 to the certificate, again we begin with a green light by our Board to move forward in certification. We’ll have to come back to them before we start spending any real money on that, but I think that that’s something that we will execute on sometime next year, with a hope to have A330 flying for next summer.

Again, the freighters, it’s impossible to get an A330 freighter. And even if we could get one, I think that we want to push that off until we’re a little bit more comfortable in the long-haul cargo markets and their rebound back to – well, I mean, just to give you a sense, the cargo levels are back to 2019 levels. They’re not back to 2021 levels when they were flying wide-bodies in mass between Asia and the U.S. with all sorts of packages and also PPE. So both the 330 passenger and freighter on the radar will do passenger first. We’ve got demand for that airline; it’s easier for us to do that and once we have full Board approval we’ll move forward into those programs as quickly as we can.

Grant Howard: A couple of questions just came in, both related to the stock market; Kaiser asked, Have the institutional investors indicated what global needs to do from a profitability standpoint before they would consider adding global to their portfolio?

Ryan Goepel: Not specifically, institutional investors don’t tell you that. They’ll express interest. I guess I’ll know we’ve done it when they start buying.

Grant Howard: And the second part was, do you agree that the only way to get the share price to $2 is to attract institutional investors.

Ryan Goepel: No, no, I don’t think so. I think retail investors play a very important role. We have a heavily heavy retail following. Retail investors’ money is as good as institutional investor money. And so I think it would be a disservice to the retail investor, we didn’t focus on them as well and so that’s why we do webinars like this. This is why we try to be as transparent as possible. We send out – we have 17,000, I think is on our news letter. Grant, you kind of make sure all our – issue a lot of press releases and that’s to keep the retail investor informed in so much. And so no, I don’t think the only path is through institutional. It’s somewhat easier because you need to get 10 institutional’s and 1,000 retail to kind of do the same volume, but I think we need to be looking at both and we are.

Ed Wegel: And I think – so a little bit more color on that. So as Ryan alluded OR mentioned, right, through the process of raising our – what became a $35 million financing from Axar, we talked to probably, I think it was 96 different institutional investors, private equity funds, other institutional investors to do this deal. Their focus was do you have a scalable platform where you can add airplanes and become a major force in the charter airline world. Now looking at – did you make a couple of dollars this quarter by not hiring pilots and not adding airplanes and skinning down your operations so that you could have got a profit at these levels. It’s not what they’re focused on. What institutional investors focus on is do you have a platform that can scale and that can grow at reasonable rates so that you can leverage the power of your network, the power of your fleet, the power of your employee base to become sustainably profitable over the long-term, that’s what they focus on.

And in terms of the retail investors who can move our stock, $0.10 by selling 100 shares, we need to get away from those investors. They don’t understand our business. They don’t want to understand our business. They believe that we could have gotten to 50 airplanes with $10 million of capital. They’re – in many ways they’re unrealistic because they’re not experienced in our business, and I understand that. So yes, we do need institutional investors. We do need retail investors who understand what institutional investors look for because do you have a platform that can scale and will be sustainably profitable? And can we get in at a level where we can drive that up as you scale and are sustainably profitable. So in the second quarter, but we have cut off all pilot hiring, but we have delayed every delivery of every airplane, but we have hunker down and native profit, yes.

And we would have not been able to fly the July through the end of the December schedule. We will not have been able to get the clients that we now have under contract. And at some point, we would still have to hire and train those pilots to grow from seven airplanes up to where we need to grow to. So do you take the pain now and do you take the pain later? Institutional investors wants you to do and execute your plan now so that the future is sustainably profitable; that is what we have done.

Grant Howard: And just as an additional note on that, if people go look at global stock charts January, February, March of this year, and then they also look at the volumes, through the first quarter of this year, there was a pretty aggressive online push directed at retail investors that was coordinated with GlobalX and a lot of that came out of this office and with their assistance and you look at the volumes, and there was tremendous retail support. It was almost all retail. So it is out there. I’m just going to take a liberty here. I was reading a report from [indiscernible] out of Toronto, and they run more than $1 billion in assets, but they do have a microcap fund. So just read a couple of lines, just conditions in the microcap world is evidenced by the continuing lackluster performance of the TSX Venture are as bad as we’ve ever witnessed.

We are not simply saying that we can’t imagine a lot more downside, but we are saying that as a group, they are being priced so low now, but there isn’t just much more that they can draw and it goes on and on and on but other newsletter writers. So we’re seeing, what I can say in our almost 35 years, the conditions in the junior markets right now are absolutely horrific and I think GlobalX has done a hell of a job in context of everything that you’ve had to face here. So with that gentlemen, congratulations. Any closing comments?

Ed Wegel: No, I think that’s right, Grant. Moving to, our uplisting to a mature exchange is something that we need to do. Ryan and I are two of the largest shareholders of the company. I believe our interests are aligned with every shareholder, right. We’re putting in 12-hour days, six days a week to make this work. And we’re not – we follow our stock price obviously, very closely. It’s frustrating to see Surf Air Mobility with seven planes – seven single engine planes. They haven’t made a profit since day-one. They merged with another airline, and they have a market count that’s twice ours. And they have losses predicted for the long-term, but their market cap is twice ours, seven single-engine planes that have – that can carry eight passengers.

Let me say that again, seven single engine planes that can carry eight passengers; and their market cap is double ours. So it’s frustrating. We talk to institutional investors as much as we can. But if someone wants to sit and sell 150 shares and drop us $0.05, we see that happen all the time. So we want to get the support from institutions. Hopefully, retail investors will talk to each other [indiscernible] why do we keep knocking the stock price down, right, for no apparent reason, other than because we can do it. So we need to get to a mature exchange. We need to change the mix of our investors, and we need people to understand that we are growing this business to be sustainably profitable, and we are well along the curve to making that happen.

Grant Howard: Again, thank you, and thank you to our participants, and we look forward to all of the announcements that will lead into what we anticipate are going to be quite wonderful Q3 results. Thank you.

Ed Wegel: Great. Thanks, Grant. Thanks, everyone.

Q – :

Operator: Good bye.