Global Crossing Airlines Group Inc. (OTCQB:JETMF) Q4 2021 Earnings Conference Call March 31, 2022 2:00 PM ET
Company Participants
Ed Wegel – Chairman and Chief Executive Officer
Ryan Goepel – Chief Financial Officer
Conference Call Participants
Operator
Well, I think we’re going to get underway here as participants are still coming in and loading. So welcome, everybody, to this Management Webinar Update from Global Crossing Airlines. I’m Grant Howard. And we have Ed Wegel who’s the CEO of GlobalX and Ryan Goepel, the CFO. And I just want to say, gentlemen, to you and your team, results that were released this morning are spectacular, and encouraged me to go buy more stock personally. And we’re getting some positive response in the market. So with that, Ed, and Ryan, I’m going to turn it over to you.
Ed Wegel
Thanks, Grant. Good afternoon. Good morning, everyone. Grant, we really appreciate this microphone and this platform to be able to discuss for our 2021 results and our review of first quarter of 2022, and some trends that we see in our airline, for the balance of 2022. We are extremely bullish on our growth prospects and our overall prospects for 2022. We’ll get into that, when Ryan talks us through some of our results and the growth that we project for this year. But again, we’re very bullish.
Let’s go to slide. 2021, a successful launch. And that launch set the stage for the growth that we are seeing in 2022. Some of you may have seen we were featured in Airliner World Magazine, really great article, we can send anyone the link that to it, or you can Google it, great article, it’s very picturesque and some good background on our airline and what we’re achieving. So encourage everyone to take a look at that. We’re very proud of that. And we’re getting more and more press and media increase to do interviews with our senior management, take pictures of our airplanes. So we’re getting, we’re getting attention. And that’s all also the good. So we think we know that this is a highly attractive investment opportunity. Quarter four revenue for 2021 was $11.2 million, first quarter 2022, three months of ’20 or the first quarter will exceed 2021 revenue, will have revenue in quarter one of about $14.3 million.
So that’s a nice bump. We expect revenue to exceed $90 million in 2022. That’s a conservative number based on what we’re seeing. But we want to under promise and over deliver. Half of that has already been secured today under long term contracts. And we’re confident in the balance of that, based on what we’re seeing in the market based on the reaction of our current clients and potential future clients to our service to our aircraft to our people and to our performance. We have $161 million in long-term contracts. And LOIs secured with deposits signed in Q1 for 2022 and beyond. That’s a very big number. Yearend cash at the end of 2021 was $8 million. Aircraft deposits on top of that about $2.6 million. Forecast profitability in Q3, we’ll have a very solid robust Q2, we will seek to up list the NASDAQ later in 2022. As you know, our S1 was deemed effective by the US SEC in February. That’s a good base document for us to potentially modify and amend later this year so that we could do a real public offering in the latter half of this year. Our current market cap unfortunately $53 million. We believe that isn’t a very attractive price point for investors to get in to the stock.
Let’s talk about our current status, I bring you up to speed on the number of aircraft and what we’ve got going. So currently five A320, one A321 on the certificate, total of six airplanes. We are adding over April, May and early June, three more airplanes, A319 and A320 and A321. The A319 will go into government contract work and it’s fully booked 150 hours a month. A320 will be as a sister ship to our 2x Alaska, A320s with full Wi Fi capabilities. We’re converting that to a 68 seat, first class, and all first class seat configuration. And that airplane has been solidly booked for the balance of the year. Many-many clients in the US charter market need an airplane like that and there is scarcity of that product. And we’re taking an A321 on extremely favorable terms, this airplane will eventually be converted to cargo in about two years, and the lease rates on that for us until then, extremely favorable to us. That airplane, the A321, very popular amongst our clients, our current A321, we’ve just we’ll talk about this in a moment, but we’ve just signed a deal for that airplane to be converted to cargo in mid-2023. So that that will be added to our list of cargo aircraft.
On the cargo side, as we’ve talked before, we move quickly to tie up a number of A321 freighter aircraft, knowing that this would be the best-in-class narrowbody freighter in the cargo market. Since we started the process of acquiring these aircraft under firm lease or from LOIs with deposits. Lufthansa has committed to the airplane and said, in fact that it is the best-in-class narrowbody freighter in the market. And they are trying to get as many of them as they can as fast as they can. Japan Airlines have said the same thing. And we are seeing more and more interest in our freighters. We’ll talk about leases or contracts that have been signed in a moment. But on top of the 18, we now have another five A321 freighters in various stages of LOI negotiation, so we expect to have as many as 23 A321 freighters under firm agreements for delivery over the next 27 months. So it will be a very quick delivery schedule for this airplane.
And we are extremely confident that we will place all of these airplanes very quickly in this booming cargo market. Our team itself now consists of 63 pilots, including 20 in training who will finish their training over the course of April. And we’ve got two more classes starting in April, for a total of another 15 pilots. We’ve got 120 flight attendants, we are opening bases for flight attendants in Texas. We’re adding to our flight attendant padres in Atlantic City, and in Las Vegas because of the demand that we’re seeing out of the Northeast and out of the west. And in fact, we have all three bases now operating Miami, Atlantic City and Las Vegas. And we are starting to assign and open up those bases for pilots to be assigned to those bases. So they become fully operational with both flight crews. And eventually as we add more aircraft we will have aircraft permanently stationed in those cities to allow for us to access the charter markets on the West Coast of the US as well as the Northeast.
I’ll turn to Ryan now to who run us through our revenue and operating numbers.
Ryan Goepel
Yes. As Ed highlighted on the earlier slide, our Q4 revenue was $11.2 million, operating 1,293 block ours, and we reported a loss of $4.5 million in Q4. Keeping in mind about $1.8 million of that was cost associated with training, aircraft acquisition, share compensation and S-1 completion. For the full year, Revenue was $14.3 million, we effectively did $3.1 million in Q3, and so we grew from $3.1 million to $11.2 million. We operate at 1,679 block hours over the course of the year. The loss of $19 million includes $12.9 million for costs associated with getting certified. And it also includes in that number a $2.7 million loss for warrant revaluation. At the end of the year, we had a cash balance of $8 million plus an additional $2.6 million in aircraft deposits, which you’ll see on the balance sheet.
Going to the outlook. For the outlook, we see something — we see a strong trajectory continuing to Q3 to Q4 is going to continue so in Q1 over those three months, we will exceed all of 2021 revenue, which was a five month period. We believe we’re going to average 30% revenue growth every quarter for 2022. We expect revenue to exceed $90 million in 2022 with half secure today under long-term contracts. And we believe the addition of the 321F in Q4 will help accelerate this growth and revenue, steadily sales growth but revenue growth into 2023 as we onboard more cargo aircrafts.
Looking at the contracts we announced $161 million in long-term contracts and LOI secured in Q1 for 2022 and beyond. Of this there’s a number we want to highlight, a US government contract for 4,950 hours in 2022 and then 9,360 hours in both 2023 and 9,360 hours in 2024. We renewed our Cuba contract which we applied daily, we’re looking to increase that which represents another 960 hours in 2022 on top of the 800 hours already contracted, the collegiate travel and fan travel 170 hours. Well, that might seem like a small number that was effectively March Madness and occurred over 10 days. So that’s a great example of where some of our repeat business that happens at certain times of the year. As you’ll recall, in Q4, we did a lot of work for the goal for the bowl games. We got March Madness, and I think there’s other periods throughout the year, we’re college kind of spikes.
On the LOI side, we signed a 1,600 hour contract for the summer of the major European tour operator. We signed on the cargo side, an LOI with a major airline operator out of South America, as it relates to 600 minimum hours in 2022, and 2,400 hour minimum, in both 2023 and 2024. And we also signed an LOI with a Caribbean cargo logistics operator for 390 hours of 2022. And expect 2,400 hours in both 2023 and 2024. This is just an indication of how serious and how strong the cargo market is and how excited we are to get pushed into that move into it. Think of that, I’ll move on to Ed who will talk about the fleet row.
Ed Wegel
Sure and to fund that growth as you know, you’ve seen from the press release, we did a $6 million debenture offering you might want to discuss some key points.
Ryan Goepel
Sure. So yes, one of the key points of raising cash liquidity is always concerned with any airline, we did not want to raise equity at these prices, we think were grossly undervalued. And we were able to get investors to agree, we raised $6 million on a term note over two years, it’s really meant to be a bridge until we get to an up list. But it provides us the capital to acquire the aircraft we need to acquire and achieve the growth rates we need to achieve and will achieve in 2022.
Ed Wegel
And as part of that you may have seen in the press release that the lead investor was Alterna Capital. This is a tremendous firm, they have a number of aircraft. We’re talking to them about leasing arrangements. In fact, the A319 is coming from them. They have been very, very supportive of GlobalX, and would like to do more with us. And we are very happy to attract a fund of their nature and of their character and have their integrity to the airline. And we expect to do more and more with them as time goes on. But as Ryan said, this is effectively a bridge gives us the cash that we need to ensure that we can execute and bring aircraft onto the certificate without having to sell equity at these prices. And we’ll readjust to what we hope will be an offering later this year. So very, very pleased with that debenture financing. We’ve got very friendly investors in that all supportive of us, and gives us a good base for us to execute the 2022 plan. So as we look at our risk profile, and our fleet build out, our eventual, our goal is to eventually get to 50:50 split between passenger and cargo revenue. We’ll do that by adding aircraft, of course. We’re very bullish on the cargo market. We’re very bullish on the airlines and other logistics companies that have already approached us about having us fly for them. But as you see here over the course of 2022 through 2025, we will add both passenger and cargo aircraft with the goal of getting through a 50:50 split between those two over the next three years.
As we said before, in previous webinars, we saw that the airlines that had cargo capability survived and actually grew a bit through the pandemic. The cargo capabilities, provided them a good cushion against the loss of passenger revenue. So we saw that we learned from that and we early on targeted the A321 freighter as a major focal point for growth. And we, that is now starting to bear fruit which we’ll talk about in a moment. But we’ve already signed contracts for essentially the first two aircraft. And we have three or four parties who are angling to get the next two aircraft. So we’re in very good position with our cargo fleet development. We also wanted to diversify our revenue streams. So as we talked about before, we’re signing long term contracts. And currently in the case with the US government and with our tour operator, the largest OFAC tour operator to Cuba. We fly Miami- Havana for them and also Tampa, Havana. We are expanding to Houston, Havana and also eventually New York to Havana as traffic opens up, they also would like us to fly to the provinces, which are the other cities in Cuba, that take commercial aircraft down the way [Indiscernible] in Santa Clara and Santiago. And so that will increase another eight flights per week when those provinces open up. So Cuba long term, it’s important for us, we have the best partner, who was OFAC approved to fly to Cuba, and we feel very comfortable with our position there.
We have performed extremely well for the US government in their contracts. In any number of contracts, we’ve flown to NASA scientists to Guyana, and we’ve flown other contracts out of Texas. And as we know, we also flew to Afghanistan early on in our development, the US government is very, very happy with us, we have been told that we are the best operator for them on certain of their contracts, and they are looking to expand that relationship with us. Short term but repeat business, and we get repeat business because we perform well. Our crews looked good, our aircraft looked good, our aircraft are clean. We operate on time and reliably. So we are seeing repeat business come to us. As Ryan mentioned, we perform exceedingly well for the NCAA through March Madness. And so we will be getting more and more business from them. And we did some work for football and basketball this year, or 2021 into 2022. A lot of those clients are already re-upping with us for the September to December timeframe for football, and then into basketball. And that 68 seat, A320 will be very, very popular amongst a number of division one basketball teams, we’re already starting to sign some of those, our ad hoc business is important to us.
And while those come to us, they’re one flight two flight situations, they’re very important for us again, we perform very, very well and a number of those that we have performed ad hoc for groups like music, travel, and other groups around the country have already come back to us and said that they want to book us again, again because of our reliability on time performance and the way our aircraft look, and the way we operate, so that they become a smaller percentage of our business over time. But it’s important because a lot of that comes sort of at the last minute. And so we are able to drive higher returns higher margins with our assets and that type of flying. And of course cargo, major initiative for us. It really makes us excited about 2022. And we will get certified with the first aircraft, which will be delivered August 19 of this year. We will then finish up some certification requirements with the FAA once that aircraft arrives, and we have targeted that airplane and a second airplane which will be delivered two or three weeks after the first airplane, for October 1 start date for the two contracts that we have put in place.
So all-in-all, 40% of our revenue is on long-term contracts. And we think that percentage will grow. That gives us a great base of business, a great foundation, to cover fixed costs and to be able to budget and model our business. And about two thirds of our contracts fall into the first two buckets, long term contracts as well as short term repeat business, business that we know will be there every year. And it is hours we have to perform on time reliably and be on top of our game. And we will get that, we will continue to see that business come to us. So 40% long term, two thirds long term or repeat. This is a great foundation for us as we move forward.
So in summary, again, resilience and diverse model, cargo and passenger, we are still seeing assets being offered to us A320s, A321s, and even more so A319 at very, very attractive lease rates and terms under the lease. And we think that condition in the market will continue for at least the next year. And so we are moving to line up airplanes and make sure that we take advantage of that pricing now on track for the October launch of our cargo revenue services with the first two airplanes first two A321 freighters and that fleet we think will grow to 25 airplanes in cargo by certainly by 2025 could be earlier than that. And our major long-term contracts provide a solid revenue foundation for us, which gives us confidence and allows us to then acquire more aircraft that we can put out for ad hoc and other business. So again, we are very bullish on this business. We’re very bullish on our growth in 2022. We see strong growth in our passenger business, we are already seeing demand for our A321 freighters, which gives us great confidence as we move through the balance of this year and into next year.
So we, again, we’re very bullish, we have very attractive investment opportunity. We have good investors behind us now with the $6 million of debenture financing, we are prepared to do more if we require it. And we are positioned to do a major raise and up list for this company later this year. So grant with that, I will turn it to you. And we’re happy and ready to take any questions.
Question-and-Answer Session
Operator
[Operator Instructions]
Unidentified Company Representative
And while we’re waiting for more of the questions to come in, Ryan, we were chatting a few days ago, and you had an interesting perspective on, I guess, the difference between the US market and the Canadian market. And the fact that you felt that the pickup in travel in the US was probably six to nine months ahead of what we’re seeing in Canada. And you related a story about Miami International Airport, which I thought was rather intriguing.
Ryan Goepel
Yes, last Friday, as was the start of spring break, if you had attempted to park your car at Miami Airport, because every parking garage was full, and people had to Uber home to, had to drive home and Uber back. And so Miami Airport is beyond 2019 levels. I think if you look at the domestic travel in the US, it’s at levels pre, higher than pre-COVID. And I think especially with the rules coming off in Canada with the required for vaccinations coming before pre departure, you’ll start seeing that open up as we saw down here. So while it may feel for the Canadian investors that airlines are still a struggle. I think the perspective from that from the south is significantly different.
Unidentified Company Representative
That I can appreciate having just returned from California on March 27, the documentation and rigmarole that was required to get across the border.
Ryan Goepel
It was a deterrent.
Unidentified Company Representative
It definitely was d deterrent. So let’s get into some of the question, first from Jerry Kaiser, has inflation affected profitability.
Ryan Goepel
Hey, Jerry, thank you, Jerry. I know Jerry has been involved since the very beginning, our models a cost plus model. So in so much is when you see inflation as it impacted significantly, the fuel prices, all our pricing is on a cost plus, so we recover that difference that’s passed through to the customer. So well, inflation is always going to be a matter our biggest asset, our aircraft are at fixed rates. So we have that protection there. And with a cost plus model, we have the ability to pass on or any of those costs to customers, which some of the scheduled carriers won’t have or do not have in their pricing. And so its impact on us is less than you would expect.
Unidentified Company Representative
We have Sam McDevitt and this is directly to Ed. What is the current status of the loaner agreement plane from Smart Link?
Ed Wegel
Smart Link is actually very full in Europe. And so we decided that we bring on additional aircraft to meet our needs. We will probably send an aircraft or have an aircraft brought from Smart Link this winter. And we’re talking to them about that. We are sending two airplanes to Europe this summer to operate for TUI, which is the largest tour operator, Smart Link is also providing aircraft to TUI will probably back up each other’s operations as needed to in order to fulfill that requirement. But we’ll take an airplane from Smart Link this coming winter based on the demand that we’re seeing. And we will probably send airplanes to Smart Link this time next year as their business picks up again. And they’ve already announced that they’re going to be at 60 airplanes by the summer. So they’re doing extremely well. We have a very great relationship with them. They’re helping us with all of our aircraft deliveries in terms of inspections and helping us with looking at engines and other components. So very, very strong relationship with Smart Link. We met with them a few weeks ago with the big aircraft conference and we’re talking about doing more and more things together. So it’s a great symbiotic relationship we have with them.
Unidentified Company Representative
Speaking of Europe from Actual Braun, he is wondering if GlobalX is planning on flying to Europe at some point.
Ed Wegel
With the current airplanes, the narrowbodies, it’s more difficult. We have had charter requests, and we will be flying charters to Keflavik Iceland and believe it or not to Greenland, we have a number of flights into Greenland for one of the smaller cruise lines. We’re working on what’s called our North Atlantic operation specifications. We’ll be certifying that with the FAA, later in April, which allows us to fly on certain routes, the blue spruce routes over to Europe, it’s something that we talk about, we get charter requests often to fly to Europe, we’re probably not as efficient for some tour operators as getting a widebody aircraft. But we’ve been asked by a major studio, movie studio to fly a couple of flights to London for them. We’re looking at that. So we’re, it’s on our radar, it’s not on our immediate list of things that we want to get done. And I would guess that we will eventually start to fly there on some regular basis. If we acquire A330s, which is something we are looking at for 2023. A330 is a widebody aircraft, plenty of range, you can fly for 13 hours, and then any point in the US to Europe is available to us. We haven’t finished any analysis or presented that to the board. But it is something that we are looking at, and we think is definitely something in our future to add widebody aircraft to this utility.
Unidentified Company Representative
Ben Accardo of Shark Bend. What happened to JET.B shares when you folks up list to NASDAQ? Additional comment, great job on the success so far proud shareholder.
Ryan Goepel
So again, the JET.B share exists because you can’t have more than 25% of your voting stock be in foreign hands, the 75% have to be in US and so much as we’ve through all of our Investor Relations activities, and a lot of the buying of shares. We’ve seen a lot of buying from US investors. So we’re getting closer to that number. I think with an up list depending on how structure thing could look at collapsing it as long as we’re in compliance with TOD, because we don’t want to go in violation of that. That defeats the purpose of creating it.
Ed Wegel
But in general, we see those JET.B shares going away over some period of time.
Ryan Goepel
Absolutely. Yes, absolutely.
Ed Wegel
This is year to 18 months, we think that they’re gone so.
Unidentified Company Representative
Okay. On the project of NASDAQ from Daniel Beausoleil. What is the minimum share price to list on NASDAQ? And do you anticipate having to do a share consolidation followed by an IPO for the up list.
Ryan Goepel
So our mindset with a NASDAQ or NYC, as we seek to do it up list is to come to the market with four quarters of revenue growth, show profit and show cargo aircraft on the certificate. If you were to look at that, and you put us against any other value metric of any other operator, our share price today even should be in the $6 to $7 range, which is more than enough for the NASDAQ up list. So the goal is to get the value in the stock today and deal with the up list later.
Unidentified Company Representative
Fair. And on that I would encourage folks to go look at some of the recent research on cargo jet. And the valuations that cargo jet is getting in Canada. And I think the last target price was 275 and go look at the multiples and then backtrack a bit on global as to where it’s going.
For Daniel Mar, I expect fuel costs to be significantly elevated for several years. Can you comment on how this is affecting the business and your expectation going forward?
Ed Wegel
Yes, let me talk about that. So we’ve seen over the last 20 years is several spikes in fuel price and the price of oil. I remember in 2008 when it got to $120 Goldman Sachs said it was going to $250 and it went to $30. So no one knows where the price of oil is going to go. When you get to a certain point, there’s demand destruction and the price comes down. So in my view, having lived with oil prices over the last 40 years, we will see the price of oil come down. It does not affect us, as Ryan said previously, because all of our contracts provide a base fuel price and then a surcharge that equals the difference. If we pay more for the fuel at the time of the charter. Over time, I think people will adjust to the higher price of oil I think it settles back in the $70 to $80 range where we can operate comfortably. And so can the scheduled carriers. As the world settles down again, a bit and the Saudis need more money. And maybe there’s a Republican administration again in a few years, the price of oil will come down. But again, I remember Goldman Sachs pounding the table in 2008, saying the oil is going to $250 and it went to $30. So the brightest guys in the room got it wrong. Everyone will get it wrong again, this time, they will do lots of things before it settles down. But when it settles down, it will be much lower than where it is today.
Ryan Goepel
I think Rex Tillerson said it best when he was the CEO of Exxon, asked where you think the price of oil will be in three years. He said somewhere between $1 and $200. And that’s about as accurate as I think I can be. So it’s a part of the business dynamic. Again, we are insulated, largely because we’re on a cost plus, or we do not have fuel in our pricing, which is one of the reasons our model I think is should be so attractive for investors is that’s a huge risk factor that just really doesn’t exist for our business that exists for other scheduled carriers. And I think shows an opportunity on how you can participate in the travel space without taking that risk.
Ed Wegel
And if you look at air fares in the US, which have been risen dramatically, as we came out of COVID, the fact that load factors are exceeding pre-COVID levels when fuel was down in the 50s. And as Ryan says, you can’t get a parking space at NIA airport. People are adjusting to that price, they need to travel, they want to travel, and they will pay for it. But having said that, again, the price of oil is going to come down.
Unidentified Company Representative
Maybe on that point about being pushed in from the rising cost of oil. And when you look at the types of deals you’ve been able to do to secure aircraft, historically and into the future, I’m not sure that the majority of the investing public yet appreciate the risk mitigation that you’ve built into the business. And the future impact that will have on your margin.
Ryan Goepel
If you were to look at that $161 million in long-term contracts, none of those contracts are impacted by fuel. When you look at all those contracts, and those flight hours, none of those flight hours are impacted by how many seats we sell. They purchased the entire aircraft. So if you look at those contracts, most of them if not all of them have minimum guarantees for a month utilization. So if you think about the three big risks with an airline distribution risk, fuel risk, and utilization risk, those are all mediated by signing these contracts. So I think one of the things we kind of, I say, when I talk to investors on the phone, at some point the market is going to believe us that this business is real, and that we’re doing it. I don’t know if Today’s a day but at some point they will.
Unidentified Company Representative
You folks are getting there, you’re doing a hell of a job. Mike Harrison, the press release indicated that you anticipate being profitable by Q3. Will you be cash flow positive earlier than that?
Ryan Goepel
Thanks, Mike. Mike, again, another person has been with us since the beginning. We, I think on a quarterly basis we should be, it will be. It’ll depend on how much growth and whether aircraft acquisitions come in, I think on operational basis, yes. As we make investments in additional aircraft, obviously, that’s a use of cash. So the burn is significantly reduced even now, going forward.
Ed Wegel
So we’re doing things like we talked about disassembling the A320 aircraft, which we acquired with GA Telesis. That aircraft is now being disassembled and the parts are starting to be shipped to us. We’re harvesting lots of great parts off of there, we have to do a landing gear swap later this year that’s coming off of that airplane, and we’re putting a bunch of components on the shelf and a bunch of components and parts that don’t fail as often as others that are not as important to us. We’re selling those off, reducing the cost of the airframe to us. And so we’re reducing the cost of maintenance through activities like that. Our F level 5 FTD training device will be fully operational by midday that will start to help reduce our training costs because we use much less expensive simulator than the full flight simulator. We’re doing lots of things like that, to reduce our costs and to ensure that we are as efficient as possible. Now, having said that, we’re putting a lot of money back into training and development of the infrastructure here at the airline to support additional aircraft. So our board and our investors have said to us, or our major investors have said to us, we understand that you need to invest in this business, that’s what we want you to do, get the revenues up, develop the infrastructure, get the aircraft, and additional capital is required, we will make sure that you have that, so that you can build that infrastructure to attain the growth that you have in 2022, what you’re projecting onward, so we have a great investor, major investor groups backing us, we’ve got a great board that understands what we are doing. And we are driving top line growth, to gain market share, get airplanes out to work, and develop our infrastructure. So that that requires cash. But we’re investing long term in this business.
Ryan Goepel
And I think when you think of the scale, and I still keep thinking people fail to see kind of the scale, look at some of our competitors, like our other operators, such as Sun Country, Atlas, ATSG, Cargo Jet, all operating between more than 30, 40, 50 aircraft, which is what we’re targeting. They’re all valued in the billions, right? And we’re $50 million. So we’re building a business for five years from now is scalable to that size. And you can’t do that with nothing. And I think we’ve done a pretty good job deploying capital today. I think if you think about the amount of money we’ve invested less than $20 million, and we’ve created a company that can generate $100 million in revenue in 2022, and beyond is pretty impressive.
Unidentified Company Representative
And again, to the aspect of risk mitigation, you’re not carrying a bunch of debt.
Ryan Goepel
No.
Unidentified Company Representative
Marty McConnell. Will your cargo business be ACMI with fuel costs accepted?
Ed Wegel
Yes, full ACMI. So we do not take the risk of selling cargo or trying to move it on the ground or get it to the airport, we don’t do any of that. We offer the airplane, the cargo airlines the same way that we offer our passenger airplanes on ACMI. So major airlines that contracts with us long term for that airplane, as we will have a major cargo operation. So they’ve got all of the infrastructure, they sell the cargo, they do all the airway bills, we show up, we open the door, under our supervision, they load the airplane, we fly it to the destination and they unload it, they’re under our supervision. So that’s a great business model for us. And, again, they’re — that the fuel surcharges are added to that so that the client pays whatever it costs us for fuel for that’s like.
Unidentified Company Representative
We have Jerry Kaiser. We get a comment that some commentators expect the recession later in ‘22. I presume the rest of that would be that your reaction or pre-planning should there be a recession this year.
Ed Wegel
So again, if you look at our long-term contracts and who they are with, they are not affected by recessions they fly, whether there’s a recession or not. And not many of the other clients that we apply the NCAA, football, basketball, Incentive Travel groups, for big corporations and others will continue to do that flying in the face of a recession. The scheduled carriers will see their load factors maybe drop, but we sell whole aircraft to clients who are recession proof in the sense that they have to fly. And if they have to fly, we have the aircraft ready for them to fly them where they need to go.
Unidentified Company Representative
Garry Milon. Have we effectively been able to meet all the demand for hours? Or are we turning hours down? If we are turning hours down, is it aircraft crew or both based on that situation?
Ed Wegel
Couple of reasons. And the answer is yes. There are times when all six airplanes are flying. As they did during the last two weeks of March Madness. We got many requests for additional flights, we just could not accommodate them because every airplane was fully occupied. The driver is a pilots. We have to have enough pilots to man each aircraft. We do lose some pilots to the majors. We’re constantly backfilling those pilots. But as we get more aircraft into the fleet, we get more efficient in the ability to schedule the aircraft. So we have more opportunities where one aircraft may take the plane to where they need to go. And a second aircraft will pick them up two or three days later to bring them back. Right now we don’t have, we have limited ability to do that because of the limited fleet size as we get into 10, 12, 15 passenger aircraft. We have more opportunities to do that. And our ability to increase flight hours each month on each aircraft will increase.
Unidentified Company Representative
Fair. Don Hein also asking about cargo flights and he’s asking if you can provide a bit more color on the steps that need to be taken and the timeline which you’ve already addressed for the cargo flights in the beginning.
Ed Wegel
Yes, I’ll just run through that again quickly. So we have already submitted to the FAA. All of the manuals that are required to be reviewed by them and approved. The final manuals will include the exact specifications of the first two cargo aircraft which the two lessors are providing to us. But initially, our manuals have been conditionally approved pending the receipt of the aircraft, the first aircraft will arrive August 19, we will go through a certification in conformity process with the FAA, we will fly probably two or three moving run flights with the aircraft and we can have paying cargo on board those flights. So we can schedule those with one of our clients. And so from the time that we received the aircraft on August 19, we are projecting six weeks or so until we can start flying revenue service, which is why we’ve selected October 1, as the target launch date for revenue service. So all of the pieces are in motion. Both the first two aircraft are in conversion right now, on April 14, I’ll attend to what’s called the door cutting ceremony on the first aircraft where they cut the door. And that’s a sort of formal ritual for aviation geeks to watch that we’ll have that live. And we’ll have it on YouTube. But the first two airplanes are in conversion, they’re on track on target to be delivered to us. Third airplane will be delivered in December and the fourth airplane, cargo airplane will be delivered in January. So far, everything is on track, FAA and our regulators are happy with our progress. And I don’t see anything delaying our entry into service unless something happens with the supply chain. And the aircraft is delayed slightly coming out of conversion. But so far, the two conversion shops have told us that they have all of the equipment, all of the material, all of the parts and components they need to complete the conversion to cargo.
Unidentified Company Representative
Alright, we’re going to speed through some of these questions because they’re redundant contingently plan of reduction, we’ve addressed, finding our own cash flow and EPS we’ve addressed. Yes, we move to NASDAQ has also been addressed. I am not sure this is a little redundant. Mathai McTavish is asking where we are at today with the cargo FAA certification manuals, et cetera.
Ed Wegel
Well, I addressed that. We’re on track, we’ve submitted all of the manuals so far that we can submit. All of those have been through initial FAA reviews, we made some changes to their comment with, based on their comments and their required revisions. So our manuals are in great shape. We need to wait and balance manuals once the airplanes are wage, those will be done about the time that the airplanes get delivered. And so again, we see ourselves on track for October 1 in service with the first two aircraft.
Unidentified Company Representative
Let’s get to another topic for a moment from Sylvain Islam. On Canada jet lines, I’m not quite sure what this is in relation to that. I would like to know when we will receive the other actions of Canada deadline. I’m wondering if this prefers final Canada transport approval or whatever it may be Ryan, you can just provide a little bit of perspective on C jet at this point.
Ryan Goepel
Yes, so C jet has received their control in fact, which is the first stage of CTA, there’s basically to sum it, there’s two CTAs and one Transport Canada role. So the first step of CTA is the controlling fact, Canadian basically proof of citizenship that’s been achieved, and that was never achieved in the previous iteration. The second part is hitting their financial fitness test, which is demonstrating a balance sheet as required. And then on the Transport Canada side, which is actually flight off. The pilots training has been approved. We actually have two pilots certified under Transport Canada, the flight attendant training has been approved and that training will start in the next couple of weeks. They have to unlike in the US where we had to fly 150 hours of proving runs. They’re only required to do two flights, which is quite nice. So once they get their finance their balance sheet proven, it should be within 30 days they’ll have their operating certificate and they’re targeting selling tickets in June and flying in July.
Unidentified Company Representative
And it goes off. I think the good point here from John Chamberlain. Great job guys. By the way, exclamation mark, great presentation and plan exclamation mark. Way to execute at all levels. Exclamation mark, I guess John is happy.
Ryan Goepel
Good.
Unidentified Company Representative
Any closing comments?
Ed Wegel
So again, Grant, thanks for the microphone and the platform. You’ve been a good supporter of ours. We greatly appreciate that. You’ve helped us get the message out. We will continue to do that until people start to —
Ryan Goepel
Do the math.
A – Ed Wegel
Listen a little more closely to us. But our comparables traded about $50 million US per aircraft. So you do the math.
Unidentified Company Representative
I have. That’s why I was buying more stock this morning.
Ed Wegel
Grant, thank you very much. Thank you for your support.
Unidentified Company Representative
And to all the participants. Thank you. And there will be a recording of this webinar distributed within the next 24 hours or so. Thank you.
Ed Wegel
Thanks everyone. Take care. Have a good day.
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