Global Crossing Airlines Group Inc. (OTCQB:JETMF) Q3 2022 Earnings Conference Call November 1, 2022 4:00 PM ET
Company Participants
Grant Howard – President, The Howard Group
Ed Wegel – Chief Executive Officer
Ryan Goepel – Chief Financial Officer
Grant Howard
Well, good afternoon gentlemen. First, I wanted to congratulate you and the team on an exceptional quarter and you are going to get into all the details, but it’s quite monumental, where you look – where you look at where you were just a year ago in the quarter, you just completed September 30. It’s exceptional growth. And with that, I am going to introduce Ed Wegel, who is the CEO of Global Crossing Airlines and Ryan Goepel, CFO and Executive Vice President of Global with this third quarter update.
And with that, gentlemen, I am going to turn it over to you.
Ed Wegel
Great. Thanks, Grant and good afternoon everyone. Thanks for joining us for this Q3 third quarter update on our earnings and a look at preliminary look at our fourth quarter and some of the other events that we have got coming up. As Grant said, we had a good quarter. We had projected forecast a year ago that we would be profitable by our fourth full quarter of operations.
The third quarter of 2022 is in fact our fourth quarter of full operations. Our first – very first quarter was a short quarter, only about 6 weeks. So we have reached profitability in our fourth quarter of operations, third quarter of 2022. We had projected – you can go to the next slide, we had projected at the very beginning of the year before Omicron and some other issues that hit the entire world hit us as well, but we had projected $90 million of revenue for 2022. We are reaffirming that base case of revenues of $90 million plus. We are at $64.6 million through the 9 months. We expect revenues at least equaling what we achieved in the third quarter, which was $30 million. So, we feel very confident that we will reach $90 million, probably closer to $93 or $94 million for the year. So, we feel very good about that. That validates the business case in our business model that we can put A320s and A321s to work in this U.S. charter market and gain our fair share of that market.
Our revenue for the quarter was $30.1 million. Our EBITDA, which is earnings before interest taxes, depreciation and amortization was about $1 million. Our EBITDAR, which is also taking out the rent expense for our aircraft, which levels the playing field, as we look at airlines across the U.S., some airlines own all of their airplanes, some airlines lease all of their airplanes like us and some have a mix. So to compare us to other airlines, we use an EBITDAR ratio and that’s $5 million for the quarter. So, that’s a very strong number for us.
EBITDA again was $1million, operating income about $800,000, and then we had interest expense and amortization and depreciation, which brought our net income down to about 163,000, but the number that we really didn’t know is we are really focused on our EBITDAR at $5 million and EBITDA at $1 million. So this was a good quarter for us in terms of getting the 7 aircraft online on this certificate fully crewed and operating, which is the metric that is so important for us to get to profitability. We reached profitability in this quarter. So moving forward, we again, we anticipate, project revenue, at least equal to quarter three – in quarter four. In fact, we will probably beat that number, but for now, we are reaffirming our case of $90 million plus for the year.
So with that, let’s go into some of the specifics on Q3. And I will turn that over to Ryan.
Ryan Goepel
So, one of the things I wanted to compare or kind of highlight is the difference between Q2 and Q3. One of the reasons we are really excited about the results that we achieved is this demonstrates pretty clearly how our model works and how it validates the returns. What you will notice is we had a significant increase in revenue. This was the first quarter in which we had 7 aircraft fully functional, fully crewed, which we’ve always said was a key benchmark for us to get to profitability. But as you see the increase in revenue from quarter-to-quarter, you will see certain items go up with it and certain items do not. Fuel will go up as we fly more. Ground handling will go up as we land in more places. But when you look at salaries, when you look at maintenance, when you look at travel or insurance and aircraft rent, they stay flat. And that’s really the drive – the point we want to drive home as we continue to add aircraft as we continue to add revenue, this dynamic will continue to be built and will continue to drive the results that we expect to see in Q4 in 2023.
Next slide. This is just a graphic representation of what we have done. I know sometimes it’s hard to conceptualize even for myself, where we were in Q3 of last year when we did this call and how fast we have grown. This is an 885% increase quarter-over-quarter. As Ed said, Q3 last year was a stub quarter, but it does demonstrate the volume and our ability to drive customer growth.
I think as we look forward to the fleets in which Ed will cover in the next slide, it’s important to note our average revenue per aircraft on the passenger side has grown from a low around $800,000 in Q4 last year to almost $1.5 million per aircraft in Q3 of this year and we expect that trend to continue as we continue to add aircraft to the fleet, which kind of as you try and think through the future and where we are going with this entity, that’s a key metric for you to look at is how much revenue we are generating per aircraft we put to work.
Looking at the fleet growth, I will pass it on to Ed really quick.
Ed Wegel
So, we will continue our growth through the fourth quarter and then into 2023. We will take two freighter aircraft A321 freighters this quarter. The first one should be online on our certificate by the third week of November. The second freighter should be online on our certificate and generating revenue sometime in the mid part of December. These are little later than we had projected delays coming out of the MRO conversion shops as we have talked about before, but we are now at the point where these airplanes will start generating revenue for us.
We are finishing up our certification efforts with the FAA and finalizing DoT and FAA approvals. The first aircraft should be here in mid-November out of paint for conformity and then into service. So we are very excited about bringing these airplanes on, they are going to drive a large portion of our growth into 2023 because of the number of hours that we can put on our cargo aircraft and the contracts that we are putting in place. Again, the 321 freighters will drive a big portion of our growth into 2023.
We had always talked about being a 50 aircraft airline at the end of 2025. So, that’s 25 passenger aircraft, 25 freighter aircraft. And as you can see here, we have built up for you how we anticipate getting there. So, at the end of 2022, we will have 9 passenger aircraft, we have 7 now. We are taking an A321 passenger aircraft on a pure power by the hour basis, which is an exceptional deal for us. And then we are taking an A319 with 150 seats at a very exceptional lease rate and economics for us and that airplane has already been almost fully booked, because of the economics of that aircraft.
So at the end of this year, 9 passenger aircraft and 2 cargo aircraft for a total of 11, in the first quarter of next year, we will take another freighter aircraft, another A321 freighter, a second A319 and we agreed on terms today for another A320 coming out of Alaska with full Wi-Fi and that aircraft has already been booked with a VIP customer for the balance of the year. So at the end of 2023, we anticipate to project 14 passenger aircraft, 9 cargo, 24 that grows by another 5 passenger aircraft to 19 and another 6 cargo aircraft to 15. And then by the end of 2025, we will have 25 passenger and 25 cargo aircraft. So we are on track to meet these goals. Certainly, we will meet them for 2022. 2023, the airplanes have been lined up on the cargo side. We are still looking for 2 A320s for the second half of 2023. We don’t anticipate any problem in identifying those aircraft and getting them on our certificate.
So we have got good growth. We have got good growth in our client base. We have got good growth in the number of clients that we service, good growth within each of the client categories of the number of block hours that we fly for them. We are developing a reputation for being an on-time and reliable charter airline, with modern aircraft, A320s, some of them with Wi-Fi, all of them are well equipped. The interiors are in great shape and we are getting more than our fair share of the business. So we are very, very pleased to where we are in our fleet growth and our ability to sell the hours on those aircraft.
So, let’s talk about some of our key achievements. Profitability within 1 full year of operations, first quarter was a stub so that in quarter three of 2021 as we look at the last four quarters, we have reached profitability. We have $6 million in debt. So when you look at the amount of capital that we have raised, equity plus debt, to get to where we are today, I think that proves that we are very prudent and very frugal in how we spend our money to get to profitability with 7 aircraft, 2 more freighter aircraft coming as well as another A321.
What we are trying to do as we look at 2023 and the uncertainty in the economic environment that we are in, we know we will enter a recession. Every expert has told us that we are focused on charter clients who are largely recession proof in their flying. And those are sports teams, colleges and universities, especially division one that we fly, will fly whether there is a recession or not, we do a lot of U.S. government flying and we anticipate being certified to fly Department of Defense or military flights within about 60 to 75 days from now. Obviously, those flights are recession proof as well, but a lot of what we do and we estimate about 90% of our current charter base is recession proof. We fly to Cuba, those flights will continue. We fly to Santa Domingo and other points in the Caribbean based on the parameters of that clientele, we know that those flights are needed and will continue in a recession.
So, we feel very good about our business base going into 2023. Given what we have been through COVID Omicron pilots, other issues, all of which we have weathered through our first year and gotten to profitability. We look forward to 2023 with a great sense of optimism about our business and what we can achieve. Our first cargo aircraft as I said and I will be here in Miami by mid-November, we are working very hard to put that into revenue service by the fourth week of November, so we will start flying revenue this month. Second and third aircraft, the second aircraft will be as I said here in Miami about mid-December, depending upon some last minute adjustments in the conversion, but that will be operating certainly by Christmas. That aircraft has been contracted. And our third aircraft freighter 321 will be here sometime late February and that aircraft as well has a contract ready to sign on it. So, first three aircraft are fully booked, the next five aircraft in 2023, we are working very diligently on contracts. And we anticipate being able to place all of those aircraft in service with long-term contracts by the end of January beginning of February of next year.
So, we are very optimistic about our cargo business that drives our growth along with our passenger business and also diversifies our revenue streams into both cargo and passenger. So, those are our achievements. We had a good quarter. We look forward through the balance of the fourth quarter and this year. And we look forward to reporting those results sometime in early February.
So with that, Grant, I will turn it back to you and we are ready for questions.
Question-and-Answer Session
A – Grant Howard
[Operator Instructions] And just to put something in perspective, while the questions are loading, just going back and having a look at when this company started trading in late June of ‘20 compared to where you are now and again in late June of ‘20 that was a year plus before you even had certification and your market capitalization when you started trading close to its high point is what it was about 4x what your market cap is today, which shows you how much of a disconnect, there has been psychology in the market and as things have been pretty topsy-turvy in the world and in the market over the past 8 months in particular. But you have done a hell of a job and was pretty good day for global on our market based on volume and about 180% increase or so on the press. So we are going to start taking questions with that.
Well, the other thing is that, based on what you have laid out what you have achieved, I think it’s becoming easier and easier for people to track the future of this company, because you keep delivering, so you are getting many more checkmarks. So we will leave it up to people to draw their own conclusions as to what ‘23 could look like here?
Ed Wegel
Okay. Do you want to read the questions, Grant and…
Grant Howard
Yes, I am getting into them now.
Ed Wegel
Okay.
Grant Howard
First, from John Chamberlain, given the current administration’s approach to reestablishing relations with Venezuela, how does that affect your opportunities for South American operations?
Ed Wegel
Well, that’s a good question. If the current administration opens up non-stop flights, again by U.S. airlines to Venezuela and Venezuela continues in Category 2 with the FAA that would bode very, very well for GlobalX, I would anticipate we would almost immediately start for some of our clients, a daily nonstop Miami Caracas and perhaps one other city in Venezuela. So we probably would have two daily flights. And that would increase I would guess to 3 daily flights, very quickly after that’s established. So all in all it will be very good for us.
Grant Howard
Next from Neil Wilson, what’s the status of the Fort Lauderdale facility?
Ed Wegel
We are – or our designer developer builder, which is a subsidiary of Oaktree Capital, has finalized their lease agreement with the Broward County Aviation Department. They are completing their environmental studies to see what mitigation might be needed in the soil. And we anticipate breaking ground on that facility within the next 60 days. We still hope to be in that facility by the end of 2023. We have already been approached by some airlines to rent out some of the hangar space for their own needs at the airport. Some very major airlines have already approached us. So this facility will be one of the hottest investments at Fort Lauderdale airport. It will be the largest hangar there. You can take an A330 or 3 A320s. And we have parking on the ramp for up to 6 airplanes. So this will be a great facility for us, will be part of the South Florida aviation community and being able to offer that facility to all of the airlines that operate down here, which will help us with our strategic alliances and our relationships. But again, the short answer to your question is we will be in that facility as soon as we possibly can and we think that’s 13 to 14 months from now.
Grant Howard
From Axel Braun, congratulations on the quarter and I don’t know how far you want to grow, but do you expect profitability again in Q4? And the second part of that was what is the status of the NASDAQ uplist, we talk about Q4?
Ed Wegel
We anticipate a profit in quarter in the fourth quarter. That’s about as much as I probably allowed to say maybe too much from what I am allowed to say. But Q4 should be a good quarter for us status of the uplisting to NASDAQ will require us to have more assets on the balance sheet. Given our now profitability and as we see in the share price, today, the movement up we think that our ability to get additional financing, which would give us the assets which we need to uplist will be forthcoming here very shortly.
Ryan Goepel
And we have always said and I think we have said it multiple times. We wanted to demonstrate four quarters of revenue growth. We want to demonstrate profitability and we wanted to demonstrate freight, our cargo operations up and running before we anticipated any sort of uplist opportunity. So with November, we will have ticked all three boxes.
Grant Howard
Sorry, that question just disappeared on me. Please walk us through the individual components of the $3.3 million working capital inflow experience during Q3?
Ed Wegel
I don’t necessarily think I could do that off the top of my head, but by and large, that was driven by as we grow our business keep in mind we get paid in advance, we get paid deposits, which is a big contributor to generating cash. We also generated a profit, which also allowed us to generate more cash for the company. And also as we get bigger with as we relate to end the quarter with revenue you do have some payables that have grown a bit, but that’s in proportion of revenue.
Grant Howard
Another question here, looking forward, I don’t expect your answer to be any different, but could you please comment on your expectations for future growth and profitability and cash flow and thank you and great quarter?
Ed Wegel
The increase in, look at the question come in for future growth, well, we have outlined how we get to 50 aircraft by the end of 2025, 2023 we had – we basically double in size, the size of this company and along with that goes the cash flow. So basic rule of thumb in this business is you need 6 to 7 airplanes to get to at least breakeven so that you cover your fixed costs. And we have fixed costs in terms of our operations control and staffing, finance all of the various departments that are needed as part of the infrastructure of this airline. Once we have covered that fixed costs, which you do with 7 airplanes, then everything that after that increases the percentage that goes to the bottom line. So, our plan is to increase our cash flow, our plan is to increase our share price, our plan is to increase the size of the company are all driven by adding additional aircraft units both passenger and cargo to our certificate that drives our growth, that drives our profitability and that should drive our share price.
Grant Howard
Will deferred costs related to aircraft deposits be returned once the aircrafts are delivered to GlobalX?
Ed Wegel
Yes, that’s not exactly how our financials are setup. So, airplane deposits paid lessors as an asset, which we would have to returning the aircraft would be part of the reconciliation on the return. When we look at customer deposits that are paid to us for the flights that we fly, they are factored into either they are used as part of to pay for their flights or their return once we settle up with the customer that they have covered all their costs, that’s sort of how it works on the balance sheet.
Grant Howard
The potential addition of the B-717 aircraft, the various media sources reported potential addition of 10 of the B-717.
Ed Wegel
We are looking at that aircraft. The 717 is probably – no, I will say it is the best regional aircraft ever built. It is based off of the MD-80 series aircraft eventually became the MD-95 and then the 717 Boeing bought McDonnell Douglas. Delta operates 90 of them. Hawaiian operates 20 of the airplanes. The 717 and Qantas operates 20 of them. And that has proven to be a very good aircraft for both Delta and Hawaiian as well as Qantas. And so we have looked at that aircraft, because what we have seen in this charter market is that about half of the clients that we talk to work with need an aircraft that can fly for 3 hours and carry 60 to 80 passengers. The 717 fits perfectly within those parameters and it is for us would be a very cheap aircraft to operate. There are also a lot of MD-80 qualified pilots, which would ease the strain on our acquisition of A320 pilots. And the airplane, as we have looked at the various deals proposed to us would be a very, very cheap aircraft for us to operate. We haven’t made any decisions on that. We analyze a lot of things all at the same time. So we are analyzing this airplane. We are analyzing this versus more A319s and we are analyzing this versus perhaps going immediately to A330s. But if we had this airplane in our fleet right now, it would be an exceptional performer for us. We balance that against the complexity of operating two aircraft types within a small airline like GlobalX. So, we’re weighing the pros and cons, we’re very, very interested in the aircraft, we are probably the only U.S. airline that could take these airplanes that are starting to come out of the fleets of volunteers gotten out of the fleet, because they couldn’t get more of them. So, short answer is we’re very interested in the airplane, we’re doing a lot of analysis. We’ve briefed our board and they’ve given us a mandate in terms of the questions that need to be asked, and more analysis that needs to be done. So we will have more on this in the future. It’s a very real possibility, but no decisions have been made.
Grant Howard
Next one’s about Canada Jetlines and just for the people, who are attending who may not remember or have forgotten, in July of ‘21, GlobalX spun out Canada Jetlines will be on two shares of global you got one share of Canada Jetlines and dividend and Canada Jetlines started commercial operations this past September. The question is, today Canada Jetlines receive approvals to operate flights to the U.S. can GlobalX leverage that and start connecting Canadian cities with the U.S.
Ed Wegel
But I’m going to ask Ryan to answer that question. Ryan is our representative on the board of Canada Jetlines, let me just first say that we’re very proud of Canada Jetlines and what they did to get certified from Transport Canada, they went through probably more hoops than they were should have been required to go through just because of the economic environment that we’re in. We’re very proud that they have their first airplane and now signed for their second airplane and have started some scheduled service. So we have constant dialogue with Jetlines to the extent that we can since as U.S. investor, we can only have so much influence about what they do. But Ryan, again, is on the board of Jetlines and is up to speed on our discussions with them. So why don’t you start highlights.
Ryan Goepel
So, as you know, Canada Jetlines has announced flights to Calgary and – Toronto, Calgary and Toronto, Vancouver with they are going to use with their initial metal, we’re looking at destinations once they get their ability to sell in the United States. And today’s announcements are a big part of that the ability to sell in the U.S. would dictate flying through the U.S. Global Crossing has made our aircraft available to fly for them. So basically, Jetlines can be bigger, faster, which is really in the game of scale. That’s a key component. So we are working with a commercial team to identify which areas make sense what the economics make sense. And so for yes, so the idea always has been for Jetlines to leverage the relationship with GlobalX to get bigger, faster, because really [indiscernible] it is about airlines. And we will – they will be working on announcements this [indiscernible] again, what they’ve been focused on is getting permission to do it. And then secondly, getting the key to that given there, they’re more of a charter model, a kind of a mixed risk is their ability to sell tickets, and get the distribution the relationships in place. We want to make sure all of that is in place and effective before we commit to the cost of flying to this – flying south.
Grant Howard
The European summer flights ran into complications due to permitting this year and it says your Q3 results suggest that you were compensated due to contractual obligations. Can you provide any further detail? Do you expect to be flying in Europe during summer 2023?
Ed Wegel
I’ll take the first part of that. And then Ryan will talk about flying in the future. He’s just worked out some deals in Europe that are very, very favorable to the company. Let me just talk about the issues in Europe this summer. So as you know, we had a contract with TUI, which is one of the major tour operators in Europe. They advised us that the approvals that they had received from the Dutch authorities and the Dutch CAA for us to operate we are sufficient for the operations that we would conduct for them. We thought otherwise, but they assured us that the Dutch authorities had cleared all protocols within EASA and that we were cleared to fly. That wasn’t the case and the EASA required us to stop flying and to meet the requirements for what’s called a TCO or Third Country Operator authorization within Europe. TUI very, very stand-up organization, well run and very ethical continue to pay us through about the mid part of August. At that point, we felt it prudent to bring our airplanes home while we went through the final phases of the TCO process with EASA, the European Aviation Safety Agency. The amounts that they paid us wasn’t a windfall, because they were paying us for ACMI, so, Aircraft Crew Maintenance of Insurance and so about 90% to 95% of what they paid us we had to pay out in lease costs, in crew costs, daily maintenance costs on our airplanes, and the insurance for the aircraft.
So the any of the flying that we would have done in Europe, all of the other expenses would have been paid directly by TUI, so we never would have received those revenues. So in effect, we received and paid out as much as we would have paid out had we flown the flights, we have established an excellent relationship with TUI, primarily because of Ryan’s discussions and negotiations with them. They saw how we operated with them getting our crews and our airplanes to Europe. To start the operation. They saw how well we maintained our operation while we were waiting to get our TCO and worked with them. And so they came to us quickly after the end of the summer. And said we would like to establish a long-term relationship with GlobalX. We’ve seen your airplanes, we’ve trained some of our flight attendants to fly with you, we’ve seen your flight attendants and cockpit crews, and how they conducted themselves in Europe for about 6 weeks. And so we want you to be our partner for the years to come. And so I’ll let my Ryan talk about the negotiations, discussions really with TUI, and what we project to do with them over the next 3 to 5 years.
Ryan Goepel
Yes, as Ed alluded to, we basically have – we would like to think we have a great working relationship with them. They see the need for our aircraft and our services for a significant number of years, we’ve come to terms on a 3-year agreement with rates, we’re working through the details of the contract, before anything formal can be announced and booked. There’s a strong demand for our services over there are, we’re well positioned to support them in their operations, they have a need for it pretty much every summer. And we’re looking forward to an incredibly long relationship with TUI, and other charter operators, airline operators in Europe, in the summer, with our TCO in place, with the aircraft type we have, and with our ability to execute on the work, we believe there’s significant opportunities in Europe, not only in ‘23, but ‘24, ‘25 and ‘26.
Ed Wegel
We’ve actually discussed with them at their suggestion that we established our own AOC in Europe, probably a multi AOC, which would allow us to increase the number of aircraft, we could operate for them in the summers, from two aircraft to up to as many as four or five aircraft. So we’re analyzing that, and discussing that with them, see if that makes sense. We’re looking at the expense of that, but there is an opportunity to greatly expand our relationship with TUI in terms of the number of aircraft that we operate for them and obviously the revenue base.
Grant Howard
I want to comment here, someone would love to see you on BNN and CNBC we all would, and it’s not a question you can answer at this point, but we want to see you there someday. From Neil Wilson, what are your primary house?
Ed Wegel
Well, we don’t operate as a scheduled airline, as we’re a charter operator. So our hubs are somewhat fluid. It depends on where our charter clients are based. It depends on time of year, but we’re starting to settle down into a couple of areas, a couple of cities. I should say that in geographical areas where we know we will have a high concentration of charters that originate. So obviously, Miami is our home base, our main base. We do a lot of flying out of Miami to into the Caribbean, into Latin America, into Cuba and into Mexico. So Miami is our primary base. It’s where our current maintenance base is. It’s where our operations control center is and of course, our senior management staff. We’ve established a base in San Antonio with both maintenance and flight attendants. We do a lot of government flying, that are originates in Texas in San Antonio is a great place to position a hub. It’s also a great place to recruit staff that we need both in maintenance and in cabin crew. And we will probably establish a cockpit crew or pilot base there in San Antonio. Cost of living in Texas in San Antonio is lower than it is here in Miami. And so we’re actually looking at perhaps, we’re still studying this moving some functions of the airline to Texas.
And we’re analyzing some other locations in the country, we have base – flight attendant base in Las Vegas, we’re going to be doing more and more west coast, flying into Las Vegas, flying into Phoenix, flying onto the West Coast. And so we’ve established a beachhead there in Las Vegas, we have flight attendants. As we get more aircraft, we anticipate basing one or two aircraft permanently in Las Vegas. And as we grow our business in the West, we maintain a base in Atlantic City with our relationship with spirit there for maintenance, it is a place where we often ferry airplanes after they complete their charter flights in the Northeast as they’re waiting for their next assignment. So we want to continue to build the Atlantic City base. So that would give us Atlantic City, Miami, San Antonio and Las Vegas. So that covers the country for us. As we grow larger and get more aircraft, and we can more specialized in certain areas of the country, we may look to put something up in the northwest. But we certainly want to stay as much as we can below the snow or freezing line in the U.S. where we keep our aircraft.
Grant Howard
[indiscernible] financing, and how do you envision financing in this environment?
Ed Wegel
I’ll let Ryan speak about some specifics. But given our growth, given one of the primary assets of this company, which is the deals that we have put in place for a fleet of A321 freighter aircraft. And given what we’ve done so far, on a very, very small budget, in terms of our financing to-date, you can imagine that we have had many inquiries about being able to invest in this company. So we’ve got options, none of which we have decided on. We are continuing to grow our aircraft fleet. We want to grow our profitability, and we hopefully will see a concurrent rise in our share price, which makes the potential for selling equity bit more attractive for us right now, it’s not attractive that even at even at today’s stock price, even with 20% gain. So we will need additional cash as we take on additional aircraft to get to 50 aircraft. We certainly could not do it on the equity base that we have today. But we hope and expect that we will be able to raise equity at higher share prices in the future. I don’t know if you want to…
Ryan Goepel
Yes, I think, I would reiterate – I think, if anything we’ve demonstrated over the last 2.5 years is a reticence to give equity away. And we really haven’t – we’ve been really disciplined about when we raise money, how much we’ve raised. As indicative in the last raise in March, when we raised $6 million in debt with some warrants. I think our inclination at this stage is not to raise in the form of equity, given the price point. A convertible or something with a warrant is much more palatable, makes a lot more sense. But again, we see a pretty big disconnect between the level of activity, our projections, and are ensuing share price. And I think this is a fluid situation that changes every day. So what we focus on is executing, we focus on growing the revenue, growing profitably, we have the ability to grow with our existing resources. But again, as if we want to get to 50 aircraft in 2.5 years, there is – there will be a need to bring in extra cash to accelerate it, but it’s not required. It’s not a survival issue. It’s a speed of growth issue. So we’re going to continue to execute on our plan. And just as we have been – every other decision we’ve made be incredibly optimistic, right? When we see aircraft for really cheap, we go get it. When we see a great asset that makes sense we go get it, we see routes, we can go fly, we fly, when we see customers who need help we go help them. So I don’t think that’s our approach has been pretty disciplined over the last 2.5 years and I don’t see that changing.
Grant Howard
Speaking of assets from longtime shareholder Mike Harrison, you mentioned that you are anticipating putting capital assets on the books. Those – this suggested your strategy of acquiring aircraft may be different than on the first seven planes.
Ed Wegel
But I think what you are driving in your question there is when we buy aircraft as opposed to leasing them. We still see incredible deals, leasing aircraft in this market, the aircraft leasing market is starting to firm up. And aircraft lease rates are not as soft as they were, say a year ago, although we are still driving some very, very good deals. As we look ahead, we think Europe will have a difficult time over the next year. We think that the airline growth in Europe will slow down. And there may be some airlines that cease operating. So, we will be particularly opportunistic for additional A320s over the next year, as Europe and perhaps certain parts of Asia will continue to have some issues. So, we look to drive very, very good deals on leased aircraft. That also means that there will be aircraft for sale. We certainly don’t have the equity on our balance sheet to go buy aircraft. We have talked to certain financing sources about creating an aircraft acquisition facility for us, where we could put in a very, very sliver piece of equity. And they would finance the bulk of the aircraft, so that we either put the aircraft on a finance lease, or some way that we could acquire the aircraft. We would love to put some aircraft assets on our balance sheet. We obviously don’t have the capability currently to do that, but we are constantly looking at ways to do that.
Grant Howard
He questions in and around people, can you give us some insight on your ability to hire pilots and mechanics? And the other one related is I know that you have a new pilot class starting every three weeks, are you having any issues of recruitment or retention at this point in the competitive nature of the airlines today? Great quarter.
Ed Wegel
So, we have been actively recruiting pilots, since over the last 18 months, certainly well, before we received our certificate. We have gotten very good at it. We have got a couple of different sources where we draw pilots from. We obviously go to all of the pilot recruiting conferences. We have signed an agreement with OSM Aviation Academy here in Fort Lauderdale, which is owned by the owner of Norse Atlantic Airways. And we have gotten our first four first officers from that program with another six in training. In terms of captains, which is really the most important of the two positions, we have been very, very successful in recruiting U.S. qualified pilots who are flying overseas or flying in the Middle East or flying in Asia, and they want to come home. But they are at an age, let’s call it mid-50s to 60, where they don’t want to go to United or Delta or American and sit in the right seat for the last part of their career and get the less favorable flying assignments that those airlines. They would rather come to us, where they become a direct entry captain. We are competitive in pay. We are more than competitive in lifestyle in terms of South Florida and the types of flying that we do. So, we have been successful so far in ensuring we have got enough captains to crew our aircraft. Now, we have got enough FOs now that have been with us, over the past year, we can now start upgrading to captain and backfill those FOs from the OSM Academy, and from other sources. So, for now, we feel very, very good where we are with pilots. It is a constant battle out there. We are battling the majors. We are battling Spirit and Frontier and Allegiant, and JetBlue, but we offer certain elements of a lifestyle here that is different from flying for those airlines. And we are attracting very experienced very qualified captains, who see the potential here. They see the growth. They know that their pay will be increased in line with what our competitors and even what Allegiant and some others are paying as we grow in our profitability. So, right now we feel comfortable, we feel confident. We think that the hiring in the U.S. will slow down next year, for various reasons. And we think that we will be able to retain the vast majority of the pilots that we have recruited, hired and trained as we move forward. In terms of maintenance personnel, we have some relationships with some of the maintenance schools here in Miami. We have not had a difficulty in attracting maintenance technicians and maintenance staff, because of the type of fleet that we operate the A320, A321, and we think eventually A330. They want to come here, because they see growth, they can come as maintenance technicians, then they become line ramp supervisors, then they become maintenance controllers and they continue to move up the chain. They can’t get that necessarily with other charter airlines in the U.S. right now, because those airlines are not growing. So, so far no issues, getting pilots, no issues, getting maintenance technicians, and we feel as we grow and grow in profitability, we will continue to be able to attract good talent to the airline.
Grant Howard
Can you elaborate on the aviation potential? Do you think there are safety issues regarding lithium batteries that might cause passengers to shy away from using e-airplanes?
Ryan Goepel
I think our take on that, let them work that out. I think they are going through their certification process. They are going through their acceptance. We are not going to – I think it’s up to them to prove that out and when they are ready to fly we will be here to work with them.
Ed Wegel
So, those airplanes won’t deliver to us for another 5 years. We want it to get in line with an order position. That also allows us to talk frequently with the manufacturer of the airplane so that we can help in the design to help shape what we want to see in the airplane for the types of operations that we want to operate with that airplane. And so those discussions are ongoing both on the aviation side with the Alice Aircraft and with Eve which is the eVTOL aircraft. So, for essentially no money down, we now have a place in line for both of those aircraft. And it gives us a seat at the table in terms of being able to shape the aircraft development and what we want to see in those aircraft for our particular operation.
Grant Howard
Got it. And you have addressed this in part, since you have had some unique circumstances during COVID in acquiring aircraft, how has or what’s the climate now? And can we maintain this competitive advantage going forward?
Ed Wegel
Well, as I have said a moment ago, we are seeing the aircraft operating lease environment, turning a bit back towards the lessor. Although we still have a significant advantage, there are significant numbers of A320s, A321s, A319s that are on the market. And we get probably a dozen calls a day into our aircraft acquisition team, offering us more airplanes. We – our next A321, which will be here in two weeks is a tremendously favorable deal for us. It’s all power by the hour, and that aircraft will eventually be converted to freighter and all of that has been financed and built into the leases that we signed for that aircraft. We agreed on terms today for as I said another A320 coming out of Alaska, excellent terms, maybe just a little bit more than what we are paying for some of the earlier A320s that we acquired, but not really a material amount of increase in the lease rate. And in fact, this airplane in terms of its age, and where it is in the maintenance cycle is probably better, probably the best A320 we will have in our fleet. We think this situation will continue for at least another 12 months as the excess aircraft either get remain in storage or sent to be disassembled or perhaps absorbed back into some airline systems. But we don’t see any new airlines starting here in the U.S. Europe will have difficulties next year. I doubt many airplanes will be taken out of storage to go into European airlines. Next year, I think the reverse is going to happen. So, I think we are still in a good part of the cycle. And we are going to take advantage of that and tie up as many airplanes as we can over the next 12 months to fuel our growth.
Grant Howard
Raise the next question, but what it comes down to is whether or not you have sufficient number of pilots to staff the current seven aircraft?
Ed Wegel
Yes. We do. And that’s why we are seeing the increases in block hours, and the increase in revenues. We have classes as was earlier stated, starting about every three weeks. We have just started one. We have just recruited for our December class that’s already got five captains in it. And we hope to get to six or seven before we close that out. So, right now we have sufficient number of crews per aircraft, and we have a sufficient number of crews in training, or a first officer is being upgraded to captain to be able to crew the first two freighters as well as the next two passenger aircraft. So, we are keeping up with the demand for our services both on the aircraft side as well as on the cockpit crews.
Grant Howard
Questions related to the JET.B shares. Part of it is why is there such a disparity between the JET and the JET.B and causing confusion among new retail investors. You have discussed this before, when can you get rid of the JET.B shares.
Ryan Goepel
So, just a bit of history for those who are new to the story, the JET.B shares were created in order for us to be compliant with the Department of Transportation’s ownership regulations, which stipulates 75% of our voting shareholders, 75% of our voting shares need to be held by U.S. citizens. So, as a byproduct of our initial formation or merger with Canada Jetlines, we had a significant foreign shareholder base, which is primarily Canadian, which forced us to push to create JET and JET.B. The features of the JET.B is it has the exact same economic rights as the JET shares. And they are convertible to JET shares on one for one basis at any time. As far as getting rid of the JET.B, we would have to be able to prove to the Department of Transportation that 75% of the JET shares are owned by U.S. citizens, which is a little difficult, because we are – there is no report I can go to find out who owns all my shares. We have 9,000 shareholders, 8,000 shareholders owning less than 1,000 shares, and getting passports for all those shareholders, which is a difficult task. That being said, I think over the course of since we first launched in June of 2020, we have seen a significant uptick in the acquisition of shares by U.S. citizens. I don’t think we are at the point now where we can collapse the B shares into the common, but by no means have a desire to maintain that any longer than we have to.
Grant Howard
Get to the remainder quickly. Congratulations for not raising equity, this price appreciate discipline. Thanks for all you do. How has the acquisition of Flugy benefited the airline?
Ed Wegel
It’s actually benefited us in a number of ways. We have just signed three more contracts at Flugy with Soho House. And that’s driving some significant material revenue for us. We haven’t focused on it as much as we have focused on driving the airline to profitability. But our media and ad agency has continued to do work on developing the brand. We are talking to more and more similar type companies like Soho House, to develop the product. We are talking to a couple of investors about taking a piece of Flugy and spinning that out, we would maintain a significant stake in it. And all of the charter flights that come out of Flugy would come to us if we could fly them and bringing it outside investors with experience in the travel space, the online travel space, which would accelerate the growth of Flugy and we would want our equity stake to increase in value as well. So, it’s led to five flights so far for us on a relatively nominal investment that we have made. We have positioned it with our social media, a website and also with our outside agency for a significant growth that we can see in the product. And we want to bring in some now experts who understand the online space extremely well and get this product positioned for new investment and an expansion of their capabilities.
Grant Howard
When group plans of up to 25 cargo aircraft, do you see partnerships with any major freight forwarders?
Ed Wegel
Yes. We talk to all of the package carriers. We are in discussions with them. On a weekly basis, they understand what we are doing. They understand the capabilities of the aircraft. The A321 freighter is the replacement for the 757 freighter, which on average are over 30-years-old. It also competes extremely well against the competing product, which is the 737-800. The A321 freighter carries more than 40% more than what 737-800 freighter will carry. And so all of the freight forwarders and the package carriers like Amazon, DHL, UPS, they understand the economics of that, and what that extra 40% means. So, we are in discussions with all of them. We have got some very, very good contracts being lined up with airlines to fly this airplane for them with a launch operator, the A321 freighter. And w have got 15 of them now under firm LOI or lease, which is a significant size that is very attractive to the larger freight forwarders and the package carriers. I won’t say much more than that, other than to say that we have the best narrowbody aircraft freighter. But we have got more than 15 of them. And we operate the airplane already with the A321 passenger aircraft. And so we are very, very well positioned to take this aircraft, and drive significant growth and profitability operating it in the U.S. and throughout Latin America.
Grant Howard
In closing, congratulations of well done Ed and Ryan. With that gentlemen, that would be the end of the questions.
Ed Wegel
Thanks very much, Grant. Thanks everyone on the call for your support. I know many of you have been following us, since June of 2020. It’s a great day for us to be able to announce that we are profitable. We appreciate you hanging in there with us. And we promise to continue to do what we are doing, which is to work extremely hard with our shareholders’ money to create a profitable airline. So, thanks again, Grant. Thanks everyone. And everyone have a great day.
Grant Howard
Thank you.
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