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Edited Transcript of ATSG earnings conference call or presentation 8-May-19 2:00pm GMT

Q1 2019 Air Transport Services Group Inc Earnings Call

Wilmington May 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Air Transport Services Group Inc earnings conference call or presentation Wednesday, May 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joe Hete

Air Transport Services Group, Inc. - President, CEO & Director

* Quint Turner

Air Transport Services Group, Inc. - CFO

* Rich Corrado

Air Transport Services Group, Inc. - COO

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Conference Call Participants

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* Andrew Hall

Stephens Inc., Research Division - Senior Research Associate

* Christopher Stathoulopoulos

Susquehanna Financial Group, LLP, Research Division - Associate

* Stephen O'Hara

Sidoti & Company, LLC - Research Analyst

* Tyler Seidman

Cowen and Company, LLC, Research Division - Research Associate

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Presentation

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Operator [1]

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Welcome to the Q1 2019 Air Transport Services Group Inc. Earnings Conference Call. My name is John, and I'll be your operator for today's call. (Operator Instructions) Please note the conference is being recorded.

And I will now turn the call over to Joe Hete, President and CEO. Mr. Hete, you may begin.

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Joe Hete, Air Transport Services Group, Inc. - President, CEO & Director [2]

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Thank you, John. Good morning, and welcome to our First Quarter 2019 Earnings Conference Call. With me today are Quint Turner, our Chief Financial Officer; and Rich Corrado, our Chief Operating Officer. We issued our earnings release yesterday after the market closed. It's on our website, atsginc.com. We'll file our Form 10-Q later this week.

I'm very pleased to report that 2019 has begun on a fast pace. The highlights are that revenues were up 71%, our adjusted EPS increased $0.07 to $0.37 per share, and adjusted EBITDA rose 58% to $114 million.

Our airline operations have started particularly strong. Our services for the Department of Defense increased sharply versus the prior year with the added contributions from Omni Air International, the passenger airline we acquired last November. We ended March with 10 more converted freighter aircraft in service than we had a year ago, for a total fleet of 91.

Based upon our strong start in the first quarter, and a projection of heavier aircraft flying requirements recently provided by our customers for the rest of this year, we are increasing our full year adjusted EBITDA outlook to $450 million.

Our expectations for leased 767 aircraft deployments for the rest of 2019 remain substantially as we told you in February. We anticipate placing at least 9 aircraft in service this year with all but two of those coming during the second half. Additionally, we currently have customer commitments for six more leases in 2020.

Quint is ready to review our consolidated results, Rich will cover our segment highlights and I'll close with more comments on our outlook. Quint?

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Quint Turner, Air Transport Services Group, Inc. - CFO [3]

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Thanks, Joe, and thanks to all of you on the call for joining us this morning. As always, I'll start by saying that during the course of this call, we will make projections or other forward-looking statements that involve risks and uncertainties. Our actual results and other future events may differ materially from those we describe here. These forward-looking statements are based on information, plans and estimates as of the date of this call, and Air Transport Services Group undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions, factors, new information or other changes.

These factors include, but are not limited to, changes in market demand for our assets and services; our operating airline's ability to maintain on-time service and control costs; the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration; fluctuations in ATSG's traded share price which may result in mark-to-market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; and other factors as contained from time to time in our filings with the SEC, including the Form 10-Q we will file this week.

We will also refer to non-GAAP financial measures from continuing operations including adjusted earnings, adjusted earnings per share, adjusted pretax earnings and adjusted EBITDA. Management believes these metrics are useful to investors in assessing ATSG's financial position and results. These non-GAAP measures are not meant to be a substitute for our GAAP financials and we advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website.

As Joe said, our first quarter results were very strong, and our adjusted earnings rose sharply thanks to the contributions from the 10 additional freighters and 11 additional passenger aircraft we've added to CAM's leasing portfolio since last year. We also benefited from increased airline flight operations, primarily to support the Department of Defense.

On a consolidated basis, first quarter revenues were $348 million, up $145 million, or 71%, from the prior year. That gain stems primarily from the expansion of our airline business through our acquisition of Omni Air. As a result, the Department of Defense is now ATSG's largest customer, representing 37% of our revenues for the first quarter; 18% of revenues came from Amazon, and 15% from DHL.

On a GAAP basis, we had first quarter earnings from continuing operations of $23 million versus $16 million a year ago. On a diluted basis, GAAP earnings per share for the quarter were $0.25, $0.01 less than we earned a year ago. Operating expenses increased $126 million, or 72%, with significant Omni-related increases in fuel, depreciation and amortization, and salaries and wages.

Topic 606, under which fuel and other direct aircraft operating expenses reimbursed by our commercial customers are now netted against revenues, does not apply to operations for Omni's military and other government customers.

Interest expense increased $12 million to $17 million, reflecting increased borrowings to fund our Omni acquisition and continued aircraft fleet investments as well as higher rates on net debt.

As we have noted previously, our operating progress continues to be clouded by several mostly non-cash items in our GAAP earnings. This quarter, those items included quarterly unrealized losses in our warrant and interest rate derivative liabilities along with significant cost increases in the nonservice-related portion of our retiree benefits. On a net basis, these items reduced our reported GAAP EPS by $0.12 per share versus the $0.04 reduction in the first quarter last year. Our adjusted earnings, EPS and adjusted EBITDA exclude those items. As a result, our adjusted EPS for the first quarter was $0.37 versus $0.30 a year ago. On the same basis, our adjusted EBITDA increased from $72 million to $114 million, or 58% for the quarter.

We spent $92 million on capital expenditures during the first quarter, including $71 million for purchases of four 767 feedstock aircraft and modification costs for other in-process aircraft. We spent $10 million for required capitalized heavy maintenance and $11 million for aircraft engines and other equipment. We now expect a 2019 CapEx spend of about $475 million, mostly to acquire and modify more 767s for deployment through next year. Joe will share more about our fleet development progress and our growing confidence in customer demand for CAM's assets.

That's the top-level summary of our financial results for the quarter. Rich is ready to share some segment highlights and our market perspective. Rich?

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Rich Corrado, Air Transport Services Group, Inc. - COO [4]

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Thanks, Quint, and good morning, everybody. Just as it was in 2018, the principal factor in our earnings gain this year is the improvement in our airlines.

ACMI Services on a pretax basis earned $12 million in the first quarter, up $9 million from a year ago. The three airlines operated 63 aircraft, including those we leased to customers and operate on a CMI basis, 11 more than last year. Increased support for the Department of Defense via Omni and our other airlines drove the bulk of that gain. Also, our expenses associated with scheduled airframe inspections were lower than the prior year.

Offsetting factors included a $6 million increase in allotted interest expense from debt used to fund the Omni acquisition, higher wages and salaries for pilots of ATI under a contract amendment that took effect in the second quarter a year ago, and a $3 million increase in unanticipated engine maintenance expense during the first quarter.

CAM, our leasing business, also had a good quarter, with pretax earnings of $16 million, up from $15 million a year ago. Additional earnings from a larger leased fleet were offset by a $9.9 million increase in depreciation and an increase of $5.4 million in interest expense, primarily related to the growing leased fleet, including the 11 leased to Omni since last November.

CAM deployed one more freighter aircraft during the first quarter, which will operate in ACMI Service with ATI and be leased to Amazon later in the year. Four additional feedstock 767s were purchased for conversion and deployment, leaving eight either in mod or waiting for an available conversion slot at the end of March.

Results of our maintenance and conversion business, previously reported via the MRO Services segment, are once again reported in Other Activities, as our consolidated revenue growth means they are no longer large enough to qualify as a separate segment. Pretax earnings for Other Activities, net of intercompany transactions, fell from $4 million in the first quarter last year to $2 million this year. Sort-center management services for the U.S. Postal Service ended last September, and we had a loss from our minority investment in our European airline affiliate, West Atlantic.

From an operating standpoint, the ATSG businesses performed well during the winter months, avoiding significant weather-related downtime over most of the express network routes we cover. On-time performance was very good for our largest customers, owing in no small part to investments in continuous improvement programs by our airlines to ensure the reliability of our aircraft. Excellent service reliability has long been a differentiator of our airlines, which they remain proud to offer their customers.

The integration of Omni Air into ATSG is proceeding smoothly, thanks in part to great cooperation among management, and our shared experience with Omni as part of the Patriot team of outsourced carriers serving the military.

As you know, our take on the state of the air cargo market is far more bullish than others who fear that fuel costs or continued trade disputes will cramp their near-term margins. Our markets, both commercial and government, have much more visibility. And the customers we talk to are more -- are worried more about having too little capacity than too much. We want to be their reliable source of midsize aircraft capacity for many years to come and offer them the packages of services they need when they need them.

With that, I'll turn it back over to Joe.

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Joe Hete, Air Transport Services Group, Inc. - President, CEO & Director [5]

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Thanks, Rich. I want to echo Rich's remarks about the smooth transition of Omni into ATSG, which had required a great deal of work from management teams here in Wilmington and at Omni's headquarters in Tulsa. Jeff Crippen leads a very talented group of airline executives who have produced great results since the acquisition last November and so far on a very good pace for 2019.

In fact, all our business units are performing well thus far, and from an operating standpoint, are mostly on track or ahead of our projections for the year. We just completed renewal agreements with DHL for three-year extensions of leases for most of the 767s we lease to them. The lease extensions were for 11 of the 14 aircraft. The three others are already in service under longer leases with more than three years to run. DHL is keeping six of the 14 in the Middle East, operated by one of its airline affiliates there. The other eight remain in DHL's U.S. network operated by ABX Air. We're pleased to extend what is now a 15-year relationship with DHL that dates to ATSG's formation as a public company back when DHL acquired Airborne in 2003.

Quint mentioned that we have raised our CapEx guidance for 2019 to $475 million which is a significant step up from the $293 million we spent last year. A portion of that is for increased capitalized maintenance cost for 11 Omni aircraft we own, but most of the rest is for more 767 feedstock and mod costs.

Last December's deal with Jetran for 20 American tails was a great opportunity to secure the capacity our customers are telling us they need as they gear up their networks for even greater speed. The Jetran arrangement limits the number and timing of tails we can expect from American each year. That's why we have increased by four the number of 767 feedstock aircraft we will acquire this year since we last spoke to you in February.

As we mentioned before, Omni has expanded our horizon for the ages of aircraft we can consider, since we now have the option to keep them in Omni's fleet as a passenger aircraft for a few years prior to conversion. In fact, we do intend for one of the passenger 767s we're acquiring this year to be deployed with Omni.

As I said at the outset, we could very likely place more than 10 converted 767s this year if we could get them, and we're already booking orders for 2020 beyond the five that Amazon wants. In short, the investments we're making today are based on confidence about our prospects through next year.

Our JV partner, Precision, continues to make progress toward an STC for its freighter variant of the Airbus A321. We expect that approval next year, and anticipate investing $12 million more this year into the venture to make that happen. CAM will be alert for opportunities to add A321s to its leasing portfolio as those feedstock aircraft become available next year and beyond.

We now have customer commitments for at least nine 767 freighters this year, including the five we will lease and operate for Amazon and at least four others for United Parcel Service, a new dry leasing customer for us.

Under ideal circumstances, we could exceed that target by year-end, but the pacing factor remains how quickly our conversion contractor can complete freighter modifications. Production is running slightly behind schedule on what was already a very busy second half deployment calendar.

In addition to deploying the converted aircraft our customers demand, we also need to recruit and train pilots to fly them, which means a few months of carrying those additional costs prior to the start of flight operations.

Recently, our customers updated their flight schedules for the balance of the year, which will require increases in our flight operations starting late in the second quarter. This is certainly positive news overall, but it will raise the $1.5 million in ramp-up costs we anticipated when we spoke to you in February to about $7 million, much of which we expect to occur in the second quarter.

Given these considerations, and factoring in our strong start to the year, we're increasing our 2019 adjusted EBITDA guidance to $450 million for the year. We anticipate slightly more than half of that full year number to occur during the second half.

As those of you who have followed us for years know, we emphasize the cash-generating power of our business model, especially given that we are not currently a cash taxpayer. We deploy our attractive assets on long-term, long-duration contracts with a blue-chip customer base.

We always have an array of options to deploy capital to maximize shareholder value. These include investing in growth assets, where we target a greater than 10% unlevered return on our investment; paying down debt, which currently costs us a bit below 5%; or returning capital to shareholders.

Growth investments are the logical choice today with the market now providing us with attractive opportunities. But our three options are not mutually exclusive. We have built a business that can thrive and generate shareholder value in any phase of the economic cycle.

We look forward to updating our projections again when we speak to you in August. We hope that our already optimistic view about 2019 will be even stronger then.

That concludes our prepared remarks, John. We're ready for the first question.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from Jack Atkins from Stephens.

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Andrew Hall, Stephens Inc., Research Division - Senior Research Associate [2]

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It's actually Andrew on for Jack. Congrats on a good first quarter, strong start to the year. I guess I'd start off, I think it was mentioned a couple of times in the prepared comments about the Omni integration, everything seems to be going well. I guess if you look at the performance of Omni during their first quarter, how did that perform relative to your initial expectations? And I guess as you look at the full year, has there been any change in the expected contribution from Omni this year? I think especially, Joe, as you mentioned, there's going to be I think one 767 passenger plane going to be added to the -- added to their fleet?

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Joe Hete, Air Transport Services Group, Inc. - President, CEO & Director [3]

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Yes, Andrew. Omni actually performed better in the first quarter than what we had anticipated. Demand from the U.S. Military was strong. In fact, we think on the large passenger portion of the business for the military, Omni flew about 49% of the total long-range passenger business. And if we look at April, it looks like they will be about 50% of that total. So we're starting off the year apparently strong for Omni, much better than what we anticipated. Now that can change, obviously, as the year goes on, but right now, we're pretty optimistic about how they will perform through the balance of the year.

We did elect to take one of the American birds rather than convert it into a freighter, because we had another aircraft we acquired that we wanted to put into that slot. And the commercial demand is pretty strong as well. Part of it may be short-lived, because of the 737 MAX issues. We're getting requests for additional lift from multiple carriers. How long that will go on, e don't know. But we expect as we transition into the latter part of the year, that the demand will still be there from a commercial perspective. So in short, we're extremely pleased with the acquisition.

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Andrew Hall, Stephens Inc., Research Division - Senior Research Associate [4]

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Good deal. And I guess, Rich, one for you. I think you guys -- you mentioned the four planes that you bought that were in excess of the ones you're getting from American. I'm assuming those planes are going to be put in service -- or expected to go into service in 2020. I guess if you could just provide a little color. Are those due to existing customers coming back to you guys, indicating that they perhaps need more capacity for next year? Are those new customers coming to you? Just kind of -- just some sense on where that demand's coming from.

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Rich Corrado, Air Transport Services Group, Inc. - COO [5]

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Yes. So the demand from our newer customers required a specific variant of the 767 that we didn't have in the American feedstock. So we needed to go out and procure some additional aircraft that were more specific to their needs.

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Andrew Hall, Stephens Inc., Research Division - Senior Research Associate [6]

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Okay. And you said that's for a newer customer?

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Rich Corrado, Air Transport Services Group, Inc. - COO [7]

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Yes.

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Andrew Hall, Stephens Inc., Research Division - Senior Research Associate [8]

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Okay. Perfect. And I guess, Joe, I don't know if this is for you or for Rich. As you guys -- you have six planes already under contract for next year. You have demand across the board that seems elevated. If this demand holds and remains strong into next year, I know it would depends on conversion capabilities, but what's the maximum number of planes that you could place into service next year if kind of all the dominoes fell in your favor?

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Rich Corrado, Air Transport Services Group, Inc. - COO [9]

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Yes, Andrew. So we got a late start this year and we're going to deliver between nine and probably 11, hopefully, 10 aircraft this year. And we got a late start. Rolling into 2020, we'll have a number of aircraft already in conversion. So we feel we could deliver between 12 and 14 next year, depending on how the conversion lines work. There's a lot that goes into converting an aircraft, in terms of when we take delivery of feedstock, there's a schedule that we got generally when we acquire airplanes in advance. But sometimes, for example, as the 737 MAX situation's developed, and other situations, even though we have rights to aircraft, the airlines may hang on to them a little bit longer. So that can disrupt and delay the flow. That's one of the reasons we got kind of a late start this year as we got a late jump on some feedstock. So we think we can deliver, like I said, a lot of planes next year, up to 10 this year. And the conversion line right now is running full speed for ATSG.

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Andrew Hall, Stephens Inc., Research Division - Senior Research Associate [10]

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Okay. Good to hear. And then squeeze one last one in for Quint. I think in the last call you mentioned that given the delivery schedule, EBITDA growth would be weighted to the back half. I think you said maybe 45-55 split between first half and second half. Given the first quarter performance, is that still the expectation?

And then as you look at 2020, the start-up expenses that are coming this year for Amazon, should we expect a similar level of those in 2020? Are those going to kind of fade off?

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Quint Turner, Air Transport Services Group, Inc. - CFO [11]

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Yes. I think that first -- your first question on the weighting of the EBITDA, I would -- if I were going to modify, I would probably say it's more like, call it, 48%-52% in terms of the percentages between first half and back half, Andrew. As far as the ramp-up cost, of course, depending -- again, next year, the Amazon demand is back-half-weighted, so we will again have some ramp-up cost. I think we had -- as Joe mentioned in his remarks earlier, previously estimated about $1.5 million. So you could probably figure in something along those lines again next year. We escalated our ramp-up costs for this year to more like $7 million. And that was tied not just to the additional five aircraft, but to sort of some heavier flying that we're forecasting for the second half. So absent that, you could probably figure for five airplanes next year, something akin to $1.5 million of ramp-up cost in 2020.

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Operator [12]

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Our next question is from Steve O'Hara from Sidoti & Company.

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Stephen O'Hara, Sidoti & Company, LLC - Research Analyst [13]

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Just on the guidance that you guys previously gave for interest cost and depreciation. Are those pretty much still in line with your forecast for the full year 2019?

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Quint Turner, Air Transport Services Group, Inc. - CFO [14]

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Yes. I'd say interest cost maybe, perhaps a little over than we guided to last time. But we're -- and depreciation, it's pretty much in line with what we gave you, Steve.

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Stephen O'Hara, Sidoti & Company, LLC - Research Analyst [15]

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Okay. And then just on the passenger flying with Omni. Is that going an existing customer? So DoD flying? Or is that going to a new customer?

And then I'm just wondering if you could maybe comment on any opportunities out there for expanding the 777 flying within Omni.

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Joe Hete, Air Transport Services Group, Inc. - President, CEO & Director [16]

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Steve, as far as the commercial side or the 767 pax side with Omni, there's no one specific customer that, that additional aircraft would be tied to. It will be -- can be used for both DoD as well as well as any commercial customer. So there's not one specific, it's just that they're getting sufficient demand out there that it makes good sense for us to hand over one of those aircraft to them to generate additional revenue.

As far as the 777 goes, certainly, we would like to see them transition into the 777 freighter business. In today's market, that would be most likely on a CMI basis. Not that we would go out and acquire an additional 777 pax or a 777 freighter. But there is some interest in utilization of their services by other folks that have 777s. And then in the longer term, you look at converted 777s, which are probably at least 2 or 3 years away at best, at that point in time, that would certainly be an asset we would look at as opposed to trying to go after factory-built new ones.

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Stephen O'Hara, Sidoti & Company, LLC - Research Analyst [17]

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Okay. And then just lastly on the start-up costs. I think you said previously $1.5 million, now it's $7 million, I think. It seems a pretty big jump. Is that partially due to the fact that you're taking another passenger aircraft? Or maybe reallocating, at the passenger, you need maybe crews or something, more crews because of the rest requirements? I'm just wondering what the big jump is from $1.5 million to $7 million.

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Rich Corrado, Air Transport Services Group, Inc. - COO [18]

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Yes, Steve. A couple of things are involved in that. But first is we were looking to transition some crews off an ACMI route that we've been flying for a couple -- actually an A plus CMI route we've been flying for a customer over the past year. But they decided to keep the airplane flying with us and so there was a number of crews that were to transition over to the additional flying that we're going to do with Amazon. So we had to fill some spots that we thought we would have, crews to fill.

And then additionally to that, our existing customers are just projecting significantly more flying than they had projected at the end of last year. So it's -- we had planned initially for the increase in the aircraft they were adding into the Amazon network, but due to the increased flying and due to the fact that some of the flying we stopped was going to -- we thought was going to stop, that's where the larger ramp-up is coming from.

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Operator [19]

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Our next question is from Chris Stathoulopoulos from Susquehanna.

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Christopher Stathoulopoulos, Susquehanna Financial Group, LLP, Research Division - Associate [20]

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I was wondering if you could give a little bit more color on what you're seeing for military flying with the DoD last year. And the sort of the context I'm thinking about is competitor, Atlas, last week, saw weaker-than-expected flying in the first quarter, where I think some cargo flying was unexpectedly sort of taken off the schedule but expected to reset over the remainder of the year.

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Joe Hete, Air Transport Services Group, Inc. - President, CEO & Director [21]

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Yes, Chris, from the cargo standpoint, of course, we don't fly the large aircraft, which is what Atlas flies with the 747s. There's really only -- from a cargo perspective for the aircraft types we fly, the 767, there's really only three runs, all of which we operate with our airlines. One is down to Guantánamo Bay and back. Another one is over to Ramstein and then on to Cairo and back. And that last one runs into the deep Pacific. So the utilization in the -- by the military has been consistent on those routes. But again, they're scheduled and we don't have any volatility related to the cargo side.

And on the pax side, it's a different story. As I mentioned previously, we ran about 49% of the total large passenger business for the military in the first quarter. And right now, it looks like about 50% for the April timeframe. So if there was weakness, it was in the heavy-lift side of the cargo business, but certainly didn't impact us.

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Christopher Stathoulopoulos, Susquehanna Financial Group, LLP, Research Division - Associate [22]

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Okay. And then moving to the rhetoric around the trade war and tariffs heating up again. Could you just remind us of how you're thinking about what's at risk here given what the change in your revenue base here, with the DoD now more than, was it, close to 37% of revenue; and then you have the e-commerce, DHL and Amazon? Regionally, if you're thinking about perhaps what's at risk or from an end market, how you size up risk?

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Quint Turner, Air Transport Services Group, Inc. - CFO [23]

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Chris, this is Quint. You mentioned a couple of things that we've been emphasizing certainly with the acquisition from Omni but talked about even before that. Our particular book of business, we don't believe, is very exposed to sort of disruption that can occur due to trade negotiations or that. And it's because -- precisely because our assets are deployed almost entirely within these time-definite regional integrator networks. And so -- and of course, we deploy our aircraft on long-term leases, which give us that visibility, long-term visibility of our cash flows.

Then when we acquired Omni, it only enhanced sort of the immunization we have against the -- sort of the economic cycles that occur in the cargo business and the broad economy. As you say, the government demand and the public sector is a completely different market. And Joe mentioned, we -- and Omni -- through Omni, hold -- and our own combi flying, a pretty dominant stake in that market which isn't tied to the economic cycles.

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Christopher Stathoulopoulos, Susquehanna Financial Group, LLP, Research Division - Associate [24]

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Okay. So given that, if we could extend that argument just for a bit here. So we have a piece of EBITDA, revenue here that's seemingly immune from fluctuations in the cycle; and e-commerce piece, like a customer, Amazon, that's perhaps outside of that, too, given where they are in their cycle. But how then should we think about your free cash flow profile going forward, again, with the DoD close to 40% of your revenue? Is there -- could we see a situation where in the past, where you've gone into acquisition mode and picked up aircraft, you've gone free-cash-flow negative? But could we see, given the sustainability of cash flows here with the change in revenue mix, a situation where you could still acquire aircraft and throw off a positive free cash flow?

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Quint Turner, Air Transport Services Group, Inc. - CFO [25]

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I mean, thanks, Chris. Yes, absolutely. Now Joe went through sort of the capital allocation options for us. And if you look at the business that ATSG has built, the maintenance CapEx is probably roughly $100 million. But as we mentioned, this year, we're investing in growth because those opportunities are very attractive. And we're going to see CapEx which we said is going to approximate $475 million. But if you take our EBITDA production, and you back out sort of a maintenance CapEx number, you back out cash interest and a little bit that we kick into sort of frozen pension plans, the free cash flow production in our business is pretty impressive. A couple hundred million dollars a year. that We essentially have the luxury of choosing between the best alternative to create value for our shareholders.

So if, for example, we decide -- was a period of time where the growth options were not as attractive, then certainly from a free-cash standpoint, we can be -- we can generate cash, excess cash for those options. And that enables us to grow without really adding leverage. In fact, deleveraging as our EBITDA expands. And so that's a great place to be. As you know, we don't have extremely long-term CapEx commits, and a lot of the CapEx that we do apply to aircraft is tied into the modification itself. So there's a lot of flexibility there to adjust our CapEx spend based upon how hot -- or not hot -- a market is in any particular time for our assets.

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Operator [26]

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(Operator Instructions) And we have a question from Tyler Seidman from Cowen.

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Tyler Seidman, Cowen and Company, LLC, Research Division - Research Associate [27]

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So just to kind of go back to the MAX question, I think it was one of the first questions. So Air Canada said that they're going to use Omni as a way to backfill the MAX issues. And I'm wondering if you guys have enough passenger planes that aren't being flown with the military to kind of switch over to another airline in case the MAX issues kind of linger on longer than expected. Or is there not enough kind of feedstock in case the MAX -- if the MAX kind of continued -- the MAX delays continue -- longer than expected?

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Joe Hete, Air Transport Services Group, Inc. - President, CEO & Director [28]

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Tyler, first and foremost, obviously, is making sure that we have enough of the aircraft going through the conversion process to meet the customer commitments we already have in hand for those. But if we were in a situation where an opportunity came up for a long-term -- or I should say probably more short-term lease for a passenger aircraft that otherwise might be sitting idle or waiting for a conversion slot, that's certainly an option that would be available for us. And most likely, if we were going to do that, it would be through Omni so that we can get the revenue generation not just off the asset, but also on the operating of same. But it would really be dependent on what that customer demand would be. How long the 737 MAX stays grounded at this point is anybody's best guess, but I'm sure it won't be a long-term situation if Boeing is devoting all the resources they can to rectifying the issues and concerns with that particular aircraft.

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Operator [29]

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And we have no further questions. I'll turn the call back over to Mr. Hete for closing remarks.

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Joe Hete, Air Transport Services Group, Inc. - President, CEO & Director [30]

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Thanks, John. At our Annual Stockholders' Meeting here in Wilmington tomorrow, we'll share the rest of our story about the growth in cash flow that our business model is generating and why we expect a great 2019. The nine cargo aircraft and expanded CMI operations we expect to add this year are proof that our customers are growing as well, and we will work hard to support them.

Thank you for joining us today, and make sure to remember your mom this Mother's Day.

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Operator [31]

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Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.