U.S. Markets closed

Edited Transcript of ENAV.MI earnings conference call or presentation 15-May-19 1:00pm GMT

Q1 2019 Enav SpA Earnings Call

ROMA May 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Enav SpA earnings conference call or presentation Wednesday, May 15, 2019 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Luca Colman

ENAV S.p.A. - CFO

* Roberta Neri

ENAV S.p.A. - CEO & Director

* Stefano Raffaello Songini

ENAV S.p.A. - Head of IR

================================================================================

Conference Call Participants

================================================================================

* Arthur David Truslove

Crédit Suisse AG, Research Division - Research Analyst

* Luigi De Bellis

Equita SIM S.p.A., Research Division - Analyst

* Nicolò Pessina

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst

* Rishika Dipak Savjani

Barclays Bank PLC, Research Division - Assistant VP

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the ENAV First Quarter 2019 Results Conference Call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Stefano Songini, Head of Communication and Investor Relations of ENAV. Please go ahead, sir.

--------------------------------------------------------------------------------

Stefano Raffaello Songini, ENAV S.p.A. - Head of IR [2]

--------------------------------------------------------------------------------

Thank you very much, operator. Good afternoon, ladies and gentlemen, and good morning to those of you calling from the U.S. Welcome to ENAV's First Quarter 2019 Results Call.

I'm joined here in Rome by Roberta Neri, our Chief Executive Officer; and by Luca Colman, our Chief Financial Officer.

As usual, we will walk you through a formal presentation after which we will be happy to take your questions. With that, I will hand the call over to Roberta.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Thank you. Thank you, Stefano. Good afternoon to everyone, and welcome to ENAV's First Quarter 2019 Results Call.

The year has started with highly encouraging traffic dynamics, which confirmed the trends we witnessed in 2018 despite the ongoing closure of the Libya airspace. As you know, our business is highly seasonal, and the first quarter of this year is typically the weakest in terms of traffic and in terms of top line.

Our net revenue in the third quarter of 2018 increased by 1.7% year-on-year, reaching EUR 178.5 million with a solid growth in revenue from operations, up 3.1% year-on-year, only partially offset by negative balance in the period.

As we will explain in further detail, the negative balance is mainly the result of lower traffic balance created in the period as a result of out-route traffic being higher than the planned traffic en-route as well as for terminals Zone 1 and Zone 2.

Moving back to the growth in revenue from operations. En-route revenue came in at EUR 124.1 million, up 2.9%. And our terminal services reached EUR 46.9 million, growing 6.2% for the first quarter of 2018.

In our nonregulated business, the first quarter recorded revenue of EUR 2.4 million, declining by EUR 0.7 million versus for the first quarter of 2018, and it is as a result of the saving of personnel cost structure.

In the first 3 months of 2019, we continued to focus on cost efficiency and achieved a significant reduction in external costs, which together with the growth in top line, enabled us to increase our EBITDA by 3.2% year-on-year to EUR 30.9 million, with a margin increase of 0.26 percentage points to 17.3%.

As mentioned before, the first quarter reflects weak seasonality due to a lower traffic proportion coupled with the leaner trend in costs, which leads to a lower margin in the first part of the year. The seasonality effect also falls through to the bottom line, where we recorded a negative net income of EUR 3.6 million including -- over the net loss of EUR 4.4 million recorded in the first quarter last year.

Our capital structure remains very solid, and we are currently net cash, which provides us with significant flexibility for the future.

And you know, on April 26, 2019, we held our third AGM as a listed company, which approved the payment of a dividend for 2019 of EUR 108.2 million, equal to EUR 0.1998 per share, which we will pay on May 22.

Moving back to our quarterly results on Slide 2, just to follow the presentation. We showed the traffic trends recorded in our en-route and terminal businesses. En-route traffic performance was particularly strong, continuing the positive trend we witnessed in 2018. We saw further rebound in national traffic, growing at an impressive rate of 9.6% in terms of service units as a result of greater distance flown driven by more flights connecting directly northern and southern Italy, where high-speed rail is less competitive. And then we have also increased in the number of flights, up 6.9%. Moreover, also international flights and overflight continued to deliver a positive performance. Overflight service units went up 8.7%, which we attribute in part due to the positive effect of the Free Route services, which encouraged airlines to use the Italia space for a longer distance.

In terms of geography, we observed a meaningful growth en-route connecting the Europe with Asia, up 19.2% in terms of service units; as well as the en-route between European countries, up 8.3%; and also between European and African countries, up 4.7%.

Lastly, international flights also posted solid growth, up 5.5% in terms of service units. And it is thanks to an increase in the number of flights and an increase in the average distance flown. The performance to and from all continents was positive, with Europe accounting for 76% of the international service units.

Overall, our performance in en-route in the first quarter of this year has been the strongest amongst the big 5 the European countries, and this trend is confirmed by the traffic data for April, which shows an increase of 7.8% year-on-year.

Terminal traffic also was solid in Q1 2019, with a 5.9% increase in service units driven by positive performance in all 3 charging zones. More specifically, national traffic posted a growth in service units of 8.1%, confirming the recovery of national traffic route -- en-route segment.

Terminal Zone 2 posted an impressive 13.2% growth, reported by strong growth rate also in Terminal Zone 1 and Terminal Zone 3, up 8.4% and 6.1%, respectively.

Also, international traffic remained solid in the first 3 months of the year, growing by 5.2%, underpinned by increasing service units in all the charging zones.

The strong traffic trends confirm the attractiveness of the Italian market, I could say, and that clearly demonstrates our diversified business mix, with favorable exposure to international traffic trends.

In Q1 2019, less than 22% of our en-route services are related to domestic flights. About 42% of them are generated from international flights and more than 36% are generated from overflights.

Next, now we have a look at our revenues breakdown, Slide 3. Net operating revenues increased by a solid 3.1% year-on-year, mainly driven by growth in en-route revenues, up 2.9%, resulting from the increase in traffic coupled with lower tariff of EUR 77.96 per service units. As a reminder, in 2018, the tariff was EUR 79.98, a decrease of about 2.5%.

Terminal revenues growth rate in the first quarter was also positive with a ramp-up increase of 6.2% year-on-year, driven by service units growth of 5.9% overall and positive in all charging zones, only partially offset by the lower tariffs applied in Terminal Zone 2 and Terminal Zone 3 versus last year.

The balance was negative for EUR 6.7 million compared to a smaller negative balance of EUR 4 million in the first quarter last year. And this is mainly due to a negative en-route traffic balance reported in the first quarter of 2019 versus a positive traffic balance created in the same period last year. As a consequence of strong traffic trends, which account the actual service units to exceed this effect, time to exceed the forecast of service units.

We also recorded a positive terminal balance in the first quarter of 2019 as a sum of slightly negative balance for Zone 1 and Zone 2 and positive balance for Terminal Zone 3, which follows cost recovery logic.

Finally, these effects were coupled with a balance reversal in the 2019 tariff of EUR 10.1 million compared to EUR 10 million recorded in the first 3 months of last year.

Revenues from our nonregulated business have declined to EUR 2.4 million. The main positive revenue reverse trends were [slightly] special services in Italy and this broadly amounting to EUR 0.6 million, delivery training activities for EUR 0.2 million, constructing activities for about EUR 1.5 million.

On the other end, the first quarter of 2019 saw lower revenues from the building of the control tower in Mitiga airport in Libya as well as the conclusion of the contract in the United Arab Emirates related to the redesign of the Single Emirates Sky. So those are the results of a lower level of revenues from nonregulated business.

The item other operating income for EUR 8.9 million is mainly related to revenue grants for safety and security of EUR 7.5 million as provided for under law 248/05, which was stable as you know year-on-year.

Moving to the costs, Slide 4. In the first quarter of 2019, we continued to work on streamlining our costs. In the first 3 months of the year, we recorded a decrease in external OpEx of 4.1% over the same period of last year.

The main savings were related to the reduction of trading costs driven by the reduction in telecommunications costs related to the productivity of our full IP digital network and the renegotiation of the contract as well as lower unit prices on utilities costs. We also continue to see the benefits of in-sourcing of the present facility services. Moreover, in the first quarter, we recorded lower maintenance costs due to the different phasing of investment activities performed by TechnoSky on ENAV's assets.

We also saw the effect of the first-time adoption of IFRS 16 on our lease and cash-based rental costs for a lower amount of EUR 0.8 million, but justified as on item of less invested capital and depreciated in the P&L.

Our personnel costs grew by 2.7% over the previous year to EUR 125.3 million as a result of the effect of the labor contract renewal and the adoption by TechnoSky of the ENAV contract, partially offset by a reduction in headcount of 115 employees on average. The account -- headcount as of March 31 is 4,112 employees, and that does not include the further exits this year, for which we have already account voluntary redundancy costs in our Q1 numbers within the personnel costs.

Finally, in the first quarter of 2019, we also saw an increase in the variable salary components mainly driven by the calendar effects on vacation balances as well as by overtime linked to high traffic volume.

I will now hand the call over to Luca to give more detail about the economic and financial data.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Roberta. Looking at Slide 6, you can see that our net revenue increased by 1.7% in the first quarter 2019, with a solid performance in our revenue from operations, partially offset by a negative balance. The main contribution to the year-on-year growth in revenue from operations came from en-route activities, which saw a revenue increase of EUR 3.5 million. Then we had terminal activities also posted the positive performance with a revenue increase of EUR 2.7 million over last year.

It is worth noting that the results were driven by the strong increase in traffic, only partially affected by the lower tariff applied in 2019 on en-route as well as on Terminal Zone 2 and Zone 3.

The positive contribution revenue from operations was up, however, partially offset by higher negative balance in the first 3 months of 2019 compared to the same period of 2018. And the difference between actual and blended traffic as invested for minus 2.8% to plus 2.4%.

I would also add that there was a positive terminal balance recorded in the first quarter of 2019 in relation to Terminal Zone 3, where we apply the same cost of recovery logic due to the difference between revenues and costs, only mildly compensated by a negative balance for Terminal Zone 1 and 2.

Our EBITDA grew by 3.2% to EUR 30.9 million, driven by top line growth and by continued focus on external cost control, more than compensating for the increase in personnel costs.

Thanks to both dynamics, EBITDA margin increased by 0.26 percentage points to 17.3%. As Roberta mentioned before, the first quarter margin is seasonally the weakest due to the top line and traffic being the lowest in the year while our costs are going up.

Moving on to our P&L on Slide 7 and to the items below EBITDA. As you can see, depreciation and amortization, net of CapEx contributions, went up by 2.7% over last year to approximately EUR 32.6 million as a consequence of lower CapEx contributions for PON, P-O-N, project and of higher D&A linked to the first adoption of IFRS 16. As a result, in the first quarter 2019, EBIT was negative for an amount of EUR 1.6 million, improving by 7.2% from EBIT of minus EUR 1.7 million recorded in the same period last year.

Net financial expenses in the first quarter 2019 amounting to minus EUR 1.3 million were almost stable versus the first 3 months of 2018.

More strategically, we posted lower financial income and higher financial expenses, out of which were related to the dynamics of the balance receivables actualization in the first quarter of 2019.

On the other hand, these effects were counterbalanced by foreign exchange gains of EUR 0.2 million related to our subsidiary Asia Pacific.

Finally, the lower income taxes in Q1 2019 were due to lower income contribution by TechnoSky as well as due to the positive effect of deferred taxes.

As of the first quarter 2019, we have consolidated our stake in D-Flight in our account in the P&L line minority interest, as you can see on the picture. As a result of that move, our net result attributable to the parent company was negative EUR 3.6 million, improving by 19% compared to the net loss of EUR 4.4 million recorded in the same period last year. As mentioned, this result reflects the seasonality of the first quarter.

Moving on to Slide 8. Let's have a look at our net financial position. As you can see, we ended the period with a net cash position amounting to EUR 49.5 million mainly as a result of increased liquidity in the period. More in deep, cash increased by EUR 62.5 million mainly due to the payment dynamics of our core business, which saw an increase in cash savings from traffic and prices as well as due to the cash savings of financing received for PON 2014-2020 project. Moreover, liquidity also improved thanks to the EUR 6.6 million capital increase of D-Flight. As you can -- no, sorry, I see as you -- yes, as you can see -- liquidity improved about EUR 34 million financial receivables, relative to the time deposit of EUR 9 million and the [BCP] investments of EUR 24 million.

On the other hand, gross debt increased only marginally by EUR 11.1 million mainly due to the effect of the new lease financial tables linked to the adoption of IFRS 16 principle. As already mentioned, all this effect led to a further strengthening of our capital structure, which provide us with a significant flexibility for the future.

I will now hand back -- hand the call back to Roberta.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [5]

--------------------------------------------------------------------------------

Okay. Thank you, Luca. And just before opening the floor to your questions, let me give you a snapshot on our 2019 guidance.

First of all, I would like to confirm that the guidance that we provided during our 2018 full year results call, that still our guidance for 2019 top line is flat to low single-digit revenue growth as a result of solid increase in traffic volume coupled with lower applied tariff for en-route and Terminal Zone 2 and Zone 3.

EBITDA margin is expected at approximately -- about 32%, likely below the 2018 level, and I'm confident of the implementation of this business plan initiative.

CapEx will be in the region of EUR 125 million. Finally, we confirm our target to deliver a 4% increase in dividend per share roughly in 2020 for the 2019 financial year. And it is also in line with our dividend policy.

So with that, we are now ready to answer any questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from Nicolò Pessina from Mediobanca.

--------------------------------------------------------------------------------

Nicolò Pessina, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [2]

--------------------------------------------------------------------------------

I would have 3. The first one is on the agreement with the labor unions that was announced yesterday. I wonder if you could provide us any detail about the agreement. Second question, on the regulatory review underway. If we could have an update on what happened during the last few meetings or at least over the last couple of months. And final question, if you could give us an idea of what you expect to be the tariff for the en-route traffic next year.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Okay. Starting from your first question, the agreement signed in the last -- yesterday with the trade unions, it was -- it's attractive for us considering that we have an agreement in place with the trade unions to address -- to deploy the business plan, our new operative model following the near future, considering that in the meantime we will be discussing the results with unions, we will be able now to prepare all the activities to deploy the investment plan in line with the target sector in our business plan. So that in detail, the agreement with trade unions, manage the EBITDA, in particular, the first phase of our operative plan that is related to the transfer of the approach activities from some -- from -- not some, from all the airports to the area control center.

And we just think that this is -- these are completed with the operative activities that we have already prepared and that we are going to prepare to finalize the transfer, so that we can confirm that within 2020, the end of '22, '23, we will have completed the transfer of all the airport facilities from the airports -- from 10 airports to the area control center. And we have -- in the same table, we have also defined and signed the agreement related to the management of the overtime for summer seasons in order to maintain a very high level of quality of the service provided in terms of seasonality.

So it is one of our main targets, so that we are able, we are prepared to manage the summer season that is a challenging one at the European level considering the growing traffic, car rental growing traffic, the level of traffic and the expectation from the summer, so that this agreement is important for us also in the short term, so not only in considering the long-term goals consolidated in our business line.

And last but not least, I just want to highlight that in the meeting -- the discussion with the trade unions, we had also the opportunity to agree on a plan of replacement of personnel considering that we have defined the plan to hire 80 new controllers. And in the meantime, a certain number, so the increase has already with the company. The results in the first quarter of 2019 show full-time equivalent number of 115 employees like then in the same period of the previous year. And in fact, we are going to replace new, younger personnel so that we can also review the average of the salary of our employees.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [4]

--------------------------------------------------------------------------------

I will take the second question about the regulatory process. As you know, the commission has actually published the new regulatory framework, and so the new regulation is in place. Given that, what we are doing, we have 13 hours to finalize -- we are finalizing actually -- no, we're not finalizing. We are working on our planning and discussion with first, of all, with national authority and then with the European authority. At the moment, the process for seeing that -- I mean, the timing, the time line for seeing that, within October -- I would say, September, the business plan has to be provided to the European Commission. And before the end of the year, so around -- somewhere around October and November, the European Commission should give the feedback about the business plan.

So what we are planning is actually to follow this -- the time schedule. And what we have tried to do is to anticipate the discussion with the national authority, so ENAC, and with the European commission to try to finalize our business plan, probably before the other countries. But we are still in a timetable that I told you. The only thing that actually is published and it's probably I can underline is the proposed target for efficiency for the quality KPI. And for ENAV, at the moment the one that was published by the [PNV] is, I think, I can give you the number for 2020, 2021 through 2024, for the 5 years. So for 2020, we're at 0.25 [minutes] of delay per average flight managed. Then we have 0.25 also for 2021; 0.19, 2022; 0.14, 1-4, for 2023; in 2024, it's 0.14. These numbers should be more or less the one that will be used also for the performance planning internally.

As you can see for the first year, the target increased -- I mean, get a little lower in term of the target to allow the service provider, also ENAV, but it is for all the European service provider -- air traffic service provider to absorb the hugely important increase of traffic that we are aiming this year. Talking about the 2020 tariff, Nicolò, as you can imagine, Nicolò, as you can imagine, it's too early to be -- to give you some idea, some feedback on that, so I will ask you to wait a little bit more.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

The next question is from Luigi De Bellis with Equita.

--------------------------------------------------------------------------------

Luigi De Bellis, Equita SIM S.p.A., Research Division - Analyst [6]

--------------------------------------------------------------------------------

Three questions if I may. First one, could you elaborate on the traffic growth expected for the terminal zones for 2019 after the strong trend in Q1, especially related to the Zone 1? The second question, the nonregulated activities, which are your expectation for 2019 after the soft start of Q1? And the third question, on the OpEx, just an idea of personnel costs growth expected for 2019 after the agreement just announced and for services cost?

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [7]

--------------------------------------------------------------------------------

Yes. We're concerned with the traffic that we expect to have into -- for Terminal Zone 1. The trend that we're having now, we think that it could be the trend that we may have also for the end of the year. The main point is that the national -- even we are committed -- even the national -- say, Alitalia, for example, is increasing the traffic in the first 3 months. And in general, national -- sorry, the traffic that is moving on the Aeroporti Fiumicino because the Terminal Zone 1 is at Aeroporti Fiumicino, is actually increasing in this region, and we expect this will be maintained also within this year -- till the end of the year.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [8]

--------------------------------------------------------------------------------

Okay. Luigi, regarding your second question, our nonregulated business, the current position, the expectation for the record here, I have to underline that we are continuing managing contracts and try to acquire new contracts in an organic way and to increase our position of regulated business. And indeed, the environment we have to take into account the different phases of the deployment of some activities. Libya is one example of the reason why we expect a nonlinear deploy and increase the regulated business. But in the meantime, we are strongly working in the finalization of the acquisition of IDS. That hopefully will be consolidated in the second half of the year in terms of -- also in terms of revenue from nonregulated business. So that our target is to increase -- to substantially increase the current year in nonregulated revenues both for the effect of -- try to increase organic growth and consolidating the effects of the acquisition of IDS.

And last question about the cost trend, I can see that cost trends more or less will be in line with the Q1 '19, and you see both on the personnel costs and on external costs, considering that on personnel costs, we are reporting the effect of the new contract and the effect of the overtime coming from growing traffic and the need to support them to have our operative side full over the next summer.

In the meantime, the effect coming from the reduction on the number of employees will be more approachable in the going forward obviously considering that -- the natural trend of where we are. So I can say that OpEx will be slightly down to flat more or less considering that -- also that as you remember, the current year is the year in which we expect some activities regarding -- related to the industrial plan, the new plan and we'll have this effect, and considering also the OpEx situation of 2019 is relevant -- could be relevant for the regulator in the definition of the new tariffs for the next years.

--------------------------------------------------------------------------------

Luigi De Bellis, Equita SIM S.p.A., Research Division - Analyst [9]

--------------------------------------------------------------------------------

Okay. If I may just -- another question on the regulatory review. I'm wondering if you give us your feeling -- qualitative feeling on the negotiation up to date. If you are, let me say, in line with your expectations on the negotiation, more positive than some weeks ago or more negative? Just a feeling.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [10]

--------------------------------------------------------------------------------

Yes. Luca?

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [11]

--------------------------------------------------------------------------------

Yes, the feeling is positive at the moment. We are working and as -- I mean, it's a process. It's a hard long way, but it's still quite positive, our feeling.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

The next question is from Rishika Savjani with Barclays.

--------------------------------------------------------------------------------

Rishika Dipak Savjani, Barclays Bank PLC, Research Division - Assistant VP [13]

--------------------------------------------------------------------------------

I have 3 questions also. Firstly, could you confirm what en-route traffic assumption you're using within your guidance for the 32% margin for the full year? And maybe you can help us understand what the upside scenario would be if traffic continues at the very strong momentum that we're seeing year-to-date? And my second question is on Aireon. And if you can just provide us an update with what is happening there given I think you've started to kind of sign more contracts and make some progress, that would be interesting. And then very finally, as we enter the summer season, and I think you mentioned it yourself, Roberta, earlier that the air traffic control industry needs to be better prepared to work with the airlines to reduce delays. Could you maybe give us a sense of how you think that the industry has had prepared for this summer season and what the differences are compared to last year?

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [14]

--------------------------------------------------------------------------------

Okay. Luca?

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [15]

--------------------------------------------------------------------------------

Okay. So I will take the first question, about the traffic, the en-route traffic. You know that now we are around 7.5% increase of en-route. It all confirmed the trend. So at the moment, this value allowed us to be on a higher business -- I'll say, on the traffic planning on our budget. And also, that's the one that we also agreed with the regulator. At the moment -- for the 2019 tariffs. For the moment, we are 2.4% higher than the one that was agreed, so that was positive for us. And it is -- as you can imagine, that band fully has effect on -- some positive revenues for us. And we expect this to have this trend also for the end of the year.

And so this number at the moment for us is a number that we can keep in mind also for the end of the year. It would be very important to see how the summer season will go because it depends also on what will happen in some part of the country in terms of delay that they will give and how many flights will move from their air space to our air space. And I think this is quite -- this is really, really, really important phase. So the summer will give us the real flavor of what the season will be. At the moment, a number around 7%, 7.5% is still the number that we have in our mind for the end of the year.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [16]

--------------------------------------------------------------------------------

Yes, Luca -- I mean, Rishika, I'll take the opportunity to answer to your last question. Considering what Luca said before, because I assume that many, many airline companies are very worried about the perspective for the next summer and they are worried at the general level. But I have to say that the relationship we have is a good one with each airline company because they are purchasing more than in the past. The performance of ENAV, this morning I had a meeting with Mr. [O'Leary] really for just to discuss the Italian situation compared with the European situation, what we could do also to address the activities of other air navigation service provider in order to harmonize and to reduce the fragmentation of ICs at the European level.

So that I can answer to your question saying that, yes, the feeling of large companies are not positive in general. We are -- have a preferred position, and so we have no big problem, I have to say. I have to add also the fact that for these reasons, the network managers at the European level -- air control to the network manager is anticipating the critical issues that could be in place next summer, also trying to address the flow of traffic in certain areas, is stable in other areas, so that we expect also that for certain areas, I would say, in Italy, north -- not the west, sorry, [near France]. So we could be in the position to manage more traffic than the normal flow of traffic, and we said preparing in line with the network manager because we are having stronger -- many meetings with them in order to understand the activities that actually we could anticipate in this environment.

And last, your question, I'll give you an update. I can confirm Aireon, the constellation and the system is in place. It's a technical point. The system is operative. It means that in Canada, a service provider is already using the signal coming from Aireon through a contract that North Canada has signed some months ago. So that I can say that Aireon is operative. Obviously, there are many activities that are still in place regarding the completion or the finalization of new harmonization of the regulation at European and American level, but the commercial activities, including the full [quarter] in the sense that many others -- a lot of customers have already signed a contract, and many are -- and there are in place some discussions with other potential partners. So that I could say that -- I can confirm that starting from 2021, Aireon will start to distribute the dividend to the shareholders.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next question is from Arthur Truslove with Crédit Suisse.

--------------------------------------------------------------------------------

Arthur David Truslove, Crédit Suisse AG, Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

Arthur Truslove from Crédit Suisse. First question for me. On the labor contract, could you just tell us exactly how long it is and exactly how much wages rise for each year that it lasts? And can you give us a sensible set of assumptions for labor cost across 2019, 2020, 2021 and 2022? And secondly, obviously, you're rationalizing your business quite significantly over the coming years. Are you expecting to be able to sell off any freehold land?

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [19]

--------------------------------------------------------------------------------

Okay. Okay. Regarding the agreement with the trade unions and the labor contract, our -- the current labor contract was renovated last year in July 2018 with effects starting from 1st of January 2017 until December 2018. So it means that the current contract will be -- produce effects until the end of 2019. Then we have to discuss what is the future about the new contract, so it's not an issue today. The agreement that yesterday we signed with trade unions are not related to the contract but are in specifically way related to the agreement regarding how we will deploy -- implement the business plan so that we can say that we are implementing the business plan in agreement with the trade unions, and we are satisfied of this.

--------------------------------------------------------------------------------

Stefano Raffaello Songini, ENAV S.p.A. - Head of IR [20]

--------------------------------------------------------------------------------

The second point also.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [21]

--------------------------------------------------------------------------------

The second point is related to the, say, the land, the business. He's talking about the land. Yes. We are not actually -- ENAV works on the ground. It's a public ground. It's given to us, so actually, we will continue to keep this -- what is it?

--------------------------------------------------------------------------------

Stefano Raffaello Songini, ENAV S.p.A. - Head of IR [22]

--------------------------------------------------------------------------------

This land.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [23]

--------------------------------------------------------------------------------

This land, sorry. This land. We will continue to keep this land also because even if we put, for example, one tower, we still need the tower over there. Probably, we will continue to use the tower that we have over there, and putting other people back to the building would be obvious to say. And then, as I told you, it's a public domain -- a public land that is given to us. So if we don't use this, we cannot sell it. If we don't use this land, we have to give it back to the government, to the authority. So at the moment, we don't have any business on that.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [24]

--------------------------------------------------------------------------------

Just to simplify, we -- until the end of the second life of the control tower, the physical control tower, we will continue to use the tower and the center. But if there remain the -- yes, the tower on which we will look after the new technology, the new equipment.

--------------------------------------------------------------------------------

Arthur David Truslove, Crédit Suisse AG, Research Division - Research Analyst [25]

--------------------------------------------------------------------------------

Okay. Just one final question. You obviously mentioned one of the reasons why labor costs went up was because workers were working more overtime. And if the number of en-route service units rises by, say, 1% higher than you expect, roughly how much impact does that have on labor costs? Can you give us some idea of that?

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [26]

--------------------------------------------------------------------------------

No. You have to consider that the relationship between labor cost and traffic is not directly -- it's not linear, sorry. So it moves, but we could use over time if and when -- it will depend also on the organization of the center, so that we cannot consider that all the effects coming from the increase in traffic in terms of revenues is linear -- in a linear way and linked to the growth on labor costs.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

(Operator Instructions) Mr. Songini, there are no more questions in the queue at this time.

--------------------------------------------------------------------------------

Stefano Raffaello Songini, ENAV S.p.A. - Head of IR [28]

--------------------------------------------------------------------------------

Thank you, operator. Thank you, ladies and gentlemen, for being on the call. As always, please follow up with any further questions with the IR team here in Rome. Myself, and [Alexandra] will be more than happy to answer any questions. Thank you, Roberta, and thank you, Luca, and good bye.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [29]

--------------------------------------------------------------------------------

Thank you, everyone. Bye-bye.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [30]

--------------------------------------------------------------------------------

Bye.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.