ATSG - Air Transport Services Group Inc. (ATSG) Q4 2022 Earnings Call Transcript

Air Transport Services Group, Inc. (ATSG)

Q4 2022 Results Conference Call

February 24, 2023 10:00 AM ET

Company Participants

Joe Payne - Chief Legal Officer

Rich Corrado - President & CEO

Quint Turner - CFO

Mike Berger - Chief Commercial Officer

Conference Call Participants

Grant Smith - Stephens Inc

Helen Becker - Cowen

Michael Ciarmoli - Truist

Frank Galanti - Stifel

Howard Rosencrans - Value Advisory

Presentation

Operator

Good day, and thank you for standing by. Welcome to the Air Transport Services Group Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question and answer session. [Operator Instructions] Please be advised today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Joe Payne, Chief Legal Officer. Please go ahead.

Joe Payne

Good morning, and welcome to our fourth quarter 2022 earnings conference call. We issued our earnings release yesterday after the market closed. It's on our website, atsginc.com.

Let me begin by advising you that during the course of this call, we will make projections and 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. 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, unplanned changes in the 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 and in interest rates, which may result in mark-to-market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; our ability to remain in compliance with key agreements with customers, lenders and government agencies; the impact of current supply chain constraints, both within and outside the U.S., which may be more severe or persist longer than we currently expect; the impact of the current competitive labor market; changes in general economic and/or industry-specific conditions; factors relating to the COVID-19 pandemic, including that the pandemic may continue for a longer period or its effect on commercial and military passenger flying may be more substantial than we currently expect; disruptions in our workforce and staffing capability; disruptions in our ability to access airports and maintenance facilities or adversely impact our customers' creditworthiness and the continuing ability of our vendors and third-party service providers to maintain customary service levels; and other factors as contained from time to time in our filings with the SEC, including the Form 10-K we will file next week.

We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, adjusted pretax earnings, adjusted EBITDA and adjusted cash flow. 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. We advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website.

And now I'll turn the call over to Rich Corrado, our President and CEO, for his opening comments.

Rich Corrado

Thanks, Joe. Good morning, everyone. 2022 was an exceptional year for ATSG. Even with rapid inflation and delays at our 767 freighter conversion vendor, your company still exceeded its 2022 financial goals of $640 million in adjusted EBITDA and $2 in adjusted EPS. We also began to invest in new freighter platforms from the Airbus family while maintaining our leadership in Boeing 767 freighter leasing.

I am very proud of the excellent planning and execution throughout the company that drove our considerable success. Many of those efforts are playing into our outlook for 2023. Despite some headwinds, we expect more adjusted EBITDA growth and accelerated growth in 2024 and later years.

I'll be back to share more of that perspective after Quint reviews our financial results for 2022.

Quint?

Quint Turner

Thanks, Rich, and welcome to everyone on the call this morning. The next slide in our deck summarizes the strong 2022 results that Rich highlighted. Our consolidated revenues for 2022 grew $311 million to $2 billion, another all-time high for revenues at ATSG. Our adjusted EPS increased by more than 40% to $2.28 compared with $1.61 in 2021. That was well above the $2 target we set a year ago. Adjusted pretax earnings increased 51% and adjusted EBITDA rose 18%.

Earnings from our airline businesses, along with the momentum of our leasing returns from CAM, produced most of the EPS gain above our target. We are projecting lower EPS for 2023, as Rich will discuss in his remarks, mainly because of increased interest expense on our current fleet additions and inflation effects, particularly in our ACMI Services segment.

On the next slide, you can see that versus the 12 months ended in December 2021, our adjusted EBITDA grew a record $100 million or 18% in 2022. That improvement includes a full year of cash flows from the 15 newly converted 767 freighters we deployed in 2021 and more than doubling our earnings from ACMI Services. For adjusted EBITDA, we exclude, among other items, the changes in values of our financial instruments and the benefits of federal pandemic release assistance for our passenger operations under the payroll support programs for the 2021 period.

On the next slide, you'll see that our capital spending finished the year at just under $600 million, $25 million less than we projected last quarter. We separate what we call sustaining CapEx, mainly for airframe and engine maintenance, technology and other equipment from the spending we allocate to fleet expansion. Sustaining CapEx was $187 million for the year, up $4 million. Growth CapEx was $412 million, up $90 million from the prior year, both to convert existing aircraft to freighters and to buy more feedstock passenger aircraft. In 2022, those purchases included 8 Boeing 767s and 6 Airbus A321s. We deployed and leased 6 newly converted 767 freighters last year. Turnaround times at many passenger-to-freighter aircraft conversion houses remain well above pre-pandemic levels despite their efforts to increase throughput. We expect those bottlenecks to lessen this year.

The next slide updates our adjusted free cash flow as measured by our operating cash flow, net of our sustaining CapEx. Adjusted free cash flow of $285 million last year was down $115 million from the year-earlier period and down $88 million for the 12 months ended last September. Cash flows from federal grants in 2021 were $83 million. All of that cash was received in the first half. Our full year 2022 results reflect the impact of the temporary fourth quarter increase in working capital related to reimbursement of fuel costs from Omni's federal government customers. We project our growth capital investments to exceed adjusted free cash flows until 2025 when we expect that trend to reverse. Through 2024, we expect our debt leverage ratio to remain under 3 times and begin to decline in 2025.

You may have already seen the 2023 guidance we provided in the earnings release we issued yesterday. Rich will cover some of the factors that will affect our earnings and cash flow in his remarks. I wanted to provide some color around the significant increase in our CapEx budget of $850 million this year and the strategic decisions and steps that prepare the way for our growth investments in 2023 and 2024.

The bulk of our CapEx this year and in 2024 will continue to fund the expansion of our leased 767 fleet. The other major driver of our stepped-up growth in spending over the next several years is our decision to begin offering our lease customers to other freighter types, the Airbus A321, a narrow-body midsize trader designed to replace retiring Boeing 757s, and the A330, a wide-body midsize freighter that will complement our still expanding fleet of 767s.

We started this freighter platform expansion from a strong financial position. Through 2022, our debt-to-adjusted EBITDA ratio as calculated under our bank agreement was below 2 times and well below our average over the last several years. We also acted in 2020 and 2021 to lock in favorable fixed rates by issuing 7-year unsecured notes at a 4.75% coupon rate and amended our senior credit facility to increase our borrowing capacity, free of some collateral, and accommodate the resumption of our stock repurchase program. Available credit under our revolver was $365 million at the end of 2022, with an option for additional capacity subject to bank approvals.

To coincide with our increased business with airlines in Europe and Asia, we intend to establish a similar $100 million credit facility in Ireland in the next few days. When our fleet development program is at its peak in 2024 and lease revenues from Airbus fleet additions are just beginning, we project that our leverage ratio will still remain less than 3 times. After that, we expect to begin delevering in 2025.

I also want to note that even with higher CapEx spending, we have the liquidity and cash flow visibility to continue to accommodate opportunistic share repurchases under the $150 million facility the Board created last fall. As we noted in our release, we repurchased 2 million shares or about 3% of those outstanding during the fourth quarter after pandemic grant restrictions on our repurchases expired.

With that summary of our financial and operating results, I'll turn it back to Rich for some comments on our operations and outlook.

Rich?

Rich Corrado

Thanks, Quint. The earnings release we issued yesterday listed some key 2022 operating accomplishments that contributed to the financial results that Quint just reviewed. Let me highlight them and share some additional color to give you more insight about how well we performed last year.

Overall, we added 13767 freighters in 2022, 6 of which were CAM owned and leased to third-party customers. CAM also re-leased 1767-200 and extended leases on 4 other 200s. Two of the 6 newly converted 767-300 freighters leased last year are also being operated by ATSG's airlines under crew, maintenance and insurance agreements. We also added 7 other 767-300s to our fleet under asset-light CMI arrangements. Those were assigned to our airlines by customers who obtained them elsewhere but shows our airlines, ABX Air and ATI to fly them. They joined 6 others we were already operating on the same basis. We expect our customers to assign us 3 more in 2023.

These decisions by our customers attest to their confidence in the airline services that we provide.

Our original 2022 plan called for more freighter leases, but both vendor and regulatory issues prevented us from reaching our targets. Our principal 767 conversion vendor, IAI, continues to add conversion capacity but throughput times remain well behind pre-pandemic levels. Anticipating delays, we decided to book several conversion slots with Boeing in 2021 and added more in 2022. Boeing will convert 4 of the 767-300s we expect to deploy this year. We believe that a combination of additional slots and faster throughput will allow us to meet our 2023 fleet expansion goals.

Another challenge is gaining approvals from the regulatory agencies to put our converted A321-200 freighters into service. Three of the 6 A321s that CAM intends to lease this year, including CAM's first 2 to ASL Aviation in Ireland, are ready to go with regulatory approval. We expect that to happen by midyear. To prepare for our step-up in fleet investments starting this year, CAM was active in the feedstock market in 2022. Through purchases and other commitments, CAM now controls all of the passenger aircraft it requires for our anticipated 20 freighter leases in 2023 and nearly all of those that were leased in 2024.

Please go to the next slide. Quint noted that the scale of our fleet investments will be much larger over the next few years and then we have the financial backing to complete them. To those who might be concerned about whether customers will be ready to make long-term lease commitments for those aircraft as they complete conversion, it's important to understand that the surge in U.S. e-commerce activity that preceded and soared during the pandemic is only now beginning to surge in other parts of the world. The e-commerce portion for retail sales is still growing rapidly elsewhere, including Eastern Europe, Asia, Africa and Latin America as air networks expand.

Accordingly, more than 80% of CAM's leased freighter deployments over the next several years will be to airlines operating outside North America. And many of them will operate in networks established by DHL and other integrators who lease our freighters themselves but where rules limit where they can operate directly.

Turning to our airlines. Some of the continuing growth in e-commerce fulfillment in the U.S. last year led to expansions of their fleets and more operating block hours. ABX Air and ATI added 9 767 freighters, including 7 assigned to them. Block hours of flying for all 3 airlines increased 8%, with a 9% increase in cargo operations and a 4% gain in passenger operations. Even with 1 fewer 767 in its fleet, Omni still completed a strong schedule of passenger airline missions for government customers. Also, the Department of Defense restored our full combi schedule, including our longest route in the fourth quarter.

We are also proud to note that a year ago, DHL agreed, once again, to extend and expand the long-standing commercial relationship we've enjoyed with them since the inception of ATSG as an independent public company in 2003. The agreement extended our airline service in support of DHL's U.S. Express network for 6 years and included the lease of 3 more 767-300 freighters from CAM. Our deployment schedules include still more 767s plus some A330s for DHL's global network.

Please go on to the next slide. Those were a few of the operating and commercial successes that helped us generate record revenues, adjusted EBITDA and adjusted EPS in 2022 and will contribute to our results for several years to come. In 2023, ATSG expects to generate between $650 million and $660 million in adjusted EBITDA and between $1.85 and $2 in adjusted earnings per share. Those targets reflect a record pace of 20 freighter lease deployments I mentioned a moment ago and which we announced to the market on February 6. Four of the international companies we will lease freighters to in 2023 and 2024 are new customers, supporting Air Express networks in other regions.

Several years ago, we began to expand our sales and marketing outreach to customers where e-commerce is just beginning to take hold, and those efforts are paying off in record demand for our freighters today. Later in the year, CAM will begin the passenger-to-freighter conversions of our first A330-300 for lease delivery in 2024. CAM expects to convert and lease 30 such aircraft by 2028, two-thirds of which are already backed by customer commitments.

CAM will also begin conversion of a projected 16 767-300 freighters it expects to lease in 2024, most of which have customers awaiting them. ATSG's 2023 outlook also includes the return of 8 of the 12 767-200 freighters that ATSG leased to Amazon in 2016. The remaining 8 will be re-leased, sold or harvested, with their engine added to the power by cycle pool for 767-200 lease customers. ATSG also expects inflationary and schedule reduction impacts on our airlines in 2023, when we expect fewer hours of flying for our ACMI and CMI customers. We remain positive on ATSG's long-term growth opportunities with our major U.S. air network customers and expect to add 3 customer-provided aircraft this year.

We expect that 2024 and 2025 will bring the resumption of strong earnings and cash flow growth from today's investments, with year-over-year growth of about 10% in adjusted EBITDA and even stronger growth in our leasing segment. Few companies have customers committed to long-term agreements that will generate the kind of cash flow visibility that ATSG enjoys. We have a strong balance sheet, a leadership position in the midsized freighter leasing market and the strong backing of investors in our credit facility and debt securities, who regard the feedstock aircraft we are acquiring as prime assets.

Our employees are also prepared to execute all of our 2023 plans with a goal to turn exciting opportunities into long-term superior returns for shareholders.

That concludes our prepared remarks. Quint and I, along with Mike Berger, our Chief Strategy Officer, are ready to answer questions.

May we have the first question, operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jack Atkins with Stephens. Your line is open.

Grant Smith

This is Grant on for Jack. I just wanted to dig in a little bit on the 2023 guidance really on the ACMI side and kind of how you're expecting that to play out maybe first half versus second half. And you mentioned in your fleet update that the first half would see a year-over-year decrease in block hours with your larger customers. And today, you talked about a full year block hour decrease year-over-year in cargo and passenger. Just maybe any color on how you're thinking about ACMI over the course of the full year would be great.

Quint Turner

Yes. Thanks for the question. In terms of ACMI, the block hour decrease that we talked about, remember, we had the resumption for ATI of a combi route in the fourth quarter of '21, so we'll have that for the full year in -- or excuse me, fourth quarter '22, and we'll have it for the full year of '23. And we consider that as passenger, but of course, the other passenger hours being flown by Omni primarily for its governmental and the DoD and governmental customers.

We expect passenger and cargo hours to be down. They'll be down less than 5%, we would anticipate, year-over-year for the full year. And I think really in terms of differentiating, it's -- we do expect perhaps in the second half to see, as we typically do, and you see a lot of the forecast, some recovery, particularly on the cargo side, where hours may pick up seasonally. But on the pack side, it's more of -- we expect sort of a steady environment. Those are sometimes a little tougher to forecast. As you know, some of those hours, you don't have as much notice on. We've had events happen in the world that can affect the demand particularly for Omni on the military side.

We do anticipate, I believe, in the -- based on what we've seen in the first quarter, we may see some reduced hours in flying for Omni on the governmental side, if that helps. But basically, that part, the tax line, we're assuming pretty much steady state in the absence of having any specific information about the second half.

Grant Smith

And if I could just follow up 1 more thing. So you mentioned the strength internationally in e-commerce and what you're hearing for your customers. Maybe if you could just talk a little bit on your U.S. customers. And maybe is there any more negative commentary you've heard from them? Any calls for concern as you maybe think about trying to re-lease those 767-200s as you mentioned?

Mike Berger

Yes. No, thanks, Grant, for the call. It's Mike Berger. From a U.S. perspective, as Rich mentioned, just to go back to Rich's remarks, our order book for the next couple of years, '23 and '24, has really been dominant, over 80% leased outside the U.S. from an international perspective. So our strategy to move forward further globally that we started several years ago now really is taking hold and will continue to.

So we -- while we continue to look for opportunities within the U.S. and we'll continue to support our customers' growth where needed, our opportunities have really been greater outside the U.S. and we continue to push that way.

Operator

Our next question comes from Helen Becker with Cowen. Your line is open.

Helane Becker

Let's see, I have two questions. The 1 question, Quint, can you -- when you talk about aircraft that you have placed or that are going to customers or where you have customers signed up, can you talk about it in terms of committed revenue over that time frame? Like can you say we've already had committed revenue of X billions of dollars over the next X number of years? Are you able to say that?

Quint Turner

Yes. I mean, it's a good question, Helane. We talk about the 20 aircraft, for example, that we're looking that we are targeting for deployment in '23. On an annualized basis, you're talking about around $70 million of revenue for those placements. And if you look at 2024, it's probably more like about $85 million to $90 million on an annualized on top of that. And we have, as Rich said, excellent visibility on that. On those placements, we've got customer commitments, I think, for all but 2 or 3 of those.

Helane Becker

And then my follow-up question is, I think -- I don't know if it was you or Rich, you said in your prepared remarks that you have inflationary cost pressure in some of your ACMI businesses. Is that reimbursable by your customers, those cost pressures?

Quint Turner

Well, certainly, there's escalators that are built into our customer contracts. We've all seen inflation in the recent years that has outpaced, I think, what most folks would have in their contracts. But having said that, I mean, I think it's important to say that when you look at ACMI Services, I mean, it's made tremendous progress throughout the pandemic for ATSG's airlines.

And what we have projected in '23, for example, their contribution in terms of adjusted EBITDA is about 12% higher than it was in 2021 and in 2023. Now 2022 was an excellent year, right? They had -- there were some opportunities for -- where customers needed charter flights and things that were higher margin than we might see in '23 due to the macroeconomic environment. And then, of course, in '23, with perhaps less commercial opportunities, you may see some of the airlines who participate in the government flying, the craft program. They may fly their -- more of their entitlements. Some of those airlines may have been opting to fly commercial trips when the rates being offered for those types of trips were really high on the -- and now there may be less of those in a slower economy in '23.

So we anticipate that Omni, while it's going to do well in '23, but it may not have as many opportunities to fly and clean up some of the entitlement not flown by some of the other carriers.

Rich Corrado

Helane, the things that -- there are reimbursables in those ACMI agreements, things like permits, like landing fees, those types of things. Fuel is a big reimbursement. But the things that have impacted us on an inflationary basis are things like travel costs because we have to position pilots all over the world, maintenance costs for maintenance technicians or maintenance contractors. Those costs have been rising over the past few years. And those are built into the rates. They do get escalated, as Quint said, in the general agreements year-to-year. But it's just a matter of whether that escalation keeps up with where the inflationary pressure may be in the different cost items.

Quint Turner

And on the military and the DoD type flying, those contracts are more akin to cost-plus. And so rates are adjusted. There's a look-back, though. There's usually a lag, right? In the year the inflation is occurring, you may not get the reimbursement. But when rates are reset in subsequent years, those adjustments are made. So that's a risk mitigator but it creates a dislocation.

Helane Becker

Can I squeeze in one more question? I think, Rich, you said that you were going to use Boeing to do more conversions than IAI. Why are they going to be faster to do conversions or turnarounds, given all the supply constraint issues they have?

Rich Corrado

Yes. I didn't say that we were going to use more Boeing, but we do have 8 slots from Boeing and we're still using a lot of IAI. We have 5 lines operating there pretty much at all times. The difference between IAI and Boeing really is that Boeing has a full production line still going of factory freighters and factory tankers. And so I think they've got a sturdier supply chain than some of the other converters and some of the other lines of business.

Now we're under the A321, the A330. We've got multiple vendors on the A321 on the conversion side. And of course, we do our own. And then we've got the 2 on the 767. So we get a good view into what's going on in some of these supply chains, and I think we mentioned it in the prepared remarks that we saw some delays from IAI. And a lot of that was related to fabrication and parts vendors that they use in other countries. And I think Boeing just has a more captive supply chain just because they've got, I believe, because they've got that large production line and that supports their conversion line as well.

Mike Berger

And Helane, it's Mike. They tend to be a little bit more, like I put it this way, cookie-cutter. So the work scopes that go into the conversions upfront are well defined and just more cookie-cutter approach so the changes don't impact the actual delivery times.

Rich Corrado

Another way to say that is they're less flexible.

Helane Becker

I got it. Okay, all right.

Operator

Our next question comes from Michael Ciarmoli with Truist. Your line is open.

Michael Ciarmoli

Just I guess, Rich or Quint, just looking at the EBITDA guidance next year, the run rate, I mean, you have -- it's basically the second half '22 EBITDA run rate basically put you at the low end of that range. You're going to have more planes in service. Is all of this pressure just coming from ACMI? Or can you just elaborate a little bit? I was always operating under the impression of playing out there is maybe $4 million to $5 million of EBITDA. But just maybe can you provide some color as to the EBITDA, why the run rate just kind of holds from third quarter, fourth quarter all the way through?

Quint Turner

Yes. I mean, Michael, it's Quint. You're correct that the -- in terms of the, I guess, the more of the headwind in '23 is ACMI Services. Even though, as I mentioned, ACMI Services in '23 is projected to be up versus, for example, '21 and certainly way up since the pre-pandemic period. I mean, ACMI Services has been a great contributor.

But there is, as we've always said, a little bit more volatility, and our business model has a great deal of stability with the CAM piece. But there's always a little bit of volatility on the ACMI Services side. Now we like that because it's an asset-light business, and generally, it's been a great contributor in terms of overall cash flow. And as I said, it has made progress every year except comparing to '22 as we look at '23. It's going to be down but still up versus prior periods. So there's some volatility around the margins on ACMI Services. That has to do with what we said earlier about where the opportunities might lie for military flying and commercial flying.

But on the CAM piece, we talked about in our pre-release, there will be some aircraft coming back, we believe. That will create a pause, I guess, in terms of revenue stream on those 767-200s that we put the earlier release out on. CAM, certainly, in terms of their earnings margins that are impacted by the rise in interest cost, which is certainly a factor. And of course, inflation also can affect the investments, what it takes to put an aircraft on the ramp at least.

The lease rate has held up nicely, but similar to comment earlier, sometimes there's a little bit of a lag there when inflation moves really quickly because we have a lot of our growth already programmed in, just like we talked about our pipeline, in '23 and '24, with what, 40-some aircraft coming out and being leased. We have a lot of that pipeline locked in 18, 24 months prior to when the asset comes out. So sometimes that inflation can impact the end-of-service cost, and that's something CAM has to deal with.

But it's -- we're hitting our return margins there. The businesses looks to be positioned, as Rich said, to be the engine that will drive again in '24 and '25, we believe, double-digit EBITDA growth year-over-year. But in '23, you have those -- you have some returns coming back and you have that higher interest costs so there's a little bit of a headwind there. I don't know, Mike, if there's anything...

Mike Berger

Yes, we view it as an investment year and the line of sight, as Quint mentioned, in terms of our order book in 2023 and '24 and quite honestly, into 2025 on the 767 side is fabulous. And as we look at the engine, the e-commerce engine and what drives that retail sales as a whole from now to 2026 are going to grow -- are scheduled to grow by $4.6 trillion, and $2.2 trillion of that is going to be in e-commerce.

As Rich mentioned in his early remarks, we're still seeing very, very strong growth in the areas that -- around the world that we are seeing success in, Southeast Asia, Africa, the Middle East, for example, are areas that we're seeing great success with new customers as well as our existing customers in those areas. As we progress in '24 and '25, we'll be right in the midst of our deliveries on the A330, and that investment for the A330 is taking place now. So we're really keen on what the future specifically lies in our EBITDA growth and getting back to that 10-plus percent, as Quint talked about, in the upcoming years.

Rich Corrado

The other piece that I'll just talk about is from a strength standpoint is retirement. During the pandemic, about 15 freighters were being retired a year. On a normal year, it's about 70. What does that mean? That means that the demand for cargo freighters around the world is just going to continue to add strength. So we continue to be real positive.

Michael Ciarmoli

Just on the capital intensity of business. I mean, that sustaining CapEx guidance is going to be up 40% to $260 million. I mean, is there anything unique happening this year? I mean, presumably, maintenance part, overall kind of shop are getting more expensive. But how should we think about this sustaining CapEx going forward?

Quint Turner

Yes. Thanks, Michael. It's Quint. The -- we've kind of said, because maintenance CapEx can move based on the timing of scheduled maintenance from year-to-year, I think we've kind of said it's around a couple of hundred million dollars of our CapEx in any given year. But you're right, '23 is a little bit higher. Now '22 was, I think, what we say, $187 million. So you can see it came in a little lower. '23 is higher than that $200 million sort of trend -- long-term trend line mainly because of the timing of some engine overhauls.

We maintain a pool of engines for some of the lessee's one of the engine types. And it's just based upon their shop -- their expected shop visit timing. We've got more of those this year. I mean, you are correct. Inflation, as we said, I don't think any of us can probably think of any cost that it doesn't affect, but it has more to do with the timing of scheduled maintenance as to why we're looking at a higher number for maintenance CapEx in '23.

Michael Ciarmoli

And then just the last 1, if I may. Any update on your kind of contracts with your pilots, just kind of watching the news here seeing what's going on at FedEx? How are you kind of handicapping or thinking about that risk?

Mike Berger

Yes. So we've got pilot contracts open or amendable, I should say, with both ATI on the cargo side and on -- in our passenger operator, Omni. And both those contracts are -- have been in negotiation and the -- both sides are meeting multiple times per month now and trading information and going forward. And so the -- things are progressing.

Just based on where they are individually and they're both in different places, but we don't believe that we'll get to anything very quickly. We have always taken the position that we need a pilot contract that pays the pilots well enough that we can retain and attract pilots but also gives us the cost structure required that we compete for business. And we've always been able to make those 2 positions meet at some point, and we'll continue to pursue the contract negotiations with that perspective.

Operator

Our next question comes from Frank Galanti with Stifel. Your line is open.

Frank Galanti

I wanted to follow up on that last question on pilots. Can you sort of talk about availability of pilots. Have you -- considering the kind of new EBITDA guidance and expectations for low block hours, does that sort of alleviate some of the pressure from a pilot perspective? And can you talk about how variable that cost is with block hours?

Mike Berger

So a couple of things. One is that we've been able to attract pilots without a problem over the past year. And any attrition that we've had, we've been able to stay ahead of the curve in terms of getting the training done and getting them able to be able to fly and preserve all our schedules and et cetera, et cetera. So that's been a good thing.

Our average hours are way over the minimum of the new pilots coming in. So we're in good shape as far as the pilot situation goes. But in terms of the variability of pilot cost as it relates to block hours, I mean, the pilot cost is really -- it's under contract. So it's -- the pilots will go through the -- increase their pay as they go through scales, it doesn't really change that much on an average cost basis per block hour. And the contracts that we have, there are escalations that address cost on an annual basis.

Quint Turner

But Frank, as we look forward at the placements for aircraft, as Mike commented, most all of these are going internationally. So we don't anticipate operating those through the airline. So I think what, over 80% or something or international placements in '23, '24. And so that will, to your point, they won't drive a demand for additional pilots. It's more about keeping pace with that attrition that Rich mentioned.

Quint Turner

And if you look at -- I mean, just the next 2 years are going to be 40 airplanes we're putting out. And you look at the diversification, we're getting away from some of our larger lessees, it's a great story because we've got stability, we've got visibility to cash flows, and we've got a differentiated business model going forward into different parts of the world.

Frank Galanti

So I wanted to ask about the 767-200s. Can you kind of talk about, so in the press release, you had an expectation of at the end of '23 being down 8 planes. Can you sort of talk about the age and efficiency interest in that platform? And then kind of second part of that, last year, you took in-house, the engine services for that plane. You sort of talked about $45 million of EBITDA contribution from that. Where does that sort of stack relative to what you expected in '22 versus '23 with sort of the changes in that platform?

Quint Turner

Yes. In terms of the last part of that question, I don't know if Mike might jump in the first part on the 200s, but your question about the engine piece. Yes, for '22, it was right around the $40 million that we talked about at the beginning of the year when we gave you guidance in terms of that EBITDA contribution. Remember, there was kind of a step-up there because we ended a long-time PVC agreement with a provider, and we went to the pooling structure that we have now, where we essentially -- we overhaul, we maintain that pool of engines and make it available to lessees who operate the aircraft.

So on a '23 versus '22, there won't be much of a change. In other words, it's not a big driver of incremental EBITDA. That was sort of that -- changing that structure from '21 to -- late '21 to '22 that drove that $40 million increase in '22. So pretty much a stable contribution in '23 versus '22 from the engine piece.

Mike Berger

In regards to the first part of your question about the demand for the 767-200, we've seen still very, very good demand for the airframe. And as Rich has mentioned in his opening remarks, we certainly will have some opportunities to sell some of those airframes as well as re-lease them out to the marketplace. So as we view those opportunities and we'll kind of have our choice, if I could put it that way, to pick and choose what's best for us as we get those returns, couple that with the engine program, the pool of engines that Quint mentioned, that we still feel that the -- or still not only feel but see strong request and strong demand for that airframe.

Operator

[Operator Instructions] Our next question comes from Howard Rosencrans with VA. Your line is open.

Howard Rosencrans

I guess I just want to understand the -- I mean, obviously, the market is having a different reaction to what you're seeing in terms of one of the prior speakers commented on "great story". So I just -- to simplify in terms of the growth CapEx, you've got $600 million in '23 and it sort of implies about $600 million in '24. Is that sort of related to -- again, just oversimplify without the breakdown between BA and the Airbus equipment. Ostensibly, we're talking about the $27 million, $30 million per

Rich Corrado

I'm sorry, Howard, you cut off there.

Howard Rosencrans

Yes. No, no. I had completed the question. Ostensibly, are we talking about $27 million to $30 million per aircraft? That's again, whether it flows in as working capital or flows in as -- but basically in terms of the CapEx, is that what we're effectively talking about? And then I want to ask you the follow-on.

Quint Turner

Well, we talked about that range in terms of the 767-300s to what investments look like to put them on the ramp in leasable shape.

Howard Rosencrans

Right. Okay. And it's pretty much the same ballpark for the Airbus, right? Is that fair to say?

Mike Berger

Yes. In terms of -- it depends on the Airbus type. And as Rich just said in the past, think of the narrow-body 321 as about two-thirds the [Indiscernible] about two-thirds the -- and then the 330 is about 20% larger than the 767-300s. So it's going to be a

Howard Rosencrans

So at the end of the day, it all washes out to about the same thing. So that leads me to my real question here. So the market is suggesting or the investment community, or however you want to look at it, is suggesting that now the returns that you're going to generate are not going to be the returns that you have generated historically.

And I guess just to speculate, there's a lack of comfort with the customers vis-à-vis the customers like Amazon and DHL and FedEx and the ones that have been part of your fleet. So how do you give us the comfort level that the customers that you have on the horizon where you're going to do these placements are going to -- have the same fortitude, let's say, for the sake of conversation, the e-comm growth on an international basis is not as pronounced exactly, that's going to impact that we assume more your ACMI, which is the ACMI, which is more the volatility side of the business.

But as long as we get the CAM placements there and as long as they're taking them, then we get the return on the CAM side, and let's face it, that's the lion's share of the cash flow. Since your debt is going up so much over the ensuing couple of years, to me, I just want to -- and I think for others, we just want to get a higher level of comfort that the varied buyers that we're now going to be doing business with are sharply accelerated will be able to comfortably perform in line with the way your Goliath, let's say, domestic or global players have performed.

Rich Corrado

Yes, Howard. No, it's a good question. I'm glad you asked it because we've made this -- we've handled a similar question in the past about some of the smaller lessees that we have. There's a couple of things. One is that several of the lessees that are prominently positioned to take, whether it's A321, 767s or A330s, also fly for Express companies or fly an Express network that multiple companies may participate in. For example, Cargojet up in Canada.

We've also got some large companies in this portfolio that will be taking airplanes internationally. DHL is in line for both 767s and A330s from now through 2026. You've got a company, ASL, that's based in Ireland but has several AOCs all over Europe. They're the largest ACMI operator in Europe, and they fly for multiple Express companies, and they have very strong agreements. And so -- and then you've got a company like Raya in Malaysia, which is going to be taking A321s and they are currently a 767 customer. They fly for DHL.

So when you look at these lessees, they're diversifying us globally. And although they may not be your household name of DHL, UPS or FedEx, they fly for those people. So the credits that they represent are very strong in relation to just the general airline that's out there. So we have a lot of confidence. We do a lot of vetting of airlines in terms of what they're going to do with the airplane. And so we have a general understanding.

Another 1 I forgot to mention was as Maersk is taking -- will end up with 5 airplanes from us. They've already taken 3. There's 2 more to be delivered to them. And of course, Maersk is one of the largest, if not the largest ocean company in the world. And so those are the types of customers we've got. And so we're very confident in the cash flows that we'll be receiving from these customers.

Quint Turner

I just -- just to bring a little bit more color to it, Howard. Our partner -- one of our partners in Africa, Astral Airways, was just named Cargo Airline of the Year for that region. Rich mentioned Raya. They were named E-commerce Airline of the Year in Southeast Asia. And just a little bit further detail on MireStar, they've been the provider of UPS in the European network for literally for over 30 years.

So the vetting goes -- the vetting is very diligent and understanding their business plans and how they're going to succeed is also very important. But as Rich said as well, DHL specifically is in line to take several aircraft over the next few years on the 767 side as well as the 330.

Quint Turner

And so Howard, you mentioned how the market views it in contrast with what we're saying. And of course, we don't -- we're not second-guessing anybody or the market, but it is a little frustrating. I mean, like when we look at somebody looking just at a quarter, for example, and even this quarter, I think we had a tax item, where we adjusted our state tax apportionment based on where the aircraft fly, which states they fly over because they have different tax rates.

So you run that. So we had something that was probably $0.03 to $0.05 in the fourth quarter. Well, that's kind of the difference between the consensus and our $0.53. We hit our target that we set in February of last year for full year EBITDA. And of course, we've talked at length about the visibility we have to sustainable structural growth in our leasing business, which is, as you point out, the source of the majority of our cash flows and will be under long-term agreements for many, many years.

And so we feel very fortunate to have that in front of us. As I mentioned, there's a little volatility around the edges with our asset-light ACMI flying, but even they have made tremendous progress since the pre-pandemic period and even since '21. CapEx-wise, the leasing business requires CapEx. There's -- that comes with that territory we get. But with the placements of 20 aircraft this year and more than that in '24, and the first of the 330s, we essentially have locked in growth for 3 years more because even if you pull your -- pull back on investments after '24, the placements you make in '24 are going to drive substantial EBITDA growth in '25.

And so we feel very fortunate about that. And we hope that investors focus on that long term and recognize that we've now demonstrated that our model performs well under different economic cycles, having gone through the pandemic, coming out of it. And even the slower growth that we've guided to in '23, contrast that with other transportation companies, and you can see that there truly is a stable base here that we feel very fortunate to have as part of our business model.

Howard Rosencrans

And I appreciate it. Thank you for all the incremental color. I think you need to dedicate more time to discussing the international customers in slides, et cetera, because clearly, there has been a significant transition that was underappreciated by the investment community, number one. And number two, clearly, things have changed just in terms of the Boeing fleet because 6 months ago, those were not your expectations that those were going to come off or that you were going to -- which was going to extensively lead to, as somebody else commented, a flat run rate of the base core EBITDA.

So I think there's a greater understanding, and I can assure you that the market commentary is not based on whether or not you made or missed the fourth quarter by either here or there.

Rich Corrado

Thanks, Howard.

Operator

I'm not showing any further questions at this time. I'd like to turn the call back over to Rich Corrado for any closing remarks.

Rich Corrado

Thank you, Kevin. We've long discussed the resiliency of our business model, with freighter leasing as the foundation and value-added services that make us unique and differentiated from any other competitor in the world. We have no peers in what we do. Many air transport services companies have struggled through the pandemic trying to get back to a 2019 baseline.

Since 2019, ATSG had delivered 38% revenue growth and 42% growth in adjusted EBITDA. And our guidance today continues on that growth trend, although slowed by the same economic headwinds impacting all companies. Still, the visibility we have the cash flows from our freighter investments, with waiting customers over the next 3 years gets us right back on to a 10% EBITDA growth trajectory in 2024 and 2025 just based on the leasing commitments alone.

More fortunate market conditions could also lift our other services, delivering even higher returns. Once again, ATSG's resiliency is demonstrated through the most challenging of times. As we drive our results for 2023 and beyond, we remain a great investment for stability, growth and high visibility of future returns. Thank you, all, for your interest in ATSG, and please stay safe.

Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

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Air Transport Services Group, Inc. (ATSG) Q4 2022 Earnings Call Transcript