AerSale Corporation

Greetings. Welcome to the AirSell Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Christine Pagone. You may begin.

Good afternoon. I'd like to welcome everyone to AirSell's Fourth Quarter 2020 Earnings Call. Conducting the call today are Nick Panazzo, Chief Executive Officer, and Martin Garmendia, Chief Financial Officer. Before we discuss this quarter's results, we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of the federal security laws, including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees. but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results. Factors discussed in the risk factors section of our final prospectus follows with the SEC on February 10, 2021, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially, from those indicated by the forward-looking statements on this call. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentations materials made available on the Investors section of the AirSale website at ir.airsale.com. With that, I'll turn the call over to Nick Spinozzo.

Thank you, Christine. Good afternoon to everyone on the line, and thank you for joining our call today. I'm pleased that today marks our first quarterly update as a public company, and I look forward to updating you each quarter on the exciting progress we're making at AirSail. Before digging into the results for the quarter and business updates, I wanted to take a few moments to familiarize new investors with AirSail. and I'll begin with three attributes about AirSail that position us to create value for our customers and deliver leading shareholder returns. First, we operate a purpose-built, fully integrated, multidimensional aviation aftermarket company that enables us to serve as a one-stop shop for our customers. This includes activities like part procurement, whole aircraft sales and leasing, MRO, FAA certifications, and aircraft storage and decommission. This allows us to keep a close pulse on the market, identify attractive asset acquisition opportunities, and deliver a higher overall value to our customers. Second, we generate attractive financial returns as a result of this integrated structure with the flexibility to pivot quickly and execute regardless of the economic backdrop. This was never more pronounced than in 2020 when the global pandemic adversely affected commercial aviation to a degree no one in the industry had ever experienced. Notwithstanding this environment, we were able to pivot quickly to high demand freighter aircraft, help our customers through our aircraft storage and decommissioning business, identify attractive long-term asset acquisition opportunities, and enter 2021 fully positioned to resume our growth trajectory. This was a truly remarkable result and demonstrates the resiliency of our business and workforce. And third, our integrated structure enables us to serve as a unique partner to airlines and original equipment manufacturers to bring new and innovative products to market in our engineered solutions business. Currently, we have three projects in our engineered solutions pipeline that include AirSafe, AirTrack, and AirAware that collectively represent a significant market opportunity for air sales. Our greatest opportunity is with AeroWare that is now complete, fully operational, and is scheduled for precertification testing by the FAA commencing March 23rd. AeroWare incorporates an advanced military-style head-wearable display, in other words, a flight vision goggle, that provides pilots with enhanced vision, enabling them to see through adverse weather conditions with an overlay of critical flight deck information. We've been developing airware over the past 18 months in partnership with Universal Avionics, a subsidiary of Israeli manufacturer Elbit Systems, to deploy existing military aircraft technology to commercial aviation. This relationship underscores the air sale value proposition. Our team successfully integrated a military application with advanced technology into a commercial platform from concept to full integration in a working Boeing 737 NG prototype aircraft. We used our engineering knowledge and capabilities with mid-life equipment to integrate the technology, conduct flight certification, and demonstration and marketing support to potential key customers. To dig into the specifics of our business, we have two primary operating units, asset management solutions and technical operations, or what we refer to as tech ops. In our asset management segment, We supply used serviceable material, or USM parts, as well as whole aircraft and engines to the marketplace, including highly customized, fully supported leases of aircraft that garner above market lease rates, as well as ready-to-install short-term engine leases, which also command a rate premium. At the end of their leases, this flight equipment becomes the feedstock for our USM parts business, providing the final revenue stream in our value extraction methodology. In our tech ops segment, we provide maintenance, repair, and overhaul, MRO services, and engineered solutions. In our MRO services divisions, we perform aircraft heavy maintenance, including passenger to freighter conversions, at our two aircraft MRO facilities in Goodyear, Arizona, and Roswell, New Mexico. Further, we overhaul airframe components, including landing gear, pneumatics, hydraulics, and composite aerostructures, at our facilities in Rio Rancho, New Mexico, Memphis, Tennessee, and Miami, Florida. In our engineered solutions division, we develop highly specialized products that comply with regulatory mandates and or enhance the safety of commercial aircraft. As previously noted, we're currently marketing three products, AirSafe and AirTrack, for which we hold supplemental type certificates, in other words, STCs, issued by the FAA, and AirAware. Our existing STCs have enjoyed strong margins, and all of our STC products will serve a customer base of over 16,000 aircraft. As we review our business results, there are a few important things to keep in mind. First, we generally do not utilize year-over-year analysis on a quarterly basis to assess our financial performance, which you'll notice throughout our commentary. The rationale for this is simple. Our asset management, acquisition, and whole asset sale businesses are a cornerstone of our success and account for large transactions at irregular intervals throughout the year. As we discuss our results, we'll make it a point to update our investors on these key transactions for both the current year and prior year periods. More importantly, we believe relevant indicators for our business performance are asset acquisitions and activities, the outlook for whole asset sales throughout the year, progress on engineered solutions STC development and contracts, and underlying performance of our MRO business. Turning to our results for 2020, we delivered full-year revenue of $208.9 million, which compares to full-year 2019 revenue of $304.2 million, with the decline in total sales stemming from the impact of COVID-19. As the year progressed, our business began to recover nicely, which led us to increase our forecasts as we started to realize higher contributions from our freight customers, strong growth in our aircraft storage and MRO business, and even some modest improvements from passenger aircraft customers. For the full year 2020, we reported adjusted EBITDA of 51.9 million, or 24.8% of sales, which compares the full year 2019 adjusted EBITDA of 56.9 million, or 18.7% of sales. As a reminder to investors, Adjusted EBITDA results in 2020 included $12.7 million of CARES Act benefits. Looking at trends in our business and beginning with asset management, sales of aircraft and engine USM parts continued to improve in the fourth quarter, which increased in each sequential quarter since the low set in the second quarter of 2020. We expect activity in these categories to continue to grow as volume across the system gradually increases back to pre-pandemic levels. Aircraft and engine leasing decreased in the fourth quarter, primarily due to the expiration of three Boeing 747 passenger aircraft leases. The engines were removed from these aircraft, and the ones in good condition are being prepared for the lease pool, with the remainder becoming feedstock for our USM parts business, as we take advantage of strong demand in this platform from freighter customers. This reduces our aircraft fleet to just four aircraft, two passenger and two freighter, both of which have been performing well. Finally, for 2020, we had only 3.1 million of whole asset sales, which occurred early in the second quarter as compared to 70.1 million in 2019. This decrease in sales was a direct result of the pandemic and represented the majority of our revenue decline as compared to the prior year. As we look ahead to 2021, we're now well positioned with cash on hand and an undrawn recently upsized $150 million credit facility to restock flight equipment for our unique style of hybrid aircraft and engine leasing. This is exemplified by our recent purchase of 24 Boeing 757s that we're marketing as freighter conversion aircraft to satisfy heightened demand in this category. The company has a signed letter intent to sell four aircraft to an international customer, which is expected to close over the next 30 to 90 days. We expect to sell the majority of our Boeing 757 fleet in 2021. To facilitate these deliveries, we expect to convert at least five of these aircraft at our Goodyear hangar over the next year, with the first converted aircraft projected to be completed in May. With five aircraft committed to conversion, we have primed the pump to meet the growing demand for Boeing 757 freighters. In our tech ops segment, we continue to experience robust demand for aircraft MRO services, and our facilities are running at our near capacity. Volume at our Goodyear and Roswell storage facilities hit record highs in 2020, which resulted from a higher number of grounded aircraft by airlines and leasing companies during the pandemic. We expect this strong volume to continue through 2021 as we benefit from a full year of storage activities at both of our dry desert storage locations, which includes reactivation work from existing customer aircraft and continued work for additional aircraft entering storage programs. Looking forward, as these aircraft are brought back into service, we expect our storage revenue to gradually decrease but be offset by reactivation revenue in our aircraft MRO facilities. Moving to our engineered solutions business, we had modest sales in 2020 due to the unprecedented number of aircraft on the ground. In the fourth quarter, we saw a pickup in demand for our AirSafe product as aircraft began repositioning to new markets. In addition, we made significant progress towards obtaining FAA certification of our airwear product, having completed over 60 flight hours with an FAA-designated engineering representative, a DER, test pilot performing our test flights, and showcasing the capabilities of this product to a potential customer. As mentioned previously, we will begin FAA test flights in less than two weeks, which is a prerequisite to the FAA issuing air sale and STC for airware. Based on feedback from airline test pilots who have flown our Boeing 737NG prototype aircraft with airware installed, we expect to receive a launch order from a potential customer this year. In summary, we're pleased with where we are positioned as we begin 2021, air sales' first full year as a public company. Demand in our aircraft MRO facilities is robust, volume is poised to steadily improve for USM parts, and the market is offering attractive feedstock opportunities. Added to that, we're enthusiastic about the prospects for our engineered solutions STCs. which we expect will be a meaningful growth contributor to our overall sales mix as this division continues to evolve. We exited 2020 with a strong balance sheet and ample financial flexibility to fund our capital allocation priorities. I want to thank all our investors, and we look forward to updating you on our progress throughout the year. Now, I'll turn the call over to Martin for a closer look at the numbers.

Thanks, Nick. I will start with an overview of our financial performance before ending with an update on our guidance. Our fourth quarter revenue was $49.4 million, which did not include any whole asset sales. This compares to fourth quarter 2019 revenue of $120.9 million, which included $57 million of whole asset sales. As Nick mentioned, our business will fluctuate quarter to quarter based on whole asset sales during the period. and therefore it is important to monitor our progress based on asset purchases and sales over a longer period. As we look ahead to 2021, our most notable asset activity is the purchase of the 24 Boeing 757s that we announced in September. We are working diligently with our customers to finalize the first of these sales, which we expect to occur in the next few weeks. In addition to asset sales, Used serviceable material, or USM parts, revenue declined as opportunities to buy feedstock did not materialize and demand for existing inventory decreased. Utilization rates on our flight equipment also dropped against the backdrop of the COVID-19 pandemic. The pandemic led to the grounding of a significant portion of the global passenger fleet and lowered passenger air travel, resulting in decreased demand for USM parts used for maintenance and overhaul activity and short-term engine leasing. Our tech ops segment offset some of the decline in our asset management solutions volume with total segment revenue up 41% compared to the fourth quarter of 2019 to $32 million. The increase in tech ops revenue was largely driven by aircraft MRO services as this business benefited from increased storage demand. The dry desert locations of our heavy MRO facilities in New Mexico and Arizona allowed us to monetize on the increased demand for aircraft storage maintenance programs. Looking forward, we expect a substantial quantity of aircraft that are on airport MRO facilities to provide us with upside opportunities for reactivation work, heavy maintenance, and cargo conversion, and also providing us a strategic advantage in identifying feedstock for our asset management segments. The revenue split between our asset management and tech ops segment was approximately 50-50 in 2020, as the business mix changed as a result of the pandemic. This change in mix demonstrated our ability to respond effectively to changing market dynamics. As the passenger aviation market recovers, we expect both asset management and tech ops to grow. Gross margin was 26.6% in the fourth quarter of 2020, which was approximately the same level as the fourth quarter of 2019, as all the measures we took during the year translated into efficiencies and cost savings across our business lines. Selling general and administrative expenses declined 15.5% in the fourth quarter of 2020 to $15 million, primarily due to COVID-19 cost savings initiatives. Net income for the fourth quarter of 2020 was $0.6 million, compared to $9 million for the fourth quarter of 2019. Cash flow used in operating activities was $12.2 million in 2020, compared to $45.5 million in 2019. The main driver of cash utilization in 2020 was net inventory purchases of $55.3 million, primarily related to the Boeing 757 transaction. At year end, AERSO had approximately $29 million of cash on its balance sheet and an undrawn revolver of $110 million, which has now been increased to $150 million. This provides us with ample financial flexibility to fund our asset acquisition priorities in 2021 and beyond. Finally, our guidance update and summary. We expect revenue of $340 to $360 million and adjusted EBITDA of $60 to $70 million in 2021. This outlook reflects an increase in activity in our asset management segment, continued strong demand for our on-airport MRO services, accelerating demand in cargo and e-commerce markets, and increased requests for passenger-to-freighter conversions and other tech ops products and services. The main growth driver of the asset management segment will be the monetization of the Boeing 757 package secured in 2020. Because of the strong demand for cargo conversion aircraft, we project selling the majority of the available aircraft in 2021. For tech ops, in addition to the continued contributions from our storage, maintenance, and component MRO activities, we also expect to commence sales of our air aware product in late 2021. Our projected ranges for 2021 factor in possible delays in the start of sales for air wear due to uncertainties regarding the pace of initial production scale-up. The company is diligently working on solutions that will allow us to meet the anticipated demand for this product from our potential launch customer. Lastly, CARES Act grant proceeds of $9.2 million were awarded to the company in 2021. In summary, Our strong financial performance is the result of the multidimensional and fully integrated business model we have spent the last decade building. Post-COVID, we made adjustments but continued to invest in business units experiencing the greatest demand. The diversity of our revenue sources has created a counter-cyclical hedge, enabling Airsoft to thrive in a challenging commercial aviation market. We believe we are well-configured to outperform our competitors in the upcoming recovery. With that, operator, we are ready to take some questions.

And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we pull for questions. Our first question is from Gautam Khanna with Cowan. Please proceed with your question.

Yes, thanks, guys. Good afternoon. I was wondering if you could talk a little bit about the 757 turnarounds. So you mentioned before that might be sold. I would imagine, you know, maybe it's in Q2. But, you know, if you could talk to the rest of the quote majority that you expect to sell this year. Do you have letters of intent for those? Just kind of how firm is that planning? What gives you that conviction? And if you can maybe talk to the timing, is this going to be Q4 weighted just based on what needs to be done for them, et cetera?

So we've got a – hi, Gotham. How are you doing this afternoon? So we've got a combination of potential sales ongoing right now with probably a minimum of three and as many as – four or five customers. So we're negotiating with each. We have, as I mentioned, we have a letter of intent to sell four at this point. We expect those four will be delivered as the buyer is conducting due diligence in preparation for closing. I think those will all close probably over the next 60 days, could go to 90 days. Simultaneously, we're working an LOI with another customer that will potentially take as many as 10 aircraft. Again, their closing would be as fast as we could put the airplane in. Now, those are aircraft that we don't have to convert, so those aircraft, we could close on those as fast as we could deliver the aircraft with the proper engines and the records all updated. We expect that those aircraft, assuming we finish the LOI that we're close to finishing now, we think that those aircraft will also close in the second and third quarter could drag into the fourth quarter. And finally, we have another operator that is interested in two, one that's interested in three to six, and another one that's interested in as many as a dozen. Now, we don't have as many airplanes as I just mentioned, but our expectation is that those additional customers will take aircraft that we're converting. So we've signed up to buy five cargo kits from Precision that we intend to convert the aircraft ourselves. The first aircraft is nearing completion of conversion. It will be finished in May, and then we'll roll one in right behind it, and then there will be a total of five. We expect to be able to deliver three of those because the demand for converted aircraft today is extremely high. We believe we'll have customers for those aircraft either as they roll out the hangar, but we believe we'll have customers for those aircraft before they roll out the hangar, ideally before we put the next one into conversion. So I would expect that we'll have three converted aircraft sold this year. If we can do a fourth, if we can finish a fourth, we'll be able to put a fourth one this year, and the balance of converted aircraft will roll into 2021. So the expectation is we'll sell the majority of aircraft this year. Whatever we have left over to sell will be sold next year. And once we decide which aircraft are not going to be converted, those aircraft will be fed into our parts machine.

Got it. Okay. And then on AeroWare, I was wondering if you could expand upon what the milestones we investors should be tracking, you know, for the type certification, like when – what still needs to be done, if you will, and what's the lead time to getting that done? So when's the earliest you could actually see certification coming through?

So, okay, good question. We're flying with the FAA in two weeks, in less than two weeks. We expect that we will have that FAA certification or pre-certification flying done that same week. So before the end of this month, we will no longer have to fly the airplane to demonstrate. Our expectation, by the way, is we won't have to fly the airplane to demonstrate to the FAA any longer after we do the next flights. Remember, we've flown over 60 hours on the airplane already with an FAA-designated engineering representative, a DER. And we have another FAA-designated person who is certified that the airplane meets the all our drawings and conforms to airworthiness certification, which he'll be able to issue when the FAA completes its test flights. When that happens, we're still waiting on some documentation from Universal on software validation, which we expect to have by the end of April, at least we hope to have by the end of April. The FA won't issue the STC until it has the validation paperwork on the software. We are therefore hopeful that sometime in May, after the validation of the software is finished, that all the documentation will be in the hands of the FA and we'll just be waiting for them to approve. Our expectation is we should have, we believe, because the FA seems to be really interested in this project, that we'll have the certification our best guess is by end of May, sometime in June. Before the end of the second quarter, we believe we'll have it certified.

Okay. That's great to hear. And then my last one for now, anyway, is if you could just talk about the equipment acquisition environment. So we didn't see as many retirements as we thought maybe last year, but wondering if you're expecting that value to show up in 2021 and And if so, are you already seeing a lot of opportunity to deploy capital to acquire USM? If you could just talk to that environment.

So we've been seeing it all year, but it's not been at pricing that's attractive for us. So I don't know if ultimately these assets have been selling because the price at which we'd be willing to pay is not suitable to the sellers. That's been, I would say, predominantly what we've experienced to date. However, what we're starting to see now is that aircraft that have now been on the ground for coming up on a year that the sellers of those aircraft are realizing that many of them are not going to get redeployed with all the aircraft on the ground and the status of the passenger airline industry. Those airplanes are not likely to be deployed anytime soon. The The lessors who have aircraft and the aircraft that are still in the hands of lessees that are unable to pay have no place to put the aircraft right now. That will be alleviated as some aircraft are returned to service, bringing up some storage space for other aircraft to go into service. So what we're seeing is that pricing is now finally getting to the point where our bid asks, separation is very small. Arguably, we could take some of the deals that are being offered today, but we still think that pricing is going to soften. So we're not overeager to spend money today until we really feel that we're at or close to the bottom. And I think that this is my personal opinion, that we're six months away from really seeing pricing in volume coming to us. Again, we're seeing little trickles of it, and we are starting to acquire some assets, but not in the volume that we anticipate. I expect that as we get towards the end of the third quarter, the dam's going to break. I think just by then, whatever aircraft have been returned to service to fly during the summer, when those airplanes go down again, many of those airplanes will be retired permanently, and I think that's when we believe we'll start seeing aircraft available at attractive pricing. So we think it's going to be after the summer in the third quarter.

Okay. Thank you very much, guys.

You're welcome.

And again, as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad. Doing so will ensure that you do join the Question and answer, Keith. Our next question is from Gautam Kawin. Please proceed with your question.

Yeah, sorry, I don't mean to monopolize, but I was going to ask a couple follow-ups. The other thing I was curious about was on the... CARES Act funding, and so that was $9.2 million. That's included in the EBTA guide for the year, I presume. Is that right? I just want to confirm that.

Correct. That's correct for 2021.

Okay. And can you remind me, were there any non-recurring items that we should be thinking about that are in the number this year or that we should just mentally model out from last year? Because if I recall, there was like a $10 million one-time item that was Q3 of last year. Maybe, Martin, if you could just kind of call out any specific items that we should be making sure we have in mind so we don't have kind of crazy year-over-year dynamics from last year, which had some of the CARES Act and...

some of the other ones thank you you got it right besides the 12.7 million in cares act that was in 2020 we also had a return condition payment related to a freighter asset that we have on lease that was a little over 10 million dollars that came in in 2020 so that was a one-time overall item obviously in 2021 what you're going to see is an increase in whole asset sales related to the 757 transaction when that number was relatively small about three million dollars in 2020. So that'll be driving a lot of our revenue and margin improvements for 21.

Got it. That makes sense. And then the other thing I was curious about, in Q4 itself, was there any carryover of CARES Act proceeds from the prior two quarters?

No. In the fourth quarter, we had no additional CARES Act. All the amounts that we received were utilized in the second and third quarter.

Got it. And of the $9 million that you've talked about, is that How does that flow through? Like in what period? Is that Q1, Q2, Q3?

Yeah, so we were awarded in February and we can use those proceeds once the proceeds were received. So you will see a good majority of that amount coming in in the first quarter as it'll cover qualifying payroll in the first quarter with the remaining coming in in the second quarter. But it'll be fully utilized by the end of the second quarter unless there are any additional extensions to that program.

Got it. And then maybe just bigger picture in terms of the MRO facilities and how, like what you're seeing with respect to demand from third-party customers. Are we starting to see an uptick in either USM inquiries, requests for DER repairs? I mean, I'm just curious like how, you know, we're seeing a little bit of an uptick in flight activity. I'm wondering how that is, if it has translated yet in the first quarter with respect to kind of your run-of-the-mill aftermarket demand at the various, at the seven repair facilities you have.

We're really at our, we're at capacity. We're just being slammed at our heavy MROs. You know, and that's, it's hard to separate the storage capacity revenue from return to service revenue from new aircraft going in because we're seeing both aircraft exiting storage and aircraft entering storage. And so it's tying up so much of our resources, our personnel resources doing that. While we've got a conversion line going on, while we have customers that are jumping up and down for their aircraft to be ready for the next customer getting painted, it's I would tell you that from our perspective, this is the best we've ever seen it from an airframe MRO perspective. Where we've suffered since the start of the pandemic and we're starting to see signs of recovery is on the component MRO side because as aircraft were grounded, similar to engine leasing, other than wide-body engine leasing to support cargo customers, the demand for component MRO has been severely diminished post, you know, as a result of COVID. There's signs of life there as well, and we anticipate to see, you know, rising volumes in our component MRO. Landing gear is, right now, our issue with landing gear is going to be to make sure that we have enough personnel to accommodate the amount of landing gear work that we expect to have this year. So, The component MRO site is coming back live on the USM parts site. Interestingly, you'd think that because the wide-body market is so soft with respect to passengers, you would think that the demand for engine parts for wide-body aircraft would be diminished. It's not. It's just the opposite. What we're seeing is that for... Aircraft that operate the PW4000, that's the Pratt & Whitney 4000, it goes on the 767, 747, and likewise the CF680, we're seeing demand for that material is recovering nicely right now, as well as the demand for those engines.

And is that a freighter-driven dynamic?

Yes, that's a freighter-driven dynamic.

Got it. And Martin, I was looking through the earnings release, and if I recall, there was something like a $1.87 million adjustment to EBITDA in the quarter, if I recall. What was that, by the way?

Hold on, let me go back. Is that the one that says equity compensation?

It's in the adjusted EBITDA table at the back of the release. It was like 1.869. A credit? It was a debit, sorry. It was some sort of, it was a negative to EBITDA. Okay, a negative.

That's related to transaction costs. So in last year, we expensed legal fees related to the overall merger, and we had adjusted that out of our EBITDA calculation, we ended up running that was eligible to be run as a transaction cost. So then we reversed that out of the overall EBITDA number not to take credit for it in 2020. Got it.

Okay. That's all I was curious. Let's see. Okay. Terrific. Well, thank you so much. I appreciate the call.

You're welcome. And our next question is from Ken Herbert with Canaccord. Please proceed with your question.

Hey, Nick and Martin, good afternoon.

Good afternoon, Ken.

Hey, Nick, I just wanted to follow up on your comments regarding your storage facilities. At what point this year do you expect to start to see a net outflow of aircraft out of those facilities? And when we hit that point or get close to that point, what does that do for you from a revenue standpoint?

So I'm not sure we're going to see a net outflow this year. I think we projected it, but that's not my belief. And the reason I say that is because, as I mentioned, there's just not enough available storage capacity for the amount of aircraft that are not generating positive revenue by the carriers that are operating them. So we are constantly being asked for the – airlines asking us to store more aircraft at our facilities, and we're turning them away. So what I expect to happen is that as some of these narrowbodies exit, we're going to see more widebody aircraft enter storage, and that's going to keep us busy for really the balance of the year. I don't see any material reduction in storage revenue and the maintenance associated with storage this year. When that balance switches or shifts and more aircraft are coming out than are going in, what that's going to do is it's going to result in really loading up our aircraft MRO facilities with a lot of return-to-service work, which would include heavy checks, potentially cargo conversions, painting, interior reconfigurations, et cetera. So, you know, we think that although the storage business is higher margin business than that, and it's also very easy to do because the labor involved is not real high-tech labor. You know, we think there's more man hours to be built doing return-to-service work than just storage work. So we think that's going to be an offset. Okay.

That's helpful. And it sounds like from your comments, Nick, that obviously you see more, I guess, the opportunity getting better as we go through this year for your ability to acquire feedstock at perhaps more attractive prices. Is it possible for you to quantify that at all? I mean, obviously, at the risk of maybe trying to time the market too much, and I think you would know better than anybody, but How much more downside could you expect to see on some of these feedstock opportunities? And what do you need to see to start to get maybe as a signal where you start to get more aggressive on starting to procure material?

So, you know, where we're not competitive is to acquire aircraft and do a sale leaseback because that just, in my opinion, that uses a different capital structure than we have. Where we have an advantage is when an aircraft is naked. It comes off lease. It's parked by an airline. It needs work to restore to service and to place it with another company. If you get a fleet of them, you have to be able to take the best equipment, cobble it together to create flyable aircraft or engines, and then figure out what to do with the residual. That's what our value add is, which is, to take an aircraft without a lease and to do whatever it takes to get maximum value out of that. So where we see our advantage is the leasing companies, there's a lot of money that's coming into the space or has come into the space, and most of those investors are scarfing up whatever aircraft are able to be or either are on lease currently or are ready for lease. And we're not seeing that that's the majority of aircraft that are parked. The majority of aircraft that are parked today are aircraft that require a significant amount of work before they can be returned to service for somebody. Just like our 757 transaction, I think the reason we won that transaction is our ability to do all the things to get maximum value out of that package because there were no leases attached. There were no buyers. We had to go find the buyers. We had to create the value, figure out where the highest value on that equipment was, whether it be as freighter or passenger. What do you do with the stuff that's left over, the engines and the parts, airframe and engines? If you don't have the ability to monetize the airframe and engines, at the parts level, it's pretty hard to buy a package of aircraft. So, as more and more aircraft continue to stay stagnant in storage, and the airlines and leasing companies are writing them down to a point at which they'll get out of the assets regardless because they're not going, you know, most of these are not going to go up in value. That's when we see the value of these assets will come into, you know, our price range. And again, What's going to be, what will tell us that? I mean, we're just going to see it. I don't know if there's any event or anything I can point to specifically that says, you know, what event will trigger the aircraft coming into our price range other than you've got a peak of flying coming up during the summer. After the summer travel is over, I think that you're into September, October, kind of the doldrums for the airline. passenger carriers, that's when I think carriers are going to rationalize their fleets. And that's when I think the leasing companies will realize if they didn't get their aircraft out during the summer, they're not likely to get them out for a while more. And after having had airplanes out of revenue service for a year and a half, it just feels to me like that's a time at which people will just give up and they'll sell them into the market or they'll just continue to write them down. But I think the most rational sellers will sell them for what they're worth and not hold them and just spend money on storage and maintenance while they're writing them down on their books. That doesn't feel like the right economic answer. It might be the right P&L answer, but it's not the right economic answer. All right, Nick.

Thanks for all the detail.

You're welcome. And once again, if anyone has Any questions, you may press star 1 on your telephone keypad. And it seems as if there are no more questions. Therefore, we've reached the end of the question and answer session. Now I'll turn the call over to Nicholas for closing remarks.

Okay. So, Gautam and Ken, thank you very much for the good questions. I appreciate that. Good talking to you guys today. And thank you, everyone else, for joining our call. And we look forward to updating you again next quarter. Thank you. Goodbye.

Goodbye. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.