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spk01: Please continue to stand by. Today's conference will begin momentarily. Hello and welcome to the Mesa Airlines Q2 Fiscal 2022 Earnings Conference Call. My name is Ilan and I will be moderating today's call. This call is being recorded and a replay will be available on mesa-air.com in the Investor Relations section. After today's prepared remarks, there will be an opportunity to ask questions. It is now my pleasure to turn the conference over to Susan D'Onofrio, Head of Investor Relations. Susan, you may begin.
spk03: Thank you, Elan, and welcome everyone to Mesa's earnings call for its second fiscal quarter ended March 31st. On the call with me today are Jonathan Ornstein, Mesa's Chairman and CEO, Brad Rich, EVP and COO, Michael Lotz, President, and Tork Zubek, CFO, and other members of the management team. Following our prepared remarks, there will be a question and answer session for the sell-side analysts. We also wanted to remind everyone on the call that today's discussion contains forward-looking statements that are based on the company's current expectations and are not a guarantee of future performance. There could be significant risks and uncertainties that cause actual results to differ materially from those reflected by the forward-looking statements, including the risk factors discussed in our reports on file with the SEC. We undertake no duty to update any forward-looking statements. In comparing results today, we will be adjusting all periods to exclude special items. Please refer to our second fiscal quarter earnings release, which is available on our website for the reconciliation of our non-GAAP measures. With that, I will turn it over to Jonathan for his opening remarks. Jonathan?
spk08: Thank you, Susan, and thank you, everyone, for joining us today. While not entirely unexpected, This quarter was clearly very disappointing. Brad and Tork will walk through more of the details, but the overarching issue is our current level of pilot attrition, hiring, and training brought about by an industry-wide pilot shortage that has led to our current inability to generate sufficient block hours to operate profitably under our existing agreement. We are addressing this through a number of initiatives including but not limited to increased training capacity, pilot retention, and cost efficiency. Beyond providing valuable regional fees for over two decades, MESA's position as an independent regional low-cost carrier has provided additional strategic value to both United and American. We believe our partners recognize the value of our relationship and will work with us cooperatively through this challenging environment. Some of you may have heard me saying this before, but the founder of Mesa and my mentor, Larry Risley, once told me that in this industry, something happens every year that happens every 10 years. The last couple of years, it was COVID. This year, it's the pilot shortage and the associated pilot attrition prevalent throughout the regional industry, as pilots are recruited away primarily by major carriers and heavy equipment cargo operators. The sheer magnitude of attrition has created significant backlogs in training further exacerbating an already difficult situation. While we believe our attrition is in line with the rest of the regional industry, we are taking important steps to further attract and retain qualified pilot candidates. We appreciate the support of our airline partners and pilot leadership who are working with us cooperatively to help us as we attempt to successfully navigate through this period. What is most unfortunate is the fact that this shortage is a result of ill-conceived, ill-advised, and politically motivated government regulation that by most independent accounts has absolutely nothing to do with the enhancement of safety. The problem, which will cost consumers millions of dollars in higher fares, has cut off dozens of communities from the national air transportation system and has already reduced service in hundreds more as airlines are unable to fly their aircraft due to lack of pilots. All this could be solved with the stroke of a pen. It's important to note that no other country has adopted these rules, and everyday flights are flown by foreign carriers with pilots who the U.S. would deem to be unqualified. It is a stunning realization that our government has determined that foreign pilots are somehow more qualified than our own U.S. pilots with the same amount of experience and trained in the United States. What has now become apparent is the undue burden this places on minority and other disadvantaged communities which has been effectively blocked from entering the pilot profession due to the prohibitive costs associated with these regulations. On a more positive note, while COVID-driven absence rates impacted us in January, we ended the quarter with absence rates across the board that had returned to pre-pandemic levels. We appreciate the real bravery of our people over the past few years, and we're thankful we all can come to work in a safe and healthier environment. While both American and United have been supportive, we are disappointed in our inability to produce the block hours requested by our partners as demand has increased. This single issue continues to be the primary focus of our management team. Turning to our DHL cargo operation, in the quarter we continue to perform well with our two dedicated Boeing 737-400 aircraft. We had a third 737-400 aircraft delivered in March and expected to be entering revenue service for DHL in May. These larger aircraft have the added benefit of attracting regional pilots who have an opportunity to fly larger jet aircraft at the highest rates in the regional industry. While the growth of our cargo business has initially been slower than we anticipated, going forward, we believe that cargo can be an increasingly important part of our business. Our partnership with Gramercy Associates Limited is on track and we expect to have European certification completed in the third quarter of 2022. We own 49% of this multi-based regional jet operation and we're looking forward to introducing the regional business model to Europe. One of our most exciting initiatives we have been continuing to pursue collectively is finding new ways to participate, invest and partner in newer environmentally friendly technologies. These partnerships are designed to position Mesa as the first regional airline to fly electric aircraft and to meet the forefront of decarbonizing air travel and reducing our reliance on fossil fuels. We also think it will likely be an answer to providing flight service to smaller communities that are now facing the loss of flight service as pilot challenges have resulted in the mainline carriers reducing or eliminating flight service. Another significant benefit is that it could provide MESA with a future pilot pipeline that can build hours in smaller aircraft not subject to the 1500-hour rule. Our two electric aviation partnerships with Archer and Hart that we entered into alongside United are reaching production development milestones. Regent, which is developing an all-electric sea glider, also continues to make progress towards commercialization. Going forward, our strategy is to selectively look at other opportunities in aviation-related green technologies to ensure our leadership role in this area. With that, I will hand it over to Brad to go over more of the details of an update on our operational performance this quarter.
spk05: Thank you, Jonathan, and good afternoon to everyone. As Jonathan has mentioned, there had been significant challenges due to COVID-19, as well as the transition out of the pandemic, which have been widely discussed and documented. Of course, we have not been immune from these industry-wide issues, and we remain committed and focused on both our fundamental operating performance, as well as implementing creative initiatives to ensure that we are providing safe, high-quality, and reliable service for our partners and customers. In the March quarter, we flew 65,613 block hours, an 11.3% decrease from the same quarter last year and 23.7% below the December 2021 quarter. Our combined controllable completion factor was 96.7% compared to 99.9% a year ago. Both our production and our combined controllable completion factor are below the 2019 levels and have been negatively impacted by the impact of COVID-19, high absence rates, and elevated attrition rates as larger carriers are adding capacity and replacing pilots due to attrition and early retirements. Also, the year-over-year reduction in block hours is partly due to our smaller fleet under contract with American. Based on current trends of attrition and training output, our block hours are expected to be relatively flat for the next two quarters, and due to the volatility of the factors involved, we are not able to give further guidance at this time. Looking ahead to the remainder of fiscal year 2022, we are focused on operating the airline as productively and reliably as possible in the post-pandemic environment. While demand for our flying remains very strong, it is an environment that will be constrained by the supply and training requirements of regional airline pilots. Although our COVID-related sick calls have returned to pre-pandemic levels, our primary challenge remains elevated attrition and the gap created in replacing the departing pilots with new pilots requiring training. The average pilot provides us a two-week notice prior to departure, while the expected training footprint for a new pilot is approximately 90 days. We remain focused on our recruiting efforts, and we have added another full EJET simulator that came online in February. We've also secured an additional CRJ simulator that will become operational in July of this year. We strategically positioned these simulators in key locations to decrease our training timelines. As I previously mentioned, our pilot training pipeline is currently not an issue and we have implemented programs to continue to attract new pilots to MESA and increase our instructor ranks. Furthermore, we are well positioned to be an attractive option for pilots through opportunities such as flying all large regional jets and narrow-body 737 aircraft. The United Aviate Program, where we're one of few independent regional airlines to be able to offer a direct pathway for our pilots to become a career pilot for United Airlines. The 737 aircraft, we're the only regional airline offering the opportunity to fly larger aircraft and earn the highest pay in the regional industry. We have attractive domiciles, which make it easy to commute. We're currently offering rapid captain upgrade opportunities. We have an active targeted recruiting efforts, including cadet program and onsite visits at aviation schools across the country. We have a competitive new hire pay structure with enhanced bonus opportunities. And additionally, we are pursuing other initiatives to attract and retain new pilot candidates such as discussions with 135 operators that can provide an inflow of pilots to MESA. We have previously removed all of the CRJ700s from our operation. We continue the transition process of leasing these 20 aircraft to GoJet Airlines in agreements that end in 2030, and we only have two remaining aircraft that will be delivered this month. Our United E175 fleet remains at 80 aircraft. The DHL operation performed very well during the March quarter with a controllable completion factor of 99.1%. We took delivery of our third 737-400 cargo aircraft in March and the aircraft has been in operations as a support aircraft. It will be doing scheduled operations in May. We believe our relationship with our partners remains strong as we continue to have productive conversations regarding future capacity and both short- and long-term strategies. We remain focused on operating our core regional business safely and reliably, with the health and safety of our people and our customers always the top priority. With that, I will now turn the time over to Tork, and he will walk through our financial performance.
spk06: TORK WRIGHT- Thank you, Brad. review our financial performance and capital outlook and balance sheet. For the second quarter of the fiscal year of 2022, we reported a net loss of $42.8 million, or $1.19 per diluted share, compared to a net income of $5.7 million, or $0.14 per diluted share, for Q2 2021. On an adjusted basis, Mesa reported a pre-tax loss of $13.1 million, for Q2-22 compared to a pre-tax income of $12.1 million for Q2-21. It's important to note that the adjusted pre-tax loss for Q2 excludes a $39.5 million non-cash impairment charge that is related to the 12 CRJ aircraft, which are classified as health for sale, as well as a $2.3 million mark-to-market non-cash losses on our investments in equity securities and the related impact on our income tax expense. The year-over-year decrease of $25.2 million was primarily due to lower block hours and the PSP program funding that has now ended. Revenue in Q2-22 was $123.2 million, an increase of $25.6 million, up 26.7 percent, from $97.3 million for Q2-21. Our contract revenue increased by $30.3 million year-over-year as rates returned to normal levels after temporary reductions related to the PSP program. This was partially offset by an 11.3% reduction in block hours flown versus the same period last year for our major partners across all fleets. There was also a decrease in pass-through and other revenue of $4.3 million, primarily due to a decrease in pass-through maintenance expense. And as a reminder, the pass-through expense has no P&L impact. NASES Q2 2022 results include, per GAAP, the recognition of $0.7 million of previously deferred revenue, versus the deferral of $4.9 million of revenue in Q2-21. The remaining deferred revenue balance will be recognized as slideshow completion over the remaining terms of the contract. On the expense side, Mesa's overall operating expenses for Q2-22 were $168 million, up $87.5 million versus Q2-21. Similar to last quarter, the largest cost variance compared to Q2-21 is the $56 million in PSP-related grant funding that has now ended. There was also the previously mentioned $39.5 million impairment charge related to our health for sale aircraft this quarter. Mesa's flight operations expense was up $5 million versus last year due primarily to higher training expense. Maintenance expense is now becoming more normalized as we are past the high number of engine overhauls and heavy seat checks that were deferred at the beginning of COVID. Maintenance cost was $47.4 million in Q2-22, down $4.4 million versus Q2-21. Brokables and expendables and component contracts were up $2.8 million versus last year. Labor costs and others were up $3.5 million versus Q2-21, mainly reflecting an increase in outside labor support. Compared to Q1-22, labor costs and other expenses decreased by $2.3 million. Next, let me review where we are in cash and liquidity. Cash for the quarter, excluding restricted cash, decreased by $26.4 million, to $75.9 million, which is in line with where we were forecasting. During the quarter, we made scheduled debt payments of $28.6 million and had cash lease payments of $6.5 million in excess of books. Going forward, our scheduled aircraft lease payments are $12 million lower than this quarter. Total debt at the end of the quarter was $652 million, which is down $26.6 million from the prior quarter. Now, while we cannot provide specific financial guidance, we will provide some color in a few areas. As Brad pointed out, we are going to see quite a bit of pressure in block hours through the rest of the fiscal year, and we expect them to be roughly flat over the next two quarters. As we look at the summer and fall, we will continue to work closely with our partners to maximize block hours with the goal to at least maintain current production, but also take on more as our pilot training throughput increases and pilot attrition stabilizes. Pilot training will remain at elevated levels as we continue to hire and train new pilots. We added spin capacity for the EJETs in February, as Brad previously mentioned, and we're looking forward to having additional CRJSEN capacity coming on in July. Our maintenance costs are now at more normalized levels, which should continue at similar levels going forward over the next few quarters. I'd like to now turn it back over to Jonathan. Thank you, Tor.
spk08: And we appreciate the financial recap. In summary, we believe 2022 will be a transition year for MESA, but we believe this presents an opportunity for us to make some significant and achievable changes in our business structure fundamentals that will position us well for the future. While we face some significant near-term issues, we believe that by working together with our partners, employees, vendors, and other key stakeholders, we expect to successfully navigate through this period as we've done during other challenging periods in the past. At this point, operator, please open up the call. I'd like to thank everyone in advance, and we appreciate your questions.
spk01: Thank you. And at this time, if you would like to ask a question, please press star 1. Please unmute your phone and record your name clearly when prompted. Once again, that is star 1 if you would like to ask a question. Our first question in the queue today is from Savi Scythe from Raymond Janes.
spk00: Hey, good afternoon, everyone. I was just curious on the pilot front if you could just provide a little bit more color on is the current situation kind of worse than you kind of were thinking a couple of months ago is the kind of the recovery as to kind of when you might be able to bring up block hours taking longer, especially in the light of, you know, some of the comments that Scott Kirby had on their call about, you know, maybe hiring levels in the industry continuing into 2023 at similar levels that you're seeing this year.
spk08: Well, yeah, hi, this is Jonathan Savvy, and thank you. You know, the attrition piece obviously is the part that we have least control over. You know, that being said, the majors had, in fact, given early retirement to, you know, I think the total was about 4,000 pilots, which I think, you know, clearly has impacted us. And I think we've, you know, hopefully our view is that we've burned through most of that And there are some things out there that could help, not the least of which is, you know, the extension of age to 67. There's a lot of talk about pilots being able to, you know, be imported, you know, qualified pilots from around the world. You know, the attrition also has been impacted by sort of some of the growth plans and some of the low-cost carriers and whether those will slow down. So clearly that's the first thing, our attrition, has been about where we planned. It had gone up a little bit, it came back down a little bit. This month we think it'll be down a little bit, but it's still at high levels, much higher than we've seen in the past on a consistent basis. We just don't have the luxury of planning the way the majors do, who can basically sort of look at how many folks are gonna retire, and that kind of becomes the number they need to look at. The part where we can have an impact, and we're working really hard to, is in terms of output. As we mentioned, we do have people in training in the pipeline. We've just had to spool up as fast as we can in terms of additional simulators. We were very fortunate that I think from that standpoint, we now have doubled our capacity, or actually more than doubled our capacity. Also, we needed to train and qualify more instructors, which, you know, we have done through primarily recruiting internally as well as externally. And I think, you know, we ultimately will be successful there so that we can then get the training capacity to outstrip the attrition levels. Clearly with the amount of SIM time, we have the ability to do that. We just need to make sure that we execute on that front. You know, again, The attrition level is what is in question here. There are some things that are being talked about in Washington that hopefully will help. You know, I have probably the strongest feelings in the industry about it. You know, this is all being generated by a rule that is totally unnecessary that's actually creating more velocity, i.e., more turnover, which clearly that lack of stability in terms of the workforce has to have much, in my opinion, more serious effects than whether or not a person has spent 1500 hours flying circles around the Pacific Ocean in a Cessna 172. So hopefully they will act when they see the impact which is very apparent in the reduction capacity across the industry and the impact it will have on the smaller communities that already have been hurt by some of this regulatory burden that has made so much flying There is basically a fairly common feeling in the industry that the 50-seat aircraft will also go the way of the 19-seat and 30-seat aircraft as it just becomes less and less profitable and harder and harder to find pilots to fly those aircraft. So it is clearly difficult, but again, I think we have a decent handle on it. And I think, you know, it's going to take some time to get through it. I think we're trying to be conservative in our estimates going forward. But, you know, we're going to continue everything we can to get, you know, stabilize the situation. The other piece that I think is important to note is, you know, we've always been a low-cost regional airline. And we've had a fairly strategic value from that respect. We continue to believe we will remain the low-cost carrier. However, I mean, there are some areas, for example, that we think we will solve in relatively short order. For example, we had a pilot contract that was under negotiation. We feel we're very close to getting that done. When I say very close, I'm talking about weeks, not months, and I think that will help because our rates clearly have become uncompetitive, and we've had, in spite of that, reasonably good support in terms of new hiring. We do that with a significant bonus structure. And we've had very, very good support from our pilot leadership who really sees that it's important for us all to work together right now. And I have to tell you, without that, I think this situation would be twice as difficult for us. So that's where we are today. Hopefully that's a little bit of color that will help.
spk00: That was very thorough. I appreciate all that. And if I might ask a quick question on the cargo side, I'm curious what the cargo block hours was this quarter. In the past, I know with the monthly, you share that you didn't have a breakout this time. Just curious what the cargo block hour was and the trend there. I know that's included in the overall color you provided.
spk09: This is Mike. The cargo block hours are somewhere between 120 to 140 block hours per month for aircraft. We've got our third aircraft now that goes on in May. That's the rough order magnitude of their block hour production.
spk01: Appreciate it. Thank you. Thank you. Our next question is from Michael Lindenberg from Deutsche Bank.
spk02: Hi. This is actually Shannon Doherty. I'm from Mike. On the cargo piece, so are you guys still targeting 8 to 10 cargo airplanes over the next few years? And can you update us on the current dynamics that you're seeing with demand in the logistics market? Thank you.
spk08: Yeah, we think that cargo over the longer haul is going to become more and more important to us. You know, the cargo operators themselves are generally fairly conservative in their growth plans. That being said, I think it's fair to say that we did anticipate being, you know, larger than three aircraft by now. And I think our discussions with our partner is that, you know, for us to really be a viable entity, and I think they agree that, you know, over time we do need to move that number up. And I think that, you know, those are the, you know, with the level of service that we provided last year, you know, DHL told us that you know, we were among their best, if not their best operator in terms of performance. And on the cost side, I think, as always, you know, Mesa has proven that we are attractive from a cost basis. It's extremely valuable to us, not so much that it really puts a big dent in the numbers right now, but as it grows, it will become more important. But it also is a good recruiting tool because we are in a position where, you know, if that number of aircraft grows, it's not an insignificant number of pilots who have the opportunity to make significantly higher wages that are available at any other regional carrier. So, you know, we would like to continue to grow it. We think there is opportunity. We certainly have not seen any reduction in terms of hours as if things have slowed down. If nothing else, You know, we think that the capacity requirements are going to continue to increase at this point.
spk02: That's really helpful, Keller. And then my last question is, do you still anticipate to reduce your debt to roughly $490 million by year-end 2023?
spk07: Can you speak up? It's really hard to hear you. Sorry.
spk02: Oh, sorry about that. So just on your debt reduction, are you guys still anticipating to reduce your total debt level to about $490 million by year-end 2023? by year end 2023, by next year.
spk07: Yes, we're still on track for that. This is Torque to be back, sorry.
spk02: Great. Thanks, Torque and team. That's all.
spk01: Thank you. And our next question is from Helaine Becker from Cohen. Thanks very much, Aubrey.
spk04: Hi, everybody. Thank you for the time. Just a couple of questions. One, on DHL, I don't know whether it was you, Brad, or Jonathan, you said that that cargo growth was lower than expected. Is that because volumes are not growing as fast as you thought or because you don't have the aircraft you thought you would have by now?
spk02: Hello?
spk08: Hey, sorry, Helene. We're just, you know, I think the issue is just that, you know, When United or American orders aircraft, they order them 10, 20 at a time with a 12-year contract. The cargo operators are just, they do not add aircraft like that. They add ones and twos. Plus, you know, I think they wanted to make sure that MESA was a viable and, you know, a partner that they could rely on that could provide the level of service. And, you know, having just finished our first full complete year, I think we have shown that. And I do feel that we're in a position that if those opportunities come to fly narrowbodies, I think we're very well positioned to take advantage of that. What that means six months from now or a year, I don't know, but I feel that at this point, given the performance level that we've provided and our cost structure, I think we are very well positioned to take on additional narrowbody flying when DHL is in a position to add You know, we are looking at other options also in the cargo world, but I think having an exclusive arrangement with DHL, I think long-term could be a very, you know, it might be the best way for us to go. We have a very close tie with DHL. We really enjoy working with them. They have been terrific partners, and to be frank, putting our energy into building that relationship would be, I think, a very valuable use of our time.
spk04: Okay and then my other questions are related to completion factor and on time performance. So I know in some cases you have to pay penalties if you don't meet your negotiated agreements. Are they suspended since they're taking your pilots? Have you been able to work with them to get them to kind of rethink how they How they, I guess, I don't know, penalize you?
spk08: It's a very good and very relevant question. Let me answer it like this, and I apologize for, you know, having to sort of be somewhat less than 100% transparent. We, clearly the situation that exists today in the industry is something that is unprecedented. We are working closely with our partners to, you know, have an operation that is the most reliable, most on time, but takes into consideration both what's going on within the industry and the financial impact that it might have on Mesa, which of course, you know, they, I believe that our partners would prefer to minimize than maximize. I think that all those discussions are ongoing. It's very fortunate that we have good relationships with both of our partners, that they view us as a strategic partner as much as a day-to-day partner, but I think At this point in time, it's hard to really say where all that shakes out other than I think in the long term, both of our partners would like us to be successful. And I think given the scenario, we're gonna have to be very creative here in order to ensure that in terms of what is the right balance between performance and penalties and revenue and costs and everything else. And everything is open for discussion at this point.
spk04: Gotcha. Do you think, just as a follow-up to that, Jonathan, there was an article on TV I saw recently. I'm not sure why I thought of that. But you were quoted as talking about this comment you made earlier about the 1,500-hour rule and why it was so high. And one of the Colgan, I don't know, survivors, I guess father of somebody said, really pushed back on that and talked about the fact that there haven't been any accidents in the U.S. and felt it was – he didn't understand why any aviation professional would want anything other than, you know, 1,500 hours. And I don't disagree with your comments, right? I mean, we have pilots who fly into the U.S. with 700 or 800 hours, and they do it safely. Do you think that's a realistic goal to get that hour – of rule change A and B, do you think the government would allow M&A activity in this sector of the industry in order to help solve that issue?
spk08: Yeah. I mean, first, let me comment about the 1,500-hour rule. Look, I think that there are other pathways that people can become proficient pilots, highly proficient pilots. You know, military pilots who fly off of aircraft carriers fully armed into combat with less than 200 hours is an example of what that means. You know, with all due respect to all the parties, the fact is there is zero evidence, zero evidence that total time has any impact on safety whatsoever. There is, however, significant evidence that says that the amount of time in type does have an impact. So, by decreasing the amount of time in type that pilots have because of rapid turnover, I don't think makes a lot of sense and I think it's antithetical to the interest of safety. Whether or not there be M&A, I don't think any M&A at the regional level, I don't think would be subject to any kind of antitrust issues because we're just too small to count. And so I don't think that would be a big hurdle. The bigger hurdle is always, you know, our partners generally have rights under, you know, change and control issues. But again, I think that, you know, given the difficulty of the situation, and, you know, I think it would be fair to say that Mesa is not the only carrier that's you know, having its difficulties right now in terms of really what's really boiled down to just this pilot issue. I don't think that that would be an issue either if there was some creative solutions available. You know, that being said, you know, our biggest issue right now on the pilot side is we can bring people in the door at this point, and I mean, that is a concern though. It's just the rapidity of attrition which is being a result of the pilot shortage, that there are fewer available options to JetBlue or Spirit or Atlas. So they immediately have to come to us as a source as opposed to in a more plentiful situation, there are other ways to find pilots. So I think that we just need to work together Primarily, I think the big players here will be our partners in order to help see us through this. United has been extremely helpful in terms of allowing Mesa to participate in the AVA program. That clearly has helped us in terms of attrition. I think that looking at our contracts ourselves I think will help us. Overall, I think that, you know, we're just going to have to be very creative, and it's something that we've done in the past, and I think something we continue to do. Because there are solutions, but I think long-term, the solution is just going to have, you know, refilling the reservoir of pilots that has been drained as a result of the, you know, the impact of the 1500-hour rule.
spk04: That's really helpful, Jonathan. Thank you.
spk01: Thank you. Our next question is from Andrew DeDora from Bank of America.
spk08: Hey, good afternoon, everyone. So, Jonathan, based on kind of, you know, what's going on with the operation, you know, think about, you know, the March completion factor when you kind of layer in your current training environment and you recently got a new SIM, will be getting another new SIM. I know attrition is the big wild card, but assuming it stays around where it has been recently, do you have like a general time frame of when you think you could be in a position to run at kind of the optimal utilization or kind of the block hour production that you were doing before these pilot issues popped up?
spk05: Hey, Andrew, this is Brad. Look, I just want to pay a little more attention to the fact that our performance in the quarter was really compromised by the extent of the sick calls when we were in the Omicron variant outbreak. That's really what affected it more than, I mean, we had high attrition. That's been ongoing. We've been working with that and planning for it, but it was the sick calls that really got and hurt the performance. And as both myself and Jonathan said in the opening remarks, those sick calls and call-out rates have come down to pre-pandemic levels at this point.
spk08: And in terms of timing, you know, I think it's fair to say that it's not, we cannot snap our fingers and fix this problem just because of the footprint of training. You know, we have added more instructors, which has helped, so that we can fully utilize the SIMS and we've added the additional SIMs. Clearly, I think that if we can expand the participation in the AVA program that we're working on right now, I think there are some things that we can do internally to slow down attrition. But I think the biggest issue is just being able to attract and bring people through the system. You know, paying a captain $10 an hour more and, you know, even when we talk to our union leaders about this, you know, I don't think we have a big disagreement, is not what's going to retain someone if they get a job offer from a major that, you know, has obviously a much higher projected income stream over the lifetime of, you know, a pilot's career. So, I mean, I think that the best thing we can do is just continue to focus on bringing people in the door and getting them trained as fast as we can, which I think is something that, you know, we could have done better. I mean, right now we probably have about 200 people in training. You know, 200 folks, you know, believe me, if we could snap our fingers and those were available tomorrow, we wouldn't have a shortage online. So that's really our focus right now is just, as I said, continuing to bring people in, and then getting them through training as fast as possible. And to give a little more color on that, we have had a little more success on the CRJ side in terms of getting people through. Our footprint is significantly less, so hopefully we can see some improvement there. And that's why we put a lot of focus now, the first focus on getting additional sim was on the EJET because we have That's been where we've been a little bit weaker on the EJET, which, frankly, has also been a churn since COVID because, you know, pre-COVID, we always seem to be a little bit better off in the EJET. But there has been a fair amount of attrition there, and we now are putting a significant amount of focus on the EJET side. Understood. And, Brad, when you spoke about the block hours being flat the next two quarters, I'm assuming that's flat to the March quarter production, or is that flat year on year?
spk05: Yeah, flat from last quarter, the March quarter's production.
spk08: Yeah, okay. Last one for me, I guess, Torque, the $76 million of cash at the end of the quarter, down from 180 million, I think was the last June cash number. When do you expect to see some stabilization on the burn rate here, and how should we think about CapEx and principal payments over the next 12, 18 months? Thank you.
spk06: Yeah, thanks, Andrew. When we look at cash, I mean, we had some large expenses in the quarter, cash expenses in the quarter that we talked about in the comments. That was the bigger driver of the decline in the quarter that we had. Right now, as we look ahead to the next quarter, we're expecting to be around six and five, so the burn isn't going to be nearly as fast as it was in the prior quarter. Obviously, as we look at the forecast for block hour production, that's the wild card for us right now. Giving direction further out than that, it's pretty difficult at this point because it is really dependent on our production. Obviously, as we work with our partners, what may happen with that. That's about what I can provide for you right now. I don't know if you have any other comments.
spk09: The only thing I can add, this is Mike, is that this current quarter that we reported, And I think it's in the prepared remarks that we had an extraordinarily high lease payment, which in subsequent quarters will be reduced by about $10 or $11 million per quarter going forward. So that is something that you would need to take into account. And then the schedule principal payments, I think they were $29 or $30 million this quarter. by another $10 million next quarter, too. So those are the other two factors that might not come out as clearly in the 10Q as you would expect.
spk06: Yeah, and as far as CapEx, this is Torkian. I mean, one thing we have significant is we have five engines we're taking delivery of. Those are all, we have the financing set up for those already, and so that's, you know, there would be a little bit of CapEx on those, on just the down payments for those, but the majority of that's all going to be financed.
spk08: It makes sense. Thank you.
spk01: Thank you. I have another question from Savvy Scythe from Raymond James.
spk00: Hey, thanks for the follow-up. Just a couple of questions. First one, just wondering on the moving the CRJ 900, the 12 to, you know, being held for sale, what was kind of the driver behind that decision? And I'm curious, you know, what interest level you're seeing today for that fleet?
spk08: Well, I mean, the driver was that, you know, we did not need the aircraft. Like, you know, moving them over, we were able to, you know, it obviously improves our P&L by helping them for sale. And we have had multiple parties make offers on the aircraft. You know, they're getting better with time. I will say they're not going in the wrong direction. But, you know, we want to, if we do sell them, and I'm hopeful that we will, that they'll be sold and the proceeds will be used to retire the government debt that's against those aircraft. And I think that obviously you can imagine these are not our high-time, I mean our low-time engine aircraft. These are the aircraft that are, I would think it's fair to say, the least valuable, but we're still very close to being able to do a transaction that will hopefully retire all the government debt associated with those aircraft, and just sort of start to chip away on that. We do have a couple other transactions in the works that would be helpful on the liquidity side, and I think that we are also looking at other ways that we can save money in the company. We're not just gonna sit back and do nothing. We obviously are being very proactive in terms of working on improving liquidity through other means, although Suffice to say, adding block hours is the fastest and best way for us to do that at this point.
spk00: That makes sense. So is it fair to assume the European JV is still kind of going forward and this doesn't impact that?
spk08: No, we're going to continue to go forward. You know, we think that there's good demand over there. It would be a way, and, you know, there is no pilot shortage. In fact, you know, believe me, if we could, if the government would take action and allow us to give visas like we can in Australia, a large part of this problem would go away, which, again, is why I say this is politically motivated, not safety motivated. Why shouldn't we bring pilots in? I mean, it's kind of ridiculous when you think about it that if you're a model, you can get a visa to come work at the United States because there's effectively, quote, a shortage where we can't get pilots over, where there's a shortage that has literally billions of dollars of impact on the industry, the communities we serve, and the consumer. I mean, I think it's pretty clear people have seen prices going up and there's a reason for that. You know, demand has increased and supply has decreased. So, I mean, I'm hopeful that the government will act quickly because that's one thing that could take a lot of pressure off the system if they would just let us tap into the, you know, pilots around the world who are all, you know, exceptionally well qualified. A lot of them fly in more difficult situations than the United States. Having been over in Europe, I mean, flying in Europe is clearly more challenging given the weather. And I think that, you know, that's one way that we could help solve this problem more quickly. I am, you know, to that end, again, we're being proactive. I'm actually testifying at a hearing next week being held by Senator Sinema. regarding the pilot shortage and I want to make all these points clear and hope that we can get some of these actions taken. You know, the other thing too is that, you know, in Europe there is no scope in Europe. There are pilots available and I think that, you know, the American model of capacity purchase would do very well there and, you know, we've seen in Europe, you know, sort of a balkanization of the regional carriers you know, as opposed to a focused effort that we would try to bring to that operation.
spk00: Appreciate that. Good luck next week with the testifying. Can I just quickly clarify, with the lease payments, that's just the differential between, you know, your cash lease payments and your P&L lease payments are different, right, that this does not have an impact on your P&L. Is that fair?
spk07: Yeah, that's fair. Yes, Abby, yes.
spk00: All right. Okay, thank you.
spk01: And I have another question from Michael Linenberg from Deutsche Bank.
spk02: Hey, it's Shannon again. Thanks for the follow-up. Were you guys involved in conversation with the FAA last week regarding ATC staffing issues? You know, maybe you were affecting Jackson and Dustin. Maybe you weren't. Just curious to hear your thoughts. Thanks.
spk08: No, we were not involved. Okay. It didn't impact us, so we were not involved in that.
spk02: Fair enough.
spk08: Thank you. What we were interested in with the FAA and something that we took note of is the fact that one of our fellow carriers at Republic just filed for an exemption to the 1,500-hour rule, and we're going to watch that very closely and will probably follow suit And frankly, I applaud the folks at Republic for taking what I think was to be a very meaningful action and making it clear that this rule has really impacted everyone negatively with what would be very clear, no upside from a safety perspective and potentially significant downside.
spk01: And at this time I am showing no for their questions.
spk08: Okay, well thank you very much everyone for taking the time to hear our quarterly report. As I said at the opening, obviously this is very disappointing. We knew where we stood, so again it's not a surprise, but we clearly have a lot of work cut out for us in terms of getting the ship back in order. You know, it's frustrating because there is really nothing else that's impacting us negatively. Our maintenance operation has been doing well. Our pilots and flight attendants have been incredibly supportive all through COVID. You know, we see people picking up open time and, you know, doing all the things that we need in this tough period. Our people have been incredibly supportive. But it's just hard to compete. when there's so many options for a pilot right now to earn significantly higher pay at the major carriers or the air cargo companies or some of the corporate jet opportunities just has become very difficult. We know that while we can't control attrition, we certainly can do a better job in terms of getting our people through training, which is something we're highly focused on doing. And I think lastly, and most importantly is, You know, I think the support that we're getting from our partners has been outstanding. And I want to tell you how much I appreciate that because I think in the long run, their support would be critical for us to get through this problem successfully. So with that, we hope we'll have a better report for you next quarter. Obviously, this has been disappointing. You know, we're all shareholders and we know where the stock is and we know what our job is here. and I can assure you we're all taking that very seriously. So thank you very much, and we look forward to talking to you next quarter.
spk01: Thank you. This does conclude today's conference. You may disconnect at this time.
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