Cargojet Inc.

Good day and welcome to the CargoJet conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Pauline Dillon, Chief Corporate Officer. Please go ahead.

Good morning, everyone, and thank you for joining us today on our results call. With me on the call are A.J. Vermani, our President and Chief Executive Officer, Jamie Porteus, our Chief Commercial Officer, John Kim, our Chief Financial Officer, Sanjeev Mani, our VP Finance, After opening remarks to meet about the quarter, we will open the lines for questions. I would like to point out that certain statements made on this call, such as those relating to our forecasted revenues, costs, and strategic plans, are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA and adjusted EBITAR. Please refer to our most recent press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and for reconciliations of non-GAAP measures to GAAP income. I'll turn the call over to AJ for his remarks.

Thank you, Pauline, and thank you, everyone, for joining us this morning. Exactly one year ago, when I hosted the earnings calls, I had no idea that we will be facing a once-in-a-century pandemic. With the vaccine rollout Picking up, I'm optimistic that we will soon be able to enjoy activities that we miss so dearly. From the March of last year to March of this year, CargoJet has gone through a transformation like none other. While thousands of businesses faced closures, shutdowns, and loss of business, CargoJet was fortunate enough to play an essential role in keeping our nation's supply chain moving. There's no question that we benefited from the elevated demand in e-commerce and the need to fly PPE from China and other countries, but it required a very disciplined approach to execution. On the one hand, we had to bear additional costs for health, safety, protocols, and onsite private testing, zero pay for frontline employees, additional bonuses, and rapid adjustment to how we operate it. But on the other hand, we successfully supported rapidly changing needs of our customers. We also stayed disciplined in continuing to execute our long-term strategy of diversifying our revenues and further strengthening our balance sheet. Airline business, particularly cargo airline business, has always been volatile. Therefore, I'm particularly pleased with the achievement of 2020. We are coming off one of the most successful peak performance under the most difficult circumstances. We operated record number of flights for an unprecedented demand in all sectors, domestic, international, charters, our U.S. operations, ACMI. In spite of the COVID and weather challenges, additional business challenges, and additional business challenges. We finished the year with 98.5% on-type performance. We never left even one parcel behind for our customers during this unusually busy peak period. I want to thank all of our customers for placing their parcels and trust in the hands of CargoJet. There are some key achievements for 2020. Total revenues for the year were $668.5 million compared to $486.6 million in 2019. But more importantly, the share of domestic network dropped from 58% of total revenues in 2019 to 45% of total revenues in 2020. ACMI business now accounts for 20% of our revenues, and all in charters accounts for 18% of our revenues. We also generated $196.8 million in adjusted free cash flow for the year, which is certainly a record. Subsequently to successful equity raise of $365 million in February of this year, we have now $600 million in undrawn revolver and expect to completely pay off six aircrafts by the end of 2021 as the leases come due. This will make us one of the best positioned cargo airlines in the world. We will have 90% of our fleet paid off by 2021. We have come a long way from an overall leverage of almost five times to this year and overall leverage of just two times EBITDA with these changes. Our fleet size stands at 28, but as we previously disclosed, we'll be adding five 767 freighters and two Boeing 777 freighters in 2023 with an option of two Boeing 777 freighters in 2024. Now let me turn to quarter four results. We believed another record holiday season for our customers that led to an adjusted EBITDA of 81.9 million compared to 47.2 million in 2019. E-commerce as a percentage of overall retail sales has gone up from around 7% to 12% in Canada. According to the most recent estimate, this is likely to become the new baseline, and we do not expect this to slip back to pre-pandemic levels. although there might be some short-term adjustments. Consumers have now discovered the functionality of being able to do certain types of purchases in an online but largely seamless manner. Yet, they will go out for certain other items for an in-person shopping experience. We expect e-commerce and bricks and mortar stores to coexist for the foreseeable future. More importantly, there are generational trends and these will likely continue. While we move on to operations, our teams across the country have now adapted to the new reality. Many of our early initiatives and health and safety protocols have now become the standard operating procedures. The team members continue to rise to the new challenge and I want to acknowledge their hard work, particularly as the cold weather continues to throw more challenges. This would not have happened without our motivated and one of the best teams in any organization. Our increased fleet and asset utilization continue to demonstrate additional operating leverage as demonstrated in improved margins. I want to also make some comments about our international strategy in addition to what we have already shared in our recent press release. I have mentioned this before, but given the size of Canadian domestic market, cargo airlines have historically struggled to survive in Canada. Dozens of airlines have started their operations, started again, shut their operations, come and gone. But Cargill took a bold strategy of bringing major logos under one network. We successfully executed this strategy over the past one year. We believe there is now a compelled opportunity to build an international business while the belly capacity of the passenger airlines, greatly reduced global supply chains, are struggling to readjust. Uncovering may continue for some time. There is significant advantage for early movers. We believe if we are careful in designing our domestic and international network in a synergistic way, we can create a competitive offering that simply does not exist in the market today. We are also pursuing an aggressive growth strategy to expand our ACMI, CMI, US growth opportunities, and continue to strengthen every segment of our business. Diversification is the key going forward for us. We are an entrepreneurial company, and one of the things we all do is to spot opportunities and go after them successfully. With a strong customer base, a solid balance sheet, and one of the best motivated teams in the industry, we are now ready for the next phase of a growth strategy. We'll keep you posted as it unfolds in the coming quarters and years. I want to thank everybody for joining us today, and once again, I appreciate you guys taking the call, and now we'll leave the lines open for questions.

Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please see number crossing star one. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. Again, please press star 1 to ask a question. And the first question comes from Walter Sparkling from RBC Capital Markets. Please go ahead. Thanks very much, Robert. Good morning, everyone.

Good morning.

So perhaps, AJ, we could start with the question. Q1 trends on a seasonal basis. I know obviously coming from fourth quarter, looking at past trends, you would come off about 10% into the first quarter. You talked about conditions being completely different this time around. I just wanted to ask whether that 10% seasonal drop from fourth quarter to first quarter is typical of what we should expect here in 2021?

John, you would have a better indication of that.

Yeah, Walter, I think the traditional seasonal trends would continue. We don't expect a big adjustment or drop-off in e-commerce volumes domestically. Our ACMI run rate is much higher than it was a year ago, but certainly those routes will continue, the nine ACMI routes for a customer. So I think you should expect traditional sort of variances from Q4 to Q1.

Okay. The January trends were, as I said, a bit different than the previous January, although they were better in a sense. But there was, as you know, after the peak season, everybody was kind of stocked up. So we saw a little bit of a, you know, drop in January, but then picked right up. So we don't expect anything out of the ordinary going into Q1.

Got it. And on ACMI, you had indicated last quarter that the first half of the year should see a pricing decline of about 15% in the first half from your fourth quarter run rate and doing over $40 million now. Is that what you're still anticipating, is a bit of a 15% drop off in the first half and then get back to the third and fourth quarter run rate for ACMI in your third and fourth quarter of 2021?

Yeah, it might not be as high as 15%, but there will certainly be a drop in the ACMI run rate because a lot of in the fourth quarter, especially in third quarter, there was some premium pricing because of the shortage. So there will be some drop definitely in the pricing, but I can't give you exact percentage, but there would be a drop for sure. And then it will pick up in quarter three and quarter four.

When you look at your new freighters coming on, starting with the 767s, because obviously the 777 is a little further out, but 767s, how are they going to be deployed from a revenue generation standpoint? Will the first one go right into filling in your spare and have little revenue contribution or, you know, or could we see it dedicated toward some charter business, some ATMI business? Are you hoping to have some of those contracts lined up by the time those aircraft come on? Can you give us a sense of how that kind of revenue builds into your top line as those aircraft come on?

Just to make it clear, when we picked up three additional routes for one of our customers in the US for ACMI purposes, we used the repair capability and were able to rejig the network to free up three aircraft in that. But we also used an American operator to fill in the gap for additional routes that we were flying at the same time that we could not cover ourselves. At this time, I can say that the new freighters that come in, first of all, they will fill the need for having a spare aircraft that we lack badly in quarter three and quarter four. And second part of it is that we also have a route being operated by an outside company to make sure that, you know, service stays and the continuity stays. So those routes will be, so the one obviously will go into a spare capacity as we have about eight CTECs going on this year and eight next year. So we will need an extra spare aircraft just to keep operational leads. We will also replace with one aircraft that we'll be forming it outside. A third of it that we are also leasing an aircraft, 767-200, that we keep extending the lease on because we always find work for it. So our plan is to replace one of those aircraft with it, and that will leave us with two aircraft, 767-300, that we would deploy in the European and South Asian and South American and Latin American-Mexico markets in September, October of this year. So basically two of those would be dedicated to the international growth strategy, and the other three would be sort of covering the present needs. One is replacing an unleased aircraft, one is replacing the ACMI group that we have subbed it out, and third is using it as a spare.

And do you have already contracts lined up for those two net new aircraft Do you see them taking kind of – are you doing set charter routes or could there be ACMI opportunities that you're lining up? Yes.

So we have a couple of customers who have expressed deep interest in signing up ACMI contract deals with them if we wanted to, but we're not sure if we're going to go the ACMI route or we're going to go in a national strategy deal with them. ATMI guarantees you certain amount of revenues and profits, and they're pretty good. But we still, when we get closer to it within three or four months of it, those ATMI opportunities are not going anywhere. So we do feel that as a backup, those are good to keep. But if we find that the yields in the market are still strong because the belly capacity hasn't come back yet, we might deploy them later. in the international market on a retail basis if we find that's more lucrative. But if we find that some of the pricing has dropped, then we always, as a backup, we can do ACMI on those aircraft clearly.

Sounds like a good option, Ali. Okay, that's everything for me. Thank you very much for the time. Thanks, Walter. Chris Murray from ATV Capital Markets. Please go ahead. Your line is open. Thank you. Good morning, folks. Good morning. My first question is around the Canada Post contract and just thinking about the next extension. So when you renewed the extension back in 2017, you had about four years on the contract now. We're kind of in a similar timeframe at this point. And I think, you know, last quarter you mentioned some commentary around you know, what you would be willing to do on pricing and things like that. So I guess a couple questions. How should we think about what that contract looks like?

And when do you think that you'll be looking to talk to them about maybe extending the next option?

So we still have four years left on that contract until 2025, four years and a couple months. So I don't have the exact date right in front of me, but in that range. So we are finishing our first seven-year contract. Contract year seven would be next year. And then the three-year extension kicks in. So at this stage, you know, we obviously are always thinking about expanding relationships and renewal stuff, but I think it's a bit early to be discussing that. A lot can change between now and, you know, a year from now, depending on where the pandemic ends up and all that. and how much is required. So this will require a lot of thinking on our part, our customer's part, and hopefully within this year we plan to have those discussions with them.

Okay, fair enough. And then similar to Walter's question around the 767s, the 777s, especially the converted 777s, is kind of a new entry into the freighter market. How should we be thinking about the application for that? Will that be, again, sort of the ACMI international business trade-off? And what type of opportunities does having the 777 open up for you that it's different than what you can do in the 767 right now?

Well, the 777, first of all, has an advantage of, you know, with the lower fuel burn, double the payload. It can carry up to 220,000 pounds as opposed to 120,000 pounds of 767, and it's got longer range. So you could do direct flights from China into Hong Kong or any of the eastern Japan into Vancouver and Toronto. Also, if you come to Vancouver, we obviously, Vancouver-Toronto sector, Vancouver-Hamilton sector, we can combine it with our domestic sector to get the synergies and then continue on to Europe. So it will be an operation that extends from, let's say, Hong Kong into Vancouver, into Toronto, and then Toronto to maybe St. John's, Newfoundland, where we have a domestic base, then continuing on to Europe and maybe extending it to India at some point. So it would be sort of a circle flight that covers the entire world, but we will also then have some domestic sectors integrated into it, like the Vancouver-Toronto, Toronto-Vancouver, could be Halifax, Toronto, depending on, or Hamilton. And the second part of it is also, we will have 767s that would connect with them going to Mexico and South America, but all the cargo, that international stuff that ends up here needs re-forwarding into many other destinations. So first of all, domestically, they could be forwarded on our network. And second part of it is that, you know, flights like Mexico, Bogota, Lima, Chile, and Brazil could also be, you know, connecting flights from that network. So I think what this offering does is, number one, It kind of takes advantage of some of our existing domestic routes. You can replace two aircraft with one on some of those routes certain days, but also brings in cargo from the Far East, which is one of the biggest trading places right now, into not only just Canada, but we can service U.S. and South Central America with those businesses. So that's how roughly the model works.

Okay, that's helpful. And then one last clarification for me.

And just also just know that we always have an option that, you know, there's a lot of demand for ACMI for 777s as well. So if we didn't want to get into the network and have our own planning, there's always offers out there and inquiries that come in that if you want to operate 777 on an ACMI basis. So both options are available to us.

Okay, thanks. And then just one quick clarification. You had mentioned your on-time performance was 98.5%. Was that for Q4 or was that for the full year?

The full year was very close to it as well. I don't have the exact split of percentages, but we've always been over 98% for the whole year, and 98.5% was for the Q4.

Okay, thank you.

These are carrier controllable delays for on-time performance.

Thank you. We'll now move to our next question from David Acampo from Cormac Securities. Please go ahead.

Good morning.

Good morning.

When I take a look at your Q4, I think on a previous press release, you said that you ramped up for flying by around 20% just by flying during the day and on weekends. When we think about the Q1 and Q3, can we still expect that incremental lift of 20% by flying during the day and on weekends, or is or is that more just a peak season phenomenon?

That was a peak season phenomenon, plus also the demand for some essential goods that people are just stocking up, and also still some PPE was being flown in. So I think that market is now not an urgent market. A lot of stuff is on the ocean for that stuff. I think the 20% additional supply that you saw for charters and dedicated charters is going to become more like ad hoc charters as required rather than the regular charter work.

Okay. And just to follow up on one of the previous questions, you mentioned that you guys were using some outside charters. Can you give any indication on what the margin is for those types of contracts? Are they very low for outside charters?

Well, the margins on that were secondary, considering that there was not much available in the market. So you take whatever you can get to protect the route, protect the customer. We certainly didn't lose money on it, but we certainly didn't make as much as we could have if we operated other shelves. So having said that, they were probably close to a break even or making a few pennies on it, but it was quickly done because of lack of aircraft, lack of crews, and so much demand that we had to go outside to protect our business.

Right. Last one for me here. On the feedstock for the 777s, what do you see in that environment right now in terms of pricing and when can we expect you guys to execute on that? I imagine there's quite a few right now that are available, and presumably as demand starts to come back online, the amount of feedstock starts to decline as well.

So there are a lot of 777s out parked there, but it's not a matter of finding the feedstock or the aircraft. It's a matter of locking in the slots for conversion. So that's where the key comes in, and I think we are well positioned now that we have... We are in the middle of negotiating two slots for 2023, which are being held for us, and two stocks for 2024. So if we are going to be operating a 777, I can see probably third quarter of 2023 or fourth quarter of 2023 to be the first one on the launch.

And is the expectation to execute on that option? What do you think is in the marketplace for that to happen?

Well, knowing what I know today and knowing where the trend is going, I think definitely we plan on executing it. Keep in mind that that portion of the business is, even if we were in the pre-pandemic stage, situation where nothing happened, let's assume, and I was looking at 2019 and would I be adding 777? I probably will because I think one of the key things that we have been able to do is strengthen our balance sheet because most of these assets are going to be paid off, number one. Our infrastructure, our facilities and all that stuff is all paid for. Our ground handling equipment is paid for. And as I've always said, that it is a further offering which is riding on our existing infrastructure and fixed costs. So it's like McDonald's serving lunch and dinner, and now we are adding breakfast to the menu. So for us, operating those faders would be mostly at the variable cost level, and our fixed costs would be very negligible on those. And I think even without the pre-pandemic levels, it's If I was in that market and I had a balance sheet like that, I would definitely be flying those planes in that market as well. So it makes total sense. The Delhi capacity is not going to come back for three to four years. And even in some form, when it starts coming back, I think the international trade, the way we see things, the capacity, we definitely, there's a market for those.

That's great, Colin. I'll hop back in the queue.

Thank you so much. We'll now take our next question from Mona Nazir from Laurentian Bank. Please go ahead. Good morning, Mona.

Good morning. Thank you for taking my questions. So firstly, in regards to the fleet additions, this is just more of a confirmation. So the 777s you're currently negotiating, and the 767s are secured. Is that correct?

Yes.

Okay, perfect. And are you seeing a lot of price variance on the 777s?

You know, there's different models of 777s. There's 200LRs and there's 300ERs. There are slight differences in payloads and volumes carried on it. Obviously, 200 LRs are more available and a little bit less price, but then they take a little bit of a less volume. So those are the kind of – so we have both options available to us. Some markets, 200 LRs are better. Some markets, 300 ERs are better. So we might take two LRs and 200s and might take two 300 ERs. So that's what we are evaluating right now. But, yes, there are – fairly good deals available on these ex-passenger feedstock that are excellent for conversion. These are not very high hours. They're very low cycle aircrafts. And it clearly shows the trend that these widebodies that are up in the market for sale shows that, you know, I don't know if they will ever come back to the market as passenger as the widebody capacity gets reduced. So this is an encouraging sign Because if these aircraft were ever going to see back in the passenger, they wouldn't be up for sale. So that gives us an indication that the market is going to be strong for international cargo.

Perfect. That's great. And just secondly for me, I saw that you have been involved in the vaccination distribution efforts. I'm just wondering if you could speak about the impact that this program could have on the results and performance going forward, particularly as distribution efforts run.

So I think all the articles that we saw about six months ago that you will need 8,000 jumbo jets around the world to carry vaccine was probably way overestimated. Vaccine doesn't weigh much. It doesn't take much space. And I can tell you that people talk about 8,000 cargo flights carrying vaccine. It was probably, as I said, way overestimated. Second part of this, vaccine is rolling out in 200,000 doses and 100,000 doses and 50,000 doses, so it does not need plain full. You know, you could take that in two containers and fit some of that stuff in. So all those revenue estimates related to vaccines were probably an imagination of a lot of people. It does not require that kind of stuff. Second thing is that behind the scenes, yes, we have been handling vaccines. Like, for example, we've flown vaccines regularly to Mexico from Cincinnati when we fly to DHL. We've also handled a lot of domestic distribution of vaccines to our customers, UPS and FedEx. And we'll continue to do that, but I do not think that vaccine is a phenomenon that we saw for PPE. It's going to be a lot less. Yes, there is going to be regular shipments coming in and out, but I don't believe that there's going to be plane loads and chargers required for that.

That's very helpful. Thank you. And just lastly, you know, we've seen the recent CapEx plans, your aircraft additions, you can speed up by 25% plus. I'm just wondering, looking back at when you started this company, did you ever think that it could grow to this size? Obviously, the macro tailwinds you could not have predicted. And just given current positioning, where do you think Cargojet could be in five or ten years even? I know it may be hard, but I'm just looking for something directionally, perhaps mixed geographic exposure or something that we're not thinking about. Thank you.

Well, you know, I always thought there was a demand for a good cargo airline. I was in the business since 1985, and until 2000, I was using the lift from Canadian cargo airlines. In those 15 years, I dealt with 14 cargo airlines that started and either sold or went bankrupt or discontinued operation or whatever, or lost their licenses and So it was very frustrating to see that there is no strategy in Canada to have a cargo airline. And that's where we stepped in when we saw an opportunity after 9-11, you know, from the ashes of Canada 3000 to build a cargo jet and not get into the passenger business. Because the minute you combine passenger business, your focus goes to passengers, what kind of meal they got, what kind of business class they got, and they're not worried about cargo. So cargo is second to those airlines, and we saw 14 of them, as I said, fold in those 15 years. So every year I was negotiating with a new carrier at that time, and that sort of said to me that, you know, maybe there is a need for one carrier where we can bring everybody into one group, share the overheads, go on a variable cost model with some fixed daily minimums, growth for opportunity at variable cost for our customers, and a lot of sort of flexibility in their whole contractual commitment. So I think that model worked successfully. And, you know, nevertheless, I thought that e-commerce would play a role and change the nature of the business, so that was kind of an unknown. But, again, the opportunity came up. We were ready to seize that opportunity. Now, where do I see in five years or ten years? I'd like to see Cargojet as a premium international cargo airline, which also has obviously a significant portion of the domestic. The international ones, but I'm looking at it from Southeast Asia and from the growing markets, whether it's Vietnam, whether it's Thailand, whether it's China, Hong Kong, those part of the world, right into Vancouver, and then into Hamilton. I would like to see Hamilton become the hub of advanced shipments. A country like Dubai can be the hub for Middle East and Asia. Why cannot Hamilton be the hub for North America, South America, Latin America, Mexico, and the Caribbean? So, you know, my goal is to bring product all around the world into Canada and use and have flights from here that connect to this part of the world. So what Emirates have done a great job in Dubai or Singapore Airlines have done a great job in their countries with little capabilities of local traffic, strictly doing transshipment. We are blessed with having a great North American, Canadian, and U.S. demand And if we can combine those with, let's say, Latin America, South America, Mexico, Caribbean, transshipping it through Toronto or Hamilton, it obviously would be a great business model, and that's what my dream is, to make sure that there's a big legacy for Cargo Canada as a transshipment hub for North America and surrounding areas.

Thank you. I really appreciate you sharing that with us.

Thank you.

As a reminder, to ask a question, please do not by pressing star 1. Our next question comes from .

Good morning, and thanks for taking my question. Good morning, . Good morning, . Maybe, I'm sorry for joining in late, so apologies if I repeat any question here, but wondering if you guys decided to go ahead with four 777s now, or are you planning to have two and then two options?

So we are going to go with two in 2073 and with an option of two for 2024. Because, you know, our options, It's always good to have flexibility. It's our option. We have to confirm that within a year, year and a half. We haven't finalized that exact date. But it's obviously whenever we have bought planes and signed up for them, every time we go buy a plane, this is going to be a spare aircraft. We end up selling that aircraft. And then we have to go get a new spare aircraft. We end up selling it. I'm certain that what I see in the market that We definitely will exercise those options knowing what I know today, but obviously it will depend on how the trends are, what the demands of the world are, but I definitely see that as just describing to Mona as what I see in five to ten years where cargo jets should be, I think four triple sevens might not even be enough. I'm an optimistic and entrepreneurial culture, and our whole organization is that way. So we just want to make sure that we have great infrastructure. We cover 16 cities every morning in Canada. We have flights to the U.S. We have some international flights today. And we want to be a complete cargo airline offering CMI, offering ACMI. We're offering domestic. We're going to be offering products into some of the international cities. So I totally believe that, you know, given what I know today and my beliefs, I think we will exercise those options. But obviously, again, Konark, as you would say, the first one, there's no guarantees in life.

No, absolutely. I understand. Yeah, that makes sense. But I was curious as to, like, when you say, like, in the written statements, it says options, Curious if this is like an agreement option where you buy an option on aircraft and you exercise a non-dependent and you have to pay a deposit. Is it like that or the option means you will explode the market when it comes to that point?

So I think aircraft are not in short supply because there's, you know, a lot of carriers are selling their 777 fleets, right? Because they do not see the white bodies for some reason or they're going to replace it with newer white bodies. But we see But the trend will continue where carriers like Singapore Airlines, Emirates, Jet Airways recently declared bankruptcy about a year ago. There's lots of 777s out there. A lot of companies are selling their 777s, including Delta. There could be 100 aircraft in the market today. So aircraft is not going to be the issue. The issue of options come in on conversion slots. That's where the key is. So if you can get those conversion slots locked up, the aircraft finding their feedstock to convert them, is not an issue. So the options mean that we will obviously source the best aircraft that's a candidate for conversion, but what we do is we lock up the conversion slots, and that's where the options are coming together.

Okay, that makes sense. So from what I heard from you guys earlier on the call, it looks like you are negotiating two slots in 23 and two slots in 24. I'm presuming that's for 777. So does that mean you have secured all 767 conversion slots at this point?

Yes, we have all the five conversion slots locked up for this time, for 21 and one, I think, early in 22.

Okay, that's great. Thanks. And Have you disclosed on this call today so far, or are you planning to, any contracts, be it ACMI or any routes you are launching with the DC aircraft that you've decided to go for? So, you know, 3767, I think you were saying, going for international, and 2777, that means going for international. So have you disclosed any contracts yet?

So I'll break it down quickly, although I've covered that, but I'll just break it down for you, Kunak, that one of the 767s that we are getting will replace an existing lease that we have, which is going to be returned. So we'll own that aircraft. The second part of it is that we also have a route that is being operated by ACMI by another American carrier, so it's going to be replacing one of those routes. The third will be a spare aircraft to back up our domestic network. Two are going to fly internationally, exclusively to Europe and South America. And there will be a lot of capacity available because we'll have 20-odd aircraft that will be available to us on the weekends and during the week to fly other international routes. So all these aircrafts, I think, were spoken for, these five aircrafts.

Okay, absolutely perfect.

And on the two international 767s, we still have options to place them under either ACMI or fly them commercially ourselves, and closer to the dates we'll make those decisions.

That's great, Kalar. AJ, thanks. And last one for me is on pricing, I guess. So looking at domestic market, So I'm using basically, I know you don't disclose this metric, but what I'm doing here is basically just picking the domestic revenue and dividing it by the average volume per day. So just to kind of get a sense as to what's the average pricing per pound. So it seems like obviously it's coming down sequentially. And I'm guessing, and just want to have confirmation, I'm guessing it's more to do with, you know, the B2C and e-commerce. So it's more about volume than pricing perhaps. or is there anything else to that sequential quality decline and rate per pound?

Yeah, so Jamie, you can address that.

Yeah, good morning, Kunar. I think it's that plus you have to consider that during heavy demand periods, we have a mix of customers that are paying loose rates per pound, but we also have a mix of customers that are paying flat rate per container. So if they're utilizing the container more during peak periods, that will reflect on an average lower price per pound, but the revenue would be consistent because you're paying a flat rate per container.

Okay, that makes sense. But generally within the contracts, you have, they're still kind of CPI-linked, right?

All our major contracts have at least CPI, some CPI, plus some percent on the anniversary date of the agreement that kicks in.

Okay, perfect, that's great. Thanks for the answers, thank you.

And as a final reminder to ask a question, please signal by pressing star one. Is there enough other questions in the queue? I would like to turn to send the call back over to Pauline Dylan for any additional closing remarks.

Thank you everyone for joining us today for the call. Have a safe day out there. Any questions, please contact us, and we will be more than happy to oblige. Thanks. Bye.

Thank you, everybody.

Bye. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.