Good morning, ladies and gentlemen, welcome to the Chorus Aviation Inc. fourth quarter and year-end 2022 financial results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, February 16th, 2023. I would now like to turn the call over to Tyrone Cotie. Please go ahead.
Thank you, Michelle. Hello, and thank you for joining us today for our fourth quarter 2022 conference call and audio webcast. With me today from Chorus are Joe Randell, President and Chief Executive Officer, Colin Copp, Incoming President and Chief Executive Officer, and Gary Osborne, Chief Financial Officer. We'll start today by giving a brief overview of the results and then go on to questions from the analyst community. Because some of the discussion in this call may be forward-looking, I direct your attention to the caution regarding forward-looking statements and information that is included and referenced in our MD&A. In addition, some of the following discussion involves non-GAAP financial measures, including references to Adjusted Net Income, Adjusted EBT, Adjusted EBITDA, Net Debt to Adjusted EBITDA, and Free Cash Flow, formerly adjusted cash flow provided by operating activities.
Please refer to our MD&A for discussion relating to the use of such non-GAAP measures. I'll now turn the call over to Joe Randell.
Thank you, Tyrone, and good morning, everyone. 2022 was truly transformational for Chorus. With the acquisition of Falko, Chorus became the world's largest aircraft lessor focused on regional aviation, and we further diversified earnings through the addition of asset management services. This includes fund management on behalf of third-party investors. Fund management is a far more efficient approach for our leasing business and allows Chorus to deleverage its balance sheet and free up embedded capital, thereby improving shareholder returns. In addition, Falko does provide a proven aircraft trading platform, which enables us to more readily monetize our on-balance sheet assets. Finally, the investment by Brookfield and Chorus is an endorsement of our strategy by an experienced and sophisticated investor. Our transition to an asset-light leasing model continued in the fourth quarter as we executed on several opportunistic aircraft sales.
The incremental cash flows generated from the aircraft dispositions allowed us to complete the early redemption of CAD 115 million in 6% debentures to accelerate our deleveraging. We also announced a Normal Course Issuer Bid in the fourth quarter, allowing the purchase for cancellation of up to 10% of the public float of common shares with over 1.7 million shares being purchased and canceled by year-end. The aviation industry recovery is evident and continuing as we see this return of strong travel demand worldwide. The Chorus group of companies are all performing well. Jazz continues to successfully operate on behalf of Air Canada and received yet another recognition as Canada's safest employer in the public transportation category. Voyageur continued to grow its specialty aviation offerings and had a record year in sales.
Falko did an exemplary job capitalizing on the strengthening environment to place aircraft and trade assets. All in all, we have a great team of industry-leading professionals. Our team has delivered, and our culture is strong. Today's call marks for me the completion of over 70 analyst calls since the company went public in 2006, and also marks the end of my time at Chorus after over 37 years at the helm. I'm very pleased to hand it to Colin Copp, whom I've worked with for over 22 years. We've been working closely through the transition over the past few months, and I am more impressed than ever with Colin's talents and capabilities. He possesses a depth of knowledge across all aspects of our business. This will serve him well as he leads Chorus through 2023 and beyond.
I also offer my sincerest appreciation to all employees for their continued hard work and dedication. Chorus is extremely well-positioned for the future. With that, I'd now like to turn the call over to Colin Copp.
Thank you, Joe, and good morning, everyone. I'd like to start today by commenting on our strategy going forward. Chorus is a global leader in regional aviation and specialty solutions. Our industry-leading expertise and complementary business capabilities combine to build shareholder value. With our recently completed Falko acquisition in the second quarter of 2022, we are transitioning our regional aircraft leasing business to an asset-light model, where we invest alongside third parties in aircraft funds and earn asset management fees and incentives from managing third-party capital. In addition to growing Falko's funds business, we have significant value in our wholly owned or majority owned aviation assets and are working to opportunistically monetize these assets to reduce debt, return capital to common shareholders, and generate future growth through accretive investments.
Our strong and predictable core earnings from the RAS segment provide us the opportunity and the ability to grow and expand into new complementary businesses with our industry-leading specialty aviation expertise. Turning to Falko's Fund III, interest continues to be robust and we have continued to hold discussions with significant anchor investors, including investors in existing funds. Financial markets have shown some signs of improvement and we still expect an initial closing of Fund III in the first half of 2023. On the topic of pilots, the industry is expecting a high demand and experiencing a high demand of airline pilots. We expect the demand to continue in the years ahead. Jazz is well-positioned as a very attractive employer for airline pilots with a pilot flow-through agreement between Jazz and Air Canada and it is successfully filling all training classes with qualified airline pilot candidates.
We have the resources in place and we expect to complete a significant amount of training in this upcoming year given the flow of pilots to Air Canada and the training required to accommodate those pilot movements. Lastly, I'd like to confirm that we will be doing our first ever investor day in Toronto on March 29th, presenting the Chorus growth strategy and vision moving forward. I look forward to an opportunity to talk with many of you then. I'll now turn the call over to Gary to take you through the highlights of our fourth quarter financial results and outlook for 2023.
Thank you, Colin. Good morning. Chorus reported fourth quarter 2022 Adjusted EBITDA of CAD 129.5 million, an increase of CAD 39.1 million over the fourth quarter of 2021. The RAL segment's Adjusted EBITDA was CAD 67.5 million, an increase of CAD 36.3 million, primarily due to the inclusion of earnings from Falko, inclusive of a net gain on asset sales, as well as increased lease revenue from Castlelake's re-leased aircraft. In the fourth quarter of 2022, we began disclosing corporate head office expenses separate from RAS, enabling a clearer assessment of RAS's operating performance. The RAS segment's Adjusted EBITDA was CAD 67.5 million, an increase of CAD 4.6 million.
Fourth quarter results were impacted by an increase in other revenue of CAD 5.5 million due to an increase in part sales and contract flying, partially offset by a decrease in third-party MRO activity and an increase in aircraft leasing revenue under the CPA of CAD 2.7 million, primarily due to a higher US dollar exchange rate, offset by a decrease in capitalization of major maintenance overhauls and an increase in general administrative expenses attributable to increased operations.
Adjusted Net Income was CAD 31.8 million for the quarter, an increase of CAD 10.4 million over the fourth quarter of 2021, primarily due to the CAD 39.1 million increase in Adjusted EBITDA I previously described, partially offset by an increase in depreciation expense of CAD 14.9 million, primarily attributable to Falko, an increase of CAD 7.4 million in income tax expense, an increase in net interest costs of CAD 4.2 million. Net income increased CAD 35.7 million over the fourth quarter of 2021, primarily due to the previously noted increase in Adjusted Net Income of CAD 10.4 million, an increase in net unrealized foreign exchange gains of CAD 14.6 million, and a decrease in impairment provisions of CAD 14.6 million.
This fourth quarter contributed to strong annual results for Chorus as disclosed in our news release in MD&A. In 2022, Chorus generated free cash flow of CAD 371.3 million, an increase of CAD 208.6 million from the prior year, primarily related to strong operating cash flows, the inclusion of earnings from Falko, and an improvement in RAS's operating income, as well as net proceeds on asset sales, partially offset by capital expenditures. To December 31st, 2022, we have repurchased and canceled 1.7 million common shares under Chorus's Normal Course Issuer Bid, which commenced on November 14th, 2022.
Finally, our leverage improved to 4.4 at December 31, 2022 from 5.4 at December 31, 2021, our second consecutive quarter of improvement, which is reflective of our strategy to move to an asset-light leasing model. Now on to our outlook. Joe and Colin spoke earlier about our transition to an asset-light model and how Chorus has the key elements to execute on the strategy. As part of this asset-light transformation, we are targeting asset sales, including opportunistically trading RAL's wholly owned or majority owned aircraft, inclusive of the expected wind up of our 67.45% ownership in Ravelin Holdings LP by its 10th anniversary in 2025. For the 2023 year, we are targeting between $50 million and $100 million US to generate between $25 million and $50 million U.S. in free cash flow.
We are also targeting to reduce the leverage ratio for Net Debt to Adjusted EBITDA to 2.5-3.5, which we expected to achieve by December 31st, 2024. Given the variability in asset sales, the amount of deleveraging will vary from quarter to quarter. We are targeting growth, including the expansion of Falko's managed funds and the RAS business into adjacent and complementary specialty aviation business lines. In the fiscal year 2023, we expect on a consolidated basis, revenue between CAD 1.5 billion and CAD 1.7 billion, Adjusted EBITDA of between CAD 410 million and CAD 450 million, Adjusted EBT of between CAD 135 million and CAD 165 million, Net Debt to Adjusted EBITDA of between 3.6 and four, and free cash flow of between CAD 260 million and CAD 330 million.
Other key elements of our guidance for 2023 are contained in the outlook section of the MD&A. Finally, we plan to review these and other measures in more detail on our Investor Day on Wednesday, March 29th. We are now ready to take questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. The first question comes from Hillary Cacanando of Deutsche Bank. Please go ahead.
Hi. Thanks for the time. It looks like you're still on track to launch the new investment fund, managed by Falko in the first half of the year. What would be the gating factors, you know, that would impact your ability to meet that timeline?
Sorry, it's Gary here. Thanks, Hillary. I think it's really, you know, the target for the fund is institutional type investors, pension funds, large pension funds, high net worth individuals. What's happening right now is the markets have settled down a bit. Everybody's looking at their capital allocations, and I think things are looking better, and I think that's what Colin and was alluding to earlier. I think those are really the factors which are the capital allocations of those those particular individuals. You know, we do see the first half of this year settling down and people moving ahead.
Got it. Thank you. If I could just ask another question. In terms of selling, you know, assets opportunistically, you know, could you just kind of go over, like, what determines, I guess, the asset mix? I mean, I think, you know, I guess ATR 72s make up the largest component of your leasing portfolio. It looks like in general, you know, Dash 8s are facing some challenges in the market. Like, do you consider, like, market demand in terms of selling, in your determination? Or is it just, is it based on something else? You know, what ultimately, I guess, determines the asset mix?
It's Gary here again. There's a few things that determine it. Obviously, the demand in the market from both the lessees, and if you look at this year, the aircraft we sold were back to lessees. There's also demand in the market with other lessors and other investors. You know, on the demand side, we look at that. The other piece that we do look at is the return. We did have some gains, as you note, this year on aircraft sales. That is one thing we look at. We also look at the returns we expect or how it will impact our Return on Equity and our free cash flow in the year.
There's a number of factors, but, you know, one is demand, and secondly is to make sure that, you know, the return we're receiving is good.
Got it. Great. Thank you so much.
Thank you. The next question comes from David Ocampo of Cormark Securities. Please go ahead.
Thanks. Good morning, everyone.
Morning.
Gary or Colin or Joe, I was wondering if you can comment on the current lease rate environment. We've seen articles and data out there that lease rates have, you know, gone up significantly from the pandemic lows, particularly for some of the larger aircraft. Curious how that lease rate environment is looking for the regional aircraft as well.
Hey, David, it's Joe. You know, certainly the market is firming up. There's no question about that as demand comes back. We are seeing some increase with that demand, of course, the increased lease factors, especially for newer aircraft that were grounded during the pandemic and are being renewed, et cetera. You know, there is no question that it's heading upward. It's somewhat tempered in some cases by pilot availability, but that pilot availability issue only exists in a couple of jurisdictions, more in North America than elsewhere. Generally firming up and generally an increase in lease rate factors.
I can add, it's Colin, David, that when we look at the older fleet and the middle life fleet, we're seeing coming out of COVID, some really good strong returns there, on, especially on lease rates, if we just think about rates. There's definitely a improvement when we look at kind of the mid-life side of the aircraft fleet for sure.
How does that compare to pre-pandemic levels or maybe even in context to where interest rates are today? Is the spread still, you know, kind of a mid-teens IRR total return?
Sorry, it's Gary here. We still target that mid-teens IRR within our business model, and we're sticking firm with that. As I said on other calls and that, we do have levers to pull on it. Lease rate factor is one, return conditions are another. Security around the asset is also another piece. When we put it all together, we target that mid-teens return. Back to what Joe and Colin said, lease rate factors are improving. I think, you know, when you look at, have to separate the two fleet types, new and used, if you wanna call it that. New aircraft are gonna be factoring in the interest rate environment and the asset value. Those lease rate returns are back to those mid-teens.
You got to target that, otherwise it doesn't make any sense to do the deal and we won't. Then on the older assets, they have started to recover. Would I say they're at the 2019 levels? I don't think so at this stage, but they have been recovering as the used inventory or the surplus inventory has been used up, and we're starting to see some improvements.
Got it. A last one from me. How are you guys debating internally between keeping the assets and selling the assets outright for a gain? 'Cause essentially, you're losing future lease revenue. I guess, what's your thought process there on how you're managing that in terms of your IRRs and potentially reducing leverage?
No, it's a great question. We are focused on a number of things. One is the deleveraging process. As you saw in our outlook, we're targeting 2.5 to 3.5 Net Debt to Adjusted EBITDA. We're marching towards that, and we're very focused on getting that down to a nice level. We feel that's a great level for us moving ahead. It certainly will de-risk and deleverage the balance sheet. The next part that we look at in fact to an earlier question, we look at demand in the market. We start to target our free cash flow. Return on Equity is a big one. We've added that, if you noted in the statement. We're very much focused on that piece moving ahead.
Just remember, when you do sell an aircraft, what you're doing is you're harvesting that IRR or that return earlier. What you're trying to do is better your IRR or your forecasted IRR or bring it forward. That's what we're attempting to do with the sales, and that's what we are going to do.
Okay. That's helpful. I'll hop back. Thank you. Thanks, everyone.
Thank you. The next question comes from Matthew Lee of Canaccord Genuity. Please go ahead.
Hey, morning, guys. Thanks for everything, Joe. Just in your press release, you mentioned the idea of RAS expanding to adjacent complementary specialty aviation businesses. Can you maybe give us a bit of color as to what areas in particular interest you and whether it would be organic or if there's something done in the acquisition?
Hi, Matthew. It's Colin. certainly, you know, when we talk about expansion and we're looking at opportunities, we're looking at businesses that align with us and that are adjacent to us, essentially different disciplines. When you look across North America today, you could think about aerial firefighting, you could think about parts, you could think about, you know, air ambulance, specialty type aviation, special mission. Those are the, generally the type of areas that we're focused on today.
Just maybe on the guidance and how the numbers break down, particularly on the RAL side. You know, if I think about the revenue run rate, excluding the gain in Q4, you're at like $75 million, that implies revenues of $300 million for F 23. I know you're selling, you know, potentially $100 million US of aircraft in 2023, and you've sold $80 million in Q4. You know, does that bring the revenue down by that $30 million or $40 million, or are there other factors that we need to consider relative to your guidance?
It's Gary again. Yeah, we have factored in aircraft sales, but it also takes into account what's transpired here just in the last 8 months since we've purchased Falko or as an investment. We have sold off some assets. It reflects that. We also have, you know, assets that come that will come back in some cases and get sold off over the next bit. It reflects a lot of movement, and that's why you're seeing that guidance that we have there. It was a way to start to at least give some, you know, fence posts around where we see this playing out in 2023. It takes into account what's happened in 22 and what's anticipated in 23 based on that outlook section.
If I could just sneak one last one in. Are the assets you're selling, you know, the lease factors or the lease rates on them around 10%? How should we think about the revenue impact of, you know, selling CAD 100 million of aircraft?
I think when you, when you move forward, I would just look at the averages we have there. You know, look at the net book value, look at the average, you know, take the revenue over the average net book value and use that as a proxy. That's gonna be roughly in the range. It will be plus or minus based on the asset that we have at that point in time. It would be your best proxy.
All right. Thanks so much.
Yeah. Matthew, just one more comment. I didn't mention on your first question. There was another area that we are heavily focused on and working on with Voyageur is the defense area. That's another one for your list.
Perfect. Thank you.
Thank you. The next question comes from Tim James of TD Securities. Please go ahead.
Thank you for your time. Good morning, everyone.
Morning.
my first question, I just wanna return to the discussion around the asset sales. There's a comment in the report that says if material asset sales are executed in 2023, this may reduce expected revenue in RAL. Is that indicate if there are asset sales above and beyond the $50 million-$100 million that you discussed or indicated that there would obviously be additional downside pressure on revenues, or is that a reflection of the $50 million-$100 million that you've already talked? I guess my question should be, is the $50 million-$100 million, do you already remove some revenue from your 2023 guidance related to that $50 million-$100 million in revenue? Sorry, in asset sales.
Yeah. It's Gary here. Our outlook reflects, you know, that expectation of $50 million-$100 million in asset sales. You could take that as, you know, being included in there. I guess the next piece would be, look, if we are able to sell assets faster than that, and depending on the timing and, you know, the quantum and whatnot, it could impact that forecast. As we move ahead, we are monetizing assets and, you know, right now the market is good and we're looking at it.
The reality is if we're able to achieve faster asset sales, faster deleveraging, which is really our key, and improve the quality of our earnings and free cash flow, we're gonna take opportunity to do that, provided it's accretive to our shareholders, it produces returns on equity and free cash flow, we will take that opportunity. That type of situation could impact that guidance. That's what we're pointing to. If it's faster, obviously it could have an impact.
Okay. That's perfect. That's helpful. Thank you. RAL revenue overall, you know, even if you deduct out the CAD 8.2 million, I think it was an asset sales in Q4, RAL revenue for the year was still a touch higher than the top end of your guidance range. Maybe I'm reading too much into it, but was there anything that you would point to that was actually a little bit better than expected over the course of the year that, and then maybe Q4 in particular, I guess, since you were maintaining that guidance heading into Q4, was there anything in particular that you would point to that caused surprising strength, if I can call it that?
A little bit on the foreign exchange rate. You know, we're a Canadian-denominated company, these are US lease rates for the most part, so there's a little bit in there. We also had a, you know, we had a good year with the Falko acquisition. We bought them in May. We had 8 months. There's a little bit of lumpiness in some of the fees we got, you know, maybe CAD 1 million or 2 for the year that was in there that may not repeat necessarily moving ahead on a monthly, quarterly basis, you know, except with the exception of when Fund III comes in, we expect some new fees from that.
There's a little bit of lumpiness there, but it wasn't, you know, it was really not a lot different than those 2 items that I talked about. It's, it's producing well.
Okay. Thank you. My last question, just returning to the discussion around lease rates and the firming up of the market and the way forward. Is it possible to sort of help us think about how much of the firming and increasing lease rates is a function of the interest rate environment versus demand? I mean, you know, with new aircraft, obviously interest rates come into play, but what's the more important factor there in your mind? Or is it possible even for you to kind of tell which is a bigger driver of the rising lease rate factors?
I guess back to the point, if you look at new aircraft, the interest rate has a direct impact to it because when you put the lease rate factor together, there's a direct relationship with that. It is an actual input into the rate. I'd say on new aircraft, that's, you know, a primary piece. Also, you got to remember, new aircraft are seeing some inflationary pressure given what we've seen out there. you know, combination of the metal value and the lease rate factor are certainly pushing them up. Then you have less equality that can have some impact to it. Generally, those two factors would be quite significant.
On the used market, you know, the lease rate, you know, what we're seeing is a lot of the, you know, the surplus aircraft are being used up. That's helping firm that piece up, you know, from a lease rate factor side. We're also seeing the inflationary environment. You know, as those new aircraft go up in value, the relative value of a used aircraft looks a little better. You know, it's kind of an indirect exposure that way.
The only thing I'd add to what Gary said there, Tim, is that, you know, the financing costs are going up generally, of course, because of the higher interest rates. You know, when airlines look to finance it itself or through other types of financing, generally those costs have increased. You know, you can expect that lease rates as well would go more or less than 10 and with those increase in costs.
Okay. That's, very helpful. Thank you very much.
Thank you. The next question comes from Konark Gupta of Scotiabank. Please go ahead.
Thanks, operator. Good morning, everyone.
Morning.
Morning.
Hi. My first question is just a clarification on the guidance. If I look at the guidance, it implies relatively stable or a slight decline in Adjusted EBIT in 2023 versus 2022. How should we think about the interest costs and taxes due to get to the EPS?
It's Gary here. On the interest costs, you know, certainly the direct asset-related costs, you can look back at our disclosure, and you can probably use a good proxy from that. We give the average interest rates, and we do break it out by division. Or a segment. You can look at that. You know, as far as corporately goes, we did pay off the Fairfax debenture at the end of the year, you know, that had a 6% coupon on it, you could factor that piece in. That's how you can certainly model the interest. And I think if you go back to the taxes, you can look at where we ended up for the end of the year.
If you go back to Q last year, our disclosure around the taxes, you can get some rough proxies from the outlook section there, that we provided by division. That'll give you a pretty good idea.
Thanks, Gary. Are you also assuming any buybacks, share buybacks in 2023?
We have an active NCIB program, as you know. We've got that with the, we've announced that back in November. We purchased 1.7 million shares at the end of the year. You know, that program is still there. You know, we're not commenting on what we've allocated, but, you know, if you look at our disclosure, I think there was another 1 million shares that were repurchased since the end of the year. If you just look at the average shares outstanding in the MD&A.
Great. In terms of asset sales, that you anticipate in 2023, what would be a kind of a good proxy for gain on those asset sales in this guidance?
We have not put any material gain or loss in with those asset sales, you know, in our guidance. That's the best way to put it. We'll see where we end up as we transact, we are looking for return to our shareholders, free cash flow and whatnot.
Great. Last one for me, it's kind of like a high level, you know, very broad-based question. In terms of asset-light strategy, you know, the sales that you're expecting, the asset sales you're expecting through 2025, to kind of reach your targeted leverage ratio, is that intended to, you know, kind of reach to a certain level on leverage ratio before you stabilize and grow the asset base and hence the earnings?
Yeah. Our plan is to, you know, get to our leverage target by the end of 2024, and we hope, you know, with any luck, a bit earlier, but by the end of 2024 at the latest. As we continue on this path of deleveraging, we are gonna look at accretive investment opportunities as Colin and Joe alluded to earlier. You know, we don't have to be exactly in that range before we do it, but it's certainly approaching it is where we would see it. We're gonna go back to, you know, more of a growth path once we get to that stage.
That's great. All the best to Joe and Colin, for the respective roles. Thank you.
Thank you.
Thank you, Konark.
Thank you. The next question comes from Cameron Doerksen of National Bank Financial. Please go ahead.
Yeah, thanks very much. Yeah, congratulations, Joe, on not having to deal with the analysts anymore. I'm sure you'll be happy about that.
It's always been a pleasure, Cameron.
I guess just a couple of questions from me. Maybe just thinking about, again, the transition to kind of the asset-light model. I mean, just wondering if it, you know, ultimately makes sense here to, you know, in the, I guess, legacy Chorus Aviation Capital business to ultimately kind of roll that and those assets into the asset-light model. Is that a potential, I guess, potential assets that might get rolled into the new fund? Just wondering what are your thoughts around that.
On the previous capital assets or that we had on the balance sheet. You know, we're certainly in our monetization mode, those are certainly assets that are available for that. You know, as far as transferring them to the funds, I'd say it's a very remote possibility, generally speaking. Only because of the nature of the fund and the fact that we are custodians through Falko of those funds and whatnot. It's not impossible, but I wouldn't factor that into a lot of the analysis you're doing. I think the funds will be the funds, and we are going to grow them. We're gonna grow them through third-party capital, through assets in the marketplace.
If there was an opportunity to put it in there, that's fine, but, I think it's remote, and I don't think we should be assuming that at this stage. We are very confident of Fund III and certainly filling up that pipeline.
Okay. No, that's helpful. Just on the, I guess, your equity component into the, into the Fund III, I'm just wondering how you, how you would expect to finance that contribution.
It's Gary again. We would finance that through cash flows from operations. I think one thing to note with Fund III and all the funds, the capital commitments come over a period of time. They're not immediate. They take, you know, anywhere from 1- 3 years to really go through. The way the funds work, they typically usually come in with some type of subscription line upfront so that the equity draws for a lot of the folks are on the low end to start, but then they accelerate. It'll take, you know, anywhere from 1 to 3 years before you fully go through your draw more likely in the back end of that 2- 3 years.
We'll finance that through cash from operations and our free cash flow.
Okay. That makes sense. I believe that those were all the questions I had. Thanks very much.
Thank you.
Thank you. The next question comes from Jessica Joyce of CIBC. Please go ahead.
Morning, guys, this is Jessica filling in for Kevin. I guess just one for me. I know there's been a lot of leverage questions, but I was wondering, you know, you anticipate getting leverage ratio getting to 2.5, 3.5 by end of 2024. Is this where you want to set her out eventually, or do you have an even lower leverage target? I guess the other one is, you know, is there any trigger for, let's say, by the time you get to three times, would you be open to reevaluating, you know, reinstating a dividend?
It's Gary here. We expect our targeted range to be 2.5-3.5 that we'll operate within. I think if you look at where we're going and how we can get there, we certainly through the high amortizing debt that we have and some opportunistic monetization of assets, you know, we certainly can get within that range in the next couple years, and we expect to operate within it. As we continue to pay down our debt, we will see some deleveraging naturally. We're just leaving room for accretive investments and, you know, indicating to the market we plan as a group to operate within that range. On the dividend, we believe a return of capital to shareholders is an important part of our value proposition.
We've started that already with the NCIB program, buying back 1.7 million shares, at the end of last year. We believe at this point in time it's the best return for our shareholders. In the future, when considering a dividend, we would expect the board to contemplate it as we make progress towards the targeted leverage levels. Any dividend would take into account our stock price and be set at something that is sustainable based on the expected future free cash flow and allow for continued investment and growth of the company.
Okay, perfect. Helpful. I guess another one for me. The guidance of the $50 million-$100 million in asset sales, should we see this as a good annual run rate in the future? Do you have any visibility on completing these asset sales, or is this just an assumption as a function of historical trends that you're seeing? Like, do you have active discussions right now?
Yeah. No, it's a good question. I think it's a good proxy for this year. If you look at Fund I, though, that we've given some, you know, guidance on, that's around, you know, that's got about CAD 400 million in assets. The reality is, we're guiding to CAD 50 million-CAD 100 million this year. We would expect over the next 2-3 years that, you know, if you know, hopefully to accelerate that a little bit. Certainly for this year, that's the guidance.
Okay, perfect. Just last one for me. I know you guys introduced the new corporate segment. Is 2022 a good run rate for looking at that corporate cost?
It's Gary here. I think, I think if you look at it, there's a couple things. If you look at the interest, the interest is gonna come down for sure. That's a given paying off the Fairfax debt, and we're focused on deleveraging. I think, you know, factor in the Fairfax debt at the very least. Secondly, we did have some costs in there this year, if you look through the disclosure, you know, as we took Falko on board and that. We'd expect it to come down a bit. If you just look through disclosure, you'll probably get a decent proxy of, you know.
Okay, perfect. Well, thank you so much. That was all the questions for me.
Thank you. Once again, ladies and gentlemen, if you do have a question, please press star 1 at this time. The next question comes from Fadi Chamoun of BMO Capital Markets. Please go ahead.
Good morning, thank you for taking my question. Joe, congratulations. What a great journey. Colin, congratulations as well on that new role.
Thank you.
I guess my first question is probably related to earlier questions, but I was wondering whether you could provide more color. In 2022, you made CAD 441 million in Adjusted EBITDA. Now the guidance, the midpoint of the guidance is around CAD 430 million. What does the EBITDA bridge between those two numbers look like? It seems we can expect an acceleration in aircraft sales in 2023, which could be one of the important drivers for a slightly lower EBITDA next year. I suppose, as you said earlier, this should be motivated also by lower leverage ratios. If you could provide more color on how that EBITDA bridge would look like, that would be great.
Yeah. No, it's Gary here. I think it's reflective of the asset sales. Remember, we did have some asset sales in the RAL division this year. It reflects some of that. The other thing to keep in mind is when you start to bridge it, we did use a 1.30 foreign exchange rate. This year, I think I don't have it in front of me, but it's been a bit higher than that, particularly in the back half of the year. You may if you look at those two things, those are probably your biggest bridges that you would see.
Okay, great. On 2024, you're targeting a leverage ratio between 2.5-2.3, but what would be the levers to achieve a ratio of 2.5? Are we talking about maybe a step up in Adjusted EBITDA in 2024 compared to 2023?
It's Gary again. On that, there's a few things. Obviously, asset sales, they are going to, you know, be lumpy as we move ahead, and we've disclosed that in the oval section. Depending on the timing and when it happens, you could see, you know, those ratios moving on the lower end. As time moves on, it's a range. We expect the company to be within that range and to it gives an idea of where the risk tolerance is and where we see our leverage. As we sell down our assets on the RAL size, monetizing those and, you know, taking the funds to pay down debt, we are, as we said earlier, gonna return back to accretive growth here as we approach our debt targets.
What we're intimating to everybody is that we expect to operate in this range as a group of companies, which will include future growth in adjacent industries and specialty aviation.
Okay, great. Thank you, Gary.
Thank you. There are no further questions at this time. I'll turn the call back to you for closing remarks.
Thank you, Michelle. Thank you everyone for taking part in today's call. Have a nice day.
Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.