Good day, and thank you for standing by. Welcome to the Chorus Aviation Inc. first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ms. Nathalie Megann, Vice President of Investor Relations. Please go ahead.
Thank you, operator. Hello, and thank you for joining us this morning for our first quarter 2021 conference call and webcast. With me today from Chorus are Joe Randell, President and Chief Executive Officer, and Gary Osborne, Chief Financial Officer. We'll start 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 information and statements, which are subject to various risks, uncertainties and assumptions that are included or referenced in our management's discussion and analysis of the results and operations of Chorus Aviation Inc. for the period ended March 31, 2021, the outlook section and other sections of our MD&A, where such statements appear.
In addition, some of the following discussion involves certain non-GAAP financial measures, including references to EBITDA, adjusted EBITDA, adjusted EBT, and adjusted net income. Please refer to our MD&A for a discussion relating to the use of such non-GAAP measures. I'll now turn the call over to Joe Randell.
Thank you, Nathalie, and good morning, everyone. In such a difficult environment, I'm pleased and encouraged with our accomplishments so far this year. They really demonstrate the strength and resiliency of our employees and business model and the tremendous expertise of our team. The safety of our employees is our top priority, and the success of our company is in part due to safety being part of our DNA. With the third wave of the pandemic now upon us, I'm amazed and grateful for the tenacity and professionalism of our team, and especially our frontline employees. We are continually working to address concerns in an ever-changing operational environment. Together with our unions, we are being as proactive as possible to better support our people. At some point, this crisis will abate.
We've been managing well through the challenges and are collectively focused on ensuring we emerge on the other side as strong as possible. In March, we amended our CPA with Air Canada to address the dramatic and sustained reduction in air travel demand caused by the pandemic by optimizing the Jazz fleet. As such, Air Canada is transferring the fleet of 25 Embraer 175s, making Jazz their current sole Air Canada Express partner and the exclusive Air Canada Express operator of 70-78-seat capacity regional aircraft until 2025. The transitions of these aircraft and the new ALPA pilots are going well, and we're pleased to welcome these new employees. Earlier this month, we operated our first E-175 flight and plan to induct four aircraft per month and have them all flying by the end of the third quarter of this year.
I commend the Jazz team for their dedication and hard work, bringing the E175 fleet online so quickly. We've begun to retire the Dash 8-300 fleet from Jazz, and we are actively pursuing a range of options for these aircraft. The revision of the CPA also included the implementation of a cap on the controllable cost guardrail receivable at CAD 20 million annually. This reduces our financial exposure and minimizes draws on our working capital. As our work with Air Canada on recovery plans continues, these revisions further strengthen our relationship and provide network efficiencies and planning flexibility, elements that are vital as service resumptions are implemented. We continue to focus on our costs and remain prepared to respond to increased flying demand when the recovery starts.
On the heels of finalizing the revised CPA, we launched a capital raise, which was oversubscribed and delivered gross proceeds of CAD 145 million. Preserving and building liquidity remains a priority, and we believe the timing of this raise was good, given the positive momentum we have been building despite the onset of the third wave. We were delighted to have two new institutional investors, such as NordStar Capital and the Alberta Investment Management Corporation, come on board through the concurrent private placement in support of our growth strategy.
The net proceeds will be used primarily to support our leasing business, pay down debt, pursue opportunities, and for other general corporate purposes. While there remains uncertainty, our industry is seeing positive trends as air travel demand returns, most particularly in regional and short-haul markets. We are well positioned to prudently pursue growth opportunities.
This was evidenced by our recent long-term lease agreements with two new customers, Sky Alps of Italy and Cobham Aviation Services Australia. The aircraft, Dash 8-400s, were repossessed in 2020 and underwent reconfiguration and returned to service work at Voyageur and Jazz Technical Services. This is what differentiates us from our competition. We offer a broad range of solutions to remarket aircraft during one of the most challenging periods in aviation history. We continue to work with our lessees as they manage through this time. Lease revenue collections have plateaued, given the third wave of the pandemic, and we expect this to improve with passenger traffic recovery and the reintroduction to service of grounded aircraft around the world. The current environment has been difficult to remarket off-lease aircraft. The sector itself is very competitive and dynamic.
We are actively remarketing our off-lease aircraft and watching developments in the industry closely. We haven't changed our cautious approach to growth, and are in a good position to take advantage of new opportunities, such as sale and leaseback transactions with high-quality customers seeking additional balance sheet flexibility. We have cash on hand, good liquidity, and continue to work well with our customers. Now turning to our Voyageur Aviation operation, where momentum is definitely building. The team in North Bay is having an exceptional start to the year. The recent contract announcements with Purolator, Transport Canada, and Ambulance New Brunswick are a testament to the incredible skill and ingenuity of the team and clearly position us as a leading special mission service provider. We see good potential to grow into the cargo business, which is a new area of focus for us.
We've been active in our air cargo through the conversion of several Dash 8 aircraft to package freighters, and developing a new relationship with a market leader like Purolator is a meaningful step in the expansion of our contract line capabilities in the cargo market. The Purolator contract is for three years and follows the successful completion of an initial six-month trial. We will be using two former Dash 8-100s from Jazz that were converted in-house to package freighters to operate between Indianapolis, Hamilton, and Montreal. One of the aircraft is completing a contract with another customer, and the second aircraft is currently undergoing freighter conversion in North Bay. This is another demonstration of our ability to leverage the value in our assets at any point in their life cycle. We're very excited about this opportunity, and we'll work hard to grow this relationship over time.
Another exciting development is our new three year agreement to upgrade and modify Transport Canada's National Aerial Surveillance Program fleet of three Dash 8-100s and one Dash 7 aircraft with new surveillance equipment. This contract demonstrates Voyageur's unique engineering capabilities and expertise. Of course, we were thrilled to extend our 25-year relationship with Ambulance New Brunswick for an additional five years. Our accomplishments to date this year really show the strength of our employees, our expertise, and the wide range of integrated products we offer in the regional aviation space.
We are making meaningful progress in broadening our footprint in the regional aviation sector and diversifying our business. We are proud of the way we are managing through this pandemic and have centered our attention on the future. I'm very grateful to our employees for delivering terrific accomplishments despite all of the challenges associated with the global pandemic.
We are well positioned to take advantage of future opportunities. I would be remiss if I didn't acknowledge Jazz being named one of Canada's Best Diversity Employers for the tenth consecutive period by Mediacorp Canada Inc. Diversity is core to our culture. We value individual uniqueness and foster safe spaces that empowers employees to be their authentic selves. By encouraging inclusive work environments that build on the diverse perspectives, experiences, and abilities of the employees, we are fostering innovation and positive change. Congratulations again for another great accomplishment. Before I turn the call over to Gary, I'd like to recognize the federal government's recent announcement confirming the importance of regional services in Canada.
I would like to thank the many government representatives across Canada I've spoken with over the last several months, for listening to our concerns with respect to the importance of regional services being a critical lifeline to Canada's regional communities. As the vaccine rollout continues, governments are turning their attention to safe reopening and longer-term solutions for the sector. We look forward to learning the details of this plan and hope it is shared very soon, as we know air travel is essential to our economy. I will continue to advocate for regional service so that it remains top of mind with decision makers as they chart a course for the country out of this pandemic. Thank you very much for your time, and I'll now pass the line over to Gary.
Thank you, Joe, and good morning. Here's how the first quarter of this year compares to the first quarter of 2020. Our first quarter adjusted EBITDA was CAD 84 million, a CAD 4.5 million dollar decrease over first quarter 2020. Adjusted net income was CAD 15.7 million, a CAD 8.1 million dollar decrease over last year, which led to a decrease in adjusted EPS at CAD 0.10 versus CAD 0.15 in the first quarter of 2020. The regional aircraft leasing segment's adjusted EBITDA decreased by CAD 9.5 million, primarily due to lower lease margins attributable to off-lease aircraft, a CAD 2.5 million dollar expected credit loss provision, and a lower US dollar exchange rate, partially offset by additional aircraft earning leasing revenue. Adjusted EBITDA for the Regional Aviation Services segment increased by CAD 4.9 million.
The first quarter results were impacted by a decrease in stock-based compensation, an increase in aircraft leasing revenue under the CPA, an increase in other revenue, and a decrease in general administrative expenses, offset by a decrease in fixed margin in line with the CPA contract and a decrease in capitalization of major maintenance overhauls on owned aircraft operated under the CPA. Adjusted net income was CAD 15.7 million for the quarter, a decrease of CAD 8.1 million, due to the previously mentioned CAD 4.5 million decrease in adjusted EBITDA, an increase in net interest costs of CAD 4.6 million, primarily related to the new credit facilities added in April 2020 and additional aircraft debt, and an increase of CAD 1.2 million in realized and unrealized foreign exchange on working capital, offset by a CAD 2 million decrease in adjusted income tax expense.
Net loss increased CAD 20.8 million, primarily due to the previously noted decrease in adjusted net income of CAD 8.1 million, the one-time restructuring costs related to the 2021 CPA amendments of CAD 81.8 million, a change in the net lease repossession cost of CAD 7 million, offset by the change in net unrealized foreign exchange on long-term debt of CAD 45.4 million, tax recovery on adjusted items of CAD 21.3 million, and a decreased impairment of CAD 5.9 million in the RAL segment.
The 2021 CPA amendments became effective on a retroactive basis to January 1, 2021, resulting in one-time restructuring costs of CAD 81.8 million, with a non-cash impairment and inventory provisions on the Dash 8-300 of CAD 42.8 million, early retirement program costs of CAD 26.3 million to incentivize early departure of Jazz pilots enrolled in the defined benefit pension plan, non-cash DB pension plan curtailment provision of CAD 10 million, integration and E175 aircraft-related transition costs of CAD 2 million, and signing bonuses of CAD 0.7 million for Jazz pilots. Chorus also agreed to pay Air Canada CAD 20 million in connection with the transfer and integration of the E175s into the covered aircraft fleet. These one-time restructuring costs and provisions are added back to adjusted EBITDA, adjusted EBT, and adjusted net income accordingly. Now turning to liquidity.
We ended the first quarter with CAD 171.3 million in liquidity, a decrease from the fourth quarter of approximately CAD 29.7 million, primarily due to certain payments related to the 2021 CPA amendments of approximately CAD 17 million and debt repayments of CAD 56 million, offset by the collection of the 2020 controllable cost guardrail receivable of CAD 44.2 million. On April 6, 2021, Chorus completed a concurrent public offering and private placement of equity units and convertible senior unsecured debentures for gross proceeds of CAD 145.1 million. The net proceeds after transaction costs was approximately CAD 138 million. Chorus used a portion of these proceeds to repay loan deferrals of CAD 33.9 million. Chorus also plans to pay down additional unsecured or pay down secured indebtedness by approximately CAD 75 million.
Repayment of these secured debt facilities will reduce our debt and interest payments by approximately $700,000 per month, while also bringing the carrying value of CAC's unencumbered fleet to approximately $140 million and reducing Chorus's restricted cash requirements by approximately $10 million. With the capital raise, Chorus has bolstered its liquidity to fund ongoing operations, planned capital expenditures, and to fund prudent growth opportunities. We did see CAC's gross lease receivable increase by $9.6 million to $53.8 million in the quarter, with the potential to increase to $60 million by the end of 2021. The increase is due to the additional rent relief requests from certain customers resulting from the continued travel restrictions and as the number of COVID variants and cases continues to climb.
In addition, we collected 62% of lease revenue billed in the first quarter from our lessees, excluding repossessed aircraft, which is consistent with the fourth quarter 2020 collections. Planned capital expenditures in 2021, including capitalized major maintenance overhauls, are estimated to be between CAD 26 million and CAD 35 million. This estimate includes between CAD 8 million and CAD 12 million that will be included in the controllable costs. Planned aircraft-related acquisitions are expected to be between CAD 35 million and CAD 45 million in 2021. Before opening the call to questions from the analyst community, I would like to acknowledge the outstanding efforts of our team so far this year. Thank you to all our employees. Stay safe and take care. That includes my commentary. Thank you for listening. Operator, you can open the call to questions.
Thank you, sir. As a reminder, to ask a question, you will need to press star one on your telephone. We have our first question from the line of Tim James from TD Securities. Your line is open.
Thank you. Good morning, everyone.
Good morning.
My first question, I'm just wondering if how we should think about lease rates, you know, in the short term here. Should we think that the new leasing contracts, and I guess I'm thinking in particular of the off-lease aircraft, but potentially any new opportunities as well... that lease rates will be lower than they were kind of prior to the pandemic? Is it possible, if that is the case, to kind of quantify what, to what degree there is pressure on those rates?
Tim, I think it's fair to say, given the pandemic and the number of aircraft that have been repossessed and returned, that there will be downward pressure on lease rates, you know, as these aircraft are repositioned with new operators. But of course, it does give you an opportunity to reset leases for a longer period of time, et cetera. So, you know, I think the industry is experiencing that downward pressure on assets that are on the ground. I think, new assets, new financings, though, are not experiencing the same magnitude of downward pressure, in terms of, of lease rates, et cetera.
You know, the amount, the reduction is the function of the individual individual carrier, and I think it's a little early to say exactly where it's all going to settle out. You know, I think we were really fortunate, unlike a lot of lessors, haven't been able to to re- put our aircraft out there with new operators. You know, we've been fortunate to do these. We're working on some others right now, and, you know, I, I think, and we're optimistic that we will be able to do more here. But I, I can't, I can't tell you exactly how much, you know, the rates are decreasing and that sort of thing, but there is- it's certainly down on the aircraft that, that are being remarketed, for sure within the industry.
So with that in mind, I'm wondering if these remarketed aircraft, I guess, in particular, and then maybe it's newer aircraft, given these kind of unprecedented times, are you approaching sort of the terms on leases any differently? Is there any way to kind of leave some flexibility so that, you know, you can avoid locking into leases that may be, you know, below market rates in, you know, one, two, three years from now? Or are you approaching sort of the terms of the leases in the same way as kind of pre-pandemic?
I think it depends. It depends on the operator. It depends on the lease. You know, it's good, you know, it's actually beneficial to put some of these aircraft out there on longer term leases, because, you know, you certainly don't face the prospect of having the airplane returned in the near term again and having to remarket it once again. So again, it varies. And, you know, there's no particular, sort of a rule of thumb per se, other than, you know, getting the cash flow back up on these assets that are otherwise just sitting idle, and doing it with good credit and people who have good business plans as the market starts to recover.
I think that's what we're seeing, is people are now thinking about the recovery, and that's why we're seeing some growing interest, you know, in terms of people picking up airplanes. But it isn't gonna happen overnight. It's going to be a process that's gonna take some time for the industry, I think, to recover from this, especially with the assets that are on the ground. And, you know, we look at the number of assets that we've repossessed, you know, during this process, it's a total of 13 airplanes, and, you know, we look at our competitors and others in the business, and 13 is actually not a, not a bad number at all, if you look at it as a percentage of the fleet that we had under lease.
Okay, that's really helpful. Thanks, Joe. And just, just my last question, really kind of stepping back, big picture. I'm just wondering how you're thinking about the company's, the equity valuation these days, and kind of where the market's understanding of, of the business is, given, you know, where we are in terms of the recovery from the pandemic. And, and, I guess it, it always is important to come back to kind of the market's understanding of the risk profile of, of Chorus in general. Just wondering if you can comment on kind of your thoughts on-
Sure
On the valuation.
Well, clearly, I think, you know, 2020 was a difficult year, and it was, we were severely hit, as everybody else was. You know, a lot of uncertainty in terms of how long and how deep, et cetera. You know, we really, I think, used the year to our advantage in, you know, doing this new contract with Air Canada, and we sort of really re-established the relationship on the basis of, of this recovery that's coming up in the future. So we removed the uncertainty with respect to, to that contract and, and its longevity and, et cetera. And, you know, the recent announcement with Air Canada and the federal government, I think, gives everybody a lot of comfort in terms of, of Air Canada's, ability to get through this as well.
You know, we look at that side of the business now, as being very, very solid and very predictable, for sure. And, you know, a lot of people, still don't understand that, how we're compensated under the CPA. And, under our CPA with Air Canada, you know, we're paid for the aircraft, we're paid for the operation, but, it's generally fixed with, very limited exposure, in terms of any downside, the guardrail, you know, we put a cap on that, et cetera. So I think, still the market is grappling a little bit with understanding some of that. And, you know, I think on the leasing business itself, you know, obviously, we've been through a rough time with this. We're not fully through it yet...
We're seeing these, this, you know, this recovery starting to happen, et cetera. And, you know, so I, I really do believe that, that there's a turnaround coming soon in the leasing business, as carriers start to get back up. I think the third wave in some of these countries was, you know, we, we didn't really predict it, but it's happening for sure. But again, you know, these countries will come out of it, et cetera. And then, you know, while not a really huge part of our business, we have Voyageur and Voyageur has been out there. We, you know, we, we were diversifying the business. Unfortunately, though, the bulk of our business was dependent on passenger travel.
You can see now with some of the things that we're doing organically at Voyageur, with respect to, you know, the conversion of freighters, the operation of freighter aircraft, other special missions. You know, we continue to do very well in the with the UN, et cetera. And actually, Voyageur has been doing better than it has in a long, long time through the pandemic, and it's because it's not exposed to the passenger business. So we're moving in that direction as well. So, you know, I think we're definitely in a rebuilding mode. I think we've done a very good job of managing our liquidity through this process to ensure that, you know, there was no top over here or anything of that nature that was going to happen.
I think we've really solidified our relationships with our customers, including Air Canada, and we've grown new customers through this process. You know, but it's tough because people look at the air business, and we all get sort of thrown in the same bucket. You know, sometimes people don't really look under the covers to understand the different nature of our business and what we have done. But that makes us feel very optimistic about the future. You know, the worst is behind, we believe, and we're in that rebuilding mode.
Okay. Thank you very much for your thoughts.
Thanks, Tim.
Thank you. Our next question is from the line of Kevin Chiang from CIBC. Please go ahead.
Hi, good morning, everybody. Thanks for taking my question. Maybe just on that last point, Joe, you know, the optimism you have around the recovery, and we've obviously seen some markets where vaccination rates are higher, you know, a pretty big spike in air traffic. Just as you think about that, are there any bottlenecks you think you need to work through, you know, either from a labor front or maybe from a pilots or personnel front as you think of getting flight activity picks up again across the portfolio?
No, in terms of getting back up, we don't lose any sleep at night over that at all. You know, we are in constant contact with our unions. We've been recalling some people, and, you know, we see people, you know, wanting to get back to work, et cetera. You know, it's been difficult in a pandemic environment operationally, you know, where you have to take proactive steps with your crews, et cetera, on aircraft where you may have had passengers, traveling that had COVID. But, you know, we've been doing that well. We're being very proactive with respect to that. But generally speaking, you know, I don't think we're gonna see a huge overnight ramp-up in flying in any event.
I think it will be fairly steady, and we're totally equipped in doing that. And we're, you know, we're bringing these 175s over, and operationally, the aircraft have to be transitioned. The crews, you know, are generally coming over as well, the pilots. And that transition has been going very well. So we're in pretty good shape, so we don't really see any bottleneck. The issue is the restart and how it's gonna happen so that passengers feel comfortable traveling safely, and you know, what is going to be required of them with respect to testing, you know, quarantines, things of that nature. So we're all anxiously awaiting this.
As the vaccine level starts to increase, you know, you can really see people wanting to get back up. We believe that there's a pent-up demand, especially on the leisure side, for people that just want to travel. We're seeing some signs, even in terms of Canada and interest in Canadian tourism domestically and things of that nature that you read about, that makes us hopeful.
Got it. Thank you for the color there. And then if I could turn to Voyageur, that they've been on quite a roll here to start the year. And maybe more specifically on your recent agreement with Purolator, just wondering, as you think of the charter opportunities in front of you, is the primary focus on converting regional aircraft and turboprops for freighter conversion? Would you consider other fleet types, you know, as you expand that opportunity? And is there anything in the CPA that we should be aware of that may limit your cargo ambitions here?
No, there are none. There are no limitations in the CPA with respect to cargo. Our focus is on regional airplanes, currently, for sure. And that's because we have a lot of them that came back as a result of restructuring the CPA with Air Canada. And we now have Dash 8-300s that we believe are going to be very valuable as the world starts to return to some degree of normality. You know, these are 50-seat airplanes. They have investments on life extension programs on the majority of these airplanes, and we see them as being valuable going forward because there is only one manufacturer in the world right now of 50-seat aircraft, and they are incredibly expensive brand new....
We think there will be a worldwide demand for this size of airplane as the pandemic starts to come around. So that's why I mentioned in my comments that we're looking at, you know, a variety of different alternative ways of working this fleet and getting it deployed. And, you know, Voyageur is really the center for doing that, and they're going to be focused on making the most out of these assets, and that's in our DNA. So that's, and we're feeling very positive about that.
That's helpful. And maybe just last one for me. You know, when you look at the pipeline of opportunities, I'd be just interested in the conversations you're having with customers today in terms of how they're looking at, you know, their regional fleet, and maybe leasing that today versus maybe what they thought pre-pandemic. And maybe your own appetite for any type of portfolio transaction now. Is that something that you'd be looking at, or is your preference for kind of the overall aviation market to be a little bit further along before you take a bigger bite on a portfolio deal?
With respect to the regional fleet, you know, the good news is the customers that we deal with in general are not saying they don't want the airplanes. They're saying, "We, you know, we just need a little help to get through this." And as we're seeing, these are the first airplanes back. So, you know, we're not seeing a big pushback on, you know, people just saying, "I just don't want to operate these airplanes anymore." They all see them, you know, the folks that we deal with, as part of their future, and they want to utilize them. It's just a matter of the, you know, in the interim effect of the pandemic, more or less.
With respect to opportunities, whether it's portfolios, sale and lease back, anything of that nature, you know, we see these things out there in the marketplace. We constantly evaluate them, and we look at them, though, in terms of for what an investment would do for us in terms of improving our results, our -- what it does to our balance sheet and our debt loads, et cetera. So we are focused on this. So, you know, I can't really rule anything out, but, you know, there are interesting opportunities out there.
Thank you for taking my question.
Thank you. Our next one is from David Ocampo, from Cormark Securities. Your line is open.
Good morning, everyone.
Hi, David.
I just want to circle back here on the, on the leasing opportunity that you guys see in front of you. And when we think about the amount of leverage that you guys typically normally use in a leasing transaction, I think it was 3:1 or 4:1 . Has that changed given the current environment, or are you, are you willing to take on less debt now, just given the risk that you see in front of you?
David, it's Gary here. I mean, typically it's 3:1 that we've seen in the industry with the leverage ratio, so, when you take on an aircraft, and certainly that's always our target. And as we go through these transactions, that's what we certainly gravitate back towards. But, you know, it could be plus or minus, depending.
Then, Joe, you talked about, you know, new opportunities yielding very similar type results to, to pre-pandemic levels. I think previously you mentioned that, you know, that you were targeting a mid-teens ROE with, with that 3:1 leverage. Is that still the case, or, or are you looking at, you know, higher quality customers now that may push down those, those lease rates?
I think there may be a little downward pressure on the lease rates out there. But you know, we're still targeting to get back to what we had said before, but it's just gonna take... it's not gonna happen quickly.
Okay. And then just a clarification question for me on the CPA amendment fee that you guys are paying to some of your pilots. Is any of that reimbursed by Air Canada as part of the capacity purchase agreement, or is that completely one-off and something that you guys have to bear on your own?
Sure. It's Gary here. That's one of the CAD 20 million fee is one of that's something we bear, and same with the early retirement programs and all the items we mentioned.
They're part of our restructuring costs.
Okay, thank you.
Thank you. The next one is from Cameron Doerksen, from National Bank Financial. Yep, please go ahead.
Thanks. Good morning. I guess a question on the CapEx and I guess the, I think it's related, third-party leased fleet expectations, this year. I mean, if I look back to the Q4, MD&A, the CapEx expected for 2021 was quite a bit higher, and but there was also two ATRs, I think, for an undisclosed customer that were sort of planned to come in this year at some point. I see those have kind of disappeared, and I just want to make sure that the reason that the CapEx has come down is, you know, a big factor would be the fact that you no longer expect those two ATRs to come in.
So, Cameron, it's Gary here. We removed those two because there's not a firm commitment on those aircraft, even though we continue to talk to the customer in that transaction. There is no firm commitment at this point. If you look at how we've approached the disclosure here in Q1, is we've put in the CapEx table, the firm commitments, and we've done the same also with the fleet and other tables. That way it's very clear that, you know, if we have a firm commitment, it's there, and if not, it isn't. In this case here, we removed it simply because we're still in discussions, but there is nothing firm anymore.
Okay. No, that, that explains it. Can you talk about, I guess, any change in, in, I guess, cash collections? I mean, it didn't change a whole lot in Q1 relative to Q4. Have you seen any material change so far in, in Q2, or is it still kind of running in that 60%-65% range?
It's Gary here again. You know, I think you know, as far as the rent collections and that, we are expecting hopefully to be in that 60% range. It's really what you saw in the receivables. We had some of the deferral arrangements just get a bit behind given the COVID variant. But as far as the basic rent numbers, we're hoping to be in that same range.
Okay. And maybe just going back to the Purolator contract. I mean, obviously that's a nice win. You know, I would suspect that Purolator maybe doesn't, you know, only want to operate one or two aircraft here. So I'm just wondering if you can talk about any specific opportunities to grow with Purolator or with any other, I guess, package and courier companies in Canada, just any prospects for growth there?
You know, I believe there are good prospects for growth. You know, we've fostered a very good relationship with Purolator, and we believe there could be other opportunities to do more. You know, this is a beginning. And, you know, I think with the growth of e-commerce certainly, and, you know, and that's really affected a lot of regional communities where, you know, people are shopping online, et cetera, et cetera.
I think a lot of that will continue, and that will, I think, grow demand, especially for time-sensitive items into these communities. And, you know, these Dash 8 freighters are real workhorses and reliable. And, you know, we did the six-month trial. It worked very well. So, we're optimistic that it's going to grow, that the demand will be there, and we're gonna work hard to do that, because we see it as being one of the better opportunities we have, no question about it.
Okay. That's, that's great. Thanks very much.
Thank you. Again, as a reminder, if you would like to ask a question over the phone, simply press star then the number one on your telephone keypad. Our next question is from the line of Konark Gupta from Scotiabank. Please go ahead.
Thanks, operator. Good morning, everyone. Kudos to the team on ESG achievements so far. So maybe the first one is follow up on Cam's question on CapEx. I see from the CapEx table, obviously CapEx has come down. The FX, or foreign currency exchange rate has improved as well, clearly. But we are still seeing further strength in Canadian dollars since the end of March 2021. So, wondering, Gary, if you have any sense as to, you know, what this CapEx number, CAD 60 million-CAD 80 million, would look like under the current FX?
It's Gary here. Under the current FX, it would come down a little bit, because there is some U.S. funds in there, obviously. We used 1.2575 as conversion rate. We're down into the 1.2s now, I believe, low 1.2. So it would certainly bring it down a bit, but it wouldn't be materially down given what's what sits in there.
Yeah. Thanks, Gary.
Yep.
Then on the incremental rent relief commentary that you made, just wondering, you have a lot of customers in Asia, Pacific, Africa, India, you know, different markets. Where is the rent relief largely coming from, I guess? Because every different jurisdiction is in a different mode right now with respect to lockdowns and the waves of the COVID and stuff, right? So where are you seeing more kind of relief requests coming in?
Well, I think that depends on the time where you are in the pandemic, and I think you are right, Konark, that you know, each part of the world seems to be going through things at a little bit of a different time. You know, and I'll just use as an example, India, which was doing very, very well, with very high utilization and that sort of thing, until sort of the end of March. And then things have deteriorated quite significantly there. And you know, Africa is having some challenges as well. But then we see rebounds in other areas, you know, in terms of you know, some of the areas in South America are coming back. And you know, and even in terms of opening up Europe a little bit here, et cetera. So...
Of course, the United States is sort of leading, I think, the rest of the world. So it... But, you know, we really don't know. And an area that's going well may turn around, you know, and fall back a bit. And, of course, we even have experienced that here in Nova Scotia. So, you know, it's hard to say, but I think it is fair to say that the stress on the carriers is directly proportionate to the extent of the pandemic in any of these jurisdictions. And, you know, in other areas of Southeast Asia, we see some improvement. So, it depends.
That, that makes sense, Joe. Thank you. Then, on the lease collection, can you remind us, what's your lease collection, typically about 100%, prior to the pandemic, or was it a lower number? I mean, I'm just thinking, where can it go back to from 60% +?
Hi, it's Gary here again. Typically, it's 100% prior to the pandemic. Normally, your rent is paid in advance, on the... So, we would hope to gravitate towards back closer to that as we come out of the pandemic here.
Great, thanks. And then on the gross lease receivable, seems like it's obviously going up here, and you expect a further increase as you collect less than 100%. What's your line of sight, Joe, you know, when and at what level the gross lease receivable peaks?
Sorry, sorry, go ahead, Gary. Yeah.
So I guess what we're showing there, Konark, is really, you know, we expect it to peak at most at CAD 60 million, hopefully by the end of the year. And you know, as far as the collections, as I said, you know, we're hoping to stay in around that, where we're at today and improve on it, but it's really gonna be dependent on the COVID variant. So it's hard to give you exact projections on that.
I guess that CAD 60 million, like, it's obviously going up from here, but it may not necessarily come down right away at that point. I mean, it might continue to build up depending on the collection.
Yeah, I think what we've shown there is that $60 million is where we expect, you know, the top end to possibly be. It will take time to collect the funds as we come out of this year and into next year. So, that will take some time all to to wind its way down.
Great. Okay, thanks. And then as you look at the CAC's growth trajectory from here, perhaps leveraging the recent equity raise and debt raise, how do you envision the growth trajectory? I mean, what's your... Historically, you guys have, you know, pre-pandemic looked at 20-odd aircraft a year. And like, where would you see that number be today for the next, you know, couple of years or further out? And, what would be your assumption for the timing of the remaining 10 off-lease aircraft placement?
So, Konark, it's Gary here. I'll talk a little bit about the growth CapEx. We're certainly evaluating the leasing transactions out there, and we're certainly not, you know, putting any guidance out there as far as the number of transactions and timing. So, you know, as we're making our way through this COVID piece, we certainly wanna, you know, study it and make sure that we make the right decisions as we come out of that cycle.
Okay. That, that's understandable, Gary, but, was more curious as to the timing of the 10 off lease aircraft, if you see an opportunity, here in the near term, within, like, calendar 2021, or do you see those 10 aircraft, fully being remarketed by 2022?
I know we are actively remarketing all those off lease aircraft, and, you know, we continue to be optimistic that we'll get those working here soon. But there's nothing we can report and give you guidance on at this stage, other than we are working hard and we're very optimistic. But, you know, it's tough to give an exact answer to that.
Yeah, I think [crosstalk], you know, it is certainly a possibility that some of them will fall into 2022. You know, so, but like Gary said, we're working hard, you never know. So we will see.
Okay, thanks for the answers, that's on my question. Great. Thanks.
Thank you. The next one is from Walter Spracklin, from RBC Capital Markets.
Great. Good morning, everyone. So I want to come back on the Purolator question. So understanding that this was being done to a certain degree with another carrier prior to your having taken that business, is that right? And what can you gauge, if that's true, what can you gauge from the trends there? Was Purolator looking for just someone with larger capacity to grow and, you know, a little bit of detail around your ability to win that contract would be great.
Yeah, well, I think, you know, I, this was a service performed by someone else originally with a different type of aircraft, et cetera. You know, I'm sure Purolator looks at a lot of things when they, they choose an operator in terms of, reliability, costs, volumes, et cetera. And, I think it was really a combination of those things. And, you know, we have a very good track record as an operator, in terms of our performance.
You know, I think, I can't help but think that weighed in, in terms of the decision as well, and reliability in the, freight business and the courier business, I think is very important. So I think it was a combination of things. But, you know, the Dash 8 freighters are relatively new in the marketplace, have a good payload and are reliable. So, you know, I think, I think it was really... I don't think it was one thing, Walter, I think it was a combination of things, and-
Yeah, I know that whenever one of those, you know, time-sensitive carrier or a customer switch, it's, you know, reliability is. It's either because they lost significant liability or reliability with their predecessor, or they just needed the capacity and are just hopeful that the reliability stays in place. And I think they probably had that comfort level with you for the reasons that you mentioned. Any sense of where the growth was going, though? Like, are... Is this, you know, a rapid growth trend prior to you picking up that you hope or expect will continue. How are you, you know, how are you anticipating or factoring in growth? And what has Purolator given you in terms of what they believe the growth rate will be in that business for cross-border activity?
Yeah. We started actually looking at the cargo business before even COVID, with the assets that we had coming off lease, et cetera. And we've had some of these assets deployed for some time with other carriers in Canada, both on a wet lease and a dry lease basis. So, you know, we didn't say a lot about it because it was pretty small, and it was sort of an incubation period. It was, you know, I think it started getting more serious when we got into the trial with Purolator. And, you know, this wasn't something that was just brand new. Like I mentioned, we'd been doing this for some time to them, and they do have other regional services that they offer in Canada, that they use in Canada for their needs.
You know, we see there's some opportunities there. You know, we don't have a particular size on that right now or a timeframe, other than we're working hard in North Bay on converting airplanes. You know, we believe that converting these aircraft, there will be a good market for them, whether it's for us to operate, for us to lease, et cetera. They're great assets and, you know, including, now we have these 300 s as well, coming at us, which I think is great raw material. You know, that's been good.
You know, the other thing I didn't mention is that, you know, we, we launched the used parts business or the USM business some time ago, and that business we do see a recovery in, as well, so, in demand around the world. So that's, and that's part of what Voyageur has been doing as well. You know, we parted out a number of airplanes, et cetera. So when you look at the number of things that they're doing and, you know, and how those fit with us, I, I think it's very, it's very promising.
That's fantastic. Switching gears a little bit, I know we all have the view that regional is going to open up first. Friends and family travel domestically will be open quickly and ramp up significantly. My two questions there are, you know, as we see different regions in the world, you know, moving at different paces, experiencing different levels of opening, when you look at the ones that are useful as a crystal ball to see where trends are, are you encouraged by that?
Importantly, if it comes back very significantly, and we get a kind of a hockey stick, you know, knock on wood type of event, are you positioned to be able to handle that level, you know, obviously with that speed of growth in demand? We'll have a little bit of a, you know, look to it, an advanced look of it with your, your booking curve. But are you - do you feel comfortable that you're able to handle some erratic surges in capacity or in demand, should that come about?
Yeah, I know, I think, you know, I think we're in, we're in good shape. And, you know, when I look at what's happening in the U.S. right now, where the vaccination rates are high and people are back in the air and traveling, and a lot of it is driven by, leisure travel. You know, people just want to get out of the house and, go see their relatives or take a break somewhere.
I think they'll be primarily looking domestically to do that. And, that's exactly what we're seeing in the U.S. So, you know, I can't help but think that what we're seeing there, will happen with time in the various other jurisdictions, including Europe, and they're talking about a travel passport now and things of that nature. So, but we're in good shape. We're ready to go operationally, and we do have, as you know, some assets available to lease. So, you know, as the recovery comes around, I think, we'll be there.
Great. I've already booked my flights back home, so, all set. Thanks very much, Joe.
Okay.
Thank you. We have another question from Matthew Lee from Canaccord. Please go ahead.
Hey, morning, guys.
Morning.
Just a follow-up question on the CapEx. You know, if the undisclosed customer ends up firming up its commitment for the two ATRs, will that flow into F 2021 CapEx, or is that more likely to become an F 2022 event at this point?
It would flow into our CapEx table if we end up doing that deal, Matthew. So it would end up just adding to our CapEx, or into our CapEx for 2021.
Right. But I mean, in terms of timing, that's still gonna be a 2021 event?
It's possible. It, again, we're in discussions with the customers and, or the customer, and, and if you look just given, you know, where the world is worldwide or where everything is worldwide, it could be this year, it could be next year. It would really depend on how things go.
Okay, great. And then maybe if you were to ballpark your objective for collection rates going throughout the year, you know, what would you say is an attainable rate by the end of 2021, if you were to, you know, think about it that way?
We haven't put together or, you know, not certainly comfortable putting a forecast out around that at this stage, given where we are worldwide. But we do want to improve, obviously, off the 60%. I mean, 100% is really the goal, and it's gonna depend on how the markets open up, how the COVID variants shape up, and how the jurisdictions go. So it's really hard to give you a firm answer on that, just given where the world is so different.
All right. That's it for me. Thanks.
Yep.
Thank you. We don't have any questions at this time. Presenters, please continue.
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