Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the three-month and 12-month period ended December 31st, 2021. The corporation results, including the MD&A and financial statements, were issued on February 23rd, 2022, and are currently available via the company's website and SEDAR. Before turning the call over to management, listeners are cautioned that today's presentation and their responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors, assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements.
For additional information about factors that may cause actual results to differ materially from expectations and about material factors, assumptions applied in making forward-looking statements, please consult the MD&A for this quarter, the Risk Factors sections of the annual information form and Exchange's other filings with the Canadian Securities Administrators. Except as required by Canadian securities law, Exchange does not undertake to update any forward-looking statements. Such statements speak only as of the date made. Listeners are also reminded that today's conference call is being recorded and broadcast live via the Internet for the benefit of individual shareholders, analysts, and other interested parties. I would now like to turn the call over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, Mr. Pyle.
Thank you, operator. Good morning, everyone, and thank you for joining us this morning on EIC's year-end conference call for fiscal 2021. For the sake of brevity, my comments will be focused on the 12-month period ended December 31st, 2021. I will be glad to answer Q4 specific questions during the Q&A period following our scripted remarks. With me today are EIC's President, Carmele Peter, who will provide some operational commentary and provide insight into the outlook for the company in 2022, and Darryl Bergman, our CFO, who will provide a more detailed breakdown of our financial results. 2021 was the second year in which we've operated in a pandemic environment. COVID is anything but predictable as the intensity of the pandemic waxed and waned with each successive wave.
While EIC, and in fact all companies, have refined operations to adapt in this uncertain environment, never in our history has the power of stability through diversity been more evident. Despite considerable exposure to the shutdowns created by the government to curb the transmission of the disease in our aviation business and supply chain and inflation issues which hit our manufacturing businesses, we not only maintained our dividend but also hit record highs in many financial metrics. We completed a company-high five acquisitions in 2021, invested in organic growth, strengthened our balance sheet, and eliminated all debt maturities through 2025. Quite simply, diversification works, and consistent implementation of a proven plan leads to strong execution and success even in the most difficult environments. First, I would like to focus on the financial highlights of 2021.
Darryl will focus on the details later in the call, but I would like to hit on some key metrics. Revenue reached an all-time high of CAD 1.41 billion, an increase of 23% over 2020, and an increase of 5% over our previous high in 2019. Adjusted EBITDA also reached an all-time high of CAD 330 million, an increase of 16% over 2020 and less than 1% higher than the previous high in 2019. Adjusted net earnings grew by 82% to CAD 86 million or CAD 2.31 per share.
Our dividend payout ratio of 58% when calculated on a free cash flow less maintenance capital expenditures basis is a significant improvement from 2020, when the ratio was 71%, and only very slightly higher than in 2019, when it was an all-time best 57%. When calculated on an adjusted net earnings basis, it strengthened to 99% from 169% in 2020, but was still well short of the 71% achieved in 2019. EIC generated significant improvement over 2020 despite a dramatic decline in the level of government support in 2021, when most government programs related to operations were realized in the first half of the year. The financial success generated in 2021 was not simply the result of management focus on adapting to the challenges that arose during the year.
Rather, we benefited from the long-term perspective taken in previous periods, which put the company in a position to prosper in 2021. At EIC, we have always believed in taking the long-term perspective to our thinking, and in 2021 we laid the groundwork for future growth and enhanced profitability. In 2021, we have invested in internal organic growth opportunities, major new contracts, and acquisitions, all while enhancing our already strong balance sheet to enable us to move quickly when the right opportunity presents itself. The challenges faced in aviation through the pandemic are well known, and I do not intend to review these at this point, other than to say our passenger operations are proving to be very resilient because of their essential nature, and rebound quickly when travel restrictions are lessened or removed.
We've attacked other opportunities while we wait for these operations to regain their full stride. The pandemic saw major carriers significantly reduce their coverage in the Maritimes, leaving many communities under-serviced or without service entirely. PAL has added flights to many of these communities, expanding our geographic range and setting up the company for further growth as markets normalize. PAL, however, is a regional carrier and doesn't have coverage outside of Eastern Canada. They therefore entered into interline agreements with the major carriers to ensure connectivity to their complete networks. We developed new opportunities in the mining and exploration segment of our business. Increased activity in this sector has created demand for contracted charter work in both the Maritimes and Central Canada, with the potential for greater demand in Nunavut as well.
We augmented existing relationships and signed new contracts to significantly grow this business and are bullish on further opportunities in the future. In order to fully take advantage of our market expansion and charter growth, PAL made the decision to increase the gauge of aircraft it operates. It had previously utilized a fleet of Dash 8-300 aircraft and replaced these with the larger Dash 8 Q400 aircraft. This increased capacity without increasing flying hours, thereby growing revenue and enhancing margins. We did not dispose of the Dash 8-300 aircraft, however, as Perimeter operates a fleet of Dash 8-100s and Dash 8-300s. The PAL 300s were turned into Combi aircraft and freight aircraft and are ideal aircraft for not only the new contracted charter work, but to augment Perimeter's regular scheduled fleet.
The acquisition of one type of aircraft helped meet the lift demand for two of our airlines. We also added capacity to Calm Air, who has seen very strong freight demand persist even as passenger levels increase. We added the newer generation ATR 72-500 aircraft to our fleet, enhancing both pure freighter and Combi passenger freight capacity. This fleet rationalization will enable a stronger rebound as the pandemic comes to an end. We saw the strong performance of our medevac business during the pandemic as demand remained strong throughout. It has always been a key piece of our operations, but the consistency over the past two years has increased our desire to grow our footprint, both geographically and through enhanced product offerings. We took steps in both areas during 2021. In July, we completed the acquisition of Carson Air, headquartered in Kelowna, British Columbia.
Carson provides freight services and operates a flight school, but its core competency is medevacs. They are the main provider of fixed-wing services to the government of British Columbia. They are clearly a Canadian industry leader with an exceptional management team. Carson expands our coverage area and provides a platform from which to expand into Alberta, Northwest Territories, and the Yukon marketplaces. Through a partnership between Custom Helicopters and Keewatin Air, we founded Trauma Flight, our first entry into the rotary-wing medevac and emergent care business. We obtained our first license in the province of Manitoba, where we've begun operations in underserviced areas of the province. We are looking to expand this offering into BC, where we're in the process of bidding on the BC EMS rotary-wing RFP.
Utilizing Keewatin's proven knowledge of medical transport derived from decades as the lead and now only service provider in Nunavut, together with Custom's rotary wing experience, we have built a new product offering, which we believe will augment our current fixed wing business. We've also continued to invest in our aerospace business and our maritime surveillance business in particular. In August 2020, we announced that we had won the bid to provide maritime surveillance service to the government of the Netherlands, and we've been preparing the necessary aircraft through 2021. Despite the challenges of COVID and increases to the scope of the contract, we are on track to deliver the aircraft in mid-2022 and go into service later during this year. We also announced that we had won the RFP to continue providing surveillance services in Curaçao for a further 10-year period.
We are busy upgrading the aircraft to maintain our Caribbean operation. We also began the construction of a new large hangar at the EIC campus at the James Richardson International Airport in Winnipeg. This hangar will be utilized by our Calm Air operations, facilitating the use of Calm's existing hangar as the heavy overhaul facility for our northern fixed-wing search and rescue contract for the government of Canada. We are actively searching out contract opportunities throughout the globe and are actively involved with a bid to provide aircraft to the government of Malaysia. We expect to know if we are the successful candidate later this year. We have also utilized our strategy of broadening our product offering through the very recent acquisition of CTI, located in Memphis, Tennessee.
CTI is a strong management team centered in its founder and has built a reliable, growing business providing training services focused, but not exclusively in a classroom setting, to the American Navy and Air Force. The transaction was very difficult to structure to ensure the Canadian public company ownership would not impair the American government contracts. This has now been accomplished and has opened the door to the biggest market in the world for EIC services. CTI has considerable unmanned aircraft experience, which will be helpful to PAL as it looks to expand its fixed-wing service offering. Additionally, PAL has deep roots in the Middle East and through its contract in the UAE, which could help CTI grow in the region. Regional One has been active throughout the pandemic, looking for buying opportunities where assets in our area of expertise are available at distressed prices.
While we've been somewhat surprised by the limited number of liquidation scenarios, we've been able to buy some assets which will drive future growth. Early in the pandemic, for example, we purchased a fleet of seven Q400 aircraft, all of which have now been deployed externally, internally or parted out. Our net investment at Regional One in growth capital expenditures and additional inventory climbed to CAD 70 million in 2021 from nil in 2020. We were also active in our manufacturing sector. WesTower, Canada's leader in the supply, installation and service of cell phone towers, has been anxiously awaiting the rollout of 5G technology. With this process now underway, we want to make sure that we are maximizing our share of this opportunity. To that end, we have added underground capabilities in both Eastern and Western Canada to our above ground expertise.
The phone carriers prefer to have one-stop solution for the 5G integration, and this allows us to provide this. We accomplished this through the acquisition of Telcon, I'm sorry, and Ryko during 2021, who have proven expertise and capability in the underground work. Ben Machine has performed well since it being acquired by EIC and exceptionally well during the pandemic. Continued organic growth has been met through the addition of more production equipment, but the outlook showed that our customer needs may exceed our capacity. Accordingly, we sourced additional capacity through the acquisition of Macfab, a local company with similar capabilities but a different customer base. Macfab was a proven entity and the acquisition was accretive on a standalone basis, but the opportunity for both revenue and cost synergy made it a very enticing opportunity.
ESG is a very topical matter, and I would like to take a moment to review EIC's progress in 2021. ESG is the acronym for Environmental, Social and Governance. We have been focused on all three of these areas since our inception, and it is not the recent spotlight on the area that has driven our behavior. A significant portion of our aircraft business involves flying aircraft, which by their very nature, have a significant carbon footprint. We have been concerned about this issue and have been looking for ways to make incremental improvements. We invested in projects like the design of new multi-blade propellers, which generate more thrust with less fuel. We updated our fuel storage facilities in Canada's north to prevent spills, along with other projects.
We are currently involved in both electric and hydrogen experimental propulsion systems with the hope of replacing carbon-based fuels. We have also implemented new software to help us track our carbon usage and look for means of improvement year- over- year. Social topics are important factors for EIC, especially in communities where we have deep roots and are highly committed. We view community engagement as the single biggest factor, and we've always been committed to investing back into the communities we service, particularly northern First Nation communities. I want to take a brief moment to discuss two such investments. Economic development is very challenging in isolated communities, and as a result, most suffer from chronically high unemployment. Fishing is a traditional activity that can provide economic opportunity.
Unfortunately, the market price for many species of fish is not high enough for the fish to be profitably exported to customers unless they are processed in the community. We were approached by one of the communities we service with the idea of establishing a plant to fillet it and flash freeze the fish caught by local fishermen. The First Nation did not have the necessary capital to make this happen on their own and asked for our help. We have made a significant investment in this plant through forgivable loans and look forward to its completion and the economic opportunity it will undoubtedly provide. We've also prided ourselves on a commitment to provide First Nation youth the opportunity to travel south and attend a major sporting event that would be very difficult for them without financial support.
We started this program several years ago, where we bring in youth from a given community and host them at a Winnipeg Blue Bombers or Winnipeg Jets home game. Unfortunately, in 2020, this was impossible as the CFL did not play and the NHL played without fans. As such, the CFL returned to operation in 2021 and fans returned to the game, we wanted to make a significant investment. We wanted to continue to expose youth to a professional sporting event, but we also wanted to draw much needed attention to the Every Child Matters campaign. To that end, with phenomenal support from phenomenal partners in the Assembly of Manitoba Chiefs, MKO, together with the Winnipeg Blue Bombers and the Edmonton Elks, who wore orange jerseys in warm-up in recognition of the importance of this issue, we brought approximately 1,000 First Nations people for the game.
We provided them with bright orange bomber gear and made a very real statement about the importance of reconciliation. There were not many plays in the game where TSN cameras did not have an orange shirt in the background. Social responsibility is not just part of our ESG commitment, it is part of our DNA. We have followed best practices in corporate governance since our inception, and we intend to maintain this for as long as we exist. 2021 was a challenging year, but a very rewarding one. I am proud that we have been able to deliver strong results in a challenging environment with many metrics at an all-time high. I am also proud that we've continued to invest in our future, and I can confidently say that the best is yet to come.
Thank you very much, and I will now hand off the call to Darryl, who will take you through the financial results.
Thank you, Mike, and good morning, everyone. Before I present the financial results for fiscal year 2021 and Q4 2021, I would like to take a moment to highlight some notable financial achievements this year. As we have demonstrated, the challenges that were faced throughout the pandemic and overcome are a testament to the resilience of EIC's business model, which continues to prevail.
This is supported by strength in our management teams across the organization, a disciplined focus on continued strength and diversity in our portfolio, and attention to keeping the balance sheet strong, which was evident in the year through the completion of the most acquisitions the corporation has finalized in one fiscal year in its history, and the successful completion of three separate bought deal offerings for a total of CAD 347 million, along with the extension of our syndicated bank credit facility out to August 2025. Given our success in that respect, it is my pleasure to now review for you in greater detail our full year 2021 and Q4 2021 financial results.
My first comment will be to highlight the presentation change in the MD&A from EBITDA to adjusted EBITDA, which was completed to comply with the required changes the Canadian Securities Administrators issued under National Instrument 52-112, non-GAAP and other financial measure disclosures. Prior year comparatives of EBITDA to adjusted EBITDA are unaffected by the presentation change. The corporation continued through 2021 to maintain its strong liquidity and rock-solid balance sheet. Highlights from the year include the three separate bought deals, which I will touch on. The sum of these actions has strengthened our balance sheet by increasing our equity, enhancing our liquidity, and after the subsequent redemption in Q1 2022 of the maturing December 2022 convertible debentures removed all debt maturities prior to July 2025.
All told, the corporation was able to generate CAD 163 million in additional net liquidity after cost and after the redemption of the convertible debentures set to mature in 2022 and 2023. The first of the bought deals was an equity offering in the second quarter for CAD 88 million. Where most of the funds generated were utilized within the third quarter with the acquisitions of Carson and Macfab. The next in the third quarter was a convertible debenture offering generating CAD 144 million, where funds were used to redeem the June 2016 debentures set to expire in June 2023 and to make a repayment against our long-term debt. The third was in the fourth quarter, where we completed a second convertible debenture offering, generating CAD 152 million. CAD 115 million, sorry.
Funds from the offering were used to repay indebtedness, and then subsequently to December 31st, 2021, deployed to redeem the December 2017 debentures set to expire in December 2022. In addition to these bought deals, in the third quarter, the company also successfully extended its syndicated credit facility to August 6, 2025, on terms consistent with its prior facility. Given all this activity within the year, it's important to acknowledge the strong support we continue to receive from both the capital markets and our banking partners. In all of the offerings completed, the broker over-allotments were exercised, demonstrating continued strong support from the markets. Furthermore, the bank facility extension was fully supported by our bank partners and completed in short order, again, demonstrating continued strong support.
The size of the corporation's credit facility as at December 31st, 2021, remains unchanged at approximately CAD 1.3 billion. The corporation retains the ability to access an additional CAD 300 million in the accordion feature should it choose to exercise it, giving the corporation a combined access of up to CAD 1.6 billion. Utilization of the corporate credit facility was CAD 711 million at the end of the period. Reducing this by the CAD 75 million in cash on hand, the result is a net debt of CAD 636 million.
As a result, the corporation is very well positioned to continue to meet all of its needs, maintaining access to liquidity and access to CAD 664 million, excluding the accordions. The corporation ended the period with net working capital of CAD 225 million, a current ratio of 1.47. Notably, the current ratio was temporarily impacted at the end of 2021 by the convertible debentures due in December 2022 being recorded as a current liability at year-end. The successful redemption of the December 2022 convertibles subsequent to year-end eliminated the current liability in Q1 2022. As Mike noted, revenue for 2021 reached an all-time high of CAD 1.4 billion, an increase of CAD 264 million or 23% over last year.
Aerospace and aviation segment revenue increased by CAD 230 million, while manufacturing revenues rose by CAD 34 million. Specific to aerospace and aviation segment, revenue was up 33% to CAD 917 million. Revenues from the Legacy Airlines and Provincial increased by CAD 155 million for the year. Driving the year-over-year increase was the rebound demand for air travel in the second through fourth quarters of 2021, which was partially offset by the prior first year's quarter results, which reflected more normal pre-pandemic results. The company continued to see strong demand in its cargo, medevac, and rotary wing operations, including strong EMS and fire suppression activity. Increasing support for mining exploration also contributed to the overall improvements.
The corporation's on-demand ISR platform also continued to perform very well and contributed positively to the annual results. At Regional One, revenue increased in 2021 compared to the prior year by CAD 75 million. Regional One's two main streams of revenue include sales and service revenue and lease revenue. Sales and service revenue increased by 72% over the prior year. 2.5 months of pre-pandemic results in Q1 2020 partially offset the overall improvement year-over-year. Regional One experienced a strong recovery in sales and service revenues, specifically in larger sales of whole aircraft and engines in the third and fourth quarters of 2021 compared to the prior period, where many of these types of sales were canceled or postponed. Lease revenue decreased by CAD 1 million or 2% over the year.
That said, the prior year included Q1 results that were almost entirely unaffected by the pandemic. Lease revenues in Q2, Q3, and Q4 of 2021 increased over the same periods from the prior year, with Q4 2021 revenues more than 2x greater than Q4 2020. Both the sales and service revenues and the progressively better results in lease revenues are reflective of air travel starting to pick up around the world and most notably in the U.S. Turning now to our manufacturing segment. Revenue grew by CAD 34 million over the prior year for a total of CAD 496 million in 2021. While still facing many of the impacts brought on by the pandemic, collectively, the manufacturing segments' revenues remained resilient.
The three strategic acquisitions later in the year of Macfab, Telcon, and Ryko added some support to the increase in revenue, but more importantly, increased internal capabilities and opportunities for growth with new customers going forward. Turning to adjusted EBITDA. During the year, the corporation did avail itself to the CEWS program offered by the government of Canada. The receipt of CAD 18 million was used as intended under the program which entailed in part to help offset increased health and safety costs and operating inefficiencies within the manufacturing segment. Comparable to 2020, CEWS received by the corporation decreased by CAD 46 million. Also reaching an all-time high for the corporation in 2021 was adjusted EBITDA. Consolidated adjusted EBITDA was CAD 330 million, up 16% or CAD 45 million for the year compared to the prior year.
Generally speaking, the increased adjusted EBITDA is attributed to lessening impacts of the pandemic over the course of the year and acquisitions made in 2021. Adjusted EBITDA in the aerospace and aviation segment in 2021 was CAD 288 million, an increase of CAD 70 million compared to the prior year. Adjusted EBITDA generated by the Legacy Airlines and Provincial increased by CAD 54 million. The increase in adjusted EBITDA for the Legacy Airlines was principally driven by the same underlying contributors previously discussed as related to revenue, along with the acquisition of Carson Air in July 2021, also contributing to the improvement. Adjusted EBITDA from Regional One increased by CAD 16 million from the prior year. Again, the drivers for revenues are the underlying contributors to the increase in the period.
In the manufacturing segment, adjusted EBITDA was CAD 73 million, a decrease of CAD 15 million or 17% compared to the prior year. Most of this decline was driven by the lower CEWS payments received in 2021. Absent of the CEWS, adjusted EBITDA fell 5%. Third- and fourth-quarter 2021 impacts related to supply chain disruptions leading to increases in raw materials and transportation costs, more significantly at Quest, all contributed to the lower adjusted EBITDA. Quest aside, and excluding the impacts of the CEWS program in both periods, collectively, the balance in the manufacturing segment experienced an increase in adjusted EBITDA. Within the manufacturing segment, the addition of the tuck-in acquisitions completed in 2021 positively impacted adjusted EBITDA compared to the prior year. Net earnings for the year totaled CAD 69 million, an increase of CAD 41 million from the prior period.
Net earnings per share improved to CAD 0.84, an increase of 130% from 2021. Notably, in the period, the weighted average number of shares increased by 6%, which partially offset the increases on a per share basis in net earnings, adjusted net earnings and free cash flow. EIC reported adjusted net earnings of CAD 86 million for the 2021 year, representing an increase of CAD 39 million or 82% compared to the prior year. The company also delivered adjusted net earnings per share of CAD 2.31, up 71% over the prior year. In 2021, free cash flow generated by the corporation increased by 23% over 2020 to CAD 243 million or CAD 6.53 per share. This outcome is driven by the increased adjusted EBITDA in the period.
Free cash flow, less maintenance capital expenditures per share increased 22% to CAD 3.95 per share, or from CAD 3.23 per share in the prior period. The free cash flow, less maintenance capital expenditures payout ratio compared to the prior year was 58% in 2021, a significant improvement compared to 71% in 2020, and only slightly higher than 2019 at 57%, which represented EIC's all-time best at the time. Now let's quickly turn to a short summary for the results specific to Q4 2021. The primary explanations for the financial results and changes in the quarter are largely consistent with the drivers for the year- to- date. Although the rise of the Omicron variant in December contributed to reducing both revenue and earnings in the current quarter.
Where there are notable differences, I will provide additional detail. Consolidated for Q4, EIC generated revenue of CAD 390 million, which is up CAD 89 million or 29% from the comparative period. Of the increase, CAD 86 million was attributed to Aerospace and Aviation segment, and an increase of CAD 3 million to our Manufacturing segment. Aerospace and Aviation segment revenue increased by 49% to CAD 261 million for the quarter. Revenue from the Legacy and Provincial increased by CAD 50 million over the comparative three-month period. For Regional One, revenue in the fourth quarter 2021 increased by CAD 36 million or 112% compared to the prior period. Notably, during the fourth quarter, both revenue streams, sales and service and lease revenues increased compared to Q4 2020. Now turning to our Manufacturing segment.
Revenue grew by CAD 3 million in the fourth quarter versus the comparative period. The total revenue for this segment was CAD 129 million. Adjusted EBITDA generated in Q4 2021 was CAD 89 million, an increase of 9% or CAD 7 million from the comparative quarter in 2020. Adjusted EBITDA contributed by the Aerospace and Aviation segment in the fourth quarter increased by CAD 17 million to CAD 78 million compared to the prior period. Adjusted EBITDA generated by the Legacy Airlines and Provincial increased by CAD 5 million. Regional One contributed adjusted EBITDA of CAD 21 million for the quarter, an increase of 130% from the prior period. In the Manufacturing segment, adjusted EBITDA was CAD 19 million, a decrease of CAD 6 million in the fourth quarter of 2021 versus the prior period.
That said, despite the supply chain challenges leading to the increased raw material and transportation, demand in the segment remains strong. Again, the tuck-in acquisitions in 2021 add new internal capabilities and opportunities for continued growth. Net earnings in Q4 2021 were CAD 23 million, an increase of CAD 10 million compared to the prior period. Net earnings per share in the period were CAD 0.61, an increase of 61% compared against the prior period. The corporation recorded adjusted net earnings of CAD 28 million in the fourth quarter 2021, an increase of CAD 9 million or 49% compared to the prior period. Adjusted net earnings per share increased by 40% to CAD 0.74 compared to CAD 0.53 in Q4 last year. Again, it should be noted that in the period, the weighted average number of shares increased by 7%.
Again, this impacts per share amounts for net earnings, adjusted net earnings and free cash flow. During the fourth quarter of 2021, free cash flow generated by the corporations was CAD 72 million, an increase of CAD 12 million or 20% from the comparative period. The primary reason for the increase is the 9% increase in adjusted EBITDA and a decrease in the current tax expense. Free cash flow, less maintenance capital expenditures increased by approximately CAD 2 million or 4% over the prior period. Finally, despite the continued challenges associated with the pandemic faced in the quarter, the corporation's free cash flow, less maintenance capital expenditures payout ratio was a respectable 50% in the period. That concludes my remarks from today. For today, I will now pass the call over to Carmele.
Thank you, Darryl. I'm gonna start my comments today by discussing the outlook for each of our lines of business and for our investments in growth and maintenance CapEx. I'll then wrap up by discussing how those expectations translate into anticipated results for EIC as a whole. First, a general comment. We were very encouraged by the ramp-up of our businesses, in particular the airlines, through the fourth quarter. In late Q4, we experienced the onset of Omicron, which came quickly and hit hard. The impact of Omicron, combined with the fact the first quarters always are most seasonally challenging as winter roads lessen the demand for air services, is going to put pressure on Q1 results.
However, it appears the speed at which Omicron surged is equally the speed at which we are seeing it cycle through, which I will speak more specifically about as I discuss our respective segments. Let's first look at our passenger business. In the first part of Q1, we have faced the full impact of Omicron, which resulted in increased travel restrictions, quarantine requirements, and community shutdowns. These measures have driven down passenger volumes, albeit to different degrees, depending on region. The Maritimes were pushed down to approximately 70% of pre-pandemic travel levels, while Central Canada and Nunavut saw passenger levels drop back to about 50%. However, the reduction in passenger volume seems to have peaked in the first week of February, and we are starting to see passenger numbers trend upward, setting up for a rebound in Q2.
The resurgence of COVID in Q1 continues to drive very strong cargo and charter volumes, which are trending higher than prior year, supported by the need for essential supplies, online shopping, COVID relief charters, and resource work. As community restrictions ease and winter roads open up, cargo volumes are anticipated to drop, although we expect volumes to remain above pre-pandemic levels. EIC's medevac operations have not been materially impacted by Omicron and continue their solid performance. Also unimpacted in any material way by COVID is the aerospace division. With 90% of the company's aerospace revenues in 2022 under contract subject to variable flying, we anticipate another very strong year. Similarly, CTI, our recent acquisition in mid-December, almost has most of its revenues under contract for 2022 and has not been impacted by COVID. CTI will be reported together with Provincial Aerospace.
Regional One's pandemic recovery was on track entering into December, but with the onset of Omicron and its impact on air travel generally, R1 has seen some changes. The upward trending in leasing revenue has halted but has not slipped backwards. We anticipate that this will push the full recovery of leasing revenues to later in the year. Parts sales has not been materially impacted and continue at pre-pandemic levels. Also, the elevated level of aircraft and engine sales that we saw in the latter part of 2021 is anticipated to continue in the first part of 2022. As we have mentioned before, large aircraft and engine sales tend to vary significantly from quarter to quarter, and the recent level of sales are abnormally high and are not anticipated to be the new run rate.
They do illustrate the adept nature of Regional One to be opportunistic in changing market dynamics. Our manufacturing segment saw an apt-uptick in employee absenteeism with Omicron, but that impact has leveled off. However, the impact COVID-19 has had on supply chain is increasing, as is the challenge with labor shortages, and is impacting margins. The impact on companies in the segment vary by region and industry, but include price escalations on direct inputs, delays on deliveries, and freight increases. In many of our companies, there is an ability to pass on incremental commodity prices relatively quickly, but in others like Quest, where the industry norm is fixed price contracts, there is not in the short term. Also, as we have previously discussed in respect of Quest, production gaps and resulting reduced revenues will persist in 2022 due to pandemic-related project deferrals.
Long-term demand remains healthy, and Quest is seeing sales inquiries gradually returning to pre-pandemic levels and a steady order book. Also, the balance of the segment continues to experience consistent, robust demand, which will be further bolstered by the acquisitions of Macfab, Telcon, and Ryko in the latter part of 2021. Turning to maintenance capital expenditures. As a result of increased flying, a larger fleet of aircraft, and with Regional One preparing its lease portfolio for increased activity anticipated to occur as Omicron subsides, we will experience a significant increase in maintenance capital expenditures in 2022, with the expenditures being skewed towards the first half of the year. As for growth capital expenditures, Q1 will see EIC adding capacity to its air operators to fulfill increased customer demand in the resource sector for cargo movements and in our rotary and medevac operations.
Investment will also continue in the two surveillance aircraft required under the Netherlands Coast Guard contract, which will continue to the end of Q2, at which time investments to upgrade the surveillance aircraft for the renewed Curaçao contract awarded in December will commence and continue through 2023. Other areas of investment focus will be the completion of the new hangar required to meet obligations under a fixed-wing search and rescue contract and R1 opportunistic asset purchases. The material reduction in government subsidies for airlines worldwide, combined with the further financial impact of Omicron, is creating opportunistic purchases. Now turning to EIC as a whole. Our businesses have done a tremendous job weathering the pandemic and positioning for growth as we move towards a new norm. Omicron is the fifth wave, and just like we have done in each of the four previous waves, we will successfully navigate through.
Based on the experiences of our businesses, Omicron looks to have a shorter cycle than previous waves as case counts and hospitalizations are trending downwards and we are seeing restrictions ease, with some provinces looking to eliminate all restrictions in March. Although Omicron will negatively impact our results in Q1, causing them to be lower than our Q1 2021 results, we are of the view that a recovery will resume in Q2.
Although this will push our achievement of a CAD 400 million run rate by about a quarter, we still believe, barring new setbacks from COVID-19, that we will exit 2022 with an EBITDA run rate of CAD 400 million. Although the world tires of restrictions and vaccine mandates and pandemic waves, we remain optimistic as we look out into 2022 by what we have accomplished through the pandemic and how we have, at each turn, captured growth opportunities. We completed five acquisitions in the second half of 2021, further bolstering both segments. Regional One is experiencing an active deal pipeline. The Netherlands contract will commence in Q3, expanding our footprint to Europe. Our award of the Curaçao contract in December ensures that PAL will retain that work for another 10 years. The resource sector is growing, giving us opportunities for dedicated charters and rotary wing work.
Our medevac business has never been stronger, with the addition of Carson Air to the family and the commencement of Trauma Flight, which combines a rotary wing capability with Keewatin's medical expertise. We have opportunities to pursue through the leveraging of CTI's and PAL's respective capabilities, customer relationships, contacts, and reputations, including taking advantage of CTI's access to the American market for PAL Aerospace Services. By effectively managing our operations through the pandemic for the long term, following our principles for strategic investment and executing on opportunities that meet our criteria, we have positioned EIC to continue accomplishing great things for the future. Thank you for your time this morning, and we would now like to open the call for questions. Operator?
Thank you. At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from Nauman Satti from Laurentian Bank. Please go ahead.
Hi. Good morning, everyone.
Morning, Nauman.
In your prepared remarks, you've mentioned about the payout ratio on free cash flow minus maintenance CapEx has declined to 58% from 71%, and the net earnings one is down to 99%. I'm just wondering if you're now looking at increasing the dividend.
That's a good question. When you look at our payout ratio versus historic norms, when we get in the 50-something% range, it's typically when we would increase the dividend. That's something our board is discussing at each quarterly meeting. We were pretty clear, particularly in Q3 last of this year, where we said that we're not gonna increase the dividend in a period where we still have government support. Clearly, in 2021, the government helped us maintain support into some of the northern communities that weren't economic. It's clear why we didn't do it in 2021. It's very likely that you will see us continue our track of increasing dividends in the current year given the level of performance we've generated.
Thank you. That's a good, great color. Just on the Quest business, you've mentioned that there are some fixed price contracts that impact the margins. I'm just wondering, when do you expect those sort of contracts to fall off and the new contracts would have relatively better margins?
The sales cycle in Quest is between one and two years, depending on the project. The stuff we're talking about with the weaker margins, the stuff we've signed probably during 2020 or 2019, and that stuff would tend to roll off by the end of this year. When we get into 2023, you see the stronger margins. One other thing I want to point out at Quest while we're talking about it is while we have these short-term bumps with both the inflation issue and supply chain and the deferred some of the projects, the general industry macros are really quite good. There's development in the main cities. Toronto's remarkably robust, so are some of the US centers we're in. The pipeline is, quite frankly, as good as we've seen it.
We're in the midst of slowly starting to convert that to order book. The medium term in that business is remarkably positive. Yeah, we got a few bumps to go through in the next few quarters, two or three quarters. When we come out of next year, we're gonna be in a market where there's high demand. We've got our distribution set up in the US through the deals we did at WIS and AWI, that beautiful new plant in Dallas. Quest is going to be the growth story for us once we get through this little bumpy patch.
Okay. That's fair. Just one last one. In terms of the cargo business, you highlighted that you've added aircraft, and for growth CapEx, you're going to spend some money there as well. I'm just wondering if you could provide any additional color. Are you flying any new routes, or have you seen any new customer demand? Just trying to get a sense if that is an area of growth or focus for you, either through organically or maybe through M&A?
Yeah, it's a good question. When you look at freight, if we start with our core business, which is servicing the largely First Nations and Inuit communities that we service, we've obviously seen a big jump up as people have traveled less, so they order more. One of the ongoing things with the, that's an unforeseen part of the pandemic, is. It's changed people's buying habits. Even though traveling is increasing, the freight is remaining high. Part of what we see is just more freight in the communities we service. We've also seen opportunities adding services for other air carriers. We do some work for Cargojet. We in with ATRs, we've seen some work for some of the mines.
It's a combination of really all the kinds of freight we do, both on Combi aircraft, which is our core business, and then Calm Air in particular has seen an increase of the pure freighter work, and that's why we've added some of the ATR 72-500 aircraft as a newer generation pure freighter to make us more efficient in the pure freighter business.
In addition to freight, we've also added capacity to expand some of the routes that we have out in the Maritimes to fill in the gaps that existed there as we connect to mainline carriers. We've added capacity in our medevac operations as there was increased need from our main customer out in D.C. There's resource sector, new mining customers we picked up, and also on the rotary side, we've got increased demand on our EMS as well as on the resource sector there.
Okay. No, that's great, Carmele. That's it from me. Thanks for taking my questions, and congrats on the year. Thank you.
Thanks, Nauman.
Your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead.
Morning, Cam.
Thanks very much. Morning. Morning. Just a question, I guess, on the Q1 outlook. I mean, I think we all appreciate what's going on there. I guess I'd maybe a little curious about, I guess, the comment that Carmele made just with regards to your expectation that, I guess, you know, EBITDA will be lower year-over-year. I guess I'm gonna be a little bit surprised just given that you've made some acquisitions and you were basically in a kind of a lockdown situation a year ago as well. I mean, should I think about maybe the biggest difference being the fact that you have lower government support this year versus last year? Is that kind of part of the reason why we would expect a year-over-year decline?
It's the only reason. The government support largely ended in a material way about mid-2021. There's little bits of stuff we've recognized later on as we've finalized the programs. In looking into the beginning part of this year, we've had shutdowns, but no new support. Exactly where that number shakes out is yet to be seen. It depends on how fast things accelerate. We're seeing some good signs. We're excited. One of the things we never like to do is overpromise, and so we aren't going to see government support to help us. We continued flying. We didn't really cut back during the Omicron thing in any material way. We serviced all the communities, and we're going to continue to do that, Cam. It's very much a short-term issue.
We will, in terms of pure business money generated, be ahead of last year if you exclude the subsidies. Regional One in particular is much higher than it was a year ago. The large asset sales have continued in Q1, and we're starting to see some very significant leasing opportunities as well, so that's bullish for the rest of the year. It's really just the fact that our airlines are operating in a short-term Omicron shutdown without any kind of real government support.
Right. No, that makes perfect sense. Maybe just second question for me, just thinking about the most recent acquisition you've made, the Crew Training. Can you just talk a little bit about the margin profile there? I mean, you know, it's a little bit of a different business than the rest of your businesses, being maybe less capital intensive. If you can maybe talk a bit about that, but also where the growth prospects are. Obviously you've got some opportunities, you know, to find some synergies with PAL, but just, you know, what's their kinda new contract opportunity outlook look like for the next couple of years?
Okay. CTI is a training business, but unlike our flight training business in Canada, it's largely not done on aircraft. It's done in a classroom setting, so it's a lower capital environment. As a result, the return on sales is lower because you're not having to fund the purchase of assets, but the return on capital in the transaction is very much at our target. When you look at the business, you're gonna see a lower percentage of revenue, but a similar return on investment that we've seen in other acquisitions. When we look at the areas for growth, this is the part that's so exciting to me. CTI on a standalone basis is growing. They're strong with the Air Force, strong with the Navy. They're making headway with the Army.
They've got their first bit of work in the Middle East. Through the relationships that PAL has in the Middle East, particularly in the UAE, we think there's gonna be the opportunity to expand CTI's business into that part of the world. When we look at the other side of that relationship, PAL has been very limited on selling into the U.S. because of the extremely complicated government sourcing requirements in terms of ownership and how you qualify to provide service to the U S The deal with CTI took us almost a year to structure to ensure that we had the appropriate structure to make sure the government would view this appropriately, and we have that in place. That will provide a conduit for the two companies working together to sell our ISR capabilities into the United States.
When you look at it, there's three kinds of pieces of growth that are gonna come out of this. One is CTI standalone stuff that they were working on before we bought them. Two is CTI's growth with PAL's capabilities, and then PAL's growth through CTI's contacts.
Okay. No, that's a great explanation. I'll pass the line. Thanks very much.
Thank you.
Your next question comes from Steve Hansen from Raymond James. Please go ahead.
Morning, Steve.
Yeah, good morning, guys. I was just curious, Mike, if you could give us a bit more color into sort of the growth that you expect on the passenger side or the recovery, I suppose, on the passenger side. I know you described Omicron hit hard in early Q1. That's understandable. Are you seeing it in passenger bookings?
Are you seeing it in sort of the medical systems inclination towards more elective surgeries? What gives you the confidence that you'll start to see the recovery here, as the virus subsides?
It's two things. Our actual bums in seats have started to improve over the last three weeks. I think kind of right at the end of January was the worst part for us in terms of where our revenues were. They've grown consistently since then. Our future bookings are strengthening. We have two kinds of different businesses. PAL and Calm Air tend to have larger future bookings, whereas Perimeter's tends to be very short term. People are booking within a week of travel. Perimeter bums in seats is a better indicator, whereas future bookings is easier to use at PAL and Calm Air. In all situations, we're seeing a significant increase. We're pretty confident coming out of this quarter, we're gonna be through most of the Omicron issue.
The governments are peeling off the restrictions in a more meaningful way than they did in the previous waves. I think as we come out of Q1, and I think even in the back end of Q1, we'll see some strong numbers. It's just we know January was tough when Omicron hit the First Nations a lot harder than the other waves did. I think you may have seen some of the coverage, for example, at Bearskin Lake, where 50% of the community had it at once. The other side of that story, the upside is no one required hospitalization. There were very few, in fact, I don't think any fatalities as a result, and the community's through the thing entirely now.
Mm.
Omicron hit hard, but also left quickly.
Yeah, let me give you just one example, Steve, because I think this really is a great way or a great indicator. One of our communities called us up, and they're actually looking to host a hockey tournament. We haven't seen a hockey tournament in, like, 2+ years. It's an indication of the mindset that the communities have that they're going to go back to normal and go back to normal fast. You know, just a little anecdote there, but I think it's very telling as to why we're so optimistic on where our passenger numbers are headed.
The other piece, Steve, just is that's really important, you mentioned it, is the medical system. The medical system is finally starting to see a decline on the pressure on it. That's gonna take a bit, and we've got some tired medical professionals who have done some amazing things to keep us healthy during this two years. But there is a massive backlog. If there's a big backlog in southern centers, well, it's exponentially worse in the north. We're gonna see a prolonged period of higher than normal demand as we come out of this, and we're gonna see demand grow slowly as the. Well, I should say grow quickly as we get back to normal and then grow above that slowly as the medical system can handle more and more patients.
Short term looks good, the medium term looks even better.
Okay. No, that's really helpful. Just one follow-up, and it's a similar flavor to the first question, but on Regional One specifically, you've obviously seen some pretty outstanding growth off of the bottom. I'm just trying to get a sense for do you guys have a sense for how big the parts deficit is in the fleet out there right now in the regional market? Do you have a sense for, you know, are we talking about a two-quarter tailwind still, or are we talking about a multi-year tailwind? I'm trying to get a sense for the opportunity set to get back to where we were pre-pandemic and or above. Thanks.
I think the parts for the deficit. It's regional. The American aircraft are getting closer to ready to go, but there's people changing fleets in the US market. I don't want to go too much into detail and bore people, but the 50-seat market was kind of forgotten about with the CRJ 200 starting to come out of service, and the airlines wanted to maintain their presence in that. They're taking CRJ 700s, which are a 70-seat aircraft, turning them into 50-seat planes, which is creating some of the big asset requirements as they're looking for fuselages and things to be able to make that change. The ongoing parts business, as those continue to fly in highly active corridors, is gonna remain strong for the foreseeable future.
The movement of the 70-seat into 50-seat markets has created demand for the 90-seat aircraft as they start to fulfill some of the 70-seat markets. There's some transitional things, but the ongoing parts demand should be strong for the foreseeable future as those planes fly. Where the uptick count remains to come is in the European and the African part of our business. Europe has reacted more like Canada has with more shutdowns and so the airlines are still behind where they would be in the US. We're starting to see some very good signs. England recently announced they were taking off all restrictions. As you see that, we're gonna see a big bounce back in those marketplaces, and that's where our lease fleet sits. We're seeing increased demand, particularly for engines.
We expect sort of mid-year, we're gonna be getting that lease business kind of back up to where it should be over a few months period. Exiting the year, we're gonna see lease stuff at or above historical levels, depending on how much more we can invest. We're actively looking right now at opportunities to buy some fleets that may be available. In summary, parts business is strong for the foreseeable future. The whole aircraft business is good for the next—for what we can see. We know that it's not predictable the way the parts business is, so it's been very strong in Q3, Q4, Q1. We'll see after that.
But the recovery of the business is such that by late in the year, we see no reason we aren't at or ahead of 2019 levels.
Yeah. The other thing that I look at is kind of MRO shop, capacity, and shops are so busy, like, you can't get a slot. That, to me, is an indicator that there's gonna be continued demand for quite some time.
Very helpful, guys. Thanks.
Your next question comes from Chris Murray from ATB. Please go ahead.
Yeah. Thanks, folks. Good morning.
Hi, Chris.
Hey. Just thinking about your outlook. I mean, Mike, I appreciate the fact that there's puts and takes on this, but you know, can you talk about what you guys think you might be able to do to mitigate some of the earlier Q1 impacts? What I'm trying to understand maybe is there anything that might you know, move from Q1 to Q2 or future quarters, or anything else that you think you can do to kinda maybe fix some of these issues near term, or is it just something we're gonna have to absorb over the next several quarters?
We don't need to absorb stuff over the next few quarters. January was a tough month, February is getting better, and we're pretty optimistic about March. So the passengers, people that didn't move still need to go. The demand to go see the orthopedic guy or your cardiac surgeon, those are just more compressed demand. As Carmele mentioned, we're already starting to see that pop with things like hockey tournaments, non-medical travel. People are just tired of being in the community. They wanna come out, and we're managing that with seat sales and things to spur that on. I think really what we're talking about is just we had a challenging short period of time with Omicron in the aviation business, and that's going to quickly subside as we see Omicron going away.
Quite frankly, the outlook for that gets better every day. It really doesn't have a tail into the future. It's really it actually in some ways will create excess demand as we go forward. The demand in our manufacturing business has been strong throughout this. As people get back to work, there's less absenteeism. It'll help with workforce issues, which will in turn help with margin. I really don't see this as an ongoing issue. It was really something that happened for a month or two. Quite frankly, we've been through five waves or four waves of this. The nice part about Omicron, it was much briefer than most of the other waves. It's gone away faster, although it was hit steeper.
Quite frankly, if we had anything remotely close to the level of government support in Q1 that we had last year, we would see significant improvements in our Q1 over Q1. It's just there's a whole bunch of stuff that's gone now.
Okay. No, that's helpful. My other question is a little more theoretical, and it's around the Regional One business. You know, we saw there was an announcement, I think out of Embraer talking about maybe stopping development of the E175-E2. We've had a couple of the other OEMs. You know, De Havilland really hasn't started manufacturing new aircraft. Mitsubishi hasn't been doing any new aircraft. You know, so I start wondering, you know, at what point or how do you see kind of the fleet availability of new aircraft or even aircraft and the regional aircraft around Regional One if there is really no new aircraft?
I mean, there is a hierarchy of these things, but, you know, I mean, is there a risk that down the road, you know, essentially the business, for lack of a better term, just ages out?
What happens with us, and this is, it's a really good question, Chris, is as aircraft age, we get into the. When they get to sort of midlife, we start participating in the things we buy, small inventory, smaller fleets, get our feet wet, develop the knowledge. 'Cause the secret sauce of our business is understanding the value of the used parts. That's what drives the business. We're constantly moving into the next plane. It's always ongoing. If you take a look, for example, at the turboprop business, when we bought Regional One, they had some exposure to the Dash 8-100s. Weren't in 200s or 300s, and certainly weren't in 400s. As time has gone on, the 300s have become a core part.
Now we're in the 400 business as there's aircraft that age to the level that we could participate. What changes over time is which aircraft it is, but there's always an aging aircraft. The other thing that's quite bullish in the medium term here is, until someone manufactures another 90-seat plane, the airline's only opportunity is to use the ones they've got. That's great for us 'cause we sell the aftermarket parts. We're better at that than anybody else. The 90-seat market isn't going away. The 70-seat market isn't going away. In fact, the 50-seat market isn't going away. You could see that by the investments being made by United, by GoJet, and others into being able to convert bigger planes into 50-seat planes. What drives us is the aircraft getting to midlife so that there's part out opportunities.
We're not a long-term leasing business. We are a cost to capital play. We're an arbitrage play where we understand the underlying value of those assets better than anybody else. You could see it as we started to play in bigger and bigger Embraers. As those age, and we participated in those, we bought some, we've liquidated some. I think you'll see more of that over time, Chris. We just do it slowly. We're not prepared to make big bets as we till we understand exactly what things are worth. So you see us slowly expand into these things. Just like with the Q400 where we bought that Austrian fleet, a year or two ago, and now it's all gone, and we're looking to buy some more.
All right. Fair enough. All right. Thanks, folks.
Your next question comes from Matthew Lee from Canaccord. Please go ahead.
Hey, morning, guys.
Morning, Matt.
Thank you for taking my question. I wanna maybe start with the bigger picture question in terms of capital allocation. You know, between acquiring planes, acquiring parts, making acquisitions, and returning capital to shareholders, you know, what do you kinda see as the most important thing going into 2022?
That's a really good question. I'm gonna turn it on its ear a little bit to you, is that I think one begets the other. Our investment in organic growth is what lets us return capital to our shareholders. We've increased our dividend 13x, 14x , and we're gonna continue to do that. Our DNA and our commitment to our shareholders is a growing, reliable dividend. To do that, we need to grow the underlying cash flows. That's why you've seen us take steps to strengthen our balance sheet. We've enhanced our equity box, we've enhanced our liquidity so we could fund growth opportunities. We've proven, for almost 20 years that our investment in those drives future profitability. The fact that we're ahead of 2019 and 2021 is the absolute best proof of that.
Some of our core businesses are still, our airlines, as an example, are still not back to full normal, but we're still ahead of 2019. How can that be possible? Investments we've made in opportunities. When we look at the capital allocation part of your question, our thing is to remain exceptionally disciplined on the returns we expect to generate. If Regional One brings me CAD 100 million worth of opportunities that meet our 15% threshold, we're gonna fund that. If Adam brings me another great acquisition like CTI or Carson or any of the other ones, we're gonna do that. Because we have the balance sheet capability to do it, and because it's that investment this year that'll fund next year's dividend growth.
Our shareholders, there's an old sports thing where one of the coaches of the Minnesota Vikings, Dennis Green, says, "We are exactly who they thought we were." That's kind of what we view ourselves here as we're a dividend company, a growing dividend company, and a dividend you can rely on. We showed that during the pandemic, and we're gonna continue to show it as dividends increase in the future. Dividend increases don't compete with investment. Investments create dividend increases.
Yeah, I describe it as we deploy capital, not allocate it. As long as it's accretive growth, it meets our threshold, we will do it.
Great. That's helpful. Then maybe just in the Legacy and Provincial business, you know, are you seeing any margin pressure, associated with rising fuel costs, relating to increased oil prices?
The long-term answer to that is no because many of our contracts have flow-through provisions, so it's automatic. The ones that don't, we tend to have market share that enables us to pass it on, and the tickets aren't particularly price elastic. People need to travel, they travel, we're able to pass it on. Where there's a slight impact on margins is when you get a really rapid increase in fuel prices, it takes us a few weeks to get the surcharges in place. We don't increase surcharges before we have increased prices of fuel. For short-term periods, it pinches your margin just while you're implementing the price increase, but that's a very short period of time. Conversely, when you have declines in fuel prices, it takes a bit to take those off.
At the end of the day, fuel prices in terms of our long-term margins or our medium-term margins don't present much of an issue. They do present short-term mismatches, but our market share and our contracts protect us from virtually all of that.
All right. Thanks. That's it for me.
Your next question comes from James McGarragle from RBC Capital Markets. Please go ahead.
Morning, James.
Hey, good morning, everyone. This is James McGarragle for Walter this morning. I wanted to ask a question on the M&A.
Good. She can hear.
You as well. I wanted to ask a question on M&A. You know, if we look at the balance sheet, there's definitely capacity for more deals and the conditions appear to be approving. Could we see in 2022 M&A in line with what we saw in 2021?
It's hard to answer that because it's a little more, you're not sure which ones are gonna close. What I can say is that our pipeline is better than it was a year ago. The big difference I would say is in last year's pipeline, there was a lot of small deals that we tucked in. If you look at the aggregate capital invested last year, even though it was five deals, it wasn't a huge amount of money. We still have some of those small tuck-ins available to us, and we're working on those. We're also working on some bigger sizes of transactions. The opportunity for M&A to exceed 2021 definitely exists, but it would be based on a larger transaction or two.
I don't think it's likely that we complete five or more transactions. That was kind of an anomaly driven by our focus on tuck-in acquisitions. The amount of capital we're deploying is something I think I would be optimistic we would meet that, maybe more.
How would you be looking to finance those, potentially another equity raise, or how are you thinking about the balance sheet with regards to the future M&A?
I mean, I think the key thing to look at is our balance sheet from a macro perspective. If you take our exit EBITDA that we've talked about of CAD 400 million and apply that to where our debt is today of CAD 600 million-CAD 700 million, we're at 1.5x-2x , which is at the lower end of our range. There's some room in that to do some deals with largely some purchases with largely debt financing, given especially that some of the deals are always equity to the vendor. We've got some room, unless we were to do a really big transaction, like bigger than PAL size, we would consider equity.
But I don't think based on the smaller medium transactions that we have any need for that, while still staying within the midpoint of our well-established guidelines for leverage.
Okay. Thank you. When we look at cost inflation, you know, manufacturing EBITDA margins, they saw a little bit of a sequential improvement quarter- over- quarter. I know SKUs likely impacted that a little bit. There's likely some absenteeism related margin impact. But when we're looking at margins, you know, kind of as conditions are to normalize in the back half of 2022 here, how should we view what we saw in Q4 versus what we could potentially expect to see, you know, during the rest of 2022, post Omicron?
I mean, the challenge with the post-Omicron is just how—what does inflation do in the second half of the year? We've clearly got the. We're running in those mid- to high-single-digit inflation markets. A lot of our manufacturing people and our aviation businesses have the ability to pass that on, and so it's not as big an impact. But then some of the other ones where we have longer-term contracts, Quest in particular, inflation will be a factor until we get to the new contract pricing later in this year or early next year. I think where you'll see pressure lessen perhaps on margins will be as the workforce normalizes and there's less absenteeism, and hopefully that leads to slightly healthier labor markets where there isn't the shortage of employees that there are in some markets.
Particularly in the US, we have some places where it's difficult to hire people. We're hoping that as the number of people away sick lessens, that will strengthen the labor market.
Product mix will also have a bit of an impact. As our leasing ramps up in R1, that's higher EBITDA dollar margin, so that would obviously have an impact. On the passenger front, I mean, where we're just adding passengers to existing schedule, that has higher margins. Obviously, they go down a little bit if we have to increase frequency, those are two things that would tend to drive margins up.
Okay. I appreciate that, and congrats on a great quarter. I'll turn the line over.
Thank you.
Your next question comes from Matthew Weekes from iA Capital Markets. Please go ahead.
Morning, Matt.
Good morning.
Good morning. My first question is maybe something that's a bit less talked about, but LV Control, and it looks like there was an adjustment to the expected liability associated with earn-out provisions on that. I just wanted to ask, is that because that business isn't quite performing as previously expected? If so, what's causing that really? Is it a factor of lower demand in the market or something else that's causing that?
Yeah, it's a really good question. There was an earn-out portion to the LV Control transaction. During the pandemic, there were certain major projects that were delayed by the grain companies. The projects haven't gone away. They haven't lost anything. It was really more of a timing issue. The company performed quite well through the pandemic. To get to the top things, there were certain growth built in, and that growth was deferred. We were flexible and actually kind of waited as long as we could to make the call on whether we would be paying out the conditional revenue, the conditional purchase price. We're very happy with the transaction. The challenges faced there are really just delays in projects and when they're getting done.
We're actually starting to see some of those things crystallize for later during this year. LV has been everything we thought it would be. I feel bad for the vendors that they sold it just going into the pandemic. Their earn-out was based on a period that was abnormal. There is no underperformance in the business in any material way. It was really just a delay of growth because of the pandemic.
Okay. Thank you. My second question is just focusing on the labor markets, and it seems like you could be and the whole industry really could be in for a period of tight, fairly tight labor markets, especially on the pilot side in the airlines. I'm just wondering how you're managing that at this point, how you're looking at it, and then you layer on the extra labor requirement from the changing regulations from Transport Canada, which I think there's more coming in the end of 2022. How are you looking at managing the tighter labor markets there and inflation associated with that?
That is probably the most significant long-term issue that faces aviation. I'm gonna back up and explain why I think that, and then I'll speak about what we're doing about it. In 2019, the demand for pilots exceeded the available pool, and that's why you saw us buy Moncton Flight College. We've got another capability within our Carson Air in BC. We're looking at adding further capacity here. There was a structural problem in aviation as a whole, that more pilots were retiring than were being replaced with training, and the business was growing. We went into the two-year pandemic where people were laid off and there wasn't a shortage of pilots during that period. Over that period, two years where the pilots retired and virtually no training was done.
When we go back to normal later this year or 2023, there's a structural issue. We didn't have enough pilots in 2019. Now we're in 2023, and we've got these two years' worth of retirements that we have to deal with. That's why we said back before, we need to control our destiny on this. We've built this flight school, put in programs like Life in Flight, where we effectively promise kids coming out of high school jobs flying in an airline when they sign up for the school. It's going to be a strong demand market for everybody. But we believe that the investments we've already made and investments we'll continue to make in developing our own pilots will mitigate this problem.
Quite frankly, we're looking at the same issue in aircraft maintenance engineers, where we think there's gonna be more demand for those than there are available. We're starting our own Life in Flight kind of program to train our own. Essentially, our vertical integration is our defense against this. Doesn't mean it's not gonna be a problem. I think we're just way ahead of most of the industry, that we're looking further down the road. Our enrollment of domestic pilots at MFC is high, much higher than it has been in the past. Trend we expect to continue. Quite frankly, I think you'll see us announce another base for Moncton Flight College somewhere else in Canada this year as we continue to expand that and look for opportunities to profitably generate our own pilots.
As most programs that folks had, they either put them in abeyance or terminated them during the pandemic, our Life in Flight program continued to operate 'cause we saw that this was going to be a problem coming out of the pandemic. That program ensures that the folks that we bring through that program, you know, commit to us for a period of time, which helps obviously provide stability in our pilot, for our pilots. The other thing is that we're also looking to invest in our communities and get members from our communities, indigenous, folks, to be able to give them the opportunity to become pilots. Now, those are folks that if they can fly in their own communities, are much more likely to stay with us.
It's a multi-pronged approach of how do we kinda create that pool of pilots available for our organization.
Okay. Thank you. That's helpful. That's all for me. I'll turn the call back.
There are no further questions at this time. I will turn the call back over to the presenters for closing remarks.
I'd like to thank you all for joining us today. 2021 was a challenging but exciting year. Sometimes fire testing is the best way to see how a business model works. We're very pleased with what we delivered for our stakeholders in the current year, and we are really optimistic about what you're gonna see in 2022. I look forward to speaking to everyone again in May. Have a great day and stay safe.
This concludes today's conference call. You may now disconnect. Thank you.