Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the three-month period ended September 30th, 2019. The corporation's results, including the MD&A and financial statements, were issued on November 7th, 2019, and are currently available via the company's website or SEDAR. Before turning the call over to management, listeners are cautioned that today's presentation and the 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 or 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 or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter, the Risk Factors section of the annual information form, and Exchange's other filings with Canadian securities regulators. Except as required by Canadian securities laws, 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 call is being recorded and broadcast live via the internet for the benefit of individual shareholders, analysts or 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. Joining me this morning are Carmele Peter, EIC's President, Darryl Bergman, our CFO, and David White, our EVP of Aviation. Back in September, we hosted back-to-back investor days at our Quest Window plants in Mississauga, Ontario, and Dallas, Texas. The purpose was to showcase the multiple operations and provide a better understanding of Quest product offerings and to show the progress of the ramp-up of the Texas facility. I would personally like to take a moment to thank everyone that attended and everyone that helped make this event a success. Now, I'd like to take a few minutes to discuss some of the highlights of what was another very strong quarter for EIC. We remain focused on the successful execution of our strategy, creating long-term value through accretive acquisition and organic growth by investing in and growing our impressive portfolio of subsidiary companies.
Again, we achieved all-time quarterly highs in most financial metrics, including revenue, EBITDA, and earnings. We generated adjusted EPS of CAD 1.03, which is a new milestone for us, and it was the first time in the company's history that our adjusted net earnings exceeded CAD 1.00 per share for a quarter. CAD 1.03 per share was an increase of 10% over the same period last year. EPS grew in even more rapidly, climbing 17% to CAD 0.90 for the quarter. I will leave it to Darryl to discuss our financial performance for the quarter in detail, but I would like to stress that nine months into 2019, these excellent results are the culmination of the strong contributions from many players in our diversified group of subsidiary companies. The importance of this diversification was highlighted in the quarter as we generated these record-setting financial results despite a temporary headwind.
Regional One lost a significant customer to bankruptcy, which resulted in a bad debts expense of approximately CAD 6 million. Regional One works with smaller carriers around the world, and as a result, accepts a higher level of risk. It is this risk tolerance, however, that helps us drive above average industry returns. While there is an elevated level of risk, we are adept at managing it, and this is the first material write-off we have incurred since acquiring the company over six years ago. Our investment in maintenance CapEx can be varied from quarter to quarter, depending on the timing of aircraft and engine overhauls. As we discussed during the first and second quarter conference calls of 2019, we benefited from a lower level of maintenance investment in the first six months of this year because of the timing of certain engine overhauls.
This reversed itself in Q3 where maintenance capital investment exceeded last year's level by approximately CAD 7.5 million. This was completely in line with expectation, and the investment in maintenance capital for the first nine months of this year is up only slightly at 6%, which is well below the growth in revenue of 10% and EBITDA of 15%. We guided that maintenance CapEx would increase at rates similar to the growth of the overall company. We are somewhat better than this guidance for nine months, and the increase in Q3 is entirely the result of normal quarter-to-quarter variation. The increase in quarterly maintenance investment, combined with the write-off at Regional One, resulted in a slight increase in the free cash flow, less maintenance capital expenditure payout through the quarter. The quarterly payout ratio increased to 49% from 42%.
Excluding the impact of the write-off at R1, the payout ratio has been relatively unchanged from 2018, even with the increase in dividends, in August 2019, and the increase in maintenance capital expenditures I just described. The trailing 12-month payout ratio, however, improved to 57% from 62% a year ago. The adjusted net earnings payout ratio improved on both a quarterly and trailing 12-month basis to 55% from 58% and 72% from 75%, respectively. We are beginning to reap the benefits of some of the investments made in prior periods. The strong performance in the aviation sector, where EBITDA grew by 16%, is a good example. The Force Multiplier went into service and generated its first meaningful revenue and has now completed assignments for both the Canadian and American governments. It is now on an extended mission into the first quarter of 2020.
We also began the new general aviation services contract for the provincial government in Manitoba, and the ramp-up of the fixed-wing search and rescue contract continued in the third quarter. While the amount of work being completed under this contract continues to grow, it will not make a mature run rate until 2023, when all of the aircraft are in service and the overhaul cycle has begun. Other projects, however, are not yet at the revenue stage. Two examples would include the joint venture with SkyWest, deploying CF34-8 engines on lease to other airlines, and the new contract the Provincial has entered into with the Canadian Department of Fisheries. The SkyWest joint venture has signed leases with the lessee airlines and deliveries have begun.
Significant work must be completed by the lessee to upgrade the aircraft before the revenue stream begins, which will be phased in and should be at full run rate by the end of the second quarter of 2020. As it pertains to the Fisheries contract, we continue to operate under the old agreement until September of 2020, when the larger aircraft required for the new contract will go into service and the revenue will increase. Perhaps the most significant investment that is not yet contributing to our bottom line is the new Quest facility in Dallas, Texas. We are very proud of this state-of-the-art facility. We enjoyed the opportunity to show it off at our investor day. We made a decision to make sure that the product of the new plant matched the quality of that generated in our Toronto plant.
Therefore, began by testing 100% of the finished goods that were produced. We have been very happy with the results of this testing and have recently cut it to 25%. It will take a few more quarters to reduce the testing to the level we have in Toronto, but we want to make sure there are no declines in service from our customers' point of view. This should not come as a surprise to most of you, as we have always prided ourselves on taking the long view on investments and are not focused on short-term results. We expect the plant will move to profitability in either Q4 of this year or Q1 of next year and will ramp its profitability from there. We were hard at work during the third quarter on four separate transactions that will assist with and ensure our continued growth in 2020 and beyond.
All of these transactions have now closed. Firstly, we completed the acquisition of two more solid companies with robust growth potential. LV Control and Advanced Window, Inc. Both companies align with our strategic focus of acquiring profitable, well-run companies in niche markets. We completed an offering of EIC common shares that was very oversubscribed and allowed the underwriters to exercise the full overall allotment option, bringing the gross proceeds to CAD 80.5 million. Earlier this week, we announced a new credit facility that significantly increases our credit capacity while reducing our borrowing costs and relaxing covenants, making the facility much more flexible for EIC. I will leave the details to Darryl, but suffice it to say, when combined with the equity offering, our balance sheet is even stronger than it was, and we have plenty of capital to attack any opportunity on a cost-effective basis.
LV Control is a dominant Western Canadian electrical systems integrator in the agricultural material handling space with a solid margin profile. Its services include maintaining grain, unloading elevators, systems to grade grain by quality and put it in silos, automatically applying credits to farmers' accounts, and updating inventory positions and financial statements. They have a long record of profitability and strong relationships with many of Canada's largest grain companies. The acquisition of Advanced Window is a vertical integration play for Quest, as they are currently a very important partner for Quest in the eastern half of the United States. Quest is responsible for installing its own windows in its Canadian market, while customers utilize third parties to install the windows in the USA. The acquisition of AWI will allow Quest to vertically integrate and provide a single point of contact for customers in this market area.
Not only will this simplify things for our customers, it will allow Quest to share in the growth of not only the production of the window, but also the growth of the installation business. While significantly smaller than the [LV] acquisition, the ability to integrate our eastern U.S.A. operations make it no less exciting. In both acquisitions, the proven existing management teams have committed to stay on and run the businesses for EIC. Both of these acquisitions closed in October, and we expect each of them to be immediately accretive to earnings and cash flow. I will provide some color on our view of the future later in the call. For now, I'd like to turn the call over to Darryl, who will discuss our third quarter financial results. I will update you on our outlook later in the call. Darryl?
Thank you, Mike. Good morning, everyone. As I've noted on previous calls, our 2019 financial results include the impact of IFRS 16. Comparability to results from prior periods with respect to EBITDA, net earnings, and adjusted net earnings are impacted. Consolidated Q3 was a strong quarter for EIC. We generated revenue of CAD 355.2 million, which is up CAD 47 million or 15% over the third quarter of last year. Of the increase, CAD 39.9 million was generated in our aerospace and aviation segment, and CAD 7.1 million comes from our manufacturing segment. Aerospace and aviation segment revenue was up 18% to CAD 266.5 million for the quarter, with all components of the Legacy Airlines and Provincial and Regional One positively contributing. The revenue from the Legacy Airlines and Provincial increased by CAD 15.9 million.
This increase can be attributed to the Force Multiplier aircraft being deployed on several missions and higher volumes in Newfoundland and Labrador and Quebec, which was due to activity in the natural resource sector, increased passenger and Medevac volumes in the Quebec region, and increased passenger revenue in the Manitoba market. For Regional One, revenue increased in the third quarter 2019 compared to the prior period by CAD 24 million. As we report, revenues at Regional One are comprised of two main streams, which include sales and service revenue and lease revenue. Within the quarter, Regional One had a higher than average volume of whole aircraft and engine sales, which is reflected in the sales and service revenue. Sales and service revenue increased by CAD 22.5 million to CAD 64.2 million. Contributing to the increase in revenue at Regional One was an increase in part sales.
As it pertains to lease revenues at Regional One, the higher utilization of aircraft within the portfolio and an increase in the number of assets in the portfolio on lease compared to the comparative period resulted in a CAD 1.6 million increase in the quarter versus the comparative period. Turning now to our manufacturing segment. Revenue grew by CAD 7.1 million for the third quarter versus the comparative period. The total revenue for this segment was CAD 88.7 million. The segment benefited from Quest being a big contributor to the revenue growth, as well as an increase in custom manufacturing, high levels of defense spending worldwide, increased spending from our telecommunications companies across Canada, and operational efficiencies.
Before moving on to EBITDA, I will stop here to mention that looking forward to the fourth quarter, results from both our recent acquisitions, LV Control, Manufacturing, and AWI, will be incorporated in our manufacturing segment reporting. Moving to EBITDA. Consolidated EBITDA was up CAD 9.8 million or 12% to CAD 89 million for the third quarter of 2019 versus last year. This includes a CAD 6 million one-time bad debt write-off at our Regional One because of an airline customer bankruptcy, which decreased EBITDA during this period. I will add a comment at the end of my report with regards to this write-off. Despite the write-off, EBITDA performance during the quarter was very strong, which is a testament to EIC's diversified investment strategy working as it is intended.
EBITDA in the aerospace and aviation segment in the third quarter of 2019 was CAD 82 million, an increase of CAD 11.1 million compared to the prior period. EBITDA generated by the Legacy Airlines and Provincial increased by CAD 12.8 million. The increase in EBITDA for the Legacy Airlines was driven largely by the same underlying contributors as noted with the increased revenue previously discussed and cost savings associated with operational efficiencies such as capacity sharing across airlines, investment in additional aircraft to reduce third-party charter costs, and fuel surcharges that were implemented later in Q3 in the prior period and remain in effect.
Again, our EBITDA grew despite industry-related labor challenges. Industry-wide labor shortages resulted in continued higher overtime, contractor, and training costs. The implementation of the EIC Life in Flight program will help mitigate the impact moving forward, but we acknowledge that this will take some time to take full effect.
EIC is also developing similar strategies to address maintenance and labor challenges. EBITDA in Regional One was down slightly in the third quarter of 2019 versus the prior period by CAD 1.7 million. Excluding the impact of the one-time CAD 6 million bad debt write-off, EBITDA increased by CAD 4.3 million over the prior period. In the manufacturing segment, EBITDA was CAD 12.5 million, a decrease of CAD 1.5 million in the third quarter of 2019 versus the prior period. A main driver of this decrease were costs associated with the ramp-up at Quest's new Dallas facility, where management continues to proceed balancing production with important quality requirements and risk management. The balance of the manufacturing segment collectively experienced growth in EBITDA. The segment then benefited from an increase in custom manufacturing, high levels of defense spending worldwide, increased spending from telecommunications companies across Canada, and operational efficiencies.
Growth CapEx made in the current and previous periods enabled the segment to respond to increased demand from customers, resulting in increased EBITDA. Turning to earnings. Net earnings in the period was also strong, coming in at an all-time quarterly high of CAD 29 million, which is an increase of CAD 4.8 million to the prior period a year ago. Net earnings per share increased by 17% in comparison to the prior period to CAD 0.90. This is an all-time quarterly high. It should be noted that in the period, the weighted average number of shares increased by 3%, partially offsetting the increase in net earnings. We had adjusted net earnings of CAD 33.1 million for the third quarter of 2019, representing an increase of CAD 3.5 million or 12% compared to the prior period.
As Mike mentioned, EIC reached a new milestone with regards to adjusted net earnings per share, seeing it increase to above CAD 1. In the quarter, adjusted net earnings per share increased to CAD 1.03 compared to CAD 0.94 in Q3 of last year. During the quarter of 2019, free cash flow improved by 5% over the prior period to CAD 67.2 million or CAD 2.08 per share. The main reason for this increase is the CAD 9.8 million or 12% increase in EBITDA, partially offset by the principal payments on right-of-use lease liabilities. Free cash flow was impacted by the one-time bad debt write-off previously noted. Excluding the write-off, free cash flow increased by 13% in the quarter over the prior period. Free cash flow less maintenance capital expenditures fell 13% to CAD 1.14 a share from CAD 1.31 per share in Q3 2018.
The decrease can be attributed to, again, the impact of the one-time bad debt write-off at Regional One and an increase in maintenance capital expenditures in the quarter compared to the prior period. Maintenance CapEx expenditures were higher by approximately CAD 7.5 million in the quarter as expected, as earlier anticipated expenditures were reallocated to the back half of 2019. On a quarterly comparative, our adjusted net earnings payout ratio improved to 55% from 58% in the prior period. The free cash flow less maintenance capital expenditure payout ratio increased to 49% from 42%. If we were to exclude the one-time bad debt write-off at Regional One, comparative free cash flow less maintenance capital expenditure payout ratio would have been essentially flat to the prior period. Also affecting the current period would be the dividend increase and increased maintenance capital expenditures in the current period.
As a refresher, we have noted in previous calls the trailing 12-month payout ratio on an adjusted net earnings and free cash flow less maintenance capital expenditure basis is a better barometer of payout ratios given the seasonality of our aviation operations. On an adjusted net earnings basis, the trailing 12-month payout ratio improved to 72% from 75% the prior period, while on a free cash flow less maintenance capital expenditure basis, it improved to 57% from 62%. The improvement in free cash flow less maintenance capital expenditure payout ratio was driven by the increase in the cash flow generated by the company through the 12-month trailing period. Looking at working capital during the third quarter, the corporation experienced a cash inflow from working capital of CAD 2.6 million compared to a cash outflow of CAD 44 million in the prior period.
During the third quarter of 2019, Regional One monetized several assets, resulting in a decrease in working capital. In the prior year, Regional One invested significantly in its inventory of assets for resale, including two large aircraft, which resulted in a large investment in working capital. This difference highlights the nature and very timing of Regional One sales and investment cycle. The inflow from the monetization of Regional One's assets in the third quarter of 2019 was partially offset by the investment in working capital required to support the corporation's remaining subsidiaries during the corporation's busiest quarter, particularly its airlines. Our leverage ratios remain within our target range and well within covenants with our lenders.
In addition, now with the new credit agreement under our belt, we have approximately CAD 600 million of available capital and another CAD 300 million in addition to that in an accordion feature, should we choose to exercise it. Subsequent to the end of the quarter, we announced and completed two significant financing activities that further demonstrate EIC's ability to opportunistically access capital and add even greater strength to our ability to execute on our business model of accretive acquisitions and investment in the organic growth of our subsidiaries. At the end of October, we closed an equity offering with a syndicate of banks, which consisted of a bond deal that resulted in gross proceeds of CAD 80.5 million.
This offering was well-received by the market and was well oversubscribed, indicating strong support and confidence in the company's ability to execute its strategy. The net proceeds of the offering were CAD 76.5 million and were used to repay debt drawn earlier in the month to complete the acquisition of LV Control and AWI. This week, we announced EIC has entered into a new credit facility. We were extremely pleased with our bank syndicate in turning this around quickly and for their ongoing support with this investment-grade equivalent credit agreement, which gives us more favorable pricing, more flexible covenants, an extended four-year term, and increases the facility from CAD 1 billion to approximately CAD 1.3 billion. In addition, the accordion feature has increased from CAD 100 million- CAD 300 million, which at EIC's option to execute, would provide the company access to a facility of CAD 1.6 billion.
Further, the new credit agreement provides improved pricing on both amounts borrowed under the facility and standby charges paid for the unutilized portion of the facility. The company's maximum leverage ratio has been increased from 3.25 x to 4x , and the maturity of the facility is now November 5, 2023. Before I pass the call back to Mike, I would like to make a couple of concluding comments. First, with respects to the bad debt write-off at Regional One for the airline bankruptcy. The write-off was the first experienced in EIC's six-year history with Regional One. While the write-off is unfortunate, management continues on an ongoing basis to actively manage and monitor all credit exposures. Regional One competes in a market that is characterized by higher risk. That said, this higher risk also drives higher returns.
It's important to note that due to management's ongoing monitoring, it allowed them to take quick action once the bankruptcy was imminent and all aircraft and other assets were recovered and returned immediately to be redeployed as soon as possible. In my final comment, will be with respect to the new credit facility. It is important to note it has taken EIC 15 years to utilize approximately CAD 700 million of credit. The fact that we now have access up to an additional CAD 900 should in no way be viewed as a change in our balance sheet strategy. Our aggregate leverage has stayed quite consistent over the past 15 years, and we do not intend to change that now. That concludes my review of our financial results and comments for the third quarter of 2019.
I will now turn the call back to Mike to provide comments on our outlook for the balance of the year. Mike?
Thanks, Darryl. At the risk of repeating ourselves, I think it is very important to reiterate that we have absolutely no intention to change our appetite for debt. For over 15 years, we have maintained a balance sheet that is remarkably consistent in terms of leverage, and that has served us well in strong and difficult markets alike and has allowed us to take advantage of opportunities whenever they are available. The acquisition of Comair in early 2009 during the financial crisis is a good example of this. There is no doubt that this new facility is a significant improvement from our previous facility and reflects the banking syndicate's view of EIC's credit quality. It does provide access to more capital at lower pricing with far more flexible covenants, which will help fuel our growth in the future, but it in no way signals a change to our strategy.
The third quarter was a microcosm of EIC's strategy on many levels. I would like to take a brief moment to explain how this is the case. For those of you who followed the company for a while, this will not be new information. For those who are newer to the story, it will show how the consistent implementation of our business model has led to a 15-year, 5% CAGR on our dividend and a stock that has grown fivefold over that period. We produced record results in the third quarter, achieving an adjusted net earnings of CAD 1.03 per share, a full 10% better than our previous high. This headline number, however, does not give a clear picture by itself.
This performance was achieved in spite of an unusual write-off at R1, our losses at our new Quest facility as we slowly and methodically ramp it into production, which are offset by a gain on contingent consideration. The diversity of our subsidiary operations allowed us to set new earnings highs at the same time as tackling these issues. We have built a strong portfolio of operations that are not directly correlated and allow for resilience if challenges in a part of our company are incurred. Quite simply, diversity works. We also continue to invest in the future, both through growing our subsidiaries and through accretive acquisition. We added additional assets to R1, who continue to generate strong returns. We continued to invest in additional equipment at Provincial for the new Department of Fisheries contract, which goes into effect later in 2020.
We executed on our plan to bring the Quest plant online in such a manner that our customers will see the same high-quality product they are used to from our Toronto facilities. In addition to investing in the future, we realized the benefits of past investments as projects such as the Force Multiplier went into service and began to contribute meaningfully to our results. We continued to grow through acquisition with the purchase of LV Control and AWI. Both are accretive transactions and will grow and strengthen our manufacturing segment. LV will give us exposure to the agricultural economy, and AWI will vertically integrate into Quest, enhancing our return on Quest's future growth. We strengthened our balance sheet with an equity offering and a new debt facility.
We are pleased with the response to these capital initiatives as both were materially oversubscribed and bear witness to our ability to access the capital market whenever needed for the business. In short, I am very happy with the quarter. Yes, we generated record earnings, quite frankly, that is just the tip of the iceberg. We are now three quarters of the way through the year, I am pleased to confirm that we are comfortable with our previous guidance for the year. We are in the midst of our 2020 budget process and are not yet ready to provide formal guidance for this period. I am able to tell you that I anticipate the growth in 2020 will match and likely exceed that of 2019. We will provide formal guidance to the market when we report our year-end results in February.
Finally, before moving on to questions, I want to thank all of our customers, employees, shareholders, and all stakeholders for their ongoing support. We would now like to open the call to questions. Operator?
Thank you. We will now conduct the question- and- answer session. If you have a question, please press the star followed by the number one on your touchtone phone. You will hear a tone acknowledging your request. Your questions will be polled in the order that they are received. Please ensure that you lift the handset if you are using a speakerphone before pressing any keys. Your first question here comes from the line of Raveel Afzaal from Canaccord Genuity. Please go ahead. Your line is now open.
Guys, thank you for taking my call. Congratulations on another strong quarter. Speaking about your 2019 EBITDA guidance, you just said that you are able to meet that guidance. Are you factoring in this bad debt expense, also the ramp-up at Quest, and you still think you can meet this 10%-15% EBITDA guidance? Can you just provide us with some more color on that?
Absolutely. There's no doubt that a CAD 6 million hit will move us closer to the lower end of our guidance, because that wasn't factored in when we provided the guidance. The continued growth in things like Force Multiplier, enhanced profitability in our airlines who are really hitting their stride, improvements in Quest in the fourth quarter, while the U.S. plant won't be contributing in any meaningful way at that point, we'll be closer to it. As such, we're comfortable getting into that range of the 10%-15% growth year-over-year. Remembering, of course, that that doesn't include CAD 20 million in increased EBITDA from the IFRS 16. The growth is really 10%-15% plus an additional CAD 20 million.
Got it. How are you factoring in the M&A into that guidance range?
The M&A will help somewhat in the fourth quarter. Those companies are project oriented, and we're only getting a part of a quarter, so the amount they're going to contribute will be modest in that period. It's not a big impact on the results.
Makes sense. Just moving on to Force Multiplier, congratulations on the strong demand that you are witnessing for this on-demand surveillance plane. Now, what type of metrics are you guys using before you determine whether this is a product type that you want to expand more and get more Force Multipliers out there in the marketplace?
Were you sitting in on our board meeting? I think I answered this exact question yesterday. What we want to see is the consistency of demand. It took us a few months to figure out how to get the governments to be able to use it when they want to. We now have the plane out until later in the first quarter and potentially longer than that. To the extent that the demand remains resilient, particularly if we can get more than one customer wanting it at the same time, and quite frankly, there are those discussions ongoing as we speak, that would see us add another or more than one more to the fleet in this short-term rental market. The interesting thing with it is the planes may not be identical.
The Force Multiplier that we've built is a Dash 8 platform. We may build another one of those, we may build a smaller plane, or we may build a plane that's more like the ones we've built for the government of UAE, which have even more equipment on them. It really depends on the specificity of the demand we have. Just one other thing while we're on the Force Multiplier that I want to point out. This is the way to understand EIC. We announced that more than two years ago. It took us a while to build it. We had to have it certified, and then once we had it certified, it took us a long time to figure out how the governments could utilize it, because it's expensive on a per hour basis. Look, it is now contributing in a meaningful way.
When we're making these investments, we're not making them for what's going to happen in the next 15 minutes. That's why when you look at Quest and people will ask me, "Well, why is it taking six months to ramp it up?" Because we're doing it the right way. We didn't build it for the next 10 minutes. We built it for the next 10 years. My team there, we just finished a tour there yesterday, are just doing an exemplary job of building a state-of-the-art facility, and we're excited with what that's going to give us in 2020, quite frankly, and beyond.
Thank you for that. You guys mentioned that you guys intend to keep your net debt to EBITDA at pretty consistent levels. Now with the substantial increase in your credit facility, are you guys looking at much larger acquisitions than you have in the past? Does that change the scale of the acquisitions that you guys will look at now versus previously?
The short answer to that, Ravi, is no, it doesn't change what we're looking at. We've looked at bigger transactions in the past. When we bought PAL as an example, was a acquisition that was well over CAD 200 million. We were very close on another acquisition in the manufacturing side that was of that size earlier this year that we decided not to do. We continue to look at those. The key thing with the facility is sometimes you got to move fast to be able to close these things. We're now in a position with the access to capital we have. In 15 years, we've invested CAD 700 million. We now have access to CAD 900 million. We can do whatever we think is the right deal with the capital we have.
It's important to understand it's not going to be done by levering up the balance sheet in the long term. If we have to move fast to close something, maybe we'll use it and then rebalance the credit facility or the balance sheet afterwards. Our commitment is to remain in that sort of 2.5x to 3.5x of aggregate debt to EBITDA, including our convertible debentures.
Yeah, Ravi, it's Darryl. If I might add also on the new debt facility, again, it's more a matter of also timing when you access the market. When we looked at it, we looked at how competitive we could get rates and lines at this point in time. It was an opportunistic time for us to do that's why we were able to do it this quarter.
Your next question here comes from the line of Konark Gupta with Scotiabank. Please go ahead, your line is now open.
Hi, this is Amina speaking for Konark Gupta. You mentioned that the Regional One bad expense, you received all the aircraft back. Is it a one-time expense or do you plan on writing down the customer? How many aircraft are there, and when do you plan to anticipate deploying the aircraft to others?
There's a few questions buried in there. First of all, the aircraft were fully recovered. We don't need to write down anything else as it relates to the transaction. The aircraft, there's five of them that were on service with that airline. There are active discussions with a number of airlines to place those. I anticipate those being in place by the end of the year or certainly by the first quarter of next year. We're in active discussions on that. No further write down from this. The plane should be redeployed shortly.
Okay. I do have a question on the Canadian operations, Quest. There's incremental growth to support. When do you plan on achieving the steady state?
The steady state really isn't related to the Canadian, I don't think. Correct me if I'm wrong, but I think you're asking me when Quest will reach a steady state.
Yes.
I'm hoping nowhere soon. The business continues to grow. We built the plant with tons of extra capacity. In terms of profitability, we'll be there next year. I'm certainly hoping there's not going to be a steady state. Marty's promised me that the demand continues to grow. Quite frankly, our leases are up in Toronto. We mentioned this on our investor day that the leases are up in a couple of years, and it's highly likely that you'll see us redo our Toronto manufacturing facility into a single building with more square footage at that time. I really don't see a steady state or a plateau anytime in the near future.
Thank you. I don't have any more questions.
Your next question comes from the line of Chris Murray with AltaCorp Capital. Please go ahead, your line is now open.
Thanks. Good morning, folks. Hey, Mike, maybe I'll ask you the question a little differently. If we think about 2020, and as you said, the expectation is there that you'll see the growth. Is it fair to think that you've got everything in the portfolio today already locked and loaded? We're not talking about any sort of excess investments you're going to need to make or anything like that for growth or any sort of acquisition growth. Like basically that's your baseline number. Is that a fair way to think about it?
Absolutely. The only thing, Chris, that we would continue to invest in, there's still going to be CAD 10 million or CAD 20 million. CAD 20 million is for the continued.
The DFO contract.
DFO contract that doesn't start till September. We're building that in. We already have the contract. The investment won't be finished till sort of midpoint to next year. Absent that, everything else is locked, loaded, and paid for.
Okay. Just thinking about some of the stuff that's maybe not super transparent. The SkyWest agreement, if we can talk a little bit about that. I'm also curious about with CRJ production shutting down, how you guys are seeing the market value for some of the aircraft through Regional One and where do you move from here, just on parts and stuff like that, and does that actually make it more attractive at this point, or does it start raising some supply issues for you?
In the medium term, and by that I mean multiple years. It really has no impact. The challenge that we have in Regional One's business today is not a lack of demand, it's more a lack of supply. The planes have continued to be used. They're in strong demand around the world. Even the 200s, which are the oldest of the CRJ fleet, are in strong demand. The challenge is that no one anticipated those planes still being in service, so there's a shortage of overhaul availability for the engines. That will be the key. The rate determining step is access to engines with free time or access to overhaul capability. In terms of the shutdown of the CRJ production, that could impact something 10 or 15 years from now.
In the near term, the demand for those aircraft is so strong that we don't anticipate that really doing much to our business. I would point out the announcement of one of the major U.S. airlines, as recently as yesterday, about the move to the CRJ 550, which is sort of a hybrid, which is taking the 700 and reducing the number of seats in it, putting a more comfortable configuration, allowing it to be operated with a single flight attendant. That's just starting. Quite frankly, that's where our SkyWest joint venture, not that airline per se, but that CRJ 550 adjustment, I'm sorry, with SkyWest are going. That was a long answer. I'll pause and see if I actually answered the question.
The other thing I'd point out, Chris, is that as we've announced, the SkyWest JV engines together with our airframes have a 10-year lease, which are being phased in during this quarter. That reflects the demand that exists, together with the parts that of course, would be required over that timeframe.
Your next question here comes from the line of David Ocampo with Cormark Securities. Please go ahead. Your line is now open.
Good morning.
Hey, David.
you could provide an update on the outstanding RFPs and if there's anything in 2020 that you expect to bid on?
In terms of the ones we've talked about before, the government of Manitoba one, the government has signaled that now that the election is over, they're going to reactivate the Medevac one, and we would anticipate, David, an award of that sometime next year.
Yeah. We might hear something late this year, but early next year would be a good guess on that.
We're not certain yet whether they're going to have us revise our bids for things that have changed in sort of the multiple quarters since the bids were submitted, or if they're just going to go off what's submitted. We anticipate that will come to a conclusion shortly. The other thing is our Provincial Aerospace subsidiary is regularly bidding on other RFPs. I think over the next quarter you'll hear about it. I'm not in a position to release it at this point, but some partnerships on a couple of significant Canadian and/or other government opportunities where we're going to partner with other industry players. Not unlike the Fixed-Wing Search and Rescue contract where we partnered with Airbus. Opportunities like that, they're in Canada, they're in Australia, they're in New Zealand, they're in the Netherlands.
I'm not in a position where I can announce anything specifically other than to say we're excitedly exploring opportunities both on our own and with partners in those areas.
Great. My last one here is just a quick one. You've talked briefly already about the bad debt expense, Darryl, do you guys provision for any of this at all in the income statements?
It's Mike speaking. Sorry. I think if I understood you correctly, do we provision? We do for smaller things. We had believed that the [Argair] situation from the information we had given, that the airline was going to be recapitalized. When it wasn't, it exceeded our provision.
Okay, that's great. I'll hand the call over.
Your next question comes from the line of Nav Malik with Industrial Alliance. Please go ahead. Your line is now open.
Yeah, thanks. Good morning. Just following on the bad debt expense, I was just wondering, what's the customer concentration at Regional One? What would be your largest customer in terms of percentage?
I'm not sure. In terms of the parts business, we have customers all over the world. It's very widely diverse. In terms of the lease environment, [Argair ] would've been one of our biggest ones.
Yes, the five aircraft. It would've been the most.
Five aircraft. We would have similar sizes in a few other airlines.
Yeah.
Elite in the U.S.
Nordica.
Nordica. It too is fairly widely held.
Okay. I just wanted to ask, you note that you had higher than average volumes of aircraft engine sales in the current period. One, I guess could you describe what that was? Secondly, does that pull any sales from future quarters? Maybe just some more color on that would be appreciated.
Yeah. Put the leases aside at Regional One. We're selling things. You have to really break this into two pieces. You have parts sales where we're taking an aircraft, breaking it into smaller parts, those are quite predictable growing on a regular basis but aren't lumpy. The sale of engines and aircraft are based on their opportunistic transactions. If you sell some, did you pull it from another period? Well, once you sold it, you can't sell it again. On some level, I guess that's correct, but it's more about when do we get a price that we think it's worth it in the market, that we're going to take the leap and sell the piece. Our inventory levels go up and down. We're buying all the time as well, we're replacing those assets with other assets.
We've said multiple times on these calls, don't try to predict which quarter we're going to sell an airplane. As an example, we sold, you can correct me if I'm wrong, Carmele.
ERJ.
The CRJ. Sorry, [audio distortion].
Q4.
Q400s.
We only sold one.
one of those in the quarter. That's a big number. We don't sell one of those every quarter. We sold a number of those ERJs. Remember we bought, I believe it was 26 or 28 of them all at once a couple of years ago. We've now sold off most of that fleet, we sold a number of those in the quarter. It's just clearly opportunistic. It happens when it happens. That's why the revenue, the top line is hard to predict at R1. Remember, the margins on a full aircraft sale are nowhere near the percentages that you get on a part sale. While revenue may jump by CAD 20 million, we don't get a commensurate increase in EBITDA with CAD 20 million of revenue. It's a much smaller percentage on the bigger transactions.
The one thing that, remember, the R1, what they're really good at is buying. The ERJ portfolio that we acquired a while ago is a good example of that. What we're seeing now is strong demand for the ERJ platform, and we were able to take advantage of that this quarter and sell a number of those aircraft. That's what you'll see with R1, the good buys, and then they know their market, and they know when to sell to monetize.
Okay. Just lastly, I wanted to ask on Quest, I noticed that or maybe I missed it, but I didn't see a backlog this time around. I guess, do you want to comment on that or whether you'll be disclosing that going forward or whether you just Maybe just comment on what you see there?
It's not my intention to give a running total update, but I can tell you that it's consistent and growing slightly in the quarter.
Yeah. Okay. All right. Thanks very much.
We're a bit cautious till we get that plant fully available to make many promises. The opportunities at Quest greatly exceed our ability to fill them at this time. It's really a matter of convincing ourselves how fast we can get that plant going as fast as with a high quality production. Until then, we aren't going to take orders we can't fill.
Your next question here comes from the line of Steve Hansen with Raymond James. Please go ahead. Your line is now open.
Yeah, good morning, guys. Just very quickly two high-level questions for me. First, Mike, you guys have put a lot of capital into these internal growth projects in recent years, and now in recent weeks, you've got to an acquisition. Should we read anything into that? I know you've commented in the past that acquisitions have been more expensive lately with cheap capital out there. Should we expect M&A to become more significant going forward, or should we still expect a combination of internal growth driven projects as well?
That's a great question. The M&A in the U.S. still is, generally speaking, at prices that are outside of our comfort zone. The opportunities in the U.S. that are at a price we're prepared to do are still limited. Canada, I don't think they're cheaper, they were always a little bit more reasonably priced, you'll continue to see us active in that market. With the new credit facility, with the amount of money we've raised, I don't think we could pay stand-by fees if we didn't think we could deploy some of that over the short to medium term. The key thing is it's always going to be a balance. We're going to take advantage of internal opportunities and external opportunities.
Just to take advantage, it's not really directly your question, but I'm going to add something to that in terms of when we're investing in these things, it's the future we're looking to. When you look at what we've got, when we talked about we had 10%-15% growth this year, I said that we expect to meet or exceed that next year. It's locked and loaded. We invest one year for the future years. We have a full year next year of Force Multiplier. We've got the kickoff of the Fisheries contract. We've got an expanded fixed-wing search and rescue contribution. We've got the rollout of revenue out of the SkyWest partnership. Next year is not special. That's how we grow our business. We invest now for future returns, and it's not really driven quarter to quarter.
The beauty of it is when you do take a long-term perspective, it actually shows up quarter-to-quarter.
Sure, that's helpful. Just to follow up on the LV Control in particular, it clearly represents a step out from an industry standpoint into the ag space, grain handling and logistics in particular. I'm just curious if that is a one-time transaction like you've done in past or is there complementary deals like Advanced Window with Quest that we could see going forward? I guess, just trying to understand the broad opportunity and how comfortable you are with ag generally speaking.
We have talked for a long time about getting into ag. I think people who follow us, like you, for a long time have heard me say ag a lot of times before anything actually happened. LV Control, we love because it has exposure to ag, but not with the season-to-season cyclicality, because they're dealing with big grain companies who allocate their capital over numbers of years and set up projects. We love it in that it's exposed to ag, but it's not as cyclical as some other ag things are. Are there other opportunities? There are. Prices in ag still are higher than they are in other businesses. I would be cautious in guiding that we're going to get those done, but we are actively looking at other opportunities in the space.
Okay. Very helpful. That's it for me, guys. Thanks.
Your next question comes from the line of Nauman Satti with Laurentian Bank. Please go ahead, your line is now open.
Morning, Nauman.
Hey, morning everyone. Just my first question for Force Multiplier. Your legacy business, I saw it grew by 10% or CAD 15.9 million. Is it fair to say that most of it is from Force Multiplier?
No, I wouldn't say most of it. I would say it's perhaps one of the largest contributors to that growth. The operations at our Legacy Airlines were all strong in the quarter. One of the things we've gotten a lot better at is sharing capacity between our airlines. On any given day, you could have a Calm Air doing a flight for Perimeter Aviation or PAL Aerospace lending a plane across to help out with a busy period in another airline. Part of it comes from that. Part of it comes from the fact that in Q3 last year, we were dealing with a rapid spike in fuel prices at the time, and it takes us a bit of time to catch up in getting the fuel surcharge in place. Fuel prices have now plateaued, and the surcharges are in place, so that's also enhanced profitability.
Make no doubt.
Yeah, there's also increased revenue we're seeing in our in-service support services, both locally here in Canada as well as in the UAE, in our operations down there, which were a contributor for the quarter.
Thank you. That's great color. Just on your credit facility, in your prepared remarks, you mentioned that there is a cost reduction, if you could share how much is that? The second one, I think you also mentioned that banks have started to view your credit profile better than before. If you could share if there's any structural change in the collateral structure of that line as well?
I'll answer your first question with respect to the collateral part. Yes, there is a change. We have a lot less restrictive security requirements under it. While it's not unsecured, I would call it the next best thing, a simple GSA over the assets of the corporation. It's a lot more relaxed security. With respect to the cost reduction, again, as we mentioned, there's a number of different elements that would go into that. Just general pricing has gone down about 25 basis points, and we also have reductions in standby charges as well. Also costs related to having in the previous credit agreement, having to incur costs to do liens on assets and all that every time we did something have gone away as well.
I would jump in, just to add one thing to what Darryl said, is that the key improvement on the collateral side is that historically, the guarantees provided by all our operators were supported by security instruments in those companies. Now the guarantees of our subsidiaries are unsecured. Which when you take a look at a company, take Regional One as an example, that sells planes on certainly a monthly basis, if not more. When we buy those, the bank would have put security on the plane each time. We sold it, we'd have to take it off. We pay our lawyers, we pay the bank's lawyers. This deal is good for us and bad for the legal community.
Fair enough. Just one last one, in terms of your manufacturing segment, other than Quest, if you could provide an update on the other businesses and how well they are doing?
In comparison to last year, at an aggregate, it was a good quarter. Our Ben Machine business, our precision metal guys in Ontario continue to do very well and grow quarter-over-quarter. Alberta is challenged. I'm not sure that it's more challenged than it was before, but it's certainly consistently challenged. It would be on the lower end of the performance scale. I guess the other one is SFI. We've seen a bit of a decline in the award of work. There's lots to bid, and this is almost identical to what happened in the year leading up to the last presidential election. Immediately following the election, there was a boom in terms of the amount of work allotted, and we would anticipate that as well.
While SFI is clearly a small part of our business, it would be slightly a bit less busy than it was in the past, although opportunities we're looking at remain strong.
Your next question here comes from the line of Derek Spronk with RBC. Please go ahead, your line is now open.
Hey, good morning. Thanks for taking my questions. Mike, when you look at your portfolio of companies, do you feel that you have the right balance from a countercyclical perspective?
Generally speaking, yes. I mean, the airline stuff we do, our flying in the aviation business really is just not tied to the economy in any way. There's a little bit in Newfoundland where we would be flying that's affected by the general health, but the general health of the economy there has been challenging for a bit. Most of our flying is essential services. We're flying to First Nations communities, and the beauty of that business is it's the same whether the Canadian dollar is 65 or 85, oil is CAD 50 or CAD 150. We like the stability of that. Some of our manufacturing would be more exposed to the general economy, but even with that, things like that are more tied to the military economy than they are the general overall economy. We are excited.
I don't want to overplay it because LV is not a huge acquisition, but it's one we're really proud of having, and it gives us a little bit of exposure to that ag economy, which again, is completely different than the other things. When you look over 15 years, we've had periods of time where aviation's carried the company in tough manufacturing times, and conversely, you get a new competitor in aviation and manufacturing carried the day. Yeah, I think that our portfolio gives us stability first and foremost.
The other thing I'd point out is there's a regional segment of our revenue, which is contracted, and we've recently renewed many of those contracts from, Mike's spoken about a few DFO. A couple of years ago, we got the fixed wing search and rescue contract, which is a 20+ year contract. We've renewed our government Nunavut medical transfer contract. We've secured a medevac contract for all of Nunavut for several years. All of those obviously are steady state contracts that are, of course, non-cyclical.
Okay. No, that's great color. You mentioned a little bit around the geopolitical environment and macro environment. Is that just more cautionary type of language, or are you seeing anything right now in any particular area that's giving you a little bit more caution than normal?
Largely only as it relates to Stainless Fabrication. We've seen less big business-to-business transactions. On a materiality basis of EIC, I don't have numbers in front of me, but they would be something like 1% or 2%, maybe 2.5% of our overall business, so it's not a material exposure.
Okay. When you're thinking about a potential acquisition here going forward, are you thinking more around a completely different business that would add additional diversification, or would you be looking more towards enhancing some of the existing end markets that your portfolio is currently involved in?
Putting the but first before I answer the question, the but is we're opportunistic, so if something comes up, I reserve the right to change my mind. At this point, the things we're looking at are quite clearly related to other businesses we're in.
Your next question here comes from the line of Shawn Levine with TD Securities. Please go ahead, your line is now open.
Morning, Shawn.
Good morning. Good morning, Mike. The report indicates that you guys expect Q4 lease revenue to be down in Q4 related to the customer bankruptcy. I'm just wondering if you can quantify that.
It depends on some discussions we're having now about whether the planes are going to fly here shortly. It's low single digits in terms of millions of dollars. I'm really not prepared to give you a precise number when I'm in negotiations. It's not a big number.
Okay. It sounds based on your earlier comments that you wouldn't expect such an impact in Q1 2020 from that.
I would anticipate those planes will be flying by then.
Okay. Just a question on Quest. I know it's still fairly early days in the ramp of the Dallas facility, but overall, has the speed and expenses that you expected for the ramp-up in line with your expectations?
I would say that we had a couple of equipment issues with stuff as it was brought over and started, and it affected the ramp-up of the plant. At the beginning, we had some stuff damaged in transport, which put us a couple of months behind our plan, and we sort of stayed a couple of months behind. I would point out that when we built this, we haven't started a big plant like that before, and if we're going to make a mistake, we're going to make a mistake on the side of going too slow as opposed to going too fast. The worst thing I could do is have windows show up for the 45th floor in Oakland and have them leak and destroy a relationship with a developer where we've done 10 projects for them before. We'll slowly ramp it. We're making progress.
We're up to 180 something or 190 employees in the facility. We're increasing that every week. People could say, "Well, why don't you do it faster?" Well, we got to train the employees, and having two people being trained by one person just impunes what the one person can get done. We'll do it slowly and build it. Joe Kuykendall , our GM there, is doing an awesome job, and we're happy with where we are. We're excited about getting it going faster, make no doubt. It's on track.
Yeah, I think, Mike, just to comment on that, too. The one softer side to that, too, is also the safety component. As you ramp up quickly, you want to make sure you're doing it safely as well.
That's a good point, Darryl, and we have a big sign up in there of days since our last accident, and for now, we've been able to say it's been a year and we haven't had any, and that's something we're very proud of.
Yeah, that's great. Just a kind of housekeeping question. Maintenance CapEx guidance, I think formal guidance is still for growth in line with the overall business. You mentioned and reported year to date up 6%. I'm just wondering, should we continue to expect a pretty significant year-over-year increase in Q4?
There'll be some increase. I don't know about pretty significant. It's hard for me to do this precisely because it depends on when certain engine things get redone, when we get them back from the manufacturer. I would expect that Q4 will be slightly higher than last year, but I wouldn't anticipate a huge difference.
Okay, great. Thank you.
There are no further questions at this time. I will turn the call back over to Mr. Mike Pyle for closing remarks.
Thank you, operator. I appreciate everyone participating today. It was a very exciting quarter and probably an even more exciting last five weeks since the quarter ended. I look forward to talking to you again soon in February when we report our full year results. Have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.