Good morning, ladies and gentlemen. Welcome to Exchange Income Corporation's conference call to discuss financial results for the three-month period ended March 31st, 2018. The corporation's results, including MD&A and financial statements, are available via the company's website or SEDAR. Before the call is turned 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 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 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 meeting over to the CEO of Exchange Income Corporation, Michael Pyle. Please go ahead, Mr. Pyle.
Thank you, operator. Good morning, everyone. Also with me are Carmele Peter, EIC's President, Tamara Schock, our CFO, who will review our financial results in greater detail in a few moments, and David White, our VP of Aviation. We are happy to be with you this morning to discuss the first quarter results for 2018 and to update you on a number of initiatives which will enable us to continue to grow in the future. We had a strong first quarter with a 20% increase in revenue, a 25% increase in EBITDA, and a 55% increase in net earnings. That's only part of the story. As a public company, there is significant focus on the most recent financial results. As a management team, we focus most of our time on the longer term.
What makes this quarter so significant is the number of acquisitions and initiatives which have been completed or initiated. It is this longer-term focus which has enabled the company to grow profitably over the last 14 years and will facilitate further profitable growth in the future. Tamara will go into our financial results in greater detail in a few moments, but here's a quick overview of the metrics. Revenue grew 20% to CAD 266 million. EBITDA grew 25% to CAD 54 million. Net earnings rose 55% to CAD 8.6 million. Net earnings per share increased 50% to CAD 0.27. Adjusted net earnings jumped by 64% to CAD 0.41 a share. The trailing 12 payout ratio improved to 69% from 71% when calculated on a free cash flow less maintenance capital expenditures basis, and to 77% from 82% when calculated as a percentage of adjusted net earnings.
Both of these improvements were in spite of a monthly dividend increase in the first quarter. Revenue and earnings and EBITDA were all first-quarter records for the company. Since the middle of the fourth quarter, we have completed two acquisitions, Quest and Moncton Flight College, and made a significant investment in a third with Wasaya Airlines. MFC closed near the end of the first quarter, and Wasaya closed subsequent to the end of the quarter. Their impact on the first quarter results were not significant. Quest, however, closed in November, and its results show why we are so excited to add it to the EIC family. You will recall that when we announced the purchase of Quest, we stated the initial CAD 85 million purchase price of the company was based on an annual historical EBITDA of CAD 15 million.
The purchase price could rise to CAD 100 million should certain performance targets be met. The contributions from Quest have exceeded our most optimistic forecasts. In the quarter and a half we've owned the company, it has contributed EBITDA of over CAD 10 million. While profitability does vary from project to project, and therefore simply extrapolating these results may not provide an accurate forecast for the year, it is safe to say that the company is performing very well and is expected to generate the full earn-out to the vendors long before the new plant opens. One of the key strengths of the Quest transaction was the size of the order book when we purchased the company. At over CAD 200 million, it ensured that the plant would be busy and would generate reliable revenue.
In the six months we've owned the company, we have seen growth in the order book, and I am pleased to tell you that it has now reached CAD 300 million. There are many opportunities for the company that we have not been able to act on because of our capacity limitations. We have therefore decided to open a second manufacturing location, which will be located in Texas and will more than double our manufacturing capacity. We expect the capital cost for the facility to be approximately CAD 20 million and for it to go into production in early 2019. We announced and closed the acquisition of Moncton Flight College in the first quarter. MFC is one of the world's leading flight schools offering intense pilot training in a university-like setting, allowing pilots to achieve full certification in approximately one year.
The extent of the worldwide pilot shortage has been well covered in the media. As recently as last week, Emirates Airlines announced that they would be grounding 20 wide-body jets until at least September, at least partially because of a shortage of pilots. The pilot shortage is driven by both fleet expansion and retirement of existing pilots. This shortage is expected to continue for several years at least. The situation in Canada is likely to worsen, as Transport Canada has announced plans to shorten pilot workdays to reduce fatigue and improve safety. The acquisition of MFC is desirable as a profitable standalone entity with robust growth prospects. It also provides an internal source of pilots for our airlines. We completed the transaction with Wasaya, where we took an equity position and recapitalized the airline.
This has increased our reach into Northwestern Ontario, has improved our relationships with the First Nations in this area, and will enable Wasaya, as well as EIC wholly-owned airlines, to provide a better, more integrated service to the customer with enhanced schedules. Utilizing combined resources will in time improve both the efficiency of both operations. We completed a new CAD 1 billion credit facility with an extended term, more flexible covenants, and a reduced interest rate. Tammy will discuss this facility in greater detail in a moment, but I want to briefly focus on two things. Firstly, the new facility with a syndicate of 11 banks provides EIC with access to capital to move quickly whenever a suitable opportunity is uncovered. Our syndicate was very supportive of our business model, and in fact, offered a larger facility than we have chosen to accept.
Several syndicate members have financed EIC for over a decade, and others since inception. The provision of a facility that is a third larger than our previous facility, with greater flexibility and lower pricing, bears witness to their support of our business model and the results we have generated. Secondly, a larger facility does not signal a change in our attitude toward leverage. We have maintained a strong balance sheet with conservative leverage and substantive liquidity since our inception. The larger CAD 1 billion facility simply provides flexibility to move quickly on an acquisition, share buyback, or other opportunities should they present themselves. Our attitude towards leverage has not changed since inception, and it's not changing now. I will now hand the call over to Tammy for a more in-depth look at our financial results.
Thank you, Mike, and good morning, everyone. Consolidated revenue for Q1 was CAD 266 million, which is up CAD 43.5 million or 20% from Q1 last year. Of the increase, CAD 12.8 million was generated in our aerospace and aviation segment and CAD 30.7 million in our manufacturing segment. The aerospace and aviation segment generated CAD 189.8 million in revenue, an increase of 7%. Revenue in the Legacy Airlines and Provincial increased by CAD 12.3 million or 10%, and this reflects increased volumes and therefore passenger revenues in the Manitoba and Kivalliq markets, the benefit of the Kitikmeot medevac contract, and increased charter revenue as a result of increased capacity provided to our Legacy Airlines by Provincial. Provincial's revenue was positively impacted by the acquisition of Moncton Flight College, activity in Air Borealis, and higher modification service revenue. Revenue generated by Regional One was essentially flat in CAD.
Revenue generated in US dollars was up by 6%. The increase was driven by growth in sales and service revenue and included the sale of a larger aircraft, a CRJ-700, during the quarter. Lease revenue decreased by approximately CAD 3 million in the first quarter. The decrease is associated with some of the recently purchased CRJ-900s being in between leases as leases that were in place at the time of the purchase have expired and are now being remarketed. Manufacturing had revenue of CAD 76.2 million, up 68% or CAD 30.7 million from Q1 last year. The largest contributor to the increase is Quest, which was acquired on November 14th, 2017. Also contributing to the increase is the collective growth in all of our other manufacturing entities. Consolidated EBITDA was CAD 54 million, up 25% or CAD 10.7 million from quarter one last year.
The growth was driven by organic growth and acquisitions in both of our operating segments. EBITDA in our aerospace and aviation segment was CAD 46.7 million, up 9% from the prior year. EBITDA contributed by the Legacy Airlines and Provincial increased by CAD 5.9 million or 29%. The increase was driven by increased revenue and the benefit of aircraft purchases in previous periods by synergies obtained through capacity sharing and reduced third-party charter costs and other operational efficiencies. Costs in our aviation businesses continue to be impacted by increased fuel prices. However, the impact of this to our earnings has been largely mitigated through our ability to adjust pricing and contracts that pass through fuel costs to our customers. Regional One's EBITDA in US dollars was $16.8 million, which is consistent with Q1 2017.
The stronger Canadian dollar and costs incurred in Regional One's Canadian operations, which are associated with servicing EIC's Canadian Airlines, resulted in a decrease in EBITDA in Canadian dollars of about CAD 2 million. In the manufacturing segment, EBITDA grew by 166% to CAD 12.5 million. The acquisition of Quest drove CAD 7.3 million of this increase. Quest's first quarter performance is ahead of the expectations that we set when we did the acquisition. EBITDA from the remaining entities in the manufacturing segment was also up in comparison to the prior year. Foreign currency rates did create headwinds for us in the translation of our foreign subsidiaries into Canadian dollars. Had we used exchange rates that were consistent with those prevailing in the first quarter of 2017, EBITDA would've been about CAD 1 million higher. Our Canadian subsidiaries also have exposure to the US dollar.
However, because there are a variety of US dollar inflows and outflows, such as cost associated with aircraft parts and US dollar revenue contracts that certain subsidiaries have, the net exposure in relation to our Canadian subsidiaries is not typically large, and it is not this quarter either. The decline noted above is flowing from the translation of Regional One and Stainless. We reported net earnings of CAD 8.6 million, or CAD 0.27 per share. These compare to net earnings of CAD 5.6 million or CAD 0.18 per share in Q1 2017. Earnings per share reflects an increase of 1% in the average shares outstanding during the quarter. The improvement was driven by factors that I've already cited, including the strong performances of both of our operating segments. Interest costs increased by CAD 3.3 million as a result of increased benchmark interest rates and an increase in our outstanding debt.
Depreciation increased by CAD 3.7 million as a result of capital asset purchases throughout 2017. Also, the amortization of intangible assets has increased by approximately CAD 2 million, primarily to the intangible assets that we recorded when we acquired Quest. Income tax expense decreased by CAD 300,000, and the effective rate of tax decreased to 19.5% from 29.7%. We have had a shift in earnings between tax jurisdictions that positively impacted income tax expense, and we also benefited from the reduction in US tax rates that was passed at the end of 2017. On an adjusted basis, net earnings were CAD 12.9 million or CAD 0.41 per share for Q1 2018. This compares to CAD 7.8 million or CAD 0.25 per share for the comparative period. Adjusted net earnings exclude the amortization of intangibles net of taxes, which has increased as a result of the acquisition of Quest.
With Quest, we acquired a significant order backlog. We use both adjusted earnings-based payout ratio and a free cash flow less maintenance CapEx-based payout ratio to make decisions around our dividends. Our trailing 12-month payout ratio on an adjusted earnings basis was 77%, down from 82%. This improvement reflects the increase in adjusted earnings, which was in excess of our increase in our dividends. Our free cash flow less maintenance CapEx payout ratio, trailing 12-month payout ratio improved from 71% to 69%. Free cash flow for the quarter was CAD 40.6 million, up 20%. Free cash flow on a per share basis was CAD 1.29, which is up from CAD 1.09 per share last year. Investments in the maintenance of our capital assets, which is primarily aircraft-related assets, increased by CAD 3.3 million in the first quarter to CAD 30.8 million.
CAD 7.9 million of this total is related to depreciation on Regional One's portfolio of aircraft and engines, which is in line with the first quarter in 2017. The Legacy Airlines and Provincial had CAD 21.5 million in maintenance capital expenditures. We have continued with our strategy of completing as much maintenance as possible during the seasonally slower first quarter. In the first quarter of 2017, the bulk of our maintenance work related to large aircraft maintenance. In 2018, a significant portion of the work was related to scheduled engine events. Growth capital expenditures during the quarter totaled CAD 2 million. We do not expect growth capital expenditures to be lower in 2018 overall. I should say, we do expect our growth capital expenditures to be lower in 2018 overall.
At the current time, our planned expenditures for the remainder of 2018 includes the new plant in Texas for Quest and aircraft and ground facilities for Keewatin to service its medevac contract in the Baffin region of Nunavut. During the quarter, we completed our acquisition of Moncton Flight College. The purchase price includes an initial payment of CAD 25 million and the issuance of common shares valued at CAD 6 million, plus a multiyear earn-out if certain performance targets are met. The maximum earn-out that can be achieved is CAD 20 million. Subsequent to the quarter end in April 2018, we completed our partnership transaction with Wasaya Group. EIC has invested CAD 25 million in Wasaya, of which CAD 12 million is an equity investment and CAD 13 million is a loan. During the quarter, CAD 2 million of the CAD 13 million was funded, with the remainder being funded subsequent to quarter end.
The equity investment in Wasaya will be accounted for using the equity method and will be included in other assets on our balance sheet. Turning now to the balance sheet. We ended the quarter with a net cash position of CAD 14.4 million and working capital of CAD 260.6 million, which represents a current ratio of 2.28 to 1. This compares to a net cash position of CAD 72.3 million and working capital of CAD 240 million, resulting in a current ratio of 1.91 to 1 at the end of 2017. The increase in our cash position at December 31st, 2017, was entirely related to the impending redemption of our 2012 series of debentures. Those debentures were due in September 2019 and were redeemed early on January 11th, 2018 for approximately CAD 57 million.
The increase in our working capital at March 31, 2018 in comparison to December 31 is primarily related to an increase in Quest working capital because of its growth in business volume and its expansion into the U.S. An increase in accounts receivable in Regional One due to the sale of an aircraft with extended terms also drove an increase. The receivable is secured by a letter of credit. During the first quarter, we redeemed the seven-year 5.5% convertible debentures which were due in September 2019. This redemption was funded with a portion of the proceeds of the CAD 100 million five-year 5.25% debentures that were issued in December 2017. Subsequent to the quarter end, the credit facility was amended to increase its size by CAD 250 million and extend its term to May 2022.
At the same time, pricing was amended favorably and the covenants within the facility were amended to allow us greater flexibility to take advantage of growth opportunities quickly. The debenture offering reflected a strong level of investor demand and the upsizing of our credit facility reflected a high level of lender confidence in EIC. The company's balance sheet and capital resources are strong. Our leverage ratios are well within our target range and the available capacity within our credit facility now sits at approximately CAD 360 million. We are very well positioned to take advantage of growth opportunities when they are identified. That concludes my comments on the financial results and I'll turn the call back to Mike.
Thanks, Tammy. We're excited about the balance of 2018. When we released our Q4 2017 results, we provided the market with guidance into what we expected for 2018. Through one quarter of the year, we are well on our way to meeting that guidance. We said that we expected EBITDA and adjusted net earnings per share to grow by between 10% and 20%. This amounts to an increase of CAD 0.25-CAD 0.50 a share for the full year. In the first quarter, we have delivered an increase of CAD 0.16 and as such we are on track to meet this guidance. I should point out however that simply extrapolating this improvement for four quarters would be inappropriate.
The financial results of the comparative period in 2017 were the weakest in fiscal 2017 and as such a bigger improvement in the first quarter reflects a return to a more normal operating environment in our Northern aviation business. The second quarter of 2017 was just the opposite with the strongest results for the year taking into account the seasonality of our business. We confirm our guidance that we expect adjusted EPS and EBITDA to each grow by between 10% and 20% this year. During our Q4 conference call, we also stated that we expected a significant decline in the level of total capital expenditures versus what was invested in 2017. Maintenance capital expenditures were in line with expectation and our outlook remains the same that they will be slightly above 2017 levels in 2018.
In line with our new strategy of doing as much maintenance investment in the first six months of the year when demand in the airline is lower, we expect that maintenance investment will follow the same pattern as last year. Growth capital expenditures, however, are expected to be far below the levels experienced in 2016 and 2017. This is not because of a change in strategy but rather is driven by the opportunities that are on the horizon. We pride ourselves on being opportunistic and moving quickly when the situation warrants. As such, investment in growth capital could change quickly, but as of now is expected to be very modest. Growth capital expenditures were low in the first quarter as small programs at Provincial were essentially offset by net divestitures at Regional One.
The net divestitures at Regional One were a timing anomaly and we anticipate that modest investment to the company through the balance of the year. The purchase of a fleet of ERJ 145 aircraft in the second quarter will see the net divestiture in the first quarter reverse in the second quarter. Investment levels are expected, however, to remain well below 2017 levels in 2018. At this time, the only major growth initiative is for the new plant for Quest. We are negotiating a lease for a 300,000 sq ft facility in the Dallas area. We've placed orders for the manufacturing equipment and expect the CAD 20 million facility to begin operations in early 2019. We will also be making a much more modest investment in aircraft and a hangar for the new Keewatin contract in the Baffin region.
The contract is increased in scope with additional base where we'll station crews and aircraft. We are also cautiously optimistic about the renewal of our remaining medevac contract in the Kivalliq region. The government is in the final stages of adjudicating this contract and will announce its award soon. The Force Multiplier surveillance aircraft we had on display at our investor day last year is now essentially complete. We're in the final stages of approval with Transport Canada and are in discussions with a number of governments around the world about deploying the aircraft and expect it will begin work either late in the second quarter or early in the third. Interest in the capabilities of this aircraft remain very high and we are optimistic that this will translate into revenue opportunities this year.
We have completed three transactions in the last six months with the purchase of Quest, MFC, and our investment in Wasaya. We remain very active on the acquisition fronts with a number of interesting opportunities in both aviation and manufacturing in Canada. Our team, however, has been focused on closing and early integration of the recent transactions and as such, most of the opportunities under investigation are in early stages. We do not anticipate including any transactions in the near term. We are excited about the start to the year. We achieved significant growth in the first quarter with material improvements in all metrics. Of particular significance is the improvement in our payout ratio in spite of an increase in our dividend. The ratio improved whether calculated on a free cash flow, less maintenance capital investment basis, or on an adjusted debt earnings basis.
We were not surprised by this improvement. We have followed the same model for 14 years for one simple reason: it works. The volatility of our stock price is frustrating, but we are confident that in the long run, stocks are valued based on their financial performance, and we are confident in our ability to continue to deliver reliable, sustainable, profitable growth. On behalf of our board, management, and our employees, I would like to take a moment to thank all of our stakeholders for their ongoing support. We would now like to open the call to questions. Operator?
Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you do have a question, please press the star followed by the number one on your touch-tone 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're using a speakerphone before pressing any keys. Your first question comes from Mona Nazir with Laurentian Bank. Your line is open.
Good morning and congratulations on the very strong quarter.
Morning, Mona.
Good morning. My first question is just in regard to the growth CapEx, and you did touch on this. It was de minimis in the quarter versus the CAD 59 million last year. Just looking at the cumulative growth CapEx spent over the last four quarters, we've seen an over 60% reduction. You've stated that you expect this to continued reduction on a year-over-year basis as we move through the year. I'm just trying to connect the dots, we haven't seen that significant drop-off or any drop-off in the Regional One revenue. I'm just wondering if you could speak to the current portfolio and what we could expect from R1 over the next few quarters and how much of a drop-off in growth CapEx could we see? Thank you.
Well, it's opportunistic, Mona. We did complete a transaction this quarter where we've invested in a number of ERJ-145 aircraft. In terms of the purchase of big fleets, I think the two big ones in the period you're talking about would have been the purchase of the fleet of CRJ-700s from Lufthansa or the purchase of a number of CRJ-900s from a couple of different airlines. We don't see anything like that in the near term in the horizon, investment, while positive in Regional One, will be at a much lower level than historically. The other thing I'd touch on is just as it relates to the existing lease portfolio, you saw a slight drop-off versus last year and a decline versus the full year. Results really result of a number of factors.
One, we have some of our CRJ-900s that came with stub leases that are off lease. We are in the process of putting those out, it's taken us a little longer than we had hoped, we'll get them out on lease. Secondarily, we have some that are leased on a power by the hour basis where the utilization was lower in the first quarter. That should improve in the second quarter. Finally, one of the, I think things that is not well understood about the lease revenue is it's not just rental revenues that's in there. It includes things like lease return fees. When a plane is at the end of a lease, many of them have return conditions where the plane needs to be brought back to a certain condition before it's returned.
In a case where we have a plane that we intend to part out, we may well negotiate a deal with the lessee where they don't need to do the overhaul in return for a certain payment, those payments are irregular, they're included in the lease line of our financial statements. That means that that lease number is going to bounce around a little bit depending on which quarters we incur those. I think it's included in our information that we had a material lease return fee of, I think about CAD 1.6 million last year that didn't exist in this year's first quarter. I hope that covered off what you were asking me.
Yes. That actually touched because I was going to go into my next questioning the returns of your lease portfolio versus why is it seemingly higher than industry averages. I think you started to touch on that. Is there anything else you wanted to add?
Yeah, I think that's really important, Mona. Part of the challenge with the short and distort thing that we're facing is people who either don't understand our model or choose not to understand our model. Our lease business is part of the liquidation of the aircraft. We're not a finance leaser who takes a new aircraft, leases it out over 15 years to get their capital back and earns a spread on the interest rate. We're dealing with planes that are approaching the end of their life and have varying lease maturities. Included in our lease revenue is more than just the rent on the aircraft. It's also in a number of the cases where a traditional finance lease would have a lease overhaul reserve, where the lessee is paying into a balance sheet account so that the money is available for when it needs to be overhauled.
Because in order for the lessor to get their money back, the plane has to be overhauled a number of times to be able to have the life to generate the returns to pay off the lease. In our case, most of the time we don't intend to overhaul the plane at the end of that period. We're just going to part it out. As a result, that extra revenue that comes from the lease overhaul reserve that we don't maintain as a reserve, we take in as revenue. That materially affects the profitability of the lease. Finally, as I talked a little bit earlier, on some of the leases where we bought, where the lease was a longer-term lease that's coming to a close, they have lease return conditions where we will often let them buy out the return condition.
Instead of actually doing the work, they can make a payment to us, in which case that flows through there as well. Comparing us to a finance company in terms of leases is roughly the equivalent of asking why an apartment is cheaper than renting a smaller hotel room on a per night basis. They're not the same business. If you lease a car, it costs less than if you rent a car on a daily basis, because when you rent a car on a daily basis, there's a whole bunch of other charges that go through the line. It's apples and oranges. We have to generate a higher return because we're doing things that are different. We don't have a long-term 10-year return on these leases. We have to churn the assets and turn them more quickly.
As a result, we have a higher return on a percentage basis.
Okay, thank you. That was helpful as just a number of client questions were on that subject. Just lastly from me before I step back in queue, I'm just wondering if you could touch on Quest. We saw very strong performance there, CAD 7.3 million in EBITDA contribution versus kind of the CAD 15 million in annualized contribution when you did purchase it. I understand that the business can be lumpy, and you stated as such just a couple of minutes ago. I'm wondering if you could touch on, were there any special or large contracts or anomalies that contributed to the Q1 results?
No. The business is the sum of a series of contracts that runs through. Buildings can be CAD 3 million-CAD 10 million in size, depending on how many floors and what's involved. The quarter was successful for two reasons. One, we were able to run CAD 25 million in revenue through the plant, which only happens if we can time up our projects ideally so there's no downtime in the plant between projects. Secondarily, we have said in the past that our U.S. work has a higher margin than our Canadian work, and we had a higher proportion of U.S. work in the first quarter. That resulted in a beat of even our internal forecast that was at the high end of our expectation. As such, I wouldn't extrapolate CAD 7 million directly, but there's no big weird things that went through the quarter.
It reflects the growth in the business from a run rate of about CAD 60 million in revenue when we bought it to, if you were to extrapolate the quarter, CAD 100 million, that explains a big portion of the increase in profitability.
do you have the mix of U.S. versus Canada for the quarter versus when you bought it?
We do not. That's not something we publish, Mona.
Okay, thank you.
Next question comes from Steve Hansen with Raymond James. Please go ahead. Your line is open.
Yeah, good morning, guys. Just a quick one on Quest Window Systems to follow up. The new facility that is coming up in Texas in early 2019, I am just trying to understand a bit better the cadence that we should expect out of that facility as it comes up. Can you just give us some context around the capacity of the facility and the revenue opportunity that is going to generate? Is it a clone to the existing facility, and how that should impact revenue growth in 2019 and 2020 for Quest Window Systems?
Yeah, that is a good question, Steve. The facility will be slightly bigger than our existing facility, so its ultimate production capacity will be higher than what we have in Toronto. I would caution against the idea that when you open it, you turn on a switch, and it goes from nothing to full capacity. We are cautious as to how many orders we are taking for the initial quarter or two as we ramp it up and to avoid any kind of execution risk as we start the plant. The opportunities we have seen, Steve, are such that we are very confident we will be able to fill the plant reasonably quickly.
You will see a relatively modest contribution in terms of revenue and likely minimal bottom line at the start of the year, and you will see that ramp up quarter-over-quarter as we put more flow through the plant and as we get up to normal operating efficiency.
Okay, that is helpful. Is Q1 then sort of the initial startup phase with minimal contribution referred to and then ramping through Q2 and three consecutively?
Right. Then we'll give guidance as to how full the plant is and how close we are to sold out. We have said that we're running near capacity, and we're booking into 2020 already.
Okay. No, that's helpful.
The other advantage that this plant provides us is the ability to go out and further sell. With the capacity constraints that we currently have with the single plant, as we look out to customers who are unable to fulfill their orders, having this additional capacity coming online in 2019 helps satisfy that customer demand.
Understood. Just a quick one on the Moncton opportunity. I'm trying to understand this a little bit better. I'm certainly familiar with the pilot shortage issue and what that means internationally and even domestically. You've described a change to the Transport Canada regs that I wasn't familiar with, so I'm just trying to understand two things. One is, what is your actual capacity to grow at Moncton? What kind of limitations would you have on growth relative to demand? Then secondarily is, what is the opportunity internationally versus domestically? Are we really focused on the domestic opportunity here first, and then there's opportunities to grow with international clients? Or just trying to give a better understanding of what that growth profile looks like and what your limitations might be.
I will start with the second question first. Moncton is largely an international player. Currently, most of the revenue would be generated by international students. In Canada, a typical student is someone who comes in, and they are paying us for their training, just like a student going to university. Whereas much of our international business, we would contract with the airline who would bring in 10, 20, 30, 40, 50 students at a time, who we would then train up on behalf of the airline. The contractual basis, we have demand that is very strong for the foreseeable future. The rate-determining step really is not infrastructure. It is really not aircraft. That stuff is very easy to do and relatively inexpensive. It is just making sure that we maintain enough trainers to actually do the training.
It is one of the oxymorons of what is going on with flight training right now, with flight pilots in general right now, is the shortage creates less training people because they move on to traditional flying jobs. So we are working on programs to grow our number of trainers, which will facilitate the growth of that business. But the revenue is focused internationally. The synergy in terms of our own airlines is focused locally, where we are going to work on building our own pilot streams to fill gaps as we lose pilots to bigger airlines.
Yeah, that is helpful. And just one last one, if I may. Mike, you mentioned, I think, at the outset, your willingness to entertain further buybacks with the added flexibility you have got financially. Stock price has been frustrating. How do you feel about the allocation of capital to buybacks? Just a general philosophy here going forward. It has been part of your strategy in the past, but not a big one, frankly. And so do you have a greater appetite for buybacks given the relative performance of the stock recently, or how should we think about that? Thanks.
Yeah. If you look at what we were generating when the stock was over CAD 40 a year and a bit ago, our profits are materially higher than they were then, and the stock is 25% lower than it was. We think the valuation today is the best opportunity we have, and so we will take a look at various options in terms of buying back our stock if it trades at these levels. We think ultimately, the proof is in the pudding. We have now delivered four really strong quarters in a row, and we expect the stock will perform. But to the extent that it trades at these levels, I am really not sure there is a better investment opportunity for us than our stock. I think, yes, you could expect us to be relatively active on that.
Appreciate the color. Thanks.
Your next question comes from David Tyerman with Cormark Securities. Please go ahead. Your line is open.
Yes. Good morning. Very good quarter.
Morning, David.
Good morning. Just a couple quick questions. First on the Quest, just going back to why this kind of a normal rate, sounds like it was a really good quarter. If we use the growth in revenue that you suggested, Mike, going from 60 to 100 and just use that as a driver relative to the original CAD 15 million, would that be a good proxy for the run rate right now on a normal annual rate, so up to CAD 25 million, roughly?
CAD 25 million, David, in all honesty, is absolute capacity in our plant.
Okay.
We need everything to time up in terms of butt-ending projects, one to the next. Like I say, we did CAD 25 million this quarter. I don't want to say that with one plant, we can do that every quarter. Conceptually, the direction you're going in, that we've got that material increase in production is a reasonable starting basis for where you are. I just think CAD 25 million may not be what we can achieve every quarter if projects don't time out perfectly, if there's a two-week gap between projects, or they overlap in a way that over time is more expensive. Where it's always difficult to extrapolate when you're running at absolute capacity. That extrapolation gets a lot easier when the plant opens at the beginning of next year, and we actually have surplus capacity.
It's our opportunities that drive the revenue as opposed to our ability to throughput it through the plant.
Okay. That's helpful. Thanks, Mike. Second question, just on the working cap. It used quite a bit in the quarter, and I saw the explanation on the Quest growth and the timing on the CRJ sale. Just wondering for the year what we should think. I would think the CRJ will reverse. The Quest I'm less clear on. Do you think you're going to use material working cap in the year based on the plans that you have right now?
The short answer is no. Where there's growth, like Quest is clearly growing.
Yeah.
As it grows, we've got higher receivables, higher inventory, and we've talked about the sort of scope of that growth. In the grand scheme of EIC, that's not a material number. You're absolutely right on the aircraft. The terms are for later this year. There's absolutely no credit risk. It's secured by a letter of credit, that will reverse later in the year. There's nothing structural in the business for working capital to grow materially. I'll maybe let Tammy jump in, but
Just one other comment on Quest is, during the quarter and likely continuing into the second quarter, they're making deposits on equipment for that new facility.
Yeah.
Until we actually take delivery of that equipment, those deposits sit in our working capital.
Yeah.
We'll see that come out towards once we start taking delivery in the second half of the year.
Okay. Would that be enough to make us expect a negative working cap in Q2 also?
Well, Q2 ramps up seasonally.
Yeah
There's always a seasonal impact.
Okay.
If you take a longer term impact, I think you'll see if we get back to December of next year, all things being equal, we'll have repatriated the CAD 10 million on the aircraft. We'll have repatriated the growth in the prepaids, which you can see right on the balance sheet. You will still see some growth as it relates to the receivables and inventory from the growth of Quest. The other but I'd put around this is if Regional One gets the opportunity to buy some great inventory.
Sure
We're certainly going to do that. That's our business.
Yeah.
It will jump around quarter to quarter, but there is no plan for a material build of inventory over that period.
Okay.
The working capital in other businesses, I think the biggest factor that we're seeing in Legacy Airlines is one of timing.
Right.
Something that we've seen that has influenced it in the last year is the timing of large fuel purchases.
Okay
where we have to do that in big bulk levels into the Arctic region.
Okay. Just on that, was there a lot in Q1 or is there going to be a lot in some quarter in the future that we should be aware of?
If you look at the quarterly changes, they shouldn't be different than last year's.
Right.
Like in terms of which quarters are up and down in terms of the seasonality of the business.
Okay. Just last question for me, the tax rate is a lot lower. I see the explanations. They sound sustainable. Is that a new good rough level for run rate?
Yeah. Our expectation is that our effective tax rate should run around 20%-22%. The biggest influencer there, if we bounce outside of that range, is the mix of U.S. parts revenue compared to Irish lease revenue.
Okay.
If the proportion changes in a quarter, you'll see a little wobble there, but it should be around 20%-22%, I'm expecting.
Okay, perfect. Very helpful. Again, good quarter. Thank you.
Thank you.
Your next question comes from Raveel Afzaal with Canaccord. Please go ahead. Your line is open.
Guys, a few questions. First of all, I understand that the leasing business is lumpier compared to the parts and services business. Is there any seasonality in the leasing business that you can point to?
I don't think there's seasonality as it relates to leasing per se, but on our power by the hour leases with the customer, we actually have those aircraft with They have a seasonality in their business, and as a result, when they're busier, the power by the hour leases generate more revenue. Seasonally, the first quarter is a slower part of that business. To be clear, it's not just a power by the hour issue that's with our lease portfolio. We do have some 900s that aren't on lease at this moment, and we will deal with that. That's a normal part of the ebbs and flows of our business. Went through it with the 700s when we bought them from Lufthansa. Over the rest balance of the year, we'll lease those aircraft up, and you'll see that flow through the lease revenue.
There is a seasonal factor as it relates to power by the hour leases.
Very helpful. Thank you for that. Then is there some range that you can provide us for growth CapEx for Q2 as it relates to Regional One? Because I know you guys have bought some CRJs.
We expect that growth CapEx, and I can only tell you about what I know about now, Raveel, and Hank is famous for calling me with, "Mike, guess what I just found?" Assuming I don't get a phone call from Hank, our growth CapEx will be modest. It'll be positive in the second quarter, but it's not a big number based on what we have now.
Thank you for providing us with color on 2018 maintenance CapEx. Is there anything you can tell us with respect to 2019? Exclude Regional One, of course, that's going to vary based on its leasing business. When you look at the Legacy Provincial, can you speak to the maintenance CapEx as you see it now for 2019 versus 2018?
Yeah. We would expect that there'd be a modest decline in CapEx in 2019. Just the way the schedule falls with the number of heavy overhauls and the number of engine events. Particularly in one or two of the subsidiaries, it results in a lower level of maintenance investment. Not dramatically so, but a reduction in 2019 versus 2018. Again, as you pointed out, Regional One's the wild card. If we buy a bunch more aircraft in that business, depreciation will go up and so will maintenance CapEx. Based on the status quo, we would expect a decline.
Perfect. Just finally, can you speak about the impact on the fuel prices, how you see this impacting the Legacy margins for the remainder of the year?
When the stuff moves rapidly like it did at the beginning of the quarter, it takes us a little bit to implement a price increase. We have to be very sensitive as to how we put those into First Nations communities who don't see the change and the rest of us see the price of our gas going up every day. We realize that's what's happening. Understand, in most of the communities we service, their fuel goes in once a year and the price is constant. It takes us a little bit to implement the change.
On the other hand, when we implement a change, once we've told our customers, it tends to stick and that's why even in the first quarter, I think Tammy can correct me if I'm wrong, I think it was less than a quarter of a million dollar net cost after the recoveries we have from both the direct flow through contracts and the surcharges we put in place. We will have a drag a little bit in Q2 as we implement the fuel price surcharges, but it's less of an impact on us than it would be on a WestJet or Air Canada, where the ability to flow through isn't as direct as we have. Ours is more timing issues. There's certain routes in certain places where that's not the case, but the vast majority of our business, we have the ability to raise prices.
It's simply a matter of how long it takes to do and doing it in a manner that explains it to our customers and is respectful to our customers.
Thank you very much. I'll get back in the queue.
Thanks, Ravi.
Next question comes from Chris Murray with AltaCorp Capital. Please go ahead. Your line is open.
Thanks. Good morning, folks.
Morning, Chris.
Mike, just thinking about the ERJs. I guess a couple pieces of this. That's a fairly large fleet. Just so I understand, is that going to be outright CapEx or will that be the typical mix of working capital and CapEx to fund that acquisition?
In terms of where they're going to show up on our balance sheet you mean, Chris?
Yeah, as a working capital.
We're still working on the final split of what we're going to do with them, I think about half of them, a little over half of them are going to end up flying, whether that means we resell them as whole aircraft or lease them, and about half of them are probably going to end up getting parted out.
Okay. In thinking about the Embraer models, historically, you talked about the fact that you were able to take the smaller CRJ100s and CRJ200s and then turn that into the CRJ700 and CRJ900 leasing program. Any opportunities to work with Embraer in a similar fashion to start moving up into larger aircraft and maybe moving a different line into the lease portfolio? I know you've looked at acquiring businesses that did this before, and it looks like you're kind of growing a capability on the Embraer aircraft. I guess a concern you've always said is it's about really understanding the aircraft at a part level. That's the art of this.
Yeah. I think maybe I'll just let you do the conference call because you're exactly right on what you said. That's a fair description of our opinion of things. We've dipped our toes in the Embraers and we worked with a European bank on liquidating a number of these aircraft, and we've developed some knowledge on them, and we've now dipped our toe in directly with the purchase of the ERJ 145. We are looking at other models. We're not going to sprint into that. We'll gain our knowledge and move in slowly, and how the engines work is different than it works, especially on some of the models than it does on the CRJs, where the Embraer engines on certain of their things are harder to deal with than they are on the CRJs. We definitely view there to be an opportunity in the arbitrage of these aircraft.
I think you've seen it in our purchasing that we've moved into it, and I would anticipate over future periods, you'll see us diversifying our portfolio with the addition of more of this type of aircraft.
Okay. Then just maybe a broader question, just thinking about growth rates. You sort of talked about the fact that you're going to be a little conservative on acquisitions for the next little while. Feels like you've got adequate capital to go do stuff. Is the decision to slow down, is that some sort of change in the way you guys are thinking about allocating capital? Is it a function of where you are in the pipeline in terms of acquisitions or just difficulty identifying other opportunities? Just some thoughts around that because it feels like growth is going to slow over the next few quarters.
In terms of closing things in the near term, that's correct. It is absolutely, unequivocally not a change in strategy. Quite frankly, it's really also not on the acquisition front, a lack of opportunities. We've closed three transactions in just over a quarter. With our internal capacity, understand that whether we do a CAD 25 million deal or CAD 150 million deal, the level of diligence and the work required is the same. Our team has been focused on the end stages of the deals we've been doing.
They're now jumped back in and working on opportunities and letters of intent and expressions of interest, there's no change in our appetite I just wanted to be clear with the market that because we've been so focused on closing and integrating what we have, there's nothing that's nearing the end stage of that process, there's no change in our strategy, there's no change in our appetite for that. The same would also go for growth CapEx. If somebody found me a fleet of CRJ-700s, like the Lufthansa one, I'll sprint to the bank to write the check. We have to have the right opportunities. We've always been disciplined in what we do, at this point, there aren't any in the near future.
In no way would I take that as a change in our strategy or our desire to grow, simply just a practical limitation because of how much stuff we've completed in the last few weeks. Adam's just finished napping after all those deals, getting his sleep back. No, Chris, we'll be busy again.
Okay. Just maybe as a cleanup to that question. If you think about the new credit facility, which expanded to CAD 250 million, and your leverage levels, historically, where is your comfort level on dry powder right now?
Where are we? We go 350 or 360.
In capacity?
Yeah.
Yeah, 360.
Like I say, our leverage levels, it depends on how we grow it, how we deploy it. We're not changing how we fund things. We've got money to do deals as they come or to buy back equity at these levels. There's really nothing has changed. Our appetite for leverage is unchanged over 14 years, and I don't see it changing now. If the opportunities come, we're going to jump on them. We've got a couple of debentures that mature in the next year or two, and hopefully those will convert into equity and give us fuel for further growth as well there.
All right. Thanks for the color, guys.
Thanks.
Your next question comes from Konark Gupta with Macquarie. Please go ahead. Your line is open.
Good morning. Thanks for taking my question.
Morning, Konark.
Good morning, Mike. On the guidance, Mike, you guided 10%-20% EBITDA growth for the full year, and obviously you have seen 25% in the Q1. Right now, you're telling that there's some kind of puts and takes, like we should not expect 25% to be extrapolated, right? Is there any kind of business or asset where you are being more conservative than you should be?
I don't think so. There's no material change in any of the businesses. Like I say, we talked about we have a few lease 900s that aren't under lease. When those get going, that will ramp up as well. When we looked at the aggregate, we knew that if you just look at our year that we're up against in aggregate 10-20, what that meant that in real simple terms, that's CAD 25 million-CAD 50 million in EBITDA and CAD 0.25-CAD 0.50 in earnings. We're still comfortable with that. We knew that Q1 was the easiest comparative. We know that Q2 is the hardest comparative. We know Q3 and Q4 are about average.
Bottom line is we're very comfortable with the guidance we gave. If I were to speak generally, don't ask me what our forecasts are because we won't tell you. I will tell you that we're marginally ahead of our internal forecasts through the first quarter. We're ahead than we thought we'd be.
That's great to hear. Thanks. On the Regional One, can you talk about how the leasing business is shaping out in terms of the customer base or the lease terms, especially with the introduction of Embraer ERJ-145 and the pending CRJ900s?
The 900s, like you say, if I were to be perfectly honest, have taken us a little longer to lease out than we had hoped, but that's not uncommon when we get into a new platform. The 900s are new. They're slightly more expensive, and as a result, our customer base are just growing into those. It'll take us a few quarters, but we'll get it cleaned up. The ERJs would be more at the other end of the spectrum. Those are much less expensive aircraft, and there's a number of carriers in different parts of the world that are interested in those. We have some of them under lease already. I'm not in a position to say how many. We have some of them under lease, so we expect we will have some more in the near term.
Some of those aircraft will be more effective as parts. Some of the fleet we purchased will be parted out, and a number will be leased. I wouldn't be surprised if we sell a few of them as well as operating aircraft. That's kind of the breakup. Those fit into our customer base fairly directly because they're inexpensive aircraft, whereas the 900 are at the higher end of the price and the lease term for our customer base.
Okay, that's great. Lastly, on the Alberta market, the oil price seems to be obviously going up here significantly over the last few months. That definitely impacts the airlines on a short-term basis. With respect to your Alberta operations, are you seeing any material benefits in terms of the customer orders or the spot market demand that's being driven by the oil price or the energy markets?
The short answer is yes. It is getting better. It's getting better slowly quarter-over-quarter. It's a little bit different than the last two oil shocks we saw in 2007, where it rebounded really fast. It was more like a V recovery. This is more of a slow climb, but we saw a material improvement last year in the second half of the year in that business, and that has continued into the current year. In Alberta. We're not back to pre-oil price decline levels yet, but we're seeing material improvements quarter-over-quarter.
Okay. That's all for me. Thank you, guys.
Thanks, Konark.
Your next question comes from Derek Spronck with RBC. Please go ahead. Your line is open.
Thanks. On the ERJ-145, how old are the aircraft? Are they fairly old, the 145 that you purchased? Did you buy them all from one source, or was it from multiple sources?
I don't have the ages in front of me. I can get that for you. It was a single purchase of a fleet from a bank, that the bank had taken them back, and we bought the entire fleet.
Okay. Just looking at the CRJ900s, because you mentioned that the ERJ-145s you could part out. With the CRJ900s, do you have the opportunity to part those out, or will it be essentially get them into a lease? If we can't get them to a lease, maybe sell the whole aircraft altogether?
Bang on, Chris. The CRJ900 is still too valuable. Derek, I'm sorry.
Yeah, it's okay. I've been called worse.
When I get to question 15, I get a little slap-happy. The 900, the value of the aircraft, like as a flyer, is too high that the value of the aircraft exceeds the sum of its parts. It means that when we buy those, and part of the reason we bought them is because it's the natural progression from our clients who had 200s, and we've seen them move from 200s to 700s, then move from 700s to 900s. You're bang on, that we're going to need to lease those out or sell them. We have no real desire to sell them. It's part of the process. I wish that we had leased them out a couple of months faster than we have. It's not the end of the world. Quite frankly, that is, for us, the secret sauce, is that we're diversified.
We have some planes that we thought we'd lease out that aren't leased out, and our EBITDA still went up by 25%. Our earnings still went up by 50%. I'm not overly worried about the fact that those planes are slow, but you're bang on in your assessment that the planes are too valuable to part them out. We will lease them up and get them out, whereas the ERJs that we've purchased could be done either way. The size of the fleet is such that I wouldn't want to part out a fleet that big all at once because it'd take me a while to sell it all. We have a nice combination of flyers where we'll lease them, and there may be some that we sell or not, and there will some that we part out.
That really is the sweet spot of our business. It's a different aircraft type, but it's the sweet spot of what we do in arbitrage.
Just getting back to the CRJs, you have to keep in mind, it's pretty consistent with what we refer to as our step-up strategy, which Mike talked about a bit, where we've had our customers go from the 200s to the 700s. The next progression is the 900. What that allows us to do is migrate them to the 900s to get those leased up. At that point, the 700s can be torn down. There's a significant demand for those parts. It's all part of the overall way that we monetize the value of our complete assets.
Can you get the same returns, though? Presumably, the CRJ-900s would be more of a traditional lease versus the more traditional strategy of Regional One, where you're squeezing out the last kind of lease life out of the aircraft and utilizing it for parting.
Chris, I did it again. Is your second name Chris there? Derek, you're bang on. In the near term, as we lease those out to get them down to a value where we can part them out, the lease returns are the more valuable the aircraft, the lower the % rate return we're going to generate. That's absolutely correct. Ultimately, as those aircraft age, the knowledge we gain, the customer base, the part capability to sell will enable the returns on those to expand. You're right. If I buy a 200 that I either lease out or part out, I expect my % return to be higher than I do on a 900.
Okay. Just a couple more for myself. You've sold a couple of, not a whole lot, but a few aircraft over the last couple of quarters, in Regional One. You've gone from 43 to 39, the engines have gone up materially. Are they two separate line items, or when you're selling the aircraft, are you taking the engines off the aircraft and
When we're selling the aircraft, we're selling them with engines. The reason why engines may go up when aircraft go down is if we part out an aircraft, the engines may still have value to be leased out as opposed to parted out. You could take a plane, tear it down, and lease out the engines. The pool of engines is independent of the aircraft. To my knowledge, we've never sold an aircraft without engines on it.
Yeah, that's a good point. All right. Just a couple more quickly. I saw in the annual information form some union collective bargaining agreements, potentially. Am I correct on that, and is it material and/or B, how do you feel about the potential for the renegotiating a new agreement?
We're in discussions with a number of our unions. Very pleased with how it's going. We're at the final stages in three or four of them. Three of them that were just in the final signature stages. We've been able to work well with our unions. We have a couple that are earlier stages of discussions, but the important part of the tone and tenor of them is great. I don't anticipate any problems at all.
Okay. Just finally on your leverage, your net debt to senior debt to EBITDA, it's at your upper end of your target, maybe a little above, depending on what level of EBITDA you're looking at. On an absolute level, debt has grown, and if you include the convertibles, it's at a decent level from an absolute perspective. Do you think about de-leveraging at all? You're pretty comfortable around the sustainability around the EBITDA that you're comfortable with the absolute level of debt and you still have enough powder in the keg, I guess, to transact. How do you think about debt and where you're at and your potential leverage?
We were slightly over the average, just a tinge over our 14-year average. If you look at our guidance of 10%-20% up for the year, that gives you something like 275 to 300. It leaves our convertibles, we have less than a turn of debt in those, and we're slightly over two, in terms of our secured debt. We're right at that sort of three times aggregate debt, and we're comfortable with that level. It's sort of in that same sort of goalpost we've had since we started, and it bounces around. When we raise equity and when debentures convert, can bump that around, up and down in free cash flow opportunities. We're very comfortable with our balance sheet. We're very comfortable with our liquidity, and you see our payout ratio declining.
With our payout ratio declining, that means we generate more free cash flow that effectively reduces leverage. Grand scheme of things, we're very comfortable where we are. We've got the liquidity of the new facility that should, Adam, come with a deal I can't refuse, I won't have to refuse.
That's great. Thanks, Mike, for taking all my questions.
Well played.
Next question comes from Mark Neville with Deutsche Bank. Please go ahead. Your line is open.
Hey, thanks. Just a few follow-ups at this point. Just on the Quest, I think when you bought this business, it was call it CAD 15 million of revenues per quarter with about a 25% margin. This quarter it sounds, CAD 25 million in revenue at about a 30% margin. Those are sort of the rough goalposts to use for this business at this point, sort of pre-expansion?
Yeah, that's reasonable. Again, like I said, this was a good quarter. I can't guarantee that we'll run that through the plant every quarter, but it was a good quarter.
Okay. At this point, are you running-
The mix of Canadian and U.S., Mark, can tweak the margin a little bit, quarter to quarter.
Okay. Yeah, that makes sense. Just on the, you mentioned capacity constraints. Are you running into issues? Are you pushing lead times or having any major issues there?
No, just in terms of we're not going to take orders that we don't have a slot for.
Okay
plant. We are running into, we've turned down material projects that we were awarded that they took too long to decide, and as a result, we couldn't take the order because I have no capacity in the quarter they wanted it or the two quarters they asked for. That's why it's so urgent for us to get that plant up and running, because quite frankly, we're only in a limited number of markets with that company.
We're in the sort of West Coast, across Canada, and then limited markets in the East and Midwest. There's places like Houston and Florida and Nashville and places where we have no presence yet, and we'd love to go there. We're excited about the opportunity of adding to our production capacity.
Okay. On the Wasaya transaction, should we think about that sort of like an investment multiple, sort of like past investments in your business or M&A, or shorter term, is it sort of more strategic just to build out your footprint there?
In the short term, it was more strategic. In the longer term, the multiples are in line. It was really an opportunity. Wasaya's greatest asset was their relationship with their shareholder First Nations.
They had a relationship in that area, that strength enabled us to work with them. Then by integrating our fleets, in terms of schedules so that you could interconnect airline to airline, which you couldn't do before, will improve the service. That'll ultimately, significantly improve the performance of not only our airline but Wasaya as well.
Yeah.
That's a work in process. It really just opened up a whole new door for us into Northwestern and then ultimately Northeastern Ontario as well.
Okay. Maybe just on the jet fuel, just to be clear, have you announced or have you pushed those price adjustments through or it's a Q2 event or Q2, Q3? Just wasn't clear on that.
We have put some through already, and we're in the midst of doing a second round. When we put them through, it's really a matter of communicating with the First Nations communities and going explaining to chief and council, "Hey, our fuel price is up X. We're putting a CAD 5 surcharge on the tickets. It'll start in 30 days, and this is why we've done it." It's not like a communication with the general market, like EIC is going to go talk about it. We're talking with the specific First Nations because if you look at it, in a lot of the places we're flying to, Mark, we have a dominant market position. The last thing we ever want to be seen as is taking advantage of that.
Yeah.
I think, yeah, it's worth pointing out as well that we have a large volume of business where we are contractually able to pass through fuel prices, so we bear no risk in that part of the business.
Yeah.
Yeah. Perfect example, so things like our Nunavut passenger contract with the Nunavut government. It adjusts quarterly, and so we do have a lag. For a couple of months, we get stuck with the bill, but we know ultimately it works out. When the price falls off, we also have a lag on the reduction. Net-net, it's more just of a timing issue than it is of an actual decline in pure profitability.
Okay. The Q1 impact, I guess regardless of that, was fairly minimal.
It was minimal.
You managed to get yeah.
It was CAD couple of hundred grand.
Okay. That's all I had. Thank you.
Thank you.
Your next question comes from Cameron Doerksen with National Bank Financial. Your line is open.
Hey, good morning. I guess just truly one quick one for me. I guess on the medevac contracts you've renewed, I guess one of the two that was up, and there's scope expansion there. I'm just wondering on the second one that you're waiting to hear from, and it sounds like you're pretty confident in winning that as well. Would that also be a scope expansion?
That one was bid more on an as-is basis. They already had multiple places we operate out of. It wasn't a single base already. I don't see a material change in the scope. I'm predicting what somebody's going to do in that. I don't want to say anything with certainty, but we're cautiously optimistic on winning that. We've had that contract for almost three decades. I'm confident, but it's not done till it's done.
Right. Of course. Yep. Maybe just to squeeze in a second one here.
Yeah.
Just maybe give us an update on the Force Multiplier. You mentioned that you're pretty confident you're going to have some customers for that, I guess, in the second half of the year. Just maybe update us on where things stand there as far as customer interest and prospects.
Yeah. To me, I'm like a kid at Christmas with Force Multiplier. We've got the final certifications we're going through with Transport. Transport's been great. They're working with us, but it's a one-off project. The certification of that aircraft is labor-intensive, and it never was quite as fast as you want it to. We're confident that we're a few weeks away, a couple of weeks, three weeks, five weeks from final certification. No one's going to give us a purchase order till the certification is completed. We have a number of opportunities in North America and in other places to put that out. We haven't generated dollar one yet, but we're very excited about that project, and we're pretty confident we're going to have some good hours for that in the second half of the year.
Perfect. That's all for me. Thanks very much.
Your next question comes from Scott Thompson with CIBC. Your line is open.
Hi, guys. After 20 questions, I guess I'm at the bottom of the barrel, and most of my questions have been answered. Just wondering if you can talk about the non-Quest portion of the manufacturing business, what the quarter looked like and what the outlook is, please.
In the aggregate, it was really good. We had growth in terms of revenue in all the businesses. All but one of them had material EBITDA growth. The one that didn't was stainless fabrication. We had some projects, a field project that had very low margins, which we'll complete up this quarter. The order books are the best they've been in a very long time. We expect continued growth in all of them.
Okay, that's great. Thank you very much.
Thanks.
Once again, if you'd like to ask a question, please press star one on your telephone keypad. Your next question comes from Shawn Levine with TD Securities. Your line is open.
Good morning. Thanks. All of my questions really have been asked and answered. Just one follow-up. On the Quest expansion, is the decision to more than double capacity there, is that based to a small degree on alleviating some of the capacity constraints of the Toronto facility based on the current backlog, or is it more to support the expansion opportunities that you're seeing in the Southern U.S.? Also, what gives you the confidence in being able to fill the capacity at the new plant relatively quickly?
What gives us the confidence is just the inquiries we're seeing and the opportunities. As a manufacturer, you don't like to turn down projects. We've had to do that because we don't have capacity right now. We are now booking things into the new facility, Shawn. It's hard for me to say definitively whether it was just that we couldn't fit it in the other plant. Once we've made the commitment to build the facility, we started taking orders to fill it up. We have more on the books than we could run through our existing plant now, and that will continue to grow as we take orders for that facility. I do want to be cautious that you don't turn a plant on and it runs at 100% efficiency.
There's a ramp-up time, and we'll build what we flow through that plant through the year, and I'm in no way telling you that that's going to be instantly at capacity there. We don't have orders for both plants to be at capacity. I am optimistic that we're going to be able to continue to grow the order book. We went from a little over CAD 200 million to CAD 300 million in backlog in our order book at the same time as we produced something in the range of CAD 40 million worth of product. That gives you an idea of how many new orders we've taken in that period.
Okay, great. That's helpful. Thanks.
Once again, if you'd like to ask a question, please press star then the number 1 on your telephone keypad. We do not have any questions at this time. I will turn the call over to Mr. Pyle.
Thank you, everybody. I appreciate the opportunity to talk to you today. For those of you who are in the Winnipeg area, please come see us. We've got our AGM today, and we'll be there, and we can talk to you one-on-one and meet you. If not, I look forward to talking to you again after our second quarter in August. Have a great day, and go Jets.
This concludes today's conference call. You may now disconnect.