Earnings Call: Q3 2017

Nov 9, 2017

Earnings release

Good morning, ladies and gentlemen, and welcome to Exchange Income Corporation's Conference Call to discuss Financial Results for the three and nine month periods ended September 3037. The corporation's results, including MD and A and financial statements were issued on November 8 and are currently 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 and A for this quarter, the Risk Factors section of the Annual Information Form and XChange's other filings with Canadian Securities Regulators. Except as required by Canadian Securities Laws, XChange 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 the individual shareholders, analysts and other interested parties. I would now like to turn the meeting over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, sir. Thank you, operator. Good morning, everyone. Also with me today are Carmel Peter, EIC's President Hank Gibson, the President of Regional One and Tammy Schoch, our CFO, who will review our financial results in greater detail in a few moments. We are very happy to report our third quarter results, which reflects significant growth and improved profitability over the same period last year and in fact the best third quarter in our history. With substantial completion of the large aircraft overhaul program during the first half of the year, maintenance capital expenditures declined significantly. And as a result, our dividend ratio declined dramatically, reaching the strongest level in a decade at 45%. In fact, the payout ratio is the best quarterly result since we converted to a corporate structure from an income trust and as a result incurred higher income tax costs. The payout ratio when calculated against earnings and adjusted earnings was also very strong. The payout ratio calculated in this manner was 6763% respectively. Earnings exceeded dividends by $7,700,000 in the quarter. Revenue grew 13% to $253,000,000 and EBITDA grew by 20% to 72,000,000 Net earnings also grew 16% to $24,000,000 On a per share basis, earnings were $0.78 up 8% from the preceding year. This increase on a per share basis shows the accretive nature of our previous investments as EPS grew even with an increase in the number of shares outstanding of approximately 8% from the previous year that resulted from our equity issue in January. It's important to note that this growth was accomplished without the benefit of a major acquisition. While we closed Cartonav and Team JAS in August and November respectively, And while both made valued contributions, they were small acquisitions and explained only a small portion of the growth in the quarter. Rather, growth was driven by improvement in the performance of both our airlines and our aftermarket parts business. The improvement was the result of investments made into the subsidiaries in previous periods. This performance continues our thirteen year track record of accretive investments, both in acquisitions and in growing our existing businesses. We are disciplined and focused on the return these investments will make and the continuing growth in our earnings, both absolutely and when measured on a per share basis, provides evidence of this statement. The decline in maintenance capital expenditures from the level experienced in the first half of the year does not mark a change in the cost to operate our business, but rather reflects our decision to load as many of our large aircraft overhauls, that's a mouthful, as possible into the first half of the year, where we are not as busy operationally as we are later in the year. The level of maintenance capital expenditure in the third quarter is in line with our expectations and with the guidance we gave the market. As we've said many times in the past, it's important to look at average investments in maintenance capital over a number of quarters as the timing of major events can skew this number from period to period. We anticipate maintenance capital expenditures remaining similar to Q3 levels for the balance of 2017. Growth investments also declined in the third quarter. This decline was not the result of a strategic decision to invest less money in growth, but rather reflects the completion of the CRJ900 purchase program we announced last year. We've always prided ourselves on being very disciplined in where we invest capital. Growth for the sake of growth does not add value. As such, if an investment does not hit our well defined criteria, we will not proceed. The nature of these types of opportunities is that they often present themselves with little notice and we need to be opportunistic and move quickly to take advantage. As such, things could change quickly, but as of now, we expect growth investment to decline from the level experienced in the third quarter for the balance of the year. These investments will be focused on completing the demonstrator aircraft, demonstrator surveillance aircraft and purchasing equipment to ramp up our operations in the Western Arctic for our new Medevac contract, which begins operations late this year. Conversely, opportunities in the Canadian acquisition market are better than we have seen in some time. While we have not yet reached the stage in any negotiations where we have something specific to report, we are well along the road in more than one transaction. Seldom has there been a quarter, which is a better testament to the value of our diversified model. While the aggregate results are strong and show our accretive growth, they are the sum total of a number of opportunities and challenges across our subsidiaries. National disasters played a role in the results of several of our subsidiaries. Everyone in North America held their breath as Hurricane Irma devastated The Caribbean before crashing into Florida and the Southeast United States. We were exceptionally lucky at EIC as not only did we escape without any deaths or injuries to any of our family of employees, but we also did not incur any significant damages at our offices, warehouses and job sites in the region. Given the devastation and losses incurred by many people, we feel truly blessed to have escaped unscathed. Unfortunately, the buildup to the hurricane and the days until services returned to normal resulted in the loss of approximately a week of operations at Regional One and the closure of three tank field jobs for stainless fabrication. Provincial Aerospace, however, experienced extra flying as our surveillance aircraft located in The Caribbean was one of the first aircraft examining the damage to the islands and delivering relief supplies to those affected by the storm. Forest fires significantly impacted our aviation companies in Manitoba. After a relatively cool and wet spring, our province experienced a warm dry summer that extended well into September. The fire season after starting much later than normal was very intense, especially in Northeastern Manitoba, where four First Nations communities were evacuated for prolonged periods as the fires were dangerously close to the communities. Three of these communities were among the largest we serve. We were exceptionally busy working with other carriers and the Canadian Air Force to evacuate the community and then two weeks later returning these people to their homes, which thankfully were not damaged by the fire. In between, however, our scheduled business declined significantly as these communities were obviously not traveling. On the other hand, however, our rotary business, which provides support to the firefighters, was very busy. Even with these challenges and interruptions, both our legacy airlines and our aerospace operations showed strong growth. Our manufacturing businesses also experienced wide variations in operations. While we had a slight decline in the aggregate for this segment, it is truly the sum of two very different situations. Our cell phone tower manufacturing, installing and maintenance company, West Tower, continues to deal with cyclically low demand. And given its relative size in the segment, its results offset significant improvement in the other companies in the segment. During the quarter, we engaged in more institutional marketing that would be typical for the slower summer months as we attempted to clarify some of the misinformation being spread by the short and distort campaign. During these meetings, became clear that not all of our investors and potential investors understood Regional One's business, and in particular, that it was very transactional and as such was subject to wide variation from period to period. It was thought to require massive ongoing investment to sustain its earnings. This is simply not the case. I would like to take a couple of minutes to discuss their business in greater detail. The core of Regional One's business is its aftermarket parts sales. As said out in the financial statements and MDA we released yesterday, these parts sales make up the majority of the revenue of the business With thousands of transactions on a quarterly basis to customers around the globe, this business is regular and predictable. The knowledge of parts pricing driven by these regular sales allows Regional One to be an extremely effective purchaser of parts and aircraft for part of. The demand for these parts is robust. Regional One also leases aircraft when they have green time available before a major overhaul is required. While these leases are typically for a medium term of up to a few years, they are a reliable revenue stream. The exception to this will be the CRJ900 aircraft we purchased in late sixteen and early twenty seventeen, which will require longer leases. They are newer and the value of the aircraft exceeds its value as parts and therefore will stay in our lease portfolio longer. There is also a misconception that Regional One requires large ongoing capital investment in order to maintain their earnings capability. This is simply not the case. Proceeds of the disposition of aircraft are sufficient to replace the aircraft in our lease fleet and enable it to maintain its earning capacity. We will need to ensure that the capacity that is used up each period as the aircraft are flown is replaced. And as such, we include an amount equal to depreciation in our calculation of maintenance capital expenditures. There is a significant difference between gross capital expenditures and net capital expenditures of Regional One. Gross capital expenditures would include only the purchases made, while net includes both the purchases and divestitures. As with all companies, it is the net amount we report on our financial statements. In short, as long as we continue to invest in new aircraft fixed assets on a net basis of the level of depreciation, the fleet will maintain its earning capability. Regional One is in the business of buying and selling buying, selling and leasing aircraft and their component parts. We purchase aircraft regularly and this is part of the day to day business and while variable from period to period is relatively predictable. It is the purchase of entire fleets of an aircraft type that are intermittent and do not occur in every period or even in every fiscal year. In fact, we've only made two such fleet purchases since we bought the company in 2013. The Lufthansa CityLine fleet of CRJ 700 aircraft in late twenty fourteen and early twenty fifteen and the CRJ900s in 2016 and 2017. These two fleet purchases account for approximately US185 million dollars of the growth capital we have invested in Regional One. No such fleet purchases are planned for the balance of 2017. In order to eliminate any uncertainty that has been created about the accounting methodology at Regional One, we've taken three steps, which I am pleased to briefly discuss and Tamy will discuss in greater detail later in this call. Firstly, in addition to our auditor, PricewaterhouseCoopers, we've engaged a big four accounting firm to review our accounting for intercompany transactions between Regional One and other entities within the EIC group, specifically our airlines in Canada and our Irish leasing agents Irish leasing entity. They were asked to determine whether our methodology for accounting for these transactions was in accordance with GAAP. KPMG has confirmed that this is the case as has PWC, our auditor, as part of their regular examination of our financial statements. Secondly, as part of the sale of aircraft and engines from our U. S. Subsidiary to Ireland, we engaged a third party to value these aircraft that any and all taxes payable on the sale of these aircraft were paid in The USA. These aircraft these appraisals showed that the current market value of these assets not only exceeded their carrying value for tax purposes, but also exceeded our net book value. As a result, the aircraft sale triggered a tax liability in The U. S. The gain was, of course, eliminated from our financial results and book value left unchanged. As such, the book value of our aircraft is not inflated and we incurred a tax liability as a result of the fact that the market value exceeded our book value. Finally, as part of our year end audit, PricewaterhouseCoopers has always employed a third party valuator to test the EIC internal value of inventory. These values have always confirmed that the EIC values were appropriate and if anything conservative. EIC has decided that we will also employ a third party evaluator on a quarterly basis to test our internal values. This was the first quarter in which this valuation was completed. And like the conclusions of the annual tests completed for our auditor PwC, it showed that our inventory was appropriately valued. EIC and PwC have used different third parties in completing these valuations. I would now like to turn the call over to Tammy, who will review our financial results in greater detail. I will discuss our outlook later in my closing remarks. Thanks, Mike. Good morning, everyone. In the interest of time, my commentary will focus on the three month period only. Consolidated revenue was $253,400,000 which is up 13% from last year. On a segmented basis, our Aviation and Aerospace segment, which consists of our Canadian Airlines Regional One and Provincial, generated $2.00 $4,000,000 which is up 14% from Q3 twenty sixteen. Revenue in our Manufacturing segment was $49,400,000 an increase of 8% from Q3 last year. Legacy airlines grew by 11% or $8,900,000 over Q3 twenty sixteen. This was driven by growth across all revenue streams in the Kibeliq market in Nunavut and growth in targeted areas of Northwest Ontario. Fire suppression and evacuation activity from forest fires in Northern Manitoba during the third quarter also drove increases in revenue in the third quarter. Regional One's revenue of $54,900,000 was an increase from last year of $15,700,000 or 40%. Regional One's revenue from the sale of parts, aircraft and engines was $32,600,000 an increase of 36% from the prior year. Lease revenue of $22,300,000 was up 46% from last year. The increase in sales revenue was the result of several factors, including the purchase and sale of additional inventory, an increase in customer base and the impact of JAS that closed in Q4 twenty sixteen. The driver of the increased lease revenue is the increased volumes flowing from the growth capital investments that Mike referenced made in our lease portfolio in the prior year and earlier this year. Provincial's revenue was consistent with Q3 twenty sixteen. This reflects an increase in Provincial's aviation business volumes and a slight decrease in its aerospace business due to the completion earlier in 2017 of a onetime supply contract. I would also note that we are seeing the benefits associated with the Air Borealis transaction that we closed in the second quarter of twenty seventeen. As I mentioned earlier, revenue in our Manufacturing segment was $49,400,000 which is an increase of 8%. This reflects the increased revenue levels from all manufacturing entities with the exception of West Tower. Alberta operations had increased revenues of 69%, which reflects the continued improvement in the business activities in the oil sector and strong sales to other customers such as the agricultural sector. West Tower's decline in revenue reflects the continued cyclical impact of reduced capital spending by cellular carriers on West Tower's traditional services, which is occurring as a result of transitioning to new technologies. Diversification of revenue streams and therefore cash flows continues to be fundamental to our corporate strategy. Our diversified revenue streams include scheduled passenger services, cargo handling, fire suppression and evacuation services, medevac transportation, charter services, airport fixed based operations, maritime surveillance solutions, aftermarket aviation parts and equipment sales, aircraft and engine leasing, customized steel tanks, precision metal manufacturing, high pressure water cleaning systems and communication tower construction and installation. Each of these revenue streams are significant to our consolidated total revenue. And of these, only revenues related to scheduled passenger services in our airlines and Provincial's aerospace businesses are more than 10% of the consolidated total. Additionally, our revenue streams reflect geographical diversification. Our businesses operate around the world, including across Canada, The United States, Europe and The Middle East and in The Caribbean. I highlight this to note that we are very diversified. Consolidated EBITDA was $72,000,000 an increase of 20% from Q3 twenty sixteen. The increase in EBITDA was driven by factors that are consistent with those cited in relation to revenue. And on a segmented basis, the Aerospace and Aviation segment generated EBITDA of $72,200,000 which is up 25%. The Manufacturing segment's EBITDA was $5,600,000 a decrease of 13% from the prior year. In our Aerospace and Aviation segment, the increases are attributable to the growth in revenue that we have already discussed as well as an increase in EBITDA margins. EBITDA margin in the Aerospace and Aviation segment was 35.4% versus 32.2% in the prior year. Regional One's EBITDA of $26,900,000 increased by 35% over the previous year. The increase in lease revenue at Regional One contributed to both higher EBITDA and the improvement in the margin. Higher activity levels in our rotary and fixed wing operations relating to fire suppression and evacuation services also contributed to the higher margin. Increased volumes and improved yields in Provincial's airline business were realized in the quarter as well. Higher pilot training costs as a result of the increased pilot turnover that is being experienced across the aviation industry did impact our margins in our aviation businesses as well. The decrease in EBITDA in the Manufacturing segment was the result of the decrease at West Tower that was not fully offset by the increases at all of the other entities in the segment. Of these entities, the increase in our Alberta operations is the most significant in the quarter. EBITDA margin in the Manufacturing segment was 11.3% versus 14% in the prior year. EBITDA margins have been negatively impacted by the challenges that West Tower is currently working through, as I have already described. Consolidated net earnings were $23,900,000 or $0.78 basic per share. This compares to $20,600,000 or $0.72 for the third quarter of twenty sixteen. While there are several factors driving the increase year over year, the increased EBITDA is the most significant factor. The 8% increase in average shares outstanding have also impacted all of our per share amounts. Depreciation has increased by $7,100,000 over Q3 twenty sixteen, largely due to the increased depreciation from capital expenditures at Regional One and in our Aviation businesses. Interest has increased primarily due to the higher debt levels outstanding throughout the quarter in comparison to Q3 twenty sixteen. Growth capital expenditures made since this time last year have been in part funded by our credit facility. The impact of increased interest rates was also a factor, but not as significant. Income taxes have increased by approximately 500,000 due to increased taxable earnings. The overall rate has declined since Q3 twenty seventeen because of a shift in business volumes between tax jurisdictions with more being attributed to lower tax jurisdictions. While the overall effective rate of tax is declining due to this shift, there are nonrecurring current taxes in relation to the consolidation of our aircraft and engine lease business in Ireland, which tempers this both in the second and third quarters. In addition to expanding this business through Regional One's growth capital spending in 2017, we have sold leased assets from North American subsidiaries to our Irish subsidiary. I'll just take a moment to elaborate on these transactions. To ensure compliance with all tax regulations, our leased aircraft transferred was subject to an independent appraisal to determine the market value and therefore the transfer price of these aircraft and engines. Because the fair value of our lease portfolio is higher than book value, we incurred a gain for tax purposes only. As is required by IFRS, the intercompany gain is fully eliminated from our consolidated financial results, and the lease portfolio continues to be carried on the balance sheet at its original book value. As Mike noted, we engaged an independent accounting firm to advise us on these transactions to ensure that we are fully compliant with all tax regulations that are associated with the transaction and the accounting for the intercompany transactions was subject to a separate independent review. This review was focused on verifying that the transactions between Regional One and other companies within our consolidated group are appropriately eliminated on consolidation. The conclusion is that our accounting policies are in accordance with IFRS and that our accounting treatment is correct. However, as mentioned, the taxes owing on the transaction are not eliminated and therefore earnings are impacted on a consolidated basis. Mike and I have both mentioned the involvement of independent third parties so as to provide the market with additional assurance that our accounting and tax treatment of transactions involving Regional One is correct. I'm just going to summarize this quickly. First, as just mentioned, an accounting firm provided both tax advice and a favorable tax opinion on our tax compliance associated with the significant intercompany transactions involving Regional One's lease business. Second, a separate independent accounting firm reviewed our accounting for intercompany transactions between Regional One and our airlines in Canada and our Irish leasing entity. They have confirmed that our methodology for eliminating that profit the profit associated with those transactions from our consolidated results is appropriate. Further, they have examined our accounting policies and their application as they relate to the recording of Regional One's inventory and capital assets in order to verify that our policies do not result in the overstatement of profit or the overstatement of book values of Regional One's inventory and capital assets. Their procedures allowed them to conclude that our methodology for accounting for that inventory and the capital assets is in accordance with GAAP and that allegations to the contrary are unfounded. Third, an independent appraisal appraiser provided us with a report on the market values of our aircraft, engines and inventory at Regional Regional One, providing assurance that those market values are in excess of their book value. Lastly, all of these areas are subject to annual audit by our external auditors. We feel that it's important to summarize this and highlight the involvement of three independent accounting firms as well as an independent appraiser as this should give our stakeholders confidence that we take significant measures to appropriately deal with complex accounting and tax matters. Moving back to the discussion of our results. Our per share earnings improved by 8% or $06 even with an 8% year over year increase in the average shares outstanding. The average shares outstanding increased, and the primary reason for this is the $98,000,000 bought deal offering that closed at the beginning of twenty seventeen. I'll now turn to some of the other of our other key financial metrics, namely capital expenditures, free cash flow and our payout ratio. Capital expenditures in the third quarter were $40,600,000 Maintenance CapEx on a consolidated basis was $19,900,000 which is up 2.5% from the third quarter in 2016. Our maintenance CapEx, which is almost entirely in our Aerospace and Aviation segment, has declined from the second quarter to the third quarter during 2017 because of our decision to concentrate the timing of overhauls in the first half of twenty seventeen. However, as we've discussed, there are more maintenance events than average in 2017, and this is reflected in the increase since 2016. Also contributing to the increase in maintenance CapEx in comparison to the 2016 is Regional One's maintenance CapEx, an amount equal to depreciation is classified as maintenance capital expenditures. Maintenance capital expenditures at Regional One have increased because depreciation has increased. The size of our lease portfolio has grown, as these assets are used by the lessees, depreciation is recorded and again is our main cost associated with lease revenue. This depreciation represents the portion of our portfolio that we need to replace to sustain the cash flows at current levels. Free cash flow totaled $55,800,000 which is up 22%. Free cash flow on a basic per share basis was $1.81 up 13%. The increase in our free cash flow is the result of increased EBITDA offset by an increase in interest costs. The increase in per share amounts is after reflecting the impact of the increase in average shares outstanding during the quarter. Free cash flow less maintenance CapEx was $36,000,000 or $1.17 on a per share basis. This compares to $26,500,000 and $0.93 on a per share basis in the prior year. Our payout ratio based on free cash flow less maintenance CapEx is 45%, which compares to 54% for Q3 twenty sixteen. This strong payout ratio reflects both our significant growth, improved profitability and a significant decline in maintenance capital expenditures in the quarter as a result of the concentration of overhaul work in the first half. Growth capital investments were $20,800,000 for the quarter. Regional One had no growth capital expenditures in the quarter as the amount classified as maintenance capital expenditures was marginally in excess of the total capital spend. Provincial growth capital expenditures were $16,600,000 for the quarter. A large proportion of the growth capital expenditures made by Provincial were related to its demonstrator surveillance aircraft. This aircraft is nearing completion and will be displayed at the Dubai Air Show next week. The remainder of our growth capital investments for the quarter was primarily for the growth in legacy airlines assets that were purchased to support our new Katikmet Medevac contract and our expansion into some new communities. Turning now to our balance sheet. We ended the quarter with a cash position of $18,800,000 and a net working capital position of $200,400,000 which represents a current ratio of 2.04:one. This compares to a net cash position of $14,100,000 and net working capital of $203,200,000 or a current ratio of 2.21:one at June 3037. The relatively small change in working capital since June 30 is due to the net impact of increased accounts receivable relating to fire suppression and evacuation work, which are due from governments and are expected to be collected in the fourth quarter, as well as seasonally higher business volumes in our airlines, offset by the impact of foreign currency exchange rate changes. The increase in working capital since December 3136 of $21,900,000 is due to increased investment in Regional One's inventory of parts, increased accounts receivable due to the sale of an aircraft with deferred payment terms during the second quarter and increased business volumes in the third quarter that I just cited. The receivable associated with the aircraft sale is fully secured by a letter of credit and will be collected in the fourth quarter. Our available credit capacity under our credit facility is approximately $250,000,000 and our leverage continues to be well within our target range at 2.09:one. That leverage ratio is calculated using the terms of our credit facility and is well under the maximum allowed. Our consistent leverage as well as growth in the per share amounts over time is evidence of our success with making accretive investments in growth opportunities while maintaining the strength of our balance sheet. And that concludes my review of our financial results. I'll turn the call back to Mike. Thanks, Tammy. Regional One has been a big part of our growth over the last three years. And I have asked Hank Gibson, Regional One's President, to join us for today's call and provide us some details into Regional One's operations. I would now hand the call over to Hank. Thanks, Mike, and thank you for the opportunity to speak about Regional One. Before I introduce Regional One, I thought I would take the opportunity to provide a brief outline of my professional background. I graduated from college in 1985 with a degree in finance. I spent several years working on Wall Street trading public utility bonds. In 1990, I began a transition from Wall Street to pursue my interest in legal contracts work. In this capacity, I was introduced to the aviation market where I was immediately involved in the negotiations of several aircraft fleet acquisitions involving Bombardier aircraft. In 1993, I accepted a position to relocate to Singapore to explore the development of the emerging markets in a senior capacity for a fast growing aviation company, the Aegis Group. Aegis has been widely known as one of the founders of the aviation aftermarket that developed in the late 1980s. Volvo initiated a strategic investment in AGES in mid-1990s and formally rebranded the company Volvo Aero Services. In 1998, I returned to The U. S. As a member of Volvo's U. S.-based leadership team. We immediately began the successful negotiations and implementation of a strategic alliance with the Boeing Company, effectively providing a platform for Boeing to participate in the aftermarket. Through this highly visible and successful partnership, I was actively engaged with many of the leading airlines, OEMs and MROs around the world. Throughout my fifteen year association with Volvo, I held a number of leadership positions, including P and L and strategic responsibilities. In addition, I participated in extensive training and management activities across multiple Volvo business units, both in The U. S. And abroad. I joined Region One in 2012. People often try and associate Region One as a traditional aircraft lessor or an aircraft aftermarket parts supplier. The reality is that Region One is neither, which is what makes us so unique. In effect, Region One is an asset manager, which allows us to maximize and sustain revenues through a diversified number of avenues. We distribute parts, we lease engines and aircraft, and we sell all aircraft and engines. In addition, we provide aircraft management services. As such, any single aircraft acquisition can generate one or more potential revenue streams. Much like my days on Wall Street, we at Region One can easily be characterized as a market maker within each one of these revenue sources. The key to this business is an extensive understanding of the regional aircraft marketplace, including products and customers. We participate in a mature and active industry commonly referred to as the aftermarket. This highly liquid market is comprised of thousands of aviation related companies, including OEMs, MROs, lessors and parts distributors. Regional aircraft are among the most popular in the world with thousands of aircraft from several notable manufacturers, primarily Bombardier, ATR and Embraer, and of course, the associated engine OEMs Pratt and Whitney, GE and Rolls Royce. The team at Regional One has extensive experience in this market. We spend a significant amount of time and resources on the analysis of market developments, both on the product and customer aspects, anticipating the variables that drive supply and demand such as fleet movements, overhaul cycles, engine green times, component performance, reliability and market availability. Our business is highly driven by data metrics. This data allows us to forecast demand, manage supply to maintain our participation as an efficient and effective market maker. Our ability to buy right drives the performance throughout the various operational streams in which they can be monetized. To be clear, the foundation of our operation is the parts distribution business. Our source of aircraft parts is fourfold. We purchased spares from the OEMs such as Bombardier, Pratt and Whitney. We purchased spares from various airlines. We purchased inventories from other distributors and spares are also generated internally from Regional One's aircraft and engine part outs. Customers for our spares business include OEMs, airlines, MROs and other distributors. Virtually every OEM, airline and MRO in the world actively participates in the aftermarket to obtain, trade, sell their inventory and assets. In fact, last year, ATR themselves was one of our single largest parts customers. Our other streams of operations not only provide asset value maximization, but also help support and maintain our spare parts distribution business. For example, aircraft and engines we lease create additional demand for our spares. Typically, airlines do not tend to stock an extensive inventory of parts. When the available green time of these leased aircraft and engines runs out, they are parted out and flow into our spares inventory, providing a potential opportunity to lease other aircraft or engines from Regional One's lease pool. The result is a continuous cycle of maintaining a market between supply and demand. Our Aircraft Management business provides yet another source of demand for our spares business and creates an additional supply of potential aircraft to purchase when they come off lease. Also, every purchaser of a Regional One aircraft becomes a potential customer for our spare parts and engine support. To put Regional One into a practical perspective, let me run through some of the daily transaction volumes at Regional One. Typically, Regional One's global customer service representatives quote several 100 parts to dozens of customers worldwide on a daily basis. The range of activity can be for a single part valued below $100 to a landing gear worth several $100,000. On average day of quoting, activity can be measured in excess of $1,000,000 In addition to responding to our customers' requirements, the team is proactively obtaining market data, what are commonly known as vendor quotes, on several 100 additional parts throughout a typical day. In addition, our repair asset team is actively researching the repair costs, parts modification and related data on 100 more parts daily. In addition to these core functions, we have a global network of marketing representatives interacting with airline customers on a daily basis. Finally, our technical team is actively providing engineering work scopes, repair orders and historical records analysis on our existing portfolio as well as candidates in the acquisition or sale lease process. Collectively, our various team members are interacting in real time on a daily basis to support our asset movements and customer requirements. We have never been busier nor do we see demand changing. Regional One's approach uniquely positions it to capitalize on a variety of opportunities and our ability to monetize an asset in a number of different ways that limits our risk and allows us to sustain and grow our business. The current aircraft and engine production lines will provide Regional One with the assurance of future growth opportunities as these aircraft mature and transition to new airline operators. Thank you. Thank you, Hank. We're excited about the balance of the year and for 2018. We have laid the groundwork on a number of initiatives over 2017 that will bear fruit as we move forward. Kuwait Nair will begin service in the Katikmi region later this quarter as the contract one goes into effect. While this is the smallest of Kuwait and its three medevac contracts with the Nunavut government, it will expand their footprint into the western portion of the territory and opens doors for other work in Canada's Arctic. Calm has also extended its geographic coverage in Canada's Far North, adding new communities to its freight contract with Arctic cooperatives. Calm has begun servicing several communities in the Far North, including Resolute Bay, Joah Haven, Talyuk, Antarctic Bay and Pond. For some perspective, Resolute Bay is approximately 1,700 miles north of Winnipeg, roughly the same distance as Winnipeg to Monterrey, Mexico. Our passenger business also continues to grow its geographic markets. We announced the Air Borealis partnership with the First Nations of Labrador earlier this summer and the Perimeter and Bearskin operations continued to expand into Northwestern Ontario. Assets acquired previously this year in the scheduled airlines will facilitate this growth and assist us in providing the level of service our customers expect and require. We just completed our first year of the program with the Winnipeg Blue Bombers, bringing in First Nations youth to Winnipeg to see a live CFL game. The program was a big hit with the children, many of whom had never been on a plane or left their home community prior to the program. In our inaugural year, we brought approximately 500 participants from 26 communities in Manitoba and Northwestern Ontario. Not only did they get a chance to see the game, but they received bomber gear, hats, footballs and etcetera, and got to meet some of the team after the game. I'd like to take a moment to thank our friends at the Bombers who have made this program possible. And I also want to thank the Victorian hotel chain, who provided rooms for all the participants who stayed overnight either the day before or after the game. This very generous support, the scope of this program would not have been possible. On October 27, we held a joint press conference with the bombers where we announced that we will be adding an off season component to the program. Perimeter will fly Manatee members into First Nations communities in the North we serve over the winter and in the spring to give the people in the community a chance to meet some of their favorite players. We also announced, given the success of this year's program, we will be continuing into the 2018 season. We have some plans to enhance the program in the future and we'll announce these details as the new season approaches. Through our Rotary Wing subsidiary, have made a significant advancements in our ability to provide emergency medevac transportation at night. As we've discussed several times in the past, many of the communities we serve have the airport on an island and as such, transporting a patient from the community to the plane can be difficult in times of inclement weather, particularly at night when it is difficult to navigate the lake. Customs added an EC135 twin engine helicopter with IFR capability and has now been certified to operate in IFR conditions. This will make emergent nighttime operations safer and faster for those patients in these communities. We are excited about the balance of 2017 and look forward to 2018. We expect to continue to see the benefit of investments made in previous periods as we continue to grow our revenues and our bottom line. We expect maintenance capital expenditures to be in the same range as Q3 for the balance of the year, and maintenance capital expenditures for 2018 are expected to be similar to those experienced in 2017. While there will be a smaller number of major overhauls of larger aircraft, this will be largely offset by a significant increase in the number of engine overhauls in 2018. These engine overhauls did not require taking the plane out of service for a prolonged period as is the case with the overhauls. As a result, the investment from quarter to quarter is not expected to vary quite as dramatically as it has in 2017, although we will still be focusing in the first half of the year. We will still attempt to schedule the heavy overhauls into the first half of the year, but the Avenger events, which involve taking an aircraft out of service for a short period, will be completed throughout the year. We expect Regional One to continue its strong performance for the balance of the year. With the completion of the 13 CRJ900 purchases, growth investment in Regional One is expected to be minimal in the future. We will, however, continue to be opportunistic if the right opportunity presents itself. Our Manufacturing segment will remain the tale of two stories. Decreased spending in WestHour's traditional services will persist through the remainder of the year and will reduce their results. All of our other manufacturing companies are expected to continue strong demand. We're excited about the opportunities in our Canadian acquisition pipeline for accretive profitable transactions that will not only strengthen our ability to maintain and grow our dividend, but will enhance the diversification of our earnings. We've not reached the stage where we can report to you on the specifics of any transaction, but are cautiously optimistic that we will be able to complete a transaction in the not too distant future. I must reiterate that we have not completed any transaction and as we negotiate and complete our due diligence on opportunities, we may choose not to proceed. We will only complete a transaction if it meets our strict criteria and is expected to be immediately accretive to our results. We are, however, pleased with our acquisition pipeline. I want to take this opportunity to thank all of our stakeholders for their support during what has been a challenging period in the capital market. We are proud of the most recent quarter, but more importantly, we are pleased that it has been delivered without changing our business model that has served the company, our employees, our shareholders and all stakeholders well for the last thirteen years. It has worked in the past, it is working now, and we have every reason to believe that we'll continue to work in the future. We look forward to speaking to you again with our Q4 results early in 2018. Thank you very much for listening and 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. And your first question comes from the line of Mona Nazaire with Laurentian Bank. Your line is open. Good morning and congrats on a strong quarter. Good morning, Mona. Thank you. So the first question I have and you touched on this in your opening remarks, I just wanted to clarify. As you rein in growth CapEx, I'm just wondering if at all you expect that to temper future Regional One results, particularly given the 40% growth this quarter? Or is the pipeline kind of inventory level still high given you're off the CRJ program or your growth CapEx investments remain strong? Clearly, Mona, the higher the level of growth investment we make, the faster the increases and the greater the increases. But the investments we've made will continue to fuel growth into the future. And when the right opportunities are there, we will invest in opportunities. But absent finding something like that, we expect to continue to grow just based on reinvesting the maintenance capital as required. Okay. So maintaining kind of a double digit growth profile at Regional One is possible and plausible going forward? Yes. Okay. And then secondly, and this turns to your outlook commentary, there was some focus in your prepared remarks on Q4 and weather issues. Know that we're already kind of halfway into the quarter. I'm just wondering if there have been any challenges or perhaps I'm just reading too much into the comments. No. What we wanted to do is make sure the market understood that Q4 is one that's somewhat unpredictable. And it's largely because of the freeze up of the lakes in the North. When it happens quickly, we move to winter operations and the challenges are quite small. It's when you have a prolonged fall and the fog comes off these lakes, it can be difficult to land for periods of time. We have not experienced that today, and we really haven't had any weather material weather challenges in the period thus far. The comment was more about just to educate the market that the fourth quarter is the most unpredictable in terms of weather in the period where we go from cold open water to frozen over. Once it freezes over, we return to a sort of normal winter state. But we have not experienced anything material thus far. Okay. Thank you. And then just turning to the different moving parts of the business. You have your legacy airlines, Regional One, manufacturing that has a whole lot of sub segments. We've seen tremendous growth in Regional one, but outside of that, I'm just wondering what sub segments or opportunities are you really excited about? Is a business that you're already involved in or is it something that could be new and that plays into kind of your M and A comment? I'm not sure. If you're talking about growth within our existing business, we've seen it's pretty unique because with as it was with this quarter, with the exception of West Tower, which is dealing with the in between period between new technologies and cellular technology when resulting in slower demand there, virtually all of our businesses have had strong demand increases over the period. Aviation, in particular, did very well as we've added new freight communities in the North, expanded into new communities in Northwestern Ontario, expanded our presence in the Maritimes and into Quebec. So all of those reflect continued growth. And I would point out that the investments required for that growth are largely been made with the exception of a small number of things that we still have to finish off for our medevac contract in Kitikmud and that will start in December. In terms of acquisitions, while I have to be very careful on what I say, the opportunities in our portfolio would all fit into our existing segments. They're not directly the same as any of our existing businesses, but they would be related and fit into whether it be aviation, aerospace or manufacturing. Okay. That's very helpful. That's exactly what I was looking for. And just lastly for me, any update on the SARS fixed wing contract? I know when you were first awarded that you were part of the consortium, it was still early days to speak about the work amount, potential timing. Is there any update there? Could work commence kind of earlier? No. The first delivery of an aircraft isn't until 2019. We are working with Airbus on potentially assisting them on some of the final adaptation of that aircraft. And I really hope that as part of our year end results, we'll be able to give you some forward looking information. I can tell you that the impact in 2018 is not material. It becomes material in 2019 and takes a year or two to reach the peak or mature level because Airbus has to deliver all the aircraft before we can maintain them. Very helpful. Thank you. Thanks. Thank you. And your next question comes from the line of Steve Hansen with Raymond James. Your line is open. Yes, good morning guys. A couple for me if I could. Just quickly, Mike, can you just describe some of the dynamics that are going on in Regional One sequentially or quarter over quarter? The revenues were down sequentially a fair bit, but the margins were up. I think I understand, but I just want to sure I'm clear on what's going on there. Thanks, Steve. Yes, it's with the three revenue streams that we have there, the sale of parts and Hank will jump in or kick me if I explain this wrong. The sale of parts, the leasing of aircraft and then we sell whole aircraft as well, repurpose them and perhaps invest in them or perhaps not and just resell them. But the sale of aircraft can vary quarter to quarter. So in the second quarter, we had the sale of some expensive larger newer aircraft, whereas in Q3, we did not have the sale of the larger more expensive aircraft. So that's why you see a greater variation in revenue. But the margins were still strong because we sold a number of profitable smaller aircraft. Is that accurate, Mike? Understood. Okay, great. And so on a forward run rate basis then, I guess it's hard to predict the larger sales, but is the more recent quarter more representative of what you expect in the future? Perhaps. I mean, will have some the trick in terms of revenue in Regional One is to look at kind of month quarterly averages because they will bump up and down. If you were to sell a CRJ700, you could have a purchase price of up to $10,000,000 on that kind of an aircraft depending on the times on the engine and time to overhaul. But if you look at the earnings that we generate in the company, the EBITDA, that's very predictable. The makeup of the sales can change a little bit quarter to quarter, but our bottom line is fairly predictable. Okay. That's helpful. And then just you mentioned that the cadence on the growth capital is going to slow here a little bit going forward, no fleets purchases planned. But I mean, you give us a sense for 2018 as a whole as yet? Should we expect that also to slow? Is it just not the front quarters, but on a yearly basis as well? Again, with the massive asterisk and proviso that if Hank finds me another Lufthansa deal, we're going to do it. But assuming we don't cover something of that size, we would expect to have growth capital expenditures in Regional One that will exceed the maintenance investment requirements, but we don't expect them to be at the level of 2018 in aggregate. We this quarter is a low because we've virtually no capital growth capital, which is not what we would expect on an annualized basis. But we don't expect, absent the big fleet opportunity, which we look for, but are rare to find things that meet our criteria. Absent that, we expect modest growth. Understood. And just the last one, I noticed that the multiplier force multiplier project is due for the air show come November. a sense for what you're looking for out of the air show? And what kind of contracts or visibility on the revenue stream there now that you've made that capital investment? I'm trying to think back to what the ultimate objective is for next year as you deploy that aircraft. Yes. It's a unique opportunity with this aircraft. There's lots of surveillance aircraft in the world, but very few people have one ready, crewed and available to jump in when opportunities or requirements arise in different parts of the world. And so the Dubai Air Show is huge for us in that it gives us a chance to show it to militaries around the world. We've had inquiries from multiple air forces around the world and multiple governments. Once the air show is over, we're going to bring it back home. We're going to complete a little bit of the final installation of some equipment. And by the second quarter, it will be available. We've had multiple inbound questions about when it's available, when can they release it, how long can we get it for. And but until someone actually signs a purchase order, those are just inquiries. So at the end of the next quarter, we'll give you an update on what the outlook is for next year, but we fully anticipate the aircraft being in service in the second quarter of next year. Very good. That's it for me. Thanks. Thank you. And your next question comes from the line of David Tieman with Cormark Securities. Your line is open. Yes. Good morning. My first question is on the Regional One and EBITDA growth. So I'm trying to understand where we're going now. Is the growth CapEx that you've deployed in the past year and a half or so fully utilized now? Or is there more EBITDA growth to come from what's being deployed? And then just generally, would the growth come from in the next year from Regional One if there isn't more growth CapEx utilization there? Well, it relates to the CapEx you've made in the past, we've some of those 900s were on short term leases, which have been which expire and then we re put them out. So there is still growth in our lease portfolio to come when the 900s are all fully deployed. In terms of the growth of the business, we will continue to invest in the business and we'll continue to generate returns out of the inventory and the transactional things. It's important to understand when we're selling parts and things are going through that thing, it's transactional. So we're buying it and selling it and buying it and selling it. The growth CapEx largely relates to the changes in the lease portfolio. And so when there are opportunities, we'll jump on those and we'll continue to grow more rapidly in the periods where we uncover good deals. And we'll be able to maintain the cash flow just by reinvesting our maintenance capital investment. We will grow without that just at a more a less rapid rate. Okay. So when we're thinking about the next year, Mike, should we be thinking that the growth rate will actually be sub double digit because you've used up a lot of the growth CapEx? Sounds It like you got a bit more to go on the leasing side there. But unless you increase the amount of parts available for sale, which would require investment, would think, I'm not sure I see how you would end up with much growth there. We aren't finished a full blown forecast, so I'm reticent to give you an exact kind of thing. I think what I can say is that the growth at Regional One will slow because we put less money in in the last six months. That could change next month and could bring me a transaction and that could change. What we're trying to get across is that we've built it to a new plateau. It'll continue to grow up that plateau and the rate of growth will vary with capital investment. The rate of growth we've had in the last year has been the result of money we put in. We'll maintain that and they will continue to grow, but at a slower rate. There's also another that is relatively early in its stages, which is the fee based income, which Regional One has started to go after. As I said, it's not material at this point, but it is an area It requires very little, if any, capital, and we're making good inroads into it. So that is another area for us to look to. Okay. That's helpful. And then second question, on the forest fire in the quarter, was that a positive or negative? It sounds like it had puts and takes. So I'm not sure which way you ended up at the end of the quarter from And was it material to the results? That's a really good question, David. It depends on whether you talk to my CEO of Perimeter or my CEO from customers because they have widely varying opinions of the forest fires. In aggregate, it was a positive. In aggregate, when you take into account the charter work, Perimeter by itself couldn't repatriate all the passengers nor could we evacuate them all. And so when we did the evacuations, it was a combination of our internal capacity plus other airlines plus the military because we had moved very quickly to get everyone out. When we took them back, it was largely all EIC companies, but not all Perimeter. And so all of the EIC companies except Perimeter experienced some benefit. We bought planes from as far away as Newfoundland to look after our customers. Perimeter lost three weeks of scheduled business. And then, of course, fighting the fires is Customs' core business, and they did very well So with in aggregate, it was a positive. Do you have a sense of the magnitude? Like is this going to make it a difficult quarter to comp quarter next year? Not really. I mean, was at Custom Helicopters, we may be $1,000,000 or 2,000,000 better than other things. But like I say, that's offset by some of the challenges Perimeter had with three of our biggest communities impacted. Last year was an exceptionally low firefighting period. So these things kind of bounce around a bit, but they're not it's not we're not talking about 5,000,000 or $10,000,000 difference this year. It's single digit low single digits in millions. And conversely, we had virtually no firework from May, June and the July. Fair enough. That's helpful. I'll pass the baton and get back in queue. Thank you. Thanks, David. Thank you. And your next question comes from the line of Konark Gupta with Macquarie. Your line is open. Thanks and Morning, Mike, good to see free cash breakeven after total CapEx and dividend. So can you help us understand a few things here? One, the Regional One EBITDA was slightly down from Q2 sequentially. So how should we think about the seasonality in EBITDA? Because I understand revenue could be very lumpy, but EBITDA is more certain. Yes. Well, it's not so much seasonality. It was just there were some onetime benefits or more transactions in Q2 than there was in Q3. It's not fair to just draw a line and say it goes up by a certain percentage every quarter. It's transactional based. Hank, do you want to maybe? Sure. I think what Mike alluded to earlier that the impact of our results can be somewhat material in terms of whether we sell a particular aircraft in a particular quarter or not. And I think in Q3, where we've had just a couple of smaller 50 seaters trade, where in previous quarters we've had some of the 70 or 90 seaters trade. So obviously, there's going to be an impact on EBITDA depending upon which type of asset we sell. One other comment I would just throw in there is that you're also seeing currency foreign currency exchange rate changes have also impacted this. So on U. S. Dollars, the decrease is less than what you're seeing here in Canadian dollars. Yes. I think someone will correct me if I'm wrong on this, but I believe the number the impact of the change in currency from Q3 from Q2, if we had Q2's exchange rate, it was a little over $2,000,000 that EBITDA was reduced by at Regional One by the translation of Canadian dollars at a lower rate in Q3 than in Q2. Okay. No, that's helpful. That shows Q3 even better than Q2 then. So on the growth CapEx then, Mike, I understand you probably obviously have to play a spot on this thing in terms of opportunities. What kind of opportunities are you focusing on, if at all, on Regional One side? And then how much more growth CapEx is anticipated at Provincial? Provincial, we're going to finish off that program with the maritime surveillance aircraft and that will be done early in 2018. The plane is flyable and usable. We still have some more technical equipment we want to add. And so it's modest. We're largely through it. We'd have less than $10,000,000 to go, I believe. And in terms of Regional One, I'll maybe give this to Hank, but it's really about when we can acquire a group of aircraft at a price that we can monetize it in a way that's accretive. Yes. So I think that there's a number of assets. If I we're sitting here in Q4 of twenty sixteen, looking out into 2017, if you think about it, the asset base that we had was largely the CRJ As ATRs. The Embraer has come into focus this year, as Carmel alluded to. We have focused on fleet of aircraft for a bank where we've managed the redelivery of those aircraft from a large operator here in The U. S. And we have managed that successfully where we've learned the business, learned a new product line. So the Embraer product, which we had largely no exposure to historically, has now become an active market for us. So if I think about the Team Jazz acquisition getting into Twin Otters or the Embraer product line, there are a number of new products that we see that can add to our ability to grow our business and expand our base. Okay. That's great. And last one for me. Any plans, Mike, on the legacy airline side to replace some of your oldest aircraft in order to improve or maintain the service? Well, we there are certain aircraft types, and I think you're referencing likely the metros, which are the oldest and chronological age of the aircraft we fly. There isn't a suitable aircraft to replace that with. So we continually upgrade those buying newer versions of the same aircraft. And we have over time increased the number of our Dash eight size aircraft. So as the communities grow, we upgrade them to bigger aircraft to better look after their needs. But in certain small sized communities, the bigger aircraft simply aren't economic. And one of the things I'd really like, it's tangential to what you've asked me, but the airlines we fly, every one of them is over 50 years old. These guys understand flying in the North better than anyone. And we've operated some of those airlines for over a decade. We understand exactly what we're doing in those communities. And we invest a lot of money to make the aircraft appropriate for the places we're flying into. We're landing in 7,000 foot gravel strips on islands with no instrument landing support. And as a result, we have to adapt our business to that marketplace, and we fly the right planes for that. And quite frankly, our track record in those markets is exceptional. And so when there's an opportunity to upgrade the equipment, we will certainly take it. But technologically, that just doesn't exist today. And so we will continue to upgrade the aircraft we have. And if they reach the stage where they're not economic, we'll buy additional of those aircraft. But at this point, there isn't a suitable new type of aircraft to replace them. Okay. That's great, guys. Thanks and a great quarter. Thank you. Thanks, Konark. Thank you. And your next question comes from the line of Tim James with TD Securities. Your line is open. Thank you. Good morning. Just wondering if I could follow-up the provincial CapEx question that was helpful in terms of the remaining requirements for the surveillance aircraft. It seems to me there's plenty of sort of long term opportunity for provincial in general. Is it possible, Mike, just to characterize the growth CapEx beyond the completion of the surveillance aircraft that we could maybe think about over a multiyear period for Provincial? That's a really good question, Tim. I'm probably somewhere in the one to two quarters away from being able to give you a longer term perspective on that. We're really optimistic about this surveillance opportunity and some other surveillance stuff we're working on. But the proof is in the pudding, as they say, and we're just bolting on the last parts onto the plane. So let me get a little bit of a track record in terms of what the government say and how fast we put it out. But we truly believe that there's the opportunity for this to be a platform of a multiple number of these types of aircraft with varying degrees of sophistication. Some may be fairly modest in terms of the equipment on them, depending on what they're going to be used for and others may be much more advanced. And so we're just getting our toes in the water with the new one. But if you were to ask me what my gut tells me, I think we're going to do more of these in the future. But I'm not quite there to be able to give you any kind of meaningful number on a go forward basis. Okay. Correct me if I'm wrong, but some of the other opportunities within provincial, whether it's on the airline side or the various other business lines that, that has, None of those are particularly capital intensive, are they, if I'm not mistaken, like That's a really good question and point. As an example, the fixed wing search and rescue contract, we will be maintaining the aircraft for the Canadian government for twenty years plus. The only investment that's really tied to that is we may well build a new building to give ourselves extra overhaul capacity. We're looking after our own aircraft, we're kind of busting at the seams. So you're looking at kind of a $10,000,000 investment for a twenty year contract with the government. Dollars 10,000,000 is a very, very high level estimate of what a building could cost. Where you have more investment would be to the extent we expand geographic markets further with aircraft because you'll need more capacity. None of that is currently planned. We bought all the aircraft we need to cover the new territories we're in. And then as other surveillance opportunities happen around the world, we may be just adapting planes for people. We may adapt them and sell them to them. Or in some contracts, they may want us to operate them for them like we do in Curacao or the Government of Canada, which would be a higher capital, but a much higher return because we would own and operate the aircraft. So there's a wide range depending on which contracts we're successful on. But generally speaking, it's a fairly low capital business. Okay. That's helpful. Thank you. And then just my last question. Just wondering if you can comment on any changes that you're seeing in the competitive environment in the regions where you operate commercial effectively commercial airline services, just any changes that from in competitor behavior in any of those markets? Very, very little. We have one competitor from Northwestern Ontario who is flying into Winnipeg a couple of times a day from one or two communities. At this point, it has a very small impact on our business. We announced a couple of quarters ago where Northwest Company had purchased NorthStar Air to do their own freight. So they're already looking after NorthWest's business in Manitoba. We're assisting them in other parts of that business for into next year to help with the process. But so and we fully disclose what the impact of that was. Other than that, there really has been no changes. And in fact, competitive position was enhanced with the Air Borealis deal in our provincial business. There's always the opportunity for a competitor to come into our territory. We're very comfortable with the competitive advantages we have and our ability to deal with it. But thus far, there hasn't been any. Okay. That's great. Thank you very much. And you do have a final question from Steve Hansen with Raymond James. Your line is open. Yes. Just one follow-up on me, Mike, on the transferred assets over to Ireland. Is that essentially complete now? You described all the third party that happened, but I just wanted to get a sense for where we are in that process. We've go ahead, Tammy. Yes. So we sale of the aircraft over to Ireland is complete. We have a portfolio of engines in the lease pool that still need to go. So that will happen likely in the 2018 and then that will bring that exercise of consolidation to a close. Very good. That's it for me guys. Thanks. And we do have one final question from Rizal Fassal with Canaccord Genuity. Your line is open. Couple of housekeeping questions. How should we think about your effective tax rate going into 2018 compared to 2017? I think you'll see it continue to decline. When we move the engines in the first quarter, there's likely to be a onetime cost just like there was in Q2 and Q3. But the savings offset it and then you'll see them sort of more in quotation marks mature tax rate later in the year. I would say that it's important to understand that there isn't a defined amount of profit that comes from each jurisdiction in each period. So depending on relatively speaking, whether we do more business in a high tax jurisdiction versus a low tax rate jurisdiction, it can vary somewhat quarter to quarter. But directionally, we should see a continued decline. Yes. And then there's also the recent announcements coming out of The U. S. Around the drop in their corporate tax rate. So right now, you're seeing a mix of pretty high tax rate in The U. S. On the earnings there. And then the lower tax exposure coming out of our Irish business. But with the increase in tax increase taxable earnings that's in lower tax jurisdictions, you're going to start to see that come through because it hasn't fully been reflected in our financial results because of the taxable gains that we incur in consolidating that business. But with that falling away and becoming business as usual, you'll see the tax rate come down. And then also with the decrease in U. S. Tax rates, should those come through as expected, you'll see a drop there as well. Very good. Thank you. And then there was a spike in jet fuel prices in the quarter because of the hurricane season. Did it have any impact on your margins? Didn't catch Could you say that again, Raveel? I didn't catch that. Yes. There was a spike in the jet fuel prices in quarter as well because of the hurricane season. And I was wondering if there was any impact on your margins from the spike in the fuel prices. Yes, absolutely. I mean the short term increase in price, we just absorbed that. Most some of our contracts have the ability to pass it on automatically. Others require us to actually give notice. Given our market position, we can typically pass those on. We thought they were short term in nature and as a result made the choice not to. And so there was a modest impact in our quarter as a result of that spike in fuel prices, but nothing dramatic. Okay. And finally, given the decline in the payout ratio in the quarter, how are you thinking about your dividends going forward in terms of potentially increasing them or keeping them at current level? We're feeling great about our dividend. A 45% payout ratio in the quarter, our Board looks at the payout ratio on a regular basis. On a trailing 12 basis, we were still slightly over that 70% threshold. And so we want to whenever we make a dividend increase, we want our shareholders to know not only it's going up, but it's going to stay there. And so we've decided that it's not quite time to do it yet based on this quarter's results. But a 45% payout ratio should give everyone confidence in the sustainability and the long term growth of the dividend. Great. Thank you. That's all for me. Thank you. Thanks, Ravi. And we have no further questions at this time. I'll turn this call back over to the presenters. Thank you, operator. I'd like to thank everyone for participating in today's call. I look forward to updating you on our progress in the quarters ahead. Thanks and have a great day. This concludes today's conference call. Thank you for your participation. You may now disconnect.