Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the three-month period ended March 31st, 2021. The corporation's results, including the MD&A and financial statements, were issued on May 13th, 2021 and are currently available via the company's website or SEDAR. Before turning the call over to management, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements.
For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter, the Risk Factors section of the annual information form, and Exchange's other filings with Canadian securities regulators. Except as required by Canadian securities 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 individuals, shareholders, analysts, and other interested parties. I would now like to turn the call over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, Mr. Pyle.
Good morning, everyone, and thank you for joining us on today's Q1 conference call. I am joined today by EIC's President, Carmele Peter, who will review in additional detail the outlook for EIC later in the call, and by our CFO, Darryl Bergman, who will provide a more detailed breakdown of EIC's financial results for the period. As you are all aware, the COVID-19 pandemic continues to create significant economic turbulence both in Canada and internationally. While we've actively managed our business on a day-to-day basis that's been required to adjust to the constantly shifting realities of COVID-19, we have also established clear core principles at EIC that have guided our behavior through the course of the year. First, we have, without compromise, prioritized the safety of our employees and our customers.
We've implemented industry-leading biosecurity protections across our family of air operators to make sure our passengers are safe, that the communities we serve are protected, and that our frontline workers are comfortable in the knowledge that we're doing everything we can to safeguard their health. In all our operations, particularly in our manufacturing segment, we have made significant changes to our workplaces to ensure that we are meeting and exceeding the guidance of public health authorities for social distancing, the provision of appropriate personal protective equipment, and process changes that segregate our workplace and enhance disease prevention throughout our facilities. Second, we have maintained our services, even in instances where it was not profitable to do so.
To cite the precipitous declines in passenger traffic across our family of airline operators at points during the pandemic, we made the proactive choice to continue flying to every destination in our pre-pandemic network. We understand the aviation services we provide are vital. Pardon me. The communities and people we serve count on us as an irreplaceable link for transportation, medical care, and the delivery of essential supplies and food that would not otherwise be available. At this critical time, we prioritize keeping those linkages and staying present in our communities. Thirdly, we actively manage our expenses and our financial resources to ensure that our dividend remains viable. Since EIC's founding, we've made the payment of a dividend an explicit policy of the corporation. We've met this commitment to our shareholders in every instance, irrespective of global economic circumstances.
We've worked hard to continue this obligation through the pandemic. Finally, we've worked hard to position EIC to succeed in the new normal. With encouraging signs on the horizon as vaccine distribution in Canada ramps up and we continue to see evidence of considerable pent-up demand across our lines of business, we believe EIC will identify new opportunities to continue growing our company through accretive acquisition and strategic investment in our existing businesses. We've been taking steps in managing our business since the start of the pandemic to ensure we're ready to move when the time is right, and I'll share some additional thoughts on that later in my remarks. Turning to our financial performance, I am once again today very pleased to be reporting strong results for EIC through the first quarter, results that are even more exceptional when contrasted with the comparable period in 2020.
While Q1 this year saw our businesses managing entirely in a pandemic environment, particularly volatile in the quarter as domestic markets were heavily affected by a pronounced second wave of COVID-19, Q1 2020 included only two weeks of pandemic conditions and over two months of regular operation. Irrespective of the environment, our operations considerably outperformed last year's standards. Our consolidated revenue of CAD 301 million remained consistent year-over-year, down approximately 2% from the comparable period in 2020. Our EBITDA performance of CAD 64 million in the quarter improved 12% when compared to the first quarter of 2020. Critically, EIC's payout ratio on a free cash flow, less maintenance capital expenditures basis, improved year-over-year, with the company maintaining a 62% payout ratio, improved in comparison to the 68% recorded in the 12 months ending March 31st, 2020.
This measure is a testament to management's proven ability to navigate the pandemic environment while maintaining our focus on cash flow. Q1 2021 marks the 12 months of operations in a pandemic environment, characterized by uncertainty, instability of the global and domestic market. During that time, the benefits and underlying strength of our diversified business model and our ability to generate value for the shareholders while solidifying the future of our enterprise have been borne out. In addition to improving our payout ratio on a free cash flow less maintenance capital expenditures basis, EIC's net debt has decreased by approximately CAD 50 million over the last 12 months.
We've continued to responsibly and sustainably meet our dividend obligation to shareholders, move forward with planned maintenance reinvestments in our operations and completed a strategic and accretive acquisition that fundamentally strengthens our competitive position going forward, adding WIS to the EIC family of companies in the third quarter of last year. We've also recorded numerous positive achievements that speak directly to the strength and innovative capacity of our existing enterprises. PAL Aerospace's recent award of a contract to provide two fully missionized Dash 8 maritime surveillance aircraft and accompanied support services for the Netherlands Coastguard being just one notable example in the series of accomplishments we've seen extended across all of our business lines. Importantly, we've made significant contributions to the communities we service by directly leveraging our unique capabilities to assist in the fight against COVID-19.
Most prominent in those efforts is the management and operation of a highly specialized charter service on behalf of Indigenous Services Canada. These dedicated flights deliver frontline medical personnel to remote fly-in First Nations communities across the country, following strict biosecurity profiles that allow ISC's nursing workforce to complete their quarantine obligations at home and get directly to work upon arrival. Given the markets our airlines serve, our deep commitment to providing essential air services on a reliable basis, and our appreciation for the challenge of northern living, especially in the pandemic context, our ability to partner with ISC in developing and delivering this service has been particularly meaningful for all of those involved at EIC. In closing, while Carmele will provide additional guidance on the outlook for EIC later in the call, I wanted to share my thoughts on a couple of specific topics.
With respect to the ongoing uncertainty of the pandemic, we know it's not done with us yet. The recent third wave of COVID-19 in Canada has created significant challenges to staffing and safe operation of our production facilities, while again, negatively impacting our passenger loads and our airline operations. We are confident in our ability to persevere, and we will draw heavily from the lessons we learned during the first year of the pandemic to see our way through the third wave, which will invariably affect our results through the next quarter or perhaps two. We are also starting to see some light at the end of the tunnel. We are picking up some encouraging early indications that EIC remains poised for strong post-pandemic recovery.
As the pace of vaccine distribution has accelerated in the U.S., we have seen a steady build of activity and revenue in our operations at Regional One as U.S. air carriers actively reintroduce service to meet demands in that market. Closer to home, vaccine distribution in Canada is now proceeding with encouraging consistency. As the domestic economy responds, we expect to lead the recovery with strong pent-up demand for our vital aviation services and healthy order books across our manufacturing segment. EIC is also committed to continuing our search for acquisition and investment opportunities in line with our strategy of solidifying the future of our company and building organizational value for our shareholders. We have repeatedly demonstrated our ability to complete accretive acquisitions that build our enterprise, and we are greatly encouraged by what we see on the horizon with that respect.
To ensure we are prepared to execute when the time comes, we made the proactive decision to raise CAD 80 million in equity through a bought deal public offering of common shares. This move on our part was not taken to reduce existing leverage, but rather because we expect to grow. We understand the imperative of maintaining our historically strong balance sheet while completing future acquisitions. This additional liquidity was secured to ensure we meet both of those objectives. With that in mind, appreciating that some of the pandemic challenges are still ahead of us, I remain profoundly optimistic about the near-term future for EIC, and I look forward to future reports where I anticipate outlining how we've invested this additional liquidity and grown EIC for the future. I'll now turn to Darryl to outline EIC's financial performance in greater detail.
Thank you, Mike, and good morning, everyone. As Mike noted in his remarks, EIC has continued to deliver solid financial performance through the first quarter of 2021, despite the ongoing challenges and unpredictability associated with the COVID-19 pandemic. We remain highly focused on the company's balance sheet, carefully managing expenses and financial resources to support EIC's strong foundation while sustainably meeting our dividend commitments. Additionally, we benefited greatly from the diversity management has carefully built into EIC since its inception. Strong leadership teams we have in place across our subsidiary divisions have continued to find solutions to challenges inherent in the COVID-19 environment, demonstrating time and again our ability to continue delivering for our customers. Turning now specifically to EIC's results for Q1 2021. Working capital management continues to be of paramount importance for EIC.
In a quarter historically considered weaker for EIC in terms of financial results, due principally to ice road availabilities in northern communities served by our Legacy Airlines and traditionally higher maintenance capital expenditures, the company delivered a quarterly increase in net debt of only CAD 4 million. Comparatively, over the last 10 years, our average net debt rose approximately CAD 40 million in the first quarter. This improved performance again demonstrates the flexibility of our business model and ability to adapt and respond quickly to unforeseen challenges. The size of the corporation's credit facility as at March 31st remained unchanged at approximately CAD 1.3 billion, with the ability to access another CAD 300 million in an accordion feature should we choose to exercise it, giving the corporation combined access of up to CAD 1.6 billion. Utilization of the corporate credit facility was CAD 815 million at the end of the period.
Reducing this by the CAD 84 million in cash on hand, the result is a net debt of CAD 731 million. At the end of the quarter, the corporation had readily available access to liquidity of CAD 560 million, excluding the accordion. As Mike noted, subsequent to the end of the quarter, the company did complete a bought deal financing of common shares. Net proceeds of the offering were used to repay debt on its credit facility in the second quarter. Also subsequent to the quarter end, the company made a repayment of debt with cash on hand. The combined effect of these transactions reduced outstanding credit facility debt by approximately CAD 90 million, bringing it to approximately CAD 725 million. This provides the company with the additional capacity to accommodate opportunities for growth as they are identified.
At the end of Q1 2021, our leverage ratios remained well within the current 5 x covenant, notably our original 4 x covenant prior to the temporary amendment in Q3 2020 with lenders, coming in at 2.7 x. The strong covenant results are driven by the corporation's successful management of capital expenditures along with working capital. Going forward, inclusive of the impact of all announcements to date, management continues to expect to be within the original 4 x covenant, which we will revert back to at the end of Q3 2021. Further on our balance sheet, we ended the period with working capital of CAD 312 million, which represents a current ratio of 1.95. This compares to working capital of CAD 324 million and a current ratio of 2.10 at the end of 2020. Q1 2020 revenue continued to be negatively affected by the impacts of the pandemic.
Note that comparatives to the corresponding quarter in 2020 would only reflect impacts of the pandemic on Q1 2020 period for approximately the last two weeks of the quarter. Also notable in the first quarter of 2021, the provincial governments in Manitoba and Ontario announced they had reached agreements with the Government of Canada to support essential air access into remote communities for the period of July 2020 through December 2020. These funds support continued service to remote communities that otherwise would not be economical. Revenue for the period includes an estimate of the amounts the corporation expects to receive under these provincial government programs, which is less than the maximum available under the programs. The provincial governments have subsequently announced an extension of the support for 2021. Our portion of the program has not been determined but is expected to be sequentially less.
Any amounts received will be recorded in subsequent periods. In Q1 2021, we generated CAD 301 million of revenue, which is a decrease of CAD 6 million or 2% from Q1 last year. The Aerospace and Aviation segment revenue decreased CAD 17 million and the Manufacturing segment revenues increased by CAD 11 million. Aerospace and Aviation segment revenue was down 9% to CAD 183 million. The revenues from our Legacy Airlines and Provincial decreased by CAD 2 million. The decrease was primarily attributed to reduced demand to scheduled travel caused by the pandemic throughout the quarter. In the comparative period for 2020, EIC experienced strong revenues in the first two months of the quarter before the pandemic impacted our operations in the second half of March. Decreases across the subsidiary scheduled passenger operations were largely offset by improvements in cargo, charter, rotary EMS operations, and greater utilization of Provincial's on-demand ISR aircraft.
The government financial assistance supporting continued essential service into the remote communities has also partly mitigated the decreases. Regional One revenue decreased in Q1 2021 relative to the comparative period in 2020 by CAD 16 million. This decrease was driven by declines in Regional One's two main streams of revenue, sales and service revenue and lease revenue. Sales and service revenue decreased by 21% year-over-year, attributable to the impact of the pandemic for the full quarter of 2021. Decreases in the quarter were partially offset by an increase in sales of larger assets compared to Q1 2020, as airlines around the world are either reintroducing service or preparing fleets to return to service. Lease revenue decreased by 54% period-over-period. Pandemic impacts have consistently driven a material drop in customer demand and utilization of the company's assets.
Q1 2021 takes into account a full quarter of the pandemic. Now turning to our Manufacturing segment. Revenue grew by CAD 11 million over the prior period. The total revenue for this segment was CAD 118 million. All of EIC's manufacturing facilities have been deemed essential services and have been operating throughout the pandemic. The segment continues to experience robust demand, slightly offset by reduced efficiencies as operations adapt to COVID-19 health and safety measures. The acquisition of WIS in Q3 2020 also contributed to the period over period increase in revenues, with no comparative in the first quarter of 2020. Moving to EBITDA. Consolidated EBITDA was CAD 64 million, up 12% or CAD 7 million compared to the prior period. Within the period, the corporation was eligible for and received the Canada Emergency Wage Subsidy, or CEWS, offered by the Government of Canada.
Under the program, the corporation received CAD 9 million during the period. CEWS funding allowed the corporation to retain workers on payroll who would have otherwise been laid off, to rehire workers who were previously laid off, and to continue essential business activities. EBITDA in the Aerospace and Aviation segment in Q1 2021 was CAD 53 million, an increase of CAD 4 million compared to the prior period. EBITDA generated by the Legacy Airlines and Provincial increased by CAD 16 million. Within the quarter, strong cargo, charter, rotary wing operations, and improvements in the aerospace operations helped mitigate pandemic impacts to scheduled passenger operations. Provincial's aerospace operations benefited from contracted pricing and scope escalators and increased on-demand ISR aircraft utilization. Additionally, cost reduction measures associated with scheduled frequency reductions, labor rationalizations, and business transformation strategies that took some time to implement in 2020 were meaningfully realized in the first quarter of 2021.
EBITDA for Regional One decreased by CAD 12 million from the prior period. The decrease is related most significantly to the CAD 9 million reduction in lease revenue, where EBITDA margins are maturing. Reduced passenger volumes being experienced by regional airlines around the world remains the primary driver behind the decrease compared to the comparative period. Decreased parts sales also contributes to decreased EBITDA. Increased sales of aircraft and engines compared to prior period and cost savings initiatives implemented since that time did contribute to mitigating the impacts of the pandemic. In the Manufacturing Segment, EBITDA was CAD 18 million, an increase of CAD 4 million compared to the prior period. EBITDA at our Quest business increased over the period, reflecting the acquisition of WIS in the third quarter of 2020, with no comparative in the first quarter of 2020.
During the first quarter of 2021, operations at the Quest facility in Texas was interrupted for several days due to the severe weather snowstorm experienced across the state of Texas, which resulted in a state of emergency being declared. This reduced output from the facility and reduced efficiencies for a period of time, which negatively impacted EBITDA during the period. In addition, Quest continues to be impacted by job site delays and inefficiencies as a result of health and safety protocols relating to the impacts of COVID-19. The balance of the manufacturing segment collectively experienced an increase in EBITDA period over period. As noted with revenue, demand in the segment continues to be robust, and the CEWS program helps offset higher health and safety costs. Turning to earnings. Net earnings for the quarter were CAD 7 million, an increase of CAD 12 million compared to the prior period.
In addition to the increase in EBITDA, a reduction in interest costs and depreciation on capital assets increased net earnings. Of note, in the prior period, a non-recurring CAD 6 million impairment loss on certain tangible assets decreased net earnings. Net earnings per share increased by CAD 0.35 to CAD 0.20 per share in comparison to the prior period. It should be noted that in the period, the weighted average number of shares increased by 2%, which partially offsets any increase on a per-share basis in net earnings, adjusted net earnings, and free cash flow. EIC reported adjusted net earnings of CAD 11 million for Q1 2021, representing an increase of CAD 8 million or 413% compared to the prior period. The company delivered adjusted net earnings per share of CAD 0.30, up from CAD 0.06 in the comparative period.
EIC continues to demonstrate our ability to achieve positive cash flow and positive earnings in a period defined by economic uncertainty. In Q1 2021, free cash flow increased by 7% over last year to CAD 42 million or CAD 1.17 per share. These results are driven by the increase in EBITDA and partially offset by higher current tax expense. Free cash flow, less maintenance capital expenditures per share increased to CAD 0.55 per share from CAD 0.07 per share in the prior period. The free cash flow, less maintenance capital expenditures payout ratio on a 12-month trailing basis is a strong indicator of the corporation's ability to actively manage cash flows even through uncertain and volatile times.
Bearing that in mind, free cash flow, less maintenance capital expenditures payout ratio on a trailing 12-month basis compared to the prior period strengthened to 62% in Q1 2021 versus 68% in Q1 2020, despite a full year of operations within a pandemic environment. As Mike indicated earlier, EIC's ability to improve our payout ratio on a free cash flow, less maintenance capital expenditures basis is evidence of the successes we've achieved in managing the challenges of the pandemic, maintaining our focus on cash flow, and building a strong foundation that will support the future growth of the corporation. That concludes my review of our financial results. I will now turn the call over to Carmele to share some thoughts on EIC's outlook for the coming months.
Thanks, Darryl. My comments today will focus primarily on the near-term outlook for the corporation across our various lines of business. I'll then transition to some more general observations on our optimism for the future of EIC. We know that COVID's third wave and the emergence of new variants will continue to challenge our operations and our results through Q2 and into Q3 2021. That said, we see hopeful signs in the near term as vaccine distribution programs accelerate in North America, and we're getting positive indications of pent-up demand we can capture in the post-pandemic environment. However, for the next several months, COVID-19 will continue to impact each of our subsidiary business lines, albeit differently, both from an operational and revenue perspective. In our airline operations, scheduled passenger volumes will remain closely tied to travel restrictions in the jurisdictions in which we operate.
Currently, passenger bookings across our network are tracking on average between 60%-70% behind what we would historically expect. Despite this immediate pressure, our operators are seeing strong evidence of pent-up demand across our markets with bookings rebounding almost immediately in circumstances where travel becomes feasible. EIC's medevac operations continue to perform consistently and in line with expectations. While our cargo operations are experiencing persistent increased demand that we believe is likely to continue as elevated COVID infection rates and regional travel restrictions remain. EIC's charter business continues to be strong, benefiting from sustained activity in the natural resource sector, continued activity on behalf of Indigenous Services Canada, and ad hoc COVID-related charters.
PAL Aerospace's core business, predicated on long-term contracts for the delivery of multi-year programs, including our work on behalf of the Department of Fisheries and Oceans, our performance-based logistics contract in the UAE, and our support of the Government of Canada's fixed-wing search and rescue fleet, have been a source of great stability for the business in an uncertain pandemic environment. That said, government's preoccupation with COVID impacts and their vaccine rollout could in the short term negatively impact PAL Aerospace's on-demand ISR service offerings. At Regional One, although the business continues to be materially impacted by the pandemic, management has started to see the early signs of industry recovery with particularly accelerated activity in the regional airline market. Several air operators, particularly in the U.S., are forecasting a return to pre-pandemic domestic passenger loads by early 2022, driven by strong demand in the leisure market.
This upward trend in activity drove sequentially higher parts and lease revenues through the first quarter and is expected to continue for the remainder of 2021. Regional One sales of large assets, aircraft and engines, will remain variable as it was in the pre-pandemic environment. Demand remains robust through EIC's manufacturing segment while our businesses continue to navigate pandemic effects, including required employee absenteeism and irregularities in external supply chains. As we've previously discussed, COVID has caused project deferrals at Quest, which will create production gaps and negatively impact revenue for the balance of 2021. Despite this turbulence, long-term demand remains strong and Quest order pipeline is returning to pre-pandemic levels. EIC's maintenance capital expenditures will continue to closely track flying levels, which we anticipate will increase in future quarters as operational tempo increases at EIC Airlines.
That said, EIC has not parked aircraft during the pandemic, and in contrast to other Canadian and international carriers, is not facing substantial deferred maintenance costs associated with increasing services to meet growing passenger demand. From a growth capital expenditure perspective, the balance of 2021 will be focused on the modification work for the two new surveillance aircraft required under the Netherlands contract, on the start of construction of a new hangar facility planned to support the Government of Canada's fixed-wing search and rescue program, and on supporting opportunistic asset acquisitions identified by Regional One. Despite the near-term COVID challenges and uncertainty, our track record of continued solid financial and operational performance over the course of the last year has not only given us confidence, it has positioned EIC to capture near-term strategic opportunities and lay the groundwork for an exciting future for the company.
The scope of our aerospace business will grow through 2022, realizing the benefit of previous investments through the commencement of the Netherlands operation and the evolution of the fixed-wing search and rescue program. Order books and sales inquiries remain strong across our manufacturing segment, with persistent indications of pent-up demand for our products as the North American economy begins to rationalize post-COVID-19. PAL Airlines has recently initiated significant schedule enhancements to expand its regional network throughout Eastern Canada and Quebec. Having an already established presence in the region and deep familiarity with the markets it serves, PAL Airlines is well-positioned to flexibly deploy capacity to meet emerging demand for travel in the region.
As it extends its network, including to destinations where previous national carrier service has been suspended due to COVID-19's impact on travel, PAL Airlines is working cooperatively with national carriers to build regional connectivity by facilitating passenger access to domestic, transborder, and international networks. Regional One has increased its tempo of exploring and executing on strategic purchasing opportunities in the market, recently adding additional ERJ 190s, CRJs, and Q400 aircraft, which we expect to deploy in support of regional airlines as they ramp up operations and reestablish networks. As Mike and Darryl mentioned previously, we have recently added substantial liquidity through an equity offering that will provide financial flexibility that EIC needs to execute on increased acquisition opportunities we are proactively identifying in the market. As you've heard throughout our remarks today, management is extremely confident in the future for EIC.
Our results through the pandemic have again solidified our belief in the company's strategic direction and in the framework we've established to support the continued health and growth of the corporation. We're excited about the future for EIC, believe we're in a strong position to continue adding value for our investors, and have in place the strong fundamentals we need to continue executing on our business plan in the coming months. Thank you very much for your time this morning. We would now like to open the call for questions. Questions, operator?
Operator, we're ready for the questions.
If you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Chris Murray of ATB Capital. Please go ahead. Your line is open.
Good morning, folks.
Good morning, Chris.
Just going to look at the margin profile, in the quarter. Just trying to make sure I understand some of the moving parts in this one. You had the CEWS benefit, I think that was about CAD 9 million, or if you want to just confirm that for me. In the quarter, there was also, I think, the support agreements that you would have had with a number of the provinces. Did that have any impact in the numbers this quarter from either prior periods or the current quarter?
You're correct on the amount of the CEWS. It's approximately CAD 9 million. We did have the benefit of the agreements with the provinces that were announced. The funds for that program relate to services provided last year. It's revenue support, it goes into the revenue line as opposed to CEWS, which are a reduction of expenses. The previously published support numbers from the government, we've recorded slightly less than what was publicly announced simply because our operations go with the government. The effect of the newly announced provincial ones would have been less than the CEWS.
Okay. That's helpful just to keep in mind. You guys are pretty comfortable that the margin performance in the quarter was relatively due to operations as opposed to, call it, third-party influences around COVID?
It's a whole bunch of things, Chris. It's product mix changes. There's a whole bunch of things that add up to it. The CEWS would definitely have a margin impact, particularly in the manufacturing businesses, because their revenues were reasonably strong. Having said all that, there's a whole bunch of things that go the other way with plant shutdowns, and less employees in on a given day, and employee absenteeism. Not in the negative sense of that. We want our employees to stay away when they're not feeling well, and those kinds of things, but they do create production challenges, and therefore inefficiencies.
Okay. Fair enough. One question for you, and you kind of alluded to it a little bit with Regional One, and certainly, it's a potential for a pretty big swing in the year, depending on how that activity comes back. I get the idea that you're kind of getting ready. Can you give us some context, though, on the size of the aircraft fleet or the inventory, however you want to try to explain it, between where you were before COVID and where you are today, and any changes in how that mix will look down the road? Second part of this question, if you want to address it, how much are you seeing in terms of opportunity to add additional aircraft?
You did make the comment, I think, in the MD&A, that you are seeing some opportunities as we get to the end of the year and into next year would be appreciated.
That's a fairly all-encompassing question. I'll take the product mix first. The fleet looks largely like it did before. We've added a little bit of exposure to the Dash 8 Q400. We've also added a little bit of exposure to the Embraer 190. We're purchasing those. We are looking at opportunities at fleets in different places. I would say, quite frankly, that the strength of the price of aircraft has surprised us through this. Perhaps it's the government support of airlines, not so much in Canada, but in other parts of the world, that actually what we've seen is there's more new startup airlines than there are airline failures in the world. We anticipate a fairly fast ramp up, and we're starting to see it in the U.S.
The number of flights is up, and the demand for the narrow-body jet is very strong, whether it's the conversion of the 700 CRJ into a 50-seat platform at places like GoJet or just the ramp up of that type of aircraft as a whole of the U.S. As we anticipated, the U.S. is ahead of the rest of the world. The market in Africa has been reasonably strong as well. Europe would look a lot like Canada, where we've seen starts and then fade back, starts and then fade back. We believe that you'll see the performance that we're starting to see in the U.S. now as we go into the summer and fall in other parts of the world.
When you look at the ramp up, we've seen the parts business move first. We started to see that's always been a bigger part in the U.S. We've always sold more parts there, that's why it's jumped there first because that market is gone first. I think we'll see the leasing and full aircraft sales strengthen through the balance of the year. Carmele?
Yeah, I was just going to add, Chris, that the reason you haven't really seen much of a change in our, what I'll call our fleet composition, is that we were in the right type of aircraft and platforms. We made the right decisions pre-pandemic. We're very well positioned, and we're going to have strong demand. The other, I guess, additional color I'll provide is, I think you'll see us looking to lease a lot of engines. We think there's going to be a lot of demand as operators come out and start meeting demand that exists. It's one area where they can save some immediate spend is leasing engines, and we're well positioned in that regard to be able to meet that demand. As I look forward, that's an area that I would focus in on.
Okay, that's helpful. One more, if I could just sort of slide it in. You guys renewed your NCIB for the common stock, but you also added an NCIB for the debentures. What's the rationale on adding the debentures into the NCIB? It's kind of unusual.
It's really simple. It's the same concept we use on the stock in that in times of irrational trading, we want to be able to dip in and step in and stabilize. The debentures are not nearly as liquid as the stock is, and as a result, there's occasionally anomalies in the trading. We want to be able to support that trading. We haven't used it to date. The debentures are trading in a healthy manner, and as long as that's the case, I don't envision us using that in a material way. It's more to provide stability when required.
All right. That's helpful. Thanks, folks.
Your next question comes from Cameron Doerksen of National Bank Financial.
Thanks. Good morning.
Good morning, Cameron.
A question on Quest. You mentioned in your remarks that you are starting to see, I guess, a rebound in inquiries, which is obviously a good sign. I wonder if you can maybe just expand a bit on that. What specifically are you seeing, and does it give you some good confidence that, I guess, looking into 2022, we could start to see some growth in that business again?
Carmele, you're probably closer to that than me.
Yeah. What we're seeing is Well, I guess I'm going to take a step back, Cameron. First of all our customers that we had before are aligned well, I guess is how I'll describe it, and they're all kind of reactivating in the projects that were potentially put on hold or deferred. That's the first thing I look at as a strong sign. Secondly, as far as new inquiries coming in, where the number of inquiries and the quality are not slowing down. They're really at a level that we saw prior to the pandemic, so super encouraging. Again, there are long lead times with these projects by the time you get the plans and licensing, et cetera. That's not going to show up as far as works for Quest until 2022, 2023.
All very encouraging that the market has come back and come back strong.
Okay. That's very helpful. Just sort of unrelated to the manufacturing segment, a lot of companies have expressed concerns around supply chain and various components, inflation, and things like that. Can you maybe just talk about if you're seeing any supply chain shortages in any of your manufacturing operations, or if there's any big inflation impacts that might impact margins in the business?
I'll take the inflation one first. While there has been an increase in some of our input costs, a lot of the things we manufacture, our customers to enable us to pass on both increases and decreases in the cost of steel. So we aren't particularly concerned about the inflationary part of the environment. We have seen supply chain interruptions, not in a major way, but sometimes with different versions of stainless, where we may have a challenge in accessing certain things. The one thing that has come out of that is a great increase in how much we work together within our manufacturing family, because they have different suppliers and different access to things. We had an opportunity to help one of our customers out in our Overlanders business recently because their existing supplier for one of their parts couldn't access the right metal.
Well, neither could we, and so we talked to our Alberta business who has access. They couldn't find it either. Through Quest and their relationships, we were able to acquire the steel, ship it to BC, and satisfy a customer's significant challenge through the relationships between our companies. We have seen an increase in the internal communication on that front. I'm not dealing with the supply chain things on a day-to-day basis, and they're certainly frustrating, but I wouldn't describe them as systematic or material at this point. They're frustrating, and they're isolated, for lack of a better word.
Okay. No, that's very helpful. That's all for me. I'll pass it along. Thanks very much.
Thank you.
Your next question comes from Tim James of TD Securities. Please go ahead. Your line is open.
Good morning. Hello, everyone. Just wondering, thinking about cargo opportunities, it sounds like you've had some strength there. I realize it's not a massive component of the business currently, but I was wondering if you can talk about how those opportunities have come to fruition. As you look forward, is that something that you can capitalize on further and maybe create a little additional revenue relative to what you would have thought kind of pre-pandemic?
Yeah, it's a good question, Tim. You have to envision that most of the freight we're doing is into remote northern communities. Part of the reason freight is as high as it is because typically our customers in those communities would travel out once, twice, three times a year for medical appointments or other things, and then come back with significant shopping they've done in southern stores, in the Walmarts and those things, and bring things home. With the decline in travel, that hasn't occurred, but they have accessed those stores through more direct internet kinds of purchasing.
We believe that at least a portion of that is going to be a permanent behavior, and given the fact that we are the Canada Post supplier in most of the markets we're in, and the only one going on a regular basis, we anticipate that we'll maintain that program. Through the federal government's Northern Food Security program and the subsidies they provide, the North Morris Food Mail, we've seen people buying stuff in the south and having it shipped up on a subsidized basis. To support that, we've begun pilot programs of actually delivering it right to the doors in communities, so they don't even have to come up and pick it up at the airport. We've seen strong buy-in on that, and that's a program you'll see us continue to enhance in the future.
While there's clearly a bit of a pandemic spike in freight simply because people can't travel. We believe the new normal will continue to have higher levels of freight business because of the habits that have been established during the pandemic.
Yeah. Also, we're seeing a stronger demand in the resource sector. As that grows and we see greater activity there are potential opportunities that could arise in that sector in moving things into camps.
Okay. That's helpful. My second question is in relation to your airline operations. I'm thinking passenger operations here. Do you think the airlines have benefited anywhere from changes to regional services from the big mainline airlines? If, be a small headwind for those operations as we kind of emerge from the pandemic over the next one to two years?
We have seen some withdrawals of service in the Maritimes, in PAL's business. To the extent that on some of those we're the remaining carrier, should they return to service on those routes, there could be. I think there's some permanent changes in the service in those areas. Quite frankly, I actually see it more as a positive than a negative. We need to make sure that we're providing a connective service into the major carriers. We're not an alternative to Air Canada, have never or WestJet. We've never said we are. We don't intend to be. We can work with those carriers to provide connectivity out of the smaller markets and make sure they have access. I see that as more of the future.
There may be a couple of routes where you may see new competitive flights on, but I think that's outweighed by the opportunity to take people out of under-service markets and connect them into the major carriers.
Great. Thanks, Mike.
Your next question comes from Ryall Stroud of RBC Capital Markets. Your line is open.
Good morning, Ryall.
Hi, good morning, everyone. Good morning. I guess just to start off here with the Legacy Airlines, I was curious to get your take on how discussions with the federal and provincial governments have been going with regards to the potential removal of travel restrictions. I was curious if you had any insight or any early indications as to when this might occur or what level of vaccination progress might be required before it's seriously considered.
It's a good question. I wish I could be more informative on this. Much like most of COVID, the governments are flying by what's happening today and tomorrow. The good news is the adults in virtually all of the First Nations community we service are largely vaccinated. The vaccination levels are way higher than they are down south. The ability to start up will be very rapid. Particularly, Nunavut is essentially complete vaccinating adults. I believe that they're going to vaccinate children before they take some of the restrictions off. I don't believe government restrictions at this point are going to be the key determinant of how fast the recovery is.
As soon as things normalize in the south, and some of the restrictions on movement within the cities, restaurants open and those things, I think you're going to see an increase in leisure travel from the First Nations simply because they haven't been able to do it. Then the real thing that will open the floodgates is when the provinces are in a position to provide medical care. There's backlogs, and we've seen numbers of in excess of a full year's normal medical treatment system that's in arrears. So the rate-determining step, I believe, will be how much the medical system can handle. There's only so many appointments they can make, so many diagnostic services can be provided.
I believe the rate-determining step is going to be the medical system loosening up as they aren't fully occupied with COVID like they are now, to enable more medical appointments, more travel. We're very bullish. We saw last summer when COVID waned significantly, our numbers bounced really quickly. Not in terms of years or months, but actually weeks and days after the stuff was available, we saw it in our services. We've seen that creep up just before this most recent third-wave shutdown. It's a bit of a challenge in this quarter. As we've seen, even Ontario already, we're starting to see the numbers come back down.
As that relaxes, the pent-up demand in our airlines will ensure that we bounce back much like what's happening in the U.S., but probably even faster than that because of the essential nature of the travel that needs to be done.
Where travel restrictions may have an impact is in the Maritime operation. We saw last summer kind of the effectiveness of the Atlantic bubble on our passenger numbers for PAL Airlines. With that having been shut down, with the case numbers being what they are in the Maritime, that is impacting our passenger numbers for PAL Airlines. Don't know when that's going to open. I think the last date I heard was May 17th. That will likely get pushed. When that does open up, that's going to drive some additional passenger volume for PAL Airlines.
Okay. That's definitely some helpful insights there. Then just really quickly wanted to touch on M&A here with the bought deal financing now closed. I was wondering if you could talk a bit about the nature of the opportunities you're currently seeing, and if you see more potential for tuck-ins versus bolt-ons to existing businesses or maybe if there are even larger opportunities to add a new standalone subsidiary.
It's a good question. To be clear and reiterate, as I mentioned on the call, we raised money not to de-lever, not because we needed it. You see in our balance sheet that we have less debt than we did at the start of COVID. The raising of this money was to be proactive because we do see opportunities. It's very interesting that during the pandemic, that the bigger transactions have been much harder to do. Doing due diligence and meeting people, particularly cross-border, is very difficult. We've sort of refocused our activities in looking for those acquisitions into companies that are related to businesses that we're already in. Whether they be direct tuck-ins or increasing our geographic breadth of what we do, because we know people in the industry, it's deals that were doable during a COVID environment.
I would suggest that the stuff we're looking at now tends to be very closely tied to businesses where they're in, whether it's a vertical integration play like you saw us do with WIS late last year, or whether it's geographic expansion or product additions. I think that's what you'll see in the near term. We are looking at some bigger transactions, but I would suggest that those are farther away from the finish line than the other ones. It would be the tuck-in opportunities and the bolt-on opportunities that spurred us to raise the money we did last month.
Okay. Got it. That's helpful. That's it for me. I'll pass the line. Thanks, everyone.
Your next question comes from Kevin Chiang of CIBC. Your line is open.
Good morning, Kevin.
Good morning, Mike and team. Thanks for taking my question here. I know there's some moving parts, and I was wondering, when I look at your performance in Q1 for the Legacy Airlines and Provincial, revenue was essentially flat year-over-year. I recognize you have some provincial government programs that you're assisting with, Carmele talked about, and Mike talked about, I think cargo is probably going to stay with us post-pandemic. You're optimistic on passenger traffic. If I look at Q1 with revenue being flat, just wondering, if all those demand drivers start moving in the right direction, do you have the capacity to deal with that growth? In another way, what's your utilization of these assets today, and how much can you absorb before you need to think about expanding your fleet?
That's a great question, Kevin. In fact, it took up a significant portion of our board meetings yesterday and the day before. We've obviously got capacity to bounce back to where we were in 2019 as fast as the market wants to. We've kept more people on than we otherwise would have because of the CEWS, that enables us to recover more quickly as the demand moves. We saw in Q2 and particularly Q3 last year, the first half of it, where we got in some markets up to three-quarters of normal very rapidly. We anticipate the same thing this year. I suspect the one piece of the business that might take a little bit longer is the northern fishing camps and stuff, because those are reliant on a lot of American customers, which whether that will recover this year, it's hard to say.
Having said that, it would be single digits of percentages of our passengers. It's not a huge number. As the freight business continues to grow, we will add capacity in. We're actually in discussions as we speak about adding a plane or two into that business so that we can take advantage of market opportunities because we're not the only ones seeing increases in this. Particularly as Carmele mentioned, as the natural resource market strengthens, that creates opportunities because those are always remote operations that need things to be brought in. We may acquire, especially while the price of these planes is somewhat depressed, you may see us add a plane or two in terms of capacity over ensuing quarters, you're not talking about a big capital infusion required.
In terms of passenger aircraft, unless we were to land new contracts, I don't think we need any more.
The other thing I'd add is we've become quite effective of deploying our aggregate fleet where required. It's not uncommon for, obviously, a Calm Air aircraft help Perimeter, vice versa, us to have aircraft from Provincial out here on the prairies assisting. We actually have Wasaya aircraft at PAL Airlines right now. We're really effective on utilizing the metal that we do have and ensuring that it's used effectively and efficiently.
Okay. That's great color. You mentioned earlier, I guess you're open to interline agreements, maybe partnering up with some of the bigger airlines to access regional communities. Is that something you would do with your existing, or when you think about the opportunities there, is that something you would do within your existing commercial aviation banners? Or is that something you would do within Regional One or would you think of starting a standalone, I guess, charter business that had various CPAs with larger airlines? Just how would that, I guess, operationally work?
I think while we're in discussions with the other airlines to see how we can do this most effectively, we don't see ourselves moving to a Chorus kind of model with a capacity purchase agreement where people are selling tickets on our airlines. It'll be more an interline agreement so that someone who's in a community that needs to connect through a regional hub somewhere else can access the other carrier. It's more of an interline agreement, and we would envision doing that through, because most of it is in Eastern Canada, would be through the PAL banner, through Provincial Airlines. We do some of that already with WestJet, and expanding that with both or either WestJet or Air Canada to ensure connectivity through those markets, not as a branded carrier, but as a supplier too, and a deliverer of passengers to the regional hubs.
Okay. That's helpful. Maybe just the last one for me. If you can share with us, you have good insight into the regional aircraft leasing market and I guess the residual value of these aircraft through R1. Just how are things trending today versus, I guess, a year ago or a little bit over a year ago prior to the pandemic? If you can give us a sense of how much lease rates have contracted, what do residual values look like today versus early 2020?
Yeah, I mentioned briefly earlier that we were surprised at how little the values changed during the pandemic. With as many planes on the ground as we've seen, we would've anticipated bigger price changes, but I think largely because there is no substitute for the type of aircraft we are involved in, which is the narrow-body jets and big turboprops. It's not like there's a new 737 MAX version of the narrow-body. There aren't, and so the types that are in service, the CRJs and the Embraers, are going to be equally needed going forward. We've seen as the American airlines have ramped up service, it's in fact exactly those smaller gauge aircraft that have gone into service first. Particularly in North America, the demand for those has strengthened significantly.
Europe is a little slower, but we're beginning to see the discussions there with our customers as those go back into service. I think the one thing that's kind of an anomaly in driving it further is the concept of trying to create a new 50-seat aircraft. Historically, that was done with the CRJ200, which are getting 30 years plus in age, and some of them are coming out of service. Because of the scope limitations in the union contracts, it's advantageous for the airlines to fly 50-seat aircraft. What we're seeing now is that movement toward taking, whether it's a CRJ700 or perhaps even a CRJ900 in the future, and reducing the capacity of those down to 50 seats by putting in different classes of seats, bigger leg room, and flying them a 50-seat aircraft.
It's increased the demand for those aircraft and correspondingly the demand for the engines, because they're largely flying similar variants of the same engine. It's fun to use variants in a positive way as opposed to in terms of the virus. We actually see it quite bullish. We haven't seen a material change in the residual values, and you see that in our financial statements because at year-end we examined that, and we didn't feel a need to write down any assets because their value and use is strong.
Just one additional comment on leasing. During the, I guess, the heat of COVID, we saw more power-by-the-hour type of lease arrangements, which obviously fit with the nature of the demand that did exist. Now looking at more, we'll call traditional for us, not traditional in the sense of as typical leasing, but more other short-term leases that we would tend to enter into, the 18 months, two year type timeframe. I think you'll see that slowly get more prevalent as we move out of the pandemic.
I think the one corollary to that, though, we should mention is as we went into the pandemic, we were very concerned about continuing to accrue traditional style leases and ending up with big receivables on our balance sheet that were questionable as to whether it be collectible. So, we transferred a lot of our leases from traditional to power-by-the-hour type relationships, which means when the airlines aren't using them that much, we're not accruing big amounts, and as such, our balance sheet is in remarkably good shape for someone who deals with second and third tier carriers. We aren't sitting with a bunch of questionable working capital. You can see that in the fact that we've been able to generate money from working capital, that we aren't building long-term receivables.
No, that makes sense.
And just-
Yeah.
Sorry. Just one more comment on the residual values. One thing that we want to always keep in mind is that Regional One's ability to monetize assets goes beyond just being able to lease them out. They have a specialized niche of having the full ability to monetize the assets after they're done leasing, which regular air carriers might not have. That ability makes the residual value to Regional One significantly better than regular air operators around the world.
For those of you that I used the voice, that was Rich Wowryk, our Chief Accounting Officer, who jumped in there to help me.
That's right. I think it was a recent promotion from the press release, so congratulations on that.
Thank you.
That's it for me in terms of questions. Thank you, everybody, and have a great weekend.
Thanks, Kevin.
Your next question comes from Steve Hansen of Raymond James. Your line is open.
Good morning, Steve.
Hey, guys. Good morning, guys. I'll be relatively brief. Just one question, just to circle back on the M&A, Mike, is one of the common themes coming up lately is prospective changes to capital gains tax in the U.S. and what that's doing to seller behavior. Are you seeing anything in the pipeline that would suggest private company owners are considering selling earlier?
The short answer is yes. There's a whole bunch of stuff, even before the election, when it was sort of a 50/50 if there was going to be a change in the White House. People were concerned about that capital gains concept. The strength of the second wave kind of slowed that, and it's really hard for us with the border in the way. Even for pure American buyers, it slowed the process. We're seeing that come to a close and ramp back up. There is a discussion, and we're excited about the limiting of quarantine with vaccination so that we can get our due diligence teams effectively across the border.
Most of the work we've done has been in-country lately, but we are seeing certainly a discussion of more opportunities and people trying to close some of the current fiscal period to potentially avoid the increase in capital gains tax.
That's helpful, thanks. Just one last one, if I may. I might have missed it earlier, as I jumped on a bit late. Where would you identify the most serious concerns for inflation in your system? It's been one of the key question marks across a lot of the value chain lately. Where are you seeing it the most acute right now?
Well, unequivocally, the place where we've seen the biggest increases are the same ones you've seen at the gas pump. The price of jet fuel is up materially since the pandemic lows. I'm hesitant to call that inflation. It's more returning to normal. The price was at absurdly low levels during parts of the pandemic, and we have the ability to pass that on. It's not something that gives me undue concern. It will as the market strengthens. We'll take a look at our fuel surcharges and move them appropriately. We did reduce them when prices went down, so the ability to move them back up is there. We do see a little bit in some base metal stuff as well.
Again, most of the contracts we're doing there are based on a base metal price, and so we have the ability to pass that on in a lot of circumstances as well. To be honest, the inflationary concern is more of a general market discussion from our point of view and not so much a practical input, again, other than fuel in our business specifically.
Okay. Very helpful, guys. Appreciate the time.
Your next question comes from Norman Patti of Laurentian Bank. Your line is open.
Good morning, Norman.
Hi. Good morning, everyone. Yeah. My first question is if you could just provide some color on the Moncton Flight College. Have the students come back, and what's your thought process like? Where you see it heading in the coming weeks or months?
Again, another really good question. The guys there have had a tough go because the Chinese students haven't been able to enter the country. We have been in constant contact with our customers in China and worked with them on selecting the next class. We are cautiously optimistic that we will have our first batch of students reasonably soon into quarantine in the Maritimes and then into the school. I'm hesitant to give precise timelines on that because it changes so fast. We are very tight with the Chinese. They've made statements that they expect to be back to 90% of pre-pandemic volumes very quickly, and that means they need a lot of pilots. It's really as simple as soon as we can get them safely into Canada, that business will ramp up very quickly. We're cautiously optimistic that the beginnings of that are reasonably soon.
I'm not prepared to give an exact date until it actually happens.
Okay. No, that's fair. That's great color. Just within the manufacturing segment, it appears that if Quest was a bit weak, there were some of the other portfolio names within that did well. If you could highlight any of the other names that maybe did well or what's happening with the other portfolio companies?
I would suggest to you, with the exception of our Alberta operations, which actually have improved but are still challenged by the lower oil prices and the pandemic in Alberta. Virtually everything else has done very well. Our operations in Ontario at Ben Machine, demand is exceptional. They've had a hard time with being in a hotspot in York, or in Peel, in Peel. Our business in Springfield is busy, as is our business in B.C. with Overlanders. All of them have strong demand profiles. There's been some timing differences in our LV Controls business here in Winnipeg, again, demand staying really strong in that. Quest, it's interesting. We talk a lot about how things don't always go the right way or always go the wrong way all at once. Quest would be a story of that.
The two acquisitions we've done to buttress our ability to install in the U.S. have continued to perform well, add to our bottom line, while Quest as a whole has struggled with plant shutdowns and intermittent absenteeism because of the pandemic and because of the snowstorm. That will continue to bother us over the next two, three quarters as projects are deferred. The exciting part of that is we've seen that all parts of the model are working. The new plant in Texas is operating the way we expect it to. As we get back into full production in 2022, we're very excited about the opportunities there. In fact, we're actually seeing opportunities in non-traditional Quest markets.
We've talked about expanding our areas of operation in the past, and we're hopeful that we'll be able to talk to you about, in future quarters, some successes in that area. While Quest has got some short-term pain, we're starting to make the long-term bookings and replace the things that were postponed. With the nature of that business, people don't decide to build a department next month. It's next year or 18 months from now. It'll take a bit for that to stabilize and return to growth. We are very bullish on that business.
Okay. Yeah, no, makes sense. That's it from my end then. Congrats on the quarter. Thanks.
Thanks, Norman Patti.
Your next question comes from Matthew Lee of Canaccord. Your line is open.
Morning, Matt.
Hey, morning guys. I just wanted to ask what the opportunities you're seeing on aircraft acquisition. You mentioned new airlines coming online, are you still seeing opportunities to acquire aircraft at a reasonable rate, or has there maybe been a tightening of the supply of narrow-body planes?
There are opportunities in different places because the markets are different, but there has absolutely been a tightening, particularly in North America, in the demand for the CRJ200, CRJ700, and CRJ900 model. ERJ is perhaps not quite as much, but there are still opportunities. The other thing where we've actually expanded our presence significantly in is the Q400, the big turboprop market. We're seeing opportunities to both acquire and deploy. We bought a bunch of them. Carmele can help me. It was at the end of last year or the beginning of this year.
Both. The purchases are spread out over time.
We've been able to deploy those aircraft and continue to look for more opportunities to acquire them. It's an exceptionally flexible aircraft, and it has a lot of different uses in different parts of the world. We've deployed them in North America, in Africa, in other places. I think in answer to your question, it's a bit of column A and a bit of column B. It's definitely tightening in the regional jet market. The turboprop market's probably a little bit slower.
Great. Maybe on the manufacturing side, can you talk about the progress that you've made so far in Q2 on improving the efficiency and throughput? Will you maybe look to expand the workforce or facilities to meet the demand that you're seeing now that it's back to pre-pandemic levels?
I'm going to give this mostly to Carmele, but the one thing I'd like to say before I hand it to her is just, in this last wave of the pandemic, it's been the most difficult, clearly, for us in manufacturing. Not only the amount of the disease, but how sick people are getting, and the age of the people that are getting sick has resulted in more absenteeism, more plant inefficiency in the near term. Again, the cure for that is vaccinations, and we've seen that take hold in places. We had a pop-up clinic at one of our manufacturing facilities in Ontario, which has now resulted in our factory being essentially fully vaccinated. The heartburn with that isn't over yet, but we can see the finish line. Carmele, if you want to take efficiencies, you're a little closer than me.
Sure. On the efficiencies front, we continue to struggle, in particular because we've got plants, our manufacturing plants are in large part in hot zones. In Dallas, the Ontario region. That is not over, and as Mike pointed out, employee absenteeism, maybe better described as required employee absenteeism, is one of the biggest hurdles that we face because it's folks not just who have contracted COVID. It's folks that need to get tested. It's folks that are close contacts. It's folks that need to be quarantined. You don't know on any given day how many or who is showing up. That obviously presents challenges on, do you have enough in a particular department to actually run that department? Do you have to shut down a department because you simply have everyone, let's say, in close contact?
That will continue until we get vaccination rates up, but as Mike pointed out, we're making great progress on that. Some of the things that we have done to try and mitigate that is, obviously flexibility. We're bringing in more folks than we would typically have so that if we're expecting a certain number not to show up because they can't, we've got already replacements there. Different shifts that we've been able to put in place, just how we schedule folks so that we can actually increase the overall production hours with our folks. Once we deal with the vaccinations and we get a steady flow of our folks back, that'll make a big difference. Right now, still battling through it, but the light is certainly at the end of the tunnel.
All right. That's perfect. Just one last cleanup question. Are you expecting a similar CEWS benefit for the remainder of the year in the CAD 9 million range per quarter?
No, we anticipate that declining. We will still have some benefit in the second quarter. If we have any benefit beyond the second quarter, I'm doubtful. Again, it depends on what happens with aviation. My guess is that we are going to see a fairly rapid bounce back towards the end of the second quarter into the third. I really need a crystal ball to be able to answer it specifically, but I can tell you unequivocally we expect it to decline materially.
All right. I appreciate it.
Your next question comes from Konark Gupta of Scotiabank. Your line is open.
Good morning, thanks for taking my-.
Morning, Konark.
Morning, Mike here. Maybe if I can begin with the Q1 EBITDA, which was essentially flat versus Q1 of 2019. We know that, as you said on the call today, Regional One is gradually rebounding, especially in the U.S. You are seeing some green shoots elsewhere in the business across Exchange Income. The government support also continues, although I think it's declining slightly sequentially here, and then you've got some extensions apparently right on the government support. Putting all that together, can we or should we expect the next three quarters to be relatively similar to the comparable quarters of 2019, even without a full recovery in demand?
I think what I would suggest is that in the second quarter, we are dealing with this really tough third wave, but I would still anticipate beating last year's numbers somewhat. Exactly by how much, I'm not sure, but it depends on how quickly these things are released, the travel requirements and the increase in medical flows. Even with those, I would expect to be slightly stronger than last year. When we get into the back half of the year, that's really hard to answer simply because I don't know how rapid the bounce back is. I think numbers in the realm of what we experienced last year, because our Q3 and Q4, particularly Q3, was exceptional last year. I don't have the number in front of me, but it was CAD 80 something million in EBITDA. Movement towards that, I think, is acceptable.
Okay, that makes sense. Thanks, Mike. On the Quest, you talked about the production gaps this year, which is obviously impacting. Can you quantify the production gap this year, and then when do you expect to fully catch up on these production gaps?
I can't quantify it, or at least I'm not going to. In terms of when it bounces back, I think the beginning of next year you'll start to see it ramping. We're really looking at ramping past 2019 as we go through 2022 into 2023. The demand remains strong. We're negotiating in all sorts of markets with people. I would say the Canadian bounce back is probably the strongest of all. In Toronto, the opportunities are good in surrounding communities. Carmele, would you like to add any color to that or?
I think Mike covered it. When we look at Quest, what you're really seeing this year is simply the push that because of COVID on project deferrals, and you just can't fill those gaps. Short-term, yes, you'll see a slowdown in revenue, but we're really bullish on what we see going forward into 2022 and onwards. This last quarter, the number of inquiries, solid inquiries. We're really optimistic. Together with actually the acquisition of our installers in the U.S., AWI and WIS, that also provides us with a greater foundation for leveraging that on a go-forward basis as well. All in all good, just slight blip as we make our way through 2021.
That's good. Thanks, Carmele. Regional One, Mike, if I can ask on your exposure to the U.S. market, because you called it out, saying things are improving there. What portfolio or what kind of revenue exposure do you say Regional One has to the U.S.?
The U.S. would be a significant majority of our parts business at Regional One. In terms of our leasing business, the biggest part of that would be in Europe. So there's nothing that says those planes need to stay in Europe, but historically that's where they've lived. When you look at the recovery, the U.S. is first, and our parts business is first, so it exacerbates that. You saw even some bigger value transactions in the first quarter, which was, quite frankly, probably surprising internally that those have come as quick as they have. Though, because the lease business is more Europe-centric, I think it'll be a little bit more delayed in terms of returning to normal. Notwithstanding the travel lockdowns still exist in Europe, the airlines are getting ready. They can see that business starting to ramp, we anticipate that improving as well.
The dominant portion of our parts business would be North American, whereas the dominant portion of our lease business would be the rest of the world.
Thanks. Last one from me on Regional One. I think we haven't seen a significant amount of capital being deployed at Regional One during this pandemic, unless I'm looking at the numbers differently. I'm curious as to your thoughts on, do you see any risk of losing the attractiveness of aircraft valuations? I understand they are not down too much in values, but whatever the values have gone down by, are you seeing any risk of losing the attractiveness here by waiting too long on executing on aircraft acquisitions?
The real short answer is no. The slightly more involved answer is, we are looking at that stuff every day, and we've picked up planes here and there. The bottom line is, we're not going to chase because we sell at retail, and we buy wholesale. We're very careful on where we go, and that's why you saw us jump into that transaction with the E190. We saw a mismatch in the market between the value of the aircraft as a whole and the sum of its parts, and we jumped in and bought those. If the question were, did we expect that we'd be able to buy more during the pandemic? I think the answer would be yes. The glass half full part of that is we bought less because the value of the planes hasn't changed that much.
It's not like we've missed an opportunity by being conservative. It's more that the opportunity hasn't materialized as much as we would've hoped. On the bright side of that is, that means the assets we own are of better value. It's really a case of the governments around the world have made sure the airline business stays in business. Without the failures, you haven't seen as many forced sales. Without the forced sales, the aircraft have held their value, particularly in the type we have. If we were in 737s or some of the bigger craft that are being retired, very different story. As Rich mentioned, the key to Regional One's business is we understand the component values so that we don't need to sell it as a complete aircraft. We can part it out at the end of its lease life.
We don't have that knowledge in certain of those other aircraft types, so we haven't been active because we're not prepared to make a bet. That's what it would've been. It would've been gambling. We've stuck to our knitting.
That makes a lot of sense. Perfect. Thanks, Mike.
Thanks.
Your next question comes from Tim James of TD Securities. Your line is open.
Thanks. I just have a really quick follow-up question here, probably for Darryl, I guess. Just interested, the depreciation in the quarter dropped sequentially, fairly significantly, really. I'm just wondering why that was.
I think what you're going to see, Tim, is that if you look at it quarter-over-quarter, we had more assets on the balance sheet last year. Plus, if you factor in foreign exchange, what you're also going to see is green time on our assets is lower because of our lower use, and therefore, it's not depreciating as quickly.
Sorry, Tim, are you asking quarter-over-quarter compared to Q4 last year or Q1 of last year?
I'm comparing sequentially, Q4 of 2020. It dropped by, call it CAD 5 million. The value of PP&E, just as a bit of a proxy, was actually up from the end of Q4 to the end of Q1. It just surprised me a little bit that the depreciation fell from Q4 by over, what's that, 15%? That's all.
There's a couple of things. Several of our components are depreciated based on hours. Q4 compared to Q1 is not a good comparative. Generally, we would expect in certain businesses to have lower depreciation in Q1 versus Q4. The foreign exchange would be an impact as well. The rates of Canadian dollars continue to strengthen. The last thing is, you noted that the capital assets are going up, but a lot of the money that we're spending to drive the increase in capital assets relates to the search and rescue, the Netherlands contract, which we're modifying aircraft that are not available for use, so we're not depreciating those ones yet. You're not going to see the depreciation on those ones tick up yet.
Thanks, Rich.
It's really the utilization of the fleet compared to Q1 versus Q4 for components that are done on an hourly basis that drives it. Darryl touched on it as well, for items that aren't depreciated using hours, the annual review of the useful life of our assets is affected in the beginning of the quarter. To the extent that assets were underutilized in 2020, the green time available on each component part is longer than we would have originally estimated pre-pandemic, extending the useful life of those assets and therefore, in the short term, decreasing depreciation.
Okay, thanks. Thank you very much for the explanation.
There are no further questions at this time. I return the call back over to Mr. Pyle for closing remarks.
Thank you for joining us today. It's great to be able to reach out and explain what's going on in our operations. I look forward to speaking with many of you again in an hour or so when we go through our annual general meeting. I'm pleased to let you know that in our general portion of the meeting coming up in the AGM, we're going to have several of our CEOs giving brief speeches on how the pandemic has affected their business and what they're doing. If you're debating whether you wanted to listen again, you don't have to listen to Carmele and I give answers again. There'll be a new group of folks to listen to. Thank you very much for joining us. We'll talk to you again in August with our second quarter results, and most importantly, stay safe.
This concludes today's conference call. Thank you for participating. You may now disconnect.