Atlas Air Worldwide Holdings Inc (AAWW) 2016 Q4 法說會逐字稿

Good morning, my name is Heidi and I will be your conference operator today. At this time I would like to welcome everyone to the fourth-quarter 2016 earnings call for Atlas Air Worldwide. (Operator Instructions). Thank you. Atlas Air, you may begin your conference.

Thank you, Heidi, and good morning, everyone. I am Ed McGarvey, Treasurer for Atlas Air Worldwide. Welcome to our fourth-quarter and full-year 2016 results conference call. Today's call will be hosted by Bill Flynn, our Chief Executive Officer, and Spencer Schwartz, our Chief Financial Officer.

As a reminder, today's call is complemented by a slide presentation that can be viewed at AtlasAir.com. You may find the slides by clicking on the link to Presentations in the Investor Information section of the site.

As indicated on slide 2, we would like to remind you that our discussion about the Company's performance today includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events and expectations and they involve risks and uncertainties.

Our actual results or actions may differ materially from those projected in any forward-looking statements. For information about risk factors related to our business, please refer to our 2015 Form 10-K as amended or as supplemented by our subsequently filed SEC reports.

Any references to two non-GAAP measures are meant to provide meaningful insights and are reconciled with GAAP in today's press release and in the appendix that is attached to today's slides. You can also find these at AtlasAir.com.

During our question-and-answer period today we would like to ask participants to limit themselves to one principal question and one follow-up question so that we may accommodate as many participants as possible. After we have gone through the queue we will be happy to answer any additional questions as time permits.

At this point I'd like to draw your attention to slide 3 and turn the call over to Bill Flynn.

Thank you, Ed, and good morning, everyone. 2016 was a historic year for Atlas, one that we are very proud of. We acquired Southern Air, expanding the array of aircraft and services that we provide, especially to the fast-growing express market. We entered into strategic long-term agreements with Amazon to serve its rapidly growing e-commerce business. And we recently announced new customer agreements with Asiana Cargo and Nippon Cargo airlines in addition to signing a five-year five aircraft contract with FedEx to provide peak season operations.

We finished the year on a very strong note. In the fourth quarter we generated both a sequential and a year-over-year improvement in our block-hour volumes, revenues, profitability and margins. In addition to record quarterly revenues, we delivered a significant increase in reported earnings and record adjusted earnings for the period.

Our performance was driven by additional seasonal flying we did for express operators, growing e-commerce demand, and a lower level of maintenance expense. Our fourth-quarter results also reflected a solid peak season and an improvement in commercial airfreight yields.

In ACMI we benefited from Southern Air's 777 and 737 express CMI services as well as better contributions in synergies than originally anticipated. We also continued ramping up for Amazon as we placed our second 767-300 aircraft into service for them this month. By the end of next year we will lease 20 767's to Amazon and also operate them on a CMI basis. We have now secured all 20 of these aircraft as well as an additional one that we will utilize as a spare.

In Charter, our results reflected an increase in commercial demand, including additional 747-8 flying and the quality, scale and efficiency of our global operations. And our Dry Leasing business maintained its steady annuity like performance.

With our expanding business space in the ongoing development of our strategic platform we are well-positioned to grow earnings in 2017. We are excited about the recently announced customer agreements I mentioned a moment ago. We expect to see initial accretion from our service for Amazon and we look forward to our first full year of contribution from Southern Air. We expect these positives to be partially offset by an increase in maintenance expense and lower cost base rates paid by the military.

Slide 4 highlights our guidance framework for 2017. As explained in our press release and as Spencer will discuss further, our guidance focuses on adjusted income from continuing operations net of taxes.

We are a stronger Company today. We began 2017 with solid demand from our customers for our aircraft and services. With Amazon and Southern Air we are also capitalizing on the steps we've taken to align our business with the faster growing e-commerce and express markets. As a result we expect to grow our adjusted income by a mid-single-digit to a low-double-digit percentage in 2017.

Given the inherent seasonality of air freight demand, we anticipate that our results this year will reflect historical pattern with approximately 70% of our adjusted income occurring in the second half. In addition, we expect adjusted income in the first quarter of 2017, which usually has the lowest demand and highest maintenance expense of the year, to be consistent with or slightly better than the first quarter of 2016.

For the full year we expect total block hours to increase approximately 20% compared with 2016, including our ramp up for Amazon, Southern Air and our new services for Asiana and Nippon Cargo. More than 75% of our 2017 hours will be in ACMI with the balance in Charter. Aircraft maintenance expense in 2017 should total about $240 million and depreciation and amortization is expected to be approximately $170 million.

In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $55 million to $65 million mainly for parts and components for our fleet.

I would like to ask Spencer to provide some additional detail about our framework for 2017 and to follow that with more information about our 2016 results. And after Spencer I will have some closing comments and then we'll be happy to take your questions. Spencer.

Thank you, Bill, and hello, everyone. As we are now in 2017, we are taking this opportunity to revise the focus of our guidance framework. Our guidance today and for the foreseeable future will focus primarily on adjusted income from continuing operations net of taxes. We view this as the most meaningful information to provide analysts and investors.

Earnings per share are indeed very important. But, because of the unique characteristics of warrant accounting, our EPS can be substantially influenced by changes in the market price of our shares. As the market price of our shares increases, diluted shares outstanding from the warrant accounting also increase, which has the impact of diluting earnings per share.

We saw this happen in the fourth quarter when our adjusted diluted shares outstanding rose to 26.3 million shares, including 772,000 implied shares from the warrant accounting impact. This information is included in the non-GAAP earnings reconciliation table which is on page 11 of today's press release.

Conversely, if the market price of our shares decreases there will be a related decline in diluted shares outstanding which would increase earnings per share. Our diluted share count each quarter will be impacted by the treasury stock method of accounting for warrants.

Under that method all vested in the money warrants are assumed to be exercised at their strike price, such as those held by Amazon with a strike price of $37.50 per share. The hypothetical proceeds are then presumed to be used by the company to repurchase its stock at the average daily closing share price for the quarter. The difference between the vested warrant shares and the hypothetically repurchased shares would be included in the total number of diluted shares outstanding for the quarter. For the full year the diluted share count would be the simple average of the diluted share counts for each of the four quarters.

Let's move to our fourth-quarter results on slide 6. On an adjusted basis of income from continuing operations net of taxes totaled $59 million or $2.24 per diluted share. On a reported basis we had income from continuing operations net of taxes of $28.7 million or $1.12 per diluted share. Our reported results include an unrealized loss on financial instruments of $27.9 million related to outstanding warrants.

As Bill noted, our fourth-quarter results benefited from the accretion generated by Southern Air; we also saw an increase in commercial cargo demand and a steady performance in Dry Leasing. Our adjusted results in the fourth quarter included an effective income tax rate of about 31%.

On a reported basis we had an effective tax rate of approximately 47% and that was principally due to the nondeductible nature of the unrealized mark-to-market loss on outstanding warrants that I noted a moment ago. Based on our current tax framework and the aircraft that we have purchased and placed into service, we do not expect to pay any significant federal income tax until 2025 or later.

Looking at slide 7, we had record fourth-quarter ACMI revenues. Revenues in ACMI reflected an increase in block hour volumes partially offset by a lower blended average rate per block hour. Both stem from an increase in CMI flying in 2016 following our acquisition of Southern Air and the temporary redeployment of 747-8 aircraft to Charter.

As a result average CMI aircraft equivalents, which do not include a component for aircraft ownership in the rate per block hour, increased to 28.7 aircraft during the quarter compared with 16 in the fourth quarter of 2015, or an increase of 12.7 aircraft. Higher charter segment revenues in the fourth quarter were primarily driven by an increase in commercial cargo demand partially offset by the impact of lower fuel prices. In Dry Leasing revenues were relatively stable.

Moving to slide 8, segment contribution totaled $142 million in the fourth quarter compared with $95 million in the fourth quarter of 2015. Record fourth-quarter ACMI earnings were primarily driven by accretion from our acquisition of Southern Air and lower heavy maintenance expense. Higher Charter contribution during the period reflected the beneficial impact of additional 747-8 capacity as well as a decrease in heavy maintenance expense. In Dry Leasing, segment contribution during the quarter was slightly better than a year ago.

Turning to slide 9 and our balance sheet. We ended 2016 with cash including cash equivalents, restricted cash and short-term investments totaling $143 million. Our cash position at December 31 reflected cash used for investing and financing activities, partially offset by cash provided by operating activities.

Net cash used for investing activities during 2016 primarily related to payments for flight equipment and modifications, including the acquisition of 767-300 aircraft for our service for Amazon, our acquisition of Southern Air and core capital expenditures. As noted previously, we expect to finance a substantial portion of the acquisition and conversion costs for these aircraft as they are placed into service with Amazon.

Net cash used for financing activities during 2016 included $179 million of outflows for debt payments partially offset by $103 million of proceeds from debt issuance. It is important to note that our debt has a low weighted average interest rate of 3.3% and that over 95% of that is at a fixed rate. In addition, 88% of our debt was secured by aircraft assets which have a value in excess of the debt.

In December we entered into a three-year $150 million secured revolving credit facility for general corporate purposes, including financing the acquisition and conversion of 767 aircraft prior to obtaining permanent financing for them. In January of this year we drew $100 million under the revolver for these aircraft.

Moving to slide 10. We remain committed to maintaining a strong balance sheet while growing our fleet. As anticipated our net leverage ratio improved to 4.8 times in the fourth quarter. Looking forward, as we place more aircraft in service for Amazon and begin to generate substantially higher EBITDAR, we expect our net leverage ratio at the end of 2017 to be below 2016. Now I would like to turn it back to Bill.

Thank you, Spencer. Moving to slide 11, I would like to emphasize the significance of what we are accomplished in 2016. We acquired Southern Air and its 10 aircraft, 777 and 737 operating platforms. We entered into long-term agreements with Amazon to lease and operate 20 aircraft. We added Nippon Cargo Airlines and now Asiana Cargo as new customers.

We signed a five-year five aircraft peak season contract with FedEx. And we finished the year on a very strong note with record quarterly revenues, a significant improvement in reported earnings and record adjusted earnings. We could not have accomplished this without the exceptional contribution of our crew members and our ground staff.

With our expanding business base and the ongoing development of our strategic platform, we are driving more deeply into the faster growing e-commerce and express markets. We are well-positioned to grow earnings in 2017. With that, Heidi, may we have the first question, please?

(Operator Instructions). Bob Labick, CJS Securities.

Good morning, this is actually Robert filling in for Bob this morning. Can you just give us an overall update on your ability to get planes converted on time and on cost?

Sure. This is Bill, Robert. So, as I mentioned in my comments, we have secured all of the 20 aircraft plus an additional aircraft for an operating spare given the size of our growing 767 fleet. We have contracted with both IAI in Israel and with Boeing in Asia to perform the conversions.

We have delivered our first two and we have very good controls in place and a hands on management approach at both conversion shops to ensure that the aircraft will be converted and delivered and put into service based on our commitments to Amazon.

And then on Amazon, are the upfront expenses, training, etc., in line so far with your initial expectations? And do you expect to turn profitable in 2017?

Yes, Robert. It is Spencer. The startup costs are consistent with our expectations. And yes, we still anticipate that in the second half of 2017 Amazon will become accretive, will turn positive for us.

Thank you. And just lastly from me, retailers are seemingly continuously lowering inventory levels, closing stores and shifting online. Beyond the obvious benefits to Amazon, are you getting the benefits of e-commerce or seeing any shifts or changes to [why] you are carrying?

Well, I believe we absolutely are. As you know, we have -- our largest customer today is DHL Express and we provide peak season flying to other operators, as well as our current ACMI customers. I think we are all benefiting from a shift to e-commerce and we are seeing those volumes move into air in one form or another through one channel or another.

When you visit one of these sortation centers, Robert -- you visit one today versus visiting one several years ago, I think you see some drastic differences. And so, today you are seeing the smaller brown boxes that are appearing on all of our doorsteps, whereas in the past it was a different type of cargo that was moving through. So there is absolutely a shift occurring.

Thank you.

Helane Becker, Cowen and Company.

Hey, guys, it is actually Steve on for Helane. Real quick on -- what is your guys' outlook for kind of aircraft feedstock? I think there was a comment last week that Amazon might need about 100 aircraft of different types. Is there any stress in the market or any kind of any ability to ramp up to demand out there?

So, I will just comment from our perspective. As I mentioned earlier now, we have acquired the aircraft that we need to fulfill our commitments to Amazon. We have acquired the conversion slots and we are managing the conversions as we talked about. There is a good feedstock of aircraft and different aircraft types depending on what the market is going to look forward and [wanted] demand.

So my belief is that -- not being specific to any one customer -- there are several companies out there that are looking at aircraft and conversion. I think the feedstock is adequate to meet the demand.

Okay, perfect. And then just ramping up for this contract how does hiring look? Are you guys having any trouble bringing in pilots? Are you having to pay anymore to get people to come over or has that been relatively smooth?

No, we have scaled -- certainly been able to scale to meet our growth across all of our asset types. We hired about 370 pilots last year across all of our aircraft type. We have our contract in place; we think we have an attractive contract in place. And certainly believe we'll be able to hire the additional pilots we need in 2017 and 2018 as we grow for Amazon and for our other customers.

Okay, perfect. And one last one just looking at the guidance. I guess I was a little surprised that 1Q 2017 wasn't up a bit just given the Southern Air acquisition. I think that closed April 1, right? Is there any just kind of -- anything offsetting that?

Sure, it is a good question, Steve. So when you look at the first quarter of this year, 2017 compared to last year, you are right, we will have full year of Southern so we will enjoy contributions from Southern in the first quarter. Heavy maintenance expense is higher and so that will be higher in the first quarter of 2017 than it was in 2016.

The other big item is if you go back to the first quarter of 2016 you will see that our Titan Dry Leasing business enjoyed return conditions in 2016 and so those won't recur in 2017. So those are the items, the big items at play there. So really nice contributions from Southern, offset -- partially offset by return conditions from our Titan Dry Leasing business that were really one time in nature and then higher heavy maintenance.

Okay, perfect. Thanks, guys.

Scott Group, Wolfe Research.

So, wanted to ask first just on the maintenance expense, so a nice kind of step up in 2017. Is this a, unusually high year would you call it, or is this more of kind of a new normal just given the size of the fleet now?

Yes, Scott. Well, it is different types of maintenance. And so there is line maintenance, which is a variable cost and grows as flying levels increase and block hours rise. And then there is heavy maintenance. And then the heavy maintenance really is -- it is partially time-based. And so heavy maintenance is due when it is due. And then part of it is also based on -- for engines, for example, based on cycle counts and takeoffs and landings.

So it really varies. The heavy maintenance varies depending upon how many checks are in one particular year. So you are comparing 2017 versus 2016. We expect that we will have several incremental [D checks], several incremental engine overhauls. We will have a full year of Southern, so maintenance expense related to Southern will be higher, but that is more than offset by earnings from Southern.

We will have a couple more -8 seat checks, and then of course we have been growing our 767-300 fleet, and so some incremental checks there. So, it just is an ongoing part of the business and I think that is what we are seeing in 2017.

No, no, I totally understand that it can be lumpy. I am just trying to think beyond 2017 -- if this is a heavier than normal year in 2017 or if this is more of a normal year.

Well, line maintenance is up about 20% and so are block hours, to Spencer's point. So that is activity driven. And so, that is an important part of the equation. And then it is the timing of the heavy events, Scott, as Spencer pointed out. So we are up a little over 10% on heavy, but that is more timing than anything else when these events occur.

Okay, okay. Can you give a total CapEx number for 2017 including aircraft?

So, Scott, we typically talk about our core capital expenditures and we typically don't talk too much about the aircraft. But I understand your question, it is a good one. We've said that our core capital expenditures for 2017 should be somewhere between $55 million and $65 million, but that is not really your question. You are asking about the aircraft and engines.

So when you see our 10-K that we will file later today you can take a look at the 767s that are included in there. And then you can estimate additional 767s that will be added. I think given the sensitive nature of us being out in the marketplace acquiring additional aircraft, we would really not -- really don't want to say more than that about how much these aircraft are costing. But I think that will give you some of the information that you need.

Okay. I guess maybe what I was trying to get at, are there more -- now that you have all the planes for Amazon are there any additional aircraft you are planning to acquire in 2017?

So, we have secured all of the planes that we need for Amazon. However, from a cash standpoint, some of those we make deposits on, we have conversion slots in some of those we have make deposits on. So from a cash standpoint, from a CapEx standpoint there is still additional capital expenditures that will be expended during 2017.

Okay, that makes sense. And if I could just ask one last thing real quick. So the two 400 ACMI contracts that you announced, one in December and then one I guess a couple weeks ago, are those net additions so we should be raising the ACMI fleet by two and lowering the Charter fleet by two aircraft?

It is actually one and one. One is an ACMI, one is a CMI. So the one ACMI -- the one ACMI is our fleet, the CMI is in addition.

Okay, perfect. Thank you, guys.

(Operator Instructions). Jack Atkins, Stephens.

So, I guess just to go back to guidance, and I guess maybe to hold your feet to the fire a little bit on that. I am having trouble understanding the rationale for deemphasizing earnings per share.

I get that there is some volatility from the stock price, but I just don't understand deemphasizing the capital efficiency of the enterprise because in theory you can grow your income from continuing ops while also diluting your shareholders if you are not focused on EPS.

So, I just think it maybe sends the wrong message to your shareholders and I just would love to get your thoughts on that.

Sure, Jack. It is really a function of the warrant accounting and the impact it has on EPS. And it is this sort of converse relationship or inverse relationship so that when our share price increases our EPS decreases. And then the opposite of course is true. And we saw that during the fourth quarter, we absolutely saw that.

Our share price rose pretty dramatically during the fourth quarter and then that really increased the shares outstanding and then hurts the EPS. So we don't want to -- first of all, it is difficult for us as a Company to sort of reliably forecast our stock price movements. And we certainly don't want to have incentives for stock price declines. If our stock price declines then our EPS is better. But we would never want to have an incentive in that direction.

So we are really trying to focus the future guidance on adjusted net income, that is what the Company can control, rather than EPS. And we've had a really balanced, I think as you know, a really balanced capital allocation approach that doesn't change in any way. We continued to support having a very strong balance sheet.

We have continued to invest in assets, modern, efficient assets that our customers want and will help the Company in the long-term. And we've bought back over 10% of the stock through share repurchases over the last several years. So we have had a really balanced approach and we don't see that changing.

Okay. So shifting gears here I guess a bit to the marketplace and demand for leases. I have noticed the announcements, to Scott's point, on the -400 leases, but you still have two -8s in Charter. I guess I am just curious why it has been so difficult to put those -8s under a long-term contract and would you expect to be able to ink a deal for one or both of those planes in 2017?

So, what we have talked about in the past, Jack, is our ability to use those -8s in Charter and drive meaningful results with those aircraft and is what we have done in the fourth quarter. And I think several times we've talked about that and we do expect ultimately that 747-8s go into Charter -- excuse me, go into ACMI. But I don't think it should be lost the earnings power those aircraft have and the ability that we can -- we have to drive those earnings power with those -- with the aircraft.

I think the other thing that shouldn't be missed either. In 2016 we basically signed up 30 aircraft units of committed growth, which is a huge -- why we said it was a historic year for us. The 20 aircraft with Amazon plus the 10 aircraft that we have acquired, those ACMI operations through Southern fly for DHL. It is a very significant year for us as we are moving to 100 aircraft in the fleet.

And I am not minimizing or attempting to minimize your question. But I think we have a very solid track record of putting our assets to work, driving great earnings from those assets and now we have a year behind this where we have laid out a very compelling growth platform for the Company going forward for the next several years.

Okay, Bill thank you for that. Last question and I will turn it over. You referenced in the prepared comments and in the press release lower cost base rates in the US military. Can you explain exactly what is driving that reduction and are these lower rates a new sort of run rate for that military business looking out?

Sure. So, the rates in the -- for AMC flying are cost base. All carriers that fly for the military submit a year's worth of information of actual costs incurred to operate a given aircraft type. The military then audits that information and then establishes a base rate that is paid to all operators -- all operators of the same aircraft type.

As carriers in the craft program commit more modern and more efficient aircraft, and they themselves become more efficient in the operate -- in their own operations the cost basis came down. And that is exactly what happened. And so, it is a cost plus.

So, it is a plus on the average cost and that was the impact that we saw -- a more modern fleet across all the carriers serving the military, more efficient operations by all the carriers, lowered the cost base and then essentially brought down the plus, or the profit margin that is now applied on a lower base.

And I will just add to that, Jack, just quickly is that when looking at the 2017 guidance, so we are hurt a bit by this AMC pricing, we are hurt a bit with rising maintenance. But our earnings are still growing -- 2017 versus 2016, still growing because Amazon becomes accretive, we get a full year of Southern and we've added these new customer agreements. So that is really the key important point.

Okay. Bill, Spencer, thanks again for the time.

Steve O'Hara, Sidoti & Company.

Just a question on the aircraft that you purchased for Amazon. I know you said you have secured all the aircraft and the slots. Have you purchased -- other than the spare have you purchased other or secured other purchases for 767 aircraft?

Other than --?

We are at -- at least 21 is what we have secured.

Yes.

Okay, so you don't have any options on any others or anything like that?

No, we don't have options on other aircraft, Steve, but we are going to continue to evaluate the market, evaluate opportunities and evaluate our whole array of customer opportunities. And if and when it makes sense to grow the fleet, we will.

Okay. And then maybe just following up on that with the 767 demand. I mean I know in the past your competitor has talked about demand from other customers has been improving. And I am just wondering -- I mean it seems like you guys have, to my knowledge, one big customer in Amazon and another big customer -- or maybe a little smaller in the 767 in DHL. Have you explored other opportunities going after smaller customers in that aircraft type?

So just to refresh, so we have got 13 767s flying for DHL. We will have the 20 ultimately for Amazon in this tranche, we will have our spare aircraft, we also have five 767s pax that we are operating in military as well as another 767s that we are flying for MLW Air which is Mark Cuban's aircraft for their sports teams and charter work that they do.

Yes, I believe there are other opportunities for the mid-body freighter. The kind of growth that we are going to experience here in 2017 and into 2018 with that -- two things, it is a fair amount of growth to absorb. We are well-positioned to be able to do that. And I think there will be other opportunities to fly midsized freighters for other customers, if that is what you are asking.

Yes, okay. That is helpful. And then just maybe on the 747-8Fs, just based on the framework you have put out there, do you expect the -8s to go into ACMI this year? And maybe what is the high end to the low end of the guidance? And maybe what your feeling is on the peak season this year? Obviously it is a ways away. But looking for a more normalized season it seemed like the peak was pretty good this year, maybe what your thought is there. Thank you.

Sure. So, maybe kind of working backward. I think the peak that we had this year was perhaps a more normal peak. The peak that we experienced in 2015 benefited greatly from the West Coast port work stoppages overall. So this peak, while a good peak and a strong peak, just in terms of demand was more normal and not necessarily exceptional.

We were able to take advantage of the peak period in terms of our ability to put aircraft to work for other express operators. And that commitment -- as we said, we have strengthened that commitment now with FedEx and contracted out peak season flying for five years starting in 2017.

Years ago we used to talk about earnings power on the -8; we were trying to provide a framework of what they would contribute as they came into service some five or so years ago now. But just to put a finer point on the balance between ACMI and Charter, we are earning ACMI like returns in the Charter market with the -8s because of the fuel efficiency they provide and the cargo carrying capacity that they have.

So the -8s operating in Charter this year were not at a discount to ACMI type returns. So we feel very confident about the earnings power of that aircraft regardless of ACMI or Charter placement and our ability to keep them placed and active.

Okay. All right. Thank you very much.

Scott Group, Wolfe Research.

A couple of things, did you give a tax rate for the year?

Are you talking about 2016 or 2017? I presume you are talking about (multiple speakers).

For 2017, guidance for 2017 if you have it, Spencer.

Sure. We think that with some tax planning that we anticipate for this year we expect the 2017 adjusted effective tax rate to be a bit below the 2016 rate which was around 31%. So my long-winded point is 31% on an adjusted basis in 2016; we think it will be lower than that in 2017 -- a bit lower.

Okay, so around 30% is a good place to be?

Somewhere a little south of 31%, yes.

Okay. The Amazon -- just to make sure I understand. Are you saying it is now accretive in the second half of the year or accretive in the full year?

Both, yes. It (multiple speakers).

It becomes accretive in the second half of the year but it makes it accretive for the full year?

That is exactly right, yes.

Perfect. And then just lastly, any update you can give us on pilot contract negotiations and if you are assuming any kind of step up in pilot pay in the guidance for 2017?

Scott, this is Bill. So our contract at Atlas became amendable in September of last year and in November of last year at Southern. We are in discussions with our pilots. We look forward to continuing to make progress or make progress with the pilots on the contract and we haven't made specific assumptions on the contract in our guidance this year other than the contractual rates that we have in place.

Okay, so you don't accrue any potential increases in real time?

No impact expected for 2017, if that is what you are asking.

Okay, thank you, guys. Appreciate it.

And there are no further questions in the queue.

Okay, thank you very much, Heidi. And Spencer and I certainly want to thank all of you for your interest in our Company and we really do appreciate your sharing your time with us today, and look forward to speaking with you all again soon. Thank you.

This concludes today's conference call. You may now disconnect.