Air Transport Services Group Inc (ATSG) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 ABX Air, Inc. earnings conference call.

I would now like to turn the call over to Mr. Joe Hete, Chief Executive Officer. You may proceed, sir.

Thank you, Tanya. Welcome to our first quarter 2007 conference call. Quint Turner, our CFO, is with me, and he will discuss our financial results for the first quarter ended March 31. I will update you on some issues that affected those results on our agreement with ANA which I'm sure you want to hear more about. We filed our first quarter 10-Q with the Securities and Exchange Commission yesterday afternoon. It's available on our website at abxair.com. Before we begin, I want to give you the results of our annual shareholders meeting which was held here in Wilmington yesterday. At the meeting, ABX shareholders elected James E. Bushman, Randy D. Rademacher and Frederick R. Reed to new three year terms on the board. They also ratified the appointment of Deloitte & Touche as our auditors and turned down two shareholders proposals. News release with the details is on our website along with a copy of our presentation. Quint will now go over our financial results for the first quarter. Following Quint's presentation, I will cover our operations during the quarter and a few other current topics, then I will ask Tanya to open the call to your questions. Quint?

Thanks, Joe. I need to begin by advising everyone that we may make projections or other forward-looking statements during the course of this call. Such statements involve risks and uncertainties and our actual results and other future events may differ materially from those we may describe here. I would like to refer to ABX Air's periodic reports we file from time to time with the Securities and Exchange Commission, including our Form 10-Qs for the first quarter of 2007 that we filed yesterday and our Form 10-K for 2006. These documents contain and identify important factors that could cause the actual results to differ materially from our projections. In addition, during the course of the conference call, we will refer to pre-tax earnings per diluted share and the impact on a per share basis of the income tax benefit recorded by the company. During the terms of the first quarter '07, both of which are non-GAAP financial measures, reconciliation of these non-GAAP measures is contained in our first quarter 2007 press release and can be accessed on our website.

Now let's talk about the first quarter results. As anticipated, lower revenues in our DHL segment compared to the prior year due mainly to the May 2006 transition of the line haul truck network to DHL made for a challenging comparison to first quarter 2006 results. In addition, packages handled on behalf of DHL were at lower than budgeted levels and our costs were adversely impacted by more severe winter weather than a year ago. These factors made achieving incremental markup revenue under the Hub Services Agreement difficult. However, it was another successful quarter in terms of growing our nonDHL business which should provide us with strong results going forward. Revenues for the first quarter were $288.1 million, down $81.1 million from first quarter 2006 revenues of $369.2 million. Most of the decline, $65.3 million, was due to DHL assuming the management of their line haul trucking operations in May 2006. Pre-tax earnings for the quarter declined $1.2 million to $6.9 million, from $8.1 million in the first quarter of 2006. Management of the DHL line haul trucking operations during last year's first quarter contributed approximately $1.3 million to pre-tax earnings.

We reported net earnings of $4.3 million for the first quarter of 2007, compared with $8.1 million for the first quarter of 2006. Net earnings were reduced by deferred non-cash income tax expense at a 38% rate or $2.6 million. The company did not have income tax expense in the first quarter of 2006 because the expense was offset by a reduction in the tax valuation allowance. As we discussed in February, beginning in 2007, ABX's recording deferred income tax expense had an effective rate of approximately 38% of pre-tax earnings. After three years of profitability, and with projections of positive future earnings, the company decided to remove the asset valuation allowance for its income tax carryforwards and other deferred tax assets it had since the company separation from Airborne back in August of 2003. We removed the tax allowance in the fourth quarter of last year, realizing that the company would more likely than not be able to utilize its net operating loss carryforwards to offset future taxable income. While going forward, we will reflect an income tax expense on our income statement, the good news is that it is a non-cash item for some time. In fact, we do not expect to be a cash payer of federal income taxes for the next two years, based on projected utilization of our net tax operating loss carryforwards.

Pre-tax earnings from the two DHL contracts were $3.8 million for the first quarter 2007. These results included $3.2 million in base markup and $600,000 in incremental markup. First quarter 2006 pre-tax earnings from the two DHL contracts totaled $5.2 million, including $3.7 million in base markup and $1.5 million in incremental markup. As mentioned previously, management of the truck line haul network accounted for about $1.3 million of our first quarter '06 pre-tax earnings from DHL. Under the ACMI and Hub Services agreements, as you know, ABX Air earns a base markup of 1.75% on eligible costs, and can earn incremental markups for meeting certain quarterly cost related goals as well as other annual cost related and service goals. Earnings from annual cost related and service related goals are recognized in the fourth quarter. We earned 100% of the maximum cost related incremental markup possible under the ACMI agreement. No incremental markup was realized from the Hub Services agreement in the first quarter, primarily due to lower than budgeted package volumes and higher than anticipated weather related cost at the Wilmington hub. First quarter of 2006 results reflected higher than budgeted package volumes and a very mild Ohio winter season. Both were factors in maximizing our potential for Hub Services incremental markup last year.

Turning to our nonDHL businesses, we continue to see strong growth during the quarter, particularly in our Air Charter segment where revenues increased by 83% to $7 million from $3.9 million last year. Pre-tax earnings in this segment also increased to $1 million as compared to $200,000 last year. The first quarter is traditionally a soft quarter for ACMI markets, so we expect to see continued growth and sequential improvement in our revenues and pre-tax earnings in this segment as we continue to place 767s into service during the remainder of the year. The growth of this segment is driven by the number of 767s deployed and their utilization. During the first quarter of last year, we operated only two 767s in the charter segment as compared to five in service throughout the first quarter of 2007. The increase in aircraft drove additional block hours flown up by about 117% in the first quarter '07 compared to last year. The pre-tax earnings for the charter segment of $1 million represented 14% of revenues, up significantly from last year's pre-tax earnings for the segment of $200,000 or 6% of charter revenues.

Improved margins reflect the lower ownership costs associated with the ex-Delta 767 freighter aircraft we are deploying, as compared to the 767s which were utilized in our charter segment last year. In addition, rapid integration of these aircraft with our customer's operations and good block hour utilization were also factors. Since the end of our first quarter, we have placed two additional 767s into revenue service, making a total of seven aircraft operating under our charter segment as of this call. We expect to deploy five more Boeing 767s during the remainder of 2007, so we should have 12 operating by year end. A 13th 767 is slated for service in early 2008. Two of our 767s are heading to Japan this month under our new agreement with All Nippon Airways, which Joe will discuss further in a moment. The $22 million in annual revenue we expect to generate under that agreement makes us extremely optimistic about this segment going forward. The contractual arrangement with ANA should allow us to achieve margins at least as strong as we are getting today and represents the best possible option we have for deploying these aircraft. Equally important, it allows us to enter one of the fastest growing economic regions in the world for air cargo.

Outside the charter segment, we also saw continued strong growth in our other nonDHL operations, with revenues up 79% for the quarter to $8.1 million, from $4.5 million. That was driven by our additional mail handling services for the United States postal service, plus more aircraft maintenance services. Last year, ABX was operating only one postal surface transfer center in Indianapolis. Two additional centers have been added since then in Dallas and Memphis. Margins for the other portion of our nonDHL businesses were lower, but pre-tax earnings with pre-tax earnings of $1.1 million versus $1.3 million first quarter 2006. The decline was primarily due to additional expenditures we made to support the expansion of that business and to a revenue mix weighted more toward lower margin mail handling because of the addition of the two source centers in the second half of 2006. We said when we took over the management of the Dallas and Memphis postal facilities last September that we did not expect them to be profitable for us until first quarter '07. Having completed much of the startup work, we now expect both centers will hit our targets in 2007.

Cash flow generated from pre-tax earnings and depreciation and amortization was $18.8 million in the first quarter, compared to $19.1 million for the previous year's first quarter. The 1.4% drop in operating cash flow was due to the decline of the company's pre-tax income. Amortization and depreciation expense increased 8% for the quarter to $11.9 million from $11 million, primarily from the five Boeing 767s we have added to our fleet since March of 2006. Net interest expense for the first quarter of '07 increased by $200,000 compared to the first quarter of 2006. The increased interest expense is a result of financing on three 767s we added to service in our charter segment. Now Joe Hete will review our operations for the quarter. Joe?

Thanks, Quint. As the numbers that Quint just provided you indicate, our DHL performance was hampered somewhat by bad weather, including some severe storms and fog conditions here in February that delayed some flights and interfered with our sorting operations on the ground. It is under just such adverse operating conditions when our employees have historically stepped up to the challenge and I'm proud that this past February was no different. The operating strength of our Category 2 and Category 3 aircraft proved their value during February's fog events. Our aircraft are equipped with avionics that allow seamless performance under conditions of very limited visibility. Our emphasis remains on service quality, and I'm pleased to say that apart from weather related factors, our service remained above our targets in both parts of that business during the first quarter and remains there today.

Our nonDHL business performed very well during the first quarter, with good block hour results for all our new aircraft during what is typically the slowest time of year for our business. We were very pleased about the level of commitments we are getting for our 767 as they join our fleet, including the two planes we are providing to ANA. I'll have a bit more to say about that in a moment. Our DHL performance translated into another quarter of maximum incremental markup for our ACMI operations on cost related measures. We were also off to a good start against our ACMI cost annual related goal, though it's too early to make projections. We are proud of the level of service we are providing DHL both in our ACMI and sorting operations, and nothing suggests to us that DHL thinks otherwise. We continue to work closely with them and other DHL contractors to create more efficient schedules of air routes and package handling practices to reduce cost and promote better service. We think we were making great progress and that there are opportunities for even more improvements ahead of us.

I know some of you are eager to find out what will happen with our Hub Service Agreement which expires in August. The agreement states that it renews automatically for one year unless either party gives 90 days written notice, which will mean about a week from today. It's important to remember that there is no guarantee that a renewal of the Hub Services Agreement means everything stays the same. As you know, DHL continues to have the right to modify our agreements with them on 60 days notice, so our view has always been that the agreements remain subject to change at all time. I can tell you that we have no intention of taking any action on that and we have heard nothing to date to indicate that DHL has any other plans. We told you earlier that DHL will be taking over management of the regional hub in Riverside, California, in the second quarter much as they did with the Allentown, Pennsylvania hub at the beginning of this year. Both new highly automated facilities and Riverside has international gateway services that DHL prefers to manage directly. Our focus continues to be to provide DHL with the best possible service quality we can and to work closely with their other vendors to guarantee that DHL packages get to their destinations as quickly and cost effectively as possible. I meet regularly with our employees to impress upon them just how competitive the package delivery business is and that we need to do our jobs better every day to be successful. Our solid performance measurements show they understand and we intend to keep improving on that as the year progresses.

At the same time, it's clear that our support of the network requires fewer resources than it did a year ago. We have assessed what that means in terms of our work force requirements and we have decided to reduce the size of our organization by about 133 positions. Most of those are unfilled open jobs, but approximately 55 people in staff positions were notified earlier this week they are being separated. And in addition, we have furloughed ten flight crew members. We believe that those steps can reduce our fixed costs by approximately $7 million on an annual basis, which will help us in DHL become even more competitive in the marketplace. Operation costs and other expenses related to this program will be fully reimbursed under our agreements with DHL.

At the same time, our nonDHL operations continue to ramp up aggressively, thanks to the additional 767 aircraft we have in our fleet. While our ANA agreement is getting most of the attention, we are in discussion with several shippers, forwarders, and other carriers about long term commitment for these aircraft. In April, we took delivery of the 767 and are due to get five more in service this year. Two of these are already committed to ANA for the next two years and will be placed in service from the Kansai International Airport, near Osaka, starting next week. Our aircraft and crews will be covering over 22 weekly flights between Japan and five cities in China plus Bangkok, Thailand. This is a much bigger opportunity for us than it might seem, based on the numbers Quint shared with you. According to Boeing's global forecast of air cargo demand, the intraAsia air freight market is growing at better than 8% per year, which is more than twice as fast as the North American market and faster than any other region in the world except the domestic China market. ANA's endorsement of our capabilities gives us a very solid foothold in Asia and makes us a truly global carrier, as our flights cover North and South America, Europe, Asia and the Middle East. We also are honored to be the first carrier to be approved to take on cargo flights for a major airline in Japan. We feel a great sense of responsibility to respond to their commitment to us with service that more than meets the standards we have agreed to and the expectations of their customers as well. At the same time, we are committed to placing our 767s where they can provide our shareholders with the best possible return. The terms we have negotiated with ANA will provide with us margins consistent with those we have targeted with the rest of our 767 fleet.

As Quint noted, our other nonDHL operations are continuing to grow, although margins are showing the effects of the larger share of sorting business we have at the U.S. Postal Service. Our new Memphis and Dallas facilities are now running as planned and made money in the first quarter after adjustments. We are looking at some other sorting opportunities, including several more with the U.S. Post Office as they build out their regional network. And we are continuing to keep our extensive team certified aircraft maintenance specialist and training facilities busy by making them available to others on a contract basis including 767, DC8 and DC9 operators. While these operations will always be a somewhat volatile part of our business, we are expecting it to be an important contributor to cash flow going forward. That completes my discussion of our results and some current developments. Now, Tanya, we are ready to take some questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Monica Logani with Wall Street Access. Please proceed.

Hello. Just a few different questions. First on the DHL hub side -- it seems like a recurring problem in terms of the package volume, the budget being higher than what actually came through. And just wondering why this issue isn't getting resolved? Just seems like DHL is obviously getting a great deal because they aren't paying you much markup. I'm just curious from your perspective what you guys are doing to try to take care of this problem.

Monica, this is Joe. In response to that, it's a budget process and certainly with the first quarter as we mentioned had a negative impact on our results as well -- some significant adverse weather. It wasn't just here in Wilmington, but throughout the country. And that has a marked impact on shipping volumes from DHL's customers as well which can help drive the numbers down below what was anticipated from a budget level. Obviously, there is a negotiation that takes place in regards to setting budget targets from both a cost and piece perspective. Certainly those targets are very aggressive from DHL's perspective as well as ours. As you know, this still has a little bit of difficulty in the domestic marketplace. We will set aggressive targets from everybody that's involved in the operation. Sometimes you will hit them and sometimes you won't.

One thing you mentioned during your comments was that they could modify the agreement on 60 days notice. It just seems like with such aggressive targets, they aren't paying you much incremental markup, if any. Wouldn't seem -- tell me if I'm wrong, that they probably are happy with the aggressive targets that are set.

I think from their standpoint, obviously the agreements that you would follow are structured in such a way that while they may be aggressive, they should be in a range where they are attainable. Otherwise it becomes a disincentive to continue to drive down costs. While they are difficult, they are not necessarily impossible, because to do otherwise from DHL's perspective would actually be a disincentive for us to continue to control cost.

That was my point. I guess the best guess would be that if they did modify the agreement they wouldn't make it more aggressive.

Possibly.

Okay. Then going to a third party side, you did talk about seasonal softness in the first quarter. Could you just talk about -- I know the number of hours obviously went up just because you have more planes. You have five planes, correct, so far in the first quarter?

In the first quarter, yes.

Did the fifth plane come on in the beginning or just part of the quarter?

It was only part of the quarter, Monica. If you look at the block hours they were up 117, 118% on a year-over-year basis. As you recall, we had two aircraft in place in the first quarter last year. We ended 2006 with four aircraft in service and the fifth one came on in the latter part of February. So you didn't have the full benefit of the aircraft during the entire quarter. Do the math on that figure, four and a half airplanes if you want to do the math. So actually the utilization was higher as we mentioned. First quarter is always a soft one.

If you just do the math that looks like 170 to 180 hours a month per plane?

That's about right.

Is that compare with a year ago?

Actually, a year ago was softer than that. It was more like 160 per aircraft.

And then on the revenue per block hour, how did that compare versus a year ago?

It's a little different mix this year. Last year we had some flying we did for the U.S. military in the first quarter. When you fly for the military, the cost includes fuel. We didn't have any of that in first quarter this year. So there is a little bit of a distortion. If you focus strictly on the 767 that are on the longer term contract, the margins are actually up just a tad on a per block hour basis from where they were in the first quarter of '06.

So the revenue for block hour was not softer. It was in line or a little better?

Yes, ma'am.

So that needed clarification because it looked like it was softer. So that's good to know. And the first quarter came in as you expected it in terms of the seasonal softness that you are used to seeing this quarter?

Yes. We fully expected that to be out there and likely from the timing standpoint, having the fifth aircraft come on later in February certainly was beneficial from a profitability perspective.

To re-iterate, you will basically double your fleet from five to ten by the end of the year, correct?

Yes. If you look at -- by the end of this year you will have 12 aircraft in service. Five in the first quarter, more than double.

Great. And then could you just remind me again when those are coming in for the rest of the year -- how many in each quarter?

By the end of this quarter, I'm going from memory now. I think it's eight aircraft by the end of this quarter. Nine by the end of the third quarter and 12 by the end of the year.

It's a little bit faster than what you had relayed before, correct?

That is correct. When we originally went into -- I think it's when we did our February conference call, we talked about only having ten aircraft in service by the end of the year. We had modified the schedule with IAI since then in terms of them opening up more capacity, and consequently we are able to get all 12 in service.

All the Delta planes will be in service by the end of this year?

Yes.

And then one American plane coming next year, correct?

That will be in the first quarter.

So that is definitely accelerated -- okay, that's very positive. And then just kind of moving over to the nonACMI and the third party side, you are talking about just why margins were a bit weaker. First of all, would you say it was the revenue stream was evenly split between the HASP -- the three hubs for that, and then maintenance was an even split in terms of revenue?

Monica, if you look at that side, the majority of the revenue is in the postal centers. And with the addition of the two new centers that were added in September last year, that was the dominant piece of that other noncharter, nonDHL revenue.

Was the HASP?

Correct.

Okay. Because in terms of nonACMI, it was about $8 million, right?

I mean, maintenance services for us involves not only work our mechanics do on customer aircraft, but also involves part sales and consignment sales. It was a little less. I mean, it was fairly even, but the postal centers are the dominant piece of that revenue.

More than 50%?

Yes.

Okay. And the way we can kind of just from a modeling perspective on the postal piece -- I mean, we know what the contract size is and we know it's either $17 million or $20 million over four years and you divide by four to get the quarterly. Is that the way to look at it?

What we said is they are roughly annually -- if you do the math about $5 million apiece for the three centers. $15 million for three centers.

Okay. So four and change. -- no, sorry, three and change, right? Almost four. Per quarter, correct?

As group, yes, all three.

Okay, all right. I just want to make sure I understand the margins on that is like a 10 to 15% margin?

I think what we sort of targeted is probably a little closer to 10. I mean it's a labor-type situation you are performing -- you're supplying staffing and handling the packages. It's probably more toward the 10.

The maintenance side is closer to 30?

Depends upon what piece of that. As you know, we do flat panels, we do airframe checks and it really depends. But because of the specialties we have in the niche that we carved out for ourselves there, the margins are higher.

Okay, and then just one final question. You alluded to the fact that you guys are investing other opportunities for the third party business and that's what brought margins down. Could you be more specific just so we understand kind of where potential growth is in the future?

The constantly reference there, Monica, related to us expanding the business overseas. Basically tied in to the ANA agreement. We have a significant amount of travel costs we had to absorb, et cetera, get the facility set up over there. That's really what the reference is to.

Okay. So when we are just looking at margins on the nonACMI within the third party. Those margins seemed a little late. What was the reason for that?

I'm sorry, I missed --

Because I thought that these kind of costs were alluding to why margins were a little bit weaker on the nonACMI -- the maintenance and the postal service piece. Was that referring to that? Or was just referring to --

Cost. Basically we call them general administrative costs associated with SG&A associated with the entire nonDHL business.

I got you. Sorry.

I mean, Monica, you are right. The travel cost that Joe was talking about would be in the ACMI charter segment to do the ANA preparations.

Maybe margins were a little bit even lower, even though they were strong at 14% -- they could have been even a bit higher if not for those costs.

That didn't help the margin to have some of that preparatory cost this quarter.

All right. And just you -- one last question on Riverside, you said that would go away in the second quarter. Could you remind us what the revenue and earnings impact of that is?

The first quarter revenue was about $2.4 million and so the earnings impact was less than $100,000.

And then in terms of CapEx, what are you guiding for the rest of the year?

Our CapEx -- again, some of our capital expenditures for aircraft we intend to do some financing on. Basically we're looking at roughly $150 million in CapEx for the full year.

And that's including whatever --

That is prior to any netting of proceeds from financing.

Great. Thank you so much. I appreciate it.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Matt [Zante] with First Capital Alliance. Please proceed.

Hi, Joe, Quint. This is actually Henry.

Hey, Henry.

Got a couple of questions for you. The contract with Nippon Airways -- is that a standard ACMI contract? Anything unusual?

From an ACMI standpoint, I think you could say it's got significantly higher utilization than any of the other contracts that we have to date.

Okay. So is it fair to say that the -- I think you stated before that your benchmark operation margins on these kinds of contracts are in the neighborhood of 12 to 15%?

What we've always told the market is from a cost to capital standpoint, we were targeting 12 to 15% operating margin on this nonDHL work --

If I take a back of the envelope kind of analysis here. You indicated on your press release that between the two planes we might be able to generate $22 million of revenues every year. And applying 15% margin and whatnot, and dividing by your number of shares. That works out to somewhere roughly like additive of $0.03 operating margin per plane. Is that roughly right?

Prior to tax effect.

Exactly. So this is what you are alluding to by maybe earlier you said that maybe the market may not be fully recognizing the growth opportunity here. As I feel as if there are going to be adding I said earlier before like five more planes and now the total of 10 by the end of the year, right?

Well, we would have 12 by the end of the year.

I mean, this is where I think there is a little bit of a dichotomy here of understanding the opportunity with the planes that are coming online. Assume this is why you have high confidence. This is going to be very additive to the bottom line.

Henry, I think you are on target.

Good. Quint, can you elaborate on the cash flow for the quarter and the current cash that you have on the books and how you are going to be deploying this over the next few quarters as you pay for the retrofit on the 767?

The plan in terms of the financings at this time and -- Henry, what we said in prior earnings calls is that out of the dozen Delta aircraft, we intended to finance approximately up to eight of those aircraft and purchase four out of our cash. And if you look at as of the end of the first quarter, we had completed I think three financings and we had purchased three of those aircraft with our cash. So the plan as it turns out would be to finance six of the 12 and purchase six with our cash. So we have got additional loans in April, June and October that we would anticipate to close. Then the aircraft in the November and December timeframe we would purchase with cash. We would close the mod process and close it out with our cash. If you look at the anticipated cash flow for the year, now that would put us at the end of the year, roughly where we were at the beginning of the year perhaps a little better in terms of our cash on the balance sheet.

And how much is that roughly?

If you again forecast -- cash flow forecast little difficult to be pinpoint on, but basically at the end of the first quarter or the end of last year we had $63 million in cash and we had some marketable securities as well at $15.3 million. So we would anticipate to wind up in roughly the same place at the end of this year. Perhaps $10 million or so better than that.

The other thing I would consider is obviously as we look to expand on the 767, we know which ones we have contracts for today. And certainly have to take advantage of opportunities that may crop up through the balance of this year, because it's been a tight market from the 767 perspective to be able to acquire additional assets. And that could also have an impact in terms of potential additional acquisitions and/or what kind of financing arrangements we make.

Exactly. The Cap Ex figure that Monica asked about previously in our projection of around $150 million -- that is for known contracts that we have. As Joe says, to the extent that we were to acquire aircraft in addition to that, that would be on top of that.

So do we have any flexibility to repurchase shares or not?

There is really no change in that, Henry, since I know you asked that question previously on calls. And to date again we were restricted under the DHL note with respect to repurchases.

So even though we are clearly generating a lot of cash flow and accumulating, it's not an option for us still.

Not at this time. So with that in mind, certainly we will look to our other avenues to invest that money back into the business and continue to grow that bottom line, which has the upward pressure on the share price.

Can you elaborate on the maintenance contracts in terms of opportunities there? It seems like it's been relatively flat over the last few years. Discuss what the environment is?

For a maintenance standpoint, you have to remember one thing our first priority is maintenance of the fleet that's dedicated to DHL. They occupy a significant portion of our hangar plan. We're limited by the hangar space in terms of doing a lot of heavy maintenance work for that very reason. It does put a little bit of -- call it a cap on our growth potential in heavy maintenance work. That said, there are opportunities outside of that where we can grow the business associated with line work for other carriers. For example, we are doing turn maintenance for a couple carriers today, specifically on the West Coast where they bring their aircraft in, and rather than having set up their own maintenance operations we will add resources into one that we already have there and do that turn maintenance for them. A lot of growth potential in that piece of the marketplace because there is no constraint other than how many customers we can bring into the fold. We talked about the flat-panel opportunities and saw -- if you followed IS&S this week -- one, we've aligned ourselves with and they made a disclosure about a potential 100 aircraft order and we certainly we hope to be a participant in some fashion with that order which will be some nice additive dollars in both revenue and profitability for the company.

I was going to ask about the flat-panel retrofit. When you say -- what could potentially be the value of that contract again?

We don't have specifics. IS&S gave that disclosure, so it's going to be dependent on what aircraft type -- so there is still some open question. IS&S did make the disclosure they had an order, but we don't know the particulars at this time.

Can you give me a time frame as to when some more particulars might come out on something like that?

Not at this time, Henry. Certainly as soon as we know something in the market you will be apprised of it.

Okay, thank you.

There appears to be no further questions at this time. I would like to turn the call over to Mr. Joe Hete for his closing remarks.

Thank you all for participating in our call and for your support as shareholders of ABX Air. Shortly after we announced the transition of the line haul business a year ago, I predicted we will be able to generate more than half of the net income we stood to lose from line haul last year with new profitable business from other customers. As you know, we did much better than that and stand to do better yet this year. The essence of our story is that while DHL is our most important customer, we are not depending on them to guarantee our future. ABX Air is committed to developing more relationships with more substantial customers around the globe, and our ANA agreement is evidence we can do just that. I hope to be able to tell you how we are meeting that challenge when we get together for our next call in August. Until then, thank you for your continuing support of ABX Air.

Ladies and gentlemen, this concludes the presentation. You may now disconnect and have a most pleasant day.