Air Transport Services Group Inc (ATSG) 2014 Q4 法說會逐字稿

Welcome to the Fourth Quarter 2014 Air Transport Services Group Incorporated Earnings Conference Call.

My name is Hilda, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Joe Hete, President and Chief Executive Officer. Mr. Hete, you may begin.

Thank you, Hilda. Good morning, and welcome to our fourth quarter 2014 earnings conference call. With me today are Quint Turner, our Chief Financial Officer; and Rich Corrado, our Chief Commercial Officer.

Yesterday, we issued our fourth-quarter earnings release, which included our best fourth quarter Adjusted EBITDA performance in six years, and the strongest balance sheet in our history. Both of our principal businesses, aircraft leasing and cargo airline services, made great contributions towards the $22 million increase in our EBITDA last year.

2015 is also off to a great start, with several achievements already:

In January we completed the 4 year extension of our DHL relationship.

In February we executed our 25th dry lease by placing a 767-300 with Cargojet, and we exercised a purchase option to acquire our 10th 767-300 freighter. This aircraft, which we previously leased in from a third party, will be deployed as our 26th external dry lease, as DHL has committed to take it thorough March 2019.

And this week we started operating the second of two wet lease 767s to new overseas customers. Both of those could eventually shift to multi-year dry leases.

That makes 7 dry leases for our 767s that we'll have signed in the 12 months ending April 1st, including 5 with customers other than DHL. Those agreements, plus extensions for the 13 others DHL has leased from us for the last five years, represent our largest-ever set of dry lease commitments in a year, apart from DHL's multi-aircraft commitment in 2010. They greatly reduce any risk associated with aircraft placement and likewise increase the visibility for future revenue and free cash flow generation.

All in all, we have an attractive set of lightly levered aircraft assets, multiple deployment channels, and the incremental services that accommodate just about any midsized freighter opportunity anywhere in the world.

This exceptional combination of aircraft and capabilities will again generate very strong cash returns in 2015, and we will begin to share those with you over the coming months.

I'll come back to talk about how we're doing after Quint takes you through the key numbers for the fourth quarter and year.

Quint?

Thank you, Joe, and good morning everyone.

Let me begin by advising you that during the course of this call we will make projections or other forward-looking statements that involve risks and uncertainties. Our actual results and other future events may differ materially from those we described here.

These forward-looking statements are based on information, plans and estimates as of the date of this call, and Air Transport Services Group undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions, factors, new information or other changes.

These factors include, but aren't limited to,

changes in market demand for our assets and services,

the number and timing of deployments of our aircraft,

our operating airline's ability to maintain on-time service and control and reduce costs,

and other factors, as contained from time to time in our filings with the SEC, including the 2014 Form 10-K we will file next week.

We will also refer to non-GAAP financial measures from continuing operations, including adjusted EBITDA and adjusted pretax earnings, which management believes are useful to investors in assessing ATSG's financial position and results.

These non-GAAP measures are not meant to be a substitute for our GAAP financials, and we advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website.

Our press release described 2014 as a year of significant progress capped by a strong fourth quarter performance, and setting the stage for sustained future cash flow generation. I'd add to that description another solid year of improvement in our financial position, as we cut our EBITDA leverage ratio to under two turns.

Our fourth quarter results provided evidence of renewed growth in our leasing business, as CAM's revenues grew 10% over the third quarter and airline operations ran in the black over the course of a very successful holiday season. For the fourth quarter, revenues were $158 million, roughly flat from the fourth quarter last year. They were down about $4 million excluding revenues from reimbursable expenses.

Full year revenues increased 2%, but were down 1% minus the reimbursable portions. As we said throughout 2014, our year-over-year revenue comparisons were against quarters that included the benefit of three 767s we operated in the Mideast until early last year, and some other international routes our 767s also covered in 2013. Those international routes generated a lot of block hours and revenue, which to some extent masked the growth this year in our leasing business as our dry lease portfolio expanded.

On an adjusted basis, our after tax earnings from continuing operations increased 11% to $11 million, or $0.17 per share, for the fourth quarter. Adjusted EBITDA was up 15% to $51 million. Those adjustments included, among other items, the $53 million goodwill impairment charge we took in the fourth quarter of 2013 related to ATI.

An additional factor this time was a non-cash charge of $7 million pre-tax in our continuing operations resulting from the pension settlement offer, we made to some of our current and former employees. That charge, plus another $5 million in pension settlement costs on the discontinued ops side, are also excluded from our adjusted results.

The biggest driver of our improved earnings last year was the continued discipline on our operating expenses, especially for personnel costs, and the favorable swing in our pension costs. Airline headcount continued to decrease in 2014, and pension expense was down by $7.5 million excluding our pension settlement offers. Overall, our salary wage and benefit line was down $9 million for the year.

Our other direct operating costs, such as non-reimbursed fuel, travel and landing and ramp fees, were also down from year ago, mainly because of fewer crews and aircraft operating abroad and our fuel-efficient 757 combis.

They offset most of the increase on our depreciation line, which for the fourth quarter included the effect of the two 767-300s that we purchased in September. Those purchases were a benefit to EBITDA, as they eliminated about $2 million in lease payments in the fourth quarter.

Turning to our segments, pre-tax earnings from our leasing business, CAM, were down from the fourth quarter and year despite an increase in revenues from external customers. Depreciation is the single biggest cost factor in CAM's business.

CAM now owns 54 freighter aircraft, including our eight 757s and 46 767s. That's five more aircraft than we had at the end of 2013, including four larger 767-300s.

We expect CAM's pre-tax earnings to rise during 2015, when revenue growth from their leasing customers will exceed depreciation and restore earnings growth in our leasing segment. Leasing revenue growth will be somewhat tempered by lower DHL rates that start next month.

Turning to ACMI Services, our airline segment, we achieved a small pre-tax profit for the fourth quarter, but improved upon our 2013 results by $20 million for the full year, excluding the non-cash charges each year.

Once again the key components were the reductions in affiliate lease payments for aircraft that CAM redeployed to external lessees, lower personnel costs, including reduce benefit and pension expenses, fewer airframe maintenance checks than a year ago, and better cost efficiencies of the 757 combis we operate for the military.

Our airline revenues were down as block hours decreased about 10%, but were down only about 1% excluding our 2013 operations in the Mideast. We did pick up additional hours in DHL's North American network, along with the new Pacific route for another customer between Los Angeles and Honolulu. Our combi hours flying for the US Military were down slightly in 2014, with our 757s covering all combi routes for the year.

Results for the ACMI services segment in 2015 will include the effect of higher pension expense, changes in pricing under the DHL agreements, and the loss of revenue from amortization of the DHL note, which matures at the end of this month. Inclusive of those factors, we anticipate 2015 pre-tax results for the segment will decline approximately $6 million from 2014.

Pre-tax earnings from our other business activities declined in the fourth quarter and full year, even as revenues increased in the quarter on greater volume at AMES, our MRO, and at our postal operations. Increase staffing for our expanded hangar facilities and increased sort center costs were principal factors.

As we said in our release, the US Postal Service is considering a restructuring of its regional sort centers that could affect our contracts at the five centers we manage today.

Before I discuss our cash flow and liquidity, I would again advise you that our deferred tax position offsets most of our federal income tax liability, although we do pay minimal federal and some state cash taxes. But based on our latest calculations and estimates, we don't expect to pay any significant cash federal income taxes until at least 2017, which is one year later than we have previously estimated.

Net cash generated from operating activities rose 58% to $149 million. The biggest factors were our improved operating results, a $21 million reduction in pension contributions and additional payments received from our customers. Last year we reduced the debt on our balance sheet by 11%, or $40 million, to $344 million.

We ended 2014 with $86 million of unused capacity available on the credit facility. Another $6 million of the principal balance of the DHL promissory note was extinguished, and it will fully amortize at the end of this month, also releasing us from its covenants, including the covenant regarding share buybacks.

The net effect of those financing steps was to further improve our EBITDA coverage ratio, as measured under the credit agreement, to 1.9 times, which will reduce the variable rates on our debt facility below 2%.

Capital spending in 2014 was $112 million, roughly even with 2013, and included two 767-300s we bought in September. We also invested $15 million for a minority position in West Atlantic back in January 2014. We are projecting a $32 million reduction in our CapEx spend for 2015 to $80 million, which includes our acquisition of the 10th 767-300 as well as $45 million in non-discretionary capitalized maintenance. The somewhat higher estimate for 2015 maintenance CapEx than in prior years is driven by additional engine heavy maintenance.

Before I turn it back to Joe, I know that many of you focus on the cash flow potential of our business model. I just wanted to emphasize that our 2015 cash requirements for CapEx and investments will be down by $47 million this year compared to last year after factoring in last year's $15 million investment in West Atlantic. Our pension funding will be unchanged from 2014's contribution level of $6 million.

The dollar-for-dollar increase in our cash flow driven by those reductions in our capital spending plans, coupled with our strong balance sheet and long term contracts, will provide significant financial stability for years to come. We are in as strong a position as we have ever been.

Joe is ready now discuss our operations, our revised framework with DHL and the rest of our outlook picture. Joe?

Thanks Quint.

I'm pleased to tell you that the agreement in principal with DHL we announced on our last call in November is now a reality. At the end of this month, we start the next phase in our nearly 12 year relationship with DHL, and extend it for another four years. We met with our senior management in Europe last weekend. The relationship we share is strong and secure, and our organizations continue to work together to connect DHL's global network to its customers in North America.

When its other global networks require a flexible incremental source of midsize lift, DHL recognizes our ability to rapidly respond and our willingness to invest both our operational and financial resources to support their growth.

The comprehensive set of assets and services we bring to DHL's network is unique. That gives me confidence that the business we've built over the last dozen years remains best-in-class among our peers. We look forward during the next four years to continue to expand our business with them.

Including the additional 767-300 I mentioned in my introduction, DHL is leasing 15 767 freighters, 13 200s and two 300s from CAM. That's a pickup of two dry leases with DHL. Our CMI agreement to operate and maintain those aircraft over the next four years means that we will retain our position as the largest airlift provider within their North American network, including our four 757 freighters that also support them.

The DHL agreement capped another good year for ATSG, as we also supported the fleet expansions of two regional air cargo companies, Amerijet and Cargojet, with four additional dry-leased 767s, not including a fifth we deployed with Cargojet last month. And the year ended with a significantly expanded holiday season book of business, compared with 2013, and new continuing ACMI service.

CAM, our leasing business is completing its best 12 months for new dry lease placements since 2010. The five 767s it placed largely eliminated the surplus fleet assets we carried during much of 2013 and '14, and led us to acquire more 767s in September, two of which have been leased into our network for several years. We purchased a third last month at an attractive price from the same source, which is included in our capital expenditure guidance for 2015.

These fleet additions are consistent with our intention to acquire aircraft when we have demonstrated demand, which means customers who are willing to make multi-year commitments to our aircraft types.

In addition to the new Pacific region service we launched last year, two other new airline customers have recently signed up two of our 767-200s under our unique wet-to-dry program, which offers full wet lease support under terms designed to eventually transition the aircraft to a long term dry lease. One of those 767s was deployed with a customer in Europe back in January; the other began flying for a customer in Asia just this week.

Rich Corrado has other such opportunities in our pipeline, and we have the potential for additional dry leases via CAM as well.

The market recovery in air cargo that you've heard so much about really manifested itself in the fourth quarter, when we had a strong holiday season. We saw the biggest benefit from that market improvement at ATI, which after paring back its 767 operations saw demand pick up at year end. ATI remains our principal 757 operator and a competitive operator of 767s. In 2015, ATI's 767 business is growing again as the operator of the Asian wet lease I mentioned earlier.

Turning to our outlook for 2015, our guidance for baseline adjusted EBITDA is $180 million, in line with our performance in 2014 and including the effect of these new 767 placements. Lower rates on our DHL agreements, the loss of the non-cash benefit of the DHL note amortization, and higher pension expense, among other non-cash factors, will likely keep us from achieving the same progress on an EPS basis as we did last year.

Beyond this, any other new business this year would be incremental to the $180 million in Adjusted EBITDA. You can sum up our outlook by thinking about a growing leasing business back by seven more dry leases than we had at this point last year, plus steady overall results from our other businesses.

The year, as Quint discussed, should see a significant increase in uncommitted cash flow compared with 2014. We have always said we would allocate that cash flow toward options that offer the best long-term return to shareholders.

Customer demand can be fleeting, so we have to be ready when opportunities arise. If some additional business opportunities for multi-year customer commitments require additional aircraft, we won't hesitate to buy or lease-in what that customer needs.

But we intend to stand by our commitment to begin an accretive return of capital under the share repurchase program the board authorized last summer. I can't predict when or how many shares we will be able to acquire this year, but you should expect some activity in the second quarter.

Our business remains on a very stable financial base, with even stronger potential to grow than it had in 2014. We intend to firm up that base with profitable relationships with other companies around the world and begin sharing the results of that steady, more secure cash flow as the year unfolds.

That concludes our prepared remarks, Hilda; we are ready to take the first question.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

The first question comes from Kevin Sterling from BB&T Capital Markets.

Thank you, good morning gentlemen.

Hey Kevin.

Morning, Kevin.

Yes, congrats on a nice quarter and glad to see Rich has a strong pipeline and working so hard these days.

Trying hard, Kevin.

Hey, Joe, real quick, how many planes do you guys have that are underutilized right now?

Right now we have two 767-200s, Kevin.

Okay and what's your outlook on feedstock availability? I know you talked at length there about opportunities possibly arising with new customers. How do you see the market regarding feedstock availability if you had to go get new planes?

Right now it's still little tight. I'm mean, it's somewhat surprising because I know probably a year or two ago we figured both where deliveries of 787s picking up, that we'd see a lot more feedstock out there, but finding something that fits our profile to where it make sense for us to convert it and put it into service, our return hurdle rate is still little bit difficult.

Got you, okay. And Quint, maybe this question is for you, you guys talked about the $80 million of CapEx for this year. Just -- I want to make sure I got the numbers right. I think you said $45 million in maintenance, which includes some heavy CapEx. I think there is one additional plane for $25 million, what else am I missing? I think that's about $70 million. What else am I missing to get to that $80 million number?

Well, at least about $10 million or so, Kevin, and you do -- we do make some investments, for example, buying some tooling for our MRO, sparing for new markets that we fly into where we want to have some spare parts for the non-deferrable items. Of course, the $80 million is -- as is often case, there is a little bit of contingency in there, I mean it's certainly the number at the end of the year, we'll update you as move through the year, could come out a little shy of that certainly. But that covers the bulk of it.

Okay. I got you, so $45 million in kind of maintenance and heavy maintenance, $25 million for additional aircraft and then $10 million or so for, like, miscellaneous?

Correct.

Quint, what do you guys view as the right amount of leverage, particularly in light of your free cash flow profile? You're reducing debt, you highlighted that, and for a leasing company you seem be in a position of lower leverage, which is good thing. I was just curious what do you think is the right amount for your company and your profile?

It is a good question Kevin. I think that certainly where we are at today and with the free cash flow generation that we expect in '15, which even assuming pretty healthy stock buyback, you could find the ability to even de-lever further.

So our balance sheet certainly could absorb additional debt if we find the creative opportunity to invest that. So we are in a great position from that standpoint. I don't consider under two times to be the optimal leverage for us, I think we certainly could handle more, and we'll look for good ways to put that capital to work on an accretive basis.

I think Kevin, when you look at our capital structure the majority of our debt is on a revolver. So while we pay that down just to play the arbitrage piece, we still retain that dry powder so to speak for making investments that we think are accretive to the stock.

Of course that makes sense and let me ask -- let me take that a step further, Joe, you've talked about the feedstock availability being tight, so if -- you can't fund any aircraft to purchase and you got to starting the buyback -- I think in the second quarter which I take it a lot of people applaud for returning the capital to shareholders, maybe would you consider leveraging up a little and buy back a larger portion of your stock, and using leverage that way if you can't find any additional feedstock? Would that be an option possibly?

Kevin, we certainly have the flexibility to do that.

Yes and I think -- and you say you have the flexibility because you'll be fully amortized at DHL note and you wanted that flexibility to buy back stock, is that right?

That's correct.

Okay, well that's all I had today. Thanks so much for your time, and congrats again on a nice quarter.

Thanks, Kevin.

The next question comes from Vikas Tandon from Bastogne Capital.

Hey guys, let me echo the congratulations on the quarter. Quint, just really quickly, trying to understand the cash flows as we look at '15, I know you guy have talked about the pricing you gave back at DHL and the DHL note going away. What's the increase in book pension expense year-over-year from '14 to '15? How much is that hitting EBITDA?

It's about I believe, we consider, say, it's about $4.3 million year-over-year in terms of increased non-cash pension expense.

And then as we look at just kind of cash flows from the business, can you tell me what the pension expense in that $180 million is versus the cash you have to put out? Just trying to figure out kind of what cash is versus what accounting book is?

Yes, I mean I don't want to get too far into weeds here but the pension expense is actually a small credit. But it's a smaller credit, in other words a smaller gain than we had in 2014 results, that $4.3 million differential. So that gain dropped by that much. On the cash side, and again it's sort of a discretionary at this point for us, because the plans are extremely well funded. We anticipate about the same level of cash contribution as we had in 2014, which is about $6 million. So when you kind of add them together --.

They kind of offset one other?

Well the gain if you think about -- you'd have to add that back. So it would the 6 plus the gain, it would be $8 million to $10 million, call it.

Okay got you. So if I'm just thinking about kind of your free cash flow this year, just kind doing the dumb buy back, if we use the $180 million of EBITDA and it sounds like you're being rather conservative there, your interest -- I mean you've talked about the interest rates stepping down, your interest looks like it's going to be like $10 million to $11 million this year, based on what?

Again it's and in terms of free cash flow, there is different ways as you know to define it, if you start with the $180 million, you've got -- if you looked at it from its stricter sense about what's discretionary, maintenance CapEx is about $45 million as we've said. Interest which you're asking about is probably somewhere around, call it $13 million, I guess would be a ballpark number. Of course growth CapEx, it is discretionary but that'd be using our $80 million as the top, that would be another $35 million. And from the pension standpoint we mentioned between cash and the gain probably $8 million to $10 million. In terms of the net impact, if you were starting with EBITDA.

Okay and so if we ignore -- and no significant taxes or anything, okay got it, perfect. And then just on the maintenance CapEx the $45 million you had mentioned some heavy maintenance this year. Is this something we should expect will continue every year, or is this kind of, hey there is some heavy maintenance we want to do this year? But you guys have talked in the past about kind of $30 million or $35ish million being the maintenance CapEx number, is that where it should drop back to in '16, or is kind of $45 million the new baseline?

No, we said it's $35 million to $40 million is kind of where it's been. It's a little bit lumpy depending upon a huge impact if there is a number of engines that have to go through a heavy maintenance visit. So you're going to be around that $40 million number, give or take a few million either way.

Okay perfect, I just wanted to clear that up and I think I would just echo kind of the comments from the last questions from the guy from the BB&T. Looking at your balance sheet, obviously you're pretty undercapitalized from a debt perspective, I mean you get really cheap financing. Has the Board or have you guys given any thought -- I mean idea here of levering up and using those proceeds to buy back a significant amount of stock -- I mean your stock is sort of criminally undervalued at this point -- is that something that is getting serious discussion? It's something we would strongly advise. I don't know how long the world's going to want to lend money to people at 5% - 6%. But it seems like given the free cash flow of your stock it would be massively accretive.

Certainly as we said, I think we agree that the leverage is less than optimal. And we have -- the good news is, that we have the options to do just that, take on more debt. As far as doing it, to do a really large stock buyback in a very short period of time? Sometimes the trading volumes and other things limit on how fast you can do that. But we've also -- really these -- our capital allocation strategy is very balanced. We're looking at growth options, and we have the capital, and as you say the balance sheet flexibility to do both -- to look at accretive repurchases of shares along with growth options.

Now it makes all of sense- Last question from me and I'll turn it over to someone else. On the long-awaited share buyback, can you give any color on kind of what you're thinking on how you'll do that? I mean will it simply be working in the market kind of with the program, or have you guys given any thought to kind of a Dutch tender to try to get more equity in one shot? Obviously we have some thoughts there, but we were just wondering kind of what you guys are thinking.

Yes, certainly we have looked at all the available options, and they're all on the table or some combination of all of the above. So I think beyond that, we're really not prepared to get more specific with that at this time.

Okay. Well, appreciate that, we look forward to the return of the capital to shareholders, and great job this past year. Thanks a lot.

We have a question from Steve O'Hara from Sidoti & Company.

Hi, good morning.

Hey Steve.

It seems like lot of the cash flow questions have been answered, I guess other than the pension and maybe the DHL note, what are the things that are going to maybe skew things one way or the other in terms of cash flow from operations? Is there anything else, or is that kind of it?

Again, that's the big piece there; of course as always we have some scheduled debt repayment, but that's accretive to equity. Again there is about I think $23 million of scheduled debt principal repayment. So whether you consider that as an item out of your free cash flow or not, that depends on how you define it, but that's a scheduled use of cash.

Remember Steve, from an operations perspective we have the renegotiation of the DHL agreements, which was kind of a headwind going into 2015, which is in terms of reducing our EBITDA because of the renegotiation. That agreement, which we told to market earlier was $5 million to $10 million.

And I think it was $5 million to $10 million kind of based on efficiencies and stuff that you guys though you could get internally. I mean where does the guidance assume that is?

We still stand with the $5 million to $10 million.

Of course, starting April, so from a pre-tax, EBITDA standpoint, there are some headwinds in '15 versus '14. As Joe mentioned the DHL note amortization, which stops at the end of this month, that's probably, what, $4.7 million in '15. Pension expense, which we mentioned earlier, is higher; the non-cash pension expense, about $4.3 million. And then the impact of the DHL renegotiation and the pricing on that, which kicks-in in April. And we said that on an annualized basis it's about $5 million to $10 million.

So you got, what, three quarters of that impacting us in '15. So, in terms of why EBITDA is the same, again there were some headwinds there that we had to overcome, and these new dry leases and so forth have filled in that gap.

And I think it's also important Steve that that $180 million is our baseline. And as we did last year when we started out the year base, giving guidance of $165 million to $170 million, it was based on business that we know that we have under contract today, so to speak.

There is some additional ad-hoc business that we bake-in based on the peak season, but clearly 2014 well exceeded our expectations going into the year. So there is upside potential in that number, based on new business that we will sign up that we don't have under contract today.

And then -- so I mean, I guess on the ACMI fees, I think it's something like $6 million lower than 2014. I mean what gets this segment kind of profitable on a pre-tax basis? What kind of gets you back to maybe having both segments profitable?

I think key driver there is just deployment of the assets under contracts that give a better return than what we've seen in the past. Remember that's the segment that got hit with the DHL renegotiation, so that's the key driver there. And of course the pension expense falls into that as well, because it's related to the airline employees under ABX, from the pension plans that were frozen back in 2010. So, we'll chip away at it as we go along and I know Rich and his team -- Rich you may want to comment in terms of, we have existing assets deployed as far as looking for want to give a better return?

Yes from a pricing standpoint -- historically when we've had assets available, from a pricing standpoint depending on who we're competing with -- competing against, or if we're competing at all in a different venue, we'll price to get the asset deployed. Where we've got a less fewer assets now, we can be a bit more selective and look for revenue quality going forward and also length of contract.

When we look at dry lease as an example versus an ACMI, and we can get a longer-term contract on an asset, we'll lean that way when we have a choice. So, what we're looking for this year is improved revenue quality on the ACMI side, and that will help improve that segment.

Okay, thank you.

We have a question from Bob McAdoo from Imperial Capital.

Yes, hi, just a quick one. You made a very brief comment about post offices thinking about restructuring, looking at what -- how they go about their business. What is that -- what's the potential upside or downside about something like that asset? What kind of work, what are they thinking about?

Well, basically the post office, historically we've had contracts that are two years in duration with extension options. And of course as you the postal service is going through a lot of restructuring plans, trying to figure out what makes the most sense for them in terms of reducing their overall cost of doing business.

You've heard things like going to five days a week as opposed to six, et cetera. One of the things they're also looking at is consolidation of various and sundry facilities. Our postal contracts that we have in place today, essentially the original contracts expired back at the end of the third quarter, beginning of the fourth quarter last year.

They extended those contracts for an additional six months, which was supposed to be the end of this month, which we have -- we'll be getting extensions again on those because they haven't come up with a definitive plan. So right now we're estimating that we will have that work continued through the balance of 2015. But the big question always is that, where do they end up from a consolidation facility plan going forward.

Do you have competitors that are also involved in this kind of things, so that if they came up with some kind of other plan, that there a chance they could go to somebody else at a lower kind of revenue stream?

Yes, the reality of it is, Bob, is that the competitor would be the postal service itself as they close down some facilities that are currently consolidated facilities that are currently run by the postal service themselves, as to where they relocate some of those opportunities. And there are one or two other competitors that do some of this sorting like we do as well in the private sector.

Okay, thanks.

(Operator Instructions)

The next question comes from Adam Ritzer from Pressprich.

Good morning guys, how are you? I know it's been a long time that I've been on the call. I just want to thank you for doing the right things with the cap structure, the buybacks, talking about leverage and really didn't have anything this time to complain about. So thanks a lot.

Appreciate that.

The next question comes from Stephen O'Hara from Sidoti & Company.

Hi, that's tough one to follow up on. (laughter) First time I've heard that in a while, that must be good news. That's good news I guess.

He's blazing the trail, Steve.

So I guess in terms of the aircraft, you talked about feedstock still being pretty tight, I think you said you've two aircraft underutilized right now, I guess what's your comfort level in terms of having a number of aircraft ready to go, and are you seeing more availability of already converted freighters, or do you have to then convert them generally, maybe how long that takes? And then are you seeing these aircrafts stay in fleets longer with oil prices lower. I mean is that affecting the feedstock as well? Thanks.

Thanks Steve, in terms of the availability, if you remember the availability we have today are two 767-200s. The demand as of late has been more focused on the 767-300, of which we are now fully deployed in that particular asset with the 10th aircraft that we just acquired last month. When you look at the feedstock side of the equation, as far as there are aircraft that are already converted to a freighter configuration, I think there maybe one out there that I would say is available, that would meet our criteria. But it's, call it a less than desirable aircraft in terms of its performance.

Everything else as far as the feedstock goes, whether fuel prices are keeping the market tight, that is a tough one to call. It may just be more on demand on the passenger side than anything else that's keeping the potential feedstock locked up. And remember we strive to hit a certain target for an into service cost, so there could be aircraft that are a much younger vintage, but the price of those aircraft would exceed what our into service cost would be, and therefore erode our fleet turn rates. Equally so, there could be one that's really long in the tooth that just doesn't fit the profile we like.

Okay and then I'm sorry, quickly could you just remind me what you paid for the 300 you just bought?

We usually don't like to talk about those, but it would be similar to what we said on the -- with the two we acquired back at the end of the third quarter last year.

Okay, thank you.

We show no further questions at this time. I'd like to turn the call over to Mr. Hete for any closing remarks.

Thank you, Hilda. Many of you made it clear to us that cash returns to shareholders are critical components of your valuation approach to cash flow generators like ATSG. We have always understood that preference, but we also know that as a smaller company we wouldn't be around to pay those returns for long if we weren't growing the businesses that generate the cash in the first place.

Our goal has always been to reach a critical mass of size and operating performance that would allow us to invest enough to sustain growth and to also return cash to shareholders. The renewal of DHL business for four more years and the execution of seven more dry leases underpin our ever-growing multiyear free cash flow story. We are rapidly approaching that point. Thank you and have a quality day.

This concludes today's conference. We thank you for participating. You may now disconnect.