Air Transport Services Group Inc (ATSG) 2016 Q1 法說會逐字稿

Welcome to the First Quarter 2016 Air Transport Services Group Earnings Conference Call. My name is [Christine], and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Joe Hete, President and CEO. Mr. Hete, you may begin.

Thank you, Christine. Good morning, and welcome to our first quarter 2016 earnings conference call. With me today are Quint Turner, our Chief Financial Officer, and Rich Corrado, our Chief Commercial Officer.

We issued our earnings release and filed our Form 10-Q with the SEC yesterday after the market closed. Both are on our website, atsginc.com.

In many respects, our first quarter this year was one of the best we have ever recorded. It included our second straight $20-plus million gain in revenue versus the prior-year quarter, and the second straight quarter that our Adjusted EBITDA exceeded $50 million, setting a first-quarter record for that metric. We are on course to achieve record adjusted EBITDA of $218 million for 2016, excluding the effects of non-cash pension expense and other non-cash items.

It's not coincidental, of course, that in March we completed two full quarters of operations on behalf of Amazon, a relationship that we formalized with the signing of a five-year air transportation agreement in March. We are expanding rapidly under that operating agreement, including the seven aircraft leases we have signed to date.

We have purchased, or have agreements to purchase, all of the Boeing 767s we will need to complete our 20-aircraft commitment to Amazon. We also have secured the necessary slots in our principal conversion contractor, IAI. We have the assets we need, and the means to prepare them. We will continue to add flight crews, maintenance technicians and other personnel as the network expands.

The warrants we are granting Amazon are also an important part of our new relationship. Assuming the approval of two related proposals at our shareholders' meeting tomorrow, Amazon will be granted warrants through which it can acquire up to 19.9% of our common shares over a five-year period.

On a GAAP basis, our first-quarter earnings were on par with our internal targets, which assumes some front-end costs as we spool up to serve Amazon. Quint will summarize all that, and I'll come back with a few comments about the outlook for the remainder of 2016. Quint?

Thanks, Joe, and good morning, everybody. As always, let me start by saying 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 describe 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 are not limited to,

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

the number and timing of deployments and redeployments of our aircraft to customers;

the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration;

the ability and timeliness with which the Tianjin-based joint venture is able to secure the necessary approvals and execute its business plan;

the successful implementation and operation of the new air network for Amazon;

shareholder approval of the proposed equity arrangements with Amazon;

changes in market demand for our assets and services; and other factors as contained from time to time in our filings with the SEC, including the Form 10-Q we filed yesterday.

We will also refer to non-GAAP financial measures from continuing operations, including Adjusted EBITDA and Adjusted Pre-tax 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.

As Joe mentioned, the first quarter was another great growth quarter for us, with the most revenue growth and highest first-quarter Adjusted EBITDA we have ever generated.

It was also a transitional period. We completed our first 12 months under extended arrangements with DHL, and continued to gear up for our new commercial agreements with Amazon, which started in April. We now have comprehensive contracts covering well over half of our total business for years forward. Near term, there will be timing differences between earned revenue and the up-front investments and expenses, which are required to prepare for expanding assignments.

Consolidated revenues for the quarter rose $30 million to $177.4 million. Excluding reimbursement revenues from both periods, revenues rose 18%, or $25 million. Revenues increased across the board, but were primarily driven by growth in our dry leasing business, and the expanding operations for Amazon.

Consolidated net earnings from continuing operations were $8.2 million and $8.9 million for the first quarter of 2016 and 2015, respectively.

On a GAAP basis, Pre-tax Earnings from Continuing Operations were $12.1 million for the first quarter of 2016 compared to $14.5 million for 2015. That included a $1.2 million charge this year for our share of capitalized debt issuance costs incurred by our non-consolidated affiliate, West Atlantic, which restructured its debt.

Pre-tax earnings also included $2.2 million for the non-service components of our retiree benefits. We indicated on our fourth-quarter call that those pension costs would be substantially higher during 2016. We are projecting an increase of $9.5 million for the full year.

Removing the non-cash effects of the debt issuance costs and retiree benefits expense, and quarterly effects of financial instrument transactions, first-quarter adjusted pre-tax income was $16.1 million, up 13% from the prior year. That increase reflects the additional external lease revenues and better utilization of the aircraft CAM leases to our airlines. At the same time, we had higher aircraft maintenance expenses and increased depreciation and employee expenses, especially on our support businesses.

CAM, our leasing business, owned 56 cargo aircraft in serviceable condition at the end of the quarter. That's two more than a year ago. Twenty-nine of those were leased to external customers, five more than a year ago. Twenty-six were leased internally to our airlines, and one was being prepared for lease to Amazon.

CAM's revenues grew 21% during the first quarter to $51.7 million, largely due to those five additional external leases. Pre-tax earnings were $19.5 million, up 35%. Additional lease revenues offset higher depreciation and expenses to place and support the larger fleet.

None of those five aircraft leased from March 2015 through March this year include the twenty 767s we will be providing to Amazon. The first six leases to Amazon took effect in April and a seventh in May, all of which are 767-200s. We expect to complete leases for 15 of the 20 aircraft by year-end, including twelve 767-200s and three 767-300s. The remaining five, all 767-300s, will be leased in 2017.

Joe mentioned at the outset that we have acquired or agreed to acquire the aircraft and conversion slots needed to provide Amazon with all eight of the 767-300s they will lease. CAM purchased four of those 300s in the first quarter.

Turning to our ACMI Services segment, revenues increased 9% to $115 million in the first quarter. Airline services revenue from external customers, which excludes revenue mainly from reimbursement for fuel, increased $4 million. In the first quarter this year, our fleet continued to be fully utilized, and billable block hours increased 11%.

Our pre-tax loss in this segment was $10.4 million in the first quarter this year, up from $2.6 million a year ago.

There were three principal items that affected those airline margins for the quarter.

As we have noted in the past, scheduled heavy maintenance checks for our fleet of 767-200s are expensed as incurred. We had a greater number of those checks, with fewer immediately reimbursed by the customer compared with a year ago. As a result, year-over-year maintenance expense increased $4.5 million.

As we advised you on our last call, non-cash pension expense will be up in excess of $9 million this year due to reduced investment returns on the plan assets. That increase was a $2.4 million item for the quarter. Starting this year, our Adjusted EBITDA and Adjusted Pre-tax Earnings will exclude these non-cash pension effects.

We also have referenced the effect of the amortization of our former DHL note on our airline results. That non-cash amortization of the note ended when it was fully extinguished in March of last year. That revenue benefited 2015 pre-tax earnings by $1.6 million.

Other items impacting our pre-tax earnings included additional depreciation expense for two more Boeing 767-300 aircraft and engines that our airlines operated, start-up costs for Amazon operations, and lower CMI revenues as aircraft were re-purposed for dry leases.

Obviously, start-up costs that relate to transitioning aircraft and flight crews are temporary, and will be better matched with revenues as our Amazon operations ramp up throughout the year. Scheduled airframe maintenance activities are greater in the first half, and decline sharply in the second half, particularly in the fourth quarter. On the whole, we expect our airline segment to perform significantly better in the second half with full deployment of available aircraft.

Revenues from the businesses we collectively refer to as other activities increased 54% to $55 million overall, $33.7 million of which was from external customers. Pre-tax earnings from other activities increased by $800,000 to $3.9 million. More than half of those gains came from our mail and package handling support services, which includes work we do for both the U.S. Postal Service and Amazon.

One other non-recurring item which affected our results for the quarter was a $1.2 million charge related to debt issuance by our European affiliate, West Atlantic. This item was also excluded from Adjusted Pre-tax Earnings and Adjusted EBITDA for the quarter.

Capital spending was $71.7 million, which included the four 767-300 passenger aircraft and related engines we purchased during the quarter, modification costs for those and other 300s already in process, and other equipment and capitalized maintenance costs.

During the quarter, we drew $60 million from our revolving credit facility to fund capital spending. We also spent $3.1 million to repurchase 270,000 of our common shares. That leaves us with about $77 million in available credit under the current revolver, not including a $50 million accordion feature that would require lender consent to exercise.

We can accommodate our capex and other capital plans for the year within that limit, but we are working to finalize agreements to increase our debt capacity to give us greater flexibility in pursuing other attractive investments.

I know that many of you have questions about the impact of the warrants issued to Amazon on our results and financials going forward. There's a good summary of the warrant program in both our proxy statement and the 10-Q we filed yesterday.

The accounting treatment is a bit complex, but as we indicated in our release, we will reflect a revenue reduction associated with the amortization of value for warrants starting in the second quarter, with the inception of our Amazon arrangements. This non-cash amortization will also be excluded from ATSG's calculation of Adjusted EBITDA and Adjusted Pre-tax Earnings.

On our balance sheet, you'll see an increase in our intangible assets as of March 31, reflecting $37.6 million as an intangible lease incentive asset based on warrants vested to date. That will be amortized against revenues over the duration of the aircraft leases. During the second quarter, we expect increases to the intangible lease incentive asset to reflect additional warrants issuable to Amazon and in our GAAP diluted share count.

That covers our results for the quarter. Now I'll turn it back to Joe for his outlook comments. Joe?

Thanks, Quint.

The quarter that Quint has outlined for you is further evidence that ATSG is in the best niche of what remains a soft air cargo market overall. Twenty-one percent revenue growth is rare these days, and it's certainly exceptional in air cargo. We have worked hard and invested strategically to be prepared for this moment, and we are pleased that more customers are turning to us for solutions to their transport requirements.

But we're also making sure the solid growth is sustainable at least through the end of this decade, even if not quite at our current pace. That's why we focus on longer-term commitments, not just for DHL and Amazon, but even for strong regional providers like Amerijet, which will lease one of our converted 767-300 freighters for an eight-year term.

Our 2016 results also demonstrate that to deliver on those customer requirements, it takes some substantial investment in both planes and people that can affect margins in the near term. Those investments make sense only when customers are willing to sign up for the long-terms, as both DHL and Amazon have done since the start of last year.

Transition costs and revenue interruptions are part of our business, but their impact will diminish as our fleet grows, our customer base diversifies, and as leasing extends the average length of each placement.

I'm confident that by the fourth quarter this year, we will again be setting records for Adjusted EBITDA. For the fourth quarter, our airline operations will likely be operating on a profitable basis, with full deployment of our mainly CMI-contracted fleet.

In the meantime, our leasing business continues to grow at a rapid pace. CAM had 29 leases at March 31, and it will grow to 43 by the end of this year. CAM generated a significant portion of our pre-tax earnings for the quarter, and it will remain our principal earnings engine for the foreseeable future.

Dry leasing has become increasingly popular for midsize aircraft like our 767s, which serve best as the workhorses of air networks that require frequent coverage of medium-haul routes. We adopted the concept of separating aircraft asset yields from airline service returns when we first offered what we called A-plus-CMI arrangements to DHL in 2010. That formula has turned out to be a winning one for us and for the customers who have chosen it to guarantee continued access to key assets, while retaining flexibility on how they choose to operate them.

DHL's adoption of this structure with other operators in the U.S. and abroad suggests it's a strong supporter. When our formal discussions began with Amazon last year, it was clear that they wanted a similar arrangement as well. As a result, we're on track to more than double the number of 767s operating under these A-plus-CMI arrangements in just two years, with 29 at the end of this year compared with 13 we had at the end of 2014.

One other big advantage we offer is the capital efficiency of our converted aircraft fleet, which our latest appraisal shows is retaining its value and justifying our extended life projections. That, along with our set of support services that include maintenance, logistics services and ground support, represents a one-stop package that no one else in our space can offer.

As we said on our call last quarter, our total capex spend this year is projected at $290 million, of which $215 million will be growth-related aircraft purchases and freighter modifications. As we execute that plan, however, we have begun to recognize the benefits of locking up feedstock 767s in an increasingly competitive market.

Agreements we have signed give us access to aircraft we can purchase that would exceeded that $290 million budget. Those purchases would signify our continued confidence in our ability to place incremental freighters not just with customers we have today, but also with other operators throughout the world.

That could include aircraft for our joint venture in China, which will operate as an express cargo airline serving multiple cities within China and serving surrounding countries from its base in Tianjin. A launch date there still depends on governmental approvals, and will likely not occur until early 2017. Our capital contribution will be $16 million, but we expect to recoup a significant portion of that through leases of some aircraft it operates.

Quint mentioned that the warrants we granted to Amazon will reduce revenues starting in the second quarter related to the value of the warrants. Assuming shareholder approval tomorrow of our proposal to accommodate the warrants with an increase in our authorized shares, the first 7.7 million shares of those warrants will become exercisable, to be followed over the next several years with additional warrant issuances that could leave Amazon with a 19.9% stake in our company.

I know I speak for your board when I say that we are very eager to welcome Amazon as a significant investor, as well as a major customer. They have the right to name a non-voting observer to our board, and when they achieve 10% ownership of our shares, the observer may be elected as a full voting director.

I also know the board endorses our continued commitment to maintain share repurchases as a continued element of our balanced allocation approach for available capital, which will also include growth investments and prudent debt repayment.

We have accelerated the pace of our repurchase program as the potentially dilutive effect of the warrants increases. The net effect should be that our repurchases over the next five years will offset a significant portion of the additional shares that will be issued for the warrants.

Our goal as a management team, of course, will be to generate returns from all of the new and continuing business we win in our expanding niche, validating the confidence that investors share in our strategy. You can be sure that we will continue to focus on that objective as 2016 continues.

That concludes our prepared remarks. Christine, we're ready for the first question.

(Operator Instructions) And our first question is from Kevin Sterling of BB&T Capital Markets. Please go ahead.

Joe, maybe touch a little bit on your service levels so far at Amazon. They're a pretty service-oriented intensive customer, if you will. So maybe touch on how that's going so far and kind of the feedback you've gotten from Amazon.

Well, from a service perspective overall, the service levels we've been generating for Amazon are equivalent to what we give to all of our customers, 98-plus percent on-time performance from an aircraft perspective. And it continues to be pretty strong from a feedback perspective. I'll let Rich comment if he has any, as he speaks to them more directly than I do in regards to that aspect of it.

They're very happy with our service. And it goes across a number of dimensions, not just the dispatch reliability performance of the aircraft, but also keep in mind that we run the gateway consolidations and aircraft builds as well as the hub here in Wilmington. So from that perspective, starting those locations on time, turning the aircraft on time, is in addition to the dispatch reliability. So all those things that we do that differentiate us from our competition, they are happy with the support that we're giving.

Thanks Rich. And thanks, Joe. And Joe, I think you briefly touched on this in your prepared remarks. As you ramp up your business with Amazon, will we see some of these start-up costs start coming down? The hiring of the pilots, the training, et cetera, should we start seeing those costs moderate some?

Yes. As we noted, as we put more aircraft into service in the second half of this year, obviously, you'll get more revenue generation. But when you think about it in the context of crew gear up right now and not having definitive schedules, we're probably being a little bit aggressive at this point in time in terms of adding people in anticipation of what kind of schedules that Amazon may generate later. And certainly, you want to get ahead of the curve going into the fourth quarter when you look at it from the perspective of not just the Amazon business, but DHL as well as the other peak providers. We'll be looking for additional flight crews. So as we move into the second half of the year, you'll see that get moderated somewhat. And obviously, then the revenue will offset what additional costs will be carried then.

Okay, great. And I'm sure you saw last week and with Atlas, they've got an agreement now with Amazon. But it's interesting, they said they have an agreement for an additional 10% where Amazon can take an additional 10% in warrants above the initial 20% as long as Amazon gives them additional business. And in your agreement with Amazon, do you have any triggers in place like that? Or are there additional business opportunities with Amazon, maybe without the equity investment? So I guess, my question is, is there anything that precludes you from doing additional business with Amazon above and beyond the twenty planes you have now, if an opportunity were to present itself?

No. In terms of our current agreements, there is no kicker in there, so to speak, in regards to the additional 10%, but not to say that we wouldn't be open to something like that. And there certainly is no limitation of the additional business with Amazon above and beyond the twenty airplanes we're going to provide today, plus the operation of the same.

Okay, great. And then, Joe, I know you'd mentioned you've secured all the feedstock and placed it in line for the conversions. But if you wanted to go above and beyond those twenty planes, are you finding it a little bit more difficult to find feedstock? Or do you think you'll be able to find feedstock if opportunities were to present themselves?

We probably got ahead of the market in that respect, Kevin, in that we've lined up feedstock out into 2017, above and beyond what we would require for the aircraft that we had to deliver to Amazon. Now obviously, our other primary customer, DHL, we expect it to have an appetite for additional lift going forward, as well as some of the other customers that we have in our portfolio.

So we have feedstock in place today that we think is at the price point that we've always targeted, in terms of being able to put an asset into service for a $23 million to $25 million range. So right now, we're real comfortable with our feedstock situation.

Okay, great. And last question here. You talked about the Chinese JV, and you said it's more likely a 2017 event, I think, pending regulatory approval. Initially, do you have any planes you might place in that JV?

Kevin, the first tranche of aircraft will be 737s. And so we're working on some aircraft right now to get the aircraft -- to get the AOC certified, you need three aircraft to start an airline in China. So we're in the process of working with our partners to find those aircraft right now. We have one that's already on the certificate of Okay Airways, one of our aviation partners over there, and we're working on the other two aircraft right now. The 767s would -- that we anticipate being able to place there would be later, probably late 2017, 2018 before we get to that gauge of aircraft.

Our next question is from Jack Atkins of Stephens. Please go ahead.

This is actually Andrew on for Jack. Quint, just a question on the warrants. I know you guys said there's what, 7.7 million shares that, assuming approval tomorrow will be added. Can you provide some details as to when the additional 5.1 million shares will be available? I know it's related to plane deliveries. Would you expect those to be available for Amazon in 2016, given that you'll have 15 aircraft in service for them?

Yes. Andrew, of course, the shareholder vote was -- which we'll have the results of that at our meeting tomorrow, but that -- we're cautious -- we're confident, I think, that the shareholders will approve the measure. But at that point, the outright share count will expand. So the 12.8 million warrants roughly, which were initially granted to Amazon when we signed the deal, that will vest as we move forward and we put aircraft in service. And it's really over the last tranche of aircraft, the 767-300s, which that takes place. But they will hold the warrant, and they will vest as we put the final aircraft in service.

Got you. Got you. Because that will be more of a late 2016 to 2017 event when that last tranche kind of vests?

Right. One thing I wanted to point out though, however, is that terms of trying to look at the diluted share count that we'll have for GAAP purposes next quarter, you will see a pretty significant increase in the diluted GAAP share count. And I wanted to make you and the other analysts aware of that. Essentially because the deal was signed in March, it had a diminished impact, a pretty small effect, on our share count for first quarter. But in the second quarter, you'll have the whole sort of 12.8 million warrants, which, as you know, there is an exercise price of $9.73, so we'll apply the treasury stock method to that. And based upon what the share price is in the market, we'll calculate the number of shares that could be bought back applying the treasury stock method.

The difference between that and 12.8 million will end up going into our diluted share count in the second quarter. So if you just use roughly -- I don't know what the price is currently, but if it's $14-plus a share, you're probably -- you could be talking about as much as 4 million shares, less whatever we buy back, that would go into the diluted share count in the second quarter. So you just need to -- when you're doing your EPS estimates, you just need to factor in a larger share count for next quarter.

No, that makes sense. That's helpful. Along the lines of repurchases, I know you said over the five years, you expect to offset a lot -- most of the dilution from the warrants. As far as looking at 2016, is there -- could you give us any outline or commentary on how much you'd expect to offset this year? Half of it, a third of it, a quarter of it, anything like that?

Well, I don't want to give specific guidance on it. As we said, we bought back, I think, 270,000 shares in the first quarter, and we like to be opportunistic in that. So I really don't want to give any forward guidance on the timing of that, but we have every intention of continuing to allocate capital to buy back our shares. We think they're an excellent value, and we'll look for opportunities to do that.

Okay. And then one more kind of bigger-picture question. Outside of your agreements with DHL and Amazon, can you provide some color on kind of what your pipeline of potential new customer contracts looks like?

Sure. This is Rich. It's actually a pretty healthy pipeline. We don't have a lot of assets over and above what we've already allocated for placement this year, which will be four to five aircraft in addition to the Amazon aircraft that we're placing. And they'll be placed in the Far East, and in the U.S. We also have some opportunities in Europe and in the Middle East as well. So the pipeline remains strong. Obviously, we're going to be focused on delivering for Amazon this year, but we do have four or five other aircraft that we will be delivering on a dry lease basis.

Our next question is from Steve O'Hara of Sidoti. Please go ahead.

I was just curious with the announcement of Atlas's agreement. I'm just -- in terms of the ability to get aircraft through conversion and so forth. I mean, I assume that you're fairly confident that that's still very doable, and you have the slots available, or there's not going to be this arms race, I guess, trying to get these aircraft, I don't know, bought and converted.

We had lined up slots, Steve, out all the way through the end of 2017, late last year. So from a conversion perspective, we have the ability to run, what, 12 more airplanes through from a conversion standpoint in 2017 or at least induct 12 more airplanes in 2017. And as I mentioned earlier during Kevin's questioning is we've lined up a nice stable of feedstock to be able to fill that pipeline when the customer demand materializes.

Okay. And then I guess, maybe just on the mix of aircraft, maybe versus what Atlas -- the contract with Atlas. I'm just wondering, was there a preference by Amazon to use the 200s from you? Or was that your preference? Or how did that kind of come about versus using all 300s?

Well, again, the 200s were available. I mean, there wasn't a sufficient number of 300s that was available anywhere no matter if you wanted to start from day one. And if you recall, we started the network last fall, mid-September, with the 200s, and we're able to quickly bring those to market. So if you wanted to go with 300s, you would have never got the network off the ground as it started, and you'd be way behind where it's at today, if that's what you focused on specifically.

Okay. And then -- I mean, it seems like you made some comment about revenue growth in air cargo kind of being non-existent in general, I guess, and -- but it seems like your outlook, even aside from Amazon, is fairly positive. Is that true?

Yes, Steve. That is true. I think if you look at the strategy that we've developed, we have specifically gone after areas of the world where networks proliferate. If you look at our investment in Europe with West Atlantic, they now have three dry leased aircraft with their clients, one of the express carriers; we've got two strong customers in the United States. We placed one aircraft in the Far East, and we're placing a second one that flies in an express network. So we have specifically targeted, given the strength of our asset base, where networks proliferate around the globe, and we've got a good foothold going forward. So those markets that are mostly powered by e-commerce, but also the growing middle class and some of the developing countries particularly in the Far East, are driving a lot of package growth that don't show up necessarily in the overall cargo numbers, which tend to track the longer-haul leg. So we're in a niche market, as Joe had pointed out at the beginning, that's got some solid growth to it, and we're taking advantage of it.

Okay. And then last one, just on the ACMI pre-tax. I didn't know there was a couple -- the pension non-cash or I think pension expense is up. And I'm just -- I apologize if you mentioned it already, but you had said that CAM was going to be the driver of earnings, I think, going forward, or maybe it was -- yes, I think it was earnings. And I mean, ACMI, I would think, would become at least breakeven to profitable as the Amazon agreement runs to maturity. Maybe in late 2017, we'd have all the other aircraft, all the training and everything done. Is that reasonable to think that?

Yes, I think -- Steve, this is Quint. As we said, the second half we expect to see improvement, and the ACMI segment is where you'll see a lot of that. A lot of this also, and we've mentioned it in the release, has to do with the timing of maintenance. We have -- we expense the maintenance for the 767-200 that our airline has as they go into check, and we expense as incurred. And the revenue structure is more of -- it's not a reimbursed structure; the revenue is baked-in over time. And so timing of the checks can have a big impact. And ours are calendar-based, generally 18 to 20 months apart. And so you're going to have, as we said, some mismatches between revenue and expense in the maintenance line particularly. And as you know, in this business in the fourth quarter, companies generally do not plan to do a lot of the airframe scheduled maintenance so that they can reserve the greatest availability for their customer. We'll see the ACMI segment do very well in the fourth quarter and better overall in the second half, as you say.

Okay. And for the 300s, you capitalized the heavy maintenance. Is that right? Or just on the engine?

That's correct. On the 300s, it's capitalized and amortized.

(Operator Instructions) Our next question is from Adam Ritzer of Pressprich. Please go ahead.

Just a couple of questions. In terms of your capex, it looks like you're guiding to $290 million, $215 million of fleet expansion. So that leaves about $75 million. Is that kind of your new maintenance run-rate with the bigger fleet you have now?

The lion's share of it would be the maintenance capex, Adam, but there's also other things in there; buying equipment, for example, with the Amazon network that we have, we're providing ground support equipment so we're having to make investments in things like payloaders and things of that nature. But you got to figure somewhere in that $50 million to $60 million range is strictly the maintenance capex for this year.

Okay. So it's up from a few years ago, but it kind of gives us an idea.

Right.

Right now, I know you said you have -- most of your planes have been bought, and you have the conversion slots. Is there any other, call it, expansionary capex right now for 2017? Or will you be done with everything and then the additional 5 planes that are leased come on in 2017?

I'm not sure I understand the question. Are you asking, are we going to have additional growth assets that we'll put in service in 2017?

No, I'm sure you will find them. But just in terms of right now, is there anything above the $290 million we're spending in this 2017?

You mean, in '16 or in '17?

In '17. What I'm trying to figure out is in terms of how -- your debt levels are going to go up, and they're going to come back down as we generate cash flow. I'm just trying to plan -- see how much debt you're going to have at year-end and what you have planned for 2017 now. Does that make sense?

Yes. We'll be delivering the five assets which will be -- at year-end, we'll have four assets that are in conversion as part of what has to be delivered to Amazon in '17. Then we'll have one more that goes in because we have to actually deliver five in 2017. And as we mentioned earlier, as Rich pointed out, is we've got some demand out there from other customers as well. So we'll be putting additional assets in service in 2017 above and beyond that. So I would expect that the capex spend is going to be somewhere in the same range as what it is this year based on what we're seeing as far as overall demand for assets in 2017.

And Adam, as we said, I think, in the previous quarter call, we're sub-three times in terms of our leverage ratio as far out as we care to look here. And so we're very comfortable with the debt levels that are created even with the growth assets baked into the plan.

And on top of that, as we noted in our comments, Adam, I know it's something that's really near and dear to you, we did accelerate the pace of our share buyback program this year as well.

Oh, yes, you know I love that. So I guess, going forward then, even with this level of spending, obviously EBITDA is going to be increasing. You're comfortable running maybe two times, maybe above, and keep buying back stock to offset the dilution over the next few years and still add whatever four, five, six planes to grow. Does that make sense?

That makes sense.

OK. Thanks very much. Good job.

Thanks, Adam.

Thank you. We have no further questions. I will now turn the call back over to Joe Hete for closing remarks.

Thanks, Christine. I want to thank all of the shareholders who took time to vote their proxies regarding the agenda items we will consider at our annual meeting tomorrow morning. We are expecting a very high participation rate, which we regard as strong support for the strategy we're pursuing and the returns we have generated. Quint and I look forward to meeting with some of you at the meeting tomorrow and with many others in the weeks to come as we grow and strengthen your company throughout the year. Thank you very much for your continued support, and have a quality day.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.