Air Transport Services Group Management Discusses Q2 2013 Results - Earnings Call Transcript

| About: Air Transport (ATSG)

Air Transport Services Group (NASDAQ:ATSG)

Q2 2013 Earnings Call

August 09, 2013 10:00 am ET

Executives

Joseph C. Hete - Chief Executive Officer, President, Director, Member of Executive Committee and Chief Executive Officer of ABX Air Inc

Quint O. Turner - Chief Financial Officer and Principal Accounting Officer

Richard F. Corrado - Chief Commercial Officer, President of Cargo Aircraft Management Inc and President of Airborne Global Solutions Inc

Analysts

Jack Atkins - Stephens Inc., Research Division

Arthur K. Rowe - BB&T Capital Markets, Research Division

Stephen O'Hara - Sidoti & Company, LLC

Adam Ritzer

Operator

Welcome to the Q2 2013 Air Transport Services Group Earnings Conference Call. My name is Dawn, and I will be the 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 Chief Executive Officer of Air Transport Services Group. Mr. Hete, you may begin.

Joseph C. Hete

Thank you, Dawn. Good morning, and welcome to our second quarter 2013 earnings conference call. I'm Joe Hete, President and Chief Executive Officer of ATSG. With me today are Quint Turner, our Chief Financial Officer; Joe Payne, our Senior Vice President and Corporate General Counsel; and Rich Corrado, our Chief Commercial Officer.

We issued over second quarter earnings release and filed our 10-Q with the SEC yesterday afternoon. You can find both on our website, atsginc.com.

In reporting our first quarter results, we advise you about risks in our second quarter outlook, including potential additional costs and possible delays in rolling out our 757 combis. Unfortunately, our results for the second quarter fell short of what we had expected. The causes are complex, related to unexpected regulatory requirements on the one hand, and an overly optimistic budget at Air Transport International on the other. Some of these issues will persist into the second half, which has triggered the change in our EBITDA guidance for 2013.

While we are extremely disappointed about further delays in achieving EBITDA growth, the issues attributed are centered in ATI, the smaller of our 2 airlines. All of our other businesses performed consistent with the guidance we provided earlier this year, and we expect them to continue to do so as we address the problems at ATI. I will cover all of those issues and their continuing effect on our results for the rest of the year in my operating review. Before that, Quint will review our second quarter results, including our still very solid financial position. Quint?

Quint O. Turner

Thanks, 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 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 the underlying assumptions, factors, new information or other changes. These include, but aren't limited to, changes in the market demand for our assets and services, timely completion of additional Boeing 767 and 757 aircraft modifications and related certifications, the timing associated with the deployment of aircraft to customers, achievement of the benefits we anticipated from the merger of 2 of our airline businesses and our operating airline's ability to maintain on-time service and control costs. Other factors are contained from time to time in our filings with the SEC, including our 2013 second quarter Form 10-Q, which we filed yesterday afternoon and is available on our website.

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 aren't meant to substitute for our GAAP financials. We advise you to refer to the reconciliation to GAAP measures, which was included in our earnings release, also on our website.

As Joe mentioned, it's been a very difficult quarter with a sizable loss in our airline operations that detracted from the continuing core strength in the rest of our businesses. Our aircraft leasing business, and even the majority of our airline business, represented by ABX Air, remained strong and solidly profitable. those results are consistent with the outlook we had shared with you earlier in the year. But since our last call, we have devoted a lot of time to addressing significant emerging issues at ATI, which merged with our former Capital Cargo airline in March. Developments since then have shown that we were too confident on our ability to meet complex regulatory requirements in the middle of a merger and fleet transition and too optimistic about ATI's outlook for the rest of the year.

In terms of our updated 2013 guidance, we have reflected new information about ATI's combi fleet transition, including potential issues with ETOP [ph] certification and a deferred and expanded schedule for flight crew retraining. Joe will cover the details in his operating review.

Turning to our results for the second quarter. Revenues on a consolidated basis were $138.9 million compared with $143.3 million in the first quarter and $153.6 million in the second quarter period a year ago. We had 6 fewer freighters in service during the second quarter this year than we did a year ago when we were still operating our legacy DC-8 and 727 freighters. We also had fewer long-haul international operations than a year ago. While some of our 767s picked up routes that our legacy freighters had served, 4 of them remained underutilized during the second quarter despite continued efforts to market them both here and abroad. We also missed approximately $6 million in revenue opportunities during the second quarter, including $3 million due to the delays in our transition from the DC-8 to 757 combis and another $3 million in missed revenue while qualifying our flight crews. Together, these revenue misses would have added about $4 million in EBITDA to our second quarter result as the costs to earn revenue were largely fixed.

Net earnings from continuing operations for the quarter were down 38% to $6.9 million. Earnings per fully diluted share were $0.11 compared with $0.17 for the second quarter last year. Adjusted EBITDA, which excludes derivative gains or losses, was down about $7 million year-over-year to $35.9 million for the quarter and finished the first half at $73.3 million, down about $4 million from the first half of 2012.

We reduced second quarter expenses by $7.2 million year-over-year, which included significant cuts in both overhead and direct expense dating back to the termination of our BAX contract at the end of 2011. We had hoped to do better than that, of course, and we're tasking all of our business units to continue to keep nonessential spending in check.

Salaries and benefits decreased $2.6 million for the quarter and $6.4 million during the first half, which reflects a 12% headcount reduction since the beginning of the year, offset in part by annual wage and benefit increases.

Pension expense was down $1.1 million for the quarter and by $2.2 million in the half.

Our direct aircraft operating costs -- maintenance, fuel, travel and landing and ramp fees -- were down significantly in the quarter, again reflecting fewer aircraft and revenue service and fewer international flights.

Depreciation and aircraft rent were slightly higher than a year ago as newer owned aircraft and a leased-in 767 joined the fleet.

Second quarter maintenance expense was down about $300,000 year-over-year and $1.2 million for the first half. There was one fewer heavy maintenance check in the second quarter this year. However, as we said in our first quarter conference call, costs are up significantly this year on our 767-200 engine maintenance contract.

Turning to our segment results. Our leasing business, CAM, had pretax earnings, after interest expense, of $17.2 million for the quarter, up 3%. More 767s and 757s in service and leases to CAM's airline affiliates was tempered by higher depreciation and interest expense plus expenses to support the additional freighters. CAM added one 767-300 freighter, one 757 freighter and one 757 combi in the 12 months ended, June 30. At the end of the quarter, CAM owned 48 aircraft available for service. 20 of them were leased to external customers and 28 to our airlines.

In the ACMI Services segment, we had a pretax loss for the quarter of $9.1 million compared to a loss of $1.6 million for the second quarter of 2012 and a $5.4 million pretax loss in the first quarter this year. About $4 million of that loss is attributable to revenue and expense effects of 757 combi delays and flight crew issues we faced in the quarter.

Airline Services revenues, which exclude fuel and other reimbursables, were down $11.1 million or 11% year-over-year. All of that revenue shortfall is attributable to ATI. About half is from flight operations ATI missed because of delays in 757 combi certification and because of tight rating requirements arising from ATI's merger with CCIA that prevented many of our pilots from flying for extended periods. Both of these items were the result of unexpected regulatory compliance issues. The rest of the shortfall reflects a reduction at ATI's ACMI business with other customers since June of 2012.

ABX Air continued to perform well both in its ACMI and CMI contracts with DHL and others. DHL's Express business, which we support here in the Americas, is still showing good growth. In the first half, DHL's deliveries per day in the Americas were up 6.7% from the first half of last year. The 3 additional 767s that we placed with DHL in January, which replaced our retired 727s, have been steady contributors in an otherwise flat ACMI market so far.

ACMI block hours for both airlines declined 17% year-over-year in the second quarter. All of the shortfall is attributable to ATI. The reduction in hours was greater than the reduction in revenue, in part because of fewer long-distance international routes that ATI typically operates and more shorter route domestic flying than a year ago.

Pretax earnings from our other business activities, driven largely by our maintenance MRO and postal operations, were $2.6 million for the quarter, down from $3.2 million in the second quarter last year. Revenues and earnings from our sort center management services for the U.S. Postal Service were up sharply on increased volumes. This gain was offset by lower aircraft maintenance revenues, which fell $1 million for the quarter.

Net cash flow provided by operating activities in the first half was $48 million, down from $64.6 million in first half of 2012. Higher pension contributions and lower payments from DHL were the principal change factors.

Capital expenditures for the first half remained on track with the plan we outlined for you in February. We spent $72.8 million through June versus $69.5 million for the first half of 2012. The bulk of the capital spend, or $61.5 million, was for the 2 Boeing 757 combis we bought in January and for other aircraft modification costs.

Our capital budget for the year remains at about $110 million. Today, the major remaining non-maintenance pieces of that budget are our new hangar here in Wilmington and the completion of our two 767-300s that will enter service later this year. As we said in February, we do not plan to acquire more aircraft assets without a specific multiyear commitment from a customer willing to deploy them.

Through June, we have drawn $180 million against our revolving credit facility's $225 million limit. Because our debt-to-EBITDA ratio at the beginning of 2013 was 2.3x, we continued to qualify for a low interest rate of 2.5% on our revolver throughout the second quarter.

That's the summary of our position at the end of the first half. Joe will guide you through the events that led us to revise our outlook for the second half, which involves many of the same factors that hurt us in the second quarter. Over the last several weeks, we have refreshed our budget projections for all of our businesses. It's important to note that we remain financially strong and have already incurred the investments we need to grow again as the market recovers. Our leverage remains reasonable even under our new EBITDA outlook with a strong balance sheet and a smaller commitment-based fleet development appetite. Joe is ready to discuss the results of our midyear reassessment and how we now expect the second half to unfold. Joe?

Joseph C. Hete

Thanks, Quint. Our results for the second quarter fell far short of what everyone here expected, even against the softness we said was ahead of us and especially based our solid start in the first quarter. Naturally, I'm disappointed about our results so far this year and even more so about our initial assessment of the risks ATI faced and what it would take to overcome them.

When we talked to you in early May, we pointed to some near-term risk in our outlook, mainly around the timing of the FAA's approval of our 757 combis. We said we were only a couple of weeks away from the end of the maintenance cycle for 1 of the 3 remaining DC-8 combis and might have to implement a bridging program if we didn't have a 757 in service to replace it.

At that time, the progress we were making via the regional FAA team in Dallas led us to believe that despite cutbacks due to the sequester, we stood a good chance that 1 of the 757s would be approved by the time the DC-8 timed out. We also advised you that if that didn't happen, we would be unable to meet our entire schedule of combi flights for the military with only 2 remaining DC-8s and no backup spare.

We did, in fact, complete the first 757 combi proving runs by May 16 and thought we still had a chance to have one ready before the end of the month. But around that time, FAA officials in Washington stepped into the review and determined that the 757 combi was, in effect, a new aircraft type. That triggered a more detailed review of our program despite the long and successful history of the 757 airframe.

Let me add that the FAA's new standards for the 757 combi have little to do with the integrity of the aircraft or our operating plans, all of which were consistent with the way we have been safely operating our DC-8 combis for 20 years to military installations around the world. These were simply new combi requirement that the D.C. staff decided to add, such as one that will require us to place a third flight attendant aboard our aircraft. I should note that our military customer has been pleased with our 757 combis, and they are eager to have the rest of them as we are able to bring them online.

That extended FAA review caused us to miss our in-service target date for the first combi by about 1.5 months, when at worst, we had thought it might be a week. With only 2 combis available to fly, we lost $3 million in revenue during May and June on our military contract from combi runs that we could not carry out. That change in completing our ETOP [ph] certification flights in the Pacific and Indian Oceans will delay the rollout of our remaining 757 combis.

The other issue that surfaced last quarter was a specific new requirement from the FAA about retraining our 757 pilots to operate 767s and vice versa. Because the 767 and 757 share a common type rating and based on earlier indications from the FAA, we had expected that a pilot rating on either type would only have to complete a differences training for the other, which they could do online from anywhere. Instead, we were advised that each transitioning pilot would be required to complete 3 days of classroom and simulator training, which means pulling 130 pilots out of crew rotations for 5 days, including travel to and from the training centers. That has added costs for training and travel and, most importantly, led to missed opportunities for ad hoc and charter flights and more payroll costs for pilots. All told, we now expect that our combi and pilot transition delays will reduce our 2013 EBITDA by about $10 million more than our earlier EBITDA guidance had assumed.

To be fair, our weak second quarter and revised second half outlook are not entirely due to regulatory issues. We acknowledge the FAA's authority to set these standards, and we are adopting them.

It's also important for you to understand that since losing the BAX business at the end of 2011, we have closed offices, moved personnel and reorganized management teams leading up to the ATI-CCIA merger this spring. Their administrative teams are changing as they manage complex elements of our airline merger, the combi transition and other fleet realignment issues.

After weeks of close analysis of ATI's issues, we now have a better view of its likely performance for the rest of the year and into 2014. We have further reduced ATI's expected EBITDA for 2013 by another $10 million. We don't assume any more synergy benefit from our airline merger until 2014 and have scaled back the amount of charter revenue we expect to earn this year.

We expect that most of ATSG's projected increase in EBITDA from the first half to the second will accrue from deploying the rest of the 757 combis. The first one has been covering Atlantic routes that the DC-8 combi had served before. We added a second one to this certificate in early July, and we expect to add a third this month.

The fourth 757 combis is the one we purchased and modified ourselves through Precision. It's a bit different from the 3 we acquired from National so its review will take a little longer.

We have said all along that the bottom line effect of the combi fleet upgrade would be roughly neutral, including the additional depreciation. But our EBITDA will benefit directly from retiring the DC-8s as we capture the fuel cost savings that the 757s offer and apply those for the asset return. As of today, certification flights for operating the 757 combis over the Pacific and Indian Oceans are slated for mid-September. FAA personnel must join us on those flights, so scheduling may be affected by the current federal travel restrictions imposed due to heightened security concerns. If those proving flights are delayed, our ability to capture all of the 757s' operating costs benefit would be delayed as well, but we will protect the revenue via DC-8s.

That's a simple overview of the principal factors that have led us to revise our guidance for the year. The details about how we got here are much more complex, as they always are in a highly regulated industry like ours. But the plain fact is that we had a big miss in just one piece of our business, while all the other parts are performing just as we expect them to.

If you subtract our first half EBITDA of $73 million from our new target range of $155 million to $160 million, you get a second half range of $82 million to $87 million, which at the top end exceeds the $86 million of EBITDA we earned in the second half last year. We're looking for significant increases in EBITDA in each of the last 2 quarters from the $36 million we reported in the second quarter, subject to timing on the ETOPs [ph] runs. I'm not pleased to make this change, but I'm confident that our near-term risk factors are now better represented in the new targets. This new forecast, like the original baseline one, assumes minimal market risk.

We don't expect any of our aircraft now in service to be returned this year, and we feel good about the goals for our other businesses. But given the economic climate, our 2013 plan still has no EBITDA contribution on our 4 767-200s awaiting new assignments or from the 2 767-300s in mod. But I would not rule out some return from those 767s this fall and more if the holiday season proves to be as robust as some suggest. They do represent substantial upside potential to our results when fully deployed. Even on an external dry lease basis with no CMI support, those 6 767s would add approximately $18 million to $20 million in EBITDA on an annualized basis.

As we look towards 2014, we are encouraged by evidence that air cargo demand is responding to more stable fuel prices. There are also signs of capacity tightening in certain regions and indications that operators with aging or mismatched fleets still want newer replacements.

In the medium wide-body freighter segment, where we are the global leader, 15 to 20 freighters have been in parked this year and about 30 in the prior 2 years. Cargo lanes are shifting in ways that may increase mid-sized freighter opportunities in the Mid East and Europe and our continued strong financial position is certainly a factor with customers, who see so many other regional carriers come and go.

Our unique business plan rests on a solid foundation of long-term external leases for more than 40% of our owned aircraft fleet and strong customer relationships backing up internal leases and solid operating agreements for most of the others. We are and intend to remain a strong cash generator and a prudent capital allocator. When opportunities arise to deploy our cash flow for growth, we will weigh the opportunity against alternative uses of that capital that may more directly benefit our shareholders. In everything that we do, we will act in ways that merit your confidence in our ability to strengthen and grow ATSG in the future.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jack Atkins from Stephens.

Jack Atkins - Stephens Inc., Research Division

So I guess just to start off, and Joe, thank you for all that color on the puts and takes of the guidance revision. But just to sort of dig in to the reduction, the $10 million reduction at ATI, could you maybe sort of talk about the 2 or 3 things that are driving that $10 million reduction there, just to kind of get a little bit more specific on that particular side of things?

Joseph C. Hete

Jack, are you talking about the $10 million that's the onetime related to combi? Or are you talking about the other $10 million that we've adjusted the balance of the guidance to?

Jack Atkins - Stephens Inc., Research Division

Right, what you adjusted the balance of the guidance for after the review?

Joseph C. Hete

Yes. Essentially what we did, Jack, was look at our abilities to capture the synergies that we had originally anticipated and took a more conservative view of that, obviously, a significantly more conservative view than what we had expressed previously. That makes up about $6 million of the $10 million differential. We also looked at our ability to guard the additional things like seasonal revenue and the other charter stuff that we do in the second half of the year -- that has been a hallmark of the ATI operation for a number of years -- and scaled that back by what ultimately ends up impacting us by about $4 million. So when you look at it on a macro basis, obviously there's a whole bunch of moving parts inside that cost piece of the equation. It's people, it's the things that support the people. That's really the best way to break it down.

Jack Atkins - Stephens Inc., Research Division

Okay, that's helpful. And so when we think about that $10 million reduction, including the synergies, would you think that maybe you'd be able to capture either that incremental revenue or those costs in 2014, and the difficulty there is just because of a longer merger process and the operational challenges associated with that? I'm just trying to think about how much of maybe that incremental EBITDA you could capture in the out year.

Joseph C. Hete

Yes, I don't want to get into the 2014 forecast at this point, Jack, but I think there are additional opportunities for synergies. The difficulty is coming to a stabilized platform, which we don't have today that we've finally got everything related to the DC-8s out, everything on the combis in place and operating and of course, rightsizing the balance of the operation. So yes, I think there's additional opportunities for synergies. And clearly, the revenue pieces, getting back to a normalized ad hoc and charter pieces that ATI has done for so many years is certainly a potential in 2014.

Jack Atkins - Stephens Inc., Research Division

Okay. And then last question for me and I'll jump back in the queue. But when you think about the 4 underutilized 767s that you have now and then the 2 additional aircraft that are coming out of mod later this year, I understand the guidance doesn't assume that those planes are placed under ACMI contract. But can you maybe talk about -- you said the potential to get those planes placed in the balance of this year. Do you think that it's -- as we're thinking about when those planes find a home, maybe 2014 is a better sort of the timeframe to think about that?

Joseph C. Hete

Yes, I'm going to lateral that one over to Rich Corrado, Jack, and let him answer it.

Richard F. Corrado

Jack, yes, thanks for the question. Our overall pipeline continues to be strong. It's stronger than it was the last time we talked in May. Folks are still cautious, but they're more optimistic than they've been in the beginning part of the year. Our existing customers are talking to us about adding additional hours to their current flying as well as additional lanes in specific markets. We've got some opportunities that are in their latter stages in the Americas, the EU and the Middle East. In EU for example, the market's been worse there than anywhere on the globe for the past 2 years. But customers are noting that they haven't addressed their capacity issues in 2 years. And although the growth is just starting to uptick now for them, they're looking at optimizing their logistics, and that may need different gauge aircraft. So we're getting back in making some conversations with our existing customers there about looking at some additional lift opportunities. We have specific opportunities in Asia, for which we've been working through regulatory issues that we spoke about last quarter. And over the last several months, we've been making some very good progress. For example, we've got to the point where we have a signed wet-lease agreement with a carrier in an Asian market that's approved by the in-country regulatory authority, which is one of the major milestones that we had to get over to move that opportunity forward. There's still some regulatory things that we have to get through, but we think that's a near to mid-term opportunity that could drive some revenue. In the Americas, we've got existing customers projecting and experiencing additional block hours, which is good. And then as far as peak goes, we've got kind of a mixed review from the customers that we normally support during peak. One of them is requiring the same resources they normally require but for a shorter period of time. And the other one is requesting more resources than they normally require for a more extended period of time. So it's kind of a mixed bag, but we're roughly projecting about the same peak revenue that we achieved last year. So the pipeline's in very good shape. People are still a little bit cautious. But we do have some solid opportunities that are well down the road as far as the opportunity development.

Operator

Our next question comes from Kevin Sterling from BB&T Capital Markets.

Arthur K. Rowe - BB&T Capital Markets, Research Division

This is Chip on for Kevin. Kind of following up on Jack's question. This is more DHL related. Have you guys seen any potential opportunities in the Middle East since Maximus grounded their fleet? Because I believe DHL was an ACMI customer of theirs.

Joseph C. Hete

Yes, Maximus was a customer of DHL, but theirs was more focused on kind of backfilling and ad hoc more so than the scheduled piece. And we would refer to the scheduled piece of the business. As we've said before, we have 3 aircraft over there and have had since the second quarter of last year, I think it was May/June timeframe is when we placed those aircraft there. So Maximus' going away, did free up a little bit of business. But by the same token, I think we're seeing a little bit of softness from the feedback we get from DHL that as the U.S. Military winds down. Because remember, a lot of that is feeding into the Afghanistan theater that some of that is falling off as well. So it's one of those ones where it's almost a month-to-month call.

Arthur K. Rowe - BB&T Capital Markets, Research Division

And then back to the U.S., what about potential opportunities as DHL expands in Cincinnati and in Miami? What do you guys think about the opportunities there?

Richard F. Corrado

We talked -- this is Rich. We talk weekly with DHL about different opportunities and shifting different aircraft around. We added 3 aircraft to their operation at the beginning of the year in an effort to grow that. We're looking at different opportunities, specifically going southbound moving forward. Their company -- they're doing well, but they're also methodical in their decision-making process. And so there are some good discussions going on about potential growth opportunities. But again, nothing that's planned at this point.

Joseph C. Hete

Yes. One of the opportunities there, Chip, would also be that if there is a specific lane that is on the 767-200 today, for example, and they want to engage with a 300, we can bring that asset to bear. And so that's also a potential with DHL from a domestic standpoint.

Operator

Our next question comes from Steve O'Hara from Sidoti.

Stephen O'Hara - Sidoti & Company, LLC

I'm just kind of thinking about next year, and I guess I'm not really -- I know you don't want to give guidance. But I mean, in terms of what the model can produce. If I think about it, let's say, $160 million plus that $10 million that you don't think will repeat next year, and then plus, let's say, the $18 million to $20 million from these other aircraft that are, let's say, underutilized. I mean, is that the right way to think about it? Or what are the factors in there that should I be kind of aware of?

Joseph C. Hete

I think if you look at it, Steve, our original guidance for the year was $175 million to $180 million. And so if you take out that $10 million that doesn't repeat but leave the other $10 million subtracted from that, you're now down to $165 million to $170 million. Now keep in mind, so you look at that as kind of our baseline because that doesn't include any new business for these 6 assets that we will have that aren't currently fully utilized or in modification today. So when you think about in those terms, if we're successful in deploying those assets just on a dry lease basis alone, as we said in our remarks, you can add another $18 million to $20 million to that. So it's really a function of looking at $165 million to $175 million in total and then figure out what you want to in the way of deployment of those additional assets.

Stephen O'Hara - Sidoti & Company, LLC

Okay, okay. So I mean, the underlying earnings of the model don't appear to have changed dramatically in, let's say, a steady market with full utilization?

Joseph C. Hete

No, as we commented, the rest of the pieces of the business are performing pretty much on plan as we anticipated. It was just all centered in ATI, everything that they're going through. Remember, it started with the merger, which was completed March, and then of course transitioning, which is pretty tall order especially for an organization that size, but in order to protect that business with the military, following closely thereon with the introduction of a new aircraft type with the 757 combi.

Stephen O'Hara - Sidoti & Company, LLC

Okay. And then second, I mean, I guess assuming maintenance level CapEx, I mean, it should -- looks like you guys are going to generate a lot of free cash flow next year unless you, I guess, buy more aircraft. But I mean, what are some plans for deploying that cash? And I mean, I know it seemed like you've changed your tone a little bit on buybacks in the first quarter. I'm just wondering if you could kind of update us on that.

Quint O. Turner

Yes, Steve. This is Quint. I think you're sort of accurate when you think about how you are viewing next year. If you start with sort of the EBITDA levels that you were just discussing with Joe, call it, throw out -- for example's sake here the mid-160s, you've got interest expense, you've got some principal paydown, you've got some pension payment, and then you've got maintenance CapEx. And right now, even conservatively, based on conservative assumptions, it would imply over $1 a share in free cash flow in 2014. And what we've said previously is that in terms of future fleet growth, we're going to look towards long-term commitments to drive our appetite for that. And absent that, certainly, this was a year when we refreshed our combi fleet. So we did draw out our line of credit. However, by the end of the year, we expect to be just a little over 2x levered. And that means 2014, there are some options that we have to evaluate. And one of those, of course, would be returning capital to shareholders. It's something that is certainly an option that will get considered as we look at free cash flow generation next year.

Operator

Our next question comes from Adam Ritzer from Prestwich.

Adam Ritzer

I guess most of the things that I was going to ask have already been covered. But I guess getting back to the last caller and your use of free cash. What I don't understand is by my math, I don't know how much debt paydown you need. You should be generating $100 million plus of free cash. You could have an additional $15 million to $20 million hopefully if you lease up these last 6 planes. I know you've said in the past, unless you had a long-term lease you're not going to buy and re-modify any planes, assuming you can even find them. So why aren't you guys being more, let's say, vociferous in saying we're going to buy back stock? I don't really see what else you have to do with it if you're under 2x levered. I know I've talked to you about this for many years, and I know you had to get the fleet in shape. But why not just say you're going to do it? What's holding you back?

Quint O. Turner

Well, again, the decision, I guess, to return capital to shareholders will be something that the board and management considers as far as the best overall shareholder return, with the options on our table. So we don't have that to announce certainly today, but what we can say is that it is always an option that is in the mix when we're looking at how to give the shareholders the best return. As far as your math, Adam, it, of course, depends on where you start EBITDA-wise next year. You're right that there is some potential upside if we were able to deploy some of the underutilized aircraft. That could make a pretty significant difference. And as I mentioned, I've been fairly conservative. When I say over $1 a share, I'm including things like interest expense, principle paydown, our pension requirements, which there's -- depending on how interest rates finish the year could be and we would expect to be lower as far as our cash requirement next year for pension. The rise in interest rates has as a very favorable impact on our balance sheet pension obligation. And then the other thing, of course, is maintenance CapEx. And again, you pick that, say, call it $30 million, $35 million conservatively is kind of the range we've discussed in the past. So you're right. I mean, there's significant free cash flow generation next year absent any growth CapEx commitments.

Adam Ritzer

But you have no growth CapEx commitments, and you've said you're only going to buy a plane if you have a long-term lease. Is that consistent?

Quint O. Turner

That's consistent.

Adam Ritzer

Okay. And I know you're going to use some of your cash second half to pay down your debt. I guess, maybe you're saying, we agree but you need board approval and that's not going to come until later in the year. So I'll leave it at that. But I would stress that the time kind is of the essence, we've had, what, 5 years now of $150 million, $160 million, $170 million of EBITDA and you've spent, I know, amazingly $0.5 billion on planes, I know things happen, we have some planes that are always unleased right now. But assuming from what Rich said about the pipeline, that should get taken care of. And I just -- again, I think the time is of the essence, and a buyback should be discussed with the board as soon as you can.

Joseph C. Hete

And Adam, to your point, like I said, the EBITDA has been relatively stable over the last 5 years. But when you go to that time period, you go back to losing the DHL business. We had to reinvest in the assets. To your point, we've invested $0.5 billion. But the assets, as they were with the DHL fleet, with the Airborne standard container configuration required us to put the big doors in the airplane do in order to make them viable, both for DHL, because that's what they focused on was the large cargo door, as well as the rest of the marketplace. So I understand where you're coming from. And rest assured, that's a recurring topic of discussion at the board meetings.

Quint O. Turner

And I think the investments we've made put us where we are today. I mean, those aircraft that Joe is talking about are on long-term leases to DHL now and big contributors to our results. And then, of course, there's the combi refresh, which was also a significant CapEx spend, which we believe puts us in place -- puts us in a position to keep our book of business that we've had, or ATI has had for 15, 20 years, and is a very valuable piece of business.

Operator

I will now turn the call back to Joe Hete for closing comments.

Joseph C. Hete

Thank you, Dawn. As we have just reviewed on this call, it was a mix of issues and not just one factor that let us to reassess what we can achieve in 2013. The simplest way to characterize the $20 million in EBITDA guidance change is to look at it in 2 pieces: One $10 million piece consists of about $6 million in merger synergy benefits and about $4 million in additional revenues that ATI had in its original plan that was just too aggressive. But the other $10 million, consisting of $4 million in the second quarter and $6 million in the second half, is non-recurring impact from the combi and crew issues we talked about, and which we'll begin to earn when those transitions are complete later this year. You put that second $10 million back into your 2014 forecasting, that means we're looking at only about 6% reduction from the underlying cash generating power of this business compared to where we were before. While that's not insignificant, it does show that apart from ATI, the rest of our businesses are generating and will continue to generate strong cash returns in a tough market. Thank you, and have a quality day.

Operator

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

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