Cargojet's (CGJTF) CEO Ajay Virmani on Q4 2020 Results - Earnings Call Transcript

Cargojet, Inc. (OTCPK:CGJTF) Q4 2020 Earnings Conference Call March 1, 2021 8:30 AM ET

Company Participants

Pauline Dhillon – Chief Corporate Officer

Ajay Virmani – President and Chief Executive Officer

Jamie Porteous – Chief Commercial Officer

John Kim – Chief Financial Officer

Sanjeev Maini – Vice President of Finance

Conference Call Participants

Walter Spracklin – RBC Capital Markets

Chris Murray – ATB Capital Markets

David Ocampo – Cormark Securities

Mona Nazir – Laurentian Bank

Konark Gupta – Scotiabank

Operator

Good day, and welcome to the Cargojet Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Pauline Dhillon, Chief Corporate Officer. Please go ahead.

Pauline Dhillon

Good morning, everyone, and thank you for joining us today on our results call. With me on the call are Ajay Virmani, our President and Chief Executive Officer; Jamie Porteous, our Chief Commercial Officer; John Kim, Chief Financial Officer; Sanjeev Maini, our VP, Finance.

After opening remarks made about the quarter, we will open the line for questions. I would like to point out that certain statements made on this call, such as those relating to our forecasted revenues, costs and strategic plans are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA and adjusted EBITDAR. Please refer to our most recent press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and for reconciliations of non-GAAP measures to GAAP income.

I’ll turn the call over to Ajay for his remarks.

Ajay Virmani

Thank you, Pauline, and thank you, everyone, for joining us this morning. Exactly, one year ago, when I hosted the earnings calls, I had no idea that we will be facing a once in a century pandemic. But the vaccine rollout is picking up, I’m optimistic that we will soon be able to enjoy activities that we miss so dearly.

From the March of last year to March of this year, Cargojet has gone through a transformation like none other. While thousands of businesses faced closures, shutdowns and loss of business, Cargojet was fortunate enough to play in the essential role in keeping our nation supply chain moving. There’s no question that we benefited from the elevated demand in e-commerce and the need-to-fly PPE from China and other countries, but it required a very disciplined approach to execution.

On the one hand, we had to bear additional costs for health, safety, protocols and onsite private testing. We do pay for frontline employees, additional bonuses and rapid adjustment to how we operate it. But on the other hand, we successfully supported rapidly changing needs of our customers. We also stayed disciplined and continuing to execute our long-term strategy of diversifying other revenues and further strengthening our balance sheet. Airline business, particularly cargo airline businesses always involve time. Therefore I’m particularly pleased with the achievement of 2020.

We are coming off one of the most successful peak performance under the most difficult circumstances. We’ve operated record number of flights for an unprecedented demand in all sectors, domestic, international targets on the U.S. operations ACMI. In spite of the COVID and weather challenges, additional business challenges – and additional business challenges, we finished the year with 98.5% on-time performance. We never left even one parcel behind for our customers during this unusually busy peak period. I want to thank all of our customers for placing their parcels and trust in the hands of Cargojet.

There are some key achievements for 2020. Total revenues for the year were $668.5 million compared to $486.6 million in 2019. But more importantly, the share of domestic network grossed around 58% of total revenues in May 2019 to 45% of total revenues in 2020. ACMI’s business now accounts for 20% of our revenues and all in charters accounts for 18% of our revenues. We also generated $196.8 million in adjusted free cash flow for the year, which is certainly a record.

Subsequent to successful equity raise of $365 million in February of this year, we have now $600 million in undrawn revolver and expect to completely pay off six aircrafts by the end of 2021 as the lease has come due. This will make us one of the best positioned cargo airlines in the world. We will have 90% of our fleet paid off by 2021.

We’ve come a long way from an overall leverage of almost five times to this year and overall leverage at just two times EBITDAR with these changes. Our fleet size stands at 28, but as we previously disclosed we will be adding five, 767 freighters and two Boeing 777 freighters in 2023 with an option of two Boeing 777 freighters in 2024.

Now let me turn to the quarter four results. We believed another record holiday season, while our customers done that with an adjusted EBITDA of in 81.9 million compared to 47.2 million in 2019. E-commerce as a percentage of overall retail sales has gone up from around 7% to 12% Canada. According to the most recent estimate, this is likely to become the new baseline and we do not expect this to slip back to the pre-pandemic levels although there might be some short-term adjustments.

Consumers have now discovered the functionality of being able to do certain types of purchases in an online platform, largely seamless manner. Yet they will go out for certain other items for an in-person shopping experience. We expect e-Commerce and bricks and mortar stores to co-exist for the foreseeable future. More importantly, there are generational trends and these will likely continue.

While we move on to operations, our teams across the country has now adopted to the new reality. Many of our early initiatives in health and safety protocols have now become the standard operating procedures. The team members continue to rise to the new challenge and I want to acknowledge their hard work, particularly as the cold weather continues to throw more challenges. This would not have happened without our motivated and one of the best teams in any organization. Our increased fleet and assets utilization continue to demonstrate additional operating leverage as demonstrated in improved margins.

I want to also make some comments about our international strategy, in addition to what we have already shared in our recent press release. I’ve mentioned this before, that given the size of Canadian domestic, cargo airlines have historically struggled to survive in Canada. Dozens of airlines have started shut their operation, started again shut their operations come and gone, but Cargojet took a bold strategy of bringing major logos under one network. We’ve successfully executed this strategy over the past one year. We believe there’s now a compelling opportunity to build an international business, while the belly capacity of the passenger airlines, greatly reduced global supply chains are struggling to reach that.

This uncoupling may continue for some time. There is significant advantage for early movers. We believe if you’re careful in designing over domestic and international network in a synergistic way, we can create a competitive offering that simply does not exist in the market today. We are also pursuing an aggressive growth strategy to expand our ACMI, CMI, U.S. growth opportunities and continue to strengthen every segment of our business. Diversification is the key going forward for us.

We are an entrepreneurial company and we – one of the things we all do is to spot opportunities and go after them successfully. With the strong customer base, a solid balance sheet and one of the best motivated teams in the industry we are now ready to – for the next phase of the growth strategy. We’ll keep you posted as it unfolds in the coming quarters in the year.

I want to thank everybody for joining us today. And once again, I appreciate you guys taking the call and now we will leave the lines open for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And the first question comes from Walter Spracklin from RBC Capital Markets. Please go ahead.

Walter Spracklin

Hey, thank you very much, operator. Good morning, everyone.

Ajay Virmani

Good morning.

Walter Spracklin

So first, Ajay, let’s start with the Q1 trends on a seasonal basis. I know obviously coming from fourth quarter looking at past trends you would come off about 10% into the first quarter. And then you talked about kind of conditions being completely different this time around. Just wanted to ask whether that 10% seasonal drop from fourth quarter to first quarter is typical what we should expect here in 2021?

Ajay Virmani

John, you’d have a better indication of that.

John Kim

Yes. Yes, Walter, I think that the traditional seasonal trends are – would continue. We don’t expect a big adjustment or a drop off in e-commerce volumes domestically. Our ACMI run rate is much higher than it was a year ago, but certainly those routes will continue the nine ACMI routes for our customer. So I think you can expect traditional sort of variances from Q4 to Q1.

Ajay Virmani

January trends were, as we said, that’s different than the previous January, although they were federally incense, but there was, as you know, after the peak season everybody was kind of stocked up. So we saw a little bit of – go off in January, but then picked right off. So we don’t expect anything out of the ordinary going into Q1.

Walter Spracklin

Got it. And on ACMI, you’d indicated the last quarter that the first half of the year should see a pricing decline of about 15% in the first half from your fourth quarter run rate and doing over $40 million now. Is that what you’re still anticipating as a bit of a 15% drop-off in the first half, and then get back to the fourth quarter – third and fourth quarter run rate for ACMI in your third and fourth quarter of 2021?

Ajay Virmani

Yes. It might not be as high as 15%, but there will be certainly be a drop in the ACMI run rate because a lot of – in the fourth quarter, especially in third quarter, there was some premium pricing that because of the shortage. So there will be some drop definitely in the pricing, but I can’t give you exact percentage, but there would be a drop for sure. And then it will pick up in quarter three and quarter four.

Walter Spracklin

Yes. And when you looked at your new freighters coming on, starting with the 767s because obviously the 777s a little further out, but 767s, how are they going to be deployed from a revenue generation standpoint? Will the first one go right into filling in your spare and have little revenue contribution? Or could we see it dedicated toward some charter business, some ACMI business? Or will – are you hoping to have some of those contracts lined up by the time those aircraft come on? Can you give us a sense of how that kind of revenue builds into your top line as those aircraft come on?

Ajay Virmani

So just to make it clear, when we picked up three additional routes for one of our customers in U.S. for ACMI purposes, we used our spare capability and we’re able to retrigger network to free up three aircraft in that. But we also used an American operator to fill in the gaps or additional routes that we were flying at the same time that we could not cover ourselves. So at this time I can say that the new freighters that come in, first of all, they will need – they will fill the need for having this spare aircraft that we lacked badly in quarter three and quarter four. And second part of it is that we also have a route being operated by an outside company to make sure that service stays and the continuity stays. So those routes will be – so the one, obviously, will go into a spare capacity as we have about 80 jets going on this year and eight next year.

So we will need an extra spare aircraft just to keep operational leads. We will also replace with one aircraft route we’re farming it outside. A third of it that we are also leaving an aircraft 767-200 that we keep extending the lease on because we always find work for it. So our plan is to replace one of that aircraft with it and that will leave us with two aircraft 767-300s that we would deploy in the European, in Southwest Asian, and South American and Latin America and Mexico markets in September, October of this year.

So basically the two of those would be dedicated to the international growth strategy. And other three would be sort of covering the present needs. One is replacing an leased aircraft. One is replacing the ACMI route that we have subbed it out. And third is using it as a spare.

Walter Spracklin

And do you have already contracts lined up for those two net new aircraft? Do you see them taking kind of – you’re doing set charter routes or could be ACMI opportunities that you’re lining up? How do you think…

Ajay Virmani

So we have a couple of customers who have expressed a deep interest in signing off ACMI contract deals with them if we wanted to, but we’re not sure if we’re going to go by ACMI route or we’re going to go over international strategy route. So ACMI guarantees you a certain amount of revenues and profits and they’re pretty good, but we still – when we get closer to it within three or four months of it, those ACMI opportunities are not going anywhere. So we do feel that as a backup, those are good to keep. But if we find that the yields in the market are still strong because the belly capacity hasn’t come back yet, we might deploy them in the international market on a retail basis, if we find that more lucrative. But if we find that some of the pricing has dropped, then we always as a backup we can do ACMI on those aircraft clearly.

Walter Spracklin

All right. Sounds like good optionality. Okay. That’s all, everything from me. Thank you very much for the time.

Ajay Virmani

Thanks. Walter.

Operator

Chris Murray from ATB Capital Markets. Please go ahead. Your line is open.

Chris Murray

Thank you. Good morning, folks.

Ajay Virmani

Good morning.

Chris Murray

My first question is around the Canada Post contract, and just thinking about the next extension. So when you renewed the extension back in 2017, you had about four years on the contract. Now we’re kind of in a similar timeframe at this point. And I think last quarter you mentioned some commentary around what you would be willing to do on pricing and things like that. So I guess a couple of questions. How should we think about what that contract looks like? And when do you think that you’d be looking to talk to them about, maybe extending the next option?

Ajay Virmani

So we still have four years left on that contract till 2025, four years and a couple of months. So I don’t have the exact date right in front of me, but in that range. So we are finishing our first seven-year contract and contract year seven would be next year, so – and then as the two-year extension kicks in. So at this stage, we obviously are always thinking about expanding relationships and renewal stuff, but I think it’s a bit early to be discussing that. A lot can change between now and a year from now, depending on where the pandemic ends up and all that volumes and how much is required. And so this will require a lot of thinking on our part, our customer’s parts. And hopefully within this year, we plan to have those discussions with them.

Chris Murray

Okay, fair enough. And then, similar to Walter’s question around the 767s, the 777s, especially the converted 777s is kind of a new entry into the freighter market. How should we be thinking about the application for that? Would that be again sort of the ACMI international business trade-off? And what type of opportunities does having the 777 open up for you that it’s different than what you can do in the 767 right now?

Ajay Virmani

Well, the 777, first of all, has an advantage of – with the lower fuel burn, double the payload. It can carry up to 220,000 pounds as opposed to 120,000 pounds of 767, and it’s got longer range. So you can do direct flights from China and to Hong Kong or any of the Eastern Japan into Vancouver and Toronto. Also if you come to Vancouver, we obviously – Vancouver-Toronto sector or Vancouver-Hamilton sector, we can combine it with our domestic sector to get the synergies and then continue on to Europe. So it’ll be an operation that extends from, let’s say, Hong Kong into Vancouver and to Toronto, and then Toronto to maybe St. John’s, Newfoundland, where we have a domestic base then continuing on to Europe and maybe extending it to India at some point.

So it would be sort of a circle flight that covers the entire world, but we will also then have some domestic sectors integrated into it, like the Vancouver-Toronto, Toronto-Vancouver, could be Halifax-Toronto depending on Hamilton. And the second part of it is also, you will have 767s that would connect with them going to Mexico and South America, but all the cargo, that international stuff that ends up here needs reforwarding into other destinations. So first of all, domestically, they could be reforwarded on our network. And second part of it is that flights like Mexico, Bermuda, Lima, Chile and Brazil could also be connecting flights from that network.

So I think what this offering does is, number one, it kind of takes advantage of some of our existing domestic routes. You can replace two aircraft with the one on some of those routes certain days, but also brings in cargo from the Far East, which is one of the biggest craving places right now into not only just Canada, but we can serve with U.S. and South Central America with those businesses. So that’s how selectively the model works.

Chris Murray

Okay. That’s helpful. And then one last clarification for me.

Ajay Virmani

And just – also just know that we always have an option that there’s a lot of demand for ACMI for 777s as well. So if we didn’t want to get into the network with our own planning, there’s always offers out there and inquiries have come in that if we want to operate 777 on an ACMI basis. So both options are available to us.

Chris Murray

Great, thanks. And then just one quick clarification. You had mentioned your on-time performance was 98.5%. Was that for Q4 or was that for the full year?

Ajay Virmani

The full year was very close to it as well. I don’t have the exact data percentages, but we’ve always been over 98% for the whole year and 98.5% for the Q4.

Chris Murray

Great. Thank you.

Ajay Virmani

Either carrier controllable delays or on-time performance.

Operator

Thank you. We’ll now move to our next question from David Ocampo from Cormark Securities. Please go ahead.

David Ocampo

Good morning.

Ajay Virmani

Good morning.

David Ocampo

I think in your Q4, I think kind of in previous press release you’ve said that you ramped up the flying by around 20% just by flying during the day and on weekends. When you think about the Q1 and Q3, can we still expect that incremental lift of 20% by flying during the day and on weekends or is that more just a peak season phenomenon?

Ajay Virmani

That was a peak season phenomena to us, also the demand for some essential goods that people are stocking up and also still some PPE was being thrown in. So I think that market is now not an urgent market. A lot of stuff is on the ocean for that stuff. So I think the 20% additional flying that you saw for charters and dedicated charters is going to become more like adhoc charters as required rather than the regular charters ones.

David Ocampo

Okay. And just to follow up on one of the previous questions, you mentioned that you guys were using some outside charters. Can you give any indication on what the margin is like for those types of contracts? Are they very low for outside charters?

Ajay Virmani

Well, the margins on that were secondary considering that there was not much available in the market. So you take whatever you can get to protect the route, protect the customer. We certainly didn’t lose money on it, but we certainly didn’t make as much as you could have if you operate it yourself. So having said that they were probably close to a breakeven or making a few pennies on it, but it was strictly done because of lack of aircraft, lack of crews and so much demand that we had to go outside to protect our business.

David Ocampo

All right. Last one for me here. On the feedstock for the 777s, what do you see in that environment right now in terms of pricing? And when can we expect you guys to execute on that? I imagine there’s quite a few right now that are available, and presumably as demand starts to come back online, now because our feedstock starts to decline as well.

Ajay Virmani

So there are a lot of 777s out parked there, but it’s not a matter of finding the feedstock or the aircraft. It’s a matter of locking in the slots for conversion. So that’s where the key comes in. And I think we are well positioned now that we are in the middle of negotiating two slots for 2023, which are being held for us and two slots for 2024. So if we are going to be operating a 777, I can see probably third quarter of 2023 or fourth quarter of 2023 to be the first one on the launch.

David Ocampo

And the expectation that execute on that option, what would you need to see in the marketplace for that to happen?

Ajay Virmani

Well, knowing what I know today and knowing where the trend is going, I think definitely we plan on executing it. Keep in mind that that portion of the business is even if we were in the pre-pandemic situation where nothing happens, let’s assume, and I was looking at 2019 and would I be adding 777s? I probably will, because I think one of the key things that we have been able to do is strengthen our balance sheet because most of these assets are going to be paid up, number one. Our input structure, our facilities and all that stuff is all paid for, our ground handling equipment is paid for. And as I always said that it is that the further offering which is riding on our existing infrastructure and fixed costs, so it’s like McDonald’s serving lunch and dinner, and now we are adding breakfast to the menu.

So for us operating those freighters would be mostly at the variable cost level. And our fixed costs would be very negligible on those. And I think even without the pre-pandemic levels, if I was in that market and I had a balance sheet like that, I would definitely be flying those planes in that market as well. So it makes total sense. The belly capacity is not going to come back for three to four years. And even in some form when it starts coming back, I think international freight division thinks the capacity, we definitely – there’s a market for those.

David Ocampo

That’s great color. I’ll hop back in queue. Thank you so much.

Ajay Virmani

Thank you.

Operator

We’ll now take our next question from Mona Nazir from Laurentian Bank. Please go ahead.

Ajay Virmani

Good morning Mona.

Mona Nazir

Good morning. Thank you for taking my questions. So firstly, in regard to the fleet addition, which is just more of a confirmation, for the 777 you’re currently negotiating and 767 are secured, is that correct?

Ajay Virmani

Yes.

Mona Nazir

Okay, perfect. And are you seeing a lot of price variance on the 777?

Ajay Virmani

There are different models of 777, there’s 200LRs and there’s 300ERs, there are slight differences in payloads and volumes carried on it. Obviously 200LRs are more available and little bit less-price, but then they take a little bit of a less volume, so those are the kind of. So we have both options available to us.

Some markets 200LRs are better. In some market 300ERs are better. So we might take two LRs – 200s and might take two 300ERs. So that’s what we are evaluating right now. But yes, there are fairly good deals available on these ex-passenger feedstock that are excellent for conversion. These are very – not very high hours they’re very low cycle aircraft.

And it clearly shows trend that these wide-bodies that are up in the market for sale shows that, I don’t know if they will ever come back to the market as passenger as the wide-body capacity gets reduced. So this is an encouraging sign because if these aircraft were ever going to see back in the passenger they wouldn’t be up for sale. So that gives us an indication that the market is going to be strong for international cargo.

Mona Nazir

Perfect. That’s great. And just, secondly for me, I saw that you had been involved in the vaccination distribution efforts. I’m just speaking of – wondering if you could speak about the impact that this program could have on the results and performance going forward particularly as distribution efforts ramp?

Ajay Virmani

I think all the articles that we saw about six months ago that you will need 8,000 jumbo jets around the world to carry vaccine was probably real we estimated. Vaccine, doesn’t weigh much, it doesn’t take much space. And I can tell you that people talk about 8,000 cargo flights carrying vaccine, it was probably as I said really we estimated. So second part is vaccine is rolling out in 200,000 doses and 100,000 doses, and 50,000 doses so it does not need plane full. You could take that in two containers and put some other stuff in. And so all the revenue estimates related to vaccines were probably an imagination of lot of people, it doesn’t have to require that kind of stuff.

Second thing is that behind the scenes, yes we have been handling vaccines, like for example, we’ve flown vaccines regularly to Mexico from Cincinnati and when we fly for DHL. We have also handled a lot of domestic distribution of vaccines through our customers UPS and FedEx. And we’ll continue to do that, but I do not think that vaccine is a phenomenon that we saw for PPE. It’s going to be a lot less. Yes, there is going to be regular shipments coming in and out, but I don’t believe that there’s going to be plane loads and charters required for that.

Mona Nazir

That’s very helpful. Thank you. And just lastly, we’ve seen the recent CapEx plan, your aircraft additions using the freed up that 25% plus I’m just wondering, looking back at when you started this company, did you ever think that it could grow to that size? Obviously the macro tailwinds, you could not have predicted? And just given current positioning, where do you think Cargojet could be in five or 10 years? And don’t leave me hard, but I’m just looking for something directionally, perhaps next geographic exposure or something that we’re not thinking about? Thank you.

Ajay Virmani

Well. We always – I always thought there was a demand for a good cargo airline. I was in the business since 1985 and till 2000 I was using the list from Canadian cargo airlines. In those 15 years I dealt with 14 cargo airlines that started and either sold or went bankrupt or discontinued operation or whatever lost their licenses. And so it was very frustrating to see that there is no strategy in Canada to have a cargo airline. And that’s where we stepped in, when we saw an opportunity after 9/11 from the ashes of Canada 3000 to Cargojet and not get into the passenger business, because the minute you combined passenger business, your focus goes to passengers.

What kind of meal they’ve got, what kind of business class seat they got, and they’re not worried about cargo. So cargo is second to those airlines and we saw 14 of them, as I said fold in those 15 years, every year I was negotiating with a new carrier. At that time and that sort of said to me that, maybe there is a need for one carrier where we can bring everybody into one group, share the overheads, grow on a variable cost model with some fixed daily minimums, growth for opportunity at variable costs for the customers and a lot of sort of flexibility in their whole contractual commitment. So I think that model worked successfully and never thought – I thought that e-Commerce would play a role and change the nature of the business. So that was kind of an unknown. But again, the opportunity came up we were ready to seize that opportunity.

Now, where do I see in five years or 10 years, I’d like to see how to get as a premium international cargo airline, which also have a obviously a significant portion of the domestic, the international ones, but I’m looking at it from flying to Asian from the growing markets, whether it’s Vietnam, whether it’s Thailand, whether it’s China, Hong Kong those part of the world right into Vancouver and then into Hamilton. I would like to see Hamilton become the hub of the transshipments. If a country like Dubai can be the hub for Middle East and Asia. Why cannot Hamilton be the hub for North America, South America, Latin America, Mexico and the Caribbean?

So my goal is to bring products all around the world into Canada and use, and have flights from here that connect to this part of the world. So what Emirates have done a great job in Dubai or Singapore Airlines have done a great job in their countries with little capabilities of local traffic, strictly doing transshipment. We are blessed with having a great North American, Canadian and U.S. demand. And if we can combine those with let’s say, Latin America, South America, Mexico, Caribbean, transshipping it to Toronto or Hamilton, it obviously would be a great business model. And that’s what my dream is to make sure that there’s a big legacies for cargo, Canada as a transshipment hub for North America and surrounding areas.

Mona Nazir

Thank you. I really appreciate you sharing that with us.

Ajay Virmani

Thank you.

Operator

[Operator Instructions] The next question comes from Konark Gupta of Scotiabank.

Konark Gupta

Good morning, guys. Thanks for taking my question.

Ajay Virmani

Good morning, Konark.

Konark Gupta

Good morning Ajay. So maybe I’m sorry for joining late. So apology, if I repeat any question here. But wondering if you – if decided to go ahead with, four 777s now, or are you still planning to have two and then two options?

Ajay Virmani

So, we are going to go with two in 2023 and with an option of two for 2024, because our optionings – it’s always good to have flexibility. It’s our option we have to confirm that within a year, year and a half, we are having plan like that exact date. But it’s obviously whenever we have bought planes and signed up with them, every time we go by a plan, this is going to be fixed dated aircraft we ended up selling that aircraft and then you have to go and get a new spare aircraft, after you end up selling it.

I’m certain that what I see in the market that we definitely will exercise those options, knowing what I know today, but obviously it will depend on how the trends are, with the demands on the world are, but I definitely see that as just describing to Mona as what I see in five to 10-years where Cargojet should be, I think four 777s might not even be in the hub. So let’s – I’m in optimistic and entrepreneurial culture and a little – whole organization is that way.

So we just want to make sure that we have great infrastructure. We cover 16 cities every morning in Canada. We still have flights to U.S. We have some international flights today and we want to be a complete cargo airline offerings CMI offering flying, ACMI were offering domestic. We are going to be offering products into some of the international cities. So I totally believe that, given what I know today and my belief, I think we will exercise those options, but obviously, again Konark as you would say the first one, no, there is no guarantees of life so.

Konark Gupta

Absolute and I understand. Yes, that makes sense. But I was curious as to like, when you say, like ended a written statements with option, curious is this is like an agreement option. Where you buy an option on aircraft and you exercise on non-depending, and you have to pay a deposit, like you would like that or your new option means you will explore the market when it comes to that point?

Ajay Virmani

So, I think aircraft are not on short supply, because there’s – lot of carriers are selling their 777 fleets, because they do not see the wide-bodies for some reason or they’re going to replace it with durable wide-bodies. But we see that the trend will continue where carriers like Singapore Airlines, Emirates, and Jet Airways recently declared bankruptcy about a year ago, there’s lots of 777s out there, a lot of companies are selling their 777, including Delta by, there could be a 100 aircraft in the market today.

So aircraft is not going to be the issue, the issue of options coming on conversion slots, that’s where the key is. So if you can get those conversions slots locked up the aircraft finding their feedstock to the convert them is not an issue. So the options mean that we will obviously source the best aircraft that’s a candidate for conversion, but what we do is we lock up the stock, conversion slots and that’s where the auctions are coming together.

Konark Gupta

Okay. Makes sense then. So from what I’ve heard from you guys early on the call, it looks like you are negotiating two slots in 2023 and two slots in 2024, I’m presuming that’s for 777. So does that mean you have secured all 767 conversion slots at this point?

Ajay Virmani

Yes. We have all the five slots conversion slots locked up at this time, for 2021 and one, I think, early in 2022.

Konark Gupta

Okay. That’s great. Thanks. And have you disclosed on this call today so far – or are you planning to any contracts, be it ACMI or any of the routes you’re launching these aircrafts that you’ve decided to go for, so, three 767, I think you were saying going for international and two 777s of three is going for international, so have you disclosed any comments right on that?

Ajay Virmani

So, I will break it down quickly, although I’ve covered that, but I’ll just break it down for you Konark, that one of the 777 – one of the 767, that we are getting will replace an existing lease that we have, which is going to be returned. So we’ll own that aircraft. The second part of it is that we will – we also have a route that is being operated by ACMI by another American carrier. So it’s going to be replacing of those routes. The third will be a spare aircraft. We are going to put that for domestic network, two are going to fly internationally, exclusively Europe and South America.

And there will be a lot of capacity available because we’ll have 20 odd aircraft that are will be available to us on the weekends and during the week to fly other international routes. So all these aircraft I think were spoken for these five aircraft.

John Kim

And among the two international 767s, we still have options to place them under either ACMI or fly them commercially ourself and closer to the dates we’ll make those decisions.

Konark Gupta

That’s great for Asia. Thanks. Last one for me is on pricing, I guess looking at domestic market. So I’m using basically, I know you don’t disclose this metric, but what I’m doing here is basically just picking the domestic revenue and dividing it by the average volume per day. So just to kind of get a sense as to what’s the average pricing per pound, it seems like obviously it’s coming down sequentially and I’m guessing, and just want to have confirmation, I’m guessing it’s more to do with the B2C and e-Commerce, so they’re kind of, it’s more about volume than pricing perhaps, or is there anything else to do that sequential call it decline in rate per pound?

Ajay Virmani

Yes. So Jamie, you can address that.

Jamie Porteous

Yes. Good morning, Konark. I think it’s that plus the – you have to consider that during heavy demand periods, then we’ve got mix of customers that are paying mixed rates per pound, but we also have a mix of customers that are paying flat rates for containers. So if they’re utilizing the container more during peak periods that we’ll have that –that we will factor in on an average lower price per pound, but the revenue would be consistent because you’re paying a flat rate per container.

Konark Gupta

I’ll get that, makes sense. But generally within the contracts you have, may be still kind of CPI linked, right?

Jamie Porteous

Our major contracts have CPI, some CPI cost and percent of the anniversary date of the agreement that kicks in.

Konark Gupta

Okay, perfect. That’s great. Thanks for those answers. Thank you.

Operator

[Operator Instructions] As there no further questions in the queue, I would like to turn to – turn the call back over to Pauline Dhillon for any additional or closing remarks.

Pauline Dhillon

Thank you everyone for joining us today for the call. Have a safe day out there. Any questions please contact us and we will be more than happy to oblige. Thanks. Bye.

Ajay Virmani

Thank you everybody.

Operator

This concludes today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.