Air Transport Services Group, Inc. (NASDAQ:ATSG) Q1 2021 Earnings Conference Call May 6, 2021 10:00 AM ET
Company Participants
Joe Payne - Chief Legal Officer
Rich Corrado - President and Chief Executive Officer
Quint Turner - Chief Financial Officer
Mike Berger - Chief Commercial Officer
Conference Call Participants
Jack Atkins - Stephens
Helane Becker - Cowen
Chris Stathoulopoulos - Susquehanna
Steve O'Hara - Sidoti & Company
Dan Sargen - Rice Hall James
Operator
Welcome to the Quarter One 2021 Air Transport Services Group, Inc. Earnings Conference Call. My name is Jenny. I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded.
I will now turn the call over to Joe Payne, Chief Legal Officer. Mr. Payne, you may begin.
Joe Payne
Good morning, and welcome to our first quarter 2021 earnings conference call. We issued our earnings release yesterday after the market closed. It's on our website, atsginc.com. Let me begin by advising you that during the course of this call, we will make projections and 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 upon information, plans and estimates as of the date of this call. 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, the following, which relate to the current COVID-19 pandemic and related economic downturn. The pandemic may continue for a longer period or its effects on commercial and military passenger flying may be more substantial than we currently expect. It may also disrupt our workforce and staffing capability, our ability to access airports and maintenance facilities, our customers' creditworthiness, the continuing ability of our vendors and third-party service providers to maintain customary service levels and the expected timing and benefits from government grants.
Other factors could also impact the market demand for our assets and services. These include our operating airline's ability to maintain on-time service and control costs; the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration; fluctuations in ATSG's traded share price and in interest rates, which may result in mark-to-market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; our ability to remain in compliance with key agreements with customers, lenders and government agencies; changes in general economic and/or industry-specific conditions; and other factors as contained from time to time in our filings with the SEC, including the Form 10-Q we will file next week.
We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, adjusted pre-tax earnings and adjusted EBITDA. Management believes these metrics 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.
And now I'll turn the call over to Rich Corrado, President and CEO, for his opening comments.
Rich Corrado
Thanks Joe and welcome, everyone. I want to begin by commending our employees who continue to provide our customers with reliable, efficient service in any conditions, even under the added safety procedures that remain in place arising from the COVID-19 pandemic. I also want to celebrate with you and our employees several pieces of good news we have received over the last few weeks.
The first, in March, was Amazon's decision to exercise for cash the warrants it holds to purchase approximately 13.6 million ATSG shares. Amazon will pay ATSG $132 million to purchase those shares, in addition to the 866,000 ATSG shares that are recently acquired in a cashless exercise. We expect to complete those transactions tomorrow. At that point, Amazon will become our largest shareholder, holding shares representing about 19.5% of those outstanding as well as being a principal customer of ATSG.
More good news came early last month when we completed new debt financing arrangements that included the amendment of our senior credit facility and the issuance of another 200 million in unsecured notes. That financing, together with Amazon's investment and other new funds, will significantly strengthen ATSG's balance sheet. And finally, last week, we received word that the FAA has awarded a supplemental type certificate to our joint venture for its Airbus A321 passenger-to-freighter conversion program.
This step completes our three-year development program for this new narrowbody freighter, which we expect will become a key aircraft type for many of the same air express networks we serve with our large 767 freighters. All in all, we are off to a good start in 2021 with six Boeing 767-300 freighters leased to customers so far this year. That includes five of the 11 Amazon deliveries planned for this year and more in billable block hours for the freighters that we also fly.
But we also saw more net impact from the COVID-19 pandemic on our first quarter revenues and adjusted earnings for passenger and combi operations compared to a year ago. In 2020, we lost some ongoing passenger flying opportunities due to the pandemic, but also picked up other pandemic related charter assignments, especially in the first half last year.
In 2021, while our freighter leasing business continues to grow at a record pace, our airlines as a group did not achieve the revenues or margins they had in the early part of last year. Our 2021 guidance for adjusted EBITDA of $525 million was also assumed a more robust second half than the first, and that is still our plan. But achieving it will require easing of the pandemic effects on our passenger operations. I'll have more to say about our outlook shortly.
Quint Turner, our CFO, is ready to review our first quarter numbers. Quint?
Quint Turner
Thanks Rich and welcome to everyone on the call this morning. On a consolidated basis, our revenues were down 3% to 376 million in the first quarter. The principal factor was less passenger flying, mainly at Omni, but also from ATI's combi operation.
Our fourth first quarter GAAP earnings of $42 million or $0.71 per share basic were also down but primarily due to a $101 million swing in our noncash gain from revaluing our liability for Amazon warrants, which was $108 million in the first quarter a year ago versus 7 million this year.
We also recorded 22 million in first quarter after-tax benefits from federal pandemic relief assistance under the Payroll Support Program versus no such benefits in the first quarter last year. Our first quarter earnings on an adjusted basis were $14 million lower than a year ago at 15 million or $0.19 per share diluted.
That excludes, among other items, the effects of quarterly mark-to-market changes in the value of warrants and other financial instruments as well as pandemic related government grants to our airlines. The primary factor was decreased passenger revenues from our airlines due to the pandemic.
Adjusted EPS for the first quarter of 2021 and year ago period both reflect Amazon's warrant conversion decision. Interest expense was down $2 million for the quarter. Rates on our credit facility balances and lower debt levels overall were principal factors.
Depreciation and amortization expense increased 2 million for the quarter from more aircraft in service. Our adjusted EBITDA was 106 million for the first quarter, down from 124 million a year ago.
On a segment basis, our aircraft leasing business, CAM, performed very well. CAM's pre-tax earnings increased 36% for the quarter to 21 million. CAM owned 53 Boeing 767-300 aircraft in service as of March 31, up from 40 a year earlier. CAM completed the modification of four feedstock 767s to freighters during the quarter.
Three 767-200 freighters were returned to CAM in the quarter and are being prepped for a release externally this year. Leasing demand remains robust for both our newly converted 767-300 freighters as well as for any 767-300s or 200s that may roll off of existing leases. During the quarter, CAM bought four 767-300 feedstock aircraft for conversion.
Because of continued strong leasing demand, CAM plans to acquire at least 13 767 feedstock aircraft this year and may acquire others given the opportunity. Omni returned one of its 767-300 passenger aircraft to CAM, which will convert and lease it externally as a freighter later this year.
Revenues for our ACMI Services segment, which includes our two cargo airlines and one passenger airline decreased 37 million during the first quarter to 247 million. This year's ACMI Services revenues continued the trend of the last half of 2020 with significant COVID-19 pandemic impact, but without offsetting ad hoc passenger flying opportunities.
Billable block hours fell 5% overall, but combined block hours flown for passenger operations, including the 757 military combi flights, were down 42% for the quarter. On a GAAP basis, pre-tax earnings for ACMI Services were 21 million during the first quarter, which included CARES Act grants of 28 million that we exclude from our consolidated adjusted results. That compares with 18 million pre-tax for 2020 with no pandemic relief benefits.
ACMI Services benefited from reduced travel costs for the quarter this year, offset by higher wage and benefit costs, including the effect of pay increases for teams to represent pilots at ABX Air, stemming from last December's amendment to its collective bargaining agreement. We also incurred an additional $2 million in training and recruitment costs during the first quarter compared to last year.
During the first quarter of 2021, we began to lease four more 767-300s for Amazon and have added one more since then. One other CAM-owned 767 freighter was leased to Northern Air Cargo during the quarter. Soaring e-commerce shipping since the pandemic continues to boost our freighter aircraft flying, primarily for Amazon and DHL. We expect to be flying at least 13 more 767s for Amazon by the end of 2021 than at the end of 2020, including two Amazon owns and will assign to us to fly under our CMI agreement.
We mentioned in our earnings release that Omni Air expects to receive 83 million in federal payroll support payments this year, the majority of which we have already received. These funds require Omni to refrain from involuntary furloughs of its flight crews and other personnel at least through September.
Please keep in mind that our practice is to exclude those grant funds from our adjusted results. To the extent Omni maintains staffing levels in 2021 that are above what we would otherwise require for current flight operations in order to comply with grant programs, our adjusted EBITDA and adjusted earnings will be lower.
Our earnings on the other activities line were somewhat better than a year ago at 389,000. Proceeds from more fuel sales and gateway services for Amazon exceeded losses from two regional centers we operate for the postal service.
Amazon's announcement in March of exercise of the original allotment of 14.9 million warrants was certainly good news to us. With all regulatory clearances completed, Amazon intends to wire us $132 million tomorrow. Once completed, they will hold approximately 14.4 million shares, equating to a 19.5% equity stake.
In April, we completed a 200 million add-on to the 500 million of four and three quarter percent unsecured notes we first issued in January 2020, following another amendment to our bank credit facility. This year's $200 million offering was attractively priced to yield an effective rate of 3.96% and like the $500 million offering a year ago was again significantly oversubscribed. The add-on was preceded by a ratings upgrade from S&P and a positive outlook for Moody's.
The bank credit facility amendments provided for an increase in ATSG's revolver size and accommodated the prepayment of ATSG's term loan balance of $609 million. These changes to our debt structure, along with the proceeds from Amazon's warrant exercise, provide ATSG significant access to capital going forward, maximized flexibility and strengthen an already strong balance sheet.
With that summary of our financial and operating results for the quarter, I'll turn it back to Rich for some comments on our outlook. Rich?
Rich Corrado
Thanks Quint. Entering the first quarter this year, we knew we faced a tough comparison with the same period last year. In early 2020, as the pandemic was just beginning to affect the US, Omni flew several special missions to move military and civilian groups away from COVID hotspots and completed other rapid response missions for the federal government. ATI's combi and 757 freighter fleets were still generating good returns, and our aircraft maintenance facilities were humming with passenger aircraft work for scheduled airlines.
When we issued guidance of $525 million for adjusted EBITDA in 2021, we noted that our plan called for us to generate only 43% or 225 million of the total in the first half. If you assume that we would generate more of the 225 million in the second quarter than the first, we were actually not far from the pace that we projected. In the meantime, our freighter leasing and flight operations for air express networks are growing at double-digit rates.
We are on track with our aggressive schedule to lease at least 16 767-300 freighters this year and at least 10 already targeted for 2022, a 11 to go into Amazon this year, and at least five others are expected to be leased to other airlines, including Northern Air Cargo, Amerijet, Air Canada and DHL. We're also scheduled to deploy three returned 767-200 freighters under five-year leases to Raya Airways, Star Air and SkyTaxi.
I mentioned last time that in addition to the 7 million to 8 million in higher wage and benefit costs this year from the amendment to the CBA with our ABX pilots, we are also incurring higher software costs under the continuous improvement processes that we launched last year. These investments are already beginning to yield benefits and will result in improved flight performance and more predictable maintenance requirements. We expect our ACMI Services segment to improve, particularly in the second half. That will depend on the restoration of revenue streams the pandemic has reduced, but also efficiencies that help us mitigate the incremental payroll costs at our airlines.
We believe that we can source, acquire, convert and deploy enough 767-300 freighters to meet our current lease commitments. By the end of the year, we will be flying four 767s we don't own in the Amazon Air network, including two that Amazon owns and two others in leases from another source. By the end of this year, we expect to fly at least 46 aircraft in Amazon's network under our CMI agreement compared with 33 at the end of 2020. With our devotion to service quality and breadth of service offerings, we anticipate CAM and our cargo airlines to remain principal source for any freighter capacity and flight support Amazon may require.
I mentioned at the outset last week's welcome news that the FAA has awarded a supplemental type certificate for our joint venture Airbus A321 passenger-to-freighter conversion design. Our PEMCO conversion facility in Tampa is already gearing up to begin work on converting A321s, and we and our joint partner, Precision, are expecting to begin that work in June. We have noted that reservations of passenger airlines are increasing as vaccinated business and leisure travelers return to the air. We are hopeful that that trend continues, and pandemic effects on our passenger operations abate in the second half. Either way, however, I expect 2021 to be another good year for the shareholders of ATSG.
That concludes our prepared remarks. Quint and I, along with Mike Berger, our Chief Commercial Officer, are ready to answer your questions. May we have the first question, operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And our first question comes from Jack Atkins from Stephens. Please go ahead.
Jack Atkins
Great. Good morning, everybody, and thanks for taking my questions.
Rich Corrado
Good morning, Jack.
Jack Atkins
So I guess just to start, and Rich, going back to your prepared comments there at the end, it sounds like the first quarter played out roughly in line with your budget. Is the plan still, Quint, to have 43% of the expected EBITDA this year in the first half of the year? And then I guess more broadly, Rich, can you sort of talk about whether you're gaining some incremental visibility around passenger flying with Omni in the second half of the year, just given it seems like the reopening of the broader economy is going perhaps a bit better than expected?
Quint Turner
Yeah. Jack, I'll go first. I guess the - in terms of the plan, you're right. We have not changed our full year guidance. And the first quarter came in very, very close to what we had projected in our budget. So that wading that you described with the back half loaded EBITDA is still the plan. And it all is tied into the effects of the pandemic on the passenger side, as we said in February. So really, nothing's changed in that regard.
Rich Corrado
In regard - Jack, to your question regarding what we're seeing in the recovery of the passenger operations, since the end of the quarter, we have seen an uptick. So we're optimistic that it's going to remain on the plan that we focused on when we gave our guidance. And so if I look at Omni as an example in April and through most of May was pretty close to its 2019 levels. So last year we look at as a very unusual year for Omni because of the recovery flights that they ended up getting, and they didn't have much of a dip in their business, other than the commercial stuff that went away toward the end of the first quarter. And they actually outperformed what they did the year prior because of all the supplemental flights they were getting to get folks out of COVID hotspots and things like that and some additional governmental flying. So it was a very unusual year last year for Omni. And this year, we - they seem to be responding as we had planned.
Jack Atkins
There's no doubt, 2020 will go down as an unusual year. So that's great to hear that things are progressing along with your plan. I guess, maybe, shifting gears, Rich, kind of thinking about demand for that 767 freighter assets. You mentioned an additional plane this year versus your plan three months ago and an additional contract for 2022. I guess when you think about what customers are coming to you and asking for now as they sort of look out at their capacity needs over the next several years, are you seeing any indication from customers that are maybe they're looking to create, not to the same size of what Amazon has put together here, but maybe create their own sort of captive express networks, just given how tight capacity is, and how tight it's likely going to stay for some time?
Rich Corrado
Yeah. I think it's a little bit of both. I mean, a lot of the customers that we lease airplanes to, particularly in other parts of the world, predominantly fly for other express carriers. And so they're responding to the needs of the larger express carriers in some respects. I would say there's a few of them that are - have long-term plans for multiple aircraft over several years, and I think we talked about this on prior calls. And that's something we haven't seen before. And so in places like Mexico, Malaysia, we're seeing multiyear demand for freighters to support the growth that they're seeing. Now we haven't seen any kind of non-transportation companies step up and want to put up a network like Amazon did, and we don't perceive that there is anyone with that type of scale, at least on the domestic side, to be able to do that. So the demand profile - it has changed over the past year significantly, as we've talked about before, to where airlines are more comfortable ordering aircraft over multiple years as opposed to just giving us an order for like one or two planes this year or next year. And that's - like I said, that's an unusual phenomenon for us.
Mike Berger
Hey, Jack, it's Mike. I just would add to that - and you made note - you made reference to in your comments that the US economy seems to be coming back a little bit better and faster than most thought. And certainly, passenger traffic in this country is coming back very nicely, not the case, obviously, from an international perspective. And when you think about the growth and where we're seeing growth outside from a global perspective, international flights, specifically from the larger hubs, those schedules remain very soft. And all the analysts expect the international passenger flights to continue to stay that way out to 2023, '24. Why is that important? Well, Rich made reference to who's after all this capacity, the major integrators out there. And they're moving time-definite products, right? That's what they're selling. So as those demands continue to drive the growth, they've got to make sure the connectivity is in place. And without the flying of the passenger planes, they've got to control that capacity, and that's why we think the global strength is going to continue.
Jack Atkins
Okay. Thank you for that, Mike. That makes sense. I guess for my last question before I turn it over. Rich, I would just be curious to know how you and the board are thinking about priorities for your cash and your capital. You've got this additional cash coming in the door, I guess, tomorrow from Amazon. You just did a successful refi of some of your debt. I mean the stock is trading at a fairly low multiple here relative to the broader market. How are you thinking about just the priorities for that capital, either organic, inorganic growth? And then at what point can you maybe be more aggressive buying back stock, especially at this valuation?
Rich Corrado
Yeah, Jack. Well, part of our participation in the CARES program and the - receiving funds to support the passenger airlines, there's some limitations on what we can do with our capital in terms of buybacks and in terms of other things. And so we're - right now, for the proceeds from the bond and the Amazon purchase of shares, we're looking to pay down our revolver and reduce our debt - our cost of debt short term. And we're always looking for alternative things that we could invest in. But right now, we've got a full plate of investment in aircraft going forward, for which we have customers waiting. And so when looking at that and the growth that we've produced over the years and the returns that we've produced over the years in terms of acquiring, converting and leasing assets, we believe that's the strongest return that we could provide to our shareholders for the next year and a half, if you will, until we're able to have a little bit more flexibility with our capital plan. I don't know, Quint, if you have a comment?
Quint Turner
Yeah. I'd just kind of echo that, Jack. We - as Rich said, the payroll support program ties the company up a little bit there for a period of time on buybacks and so forth, but that certainly has always been part of the potential capital allocation that we've considered with the discretionary cash flow that the business model produces. The good news is we're signing up these long-term multiyear agreements that we've talked about with the leases. And as you know, the leverage of the company with the cash inflows that we talked about, the Amazon warrants were likely to be levered not much over two times by the end of the year. And so as we enter next year, the discretionary cash flow that we'll have available to allocate to create value is, yield-wise, it's something like a 15% discretionary cash flow yield. So it's - we'll have attractive options next year. And certainly, the robust demand for freighter aircraft is going to remain one of those. But the good news is it's not a mutually exclusive choice, right? You can create value through allocating capital in a lot of ways. And all those will be on the table for us next year as we clear those restrictions on the payroll support plan.
Jack Atkins
Okay. That's great. Thanks so much for the time, guys. Really appreciate it.
Quint Turner
Thanks Jack.
Operator
Our next question comes from Helane Becker from Cowen. Please go ahead.
Helane Becker
Thanks very much, operator. I just have two questions. So on the A321 conversion, how are you thinking about the shift to - I mean I know, I guess, probably more than a year away. But how are you thinking about the shift away from A320 - from 767s to A321s? And are there differences in the process timeline, cost to do it versus the 767? Can you just talk a little bit about the difference between these two?
Rich Corrado
Sure. So first off, thanks for asking the question because it gives us an opportunity to talk about the A321. We're really happy that the STC was just approved. And so we are, in fact, starting up a conversion line at PEMCO. PEMCO has an agreement with 321 Precision, our joint venture, to do conversions, which is a separate revenue stream. So we'll make money on the kits and on the royalties, on the STC, and then PEMCO will make money converting the airplane. And that's an airplane that - the first one that goes into PEMCO in June is actually not an ATSG or CAM aircraft. It's just a third party that we're able to generate revenue and profit on. Our plan is to acquire A321s ourselves, convert them at PEMCO and then lease them to the same customers, the same types of customers, if you will, that have been taking 767-300s.
The A321 is a fantastic airplane for express operators. It can compete with both the 737-800 and offers a great opportunity for replacement in the 757-200, which up until about a year and a half ago, was the most prolific express aircraft in the networks of the large FedEx, UPS, DHL express operators. And so when you look at that, it really gives us a nice platform. I will say it's not - we're not going to transition from the 76 to the A321. The A321 represents an incremental platform for ATSG. So we'll be doing both. We've got a plan to - from an acquisition standpoint and a leasing standpoint, to produce both 767-300s and A321s at the same time. So in - as far as how that is going to flow will depend on our ability to secure feedstock. We're in the market now for A321s.
We're negotiating, in fact, for some aircraft right now, and we'll see how that goes. Obviously, as we have approached the 767-300, we look to get a line of aircraft, kind of a fleet segment that we can have deliveries produced to us over multiple years, and we're going to continue to look for that. As far as the economics of the aircraft, you think about it this way, it's about two-thirds of the investment when you talk about buying the feedstock, C-Check conversion, paint, et cetera. So it's about two thirds of the cost investment that you would have on the 767-300. And so the lease rate on that would, commensurate be about two-thirds. And so that's the way to think about how we're investing and generating revenue off the aircraft.
Helane Becker
Okay. That's helpful. Is there - do we have to think about it like an OEM would? Is there like a number you have to do to break even on the investment to go - having gone through the whole process to get the STC and so on?
Rich Corrado
Well, a couple of things. One is, as far as the joint venture goes, right, the joint venture is - we've invested the money to develop the STC, and you want to look for return on that individual investment. As it relates to that, then yes, thinking about it in that way is probably as close to the way it should be thought of in terms of, we're going to get revenue from the royalties and the kits going forward, and how many royalties and kits do you need to sell to get return on what both parties have invested in the joint venture. But the rest of the revenue streams, and the rest of the investment, and the rest of the profit that generates on the A321 is additional. It's supplemental. It's not really related to that scenario. It's the great thing about our business model. All the things that we do, whether it's leasing, whether it's engine leasing, whether it's MRO, C-Checks, line maintenance, logistics around the aircraft, load, unload, all the things that we do to add value and significantly differentiate ourselves from any other operator on the - any other leasing company in the world, we're going to wrap those services around that airplane and hope to produce the same leadership position for the A321 that we hold currently for the 767-300.
Helane Becker
Okay. That's very helpful. Thank you very much.
Rich Corrado
Thanks Helane.
Operator
And our next question comes from Chris Stathoulopoulos from Susquehanna. Please go ahead.
Chris Stathoulopoulos
Good morning. Thanks for taking my question.
Rich Corrado
Hi, Chris.
Chris Stathoulopoulos
So just digging into the guidance here, your express airline business is doing well. Block hours in the quarter were up 10% year-on-year, but - and your order book is filling out really nicely here. It just feels like there's perhaps some conservatism in the guidance for this year. And I realize that we're still not out of the woods yet with COVID. But is your baseline assumption that there isn't much improvement in commercial charter and military flying or looked at another way perhaps benefit from improving vaccination rates here in the US and globally?
Rich Corrado
Well, there's a couple of things that have impacted the way we've constructed our guidance. And one of them is, as it relates to the passenger flying, and where the revenue is, it's also - one of the other impacts of that in that area is cost. And so as an example, Omni, in providing similar service to the government is having to fly through airports that they don't normally fly through because of pandemic-related restrictions in other airports. And that has raised the cost. So it's not that the revenue and the flying may not be there, it's the cost profile is a little bit different. And so one of the things that Omni is doing and as the flying stabilizes, they're going back and trying to negotiate cost reductions in areas that - in airports that they know that they'll be flying through more consistently than they have in the past. So that's one thing. So the cost profile is a little bit different.
There's other things on the express flying that aren't as visible. For example, when we - we had a major schedule change from one of our customers in the first quarter, and that required us to open several stations. We already knew we were going to be training pilots, more pilots to put in - put more aircraft online. But those are costs that are setup costs that are expenses but that won't be recurring as we move through the year. So there are things like that that we understand really well that will allow us to improve quarter-over-quarter going through the year. We're - we don't believe there's conservatism in our guidance right now. We're confident of the number. We've put a lot of thought. We understand the business, both on the freight side, on the leasing side. The one thing that's a little less predictable, of course, is the passenger side. And so we're keeping an eye on that closely. And as I indicated already, April looks to be on the plan that we had set at the beginning of the year.
Chris Stathoulopoulos
Okay. And then the active fleet, so based on the order book details in the press release, it looks like next year you're going to be at around 126 aircraft. It sounds like there's a lot of demand here for 767s. Could we get above 130 or potentially 135 planes by the end of next year?
Quint Turner
The order book, we've talked about it. We're going to - we anticipate to at least deliver 16 this year. We - and that's up one from the guidance we gave last quarter. And our 2022, our communication was last quarter that we would do nine. We've upped that to 10, so we've increased it. We anticipate minimally to do 10 next year. And as Rich mentioned earlier, we have several orders beyond that into 2023 and '24. Supply chain issues and other potential things that might pop up, that's why we're at the numbers that we're at right now, at least 16 for this year and 10 for next year. So we've got slots, as we've always talked about. Conversion slots are at a premium this year and for the next several years, but we feel very good about the numbers that we have to ensure that we meet the demand that - and commitments we've made to our customers.
Chris Stathoulopoulos
And just a follow-up to that last point, have conversion costs gone up? And could you just kind of remind us what the cost is normally to convert a, say, 20-year vintage 767? Thanks.
Rich Corrado
Yeah. We've been doing business with IAI for decades, and we tend to - we negotiate long-term contracts that we just tag amendments on. So we don't generally adjust our pricing from year-to-year, other than it was already in that agreement. So there's no change, really, to the conversion cost. And generally, you're looking if there's C-Checks and there's paint and there's moving the airplane around, and not every conversion is the same due to the condition of the airframe that you're buying. And so if you look at - your acquisition cost is probably - is a little less than 50% of what your conversion costs would be, and conversion costs, these days, is running in about - with the C-Check and all the other added expenses - probably between $14 million to $15 million. And then you've got the acquisition on top of that and perhaps some other stuff. There's things like - sometimes, we'll have to upgrade the cockpit, sometimes we won't, right, those types of things. Every aircraft is a little bit different.
Chris Stathoulopoulos
Thanks for the time.
Rich Corrado
Thanks Chris.
Operator
[Operator Instructions] Our next question comes from Stephanie Benjamin from Truist Securities. Please go ahead.
Unidentified Analyst
Hey, good morning, guys. This is actually Joe on for Stephanie.
Rich Corrado
Hi, Joe.
Unidentified Analyst
I just wanted to maybe quickly talk about maybe - we've been talking about the lease side and the demand there but also seeing some good demand on the CMI side. I was wondering how you guys felt about sort of your pilot number and as well as sort of your ability to recruit, retain pilots right now?
Rich Corrado
Well, Joe, it's - we have not had any problems, really, over the past few years, attracting crews to the opportunities that we have at our airlines. So - and that continues to this day where we've got 2,000 or so resumes on file and ATI as an example from opportunities this year. Our average hours of crews that we're hiring is significantly multiple times the required minimum, and so we're getting very qualified crews and pilots. One of the best things that a pilot looks for is growth opportunities to be able to move from the right seat as a first officer to a captain in the left seat, and the way to do that is the airline has to grow and opportunities, add airplanes. And we've been doing that - from the growth of our customers, we've been doing that really since all the way back to 2015, 2016. And those opportunities are real for these pilots. So we really haven't had a problem. ABX that had not been growing up until this year is now back in a growth mode. They're putting on more block hours, if they're - we're looking to put a couple of airplanes on ABX in the third quarter. And so, that airline is growing as well. And again, they're not having any problems. So the pilot situation is real solid for all of our airlines.
Unidentified Analyst
Great, that's very helpful. And then maybe just switching to the military side, I know previously, you guys had mentioned units have - they kind of have a snapback on that. I was wondering if that was still sort of the correct way to think about that military flying and then maybe if there's any comments about moving out of Afghanistan, any incremental there?
Rich Corrado
Yeah. As of right now, we don't have any guidance as it relates to what the Afghanistan movement may look like in the types of aircraft that we fly to support the military. So that's one thing. And as I said earlier in the call, we - as the military flying looks right now, it appears to be on plan for the way we looked at as we constructed our guidance for the year.
Unidentified Analyst
Okay. That was all great color. That's all I had. Thanks, guys.
Rich Corrado
Thanks Joe.
Operator
Our next question comes from Steve O'Hara from Sidoti & Company. Please go ahead.
Steve O'Hara
Hi, good morning. Thanks for taking my question.
Rich Corrado
Good morning, Steve.
Steve O'Hara
Good morning. Just curious if you could just walk me through the delta between 4Q ACMI pre-tax and 1Q. I mean, obviously, you have you've stronger flying in the fourth quarter, I guess, on the cargo side. But then I don't think there was much on the Omni side with any troop movements or anything like that. And I know you guys talked about increases in wages this year due to the ABX contract, I think it was. I mean, if I look at 1Q over 1Q, I think wages was up 16.5 million. I think you guys were looking for something like a 7 million increase for the full year. Just was there something in there like a signing bonus or something that kind of pushed that up higher?
Mike Berger
No. There was no signing bonus in there. We had -
Quint Turner
In logistics.
Mike Berger
Yeah. In terms of - we have some postal operations that we didn't have, for example, in the year ago quarter, Steve, two postal facilities that drove a lot of that wage. We - of course, compared to the prior year, we've got the ABX crew agreement, which the amendment that kicked in, in January.
Rich Corrado
And the other thing is we put on - the CMI operations that we put on additional in the first quarter, we put on in March. And so the training related to both the crews and the maintenance technicians -
Mike Berger
Related to the additional Amazon tails that we've put on, we added four leased aircraft to Amazon during the quarter, and then we've added another one here in the second quarter. So as we mentioned, we had a couple of million dollar increase in training costs. Some of that is in salary, the salary line as well.
Steve O'Hara
Okay.
Quint Turner
Yeah. I guess I just - I think it said block hours were down 5%, and then salaries and wages were up 13%. I guess I just would have expected more of a kind of consistent rate there.
Rich Corrado
Well, keep in mind that one of the conditions on accepting the payroll protection is we cannot furlough or lay off any employees at Omni. As it relates to whether those employees, whether it be administrative or crews or maintenance or what have you, are commensurate with the volumes that they're currently flying, right. So that's one issue where if the flying is down under regular circumstances, you may look to reduce your workforce to match the flying that you have. We're not able to do that right now, so we'll be carrying folks. And as the plan goes, we're going to need them later in the - by the third - by the end of the third quarter, anyway, based on the way the pilot - based on the way the plan is ramping. So - but that's one thing to keep in mind is that we're - in accepting that revenue, we're not able to cut personnel costs.
Steve O'Hara
Right. Okay. And then you talked about, I think, April, May kind of looking more like 2019 levels. I mean I guess what - I think DoD is your largest customer, was your largest customer. Maybe how do you think about that flying versus the passenger flying and maybe the profitability of that going forward? I mean it wouldn't seem like the DoD flying would be as affected as kind of the traditional ad hoc stuff. And I would assume the ad hoc's a little more profitable or maybe much more profitable. Does international have to come back to what it was? Or does business travel have to come back to what it was for Omni to kind of get back to where it was in 2019?
Rich Corrado
Well, certainly, on the commercial side, that would help. We know one of the larger commercial customers is coming back this year later in the year. They've already been selling tickets, and it's just a matter of getting them started up. Keep in mind, as I said before when we were talking about flying internationally for the DoD, that we're having to work around airport restrictions and fly. So the military demand is still there to move troops and things like that but more so than the commercial passenger, I would say. But the - but it has impacted the cost on a short-term basis as it relates to providing those services to the military and to some of the other government passengers, government programs for which Omni flies.
So it's kind of a - it's a tough question to answer in some respects because every type of charter or ad hoc or governmental flying, they all operate differently on the way in which you have to plan them, the consistency of the flights, whether there's - it's a one per quarter or whether it's a regular movement. I mean there's a lot of different things in the question that you're asking. We don't generally give any margin guidance by customer, and we're not - I don't think we're going to be doing that here today. But certainly, as the airports across the world stabilize, that will be a good thing for the cost side of the business.
Quint Turner
And Steve, keep in mind since we spoke to you guys in February, we did apply for and were included in the Payroll Support Program 3, which I think is an additional $40 million award, which, if you think about the pandemic effects to our passenger flying, we feel like certainly the military has never stopped flying. There have been reductions associated with the pandemic certainly at times and certain theaters were impacted that they operate in and out of. But if you look out beyond this year at all, I think most folks would expect that to come right back to normal. And the good news is that the payroll support is doing what it was designed to do, which is allow us to maintain readiness, keep personnel levels where they are. And from a cash flow standpoint into ATSG, we're certainly whole from that when you include that program. We don't, of course, include it in our adjusted guidance, as we've discussed. But in meantime, the company is continuing to execute on long-term contracts that will bring cash flows in for many, many years. So we've certainly been more fortunate than most. And we expect our passenger business to come back faster than sort of the ticket selling commercial business and leisure traveling side would to its pre-pandemic level.
Steve O'Hara
Okay. That's helpful. And then maybe just one last one for me, if you think about 2019 and maybe we assume we get back to - from an Omni ACMI Services standpoint, if we assume we get back to 2019 levels for a full year in 2022, how do you think about the profitability of that business in terms of - is there a way to compare it to 2019 from maybe a pre-tax standpoint or EBITDA standpoint and then kind of bake in all of the additional flying that you're doing for all the customers that you've added from '20 and 2021?
Quint Turner
Yeah. We don't, of course, speak to individual airlines because they tend to have a fairly concentrated revenue book of customers, so we don't speak to pre-tax earnings of individual operations. But the ACMI Services segment, as you know, includes the operations for all of our airlines. And I think that - I guess, what I can say is that, as is evident in our guidance with the weighting of EBITDA that we've forecasted, you can see that we're expecting, in the second half of this year significant improvements in the ACMI Services segment profitability. As you think about first quarter into second quarter, we'll see some improvement in the second quarter, but we believe marked improvement throughout the second half in that segment. And Rich spoke earlier about April's military and Omni-type operations being on plan. So that's a good sign as we move through second quarter, but the most significant change we anticipate to be in the second half in the ACMI Services segment.
The CAM segment, also, we expect a very strong second half with the tailwinds from all the leased aircraft that we've spoken about. So it's a little more back - second half weighted, and sometimes you've seen our plans play out. I know I'm thinking of last year. I think our first three quarters were all almost the same EBITDA, right? And so it's a little different. But we had, as we said to Jack and he agreed, 2020 was an unusual period. We had first quarter opportunities and even second quarter opportunities that were pandemic-related that mitigated a lot of that impact. And so that's why our guidance is unchanged since we spoke to you in February. And where we ended up in the first quarter is on plan with what our - we had anticipated. So that's - we're not really making any significant change to that forecast.
Steve O'Hara
Okay. All right. Thank you very much for the time.
Quint Turner
Thanks Steve.
Operator
And our next question comes from Dan Sargen from Rice Hall James. Please go ahead.
Dan Sargen
Hey, good morning, guys.
Quint Turner
Good morning.
Dan Sargen
Just my first question is we've talked about this a little bit in the past. But at what point do you guys consider curtailing growth below EBITDA and cash flows so that you're generating free cash flow at which you can use to repurchase stock next year when the window becomes available again?
Quint Turner
Well, I mean, if the window were - I mean there's nothing capital structure or access to liquidity-wise, Dan, that would require us to curtail growth to think about buying back stock. I mean, again, the things aren't mutually exclusive, and we have a balance sheet that would allow us to pursue more than one allocation. But in terms of when we curtail growth, I think as long as growth is at attractive returns, why - it's generally not anything that we would look to curtail as long as those returns are - as they have been in the leasing business. In terms of the operating results and the changes year-over-year and things that you're seeing now, as we've said, those are more tied to the pandemic and its impact on our passenger operations than on the cargo side, which is where we're investing our capital. Those returns have been consistent and strong, and the demand there has probably never been too much better than we see it right now.
Dan Sargen
But is it a good idea to expand, I mean, to significantly increase your fleet into a very hot market when there's no belly capacity? And then the other - I mean, I appreciate it. I want you guys to grow. I just wonder if you'd grow more methodically. It's amazing the level you're growing. It's currently self-financed, which is incredible. At some point, though, I should say this is going to be another very good year for ATSG shareholders. I'm not sure that - it seems to me $2 billion market cap for $525 million in EBITDA and you don't pay cash taxes just seems way too low where I would think the return for share repurchase would be significantly better. I also think if your CapEx is going to consistently increase commensurate with cash flows, you used to there - I just think you have a lot of levers, and it's kind of the exact same claim book over and over.
Rich Corrado
Yeah. I appreciate the perspective. A couple of things to keep in mind, and that is when we're investing in aircraft growth, and based on the way the market is performing right now, these are - we're looking at 10-year leases. And I think the average we have this year is about 8.75 or nine years for the leases, for the returns that we're going to get on its investment for the first lease of these airplanes is significant. And when you look at the cash flow that comes from the investment, it's long term, and it's a very good return. That's one thing.
The other thing is because of the long-term nature of planning to acquire feedstock, convert the aircraft and provide it to the market, I mean, if you're flat-footed right now and you say, I want a 767-300. How do I get one? We couldn't give you one, much before the third quarter of 2023. And so if we go in and out of the market as it relates to our slowing down or giving away some of our slots that we have as an example, then what we do is we impact the strategic focus of the company, and we actually hurt our position as the market leader in the space, talking about 767-300. And so we - from a strategic standpoint, we need to be very thoughtful because of the time lines and because of the lead times, I guess is a better word, that are inherent in what we do.
Quint Turner
So it's been really not relying on spec right now.
Dan Sargen
Again, though, I would think the A321 would give you guys more flexibility. And second of all, though, you're not getting a higher multiple for being a market leader.
Quint Turner
Well, it's a - what we look at, Dan, is what kind of long-term returns that - cash flow returns that we can generate in our leasing niche. And we've not been terribly aggressive in buying aircraft on spec.
Mike Berger
We're not buying or converting any aircraft on spec.
Quint Turner
Right. These aircraft that we're buying, we have a very high visibility on where they're going to go and for what the duration is and what the returns are.
Dan Sargen
Well, if you could just compare that for the returns for share repurchase and begin to communicate a plan, I would appreciate it, for sure. But, thank you, guys, for your time.
Quint Turner
No. I appreciate it. And I'd just say the - again, the legislation, the payroll support does preclude us from that for some period of time. But those have always been options that we have weighed, along with investment and growth.
Operator
And our next question comes from Chris Stathoulopoulos from Susquehanna. Please go ahead.
Chris Stathoulopoulos
Hey, thanks for taking my follow-up. Perhaps a follow-on to the previous question here but from a different angle. So your CAM portfolio is just shy of 100 aircraft here in 1Q. I'm curious how big do you think CAM's portfolio could get to, say, in three to five years. And whether - do you think you can continue to grow that portfolio organically? Thanks.
Rich Corrado
We have - and Mike, you may want to talk to that. I mean -
Mike Berger
Yeah. I mean we've communicated, obviously, 2021, and we communicated 2022. We will anticipate to at least deliver 10 in 2022, and we're starting to already build out the order book for 2023 all the way with interest out to 2025. So if you go back just a few years, the numbers that, in terms of newly converted freighters, has increased significantly over 2019, 2020, 2021 now. And as I said, we've already got minimally anticipate 10 for the following year. So we feel we can continue that number as long as the market continues to stay where it is. And our growth doesn't necessarily have to just be centered around the US and North America. And you've seen that recently where we continue to grow outside the US and globally and really every region of the world. And we already know that we've got built-up demand within those regions of the world, whether it be Asia, Southeast Asia, into Africa as well as Europe. And the 321 is also going to just really emphasize that as well. So we strongly believe that we're going to see the continued growth very strongly as we go forward.
Chris Stathoulopoulos
Okay. And just my last question, and I appreciate the time. So you have 46 - you're anticipating flying 46 767s at the end of this year for Amazon. Well, just remind us, I don't know if you gave this, what the order book is for, what do you expect to be flying for 2022? And now that you've been flying for Amazon here for a few years and we know who the domestic carriers are here in the US, yourself, Atlas and Sun Country, curious your thoughts, given your experience on operating their network, where do you think their fleet overall, not just ATSG's, but their consolidated fleet might be in three to five years. Is it 100, 110 aircraft? Any thoughts there would be helpful. Thank you.
Rich Corrado
No. I don't - I would not venture to speak for Amazon and their growth planning and how it relates to where they'll be in a few years. What I can tell you is that if you look at how we've done with our growth platform with Amazon at both the leasing and the flying side, so we - by the end of this year, we'll be leasing them 42 aircraft, and we'll be flying 46 for Amazon. And we believe in all the services that we provide the Amazon, leasing, flying. We do heavy maintenance for the aircraft that we fly for them, and we do logistics work in different airports around the country. And everything we do for them, we've focused our employees since 2015 that the best way to put us in position for growth with Amazon is to provide them with the very best service in everything we do, whether it's flying, whether it's leasing, et cetera, et cetera.
And what I would say is that we're - we feel that given the service that we've provided that we are still in the best position to continue to grow with Amazon of all their other providers. And that's been our goal since day one, and I take my hat off to all of our employees who not only perform every day but they understand Amazon's business, and they understand that every airplanes pull up thousands and thousands of promises that they've made to their customers. And that's the focus that we've taken, and that will give us opportunity to continue to grow with Amazon as they grow, whether it's 100 airplanes or 200 airplanes or whatever. Hopefully, we're going to be in a position to get our share of that.
Chris Stathoulopoulos
Thanks for the time today.
Rich Corrado
Thank you.
Operator
We have no further questions at this time. I will give the floor to Mr. Corrado for final thoughts.
Rich Corrado
Thank you. Well, thank you for joining us on the call today. Our strong confidence about the value we are creating at ATSG stems mainly from substantial long-term cash flows we get from leasing 767s, the most in-demand cargo aircraft in the market today. Faster fulfillment in e-commerce orders will require many more of those and other midsized freighters. That's why customers are coming to us to make six-to-10-year commitments to at least 26 we can acquire and convert through 2022 and more beyond that. Although our passenger operations are challenged by the pandemic over the short-term, we very much like our market position and our long-term prospects. Thank you again for your interest in ATSG and please stay safe. Thank you.
Operator
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.
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