Welcome to the Third Quarter 2021 Air Transport Services Group Incorporated Earnings Conference Call. My name is Daryl, and I will 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. During the question-and-answer session, if you have a question, please press star then one on your touchtone phone. I will now turn the call over to Mr. Joe Payne, Chief Legal Officer. Mr. Payne, you may begin. Good morning, and welcome to our third 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 on 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. The pandemic may continue for a longer period, or its effect on commercial and military passenger flying may be more substantial than we currently expect, cause disruptions to our workforce and staffing capability, including through our compliance with federally mandated COVID-19 vaccination and testing requirements, cause disruptions in our ability to access airports and maintenance facilities and adversely impact our customers' creditworthiness or the ability of our vendors and third-party service providers to maintain customary service levels. Other factors that could cause ATSG's actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, unplanned changes in the market demand for our assets and services, including the loss of customers or a reduction in the level of services we perform for customers, our operating airlines' 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. The impact of current supply chain constraints, both within and outside the United States, which may be more severe or persist longer than we currently expect. The impact of a competitive labor market, which could restrict our ability to fill key positions. 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 on Monday. We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings per share, adjusted EBITDA, and adjusted free cash flow. Management believes these metrics are useful to investors in assessing ATSG's financial condition 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. Now I'll turn the call over to Rich Corrado, our President and CEO, for his opening comments. Thanks, Joe. Good morning, everyone. You just heard Joe mention that we're disclosing for the first time this quarter another non-GAAP metric in our financial reporting, adjusted free cash flow. It's part of a broader set of disclosures to help us highlight the power of our business model to our shareholders and to help many of you who tell the ATSG story to prospective investors on our behalf. The earnings release we issued yesterday includes a summary of our GAAP cash flow statement, along with a breakout of the sustaining portion of our total capital expenditures. As Quint will discuss shortly, supported by the slides accompanying our remarks, significant cash remains after funding those essential payments to maintain the assets we already operate. Our business model's highly visible future cash flows afford us many attractive capital allocation options, including further growth investments and direct shareholder returns. For the third quarter, we generated a record $153 million in quarterly adjusted EBITDA, our traditional non-GAAP measure, and put nearly all of it back into the business to keep it humming and stoke our growth engine, midsize freighter leasing. We have placed 13 Boeing 767s into external customer leases since September 2020. Our airlines again achieved double-digit growth in revenue block hours versus the prior year and were strongly profitable with improved margins. Omni Air was a notable contributor to those gains, due in part to its supporting role in Operation Allies Refuge, the U.S. component of the evacuation of Americans and at-risk civilians from Afghanistan. Omni has completed 79 missions and transported over 20,000 passengers in this effort. I know I speak for everyone at ATSG in expressing our gratitude to the Omni team for their courage and dedication in completing these vital missions. There are many other great elements to our third quarter story, and we now have a stronger outlook for adjusted EBITDA through the end of the year. I'll be back to share them after Quint reviews our results in more detail. Quint? Thank you, Rich, and welcome to everyone on the call this morning. Our consolidated revenues grew a substantial 15% for the quarter to a record $466 million. Both our aircraft leasing and airline businesses delivered outstanding results, with gains of 22% and 10%, respectively. Revenue growth reflects the impact of 13 more freighter aircraft leases and a related increase in CMI flying by our airlines from freighters we are leasing to and flying for Amazon. Our Department of Defense revenues were also strong, due in large part to the Afghanistan evacuation missions we flew through September. Block hours flown for the Department of Defense increased by 581 or 7% compared to the third quarter of 2020. Third quarter adjusted EBITDA of $153 million was up 22% from a year ago and up 20% from the record $128 million we generated in the second quarter. Again, these gains reflect our additional 767 leases and flight operations for Amazon and also leases of our 767-300s and 200s to Raya, SkyTaxi, MasAir and Astral, diversifying our customer base and enlarging our global footprint in Asia, Europe, Latin America and Africa. On Slide 4, for the trailing 12 months ended September 30 of this year, our adjusted EBITDA increased to $508 million from $481 million at the end of the second quarter of 2021. We project for the full year 2021, we will produce adjusted EBITDA of at least $535 million. In the year ago period reflected on Slide 4, adjusted EBITDA benefited from additional passenger charters to recover Americans during the pandemic. As a reminder, our adjusted EBITDA excludes the benefits of federal pandemic relief assistance under the Payroll Support Program for all periods shown. On Slide 5, our capital spending for the third quarter has roughly plateaued at an annualized rate of about $545 million, but remains above our prior run rate. The lower section of each bar shows the portion of our capital spending that we have allocated to growth, which consists mainly of feedstock aircraft purchases and freighter modification costs. The upper portion of the bars show spending for what we call sustaining CapEx, which primarily includes scheduled aircraft maintenance and engine overhauls, technology improvements and other non-aircraft spending. As shown on the slide, approximately 2/3 of our total capital spend is for growth and 1/3 for sustaining our operating assets. For the full year 2021, we project total capital spending of $530 million, $335 million for growth and $195 million of sustaining capital. The next slide, Slide 6, shows adjusted free cash flow, which is our operating cash flow net of the sustaining CapEx I mentioned a minute ago. Unlike our adjusted EBITDA measure, our GAAP operating cash flow includes cash received under federal pandemic relief programs for passenger airlines. We did not receive any such cash in the third quarter, but did receive payments of $83 million in the first half. That difference, along with other variances in our working capital, reduced our operating cash flow trend for the trailing 12 months ended in September. The bottom portion of each bar shows a significant adjusted free cash flow our business produces. For each trailing 12-month period shown, adjusted free cash flow has exceeded $330 million, which is capital potentially available for growth investment, debt repayment and other uses. Spending for fleet-related growth has roughly equaled our adjusted free cash flow for the period shown, as we believe that investments tied to fleet expansion represent optimal use of that adjusted free cash flow in today's hot market for midsize freighters. In future periods, we expect our adjusted free cash flow to increase as we execute additional long-term leases and expand customer operating agreements. Slide 7 illustrates how the significant cash flows our businesses generate have enabled us to expand the size of our owned aircraft fleet while reducing our debt to EBITDA leverage. In other words, our business self-funds significant growth. Our current debt to EBITDA ratio, as defined under our senior secured credit agreement, stands at 2.2x, down from 2.9x at the end of September of 2020. The 122 aircraft CAM owned at the end of September, including aircraft staging for re-lease and awaiting freighter mod, speak to the strong overall returns we are earning, while at the same time delevering on an owned fleet now twice the size that it was five years ago. With that summary of our financial and operating results for the quarter, I'll turn it back to Rich for some comments on our operations and outlook. Rich? Thanks, Quint. We couldn't have picked a better time to put the cash-generating power of our business strategy on full display in our reporting as our businesses are performing as well as the pandemic-constrained economy will allow. Record revenues and adjusted EBITDA for the quarter and year-to-date are the rewards of substantial fleet and other growth investments that Quint just outlined, and the dedication and skillful execution by our people. We can make a stronger case than nearly anyone in the transport sector that the future cash flows from our long-term relationships and business agreements with blue-chip customers are undervalued in today's market despite being highly visible. All of that aside, we still face challenges related to the pandemic, particularly in our passenger operations. The good news is that we anticipate Omni's passenger charter operations to continue to make progress, but expect fourth quarter passenger operations, including ATI's military Combi, to yield results similar to last year's fourth quarter. Like others, we aren't immune to supply chain challenges. We had planned to put 16 or more converted 767s on lease this year. It has recently become clear that supply chain constraints impacting our freighter conversion lines will keep us one aircraft short of that mark in 2021, with that aircraft sliding into 2022. Even with this delay, deploying 15 converted 767-300 freighter aircraft and re-leasing four 767-200s will be a yearly record and represents a remarkable achievement for the teams that made it happen. We're taking steps to expand our freighter conversion capacity in multiple ways, including our commitment to convert and lease 20 Airbus A330 aircraft, starting with the first lease deployment in 2024. We're also adding Boeing as an additional conversion source for at least four 767s, with the first induction scheduled for August of next year. Additionally, we will continue to convert Boeing 767 aircraft with our longtime conversion vendor, IAI. Altogether, we have secured access to 70 conversion slots for Boeing 767-300, as well as Airbus A321 and A330 aircraft over the next five years. We are continuing to find willing customers for all of our midsize freighters that we can deliver. Our order book for Boeing 767-300 freighters is full until late 2023. We already have significant customer interest in both the A321 and 330 platforms. CAM has already purchased the first A321 it intends to convert at PEMCO's facilities in Tampa and deliver to lease customers in 2022. We also have other operating accomplishments worth celebrating. ATI's customers are benefiting from a series of upgrades at its flight control center that are reducing fuel consumption. The 17% increase in revenue block hours at all of our airlines is great news, but it's important to note that those gains would not have been possible without our airlines' ability to attract and select new flight crew personnel from an outstanding pool of talent and get more than 100 of them trained, certified, and ready to fly those assignments when our customers needed them. Our logistics services business has worked hard to be a reliable partner for Amazon for the ground and fuel services it needs to match the rapid buildup of its fulfillment network. That includes the opening of a new gateway facility in September in Nashville and continued support of Amazon's gateway facilities in Charlotte, Tampa, and here in Wilmington, Ohio. Earlier this year, our AMES Aircraft Maintenance business announced a new multi-year agreement with United Airlines for heavy maintenance work on its Airbus A321s and several of its Boeing aircraft types. That work will be completed in the AMES hangar facilities in Wilmington and Tampa. Finally, AMES PEMCO division completed delivery of its second Boeing 737-700 FlexCombi and received an order for another. PEMCO also inducted the first of what we anticipate will be many Airbus A321s for conversion to freighters. Those are a few of the operating and commercial successes that helped us generate record financial results this year and will contribute to the results for several years to come. They are part of the reason why we are able to announce an increase in our financial guidance for 2021. Our adjusted EBITDA is now expected to be at least $535 million this year, ahead of the $525 million target we set last February. I expect ATSG's business to post strong, positive free cash flows net of our sustaining CapEx spend for years to come. 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? Thank you. Our first question is from Jack Atkins from Stephens. Okay, great. Good morning, and congrats on a great quarter, guys. Thanks[crostalk], Jack. I guess maybe first, if we could talk about the guidance for a moment and the increased outlook for 2021. Quint, I don't know if you want to take this, but maybe if you wouldn't mind kind of walking us through some of the puts and takes behind the raise. I would imagine, you know, there was a little bit of an additional benefit from Omni related to the Afghanistan withdrawal in the third quarter, but it sounds like that, you know, maybe the ramp in expected underlying military demand was maybe a little bit below expectations. I guess if you could just kind of help us kind of walk through all the different puts and takes there from a high level, that'd be helpful. Sure, Jack. It's certainly true that, you know, the Afghanistan evacuation added some, you know, revenue opportunity, you know, at Omni during the third quarter, and that is a part of it. However, you know, the expenses necessary to satisfy those opportunities, you know, were also probably higher than folks might expect. You know, we had to pay some premium pay certainly to the flight crews and the flight attendants who worked those flights. Sure. From an EBITDA perspective, you know, it wasn't as big a driver as you know, some might suspect. I think that you know, we've seen and we saw it last quarter, you know, in the second quarter, we saw it in the third quarter and expect it to continue in the fourth. We've seen improvement in our airline ACMI operations. You know, we're getting you know, larger certainly in our support for our network cargo customers. You know, as you would expect, you know, you look for efficiencies as you grow in size in those networks. We're also seeing some improvement certainly with Omni in terms of the commercial passenger business. It's still constrained with the pandemic effects. As you guys who've been watching college football and things know, you know, things are a little bit more normal. We're seeing some signs of life there and that's helped. Of course, CAM and the deployments that, you know, we talked about the I don't know 40%+ earnings increase in CAM over the prior year quarter. You know, CAM is doing an outstanding job of delivering on its lease commitments for customers, you know, with a record number of leases put in place. And again, these are long-term agreements. That is all helping to come together to allow us to bump our guidance. Jack, I would, I'd also add to that. I think it's important to note that, you know, we have put in. If you recall, we talked about a lot of technology improvements and operational improvements that we were working on, and those are starting to bear fruit now. We put a continuous improvement program in about a year and a half ago and did a large supply chain optimization program across the enterprise to leverage the full scale buying power of ATSG for all the individual entities, and that's bearing fruit. We've implemented new flight scheduling, planning, and following, as well as crew optimization scheduling software at the two cargo airlines. That is starting to allow us to be more efficient with our crews. When you look at the better performance by the airlines, it wasn't all, you know, volume related. There was a lot of hard work by a lot of people leveraging technologies and projects that are helping us become more efficient and productive. Okay. No, that's really helpful. Thank you for kind of walking us through all that. Yeah, you know, I guess maybe for my next question here, the 70 conversion slots that you guys have secured over the course of the next, I believe you said 5 years, Rich. You know, I guess two questions there. One, could you maybe provide us some visibility into, you know, how many of those you think are kind of already spoken for, or you feel like you've got visibility into sort of the demand for those? And then secondly, you know, kind of within that broadly, could you talk about the types of customers that are, you know, you think those incremental 70 planes will be going to over the next, you know, the next 5 years? Are these gonna be, you know, large sort of enterprise-level customer contracts like we've seen over the past five years? Or do you think they're gonna be, you know, smaller type contracts with you know in you know kind of one-off customers? I'm just kind of curious if you maybe break that down a bit for us? Yeah, Jack, it's Mike. I'll take that one. You know, we really see it as a continued combination in regards to the type of customers that we project these aircraft to go to. You know, certainly, you've heard us over the last several quarters talk about the expansion globally and the push into other regions of the world, and we're gonna continue to build upon those customers, and they certainly are part of our order book today. You know, the Astral, Raya, the Sky Taxi of the world, they will become bigger customers for us, no question, in the future. We're also excited about the opportunities that we have new opportunities and new customers in those parts of the world as well. In regards to the enterprise-type customers, yeah, we certainly believe that the e-commerce growth is gonna continue to drive the market for our big enterprise customers. You know, you'll see a combination of both, and the engine continues to be, you know, the e-commerce and m-commerce that are driving the integrators as well as the regional players. In regards to how much visibility we have in regards to it, you know, 2022, we have previously said that, you know, our order book from a conversion standpoint will be at least 10 767s. As we look out further into 2023, at this point, you know, we've got visibility on probably close to, you know, somewhere in the high teens for 2023 deliveries, you know, based on that. As Rich mentioned earlier, our A330 conversion slots start in July 2023 and run through December 2025. Our first A330 deliveries will be very early in January, starting in January 2024. Okay. That gives you some insight in regards to how it looks. Very helpful. I'd also say, Jack, that as far as customers for those airplanes, we're pretty much booked through the middle of 2023 on the 767 side. All three 2021 A321s have customers that we're working with right now. You know, as far as it's not just the slots. I should say we also have feedstock for the 767 through the third quarter of 2023. We've got feedstock, we have slots, and we have customers. 2022 is looking, you know, closed out, and 2023 is, you know, we're finalizing things for that. Just one final thing. I mentioned the slots in terms of 330s, but the customer interest in regards to you know, getting customers actually assigned to the 330s has been very, very strong. We've been at industry conferences over the last month or two. We'll go to another one here, Rich and I, in Austin at ISTAT in a couple of weeks. The conversation and discussions around the future aircraft, specifically the 330, are even stronger than we thought. We're extremely excited about the future of that aircraft. Okay. No, that's very, very helpful. I guess maybe for my last question before I turn it over, you know, I know you guys historically have sort of thought about pricing your assets relative to, you know, the cost of capital, right? You're trying to achieve a specific level of unlevered return on invested capital and then looking to boost that with additional services that you can add on after that. Just given the high level of demand that you guys have been seeing now for quite some time and the visibility you have in demand moving forward, you know, how are you thinking about the per unit economics of these aircraft moving forward? Is there an opportunity to sort of move the needle higher just given the level of demand we're seeing for your assets, specifically, looking out over the next several years? Yeah, it's a good question, Jack. You know, as far as the market goes, you know, we deal with all different types of customers. Some are very large, and will take, you know, large blocks of airplanes at a time, as you know. Others will take medium blocks. We have smaller customers that tend to do business with our larger customers in other parts of the world. You know, MasAir is a good example. Down in Mexico, they fly for DHL. SkyTaxi in Europe flies for DHL. Just some examples. Even though these are smaller companies, they have to have a cost structure that can compete, you know, to, for that same type of business. We've been able to ratchet rates up a little bit. Keep in mind that, you know, when you're negotiating a lease term, you know, how long the lease is, whether it's a 8-year lease, a 7-year lease, or a 10-year lease, you know, will impact the lease rate per month. A lot of times, you know, customers will want to extend the term to get a better lease rate. We've been able to get ratchets up a little bit, particularly on re-leases and extensions. You know, in the past, pretty much when you gave an extension to a customer, you'd take a haircut on it, because there was a benefit to the company not having to have the aircraft come back and be down for 2-4 months while you recheck it and get it ready for another customer if you had one available. Now, with the demand out there, you know, customers are hanging on to aircraft a lot longer. They're renewing their leases ahead of time, and the rates are firming up on those renewals. That's all good news. That is good news. Okay, I'll turn it over. Thanks again for the time. All [crosstalk]right, Jack, thanks. Thanks. Our next question is from Helane Becker from Cowen. Thanks, Darryl. Hi, everybody, and thank you very much for the time. Well, first of all, thanks for adjusted free cash flow. That's very helpful, and I appreciate that. For my question, I have two questions. One is, with the amount of flying you did, you know, for removing people out of Afghanistan and so on, how should we think about the DoD revenue going forward? I'm assuming we're not gonna have as much, and just kind of wondering how to think about that. Yeah, I think, Helane, this is Quint. You know, in terms of the fourth quarter, you know, I think we said we're expecting a fourth quarter, you know, similar to what we saw in the fourth quarter of 2020. As far as changes in the DoD, you know, longer term in terms of the volume of military flying, you know, what we've seen in the past is that, you know, when theaters change, it doesn't necessarily have a large impact on the actual volume of flying because troops move from theater to theater, and the rotations of those troops still take place. You know, training exercises move around, but ultimately, we you know, our experience in the past has been that, or Omni's experience is that it hasn't made a real significant difference over the long haul. Okay. You know, you don't, as we've said in the past, we don't get as much visibility, right, as on the passenger side with the DoD as we would. For example, with scheduled cargo network flying for our other customers. Right. Got you. Okay, that's very helpful. My other question is on AMES. I think you mentioned about United and we doing the maintenance for them, and I know you have some other customers for them. When you think about growth for them, how do you think about, I guess, how many outside customers could they have? Because they also do some of your in-house maintenance, I think. How big can they get as non-ATSG customers? It's a good question 'cause we're. This is Rich. Thank you. It's a good question 'cause we're, you know, we are constantly balancing that internal versus external revenue as it relates to the AMES profile. Generally, they, you know, we have demands, particularly the CAM puts on them, and then the other airlines have C checks, et cetera, and sometimes there's things that only AMES can do. For example, they're the only MRO in the world that'll do an outer pressure bulkhead as far as we know. We have, you know, some of those from time to time. We tend to populate the specific needs of our own airplanes, where we know it's more beneficial for AMES to do those airplanes. We do send some of our airplanes outside, you know, due to, you know, allowing AMES to optimize external customer views. When we get a customer like United that has a multi-year agreement that will be consuming, you know, hangar space nose to tail, for a long period of time, that's a good deal for us. It's a very predictable amount of revenue and cash. We optimize around that. We've got other deals, such as with Frontier down at AMES in Tampa, and then we have conversion lines that are dedicated for the A321 and right now for the 737 down in Tampa. Those conversion lines will probably shift by 2023. We'll have two A321 lines, most likely up in AMES, and we'll probably back off on the 737. It's really when we look at our annual plan, it's what's on the docket for C checks and odd maintenance items. We do profile CAM's needs, you know, for whatever they're doing. It's one of the huge advantages that CAM has over other leasing companies is to have access to an MRO that'll prioritize their business. When we have lessees that want upgraded avionics or they want some special work done to the airplane, or they want us to help them put the aircraft on their certificate, all those things we can do, it's captive and CAM and we prioritize that with our MROs for CAM. In terms of total MRO capacity, it's kind of limited based on facility space. Right. hangar space. I got that feeling. I was getting that feeling from Rich, actually. Okay. Thank you, Quint. All right. Well, thanks very much. We'll see you in a couple of weeks. All right. Thanks[crosstalk], Helane. All right. Bye-bye. Bye-bye. Our next question is from Frank Galanti from Stifel. Yeah. Great. Thank you very much. Thank you for breaking out just the free cash flow and net sustaining CapEx number. That was very helpful. I want to dig in on that a little bit. Last quarter, you had said, I guess my question's on maintenance CapEx side, that it was closer to $160 million a year. I just wanted to kind of get clarification around that, versus kind of the $195 million guidance today or for 2021. Are those numbers different? Were those numbers kind of different? Was asking a different question or is this kind of a higher year than normal? I guess the real question is, what does that number look like generally going into the future? Previously you'd said that it will scale kind of linearly with plane additions. Can you give us a sense how to think about that on a per plane basis? Yeah, that's a good question, Frank. The you know if you look at what is in that sustaining, we wanted you know to put growth you know make it as pure as possible with just you know feedstock purchases plus conversion. This what we're calling sustaining is primarily what you would call maintenance CapEx, which is you know heavy maintenance on airframe that's scheduled and engine overhauls, et cetera. It also includes some of the CapEx that we invest here to you know and Rich mentioned some of the technology improvements that we've invested in IT and so forth. From year to year, from period to period, you know, like for example, we've significantly upgraded, you know, revised some of our big systems around here, whether it's flight, dispatch or maintenance, and we've made some investments in that, which thankfully we're pretty much at the end of. I think at this period, that cycle's kind of over. That I think is responsible for the little bit higher, you know, maintenance or sustaining CapEx guidance that we've given of $195. I do believe that the timing of scheduled maintenance can have an impact from period to period, but in general, I think kind of the 160 to, you know, 180 number is a good number for our fleet-driven maintenance CapEx on an annual basis. The thing about our business model is as the fleet grows, because we lease these aircraft out to, you know, for the most part, to external lessees, they are responsible for the maintenance during the life of the lease. You know, you think about our business model, the maintenance or the sustaining CapEx will not grow in line with the fleet because for the most part, that's the lessee's responsibility. You know, over time, you're gonna see the adjusted free cash flow ATSG produces go up as we build out, you know, CAM's portfolio of leased aircraft. It's not gonna drive substantial maintenance CapEx. You know, now we will have... In terms of engines, we will have some more CapEx as we enter next year associated with some of the 767 engines that had previously been covered under power by the hour agreements. That will have some impact. That's more of an accounting thing than it is a cash flow thing because we won't be paying for the power-by-cycle expense for the maintenance of those engines. Instead, we'll be capitalizing those overhauls. You'll see that have some impact. You know, the good thing about our model is it shifts maintenance responsibility largely to our customer. Okay. That's really helpful. I wanted to ask on the capital commitments for 70 slots for conversions you guys have booked. Obviously, part of that CapEx requirements is gonna be feedstock and not all of those feedstock assets have been purchased. Can you sort of give us a sense for how much that total CapEx is? What's sort of happening to feedstock pricing today? From a holistic perspective, how does that sort of break out on an annual basis? Is that expected to be funded with internally generated cash flows? This is a big question, but what does that look like then on a debt basis for the company? What level of debt is Yeah. What are you guys comfortable with? Let me help you out a little bit on that if I can, Frank. You're right. It's kind of a broad question there. You know, the slot commitments are you know, typically involved you know, putting deposits down to secure slots. Then those deposits you know, are part of your cost of conversion when you induct the airplane. You know, where you put them at risk, obviously, is if you wanted to walk away and not use the slot, then you would forfeit your deposit. Right? We don't wanna talk necessarily about what specific, you know, conversion providers have required in terms of deposits, but we account for those expenditures as capital expenditures when we put down the cash, you know, when we make the deposits. It becomes effectively part of the into service and conversion cost of the aircraft because when you induct it, you know, it just gets applied to the cost of the conversion. Hopefully, that answers that. In terms of commitments, you're right. I mean, the timing of capital expenditures for our, you know, aircraft investments for CAM are gonna be more driven by the timing of feedstock purchases. You see us at the end of this quarter already with, I believe, 15 767s that we have purchased feedstock for, and those are in some stage of conversion, either in or awaiting conversion, and one A321. That's already in our CapEx that we've reported for those aircraft. You know, in future years, of course, we'll, you know, as Mike and Rich commented, we've already secured feedstock commitments to take aircraft to fill a large portion of these 70 slots, particularly for the 767. In the future years, you know, we've negotiated conversion pricing and so forth. As far as how it impacts our debt or our debt leverage as we think about, you know, how we expect to grow our fleet, I mean, as you've seen with our business model, we have delevered while growing our fleet. You know, one of our slides illustrated that quite clearly. I think that with the adjusted free cash flow that we produce, we expect to continue to build out and grow our operating cash flow, our EBITDA, and our fleet size without really adding debt to any significant degree because the model simply produces that much adjusted free cash flow. It's a great situation to be in, because as we said in our remarks, the business self-funds significant growth. Yeah. In regards to the cost of the feedstock, I'll maybe take you through that piece of it. Rich had mentioned that we've identified or acquired feedstock that takes us through, you know, certainly through 2022 and almost all of 2023. On the 767 side, you know, feedstock remains, you know, a little bit tight from a market standpoint, and that's really driven by the market demand and how the growth of the entire market is going. There's really been, what I would say, stability in pricing for 767s, you know, really from before the pandemic in 2019 through the pandemic. In 2020 and really still stable from a standpoint as we totally come out of the pandemic. From that standpoint, you know, feedstock prices have been, you know, relatively solid for the last couple of years. In regards to the A330, we haven't purchased any of those yet, but we continue to look at feedstock, and feedstock is very plentiful. And you know, we think those feedstock costs on that aircraft over the next couple of years will improve and come down as those airplanes become even more available. Great. I really appreciate the answers. Thank you very much. Our next question is from Chris Stathoulopoulos from Susquehanna. Hey, good morning, everyone. Thanks for taking my question. If I look at the focus here and the disclosure on free cash flow, the time you spent in your prepared remarks on the balance sheet and also the out year guidance on the slots. You know, having followed you for a few years now or some time, if I put these together, I mean, are you signaling that perhaps this here is the next chapter for CAM and perhaps the enterprise as a whole, as you know, Amazon and its order book is fully appreciated by the market now. You know, just assuming, I mean, where you're at next year, 128 aircraft at the end of the year. I mean, if I put these points together and make some modest assumptions around the slot conversions, could CAM be a top 15 lessor by mid-decade or so? Meaning, you know, is it reasonable to assume that we could see somewhere in the low 200s on an active fleet by 2025, 2026? Thanks. Yeah. I mean, you know, based on the amount of slots we have and the amount of airplanes we already own, you know, over the next five years, we should be, you know, close to 200 airplanes. I mean, we already, over the past few years, have been the largest lessor of freighter aircraft. I mean, there's a lot of large passenger lessors that, you know, acquire, you know, large blocks of airplanes, and they're just in a different business than we're in. There's a few, you know, larger freighter lessors that are also passenger lessors, like GECAS as an example, and they just merged as well. Our goal is to maintain our leadership position in the medium-range, medium-wide body freighter market globally. We're there now, and we intend to stay there. Everything we've done, whether it's, you know, our capital planning, whether it's the way we've restructured our balance sheet, whether it's the way we've acquired our slots, got into the A321, now the A330, is to maintain that position. We feel it's driving good returns for our shareholders, and that the growth prospects in that segment, because it's been powered by the e-commerce growth globally, that's still, you know, still in a very low penetration compared to general retail, is gonna have strong demand for years to come. We think we're very well-positioned at this point to continue to ride that wave. Quint, could you just remind us as we look at next year and through 2025 with these slots here, how we should think about ballpark EBITDA per aircraft, considering now that you're gonna have a bit of a different mix here with this move to Airbus. Thanks. Well, you know, you're jumping out there, Chris, and it's a good question, in terms of how far forward you're looking. You know, we've talked about the 767, right, for a long time about what, you know. Rich gave you what some of the variables are in terms of how we think about pricing, you know, based upon term and so forth. You know, the 767, just for the lease, before you think about value-added services, is probably, you know, $3.75 million-$4 million on an annual basis in terms of revenue. If you think about the EBITDA margins on our lease, it's probably, you know, over 90% on just the leasing income. If you think about the 330, you know, the 330 is, you know, 15%-20% larger than the 767 in terms of cube capacity and so forth. 15%-20% larger. You're probably looking at a, you know, a similar increase over those numbers in terms of what you would expect to produce on the 330 side. The 321 is kind of what 2/3 the size of a 767-300. Rich, you can jump in here, but No, I would say that the investment and the lease on the A321 is gonna be about 2/3 of what we get on a 767-300. Yeah. We target, as you know, Chris, an unlevered return in excess of 10% on incremental CapEx investments that we make to build out our fleet. Certainly we are beating that in today's market, and then you look to add those value-added services. You know, it all depends upon how many of those services our leasing customers wanna buy. You know, do they want us to fly the airplane for them? Do they want us to maintain it, et cetera? Okay. If I could get in one more question. The 4 slots at Boeing here, I'm just curious why the move. You've, you know, typically done the conversion with IAI. Is that just because of capacity, or perhaps you got a little bit better deal on pricing? Thanks. Yeah, this is Mike. We, you know, it was solely driven based on, you know, ensuring that we meet our customer commitments. You know, that's been our theme. Rich re-emphasizes it all the time when he's out speaking. If we say we're gonna do something, we're gonna do it. And, you know, it just this allowed us really to ensure that we meet those commitments starting in 2023. These four slots that we secured with Boeing, two of them will be for next year, two of them will be for 2023. But all the airplanes will be delivered in 2023 at this point. That's the nature of it. There are certain places in the world, if I could put it that way, where the Boeing freighter, you know, plays better for a variety of different reasons. It gives us incremental flexibility and opens up even more opportunities to diversify our customer base, and to ensure that we're, like I said, meeting the commitments to our customers. Great. Thank you. Our next question is from Stephanie Moore from Truist. Hi, good morning. Congrats on a great quarter. Thanks, Stephanie. Thanks [crosstalk] you. You just touched on this a little bit in terms of the return profile of these new leases and kind of targeting at least a 10% return. It sounds like you've been exceeding that. But maybe if you could just break that out a little bit further and just walk through the math between procuring, obviously, you know, the feedstock and the depreciating and really how we could back into the return profile of these leases. You know, as a follow-up to that, you know, what's the opportunity for these returns to maybe increase over time? Just your thoughts overall in the long term. Thank you. Yeah. I mean, Stephanie, we, of course, don't necessarily get into detail in terms of pricing strategy because, as Rich says, there are some variables involved. For example, I can tell you, if you take the assets CAM has on its books, you know, not net book, but investment cost, and you look at what CAM is getting on those in terms of EBITDA, for example, inside of CAM, it's getting about a 12% return on an annual basis on its investments. Of course, CAM isn't the operating pieces of our company. It isn't the airlines, it isn't the MRO. That's where those additional services are sold. If you think about, you know, we've talked about the cost of a 767-300 to put it on ramp in leasable condition, it can vary, obviously, depending upon the age of the aircraft, et cetera. You know, you're probably looking for somewhere around $30 million to put one on ramp in leasable condition. We look to earn a unlevered return on that $30 million on an annual basis over the life of the asset, which we believe is 20+ years in excess of 10%. As I mentioned, we're exceeding that based on the demand for these midsize cargo aircraft in today's market, and we expect to exceed that over the long haul. You know, as we said a minute ago, the investment cost for a 321 is gonna be less. You know, it's a smaller aircraft. What, Rich? About 2/3 the size of a 300. You know, you could say it's gonna be somewhere probably in the neighborhood of $20 million to put it on ramp. You think about a 330, it's gonna be, you know, 15%-20% larger than that. You could take that, you know, $30 million or so, right, in terms of your investment cost. Our return targets remain the same on those investments, and we expect to achieve or exceed those over the life of the asset. Great. No, that's really helpful. Then just a last housekeeping question for me, and I'm sorry if I missed this earlier, but I believe you said that you kind of locked in at least 10 new leases for 2022. I believe you mentioned that it's a high teens number for 2023. What, I'm sorry, I just missed the color around 2023. Yeah. That's correct. You know, we're still anticipating at least 10 in 2022, in the high teens, you know, somewhere 18, 19 at this point in 2023, Stephanie. Got it. Well, that's it for me. Thanks so much. Thank you. Thanks. Once again, if you do have a question, press star then one on your touchtone phone. Our next question is from Jack Atkins from Stephens. Great. Just a quick follow-up here. You know, the vaccine mandate has been a major topic of discussion, I think over the course of the last couple of days, certainly, but I think over the course of this earnings season. I'm just curious, you know, if you think that's gonna have any sort of impact on either your work groups, you know, your labor force in general or productivity. Is that something that you guys are kind of keeping an eye out for, as this kinda goes into effect early next year? That's a great question, Jack. People ask what to lose sleep over, right? The problem with this vaccine mandate when it first came out, there was very little to no guidance from the government when they first put it out. The two executive orders were signed, one regarding government contractors, which a lot of our operations fall under, and one that will be managed by OSHA for companies that have more than 100 employees. We have been working with our companies, particularly with the unions in negotiating, you know, terms under which they would get vaccinated. You know, we've allocated compensation for that, and we've also incented, not our own employees, but non-CBA covered employees to get vaccinated as well. We've had a plan even before these executive orders to get the population vaccinated. It's been really difficult to figure out how to look at some of our businesses, for example, logistics, which has some postal contracts. You know, they sort mail for the postal service, but they also have Amazon gateway that are completely separated from the government contracts. Here in Wilmington, you know, all of our, you know, where most of our companies reside, although some of our companies like CAM, as an example, is not, you know, technically a government contractor, but they're in the same building and facility as our two airlines that are. Under the guidelines, the brand-new guidelines that were just issued earlier this week, they are now considered. CAM is now considered a, you know, impacted by the government piece of this. We've been shucking and jiving and bobbing, and we've been trying to figure out exactly how to execute on this thing. Right now, we feel really good. Our guiding principle have been two. One is safety, always, and that's been since the start of the pandemic. The second one for the fourth quarter, in particular, has been business continuity. That's the guideline that we've been marching towards with each individual one of our companies as they tackle the requirements of the government going forward. I can say right now because we run a we've been doing surveys that's ongoing and it's how an employee can get the incentive piece for getting vaccinated. We've had you know over 80% of our employees respond. Out of those employees the ones that haven't they have I think it's until the they've got another two weeks I think before you know to respond and still get the incentive. If you look at folks that are vaccinated or planning to get vaccinated or are at one shot of a two shot or have some type of medical or religious exemption you know 92% of the folks who responded are covered. We feel really good about that. All of the companies, the airlines and the MRO and logistics have committed that they believe that business continuity will be strong in the fourth quarter. We're real confident that we're gonna be able to deliver for our customers and help them deliver for their customers. It's been a, I'm probably telling you how to build a watch when you ask me what time it is, but this has been, you know, a real focus of all the leaders in the company and that have done a fantastic job. I have to say that. Managing their individual populations to get to the point now that we're confident that we're gonna have, we're gonna be able to service our customers without any disruption in the fourth quarter. Okay, that's fantastic. Thanks for that, detailed response, Rich. Really appreciate it. Thanks, Jack. We have another question from Chris Stathoulopoulos from Susquehanna. Thanks for taking the follow-up here. You know, obviously, you haven't had to make the adjustments to your workforce similar to your you know passenger peers here. Curious if you're seeing any pressure, excuse me, on the FTE line and you know what you're seeing in your hiring class for pilots, and then also where you are on the contract talks with ALPA for ATI and IBT on Omni. Thanks. Yeah. In terms of attracting pilots, we're still in great shape. You know, our airlines are growing. You know, Omni's, you know, got a soft spot right now, but we haven't had a problem attracting pilots, which is good. We're managing any, you know, attrition due to, retirements and those types of things. You know, we've got, you know, still ATI is a very fast-growing airline, and so, you know, that's what pilots wanna work for an airline that allows them to improve their career quicker and move from a, you know, first officer to a captain. We've had very strong response to, you know, when we put out a class for training, to add crews, for all of our airlines, which has been solid. In terms of where the negotiations stand, you know, both ATI and Omni crew agreements, pilot agreements are amendable right now. Both are really at the beginning stages of their negotiations. They're in Section 6 bargaining. They're covered by the Railway Labor Act. You know, these things generally take a long period of time. Right now, they've defined kind of the process, the negotiating process and the cadence of meetings. They're meeting three times, three days each month, to go through that. Really just working on the agreements now. Haven't gotten into you know, the working on crew rules and some other things. Haven't got into the compensation side of it yet, but they're, you know, working together well, both airlines and their unions. We're hoping that, you know, we'll get through this and, you know, get into and maintain a good competitive cost structure and a good compensation program that allows us to continue to attract the best pilots in the business. Okay. Appreciate all the time today. Thank you. Thank you. Bye, Chris. I would now like to turn the call back over to CEO Rich Corrado for closing remarks. Thank you. This holiday season, the demands on logistics networks and the companies that operate them are greater than we've seen ever before. The people at the front lines of these networks will be under even more stress than COVID has already reimposed. Our people will rise to the challenge as they always have while keeping safety first. I ask you all to think of those people across those networks every time you hit that order button on your screen this season. Have a great holiday season, and we'll be back with you again in 2022. Thank you. Thank you, ladies and gentlemen. That concludes today's call. 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