Chorus Aviation Inc
TSX:CHR
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Chorus Aviation Inc
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Good morning, ladies and gentlemen, and welcome to the Chorus Aviation Inc. First Quarter 2022 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Friday, May 6, 2022.
I'd now like to turn the conference over to Nathalie Megann. Please go ahead.
Thank you, operator. Hello, and thank you for joining us today for our first quarter 2022 conference call and audio webcast. With me today from Chorus are Joe Randell, President and Chief Executive Officer; and Gary Osborne, Chief Financial Officer.
We'll start by giving a brief overview of the results and then go on to questions from the analyst community. Because some of the discussion in this call may be forward looking, I direct your attention to the caution regarding forward-looking information and statements which is subject to various risks, uncertainties and assumptions that are included or referenced in our management's discussion and analysis of the results and operations of Chorus Aviation Inc. for the 3 months ended March 31, 2022, the outlook section and other sections of our MD&A where such statements appear.
In addition, some of the following discussions involve certain non-GAAP financial measures, including references to EBITDA, adjusted EBITDA, adjusted EBT and adjusted net income. Please refer to our MD&A for a discussion related to the use of such non-GAAP measures.
I'll now turn the call over to Joe Randell.
Thank you, Nathalie, and good morning, everyone. There were significant accomplishments in our first quarter, and we once again delivered positive financial results. The past 2 years have been difficult. However, it now seems the worst is behind us. Globally, passenger demand for air travel is rebounding, and the regional sector is leading the way. Our Jazz operation is ramping up for the summer peak period, and we are hiring new employees across the organization. As Air Canada has shared in their first quarter report out, they are experiencing steady increases in key metrics such as revenue and passenger load factor to the point where they've been exceeding 100,000 customers per day.
Lease collections are steadily increasing. First quarter lease revenue recognized and collected by Chorus Aviation Capital grew to approximately 92% from 83% in the previous quarter, and the portfolio utilization is now operating at approximately 95% of pre-pandemic levels. And as more aircraft return to the skies, there's growing demand for our parts provisioning business at Voyageur, where we're hitting record sales.
And we are expanding our aircraft parts offerings, now moving into the ATR product. All are positive indications that the passenger aviation business is on the path to recovery. Of course, the greatest accomplishment so far this year is our acquisition of Falko, a market leading aircraft asset management company with an excellent history and tremendous growth opportunities. We're now the world's largest aircraft lessor focused solely on investing in the regional aircraft leasing space, and a leader in all aspects of regional aviation.
The addition of an asset management platform and the equity interests in 123 owned and managed aircraft creates scale and a differentiated business model. Our customer base has increased from 19 to 32 airlines, expanding our geographical reach from 16 to 23 countries, and increasing the value of assets under management to approximately USD 4.5 billion, with a total fleet of 353 regional aircraft, inclusive of the beneficial interests in 5 aircraft trusts, which we expect to close by the end of the second quarter.
With the addition of Falko's asset management platform, we will grow our leasing business through an asset-light model, which significantly increases cash flow generation, improves return on invested capital, and facilitates the pursuit of larger deals with more efficient access to equity capital. Growth through third party capital in various funds reduces balance sheet exposure, lowering debt and residual value asset risk, while enhancing stability and diversity of earnings through asset management fees. This acquisition is truly transformative for Chorus, significantly advancing our growth and diversification strategy.
With the addition of Falko, in 2022, we expect to derive 50% of our earnings from non-CPA-related operations. Our immediate priority is to integrate operations and execute on the opportunities this transaction brings, including plans to launch a new fund this year. The Falko management team has a successful track record of raising and deploying capital. Since 2011, Falko, through its managed funds and affiliates, has acquired over 320 regional aircraft, regional jet and turboprop aircraft, and since 2015, has raised over USD 1.1 billion in equity capital. We believe the timing of this acquisition is opportune, as global air travel returns and grows, and demand for regional aircraft leasing increases.
This, combined with our extremely strong and experienced team, positions as well to capitalize on the current environment and to generate attractive returns for investors. We have no doubt that we're in the right sector of the aviation business. The growing demand for regional aircraft is balanced by a supply of new aircraft, as most deliveries are made to order by the manufacturer. There is little overhang from new aircraft orders, allowing for redeployment of idle aircraft. As the pandemic abates, airlines are looking to curb costs by rightsizing their fleets with aircraft financed off balance sheet.
Regional lessors will continue to be an indispensable component of the aircraft financing industry. And with recent market dislocation and a changing competitive landscape, we are well-positioned to capitalize on growth opportunities. There are only a handful of operating lessors of scale with regional portfolios. The majority of the world's regional fleet is managed by 3 operating lessors, of which Chorus is one. Of the remaining 2, 1 has signaled a shift in strategy to include narrowbody aircraft. The other already has a significantly larger portfolio of wide and narrowbody aircraft in addition to its regional fleet. The remaining operating lessors focus solely on the regional aircraft segment, have smaller portfolios than the combined Chorus-Falko platform. Some of these smaller players are capital constrained or focused purely on turboprops.
In addition to larger scale, the Chorus-Falko combined leasing platform has a broadened market opportunity that covers the full age spectrum of regional aircraft from new deliveries to mid and end-of-life aircraft. Our access to capital through third-party equity funds is unique in the regional space.
Finally, Chorus's technical skills and capabilities, including aircraft repurposing, end-of-life disassembly and parts provisioning and sales, provide multiple opportunities to maximize returns on aircraft assets. With fewer than 25% of the world's regional aircraft fleet being leased, there's plenty of room to grow, and we see substantial opportunity to place regional aircraft this year. The pandemic has opened new opportunities for us. With airlines expected to seek liquidity through sale and leaseback transactions, we have many new prospects and have numerous transactions under evaluation. Like the rest of the world, we're watching developments in Eastern Europe. We do not have any aircraft in Russia and do not perceive this terrible conflict affecting the growth of our leasing business if there is opportunity for growth in the other jurisdictions.
We continue to make progress on the implementation of our ESG strategy, and intend to publish our 2021 report in advance of our June AGM. To further formalize our ESG strategy, we recently completed a materiality assessment to identify and prioritize the ESG topics that are most important to Chorus and our stakeholders. This comprehensive process involved consultations with numerous stakeholders including shareholders, customers, employees, suppliers and lenders. The assessment provides the basis for determining the high priority focus areas of our ESG roadmap. And we will be sharing more detail on this in our upcoming sustainability report.
We are committed to doing our part to improve the environment, and as such, we are setting an ambitious target to strive for net zero greenhouse gas emissions within our operations by 2050. We were very proud to participate in Air Canada's celebration of Earth Day when we flew a CRJ-900 from San Francisco to Calgary using sustainable aviation fuel as part of Air Canada's LEAVE LESS Travel Program. We were 1 of 4 flights Air Canada operated. The use of sustainable aviation fuel on these flights reduced greenhouse gas emissions by approximately 39 tons of carbon dioxide, compared with the use of conventional fossil jet fuel. There are many initiatives being explored in our industry to reduce emissions, and we're closely watching the development of other aircraft technologies such as electric, hybrid and hydrogen-powered aircraft.
I'm also pleased to share our commitments regarding equity, diversity and inclusion. While we have received numerous employment awards over the years, we recognize there is still more to be done. We are committed to increasing our workplace representation by at least 10% over the next 5 years in each of Canada's Employment Equity Act to find designated groups including women, visible minorities, indigenous people and persons with disabilities. Further, we have a goal to increase the total diversity of our leadership team to at least 50%, including a target to increase women in senior leadership roles to 30%.
Jazz's recent employment awards, including Canada's best diversity employee -- employer for 11 consecutive years, and one of the best places to work, are a testament to our commitment to our employees for safe, equitable and inclusive workspaces, and more work in this regard will continue.
So thank you for listening. And now I'll turn the call over to Gary to take you through our first quarter financial results and to provide some more insight into how accretive the Falko acquisition is expected to be to the earnings for the balance of this year.
Thank you, Joe, and good morning. Before I review the quarter, I'd like to say how pleased I am to welcome the Falko team to the Chorus family with the close of our acquisition on May 3. As I take you through the financial highlights for the first quarter, I will also review the 2022 guidance we have provided, given the significance of this investment.
Here's how the first quarter of this year compares to the same quarter of 2021. We generated adjusted EBITDA of $83.3 million in the quarter, consistent with the 2021 Q1 results. The RAL segment's adjusted EBITDA increased by $2.8 million due to the recognition of an expected recovery on Chorus's claim in the Aeromexico bankruptcy, a $2.5 million decrease in the expected credit loss provision, and increased lease revenue from re-leased aircraft, partially offset by lower lease revenue attributable to negotiated lease amendments.
The RAS' segment adjusted EBITDA decreased by $3.6 million. The first quarter results were impacted by an increase in stock-based compensation expense, a $3.7 million due to the change in share price inclusive of the change in fair value of the total return swap, and an increase in general administrative expenses attributable to increased operations, partially offset by an increase in other revenue due to an increase in part sales, partially offset by a decrease in third-party MRO activity in contract flying, and an increase in capitalization of major maintenance overhaul on owned aircraft of $1.4 million.
Adjusted net income was $17.7 million for the quarter, an increase of $2 million over the first quarter of 2021, at $0.10 per basic share, due to a decrease in net interest costs of $4.8 million and a decrease in depreciation expense of $1.1 million, partially offset by $0.8 million decrease in adjusted EBITDA as previously described, an increase of $2.2 million income tax expense on adjusted items, and an increase of $1 million primarily due to unrealized foreign exchange losses on working capital. Net income increased $61 million over the first quarter of 2021 due to the previously noted increase in adjusted net income of $2 million, a decrease in one-time restructuring costs of $81.8 million related to the 2021 CPA amendments, partially offset by a decrease in income tax recoveries on adjusted items of $21.5 million, and strategic advisory fees related to the Falko acquisition of $2.7 million.
Now turning to liquidity. As of March 31, 2022, Chorus's liquidity was $199.7 million, including cash of $110 million and $89.7 million of available room on its operating credit facility. Liquidity increased from the fourth quarter of 2021 by $11.2 million primarily due to the increased cash flow from operations of $41.5 million, and an increase in committed operating credit facility of $25 million, offset by scheduled payments and long term debt of $44.6 million and capital expenditures of $11.6 million.
During the quarter, Chorus generated cash flow from operations of $41.5 million. Other key liquidity changes during the quarter were as follows: increased cash of $10.3 million due to a decrease in restricted cash, decreased cash by $14.1 million due to an increase in working capital driven by an increase in the receivable from Air Canada, increased cash by $7.2 million due to a decrease in security deposits and maintenance reserves. Leverage decreased from the fourth quarter due to an overall reduction in net debt of approximately $61 million. Net debt to adjusted EBITDA ratio continued to decline, going from 5.4x at the end of 2021 to 5.2x as at March 31, 2022.
On May 3, 2022, we completed the Falko acquisition, and expect to close the acquisition of the trust interest on the 5 aircrafts shortly. To current with the closing of the Falko acquisition, we completed a private placement with Brookfield whereby they subscribed for USD 300 million and preferred shares and USD 74 million of common shares. In addition, on May 2, 2022, we entered into a new USD 30 million unsecured revolving operating credit facility with a 9-month term maturing in February 2023.
Taking into account the drawers under our credit facilities and the payment of consideration for the Falko acquisition, we anticipate having total liquidity in excess of $100 million for the remainder of 2022, with approximately half of such liquidity consisting of cash, and the remainder consisting of available credit.
Given the Falko acquisition, we provided earnings guidance in the Outlook section of this quarters MD&A. Key highlights of the guidance include: consolidated revenue to range from $1.57 billion to $1.81 billion with between $260 million and 275 million in the RAL segment. The RAS segment excluding pass-through and controllable revenue is expected to have between $310 million and 330 million in revenue. Pass-through and controllable costs revenues are expected to be between $1 billion and $1.2 billion.
Adjusted EBITDA for the RAL segment is expected to be between $215 million and $235 million, and the RAS segment between $205 million and $220 million. Adjusted EBT for the RAL segment is expected to be between $75 million and $90 million, and the RAS segment between $74 million and $84 million. Adjusted net income available to common shareholders which deducts the dividend paid to preferred shareholders and the minority interest acquired in the [ Ravlon Holdings LP ] to be between $93 million and $108 million, and adjusted EPS available to common shareholders is expected to be between $0.48 and $0.56. Net debt to adjusted EBITDA is expected to be between 4.7x and 5.0x at the end of this year.
Return on invested capital is expected to be between 7% and 7.9%. And lastly, cash flow from operations and net changes in non-cash working capital is expected to between $270 million and $20 million. Key assumptions related to these forecasts are included in the Outlook section in the MD&A, and include the launch of a second -- in the second quarter of 2022, a new investment fund managed by Falko with a minimum of USD 500 in capital commitments, with management fees and terms commensurate with those in Falko's prior funds.
Revenue is based on current contracted lease revenue and forecast revenues for leased aircraft and asset management fees. Aircraft leasing revenue under the CPA and fixed margin revenue is expected to be USD 114.7 million and CAD 66.3 million respectively in 2022. A combined weighted average statutory tax rates for each of the individual entities based on the jurisdictions in which they are taxable. No disposals in 2022 aircraft leased under the CPA or in the RAL segment, and the foreign exchange rate of 1.25 to translate U.S. to Canadian revenue and expenses.
The forecast also excludes the impact of the purchase price allocation or PPA adjustments for the Falko acquisition, as required under IFRS 3 Business Combinations. Our preliminary PPA assessment will be completed for Q2 report, and we expect to have a final assessment completed by December 31, 2022.
Before turning the call back to Joe, I would like to acknowledge the continued dedication of our team, especially with respect to their outstanding efforts related to the successful close of the Falko acquisition.
So with that, I'll turn the call back to Joe.
Thanks, Gary. And I would also like to close off on the topic of our employees who remain focused and committed throughout this pandemic. They kept safety and operational integrity at the forefront, and took great care of each other and our customers. It's their efforts, including the advancements made in our leasing business by Chorus Aviation Capital -- by the Chorus Aviation Capital team, that contributed to this transformational moment in our history. I sincerely thank all our employees for their patience and hard work. Collectively, we remain energized and are excited to welcome the Falko employees, as we embark on a new era for our company that will deliver additional value to our stakeholders.
I also want to recognize Nathalie as this is her last analyst call, as she will be retiring from Chorus at the end of June, and I've had the pleasure of working with Nathalie side-by-side for almost 25 years, and today's call marks our 65th quarterly analyst call together. So we'll definitely miss you, Nathalie, and we wish you well in your next chapter. And Tyrone Cotie, who is with us here in this room, will be assuming responsibility for Investor Relations effective July 1.
So thank you for listening, operator, and we can now open the call for questions.
[Operator Instructions] Your first question comes from Kevin Chiang, CIBC.
And then I echo, congratulations on Nathalie, best of luck in your retirement, and thank you for all your help the past decade, as I've covered the stock at least. Maybe just turning to how your risk management -- risk management processes might have changed, given what's happened to the leasing world since the onset of the Russian-Ukraine conflict? And as you look to deploy this capital through this asset management business, have you changed that the jurisdictions you're not willing to enter into? Has there been a change in how you think of the lease rates you want to put out there to cover off some of this for us? I guess would be interested in hearing how your risk management processes might have changed over the past 2 months or so?
Yes. Our risk management view hasn't changed very significantly from what it was previously. We spent a lot of time looking at jurisdictional risk, political risk in each of the transactions we did. And I'm working with Falko now. I think they've taken very much the same approach. As I mentioned, we do not have any exposure in Russia, et cetera. There will be some degree of worldwide risk no matter what. But we feel that the jurisdictions that we're in, we're quite comfortable with them and with the carriers that we have as customers.
We've not seen any impact with respect or any particular impact on lease rates or lease rate factors as a result of this. Obviously, there are a lot of aircraft that have been dislocated in Russia. There are a lot of larger lessors that have had a significant impact as a result of the sanctions, et cetera. But the regional business itself in the assets that are in this segment are not widely used in Russia, either in some of these other jurisdictions, even including the Ukraine. So we're not seeing really at this point much of an impact. We're not seeing really much of a change in terms of pricing approach, et cetera. But we will continue to be very cautious on the jurisdictions and the political risk that we take with any of our new -- any new customers.
And if I could ask on the fund at your -- or the Falko will be issuing this new investment of $500 million. Historically, prior to this asset management business coming to your fold with the Falko deal, I think you had previously indicated about $100 million of internally generated cash flow would be used to acquire planes, and you'd love that up kind of 3:1. With this more asset-led approach, I guess, first, is that the way we should be thinking about it that $100 million now goes into the fund? Is that kind of the reallocation of that capital?
Or is that $100 million not the right bogey to use anymore? And then 2, it seems like given this is an asset -- like that the return on invested capital should be better than what you would have gotten when you were levering up the equity you're putting in? Just wondering what you see the incremental ROIC being, as you continue to expand your fleet indirectly through this asset management business?
So on the asset management side, we will continue to grow those funds, and we will be a participant in those funds. So from that perspective, yes, we will certainly see some growth in there. As far as the -- on balance sheet, anything that will make its way to the balance sheet, it would be limited, certainly moving ahead. But we're working through a lot of that with the Falko teams. But nonetheless, I think you can see us co-investing or investing in those funds alongside. And yes, as we move ahead, we expect returns to get a bit better, especially as you direct more into the asset management. Why? Because the leverage ratios, that should continue to go down.
Our focus on growth will certainly be through that approach. The funds will be our primary growth vehicle on the leasing side.
And then maybe just last one for me here. Again, with this asset-led approach, does that change how you think about a dividend? Is that still something you'd like to bring back? Your collection rates are almost back to where they were pre-pandemic, at least for your lease fleet utilization rates are high, the CPA is proving to be resilient. It feels like we're in a sustained recovery here. And again, you have an asset light vehicle to grow RAL. I guess when you put that all in a blender, like what does the dividend stack up here in terms of reintroducing some sort of payout?
Yes. So obviously, by changing our business model, it changes our leverage, it changes projected cash flows and things of that nature. But we have a lot to consider here in terms of the balance sheet going forward, and we want to make sure that it is robust. And so we have more work to do on our capital structure, I'd say, and with respect to the use of cash and future investment. So what this does, I think, is, it gives us far more flexibility in terms of what we do. But at this point -- we understand the importance of the dividend, et cetera, to shareholders, but at this point, I think it'd be premature to make any type of commitment. We need a little more time.
Your next question comes from Walter Spracklin, RBC Capital Markets.
Nathalie, best of luck to you as always. It was great working with you, and I wish you all the best for sure. Starting, I guess, with the first question here is on the integration. And I know this is a very large transaction for your company and your management team. And just curious as to what you're looking for. I know it's early days, but can you give us an indication of whether there's been any surprises? Are there any KPIs that we can -- that you're looking to assess that we can follow as you integrate that acquisition? And how long a process do you think the overall integration will take?
Yes. It's still early days, but obviously, we've started working with the Folka team now. We spent a lot of time on this from a due diligence process prior to making the commitment, et cetera. And the more we look at it, I think, the happier we are about the commonalities between -- and the -- and I think the -- not only on the assets, but even on the cultural side, et cetera, between Falko and Chorus. I think the team together is very, very strong. We cover so many aspects of regional aviation and a lot of history here, a lot of experience, et cetera.
And if anything, I think it's been reassuring them in terms of the strength of the team and the strength of the plan. So that's not really a surprise, I guess, but it's a reassurance. And we've seen nothing that we would say, oh, this is something we should have looked at or we're concerned about, et cetera. But we're really focused now, as we've said, on launching this new fund, and our organization will probably be more involved in the trading side of the business as well. But I think it's -- all indications for us right now are extremely positive.
I'd reiterate that and to say we are -- we have been very pleased with the acquisition thus far. And as you can see in our Outlook section, we're -- it's coming in where we expect.
That's great. Joe, last quarter, you gave us an indication with your booking curve as to where you were trending on quarter ahead on capacity as a percentage of 2019. How far out can you look now? And obviously coming up on the important summer months. What -- have there any been major changes that have been surprising in terms of the speed or the overall speed of the recovery? I know we did hear from Air Canada, but just curious to hear from a regional perspective, your view on that -- the pace of that recovery and whether it's meeting whatever expectations you might have had before, whether it's meeting or exceeding those?
Yes. Well, I think the pace of the recovery is extremely strong. People are anxious to get back up in the air, et cetera. I think some of the airports are struggling a little in terms of handling some of the security side and that sort of thing. But from a Jazz point of view, when we look at the utilization of our fleet, our aircraft will be very fully utilized over the summer period. So-- I don't have the exact number. And the comparison is a little different, because in 2019, we had a different fleet than we have now. Because during the pandemic, we transitioned over to 175. So we moved out of the Dash 8-300s. So it isn't a total an apples-to-apples comparison. But what I can tell you is that we're going to be pretty full up this season coming up, and it's all go.
It's fantastic. Any color -- and I know it's hard to gauge this, but it's an important consideration for the airline industry in Canada as a whole, and that is business travel. And like I said, I know it's hard to judge whether a ticket is a business travel ticket or not, but I know you have -- you and Air Canada have some fairly sophisticated algorithms that can decipher somewhat. What's your view on the comeback of business travel? I would say that friends and family travel is perhaps filling a lot of that summer activity that you're describing, Joe. But curious to hear your view on the pickup in business travel, at least starting with the regional side.
Yes, I don't have any algorithms or whatever. I think that would probably be more a question for Air Canada. But all I can tell you is sort of anecdotally that I see all kinds of signs of business travel picking up. We had our board meeting here yesterday with folks from Ireland and California, et cetera. And everybody's traveled here for this meeting. The hotel here was pretty full. So -- and a lot of that -- and what I've seen is business related. But again, I can't tell you what percentage or anything like that.
But again, I think people are anxious to get back meeting face-to-face, et cetera. And it's like us, now with the integration of the Falko team, we've been back and forth to the U.K. to Dublin. As a matter of fact, we're leaving again on Sunday night. So -- and that's all the return of business travel really post-pandemic. Although I guess we're not totally through it, but all signs are very positive.
Your next question comes from Matthew Lee, Canaccord Genuity.
Congratulations to Nathalie. Maybe just to start with the housekeeping question. In terms of your plans to report the Falko division, are you going to split out management fee on leasing returns? And if so can you kind of give us some color right now as to what the current split is?
Sorry, could you repeat that? It wasn't a little hearable.
Yes. So most of my questions have been answered. But in terms of the way that you report the Falko division, are you planning to split out management fee and leasing returns? And then can you maybe give us some color as to the current split?
Between the management...
Okay. Sorry, with the management fee and the leasing returns. So yes, they'll be in the RAL division. We're still working through the disclosure. It will be -- we'll certainly give some color on various aspects of it, but we still got to work through that here in Q2, Matt.
And then you kind of discussed some of the technical skills that Chorus is bringing to the partnership. Was Falko previously outsourcing those skills? Or is this kind of a new method of value creation for the business?
Yes. Generally, a lot of the services that now we can provide in terms of the total platform, Falko was outsourcing before. For instance, we see this fleet now, including the Falko fleet, is feeding our parts business. As an example, aircraft repurposing, et cetera, those were more unique on the core side of the equation. So again, very complementary in terms of the skills that were –- that are at Chorus, and what Falko had previously been farming out.
Your next question comes from Cameron Doerksen, National Bank Financial.
Congratulations, Nathalie. It's been a pleasure working with you over the years. I guess I had a couple of sort of more modeling questions here. I appreciate you're still kind of working through some of the disclosures you're going to have with the Falko acquisition. But is it safe to say that basically all the revenue and, I guess, maybe EBITDA, is going to be consolidated with Chorus, even the stuff where you've got, I guess, not a full ownership of the things in the funds? So maybe you can just talk a little bit about how the -- I guess, the consolidation is going to work?
So in our MD&A, we've disclosed the 3 companies or interest that we have the majority ownership in. So all those would be consolidated. And one of the funds revealed -- I think it's something just less than 4% or so that would not be consolidated. So we're beyond the majority, the one -- those would be the ones that come in. So the ones we disclosed in the MD&A there, that's what you should focusing on.
And how about the debt that was associated with the purchase? Is 100% of that going to be on your balance sheet?
That is correct. All those funds that we list there, including -- and the one with the minority interest is the RAL Holdings. 100% of that debt will be on our statements, yes.
Okay. So we should think about that sort of $400 million plus debt sort of being added to the balance sheet. And if that's the case...
Sorry, yes. So the $400 million we disclosed -- $405 million as being the rough debt numbers that would come across and those -- that's what you can expect to see come across.
It looks like your questioner has dropped from the line. Your next question comes from Miguel Ladeira, Cormark.
So you noted that you'll be a participant in the funds, but can you disclose the expected split between internal versus third-party capital invested?
The split between the internal -- we're still working through that. We will be a minority owner in those funds, so it will be less than 20%. So we don't expect being above 20% at any point in time in any of the new funds that we're establishing. And then, if you go to the MD&A, the 100% in the 64.2% companies that we purchased, you can see them there. And then the other funds are -- we have a minority interest, and it's pretty minor.
And just a follow-up there on the $500 million fund. How fast do you think you can deploy the capital once it is raised? Do you already have a sufficient pipeline? Or does that still need to be developed?
I think from a pipeline perspective, there's a lot of opportunities out there. From our side, we've been modeling it anywhere from 2.5 to 3 years to be fully deployed as it makes its way out, but commitments will be a bit -- they'll be lumpy, but conceptually, it's about 2.5 to 3 years.
Your next question comes from Tim James of TD Securities.
Congratulations, Nathalie. It's been a pleasure. All the best for the future.
Thank you.
I guess just one question, and I don't know to what extent you can comment, but I'm wondering if you can characterize the proportion of your lease agreements where you have renegotiated lease rates? And then I guess the follow-up to that is, if you can kind of comment on lease rate factors and where they stand relative to sort of pre-pandemic?
So lease rate factors, certainly in this market, we haven't seen a major change in how you determine them as far as that goes. There's still a steady $4 million, the interest rates and other things been went through. We expect those things to adjust. As far as the revenue we're booking, it's per GAAP, and the lease rate amounts you see, there are -- certainly making their way through restatements.
Yes. The lease rates for the aircraft that are grounded here, as the industry picks up the surplus, obviously, are still lower than we would hope. They are recovering. There are signs that -- with respect to the valuations that are put on the fleet and the corresponding lease rate factors, we see that improving as the surplus is absorbed. We are -- there's not a lot of new equipment being manufactured out there. As you know, the 400s are not being manufactured. There are no more CRJs, and there are a limited number of ATRs. So the fact that there is no overhang from a lot of new manufacturer, and misplaced or not placed new equipment, I think will help boost the lease rates on the fleet that is -- has been grounded as a result of the pandemic.
As you know, we've had one of the major competitors in the industry that have had -- they've had a lot of distress with respect to that, and that's created a bit of a surplus. But I think a lot of the types of arrangements that we are looking at here with respect to sale and leasebacks or other opportunities here, are not subject to the same downward pressure as you have on that surplus fleet. Because a lot of this is sale and leasebacks of aircraft that are already on balance sheet or are committed in terms of purchase. And then as well, of course, there are also potential for purchase of portfolio assets, and which can produce a good return. So I think we're seeing returns, and we're targeting returns that were -- as they were pre-pandemic. But each transaction will be different. But in the long run, and I guess, in the medium run, really, we're looking at getting back to returns that we were targeting prior to the pandemic.
And maybe just sort of a follow-on question to that. Of course, throughout the pandemic, you had leasing customers, some of which you repossessed aircraft and remarket those. And then at the other end of the spectrum, you had customers that -- because of their own liquidity and financial situation, were able to continue lease payments, I believe, without any interruption. Do those customers that have kind of made it through this in one piece without interruption to their ability to make payment on their leases, are those leases or have those leases been subject to any rate pressure just because of broader conditions?
Or is it only those aircraft that maybe have been repossessed and remarketed at sort of lower rates, and maybe those aircraft where you renegotiated with the customer because they've been in creditor protection? Or is it sort of more across the board? Or is it very customer specific, I guess, is another way of asking it?
It's very customer specific. Obviously, if a customer was restructured or had significant liquidity issues, et cetera, we work with the customers. I think we've been straightforward with respect to our credit loss -- expected credit loss with respect to our financial reporting, our receivables, et cetera. The other customers -- those leases remain in full effect. And we're looking to renew a lot of them. Obviously, when you renew leases on older aircraft, it's at a lower lease rate because it reflects the reduced value of the asset. So -- and we see, as I said, that market becoming stronger now with time. And as more aircraft get back up in the air, there's more demand for capacity. That will start raising the lease rates on those assets.
Your next question comes from Konark Gupta, Scotiabank.
Congrats, Nathalie, for your time, and thanks for all the help. So maybe the first question is on the guidance. I'm just trying to figure out what's included and not included in the guidance? I mean, how much contribution do you expect in the guidance from the new $500 million fund that you are launching?
So in the guidance, we expect that fund to be launched later this quarter. And so certainly it starts to take traction in the back half of this year. So that's included in the guidance. And then obviously, it's the values of the acquired assets that we've outlined in there from the Falko transaction, and included some minority interest in other funds. But when you look at the new asset management piece, the $500-plus million facility, which is the minimum side of it, we hope to be higher than that. We don't expect to really have that fully launched over the second half, but it will get announced here shortly.
And does that mean that the full return from that $5 million fund will annualize sometime in Q4 of this year? Or could that be sometime in '23?
So you go back to the deployment schedule. So we'll launch the fund. The Falko team will begin to manage that fund and start to earn some fees as we go through the course of this year. And then as the assets are deployed, then you'll start to get returns on the fund. So returns are going to kind of -- if you go remodeling it, it should be over that 2.5 to 3-year period it gets fully deployed, and then you can start working the returns.
And then, with respect to your growth ambitions -- Obviously, the whole growth profile will change with Falko. So the kind of guidance you provided for this year, that's sort of as a base where -- or what kind of growth in EBITDA or earnings are you expecting, let's say, over the next couple of few years? So I mean, how should we think about it?
Yes. So what we have given you is some good short-term guidance here for 2022. We do plan on doing an Investor Day at the latter part of this year with the dates to be announced. And that's where we'll unveil a lot of those longer-term growth plans and other things like that. But certainly, that fund -- this new fund with a minimum of $500 million that we're going to launch here shortly, will be the biggest part of the growth avenue. We'll have a minority interest in it, less than $20 million, so it won't be consolidated in our statements. But that's where a lot of our growth is going to come from.
And if I can just follow up on the combined business with CAC and Falko, is there going to be any major changes with respect to branding or back office or front office management or things like that?
Yes. The entire fleet, including the fleet under the funds and other aircraft, including the Chorus Aviation Capital aircraft, will be managed by Falko. So there is -- we will continue with that brand, and it's being all consolidated under the management of Falko.
And final one for me before -- you mentioned, or you disclosed ROIC for the entire company, I think, at 7% to 8% this year. Can you provide some color where the ROIC is for -- roughly speaking, maybe for Falko versus your existing CAC business and CPA. How do we compare those?
Sorry, we are not disclosing those at this point in time, but we're doing an overall company metric. And the reason we focus on that is, we look to optimize the company assets, company capital structure amongst the various units. So that's why we focus on that level.
[Operator Instructions] Your next question comes from Fadi Chamoun, BMO.
Congrats on the retirement, Nathalie, and thanks a lot for your help, obviously, in the last couple of years. I wanted to understand one thing about the structure of the funds. Are these funds typically have a duration against -- as to the lease terms? Is that the right way to think about the funds?
Yes. So the funds generally are around 10 years in terms of life, is the way that they're structured. The $500 million is the capital that we're looking to commit this year. The last fund was $650 million. So that's the duration of the fund generally. So then there can be trading within the fund, et cetera. So -- but it does have a finite life.
So we launched the fund for $500 million plus and last one $650 million than they are leveraging in the fund on those assets, so -- and then basically, back to Joe's point, has a 10-year life.
The leverage that's added in the fund, it generally has a recourse to us, but is related to the fund investment -- to the fund investors.
And this might be a very basic question. I'm just trying to understand how you earn money with these funds. So respectively, you invest in a fund as well and you obviously make a return on your own investment. But how is the fee structure of the fund works in terms of you managing the assets on behalf of third party?
So you are paid fees for managing the capital that is committed in the fund. And there are other transactional fees, et cetera. Often, there are incentives within the fund once you achieve certain hurdles, that are paid. The expenses generally of the trades are covered by the fund itself. So really, though, it's primarily the fees, the management fees, some transactional fees, incentives, and of course, then our own participation as an investor in the fund.
So back to our -- when we announced the transaction -- back to what Joe said, we get fees from the fund and managing the fund through the various sources Joe indicated. We also get our return from the fund -- our proportion of what we own in the fund. And then there's potential for incentives is to fund outperform certain investment targets that get crystallized in there. So that's the 3 ways that we essentially earn.
And you start to earn the fees when the fund is completely deployed? Like, because now you're doing the funding the $500 million, then you have to go in [indiscernible] fund, obviously, which will take some time. Like how that work?
Yes. There is some -- when the fund gets launched and you start to manage capital, there are fees that apply then and there's -- and so there's fees almost, if you want to call it from day 1, that go into the fund. So it's not just based on deployment.
And I mean the balance sheet is okay. Would you from this point on favor placing your investment in those funds? Or would you do transactions on your own like you have in the past with your own balance sheet?
Yes. So the preference is to go fund first for sure, and then the balance sheet will be secondary. So we see going through the funds as being the primary growth piece, and we don't see a lot compared to that going on the balance sheet.
And this is how it really is transforming our growth within the leasing business, is to move more into an asset-light fund type of structure that will clearly be our focus.
There are no further questions at this time. Please proceed.
Thank you, operator, and thank you, everyone, for being present on this call. I've enjoyed working with many of you and wish you all the best. Thank you.
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.