Cargojet Inc

TSX:CJT

Earnings Call Transcript 2021-Q1

[Operator]

Good day, and welcome to the Cargojet Conference Call for Quarter 1 Earnings. Today's conference is being recorded. At this time, I would like to turn the conference over to Pauline Dhillon, Chief Corporate Officer. Ma'am, please go ahead.

[Pauline Dhillon, Chief Corporate Officer]

Thank you. Good morning, everyone, and thank you for joining us on this call today. With me on the call are Ajay Virmani, our President and Chief Executive Officer; Jamie Porteous, our Commercial Officer -- our Chief Commercial Officer, apologies; Sanjeev Maini, our VP, Finance; and John Kim, our previous Chief Financial Officer and currently a consultant to Cargojet. After opening remarks about the quarter, we will open the lines for questions. I would like to point out that certain statements made on this call, such as those relating to our forecasted revenues, costs and strategic plans are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA and adjusted EBITDAR. Please refer to our most current press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and for reconciliations of non-GAAP measures to GAAP income. I'll now turn over the call to Ajay Virmani.

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Thank you, Pauline, and thank you, everyone, for joining us this morning. Although there is much progress being made on vaccinating Canadians, many countries, including Canada, India, Brazil and Europe are battling the third wave of coronavirus cases and are in a race to vaccinate [Technical Difficulty]. One thing we have learned for sure is that COVID-19 is a formidable enemy. And until we get majority of the global population vaccinated, the economic progress will be somewhat uncertain.The last 13 months have been demanding, challenging and yet we feel a sense of pride. I want to take this opportunity to acknowledge each and every employee of Cargojet for their dedication in supporting our customers who themselves are going through a massive change. Like many other companies, Cargojet is also adopting to the new reality. While we don't know what the new normal may look like, but we know that we are not going back to the old. Many experts are calling for the future to be a hybrid, combination of old and the new. To us, this makes sense.For example, if people have discovered that they can improve their quality of life by ordering daily use necessities online, they're likely to retain that habit. Yet, they might want to go out for a shopping of items that give joy and retail therapy. So there is room for both. Now let's turn over to quarter 1 results for Cargojet. We delivered solid revenue growth of 30%, adjusted EBITDA growth of 44%, and we generated $35.2 million in adjusted free cash flow, a growth of over 18%. In terms of business environment, we are seeing some structural changes. The biggest change in retail has been the adoption of e-commerce by small businesses. While large retailers already had strong e-commerce platforms and capabilities, some businesses were not fully prepared for the digital economy and the digital change. Now tens of thousands of small businesses have discovered the opportunity that the digital economy presents great opportunities. So the e-commerce revolution was driven by the consumers who were pushing retailers to move online, but the pandemic has fundamentally changed this equation. We feel that the next phase of e-commerce revolution will be merchant led. Thousands of new businesses have started during the past year, and that never even considered a brick-and-mortar store. This changes the shopping equation fundamentally. In Canada, e-commerce as a percentage of sales has doubled from 7% to 14% and even more, within less than a year. But still, it is far behind the U.S., Europe and Asia. Canada has still a lot of catching up to do. With much of Canada's retail or services businesses still closed, the B2B segment continues to lag behind the B2C segment. The growth of this segment is tied to the reopening of main street economies. On the operational side, we are continuing to see strong volume growth. And as I have mentioned before, in this hybrid world, we expect the baseline for almost every aspect of our business to move up. While we do not expect the 2020 results to become the new baseline, we do expect a significant shift upwards from the pre-pandemic volumes due from the new baseline. Recognizing this new reality, Cargojet has spent the last few quarters laying the foundation of -- to capture the next phase of e-commerce growth. Number one, in line with our previously stated goal, we have significantly strengthened our balance sheet, paid down majority of our debt, thereby significantly reducing our leverage. Number two, as we move past the pandemic, we will be refocusing our efforts on cost efficiency and productivity. This area definitely took a backseat and a big hit as we focused on scaling up our -- every part of our operation to meet the customer demand. Our biggest focus on -- for the next 6 to 8 months would be strictly managing our cost and the areas that we can fine tune in to make sure that the money we spend out there is for the right reasons. And we certainly cannot hide behind the COVID cost increases forever. So this would be on the top of agenda. We invested in the fleet expansion, which stood at 20 aircraft at the end of Q1 versus 25 aircraft at the end of Q1 last year. We recently acquired a 757-200 to meet -- to continue to meet the demand of our existing customers. We will take delivery of this aircraft in the month of May this year. We have also added approximately 60-plus pilots in the past 3 to 4 months to keep up the demand and also to comply with the new pilot fatigue regulations. Certainly, the cost of our crudes have gone up substantially. Some of it is recoverable, and some of it is not. And we are doing a thorough analysis to ensure that the numbers that we have added continue to serve the demand we have on hand. And also, we continue to work with our pilot leadership and Transport Canada to find synergies and solutions that balance between safety and commercial viability. We've broadened our portfolio of services and announced an expanded relationship with Amazon. And we are investing, attracting and retaining top talent by key functions across the organization. With shifting supply chains triggered by a significant reset of international passenger routes, we also see opportunities in the market share and select internationally -- on select international link. Transportation, logistics, space remains highly volatile, and we are constantly adapting to maintain our leadership position. We are also making progress on developing our robust international growth strategy. We are enthusiastically awaiting delivery of additional aircraft, which are 5 767s within the next 18 months. These will be deployed selectively on international high-yield lanes that we see the demand on. But we are also in discussions with a couple of customers who certainly have demand for these aircraft. So we do not anticipate these aircraft to be sitting idle even for a day. The available belly capacity on international routes remain tight, and we are confident about the opportunities presented by this scenario. We have no idea when the normal cargo business on belly aircraft is going to be normal. But with the reduction of wide-body fleet by many airlines, we certainly envision a shift of this product that was traveling on passenger aircraft before towards the cargo aircraft. We are also -- we also continue to seek an investment and presence in our U.S. market. The growth in the U.S. market is tremendous. There is many routes and many areas that we cannot cover with our current license arrangements, and we continue to seek a U.S. partner for our growth strategy across the border as many of our customers in Canada are also customers in U.S. Thank you very much for being here today. And now we'll open the call for questions.

[Operator]

[Operator Instructions] Our first question will come from Walter Spracklin with RBC.

[Walter Noel Spracklin, MD & Analyst]

So I'd like to ask a bit about the cadence of your volumes by each of your major segments. Ajay, obviously, you're having outsized growth compared to prior periods. So prior period is a little harder to use as a gauge. But let's start with domestic. Typically you do better in the second quarter around the same, maybe a bit better than the second -- in the second quarter than the first and then kind of ramp up from there as we go through the year. Is that a fair trajectory here? Was there anything in the first quarter that was abnormally lower or higher that you would call out? Or is the cadence on your domestic essentially going to be kind of around that similar path?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

So Walter, it's a very good question, and it's kind of tricky because, to be honest with you, we do get estimates for our customers. We used to get them well in advance. And now it's like a week or 5 days in advance of what they're anticipating. It depends a lot on if B2B business is open for a while, then the traffic mix changes, the forecast changes. And if it's strictly B2C type of stuff, it's a very different mix. To be honest with you, it's been the most unpredictable times we are in. I wish I could answer your question and say, what do I see in quarter 2? And I would say that at least I think without sort of making any advanced guesses or any guidance, we anticipate from what we have seen in the market to at least be equal to or close to quarter 1. So Jamie, you want to comment on that?

[Jamie Bennett Porteous, Executive VP & Chief Commercial Officer]

Yes. Thanks, Walter. Just to add to Ajay's comments. The only thing that would impact, I would say the trajectory is similar as Ajay suggested for Q2 from Q1 on the domestic side with one condition, the lockdowns in Ontario and Québec certainly -- particularly in Ontario, and you may have read that some of the Amazon facilities were closed down because of COVID outbreaks. Those have definitely had an impact on -- or will have an impact on Q2 volumes. And then the other, as you suggest, Q2 and then Q3 kind of is a little slower, and we build up for Q4 in a traditional year. The other thing that's a little different that will have an impact. I don't think you'll see it in Q2, but certainly in Q3 when we start operating 2 dedicated aircraft on a CMI basis for Amazon will also have an impact on our domestic volumes.

[Walter Noel Spracklin, MD & Analyst]

Yes. That was where I was going with the next line there, Jamie. So you've got the base volume, but I know Ajay last quarter, said the pricing will be different in the first half versus the last half. So you do have the new business coming on, but presumably, you have a price ramp as well. So cadence for revenue on the ACMI likely to again go higher on the basis of both of those?

[Jamie Bennett Porteous, Executive VP & Chief Commercial Officer]

Well, on the domestic business, there'll be -- we expect that there could be some minor dilution on the domestic network as a result of us starting to fly 2 dedicated aircraft for Amazon within Canada on a CMI basis that could impact Q3 volumes, but we fully expect with growth -- and our year-to-date growth on the domestic business would reflect the fact that we'll easily fill that -- any space that's caused by dilution. The ACMI business remains very strong. As we noted in Q1 compared to last year, close to 100% increase. And as Ajay was touching on in his opening remarks, we have significant opportunities to continue to grow our ACMI business. And really, we're just waiting for the additional delivery of aircraft to be able to take advantage of that opportunity.

[Ajay Kumar Virmani, Founder, CEO, President & Director]

So far, Walter, we don't anticipate currently domestic capacity because of those 2 planes that from the -- what forecast we've been given and toll. But just as a backup, if we were to get 1 aircraft lose out of domestic network, we'll have it within 7 hours flying for ACMI. So we do have a backup plan on that, but we are not anticipating any cut as of now. That's what we've been told.

[Operator]

Our next question comes from Konark Gupta with Scotiabank.

[Konark Gupta, Analyst]

Ajay, so you mentioned -- and obviously, I understand you don't guide. But you mentioned that the e-commerce has taken further acceleration with the merchant-based activities here. And then now you got this new Amazon CMI contract, which sounds like you are suggesting it's incremental. It's not kind of cannibalizing any existing volumes here for you. So if I look at for the full year and considering, again, you don't guide. But for the full year, if you think about where you're heading with respect to revenue and margins. So if you can share with us any color or how do you see things progress overall? And like can you -- you had a pretty big Q2 last year. I mean, can you still do something similar to last year from a revenue perspective? And then from a margin perspective, I think last time -- the last few times you have been suggesting -- like you were kind of in the low 30% margin range. And then last year, you were low 40s. And so where can you be from a margin perspective with all the kind of changes you are seeing this year as well?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

So let me say this to you that Q2 last year was a total, total driven by everyday flight to China and PPE stuff. So the answer is -- short answer is no. We cannot match Q2 unless the government runs out of PPE supplies say by tomorrow, and we are asked to do 30 or 40 or 50 flights in this quarter. So we don't anticipate -- I think that particular quarter for every cargo airline around the world was a very different story. We certainly don't anticipate that it will go because a lot of stockpiles have been accumulated. And I don't think that people are going to be using air for that product in the near future. So there's no shortage of masks and PPE at this time. However, there's always new things happening, whether it is -- we could have 5 flights to India for relief. Now mind you, they don't pay that well, but at least it's incremental to us, right? So there is -- the dynamics in -- the environment is totally changing on a weekly to weekly basis. It's hard to kind of give you whatever margins would be and what we are looking at. If in the next 4 weeks, the margins -- I mean, the business comes back more B2C type of business or B2B type of business, we can anticipate some higher margins and some extra volumes. But also, we do have, with the number of pilots that we've brought on, we do have charter capabilities, a lot more than we had in the quarter 1, and we are hoping that there will be some increase in that business as well. So overall, if I had a crystal ball guessing it, I would imagine that quarter 2 would be pretty similar to quarter 1. Close to it within 5% or 10% of either way, but we are not anticipating that quarter 2 would be what it was in 2022, unless the world change on us. And none of us want that to happen. So we'll be happy with if we can continuously maintain what we're doing today.

[Konark Gupta, Analyst]

That's great color. And then coming to the fleet side. So you're getting, I think, the first of the 5 767s in Q4 this year. And then I think, supposedly, you also added 1 or at least an LOI for a Boeing 757 this year. So curious as to your thoughts into how do you see utilizing those 2 aircraft, the Boeing 767 and Boeing 757 this year initially and then ultimately?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. So ultimately, I mean, we are looking at the 757 because there was a demand by one of our ACMI customers like as of yesterday. This was not even on our plan. We were asked if you can operate an additional flight on a certain route. And we didn't have any aircraft to do it. But we found, luckily, an aircraft that was just being converted, and we were able to purchase that aircraft at a reasonable price. So that would be deployed in an ACMI environment as soon as we get our hands on it, it will be probably end of the May. And future aircraft, the 767 that comes in on -- in the Q4, primarily, it will act as a peak aircraft because November and December capacity crunch is going to be -- there's going to be a lot of demand at that time for -- last year we had to do a lot of double turns, and we had to really create magic to keep up with our peak. Our primary purpose would be to serve our existing domestic customers to make sure that they have the peak capacity. That's been our bread and butter, and we want to -- don't let our customers down. And right after peak, Q1, Germany -- Q1 in January, we plan to deploy that on select international routes, like South America, Europe and Latin America, Mexico. But keep in mind that, Konark, we also have availability of aircraft on the weekends, like we -- at any point, from Friday to Monday, we have 4 additional aircraft. So our international strategy will not just depend on that one spare plane that we are getting, we would also start using our equipment on weekend as we have done in the past couple of years successfully to have some dedicated international growth starting September, October. So plan for the next 5 aircraft or next 4 aircraft that we are signed up over the next 12 to 18 months is that our -- first to see if there is a demand in domestic that we need to increase, which we are not anticipating because we also have some fair capability. The second part of it is, if there is enough yields and market rates stay high as they are today, they will definitely go into retail. Some of it will definitely go into retail international depending on the market. If it was -- if I was making that decision today, definitely with no belly capacity and the rates almost double than what they were supposed to be. We would have no problem filling those on international dedicated routes. But we also have a backup plan, if that is not the case, we are already in discussions with a couple of customers on ACMI basis who have already committed to taking majority of that 5 767s, the minute they come out. So that is a nice problem to have when there is more demand and less aircraft. In today's market, if I had 5 extra aircraft, Konark, they would be sold today. So we do always plan, number one, where can we get the highest yield and continue to serve our existing customers? And number two is go after the new markets. And number three, expand some of the ACMI stuff we have. So in all 3 areas, we feel pretty confident that -- I know there were some questions about have you got these contracts for 757? Well, I can tell you today, I don't have a contract, but it's up to me if I want to sign one because I want to wait it out and see what's the best option for me to sign with [to deploy these] aircraft. So that does not give me any sleepless nights whatsoever. As a matter of fact, it is a nice problem to have.

[Konark Gupta, Analyst]

That's great color, Ajay. And just to clarify, is that 757 ACMI customer, can it be assumed as DHL or it could be something else?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. So it could be DHL. We also have another customer in the mix, which we obviously can't talk about it right now. We also keep in mind that 757 might not be the aircraft that goes to DHL. We might be able to -- depending on -- or any of the customer, we might have to switch it with a 200 or a 300 and redid the network. And if this one fits in domestically better, we put it there. So that is on the planning table right now. And depending on what we can free up by adding that, can we have more efficiency on our domestic network with adding 757 and freeing up a 767-200 which gives us more revenue outside. So those are some of the things the modeling is being done right now. So we haven't decided the type of aircraft that will go to ACMI. But certainly, within the next 30 days, we will have that decision.

[Operator]

Our next question comes from David Ocampo with Cormark Securities.

[David Ocampo, Analyst of Institutional Equity Research]

Ajay, can you remind us if you have any other contracts that are up for renewal over the next few years? And then probably most importantly, based on your experience with the RFP process with Amazon, can we expect a lot of competition, particularly from the passenger airlines?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Well, we just concluded a deal with Amazon, which is a 4-year deal with 3 2-year options. So the ink is not even dry on it. So don't expect that to be discussed or gone out for RP or renegotiation anytime soon. We also have a strategic relationship and warrants with them. So looking at both the factors, we don't expect that -- unless we cannot service Amazon, which I find that it will be an absolute disaster, and it's not going to happen. I don't see any reason why that Amazon -- the service they're getting, the value for the money they're getting, the past 6 years' relationship, our proven track record, our own ground handling, our trace and track and IP is totally embedded in them. We are giving them the value for the money. And I think after a year of looking at the Canadian marketplace, they selected Cargojet to fly those 2 aircraft for their additional growth. And to be honest with you, it was kind of great for us because it gives us $80 million opportunity to free up the cash and develop other businesses with it while maintaining Amazon. So I don't anticipate that that would be the case in the case of Amazon. We don't have any contract renewals to 2025 for now, at least 4 years from now.

[David Ocampo, Analyst of Institutional Equity Research]

And then just building on the Amazon contract. Have you -- I know it's not dilutive to your network. But have you gotten any pushback from Canada Post on that?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Well, when I say it's not dilutive -- Jamie had mentioned earlier, there could be initially, as we learn where the business is coming from, where it is going. It will take at least 3 to 6 months for forecast and things to settle down. So we could face some minor dilution, but the thing is it will be made up for the additional volume growth that they have told us they are anticipating. So just want to clarify that on it. Your second question is would that have an impact on Canada -- on Canada Post. We have been told that this is for their additional growth. And we've been told by Amazon that this is not cannibalization from you or others. But do I have a solid guarantee that it's not going to have an impact on their volumes? I can't guarantee that. But from what we have been told, the principle of the deal is growth. The principle of deal is not taking from left pocket to right pocket.

[David Ocampo, Analyst of Institutional Equity Research]

That's great. And then finally for me here. Acquisition opportunities were flagged. And I think it has been for the last few quarters. What are you seeing out there in the marketplace? And is there any specific area or geography that you're looking at? I know you mentioned a U.S. partner. Is that where your interest lies now?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. We are -- we have -- that's our sort of growth area because a number of our customers, as you know, they are American. They also have need for transborder international, which we've been doing with the Canadian license. But then there could be a flight that goes Cincinnati, Miami and Panama that we can't do because we cannot do the Cincinnati, Miami sector because that has to be done by the U.S. carrier. And so there are many examples of those kind of routes that we cannot go after. And since we do have great customers who rely on us on 10, 11 planes for ACMI flying internationally out of the U.S., but we're kind of handicapped with not having an investment or license in a U.S. carrier. We are looking at that opportunity very seriously because we feel there is a lot more opportunity to place aircraft and to have an ownership position, which meets the DOT and FAA requirements of 25% investment, the company will seriously pursue that over the next quarter to have an investment that gives us another outlet to sell our products and services and expand.

[David Ocampo, Analyst of Institutional Equity Research]

And what leverage are you comfortable going up to? I know you've gotten it down to a very, very reasonable level. But just trying to get a sense of an order of magnitude on how much capital you guys have to deploy?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

If we were to look at a U.S. carrier, it's not going to be a huge capital investment, to be honest with you. It would be more of a start-up. We're not -- yes, we've looked at -- there doesn't a week go by when a U.S. carrier doesn't want to sell. But our idea is to -- we do have the strength and the backroom operations of Cargojet, so -- which can be, with some modification and FAA approval, we can use them on American carriers. So we don't anticipate to spend hundreds of million buying a company unless something very good came up, I should never say never. But our initial thoughts are that we're going to invest in a small license more than a carrier and provide our backroom capability and utilize the overhead over there so that we get the synergies and we are not paying for something that is already built because we are fully capable of within 3 to 6 months or a year to get it up to the standards of Cargojet and enjoy our growth in the U.S. So I would say anywhere, our investment in this project would be between -- and that's strictly [guesswork], no more than between $5 million and $20 million type of number. So we're not looking at any huge numbers in this regard.

[Operator]

Our next question comes from Kevin Chiang with CIBC.

[Kevin Chiang]

Maybe just going back to a comment you made earlier about as you kind of transition out of the pandemic, focus will turn to maybe taking out some of the costs you've incurred as you've managed through the past 12 months or so. Do you have a sense of what structural costs you can take out of the business today? Or in another way, is there a margin you think you can get to on your current revenue footprint just based on some of these cost efficiency initiatives?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. So just to give you an example, Kevin, I mean, this is all scattered over cost, like, for example, when you're getting additional volumes, you're not able to hire many people because of the pandemic. People don't want to work because they're getting their government allowances. So we had to rely a lot on overtime in every direction. So that cost is skyrocketing. So I think when things return towards normalcy, if the business has increased, we can hire people at normal value rather than [going over – bringing] some overtime, for example. The cost of PPE that we are bearing, the cost of testing that's going on, the –- we have private testing that's costing us a lot of money for the employees. We are also giving out various incentives to people to continue to stay healthy. We also have -- certain routings cannot be done on certain planes because of certain COVID situations in certain countries. We cannot fly or get charter opportunities, example, in certain places in Asia because of breakouts in certain countries. So crews are being -- staying in Cincinnati. A lot of crews are staying in Cincinnati, the hotel cost. We don't have for example, direct commercial flights to transport our crews to Cincinnati on a daily basis because there's 3 stops. And by the time they get there, they've lost their day. So as you know, Cargojet has 2 Challengers, and that was the intent of these. We are using those Challengers 6 days a week to transport 12 pilots to Cincinnati every day and bring 12 pilots back. It is a costly affair, but it gives us efficiency and ability to serve the customer at this time. So a lot of costs have creeped up on us because of the pandemic and how we had to work things around to continue to serve our customers who depend on us on a daily basis. So there's a lot of these costs that we need to relook at as things ease and the vaccination comes in and bring back the business to normal. Now when the business comes to normal, the cost -- not every cost always disappears, but our aim is to identify those costs and work at all of them and get the best out of the -- what we used to be before. But with that -- also with that change, there might be some kind of balance between volumes like. So if it is today, let's give you an example, it's a GBP 10 million a week on certain lane, it might only be GBP 9.5 million. So there will be some volume adjustments and revenue adjustment. And if we did not make the adjustments for cost and the revenues adjustments are being made by the marketplace, we will not be very prudent then, obviously. So we want to make sure that we address the cost issue. Yes, there will be some gains, but there will also be some gains wiped out by the lower volumes. So I just want to make sure that it's not just the costs that are going to come out. We are also anticipating some of this stuff that's flying because of COVID might get reduced as well.

[Kevin Chiang]

Okay. That's great color. And I'm wondering, as you sit here today, I mean, it's pretty clear you're facing more demand than you have capacity and people are scrambling, given the dislocation of the airfreight market today. But are you seeing or do you anticipate or maybe [indiscernible] -- are you seeing any changes in competitive or customer behavior, for example, are customers? Would they prefer to have a shorter contract now because they don't want to lock in elevated risk today versus maybe what we saw pre-pandemic? Are you structurally seeing more passenger airlines or competitors look to ramp up capacity to take advantage of maybe a structural decline in belly capacity over the next few years here? I just wonder what you're seeing in the broader market from a competitive perspective as you talk to customers? And as you kind of think about filling in the capacity you're investing in today?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. So depends on the segments of the business. Domestic, no, I don't think we have seen much change in the customer contract type of discussions. Transborder and international flights are always a different story. They are kind of not as ironclad as the domestic customers for longer, longer term. But for example, some of the contracts we have on ACMI, if we're flying it out from Cincinnati to Mexico, and it takes $200 a month, they have the option to deploy those $200 somewhere else. So when you are on a preferred carrier list, we are flexible. It doesn't matter where they make us fly. It's their plane, they pay for it. They can fly anywhere. So the contract durations are certainly not 5 to 7 years, but they are certainly longer-term than any -- they're not like 30-day contracts either. So they're somewhere in the middle. And also they have the right and we have the flexibility that those routes can be shifted to other routes as the customer demand. So international and those kind of services are always, I would say, medium-term contracts, not short-term contracts, and that has been the trend even prior to the pandemic. And that's the market. We have not -- we have actually -- we started with 1 plane with DHL 15 years ago, and now we are up to 10 or 11. So our track record of growth, we have been their #1 performing carrier. And we are hopeful that these are not short term. That's what we've agreed on, and we continue to grow on that. But yes, on the international and transporter market, and ACMI, the contracts tend to be not as long as the domestic contracts.

[Operator]

Our next question comes from Chris Murray with ATB Capital Markets.

[Christopher Allan Murray]

My first question is really maybe thinking a little bit about some of the B2B traffic that you guys are seeing. I'm just wondering, I guess, a couple of things. One, when we saw the shutdown of the Suez, there was some discussion around folks kind of rushing around, but there's also a lot of discussion around supply chains. And I'm just wondering as we go into the back half of the year and we get economies reopening, your thoughts around how much of that volume may move just over ACMI? Or how much you might be interested in picking up through charter to try to do maybe both, if you can?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. So we have seen some increase of charter activity because of that. I mean, obviously, the problem has been solved now, and things are moving freely. We have seen an uptick in the international charter activity, at least from a cold standpoint. I mean, I wish we had more capacity to do those. Aircraft are fully deployed at this time. And we certainly have taken advantage of some of those one-off opportunities as our crew and aircraft are pretty busy doing what they do. But any time we have been able to sneak in those charters, we have. But I really don't think that would be a permanent situation.

[Christopher Allan Murray]

Okay. Fair enough. And then just one quick housekeeping question. Just stock comp in the quarter moved up materially. And I know you're now calling it out as part of your adjusted EBITDA. Any -- was this kind of a onetime thing? Or is that something we should be expecting as a kind of normalized run rate for the rest of the year?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Well, we looked at that definition of the EBITDA with the stock comp. And what it is, is a basic distraction because they have no operational significance. And if we were to look at 2019, we would have been $4 million ahead. If you look at 2020, that would have -- we would have been $20 million -- $10 million, $9 million down. And it has no operational significance. And then we consulted our auditors. We looked at what some of the other companies are doing. And from now on, we have adopted a policy that since it does not operate -- affect or have any impact on the day-to-day operations and the numbers are mixed in with those. It's kind of a distraction when you have $3 million, $4 million, $5 million a gain or loss, it's really immaterial at the end of the day, but it takes away the focus from what is the operational income, what are the operational statistics. And we decided to adapt in line with most of the companies are doing not to include those on the EBITDA.

[Christopher Allan Murray]

Okay. Sorry. So just to clarify, this wasn't a new issue. This is more of a mark-to-market of the obligation?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes.

[Operator]

Our next question comes from Matthew Lee with Canaccord.

[Matthew James Lee, Associate Analyst of Telecom and Media]

My understanding is that the growing B2C market and international opportunity kind of gives you an opportunity to extend the number of hours that each plane can operate per day. Do you have a target as to how many block hours your planes -- you want your planes to operate?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Well, I mean, the target, what is the ideal wish? I mean ideal wish is that we could fly these planes for 18 hours a day, but that's certainly not possible because you need downtime for maintenance. Otherwise, you could fly these and then you would not have the performance and everything will -- all hell will break loose. So if we -- if any of our planes can do anything between 200 and 250 hours a month, that's a pretty good average for us to attain.

[Matthew James Lee, Associate Analyst of Telecom and Media]

All right. And then maybe on pricing, it appears like cargo revenue per pound was moving kind of in the right direction in terms of growth despite this declining ACMI pricing. Can you maybe talk about how improving domestic pricing can offset some of the declines across other segments for 2021?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

So you mean the domestic can offset the ACMI pricing?

[Matthew James Lee, Associate Analyst of Telecom and Media]

Yes, correct.

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Well, keep in mind, the ACMI pricing is never going to be high because that's a full load we handle for the customer. We also -- you should also look at that ACMI pricing is pretty risk free, where we don't take the commercial risk. We make a certain margin. We are happy with it, and we fly for a particular customer. Domestic market is a very different market, where the pricing is per pound. There are contractual commitments where people buy a certain space because they want to make sure they have the space in the peak, they have the space in certain spikes and going back-to-school sales and peak time. There's a lot of events that happen during the year where people buy – [a government] year-end. So there's a lot of space that is protected. And that's why you were able to get a lot of higher revenues out of domestic. We also have a one-way market in the country. As you probably know, everything is exported from here to West Coast and the East Coast, hardly anything comes back. So that has to be priced into as well. So the country being so large, country being one-way traffic.If you go to U.S., you will have L.A.-Seattle and Seattle-L.A., like both sectors are full or New York-Seattle, and Seattle-New York, both sectors are full. We don't have industrial bases in our country that can fill out those. And hence, the domestic numbers are always higher than any other part in the world. So to say that we can get higher domestic revenues to offset the ACMI charter business or ACMI and charter business, it's not the right way to look at it because ACMI and charter business we compete with international and U.S. carriers whereas domestic, we are only competing right now with domestic wide-body aircraft of WestJet or Air Canada. So it's a very different landscape. So I would not mix the 2 up in terms of trying to balance the yields out. Part of the reason Cargojet diversified its businesses was to take advantage of our infrastructure, our people, our facilities and our aircraft, our know-how, our IT to say, now we're going to go into ACMI. Now we're going to go into international. And as I had mentioned in my last couple of calls that adding ACMI and international was a no-brainer because, for us, it was just like when McDonald's were serving lunch and dinner and they added breakfast to it. So for us, it was no real increase in cost in terms of infrastructure and people, but we were able to capture those revenues. So that was our philosophy and it wasn't certainly done to compensate for the yields with each other. It was strictly done to increase the overall yields -- and diversification so our business is not dependent on one line of segment.

[Operator]

Our next question comes from Cameron Doerksen with National Bank Financial.

[Cameron Doerksen, Analyst]

Just maybe a few quick cash flow questions for me. One is just on the, I guess, the buyout of the finance leases. I know there's probably some detail that's in the MD&A. Just -- can you just indicate how much of that is left for this year or the magnitude of that?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. Sanjeev, you have that number or John?

[Sanjeev Maini;VP, Finance]

Yes. For this -- John, go ahead.

[John Kim, Chief Financial Officer]

Sure. Go ahead, Sanjeev.

[Sanjeev Maini;VP, Finance]

For this year, we will be buying one aircraft, and that will be around $15 million. And then one, we will be -- then the second one is in 2023 and the third one is in 2027. So for this year, it will be $10 million to $15 million.

[Cameron Doerksen, Analyst]

Okay. Okay. So that's what's remaining. And can you just maybe update us on, I guess, the CapEx expectations for the full year 2021? And any, I guess, further commentary around the timing of the, I guess, CapEx requirements for the 777s that are coming down the road?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

John, you want to?

[John Kim, Chief Financial Officer]

Yes. This year, we're estimating about $90 million of maintenance CapEx and then probably about another $100 million to $150 million of growth CapEx. And really, it could be higher if we end up buying some feedstock for the 777s. So the total CapEx this year, $225 million to $250 million, that's without buying feedstock for the 777s. With the 777s, we are potentially looking at not having to buy the feedstock until much later. So the majority of that spend, call it, CAD 150 million for the 2 777s will be in probably late 2022 and then throughout 2023.

[Ajay Kumar Virmani, Founder, CEO, President & Director]

And John, that will also include the 5 new 767s that are being converted, right?

[John Kim, Chief Financial Officer]

Yes. The 5 767s, they start conversion. The first one is inducted this May. And then it's basically nose to tail every 5 to 6 months, we'll get another one. So that spend roughly I think, USD 30 million per aircraft will be sort of fairly even starting in the mid part of this year and then extending out to the end of 2022, beginning of 2023.

[Cameron Doerksen, Analyst]

Okay. So if I think about 2022 CapEx, excluding the 777s because the timing is uncertain there. But I would guess it would be lower than that $225 million to $250 million number in 2021? Is that fair to say?

[John Kim, Chief Financial Officer]

Yes, I think so. It might be similar, depending on the timing of our maintenance CapEx because, as you know, maintenance CapEx is driven largely by engine refurbishments. I think it will probably be a pretty light year next year. So -- but we won't have -- we can probably give you a better guidance for next year once we get into the latter half of this year. But typically, we're looking at $80 million, $90 million per year in maintenance CapEx. Next year with the 777s and 767s, it's probably at least another $100 million.

[Operator]

Our next question comes from Michael Goldie with BMO Capital Markets.

[Michael Goldie, Associate]

Just a quick one for me. Can we think of this all in charter a rough run rate for coming quarters or is it still fluctuating quite a bit?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. I think it's still fluctuating. We've done some flights to kind of China and a few other countries. It's on and off. It's kind of unpredictable. We do have good sort of bookings for the next month or 2. And it's one of those things that if we had a normal year, we know what charters we get and where we get them. Here, it's a demand base, especially for -- if it's medical supplies and COVID supplies, they take priority over our normal charters. Obviously, we don't let our customers down. We find a way to get those done. But I anticipate that the charters would be no less than what we did in the first quarter.

[Operator]

Our next question comes from Ramsai Neelam with State Street Global Advisors.

[Unknown]

I have a couple of follow-ups. Can you give us a sense of the current B2B volumes compared to pre-pandemic level? And also, if possible, can you give the broader mix of B2B and B2C volumes in Q1?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. Jamie -- we might not have the exact sort of statistics and numbers, but I think Jamie can give you the general color on it.

[Jamie Bennett Porteous, Executive VP & Chief Commercial Officer]

Yes. Thanks, Ramsai. Ajay is correct. I mean, one thing you have to appreciate is we don't have direct visibility with every customer as to what percentage of their business is strictly B2B and which is B2C as most of them participate in both spaces. But obviously, the B2C business is growing. If you look at Purolator as one of our larger customers, I think, 1.5 years prior to the COVID-19 pandemic they had publicly announced that they expected that over 50% of their business would be represented by B2C within the next 5 years. I think that's -- they would say today that that's definitely been pulled forward by several years, and they would expect to be if not at that level now, certainly at that level within the next year or so. The downturn -- the impact on the B2B volumes that we saw that started really in March and April of 2020 when the pandemic started shutting down parts of the economy across the country. That had a profound effect on -- if a customer was strictly in the B2B business. If I looked at somebody like Brink's or initially one of the transport companies, ICS insurance courier service that were at one point, strictly in the B2B business, their volumes were probably down by 50%. And then they sort of came back in the summer of 2020 when the economy started opening up again across Canada. And again, saw a strong peak period -- I would say, normalized peak period in terms of B2B volumes. But then we've seen not as dramatic a downturn as what we saw initially in the second quarter of 2020, but certainly seeing a negative impact on those B2B volumes because of the continued shutdowns particularly across Canada. So as we see the vaccines rollout and economies come out of lockdown, we fully expect those volumes to come back by -- I would think by Q4 at this point.

[Unknown]

That's great. Maybe one more question quickly. Do you see any structural shift of the contracts? I mean the clients are moving from passing their aircraft to the cargo players, given the uncertainty in the passenger belly capacity, I mean, broadly speaking, in the industry?

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. Jamie?

[Jamie Bennett Porteous, Executive VP & Chief Commercial Officer]

Yes. No, Ramsai, we definitely see a significant structural shift. There's been -- prior to COVID-19, as we've said many times, over 50% of the world's air cargo traveled in the belly of passenger aircraft, primarily wide-body passenger aircraft operating intercontinentally. And internationally, you've seen a significant decline, obviously, in the frequency of that. Subsequently, you've seen most major airlines around the world, especially the large global ones like Lufthansa, KLM, British Airways and here at home with Air Canada already announcing significant early retirement, of big parts -- significant parts of their fleet, primarily their wide-body aircraft that had huge cargo carrying capabilities in addition to the passengers that they carried on the main deck. Those aircraft are not coming back into service anytime in the future if they announced the early retirement of those aircraft. So that's created a significant void and a significant opportunity for companies like Cargojet that are operating dedicated cargo aircraft to continue to grow both our ACMI business and to expand our international scheduled commercial business.

[Operator]

I'm currently showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.

[Ajay Kumar Virmani, Founder, CEO, President & Director]

Yes. Thank you, everybody, for joining. Sincerely appreciate the support we've received from the financial community to, as we call it, fortify our balance sheet. And hopefully, we continue to grow with this kind of support from our customers, our investors and our employees. And I want to thank each one of you for participating. And great thanks to my team for making quarter one a great success. Thank you very much.

[Operator]

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