Exchange Income Corp
TSX:EIF
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Exchange Income Corp
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Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the 3-month period ended March 31, 2020. The Corporation's results, including the MD&A and financial statements, were issued on May 12, 2020, and are currently available via the company's website or SEDAR. Before handing the call over to management, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian Provincial Securities Laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter, the Risk Factors section of the annual Information Form and Exchange's other filings with Canadian Securities Regulators. Except as required by Canadian Securities Law, Exchange does not undertake to update any forward-looking statements. Such statements speak only as of the date made. Listeners are also reminded that today's call is being recorded and broadcast live via the Internet, for the benefit of individual shareholders, analysts and other interested parties. I'd now like to turn the call over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, Mr. Pyle.
Thank you, operator, and good morning, everyone. Joining me are Carmele Peter, EIC's President; Darryl Bergman, our CFO; Dave White, our EVP of Aviation; Martin Cash, the CEO of Quest Windows; Hank Gibson, the President of Regional One; Jake Trainor, the CEO of Provincial, Nick Vodden, the President of Perimeter Aviation; and Gary Bell, the President of Calm Air. The list of people joining me for this call is much longer than we normally have on our quarter-end investor calls. The COVID-19 pandemic has dramatically changed the world, and I believe that our stakeholders are looking for a different discussion than our historical presence. We typically would have analyzed the results in significant detail before examining events such as acquisitions or new contracts that will affect the subsequent quarters. Our first quarter results are quite strong for a company with exposure to aviation in the COVID environment, but much of that strength was generated in January and February before we experienced the full impact of COVID-19. As such, while only a couple of months ago, they seem like a long time ago. We will, therefore, change the focus of this quarter's [ call ]. I will briefly review the first quarter, and Darryl will hit more details of the financials, particularly as it relates to our balance sheet and our strong liquidity position. And then we will turn over the call to our 5 CEOs, who are on the call, who'll explain the impact of COVID-19, how we have managed it and our outlook for the future. Carmele will wrap up the scripted part of the call, and we will then entertain your questions. We hope this format will give greater insight into our operations and why we believe that we will exit COVID-19 the way we went in: a company with a proven strategy to deliver growth in dividends through accretive acquisition and investment in our existing operations. The first quarter was a tale of 2 different stories. The first 2 months were very strong across the company, particularly in Aviation, as strong demand, effective cost control and modest fuel prices led to increased profitability. Our manufacturing businesses, including recently acquired LV Control and AWI, performed as expected. You will recall that the first quarter is always our seasonally slowest period, as winter [ roads ] provide a temporary alternative to our airline services, particularly as it relates to freight. Strategically, we take advantage of this period to do as much of our heavy aircraft maintenance as possible, while demand is lighter, to enable capacity in the busier summer months. This year, in particular, we had a number of heavy overhauls and engine overhauls to do, and we completed a significant portion of the work during the first quarter before COVID-19 hit. As we stated on our fourth quarter conference call, 2020 will have a higher proportion of its annual maintenance capital expenditures in the first few months of the year than we did in 2019, where the required maintenance events fell more evenly throughout the year. In mid-March, roughly at the same time as the NHL and NBA suspended their seasons, we saw a dramatic change in the demand for our airline services, as northern communities began to take the pandemic much more seriously and suspended all but essential travel. And as such, our revenues fell dramatically. Our manufacturing facilities were all deemed essential by governments and continued production. While demand generally remains strong, steps taken to ensure the safety of our employees reduced capacity and increased cost, thereby reducing profitability. Our surveillance business was not affected nearly as significantly as other operations. While negotiations for the next mission of our Force Multiplier slowed as governments dealt with more pressing issues of the pandemic, the balance of the operations continue. Regional One bears the full weight of the pandemic as airlines around the world have seen loads diminish and have reduced or stopped flying. Hank will detail the picture in this industry. But it's clear that Regional One faces the longest time period to full recovery, but also has the most exciting opportunities. Industry weakness, combined with poorly capitalized companies, will result in assets being liquidated. And given Regional One's demonstrated capability at buying at the right price and EIC's access to capital, we will believe we have a once in a generation buying opportunity. When the true quantum of the pandemic and the risk to our people and the public became apparent, our first act was to reexamine how we operate and to execute on a plan that will make sure we put all of the possible safety mechanisms in place. I will not detail these initiatives now, as Nick and Marty will talk about the steps that were taken in aviation and manufacturing, respectively, but I would like to point out that we took steps long before they were required by regulation or before they were implemented by our competitors. This includes such items as having passengers required to fill out a questionnaire or having temperatures taken before allowing them to board, requiring face coverings and actually providing those masks to the customers. In our manufacturing settings, we reduced staffing and physically distanced were appropriate in the plant as well as limiting contact between employees while at work. Our second step in dealing with the pandemic was to contact our customers and make sure we shaped our service offerings to what they required, whether a First Nation community in Canada's North, or a real estate developer in California, their needs changed, and we need to make sure we are providing service in a way that meets their new reality. Third, we focused on assisting governments on their calls for help with procuring certain medical devices, which were expected to be in short supply. Engineers through aviation and manufacture worked to see if we could design and quickly produce any of the items required. After multiple prototypes and contributions from many EIC subsidiaries, we were able to produce face shields that have been used by -- utilized by provincial governments as well as our own companies and IV pulse that have been used by at least one province. The key takeaway from this is not that we somehow generated a new profit stream, because it's not; thecost of design to production exceeds the margin of the sale of the product. Rather, the significance lies and the commitment and the capability to step up and help in a difficult time. You will see through most of this discussion, we view social responsibility as paramount in times like this. Fourth, we examined our liquidity and cash flow to make sure we have the necessary resources to work through the pandemic. Darryl will go through this in greater detail shortly, but suffice it to say that the actions taken last year to strengthen our balance sheet and lay the foundation for future growth have left us in an enviable position compared to many other public companies. Finally, we turned our attention to the future, preparing our companies for the inevitable reopening of the economy and looking for opportunities. Our CEOs will cover why they feel that our businesses will emerge quickly and profitably from this crisis. We need to meet demand as things normalize and to take advantage of our market presence and balance sheet to lever situations where we see an opportunity, but others do not.Regional One, in particular, will see the chance to buy assets at distressed prices, fueling profitable growth in the future. I will stop here and hand things off to Darryl.
Thank you, Mike, and good morning, everyone. The financial results for Q1 2020 reflect a strong start to the year that was abruptly curtailed by the impact of COVID-19 pandemic. In the final few weeks of the quarter, I will caution that the comparability of current results with that of prior period is materially impacted due to this unprecedented event. Conclusions taking into account any comparability should be made carefully given the current circumstances affecting results. Before turning to a short discussion on Q1 2020 financial results, I will lead with comments regarding the Corporation's balance sheet strategy and liquidity. A supporting principle to our business model has always been a strong focus on our balance sheet, with modest leverage and good liquidity. Even within the current environment, we continue to take a disciplined approach to our aggregate leverage. In 2019, we called a convertible debenture that was in the money, issued a new convertible debenture with better terms, performed an equity offering and obtained a new debt facility with increased size, lower interest rates and better terms and conditions. The outcome of these transactions provides a very strong foundation to support our ability to access capital going forward and weather the impacts of the COVID-19 crisis. The Corporation's overall access to liquidity remains strong. With the new credit agreement entered into in Q4 2019, it is foreseen that the Corporation's cash on hand and access to available capital is more than adequate to both support operations and, should the need arise, to take advantage of opportunities to continue to grow the business. The size of the credit facility at March 31 was approximately $1.3 billion. And in addition to that, the Corporation can access another $300 million in an accordion feature, should we choose to exercise it. Utilization of the facility was $900 million at the end of the quarter. Within the corporation -- within the quarter, the Corporation did draw down $100 million to have cash on hand. The draw was purely a proactive measure, and we do not expect an immediate utilization of the cash or expect a material cash burn going forward. With the available room under the facility plus $100 million of cash on hand, the Corporation has near-term access to $500 million in liquidity, excluding the accordion. In addition, it should be noted that the company has no long-term debt coming due before December 2022. At the end of Q1 2020, our leverage ratios remain within our target range and well within our covenant with lenders. Going forward, we expect our leverage ratio will increase in terms of net debt to EBITDA. The corporation is fortunate to have a strong and supportive lending syndicate. Lenders continue to be ongoing -- in ongoing contact with management, eager to update and assist the corporation through the crisis. While we believe we will not need covenant relief from lenders, we are looking proactively to work with them to temporarily smooth covenant calculations. I will now provide a shortened discussion on the financial results; a more fulsome explanation of results can be found in our Q1 2020 MD&A. In Q1, we generated revenue of $307 million, which is up $10 million or 3% over Q1 2019. Aerospace and Aviation segment revenue was down 7% from the comparative quarter in 2019 to $201 million. Revenue from the Legacy airlines and Provincial increased by $3 million. Passenger volumes were strong in the first 2.5 months of the quarter, but dropped off substantially in the last 2 weeks due to the COVID-19-related travel restrictions imposed by governments. Driven largely by volumes in the first part of the quarter, cargo volumes saw an increase in the quarter over the prior period and remained relatively strong as we continued to provide essential goods and supplies to the communities that rely on us. Offsetting revenue increases were reductions in Provincial's operations as a result of the severe blizzard that affected Newfoundland and Labrador in January, where airports were shut down for more than a week under a state of emergency. Hence, no revenue was being earned. And at Moncton Flight College, which was shut down for the second half of March in response to ordered closures due to COVID-19 by the government of educational facilities in New Brunswick. For Regional One, revenue decreased in the quarter compared to the same period last year by $19 million. The sales and service revenue stream decreased by 34% in the quarter compared to the same quarter last year. Parts sales increased by $4 million but were more than offset by the material impact that COVID-19 had on whole aircraft and engine sales, which decreased by $22 million. Lease revenue decreased in the quarter compared to the same period last year by $1 million. The decrease is a result of the lower utilization of aircraft within the leasing portfolio due to the impact of the business of -- due to impact on the business of COVID-19 and an increase in the number of high-value lease assets in the portfolio not on lease compared to the prior year. Turning now to our Manufacturing segment. Revenue grew by $26 million over the prior period. The total revenue for this segment was $106 million. It should be noted that all of the EIC subsidiaries within the manufacturing segment have been deemed central businesses during the COVID-19 pandemic and have been continuing to operate. Moving to EBITDA. Consolidated EBITDA was $57 million, down 10% or $7 million for the quarter compared to Q1 2019. The primary contributing factor to the decrease can be attributed to the impact of COVID-19 on both segments. EBITDA in the Aerospace and Aviation segment in the quarter was $49 million, a decrease of 16% compared to the prior year. EBITDA generated by the Legacy airlines and Provincial decreased by $4 million. We did experience positive results in EBITDA in the first 2.5 months of Q1 2020 compared to the prior period. That said, passenger, charter and medevac volumes were materially impacted immediately after air travel restrictions were implemented and negatively offset any previous months' gains within the quarter. EBITDA for Regional One decreased by $5 million from the prior year. The main contributing factor to the decrease in the quarter was due to the impacts of COVID-19, which contributed to a significant reduction in engine and aircraft sales in the quarter. In addition, leasing revenues were decreased in the quarter, as previously discussed, which also contributed to the decrease in EBITDA. EBITDA was also reduced due to an increased allowance for doubtful accounts recorded by Regional One due to general uncertainty in the airline industry. In the Manufacturing segment, EBITDA was $14 million, an increase of $1 million compared to the same quarter in the prior period. EBITDA at Quest was higher than the same quarter in the prior year, as the Q4 2019 AWI acquisition is included in results for the current quarter. Also contributing to the higher EBITDA at Quest was the continued contribution from the ramp-up of the Dallas facility. The balance of the Manufacturing segment collectively experienced an increase. The increase in EBITDA was driven by the acquisition of LV Control in Q4 2019, partially offset by headwinds experienced by other subsidiaries. In Alberta, many companies have delayed or canceled their large capital projects due to low record -- record low oil prices, which together with the impact of COVID-19 has negatively impacted the EBITDA of our Alberta operations. As a result, in the quarter, the Corporation has taken a write-down of intangible assets against Alberta operations of $6 million. Turning to earnings. In Q1 2020, the net loss was $5 million, a decrease of $13 million compared to the prior year. The Corporation generated lower EBITDA compared to the prior period, as previously discussed, which contributed to the earnings variance from the prior period. In addition, increased depreciation on assets purchased through the acquisition and growth capital resulted in a $4 million increase in depreciation expense. The impairment loss of $6 million that was recorded at the Corporation's Alberta operations also negatively affected earnings. Net earnings per share decreased from $0.24 per share in the prior period to a net loss of $0.15 per share for the current period. It is also noted that in the period, weighted average number of shares increased 11% over the prior period, which has impacted per share amounts in the current period. Adjusted net earnings was $2 million, a decrease of $11 million from the prior period. Adjusted net earnings per share was $0.06 per share, down from $0.41 per share in the prior period quarter. In Q1 2020, free cash flow was $39 million, a decrease of $5 million from the prior quarter or $0.29 per share. The main reason for this decrease is the decrease in EBITDA and increased payments on the right-of-use lease liabilities, partially offset by a decrease in the current tax expense. Free cash flow less maintenance capital expenditures per share decreased by $0.50 per share to $0.07 per share in the quarter. The Corporation's payout ratios in the quarter were negatively impacted by COVID-19. To allow for variations due to seasonality in the business, we continue to utilize the calculation of payout ratios on a 12-month trailing basis. The adjusted net earnings payout ratio on a 12-month trailing basis increased to 82% from 75%, and the free cash flow less maintenance capital expenditures payout ratio, again on a 12-month trailing basis, increased 68% from 56%. Turning to our balance sheet. We ended the Q1 2020 with a cash balance of $118 million and working capital of $419 million, which represents a current ratio of 2.47. This compares to a cash balance of $22 million and working capital of $308 million and a current ratio of 2.10 at the end of 2019. Before I pass the call back to Mike, I would like to make a few concluding comments. As we navigate our way through these unprecedented times, we are confident that our proven strategies, financial resources and, most importantly, our people will provide us with the opportunity to come out of this an even stronger company going forward. Our diversified portfolio approach will continue to serve us well in balancing the effects of COVID-19 on our consolidated results through these difficult times. We entered the crisis with a strong liquidity position, a conservative and tested balance sheet strategy and a supportive lending syndicate. We remain confident that our balance sheet strategy and liquidity position will support our operational needs and ability to continue to grow the business when we deem appropriate. That concludes my review of our financial results and comments. I will now turn the call back over to Mike.
Thanks, Darryl. We'll now try our new call format. We'll hear from our CEOs. First off is Nick Vodden from Perimeter. Nick?
Thanks, Mike, and good morning, everyone. I'd like to take a couple of minutes and talk about some of the things that we have done within our companies in conjunction with our partners to ensure that we are at the forefront of safety in our industry during this COVID-19 era. At the initial onset of this pandemic, our management teams were able to quickly implement the following. Passenger health check screening protocols; these were implemented in our companies in advance of the Transport Canada mandate. Furthermore, we had a situation in one of our airlines where our strict protocols denied boarding to a passenger because of previous travel. The local health authority and the community involved supported our stance, and we're very thankful of the assistance. We immediately implemented the use of aircraft and facility fogging systems where companies can quickly and safely disinfect at regular intervals. We prepared special COVID-19 aircraft and check-in counter kits, including masks, gloves, sanitizer and wipes, to keep our employees and customers comfortable. We also made these kits available in our remote communities where supplies can be more difficult to find. As with everything, these safety measures have since been expanded. Social distancing guidelines were implemented within all of our facilities, including a revamp of our passenger check-in and boarding processes. Where able, we have implemented social distancing on our aircraft by altering the seats that are available to the customer. As part of our regular customer communications during passenger announcements on our ticket itineraries, social media postings and things like that, we have reminders speaking about social distancing, respiratory hygiene and hand washing. We have made it mandatory for all of our frontline staff, including flight crews, to wear masks, which is not yet regulatory requirement. We have installed plexiglass barriers at our frontline customer-facing counters, very similar to what you would see at the local grocery stores. We have implemented high-tech thermal cameras for double-checking passenger temperatures who was boarding from our main bases. These thermal cameras show the body temperature image as you walk by and give a very accurate and reliable double check. We have worked closely with each community and their respective nursing stations to help facilitate travel authorization protocols. In most communities, passengers must have prior approval from the community before they can travel. Throughout this process, we have increased our regular CEO meetings between our sister companies, which has helped us leverage our working knowledge and implement best practices. Our purchasing departments have collaborated for volume purchasing power, providing us ample stock of PPE, where others have been challenged to find supply. One of our manufacturing companies has been assisting us solving supply chain issues. We have even had one of our manufacturing companies make thousands of face shields that we were able to distribute through our entities and into third parties. A story of opportunity. Soon after the government-mandated lockdown, communities approached us to expand our recently rolled out grocery supply home delivery program. Seeing the success of the program in neighboring communities, we were able to -- we were asked to speed up the implementation at several other locations. This has really expedited the rollout of the program and the adoption rate is incredible. The program allows the communities to receive healthy products to their door within a couple of days of ordering. Thanks for your time, and I'd now like to hand it off to Gary Bell, our CEO of Calm Air.
Thanks, Nick. Unlike mainstream airlines in Southern Canada and the U.S., the EIC airlines, which consists of Calm Air, Perimeter aviation and Provincial Airlines, are often the only link to outside markets and thereby provide many essential services. While our airlines do have some discretionary traffic, such as leisure travel and tourism, we have a disproportionate amount of essential or near-essential travel, including medical patients, mail, groceries and medical samples. As a result of our niche markets, our recovery period post-COVID-19 is expected to be materially shorter. Instead of 2 to 3 years, as suggested by the mainline carriers, we expect our recovery to be in the weeks and not years as those various layers of essential and near-essential travel return. To help provide clarity, our passenger and cargo segments can be broken down as follows. Our first segment, or most essential, would include medical patients, essential support workers, such as health care professionals, food cargo and medical supplies. The second segment would include school teachers, hydro or power technicians, mail, other dry groceries and municipal water samples. The third level would include all government workers, such as social workers, housing and government services, tradespeople, miners and resource sector workers, industrial freight and parts. Our last segment would include salespeople or product reps, a growing eco-tourism market and visiting family and friends as well as luxury freight, which we would consider toys and recreational vehicles such as ATVs and snowmobiles. As you can see from the different tiers, very little of our market is discretionary, but instead, different levels of essential. While COVID-19 has been in effect, all but the critical medical patients in the first year have had travel deferred, but the backlog hasn't stopped accumulating. Medical patients seeking less urgent treatment still have the same requirements. And teachers, government workers, tradespeople and resource workers will all need to resume their work. We are working closely with the various health authorities, government agencies and resource development across our vast network to determine what level of capacity will be needed during the repatriation phase of the recovery. The appropriate level of capacity will drive our high level of service to ensure the safety of our staff and customers once we return to business. We expect our recovery and the repatriation of our customers to be gradual as opposed to all at once. We will do this in various ways, including use of some charters, predominantly in our resource sectors, and the increased weekly frequencies in our scheduled service. We will not go from our current level of reduced frequencies to our former level of full frequencies in one week, but rather over multiple weeks. As outlined in our segment's review earlier, the varying levels of essential travel will happen in order of urgency until they are all integrated. We can't be exact in our financial predictions of what our recovery will look like, as no other airline has ever recovered from a prolonged period of restricted travel such as this before -- keep in mind, travel during the September 2001 terrorist attacks was shut down for about a week. But our forecasts are based on discussions with chief medical officers from the various provincial and territorial governments, our large resource sector customers, government officials and residents who are without these current services. I will now hand it off to Jake Trainor, our CEO of Provincial Aerospace.
Thank you very much, Gary, and I'm pleased to have the opportunity to speak with our stakeholders about the strength of our organization, some proactive actions we've taken and why we're confident in our path moving forward. PAL has a very diversified set of businesses, and our PAL Airlines and Air Borealis operations have felt the impact from a reduction in demand for air travel. But similar to both Calm and Perimeter, we are unique in that we provide a critical link into communities that don't have any road access. And we've been working hand-in-hand with our indigenous partners to continue providing essential cargo and transportation services during these times. That said, I'd like to speak about our aerospace activities and the strength that it's demonstrating during this crisis. Our operations in the UAE, which were initially about 3 weeks ahead of North America in dealing with the COVID crisis gave us a very significant learning advantage. Early on, we accepted that the virus was here with us for the long haul and that we were going to need to harden our operations to minimize the impact when someone unintentionally showed up sick. We undertook a strategy we termed compartmentalization: steps like fixing crews to fly together, segmenting workspaces, eliminating single points of failure, sterilizing after flights or work shifts and frequent temperature scans. We implemented this across our organization globally. This has been effective. We have had employees test positive, but in all cases, the impact was limited, and we prevented the potential spread through the operation. And I'm happy to report that all of our employees are healthy and back to work. These preparations and working with our clients to help them understand our preparedness, have allowed us to continue operations on an unrestricted basis. Specifically to speak more broadly about our aerospace businesses, for the modification and manufacturing operations we've seen no drop-off in demand. Our contracts are typically long duration ones. Certainly, our production has slowed slightly due to the impacts of -- on the global supply chains, but we are still operating at full capacity. For example, we do expect some relatively minor delays in delivering the DFO aircraft, but they will be delivered in 2020. Fixed-wing search and rescue support. This is continuing as previously forecasted. Our role of fleet management and the preparation for the standup of National Defense's operation is continuing, especially as the aircraft continue to roll off the production line. While there may be some modification in the acceptance schedule of the aircraft, we anticipate no impact to our workflow. Force Multiplier. One area we're certainly focused on is Force Multiplier engagement. We were well down the path with 2 different nations discussing potential long-term deployments. And unfortunately, these have been put on the back burner as attention has been turned towards the crisis, but we are optimistic to reengage in these conversations in the latter part of the year. Our view is global demand is still high. Which brings me to looking at our other global surveillance contracts. In the UAE, in the Caribbean and in Canada, we have seen no slowdown in demand. And in fact, we are seeing all operations at or above planned capacity. We have come up with some unique strategies to limit the need for our customers to be on the aircraft using real-time data services. And I must admit our CarteNav group has been key to our ability in being reactive to various customers' needs and creating unique solutions for them on the fly. Moncton Flight College. In speaking about MFC, operation under the terms of the state of emergency and New Brunswick have been particularly challenging, forcing the suspension of flying at MFC for the latter part of March and April. As the restrictions gradually lift, we are resuming our international program first, as we actually have all of our students on hand in New Brunswick. We will look to reopen the domestic program as we move forward. And I'd like to point out one encouraging note is that we do not see a slowdown in international demand. In fact, we have our next 3 classes committed and lined up and ready to relocate to Canada once the international travel restrictions lift. And just to close off here, a final statement on global business development, we see no slowdown in opportunities globally. In fact, we see a greater potential for our services, given some of the key geopolitical drivers like security concerns in Southeast Asia, instability in the Gulf region, mass human migration as well as illegal activity in the Caribbean. In addition, we also believe, given the exceptional costs that are currently being experienced by governments at all levels, that there will be a move towards alternate service arrangements and outsourcing as they reduce core activities looking for cost savings in the years ahead. This plays very well to our core capabilities. As we move through this crisis, we see many opportunities to leverage our strengths. I'm now going to turn the discussion over to Hank Gibson, the President of Regional One.
Thank you, Jake. Good morning, everyone. I would also like to start by thanking Mike and the EIC team for allocating time for me to speak with our investors and the shareholder community today. As many of you know, during the early part of my career, I spent several years on Wall Street in New York City. In October of 1987, I was in the epicenter of the stock market crash and witnessed firsthand the devastating impact, what has come to be known as Black Monday: a sudden, severe and largely unexpected downfall in the stock market. The devastating aftermath of that event still resonates with me to this day. It's a frequent reminder of how quickly life can change. For many, your Black Monday will actually be a Wednesday. On Wednesday, March 11, the WHO formally confirmed the pandemic which has led to the atmosphere we are all currently experiencing. Of course, there have been a number of economic downturns in significant world events since my Black Monday experience. Each of these events, in their own unique way, has challenged the resolve of people, communities and businesses. In each instance, while not immediately easy to appreciate, the uncertainty of recovery has, of course, proven true over time, often much quicker than most thought possible. The aviation industry is a critical component of the global infrastructure and a necessary component to the world economy. Recovery will certainly happen. People will fly again very soon. I would like to provide some insight into Regional One's business and some unique characteristics that Mike has often shared with you since the company's acquisition in 2013. Regional One is often mischaracterized as traditional aircraft leasing company or simply a parts company. In fact, we are an opportunistic buy-side asset management company. Yes, we certainly generate revenue from aircraft and engine leasing and ultimately, end-of-life asset part-outs. But along the way, we systematically maximize the available green time on these assets with no meaningful deterioration of expected yields at the time of part-out. As is so often the case, details matter. Regional One's operating framework can simply be defined in two words: opportunistic and disciplined. We do not chase top line revenue. Instead, we focus on executing to our disciplines in data management, market intelligence and customer service. We are a proven leader in market intelligence as our global network of resources, employees and infrastructure provides us with a constant flow of real-time information. We focus on assets we know intimately and leverage the experience of our team with the data to support our decisions. To that end, we initiate the collection and analysis of data years before any investments are made. Our portfolio of assets and its precise composition is very intentional and managed quite comprehensively. The acquisition strategy of Regional One is to only acquire assets that are materially in the money. In other words, we are highly confident that our end-of-life asset value always exceeds our acquisition cost. This is distinctly different than a traditional leasing company and sustains our performance even during difficult market environments. We have the ability to extract revenue from aircraft leases, engine leases, component exchanges and component sales. We move in and out of these revenue sources as we manage the portfolio's yield. I would like to share with you some specific Q1 context about how we execute this strategy to a broad customer base in multiple ways. As many of you know, Regional One has a joint venture with SkyWest, which has been successful in expanding our North American strategy and allows us to align with the largest operator of Bombardier CRJ aircraft in the world. We continue to see direct and indirect benefits of the partnership by providing additional assets in the JV relationship to support our joint customers with leased assets. In addition, we sold 4 CF34-8 engine cores to the OEM to support their third-party MRO services. Finally, we dismantled 2 CF 34-8 engine cores in order to support our customers with piece parts. As you can see, we generate revenue in multiple ways with real-time demand. As a result of the current market conditions, we're expecting increased demand from engine leases as our customers avoid expensive shop visits. Regional One has a long proven foundation with regional aircraft. Our company is rich with employee knowledge and has over 15 years of data and hundreds of years of experience across a deep talent pool to help guide us through the market changes similar to what we're experiencing today. The CF34-3 and CF34-8 engine variants are the backbone of our portfolio. The DASH 8 engine is manufactured by GE and is still in production today and widely used on both Bombardier and Embraer next-generation Regional jets. The Embraer-170, a popular aircraft of choice, is expected to remain in production for the foreseeable future. The engine is commonly referred to as a module engine, which has 4 main modules. This structure provides a highly versatile asset with the ability to do fieldwork and avoid expensive shop visits. Regional One intimately manages the life remaining of each module to maximize the economics of our portfolio. Regional One's asset management decisions are driven by a comprehensive data management system that supplements our ERP system. This proprietary system in conjunction with our Wall Street-style trading floor makes for a data-driven sales environment that's operating in real time with empirical information. Regional one has a global and diverse customer base for all our revenue segments. We have more than 1,500 active accounts and typically ship to multiple countries in a given trading day. As we continue to operate in this challenging environment, we feel our platform, data management and asset classes are well positioned in the market. In addition, we continue to grow our third-party fee income management services business. At the end of Q1, Regional One had over USD 100 million of assets under management that are owned by banks, investors, financial institutions and airlines that we manage on their behalf. In closing, many aviation analysts have recently opined that narrow-body and regional jets will be well positioned to lead the recovery of airline service capacity. We will certainly be ready to participate in this activity. I sincerely believe this period has already been a good test of our strategy and our ability to move quickly and decisively in dramatic market conditions. I'm confident Regional One will be an active part of the market recovery. Our mission has not changed. We look forward to identifying new opportunities and deploy capital within our proven strategy and continue to grow as we execute with discipline. Thank you for your time, and I'd like to now hand the call over to Martin Cash, CEO of Quest Windows.
Thank you, Hank. This morning, I'll be providing you an update on Quest's Canadian and U.S. operations. We are deeply sad by the health and economic impact that COVID-19 crisis has had on the people across the world. At Quest, we've had to deal with COVID-19 throughout our operations and have done everything possible in our day-to-day management efforts to prioritize the health and safety of our employees. In Mississauga, we had 2 employees test positive. Both were away from the workplace for more than 2 weeks prior to their positive diagnosis, and we've had no evidence of the workplace transmission within the 1 month period that has passed. On the Canadian construction sites, installation management, employees and subcontractors have been able to manage through health and safety policies as well as our own critical policies that are now in effect. Production efficiencies and scheduling in our plant have been challenging due to some erratic project pauses during this pandemic. This, along with greater distancing and a reduction in workforce, has resulted in reduced production overall. These challenges have certainly created bumps along the way and taxed our production efficiencies. In agreements with several customers, we've managed to prebuild products and store them in transport trailers to allow these projects to remain in queue. Initially, policies, procedures and enforcements put in place to deal with COVID were implemented, but we quickly realized that it will become necessary for us to do even better, as we all must recognize that the landscape is evolving as we are provided with information and government advice during this pandemic. EIC provided us with a much anticipated -- appreciated help within our organization, specifically from PAL, providing us with significant resources of team leaders with the experience to help us implement strict employee separation, attendance policy, including temperature monitoring, PPE, policing and tracking procedures, to ensure the safety of our employees. These efforts will provide our people with the confidence they require in the workplace. Our employees are at work in a safe environment. I want to thank Jake, Phil and the PAL team for their unprecedented support. To highlight some of the areas that we've implemented in Mississauga, we've added additional time clocks, portable washrooms, extra wash stations, exterior trailers that act as employee change rooms, as well as best methods of handling products within the factory. Moreover, we've implemented a Bento Box strategy within the 4 walls of each of our buildings to ensure there will be no cross-contamination risks. We've taken these policies and enforcement applied them to all the COVID efforts in our Dallas facility. In Dallas, we have the good fortune of having more space to deal with these matters. Therefore, social distancing procedures and diligence are much simpler to deal with. On a separate note, we are very pleased with the ramp-up of our production in Dallas, contributing significantly to our business. The assistance that we have had from the PAL team in Canada has been implemented in Dallas as well as our AWI operations. Shifting to AWI in the U.S., we have been experiencing COVID cases on multiple construction sites. The assistance and strategies for dealing with COVID that we have gained from the policy in Canada, specifically as it relates to job sites, has been implemented at all our AWI operations in the D.C. metro area. AWI has added each location, their own portable toilets, wash stations and PPE to deal with their own front and center risks. To wrap up, we continue to monitor our customer base across all North American markets and remain cautiously optimistic moving forward. Our order book is stable and has increased from historic benchmarks. As we move forward in 2020, we will continue to provide hands-on management throughout our operations to ensure the best possible results during these challenging times. I will now hand things over to Carmele, the President of EIC, who will conclude our scripted comments before we move on to questions. Carmele?
Thank you, Marty. As you have heard from the presidents and CEOs of our larger subsidiaries, our entities are resilient, adept at making needed changes of core products and services that are essential businesses, and are entrepreneurial in addressing the issues created by the pandemic, which is no surprise is where the strength of our model is buying diversified companies with solid businesses in niche markets that have strong entrepreneurial management teams. Not only have these characteristics driven EIC's performance over our 15-year history, they are also the characteristics that allow EIC to weather this unprecedented crisis and come out stronger than ever. Our diversification keeps us strong. So while Regional One has been materially impacted by the sharp decline in global air travel and will be slower to recover, it is business as usual for our aerospace operations and all of our manufacturing entities continue to operate, albeit with reduced efficiencies as we social distance our employees, but with no lack of demand and a strong order book. Our niche markets give us advantage. So while major carriers are estimating 3-year recoveries, our niche airlines, which provide service into remote northern communities where travel is not discretionary, it is essential, are expecting to rebound quickly, measured in weeks, not years from when travel and social distancing restrictions are eased. Our strong entrepreneurial management teams set us apart. So while businesses face tremendous challenges during these difficult times, our management teams are finding innovative ways to solve them and create opportunities. This has allowed us to be first movers in implementing COVID-19 sanitization protocols, protections for employees, customers and their communities, to be on the hunt for distressed assets to fuel future growth, and to design and manufacture IV pulse and reusable face masks to help fill the shortfall of these critical products for our healthcare providers. Although no one knows along the pandemic will last, I am confident that the characteristics of our companies, together with the strength of our balance sheet, will get us through the difficult times ahead and will enable us to continue to provide value to our shareholders for years to come. Before I close, I would like to discuss two items: social responsibility and the amazing people in the EIC family. Social responsibility is a concept that is much discussed and touted. To EIC, social responsibility is not about words, but rather actions. They say that character is best tested in the worst of times. Well, some might describe the current pandemic as the worst of times. How as EIC responded to the COVID-19 pandemic? Well, let me answer that question by going through two examples. When travel restrictions were implemented in mid-March, our passenger volumes dramatically dropped to the point that we were carrying only a handful of passengers to the communities we serve. And even with significant reductions in frequency, we were incurring losses. The logical response would have been to stop flying on those uneconomical routes, which is what many carriers have done. However, our customers and communities depend on our airlines to provide essential travel, food, medical supplies and other necessities. It's a service that we have provided for decades. So for us, there was no debate as to whether to continue to fly. It was simple: it is what we had to do and what we are doing. In the presence of COVID-19, which is starting to become a reality in Canada, we made the decision to invest in state-of-the-art isolation pods to enable our medevac carrier to transfer COVID-19 patients safely. Although at the time we ordered the pods, we did not know what the extent or spread of COVID-19 would be, we wanted to ensure we could provide the superior level of care to the communities we service and ensure our employees would be protected. So the COVID-19 pandemic will not define us, but how we reacted will. Social responsibility is in our DNA. We don't seek a photo ops to attempt to showcase our commitment to social responsibility. We just let our actions speak for themselves, doing the right thing for the right reason in a difficult situation. There's a saying that tough times don't last, but tough people do. As you have seen from the leaders who have spoken this morning, the leadership at our subsidiaries is resilient, resourceful and driven. They will lead our operations successfully through COVID-19 and our subsidiaries will come out the other side poised for future growth. Thank you for your leadership and commitment. To our employees on the frontlines, and there are many, such as employees in our manufacturing facilities, our customer service agents, pilots, flight attendants, ground handlers and mechanics. Without you, we would not be able to provide the vital services and products that our customers need. Thank you for all you do. To the rest of the EIC family of employees who are contributing in countless ways, whether it be through temporary layoff, wage reduction, having to do work at home or working under stressful circumstances, thank you for your sacrifice. To our customers, thank you for continuing to believe in us, and we will continue to be there for you. To our shareholders, we are in unsettling times with turbulent markets, but EIC is strong and we will persevere. Thank you for your continued loyalty. Lastly, on behalf of all of our employees and the Board of Directors of EIC, I would like to thank all of the people who put themselves at risk to look after the rest of us. You are truly heroes. We would now like to open the call for questions. Operator?
[Operator Instructions] Mona Nazir with Laurentian Bank.
My first question is just on the back of your commentary in the MD&A. You stated that you want to be cash flow neutral in Phase I, and there's also a discussion in there of no cash burn. I'm just wondering what's included in your definition of cash burn, and does that factor in growth CapEx?
The no cash burn would include on the maintenance reinvestment [ we're ] required in our businesses, still a material number even in a slower time in aviation, and also includes the payment of dividends. It does not include growth CapEx, which are expected to be moderate in this period. Largely the only thing we're aware of at this point would be the completion of PAL's fisheries contract and the upgrading those aircraft. And we've committed to an additional aircraft in one of our airlines prior to COVID, which will close in the second or third quarter. So growth CapEx are not expected to be material, but they're outside of the no cash burn.
And the additional growth CapEx for the Provincial DFO contract will start generating additional income towards the end of this year.
Okay. Perfect. And any ballpark estimate on what we could expect from growth CapEx? I know you said it would be down this year versus last year. But in light of COVID, is that looking like a $50 million number or lower or higher than that?
Yes, it would be materially lower than that, Mona. I haven't got the exact number that we're prepared to share, but it would be materially less than $50 million.
Okay. Perfect. That's very helpful. And I think I'll just take advantage of some of the division heads being on the call. In some of the prepared commentary you spoke about demand and revenue declines on the back of COVID. I'm just wondering if there was any way to quantify the magnitude of declines in the last 2 weeks of March and what you're seeing in April. And then what's also factored into your outlook and when you're expecting that to pivot?
That's a very tricky way of trying to get me to give you guidance, Mona, which we're not going to do. But I can tell you that at its peak in the passenger part of aviation, we saw some routes decline 90%. That's improved a little bit now, but it's still really high. I think the key you'll see, as -- Gary touched on it, I could maybe hand this to Gary or Nick, or Jake, for that matter, but when the communities are allowed to travel, there's a backlog of medicals that are going to need to come out. And so you'll see those metered as the Southern medical capacity is available. So they're coming down for, whether it be MRIs or CAT scans or visits to the cardiologist or the orthopedic surgeon, there's a limit -- or dental work. There's a limit as to how much there could be. So you'll see that ramp up fairly quickly, but you won't see it surge beyond historical numbers simply because there isn't capacity in the medical system in the South. I think that's a Gary or Nick, either you got something to add to that?
No, that sounds about right, yes.
That's correct.
The one thing I'll add is, when we start thinking of the repatriation of our mining centers where we do flow traffic in and out on a material basis, in particular in the PAL Airlines group, that will also provide an uptick in volume.
Yes. That's helpful. And I was just wondering if you could state the combined impact of your cost-cutting measures.
The combined impact of cost-cutting measures?
It's hard to -- I'm not sure I'd quantify that for a moment. Could you maybe give us a little more color on what you're looking for?
Yes. Just even -- I think in the MD&A it states that executives, Board have taken 25% to 30% cuts. There have been 30 -- or 1/3 of the Aviation vertical has been laid off. So just combining all of those items, what would that figure look like?
I don't think I have it for you in that way. I mean you a good job of aligning it. As soon as this started, it was our belief at EIC that as we're going into a tough time, the first thing leaders do is they lead. And so the first pay cuts taken, we're at the EIC executive level. When that became known within our subsidiaries, voluntary stuff began right across our company. We've had reduced workforces. We've applied for the government wage support program, so that we can keep as many people employed as we can. And then we redid our route structures, and we work with governments to make sure we're providing the level of service, the minimum level that's possible, and work from there, Mona. That's how we get to that, sort of. We're still generating positive EBITDA to pay for our CapEx and to pay for our interest and to pay for our dividend.
And we've also materially reduced our peak CapEx spend. Obviously, as we reduced frequency in the use of our aircraft, likewise reduced the maintenance CapEx. We made sure we're in step down mode proportionately.
If you want a global kind of range -- and bear in mind this could be all over the place because I'm really hesitant to provide hard numbers for these things, simply because you could have job sites shut down, they could shut down MFC again tomorrow. But I would expect that revenues in Q2 are going to be down somewhere in the 20% to 40% range. Probably our best guess is in the middle of that. That's aggregate revenues across the board.
Okay. No, that's very helpful, and that hits the nail on the head. And just lastly for me, I don't know, is Marty from Quest on the line?
Yes.
I was just wondering if you could touch a little bit on your order book and what you're seeing or your discussions from customers. In my coverage of the engineering firms, all of them have attracted guidance on the back of uncertainty. And even if looking at the architectural billings index, which is a leading indicator of construction, has fallen off 36% sequentially. So I'm just wondering your outlook? And what kind of decline have you factored in, if at all?
Yes, Mona. We -- as we -- as you know, we have a geographical base across our markets in North America and garner most of our business from these major markets -- albeit in Canada, we service more of a condo industry, in the U.S., it's almost 100% rental -- purpose-built rental buildings. We don't see, at the current stages, any major declines. We do have some projects that have been put on hold, whether they've been put on hold for the COVID issues and/or a pause for financing. We largely feel that these projects are simply delayed. We don't see any cancellations, just kind of a push forward and a stall to these projects. We believe that they'll all come forward. Demand for multilevel residential, demand for housing as a whole is still there. And we feel that, moving forward, there will be a continued pent-up demand. And at some point, there are some stresses on us in order to recover in shorter periods. I hope that answers your question.
Yes, it does.
Cameron Doerksen with National Bank Financial.
Thanks for the rundown of various businesses. It was helpful. Maybe I'll just stick to two questions just related to Regional One. Obviously, a significant decline in revenue in Q1. I'm just wondering if you could maybe talk a bit about where things have maybe stabilized in the last, I guess, 6 weeks or so? Is there sort of a base level of demand there? And I guess related to that, that sort of lower level or stability, do you still think you're able to generate positive cash flow out of the Regional One business?
We believe we're going to generate positive cash flow in virtually all of our businesses over this period. Again, before growth CapEx, if we invested growing the business, that would not be included in those calculations. I think it's pretty early for us to see what a base level. I'll hand it to Hank to answer it. But the business is in different places in different spots around the world. Hank, maybe you could give a little insight to what we see?
Certainly, Mike. I think it's interesting, the reflection on Q1, right? I think over the years, Mike has alluded to sometimes the choppiness of our business related to the potential sale of a significant asset in a particular quarter. In other words, if we sell a 70- or 90-seater versus a 50-seater, it can have a material difference in the revenue. And I think part of that is what's reflected in the year-on-year comparison for Q1. As it relates to -- there was some shortfall in the lease forecast, and that was related to timing of placement of aircraft that came off lease from a customer that defaulted in 2019. Interestingly, our business is obviously very broad, right? We deal with the SkyWests, Air Canadas of the world, Delta Airlines and their feeders. We also have a very broad network of very niche airlines, very hardworking, aggressive people like Nick, Gary and Jake scattered around the world operating to support their communities and their customers. Obviously, there is fleet variance, or freight variance, of our aircraft types. There's MRO activity that continued from Q1 to Q2. So we really look at Q2 as a transition linking the past to the future. Many of our customers who literally put their pencils down and went home under the instructions of their government, there's been that pause in the lease revenue where our lease portfolio is idle at the moment. But unlike independent bankruptcy, where you have a long lead time of deterioration of a particular operator, this is literally kind of a pencils down. It will get picked up here at the end of Q2 and Q3 from what we're hearing from our primary lease customers in Europe. And hopefully, that summer travel and the confidence of passengers will pick up quickly, and we'll get back to business here.
The problem is it's hard for us to tell you exactly when it ramps back up. It really depends on when travel is safe. But having said that, we still are supplying parts and stuff for the guys that are flying. And the guys who are flying are kind of living hand to mouth. So that's likely to continue over the period.
Yes. I think the government subsidies most airlines are receiving throughout the world is going to assist. We'll probably see parts come back first because of that. But Regional One has the benefit of being diversified almost in and of itself and what it does because they're asset managers. So I mean -- as I said, parts will come back first. But on the management fee side of things, we're actually seeing that be more significant than we had anticipated. Obviously, lots of finance companies, banks, et cetera, having to deal with significant fleet, we have the expertise to do that. So we actually think that will be a growing revenue stream as we kind of move through the crisis here. So different parts makes us strong.
Okay. And then maybe just to follow up just on the, I guess, the leasing revenue within Regional One. I mean, presumably, a lot of the airlines you're leasing aircraft to have kind of deferred their payments to you. I presume that that's still being recorded as revenue, but perhaps you expect to collect those receivables at some point in the future. So I'm just wondering -- maybe it's more of an accounting question than anything, but just wondering how that kind of flows to the income statement here. You're generating lease revenue, but perhaps the receivables are going to grow as a result of some deferrals of lease payments. Is that how I should look at it?
There'll be some of that for sure. There'll be some leases that are amended from like a straight lease to a power by the hour, where we bill them based on how much they use until they return to a more normal footing. And we did take an enhanced allowance to allow for the fact that, undoubtedly, we will have some companies fail through this process. Ultimately, the aircraft are going to be required to service those areas. And the first planes back up are going to be the smaller jets because there'll be smaller volumes to begin with. So we do see that there will be a ramp-up period. But with the leases, we're not going to record revenue unless we're confident it's collectible. There's no point in recording a revenue and then having to write it off.
Steve Hansen with Raymond James.
Just two for me, if I may. First one is just on a clarification for the medevac passengers and the cadence at which they'll return. If I'm not mistaken, Manitoba has laid out a staged reopening plan, and I think some of the non-urgent surgery and diagnostic procedures are restored beginning May 4. Is that the time frame at which we should start to see the medical-type passengers start to return? Or do you have any greater clarity on that? That would be helpful.
First on that, we will see -- we have seen the small increments of that. They've just started to book those appointments for later this month. And so you'll see that slowly creep up. I think you're going to need to see sort of the Phase 2 on some of the stuff that's aimed for June to see the next round of that. The capacity is still limited in the medical centers, so it's not going to go back to full levels. Nick or Gary, you guys have talked to the chief medical officers, maybe one of you guys could take that?
There's diagnostics in Manitoba. So that's a lot of Manitoba, some northwestern Ontario traffic and Central Nunavut. Those were all started May 11, and the surgeries are starting May 25. So most of the traffic that you're going to see from us is going to start ramping up at the end of May, but mostly in June.
The key thing with that, Steve, is there's two parts. There's the medical stuff and then there's the First Nations seeing -- feeling safe traveling. We work with each government in each community to set the rules for when people can travel in those communities. We're very careful not to overstep our position. Nick, maybe you could talk about how we'd deal with that, with the communities?
Steve, its Nick here. We have different protocols in place for each community that we serve. The majority of them are requiring prior approval, which is actually lock-stepped with the Manitoba reopening. So as you pointed out, May 4, Manitoba started to reopen. And that was the start of some flow of some passenger movement, some increased passenger movement. And we see the next opening, as Mike mentioned, to be even greater flow and the elective surgeries and the dental appointments and all that stuff that's now being opened up is starting to flow through as well. So we do believe it will lock-step with the government mandates as they loosen up in the upcoming days and weeks.
Great. And maybe just a follow-up for Marty, if I may, on the ramp-up of the Dallas facility. Just trying to get a sense for where you're at on the ramp-up, maybe in terms of utilization rates, and whether or not the plan has been impacted at all by COVID and some of the maybe shifting in the order book or potential pushing out of some projects? Just any color on when we expect to get the facility up and running?
Yes. Thank you. We certainly have been on schedule with our planned ramp-up there. We had some initial delays on that and they pushed forward a couple of months to the extent that if we move the Gantt chart forward, it kept the same cadence. It just moved forward a little bit. Since then, we've been on a steady ramp up, achieving daily, weekly and monthly goals. Training has been really at the forefront, focus on quality and customer satisfaction. We're very pleased with our training, our staffing and our continued ramp-up in Dallas. I hope that answers your question.
A couple of pieces, just in addition to that, Steve. We were profitable for the first time in Dallas in Q1, which was exciting. Part of the frustration of this is, we were really starting to move there before COVID [ won ], but the advantage Dallas has provided us for those of you who saw it, it's so much bigger than what the guys have to deal with in Mississauga. And so at Mississauga, we had to take employees out to make it a safe workplace. In Dallas, there's a lot more flexibility because of the size of the facility. And the ramp-up of Dallas is -- it couldn't come at a better time given the COVID stuff. Because we can't generate as much product in Toronto, but we certainly have material upside to continue to grow the production in Dallas.
Mike, if I could add to that. We did utilize some of the Dallas facility when we were taxed with production in Mississauga in Canada. And that proved out to be quite good effort for us in balancing production across the 2 facilities. So we have a bit of success on that matter and continue to look at that rebalancing as COVID starts down-wind in our markets.
Raveel Afzaal with Canaccord.
First off, can you speak a little bit on the flexibility that you have with respect to freight and passenger loads, how you can switch them up in order to maximize profitability?
I'm going to give this to Gary and Nick. But the fundamental thing is what's changed in our business right now is the freight business is the same or maybe in certain places, a little bit better. But the passengers are down. So we've reconfigured planes. Maybe each of you could talk about how that's in your markets?
It's Gary Bell here from Calm Air. I'll start and then hand it off to Nick from Perimeter. So we have the flexibility of having some different aircraft sizes. So we have the ability to flex up or down in particular markets, depending on what those passenger load factors are. We also have the ability with our aircraft to go between different configurations. So for us, the ATR 42 can go from 42 passengers to 34 to 22 to 10. So what's happened in most of our Nunavut communities as we've moved those frequencies down to 10 and 22 passenger configurations, so that we can take more cargo. So for us, we do have a great amount of flexibility. And as Mike said, all of that cargo is still operating close to 100%. So it allows us to continue to operate with some sort of minimum passenger frequency and reduce those freighter hours by moving onto the economy flights instead.
Yes. I think the only thing I would add to that -- it's Nick here, Raveel -- is we've significantly reduced our flight hours, and our freight volumes have stayed relatively the same. The aircraft we operate allow us to -- the flexibility to replace passenger components of them and put freight inside the aircraft. So we've been able to maintain the freight business level on the reduced flight hours and still provide the appropriate customer service.
It's Carmele. The one thing actually I would add is, in addition to the flexibility we have within each of the airlines, and there's also flexibility amongst our airlines. So if passenger needs are such, we can throw a King Air on a particular route, you move a Metro here, do an ATR. So that allows additional flexibility as a whole.
And one last thing I would add here is as we start to see a ramp-up, mostly in our hydro and our resource sector, as Carmele said, we'll be utilizing capacity from various airlines. So as we see some Manitoba hydro developments coming back, we're using a lot of the Perimeter aircraft to team up with the Calm Air aircraft to get everybody back into those communities. So as Carmele says, we can't look at it from just an individual airline, we have to look at it across our entire network, because it's really a comprehensive solution.
That sounds great. And then just moving on, to the extent possible, can you speak a little bit about the government programs in place or that are being discussed at the moment to support the Northern aviation companies?
Okay. Yes, sure. There's a lot of different programs out there. The program that's the most useful for us is the 75% wage support program for companies where revenues were down 30%. A number of our larger companies, particularly our airlines, qualify for that. So that helps us significantly. The -- particularly in the far North, the Nunavut Government combined with the Government of Canada have looked to guarantee to make sure that there are certain levels of service combined. We're in discussions, that hasn't been finalized yet. We're working on a sort of minimum revenue approach they'll make sure at least certain number of tickets are sold so that we can afford to continue to fly on the schedule they've worked with us to put together. And we are in discussions in other territories and provinces on a similar concept, although they're not quite as far advanced. In terms of the most recent government announcement, while details are still fairly scarce on the large companies assistance program, it's not something where, while we will continue to obviously look at the details, it's not something we think we're going to be in need of, we have more than enough capital. We don't require urgency funding and those things. So while that may be helpful for some of the bigger airlines, again, our liquidity and our lack of a cash burn put us in a position where that's not particularly needed by us.
Chris Murray with AltaCorp Capital.
Just, Mike, maybe following on on that. Just one of the concerns that we have is, for some of these government programs, that there could be some strings attached to them that could impact dividends and things like that. Anything you're seeing around that that could cause any issues in the future?
We have not agreed and have not called on any programs that restrict our flexibility on things like dividends. I think a good example of our decision and that would be the U.S. -- I'm going to get the acronym wrong -- PPP program, a couple of our U.S. subsidiaries qualified for the program on the economic basis of it. We chose not to participate because we have access to capital. We didn't want to take it away from other businesses in the United States. And plus, we didn't want to be in a position where we were going to be have someone commenting on our ability to pay a dividend. So while we could have accessed those, we chose not to. Same thing in Canada, where we're really just tapping into the wage subsidies. And to the extent it's beyond that, it's really just to make sure we maintain a level of service. We have chosen not to follow the big airline plan, which cuts markets and does that. We're looking after them, and then we're working with the government because they need the resources in those communities. So we're not really getting any bailout money. We're just getting things where governments are working with us to make sure we provide a service.
Okay. Fair enough. And then in terms of some of the discussions you're having with governments, would that be on a kind of a retrospective basis? So like something that would have happened in terms of Q1? Or is that would be kind of on a future go-forward basis in terms of being able to support minimums for flights?
I need to break that into two things, Chris. The wage subsidy program -- and I'm going to admit that the logic of this is beyond my ability to understand. But under IFRS, because the program wasn't -- weren't given a royal assent during the period, any wage subsidies related to Q1 will show up in Q2. We didn't accrue anything because that's not apparently appropriate accounting. So there will be a bit of a pickup of that in Q2 for the 2 weeks of March that we're in that program. As it relates to the other programs, there is no support for Q1. Anything would be Q2 and Q2 forward.
Okay. Fair enough. And then the other question, and I know you've talked about not wanting to get too ahead of yourself on growth capital, but it sort of seems like it's kind of a unique opportunity for Regional One. There's going to be a lot of aircraft on the ground, a lot of aircraft available, not only in the regional classes, but in some of the larger aircraft. I know you talked previously about maybe looking at different aircraft classes. And it certainly seems that there's going to be some really neat opportunities that are out there. Any thoughts around maybe using this as a bit of a growth opportunity strategically to find new opportunities?
This is one of the most tempting things there is, because there is unequivocally going to be opportunities in aircraft classes we're not in. One of Hank's and his team's greatest strengths is the fact that we tend to stay in areas where we have knowledge. So perhaps we may partner with somebody else, the size of the opportunity, someone else who has expertise in some of those. We may partner on some other aircraft types. I think our preliminary focus will be in what we do now, but there's definitely an opportunity to dip our toe into other aircraft types when the opportunity presents itself. I think there's going to be an inevitable overreaction as some of the airlines cut their fleets. But once people get back to healthy traveling, the world's still a small place and people are going to travel around it. The trick is to buy the things that are going to have value in the future. And if Regional One's proved it does anything well, it's that. I would point to the ERJs we bought a couple of years ago, a fleet of -- correct me, Hank -- but 25 or something that was on the ground, a bank couldn't figure out what to do with them, we bought them at a great price, and we basically monetized all of them. I mean, those are the kind of things we do well. We'll be cautious with capital until we know where this is going, but this is going to fuel our tank for years to come when we take advantage of some of the opportunities we see.
Konark Gupta with Scotiabank.
So first one, I think, is for you or maybe Darryl. So how does the balance -- how does the decline in asset valuations, particularly in aviation subsidiaries, as well as increased bad debt allowance at Regional One impact your ability to manage liquidity and covenants?
Are you talking about our bank covenants, Konark?
Yes, the bank covenants as well as, like I think if you have any kind of secured -- securitization of any of those assets or inventory you hold in your account?
Do you want to take it, Darryl?
Yes. Actually, Konark, under our credit agreement, none of our -- its basic -- for all intents and purposes, an unsecured facility. The bank basically has just a general GSA, but we don't have any specific security against any specific assets.
And the covenants are all debt-to-EBITDA covenants, we mentioned earlier, we think we will not need relief, but we will get relief just to make sure we don't know how long this lasts, exactly what the issues are. In terms of asset values, the turboprops we're using, we have no reason to believe are overvalued on the balance sheet. We'll obviously continue to watch that, see how long it goes. But those planes and that type of business, with gravel kits and the things we put on them, they're hard to find. You couldn't go replace them now if you wanted to. So we don't see any impairment to those values. And in terms of the covenant, while we're going to -- we've had ongoing discussions with our lenders of potentially expanding the covenant for a period of time, we don't view that as a big issue. Lenders have been very supportive.
They've been very supportive, and there's multiple alternatives on how to address it. So we're going to have the ability to sort of hopefully pick what works best for us.
Okay. That makes sense. And then maybe one for Hank, to Regional One. You mentioned market intelligence. Can you share any insights into which aircraft types and your customer geographies are showing a rebound at this point and which ones are on a continued downtrend?
Yes. Thanks for the question. I think this goes to the heart of Regional One's strategy. I think to expand on what Mike said earlier, we're certainly exploring. We've had a number of opportunities over the years to get into some of the larger aircraft, the narrowbodies, and to some extent, the wide-bodies. We have not, in any real way, stepped off the curb to do that. But in fact, we have started to compile data, and this would be supply/demand data, repair data, assembly data, meantime between the removals, highly technical data in terms of the fit, form and function of these components in anticipation of some future investments. Where we see opportunity more immediately with respect to our core business is the Q400 and the 190. These are two kind of in-production aircraft that we've talked a lot about over the years. We made the first investment with a financial investor in the 190s about 1.5 years ago, with a portfolio on lease to Air Europa. This was our entry point and part of our strategy of managing assets on behalf of others. So we really see, in the near term, with the state of the Q400 market and the ERJ190s and specifically the CF34-10 engines because in a very material way, at the end of the day, our assets are really founded on engine values. And if you take the CF34-8, which is still an in production engine, we get the benefit of a typical price escalation from the OEM on a year-on-year basis, of which market prices are generally based against. So I think as Mike said, we'll stick to our knitting for the time being. We'll explore opportunities, but I think any near-term opportunities will be related to our existing portfolio assets and/or those that are more imminent like Q400 and the 190.
Okay. And any sense on geographic regions, Hank, in terms of, be it Europe, Asia and North America, where do you see more opportunities at this point?
Yes. Another good question. We've identified Africa in the last couple of quarters as a real growth opportunity for us. Even in this difficult environment of suspending pay and furloughing staff, we actually made the decision to go ahead and proceed with the engagement of an employee that has a high degree of experience in Africa. We have boots on the ground there. We've been in South Africa. We've got a customer in Equatorial New Guinea and Ethiopia, so we do have the baseline experience. There's many of us within the company that have been doing business in Africa for a number of years. But to take the ERJ example that Mike used, the ERJ145 has become a very popular aircraft in Africa. The CRJ200 is there as well. There's some 700s to 900s, obviously, the turboprops, DASH 8s, ATRs. So it is a target for us. We'll continue to see demand in places like Nepal and India for more linear growth, but we really see Africa in the future as being a place for us to further invest in additional resources.
Jeff Fenwick with Cormark Securities.
So it's been a long call, I'll try to keep my questions short for you. I guess, you gave a lot of good color there on some of the mitigating factors across the various airline operations. And I'm just trying to get a sense of the feel here about the ability to manage to profitability or cash flow profitability, thinking about the split between contracted revenue versus, as you mentioned, the passenger drop-off. Do you feel, looking at Legacy airlines and PAL, and excluding R One, like when you talk about capital breakeven, that's still within that sort of group of companies something you feel pretty confident you're going to be able to achieve through the second quarter here, even under all the pressure that you've been under?
Based on everything we know now, yes, Jeff, we're pretty comfortable that we cover off our maintenance costs out of our operations. So yes.
Okay. And I'm just trying to kind of do the mental math around it. When I look at that specific segment, you probably did a little under $30 million or so of EBITDA and is the swing down to something pretty minimal, you would think, and then you get the rebound, I guess, presumably through the back half of the year or...
Yes. It's really a matter of when you assume the ramp-up starts. We've looked at this internally, and I'm going to be careful is, I'm not going to give our model because we've done a whole bunch of them. But basically, what we've assumed is that we see fairly flat revenues at these low levels for most of the second quarter, and we start to see improvements towards the end of the quarter, hopefully, and a move towards normalization in Q3, Q4. But we see it being fairly flat. And then the other thing that I think is important to understand in our ability to get to cash flow breakeven is our guys have been really smart on scheduling our maintenance reinvestment in the planes. So if I -- we're flying less, so we're not using up the last hours on the engines, we're putting the right engines on the right planes to make sure that we're not paying for a whole bunch of stuff before we need to pay for it. And then as revenue ramps, so will our maintenance CapEx, I think you'll see a decline in the range of 50% or more from what you saw in the first quarter in the second quarter.
Okay. That's helpful. And I guess maybe one thing we just ask about yet is the dividend. How are you watching that? Is it something that your lender gets involved in the discussions on? How are you thinking about the dividend?
We're thinking about the dividend every month. We have a track record that we're really proud of with the dividend. It's something we take very seriously. It's something our investors look to us for. So we're not going to do anything to imperil the company or the safety of the company or its future viability to pay a dividend. But as long as we're in a position where we are relatively cash flow neutral, we look at it every month. And it's something that's a core value, and we will do everything we can to preserve the dividend. We don't have any issues with our lenders as it relates to the dividend.
And our final question comes from the line of Tim James with TD Securities.
I just want to confirm, and it's possible I may have missed this earlier on. When you talk about reduced maintenance CapEx, and I'm thinking about 2020 in total, is that relative to plan or is that relative to 2019? And if it's not relative to 2019, could you comment on where it will be on a year-over-year basis?
Well, it depends on how fast we ramp up, Tim, but we were talking about relative to plan, which we gave the market, which was in line with our growth in EBITDA. So you take the number from last year -- I don't have the exact 2019 number in front of me -- take your growth of EBITDA whether you're using 10%, 15%, add that to the maintenance CapEx that was tied to the plan for this year. We stated that that was going to be very front-end loaded this year on our Q4 conference call. And you can see it with a $36 million, I think it was in Q1, of maintenance CapEx -- Darryl, correct me if I got that wrong -- that it was a big number there. But with -- as soon as the revenue started to decline mid-March, my team started to reschedule when we're doing things and time it out. So we envision that to be, in the next couple of quarters, less than half of Q1's number. And then the ramp-up in Q4 and thereon will tie to revenue. Maintenance CapEx in the airline is directly proportional to how much you're flying -- you're using up the aircraft.
Okay. Then just turning to -- actually, I kind of want to revisit the previous question on the dividend. Just based on your commentary, then if we want to kind of provide our own thoughts on the dividend and its future here, at least while we get through the pandemic, is it the free cash flow less maintenance CapEx relationship to the dividend that we should be looking at closely in terms of making a decision on when there's a possibility of it being reduced or eliminated? Is that the right way to think about it?
I mean, it's more complicated than 1 ratio for 1 period. It's about outlook. It's about longer periods of time. It's about sustainability. Clearly, our ability to fund it without borrowing it is important. You saw that in our history, we bumped over 100% before where we have the challenge with WesTower in the U.S. in late 2013, early 2014. For a short period of time, we were slightly over 100% payout ratio. But knowing we had that solution underway and that, we kept paying it and it very quickly normalized thereafter. And so it's not as -- I don't want to make it sound like there's some mathematical matrix that the second the payout ratio is [ axed ], we're not going to do it. It's part of a longer-term issue. And if we didn't see a return to normal, if we saw the current level of pandemic shutdowns going on for long-term period of time, I think just the fact that we're cash flow breakeven wouldn't be enough to keep the dividend. It's about a -- that's a portion of a longer-term analysis. And we have very in-depth discussions with our Board each month about that before we authorize the dividend. But we take it very seriously. We know people rely on that dividend. So to the extent that we're confident in our long-term prospects, our liquidity, our ability to pay the dividend, we remain positive about it. But the ratio you talked about, about EBITDA less maintenance CapEx, free cash flow less maintenance CapEx, there's the key way to look at...
Yes. Okay. That's helpful. And then just a final question, turning to Regional One. Should we think about the year-over-year change in cash flow coming in 2020 from Regional One as somewhat similar to what we assume or forecast for the year-over-year change in EBITDA at Regional One? Or will the cash impact -- and this goes back actually to Cam's question -- will the cash impact be more negative than the actual year-over-year change in EBITDA there?
No. It will be more [ near ], the reason being is that maintenance CapEx in Regional One are directly tied to the burn up of the green time of the lease fleet. So to the extent the lease fleet is not flying, revenues go down. EBITDA goes down, so does your need to reinvest in that fleet. And so -- and the same thing with parts. We have great inventories of the things we need. If sales are slower, we'll buy less. The outside piece of that is if we find something that's at a price that we think fuels future growth, that would be outside of that calculation, Tim. But in terms of core operations and maintaining them, the beauty of Regional One is that its cost of sales and its cash outflows are directly tied to its revenues.
Okay. So for whatever -- if we think Regional One EBITDA is going to go down -- I'm just using round numbers just to illustrate the point here -- 10% year-over-year, the cash flow decline should be not wildly different from that? Again, I realize you don't [ disclose that ] assuming the...
We have some fixed costs in terms of your rents and some of your salaries. But even that, we've adjusted staffing levels, those kinds of things. So when you look at cash flow, like I said, the reinvestment, whether it be in new inventory or maintenance CapEx or different aircraft, is going to tie directly to the revenue. So subject to period-to-period variations and timing of transactions, those should move in lockstep, with the exception of the fact that your salary costs are fixed.
And do you know -- is there no risk that cash receipts in the door at Regional One over the course of the year are less than revenue recorded, again, just because of the environment and receivables going up and that?
There's absolutely -- at least in the near term, you'll see some increase in receivables, but we're proactively managing that. We took an additional reserve in the quarter, and we're watching it on a regular basis. But yes, I mean, with aviation, in the world that's in, yes, there's a risk that receivables will climb over the period.
There are no further questions at this time. I would now like to turn the call back over to presenters.
Thank you for your patience today, folks. It was a much longer call than normal. We wanted to provide as much perspective as we could as we enter this brave new world of the COVID pandemic. We're confident in where we sit. We've proactively managed our balance sheet to put ourselves in a great position going into this. Our team has managed their expenses, managed our operations to make them safe for our employees and safe for our customers, and ensure we aren't burning cash. So we're excited about our ability to get through this. And we've got very resilient businesses that -- when the economy -- when governments allow us to open up, you'll see our revenues respond accordingly. Thanks for your support. Thank you to the frontline workers who keep the rest of us safe and fed, and I look forward to speaking to you again following our second quarter report in August. Stay safe, everyone.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.