Exchange Income Corp
TSX:EIF
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Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the 3- and 9-month periods ended September 30, 2021. The corporation's results, including the MD&A and financial statements, were issued on November 11, 2021, and are currently available via the company's website or SEDAR. Before turning 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 the 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 laws, 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 would now like to turn the call over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead.
Good morning, everyone, and thank you for joining us this morning on EIC's third quarter conference call. With me today are EIC's President, Carmele Peter, who will provide some operational insights from the quarter and provide insight into the outlook for the company; and Darryl Bergman, who will provide a more detailed breakdown of our third quarter results. EIC has consistently delivered strong performance through the pandemic. And the third quarter of 2021 was no different, achieving new records in several financial metrics. We have learned, however, that the end of the pandemic will not occur quickly or evenly. It has become evident that there will be surges of COVID even with high vaccination rates. But fortunately, these surges will be smaller and less lethal than previous outbreaks. We have also seen that many of the side effects of the pandemic are still worsening, and it is difficult to ascertain when they may subside. Supply chain disruptions, inflation and labor shortages are all causing challenges in the economy, and likely will for the next few quarters. We will come back to some of these issues later in the call, but first, I would like to focus on the exceptional results from the third quarter. The third quarter marks the second reporting period where the prior year comparable was also impacted by the pandemic. As such, it reflects the progress that is made by EIC together with the continued abatement of the COVID outbreak. I should point out that these results have been achieved even with a dramatic decline in government support programs. Aggregate government support fell by 79% when compared to the previous year and declined by 69% when compared to the second quarter of 2021. In fact, aggregate support in the third quarter totaled only $5 million, and it was entirely from programs in preceding quarters, which could not be quantified at that time. In this context, the third quarter improvement is even more impressive. Financial highlights include: revenue grew by 35% to $400 million. This exceeded the previous high of $363 million in the fourth quarter of 2019. EBITDA increased 14% to $95 million. This exceeded our previous high of $89 million in the third quarter of 2019. Earnings per share increased 18% to $0.58 per share, while adjusted net earnings increased 24% to $0.73 per share. Free cash flow, less maintenance capital expenditures, increased 9% to $48 million and by 1% to $1.27 on a per share basis. The lower rate of increase on a per share basis is driven by an increase in the number of shares outstanding. Finally, the payout on a free cash flow, less maintenance capital expenditures basis, continues to strengthen. And for the 12-month period ending in Q3 declined to 57% from 73% in the preceding year and from 58% sequentially in the second quarter of 2021. The strong performance was driven by exceptional performance in our Aerospace & Aviation segment. They were contributors to the strong results. The largest contributor was the freight, passenger and charter operations in Northern communities. Increased vaccination levels and lower stress on the medical system from the pandemic allowed passenger volumes to continue to improve through the third quarter. The improvement varied by region, however. The maritimes were the strongest, with volumes in most markets returning to pre-pandemic levels. Passenger volumes in Central Canada, Manitoba and Northwest Ontario, reached approximately 75%, while Nunavut lagged slightly at approximately 2/3 of historical volumes. The volumes flattened out and, in some markets, reversed slightly as a result of the intensity of the fourth wave. This trend continued until the present, although we are very recently beginning to see signs of strength again. It is clear that for the volumes to reach historical levels, the available capacity in our medical system will need to improve. Through the pandemic there, by necessity, has been very limited access to doctors' appointments, diagnostic testing and treatment. As such, there is a very significant backlog of patients waiting their turn to access the medical system. As the pressure on the system created by COVID lessens, access will improve and passenger loads will increase. It is very important to understand that these high levels of demand will be with us for the foreseeable future. Even when the normals -- the medical system returns to normal, there will not be the necessary elasticity of supply to quickly satisfy the backlog. And as such, we anticipate experiencing higher-than-historical demand for a prolonged period of time. Freight volume has been significantly higher than normal through COVID as Northern residents ship in purchases that historically would have been purchased on trips to the South. This demand is not subsided with the increased passenger travel. And as such, we anticipate the higher freight volume is a permanent part of the Northern Aviation landscape. Our rotary wing business has been very strong through the pandemic, as investments in multiengine, night-flight aircraft has expanded the number of potential customers. Strengthening natural resource exploration and to develop -- I'm sorry, strengthening natural resource exploration and development has also increased demand. Well, 2021 was a very strong firefighting season. Our maritime surveillance business is built around long-term government contracts, and as such, has been a stable source of cash flow throughout the pandemic. Our short-term rental aircraft, the Force Multiplier, where revenue is inherently more variable, was also busy during the third quarter. Finally, our medevac business continued the strong performance we have become accustomed to during the pandemic. Revenues improved over the preceding period. We are very pleased to add Carson Air to the EIC family early in the third quarter. Carson is the leader -- lead provider of medical services to the B.C. government. They are well known for an exceptional management team, led by Kevin Hillier. In their first quarter under EIC ownership, they exceeded our lofty expectations. We have seen a dramatic increase in fuel prices during 2021. We were able to pass these costs through to our customers. While there may be short-term impact to our margins while surcharges are enacted, but it is not expected to be material in either the medium or long term. The second major contributor to our performance was the bounce back at Regional One. You will recall that Regional One has 3 primary revenue sources: part sales, aircraft and engine sales and leasing. Regional One customers are airlines around the world. And as such, it was amongst the most affected of our subsidiaries by the pandemic. We have seen a significant recovery of business through the year, but particularly in the third quarter. The strength of the aviation in the U.S., in particular, has driven parts revenues back to very close to pre-pandemic levels. Asset sales are inherently more variable because each sale is also different in dollars and a few transactions can make a big difference in revenue. Strong demand for the CRJ aircraft in North America and Q400 turboprops internationally drove near-record sales levels. These transactions will vary in the future, but their near term looks very encouraging. The leasing business improved from the comparable period in 2020 as well as sequentially from the second quarter of this year. The majority of our lease fleet is located outside of North America where airline recovery has been slower. We expect that lease revenue will reach 2019 levels by mid-2022. Manufacturing segment EBITDA declined year-over-year, largely driven by the end of CEWS support. No government support was recorded in the third quarter, nor is any support expected in the future. Demand remains strong, and revenue was largely unchanged from the previous period. We were, however, here at Quest operation as the cost and challenges of pandemic construction resulted in many projects being delayed. The sales cycle at Quest is from 1.5 to 2.5 years. And as such, it is impossible to backfill the holes of the production schedule. We expect these challenges to continue well into '22 -- 2022. Longer-term demand is solid, and many of the projects are being rescheduled for future dates, and there are many new projects out for bid. We have also seen the impact of supply chain issues, which have reduced the efficiency of our manufacturing sector. They have not caused significant dislocation at this point of time, but we will keep a close eye on future developments. We have also seen inflation creep into the cost of raw materials, aluminum and steel in particular. Some of our businesses -- these costs are passed on to our customers. While in others, we have fixed price contracts where the increased costs hurt our margins. The increased costs will, of course, in the future, be passed on in future contracts. I will leave the discussion of our balance sheet initiatives to Darryl and the acquisition landscape to Carmele. ESG has become a very topical -- has become very topical in recent periods, and I would like to speak to our approach. With investors looking for a way to quantify performance in this area, scorecards and rating agencies have become a big part of evaluating ESG performance. We are working on formalizing our ESG reporting and providing greater clarity on things that we do and have done for a long time in the next few months. We believe that the topics covered by ESG reporting, however, are much more than a scorecard, rather, they're about the opportunity to make a difference, to do the right thing because it is the right thing and not because you think someone is watching. To that end, I would like to talk about the 2 examples that have occurred recently where EIC has made a difference. In 2017, EIC began a program where we brought youth from the remote northern communities in order to attend a professional sports events, primarily the Winnipeg Blue Bombers. But more recently, we have added the Winnipeg Jets as well. The intent of the program was to give you the chance to see what was available outside their community and to provide a sense of hopefulness and thereby, a small way, help combat the youth suicide problem in many of these communities. The program was very successful and grew and entailed the pandemic hit. The pandemic shutdown pro sports and then ensured they were played before empty stadiums and arenas. When the Bombers announced they would be playing before double-vaccinated fans this season, we knew we would have an opportunity to resume some format of our program. The only requirement that unvaccinated children could attend with a parent of vaccinated adults created a wrinkle into our past model where it was almost entirely aimed to use. The recent focus on the residential school issue and Every Child Matters campaign was exceptionally important. Indigenous people and First Nations are an important part of our aviation program. And we knew that driving positive attention to this issue was something that we could and should do. we decided that in recognition of Truth and Reconciliation Day, we will partner with the Winnipeg Blue Bombers and the Association of Manitoba Chiefs in our biggest game day project ever. We announced that at EIC expense, we were bringing 1,000 family members from approximately 80 communities from across Manitoba, Northwestern Ontario and Nunavut to see the game between the Bombers and the Edmonton Elks on October 6. This was a very ambitious plan as 1,000 people was more people than we would historically have brought in over 2 football seasons. The logistics have traveled to Winnipeg, sourcing accommodations, confirming vaccinations and transportation to and from the game were massive. I owe a huge debt of gratitude to my team at EIC together with AMC and the Bombers, who enabled us to pull this off. Just having the people be able to attend and celebrate the Great Canadian that the CFL is was a victory in and of itself. But we also wanted to increase the exposure to the importance of reconciliations of the country. I am so grateful to the Bombers, the Elk and the CFLs, who agreed that this was a huge opportunity to do the right thing. And under the guidance of Mr. Wade Miller, the Bomber CEO, we pulled off a first in 100 years plus of the CFL. Both teams warmed up in matching jerseys, orange jerseys, the color of the Every Child Matters movement. EIC purchased all the games' attendees bright orange hoodies, emblazoned with the Bomber logo. Fans at the game and across the country on TSN could not miss the recognition of a very important issue and the very positive way it was accomplished. The Bombers and the Elk took it 1 step further, auctioning off their orange jerseys and giving the proceeds to First Nation Sports programs. The program required a commitment of approximately $1 million from EIC, and it was worth every penny. The second initiative I would like to mention is our Life in Flight and Bill Worley scholarship. We want to increase the number of indigenous pilots and more so, the number of indigent pilots serving their own communities. We were very pleased that the first winner of the Bill Worley scholarship, Mr. Tick Mason, completed his pilot training at Moncton Flight College and flew sufficient hours to begin his flying career at Perimeter, where we piloted his first flight to his home community of St. TeresaPoint in October. Tick is an awesome role model of what is possible, and we look forward to many other young men and women following his footsteps into a career as a pilot or a maintenance engineer. EIC is proud to assist in some -- to assist or, in some cases, fully fund the cost of this training. I should point out that we named the scholarship after the founder of Perimeter, Mr. Bill Worley. Bill was adamant from the day we began discussions to acquire his company in 2003, that EIC continue to invest in the communities and the people we service. Bill is a pioneer in aviation and certainly an industry leader in giving back. The roots of social responsibility run deep in our subsidiaries. There are other projects we could discuss, such as EIC assisting and building a fish processing plant in 1 of the Northern communities we service, but I will leave it here for now. I just want to make sure that all of our stakeholders know, we take our social responsibility very seriously and are committed to giving back to the communities we service. One final matter before I hand the call to Darryl. Gary Filmon, the Chair of EIC since our inception in 2002, has announced he will be leaving EIC at the end of this term following our AGM in May. Gary has been a remarkable leader and the source of stability as our company has grown from a small capital pool company under Venture Exchange to a $1.5 billion market cap company in the TSX Index. We will certainly miss his guidance and oversight. I will now hand off the call to Darryl for a more detailed look at our financial results.
Thank you, Mike, and good morning, everyone. As Mike previewed, the third quarter saw EIC again deliver exceptional financial results. While I would, in no way, go on record to say we are out of the woods just yet, it is encouraging to see the company successfully achieved all-time high results on revenue, EBITDA, free cash flow less maintenance CapEx within the quarter, with a further mention to improving the free cash flow less maintenance CapEx payout ratio to a pre-pandemic level. I will begin by commenting on our balance sheet and liquidity, before moving on to specific results for the quarter. The continued commitment and focus on the strength of our balance sheet with modest leverage and good liquidity remained intact in Q3. To complement the bought deal equity offering completed in Q2 of this year, which was used to fund growth CapEx and the acquisitions of Carson and Macfab, in Q3, we completed 2 other transactions that led to further liquidity and balance sheet strength. On August 6, we completed the extension of our corporate credit facility of 4 years to August 2025. Capacity, pricing and covenants remained unchanged. Also within the quarter, the corporation completed a $144 million convertible debenturing offer -- offering, using the proceeds to exercise its right to call on its June 2016 debentures and repaid indebtedness. Notably, the new 2021 offering maturing in 2028 carried the same 5.25% rate as the June 2016 convertibles that were called within the quarter. Support and capital markets remain strong, evidenced by overallotments on both the previous quarter's equity issuance and the current quarter's convertible offerings being recognized, along with the strong support from the corporation's lending syndicate, extending the corporate credit facility on existing terms and conditions. The size of the corporation's credit facility as at September 30 was approximately $1.3 billion, with the ability to access another $300 million in an accordion feature, should we choose to exercise it, giving the corporation a combined access of up to $1.6 billion. At the end of the quarter, the corporation had readily accessible access to liquidity and cash and under its credit facility of $910 million, including the accordion. EIC's liquidity position is set to provide exceptional flexibility to support future growth. Combined with strong free cash flow, our liquidity position continues to be favorable. And after considering our expectation of using the remaining net proceeds of the July 2021 convertible debenturing offering to redeem the convertible debentures maturing in December 2022, the corporation will not have any long-term debt due until June 30, 2025. EIC's long-term debt in the quarter, net of cash of roughly $681 million, is a decrease of approximately $44 million since December 31, 2020. And even more noting is that it is $17 million less than the last full pre-quarter -- pre-COVID quarter, December 31, 2019. The corporation target's leveraged to be within 1.5x to 2.5x senior debt-to-EBITDA range. Q3 2021 leverage is near the top end of this target range caused by the reduction EBITDA brought on from the impacts of COVID-19 but continues to steadily improve. Our current leverage ratio for the quarter end is 2.25x, which is well below both the current credit facility covenant requirement of 5x and notably, the 4x requirement, which will come back into effect for year-end. That said, with the investments we have already made, exiting the pandemic, we expect EBITDA on a $400 million run rate basis, which will turn -- which in turn would relate to a leverage ratio of more in the midpoint of our target range of 2x or less. Further on our balance sheet, we ended the period with working capital of $312 million, which represents a current ratio of 1.82. This compares to a working capital of $324 million and a current ratio of 2.1 at the end of 2020. As I turn to revenue and EBITDA, I will focus on highlighting the key quarter-over-quarter changes. A detailed analysis of both can be found in the quarter's MD&A release on November 11. In Q3 2021, EIC's revenue hit an all-time high of $400 million, which is an increase of $103 million or 35% from Q3 last year. The Aerospace & Aviation segment revenue increased by $104 million, while the Manufacturing segment revenues were essentially unchanged, decreasing by $1 million. Aerospace & Aviation segment revenue was up 61% to $275 million. The comparative increase was driven largely by passenger and charter revenues that saw significant increases in comparison to the prior period. The corporation's rotary wing operations also delivered strong results in the quarter, driven by fire-related services and exploration activities picking up. And demand for our ISR assets remained strong and contributed as well to the increase in revenues. Revenue in Q3 also benefited from the acquisition of Carson Air in the quarter with no prior year comparative. Medevac and cargo revenue, which remains strong throughout the pandemic, also contributed to the increases in revenues during the third quarter. Revenues at Regional One were stronger and up considerably 174% compared to the prior period. The increase was driven by significant increase in parts and engines and aircraft revenue sales -- revenues in the period. Accelerated return of air travel in certain jurisdictions, most notably in the United States, has been positive, driving the increased sales and service revenues. Before moving on to EBITDA, it's worth highlighting that total support received from all levels of government, including amounts received under the SUS program in 2020, declined by 79% compared to the prior period. The corporation has not received any support under the SUS program since the end of Q2 2021. Within the quarter, support amounts were recorded from the Manitoba and Ontario provincial governments, although the amounts recorded were in respect to previous periods, where uncertainty around what ultimately would be received could not be quantified at the time. Barring any unforeseeable changes brought on by the pandemic, the corporation does not expect to qualify for government funding of any type in Q4 2021 or thereafter. Now on to EBITDA. Consolidated EBITDA was $95 million, up 14% or $12 million compared to the prior period. The increase was entirely attributable to the Aerospace & Aviation segment, partially offset by a decrease in the Manufacturing segment and higher head office costs. The consolidated increase was achieved despite overall government funding in the third quarter of 2021 decreasing by $20 million compared to the prior period. The government -- when government subsidies are excluded from both periods, EBITDA increased by 55%. EBITDA in the Aerospace & Aviation segment in Q3 2021 was $89 million, an increase of $27 million compared to the prior period. While scheduled passenger operations in certain markets remained lower compared to the pre-pandemic operating environment, the strong increase compared to 2020 drove the improved EBITDA. In addition, robust cargo, charter and rotary wing operations also contributed to the increased EBITDA compared to 2020. The drivers within the segment lending to the increased EBITDA are largely the same as what drove revenue. Passenger volumes have rebounded, largely attributed to an uptick in vaccination rates, although the improvement is varied across geographical markets. In the Manufacturing segment, EBITDA was $16 million, a decrease of $11 million compared to the prior period. More than half of the decrease in EBITDA compared to the prior period is attributable to the decreased SUS received in the segment in 2021. EBITDA at Quest was lower than prior period, reflecting the impact of project delays; changes in product mix in its installation business, where lower margin projects were completed in the current period; the impact of the current strain on the global supply chain, including increased raw material and transportation costs; and a reduction in amounts received under the SUS program. The balance of this segment collectively experienced an increase in EBITDA, excluding the impact of the SUS program in both periods, as the support received in the current period declined by $5 million. Turning to earnings. The free cash flow in Q3 2021 EIC's diversified platform once again demonstrated its ability to achieve positive earnings and positive cash flow over a period defined by economic uncertainty. Net earnings for the quarter were $22 million and adjusted net earnings were $28 million, representing increases of $5 million and $7 million, respectively, over the prior period. The increase in EBITDA was partially offset by 2 items. The first being depreciation, where depreciation on capital assets increased by $4 million during the period as Regional One expanded the number of assets in its lease portfolio. And our airlines increased their flying hours. Also, the acquisition of Carson Air increased depreciation during the period. Second, reducing net earnings was noncash-accelerated interest accretion, which, as a result of the early redemption of the corporation's debentures maturing in June 2023, increased interest cost by $3 million. Mike noted previously in our call our improvements in net earnings, adjusted net earnings and free cash flow per share. That said, it should be recognized that in the period, the weighted average number of shares increased by 8%, which partially offset any increase on these per share results. In Q3 2021, free cash flow increased by 26% over the comparative period to $73 million or $1.91 per share. These results were driven by the increase in EBITDA and decrease in current taxes. The free cash flow less maintenance capital expenditures payout ratio on a 12-month trailing basis, remains a strong indicator of the corporation's ability to actively manage cash flows despite unpredictability -- unpredictable economic conditions. The trailing 12 months free cash flow less maintenance capital expenditures payout ratio improved to 57% at September 30, 2021, from 73% in the comparative period. This is achieved through diligent management of capital expenditures during the pandemic. The resulting 12-month trailing free cash flow less maintenance CapEx payout ratio in the quarter is a significant achievement as it now is back in line with pre-pandemic levels being equivalent to a comparative payout ratio at December 31, 2019, of 57%, which represents the last full pre-pandemic quarter. To sum up, EIC's ability to reach all-time highs within a quarter on revenue, EBITDA and free cash flow, less maintenance CapEx and improved our 12-month trailing free cash flow less maintenance CapEx, to pre-pandemic levels is solid evidence of the successes we've achieved in managing the challenges of the pandemic. We continue to successfully strengthen our liquidity and balance sheet foundation in the quarter, anticipating support for future growth. That concludes my review of our financial results. I will now turn the call over to Carmele to share some thoughts on EIC's outlook for the coming months.
Thanks, Darryl. First, discussing the outlook for our businesses, our future investments, both CapEx and acquisitions and EIC as a whole, I would like to briefly touch on another topic being our DSU plan, which has been in place since the establishment of EIC in 2004. Our DSU plan has historically not distributed vested units until retirement, which has resulted in some participants having vested units for over a decade. In reviewing industry norms and best practices, the Compensation Committee has determined that it is appropriate to authorize a distribution of a portion of those long-term vested units to certain participants. Also in connection with this review and to be industry leaders, the Compensation Committee is increasing their acquired equity holds for the CEO and other senior executives. So for instance, the CEO's hold requirement will now be 6x. Now I will turn to our outlook. First a general comment, which is that while we are encouraged and have realized very positive results by increased vaccination rates, easing restrictions and gradual return to a normalized operations, COVID-19 will continue to impact our businesses in the short term. Let's first look at our passenger business. We experienced positive momentum in the third quarter up to about the middle of September when increased COVID case counts and decreased leisure travel pause any further increases and, in some regions, created a slight erosion on volumes. Although growth in volumes have stalled, they have remained steady in Q4, which we expect will continue for the balance of the quarter. The current passenger volumes in each of our regions compared to pre-pandemic levels are as follows. The maritime have returned to pre-pandemic travel levels and will be bolstered by PAL Airlines scheduled service expansion in Q3 that saw new routes added. Central Canada is operating about 75%, with stronger volumes in Manitoba, offset with lower passenger numbers in Ontario due to continued travel -- or sorry, continued community travel restrictions. And Nunavut passenger volumes have reached about 60% to 65% of pre-pandemic levels. It's anticipated to take another several quarters to return to historical volumes due to continued significantly reduced access to medical diagnostics. When medical capacity for such treatments begins to open, it is anticipated to be gradual, meaning over a few quarters, as medical professionals and resources will not shift all at once, but over time from COVID requirements to regular medical treatments. However, once capacity is fully open, we expect volumes will be slightly higher than pre-pandemic levels for a prolonged period of time, given the medical backlog. EIC's charter aviation services continued to perform well in Q4, supported by significant demand in the resource sector and new charter customers. Similarly, cargo volumes have remained strong in Q4 and anticipated to exceed historical volumes going forward, but to a lesser degree as passenger volumes trend closer to pre-COVID-19 levels. This is due to the permanent change we see on consumer buying habits and e-commerce gains. EIC's medavac operations will continue their solid performance through the balance of the year and are now bolstered by the acquisition of Carson Air, which is performing better than expected. The company's aerospace operations are expected to finish the year strong, driven by increased demand for contracted ISR hours. Regional One continues its pandemic recovery in Q4, with strong demand for parts that is nearing pre-pandemic levels as well as an elevated level of aircraft and engine sales similar in quantum to what we experienced in Q3. Larger aircraft and engine sales tend to vary significantly from quarter-to-quarter. And the level of revenue experienced in Q3 and expected in Q4 are abnormally high and are not anticipated to continue at those levels into 2022. But they do illustrate the adapt nature of Regional One to be opportunistic in changing market dynamics. Leasing revenues are still down about 60% from pre-pandemic levels but continued to improve each quarter, early signs as the potential return to normal levels by the second half of 2022 with strong demand for our engine leases and the strengthening of the European aviation environment, which is where many of our leased aircraft are located. Our manufacturing segment has seen material improvements in employee absenteeism and efficiencies with increased vaccination rates. However, COVID-19 impact on supply chain is increasing, as is the challenges with labor shortages and is impacting margins. The impact on the companies and the segment vary by region and industry, but include price escalations on direct inputs, delays on deliveries and freight increases. In some of our companies, such as our stainless steel tank business, there is an ability to pass on incremental commodity prices, while others like Quest where the industry norm is fixed price contracts, not in the short-term and ability to increase prices. Also, as we have previously discussed in respect of Quest, production gaps and reduced revenue at our Quest operations will persist for the balance of 2021 and into the latter part of 2022 as a result of pandemic-related project deferrals. Long-term demand remains healthy, and Quest is seeing sales inquiries gradually return to pre-pandemic levels and a steady order book. Also the balance of the segment continued to experience consistent robust demand, which will be further bolstered by the acquisition of Macfab in August that expands Ben Machine's product offering and adds capacity. And Telecon just a few days ago, which enhances West Power's ability to provide a fully integrated solution to telcos by combining wireline installation and maintenance services with our power work. So although there will be margin pressure in the short-term, the segment's foundation is solid and demand is not an issue, and we are poised for future growth. Turning now to maintenance CapEx expenditures. Our aviation operations moved closer to pre-pandemic levels -- sorry, as our aviation operations moved closer to pre-pandemic levels, our maintenance capital expenditures will concurrently increase. Maintenance capital expenditures in Q4 will reflect the elevated level of flight hours and are anticipated to be similar in quantum to Q3. As for growth capital expenditures, our focus for the remainder of 2021 will be on the investment in the 2 surveillance aircraft required under the Netherlands contract, the construction of a new hanger required to meet obligations under our Fixed-Wing Search and Rescue contract and realizing on purchasing opportunities uncovered by Regional One. As government subsidies are coming to an end, we are seeing signs of opportunistic purchases from distressed operators. As for acquisitions, we continue to see increased activity. At the time we announced Carson, we indicated that EIC has 3 other transactions under LOI. Two of those transactions, Macfab and Telecon, have closed, and the third 1 we decided not to proceed with. We have, however, entered into 2 additional LOIs with an aggregate purchase price of approximately $70 million. These include both tuck-ins and stand-alone acquisitions for our existing segments. Subject to the completion of due diligence, we expect these transactions to close in late Q4 or early 2022. Now turning to EIC as a whole. Our businesses have done a tremendous job weathering the pandemic and positioning for growth as we ease toward a new norm. This is evident from our strengthening performance quarter-over-quarter, notwithstanding the material decline in government subsidies. In fact, we do not expect to close micro subsidies for the balance of the year or thereafter. With this performance achieved to date and the momentum moving into Q4, we anticipate, barring material unforeseen changes in COVID and government restrictions, to complete 2021 with EBITDA nearing our 2019 results of $328 million. Longer term, we expect an EBITDA run rate of $400 million, but the impacts of the fourth wave on our A&A segment recovery, supply chain challenges and labor shortages is pushing when we expect that run rate to be achievable to later in 2022. As such, we will not be entering 2022 with that run rate but look to exit 2022 with the run rate. We will provide more specific guidance on our expected timing with our year-end results. So as you can see, by effectively managing our operations through the pandemic for the long-term, following our principles for strategic investment and executing on opportunities that meet our criteria by looking and investing forward, we have positioned EIC to continue accomplishing things for the future. Thank you for your time this morning, and we would now like to open the call for questions. Operator?
[Operator Instructions] Your first question comes from Cameron Doerksen, National Bank.
Just, I guess, a question on the, I guess, the inflationary cost impact. Obviously, that's impacting Quest. Is there anything that you can do? Obviously, it's going to take maybe a little while to mitigate this. But is there anything you can do on a more short-term basis with some of the other businesses to mitigate that inflation cost?
I mean where we have fixed price contracts like Quest, there's not a lot you can do. We've made a commitment, and we'll honor the commitments in the other businesses, the order cycles are a lot shorter. So it's much more flexible in terms of passing that through to our customers. But there is indeed a sort of change in policy that we can to retroactively change our pricing.
What we are doing is we have seen increased demand for some of the non-Quest products, just given the market positioning. So we are taking advantage, and sales certainly increased for AWI with our 2 acquisitions in the U.S.
Okay. No, that's helpful. And maybe just a second question for me. Can you just talk a little bit about the Regional One growth CapEx expectations here in Q4, maybe into early 2022? I mean what are you seeing as far as opportunistic purchase here? I mean it's been -- I guess, obviously, you've had some pretty good opportunities here in the last couple of quarters, but maybe anything on the outlook there?
Yes. It's been very interesting. Our thoughts on what was going to happen during the pandemic weren't particularly accurate, insofar as the government support to the aviation industry around the world really delayed any rationalization of fleets and financial distress. We're starting to see as that government support lessons and forbearance periods under certain lending agreements with certain leasing companies come to a close, that there are more opportunities for distressed purchases. The challenge with those is you never know whether you're going to be the successful buyer until you are. So we're optimistic. We see greater opportunity than we have in the last little while. But we don't have anything significant under contract or anything I can announce at this time.
Your next question comes from Steve Hansen, Raymond James.
And I will say congrats on all the community efforts. Mike, I think the S is not lost in the whole ESG debate, still could [indiscernible]. Just the first one for me is a follow-on on Cam's question to some degree. But I'm just trying to understand the tension right now that you're seeing between M&A opportunities and capital deployment into organic type growth like Regional One. I know how are you squaring those 2 off right now? You've got a couple of LOIs under what it sounds like. But maybe just dealing -- thanks for the relative opportunities that you're seeing internally versus externally?
Yes. It's -- I mean, it's an exciting period for us because when Regional One has the opportunity to buy things, that's what fuels their growth. Their success is driven by how well they buy product, and that enables us to sell it. And so we're excited when those opportunities come, and that's why we structure our balance sheet the way we do, so that we can move quickly if as and when they come. We continue to see good flow through our acquisition pipeline. We've got 2 under contract that we're excited about and anticipate closing in the next, well, 90 days or so. But I really don't view it as an either/or internally. We very much take our view of capital is that its head office is droved to fund all the good opportunities we see. Our balance sheet is in great shape. As we speak, we've got 1 debenture that comes due next year, and we'll probably refinance that at some point before it comes due. And other than that, we really don't have any great financial demand. So I think we're in a good spot to be able to fund the opportunities we see now.
Okay. Very helpful. And just one follow-up, and I'll jump into the queue. It's just on the integration now of Carson. Again, your footprint seems to be really nicely solidified, I'd suggest here. I think you've spoken in the past on future opportunities for the medevac platform. But is that something that's got a fair bit of runway of growth still either organically or acquisitively? Can you broaden the reach into other regions? And how do you feel about that platform as a general question?
The medevac platform through the pandemic has been remarkably resilient. And not that, that was a surprise to us, but I think the level of resiliency was positive. And so when we were able to add an industry leader like Carson to our existing group, it gave us a foothold on the West Coast. And I think you'll see tremendous opportunities for us, both in the Fixed-Wing business as we expand into parts of Canada where we don't currently operate. And that really could be organically by winning new contracts or it could be acquiring other strong companies that have contracts. And by an expansion into the rotary wing part of the medical evacuation business, where we have a small foothold in Manitoba, what we're really just beginning. So I think you'll see organic and acquisitive growth in that area over the medium term.
Your next question comes from Chris Murray, ATB Capital Markets.
Maybe starting off with the Aviation business and just thinking about how that's evolving. It sort of sounds like definitely things are getting better, and you did highlight some pent-up demand. Can you talk a little bit about how you expect seasonality to play out? It sort of sounds like maybe a little bit less seasonality than normal as we go into next year. And then the second part of this, you've also talked about coming off the government support. I would assume that would be not only for things like huge, but also for some of the support into the remote communities. Previously, Mike, you've talked about not wanting to do anything around the dividend until those programs have ended. Just any additional thoughts around dividend. Anyway, I'll leave it there and then let you answer those questions.
Okay. Answering the second question first. The -- our payout ratios are at a level where financially, we could definitely consider increasing our dividend. And that's a key part of our business model. We want to share our success with our shareholders, and that's given us our 5% CAGR in our dividend since we started. We don't want to be perceived as utilizing government money that was to help us maintain services as a way of paying for the dividend. And as such, we've chosen to wait until we've cleared any sort of government support on our dividend. That's happening now. And so we're going to be in a position to look at our dividend in the short and medium term. The original question about the seasonality of the business, that maintains. The adding of businesses like Carson helped to mitigate that because the medevac business isn't as seasonal or seasonal at all, frankly, relative to our passenger business. We anticipate a normal kind of relationship between the third and fourth quarter. The third quarter is always our company's strongest, and there's a slight decline in the fourth quarter, simply because on the manufacturing-based business, it's slightly harder to do some outside work. And in the aviation business, Christmas freight work is high volume and lower margins. So we would anticipate sort of a normal seasonality to the business.
Okay. And then my other question just is on corporate costs, a lot higher than normal in the quarter. Just wondering if there was anything unusual maybe related to this change in the DSU plan? Or any other color you can give us on why the costs were significantly higher?
Yes. The DSU plan had absolutely nothing to do with the cost change here, Chris. The DSU plan was just simply that we had a plan that never distributed vested units. And so some of them have been sitting there for 1.5 decades, where people had earned them their vested and they just hadn't been distributed. So that's fully gone through the income statement in previous years, so that has no impact. The increase in the short-term was the sum total of 2 things. It was that in the preceding year, there had been voluntary wage reductions and cost reductions, very little accrual for incentive compensation, whereas this year reflects a more normal salary structure and a regular accrual of incentive compensation based on the program we have. And so it's not out of line with preceding years, although the company is bigger so it's a higher number. But it would be in line relative to the size of the company with preceding periods.
Your next question comes from Kevin Chiang, CIBC.
If I could just go back to Quest, and I think Cam and Steve had asked a few questions here. Just given the fixed price contract nature of that business, are you throttling back on bidding just so they are not caught booking contracts, just given the uncertain outlook for certain cost and inflation? Or do you feel comfortable that you can build a big-enough buffer that you can kind of quote today on projects quarters or months from now, even though inflation is running hot today?
Yes. It's a really good question. We need to continue to transact business in the environment we're in. We're building in buffers for those things, working with our customers. And you may well see a movement in some of those contracts. It's volatile enough to -- so as the SFI model where there's flow-through increases or reductions in price based on commodity levels. That is not the industry standard in windows at this time. But these projects are with our existing customers and long-term customers. And we're going to make sure we look after our customers. So we're going to remain active, take advantage of opportunities there, and we'll manage the costs as best we can.
Looking to be innovative on our approach, whether that is working with the customers so that there's set take dates, so that takes some variability out of it. I mean from a customer's perspective, commodity prices may go up, may go down. So it's something that we have a vested interest in as partners together to try and look to future contracts that make sense for both the customer as well as Quest manufacturer. So we're working through those strategies to try and deal with things on the shorter to medium term.
That makes a ton of sense. And just on -- just given all the supply chain issues and resource availability issues, just wondering with these vaccine mandates getting put forward by, I guess, both the Biden administration South of the border and obviously here in Canada for certain federally regulated industries, is that impacting your labor availability at all? Or exacerbating it in markets that you're already short?
Our labor issues are not affected the same way as they were by COVID. In the past, we had a lot of employee absenteeism trouble, anticipating exactly how many people are going to be in the factory on a given day. That level of unpredictability has largely gone away. Vaccination levels in Canada are very high, and it really doesn't impact us in the same way. Having said that, there is a labor shortage in certain places we're in. To give you an example, in Springfield, where there's a concentration of stainless steel manufacturing, competition for employees is high, even absent the COVID issues. And so that's where tight labor markets create the challenge sort of more than COVID. The tight labor markets are indirectly the result of COVID but not entirely. As businesses are expanding, there's just demand for employees. We're somewhat optimistic that as government subsidies to pay people to stay at home go away in Canada, in particular, it will lessen some of those labor restrictions. Carmele, have you got anything else on that?
Yes, let me add a little -- yes, let me add a little bit more color on the vaccination aspect of this. Because as you correctly point out, our -- all of our airlines, of course, are mandated to have employees vaccinated. And we were ahead of that very early on, such that we literally at each of our airlines have less than 5 people that are vaccinated. So when the rule came into effect, it virtually had no impact on us. And you've seen the headlines from other airlines. So manage that very, very well. So no impact there. And then let me give you an example on the manufacturing side, where we've actually taken advantage of this. And that's our wireless company, WesTower, where many of the sites that we work on do require vaccinated employees. So obviously, those employees that we send will be vaccinated. But there are some that do not require it. So we have a pool of individual employees who have chosen not to get vaccinated. And we use them on those sites and in fact, have picked up employees where other employers have been very dogmatic, it's knowing have to be vaccinated. So we've actually increased our labor force a little bit. They have to use in, obviously, the right circumstances, but it's just an illustration of how we try to use the rules as best we can and leverage our capability.
That makes sense. And maybe just last one for me. In the prepared remarks, you talked about earnings this year getting pretty close to pre-pandemic levels, getting a run rate of $400 million of EBITDA, I guess, exiting 2022. So that obviously puts you above what you were doing a few years ago. So it seems like your mindset is now returning to growth here. As you come out of this pandemic, I'm just wondering, at a high level, has that changed how you want to shape this company just given M&A has played a key role here and how you've built this portfolio? Are the end markets you want more exposure to? End markets you want less exposure to? Just lessons from the crisis that much change how you kind of think of this company 5, 10 years from now.
I think, Kevin, the greatest thing that the COVID-pandemic has done for us in terms of our strategy is it entrenched the value of our diversification. We didn't have the same challenges in the same businesses all the way through this. And as a result, when other aviation exposed companies were discussing daily cash burns, we were generating free cash flow enough to fund our CapEx and to pay our dividends. And so we're even more committed to the concept of a strong group of companies that aren't entirely in the same businesses. Having said that, I don't think you will see us expand into multiple segments. We've always talked about, we'd love to have some exposure to the agricultural segment. We haven't been able to find anything at this point that fits our standards and our pricing requirements. So whether we'll ever be able to do that is questionable. But in terms of adding more companies like Carson to add to our medevac business or adding the underground capabilities to WesTower or Macfab to increase the production capacity out of Ben Machine, I think you could expect more of the same on that. Where we have an opportunity to expand into something that we know that's got a reliable cash flow stream and helps diversify our earnings, we will do that.
Your next question comes from Nauman Satti, Laurentian Bank.
Congrats on the quarter.
Thank you.
So just going back to the question of normalized EBITDA, I'm just wondering, this quarter, you guys have done $95 million. And there was a lot of -- I would say, some challenges on the manufacturing side. So going forward, what additional pressures or challenges do you anticipate? Or I would think that the normalized levels could go even higher if these manufacturing segments sort of bounces back. But just wanted to get your thought of where the pressure or challenges you're seeing or can potentially come up?
I think if we to use Q3 because the number is there, the $95 million, we achieved that with 2 key challenges. The disrupted schedule at Quest, which made our production inefficient and didn't allow us to generate what we would expect to generate in that business. That problem is going to go away over time as we get through the pandemic and regular scheduling occurs. So that will definitely increase our EBITDA on a normalized basis. And then the other one is on the aviation front. While we've had really good improvements and in some businesses actually being better than the pre-pandemic like our freight and medevac and charter business have all strengthened beyond pre-pandemic numbers. We're still missing 25% of our passenger revenue, and that's a big number. So that's going to improve our performance on a go-forward basis. And the other thing that's going to help us is when the lease portfolio at Regional One normalize as that's running at slightly less than half of what it would in a normal period, we see those leases improving. And as Europe normalizes like North America, we anticipate that will return to normal by sort of mid-next year. The interesting thing is that our leasing revenue is almost 100% EBITDA dollars. And so that has a disproportionate impact on our earnings. So as that leasing portfolio strengthens, you'll see further growth in that EBITDA number.
Okay. That's very helpful. And just one last one for me. If you could -- if there is any update on the Curacao surveillance contract that was up for renewal?
Yes, we have submitted our bid. And we anticipate hearing back in that, Carmele, late this year, or early next year?
Yes. The Curacao one, we actually anticipate hearing in Q4. So it will be sometime this quarter.
Your next question comes from Jeff Fenwick, Cormark.
I wanted to circle back on to the PAL legacy performance in the quarter. I mean, the top line, obviously, a very nice step up. But the thing that stands out to me is that the margin, when I back into the EBITDA margin for that, continues to remain pretty high, I guess, versus pre-COVID when I look at the numbers. I know you guys instituted a bunch of cost-saving efforts and you mentioned that this was starting to become a more consistent part of your quarters here. So how do we think about the margins for that part of the business here going forward? Is there a bit of a catch-up that has to happen on some of these OpEx items? Or can you sustain those kinds of strong margins?
No. I think -- well, bear in mind, the one thing that we still did have a small amount of assistance is in our Aviation business in Manitoba and Ontario. We had that $5 million of government assistance from the previous quarters. So that helps our margins. But going the other way, the last dollars of passenger business are very high margin dollars. Because when you add extra people to an aircraft that's already going, most of that flows to the bottom line. So we think there's still lots of room to continue to grow EBITDA on an absolute basis in the Aviation business. And we expect stronger margins exiting the pandemic than we had going in, largely because of some of the cost stuff we've been able to do through the pandemic. And the other thing that's kind of an under-discussed part of our business is with the strength of the mining and exploration business, we're picking up a lot more charter and contracted flying in that area. And it's been probably a decade since we've seen this level of activity on that side of the business. So that gets us better utilization of our aircraft.
Okay. That's helpful color.
The other thing I would -- sorry, the other thing I just mentioned is on the airline side as well, we had a little bit of growth in routes for provincial airlines in the quarter, which will further drive revenue as we look forward.
Okay. Great. And then I wanted to talk about the maintenance CapEx build. You called that, I think, in your quarter as well, that it was obviously, with activity picking up, that is going to grow. And just trying to think about it with respect to the free cash flow payout ratio here. And is the sort of big picture, high-level thinking maintenance CapEx is going to march along higher with EBITDA? And does the free cash flow payout ratio kind of hang out here? Or is it likely that the maintenance -- I know there's some uptick for Q4 and then Q1 is typically seasonally higher. Like does the free cash flow payout ratio start to trend a little bit higher here over the next couple of quarters?
That's a really good question. The maintenance CapEx profile is directly proportional to how much we fly. Most of the things you're doing, overhauling engines, overhauling landing gear and those things are done based on how much you're flying. So we will see those increase as we fly more. But there is no deferred maintenance CapEx. It's not like we've chosen not to do something to save cash for a later period. Where everything is in line with where it should be, you will see a bump up in Q4 because it's not something that's exactly equal quarter to the create the timing of like engine overhauls. You could have 4 this quarter and 2 next quarter with an average of 3. So it bounces around a bit. Q4 will be higher than a normal Q4, but not by much. In terms of Q1, we're still in the budgeting process, but we try and do as much as we can during the slow winter season so that we've got all the planes for the busy summer season. And as we trend back to a full utilization of our aircraft, the maintenance CapEx cost of 2019 is a good proxy for that. Carmele, do you have anything else on that?
No, I agree with those comments and kind of the range that you've given, that's reflective of what we anticipate on the CapEx side. I mean, there's obviously been -- we've increased our fleet to capture some of the revenue. So -- but I think that what you've given is accurate.
Okay. And then maybe just one last one on M&A. I mean, you gave us some good color earlier in your comments there, Mike. But with $900 million of liquidity, the balance sheet is in really good shape here, it sounds like it's more of the sort of maybe $50 million to $75 million ticket sizes you're looking at. But would you be in a position that you would contemplate more of a platform acquisition? I know there's still a lot of moving parts in the economy that probably make that tough. But would you contemplate doing something that's more of like a $300 million, $400 million, $500 million acquisition at some point?
Absolutely. We actually have a couple of things we're investigating as we speak. We're early in the process. But where we see value and with a long-term focus that maybe somebody else doesn't see, this is the best time to buy on those kinds of things. And I don't want to suggest anything is imminent or we're very close to something, but we're very active looking on that front. And we won't do deals for the sake of doing deals. But I'm a big believer. Adam's team has done about 5 deals over the last year or so. Those have been tuck-ins because that's what's been available and that's what we've been able to do from a due diligence point of view, but in no way should anyone take that as that's all we're looking at. We are active on the bigger transaction size as well.
Your next question comes from Ryall Stroud, RBC.
Nice results today. I just wanted to touch on the run rate $400 million EBITDA guidance exiting the pandemic and try to understand what's embedded within that. So does this run rate number embed like any normalization of project delays at Quest? And would it also include contribution from the $70 million expected to be spent on the 2 new acquisitions in the next 3 months?
That's a good question. It does not include anything that we haven't paid for. So the $70 million worth of acquisitions that are under LOI are not included in that number. It return -- it includes a return to normal at Quest or a more normal environment, which of all our businesses, that's probably the 1 that will take the longest to get there. And when it does, we will probably be exceeding the $400 million. If I missed anything there, Carmele?
No. I mean -- so there's -- I mean, as we take a step back and look at it, we've got what I refer to as pent-up EBITDA in R1 as its leases normalize. Quest, obviously -- and there's 2 types of Quest expansion. There's one, just getting it back to the level it was. And then, of course, we had additional capacity as in the Dallas plant that we can utilize as well. So that's -- that additional capacity is not built in. It's just getting back to the level that we were at. And then there's also kind of EBITDA for our flight school as our foreign students start in the -- hopefully, the first start -- or the first part of 2022 to come back online, then that will be an increase of EBITDA there. So those start to kind of gather up and get us $400 million. But other projects that we haven't paid for, to Mike's point, are not embedded in there -- or future growth potential even with the money we spent is not embedded in there.
Okay. Okay. That's helpful color on the puts and takes there and actually leads well into my next question, which is on the Moncton Flight College. And given some of the news headlines surrounding the pilot shortages in several pockets of the global air travel industry, I'm curious if you've seen a material uptick in any of the kind of demand or registrations recently? Or are the headwinds, as you mentioned with the international student pool still offsetting this?
Yes, I can take that question.
Sure. Go ahead, Carmele.
So domestic students have actually remained relatively strong throughout the pandemic. We are seeing a definite uptick in that, though, as we go forward. The foreign students, the only issue that we've had there, the demand is absolutely there is just getting them through the process and into the country and vaccinations and isolation periods, et cetera. So once that starts to flow, and we think it will almost be like a floodgate, it will open up. We think that, that will come back and then do believe there will be demand in excess of where we were before. And so look -- and we have now the advantage because Carson Air also has a flight school, being able to leverage capacity with the flight school at Carson to fully access, I think, the demand that will exist. And of course, if it's beyond that, we will, of course, look to organically potentially establish a third base.
Your next question comes from Tim James, TD Securities.
Actually, just one last remaining question for me. The SUS -- the elimination of SUS this year, I know sort of last year, the thinking was -- or while you were collecting the SUS benefits was that, that was a benefit that would -- if it were not in place, you'd be making sort of cost structure adjustments to account for that given the lower level of business. As you think forward now, given that, that is no longer in place, are you able to eventually recapture through further adjustments to your costs, the lost benefit of SUS in those affected businesses?
Yes. That's a good -- really good question. You have to look at SUS in sort of 2 separate buckets. The stuff we received on the Aviation front, together with the support we receive from provincial and territorial governments, that money was truly reinvested in extra flying that we wouldn't have been able to do, absent the government support. So you see as the majority of that money has fallen off in the Aviation business, the margins have stayed where they were, which is evidence of the fact that, that money was used for what it was intended. On the Manufacturing business, you kind of get a double whammy because demand remains strong through that. And as a result, the SUS did help us in a period where margins would have definitely tightened because of access to employees and things we had to do to keep our people safe. As we exit now, we don't have the SUS. So we've seen a slight decline in the Manufacturing sector, at the same time as we're dealing with the supply chain issues and the inflation and material prices. So the government support is almost kind of missed time for us in manufacturing because now it's a more difficult period as it relates to some of those cost features. But yes, you can see that we've basically exited the government support in Aviation, and our margins are back ahead of where they were historically.
Your next question comes from Matthew Weekes, IA Capital.
I think I just have one here. It looks like you talked about on the positive momentum in the Aerospace & Aviation segment and some positive demand trends that are happening there. I'm just wondering if you could provide some commentary on how growth happened in the quarter on the basis of volume versus passing through pricing increases for fuel and that sort of thing? And how that contributed as well?
Okay. The fuel increases were passed where they needed to be. Those were not, in aggregate dollars, a big number. Where you saw the biggest improvements in revenue in Aviation were driven by: a, the large aircraft sales and engine sales at Regional One, which were approaching all-time highs if they didn't actually exceed historical numbers, together with improvements in the charter business where we're doing some flying on natural resource projects where that didn't really exist the year before, and together with continued strong freight performance. So those would be the main drivers, and of course, increases in passenger load factors. The fuel prices do play a part in our passenger revenue numbers, but in percentage terms, it's not a big number.
Okay. I appreciate the color on that. And in terms of the large asset sales that are kind of occurring at higher-than-normal levels at Regional One, are these typically higher margin sales as opposed to parts and the leasing revenues?
No, they would be absolutely the opposite there. Where if we were to take a plane and part it out, we might make 30% or 40% or 50% margins on the parts, whereas if you were to sell a whole plane, your margin would be a fraction of that. So it's bigger dollars, and it definitely impacts revenue and it does help EBITDA. But $1 in leasing revenue is the highest return in terms of EBITDA. $1 in parts revenue would be the second highest and then the lowest return, and from an EBITDA point of view on an additional dollar in sales would be in large asset sales.
[Operator Instructions] Your next question comes from Konark Gupta, Scotiabank.
End of the call has been longer, but we want to stay kind of pre-focused on a couple of things here quickly. On this $400 million EBITDA that you kind of expect exiting 2022, obviously, that's pretty remarkable compared to where we were just like last year. So kudos on that. But I was just kind of wondering how do you think about -- because Regional One has been kind of lumpy in the sense that you can have aircraft sales and products and engines and leasing and a lot of moving parts there. How should we think about EBITDA in a more sort of normalized environment without Regional One number, like will that be something closer to $300 million, is it fair assessment? Or it's going to be more than $300 million?
The $300 million for what? Are you talking about a revenue number, Konark or...
No, just the full EBITDA across Exchange Income, excluding Regional One.
Well, Regional One at 2019 was a little over CAD 100 million. And we anticipate that we will be back at that at some point during next year. It's important to understand that they're diversified within their business. And so the fact that in a given quarter, asset sales are higher or lower, is often offset by less part sales in that period or different leasing revenues. And so the revenue number has always been the most volatile at Regional One. The EBITDA number is remarkably consistent, and we're on a very good trend that will see us get back to pre-pandemic levels in the near term. In terms of surpassing that, if we get some opportunities to buy some assets, we may grow beyond that. But that's not included in the $400 million number. Carmele, have you got anything else on that?
No. I mean I would agree. The one thing I guess I would add is that as you look forward, I think what you've been seeing is if you look at articles in the Aerospace/Aviation sector is that engine shop visits are in huge demand. I mean I think Pratt & Whitney came out with its results in Q3, and its revenues were up 25%. And that is going to drive engine leases. So we see a kind of a good opportunity there for our businesses as we look forward. And that's where Regional One is really good at. It's not that they're dependent on any one thing. It's not like they have to lease a whole aircraft. They've got the flexibility to do what makes sense for the market and hence, why their EBITDA tends to be consistent. How they achieve it is in different ways, but they're achieving it is consistent.
That's great color. And last one for me. You talked about Regional One leasing Quest, Moncton, few other subsidiaries that will obviously -- there is still some pent-up there, and they will recover as we come out of this pandemic. But my big picture question is whatever you have picked up during this pandemic on the positive side, is there anything there that you think might fall off or reduce, like, for example, charter cargo, any other thing you can think of that comes off in the next couple of years.
I think the one thing that's really surprised us, Konark, is the resilience of the freight revenue. Our internal expectations were that it was going to fall in direct correlation with the improvement of the passenger numbers. It hasn't. It's plateaued. But we think there's been a change in how the Northern people are buying. And so we anticipate that, that will maintain at higher than pre-pandemic levels. Whether it falls off slightly from these levels, it may well do that. But we anticipate continued strong freight revenue. The other thing we've seen is the resurgence of the natural resource market and exploration and development of mines. That's something we haven't vetted from in a decade. And I think we're at the beginning stages of that. So I think there is the opportunity for continued growth on that charter revenue to replace charter revenue that perhaps that was pandemic-related like our ISR -- I'm sorry, our ISC charter work where we did the -- we moved the nursing people around the country to get them into Northern remote locations. So I think there may be some trade-off there. I don't know if Carmele has got any other insight on that, but that was...
Yes. I mean I think you're bang on, Mike. It's the resource sector that -- to the extent that there's a decline in charters, that was driven a bit by virtue of what I'll call COVID-specific need is going to be offset by the resource sector. And the other thing that we've seen actually in the pandemic is it's been very effective and allowed us to attract, I think, work we may not have in the past, is our ability to utilize our assets in our -- what I'll call our global or collective fleet to perhaps provide a service that otherwise individually, we would not have been able to do. And so we will continue to look for opportunities. I mean ISC is an example. Obviously, that's a pandemic one. But nonetheless, what we do and whether it's the Bombers, where we're bringing in a number of different people, different locations, those logistics, very, very effective at. And I think we'll certainly look to exploit our capability in that regard.
There are no further questions at this time. Please proceed.
I just want to thank everyone for sticking with us through a long call here. There was a lot to discuss, but a lot of good things to discuss. We're excited about where we are. And we look forward to talking to you again in February with our year-end results. Have a great day.
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.