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 and 12-month period ended December 31, 2020. The corporation's results, including the MD&A and financial statements were issued on February 17, 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 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 in the Risk Factors section of the Annual Information Form and Exchange's other filings with the 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 individuals, 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, Mr. Pyle.
Thank you, operator. Good morning, everyone, and thank you once again for joining us on the call today. I'm joined this morning by Carmele Peter, EIC's President; and Darryl Bergman, our CFO. In the updates we have provided over the course of the last year, we have consistently described the implications of the COVID-19 pandemic to our operations and outlined our plans to manage through the complicated and ever-changing environment in which we find ourselves. While we'll again today address some of the challenges we've experienced during a particularly complex fourth quarter characterized by a significant second wave of the pandemic, we have also substantially positive news to share about EIC's continued operational and fiscal resilience in the quarter and throughout 2020. From a financial perspective, EIC's performance remained strong, both in the quarter and for the full year. The company was able to generate revenues of $1.1 billion for the year, with $302 million in the fourth quarter. We generated a consolidated EBITDA of $285 million for the year and $82 million for the quarter. We were able to generate free cash flow less maintenance capital expenditures, producing $113 million or $3.23 per share for the year and $41 million or $1.17 per share in the quarter. We have also remained profitable through the year and through the quarter, respectively, recording adjusted net earnings of $47 million or $1.35 per share for the year and $19 million or $0.53 per share for the quarter. The pandemic has tested our model of providing a meaningful, reliable dividend to our shareholders through a diverse portfolio of aviation and manufacturing subsidiaries. We met this challenge head on, and I'm pleased to tell you that our payout ratio, in spite of the economic upheaval, remained a strong 71%. We calculated our free cash flow less maintenance capital expenditures basis. I believe, however, that while these operating results are very encouraging, they do not fully show the resilience of EIC. I believe that perhaps the best testament to the strength of our model is the fact that since the end of the first quarter where the pandemic took hold, we have not only been able to maintain our dividend, fund our maintenance capital requirements, invest in growth capital and close the material acquisition of WIS, we were also able to reduce our debt net of cash reserves. We believe that this exceptional performance for our company, where 60% of revenues come from Aviation & Aerospace. We believe that improving our balance sheet over the last 12 months is a remarkable accomplishment, made possible by a series of strategic and principal operational decisions and directives, not made just in the moment, but built into the very foundation of EIC at the inception of our company and carried forward diligently to today. In that respect, I would like to share some observations on what exactly makes EIC different. Describing those differences have helped us navigate the past year and discuss why our unique characteristics position us well for a post-pandemic future. In building the EIC family of companies, we have consciously made the strategic investment in acquisition choices that build a diversity by design into the corporation. We continue to feel strongly that this proven approach drives value for shareholders, and we have seen the benefits of those choices directly reflected in our results through the year. The composition of our Aviation & Aerospace segment is an excellent example of the power of this approach and practice. The challenges of passenger aviation during the pandemic are broadly known. Our commercial airline operations and Regional One's business as lessor and seller of aircraft and aircraft parts and engines are not immune to the realities of reduced passenger volumes and the progressive imposition of travel restrictions and quarantine obligations. At EIC's airline operations, we've experienced a year-over-year decline in passenger traffic, at times exceeding 90%. Although we're encouraged that the traffic returned quickly to our network when the pandemic conditions ease and travel becomes more feasible. Full year revenues in the segment reflect the realities of the pandemic, with the segment generating slightly over $687 million in 2020, a decline of 29% from the previous year. That said, the decline in revenue and volatility in the industry, our performance in the segment remains exceptional. This reflects a deep underlying strength of the corporation and validates our conscious choice to cultivate a family of air operators in essential aviation services: medevac, freight; flight trading; maritime surveillance; part sales and leasing, that support and are complementary to one another. PAL Aerospace's continued stability in the face of a pandemic is an excellent example in that regard, operating in an industry defined by long-term contracts for strategic and essential services delivered on behalf of governments around the world. The company's operations remain consistent through the course of the year. As a result, PAL Aerospace was able to continue executing on existing programs, including the Canadian Department of Fisheries and Ocean Surveillance Program and the acceleration of the preparations to support Canada's new fixed-wing search-and-rescue aircraft, the CC295 King Fisher. In both instances, the continued delivery of these programs meant finding new ways to meet operational milestones within the balance of the pandemic operating environment. Beyond the continued execution of these programs, PAL Aerospace was also able to extend its sterling international reputation and global leadership position in maritime surveillance and ISR solutions by securing a strategic and exciting new contract with the government of Netherlands. While the contract itself is significant, perhaps equally significant is the strategic foothold this win now gives us in the European surveillance market. A similar story of consistent performance underpinning EIC's strong results, strategic investment for future growth and delivery for the communities we serve can be found in EIC's Air Ambulance business. Again, we have delivered strong results by trusting in our management team's experience and ability to responsibly continue delivering essential services for customers and the communities counting on us. We've also fortified our position in this segment by investing in 4 upper shuttle units, specialized medical isolation systems for the transportation of sick infectious patients for remote communities to larger facilities better to provide acute care. The immediate benefit of adding this capacity in the pandemic environment is both self-evident and indicative of our willingness to go the extra mile in ensuring we are fully prepared to meet the needs of the people we know are counting on us. While negatively impacted through the year and particularly challenged in the fourth quarter, the continued operation of our family of regional airlines has been one of the persistent examples of accomplishment in adverse circumstances for EIC in 2020. Our regional operators have charted our course through the pandemic based first and foremost in the understanding that our services are essential. Knowing that in many instances the presence of an EIC airline is the only reliable way to move people and goods in and out of the communities we serve, terminating or suspending service has never been an option for management. Put simply, we need to keep flying regardless of the financial implications to EIC. I cannot overstate the significance and the scope of this effort we have made to provide our passengers, employees and communities we serve with the safest possible conditions throughout our operation. We have collectively focused the strength and operational experience on an airline family that, when viewed collectively, as one of the largest air service suppliers in Canada. We know our efforts in this respect are appreciated by the communities we serve and by the customers who fly with us. This confidence in the safety of our operation, combined with the essential nature of the services we provide, led directly to a quick return of passenger traffic during periods of relative stability in the pandemic. The work we have done and the investments we have made have both preserved our operations and positioned EIC carriers as market leaders as the Canadian economy restarts and travel resumes in the months ahead. We remain cautious, but we are excited about our future. The essential nature of the services EIC provides also implies the need to be diligent in our approach to government, accurately communicating the challenges we face in maintaining services while identifying programs that can be engaged to help us sustain our operations. Our ability to continue delivering essential services and our willingness to partner in finding solutions to the challenges facing our communities during the pandemic has made us a logical partner for governments in addressing their own unique logistical challenges. All of our air operators are actively involved in vaccine distribution efforts across a number of Canadian jurisdictions, and we continue to deploy the collective capacity of our airlines in partnership with Indigenous Services Canada to manage logistics and transport for essential medical personnel on charter flights with strict safety-first health protocols, serving, fly in indigenous communities and protecting against COVID-19. We are immensely proud to be part of these efforts, keenly aware that our unique capacities are delivering vital health services and giving our communities the first hope of a glimpse of a post-pandemic future in Canada. In the Manufacturing segment, the story of EIC's success through 2020 shares many of the same characteristics of our accomplishments in Aviation. Exceptional teams making the critical decisions required to maintain production and meet customer needs, supported by a willingness to continue making the strategic investments, we believe will continue to position EIC for future growth. Overall performance in the segment was strong for the year, with revenue increasing by $96 million or 26% to $462 million and EBITDA increasing by $32 million or 58% over the prior period to $88 million. Numbers alone do not, however, capture the exceptional efforts of the design, drafting, engineering and management teams have worked diligently to maintain production and meet the needs of our clients by explicitly making operational and investment decisions that cement the health and safety of our employees above all other considerations. To accomplish this goal, we have ensured the implementation of best practices, made sound investments in productions where appropriate and distributed resources quickly and efficiently between our operations. We have developed forums for the continual sharing of lessons learned to protect employees and overcome operational obstacles at build efficiencies. We have also instituted heightened employee screening at all EIC facilities, enhance cleaning and sanitation practices, worked diligently to meet or exceed all public health guidance from the jurisdictions in which we maintain operations. Notably in this segment, we are able to build on the established success of Quest Window Systems through the continued ramp-up of our new Texas plant and the successful completion of the WIS acquisition in the third quarter of 2020. Accomplished during the pandemic, this transaction extends our strategic position of Quest as a full-service manufacturer and installer of our products. We continue to believe the synergies gained by solidifying Quest as a single point of comfortability for our customer builds on our already significant competitive advantages in this space. We know firsthand the benefits of this type of strategic investment through the acquisition of AWI in 2019 and believe firmly this is another investment that will return substantial value to EIC in the long term. It has been extremely gratifying to watch companies from EIC management shift our operations at critical times throughout the year to meet calls for support of the battle against COVID-19. In several instances, we've been able to scale up production capacity and make our expertise available to provide in-demand services and medical supplies to pandemic response efforts, leveraging our expertise to deliver critical goods for frontline applications. Collectively, we have more than 100 talented design, drafting and engineering professionals in the EIC family of companies, Who turned their folks to developing products and services to meet community demand, and we have produced exceptional results. To provide 2 quick examples. In Ontario, bed machine products led the design and manufacture face shields with the eventual use by a local health region in Manitoba, water blast manufacturing designed and manufactured IV polls to be distributed across the provincial health network. These efforts and dozens more like them across our organization highlight the character we have always known to exist at the core of the EIC. Our people care deeply about the communities we serve. Given the realities of COVID-19, certain initiatives our companies have previously land, like the First Nations Youth Aviation Camp usually offered by WIS Airways and the EIC program, hosting children from Northern Manitoba and Northern Ontario to Winnipeg Blue Bombers and JETS Games over the course of the year have unfortunately been suspended. We know how valuable these opportunities are to engage with our communities, and we are looking forward to bringing these events back just as soon as it's safe to do so. That said, just as they have for our business, our people have found unique ways to continue to contribute to our communities by developing new initiatives that make positive change. PAL has found ways to work with the government and the community partners to make positive contributions for the people in Newfoundland and Labrador, facing food insecurity during the pandemic. Perimeter has maintained their scholarship program for first nation students, pursuing careers in aviation. And Comair has made a series of donations to fight COVID and spread seasonal cheer through the Christmas period while continuing its program of moving recyclable materials from [indiscernible] communities. There are dozens more examples like this across EIC of our employees and business leaders working taking together to make the kind of positive community contribution that has always been a central component from our corporate character. In this year, perhaps slightly more than years previous, these have been uniformly exceptional efforts. With that firmly in mind, it would be impossible to reflect on EIC's accomplishments for the year, with -- in which our people have played so exceptional and direct to role without pausing to acknowledge that these efforts all come during a particularly challenging time for so many in their personal lives. The collective total of living through the pandemic has been significant. Our employees have had to confront the reality of repeated lockdowns, prolonged isolations from friends and family, the challenges of balancing work and responsibilities at home and in some cases, the pain of losing a loved to this terrible disease. With that in mind, the diligence and determination of our people have consistently demonstrated this year is that much more remarkable. Their hard work and unwavering commitment to meeting the needs of our customers and making positive contributions in our communities have allowed EIC to excel during one of the most difficult times in our history. For that, I simply could not be more grateful. Thank you very much, and I will now hand off the call to Darryl, who will take you through our financial results.
Thank you, Mike, and good morning, everyone. Before I present the financial results for 2020 and Q4 2020, I would like to take a moment to highlight what I consider to be EIC's notable financial achievement in 2020. For a global -- during a global pandemic, characterized by significant economic uncertainty, extensive travel restrictions and passenger volumes declining at times by over 90% on a year-over-year basis since the onset of the pandemic, EIC still retain the ability to fund its maintenance capital expenditures, pay its dividends in full, grow the company through acquisitions and have cash flow left over to pay down debt. This is a remarkable accomplishment in our industry and a testament to the resilience of EIC's business model. Our adherence to maintaining design diversity in our portfolio, supported by a rigorous attention to balance sheet management, and the stewardship of our remarkable team across the organization has been beneficial this year, perhaps more than ever. Given the success in that respect, it is my pleasure to now review for you in greater detail our full year 2020 and Q4 2020 financial results. The corporation took proactive steps to ensure it maintained the liquidity required during the uncertain economic times created by COVID-19 pandemic. In a period of worldwide uncertainty like many other large corporations, EIC made a draw on its credit facility to ensure access to capital should it be required. This was done as a precautionary measure in the first quarter and did not reflect an imminent need for liquidity. Throughout the remainder of the year, the corporation repaid most of this precautionary draw. The corporation has taken several additional steps to manage its liquidity during this COVID-19 pandemic. These include workforce rationalizations, compensation reductions, delays in non-essential capital expenditures, route adjustments and the corporation accessing the Canadian Emergency Wage Subsidy. The size of the corporation's credit facility as at December 31, 2020, remained unchanged at approximately $1.3 billion. The corporation retains the ability to access an additional $300 million in an accordion feature should we choose to exercise it, giving the corporation combined access of up to $1.6 billion. Utilization of the corporate credit facility was $794 million at the end of the period. Reducing this by the $70 million in cash on hand, the result is a net debt of $724 million. As a result, the corporation is in an enviable position of maintaining access to liquidity in excess of $560 million, excluding the accordion. The corporation's net debt of approximately $724 million is an increase of approximately $27 million from the prior period. It should be noted that the increase for the period is inclusive of the WIS acquisition, for which the cash consideration was USD 38.4 million. Even more notable is the decline in net debt through the onset of the period of the pandemic starting in March 2020. Over that time, EIC's long-term debt, net of cash, has decreased by over $50 million, including the aforementioned USD 38.4 million in cash used to purchase WIS. Excluding the WIS acquisition, the combined impact of management's actions and the impact of foreign exchange reduced our long-term debt, net of cash, by more than $100 million, a remarkable achievement given the circumstances of the pandemic. Outside its existing credit facilities, the corporation has acquired no additional debt in 2020, has no long-term debt coming due before December 2022. At the end of 2020, our leverage ratio remained well within the 5x covenant extended by lenders through September 30, '21, coming in at 2.69x. Contributing to this strong covenant result are the corporation's successful efforts in managing capital expenditures along with working capital. Going forward, inclusive of the impact of all announcements to date, management expects to remain well within the original 4x covenant extended by lenders. The corporation ended the period with working capital of $324 million and a current ratio of 2.1. Management staff across the organization remained laser-focused on working capital management with the goal to continue with the precedent set to date to remain cash flow positive through the impacts of the pandemic. The corporation generated revenue of $1.1 billion, a decline of $190 million or 14% over last year, Aerospace & Aviation segment revenue decreased by $287 million, while Manufacturing segment revenues rose by $96 million. Specific to the Aerospace & Aviation segment, revenue was down 29% to $687 million. Revenues from the legacy airlines and provincial declined by $122 million for the year and direct reflection of the immediate severe declines in passenger traffic across all the airlines experienced at the onset of the pandemic and in the latter half of March and reflected significantly lower than normal volumes through the remainder of 2010. The corporation's aerospace operations were largely unaffected by the pandemic, which offset in part the decreases in revenue experienced by the airlines. Cargo and charter volumes were up year-over-year, again, helping to offset the decrease of passenger revenues. Increased cargo volumes were directly impacted by needs that grew from the pandemic and were characterized by larger shipments of supplies and essential products to the communities that depend on the essential access provided by our airlines. Notable as well was charter operations, where revenue increased in Q3 and Q4 and as part of the result of work for the Indigenous Services Canada to move a healthcare worker -- health care providers and in part, by an increase in cargo charters required to move essential supplies. Both are in response to heightened needs driven by the effects of the pandemic. At Regional One, revenue decreased by -- in 2020 compared to the prior year by $165 million. Regional One's 2 main streams of revenue include sales and service revenue and lease revenues. Sales and service revenue decreased by 52% year-over-year, impacted most significantly by the material decline in the sale of whole aircraft in engines during the period because of the pandemic. Lease revenues decreased by 61% year-over-year. Pandemic impacts drove a reduction of flight hours on leased aircraft and negatively affecting the lease portfolio -- leasing portfolio. Revenue from Regional One's parts sales was not impacted to the same magnitude as other revenue streams. Turning now to our manufacturing segment. Revenue grew by $96 million over the prior year for a total revenue of $462 million in 2020. All of our EIC manufacturing facilities were deemed essential services and have been operating throughout the pandemic. The segment has seen robust demand, slightly offset by reduced efficiencies associated with the implementation of COVID-19 health and safety measures. Full year results in 2020 for AWI and LV Control and the acquisition of WIS in Q2 contributed to the year-over-year increase in revenues. Moving to EBITDA. Consolidated EBITDA was $285 million, down 13% or $44 million for the year compared to the prior year. EBITDA in the Aerospace & Aviation segment in 2020 was $218 million, a decrease of $81 million compared to the prior year. EBITDA by legacy -- EBITDA generated by the legacy airlines and provincial decreased by $15 million. The decrease in EBITDA for the legacy airlines was principally driven by the underlying conditions previously discussed as related to revenue. While EBITDA at the legacy airlines and provincial is down year-over-year, it is offset in part by the commendable efforts of management and staff to mitigate the impact of the pandemic by controlling costs across all expense categories. EBITDA for Regional One decreased by $66 million from the prior year. In addition to the factors discussed for revenues, a conservative increase in allowances for doubtful accounts was recorded by Regional One due to general uncertainty in the global airline industry. In the Manufacturing segment, EBITDA was $88 million, an increase of $32 million compared to the prior year. EBITDA at Quest was higher than prior year as it included a full year of results from AWI and the acquisition of WIS in Q3 2020. Notably, both installation businesses have been performing above our expectations since being acquired. The balance of the Manufacturing segment collectively experienced an increase in EBITDA year-over-year, inclusive of a full year of results from LV Controls. Generally speaking, despite significant pandemic effects at certain EIC subsidiaries, the corporation's diverse nature facilitated the achievement of positive cash flow and positive earnings during a period of significant global economic uncertainty. Net earnings for the year totaled $28 million, a decline of $56 million from the prior period. Net earnings per share declined to $0.80, a decrease of 69% from 2019. Notably in the period, the weighted average number of shares increased by 8%, which also contributed to the reduction on a per share basis in net earnings, adjusted net earnings and free cash flow. EIC reported adjusted net earnings of $47 million for the 2020 year, representing a decrease of $55 million or 54% compared to the prior period. The company also delivered adjusted net earnings per share of $1.35. In 2020, free cash flow decreased by 19% over last year to $198 million or $5.66 per share. This outcome is driven by the decreased EBITDA, increased tax, current tax expenses and increased principal payments on rate of use lease liabilities, while being partially offset by decreased interest costs. Free cash flow less maintenance capital expenditures per share decreased 17% to $3.23 per share from $3.89 per share in the prior period. The corporation protected free cash flow less maintenance capital expenditures of $3.23 per share. The free cash flow less maintenance capital expenditure payout ratio was 71% in 2020 compared to 57% in 2019. It is worth highlighting that this payout ratio did weaken from 2019. There is not a material difference in comparatives, 60% and 76%, respectively. It's examined against 5- and 10-year averages. Now let's turn to a short summary for results specific to Q4 2020. The primary explanation from financial results and changes in the quarter were largely consistent with drivers for the year-to-date. Where there are notable differences, I will provide additional detail. The fourth quarter of 2020 outperformed expectations outlined in the release of our third quarter results for several reasons. Given instability in the period, particularly affecting the Aviation & Aerospace segment, the corporation qualified for $10 million in federal support through the Canadian Emergency Wage Subsidy or CEWS Program, an amount higher than previously anticipated. In every instance in which the corporation has received government funding through the pandemic, we have been diligent in using that support exactly how the program intended. In this instance, access to the CEWS funding allowed the corporation to retain workers on the payroll who would have otherwise been laid off, to rehire workers who had -- who were previously laid off and to continue essential business activities. Also in the quarter, demand for the corporation's ISR assets remained strong, resulting in additional revenue that was not confirmed at the time, and demand for the corporation's charter services during the quarter exceeded management's expectations. Consolidated for Q4, EIC generated revenue of $302 million, which is down $62 million or 17% from the comparative period. Of the decrease, $77 million was attributable to the Aerospace & Aviation segment, offset by an increase of $15 million in our Manufacturing segment. Aerospace & Aviation segment revenue declined by 30% to $176 million for the quarter. Revenue from the legacy airlines and provincial decreased by $30 million over the comparative 3-month period. Decreases across the subsidiary airline operations were partially offset by increases within PAL Provincial's aerospace operations. For Regional One, revenue in the fourth quarter 2020 declined by 59% compared to the prior period. Notable during the fourth quarter, Regional One benefited from the sale of some larger assets, improving results relative to the second and third quarters of 2020. Now turning to our manufacturing segment. Revenue grew by $15 million in the fourth quarter versus the comparative period. The revenue for this segment was $126 million. EBITDA generated in Q4 2020 was $82 million, a decrease of 8% or $7 million from the comparative quarter in 2019. EBITDA contributed by the Aerospace & Aviation segment in the period, in the fourth quarter was down by $19 million compared to the prior period. EBITDA generated by the legacy airlines and provincial increased by $1 million. While the airline operations continued to be affected negatively, the Aerospace operations and receipt of the CEWS helped to offset the negative impacts on airline operations derived from the pandemic. Regional One contributed EBITDA of $9 million for the quarter, a decrease of 70% from the prior period. The sales of larger assets during the fourth quarter did improve EBITDA when compared to the second and third quarters of 2020. In the Manufacturing segment, EBITDA was $25 million, an increase of $10 million in the fourth quarter of 2020 versus the prior period. Net earnings in Q4 2020 were $13 million, a decline of $12 million compared to the prior period. Net earnings per share in the period were $0.38, a decline of 49% when compared against the prior period. The corporation reported adjusted net earnings of $19 million for the fourth quarter of 2020, a decrease of $11 million or 37% compared to the prior period. Adjusted net earnings per share declined to $0.53 compared to $0.88 in Q4 of last year. It should be noted that in the period, weighted average number of shares increased by 4%. This impacted per share amounts for net earnings, adjusted net earnings and free cash flow. During the fourth quarter of 2020, free cash flow generated by the corporation was $59 million, a decrease of $9 million or 13% from the comparative period. The decrease is driven by the 8% reduction in EBITDA and an increase in current tax expense, although partially offset by a decline in interest costs during the period. Free cash flow less maintenance capital expenditures increased by 12%. On a per share basis, it was $1.17, up $0.08 per share over Q4 2019. Despite the challenges associated with the pandemic faced in the quarter, the corporation's free cash flow less maintenance capital expenditures payout ratio improved to 49% versus 52% for the comparative period. I will conclude the review of the Q4 results by reiterating that the strong performance within the quarter continued to enable the corporation to fund its maintenance capital expenditures, pay dividends in full and have cash left over to pay down debt. Looking ahead to Q1 2021. As a notable reminder, the first quarter of the year is historically a softer quarter given the seasonal effects to the corporation that are typically present. Before I pass the call over Carmele, I would like to echo Mike's comments about the quality and commitment of EIC's people I've personally seen over the course of this particularly challenging year. Since joining the EIC family of companies, I've been continually impressed by the remarkable commitment to responsible management and diligent adherence to the corporation's principles and values across the organization. The hard work and continual willingness to share expertise, identify opportunity, develop sound asset management strategies and responsibly explore opportunities for new strategic investments we have seen uniformly across the EIC family has made our job of both managing through the pandemic and charting a strong future for the corporation possible. With that in mind, I can only extend my sincere thanks to all those whose work has made it a genuine pleasure to be part of this team, especially over the course of this year. I will now pass the call over to Carmele.
Thanks, Darryl. My comments today will focus primarily on the near-term outlook for the corporation across our various lines of business before transitioning to some more general commentary about EIC's performance as a whole. But, first, a word about 2020. Why? Well, because there is no better predictor of the future than the past, 2020 was plagued with significant challenges due to the pandemic, yet EIC found a way to produce results in which we have maintained profitability, paid our dividends, improved our balance sheet and met our capital commitments. So while the COVID-19 pandemic continues to generate considerable uncertainty in the market, making an accurate future forecast impossible, we are confident in our ability to continue to deliver solid results and value to our shareholders. And we can also provide some general comments as to what we expect for the first part of 2021, which varies between business lines. Scheduled passenger volumes on our regional air operators will remain tied to the level of restrictions, quarantine and active COVID-19 cases in and around the communities we serve. As such, continued enhanced provincial and first nation government lockdowns due to the case counts and concerns of the variants of virus will cause lower passenger volumes, similar to what we experienced in the fourth quarter, and those will persist through Q1 2021. However, as we saw in the summer and early fall of 2020, when case counts subside and restrictions ease, passenger volumes rebound quickly given the essential nature of the services we provide. Further, although the timing of when vaccines will be distributed varied greatly by region, indigenous communities are in the priority group, and some members of our communities have already received their first dose, all reasons for optimism. Minimized volumes in the first part of 2021 continue as a whole to remain relatively stable and consistent with pre-pandemic levels. We also continued to see persistent increased demand for cargo services in direct response to pandemic conditions. We expect this trend to continue as travel restrictions persist and further COVID-19 outbreaks remain a significant threat in isolated communities. EIC's charter offering continues to perform well, mirroring or exceeding normal pre-pandemic levels in some instances. Our customer mix has somewhat changed with the reduction of traditional charter business being offset by specialty charters deployed to transport essential medical personnel to remote First Nation communities across Canada, COVID-19 relief charters and most recently, vaccine distribution charters. PAL's Aerospace division will continue its strong performance in 2021, given that many of its services are tied to long-term government contracts. Also with increased geopolitical tensions, environmental awareness and budgets tightening throughout the world, the ISR space will be active. And PAL will be looking to seize opportunities as it did with the recent win of the Netherlands Coast Guard contract to supply 2 -8 maritime patrol aircraft. Regional One continues to be materially affected by the pandemic and will rebound more slowly than our passenger business given its dependency on global commercial aviation industry. However, EIC remains firm in our belief that the regional jet market will rebound ahead of larger gauge aircraft, and we continue to be optimistic about the future of the sector. In fact, Regional One is starting to see some hundred customers looking to prepare for increased flying later this year, with increased pilot training and inquiries on engines and parts packages. In our Manufacturing segment, operations continue to experience strong demand while working to progressively address reduced margins and some project deferrals due to the impacts of COVID-19, particularly at Quest. This leads to lower revenue at Quest in the short-term as it is not possible to backfill these production gaps given the long lead times on these projects. Long-term demand remains strong. Also, the recent acquisition of WIS together with AWI now vertically integrates Quest in all of its markets and provides a strong foundation for future growth, enhances our competitive advantage. As for EIC as a whole, Q1 will be a challenging quarter as we continue to deal with the heightened COVID-19 cases and resulting restrictions, the arrival of new variants of the virus, and the first quarter is our seasonally slowest. Also, Q1 2020 was impacted by the pandemic for less than 1 month, making year-over-year comparables more challenging. However, as we have shown throughout the pandemic, we are well-equipped to deal with these challenges, and we are optimistic on our future. Turning now to CapEx outlook. Our maintenance CapEx is primarily driven by our Aerospace & Aviation segment and moves in line with our scope of operations. This was very evident in the last 9 months of 2020. When the pandemic significantly reduced our flight hours, we saw it correspondingly decrease in our maintenance CapEx. This lower level of maintenance CapEx is expected to continue into 2021, but Q1 will be higher than the fourth quarter of 2020 as we still perform a greater portion of our maintenance in the seasonally slower first quarter. Also maintenance CapEx will gradually increase in 2021 as our flight hours increase. Material growth capital expenditures for 2021 relates to 2 projects: the first is the 2 -8 maritime patrol aircraft required for the Netherlands Coast Guard contract, where modifications starting in Q4 of 2020 and will continue into Q2 of 2022. The second project is the start of the construction of a new hanger in Winnipeg for the fixed-wing search-and-risk contracts. No other material growth CapEx is expected, however, Regional One is very opportunistic, and the current environment is creating very interesting opportunities, which we will look to take advantage of if they materialize. In closing, like Mike and Darryl, my pride in this organization, particularly through 2020, is also rooted in the phenomenal efforts of our people at every level in the organization. To see your efforts and commitment have been exceptional this year feels like a profound understatement. Please know that your work is sincerely appreciated. I'm extremely proud of what we have achieved together in 2020 and energized by what I believe is yet to come. Finally, before moving on to questions, I want to thank all customers, shareholders and all stakeholders for their ongoing support. I would also like to extend EIC's collective gratitude to all of the frontline workers who continue to put themselves at risk through this pandemic to look after the rest of us. We would now like to open the call for questions. Operator?
[Operator Instructions] Our first question is from Mona Nazir with Laurentian Bank.
Congratulations on the results. I appreciate your commentary and color. Firstly, just in regard to Carmele's kind of outlook. I understand with COVID cases still elevated and lockdowns in place in some geographies, visibility is limited. But just touching on the growth CapEx. My understanding, you went through what's in the pipeline, on the Netherlands and the fixed-wing [ starts ]. But would it be fair to say that as growth CapEx over the last few years has been heavily weighted towards Regional One, that decline that we saw in growth CapEx by 60% is very strongly correlated to the R1 weakness? And based on your outlook commentary, a base case scenario would be for CapEx to kind of grow CapEx to remain at kind of lower levels similar to 2020?
Yes, that's a fair statement. The only part that makes it difficult to predict of a Regional One is they're opportunistic. I'd point out that when this first started, the pandemic, we suggested it as early as our Q1 reporting that we thought that we might see significant buying opportunities as businesses in airlines were stressed. And government support really delayed that process around the world. And we're starting to see an increase in opportunities there, Mona. So well, at this point, we haven't stepped off the curve a bit. If Regional One finds something that's going to enhance our long-term opportunities, we'll certainly take advantage of it. I would point out that the segment we're in is not one where we're seeing retirement of a lot of aircraft. There isn't a replacement for the narrow-body regional jet. And as such as it ramps up, we expect the market for the planes we're in to become stronger, much more quickly. So to the extent we have a shot to jump in, if there is market turmoil, we will. But at this point, that has not occurred.
Okay. And just in regard to the opportunities that you're citing. Is it certain verticals that you're targeting new product categories or kind of existing within your portfolio at this point?
It would be largely focused on the things we're already doing, just doing more of it.
Okay. Perfect. And then just secondly, there was a recent article showcasing PAL's strength throughout the pandemic, and financial results are quite indicative of such. I'm just wondering if you could talk about some opportunities that you're seeing on the PAL side. And with R1 and passenger demand remaining low, have you thought about capitalizing at all on PAL's defense expertise and pivoting the business in that direction at all as kind of an offset mechanism?
Well, the answer to your second part first is no because our job at EIC is to make sure there's available capital from whatever positive opportunities our subsidiaries uncover. And so the fact that Regional One had used more capital in the past has no way inhibited PAL from examining the opportunities that it faced. And you see that with the win a couple of years ago of the northern search and rescue contract, followed by the renewal of the fisheries contract to roughly double the size it was before. And then most recently, the contract to the government in Netherlands. We are very interested in growing that business, and PAL has been provided with all the necessary resources to take advantage of that. There are opportunities around the world in the maritime surveillance business. There's opportunity to provide aircraft in Malaysia that we bid on, that we expect an answer on sometime in the current year. There's opportunities coming in the South Pacific in this year and next year where we're very active bidder. So we're excited about that business. The purchase cycles are longer, so we have to invest a lot of time and effort on those. But the sheer fact that we've been able to expand our base into Europe bodes very well for our ability to perhaps expand into the South Pacific over the next year or 2.
We also have further growth in our on-demand surveillance aircraft. We have a medium-range aircraft doing work for the U.S. Department of Defense. We also have the Force Multiplier, which is right now just down for some maintenance, but it's going to enter into some work for the Canadian government towards the end of March. So these are all further opportunities that held PAL has in its space.
Okay. And the Malaysia work and RFP and South Pacific, that would be new geographic areas for PAL. Is that correct?
Yes.
Yes.
Okay. Perfect. And just lastly for me. This is more of a confirmation question. Were there any anomalies or things to note that were outside of the normal course of activity that impacted quarterly results? Like does the $82 million in EBITDA, does it include any aviation-related government subsidies or just the CEWS itself?
Yes. We -- subsequent to the year-end, the government of Manitoba and the government of Ontario announced programs partnered with the federal government to ensure that there would be services into remote northern communities. At the time of the year-end, this was uncertain. And as such, we've recorded nothing in the 2020 results for this program. The revenue from this will be recorded in the first quarter to the extent it's related to 2020. But the short answer to your question is, there's no anomalies other than things like CEWS, which we fully disclosed.
Your next question is from Steven Hansen with Raymond James.
Mike, I was just looking the case-to-case data last night for Manitoba and I know it's still a dire situation, but on a relative basis, the case count is actually well, well down from what you're seeing in November, December. As you look forward here, have you given -- has the government given you any indication on the movement of priority patients and priority movements in and out of the First Nations communities here over the next couple of months? I'm just trying to understand how the case count should -- the declining case count should translate into passenger volumes over time and whether that's in your control, or you've got any color from the government as yet?
The government doesn't really guide us on that. It's -- to be honest with you, in this part of the pandemic, it's more driven by the individual First Nation government and what's happening in that community. And we have to see an improvement in our load factor since their lows in late December, late November, early December. We've still got a ways to go, but I think that this gives us the most sense of optimism as it relates to the First Nations. The case count is one, but I think more importantly is that there are the leading edge of vaccines. And so we have already delivered some up there, and we expect to begin delivering. I've got Dave White here with me as well. Begin to expect to bringing people in for inoculation. Maybe you can give a real quick update on that, Dave?
Yes, I can. So the -- for example, on the Moderna vaccine, we're actually taking some of our second cases out -- or second doses out this week. And for bringing people in for vaccination of the Pfizer's, we hope to start that in the next couple of weeks. We actually have put some preliminary numbers together with the government to allow for that transportation of people from the community to the vaccine sites and then back to the community. So we will see that traffic by the end of this month, early March.
And ultimately, that's the best news about returning to normal because once those communities are largely vaccinated, the concerns about -- and you see in some of the communities, [indiscernible], as an example, Red Tucker Lake and others, where when it gets into the communities because of the close quarters our customers live in, it spreads very rapidly. So those have subsided, which is great news. And as the people get vaccinated, that there is a pent-up demand of travel that hasn't happened for other doctor visits, all the other things. We need to see our doctor for other than the pandemic, aren't happening at normal rates. So there is a pent-up amount of demand that we will see as soon as the crisis mitigate somewhat.
Okay. No, that's helpful. And just as a related question then, it sounds like the specialty charter business has actually been quite strong through the period. Is that something you still have visibility on? And if so, for how long? Just trying to get gates, the relative cadence of returning passengers relative to some of the specialty support you've had.
It's actually been uniquely -- some would say we knew to predict and quite frankly, it's part of the reason our Q4 was better than we expected it to be was because as people couldn't travel on the sched because of the pandemic, there was still a need to move, whether it was people who actually have COVID or people who were exposed to COVID. And so that was done on a dedicated charter basis. So I would suggest to you that those charters are inversely proportional to our passenger business. As our passenger business strengthens, those charters will decline. The charters that relate to moving the medical people on for ISC in Digital Services Canada, those will continue for the foreseeable future because they have to make sure that we get the medical professionals into the community. So I would be shocked if that stops before the snow has gone.
And in fact, that contract was extended for 6 months, so we know that will continue. And then the vaccination distribution charters, we'll obviously see those continuing as well into the summer months.
Okay, great. That's helpful. And just last one, if I may, is on Quest and sort of the gaps in the production system from project deferrals. Just trying to understand what that means to utilization rates for Quest down south in particular, but I guess also in Ontario. Just maybe give us a bit more context in terms of how you sort of see the operational side of Quest looking for the next 3 to 6 months.
Yes. I think what's happened is a number of projects have been postponed because of the cost of building during a pandemic. So they haven't gone away, but if they aren't in the ground, they're delaying the start. And the problem is if we reserve space for our projects, say to run from June to September and want a given plant. If that project is moved, the business isn't such that you can just go get a different project. So the difficult part is we are going to have bumps and weaker sales in different parts during 2021 because of the hole that's created. The positive part is, is what we're seeing in terms of opportunities for 2022 is strengthening. We're starting to see a sense of normalcy in the bidding part of the business, which is encouraging. And so we expect this to snap back quickly in terms of a return to more sort of normal Quest levels next year. The other thing I'd point out is I think there's a bit of a misconception that we have Quest U.S. and Quest Canada. We have 2 production plants that can both make planned things for everybody, so we will smooth the production levels in both by sharing the projects that are left in 2021 in both facilities. We've seen the importance of that during the pandemic where we've had to shut the plant in Toronto in a couple of occasions because of outbreaks of the virus. And right now, our Dallas plant isn't operating because of a snowstorm. And who would have thought you'd say that? But the ability to move things back and forth will be helpful through 2021, but it will take us most of the year for that protection scheduling to return to a quotation-marks normal.
Your next question comes from Chris Murray with ATB Capital Markets.
Turning back, when you guys reported Q3, certainly, the commentary was, look, there's -- be prepared for the fact that it is going to be a little bit weaker than in previous years. And certainly, the numbers turned out a lot better than expected. Darryl laid out some of the reasons for that, but is it fair to think that a lot of the drivers that you saw in Q4 look to be continuing in Q1? And I guess a couple other pieces of this question. First of all, it's fair to assume that you'll recognize, I think it's the $11 million in Q1, kind of, I guess, is a onetime item that comes from the government contract. But can you also lay out any additional contribution we should be thinking about for, call it, the January, February, March period and as well your thoughts around CEWS?
Sure. The CEWS will continue to decline. It was slightly better in Q4 than we expected it to be just because of a greater decline in passenger operations than we had anticipated. As it relates to Q1, we will record the provincial support from the government of Ontario, the government of Manitoba, partnered with the federal government. Caution about the exact number because the formulas are still not quite said on exactly what that number will be. What was reported was the maximum, and we expect to draw most of that, but the exact number I can't comment on. The -- in terms of other surprises, I think we'll continue to see some of the COVID charters that we've been doing, but albeit at a lower level. But the caution I would give, the main difference between Q4 and Q1 is, in Q4, there are no winter roads. In Q1, there are winter roads. So there's certain abnormal pandemic revenues that we benefited from, particularly on the cargo side where airlines were the only way to provide it. For the next 6 or 8 weeks, based on the fact it's been minus 40 here for a while, who knows how long, but the winter roads are a significant competitor on the freight business. And notwithstanding the pandemic, we don't see the bump in freight that we did in Q4 because we have an alternative. That goes away. That's a normal seasonality part of our business. So while we do have the provincial funds coming in, in Q1, I still would expect Q1 to be a tougher challenge than Q4. But I'm optimistic following that, that we're going to start to see the climb out of this as cases decline and vaccinations are done later in the quarter so that we'll start to see improvements in the second quarter. But in terms of Q1, I think this is going to be kind of the slowest point of the pandemic for us simply because we have the combination of the second wave, and we have the seasonal norms we have, which is the winter roads.
And Chris, the other difference that comes in mind between Q4 and Q1 is, Q4, we had 2 on-demand surveillance aircraft lines. And during the first quarter, for most of it, we will only have one. Well, Force Multiplier's down for heavy check, so that would be another delta there.
I think both those short-term issues like the Force Multiplier will be back up and running by the end of the quarter.
Okay. Fair enough. And then proceeding to my next question and that's thinking about or how you're thinking about once we kind of get to the far side of this. And this is maybe longer term, but you've had to make a lot of changes. Certainly, you have the covenant adjustments, a lot of the different things you've had to do. Arguably, maybe acquisitions had to slow a little bit or maybe change what you were able to do. How do we think about -- once we're sort of passed maybe the worst of this, as you said, maybe Q1 is going to be the worst of this, but then we work our way out into the back half of '21. How do we think about the unwind of our your covenant package? How do we think about a return maybe to more aggressive growth? Certainly, you've got a lot of capital to work with. How do we see you guys over the next, call it, 2 or 3 years in terms of growing the business?
You -- do you want me to comment on the comment on the covenant package?
You can take the commentary.
The covenant package, Chris, just so you're aware, was a temporary increase to 5x. And basically, what happens is, at the end of September 30, 2021, it reverts back to what we originally had under our original agreement.
And we don't anticipate any challenges meeting that.
No.
To be honest with you, with the benefit of hindsight, we perhaps didn't need to get the covenant change we did, but it's always better to approach your bank for an umbrella when it's not raining, and so we thought we'd be proactive on that. Our performance has been such that we -- [ barring ] something massively unforeseen, we don't anticipate getting anywhere near the 4x, let alone the 5x. But I love the fact that we're getting closer to the point where we can talk about the longer-term and what it is we do. Out of this team have remained active on the acquisition front, and we do have things in the pipeline, the ability to travel will be massive so we can complete due diligence. And so I think you will see an acceleration of that process in the back half of the year. In terms of the business as a whole, one of the things I'm looking forward to in 2022, where hopefully we're at a sort of normal stage in maybe a more normal state. At least, in the flying part of our business and probably even in Regional One, is the ability to see the impact of the investments we've made in the last sort of 18 months jump off the page, whether it's the fisheries contract, the acceleration of Northern search-and-rescue contract, the beginning of the Netherlands contract in the second quarter of 2022, the full impact of WIS and AWI, the impact of the Dallas plant. I think you're going to start to be able to talk about growth off of 2019, which was kind of the old normal, and that's what you'll see in 2022. The single biggest advantage EIC has in this is we don't have businesses that have been materially damaged in the medium or long term. We've had some short-term headaches, and our people have been phenomenal in guiding us through those. But the Northern Airline business is unchanged through this. It's in no way damaged by what we've gone through as we come out the back end. And in fact, there's likely to be pent-up demand as we get out the back end of this as medical treatments and stuff that have deferred have to be made. So I think what we look at is an accelerated return to normal as we get into perhaps reporting Q2 or reporting Q3. We'll be able to give you some thoughts on 2022 and the growth we anticipate to see there. But we've made some significant investments that are readily apparent. They've supported our results, but they've been covered up by the challenges. When the challenges get away, you'll see some of that become more evident. And then the one other thing, keep in mind, because we'll report it if we decide to, but if yes, Regional One were to find a significant opportunity you've seen in the past, so that immediately jumps into the results and the earnings they generate. So should we find something, at this point, we haven't committed anything, but if we find something exciting, you'll see that contribute as airlines return back to normal more assets at advantageous prices.
I just want to emphasize one point that Mike made because it's important one and because of how we've handled and continue to carry on our businesses through this pandemic, it's not like when this starts to come to an end, we're starting at 0. Because of how we've managed, how we've invested, we have a lot of those investment opportunities already nurtured, and so you will see that springboard effect. The other comment I'd make is we will, of course, keep looking at businesses around us, around the segments in which we operate because there are those that may not be fortunate enough to be able to make it through the pandemic, which may create some additional opportunities that we'll be looking for, whether that's on an asset basis or obviously, sale of business basis.
Your next question is from Cam Doerksen with National Bank Financial.
So first question just on Regional One. Just sort of looking at the sort of the aircraft leasing and engine leasing side of that business. I mean, obviously, for obvious reasons, lease revenue has sort of sequentially declined throughout 2020. I'm wondering if you think we're at the bottom? And have you had -- and you sort of alluded to this, but have you had any customers start to bring back any aircraft of yours back to operation and then started resuming lease payments?
Now it's really important to understand, we didn't really defer lease payments per se. We moved things from fixed lease payments to power by the hour, and that's why our balance sheet is so good. We haven't recorded lease payments that we're not sure when we're going to get paid. Our -- actually, the aging of Regional One stuff has never been better than it is today, which is actually very counterintuitive. In terms of new inquiries, it's a little bit early for the full aircraft leasing to start to bounce spot where we're starting to see real inquiries is on engines, whether it be purchasing or leasing engines. As the airlines want to ramp back up, they've deferred some of these investments. And then rather than going for a shop visit that's multimillion dollars, they're looking for less expensive alternatives as they ramp up. And so we're starting to have those discussions. I would suggest that they're not really reflected in our results yet, but we could tell, particularly with some of the bigger regional carriers in the U.S., that they're getting ready and are actually getting -- setting out plans for how they're going to ramp their fleets. So that's the most bullish sign we've seen on that. We expect that parts will move first. That's the early warning system because there's -- unlike EIC where we've had no planes that are grounded, we've maintained flying almost all of our metal. A lot of the airlines haven't flown theirs. And so as they put them back into service centers, there's going to be investment required in parts, and so we'll see that first, followed by engines, whether it be leasing of engines or sale of engines. And then finally, the leasing of the whole aircraft.
And you started to see these signs in the industry, right? I mean if you looked at some of the recent commentary, whether it's Spirit Airlines and they're resuming pilot training and flight attendants or even a startup Breeze Airways, which has come on the scene, and they expect to be kind of up and running by the end of the year or Allegiant, with kind of a whole bunch of new routes, all good signs from our perspective of what the optimism is in that space and bodes well, obviously, for Regional One going forward.
Okay. No, that definitely makes sense. Just secondly from me, maybe, I guess, maybe a little more detail on a question from earlier about a couple of the opportunities that you have with PAL Aerospace. I'm wondering if you could maybe scope, I guess, the size of the Malaysia Maritime Patrol aircraft opportunity is, and also if you could maybe describe the scope of your involvement in the future aircrew training bid?
I got to be careful because both of those are competitive situations. The opportunity in Malaysia is unique. Unlike our -- the contract we won in the Netherlands where we're supplying the aircraft and maintain ownership and charge for the use of the aircraft, the opportunity in Malaysia is like the contract we originally out of the UAE to actually source the aircraft and sell it to the government. Of course, there will be follow-on support, but that's a contract which -- it's significant. It's -- I don't know how to put it.
It's for 2 aircraft. That's certainly known at this current time.
And those contracts, I mean, they're -- we would take a look at what we spent. I got to be careful because what equipment's on, it isn't public. But if you look at what we invested in the Force Multiplier, and there's 2 -- at least 2 of that, it gives you an idea of at least a quantum of it. So you're talking about close to $100 million if you look at using our plane times 2 as a starting place. As it relates -- what was the other half of the -- yes.
So just -- I mean I don't necessarily need dollar numbers, I'm just wondering like what exactly is your involvement in the, I guess, the skyline bid for future aircrew training? Like what would you -- if they were to win, you're part of that, what actually would you be doing in that long term contract?
Yes. So our role as part of that kind of partnership would be to provide the kind of back-end aircraft training, so the sensor training, combat, the equipment training. And that's currently done actually internally by the federal government themselves, so it's the first goal in which they're outsourcing that. So we're a good fit to be able to provide those services, so that's what you'll see. I mean the time-wise is, I think there's a draft RFP out now with the funnel bids occurring. I think it's early 2022 with the contract award, sometime in 2023, just to give you some perspective on timing.
Your next question is from Doug Taylor with Canaccord Genuity.
I'll echo the congratulations on a good quarter. One item, and I'm sorry if I missed it, there's a lot of discussion about broad government support for the airline industry right now. And I just want to be clear in that you don't expect Exchange to participate in any of that specific federal government support for passenger airlines? Or I mean is there still room for you to participate in that? That would be helpful.
I've learned a while ago that I'm not good at predicting things. And when it comes to predicting governments, I'm exceptionally bad. But generally speaking, most of our airlines are covered the good northern support that's out there. There are some things that Comair does or that provincial aerospace does that -- or Provincial Airlines, I'm sorry, do -- that don't specifically tie to that. So I wouldn't say that we won't benefit, but we are not going to be a material beneficiary of those programs. Having said that, I don't know what's going to be in them. So perhaps we won't benefit at all, but we do have the support we need to continue doing what we do. And we did it without the support, and so having the support lets us do it even better. But in terms of new government programs, I don't envision them having a material impact on us.
Okay. That's what I thought. And just a question about being opportunistic. I mean, you've talked a lot about Regional One and being opportunistic there. But in terms of just general M&A, I mean, the last couple of transactions have been aimed more -- or have had the impact of diversifying your end market exposure towards manufacturing. I just want to gauge your temperature on prospects regarding further M&A in aerospace, given your relative strength there with some of the challenges facing other parts of that industry.
I think the first thing for me to ask that question is we don't really have a sectoral preference. Over time, balance in our portfolio is good, but that doesn't mean we're looking for manufacturing at the expense of aviation and aerospace. What we have seen materially during the pandemic is that the kind of deals we can do are companies that we already know because we have relationships with management teams, and diligence is actually possible. So you saw that with the WIS acquisition. There's a couple of things Adam is working now on the aviation front where we're very familiar with the company and the people that may make it possible to do those transactions. So I think to the extent I can give you a prediction on M&A, in the near term, you're much more likely to see us complete transactions that are more closely related to things we're already doing. A new deal, like when we did Quest as an example, I think those are going to be more likely tied to when Adam and his team can do more enhanced diligence in the field. And so those are probably not until the back half of the year, but we remain active looking and talking. And so it's not like we're going to be going from a standing start where we go back at this, and we remain very active in businesses related to what we're doing now in both parts of the business.
And in connection with aerospace, particularly, I mean, multiples tend to be higher than certainly we have traditionally looked at, but that doesn't mean that growth is in any way impeded. And we've shown that through organic growth, things like Force Multiplier and the various programs that we've invested in and through partnership. I mean we recognize that as we look to various foreign jurisdictions as the ability to grow, that partnership is often a key element of that, and we did it in the Netherlands. We have a partner already with respect to Australia and as we look to potentially bid things in that region. So we're very innovative in how we grow and very disciplined as well and that we're making sure that we do it in the most effective -- financially effective means possible.
And just -- I mean, to clarify, multiples being higher in aerospace, but higher relative to what might be considered trough results or are they just higher based on even normalized results? I'd just like to understand that. That surprises me.
Yes, they trade at higher multiples than all economic circumstances, so they're more challenging to buy. Actually, in some ways, in certain opportunities, the pandemic and our understanding of the businesses may actually make it easier to buy because we know how to normalize better than perhaps some pure financial players would, and so it may provide a bidding advantage of certain circumstances.
Our next question is from Scott Fromson with CIBC World Markets.
Just a few questions on Quest. First, do you have any visibility into new project construction and bid activity?
Well, it is very early sense things have started getting better, but in the fourth quarter. Things got more active in our American markets and in our Toronto market. And so as the developers have been able to see a normalcy and construction capability, we have seen increases in bid requests and discussions on new projects. We've also seen perhaps a greater diversity in the precise communities where things are being built, where there's more towers being built in slightly more suburban settings than perhaps in the past. Although I think it's very early to see that as a trend, I think that maybe be an option to some of the movement away from some urban centers. But we have definitely seen a return to more normal bidding levels in the last couple of months.
That's good to hear. Just turning to margins, are you able to quantify the impact from acquiring the 2 window installation businesses?
I'm not going to quantify it. I will give you qualitative direction that in the pandemic, the margins we generated in manufacturing windows declined materially. We had absentee rates of 15% to 20%. And when you have people put into pods within the plant, if you have a whole pod that's not there, you've got to imagine the challenge it has when you're moving things through the factory. So that was offset by the fact that our operators at AWI and WIS were remarkably good in dealing with those challenges, so the higher margins in the installation offset the challenges in manufacturing. On an ongoing basis as we return to normal, the installation business is probably slightly from, a percentage point of view, slightly more profitable than the manufacturing process is. But you need -- we can't have one without the other, so we kind of look at it as an aggregate margin.
Okay. That's good. Good. Do you see any additional acquisition or capital investment opportunities at Quest to augment the current system?
We're fairly vertically-integrated. So in terms of acquisitions like AWI or WIS -- not really. In terms of production, ultimately, we're going to need to deal with our Toronto facility. It's in 2 plants, some of you had the opportunity to see it. The leases cut due in a few years. And so whether we expand in our current place or move to a new lease facility, more like the Dallas facility, I think you'll see that in ensuing periods. It's really not a 2021 issue. But in the future, I think you'll see us go to more of a design-build factory, just like we have in Dallas because of the inherent deficiencies of that.
Your next question is from Konark Gupta with Scotiabank.
So first one perhaps is on Regional One. So earlier in the pandemic, I think it was a general belief across the globe that regionally, aviation market will be more resilient than the larger aircraft, especially wide-body. I'm curious, the Regional One EBITDA is down 70%, 75% over the last 3 quarters. What's driving that decline in your view? Is it the broader market and regional aviation? Is it the specific situation with respect to certain customers or decline in parts valuations are overly something different?
It's just a general decline in aviation as a whole. If you look at -- there's lots of public comparatives you can look to, whether it be a SkyWest or whatever on the load factors they're experiencing and they are one of the strongest companies in this business. Regional carriers have not been less unaffected through this, but they will likely be the first ones back out, and you can see that by some of the discussion in other places. So I would suggest to you that Regional One's performance is actually quite remarkable through this. They remain cash flow positive, and we've made money through the whole thing, selling and leasing aircraft which would be the exception, not the rule. And I believe that the ramp-up of that will be much more quick. In terms of depressed parts, prices and stuff, on any given transaction, there may be someone who's prepared to sell something to get rid of it to generate cash flow. But in terms of the material ongoing pricing, the cost of an overhaul is the cost of an overhaul, and the cost of an overhaul drives the price of engine leasing, it drives the price of engine parts. So no, we don't see any material medium or long-term change in the price of parts. At any given transaction in the near term, if there's a supplier who needs cash, they may well discount, but that's not a material impact of the business at this point.
That's great to hear, Mike. Then perhaps on the Quest side, so WIS, the disclosures suggest WIS contributed $40 million revenue in the 5 months you had it. So if I analyze that, it's $100 million. Does that math make sense to you, $100 million revenue from base alone? Or was there anything unique in the first 5 months of having WIS that drove that strong revenue?
I'm not really going to give a commentary on a specific number for part of one operation. We don't do that. But I will tell you that with there was nothing extraordinary in WIS' operation in the period that we've had it. It performed exactly as we expected it to, they've got a strong team of people there. And we've worked with them for a long time. That's one of the great advantages of the AWI and the WIS acquisition is we were really -- it was kind of like acquiring family, we knew the people well, and it made it much more seamless than typical vertical integration deals. They will have some of the same challenges as Quest does, as projects get moved around, they're installing those windows, so we'll see some of that over the next year. It's somewhat mitigated, particularly in AWI's case with where we do other types of windows installation, other than just Quest, which may have shorter lead cycles, and we may be able to add some stuff into that in an AWI. But generally speaking, I would say that what was provided was what we expected it to.
That's great to hear. So just a follow-up on that, I mean Quest, when you acquired them and we note sort of the economics of the deal that you had, and with the WIS and all the disclosures we have seen so far, like it sounds like Quest, barring obviously the near-term issues you have with manufacturing, Quest could be sort of a double at least from where they were when you acquired them and maybe similar or better margin. Is that a fair way to look at Quest long term, obviously, barring again the short term issues?
Yes. If we put the short-term issues to the side, it's easier for me to explain this, that I would expect Quest to be materially more than double what we bought it off of because of the investment in the production capacity and then the investment in vertical integration. I think in 2022, you will see the power of both of those things because we've effectively doubled capacity and then added ability to generate earnings on the installation. So as we return to normal one, particularly, Jody and Marty and their teams have done an unbelievable job of juggling one problem to another as we went through the pandemic and the ability to actually get windows produced on time to make sure we're not slowing our customers. But it's had a massive impact on our margins in the near term. As that returns to normal, it will be get to take advantage of the beautiful new facility that a number of people have seen down in Texas and the snow melts there, you'll see enhanced margins out of that as well. So your estimate of double what we got it off of, I would describe as significantly conservative.
Okay. That's good to hear. And last one for me. Apologies if I missed it, but I don't think we discussed a lot about the LV Control acquisition you have done recently as well as the remaining manufacturing subsidiaries. How did the performance in those subsidiaries was in Q4? You mentioned I think some qualitatively that those businesses were up ex-Quest. Just curious as to -- anything you want to add on the manufacturing businesses?
Yes. LV Controls has significant exposure to agriculture. A lot of their customers are in the grain business which, notwithstanding the pandemic, is doing very well. Our order book there is very good. And they -- notwithstanding the pandemic had results that were essentially in line with what we're expecting even before the pandemic. So I would describe their results as very positive. And the opportunity to grow the business post-pandemic remains strong. So it's been everything we thought it would be. The management team there is exceptionally strong.
Your next question is from [ Reyal Strag ] with RBC Capital Markets.
I just wanted to touch kind of quickly on the outlook for lower revenues expected at Quest in 2021, and just wanted to clarify if this outlook is inclusive of WIS, which I believe still has some lower contribution into the first half of 2021?
I'm not really in a position to give a precise number. We're still working through some of that. Certainly, the fact that WIS is deemed in the first half of the year will mitigate some of the things we're dealing with, but bear in mind that some of the challenges that Quest faces will also -- WIS will face them as well because some of their projects have moved. Again, it's also something that's a very short-term issue. We're talking about several quarters, not years. And like I say, the bidding process has bounced back to normal, and we're very active looking at new projects or actually, in a lot of cases, the restart of existing projects.
Okay. Okay. That's helpful. And then maybe just a bit of a longer-term question on Quest. I was curious if you could speak to the effect that a structural shift towards work from home could have on demand as a business longer term? Any idea that might be a positive or a negative or neutral?
It's a hard question. I think it's largely neutral. And the reason I say that is because the kind of buildings we're building are relatively low-cost housing alternatives for people. And so to the extent that where they work changes, if they move to completely rural settings that could have a negative impact. We don't think that's particularly likely in most cases. But using Toronto as an example, we have seen some bidding in outside the Toronto core, but major towers being built in the Mississaugas of the world and satellite communities. And so I think it's largely a non-effect for our business. Again, it's not like office towers where people staying at home means they need less space. If they're working from home, they still need a home.
Our final question is from Tim James with TD Securities.
I apologize for doing this, but I want to just return to the Quest revenue outlook for a brief moment, just to make sure I'm interpreting it correctly. So the reference to Quest revenue being lower in '21, I assume that's full year '21 versus full year '22. Does that include the WIS revenue contribution in there? In other words, will the incremental full year contribution from WIS be smaller than the decline in the kind of legacy Quest business, if I can call it that? I'm not looking for numbers, I just want to make sure I'm interpreting that language.
I would expect that the dislocation may exceed somewhat with the marginal impact from WIS for a full year. And the reason I hesitate in answering it is because part of the dislocation is within WIS itself, too. Wherever you install manufacturer window, it's got to be installed, and now we install all our own windows. And so it hits both sides of this. So yes, I would expect that the decline in the aggregate would exceed the benefit of the WIS contribution.
Okay. Okay. That's helpful. And then just about...
And we'd expect that to fully reverse in 2022.
Right. Okay. Just thinking about the CEWS and modeling it going forward, and the report has been very clear and articulate and indicating that those benefits were they not to have happened, there would have been labor reductions in their place. So does that mean we should -- when we're looking at 2022 -- or sorry, 2021 and whenever we want to assume CEWS is no longer in place, should we be looking back at those periods where it did occur as being largely irrelevant to margins or the cost structure? Or will the absence of them, will there be a bit of a headwind, I guess, is what I'm wondering to margin once we lap those quarters where they started kicking in?
Yes. I think on a very general basis, they flowed through our financial results, but they will create somewhat of a headwind, particularly on the manufacturing side, where because we qualify for the CEWS on a consolidated basis, the manufacturing businesses remain reasonably strong through that period. And so it helps us deal with inefficiency, not so much of a decline in revenues. On the aviation side, it's much more of a direct flow-through impact. We would have had less pilots or we would have less people if we didn't have the CEWS. So there will be a portion of that forms a headwind, but I would certainly say it's a minority of the CEWS payments and a relatively small minority. So yes, there will be some headwinds out of that, but most of it is a flow-through.
Okay. Okay. Then that's helpful, and then kind of aligns, I think, with the general thinking. Just my last question, a quick one, just some kind of housekeeping here. The amortization of intangibles kind of jumped up quite a bit from the third quarter to the fourth quarter. Any sort of comments on that? Any particular reason for that? Or WIS was dealing with relatively small dollars, but just curious for modeling purposes looking forward.
I've got Rich, our head of our accounting staff. Maybe he'll jump in and answer that for you.
Yes. Hi, Tim. So during the fourth quarter, we finalized the purchase price allocation for the acquisition of WIS, so that meant that we recorded 5 months worth of intangible asset amortization since the period of acquisition during the fourth quarter. And when you acquire businesses in the manufacturing segment, one of the biggest portions of those intangible asset allocation is related to the value of the backlog of the intangible assets. And that runs off relatively quickly, but it does make up the biggest portion of the intangible assets and the biggest portion of the intangibles amortization. So that number that you're seeing is directly related to the WIS acquisition.
We have no further questions at this time. I turn the call back to presenters for closing remarks.
Well, I'd like to thank everyone for joining us today. It's been a challenging year, but we're very proud of what our team has been able to produce and how we've been able to look after not only our employees, but our customers. We look forward to speaking with you again in May with our first quarter results. Stay safe, and have a great day.
This concludes today's conference call. You may now disconnect.